Q3 2019 Earnings Call
Oh, we mode. Later, we'll conduct a question answer session and instructions will follow at that time, if anyone should require assistance. During the conference. Please press star zero on your Touchtone telephone as a reminder, this conference call. This being recorded I wouldn't I like to turn the conference over to your host Susan Mesko head of Investor.
After relation.
Thank you Whitney and good morning, everyone. Welcome to today's conference call to discuss our third quarter 2019 financial results. Joining me on today's call or de stock Chairman and Chief Executive Officer, Dr., Richard Trent and Chief Medical Officer, and Charlie Reinhart, Chief Financial Officer before we start let me remind you that today's call will include four.
I was looking statements based on current expectations such statements represent our judgment as of today and may involve risks and uncertainties. Please refer to our filings with the FCC, which are available from the FCC our website for information concerning the risks factors that could affect the company with that I will now turn the call over today stuck.
Thank you Susan good morning, everyone and thanks for joining 2019 continues to be a terrific year led by significant growth in our core EXPAREL business, along with an important asset acquisition and Io girl I'll start by calling out a few key highlights.
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Path to achieve average annual topline growth rates in the high teens for at least the next five years are significant partnership with Johnson and Johnson, the solidifying the role of EXPAREL and painful orthopedic procedures and we expect this relationship to continue to deliver great values through the conclusion of the agreement in 2021.
We were on a terrific position with EXPAREL, plus I over copper providers and patients a multi modal.
Hey conference operator will be with you momentarily.
And after Teekay surgery, our phase three label expansion studies are on track and decide to at.
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Zwack.
To the opioid crisis.
Thank you for your patience.
As people member of our.
And then the.
All in all.
Now going forward momentum leaves us well.
Oh and key surgical.
Thank you for your patience.
Vera has a preferred procedural solutions.
The.
One of your three pain management.
Throughout the osteoarthritis.
This infrastructure.
Sure and physician audience.
Thanks for calling conference I'd.
And supplying I'll begin with EXPAREL.
Yes.
Opportunities to deliver significant growth with increased year over year sales of 23% for the third quarter as a result a bit.
Please.
Just.
Kevin.
Excellent safety profile.
Strong expansion across all.
Yes.
Hi, I'm pleased to report that EXPAREL has now been used in more than.
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Option utilization continues to grow across important surgical.
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Census, abdominal cardio thoracic and women's.
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David.
Significant.
I am proud.
He buys cost.
Hello, they are owed W.
Importing surgery migration.
I'm, probably again for the last.
The benefits at significantly.
Like the underground.
Insiders for delivering cost.
All right David Brown exactly.
The thing are growing.
Yes.
For example.
Thank you.
Remember first United Healthcare implemented a site of service policy required.
Hey.
Lightering prior authorization of medical necessity.
Hi.
85, muscular skeletal procedures in the hospital outpatient setting.
Hey.
These cases.
As you see setting.
Our.
Cedars represent surgery types, the commonly use expert panel and present a growth opportunity in the.
The company.
So we see continued robust uptick in our.
This feature will PD and see.
Like all plays.
He is going great migration of orthopedic and abdominal surgeries to.
The 23 hours they.
He be I'd the last.
55% of X pro procedures are taking place outside of the hospital inflation.
And we expect.
Exactly.
Both.
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From this segment.
Yes, correct.
The finally, a C rules were published in include adding total knee arthroplasty to the approved list of procedures.
Valued at 180.
Based on historical.
Medicare trim.
Six per year.
For more than 500000 Teekay.
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And Medicare.
In the summer.
In total.
Based on 23% year over year increase in ordering.
Hi, Graham with just a 10% to 30% shift to the.
For two.
Third to these new.
600.
Early for me.
$858 million.
So both of these highly favorable market.
Our strong and steady growth.
Next ability to deliver net.
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We are averaging 95 new.
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Response with over two thirds of these new.
Than contributors to extra utilization as our significant.
As a result of these highly favorable market dynamics, we remain confident in our ability to delivered net.
And and multiple procedures.
Hi, good range.
And.
And 100.
The joint.
To.
In spine.
Since year over year growth of more than 20.
And pain medicine, such as.
The contributors to extra utilization as our significant orthopedic partnerships with Johnson rice.
It's painful.
So this relationship continues to establish strong demand and multiple procedures, including shoulder.
Second is ensuring.
The surgical.
Oh pain as well control through protocol.
As for advances in pain medicine, such as EXPAREL based.
And Johnson and Johnson, we are with our colleagues at Johnson and.
We are.
Clean the shift.
Painful orthopedic.
Copying our marketing strategies and resource.
Pursue achieving early recovery in emulation is ensuring that postsurgical pain is well control through protocol.
Yeah.
One.
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As well as his.
Heather our colleagues at Johnson and Johnson, we are with our colleagues at Johnson and Johnson we're.
And some clients to remain and.
Basically.
On a strategic contributor through the remaining term of the.
It's.
Well benefit from Jay in today's World class.
Turning to the setting.
You can meet the growing.
We can't reduction and the total.
All of.
Standardize protocol.
Multi modal.
So reimbursement of.
Complex painful and profitable.
Next we'll lines to remain an important strategic contributor through the remaining term of the.
Preapproved patient outcome.
Didn't fit from JNJ is world class educational resources.
So as to growing level of physician.
Thanks, Jay significant commercial.
And most multi modal protocols.
As we prepare for.
The expansion.
Profitable procedures to be.
And the.
Can generate new phase four data and important.
And outcomes patient.
Bye.
It's been financial performance and physician.
GAAP tricks enrollment in our phase three.
Significant commercial expertise.
