Pacira BioSciences, Inc.
Q2 2013 Earnings Call Transcript

Published: 6 Aug 2013

[Analyts:]

David Amsellem – Piper Jaffray & Co. Richard Lau – Wedbush Securities Douglas Tsao – Barclays Capital Thank you for joining Pacira Pharmaceuticals second quarter 2013 financial results conference call. At this time, all participants are in a listen-only mode. Following the formal remarks, Pacira's management team will open the lines for a question-and-answer period. Please be advised that this call is being recorded at the Company's request and will be archived on the Company's website for two weeks from today's date. At this time, I would like to introduce Jessica Cho of Pacira Pharmaceuticals. Please go ahead.

[Jessica Cho:]

Thank you and good morning, everyone. Welcome to Pacira's second-quarter 2013 financial results conference call. Joining me on the call today from Pacira are Dave Stack, President and Chief Executive Officer; and Jim Scibetta, Chief Financial Officer. Before I turn the call over to the management team for their prepared remarks, I would like to remind you that certain remarks made by management during this call about the Company's future expectations, plans, and prospects constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements about the Company's future expectations, plans, and prospects include statements regarding the Company's plans and expectations regarding EXPAREL; the success of our sales and manufacturing efforts in support of the commercialization of EXPAREL; the rate and degree of market acceptance of EXPAREL; the size and growth of the potential markets for EXPAREL and the Company's ability to serve those markets; Pacira's plans to expand the indications of EXPAREL to include nerve block; Pacira's plans to continue to manufacture and provide support services for commercial partners who have licensed DepoCyt; the Company's commercialization and marketing capabilities; and other statements containing the words "beliefs," "anticipates," "plans," "expects," and similar expressions. Any such forward-looking statements are based on assumptions that the Company believes are reasonable, but are subject to a wide range of risks and uncertainties. Actual results may differ materially from those expressed or implied by such forward-looking statements. Many of these and other risks and uncertainties are described in the "Risk Factors" section of Pacira's most recent annual report on Form 10-K for the fiscal year ended December 31, 2012 and in other filings with the SEC, which are available through the investor section of the Pacira website at www.Pacira.com or on the SEC website at www.SEC.gov.

[Dave Stack:]

