Pacira BioSciences, Inc. (PCRX) Earnings Call Transcript & Summary

[Audio Gap] given the fact that we have some opportunities there, frankly, for example, if they're not doing procedures and patients require pain control, then we have other assets in our portfolio that would be positively impacted by that. And so, it's a combination of all of those things that gave us the guidance that we think is appropriately conservative, given everything that's going on in the macro environment.

Great. Since the earnings call David, there had done also I think post your commentaries around 340B, especially, in January, I think that's where we've gotten some of the most calls on trying to understand these dynamics of 340B, non-340B, what is the mix? What is the impact? And then, of course, leads into no pain act. So could you maybe take us through that and help us understand this volume growth in the context of this?

Sure. So first of all, from the previous comments, right, that we think that the biggest opportunity in the marketplace is for the soft tissue procedures. So you would see knees and hips remain relatively strong, but it's the low-margin procedures, which are largely soft tissue procedures that are not being done. They're not being done in the hospital because of the reimbursement structure and the hospitals are not really structured to do them. And the HOPD, it's very difficult for folks to focus on hernia and hemorrhoids and stuff because the margins were very thin. And so, the long strategy here is that you would get into 340B addressing the price sensitivity in the marketplace to do the soft tissue procedures, which by reference, by the way, are 45% of our overall business and start to address the issue by providing a significant reduction in the cost of those products. And so, when you look at our specific business and our TAM, we calculated that about 20% of our business would be 340B appropriate. And when you calculated that down to the gross to net, that would calculate to something like a 5% reduction in net revenue. And that's where the 5% number comes from. So as we get in through the first 2 months of the year, we were right on those numbers. And what we're seeing in the marketplace is a specific answer to your question is we have a bolus of hospitals that are 340B only. And we're keeping a very close eye on them given the number of the issues that the government has raised with 340B pricing. We think that there's some opportunity there for those folks to actually moderate that use of 340B as a pricing mechanism. Many of the new accounts that have come on as a result of 340B participation are hybrids. They are using 60% 340B and 40% ASP. -- appropriate, the way the 340B legislation is written, they're only using it for 340B appropriate patients. And then interestingly, we have a number of hospitals who are on the 340B list as we calculated it, where there was no EXPAREL exposure previously, who are purchasing and not using 340B. And so that's where, as we've talked about in previous calls, as we continue to go into hospitals that were not previously purchasing EXPAREL, we get the volume improvement, which improves our gross margin -- and then the real strategy here, though, is this is basically step 1 as we move towards no-pain. And as we move towards TRICARE, what we're -- what the strategy here is to have additional -- in a market that's static and the best case scenario, right, that we have a way to train new health care providers on the use of non-opioid treatment therapies. And we have patients who have access now who enjoy the benefits of non-opioid therapy so that when we get no pain actionable and when we get TRICARE, which is another bill that we're working on currently, we can talk about, if you'd like, that we basically have created an environment where people are already comfortable using the product, understanding the benefits of the product and the conversion will be quite rapid.

Great. And since you spoke about no pain, I think we understand that there's current reinvestment for potentially $20 million expert relevant procedures, right? And you had previously mentioned that you're also working on moving to no pain act when we met in January moving it forward to 2024. So can you give an update on that side?

Yes. There's -- this is real time, right? So there was -- there were meetings is recently as last Friday, where we're talking through the legislative process and with the congressional folks on what kind of legislative action would be required. I think the -- all parties would prefer that CMS just have put a 24 implementation into the process, the normal process of CMS. And so, that's what's being taken. I mean, what we've talked about is 107,000 Americans dying in a drug overdose, 65% of those starting with an opioid, and we have a system set up with a number of products that are approved for reimbursement by CMS in the ambulatory surgery center. And the easiest way for them to respond to the political pressure and to the reality of the marketplace is to just take those products and move them up to a 1,124 implementation while CMS does their work to look at new products and devices and some other things that are required statutorily. So we continue to have that dialogue. I wouldn't say that it's a sure thing by any measure, but it certainly is a potential reality that would move this up with the backstop of 1,125 for some reason we're not on [indiscernible] that.

Understood. And just another question on no pain act itself is like do you anticipate that it's going to help EXPAREL's expansion, especially in procedures and operations, which are more sensitive to macro factors?