It's on track to.
Since.
Reported results.
And prepare for commercial expansion and the pediatric and lower extremity nerve block.
Before.
And generate new phase four data in a poor.
Typically.
I would.
Yeah, Atrix will be a very important addition to the.
Next the at tricks enrollment in our phase three registration.
Good.
Included.
Venturing.
Track to report topline results before the end of this.
We will submit a supplementary new Doug.
We will be the only local analgesic.
For use in children and.
Strategically.
Hello.
The fix will be a very important addition to the extra.
If the FDA.
Urgent need for non opioid.
For instance.
And managing.
And so as a nerve block.
Propane.
And the.
Since vulnerable.
I think we are preparing.
Improved ex pro will be the only local analgesic approved for use in.
Trial evaluating.
An imperative formulary list.
The nerve block and.
Thinking with FDA.
The phase three.
It's a market opportunity for lower extremity nerve.
Yes.
At least.
Eric.
Lease meaningful as the.
Well, we are preparing to.
Where there are more than 1 million shoulder.
This is a phase three registration trial evaluating EXPAREL versus.
Casey.
Sustain has a nerve block in adult patients undergoing lower extremity surgeries.
Hi, Techs Pearl.
In fact, the market opportunity for lower extremity nerve blocks to be at least as meaningful as the break you'll.
Yes.
Yes.
Actions that.
There are more than 1 million shoulder.
Good.
Procedures performed annually in the United States.
Expertly using.
Syndication continues to drive great interest among.
There's also advancing a number of.
It's been.
Four studies.
Okay.
These ex us regulatory.
Cumbersome.
These are expansion of.
Improve pain control and patient satisfaction.
And I will.
Inducing opioid exposure.
Vera.
The sex Prell.
Transaction in April .
And.
For even more excited about the technology behind this.
First of answering a number of.
Significant.
In commercial opportunity at represents.
To support our expansion of EXPAREL.
Annual Io Verus.
And click through these details shortly.
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Hi, a vera.
Last week.
The transaction in April .
Improve.
More excited about the technology behind this.
Potato.
I have spent a significant patient care and commercial opportunity at.
So by a.
Currently.
Our full Medicare.
The hospital.
Sales.
I have been increasing.
Yes $2 billion within the.
And.
Nearly $1900.
Significantly improve the 2020 Medicare.
Others learner.
And the actual PD setting.
As we outlined last.
This change will materially enhance.
Price per treatment to over $400.
But care reimbursement for hospital and physician, increasing approximately $1000 to nearly $1900.
We have been encouraged by.
Procedure is targeting.
This is again.
Janicki learner.
Going to pipeline.
All the.
As we outlined last quarter.
Expenses.
We are increasing the base price per treatment to.
This device.
Our best.
He is based.
Yeah, so nice of over.
For us where the strategy to use I over a plus.
Six progress on that.
That.
And so the to.
Okay and encouraged by the sticky nature of.
Useful.
We continue to build a robust pipeline.
We discussed last.
Last quarter.
Our initial focus is on two broad.
This assistant with many other medical device companies, we are offering volume based.
As a multi modal.
Synergy to use I over a plus X for all to maximize the ability to reduce or eliminate.
Just for profitability.
It's.
Thanks, Bill during surgery.
Yes last quarter.
Yeah.
Our initial focus is on two brought patient.
Capital.
The first as a combination of bio Vera plus X parole as a multi modal procedure solution for total knee arthroplasty.
Strains on I O Vera Cryoanalgesia.
Speaker before surgery for profitability.
Steve.
Our next Prilled during surgery.
It could be gone training initiatives.
Each week.
Integrated delivery.
For three pain control.
For seasons that for all.
Do we concluded American society of.
Sure.
In a sneak in Orlando.
Third ice.
Can demonstrations on Io Vera Cryoanalgesia.
Yes, the principal.
Great interest.
Update this.
Any program nationally in early two.
As to could be gone training initiatives at three integrated delivery.
Peter.
All of which.
Symposium later today at the American College.
Turning to use these networks.
And your meeting in.
Standardize protocols.
Gotcha and Perry articular.
Yes, we generate proof of principle data.
And solution to.
This training program nationally in early two.
Sure presentations on Io Vera.
He led by President Max.
This pain management.
[noise] posting a symposium later today at the American College of hip and knee Surgeons annual meeting in Dallas.
On a surgeon presentations will highlight there.
Three articular.
So.
In total solution to.
Well since.
Shaping.
Outcomes.
The event will feature presentations on Io Vera discussion of optimized multi modal pain management protocols.
Hello.
It's an overview of recent real world evidence.
I over our cryo analgesia.
And stations will highlight their experience integrating these multi modal protocols.
Instead of help them and pans out.
Three of them.
Outcomes improve postsurgical recovery and.
Yes.
Ill such as.
Second target market.
Looking.
Do arthritis patients.
And with the.
Yes, we offer and I, albeit I over our cryo.
Angeles'.
A.
Slide.
Okay.
Opioid free.
On the manufacturing.
Management for several months.
We are targeting those.
Well too.
In fact of lifestyle such.
Sales in I O.
It is.
Looking.
For simply walking with the grandchildren.
In addition, we are developing clinical data to.
Yes.
Vacations or.
Our and.
And manufacturing.
Total.
Sure.
Expiring pain management.
And.
To be able to.
Over 100000 Io.
Okay and.
As for sale.
In 2000.
Current in combination with EXPAREL to.
In addition, we are developing clinical data to maximize this opportunity and position I O Vera and.
The.
Leveraging the proven.
Multi modal solution for opioid.
It's pain management.
The portfolio.
