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

Thank you. Thank you for standing by. Welcome to Pesera Biosciences' second quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. a question during the session, you'll need to press star 1 1 on your telephone. You'll hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. 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 Mesko, Head of Investor Relations. Please go ahead.

Thank you. Good afternoon, everyone. Welcome to today's conference call to discuss our second quarter of 2026 financial results. Joining me are Frank Lee, Chief Executive Officer, Brendan Tehan, Chief Commercial Officer, and Sean Cross, Chief Financial Officer. Kristen Williams, Chief Administrative Officer and Secretary, Tony Molloy, Chief Legal Officer, and Jonathan Slonin, Chief Medical 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 state partner provisions of federal securities laws. These 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 at the FCC 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 this afternoon.

that I will now turn the call over to Frank Lee. Thank you Susan and good afternoon to everyone joining today's call. On behalf of the remarkable team here at the ACERA, I'm pleased to share our continued progress in executing our 5x30 strategy and transitioning into a more innovation driven pharmaceutical company. Our second quarter performance reflects disciplined execution of our 5 by 30 strategy, translating into commercial momentum, strong cash generation, pipeline advancement, and high-caliber partnerships. Furthermore, our 5 by 30 progress was clearly recognized with a decisive shareholder vote for both our strategy and director nominees at our annual meeting in June. Notable second quarter accomplishments include revenues of more than $109 million, even as macroeconomic pressures weighed on certain elective procedures in the hospital setting. Adjusted EBITDA of nearly $50 million. Establishing a scalable, commercially viable, US-based manufacturing process for PCRX201. testament to our team's clinical development and manufacturing capabilities. Opening enrollment in Part B of our Phase 2 Ascent Study for PCRX201. completing enrollment in IAVERA Registrational Study in Spasticity, and completing the iovera divestiture on July 31st and forming a partnership in spasticity with Zimmer Biomed. I'd like to thank the Becerra and Zimmer Biomet teams for working so collaboratively and efficiently past 30 days to close this transaction. I look forward to continued partnership with our Zimmer Biomed colleagues going forward. I'll begin with a high-level overview of the Expiril and then Brim will cover additional commercial details shortly. It's used to increase patient share across all segments. soft tissue procedures, which historically wax and wane with macroeconomic conditions. are getting higher than CMS. And third, increasing penetration in existing and new accounts while driving expansion within macroeconomic resilient procedures in outpatient sites of care. Turning to Lifecycle Management, we remain on track to report top line results for our Phase III study of Xelretta and shoulder OA later this year. If approved, Xilretta would become the first drug with an FDA-approved indication specifically for shoulder length. We also recently completed enrollment in our Registrational Iovera Spasticity Study and remain on track to report top-line results before year-end. As a reminder, we will collaborate with Zimmer Biomed on advancing the spasticity program The transaction structure provides us with the opportunity to receive additional compensation, assuming clinical and regulatory success. Beyond our commercial products, our pipeline is entering what we believe will be a catalyst-rich We expect top-line data from PCRX 201 later this year and continue to advance PCRX 2002 with Phase 2 development scheduled to begin later this year. DCRX2002 is a novel hydrogel formulation of ropivacaine designed to provide both rapid onset and long-acting analgesia from a single, simple installation into the surgical field. If successful, we believe it has potential to complement Expiril and further strengthen our leadership position. physician in post-surgical pain management. Let me spend a moment on PCRX201, which we believe has potential to represent a paradigm shift in the treatment of NeoA. Our scalable commercial manufacturing process is now up and running, and enrollment in Part B of our Phase II study is underway. As a reminder, Part A are expected later this year. Part A randomized 49 patients to one of three treatment groups, PCRX201 dose A, PCRX201 dose B, control. All patients received an intra-articular corticosteroid before treatment. allowing the durability of PCR-X201 to be evaluated against the standard of care. The primary objective is safety with secondary efficacy endpoints evaluated at weeks 38 and 52. We recently received some exciting news for our PCRx201 program with the acceptance of a Phase I manuscript for the publication in the Annals of Rheumatic Diseases, the leading journal in rheumatology. The paper highlights encouraging results from the 72-patient phase 1 study over 104 weeks. We're also advancing HCaT-based preclinical candidates in degenerative disc disease, dry eye disease, and canine OA. completed a pilot safety study in K9-OA and our pilot efficacy study is now initiating. Finally, the last item I'd like to cover is important progress we've made executing new partnerships. pillar of our strategy. I'll begin with the recently completed divestiture of Iovera to Zimmer Biomet. For Pesera, the transaction sharpens our focus as an innovation driven biopharmaceutical company while improving our margin profile. Further, it allows us to redirect capital and resources toward higher return growth opportunities aligned with our long-term strategic priorities. We're also excited about this transaction means for patients. Zimmer is uniquely positioned to maximize Iovera's global potential for patients through its scale, orthopedic leadership, and strong presence in total needs. On the financial front, the zero will receive up to $140 million with $70 million upfront and additional $70 million linked to revenue-based milestones. The structure preserves our participation in IOVAIR's future success in both existing indications and future projects. and spasticity. We're also pleased to share important progress with LG Chem's recent regulatory filing for Expiril in South Korea. This places revenues on track to beginning 2027. As we move forward in the second half of the year, we plan to provide visibility into additional commercial partnerships outside of the U.S. Secondly, we expect XQH revenues to extend through the life of our patents, which provide exclusivity into the 2040s. Taken together, these transactions show how the partnership pillar, the 5x30 strategy, can extend our reach, improve capital efficiency and allow us to concentrate resources on our highest priority growth opportunities. Our experience has shown that partnerships with top-tier organizations can generate value beyond the initial agreement by mutually leveraging our scale, expertise, customer relationships, and our relationships with our partners. unlocking commercial value for our partnered assets. In parallel, these partnerships create pathways for potential future collaborations across our portfolios. In summary, Sarah exits the second quarter with strong execution of our 5 by 30 strategy commercial momentum, a broader market access position, meaningful upcoming pipeline catalysts, growing roster of top-tier partners. With that, I'd like to turn the call over to Bryn to share more details.

