Pacira BioSciences, Inc.
Q1 2018 Earnings Call Transcript

Published: 3 May 2018

[Operator:]

Good day, ladies and gentlemen and welcome to the Q1 2018 Pacira Pharmaceuticals, Inc. Conference Call. Currently at this time all participants are in a listen-only mode. Later we will conduct a question and answer session and instructions will follow at that time. (00

[Susan Mesco:]

Thank you, Dylan (00

[David Stack:]

Thanks, Susan. Good morning everyone and thanks for joining. 2018 is off to a terrific start. We reported strong top-line sales growth of 9% for the first quarter with monthly sales volumes increasing from 6% growth in January to over 15% in March. It is important to note that Q1 is historically our weakest annual revenue quarter. We secured FDA approval of EXPAREL as an interscalene brachial plexus block for upper extremity surgeries and launch is underway. We continue to have collaborative and productive meetings with policymakers in Washington as recently as this week who we believe now have the information required to provide opioid-sparing opportunities to address the public health emergency and Opioid Commission Report, specifically Recommendation Number 19 in that report. And our partnership with the Johnson & Johnson continues to flourish with a record high number of accounts actively ordering EXPAREL. As the only opioid-free long-acting local analgesic approved for infiltration and nerve block for post-surgical pain, EXPAREL has become the dominant platform for multi-modal durable pain management and is uniquely positioned as a critical component in reducing the role of the operating room as a primary unintended gateway to opioid misuse and abuse. As we've done on our prior calls, I'll focus my remarks today on three strategic priorities which we had previously outlined for the investor community. First, expanding the use of EXPAREL in key surgical settings through new clinical data and enhanced recovery after surgery or ERAS protocols from influential academic medical centers. Second, driving education and awareness around the need for opioid-sparing solutions within and outside of the operating room. And third, partnerships and collaborations with organizations who share our commitment to reducing or in some cases eliminating opioids in the post-surgical setting. Let's begin with the expansion of EXPAREL into nerve block. Last month we were thrilled to announce FDA approval of our supplemental new drug application of EXPAREL as a nerve block to produce regional analgesia. This approval was based on highly statistically significant results from our Phase 3 placebo-controlled study in patients undergoing total shoulder arthroplasty or rotator cuff repair. Patients who received EXPAREL consumed 78% fewer opioids while experiencing significantly less pain. To repeat, a p-value for improved pain control with a 78% reduction in opioids. In addition, 13% of EXPAREL patients were opioid-free through 48 hours versus only 1% for the placebo, demonstrating the durability of pain relief provided by EXPAREL. With this label expansion, EXPAREL is now the first, long-acting, single-shot, nerve block available for patients undergoing highly painful procedures such as rotator cuff repair. We believe that our existing physician relationships as well as our already expanded sales and medical teams, provide us with the opportunity to work with the anesthesia community to afford all patients of improved access to EXPAREL for this and for future indications. As we discussed on our last conference call, the expanded label creates a significant opportunity. There are roughly 1 million shoulder procedures performed annually in the United States, and brachial plexus blocks are emerging as the mainstay of post-surgical pain control. We expect our upper extremity procedures to make up more than 60% of the total EXPAREL nerve blocks within the next two years. In just the first few weeks of our nerve block launch, the market enthusiasm is palpable and we've already seen 38% increase in sales of the 10 mL vial, compared to a 13-week historical benchmark. Within days of approval, a meaningful number of anesthesiologists quickly engaged with our team to secure clinical information and many are using EXPAREL nerve blocks as an integral part of their daily routine. We have also worked with many new EXPAREL customers in both hospital and ambulatory care environments to expand the opportunity to achieve our mission to provide an opiate alternative to as many patients as possible. Each day, we are receiving inbound examples of success stories from across the country where opioids have been dramatically reduced or even eliminated when EXPAREL brachial plexus blocks are administered as part of a multi-modal, regional analgesia approach. Importantly, the feedback from the market is what we saw in our clinical program. 3 to 4 days of pain control for rotator cuff repair, what most view as the most painful surgical procedure and patients are able to avoid the use of opioids and manage their pain only using TYLENOL. Recently, we had an opportunity to highlight the benefits of EXPAREL administered as a single-shot brachial plexus block with two prominent medical societies. At the meeting of the American Society of Regional Anesthesia and Pain Medicine, we experienced an overwhelming level of engagement and enthusiasm. Anesthesiologists, the key gatekeepers of pain management strategies, show tremendous interest in simplifying their approach to patient pain relief and have expressed a strong desire to eliminate and replace cumbersome delivery technologies like pumps and catheters, replacing these antiquated technologies with a single, long-acting EXPAREL nerve block to turn off pain at the surgical site. And, at the New York Society for Regional Analgesia, or NYSORA (sic) [New York School of Regional Anesthesia] (00