But during and after surgery.
Sub acute.
Digital focus will be on T.K. and Hcl repair.
Our Vera in combination with.
Before as.
Complimentary.
Offers an immediate dose.
Now to our second pillar of growth.
So the proven safety flexibility and customize ability of our depofoam.
On our last call we.
Sub acute.
Depofoam.
Sam that we selected.
You know from depth as you know.
Apple phone is.
The phase.
A full delivery.
LG sick administered.
Subtract.
Really.
For spinal.
Lease by sustained delivery.
Dallas regularly use.
The broad product development in.
In this area.
The ability.
On our last call we discussed.
Just to provide an alternative to the.
The summer at night.
Good for clinical.
Basically delivered via.
First a depofoam based local analgesic administered as.
Act.
Just noise.
Opioid local analgesia.
Anesthesiologists regularly use.
Yes.
And we are preparing to.
It is healthy.
Our strategy here is to provide an alternative to the use of subtract night.
And we believe Depofoam.
Delivered via.
As.
Mr Catheters.
We can be used safely.
Direction of a long acting non opioid local algae.
On this with Depo tour as an.
I've been discussed with the FDA.
But as.
Preparing to.
Yes.
To see in healthy volunteers.
Where would you safely.
In time do we have.
Substantial experience in.
And treatment of.
This leave Depofoam is the only delivery.
Currently.
Deeply in the summer.
In comedy.
Yes.
In parallel we will conduct a.
Zippo tour as an.
It's a simulated release.
As a suburb in the sub direct.
So the mix of future.
Its use safely and effectively for more.
Finally, let me discuss.
Than treatment of onetime.
At Us and.
Products are.
With that align with.
Summarizing.
Our.
But a comedy and in parallel we will conduct a pilot study in healthy volunteers user.
Leading provider of non opioid.
Somebody.
Pigment and.
So future Depofoam based.
On an additional tuck in acquisitions relationship is that align with our mission.
Innovative products are technologies that align with our strategy and our complimentary to EXPAREL.
And to see a significant.
Just one example of how we intend to build.
As a leading provider of non opioid pain.
Just on improving patient journey is along the neural.
And traditional tuck in acquisitions relationship is that align with our mission to.
Well I.
And will remain a key component of our growth strategy.
And before returning the call to.
Inefficient opportunity to build a differentiated non opioid.
We arent.
Actually strong position.
We're focused on improving patient journeys along the neural.
Vantage over any other.
Ask robust opportunities to consider from our.
To close been Houston.
Over 6 million patients with the.
Item I'd like to touch on before returning to call to rich.
On the track.
Future competitive.
Second our strong network.
We are an exceptionally strong.
Condemning collaborations.
And.
But first mover advantage.
Or any other products to potentially into the.
When.
Spread has been used in over.
Commissions with an excellent safety profile and proven.
She is.
Perfect.
Which are essential in a 23.
In addition, our strong network.
In addition.
Yes for sure.
These.
Academic collaborations and relationships have ensured.
As for term reimbursement on new.
As.
Particularly long and arduous.
An experience with.
And.
What are.
As we improve and predictable.
We.
It's approaches.
We're very well positioned in the long term market leadership as the only non opioid single.
For launching generating health outcome.
The FDA.
Entertaining long term reimbursement on new products is particularly long and arduous.
It was undertaking so we feel very good.
And this label to include.
With regard to any new product.
You'd be nerve block within the.
And well positioned in the long term market leadership.
Activity to Admixed.
Actually for larger.
Long acting local energies.
At present.
Currently if FDA approved for.
James.
One block and.
The.
We've seen.
Management can be.
We expect two.
If you will patient.
Exclude pediatrics as well as lower extremity nerve block within the next two years.
With that I'd like to turn the call over to doctors.
And mix.
The state you.
Actually for larger procedures as well as would be pivot came from media pain.
In our fees.
The provides clinicians.
Import.
Call joining today.
And pain management.
Let's start with a quick update on our expertise.
Across a broad range.
For some ins.
With that I'd like to turn call over to doctors Scranton to update you on our.
So let's grow.
Plus our ex us.
Sushil protocol for.
Yes.
Such.
Hi, Paul joining todays call.
Thanks.
I'll start with a quick update on our expert phase four study.
And gynecological.
Okay.
Some significant.
Good.
From demand.
And is growing in the alarming.
You know field.
On the women.
Our.
Has.
Personally.
Both.
Paul.
Just to give.
Just such.
Very good.
See section mastectomy.
At.
Breast.
This role in our five year growth.
Gynecological.
Certain sections are one of our top growth drivers and we.
Women is growing an alarming rate and studies have shown the women are for.
Next we.
Christopher.
From newly persistent users of opioids.
An expert.
Such.
We expect this.
We believe extra administered as a tap blocks.
This growth trajectory.
Certain sections are one of our top growth drivers and we.
Demand to continue to accelerate.
That awareness.
The study.
So be.
Enrollment later this year.
On the opioid sparing benefit.
Port topline results in January .
Okay.
Everything.
We believe extra administered as a tap blocks will be a key component.
Good.
And transforming.
This kind of care from others.
Location of the results of our first few.
We continue to expect.
To remind you.
Hey to complete enrollment later, this year, which places.
That's helpful.
As a to report topline results in January .
So we're going to.
Next generation.
Sure.
Zions to be completely opioid free in the extra.
Also.
Fading publication of the results of our first two sections.
Study also demonstrated a statistically.
Credit.
Based on higher.
We have an extra I'll tackle off to a became tap blocks.
Bristow.
And patients undergoing.
No more than one opioid.
52% reduction.