second quarter commercial performance. Brent. Thank you, Frank, and good afternoon to all joining us today. During the second quarter, Expiril gained penetration and shock to orthopedic and soft tissue market segments, even as the broader elective surgery market slowed in certain areas. The impact varied by procedure category. While orthopedic procedures were relatively stable, elective soft tissue procedures experienced a slowdown with more pronounced declines in the hospital inpatient setting. As a reminder, expiralt volumes are approximately 620 hours a week and the payer to expiralt them outside the surgical bundle. The million-dollar income unites only the largest health insurers in the U.S., all influential. With United and additional recent wins, Expirel is now available to well over 150 million covered lives with separate reimbursement outside the surgical bundle. This represents roughly 50% of all men. We anticipate further adoption and utilization for XBRLs to encourage commercial payers to evaluate similar reimbursement approaches, which could help expand patient access in the future. Looking ahead, our team remains firmly focused on expanding market access through additional commercial coverage. utilizing our growing body of compelling health, economic, and outcome studies to drive awareness around the X4L value proposition. and broadening utilization within existing accounts while increasing demand for service lines Retta and Iovera, both products are performing well with solid growth in the quarter as the commercial investments we made last year are creating lift. For Zoretta, we are seeing demonstrated momentum from the Paseera team's focus on promotional impact, along with our J&J partnership. For Iovera, the Pacira team delivered another stellar quarter, and with the Zimmer transaction now closed, we believe Iovera sits within the ideal portfolio to further unlock its full global potential. Separately on the payer front, beyond the positive coverage of Expirel, UnitedHealthcare has placed Zolretta on its preferred drug list. Importantly, this eliminates any prior authorization requirements, which is a key advantage versus competing early OA interventions. In summary, we are pleased with the first half of the year and believe we are well positioned for sustainable top line growth for the remainder of the year and beyond. I'd like to now turn the call over to Sean for his financial review. Thank you, Brent.