[Richard E. Scranton:]

Thanks, Dave, and good morning to all joining today's call. After successfully securing approval of EXPAREL as a brachial plexus block, the clinical and regulatory teams are now shifting to several exciting new priorities. I'd like to start with pediatrics, where we had made considerable progress. We recently met with the FDA and solidified our pathway for developing EXPAREL for pediatric patients aged six and over into our label. We're excited about this program as there are limited options for managing severe post-surgical pain for this vulnerable population who urgently need opioid-free options. This is particularly true for children aged 6 to 12 years who do not have any other local anesthetic options that have been approved for use by the FDA. We have already initiated a pharmacokinetic and safety study to support the use of EXPAREL in children 12 to 16 years of age who are undergoing corrective spine surgery. And we are rapidly implementing the recommendations from the FDA for an extended PK and safety study that will include children 6 to 16 years of age who are undergoing cardiovascular or spine surgeries. These painful procedures are ideal for EXPAREL to provide analgesia via a long-lasting field block to manage pain and reduce the need for opioids. Our submission will also include an extensive package of real-world evidence from the Cleveland Clinic and the Premier database for several surgical procedures in patients under 18 years of age. Next, let's move to our Phase 4 caesarian section study. We continue to see great interest in this program from both patients and healthcare providers where there is a key need for a non-opioid alternative for new mothers and their babies following this common surgical procedure. The study is rolling on track and we look forward to reporting top-line data later this year. Also, based on positive feedback from our investigators about the need to reduce the use of opioids after C-section, we are designing a follow-on study that will use patient-reported outcomes to measure the benefits of using EXPAREL in C-section, while reducing the need for opioids administered via an epidural. We have also finalized our plans for clinical studies in hip fracture and spine surgeries. These studies incorporate inputs from our colleagues at JNJ and remain on track to launch later this year. We continue to see positive outcomes for EXPAREL in colorectal and breast reconstruction procedures as part of ERAS protocols at centers of excellence. With an established best-practice technique, our strategy is to invest in training around these ERAS protocols and to collect the data prospectively on standard of care without EXPAREL compared to an EXPAREL-based ERAS. We believe this will provide us with the necessary and appropriate comparative real-world data without the cost and lengthy timelines associated with conducting randomized, controlled studies that are not required to drive EXPAREL adoption in these important on-label indications. Turning to Europe, as Dave mentioned, the team is preparing to file Marketing Authorization Application seeking EXPAREL approval for local analgesia via a field block and regional analgesia via a peripheral nerve block. We will also incorporate local experience into our filing from a study in TKA that is now underway at the University of Cambridge. This study is being funded by the UK National Institute of Health Research. I'll finish by briefly touching on the early stage pipeline. We are preparing to launch a Phase 1 study of DepoMeloxicam, a long-acting, non-steroidal designed to treat moderate to severe pain as part of a non-opioid, multi-modal regimen. We will use this data from this study to make a go/no-go decision for a Phase 3 by the end of this year. We also have several DepoFoam-based products in preclinical development, while at the same time we are evaluating in-licensing opportunities. Our focus is clinical stage assets that are complementary to our EXPAREL commercial focus and customer base. With that I'll turn the call over to Charlie to walk through our financial results. Charlie?