And produce while also reducing pain scores through.
We're also investing in orthopedics.
Two study also demonstrated a statistically.
Fiber.
Higher.
One of many.
Yes.
Since the extra.
Meaning they took no more than one opioid tab.
And.
Two center.
I was hoping related side effects.
Okay.
72 hours.
Okay, Exxaro multi modal Reggie.
We are investing in orthopedics.
When patients.
This sectors are very important growth driver.
Looking outside the.
To be painful.
Seeing authorization application or M&A was validated by the European medicines.
Your.
Which means our applications.
Control real World study, comparing EXPAREL multimodal regimen.
An opinion sometime.
In.
And is undergoing.
In spine.
Our regulatory activities in Canada.
Please.
We remain.
Soon our marketing authorization application or M&A.
On to our new.
Today by the European Medicines agency.
Are you in Canadian submissions are robust.
And the review.
Trading the.
Thats the way.
This growth.
Specked in opinion sometime in the second half.
And block.
The 20.
And both.
Regulatory activities in Canada also remain on track with the next key milestone being the validation of our new drugs submission by Health Canada.
Plus and adults.
Are you in Canadian submissions are robust.
Hey.
Trading the efficacy of extra.
Next.
And do a.
We will continue to keep you apprised of our progress and these.
Well controlled.
Okay and.
So that over you.
Got.
Now I'll turn the call over the Charlie.
The approval of extra from local and regional anesthesia and.
I think everyone before I walk through the third quarter financial results I'd like to remind you that we will be discussing non-GAAP financial measures. The press release. We issued this morning includes a description of these metrics and why we believe they provide additional insights into the financial aspects of our business. The press release also includes a reconciliation to GAAP for these measures.
We ended the third quarter, and very strong financial position with approximately $336 million in cash and investments and significant and growing cash flow from operations on the PML side, we have significant operating leverage with a rapidly growing top line that we are supporting with only modest increases in expenses. This underscores the tremendous opportunity we.
I had the capitalize on our business, while continuing to simultaneously ramp revenues and adjusted EBITDA.
I'll now turn to more specific financial highlights from the quarter total revenues increased by 25% to $104.7 million in the third quarter of 2019 versus $83.4 million. In 2018. This growth was predominantly driven by net product sales of EXPAREL, which increased by two.
23% to $101.5 million in the third quarter of 2019 as compared to $82.2 million in 2018.
For Io Vera we reported net product sales of $2.6 million third quarter.
Our non-GAAP gross margin for the third quarter of 2019 improved to 80% versus 79% in 2018.
non-GAAP research and development expenses were $19 million in the third quarter 2019 versus 13.8 million in 2018, the increase in R&D was driven by the ongoing enrollment in our phase three pediatric study our phase for opioid free section study as well as the launch of our phase for spine and hip fracture studies.
For the third quarter of 2019, roughly 60% of our non-GAAP R&D expense is attributable to clinical and regulatory activities with the remaining 40% attributable to manufacturing and product development, including the scale up of our facilities in the UK.
For the third quarter of 2018 to split was roughly 60% attributable to manufacturing and product development with the remaining 40% attributable to clinical and regulatory.
non-GAAP SGN, a expenses were $43.4 million into third quarter of 2019 versus $38.4 million in the third quarter of 2018. This increase is attributable to inc. increased sales and promotional activity for EXPAREL, including the establishment of a field base team of account managers, who are driving growth and access.
Yes in the ambulatory setting as well as the dental and plastic markets and other key driver of this increases our co promotion with JNJ, which is directly linked to topline growth.
All of this resulted in non-GAAP net income in the third quarter of 2019 of $20.2 million were 48 cents per diluted share versus $12.8 million were 31 cents per diluted share in 2018.
Looking ahead, given that EXPAREL is on a significant growth trajectory delivering substantial operating leverage and cash flow, we have tremendous financial flexibility to capitalize on internal and external growth opportunities that align with our commitment to evolving pacira into a global leader in non opioid pain management and regenerative health.
Before turning the guidance I'd like to quickly cover two noncash items from our GAAP piano.
First during the third quarter, we recorded a 5.4 million dollar impairment in our investment in tell a bio this adjustment was calculated based on the evaluation range contained Intel as recently filed IPO prospectus.
Second as part of the purchase accounting related to our acquisition of my of Science earlier. This year, we recorded contingent consideration, reflecting the forecasted value of a series of regulatory and commercial milestones. We are required by GAAP to reassess the value of these milestones each quarter and adjust the value of contingent.
Patient accordingly during the third quarter of 2019, our reevaluation concluded that the total value of contingent consideration increased by $7.3 million, resulting in an increase in our short term and long term contingent consideration liabilities and a charge to our PNM.
Turning now to guidance as Dave discussed, we're very pleased with our financial outlook and feel very comfortable reiterating our 2019 sales guidance as follows EXPAREL net product sales guidance of $400 million to $410 million, which we expect to follow a similar cyclical pattern to last year with the fourth quarter, historically being the largest quarter of the year.
To remind you X broke growth is being driven by volume rather than price.
As for Io. There are we remain optimistic about us long term prospects and continue to expect to report $8 million to $10 million of net product sales in 2019, given the strong commercial synergies we remain confident that the Meyer science acquisition will become accretive beginning in the second half of 2020 and accelerating thereafter.
On the expense side of the PNM, we continue to be on track to achieve non-GAAP gross margins of 70, 575% to 76% to remind you we expect margins to eventually improve to roughly 85% once our second dedicated Sweden's wind in comes online and this location becomes primarily responsible for supplying export.
Our non-GAAP R&D continues to track to the higher end of our guided range of $60 million to $70 million.
