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

Good day and thank you for standing by. Welcome to the First Quarter 2025 Pacira BioSciences Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Susan Mesco, Head of Investor Relations. Please go ahead.

Thank you and good afternoon, everyone. Welcome to today's conference call to discuss our first quarter 2025 financial results. Joining me are Frank Lee, Chief Executive Officer; Jonathan Slonin, Chief Medical Officer; and Shawn Cross, Chief Financial Officer. Tony Molloy, Chief Legal and Compliance Officer; and Brendan Teehan, Chief Commercial Officer, are also here for today's question-and-answer session. Before we begin, let me remind you that this call will include forward-looking statements subject to the safe harbor provisions of federal securities laws. Such statements represent our judgment as of today and may involve risks and uncertainties. This may cause our actual results, performance or achievements to differ materially. For information concerning risk factors that could affect the company, please refer to our filings with the SEC. These are available from the SEC or the Pacira website. Lastly, as a reminder, we will be discussing non-GAAP financial measures on today's call. A description of these metrics, along with our reconciliation to GAAP can be found in the news release issued earlier this afternoon. With that, I will now turn the call over to Frank Lee.

Thank you, Susan and good afternoon, everyone. I'm pleased to say 2025 is off to a solid start. We started the year by introducing our 5x30 path to value creation to advance our transition into an innovative biopharmaceutical company. To remind you, the plan supports 2 broad strategic imperatives: first, accelerating growth in our strong commercial base business; and second, advancing an innovative pipeline of potentially transformative assets like PCRX-201. In just a few short months, we've achieved early and meaningful 5x30 milestones. With respect to growing our commercial base business, we successfully settled our patent infringement litigation for EXPAREL. This agreement recognizes the strength of our IP and establishes an exclusivity runway extending to 2039. We expanded our EXPAREL patent estate and listed our 18th patent in the FDA's Orange Book with additional patents forthcoming. And our legal team recently secured a favorable court ruling that eliminates our RDF royalty obligation for EXPAREL. This will benefit EXPAREL gross margins by low single-digit percentage. As for the pipeline, here, too, we saw a strong progress. First, we added a novel platform, a preclinical portfolio and a talented research team with the acquisition of GQ Bio; second, multiple new PCRX tool and data sets are reading out this year. The new data continue to underscore the promise and disease-modifying potential of PCRX-201 and the HCAd platform. Finally, patient dosing is officially underway in our Phase II ASCEND study of PCRX-201 in osteoarthritis of the knee. I'll start by expanding a bit more on the settlement of EXPAREL litigation. We believe this positive outcome recognized the strength of our EXPAREL patent portfolio. It also provides important short- and long-term visibility to confidently advance our 5x30 plan and fortify our leadership in muscular skeletal pain. Importantly, the agreement is volume limited with no pricing restrictions, royalties or technology transfer. Fresenius and its partners are solely responsible for the future manufacture and import of the generic product. As a reminder, this is a sole generic ANDA filer. Any future filer would have to overcome a significant number of legal hurdles, given our growing number of Orange Book-listed patents. In short, the agreement sets the stage for long-term EXPAREL growth and market expansion for the next 14 years. And with only 1 generic and ample room for increased penetration, we expect EXPAREL to generate significant cash flow for the foreseeable future. This provides a perfect segue to NOPAIN. We have an important opportunity to significantly expand EXPAREL utilization. As you know, NOPAIN provides a reimbursement pathway for 18 million outpatient surgical procedures. Approximately 6 million of these are CMS procedures, which are now covered under NOPAIN. The remaining 12 million procedures are covered by commercial plans, where we expect NOPAIN like coverage and policies will be implemented over time. As a reminder, it will take time for the market to broadly adopt the new reimbursement. That said, we're seeing encouraging leading indicators in this early phase of the launch. First quarter average daily EXPAREL sales and volumes were up approximately 7% over 2024 after adjusting for 2 fewer selling days in 2025. This is more than double the low single-digit year-over-year growth rate reported in the last 2 years. Beyond EXPAREL sales, other positive early indicators include: an increase of more than 30% in both new and reactivated EXPAREL accounts with customer expansion across all sites of care, mounting utilization of the new EXPAREL J-code, indicating a rising level of awareness around enhanced reimbursement policies, growth within community hospitals and ambulatory surgical centers, these accounts, which typically have fewer decision makers are embracing the NOPAIN value proposition. We're incorporating best practices from these early wins into our discussions with larger health systems. And formulary wins are starting to come in for integrated delivery networks. We expect these wins to grow as the year progresses while we navigate the numerous stakeholders within these large-scale networks. While we're encouraged by the early positive trends, it's important to keep in mind that we're driving change