Q4 2019 Earnings Call
Good morning, ladies and gentlemen, and welcome to be Q4 2019. This year by L. Stine 15 earnings Conference call.
This time, all participants are any listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time, if anyone should require assistance. During the conference. Please press star didn't zero on its touch town telephone as a reminder, this conference call is being Rick.
Courted I went now Mike Shanahan the conference over to your host Ms., Susan Mesko head of Investor Relations. Please go ahead.
Thank you came to me and good morning, everyone. Welcome to today's conference call to discuss our fourth quarter and well your 2019 financial results joining me on today's call or de stock Chairman and Chief Executive Officer, and Charlie Reinhart, Chief Financial Officer before we begin let me remind you that today's call will include forward looking statements based on current experts.
Such statements represent our judgment as of today and they involve risks and uncertainties for information concerning these factors that could affect the company. Please refer to our filings with the FCC, which are available on the FCC or on our website with that ill now turn the call over to Dave.
Thank you Susan good morning, everyone and thanks for joining US every measure 2019 was an outstanding year for Pacira.
We are delighted to report record revenues record, Brazil, and have now delivered six consecutive quarters of greater than 20% year over year growth.
Demand continues to broaden within the anaesthesia community is X probe based nerve blocks and feel blocks take hold as institutional protocol for a variety of surgical procedures, our relationship with Jane Jay has solidified the role of EXPAREL as the cornerstone of opioid sparing protocols for painful orthopedic procedures. In addition, we enhanced our leadership and non opioid pain.
Management with the acquisition of Io Vera a novel Cryoanalgesia device that delivers immediate and long term pain relief looking forward. Our mission in 2020 remain steadfast is we continue to advance our leadership in non opioid pain management and regenerative health solutions.
Charlie will discuss later in the call, we expect robust topline growth to drive substantial operating leverage and cash flow, providing significant financial flexibility to invest in future growth opportunities.
To achieve our mission, we are executing across all three of our global growth pillars first delivering robust revenue growth by expanding the use of EXPAREL and Niobrara for opioid sparing pain management second pursuing innovative acquisition targets to improve to improve patient journey and the neural pain pathway and third advancing.
On a pipeline of customer focused non opioid pain management and regenerative health solutions.
Start with the topline and begin with EXPAREL, where we achieved over 23% year over year growth in product sales. In 2019. This was the result of a strong demand across all procedures insights with care broad ixbrl adoption is accelerating as we remain on a clear path to achieve annual revenue growth rates in the high teens for at least the next five years.
Total revenue expected to approach the half billion dollar Mark in 2020, and a five year goal of $1 billion with more than 6 million patients treated since launch ex pro remains well positioned for long term market leadership, given its established efficacy an excellent safety profile.
We continue to see strong and steady growth and the size of our active customer base with a 21% year over year increase in ordering accounts, we are averaging 93, new customers every month and roughly two thirds of these new customers come from non hospital settings.
Inpatient utilization continues to grow across important surgical segments, such as orthopedics, abdominal cardio thoracic and women's health with EXPAREL, replacing pain pumps catheters and thoracic epidural.
We also continue to see a robust uptick in both hospital outpatient ambulatory surgery center procedures with EXPAREL based protocols, enabling the migration of orthopedic in abdominal procedures to the 23 hours. They environment in fact, roughly 60% of EXPAREL procedures are taking place outside of the hospital inpatient setting with X broke clinicians are providing low or.
No opioid pain management for large painful procedures, such as knee arthroplasty in spine in the 23 hours stay environment.
Your anesthesiologists are paving the way by using long acting ex broker referral nerve blocks as a cornerstone of multi modal ER opioid sparing strategies that enable same day discharge and avoid opioid related side effects and expensive unplanned hospital admissions.
We expect this momentum to continue as an increasing number of complex people for surgeries are transferred out of the inpatient setting.
In addition to enhance patient care, the 23 hours stay environment UBS affords substantial cost savings to patients and their policies continue to evolve to drive this change.