We now expect non-GAAP SGN eight to be in the lower half of our guided range of $180 million to $190 million.
Lastly, our guidance for stock based compensation expense remains unchanged at $30 million to $35 million.
As Dave noted in his opening remarks, our growth trajectory now puts us on a path to achieve average annual revenue growth rates in the high teens over the next five years.
With that I'll now turn the call over to the operator to begin our Q and a session operator.
Ladies and gentlemen, if you have a question at this time, Please press star and the number one on your Touchtone telephone.
My question has been answered or you wish to remove yourself from the Q. Please press the pound key.
Your first question is from Randall Stanicky.
Hi, Good morning, this last three entre Randall.
Dave can you talk a little bit more about unified your targets for EXPAREL and I have era billion in the 200 million targets.
I just thought guidance can you just talk about moving pieces to kind of breakeven from today does targets.
Overall, how much of that is from geographic expansion versus kind of label expansion.
I know Youve, Chris recently expanded manufacturing or adding more Brad.
Yes, Mike, but can you just kind of talk about the cross bar.
Either.
Sure Thats a lot actually.
Sorry.
Let me start and come back and pick me up for pieces that I don't I don't get the first time here. So you know were what we see is very strong support from anesthesia, especially regional anesthesia for EXPAREL and that is growing in not just in what we would call a classic nerve block.
But in their use of the product and field blocks and we think we're very early in the adoption of these medical specialties using these regional approaches and getting rid of catheters and pumps et cetera. So that's that's one piece. The other pieces that we go into a single shot where we get rid of Epidurals and pain pumps and all.
All of the things that are required when you when you try to treat pain and an inpatient environment.
The ability of a anesthesiologists to use expressed as a single injection in achieved several days of pain control is a key element and moving those patients out of the hospital in into the.
Ambulatory NHL PD settings, as we talked about are on during the script. So if you look just did that you can see that you'll get the kind of growth that we've been talking about as the base of the of the high teens that we've talked about when we were working with you guys.
Add to that then pediatrics, which we think is a very viable.
Procedure opportunity, we see more than 1 million patients. There. So just to give you have a whole base. If you thought that we were going to get a 50% market share at $200, you're talking about a $100 million over time. If you look at sea section as rich outlined 1.2 million procedures of market share a $3300 as a 100 million dollar opportunity overtime if you.
Look a lower extremity nerve block, we think it's bigger than upper extremity nerve block, where we have a million procedures and again, it's predominantly a 20 ml dolts. So you start to see that you've got multiple 100 million dollar opportunities coming at us relatively over the next couple of years and if you add that to the the growth that we expect to get from patient.
Moving to the ambulatory environment and from the adoption of ambulatory care you come to the kinds of numbers that we're talking about for EXPAREL with Io Vera.
The the.
Q citizen around like today, I'd say, where we were there and.
In Orlando and we mentioned this in the script as well.
We are developed we're doing formal clinical programs in.
And Hcl repair, where theres a lot of interest actually as well as teekay teekay, but what the docs want to talk about and where people are using EXPAREL is in a whole series of ways to use cryoanalgesia for peripheral nerve pain and so we've got folks that are looking at shoulders and.
Handed wrist and.
You know.
Fractured ribs than.
Even.
Inter hospitals for mastectomy product projects et cetera. So you can really see how.
How the use of Io Vera is another non opioid opportunity for folks to turn the pain signal off and the reason that we think it will grow fairly quickly as these are customers that we where we have.
An immediate intimacy and there is high interest in this and now with CMS.
Nearly doubling the reimbursement for H.O. PD you can see how you could use these two products in the H O PD or in the S. C.
Very cost effectively and so you see this be an integral part of our overall offering. So that's that's the big piece of it for the two big product Thats. The vast majority of what we're talking about.
When you start talking about Aro W.
Over the five year plan actually it becomes meaningful.
As a number but it is still way less than 10% of the total global sales of EXPAREL meeting that more than 90% of the global sales of of EXPAREL are still in the United States at the end of our current five year plan.
We are putting more reps in the field largely because of Io Vera because of PD because of see section because of lower extremity nerve block as an example.
See section Ob anesthesia is really a distinct group of customers that work in a distinct area of the hospital. So they wouldn't be in our normal call pattern, unless we have something to talk to them about relative to you know female cancers or something else that they might be involved and so we need additional firepower in order to get to all those areas.
That's all I can remember of your question actually stuff that we think that with everything.
No I think as everything thanks, so much alright. Thanks.
Your next question is from David Amsellem.
Thanks, So just a couple.
First on the JNJ partnership and can you just talked about where things and then I guess more specifically in all London revision from that partner slump in.
Going forward.
And how to enroll them Jane Jane Nielsen lot change.
So that's number one number two is on the gross margins.
We're seeing some some margin expansion and then now and that makes sense I guess the question is.
Sustainable is that.
I know there was some fairly sizeable it's awesome, calling and perhaps more outside just wanted to get a better sense some units to the directionality in gross margins.
The next we're all expands and just help us understand all the moving parts there. Thanks.
Thanks, David Thanks for the questions.
Were the.
The JNJ relationship is in full effect and.
You know, we're we're benefiting from their professional services and other professional education programs for example, aka starts today.
And for Recon in all of the other things that would be orthopedic oriented.
There is a huge precedence for EXPAREL at August at the American Academy of hip and knee surgery.
Something way beyond anything that we could have done ourselves dividend.
There are very much committed to their training programs and ray him as well as the peak programs as they call them, which are regional education programs that are meetings et cetera. So.
We think that as the world becomes more oriented around ambulatory care.
