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

Hi, everybody. Welcome to day 3 of the JPMorgan Healthcare Conference. My name is Hardik Parikh. I work in the equity research team covering large cap biopharma for U.S. I want to welcome Frank Lee, the freshly minted CEO of Pacira up to the floor.

Thanks, Hardik and good morning, everybody. After what 5 days on the job, I can tell you, I've got it almost figured out, give me another day. I thought I'd start with a little bit of a bio about myself and maybe answer the question that many of you have, which is why Pacira. Why Pacira, Frank? And so just a little bit of bio, 30-plus years in the industry, most recently as CEO of Forma Therapeutics. We took a company there. I took over the reins from a CEO founder, who've been there a while. We pivoted the company, built a great team and took the company public. And after a while, a company by the name of Novo Nordisk took interest and acquired the company about a year ago. So that was most recently. And prior to that, I spent a lot of time here in the Bay Area with Genentech and also Genentech Roche after the acquisition and was very fortunate to be a part of a number of great teams where we took products to multibillion dollar, billion dollar status. And that was a wonderful thing. We did some great things for patients. And so that was most of my recent career. So again, 30-plus years. And you might say, well, Frank after a year of semiretirement, why Pacira? What got you off the sideline, so to speak. And what I'd tell you is I did my due diligence. What I found here were really good products. And I think many of you know this, EXPAREL, ZILRETTA, iovera° are very good products. Okay. I see some head nods. What I also found was a therapeutic area leader. So when I looked around, there were no other companies that were leaders like Pacira in the non-opioid pain management space. And that was very clear. And I want to talk to you a little bit about why I think that way. But when you see companies that have great products and have the wherewithal to do those things that go beyond the product, that impact policy and reimbursement, you know you've got a therapeutic area leader on your hands, and that's Pacira. And then when you look forward, there's a real catalyst. This catalyst is called NOPAIN. And we're going to have a little quiz in the room here in a second because this is early in the morning, I want you a little bit more involved about what you think NOPAIN is because I love the way it sounds, but I want to see if you actually know what it means, what it means for patients and what it means for Pacira, what it means for you in this audience, okay? So those are 3 important things. And also what I find here is a very strong, financially stable organization that can fund our growth and a group of people who are super, super passionate about our mission, okay? So that's what I found, and that's the answer to why Pacira. And before I go further, I did want to recognize Dave Stack and the team for an amazing 16 years in building this company. I know how hard it is to take a company from literally the very beginning to now helping over 13 million patients out there. That's 13 million. For those of you that work in rare orphan or specialty spaces, that's a lot. That's a lot, okay? So that's an amazing thing to build this kind of an organization. And I told Dave, I'm super proud to be here, honored, humbled to be here. But as we now look to the next chapter, right, of this company's growth, sometimes as we did at the Forma experience, a fresh set of eyes is a good thing. A fresh set of eyes to take a look at things and to think about how we're going to grow this company going forward. And if there's one thing that you should take away from this talk this morning, is that we're going to be sharply focused on growth, and we'll talk about what that means going forward here, okay? So here are some disclosures. So our mission here is very, very clear. Our mission is to transform the lives of patients by expanding access to non-opioid treatment options. And that's a very compelling mission for the people in our company. And personally, it's a very important mission to meet for a lot of reasons, okay? And I hope that many of you, this resonates for you as well, okay? From a vision standpoint, as I mentioned earlier, here today, we're the leaders when it comes to non-opioid pain management options. So Pacira is the leader. Before we go too much further, I want to share a story with you. It's a story about Kerri and her son Taylor. Now Taylor was an amazing athlete. He played a lot of sports. Unfortunately, he got injured. He hurt his shoulder, he had surgery. And subsequent to surgery, he was prescribed opioids. And over time, he became addicted. And through an accidental overdose, he died at the age of 20. At the age of 20. And so it's stories like this and also the data that started to emerge that compelled Pacira to say, "Hey, we should do something here." Because I have to tell you that before joining Pacira, I always thought addiction was something that happened way over there outside of the hospital. This is something about people taking these pills when they shouldn't be taking them. And in fact, that does, of course, that takes place. But also despite the best efforts of our medical professionals and caregivers, these kind of surgeries can lead to addiction, okay? So when we saw that 7 years ago, we rallied, not only Pacira, but now a group coalition that makes up over 100 organizations and got this legislation called NOPAIN passed. And it's going to take effect in January of 2025, okay? So think about that now, how many companies have the leadership to stand up and say, this is what we've got to do and to make it happen after 7 years. And I'm going to tell you that when I heard the story, I heard the story about many times when the company could have given up, all right? And the company didn't because this mission is super, super important. So here are our products. You know about our products. Today, I'm going to talk to you about EXPAREL, all right, because it really pertains to this NOPAIN opportunity for patients. So I'm going to go back here a little bit, and this is the audience interactive part. And for those of you online, I want to see your hands, too. So how many of you know what NOPAIN is by show of hands. How many of you know what NOPAIN is. Okay, we got about -- just for everybody in the room about, I would say, 5%, if I do my eyeball, okay? So if you don't know, let me share with you what it is, okay? Because it's super, super important. I'm sort of a simple-minded person in many ways. So I've got to kind of figure out what's the problem? And simply what's the solution? And what's the opportunity? And if you can't roll that off your