Pacira BioSciences, Inc.
Q4 2018 Earnings Call Transcript

Published: 28 Feb 2019

[Operator:]

Good day, ladies and gentlemen, and welcome to the Q4 2018 Pacira Pharmaceuticals Earnings Conference Call. 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. [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Head of Investor Relations, Susan Mesco. Ms. Mesco, you may begin.

[Susan Mesco:]

Thank you, Josh, and good morning everyone. Welcome to today's conference call to discuss our fourth quarter and year end 2018 financial results. Joining me on today's call are Dave Stack, Chairman and Chief Executive Officer; Dr. Richard Scranton, our Chief Medical Officer; and Charlie Reinhart, our Chief Financial Officer. Before we start, let me remind you that today's call will include forward-looking statements based on current expectations. Such statements represent our judgment as of today and may involve risks and uncertainties. Please refer to our filings with the SEC which are available from the SEC or our website for information concerning the risk factors that could affect the company. With that, I will now turn the call over to Dave Stack.

[David Stack:]

Thank you, Susan. 2018 was an outstanding year for Pacira. We reported record revenues for EXPAREL making us financially stronger than we've ever been. And as we look ahead to 2019 and beyond, we see tremendous growth opportunities for EXPAREL and Pacira before us. As you all know, our country is in the midst of an opioid epidemic with wide ranging effects on patients’ quality of life, and devastating economic and social consequences to our communities. Government, payers and healthcare systems alike are mandating solutions to address the mounting crisis by driving significant change in pain management practices. As the only non-opioid single dose long acting local analgesic approved for infiltration, field block and brachial plexus nerve block, Pacira is uniquely positioned to be at the forefront of the fight to stem the tide of postsurgical opioid misuse and abuse with EXPAREL a comprehensive clinically proven solution for managing pain, while reducing or eliminating opioids. Strategically, we are focused on playing a broader role in the pain management continuum. EXPAREL is on a robust growth trajectory across multiple existing and planned indications. For the solid operating foundation we aim to further evolve our leadership position in providing innovative non-opioid pain management and regenerative health solutions. We believe that we can achieve this goal by leveraging our core competencies to advance three growth pillars. First, the continuing expansion of EXPAREL in key surgical settings. Second, leveraging our DepoFoam platform to rapidly advance new clinical candidates. And third, pursuing innovative partnerships and acquisitions targeting products, assets or technologies that align directly with our strategy and complement our EXPAREL commercial infrastructure and physician audiences. Let me begin with EXPAREL. We are thrilled with the momentum we are seeing and we are well-positioned to deliver robust growth in 2019 with year-over-year net sales expected to increase by at least 20% to $400 million. As we look back at our strong performance in 2018, three key drivers are working synergistically and delivering impressive results. One, the ongoing integration of EXPAREL is the foundation of opioids varying pain management protocols, and influential academic centers of excellence, as well as leading healthcare organizations such as MEDNAX, a national medical group comprised of more than 4,000 healthcare professionals. Two, the nerve block launch, this is triggered at growing level of engagement and enthusiasm from anesthesiologists. Anesthesia is at the forefront of innovation for the non-opioid postsurgical pain management through regional approaches that utilize peripheral nerve blocks and field blocks as the core of a multimodal strategy. And three, our significant partnership with Johnson & Johnson, which continues to support uptake by integrating EXPAREL across its world class educational programs and orthopedic procedural solutions. Taking a closer look, Enhanced Recovery After Surgery or ERAS protocols are becoming the gold standard for perioperative care. These patient-centered opioid-sparing approaches improve patient recovery, while reducing complications and costs. They typically involve a multi-disciplinary team that is often led by our regional anesthesiologists. Together, they develop and implement a standardized approach by surgical specialty or procedure to improve the patients’ post-surgical experience and facilitate a faster recovery. Our partnership with MEDNAX is a great example of how we are expanding the role of EXPAREL as the core of procedure-specific ERAS protocols. We are working with the MEDNAX team of maternal-fetal