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

Good morning, everyone. Thank you for joining us on day 2 of the Barclays Healthcare Conference. My name is Balaji Prasad, I'm the senior analyst for the specialty pharmaceutical sector. I am delighted today to kick start our session this morning, the management team from Pacira. Shawn Cross, the CFO; and Jonathan Slonin, the CMO. Shawn and John, thank you so much for joining us this morning. .

Thanks for having us.

So Shawn, you recently reported Q4 results, provide some outlook towards the year too. Can you walk us through the key points there and would allow to discuss each of those points?

Sure. Happy to. So we made tremendous progress in 2024 with, frankly, our new CEO coming on board early in the year. And we feel like we're in a pretty good spot for that continued momentum into 2025 and beyond. So from a financial highlight perspective, we generated just over $700 million in revenue, north of $220 million of adjusted EBITDA and ended the year with $485 million of cash and cash equivalents. So we're in a good spot financially. On the commercial front, we made similar encouraging progress where we modernized our sales and marketing infrastructure into what Frank calls a marketing, medical and market access powerhouse. We entered into two GPO partnerships. We secured a J code for EXPAREL, a new CEO for iovera. And we also made similar progress on the R&D side of things on the clinical front, in particular, and -- I don't know Jonathan, if you want to make any comments or add to what the CFO has to say at least, where we received RMAT designation for PCRX-201, unveiled, announced encouraging, very encouraging data for our 72-patient Phase I trial for that particular program, 2-year data. We'll be announcing 3-year data at some point this year. And then we're also moving forward with, I think, pretty exciting opportunities for existing products in clinical trials that would provide the opportunity for indication expansion. So for example, we're running a Phase III for ZILRETTA in shoulder OA. We have a pilot study in osteoarthritis of the hip and then also moving forward, iovera in an important indication called spasticity. So really ended the year with some significant momentum and feel like we're set up for success in 2025 and '26 and beyond.

Jon, do you want to provide an overview around the R&D programs and then we can dig into that?

Yes. So we're excited about the future with Pacira as far as our pipeline as Shawn mentioned, in addition, with our acquisition of GQ Bio. They have numerous preclinical pipeline, and we're currently evaluating that. Addition, they have an exceptional platform that we're well familiar with. So the high-capacity adenovirus is going to really be the delivery platform for gene therapy of the future, whereas most drugs today are adeno-associated viruses. There's limitations as far as payload and transduction. So they really focus on rare monogenetic disorders. The HCAd platform allows us to focus on complex genomic diseases as well as common chronic non-genomic -- non-gene diseases. A great example is PCRX-201, which we just started our Phase II trial for osteoarthritis. So we're really excited about that acquisition and what that holds as far as the future is concerned.

Great. Shawn, maybe just starting with your 2025 outlook and some of the milestones that you achieved last year and the traction that we expect for this year. Can we discuss the key priorities that you have now for 2025 to continue on this momentum? And what more we should be expecting?

Sure. Yes. So for 2025, the key objectives are to take advantage to continue the momentum from 2024, particularly on the commercial side. So driving our base business and reinvigorating that growth. So as you recall, with the success that we had in 2024 and putting in place this medical marketing and market access powerhouse concept. We unveiled a big picture 5x30 plan that provides some key elements of how we plan to evolve into a more innovative pharmaceutical company, but at the same time, really reinvigorate growth of the base business. And on the back of that, we're starting to see some -- take advantage of some tailwinds with regard to NOPAIN. As you recall, the NOPAIN Act went live on January 1 of this year. And we're starting to see some early encouraging signs with regard to uptake with regard to NOPAIN, so in particular, from the field force, we've seen some formulary wins, in addition to greater awareness of the J code. And -- but at the same time, I just want to be very clear in messaging that it's going to take time for our customers to integrate this new reimbursement code into their system. I mean I saw that first hand, the management -- senior leadership team has been doing field rides with the field force. In particular, in customers where we can be helpful in securing our [indiscernible]. But it was interesting -- this is just an anecdote, interesting to me to see that even in mid-February, we were helping prepare -- the field force was helping prepare a team at a hospital in Central California, get together all the thought leaders and the key decision makers to have conversations about NOPAIN. And they've been having them last year, but now that it's live, it's really much more tangible for them. And so just -- but still emphasizing it's one anecdote that we see early signs of progress, but we anticipate really an uptick in EXPAREL volume in the second half of the year. And then on the payer side, we continue to message the value proposition of EXPAREL, again, maybe Jonathan can chime in here, but we have a lot of work going on with regard to health economics and outcomes data that can help the payers see beyond NOPAIN, the value proposition of EXPAREL in terms of health economics and patient outcomes.