Oh, absolutely. I mean the real reason that we did no pain in the first place is for the last 4 years, CMS has told us that the reason that they were not going to reimburse in the hospital outpatient department is because there was no evidence that reimbursement would improve access. And of course, from our perspective, that's ridiculous. And so, we decided to take the legislative route. And I think this is actually more than an expansion. This is a sea change. And as we talk to folks in the marketplace, who currently are using bupivacaine and writing for 60 to 90 Percocet, it's not because that's what they want to do. It's because they are working in these indigent and low-income hospitals and populations where they just don't have access to these more expensive products. And by the way, where the margins don't allow you to do much of anything, frankly. And so, fresh in my mind actually is a girl from a rural hospital in Florida, using bupivacaine and then writing a prescription for 90 Percocet. Dupivagan was all she had and the 90 Percocet in the eyes of the administration of the hospital is free because they write a prescription that's filled outside the hospital and it's reimbursed under Part D. That's where the opioid epidemic comes from. And so, the simple question to her was, would you use EXPAREL when no pain is prudent on every patient. So that's why -- I mean that's the real answer is I think the bigger effort for us is making sure we can make enough if we're right.

Perfect. I think the other question that I've been getting also has been around the guidance itself, right, as you term date, it's appropriately conservative. I think I'm getting questions around what this guidance means in terms of volumes, overall volumes, 340B volumes. And I think you previously called out that it's neutral to slightly accretive for revenues. But what does it mean in terms of volumes? I think that's something that we get questions on.

It's -- we look at it -- I mean, obviously, we look at that. But it clearly will increase volumes. But again, it goes beyond that, right? The first -- as the hospital environment is deteriorating, and we have customers that are just in some pretty difficult financial situations. The first thought around 340B was an extension of how we can help our big customers, right? And so, the 340B in addition to bringing in new patients and providing the opportunity for new health care providers, in many cases, it helps us stabilize our current business, right? And so, if you've got a large hospital and if they're going to play by the rules, if -- and they convert to 60% 340B, 40% ASP, but it keeps us from having to go through restrictions or limiting the availability of EXPAREL. That's a big thing for us. And so, the part -- the answer in your question is we expect that we will have volume growth that will look a lot like the 7% that we've been talking about. And it's not always just incremental to last year. In some cases, it's actually insuring last year and then growing into what we think is going to be a very inflecting environment around TRICARE and no pain.

Got it. And from what I get from your opening comments is that what you have seen until now, we are in the middle of March, but what you've seen in the first 2 months is very similar to what you saw last year.

That's correct.

Yes. Great. And maybe just moving specifically to EXPAREL, I think key extensions coming through in terms of extremity now block. We have discussed this for the past year or so. So what are the next steps now you have submitted last month and looking forward to both the fumer and side satiablock procedures, help us understand the opportunity in the space and how quickly this could be realized?

Yes. So what we submitted in January [indiscernible] we should get our 74-day later letter some time in the next month or so, which will give us a PDUFA date. And the expectation is that, that will be in the mid-fourth quarter. The opportunity for lower extremity nerve block is roughly 3 million patients. And we have 2 distinct markets there to give you a specific answer to your question. In knees, we already have about 300,000 of those patients getting EXPAREL. So you expect that you would have a fairly rapid take-up as they move to 10 mls being used in an adductor canal block, which is the study and then another 10 ml is being used for the posterior to knee, whether that's an IPA or a posterior capsule injection or whatever it is, right? But that's the art that's been practiced in places like Walter Reed now for a decade. So for a reason that's very different than when we grew up in the business, a lot of the younger anesthesiologists and surgeons are reluctant to use a product, unless it has a package insert, which is odd by my reckoning, but it is the way it is. And so, you would expect that in the knee market, we will grow from roughly 20% of those patients having EXPAREL to a much higher number and a fairly specific rapid period of time because they are already using bupivacaine and all we're doing is taking to bupivacaine out and putting the EXPAREL in the same exact procedure of an adductor canal block. In the foot and ankle, it's a relatively nascent environment for us. There's a lot of discussion around podiatry and non-ambulatory surgeries, especially in the military installations and things like that. That is a -- that will be a slower growing environment because we have not spent a lot of time with foot and ankle surgeons, podiatry and things like that. And so, you've got a mix. You've got something that we think will happen pretty quickly, and then you've got something that will grow at a more lineal rate over time.