specialists, anesthesiologists, obstetricians and perioperative nurses to implement an innovative platform for cesarean sections that features EXPAREL as a transversus abdominis plane or TAP block for targeted long lasting opioid-free pain management. A TAP involves an infiltration field block with EXPAREL expanded in volume with saline into the plane between the internal oblique muscle and the transversus abdominal muscle using ultrasound guidance. Through this collaborative we are breaking new ground in terms of how we are interacting with our anesthesia customers. We are also initiating a national ERAS educational initiative where hospitals will be certified as ERAS Centers of Excellence. More on this in the next couple of months. These programs are driving interest from national practice management and consulting companies to implement comparative collaborative with Pacira. We're excited to be establishing ourselves as the go-to-partner for building out successful ERAS protocol and opioid minimization strategies for best practice inpatient and ambulatory procedures. Our field-based team continues to see a high level of engagement and enthusiasm from the anesthesia community and they are reporting daily wins within the space. Of note, we remain squarely in a launch mode for brachial plexus nerve block. We are seeing strong and steady growth in the size of our active customer base with nearly 1,000 new accounts added since launching the nerve block indication. So we see great upside, as regional approaches become more widely accepted by anesthesiologists, surgeons, patients and administrators. The literature continues to feature the benefits of regional nerve blocks and field blocks, along with a multimodal regimen for eliminating pain during and after surgery. With the single-dose long-acting EXPAREL block, analgesia is being targeted directly at the region of pain and providing days of pain relief, while eliminating use of cumbersome and costly delivery technologies like catheters and pumps. Most importantly, EXPAREL provides a clinically proven statistically significant improvement in pain control, while avoiding opioid use in preventing side effects such as nausea, vomiting, urinary retention, and delirium, and resulting in reduced length of stay, decreased costs, fewer postoperative complications and improved patient satisfaction. Finally, to come full circle, we're observing the successful experiences with brachial plexus nerve block, are triggering anesthesiologists to expand their use to regional field blocks such as TAP which can be used across -- which can be used broadly across multiple soft tissue surgeries including bariatric colorectal C-Section and hysterectomy procedures. For C-Section, we recently announced positive top-line results from our Phase 4 study that compare to TAP block with EXPAREL to a TAP block with bupivacaine. EXPAREL achieved a statistically significant reduction in total post-surgical opioid consumption and pain intensity scores through 72 hours with a P value of less than 0.05. The study has been submitted for presentation at the Annual Meeting of the Society of Obstetric Anesthesia & Perinatology or SOAP and we plan to submit the full study results for publication and a peer-reviewed medical literature later this year. Finally on the EXPAREL front, our important partnership with Johnson & Johnson continues to drive uptake through our mutual shared passion for delivering opioid-sparing procedural solutions and of course J&J's tremendous commercial and medical reach. The J&J team has marshaled substantial resources behind EXPAREL, including integrating EXPAREL across their world class educational programs which attract thousands of healthcare providers and including EXPAREL as a key component of J&J's non-opioid procedural solutions for widely carried out orthopedic procedures such as rotator cuff, spine and hip fractures. Looking ahead, EXPAREL is in terrific shape for 2019. We are focused on building on our 2018 success by driving multiple growth opportunities, including using EXPAREL as a catalyst for shifting inpatient procedures to the outpatient setting. As you may recall, on January 1st, the Centers for Medicare and Medicaid Services or CMS began providing separate Medicare reimbursement for EXPAREL when used in an ambulatory surgical center or ASC. Through the product-specific billing code of C9290, this code provides payment for EXPAREL at $1.22 per milligram and sets national Medicare reimbursement rates. This reimbursement code provides us with a crucial element to expanding the use of EXPAREL in the ambulatory setting. Last year, ASCs made up roughly 10% of our business, and that was without reimbursement. Consequently, we see significant growth opportunity here and our team is working with commercial payers to follow Medicare's lead and reimburse for this effective non-opioid option. In