[Charles A. Reinhart III:]

Thank you, Rich, and good morning, everyone. Before I walk through the first quarter financial results I'd like to remind you that we will be discussing non-GAAP financial measures this morning. The press release we issued this morning includes a description of these metrics and why we believe they provide additional insights into the financial aspects of our business. The press release also includes a reconciliation to GAAP for these measures. Overall, we had a great quarter. Net product sales of EXPAREL increased by 9% to $74 million for the first quarter of 2018 compared to $67.7 million in 2017. During the first quarter, we continue to see an increase in EXPAREL demand in both new accounts and existing accounts. We believe this is driven by the successful execution of our three-part EXPAREL growth strategy that Dave just described. Our non-GAAP gross margin for the first quarter of 2018 was 71% versus 67% for the first quarter of last year. Our first quarter 2017 gross margin was unfavorably impacted by the cost of several discarded lots of DepoCyt(e). As you may recall, we discontinued the manufacture of DepoCyt(e) in June 2017. Non-GAAP research and development expenses decreased to $13.7 million for the first quarter of 2018 versus $16 million for the first quarter of last year. The decrease in R&D was largely driven by the completion of our Phase 3 studies in nerve block. Our non-GAAP selling, general and administrative expenses were relatively flat, coming in at $37.7 million in the first quarter of 2018, compared with $36.8 million for the first quarter of last year. All of this resulted in non-GAAP net income of $900,000 or $0.02 per basic and diluted share for the first quarter of 2018, compared with a non-GAAP net loss of $7.3 million or $0.19 per basic and diluted share for the first quarter of last year. Lastly, our cash position remains strong and we ended the quarter with approximately $361.5 million in cash, cash equivalents, and short- and long-term investments. Looking ahead, I am pleased to report that we remain on track to deliver on the financial guidance we provided on our fourth quarter call in February. As Dave discussed, we are very pleased with the sales trends we are now seeing and remain highly confident that sales will continue to accelerate throughout 2018. Specifically, the key drivers for growth include our JNJ partnership, the launch of EXPAREL for brachial plexus nerve block, positive shifts in reimbursement practices, and the expanded use of EXPAREL in the ambulatory setting. While we are excited by the momentum we are seeing thus far in 2018, with strong trends in monthly sales volumes through April, we are awaiting more visibility around the magnitude and timing of the impacts of the nerve block launch and other key growth drivers before making specific changes to our financial guidance. Consequently, we feel very comfortable reiterating the following financial guidance

[David Stack:]

Thanks, Charlie. In closing, 2018 is off to a great start and we believe Pacira is well-positioned for continued success. By year-end, we look forward to achieving many important value-creating milestones, including achieving a highly successful launch of EXPAREL as a brachial plexus nerve block for regional analgesia, achieving our full-year EXPAREL sales guidance, completing the C-section study, and reporting top-line results, launching additional on-label clinical studies in hip fracture and spine, securing separate reimbursement for EXPAREL for both public and private payers, broadening national education and awareness around non-opioid alternatives for post-surgical pain management through our Choices Matter campaign, and forming new collaborations with healthcare providers and payers who share our passion for improving patient care through opioid minimization strategies. And with that, I'd like to turn the call over to Dylan to begin our Q&A session. Dylan?

[Operator:]

Thank you, sir. Our first question comes from Randall Stanicky of RBC Capital Markets. Your question, please.

[Ashley Ryu:]

Hi, good morning. This is Ashley Ryu for Randall. Charlie, you've talked about early enthusiasm for nerve block and I know it's early and you touched upon why you haven't raised guidance to be more conservative. But I think during the sNDA kind of update call, I think Dave said something along the lines of like stay tuned for 1Q around guidance. Is there anything that you've seen thus far that makes you maybe a little bit less confident around nerve block? Or why wouldn't you raise, just given kind of what was said about a month ago?