Noted. Jon?

Yes. In combination with NOPAIN where our [ HRER ] group is working quite diligently as Shawn mentioned, to deliver that message. I think the biggest barrier to utilization has been access and NOPAIN really opens up that door again, and that's what we're seeing as an anesthesiologist, it's great to get calls from my colleagues saying, "Hey, I heard about NOPAIN. How do I talk to my hospital pharmacists about implementation of that." So as it takes time to progress through the system implementation, that's sort of what we're seeing as far as uptake, but we're really excited about the potential that NOPAIN opens up additional doors and opportunities for us.

Understood. And this is something that we've now been discussing for the past 2, 2-plus years. And good to see that it's finally here and I hear you when you say it's not going to be immediate and that we'll see a more gradual uptake and gradual and resilient is probably what market investors are looking for. But digging a bit more into this, at this point of time, how much of the current business -- EXPAREL business is coming from the hospital outpatient versus ASCs versus inpatient, if you can break down those volumes further.

Sure. I'd like to think about it as 40-40-20. So inpatient for EXPAREL is roughly 40%, HOPD 40% and ASC is 20%. And that's a little bit different than the total addressable market, where it's roughly 25% inpatient and then 40% on the outpatient and even skewed towards the ASC. So to the extent that we continue to focus on the ASC, that could be some upside for us in the future.

Got it. And you spoke about the two GPOs that you won last year. So help us understand, one, how do the GPO contracts, both the Visit and Premier impact the net pricing for EXPAREL this year? And then the time line to when we can expect the third partnership or information, more information on this?

Yes. So just recall, we entered into 2 GPO contracts last year. One was earlier in the year and one was towards the end of the year, we anticipate our third and final will happen in the first half here in the coming months. Once that happens, about 80% of the EXPAREL business will be covered under the GPO partnerships. In terms of gross to net, it's roughly a mid-single-digit impact to net selling price, which I think is pretty standard. And these are sort of standard group purchasing agreements that most companies enter into. I think the reason why we're talking about it now is that Pacira hadn't done that previously, and so now we've given our customers an opportunity for improved pricing, which we hope will drive growth here in the future.

Yes. So an exciting opportunity when you combine NOPAIN and the GPOs for hospital systems to make EXPAREL available to their patients, especially as they were facing shifting surgical volumes to ASCs, this is a great opportunity for them to capitalize on the HOPD space with some of the additional programs that we're offering and participating in.

Got it. And maybe just shifting to another point, which was -- which weighed pretty heavily on the stock last year, and it seems like some clarity is emerging there is the patent litigation. So I mean, we know that there are multiple patents that are being litigated. And walk us through where each of these cases stand, where each of these patents and cases stand and how should the investors really try to set this to rest?