parallel, the American Dental Association also implemented a new reimbursement code which took effect on January 1st for infiltration of a sustained release therapeutic drug in oral surgery procedures. Many teens and young adults are exposed to opioids for the first time following wisdom tooth extraction. So having access to non-opioid -- to a non-opioid option like EXPAREL is critical for these vulnerable populations. We are seeing a high level of engagement from dental payers with Aetna, a large national dental payer, as well as regional payers like a Dominion National and even Connecticut Medicaid Dental Plan covering the use of EXPAREL for oral maxillofacial procedures. While it’s still early days, the leading indicators around these positive reimbursement changes are highly favorable with ambulatory and oral surgery centers, both key drivers of EXPAREL new business. The last slide I might quickly cover on the reimbursement landscape is the December report issued by the Department of Health and Human Services Pain Management Taskforce. The report recommends the use of non-opioids as first line therapy whenever possible in both in and outpatient settings. This report is now in the 90-day public comment period, after which the taskforce will finalize their guidance and submit it to Congress. Turning now to our second pillar of growth, leveraging the proven safety, flexibility and customized ability of our DepoFoam technology for acute, sub-acute and chronic pain applications. The current opioid crisis was triggered by a pain epidemic. Eliminating opioids will not address the significant unmet need for new tools and strategic approaches for managing pain. Following readouts from preclinical and feasibility studies, we have selected two DepoFoam-based programs to rapidly advance into the clinic. First, the intrathecal or subarachnoid delivery of a DepoFoam-based local anesthetic, other than bupivacaine for acute and chronic pain. Here we have the opportunity to provide an alternative to the use of intrathecal or subarachnoid opioids typically delivered by pumps and catheters. We have substantial experience with the technology here as the DepoFoam technology was used successfully in the intrathecal setting for more than 15 years in connection with our previously marketed product DepoCyt or cytarabine for lymphomatous meningitis. The second clinical compound we have selected is Depo-dexmedetomidine. With this product, we see a targeted market as the end of life pain and painful conditions in the elderly. Dexmedetomidine has complementary analgesic and sedative properties with fewer neurocognitive effects versus other sedatives. It has also demonstrated opioid-sparing effects and reduced delirium in the elderly. We believe the extended delivery of a therapeutic dose of dexmedetomidine has the potential to offer patients mental acuity and quality of life, while also providing adequate pain control. As for DepoMeloxicam, we have made a strategic decision to no longer invest in this clinical program given the current competitive landscape with oral formulations in the clinic for similar therapeutic uses. Finally, let's move on to our third pillar of growth, evolving our leadership and providing innovative non-opioid and regenerative health solutions. As we’ve discussed previously, we see a vast opportunity in building a differentiated non-opioid portfolio focused on improving the patient journey along the neural pathway. We are thoughtfully pursuing innovative opportunities in osteoarthritis, orthopedic surgery and additional products and technologies that are highly complementary to EXPAREL and of great interest to the surgical and anesthesia audiences we are calling on today. To take osteoarthritis as an example, the average time from onset of osteoarthritis pain to knee replacement surgery is roughly 19 years in the United States. There are tremendous opportunities for us to provide patients with non-opioid and regenerative solutions along the pain treatment continuum, well in advance of the surgical intervention. In the case of spine, we aim to provide patients with several months of non-opioid pain control to allow them to present a surgery opioid free. We believe we can greatly enhance our full surgical experience and outcomes with this pre-debilitation approach. We are well-positioned to partner -- to be the partner of choice, given our financial strength, deep clinical and commercial expertise in the hospital and ambulatory markets, significant partnership network and proven track record for improving market access to opioid-sparing strategies. As we look ahead, we remain committed to executing our strategy and advancing our mission for providing an opioid alternative to as many patients as possible. With that overview, I'll turn the call over to Rich to provide an update on our clinical and regulatory activities. Rich?