[Charles A. Reinhart III:]

Well, on the contrary, I don't think there's anything that we've seen in actual results that gives us pause. Frankly, I think it gives us confidence around our financial guidance. The question is really that of timing and when do we know enough to know when the right change to guidance would be. And at this point, we're a couple weeks into an important product launch and all of the early indicators are quite positive. But I don't know how to put that into a dollar figure at this point and so once we are more confident of that, we'll do that.

[Ashley Ryu:]

Got it. And just following up on the regulatory side, you guys have a lot of updates coming up with both the CMS J code update and obviously you guys are working through the House draft bill as well. What are your expectations around kind of the likelihood for a positive outcome for both and just if you can provide more of an update on how you see the J code kind of shaking out?

[David Stack:]

I think we're – well, first, thanks Ashley, for the question. I mean, we're highly engaged with all of the appropriate people in D.C., as a matter of fact, I was there most of the day yesterday. And I think we are as well-positioned as we could possibly be both with the policymakers at HHS and CMS, where we have a very good relationship. There is real interest in improving patient care and providing a non-opioid alternative to their constituents, as well as on the legislative side, both with Energy and Commerce and with Ways and Means. And so I think we're positioned well. There's a lot of moving parts actually down there and for me to tell you what I think is going to happen, I think, it doesn't make a lot of – it just – it's what I think and I think we've done everything we can do. I think there's a great appetite in D.C. to solve this problem in one way or another and they've got a number of different alternatives that they could take. We believe that we will be part of any or all of those. And so we're in a good spot from our perspective.

[Ashley Ryu:]

Got it. Thank you so much.

[David Stack:]

Thank you, Ashley.

[Operator:]

Thank you. Our next question comes from David Amsellem of Piper Jaffray. Your question please.

[David A. Amsellem:]

Thanks. So I wanted to ask a long-term oriented question on the competitive landscape and specifically wanted to get your thoughts on other long-acting non-opioid modalities, specifically Heron's HTX-011. And just give me your general sense, Dave, on how you see the competitive dynamic shaking out in terms of your respective role in the marketplace versus Heron's and whether or not you see EXPAREL carving out certain niche areas and Heron carving out other niche areas. I just wanted to get your sense of how the competitive dynamics longer term will shake out in your view. Thanks.

[David Stack:]

Thanks, David. That's a very broad question, as I'm sure you're aware. Let me just start out by saying that if you read the ASRA papers they make a comment that I think is very interesting from a clinicians and a healthcare provider's point of view when they phrase EXPAREL as being physiologically appropriate for use across a broad range of surgical settings. You can see that this product can be used intrathecally, it can be used in all kinds of different ways by the physician community and we believe that that is very much distinctive to EXPAREL as it relates to nerve toxicity and muscle toxicity, et cetera. I think we're in a great spot. We've got a nerve block label, focus back on my comment 30 seconds ago, on what that might mean to us and might not be available (00

[David A. Amsellem:]

Okay. That's helpful. Thank you.

[David Stack:]

Thanks.

[Operator:]

Thank you. Our next question comes from Dana Flanders of Goldman Sachs. Please go ahead.

[Dana Flanders:]

Hi. Thank you very much for the questions. My first here, just as we try to think about the potential impact of a J code change, can you remind us just how many of the overall surgical procedures that you are targeting are currently in the outpatient or ambulatory setting? And then, do you have a sense of just what EXPAREL's current split is for outpatient versus inpatient and just where that can go over time? And then I have a quick follow-up.