for more than a decade of established processes within complex delivery systems. As you know, claims data can take 4 or more months to process and we look forward to sharing quarterly updates as more reliable market data become available in the second half of the year. On the payer front, we continue to highlight EXPAREL's value proposition to commercial plans with real-world evidence. We're pleased to see an increasing percentage of claims coming in from those plans that have adopted NOPAIN like policies. This too indicates a rising level of awareness among health care providers and organizations about the enhanced reimbursement that's now available. Since our last call, additional commercial plans have adopted NOPAIN like coverage and we anticipate more to follow suit in the months ahead. Now turning to our other products, ZILRETTA and iovera°. As a reminder, late last year, we restructured our field-based teams to prioritize EXPAREL and maximize the opportunity of NOPAIN. As part of our plan to establish a commercial, medical and market access powerhouse, we pivoted our existing sales force to focus on EXPAREL. In parallel, we onboarded new sales teams to focus specifically on ZILRETTA and iovera° given specific capabilities required to service these customers. As a result, first quarter sales were impacted by the transition given that both products are promotionally sensitive. This should naturally subside with some time as the team strengthens relationships and begins to hit its stride in the second quarter. In addition, our 3 sales force structure now has the capability and capacity to carry additional products. For ZILRETTA, we're rolling out several new programs this spring. Among these are establishing value-based contracts with large accounts that have demonstrated interest and are capable of driving volume growth, broadening use within Medicare population where we have a very good access and coverage. There is no prior authorization requirement for CMS patients in contrast to those commercial plans. This allows ZILRETTA treatment to be administered during the same office visit that a provider decides to treat. Driving awareness around ZILRETTA's unique delivery mechanism and strong safety and pharmacokinetic profile, this allows for fewer systemic effects such as blood glucose spikes, a key advantage for diabetic patients and their health care providers and assessing strategic partnerships to expand our breadth and depth of customer coverage. In parallel with our commercial activities, our Phase III registrational study is advancing in shoulder OA and on track for top line results next year. If approved, ZILRETTA would be the first and only long-acting steroid approved for use in shoulders. This is a sizable market with approximately 1 million intra-articular injections administered each year. Switching gears to iovera°. As you might recall, this year, we're launching an innovative Smart Tip, specifically designed for use as a medial branch block to relieve low back pain. Millions of Americans suffer from chronic low back pain, it often leads to poor quality of life, disability, lost wages and persistent prescription opioid use. We're pleased with what we're seeing from the first phase of the launch. Initially, we're focusing on a small group of spine key opinion leaders to gather insights and feedback before expanding to a broader targeted audience. The medial branch Smart Tip stands to grow the number of iovera° procedures in the second half of the year and beyond. Lastly, our registrational study of iovera° for the treatment of spasticity is advancing with top line results expected next year. There is significant lack of innovation and patient satisfaction in this debilitating condition. We believe iovera° represents a novel approach for patients with moderate to severe spasticity seeking better treatment options. In addition to our label extension studies for ZILRETTA and iovera°, we're evaluating other opportunities with near and midterm path to revenue accretion. We also evaluating commercial partnerships in certain key markets outside of the U.S. where we believe our products can deliver value. Turning now to our clinical pipeline where we're focusing on becoming a therapeutic area leader in musculoskeletal pain and adjacencies. These are large markets, significantly lacking innovation, Nearly 1 in 4 Americans are living with chronic pain and are actively seeking new interventions that address its underlying cost. As we look at new product development, we're prioritizing mid- to late-stage derisked opportunities, more specifically, product candidates with validated mechanisms and established reimbursement pathways. PCRX-201 is a great example that we believe has the potential to revolutionize the treatment of osteoarthritis. Before I turn the call over to Jonathan for a review of our PCRX-201 program, I'd like to highlight our recently announced stock repurchase program and continued focus on disciplined capital allocation. This $300 million authorization doubles the amount authorized under the previous stock repurchase program. This decision underscores our commitment to delivering shareholder value and the confidence we have in our growth outlook. We believe Pacira shares offer an attractive opportunity at the current valuation, particularly in light of the settlement of EXPAREL patent litigation. This settlement agreement solidifies the strong cash flow generating profile of our business with the certainty of an exclusivity runway to 2039. We believe this will drive significant growth and value as we advance 5x30. With that, I'd like to turn the call over to Jonathan to provide additional details on PCRX-201 and our recently acquired HCAd platform. Jonathan?