[Richard Scranton:]

Thanks, Dave. And good morning to all joining today's call. Over the last several months, we continued to make great progress executing on our commercial, clinical and regulatory strategies. Given EXPAREL’s established efficacy and excellent safety profile, we're seeing strong expansion among surgeons and anesthesiologists. I'm happy to report that EXPAREL has now been used in more than 5 million patients since its approval. On the clinical front, we are advancing a number of initiatives to support its use across key surgical settings and within new indications. I'll start with pediatrics, which is arguably the surgical population most vulnerable to opioid’s adverse side effects, and where there's an urgent need for opioid-free options to manage postsurgical pain. This is particularly true for children six to 12 years of age where the only FDA approved options for managing moderate to severe pain today is through the use of opioids, which we know are wrought with unwanted and potentially life threatening side effects. We have seen tremendous interest in our pediatric study or the PLAY study which is now underway. This interest is not surprising given the limited number of options available in the pediatric setting. Adding pediatrics to the extra label to provide our youngest patients with the benefit of a low or no opioid postsurgical recovery experience is a top priority at Pacira. The PLAY study is Phase 3 extended PK safety study in children undergoing cardiovascular or spine surgery. The study will enroll approximately 90 patients and evaluate the pharmokinetics and safety of EXPAREL for two patient groups

[Charles Reinhart:]

Thank you and good morning everyone. I'll start by summarizing our 2018 financial results and then walk through our outlook for 2019. To remind you, I will be discussing non-GAAP financial measures this morning. A description of these metrics along with our reconciliation to GAAP can be found in the news release we issued this morning. We ended 2018 in a very strong financial position. With $409 million in cash and investments and significant cash flow from operations, we are well-positioned to advance our evolution into a leading provider of non-opioid pain management and regenerative health solutions. On the P&L side, we have significant operating leverage with rapidly growing top-line and we are supporting with only modest increases in operating expenses. EXPAREL net product sales were $94.4 million for the fourth quarter and $331.1 million for the year, which was above our guided range of $325 million to $330 million. Our non-GAAP gross margin was 76% for the fourth quarter and 75% for the full year. This full year gross margin was in line with our guided range of 74% to 75%. Non-GAAP research and development expenses were $13 million for the fourth quarter and $51.8 million for the year. This was at the lower end of our guided range of $50 million to $60 million. The $2.2 million decrease in our full year R&D expense for 2018 versus 2017 was largely due to the completion of our Phase 3 studies in nerve block which were partially offset by increased product development costs related to the scale up of our manufacturing capacity in the UK. Our non-GAAP selling, general and administrative expenses were $38.7 million for the fourth quarter and $154 million for the year. This was within our whole year guided range of $150 million to $160 million due to the modestly lower spending across a number of functions. The $15.3 million increase in our full year SG&A expense for 2018 versus 2017 was primarily driven by the following

[Operator:]

Thank you. [Operator Instructions]. Our first question comes from Randall Stanicky of RBC Capital Markets. You may proceed with your question.

[Ashley Ryu:]

This is Ashley Ryu on for Randall. I was just wondering if you could talk a little bit about the moving pieces to your guidance. So at the midpoint, it looks like it implies over 22% year-over-year EXPAREL revenue growth. How much of an impact does this anticipate from potential competitive approval versus kind of the growth drivers like ASC unbundling and nerve block and some of kind of largest form factors that we should be thinking about? And just to clarify, does the low-end of your guidance is also include HTX-011 entry in July and how much impact does it conclude?

[David Stack:]

So we have tremendous momentum in the marketplace. And frankly, we have a waterfall that leads from all of the initiatives that we have in place. And the growth that we see associated with those initiatives in the marketplace. And when you add all of that stuff together, we still only have a modest percentage of the total opportunity that's available to EXPAREL. So our forecast is driven by what we see for EXPAREL and frankly doesn't really anticipate any negative impact from what we're seeing on the other side of the aisle. This is a EXPAREL forecast of $400 million to $410 million and we think we can achieve that with or without a competitor.

[Ashley Ryu:]

And then it sounds like there's an increasing focus on building up the pipeline and potential for business development to augment this. But how much urgency is there? So you've mentioned potential for business development in the past and Dave, I think about a year ago, you said that you didn't see any transformational deals that you thought would be appropriate. Has that view changed and if not transformational, are you seeing a robust set of smaller episodes there where valuations are making sense now?