[David Stack:]

Yeah. And as I've said a bunch of times, Dana, the data is imperfect. The way we receive data, we can't separate hospital outpatient departments from hospitals because of the same physical pharmacy is making the purchases. What we can tell you is that if you look at purely ambulatory surgeries owned by physicians or not hospital-related, it's about 10% of our business. Let me go in a slightly different direction and I may be able to answer your question with a little bit better information. If you look at CMS patients, or patients who are over 65, they're about 47% of our business, and – so then about 57% of our business is commercial payers and not Medicare, for example. Few of those are treated on an outpatient basis today because of the lack of reimbursement and the fact that the payment for an ambulatory procedure is less than it is for an inpatient procedure. And so it's actually more difficult from a financial perspective for somebody to use these products in a skinnier DRG, if you will, outside the hospital than in. So there is really two ramifications for us to get a J code

[Dana Flanders:]

No, no, it does. That's very helpful. Thank you. And my quick follow-up just on the global opportunity for EXPAREL. I know it's something that you mentioned in this call as well as before. Can you just help frame just how you are thinking about that? I think you mentioned you're preparing a European filing. Are there any regions there that make the most sense to target? And how we should just think about the timing and just magnitude of when that could come on? Thank you.

[David Stack:]

Yeah. Thanks, again, Dana. We've got term sheets for a number of territories and so that's why we have some confidence in making the statement that there will be some announcements over the next couple of quarters. There's two aspects. One is protecting your borders, so you'd be interested in a Canadian relationship, for example. And then the big markets are in Europe and China and there is some discussions with the rest of the world, in Latin America and Japan, et cetera. If your question specifically about Europe is whether you would carve out specific territories, we're going to file a pan-European application and we're doing that ourselves because we think the people that are in the best position to have these discussions with the regulators, at least at the current time, are us. And we also wanted to wait until we had the nerve block approval, so that we could make the European application for both infiltration and nerve block, which is what they asked us to do, frankly. So I don't think – we are not going to discriminate in terms of the regulatory approval process on where the product is launched in the territories, but I think that will be dependent on who we end up with as a partner. And maybe we should have started here that our intention, our strategy here is not to do this ourselves unless there is some M&A opportunity that provides us with some commercial expertise in Europe that we do intend still to have a partner but we think we're in much better shape once we have late-stage discussions with the regulators and with our rapporteur about an approval. And then the big goal is China where just – China's just big period. But there is great interest there in opioid-sparing going all the way back to the opioid wars (00

[Dana Flanders:]

Thank you.

[David Stack:]

Thank you.

[Operator:]

Thank you. Our next question comes from Chris Schott of JPMorgan. Your question, please.

[Unknown Speaker:]

Hi. Thank you for taking my question. This is actually Caterina (00

[David Stack:]

Thank you, Caterina (00

[Unknown Speaker:]

Great. Thank you so much.

[David Stack:]

Okay. Thank you.

[Operator:]

Thank you. And our last question comes from Oren Livnat of H. C. Wainwright. Your question, please? Ms. Wainwright (sic) [Mr. Livnat] (00

[David Stack:]

Oren, are you on mute?

[Oren Livnat:]

No. Can you hear me?

[David Stack:]

Okay. Yeah, we can hear you now.

[Oren Livnat:]

Okay. It wasn't on mute. Strange. Thanks. Just a couple questions. Firstly, obviously a lot of eyes are on the reimbursement front, both legislative, I know we're all refreshing this CMS agenda page. And I'm just wondering if you could maybe just give us a little broader perspective on may be what are your multiple mechanisms you've mentioned approaching this? Because, I think, some people think it's all or nothing on legislative, some people think you need this J code or Q-code. Can you talk about just in general, what are your options if you don't show up in the agenda, let's say, for this May meeting? Why do you still have confidence that you'll potentially have other parallel mechanisms to get improved CMS reimbursement? And then I have a follow-up on competitive landscape. Thanks.