Yes, the audiences that we call on in conjunction with Johnson and Johnson are going to be primary sponsors of that move and so we really see the benefit of having all of these resources in the field working with these customers. If you add to that as we said during the script, we expect to get a pizza indication and fundamental in that.
Indication as a scoliosis trial. So you know there folks they have dedicated resources going to spine as well as to sports medicine into trauma and so we see them launching EXPAREL into all of those products. During the term of this agreement. So we think it's to our benefit to continue working with them aggressively until the end of this agreement at 22.
21.
At the end of 2021, David There is no sunset there is no residual and the agreement with end and.
Doubling back on Ashley's question, we are adding some people to the field.
I O Vera allows us to start to have relationships with the big orthopedic practices and this two year interlude between now and then and so we're very comfortable that we can get the maximum value out of this strategic partnership over the next two years and then be prepared to do it on our own but I have no idea, what's going to happen two years from now.
So thats just it is what it is.
On the gross margin side.
I'll go quick Charlie and you can pick me answer so.
Anytime we're producing at full scale, David we get better margins and so as the product continues to grow aggressively.
You start to see that we are we have peak times of of best gross margin opportunity I'll remind everybody that there are times of the year. When we closed the facility for cleaning and maintenance and all of those things and so 80% is not anything that we can that we could promised to you on an ongoing basis to answer your question specifically.
We will have sustained gross margins over 80% in approaching 85%. Once we have the 200 leader facility come on and start producing commercial material in Swindon and Thats scheduled for 2021, So I'm, Charlie if I if I.
Yes, no there's nothing wrong day, the only thing I would add is obviously manufacturing capacity is a fixed investment and so.
We doubled capacity and therefore, you start to reduce the utilization of the total combined and as we ramp up demand that will start to see improvement in those as well so.
So I would add yes.
Hey, Dave can I come back to then your comments on on JNJ are are you.
Discussing.
An extension of the ongoing relationship lending from your comments and leaning that we you don't know.
Things will be after 2021, but but is there a dialogue regarding Mike with Jane Jane do Cynthia beyond.
Finally, turning on.
Hi.
I wouldn't expect that we'd be having a discussion with them David two plus years before.
I think will we wouldn't we wouldn't I mean that wouldn't be or you could use of our time and money from now the world is changing so fast that I think we want to use. These next two years to get a view of the world of what 2022 looks like relative to FCS and anesthesia and all the rest of the things are working on.
So I would say I mean, you can take that as that Theres no discussions ongoing but I wouldn't expect that that would be any this far ahead of the of the ex the.
Timeline or the type of relationship.
Okay. Thanks.
Thank you David.
Your next question is from David Steinberg.
Thanks, and good morning, I've a couple of questions. The first revolves around business development.
The company.
As a lot going on you're going to launch in Europe .
Next year, you're ramping up inside of there is some new extra indications so what sort of capacity do you have for acquisitions.
And if you do you know how do we think of that near term versus long term activity and what are the major buckets of potential.
Acquisition, Jay in licensing so you're contemplating.
And then secondly.
You painted a pretty robust outlook for next five years.
Curious what you saw it about.
Consensus estimates.
Extra growth next year is projected to be up 12% followed by 6% the following year.
What do you think of those I know you haven't given guidance just broad.
Rush.
Strokes into the future. What's your view that does that Smith and what are you. If you take their low what do you see is the major disconnect. Thanks.
Yes, Thank you David.
Let me start out with business development and capacity.
Right now were worse, we're growing into ex Propolis Io Vera and I don't think that would be anything that is unexpected and.
The National meeting and in early 2020 will be the kick off all of those things. So I think we're right sized for those two opportunities today, David most of what we're looking at are not things that we would have to worry about launching.
Obviously, and then the rare occasion, where we are looking at commercial assets. They have a sales organization that comes with them. So you wouldn't see any kind of a broad displacement across our organization or the the JNJ relationship in any case.
What we're looking at really falls into it into a couple of buckets one is.
Drugs pharmaceutical pharmaceutical products.
We mentioned a couple of Depofoam products there are some other.
As assets, where folks have not been able to use them because of toxicity or site of delivery or the requirement for a pump or things like that where we think that marrying that protect their technology with depofoam technology could actually lead to a viable.
Clinical candidate.
More likely David or from an M&A perspective, we're looking at things that block inflammation.
Our somehow.
Involved with non opioid.
All paying its.
In many cases, it's not acute pain is were focus today.
We've got a number of discussions ongoing talking about peripheral pains.
Neuropathic pain chronic pain.
There's a number of opportunities where we not only use the commercial organization that you guys. We're all familiar with but you know we've we've got a very viable clinical team here and.
Which understands pain implicitly so that has a very valuable asset to us when people start to come to us and talk about how you develop a pain portfolio.
It's more than just the commercial assets and our relationship with Cate welcome with Kevin people. So on the drug side, you would think about more pain assets anti inflammatories that can block the inflammatory process all of those kinds of things that and anesthesiologist and a orthopedic surgeon would be directly interested in.
On the.
The regenerative medicine side lots of things in the marketplace around MSL are about miniscule repair Hcl repair.
Growing cartilage.
Growing bone.
A number of things that we're looking at again because of the relationship in the people to use those assets, who are clinically interested in and and the use of those assets as the patient journey a lot of the OE lifecycle goes we have what we think as a very robust opportunity because we know those folks very very well and in some cases.
As we are helping those folks in the early stages, even before we get to have any kind of an interest in the product. So.
You can see a lot of different opportunities they fall pretty much along those two guidelines driven primarily by the fact that the customers are the same for both buckets at the end of the day.