And that's helpful. And could you also speak about the superiority claim of BPO CAD. I think, again, the pushback on EXPAREL in the past from investors has also been about conflicting efficacy versus [indiscernible]. But now that you're expecting a superiority claim here, how will this translate to the procedures to?

Yes. I don't know if we're expecting that, just to be clear, right I mean we filed for a superiority claim. We've had discussions with the agency that we need to well-controlled comparative trials, and we have the 2 most with whopping p-values both for pain and opioid [indiscernible]. So I think we have data that is comparative to bupivacaine in a number of different scenarios now. They've not all been FDA driven trials, we many of them have been single sponsored trials and things like that. And so, having a superior claim in the package or clearly will have a halo effect around the rest of the procedures. The dynamics of that, I think, are going to be overwhelmed frankly by the reimbursement topic that we've taken on. I think when we talk -- we're talking about a clinical claim that a clinician could use to achieve access or maybe their own personal use. When you're talking about the product moving from what is considered to be a relatively high cost to total reimbursement, I think it's going to be difficult to tease that out and the growth profile we're going to see around no pain and TRICARE.

Understood. Maybe stepping about this, again, just overall market itself. I think there's been extensive focus over the last couple of years, especially as we went through several [indiscernible] floors. So what are the recent trends that you're seeing in the surgical market overall, especially as with regard to your written observation during Q1?

Yes. So we have end of year data now from IQVIA. And knees are growing -- hips are growing about half of what knees are growing. And the rest of the market, frankly, is pretty much status quo to 2022. So for everything, but knees and hips, we're basically below the line of 2009 -- I'm sorry 2019. And so, one of the reasons for all these activities that we're undertaking is at least our short-term understanding that it's an inflation that is having a major impact, it's food, fuel, health care. And we think that what's dampening these -- especially the soft tissue procedures is either patients don't have insurance or they have insurance with high co-pays or they just determined that it doesn't make any difference. They don't even have the whole pay and so -- and we saw this before in 2018, this is exactly what we saw in 2008. So we do expect that as inflation debates that these -- many of these soft tissue procedures will come back to the market. And the basic going back to the basic guidance, is that we're guided against the current environment if it improves and inflation improves, then we expect that to be largely upside against what we're doing already.

Understood. And you also called out the significant shift to operations, which has been happening accelerated recently. But in inpatient, you're also seeing a significant jump in C-sections.

C-section, yes. It's -- we've tried diligently working with PE firms and with some OB groups to develop an outpatient model for C-section, it's very difficult. There's religious affiliations and getting [indiscernible] pediatrician, et cetera, to discharge junior -- so what we are is, again, as a response to the pandemic mom doesn't want to be in the over the environment any longer that she has to. And so, we've gone to -- we don't need to hit to have these patients in the hospital for 3 days. If we can provide adequate pain control can we move them out of the hospital with one overnight stay. And if you reference C-sections in 2022, we're up 26% over 2021 for the use of EXPAREL. So it's OB anesthesia largely learning how to use this product, which much to our benefit then provides us a halo to mastectomies into breast reconstruction and all the same procedures that those folks do.

Right. Maybe spending just a couple of minutes on ZILRETTA so -- introduce new dimension on the diabetes safety part and how it plays into the knee osteoarthritis pain management landscape. So help us understand the opportunity this brings incrementally for ZILRETTA?

But -- well, if you just look at the patients who are type 2 diabetics, it's between 20% and 30% of the marketplace data, not perfect in that realm, but it's a significant portion of a very large patient population. And so, when we're talking to docs, what we find out is that they do know that they have patients who receive an immediate release corticosteroid and end up requiring hospitalization of some sort, never really understood why. And so, there's a real understanding in the marketplace that immediate release triamcinolone acetonide specifically causes these patients to have the cyclonic spikes, they're out of control in ED. So the early response to that, especially in the dissatisfied orthopedic market [indiscernible] steroids and all the issues around HA and kind of lines and all of that has been very positive. And so, we're pretty comfortable with short-term growth of the ZILRETTA given -- some of the business issues around contracting with some of our orthopedic groups, as well as the glycemic data. We'll do a safety stray study to demonstrate the significance of these listening spikes, but also to measure the cost that's being driven by these inexpensive drugs. And then we'll do a older study, and we will be the only corticosteroid that's approved for shoulder. And so, I think the still relatively small, so the growth percentages will be impressive. But I think some is a real drug for us in the short term and the long-term future.