[David Stack:]

We don't see the need for a transformational M&A activity. I mean the business is very strong, it’s profitable. I mean we're doing extraordinarily well. And really becoming leaders of the entire focus that’s being driven by the opioid epidemic with ERAS protocols, all of the academic centers that have got pipeline programs that are geared at the opioid epidemic. So there's really no reason for us to be looking for anything that's transformative. We have more than a robust opportunity from business development. Our folks have looked at well over 250 opportunities in the last couple of years. What we're really focused on is, are things that can improve surgeons and anesthesiologists opportunity to provide opioid-sparing solutions and what we're really moving our focus towards is procedural solutions. So we would like to have the opportunity to go in and talk to someone about end-to-end how you treat a patient and how we bring them into surgery and out of surgery, without or with the requirement from opioids and all of the expense and all of the dissatisfaction from patients during the time of surgery. And then, of course, leading to the nearly 3 million patients, who become persistent users of opioids every year because of their interaction with opioids in the acute postsurgical setting. So we are flushed with opportunities, and we look forward to telling you about those things as we go forward.

[Operator:]

And our next question comes from David Amsellem from Piper Jaffray. You may proceed with your question.

[David Amsellem:]

Just a couple. Can you talk about the sales mix or volume mix of growth between inpatient, outpatient and ambulatory surgical centers for EXPAREL. Where it is now and given the coding, where it's going to be say at the end of the year? So that's number one. And then number two, regarding the competitive landscape, so as the competitor product enters the market, do you envision any kind of scenario where a P&T committee would have both products on their formulary? Or would you basically look at it as a zero-sum game as it relates to hospital formulary access for the two products? Thanks.

[David Stack:]

Thanks, David. First, we said in the prepared remarks, so if you back out places where like for example plastics, which is a cash market, so really reimbursement doesn't have much to do with that. If you look at our 2018 numbers, our best estimate is that about 10% of our business last year was actually coming from hospital procedures that would have been done in the hospital, but are now moving to an outpatient environment largely driven by the payers themselves, frankly. And so, we see that as a massive opportunity for EXPAREL to go forward. With that said, this stuff doesn't happen overnight. I mean CMS coding and working with all of the folks who have to manage the businesses and require protocols and all of that will take some time. We see 2019 as an important year and our waterfall calls for multiples of that $10 million to be achieved with EXPAREL in an outpatient environment this year, but we really see that as setting the stage for much more aggressive growth in the period going forward. So -- and we're seeing that David. We're seeing payers lineup and we're having very significant discussions with large national payers not only around specific procedures that they would like to see move to the outpatient environment, but how do we train their people and more than one at a time, how do we treat, how do we prepare an ERAS protocol that can be instituted throughout an entire ambulatory payer system. So we have great plans for ambulatory setting going forward. In terms of the competitive entry, we don't really know what the label is going to read. It will be hard for a pharmacist to justify having another product on formulary if it doesn't have broad application. And so I think we'll have to wait until we see what kind of indication comes with a competitor and then you’d see whether they really have any opportunity to compete with a product that has the broad label for infiltration, field blocks and then nerve blocks. And so I would have to say wait and see. But I think it's going to be highly unusual for a pharmacist or a hospital institution to carry more than one.

[David Amsellem:]

Okay. Just clarification, so you said 10% of your 2018 business was in hospital procedures that are now moving to outpatient, is that correct? And then when you mean outpatient you mean ambulatory centers, not hospital outpatient?