[David Stack:]

Yeah. No, the real question on the table, Oren, is the unbundling, right? We could achieve a J code, but if we were still bundled, it wouldn't do us any good because there still wouldn't be a discreet payment. So the way that this unwinds is a unbundling of the four non-opioid treatments only by the way, again, a topic of great discussion yesterday, that you unbundle, and then once it's unbundled then there are a number of different ways that you could achieve a discreet payment for EXPAREL. It doesn't have to be a J code, it could be a Q-code. They could reinstate the C-code of C9290 for 1 milligram of liposomal bupivacaine. There's a whole number of opportunities for CMS to provide a payment scheme. But the key for us is to achieve an unbundling and I think that's widely understood at HHS and CMS as well as both sides of the aisle in the legislative world.

[Oren Livnat:]

So if we don't see – if an agenda posts tomorrow for this meeting, and you're not on there, we shouldn't think that that means you're not going to have potentially dramatically improved reimbursement in the foreseeable future?

[David Stack:]

No. That's exactly correct. There's two strategies here. One is the unbundling and the other is the J code. So we're following through on the J code strategy so that people are educated and there is an opportunity to interact with those people based on the timing of a legislative release (00

[Oren Livnat:]

Great. Thanks. I mean, that's important. Also on the competitive landscape again, you touched on this earlier about the potential different profiles of the product. But just bigger picture, you spent all these years is really learning how these P&T committees work, how I guess hospitals allocate resources internally. And given what you've learned, do you see realistically a place for hospitals to have two different extended release bupivacaine products in use for one kind of procedure, or one kind of indication, and swapping? Or do you think it's much more realistic that given the relatively similar profiles of the product set, it's going to be all or nothing? And that there is maybe a major incumbency advantage there.

[David Stack:]

Well, let me separate the questions if you don't mind. I don't think that we believe that the profiles of the two products are relatively similar. I will answer your question that I think it will be very difficult to have more than one product on the P&T. There is high sensitivity to taking something off before you put something else on. And so I think there is a great value and incumbency in that regard. We also believe that the vast majority of the upper quadrant procedures, for example, are going to be 10 mL vials, where your WAC cost is $170. So I think there's a number of reasons why incumbency could be really important here. But I think at the end of the day, the decision around which products you carry is going to be based on safety in 90% of the cases. And to me that's a no-brainer. There is no – that's just a no-brainer. I'll just leave it there.

[Oren Livnat:]

Thanks. Appreciate it.

[David Stack:]

Thanks.

[Operator:]

Thank you. Our next question comes from David Steinberg of Jefferies. Please go ahead.

[David Michael Steinberg:]

Yeah. Thanks very much. Two questions. First is, I know you haven't really discussed it that much and sort of downplayed it because you had a lot of other things on your plate. But I was just curious if you could give us some color on how the introductions to the oral surgery community is going? And I note you mentioned you're going to expand your sales force and part of that was into the oral and maxillary area, and would that involve sort of reinvigoration and higher level investment into that community? And then just secondly, to follow-up on the ex-U.S. opportunity, I know you talked about filing strategy, some of the countries you're particularly enthused about entering. Curious, could you give us, just from a 20,000-foot view sense of what sort of peak sales opportunity you might be looking at in both the U.S. and Asia? And would reference pricing, particularly in Europe, be a problem given that bupivacaine has been generic for quite a while? Thanks.

[David Stack:]

Yeah. No. Thanks, David. I'll take it in order as best I can, but come back to me if I don't answer your questions. So the purpose of the retail organization is exactly as you outlined. Because of all the opportunities and are (00

[David Michael Steinberg:]

Thank you.

[David Stack:]

Right.

[Operator:]

This concludes our Q&A session. At this time, I'd like to turn the call back to Dave Stack, Chief Executive Officer and Chairman for closing remarks. Please go ahead.

[David Stack:]

Thank you, Dylan. And thank you for your questions and time this morning. We look forward to providing additional updates in the future. And next up for us is the Deutsche Conference in Boston, followed by the Bank of America Conference in Las Vegas. We look forward to seeing you soon. Thanks again.

[Operator:]

Thank you, ladies and gentlemen, for attending today's conference. This concludes the program. You may all disconnect. Good day.