Next so I'll go to your second part David if Theres no follow through on that and so.
We said that we see a five year trend of high teens for our portfolio.
You know, we river and consistently in the low twentys for the last five quarters, how anybody would project that we would go from the low twentys to 12% from the fourth quarter. This year to the first quarter of next year you'd have to ask them that makes absolutely no sense to me and if the.
Worry in the field force or in the World in General is that there's competitive pressures.
There would be a good reason why there would be a disconnect because there were not worried about that at all.
Right and just a couple of cliffs.
Speaking of the competition.
Herons says, they're going to run the head to head study.
And one versus express any thoughts on that they're protocols and then.
Secondly, and see section I think Theres 1.2 million procedures year, how you're thinking about market share there.
Yes, we you know.
It would be higher than normal David largely because when we talk to these folks the interest in opioid free C sections is way beyond anything that I would have.
Anticipated.
And the relationships we have with the.
Anesthesia groups around the country confirms that this is really in an area of intense interest to them. So.
So as I said in an earlier response of 1.2 million procedures. If you had a 30% market share at $300 a patient as the is the median average cost of EXPAREL. It would be a 100 billion dollar opportunity with time, obviously, it's not going to be 100 million dollar opportunity next year.
But over the five years of the plan, we don't think that Thats, an unreasonable expectation at all.
Relative to hair on.
They've had eight years to do a trial head to head with EXPAREL, if they wanted to do it.
I would if he was going to do it why hasn't done it and I think we both NOI and now just stop there.
Okay. Your next question is from Tim change.
Hi, David.
Wanted to get your thoughts on the break your thoughts just nerve block indication how is that grow doing.
With that indication, so far and how do you sort of see.
Usage on the.
For torso expanding heading into 2020.
It's it is the the entire corporation took off Tim when we got the the I mean, it was sort of a number.
It was a perfect storm of JNJ being fully.
Trained and up to speed.
In the marketplace.
The and the C code and CMS paying for EXPAREL in men. The break you'll plexus nerve block was sort of the the catalyst that took all of that and how did expand.
It really is the reason that anesthesiologists have had an opportunity to use EXPAREL.
The brick you'll plexus block was particularly interesting because as studied it was a 10 ml dose with some preview pivot Kane.
And so they anesthesia regional anesthesiologists got to see the efficacy and the ability to control pain in a very painful procedure for the price of a half a dose of our 20 ml bottle or nearly EUR vial or nearly so.
And that really convince them that this drug had some real efficacy and safety advantages over everything else that they were doing.
What we were surprised that in the early days is that that really led to anesthesia converting to 20 ml field blocks like Peck blocks, and tap blocks and factually ACA blocks et cetera way more quickly than we had any anticipation that it was going to do so that led to a number of hospitals, putting extra on formulary because the anesthesiologists was.
So interested it also led to a number of procedures like break you'll plexus block.
Being done with Noah no opioids at all which led to the physicians in the patients asking why they were in the hospital at all if they didnt have any pain and they didn't require any opioid. So it was really almost a front runner for moving these patients to an ambulatory environment. So from a strategic per se from a revenue perspective, it's been very important.
From a strategic perspective, it's been way more importantly, even than the revenue and it really has led the way to where we're going here and.
So I think it's hard for us to over.
To over.
To say more about that than than is as actual in the marketplace. It's been a fundamental change to our company. So nerve block. We think is very important and Thats why were so high on the lower extremity.
Which would give us the opportunity to do things like at Dr. Canal blots et cetera.
And David just one follow up I mean, it looks like your Io Vera peak sales potential basically doubled.
Now with the CMS.
Reimbursement.
Rules and I'm sort of wondering do you put more resources behind it heading into next year.
No.
We're still going to be bound Tim by our manufacturing capabilities.
When we bought the asset the company had never made more than 10000 of these smart tips and a year. We've got that up to 100000 for next year I don't think we can do much better than that.
And when a hospital goes to I O Vera plus X parral for things like T.K., we really have to be careful that we don't run out of stock because that's a fundamental change and the way they do business and so we could never put ourselves in a position where they had a somehow go back to an old paradigm of care an old protein.
All of care so.
I think we're gonna have to be very careful with how we approach this marketplace and make sure that that we don't run out of tips.
But I don't see that we need to put a lot more people out in the field I think what we'd rather do his work with a relatively small number of high end.
Healthcare providers and really figure out how this product is going to be used in a sale repair and a number of these peripheral nerve opportunities like shoulder and spine et cetera.
If we put more people out there I just be afraid if we get too far afield and and we wouldn't be doing our self any favor in the long term.
Okay, great. Thanks. Thanks.
Your next question is sort of Serge belanger.
Hi, Good morning, just a couple of questions for me.
And I apologize if you covered this before you just give us timelines on.
When we should see data from the pediatric trial as well as a.
I guess stride, one the lower extremities study and when they could generate label expansion and then second question is related to the CMS changes I think you discuss some of the.
Recent changes that will impact I O Vera, but do you foresee anything.
Further impacting.
External usage.
From a recent CMS decisions.
Yes, thanks, Sir.
So we expect to have topline data on piece by the end of the year.
We would expect that that would lead to a sn da because.
Well, let me, let me make a distinction here pieds and lower extremity nerve block, we want to extend the label.
That will require Sn da's in both cases opioid free see section is a currently approved indication. So that we're just waiting on publications. So I'll go through that through the three so for Pieds, we'll talk about topline data sometime in the next couple of months here.
And then finally Sn da and then you will see the papers and all the other things that come out over the course of the.
Probably mid year next year.