[David Stack:]

No, that's right, David, I'm sorry. Yes. So what's going on in the marketplace, right, is, we're segmenting the market to the procedures and knee is a good example, right? Knee inpatient, five years ago that would have been very rare that you would have had an outpatient knee, right? Now it’s relatively common place, we think something like 20% of the patients will be done in an ambulatory environment this year, and we also expect that next year CMS will allow for outpatient knees. And so you see the way the marketplace is moving and our strategic discussions with the payers is about which procedures are we ready to move to an outpatient environment? What is the -- what's the driver of that in terms of patient satisfaction, physicians wanting to be in the ambulatory environment. And of course, the significant cost savings that a payer can achieve by moving a procedure from an inpatient environment to an outpatient environment.

[Operator:]

And our next question comes from David Steinberg of Jefferies. You may proceed with your question.

[David Steinberg:]

On gross margin, you've had a pretty substantial increase from 2017 to 2018. Last couple of quarters were kind of flattish in the mid-70s and your guidance is also in the mid-70s and I think you said that it will be -- you will get to the mid-80s until you have the new capacity. Should we assume pretty much flat mid-70s until then and could you remind us the timeline until you reach that new capacity? And then secondly, on nerve block. Can you say what the percent in terms of the incremental revenue growth this year over last year? What percent would be from nerve block or could you actually give us the actual percent of the total revenue generated thus far from nerve block packs?

[Charles Reinhart:]

David, this is Charlie, I'll take the first half of that question related to the gross margin side. So as we look forward 2019 as we guided is a little bit better than 2018. I do think that 2020 is likely to be better than 2019. And part of the reason is we just -- we announced recently that the first suite in our new UK manufacturing facility came online officially in Q1. As that suite gets a little more experience and gets higher volumes put through it, it will drive costs down somewhat. So we would expect it. Some of the benefits that we are going to generate from an inventory costing perspective will actually flow through the P&L in 2020. The other point that is probably worth noting is that we recently announced that the shelf life is back to 24 months. That now allows us to build inventory, so that in this year we expect to manufacture to meet those top-line demand and take inventory from the two to three month range back up to what we had been prior, which is roughly six months. And so as we increase volumes, generally that leads to unit cost reductions, but those unit costs reductions will -- much of that will flow into 2020, because it'll be on the balance sheet at the end of '19.

[David Stack:]

Okay. I'll take your second half, David. There is no clear -- there's not a number that would be a specific answer to your question. Let me see if I can explain exactly what's going on in the marketplace and why nerve block is really important above and beyond what you would actually get from a brachial plexus nerve block indication itself. So first, and I know you know this, David, but the observation is that we've had 20% growth from third quarter forward and that is largely being driven by the nerve block procedure. But it's strategically way more important than that, because the brachial plexus nerve block procedure allowed us to have a very specific discussion about appropriate dosing and administration of EXPAREL. How you -- whether you can see it or not under ultrasound guidance, all of the important questions that an anesthesiologist would like to have in the benefit that they gain from having this product in their hands and being able to provide several days of pain control through a brachial plexus nerve block. The reason I frame it that way, David, is what we've seen in the marketplace is that the 10 ml dose for a EXPAREL brachial plexus nerve block has given the anesthesiologist great confidence that EXPAREL indeed does provide several days of pain control when used as a nerve block. And so they've moved fairly rapidly from the 10 ml dose to 20 ml doses associated with field blocks like TAP blocks and PET blocks and fascia iliaca blocks and all the things you've heard Rich talk about. And so we've got a number of situations now where we've seen an ambulatory surgery center by EXPAREL, 10 ml for a brachial plexus block. Within a couple of weeks, they start buying a 20 ml dose which you obviously know then is being used for something more than brachial plexus black. And then a couple of weeks after that we see the hospital in the same geography by EXPAREL for use in the hospital marketplace. So the brachial plexus nerve block indication strategically has been way more important to us than just the revenue that you would get from a brachial plexus nerve block if that makes sense.

[David Steinberg:]

Yes. Got it. Thanks very much.

[David Stack:]

And honestly, David, we're looking at it more as the value of the anesthesiologist as the customer and that's the way we're -- when we're allocating resources, it's real more of a customer-based approach than it is a specific procedure-based approach.

[Operator:]

Thank you. Our next question comes from Liana Moussatos from Wedbush Securities. You may proceed with your question.