Thanks, Jessica. Good morning, everyone, and thank you for joining us today. Today we will primarily be discussing, about EXPAREL, our novel treatment for postsurgical pain management, which we launched commercially in the United States in April of 2012. EXPAREL is the first and only long-acting multivascular liposome local anesthetic for use in a peri or post-surgical setting. They utilizes our proprietary DepoFoam technology to improve local analgesia for up to 72 hours with a reduced need for opioids. EXPAREL remains the principal focus for Pacira today, as we continue to deliver on commercial success. We plan to continue to build upon the EXPAREL brand through multiple clinical trials and initiative the use of EXPAREL use among key hospital and ambulatory surgery audiences as well as the expansion of the current label. The second quarter was strong. We reported net sales of $15.2 million for EXPAREL, up 46% from the $10.4 million in the previous quarter. As of the end of the second quarter, 1,435 distinct accounts have ordered EXPAREL since launch, a 35% increase over the prior quarter. In addition, as evidenced of the breadth of adoption of EXPAREL, we now have over a hundred hospitals, which have ordered more than $100,000 worth of EXPAREL since launch; a mile stone achievement in hospital penetration. We recorded 370 new customers in the second quarter finishing the quota with an average of 30 new customers per week. Not only do we continue to build momentum within existing accounts but also and across an increasingly broad range of surgical specialties and hospitals. Our initial launch audience of could he colorectal general and plastic surgeons continue to expand the use of EXPAREL through open surgical and laparoscopic procedures. Abdominal soft tissue procedures saw increase use of EXPAREL through our iTAP initiative. iTAP is short for infiltration into the transfers abdominal plasti, which is done under ultrasound guidance. Importantly this procedure is typically performed by anesthesiologist and other hospital audiences, who contributes to – [browning] market acceptance of the low opioid pain management strategy. Along with anesthesiologist, orthopedic surgeons remain the key driver of formulary approvals in Q2 through the removal of restrictions in hospitals, which had previously approved EXPAREL with it's – with restrictions or through new formulary approvals without any restrictions. From the current base of knee and hip procedures, we witnessed growing interest in shoulder, foot and ankle, as well as wrist and hand surgeries. We are working with our orthopedic customers through our own Pacira customer-touching resources, as well as through our orthopedic pilot program, where we have trained orthopedic distributor representatives on appropriate use of EXPAREL. Department of Defense formulary wins also continue to major U.S. Navy and VA system hospitals, and these remain an important driver of our broad-base growth strategy. As a frame of reference, it's important to note that, in many situations, access at these military hospitals across the United States is often the first exposure that local house staff, especially fellows and residents, have to the use of EXPAREL. Overall, we see the base of hospital and ambulatory care customers expanding with their experience with pain control safety and patient satisfaction possible with a slow opioid pain management strategy. As an example, cosmetic surgeons – plastic surgeons, especially abdominal plasti successes have lead to the expansion into reconstructive surge inside the hospital. Orthopedic use and hip and knee has expanded to shoulder and foot and ankle, hand and wrist, and we also have early initiatives in spine and trauma. Our abdominal surgery base is growing to include anesthesiologist and very active surgeons through the tap infiltration program. In the second quarter, we also saw several catalysts contributing to the marketplace for EXPAREL. Specifically, another (inaudible) – a series of surgeon and anesthesiologist presentations of their own – meaning not Pacira-sponsored data at major meetings and a tap infiltration simulcast program focusing on pediatric surgery and plastic surgery, where we hosted more than 700 attendees. Additionally, we focused on generating new data to show the clinical and economic benefits of EXPAREL administration. By the end of the second quarter, we succeeded with a number of key strategic initiatives. An EX – the exclaim phase IV prospective observational study is accepting the use of EXPAREL in abdominal plasti breast augmentation, breast reconstruction, which demonstrated low pain scores, minimal opioid use and high patient satisfaction. We also had the publication of a second retrospective opioids during analysis from a regional hospital database, which quantified the opioid burden and the increase hospital resource utilization and increased length of stay, driven by opioid-related adverse events. We can expect the third and last of these data sets, taken from a local hospital integrated delivery network to be published in the next several months. We had a new study supporting iTAP for post surgical pain and patients undergoing abdominal hernia repair, showing well-controlled pain patient satisfaction with no serious adverse events. We also had the second improved study, published last month, which evaluated the difference in post surgical opioid use and health economic outcomes between patients receiving an EXPAREL-based multi-model regimen versus the standard opioid-based analgesic regimen in (inaudible) surgery, where opioid-related adverse events are a significant clinical concern. (Many) similar results from the first improved study for open colectomy results showed a reduction of might – of hospital stay, hospital costs and opioid consumption. In this trial, published in The Journal of Pain Research, (Mark Set et al) reported a reduction in opioid consumption from 112 to 20 milligrams, a reduction in knee length to stay from 5.1 to three days, and a reduction in need hospital costs if $2800, all physically significant. We also noted that the paradigm of publication is starting to shift. Meaning that more – that now, more surgeon and anesthesiologist customers have experienced with this product, and they are beginning to present more of their own finding. For example, a study out of Minnesota on the use of EXPAREL and iTAP was presented at 2013 Annual Meeting of the American Society of Regional Anesthesia and Pain Medicine or ASRA, which showed low pain scores, high patient satisfaction and no treatment related adverse events. This time – and hand-assisted (refrectomies) and colorectal procedure. A study out of Texas, compared the use of EXPAREL to an ON-Q pain ball and patients undergoing pediatric surgery – this data was presented at the 2013 