Why Pacira Pharmaceuticals, Inc. Shares Jumped

Pacira Pharmaceuticals shares jump for an unlikely reason, but here's what shareholders should really be watching.

Sean Williams
Sean Williams
Apr 9, 2014 at 1:23PM
Health Care

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Pacira Pharmaceuticals (NASDAQ:PCRX), a biopharmaceutical company developing therapies that are used in a hospital or ambulatory setting, jumped as much as 11% after announcing the pricing of a common stock offering after the closing bell last night.

So what: According to Pacira Pharmaceuticals' press release, the company will price 1.6 million common shares of its stock at $64 each in the hope of raising $96 million in gross proceeds. As per the norm, underwriters of the deal have the option to purchase up to 240,000 additional shares, and Pacira anticipates the deal closing by next Monday. The offering announcement comes just two days after the company entered into a strategic co-production partnership with U.K.-based pharmaceutical service company Patheon to manufacture and package Exparel, its FDA-approved single-dose therapy designed to produce postsurgical analgesia in a surgical site. Less than two weeks ago, Pacira announced an expansion to its manufacturing capacity in the States as well.

Now what: Under normal circumstances, you'd usually see a company get throttled after it announces a common stock offering because of the fear of dilution, but today's minimal dip in the offering price from yesterday's close signifies to me that there was quite a bit of demand for Pacira's shares. With this offering coming on the heels of its expanded manufacturing capacity, shareholders are only left to infer that Pacira expects sales of Exparel to take off.

As for me, with peak sales estimates widely ranging but hovering just shy of $600 million, I don't believe there's a lot of upside wiggle room left in shares of Pacira. Yes, sales of the drug are set to explode higher over the next two years, but Pacira has also missed on its bottom line in three of the past four quarters, which doesn't exactly inspire a lot of confidence. I'd suggest sticking to the sidelines here until we see a very sizable pullback.