Thank you, Frank and good afternoon to all joining us today. I'm excited to share a few highlights on the progress made with PCRX-201, which we believe has the potential to be an important disease-modifying therapy for osteoarthritis. PCRX-201 targets the IL-1 pathway, which triggers inflammation in response to pathogens and cellular stress. Importantly, this is a well-validated derisked target. There are 2 FDA-approved drugs targeting the IL-1 pathway that are effectively used to treat other inflammatory conditions. These drugs are not practical for osteoarthritis as they would require very high doses or daily injections directly into the joints. IL-1 Ra is a core regulator of this pathway and helps to keep inflammation in balance by turning it off when it's not muted. As we get older, our bodies have a more challenging time maintaining that balance. As a result, we develop chronic IL-1-driven inflammation that eventually causes joint damage and pain. With PCRX-201, we are rebalancing the inflammatory scales by limiting the body's natural response to inflammation at the cellular level. This targets the root cause of osteoarthritis rather than just alleviating symptoms. We remain highly encouraged by the data from our large 72-patient study in array of the knee. We continue to follow these patients and have multiple new data sets reading out this year. Last month, we presented encouraging data at the Osteoarthritis Research Society International Meeting. In this subgroup analysis, a single injection demonstrated 2 years of improvement in pain, stiffness and function. Importantly, clinically meaningful efficacy was observed across all structural severity subgroups. This included the most severe with KL Grade of 4. Most osteoarthritis studies do not include KL Grade 4 patients as this advanced stage is particularly challenging to treat. Next week, the team will be presenting at the Annual Meeting of the American Society of Gene and Cell Therapy. Our presence will include a podium presentation where we will be sharing immunogenicity data. These data will provide important insights into the potential for redosing. As you know, this would be a key feature given that many OA patients have multiple joints impacted. We will also be hosting a clinical symposium to highlight the advantages of our high-capacity adenovirus or HCAd platform. In June, we will be at the Annual Meeting of the European Alliance of Associations for Rheumatology. Here, we will be presenting the 3-year follow-up data from our Phase I study. As you know, we are advancing our Phase II ASCEND study in knee OA and patient dosing is underway. We expect to report top line data from Part A of the study late next year. This study is generating a high level of interest from investigators, which underscores the significant unmet need and lack of innovation in osteoarthritis. To fully describe the ASCEND study design, we have made an educational webinar available in the Investors section of our website. We invite you to watch and learn more about our development program for this exciting asset. As you know, PCRX-201 is the lead program for our recently acquired HCAd gene therapy vector platform. This platform solves many of the challenges that have made gene therapy inaccessible for common diseases. The HCAd vector is much more efficient at delivering genes into cells compared to many other gene therapies that rely on adenovirus-associated virus or AAV vectors. As a result, the desired effect can be achieved with much smaller doses. The vector used in the HCAd platform can carry up to 30,000 base pairs of DNA. This enables gene therapy with multiple or larger genes compared to AAV vectors. It is locally delivered and sustained. This differs from systemic approaches requiring much higher dosing to achieve the desired effect. Lower doses coupled with efficient manufacturing, support a favorable and commercially viable cost of goods profile, another key advantage over other gene therapies. In addition to this novel local delivery platform, this transaction brings us key research talent and a promising preclinical portfolio. The team is carefully looking at these opportunities which may have disease-modifying potential in other prevalent musculoskeletal diseases. We also have identified numerous well-validated cytokines that would be strong candidates for the HCAd platform. For those areas outside of our strategic focus, we see potential for partnering. This could extend the HCAd platform into other conditions of high unmet need where localized treatment with a therapeutic protein is warranted. Bottom line, the HCAd platform directly aligns with our 5x30 objectives of having 5 novel development programs and 5 partnerships by 2030. It offers great potential to position us as a leading developer of novel treatments for the underlying cause of chronic pain. It also presents the opportunity for Pacira to be a strategic partner of choice and drive value through future royalty revenue. We look forward to sharing more detail on the advancement of PCRX-201 and other HCAd-based product development opportunities on future calls. With that, I will turn the call over to Shawn for a review of the financials.