tongue, then you don't really know what it is. So what's the problem? The problem is that these medicines are bundled in a procedure, okay? They're bundled. They're right in there. So as you know, our providers are under tremendous, tremendous financial pressure. And so many times, our providers want to do the right thing for patients, but they have a hard time doing it, okay? Hard time doing it. So what is NOPAIN? NOPAIN says, "Hey, let's pull this medicine out of that bundle." So they don't have to make those kind of trade-off choices. Let's reimburse it at average selling price plus 6%. I'm sure many of you know what that is. If you ever follow Genentech back in the day, you know what ASP plus 6% is, okay? All right. So let's pull it out of the bundle, reimburse it ASP plus 6% and specifically, it's going to be the case in hospital outpatient departments for patients who are under CMS. So when you do that kind of math, you wind up with about 3.5 million patients. When you add in commercial payers, that's another 2.5 million, making about 6 million patients in the HOPD setting. Right now, it's not reimbursed that way in HOPD, okay? Now if you think about 340B pricing and if you think about the GPO contracts that we're putting in place, this is going to provide a favorable entry point, acquisition cost and reimbursement. So it's a tremendous opportunity for patients. It's a tremendous opportunity for the people who take care of patients and it's good for our stakeholders and the institutions. They don't have to make these hard trade-off decisions, and it's good for the company. And this is because of 7 years' worth of work, okay? So what I'm very proud to say is that this legislation benefits a wide array of products, okay? So you can see here that 6 products will benefit from NOPAIN legislation going forward, in addition to EXPAREL. And at a high level, and we can provide more granularity as the year goes on and we get ready, this is going to turn EXPAREL into a blockbuster product, over $1 billion. And what that means is we're helping a heck of a lot more patients, heck of a lot more. And by the way, today, this year, we're going to touch more than 2 million patients, which is really remarkable, really remarkable. And if you think about what this means now in opening up more access to patients, substantial amount of access, there's going to be a groundswell here, right? And what's -- what it's also going to do is tip the balance toward making EXPAREL easier to access. So if you have to think about, "Hey, in the hospital, I do this, in the HOPD, I do this. And if you're a CMS, you do this, if you're a commercial payer, you do this, if you're ASC, you do this, and et cetera, et cetera." That's not the easy button that we want, all right? So we're starting to tip the balance towards this being more readily accessible to patients. So let's talk about what we're doing right now. We're getting these GPO contracts in place. It's going to have an impact, single digit on gross nets, yet will. But this opens up access, okay? And again, I'm going to come back to if any of you have been to hospitals recently, they're under substantial pressure. And I don't have to go through a lot of reasons why you know it, right? So we're a part of the solution here with GPOs. And as you know, we recently went and got involved in the 340B program, and we'll continue to update you on how we're thinking about that. Lower extremity launch. So as you know, we were recently approved for lower extremity launch. We think that this is going to be a $100 million opportunity over time. Our sales force is ready to go. In fact, at the end of this month, I'll be there with them, and they're super excited to bring this new use of EXPAREL to physicians and patients. And this makes it now super easy. This is a broad coverage now of pretty much every surgical procedure you can think about, again, making it very easy to think about EXPAREL and where to use it and how to use it. I talked earlier about our financial position. We're in very solid ground here, okay? As you can see here, sales, we're at about $668 million is the way we rounded last year. You can see that $280 million on the balance sheet and EBITDA around $210 million. So a very solid company. And as we grow units in the top line, our margins will also, over time, get more favorable. But I want to emphasize that we'll be focused on growing, growing use of EXPAREL going forward. And it makes a lot of sense, right? Because in the near term, we've got the lower extremity launch, something that's very compelling when you take a look at data set and you should, it was against an active comparator and very good data. Second, this year, we're going to be spending a lot of time, a lot of time meeting the what I would say, the complexities and the challenges of our customers, meeting them where they're because they operate in very complex environments, tough environments and we've got to be up to serving them in a way that they can utilize EXPAREL easily, right? So what that means is we have to up our game when it comes to access and reimbursement and making sure that's not an issue this year. What we also have to do is -- and if you all are indicative of our customers in the sense that, do they know about NOPAIN? So if you think about this now, it's such a big opportunity for us, we think about it internally as almost like a new product launch. And when you think about it that way, you would track your progress. You would say, "Hey, do our customers, do our stakeholders, are they aware of NOPAIN? Are they educated about NOPAIN? Can they tell us what the problem, the solution and the opportunity is? And are they getting ready? Are they taking action to make sure that this sticks in their organizations." Because as you know, many of these organizations have a number of processes and things that they have to go through to implement new reimbursement. So we're going to track that over time because this is a very big opportunity. And like I said, we're going to meet the sophistication and complexity of the market going forward. So let me just summarize real quick and then we'll go to Q&A. The main takeaway here is we're going to be sharply focused on growth. We've got great products. There's no question about that. We've got this catalyst called NOPAIN ahead of us. We have the lower extremity launch here and now that will be a good tailwind for us. And overall, what hopefully you took away from just this brief talk, is that Pacira is the leader in this NOPAIN space, and we're well poised now to grow going forward. So '24 will be a year that we'll get ready and '25 and beyond will be years that we return to growth, okay? So with that, I'd like to thank you for your time and attention, and we'll shift over to Q&A. All right. Thank you.