[Liana Moussatos:]

Hi, thank you. What is your procedure for choosing new DepoFoam candidates? You mentioned shelving meloxicam and you have two new ones. What's this all procedure in that?

[David Stack:]

So thanks for the question, Liana. The -- let me go backwards, right? So shelving meloxicam comes from the observation that there is some physiological understanding of how meloxicam acts in the body that frankly wasn't fully understood when we started the meloxicam program, but it appears that meloxicam actually sinks in the bursal fluid. And so that observation was married then with the fact that there's a number of oral meloxicam programs on clinicaltrials.gov that give you the suggestion that they can do the same thing with an oral tablet that we can do with an intra-articular injection. And so that obviates our advantage in the marketplace with the DepoFoam based products. So get that out of the way, right? And then the big observation, Liana, is that we have a pain epidemic. We have an opioid epidemic because we have a pain epidemic and when we get rid of opioids, then there's a number of places where we require new tools, and new strategic approaches in order to be able to address the fact that folks don't want to use opioids in these different scenarios. So we start talking to people in the marketplace. We have found folks, who are using next dexmedetomidine for these uses, for end of life scenarios and for elderly, and in some cases -- in scenarios where you do not want to have the delirium with all the things that come with the opioids. And then I'll give you an example with the dexmedetomidine. If you have somebody that's using that drug subcutaneously and giving these patients 100-milli doses on a 5 daily or and every other day basis, you'd say, wait a second we can do that with EXPAREL. We look at places like and we've got some strong evidence now from the use of EXPAREL in chronic pain scenarios, where folks are replacing bupivacaines or any of the caines with pumps and catheters that are delivering drugs intrathecally. And so you start to say we'll wait a second, we can get into the chronic pain market using EXPAREL and animal studies and understanding how a local anesthetic works in an animal model. But if you were us, I think you'd come to the same conclusion that you don't want to be using EXPAREL and putting it into subarachnoid and into intrathecal environments if you have an opportunity to use a drug that might actually offer more potential as a local anesthetic than EXPAREL can in terms of potency or diminished side effects by using an isomer and all of those kinds of things. So these are driven by very close discussions with the marketplace. In most cases, we try to -- they tell us where they would go if they had DepoFoam and all of our ad boards. And then we try to find somebody, who is already doing what we want to do with DepoFoam, but they're using these more awkward approaches, because they don't have access to the same technology that we do. So if you can replace the pump, if you can replace the catheter, if you don't have to give a patient 100 millis of something subcutaneous, if you can give a straight intrathecal injection and it's going to last two weeks like DepoCyt did, those are the places that we're looking and where we think we can really make a difference.

[Liana Moussatos:]

Thank you.

[David Stack:]

And there's more. I mean, we're only starting here. So I think the tools that are going to be required here, Liana, are going to require virtually everybody that works in the pharmaceutical space to really take a hard look at all of this stuff, if we're going to get rid of opioids.

[Operator:]

And our next question comes from Serge Belanger from Needham & Company. You may proceed with your question.

[Serge Belanger:]

First a question on reimbursement in the ASC setting and J code. It's now been two months since the J code took effect. Just wanted to know how that -- how sales have progressed in that setting and whether any payers started reimbursing the product before January 1st?

[David Stack:]

Yes. First, it's a C-code. So it just to be technically correct. So C9290, and the reason that CMS did that is, that is our previous C-code and so they knew that it was already in a number of payers billing systems and so they actually did us a favor and gave us the same code back again, so it didn't have to be changed. Yes, Aetna started a series of pilots in December, and we've had a number of beta centers for other payers, where we've been working with them to understand exactly how that rollout will take place, what the kinks might be, and how we would address those kinks before we got into a broader launch application? Those have gone extraordinarily well. And we see -- it's still early days, 60 days for a national program in the United States is not a longtime at all, but all of the evidence is very positive and we're 100% certain that everything is heading in the right direction.

[Serge Belanger:]

And then on the dental side with the D-code, is that a little slower than what you typically see on with the C or J-code?