Sure. So the question we get in every meeting, as you would anticipate and is a very serious focus of ours. So we have 3 ongoing legal tracks. And the first is the appeal process as it relates to the 495 patent that was very well sort of publicized last year and I think a surprise to us with regard to the outcome in the District Court in New Jersey. So we filed that appeal in September. And what I understand from our legal team is that we'll take approximately 15 to 18 months for that to run its course. Secondly, we have -- secondly, and thirdly, we have 2 patent infringement lawsuits that we have filed against the generic company and its U.S. distribution partner. The first is with regard to our 574 patent, and we are awaiting a trial date for that particular process. And then the third is a more recent patent litigation filing that we've -- that we filed late last year based upon our new family of patents and a new patent in particular called the 940 patent, which is a completely new family that came out of some unexpected findings as it relates to the new manufacturing process on our 200-liter suite in San Diego. So it's a very long-winded way of saying that. We're also awaiting a trial date for the second pack and infringement lawsuit. So 15 to 18 months from last September for the appeal process. And the other two infringement lawsuits will take longer. So that's where we stand on the litigation side. And I think maybe just the big picture and you sort of implied we had a very significant downdraft in the share price last year for obvious reasons with regard to the initial patent ruling. But we are -- we continue to innovate, which is something Frank is emphasizing in many recent communications. The team has done a great job. We have this new intellectual property, and there's more IP forthcoming. So we're doing what we can and whatever we can to defend our business interests for the company and our stakeholders. And I don't think -- and we wouldn't have put out this 5x30 plan if we thought, particularly on the double-digit CAGR side of things on the product where if we didn't think there a generic launch was imminent, which we -- based upon the core proceedings and information we received there, we do not believe a generic launch is imminent, and we wouldn't have put forth this 5x30 plan if we didn't believe in the intellectual property of the company.

Understood. And so with all of these and the new patent family also that you expect to come, I mean it's stating the obvious, but eVenus will then have to litigate and file against each of these patents if they want to launch?

I'm sorry, I missed that.

eVenus will have to litigate and -- against each of these patents that will to be coming up too.

Yes, we're going to continue to litigate and I feel we're in a pretty good position.

Understood. And so you say that you clearly don't anticipate an at-risk launch from the generic side, what gives you that confidence? And would you have any visibility or advance visibility into a potential at-risk launch?

Yes, so you'll forgive me for being vague because this is an active legal proceeding and tipping our hand with one way or the other would not be prudent. So appreciate your patience with my response. But it's information gathered from the legal proceedings over the past several months, if not longer, where we're confident that there will not be an at-risk launch imminently. Now that said, of course, we've gone through multiple iterations of scenario planning internally. That's only the right thing to do. So we're prepared for virtually every situation. But again, we don't anticipate an at-risk launch. But just also as a reminder, in case that were to happen, this is not a genericized market. It's a pretty unusual situation in that we would have one competitor entering and it would become more of a competitive market as opposed to kind of a race to the bottom.

Got it. Understood. Shifting towards the business side of things. I mean, Shawn, you spoke about GQ Bio. So can you speak a bit more about this acquisition and to acquire the remaining 81% stake and what led you to this decision and what could we expect from this conclusion?

Yes, I'm happy to start and then Jonathan, you want to add some color. So we announced the acquisition of the 81% stake of GQ Bio that we did not already own. Just as a reminder, GQ Bio was sort of the genesis of PCRX-201, our Phase II program. and we acquired it for a number of reasons, both on the sort of R&D side and the platform side and then from a business perspective. And I can talk about the business side of things. So we paid $32 million for the remaining stake with $18 million of cash upfront. The delta between the $32 million and $18 million is related to some holdbacks in employee retention that will be paid over time for some of the key shareholders/employees. And also, it enables us to avoid $64 million or up to $64 million of potential milestones associated with PCRX-201, including one $4.5 million milestone associated with the Phase II program that was going to be paid imminently, I mean, like literally in a matter of months. So without being tricky, you can almost view the $18 million upfront as $13.5 million. So there were some real business reasons behind acquiring this platform. And I don't know, Jonathan, do you want to spend a little bit more time on that?

Yes. So in addition to the financial benefits that Shawn talked about, they have some really innovative pipeline assets that we're currently evaluating and more to come on that. In addition, the platform delivery. So we're in the business of developing innovative non-opioid solutions, and the HCAd platform is an exciting platform that we're going to be able to build on. And you see the success of that with our PCRX-201 data, which we presented recently 2-year data on that. And then also a great team of scientists as well. So it was really a great acquisition for us. And so you put what we're doing with the HCAd platform as far as development in addition to our additional current asset indication expansions. A lot of great readouts coming in the next -- in the future.

Got it. We look forward to updates towards that. Maybe in the interest of time, shifting very quickly towards some of the other parts of the business like iovera. Can you speak a bit more about the iovera smart tape and what this means for future growth trajectory? I mean this -- it had its starts and stops over the last few years. How should we think about the next 5 years for iovera?