Annual Meeting at the Society of American Gastrointestinal and Endoscopic Surgeons, or SAGES, and showed that EXPAREL patients had pain scores that were improved by over 50% while requiring fewer opioids. We now know of several similar presentations and manuscripts to be presented in the second half of 2013. Regarding clinical data from our ongoing phase 3 nerve block program, the first phase three clinical trial and in the cosmo block did not achieve its primary end point – a reduction of cumular pain points over 72 hours. The 180 patients in this randomized double blind study across the United States – Bulgaria, Georgia and Poland and the Czech Republic, received either 266 milligrams of EXPAREL or placebo. Patients recruited in Bulgaria and Georgia have demonstrated a response favored EXPAREL over placebo but this response was less pronounced in patients in Poland admissioning and patients recruited in the Czech Republic. As of note, there were two few patients in the United States in this study to be meaningful. The complete data set from this trial will be available in the next few weeks and further analysis are currently underway to better understand why patient in some countries had positive results, while others had a very high placebo response. In May 2013, we reported positive findings from the phase 2 portion of our second pivotal nerve block trial; a femoral nerve block study for total knee arthroplasty. The phase 3 portion of this study is ongoing. The U.S. Food and Drug Administration indicated to the company at the end of phase 2 meeting that a single pivotal trial meeting its primary end point would be sufficient to gain approval for the nerve block indication, assuming demonstration of adequate safety. The sear of plans to submit data from the ongoing femoral nerve block study to demonstrate efficacy and safety, as well as the safety data from the intercouncil nerve block study for a supplemental NDA anticipated in Q1 2014. A couple of additional points regarding the femoral nerve block trial. This trial was being run 100% in the United States, with anesthesiologist administering EXPAREL under ultrasound guidance, which is substantially different from the intercost of program where certain administered EXPAREL under visual observation. Looking ahead to the second half of the year, we can expect additional value drivers to fuel EXPAREL demand. We anticipate data from the phase IV tap infiltration program for which we are currently enrolling patients with data available around the end of the year. Working with orthopedic surgeons and experienced clinicians in orthopedics, we expect a series of prospective data sets on EXPAREL use, specifically in total knee and spine surgeries during Q4, along with additional phase 4 clinical programs currently under way meant to develop care pathways and regularization evaluations across multiple surgical settings. In order to emulate the success of the second quarter simulcast in iTAP, we will initiate another national simulcast in the fourth quarter turning our focus this time to orthopedic customers and orthopedic procedures. We also expect manuscripts and posters planned for the second half of the year to include the explained plastic surgery study, the improved lapascopic colectomy study, TAP infiltration study and robotic prostatectomy, comparability of compounds typically administered in infiltration with EXPAREL, the impact of low opioid use on illus and economic outcomes in gastrointestinal surgery, a series of case reports in the use of EXPAREL and specific patient population of interest to our surgery and anesthesia customers and report of impact of EXPAREL to the nursing community and poster that major anesthesia and surgery meeting. During the quarter, we also had a local program of peer-to-peer meetings, where physicians who have experienced EXPAREL share their clinical experience with others. Here are a couple of quotes from those meeting attendees. From a colorectal surgeon in Louisville, "I've been using EXPAREL for nine months in my outpatient procedures and had not seen a single case of urinary airy retention." From a plastic surgeon in Houston, "EXPAREL is totally changed my practice." And from a very pediatric surgeon in San Antonio, "It should be against the law not to use EXPAREL." With these initiatives underway in the second half of 2013, we will increase our field force and scientific and medical affairs teams accordingly to support our rapidly expanding customer base, providing education and training for best practice use of EXPAREL. Our scientific affairs team of clinical nurses and healthcare professionals is growing from 12 to 28, in order to meet the high end of acute care customer demand. This resource will service both our soft tissue and orthopedic or hard tissue customers. Our field base hospital specialist team will remain unchanged at roughly (70) through 2013 with modest plan increases of 10 to 15 at these per year in 2014 and 2015. These increase are in addition to our current marketing and medical affairs teams. In total, we expect that our existing market team, professional Pacira resources and field organization of approximately 110 folks from Pacira in 2013 will expand to around 150 in 2015. These resources are Pacira based and do not include the orthopedic resource, which is currently in a pilot program. This company builds and positions us to meet expanding customer demand through EXPAREL, whether through the expected success of iTAP infiltration and orthopedic programs or the new nerve block indication and published data showing appropriate EXPAREL used across a broad range of surgical procedures to improve pain control, reduce opioid consumption and prioritize patient satisfaction. Please remember that patient satisfaction is increasingly important, as a driver of hospital reimbursement through the CMS (H-GAS) program. The manufacturing supply side, we expect to have sufficient inventory from suite A or our current facility to take us past the projected time line for FGDA approval of new manufacturing facility or suite C during the first quarter of 2014. With the pattern of success for EXPAREL sales and increasing market penetration, we are very pleased with progress being made through strategic commercial and clinical research initiative. Now that we are in our second year of launch, we have begun to look beyond EXPAREL working with KOLs to properly evaluate additional power candidates within the DepoFoam-based pipeline. As was done for EXPAREL, we plan to develop product via 505V2 regulatory pathway, as a time and cost efficient regulatory strategy while taking advantage of exclusive IP of our DepoFoam delivery technology to provide market exclusivity. We hope to have more information on these developments in the next couple of quarters. Now over to Jim.