Great. And could we also spend a couple of minutes on the supply chain side of the things with each of the 3 drugs and you navigated those issues, be it with EXPAREL or ZILRETTA [indiscernible] . So any update over there we need to --?

Yes. The -- well, so the facility planning, the 200-liter facility in San Diego will be producing commercial material as we get into Q4. And so, that will allow us to make $2 billion worth of EXPAREL at the current price. I think we have a high level of confidence that as we get into Q1 next year, we will be selling commercial material from our [indiscernible] leader facility in San Diego. We're still working on maximizing the opportunity for the 200-liter in Swindon. It's really not an operational issue. It's more workflow and work with the CDMO and those kinds of things is a little different than the way we operate in San Diego. The fill line in Sweden for ZILRETTA really has been -- you're right, it's a supply chain issue, but the supply chain here is mostly vendors, and it's validating the line with the people who made the line and so calibration and vendors, it's a machine. We've had a double of a time folks of an environment to come to England from Italy to calibrate the machine. I mean that's real life, right? It's the stuff that you -- they don't teach if any of that in school. But we're getting there. We're making progress, and we expect that, that line will be up by the end of the year.

And fair to assume that the guidance, of course, doesn't factor any kind of supply chain issues within and you would not see any suggestion where demand will begin a supply it's not with any of these?

Not now. But I would say it's important that we get the 200-liter in San Diego. If we're able to sell lower extremity nerve block will be a 1,124 launch, no pain potentially could be a 1,124 launch. TRICARE for 10 million military and government employees will be at 1,124 launch. So you could imagine that we've got all hands on deck manufacturing now.

Absolutely. Maybe, lastly, on the pipeline side of things, there are a fair number of newer disclosures around the pipeline side between 401, 501 and 201 -- so help us understand the opportunities for these -- the next catalysts that we need to look for the next milestones that we need to look forward to these.

Yes. I'll go in reverse order quick, if you -- So our focus is on the neural network, but focused inside that on the knee and the vertebra. And those are the 2 biggest markets for us in terms of how procedures are being done. So 501, very simply, is a bupivacaine product with the same month of the cyclolymphosole technology that will last for 6 to 8 days. thinking about foot and ankle again, thinking about certain patient populations where the market has been asking us, this would be a great export would be great for all of these patients if it lasted twice as long. And so, it's a 50% increase in some that impacted that is that it lasts roughly twice as well. 401 is a dexamethasone multivesicular liposome preparation that we're targeting for low back pain. It runs very much directly with the spine program for EXPAREL. It also runs with the spine program for some of the external innovation that we've been funding spine BundoPharma would be the direct reference here. And so, 14 million Americans would go back pain. We also have a media branch block tip in development for Alovera. So you can see we're trying to put a number of tools in the box for different durations, different modes events to allow surgeons to address them in the knee and the spine. 201, right today, at least, is the jewel in that portfolio. There's an IL-1Ra inhibitor for intra-articular injection for osteoarthritic knee pain. It's an interesting compound because it comes with a promoter gene as well. So it only makes the receptor antagonist in the presence of IL. And the phase I data was compelling the efficacy and the -- well, safety, obviously, at the lowest dose, but the efficacy was at the lowest dose, which we think in the gene therapy world is going to be quite important given the cost of goods would be a few hundred dollars, not a few thousand dollars. And it fits right in with everything else that we're trying to do. And so, we're quite excited about our opportunity there. But then we have some other external innovation things that sort of fit along that same kind of of pipeline and the big driver of the pipeline is not only identified patient needs, but everything that we're developing go to the same customers, the same operators, right? It's supports medicine, it's surgeons, it's an anesthesiologist and it's [ PMR ] guys...

Fantastic. David, we are out of time. But thank you for your time and your inputs and for joining us here on the conference..

Thanks for your help.

Ciao! I wish you productive conferences for rest of the day.

We're packed, thanks to you guys.

Thank you again.

Good, thanks, again.