Thank you, Jonathan. I'll start with an update on sales and margin trends. First quarter EXPAREL sales increased to $136.5 million versus $132.4 million in 2024, driven by volume growth. On an average daily basis, EXPAREL sales and volumes were both up by approximately 7% after adjusting for 2 fewer selling days in 2025 versus 2024. First quarter ZILRETTA sales declined to $23.3 million versus $25.8 million reported in 2024. As Frank mentioned, this was largely attributable to transition to our new sales forces for ZILRETTA and iovera°. Looking ahead, we believe the foundation is set for a return to growth for the remainder of the year. For iovera°, sales were slightly up at $5.1 million compared to $5.0 million in the first quarter of 2024. Turning to gross margins. On a consolidated basis, our first quarter non-GAAP gross margin improved to 81% versus 72% last year. Gross margins continue to benefit from the improved costs and efficiencies of our enhanced larger-scale manufacturing process that went live last year in San Diego. As Frank noted, we had a recent win in the Nevada court that will benefit future EXPAREL gross margins by low single-digit percentage by eliminating RDF royalties. Our non-GAAP R&D expense, in the first quarter increased to $23.1 million from $16.4 million reported last year. This increase relates to start-up activities for the Phase II study of PCRX-201, expenses associated with ZILRETTA shoulder study and product development. Non-GAAP SG&A expense came in at $76.2 million for the first quarter. This is up from $63.8 million last year. This increase is largely due to the investments in our commercial, medical and market access organization, targeted marketing initiatives and the expansion of our field force. All of this resulted in another quarter of significant adjusted EBITDA of $44.1 million for the first quarter. As for the balance sheet, we continue to be in a position of strength with $494 million in cash and investments. The business that is producing significant operating cash flow, we believe we are well equipped to advance our 5x30 growth strategy to create shareholder value. We're taking a disciplined approach to capital allocation, where we're focusing on 3 areas: first, accelerating growth in our best-in-class base business; second, advancing an innovative pipeline and becoming the leader in musculoskeletal pain and adjacencies; and third, opportunistically returning capital to shareholders. As Frank highlighted earlier, the Board recently authorized a new share repurchase program of $300 million. Given what we believe to be a significant disconnect in our current market valuation, this buyback authorization will run through the end of 2026. Going forward, we will continue to be highly strategic, balancing favorable operating margins while executing our 5x30 growth strategy. We expect to prioritize opportunities that benefit operating margins to further enhance value for shareholders. This includes carefully investing in a best practice commercial, medical and market access powerhouse and targeted marketing initiatives. In parallel, we will work to advance the pipeline of potentially transformative assets of PCRX-201 as we transition into an innovative biopharmaceutical organization. That brings us to our full year P&L guidance for 2025, which today, we are reiterating as follows: total revenue of $725 million to $765 million. As Frank mentioned, we are pleased with the positive early signs and growing level of awareness around NOPAIN. That said, it will take time for broad adoption and we expect a more meaningful uptake to begin in the second half of the year. Non-GAAP gross margin of 76% to 78%, non-GAAP R&D expense of $90 million to $105 million, non-GAAP SG&A expense of $290 million to $320 million, stock-based compensation of $56 million to $61 million. Lastly, for those modeling adjusted EBITDA, we expect our full year 2025 depreciation expense to be approximately $30 million. Lastly and not surprisingly, we've recently been asked several questions about the impact of potential tariffs. As a reminder, all of our intellectual property is domiciled in the U.S. The majority of our manufacturing takes place in the U.S. And we have the capacity to allocate more EXPAREL manufacturing to the U.S. Based upon everything proposed today, we do not expect a material impact on our operations. Recognizing this is an evolving situation, we are closely monitoring developments and committed to minimizing any potential impact on the business. And with that, I'll turn the call back to Frank.