Frank, thank you for the presentation. I'm genuinely impressed at for you being in the job for a week. You've come up to speed pretty fast on the key drivers of the business. So it's very impressive. So first question is just kind of starting off, when you were talking about what brought you to this role. Could you expand a little bit more about when you were doing your due diligence, what were you looking for in your next role?

Yes. I've had the good fortune to be a part of so many great teams doing amazing work for patients. That's always been very important to me. Back in my early days -- I'm a Chemical Engineer by training originally. And back in the early days, I had an opportunity to go work for a petrochemical company. And when I stood there at that plant, I thought there's got to be a greater purpose than boiling oil. So no offense to our petrochemical colleagues. I studied Chemical Engineering for you, but it didn't resonate for me. Then a company called Eli Lilly came to town literally next day. And back in those days, you actually had to sign up for the interviews. So I signed up for their interviews. And when they talked about, "Hey, we make medicines that help patients, that resonated for me." So I've never looked back. And with each job, I've had the real pleasure, the opportunity to work on these amazing, amazing drugs with great teams. Here at Genentech, I don't have to go through the list with you, I hope. If you think about oncology and what we did there, if you think about immunology, ophthalmology, I had the great fortune to be with those teams and growing those businesses and bringing that to patients, right? And along the way, we had to solve some really hard puzzles, not problems, puzzles for our patients and our stakeholders, and we did in creative ways. And that was terrific. So when I looked at Pacira and I've heard about the journey that Pacira has been on to help with this opioid crisis, to provide new options and the breadth of patients that we're impacting, I mean, as I said, it took me back a little bit. This year alone, we're going to touch 2 million patients with EXPAREL. And so this opportunity in my last gig here coming out of semiretirement, I feel like this was something that we're going to be able to make a broad impact on patients. So that's what compelled me, number one. And number two, when I met the team, it's such a passionate team of folks. And then when I -- third, look underneath the hood a little bit more, I said, "Hey, there's a real opportunity here to make some good things happen because the company is in a great position to do that." We just have to go out and do it.

Right. Great. So you looked underneath the hood, you -- with an external perspective, what did you see as Pacira's competitive advantages? And on other side, where do you think that Pacira can make some further headwind?

Yes. Well, look, one of the things I heard as a critique to the company is hit your numbers, okay? When we provide guidance, we should meet that. And that's important to shareholders. It's important for our credibility. So we got to get better at that. That's got to change. And so that will be reflected in our upcoming guidance and how we get close with investors. And I'm spending a lot of time in the coming months looking and listening. And a big part of the reason I'm here on day 5 is to make sure that I understand the investor perspective and hear from you. So if you see me in the hallway, stop me, and I'd love to chat with you further. We've had a number of meetings. We've got a lot more coming up today, but I want to hear from you because we got to get better at that, okay? So what was your other question you asked me?

No. No. It's really just what is the competitive advantages that Pacira has?