[David Stack:]

No, I mean, dental code is sort of an ANIB1. There are mother blogs, there's mom blogs, they talk very aggressively about not having their child be -- having their first interaction with opioids in the dental department. I would tell you that of all of the public citations regarding the ability to go opioid-free and writing up in local newspapers and the national press, et cetera, the majority of those are Dental. And so I think that the dental community has really grasped the need for opioid-sparing and the use of EXPAREL for providing that opportunity with some energy. Now you would know and everybody would know, right, it's a 5-ml per side. So this is never going to replace joints or spine or anything like that, but from a strategic perspective, again, the amount of momentum in the marketplace about the need for no opioids and the fact that we've got families involved now, because their children became addicted to opioids and then moved on to heroin because of the third molar extraction and the complete lack of any logic is to why that would even be a remote possibility that has put a lot of steam behind us in the marketplace and especially with patient advocacy groups.

[Serge Belanger:]

And just one last one for Charlie. In terms of the OpEx guidance, what should we expect in terms of lumpiness, I know there's some investments for the new manufacturing facility and some clinical trial expenses in there?

[Charles Reinhart:]

I missed part of your question. So...

[Serge Belanger:]

How should we think about the quarterly progressions of the OpEx guidance?

[Charles Reinhart:]

So I would break that down into two pieces. Historically, our SG&A expenditures are relatively consistent throughout the quarters. When I say relatively, the only exception is the fees we paid at J&J. So as sales go up in the quarter, so does that, but the rest of our SG&A is pretty flat. Our R&D is more focused on specific activities. So the investment in the 200 leader system is well under way. I suspect that will be relatively flat. And then we get back to the clinical side, and I think that there are enough things going on that there won't be any massive spikes in total clinical spend either, I don't think. So I'm looking for a reasonably consistent total R&D spend as well.

[Operator:]

Thank you. And our next question comes from Gary Nachman of BMO Capital Markets. You may proceed with your question.

[Raphael Yeung:]

Hi, good morning. It's Raphael on for Gary. How large are the opportunities in Europe and Canada, and how would you compare the level of concern around opioid use in those markets relative to the US? And then which of the planned or recently completed Phase IV trials do you view as having the biggest potential to expand EXPAREL views?

[David Stack:]

Thanks for the question, for starters. So generally, across all of the different marketplaces, we figure that Europe is about, I mean, I'm talking about peaks now, right, that you would think that Europe is between 60% and 80% of the peak sales of the United States and the Canada is 8% to 10% of the peak sales of the United States. Canada has a very high on a per patient basis use of opioids. It looks actually very much like the United States and there are significant interactions with surgeons and anesthesiologists from Canada who come to the United States for all the big medical meetings, et cetera. And so there is great interest and we expect that the adoption in those markets will be faster than it was when we launched EXPAREL, because there is so much data out there and because of these folks, many of them went to school in the United States, and so they're actively positioning the regulators to provide access to EXPAREL. Europe is a little bit different. There are at least on the numbers now, you have to take the numbers from Europe with a grain of salt. Those of us that have got significant international experience, the numbers are not quite as reliable in Europe as they are in the United States. And so you have to be a little bit skeptical of the way data is presented there, but there -- this is -- this will not be a pan-European launch. We will be selective and the majority of the opportunity here is in five or six key markets. And at least as we launch, we will go to those five or six key markets. And so if you were thinking over the short haul, that the short-term opportunity is, half the 60% of what you would see as the opportunity in the United States, you'd be in the right ball yard.

[Operator:]

Thank you. And I'm not showing any further questions at this time. I would now like to turn the call back over to Dave Stack, Chairman and CEO, for any closing remarks.

[David Stack:]

Thank you, Josh. Thank you for your questions and time this morning. We look forward to providing additional updates in the future. Next up for us is the Barclays Conference in Miami. We look forward to seeing you all soon. Thanks.

[Operator:]

Thank you. Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program, and you may all disconnect. Everyone have a wonderful day.