Thanks, Shawn. In closing, I want to emphasize the transformative journey our company has been undergoing. With our 5x30 strategy, we have a clear path for future growth and value creation, well on our way to becoming a pioneering biopharmaceutical company and a leader in the musculoskeletal pain adjacency. Our best-in-class commercial base business is generating significant cash flow and is poised for accelerated top line growth. This is anchored by EXPAREL, which is well positioned to continue to set new standards in patient care, in the near and long term. PCRX-201, our novel locally administered gene therapy product candidate for common diseases like osteoarthritis. This exciting asset continues to demonstrate the potential to revolutionize the treatment of osteoarthritis. Our Phase II development program is enrolling and on track for the first data readout next year and our proprietary first-of-its-kind HCAd platform has the potential to unlock gene therapies for common diseases affecting millions of patients. Thank you again for joining us today and for your continued support and trust and our mission to deliver innovative non-opioid therapies to transform the lives of patients. With that, operator, we're ready to open the call for questions.

[Operator Instructions] And now we're going to take the first question. And it comes the line of Gregory Renza from RBC Capital Markets.

It's Anish on for Greg. Just a couple from us. First, if you could just provide some color on what proportion of patients on average are covered with Medicare and would NOPAIN be applicable for within each surgical segment? Are there any coverage trends within that you're taking notice of? And second, on 201, what are you hearing from docs and patients with respect to what needs to be shown to encourage wide adoption should a therapy such as it enter the market?

Thanks, Nishan (sic)[ Anish ]. It's Frank Lee here. Thanks for the question. So your question was about the proportion of patients covered by Medicare. And let me turn it over here to Brendan, our Chief Commercial Officer and he can speak to that.

Sure. Thanks for the question. As you would suspect there is a little bit of a difference between inpatient and outpatient. We have more commercial coverage in the inpatient segment, a little over 50%. But in the outpatient -- hospital outpatient setting in ASC, it skews a little bit more towards the Medicare side, on the HOPD side. And then for ASC, it's principally commercial, almost 2/3 -- 3/4 of our business would be found commercially covered in ASCs.

Anish, the second question was around 201 and what we're hearing from clinicians on what we need to show for wide adoption. At a high level, what I'd say here is, based on our market research and speaking with the community, current standard of care provides roughly 3 to 6 months of benefit. And to the extent that we can provide a year or more, that's considered transformative and game changing. And so that's why we're particularly enthusiastic about the 2-year data we've been able to share so far. And as Jonathan mentioned, we'll be sharing our 3-year data later on this year.

And the next question comes the line of Gary Nachman from Raymond James.

So first regarding NOPAIN. You've talked about some of the logistical challenges with hospital systems benefiting from NOPAIN. What are you doing to help expedite that from your end, the review programs that you have in place? And are you working with any third parties to help you get hospitals online faster? And then just talk a bit more about how overall education of NOPAIN is going for physicians and hospitals in general and where awareness is now versus, let's say, the start of the year? And then I have a follow-up.

Sure. Thanks for the question, Gary. And just at a high level, before I turn it over to Brendan here, at a high level, we said very, very consistently that it's going to be more the second half of the year until we really see traction for all the reasons that we described. We are seeing some good early indicators. And certainly, the things that we see in the smaller institutions and other settings, we can apply to these bigger institutions. But let me turn it over to Brendan to talk here a little bit more.

Yes. Thanks for the question. And I think trying to really address where we've seen our early progress, which I think we've translated into a path forward for larger IDNs. I think things are going largely as we expected. So in the community hospital setting, in the ambulatory surgery centers, we're seeing significant growth and adoption. And the reason we're seeing that is there are fewer decision makers, easier to communicate the NOPAIN message as well as the separate J-code. But concurrently, we're also seeing formulary wins at IDNs where they're expanding lines of use for EXPAREL as a function of these conversations. Now obviously, a lot of that's taken place over the last 90 to 100 days. I think the momentum you'd expect to see in IDNs would come as has been suggested in the latter part of the year as that -- as it works its way through the system.