[Jim Scibetta:]

Thanks, Dave, and good morning everyone. As Dave noted, our EXPAREL revenue for the quarter was $15.2 million, indicating not only a very robust 46% increase over Q1 2013 but also the highest percentage of fifth quarter launch growth we could find compared to several graded hospital product launches. The $15.2 million of EXPAREL revenue was more than a 500% increase over Q2 a year ago; our initial launch quarter. Year-to-date 2013, EXPAREL sales are now up to $25.7 million. Our gross to net off the $285 per vial price has remained at approximately 5%. So we haven't had to engage in any material of discounting to date. Now that we've treat over 150,000 patients with EXPAREL, the empirical evidence of safety and efficacy in the marketplace is speaking loudly to our growing and diversifying customer base. Total revenue for second quarter of 2013 was $17.1 million. We anticipated a greater amount of DepoCyte revenue in the quarter, as we continue to resupply the market, which would have led to a slightly stronger reported total revenue for the quarter, if not for the timing of DepoCyte launch released and a related delay of revenue recognition. As a result, much of the resupply activities under way should benefit our Q3 and Q4 numbers instead. To state the obvious, though, we believe the investment community should focus on EXPAREL revenue for the foreseeable, regardless of report of total revenue, as we expect EXPAREL to become a major brand that in the current Pacira model will be the driver of our earnings and cash flow. With respect to the sales data tracking services, we continue to cross the interim relying on their monthly numbers as reported, and I'll note that the monthly trends implied by the tracking services have been particularly misleading in the recent quarters. Total operating expenses were $29.2 million for the quarter. Our Q2 cost of goods sold was $10.2 million. With the growth in EXPAREL revenue, our product gross margin crossed over from a negative in all previous quarters to a positive 37% in Q2. This trajectory is consistent with the EXPAREL margin story we discussed previously, where the reported gross margins early on are burdened by the fixed but scalable costs of our proprietary manufacturing infrastructure. But with variable costs in the range of only 10% of revenue, as sales grow and we manufacture full capacity, the reported gross margin should be trending toward 75% to 80%. We spent $4.9 million on R&D in the quarter, most of which was for the EXPAREL pivotal nerve block studies. SG&A expenses were $14.1 million, up $1.1 million from Q1 2013. G&A was – G&A spending was flat and the increase in selling costs was attributable to increase head count in our scientific affairs team, our pilot orthopedic relationships and additional marketing programs. Net loss for the quarter was $14.0 million or $0.42 per share, based on $33.1 million weighted average shares outstanding. As of June 30, 2013, we had 33.2 million shares of common stock outstanding. We ended the quarter with approximately $97 million of cash. And I'll reiterate that we expect our current cash to be sufficient to get us to cash flow positive and that we expect to be cash flow positive at some point in 2014. I'll now turn the call back to Dave.

[Dave Stack:]

Operator, we're ready for calls – for questions.

[Operator:]

Thank you. Your question-and-answer session will now begin. (Operator Instructions). Our first question is from the line of Douglas Tsao from Barclays. Please go ahead, Douglas. Your line is open.

[Douglas Tsao:]

Thanks. Good morning. Dave or Jim, I was hoping you could provide a little perspective? Obviously, we've seen a very nice ramp, in terms of the absolute sales, as well as this sort of acceleration in the number of customers. Just curious if you could provide a little detail or color in terms of what you're seeing, in terms of the number of surgeons within those customers, the trends within those customers in terms of the number of surgeons using the product?