I'll start with an update on revenue and margin trends. Second quarter total revenues were 192.4 million, a 6% increase over the second quarter of 2025. Expo remains a significant source of revenue with net sales increasing by 3% to $109.5 147.8 million versus 142.9 million in 2025. Volume growth of approximately 4% was partially offset by a shift in vial mix and discounting from our third GPO, which went live mid-2025. As we move forward for the remainder of 2026, we expect the delta between volume and revenue growth to narrow with the recent lapping of the third GPO. For Zulretta, second quarter sales grew by 4% to $32.6 million versus $31.3 million reported in 2025. As Bryn mentioned, this was largely attributable to the growth initiatives implemented last year, including our dedicated Zorinna sales force. For Iovera, sales increased by 21% to 6.8 million, compared to 5.6 million in the second quarter of 2025. Again, this was largely attributable to growth initiatives implemented last year. Turning to gross margins, on a consolidated basis, our second quarter non-GAAP gross margin was in line with our expectations at 78%. percent for last year. For non-GAAP R&D expense, the second quarter increased to $27.1 million from $24.7 million last year. This increase relates to our advancing Phase 2 study of PCRx201 as well as our label expansion studies, all of which are on track for top line readouts at year end. In addition, we're supporting three promising HCAB-based preclinical programs. Non-GAAP SG&A expense came in at $81.3 million for the second quarter versus $77.2 million last year. This increase relates to non-occurring costs specific to the contested election of directors at our 2026 Annual Meeting of Stockholders. All of this resulted in gap net income of 4.7 million, or 12 cents, per basic diluted share, and another quarter of significant adjusted EBITDA of approximately 48.7 million. As for the balance sheet, we continue to be in a position of strength with 251 billion in cash and investments, which will be further enhanced by 70 million upfront payment related to the closing of the Zimmer transaction. With a strong balance sheet and a business that is producing significant operating cash flow, we believe we are well equipped to advance our 5 by 30 growth strategy and create shareholder value. That brings us to our full year guidance for 2026, where we are updating the following ranges to adjust for the closing of the Zimmer transaction. The total revenue range is now $735 to $760 million versus our previously guided range of $745 to $770 million. For SG&A, we are now guiding to $310 to $330 million versus our previously guided range of $320 to $340 million. And lastly, stock-based compensation of $54 to $59 million versus our previously guided range of $54 to $62 million. For all remaining items, we are reiterating our previously guided ranges as follows. XBRL net product sales of 600 to 620 million. With respect to quarterly trends, we anticipate the remainder of 2026 will largely follow historical patterns. and being our largest dollar contributor. For Zulretta, our guidance assumes the remainder of 2026 will be largely in line with 2025. While we are encouraged by the recent quarterly performance, we will wait to gain more visibility before updating growth assumptions. The final component of our 2026 revenue guidance relates to approximately 7Million expected revenues from our licensing agreement for the veterinary market. On GAAP gross margin of 77 to 79%, with respect to quarterly cadence, we expect the next quarter to continue to benefit from the sale of lower cost expert inventory to fall within our guided range. fourth quarter we expect margins to be slightly below our full year range through the sale of higher cost inventory as well as shutdown related costs and other expenses. Non-GAAP R&D expense of $105 to $115 million. With the recent initiation of Part B of our Phase 2 Ascend study of PCRRX201, In certain XFRL and Zulretta product development efforts, we expect an uptick in R&D expense in the fourth quarter. And lastly, for those modeling a Just Viva DAW, we expect our 2026 depreciation expense to be approximately $30 million. The focused business model, durable cash flows supported by expert Lanzoretta, and a pipeline entering a catalyst-rich period, the series is exceptionally well positioned for the future. With that, I'll turn the call back to Frank.

Thanks, John. As we discussed this morning, our second quarter reflects clear progress against our 5x30 strategy. We delivered solid financial performance, formed key partnerships, and advanced multiple value driving pipeline programs. I'm excited about the second half of the year in the base business and in our upcoming pipeline catalyst. So with that, we're ready to open up the call for questions. Operator? Yes, thank you.

At this time, we'll conduct the question and answer session, as mentioned. And as a reminder, to ask a question, you'll need to press star 1-1 on your telephone for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile our Q&A roster. Your first question comes from the line of Dennis Sting with Jefferies. Your line is now open.