So let me just add to that, Gary, that as I mentioned in my comments, we have prioritized our resources to EXPAREL, field force and other field-facing resources as well as in-house resources. And so -- and this is how we're ensuring that we have focus on this. And again, as more reliable market data become available as we progress during the course of the year, we'll be able to share with you some data that we can trend over time consistently. So -- but bottom line, as Brendan said, is we're, I think, right on track with where we expected to be and we expect that we'll continue to see the ramp with respect to NOPAIN.

Okay. Great. And then just on the recent settlement agreement with Fresenius, now that you have line of sight of no generic EXPAREL through the end of the decade. Discuss your priorities a bit more in terms of allocating capital. So how much will you be spending on the commercial efforts to accelerate EXPAREL versus spending on the pipeline and also looking to expand the pipeline through in-licensing deals? And would you consider doing a larger transaction for on-market products? And would you only focus on the pain space or potentially look at some adjacencies?

Yes. Thanks for the question, Gary. And before I turn it over to Shawn here to talk about capital allocation, let me just say at a high level, we're very pleased with the settlement. This is a volume-limited settlement, provides visibility out to 2039. That's #1. And as you know, even in the first year, it's high single digits and it gradually goes up from that. And the last few years, it's steady at high 30s, is what we've stated publicly, right? So that, combined with the fact that right now, as we've defined our market, our penetration is still relatively low, in fact, in the high single digits, if you aggregate it. So we have plenty of room to grow and we've got visibility now out to 2039. So that as context and now let me turn it over to Shawn for our capital allocation priorities.

Yes. Thanks for the question. So similar to the last time we all got together, we're -- just to reiterate, we regularly review the capital allocation strategy. And as Frank mentioned, some key areas of focus, investing in the base business to capitalize on NOPAIN with the goal of accelerating top line growth as we've articulated in the 5x30, advancing very thoughtfully an innovative pipeline, focused on musculoskeletal pain and adjacencies. And then as we announced earlier, returning capital to shareholders. Board authorized an increase in the share buyback, which is now at $300 million and it runs through the end of 2026. With regard to that particular decision, the -- it was part of our capital allocation and continued evaluation. We performed extensive analysis to that end to get to that $300 million number and also believe based upon this positive settlement that there is a significant disconnect in the current valuation of the company.

Thanks, Shawn. Let me just bring it back to maybe adding additional color on a couple of other elements here. First is, as I mentioned, overall, we're low in terms of penetration as we define our TAM. And just to be really very specific, I mean, we've got, I think, a lot of room to further penetrate and lower extremity, GI, OB/GYN, OMFS, plastics and much of which is outpatient if you take a look at the latter few. So we're optimistic about the potential we have to further penetrate these markets and grow as we get beyond 2030. So that said, I think that in terms of the kind of capital allocation, you see how we progress in a very disciplined way to focus on our growth. And the GQ Bio acquisition that we completed this quarter, I think is a great sign of how we're being very, very disciplined with the kind of capital that we deploy.

Okay. But it sounds like you would consider on-market products. It sounds like you have some capacity within the sales force to potentially do that.

Yes. Great point, Gary. As I made in my comments, this restructuring of sorts that we did, prioritized EXPAREL but it also, what it did was provide capacity now for the 3 sales forces to not only carry our products but perhaps additional products that we bring into the back, new products. So I would say that, that's a possibility. We'll be very, I think, disciplined in the way we look for these kinds of opportunities. And given the current market environment, I think we're in a very strong position financially to look for those kind of opportunities and find a deal in a very disciplined way.

And the question comes from the line of Les Sulewski from Truist Securities.

This is Jeevan on for Les. Just a quick one for me. Are there any EXPAREL enhancements in your line of sight that could extend its life cycle or perhaps expand its label?

Yes. Thanks for the question, Jeevan. What I'd say, at a high level, is we continue to innovate EXPAREL. And as you can see from the recent patents that we've -- Orange Book-listed the 18th one and we expect to continue that innovation going forward. So that's #1. #2, as it relates to other, I would say, indications, we don't have plans for that. We currently do have some studies ongoing but we don't have any new plans for additional indications for EXPAREL.

And the question comes line of Hardik Parikh from JPMorgan.