Yes. Competitive advantage, look, I see EXPAREL as being differentiated, try to find another product with the kind of data that EXPAREL has. So these are differentiated products. I can go on and on. And I'm going to come back to -- this is the leader in the space. When it comes to relationships in the space, knowledge of the space, I would say the ability to influence the space as indicated by NOPAIN. That's a huge competitive advantage.

So you're coming from CEO of Forma. And when you kind of think about what your past experience is, what -- how do you leverage that into kind of further developing Pacira's pipeline and overall kind of business development priorities and all?

One of the things that is very important and don't take this the wrong way, a lot of investors here in the room. I often find investors can't pay attention to more than one thing at a time. And so I want you to pay attention to EXPAREL. And I want you to pay attention to NOPAIN because it's important. And I'm going to talk to you a lot about why it's important. We're going to open up opportunities to have you get close to the folks who are instrumental, that is folks internal and importantly external to the company. So you can see what it means for you and really believe in it like we do, right? And so that's important. That's important. And along the way, we're going to share now our progress in ways that are, I think, meaningful for investors. And so that's what to expect going forward.

And at Forma, you were able to lead it through its IPO, a sale to Novo Nordisk in 2022. So what do you think in terms of -- what are your key learnings in terms of what makes a company well positioned? And then how does you -- how does that kind of form your views on business development here?

Yes. Over time, we'll figure out what is the kind of company we want to be over the long term. And some might look at Forma or at Pacira and say, "Hey, what kind of company are you when they look at the portfolio." So that's a question that we'll have to answer over time. We're not going to be able to answer it right now. But that's a very important question because if I think about now fast forward, we do the things we need to do now. We grow the business. How we're going to use now the proceeds in terms of investments going forward? Is it in our own internal pipeline? If so, why? Are there other things outside? And if so, what? But fundamentally, we've got to be able to answer what do we want to be in 5 years. And specifically, as we make investments, keep the hurdle very high and be able to simply answer the question, where do we play and how do we win? And if we can't answer those kinds of questions, well, then we haven't done our job. And a lot of that means making the trade-offs that are super hard inside the company. As you know, many people when they work on something for a while, I'm the same way. I love that thing. But we have to be able to reallocate, allocate resources to those things that get us to 5 years from now.

Okay. Great. And then -- so now you talked about, you think EXPAREL is very differentiated, a great data set. When you put on your commercial half from your Genentech days, how do you view the end market portfolio for Pacira, end market portfolio from a commercial perspective?

Yes. So look, it's pretty amazing. I have to tell you, if you go back in time, how rapidly EXPAREL is growing. Then we all know about what happened in 2020 in all the trials and tribulations that our stakeholders have and still have. And despite that, the company was still able to maintain its position. It's a reasonably large product now, okay? So we have a good platform to jump off from. What I'd say is that just based on my past experience in commercialization, what happens over time is the world gets more and more complex. For those of you that were around a long time ago, you'll know that there were simpler days when you could run the trial and put some material together and go sell it, and that's great. These days is very, very complicated. It's an alphabet soup of stakeholders and reimbursement, value proposition, et cetera, super, super important. So in the days that I spent here in the Bay Area with Genentech, we had to solve a lot of those things. And the important thing is to work back from the customer. Do they need more support in access and reimbursement? If yes, then that's what we did. Do we need a different way of distributing our products? If yes, then that's what we did. Do we need to activate patients at some point and tell patients that you know what, you got to stand up and ask for it, okay? That's what we did. And so I can go through example after example after example. But what I see here is we've got to meet that level of sophistication that our customers deserve. Right now, my sense is most physicians are very aware that EXPAREL is a great product. And by and large, they want to use it, but they don't want to go through 9 steps to use it. So we got to solve that puzzle, okay? That's number one. And outside of access and reimbursement, now with this addition to the procedures that are covered under EXPAREL, it makes it super easy now for physicians to think about that. And over time, I would tell you that with 2 million-plus patients that are touched, we have to engage with the patient at some point at the right time because it's important. I have to tell you that I wish I'd known about EXPAREL when my mom had her total knee replacement surgery because she's one of those people who said, "Look, I'm not taking those pain pills." And for those of you know what happens after knee surgery, you know those few days after are super important to get her on her feet, to go through the PT and she didn't do that well because she didn't want to take these pain medicines, okay, and get hooked on it. And so she still doesn't walk like she should. And by the way, her other knee needs to be worked on, too, but she's absolutely adamant, I'm not going through that again, all right? So I'm going to have to tell her a little bit about some of the things that we have. Yes.

Right. Great. So I already mentioned, very impressive how quickly you've come up to speed. When you go back to the office on day 6, what are the things that you're focusing on right now? What are the things that you are -- you're still getting up to speed on?