Yes. So we're really excited about iovera. It provides a unique solution for people suffering from chronic pain. The newest approval, which, as you mentioned, is a longer tip. It was approved last year and the launch is coming in the next couple of months. And we're targeting medial branch blocks. So that's low back pain. There's about 28 to 30 million Americans that suffer from low back pain. It's a very debilitating condition with a high societal cost to it. Yet only about 2 million to 3 million patients seeking interventional treatment for that, meaning that there's a big need for a much better treatment and we think the iovera will be able to offer that. So we're really excited with that. In addition, we're currently enrolling for our spasticity trial. And hopefully, we'll have some readout on that next year. That is a really debilitating condition, not just for the patient, for the caregivers as well, and there's really not a good long-term solution for that. So we're really excited about that as well. So a great future with iovera.

Got it, John. And on ZILRETTA, you spoke about shoulder osteoarthritis and that you expect to see Phase III data some time in 2026. Help us understand what you're looking for and what would you be happy to see in the data there? And how should we think about the shoulder OA market and its contribution towards ZILRETTA?

So there's currently 1 million intra-articular injections occurring annually. And with the success of ZILRETTA for shoulder, that would be the first extended-release steroid approved for shoulder OA. So we're really excited about that readout coming next year.

And then we have the hip pilot program, which is roughly...

Yes. So we're -- we just kicked off a hip OA pilot as well to see the benefits of ZILRETTA in that space as well. So after we conduct these studies, we'll have a discussion with the FDA as far as how many joints do we need to do, but we have knee, shoulder and we'll see what that hip data shows as well. So.

So I think ZILRETTA, from a big picture perspective, it's a -- we know it's a meaningful contributor. I did about -- almost $120 million in revenue for us last year. We have these indication expansion opportunities that we're excited about. But it's a -- we also know it's a very promotional responsive product. So the field force is focused on increasing reach, share of voice and frequency and then promoting the benefits of being the only FDA-approved long-acting steroid for knee OA. So that's the focus of this year, and then we'll see what happens with the trials next year.

Got it. Maybe a quick question around the gross margin side of things. Again, you had a couple of step-downs over the last couple of years? And how should we think about this gross margin promotion now? And what are the factors which will drive to a stabilization of those?

Yes. We're actually pretty encouraged by and recognize the past, but we're pretty encouraged by the progress the team has made in San Diego. We have a terrific Chief Technical Officer and a phenomenal team, very dedicated team in San Diego and Swindon. So encouraged -- I mean, just great people working very hard. So from a part of the 5x30 is a goal to increase gross margins by 5 percentage points over the next 5 years, so roughly 1 point per year. And we intend to achieve that through a couple of very sort of natural ways as we see EXPAREL volume increase will benefit from natural economies of scale. But then also, as we've -- recall, we began creating commercial supply out of our 200-liter suite mid-last year in San Diego. That manufacturing process has a meaningful improvement in cost of goods compared to the 45 liter. So as you see EXPAREL volumes shift from the 45-liter suite to the 200-liter suite we should see some improvement in margins there. And then finally, and this is more on the blocking and tackling side, perhaps a bit less sexy, but we have a new head of procurement and a great team in place there that's really working hard to drive down costs of the supply chain.

Understood. Shawn, maybe final question around capital allocation and share buybacks and any kind of potential future bidding? How are you thinking about capital allocation overall for the firm now?

Sure. Yes. Capital allocation is a continual discussion at the leadership team and the Board level. And we think about it in 4 buckets. And with the 5x30 framework as sort of the overlay in our evolution to a more innovative biopharmaceutical company, but number 1 is reinvesting in the business to reinvigorate and accelerate. The second is to invest in the future with Jonathan's team and the pipeline. The third, just a reminder, we do have some debt outstanding. So we're being mindful of a convert coming due and balancing that. And then finally, we have $125 million left on the share buyback. So all those 4 buckets sort of go into the decision-making process, and that's how we think about capital allocation.

Got it. I think that would be a good spot to leave this discussion at Shawn. And Jonathan, thank you so much for joining us today. I wish you a very productive day at the Barclays Healthcare Conference. Thank you.

Thanks for having us.

Thanks for having us.