If we get so we would expect I won't go into all the gory details of all the different aspects of this but I think what we're planning on is that we would expect to get an indication I repeat indication sometime before the end of next year.
So.
With see section.
We expect that the first see section trial, which has a point or one P values for a number of different primary and secondary endpoints will be published this month or early in December .
We expect that we will have the topline data for the opioid free C sections, Doug study sometime early next year.
Likely in the JP Morgan timeframe and that that would lead to a publication probably around the soap the society.
Meeting, which is scheduled for May of next year, and then for lower extremity nerve block.
We're doing a a normal a healthy volunteer study.
We expect that that will lead us to a.
A formal trial in a lower extremity and lower extremity nerves.
Assuming that that trial gets up and running early and late this year early next year like we expect we expect to finish sometime in the third quarter you'd put together NSN da and.
The six month review cycle. So the plan would be sometime around the 2021 National meeting you would train on lower extremity nerve block and expected sometime in the second quarter of next year of 2021 I'm sorry.
Yes.
Yes. Thank you, Okay, and let me talk about I'll talk about CMS surge as well so.
We will continue to work with FDA on April PD.
Reimbursement for EXPAREL.
I think as ex broke continues to grow in that environment, I think our chances of actually getting.
Reimbursement actually are not as good next year as they were this year, but that doesn't mean, we're not going to keep try.
And the FC setting and in the office setting for aisle Vera we will have a very formal campaign that looks a lot like what we did with.
Where they see an expert help a couple of years ago. So you can expect us to be very active and.
Working with CMS on a especially in ambulatory care claim.
But increasingly we're having more and more discussions in the marketplace with docs, who don't see any reason why they wouldn't be able to use I olvera in their office because of patient comes in and pain. It acts immediately there is no cutting no opioids, no and there's really it's as safe as it could possibly be so theres a lot of interest.
In the use of the product in the office setting, but we have to work on CMS with that as well.
And I would say by the way the with EXPAREL CMS affirmed use in 2020 and also increased the payment from $1.22 milligram to $1.25 milligram. So thats good news as well.
Okay. Thank you thanks.
Your next question is from a Gary Nachman.
Hi, good morning, its rothsay on for Gary.
In the past you've talked about at CES, comprising 10% of revenues has that shift that at all this year and where do you expect to be over the next two to three years.
And regarding Io Vera can you comment on how the product is differentiated from competing products like Coolief from Avenue and is there an international opportunity for Io Vera.
Yes, thank you referenced.
Sorry blanket about mobile first let me answer.
Yes so.
Yes, yes seat. So let me, let me give a little bit of background information. There. So if we use 2018 numbers the population folks tell us that about 30% of American procedures were done in ambulatory surgery setting.
And if you extend out to 2025, the expectation is that that number will change to 70% to 75%. So yes. This is a huge expectation that this will change quickly not over the next three years, but probably for the next five years.
What we see that's just as interesting is that.
Go looking backwards primary see procedures would have been relatively minor relatively small.
Hernias and hysterectomy fees and things like that.
What's happening and especially with with.
CMS approving teekays totally arthroplasties into the outpatient space is that the ambulatory facilities are now gearing up to do very substantial surgeries like spine surgeries discussed the means and laminectomy is to do knees. You know is quite a departure from doing a hernia. So we've not only moved a percentage of pay.
Actions, but we've moved patients who are have a much higher paying acuity to the ambulatory setting and the reason that we are so excited about ambulatory surgery centers is we believe that its ex parral that enables that move that in the hospital you can't use a thoracic epidural you can't use of pain.
You can't use a PPA pump I'm sorry in the hospital you can use all of these different modalities right Epidurals thoracic epidurals, where the patient is a mobile for several days.
Pain balls pain pumps et cetera, when you move that patient to an ambulatory environment. You don't have access to a lot of other opportunities and you can't use huge doses of opioids. So we see the move to the ambulatory care is being fundamentally important and then we believe our market share inside that move around procedures like teekay inside.
Fine favors EXPAREL in a fairly dramatic way, so we see a growing very rapidly and in fact this year I feel it's it's much higher than that 10% that it was last year.
And then I O Vera versus Coolief.
They are very different.
Hi, Olvera is a handheld device. So there is no piece of fixed capital equipment other than what looks like a jetson family phone.
You know and it goes into a little stand almost like a cell phone of the old days and the it charges and the nitric oxide cylinder and the tips grow on so it is it is 100% mobile device it doesn't require any fixed capital equipment or any space or anything like that.
Fundamentally important is it doesn't use heat. It is it uses coal which is a much.
More natural approach to the body.
We don't have any bystander effect, because we use cold instead of heat.
It is reversible so we we use what's called the will only in effect, where once this nerve is frozen it grows back at roughly an inch a month, we don't kill the nerve we studied the nerve so they can't conduct a pain signal and a grows back overtime. So it can be used over and over again.
We believe that the tips that we're selling the smart tips that we reference to our significantly less expensive than the Coolief program.
So there are a number of advantages in the marketplace, especially as we start to talk about these patients and these procedures migrating to an ambulatory environment and potentially even to a physician's office environment, where we think the the system that set up is at least as effective as coolief and we like.
The way we're headed.
Thank you.
Thanks.
I'm showing no further questions at this time I would now like to turn the conference back to date that chairman and CEO for closing remarks. Thank you Whitney. Thanks for your questions and time. This morning, we look forward to providing additional updates in the future next up for us on the IR calendar as the Jefferies Conference in London, followed.
By the Piper Conference in New York, We look forward to seeing you also thanks.
Ladies and gentlemen. This concludes today's conference call. Thank you for your participation and have a wonderful day you may all disconnect.