[David Stack:]

Hey. Good morning, Doug. Thank you. Yes. We – you know, as we've seen from launch, but continuing to accelerate, you know, there is always a champion, who is willing to speak on our behalf and go through the formulary approval process. And that basis of support inside the hospital is clearly changing. In the launch, when we had a hemorrhoid data set, it was almost always the colorectal surgeon. As we go forward now, we see, you know, a broad base of physicians, who are asking for access to EXPAREL in the different hospital settings. And I think especially important among those are the orthopedic surgeons and spine surgeons inside is that data set, as well as anesthesiologist. So what we see, Doug, and maybe a way to answer your question is that where we were restricted to specific physician specialties, we see the other physician specialties now going back to pharmacies and to committee and getting restrictions removed because these other customer groups want access to EXPAREL. So I think as we try to capture in the call, what we see is that, you know, the physician lounge and people who have had great success with EXPAREL are our best salespeople, frankly, and we are especially gratified to see, you know, breast augmentation in a retail environment lead to abdominal plasti and a retail and then an in-patient environment, and then that success leads reconstructive surgeons to actually using the drug and getting some formulary wins because of that. The orthopedic guys and – are very vocal inside the hospital environment, especially where there's an orthopedic center of excellence and they carry a lot of weight. And once an anesthesiology starts using the drug safer for iTAPs, then you see other surgical specialties wondering why did you do that for Dr. Jones's colectomy and you're not doing it for mine, and you see a viral kind of danger for the way the drug is used inside the hospitals. And I think something you've noted, Doug, and what we take a lot of solace in is that the hospitals that have had access to EXPAREL for the longest are our biggest customers. And so we have a clear demonstration of the path forward because we see how the drug is growing in the places, where it's been available for the longest. And it really – it's really challenging, frankly. If you get a list of all the places that the drug is used and our top biggest customers, it's so broad that you struggle to come up with a sales strategy to address all those customers and all those different ways to use the product.

[Jim Scibetta:]

Yes. I was just going to add, related to what Dave is saying there, that while the data we have is just boxes sold into hospitals, so it's not surgeon or anesthesiology specific, in some of our large error customers, where we have a relationship they provided us some information that shows that it's being used in not only different kinds of surgeries but with a long list of surgeons within those accounts.

[Douglas Tsao:]

And this is a follow-up. I mean in terms of the growth this quarter over the first quarter, was most of that coming from or is a greater share coming from your prior existing account base? Or is it coming from, you know, customer additions? And then just curious, we, obviously, saw an acceleration in new customer adds which, you know, is a little surprising and given the fact that you had so much success. And really what's sort of the explanation for this pickup? And is that why you decided to expand the field force?

[Dave Stack:]

Yes. I should have also said before I started answering any questions that (Tania Marvica), our head of commercial is also here with us. So if you hear her chime in here, you'll know that she's in the room with us. It's – they're – in the quarter, if we reference those 32 hospitals that are coming on or 30 new customers that are coming on a weekly basis, Doug, almost all of those are ordering one box. So the vast majority of the delta that we reported in the quarter is from existing customers, who are rapidly increasing the use inside of an existing customer. If you look at who those people are, there is a increase, you know, specifically driven by the orthopedic customers. There is a fair number of DOD customers, who are, you know, more important than the end would suggest because all the influence they exert to local geography. But orthopedics is – and iTAPs are driving the vast majority of the new users. And in many cases, Doug, we're able to go back in with the increased influence of these new customers and get us on formulary in places, where we may have been turned down previously. So all those things are contributing but it is still very safe to say that when we win a new account, especially when we win a major new account, it takes us several weeks to train and to change all of the different nursing notes and standing orders and everything inside the hospital. So there is always going to be a lag of several weeks between when a new account and when they have a material impact on our quarterly sales.

[Douglas Tsao:]

Okay. Great. Thank you very much, guys. I'll jump back in the queue.

[Operator:]

Thank you. Next question from the line of Richard Lau from Wedbush. Please go ahead, Richard. Your line is open.

[Richard Lau:]

Good morning, guys, and congrats on a good quarter.

[Jim Scibetta:]

Good morning, Richard.

[Richard Lau:]

Just sort of following up on the new customers, can you maybe talk a little bit more on if these customers are being added with less restrictions than maybe those customers who added earlier on in launch? Or are you guys just seeing a similar pattern?