THANK YOU FOR TAKING MY QUESTION. I HAVE TWO, IF I MAY. NUMBER ONE, ON NO PAYMENT, IS THERE RISK OF THIS EXPIRING AT THE END OF 2027? AND I GUESS WHAT ARE THE LOGISTICS HERE TO RENEWING THIS AND IS THERE ANY PARTICULAR BILL WE SHOULD BE FOCUSED ON OR DO YOU THINK THIS WOULD BE TACKED And then number 2, you guys reiterated expert guidance despite Q2 being a little bit soft. So I guess talk about your confidence in navigating these broader macro dynamics around consumer spending. And I guess what's going to be the driver of growth here and you still expect no pain driven volume acceleration in the future. the second half, or is that going to be tougher to achieve because of the macro dynamics you mentioned? Thanks so much.

Hey, Dennis, Frank Lee here. Thanks for the question. So on the first one about no pain, expiry, maybe some thoughts here and I'll turn it over to Tony, our General Counsel and Head of Government Relations. First off, as we step back, as we know, at present, it's due to expire slash be re-upped at the end of last year. I'm sorry, next year. And we're making very good progress as you've just heard from Bren in terms of what we're doing around commercial payers. And the fact that we've got United on board is a real win. For those of you who've been around payers, United is the benchmark. And so we're really pleased by that. and all the health economic data that supports inclusion in payers going forward. So bottom line there is what I'm saying is that commercial payers are picking it up. There's a clear health economic story. And so let me just turn it over to Tony to talk a little bit about NoPain, which is specifically specifically for PMS patients in the outpatient setting. So, Tony? Yes.

Thanks, Frank. We're working, we're actually trying to get the or working with Two Paths. We're working directly with CMS, who has the ability to provide basically the same reimbursement that No Pain does through its annual grant. rulemaking cycle. And then we're also working with Congress. We would expect, similar to last time, that this would be tacked on and be part of a larger bill. We're not anticipating it being a standalone legislation. earlier, so we're anticipating something towards the end of next year.

Thanks, Tony. And then Dennis, you had asked about Q2. And so just maybe some high-level thoughts here, and I'll turn it over to Bren for some additional commentary. Just at a high level, just to make sure we're super clear on this, is we're optimistic about the second half. And the reason is that, as Bren mentioned, we've increased penetration across all segments. So that's very important. And again, as I mentioned in my comments, these sorts of procedures and the inpatient setting that are more deferable tend to wax and wane with macroeconomic conditions. So, I mean, with that, let me turn it to Bren.

for his additional thoughts here. Thanks for the question, Dennis, and Frank gives good commentary there. In the second half, we're focused on several, I think, key and important growth drivers. The first is the rapidly growing ASC and hospital outpatient segments, both of which are outpacing the broader hospital market for us. We can and will increase our breadth of coverage there to cover those procedures that are taking place. The second is this, what I would call payer tipping point. UnitedHealthcare, as Frank pointed out, is a substantial addition, even since the UnitedHealthcare contract. We've had several other payers come on board pushing us well beyond the 150 million patient range. That to us is an encouraging sign of where everything is headed. And then finally, we take a lot of... confidence in both the penetration and share that we've been able to generate. It is significantly outpacing the total available market near term, and we expect with these additional payer wins it will continue long term. That, coupled with our health economics and outcomes research data, which is an expanding evidence package that demonstrates that XBRL is well worth the price for the substantial cost that it offsets give us a lot of confidence both near term and longer term.

Thanks, Brent. And just one last thought here, Dennis, is that as a reminder, these commercial payer wins are very important in the outpatient setting where Expiril is reimbursed outside the bundle separately. And as we've talked about before in commercial payer settings, the reimbursement, that is the remittance, is substantially higher versus the CMS reimbursement. So we've got a good tailwind there.

Perfect. Thanks so much. Thank you. Your next question comes to the line of Serge Bellinger with Needham. Your line is now open. Good afternoon. Thanks for taking my questions.