Just had a question about the gross margins, and I apologize if I missed it in the middle. You mentioned about how the royalty to RDF is going to get eliminated and that was about low single digits, that should help improve the gross margins. Just wondering how that was incorporated into the full year guide in terms of you reiterating it?

Sure. Thanks for the question, Hardik. As you might know, this litigation goes -- has a long history and our legal team did a great job here of getting to a favorable resolution. And as you mentioned, this is low single-digit impact for EXPAREL. This is overall for EXPAREL. And so we're very pleased about this. And going forward, now this will help us improve margins for sure. But I want to come back to, we think that overall margins will improve as we sell more product. So as we drive volumes, margins will continue to improve. So that said, Shawn, you can speak to a little bit of the impact this quarter versus going forward.

Yes, we were -- we're very pleased to see the strong first quarter margins that exceeded our guided range of 76% to 78%. We're getting good volume output from both our EXPAREL sites, San Diego and the U.K. As we just discussed, the margins benefited from the favorable RDF royalty ruling. But just as a reminder, there's a number of manufacturing variables that can result in a pretty significant quarter-over-quarter variability. But based upon the performance of this quarter and what we're seeing from the teams that we'll, of course, look at margins again after our second quarter landing and determine if an update is needed for a full guidance -- full year guidance range at that point.

And I guess just to add, this quarter, it's a minor impact this quarter. It's really more going forward that we'll have a more significant impact, that carryover RDF, right.

[indiscernible]

Yes. I think that was your question, wasn't it Hardik?

Yes, yes, correct. Basically, why not raise the guide. Got you. And then the second question is just more around...

Hardik, just to clarify. Just one other thing about that, just for the guide. The other thing is, obviously, there are a number of headlines about tariffs these days. And so, of course, we're -- we've been diligent at looking at that, analyzing that. And so we're comfortable with the guidance that we provided, so we're not lowering guidance. We're comfortable with the guidance that's provided. And then as we get better visibility on truly how these tariffs might, if and how they might manifest and we can sharpen guidance as need.

Okay. Great. And then the second question is just around pricing. So if I understand your comments correctly, I'm interpreting as pricing was mostly flat, maybe slightly down when you adjust for those lower number of selling days. So one, is that correct? And then how do you see pricing progressing for the rest of the year as GPO contracts come online?

Yes. So let me turn this over to Shawn. We pursued price as we normally do. And obviously, GPO contracts are slowly coming online. So Shawn?

Sure. Yes. The -- with regard to EXPAREL, the -- it was gross [indiscernible] volume growth for the period. That was -- so it was all volume effectively. And then with regard to the GPOs, we've, again, talked about this previously that there will be a mid-single-digit impact for the first year when we bring on board, knock on wood, the next final GPO agreement. We'll be lapping the second one this coming fall and that's how to think about it, mid-single-digit impact.

And the question is from the line of Serge Belanger from Needham.

Apologies if you already covered this earlier in the call. Just regarding surgery volumes, can you just give us a little color on what you're seeing so far, first quarter and, I guess, the first month or the second quarter and if the macro has impacted those volumes? And secondly, regarding competition, I think you mentioned that you're still at low penetration on your overall TAM. But just curious if you're seeing more competition now from other players like ZYNRELEF? That's it.

Thanks for the question. Let me take a little bit of the competition question and then turn the surgery volume to Brendan. Right now, we don't see any new competition that's significant. So we have a lot of room to grow. There's largely the bupivacaine, short-acting bupivacaine and the various cocktails that are out there, pumps, et cetera. But all that said, we really think the room -- we have a lot of room for penetration going forward. So that's what I'll say to that. Nothing has changed with respect to the competition and intensity. So, Brendan?

Yes. Thanks for the question. In the first quarter, we saw nominally a decline in surgical -- surgery room hours, low single. [Audio Gap]

Serge, anything more?

No, that was it.

Dear speakers, there are no further questions for today. I would now like to hand the conference over to Susan Mesco for any closing remarks.

Thank you, operator and thanks to all on the call for your questions and time today. We are excited about the opportunities that lie ahead for us. Throughout the remainder of the year, we will continue to ensure we are well positioned for long-term success by executing our 5x30 plan to advance our mission. Thank you and be well.

That does conclude our conference for today. Thank you for participating. You may now all disconnect. Have a nice day.