[Dave Stack:]

Now, for the most part, Richard, there are always exceptions and we do still every, once in a while, get restrictions. But I would say the majority of our formulary wins over the last couple of months specifically are without restrictions, and it's largely driven by the fact that, you know, there will – this is a real story but I won't give hospital names or anything – you know a colorectal surgeon requests the drug for formulary improvement on a major hospital on the East Coast. We're going through the process and the anesthesiologist find out that the drug is going before the PNT committee but it's going to be restricted to colorectal surgery, which of course, is okay with the colorectal surgeon, who's asking for it. And they go to pharmacy and say, "No way. We can make a huge difference. People in major centers are reporting tremendous success with the anesthesiologist use of these drugs and the transfers abdominal plain procedures." So the pharmacist then is acquiescing now to allow. Now, it's colorectal surgeon and anesthesiologist. And then the orthopedic guy say, "Neither one of those two make any sense. The guys really making a difference in patient care are orthopedic guys and there's no way you can give it to these guys and not let us use it." And so finally the pharmacist gives up and just and just makes it available unrestricted.

[Richard Lau:]

That's great. Sounds like a viral thing going on there.

[Dave Stack:]

Yes. And it's really – I tell you what's really helpful is like I said our best friend is the physician lounge where docs are talking about they're able to do things they weren't able to do before EXPAREL, and that's the basis of a lot of our calls is – I was – give you a real – a couple of weeks ago, there was a class reunion at a major center on the East Coast. And that Monday morning, we had a number of calls from guys who were with other folks that they went to medical school with who were using EXPAREL. And they want to do know, "How do I get involved here? And can you guys send one of your nurses out to help me get start, et cetera.? So if that is viral at its very core, Richard. So...

[Richard Lau:]

Got it. It's the same question. Is going forward here, how should we think about the summer months? And have you guys seen any slowdown, just summer seasonality with less procedures? Or are you still sort of on the growth curve where it hasn't really impacted you?

[Dave Stack:]

Well, you know, my track record on making commentary here, Richard, has been less than stellar so I'll be careful. I think as our base grows, we're less sensitive to the seasonality that we saw in the past. You know, at the same time, we have a lot of information that we didn't have last year. So I think it is true that there are certain segments of our marketplace that were slower in July than they were in June, but I also think that we've got other places, where the surgeries are not elective and where, you know, we seem to be picking those up. So I don't think there's any doubt that there's fewer procedures that are being done in July than were there – that were done in June. But we don't see the material impact that we would have had last year when we only had one or two customers base that were actually using the drug.

[Richard Lau:]

Okay. Got it. One final question I believe you mentioned you guys expect approval of suite C Q1 of next year. How should we think about that transition from suite A to suite C and maybe the affects it might have on your cost of goods during this time?

[Jim Scibetta:]

Yes. So, you know, with the sales increasing, obviously, that's some exciting from many perspectives. From a manufacturing perspective, you know, looking at a roughly 50% increase in the past quarter, it's humbling. And we are going to do everything we can, obviously, to make sure we meet demand. And we're going to spend 2014, we'll be building inventory like we have been in 2013. So we have a two-year product dating. We would rather sort of make sure we build product in inventory; assuming things continue to go well then, you know – because you can never sort of go back. In terms of its impact on cost of goods – and this may not be intuitive, but because we'll be running two lines together and a lot of the costs, you know, will be absorbed – fixed costs in the plant will be absorbed in each line, the story is still sort of the same story of 75% to 80% gross margins at scale. The scale is, obviously, $400 million capacity rather than if it was just running suite C at $300 million capacity. Does that make sense, Richard?

[Richard Lau:]

Yes. Got it. Thanks, guys

[Dave Stack:]

Thanks, Richard.

[Jim Scibetta:]

Thank you.

[Operator:]

Thank you. Next question from the line of David Amsellem from Piper Jaffray. Please go ahead, David.

[David Amsellem:]

Hey, thanks. I have follow-up regarding suite C. Can you talk about the extent of excess inventory you'll have in place in the event that there are any regulatory delays surrounding the new suite?

[Jim Scibetta:]

Well, we're certainly ahead of the curve now and we're making as much progress as we can in suite A, and we're quite comfortable with our ability to get suite C online, and you know, we have some cushion. So we're sort of reiterating the time line of Q1 approval for suite C. And beyond that, I can just say we're comfortable that we can meet demand out of suite A until we get suite C approved.

[David Amsellem:]

Okay. Do you care to quantify the cushion in terms of months or weeks? And how should we think about that?

[Jim Scibetta:]

You know, I think that would presume a forecast – I mean, based on our forecast, which is, obviously, we want to be conservative from a manufacturing perspective. I don't think we want to quantify it. But we're comfortable with the cushion that we have and the ability to meet demand out there.

[David Amsellem:]

Okay. And then switching gears to the nerve block study in eastern Europe, I guess the question here is how confident are you that this set back won't prevent you from filing, assuming the femoral nerve block study in the U.S. is successful. I guess the question is how solid is the feedback from the FDA that this single study – that a single study is sufficient?

[Dave Stack:]

Now, that's been consistent, you know. I mean we have minutes that go back to 2006 and then specific minutes from the end of phase 2 meeting. It couldn't be any more solid than it is, David. I think it's important to note, you know, that the two trials are very different. You know, we needed 500 patients for safety. That's also a FDA request. And so, when we did the power calculations for the femoral nerve block trial at 90% power, we needed less than 200 patients. So it didn't make any sense to, you know, to study twice as many patients as we needed in that trial. And so the intercostal program was developed, you know, because we could do it fairly quickly and because we could do it fairly cost effectively, we thought it was the easiest way to see if we could get additional data set into the package insert, while maintaining ability to get our 500 patients for safety, which is what we were really after. So at least in my mind, David, the failure of the intercostal trial from an efficacy perspective has no impact on our plans for filing the femoral nerve block trial at all.

[David Amsellem:]

Okay. And then one last one, if I may. How should we think about the level of R&D spend in 2014 and 2015? I guess this is in the contest of the rest of the pipeline. And maybe you could give us a sense of how you're mapping our development of your other two pipeline assets beyond EXPAREL?

[Dave Stack:]

Yes. I'll talk about the map and let Jim talk about the numbers. You know, what's happened in the marketplace, David, is now that we've got – especially these anesthesiologist and orthopedic customers and reconstructive surgeon, who are very vocal, by the way, in terms the not only their voice inside their hospitals but in their relationship with us, and they've come to us with a number of opportunities, where they think we should be developing DepoFoam for their use. And so what – we've got a team now that's investigating all of these various opportunities that are being suggested by our customers to make sure that when we pull the trigger on our pipeline, that we're developing the products that not only will be the one that we can make DepoFoam but also will meet the customer needs and hopefully be opportunities that we can address with commercial resources that already exist. So we've got a (inaudible) program that we've talked about several times and the team is also looking at a number of other opportunities, as I said, that has been suggested by our customers and we have KOL panels that are looking at those target profiles, et cetera, so hopefully we'll be able to get back to everybody over the next couple of quarters and tell you where we landed over all of these things . And then from a numbers perspective, I'll ask Jim to comment.

[Jim Scibetta:]

Yes. We spent about $10 million in R&D in the first half of the year. And as we indicated, about two-thirds of that is for the pivotal nerve block studies. As we look into 2014 and 2015, we are – definitely want to drive value creation with moving the pipeline forward, but it's early enough that it's not going to drive a whole lot of spending, and it's sort of hard for me to figure out how we'll be spending as much or more than we're spending this year with the pivotal studies running.

[Dave Stack:]

Yes. But the other thing to remember, David, as we're – as you're putting this stuff into a model is that we do have a pediatric phase 4 commitment and we will be spending money and addressing that. And we also have a number of EXPAREL opportunities to study additional indications beyond nerve block. And the same teams are looking at that – those opportunities, as they relate to our ability to expand the pipeline to additional products. So all of that is being prepared for a board retreat in September.

[David Amsellem:]

Okay. Thank you.

[David Stack:]

Okay. Thank you.

[Operator:]

Thank you. We have no further questions in the queue at the moment.

[Dave Stack:]

In which case, I don't have my script in front of me. So I know we're going to Wedbush next week. We will be at Wedbush in New York City on the 13th and we look forward to seeing some of you there. Other than that, thank you very much for your time this morning and we appreciate your support and all of your help, and we look forward to reporting additional EXPAREL results as we go forward. Thanks a lot. (CROSSTALKING)

[Operator:]

Ladies and gentlemen, that concludes your call for today. Thank you for joining. You may now disconnect.