For example, effective January Onest CMS remove total hip arthroplasty hip arthroplasty and six spine procedures from its inpatient only list and are now covering these procedures in the hospital outpatient setting.
The final CMS rule for 2020 also added total knee arthroplasty to its listing of ambulatory surgery center or a S. C covered procedures private payer policies are also driving procedures to the ASV setting in November United Healthcare implemented a policy mandating 65 muscular skeletal procedures are performed in the AOCI setting unless there is.
Prior authorization of medical necessity for the hospital outpatient setting.
These these are surgeries that are common that commonly use expert panel and present, another assay growth opportunity our partnership with payers such as that now are also critically important to enabling the use of EXPAREL as a platform for enhanced recovery protocols and ambulatory surgery setting across the United States.
Through our strong and growing that were network of partnerships. We're further supporting this transition by ensuring that key players across healthcare systems have access to and experience with EXPAREL in January we were particularly pleased to announce a collaboration with envision physician services to train anesthesiologists on ultrasound guided regional painting.
Cultures with EXPAREL through a series of innovation workshops held across the country. The program focuses on high quality patient centered care envision physician services is comprised of more than 25000 health care providers across the nation specializing in anesthesia pain management Emergency Medicine Hospital Medicine, radiology obstetrics neonatology.
Trauma surgery and urgent care. These interactive training sessions will allow clinicians to enhance their skills with ultrasound guided intra scaling Blake break your plexus blocks as well as various feel blocks, such as transversus abdominis plane or tap blocks and Petrobras blocks.
The curriculum will include the safe use of EXPAREL and regional techniques, including volume expansion was mainly for larger procedures and advocacy would be pivot came from media pain relief. So that the pain management can be individualized for patients across a broad range of small and large procedures. We expect this and other partnerships such as our programs with Mednax versus Aireon surgery and.
Cancer treatment centers of America for cancer de bulking procedures to be key X pro growth drivers in the coming years.
In tandem with our partnership efforts, we are advancing important clinical programs for EXPAREL. We recently reported this successful completion of our phase three play pediatric study overall findings from the place study were consistent with the pharmacokinetic and safety profile for adult patients with no safety concerns identified at a dose of four milligrams per kilogram.
We expect to submit a supplementary new Doug drug application soon for this indication with anticipated PDUFA action date six months post submission should we received priority review and 10 months post admission if we are designated for standard review.
On the strategic perspective, having pediatric center label is of critical importance to walk you stakeholders parents children doctors and payers as there was an urgent need for non opioid options for managing severe postsurgical pain in this vulnerable population.
With only opioids currently approved for Postsurgical pain management, we believe it will be very difficult for a pharmacist to limit access to the only long acting locally analgesic approved for use in children.
Beyond Pediatrics, we're also working to expand the ex pro label with.
To include lower extremity nerve blocks are phase III stride study is underway to evaluate EXPAREL versus the pivot came as a lower extremity nerve block in adult patients undergoing foot and ankle surgeries. We expect to report topline results from stride before the end of this year to remind you we believe that a lower extremity opportunity is at least a significant as the upper extremities.
Market, where there are the where there are more than 1 million procedures each year.
Another key area of focus is women's health, where we are seeing anesthesia driven opioid sparing regional approaches using EXPAREL based feel blocks take hold is institutional protocols for serious force Assyrians section mastectomy breast reconstruction abdominal plastic and gynecologic oncology procedures here, we believe EXPAREL will be a key component in transforming the standard.
Of care for women's health.
Opioid addiction and women is growing at an alarming rate and studies have shown that women are 40% more likely to become newly persistent users of opioids. Following surgery given that we expect this field to play an important role in our five year growth trajectory.
We recently reported positive topline results for our phase four chores choice study, which demonstrates that an opioid free EXPAREL tap block with superior to morphine based final anesthesia and reducing opioids, while maintaining a pain score for 72 hours.
We expect to submit a full study results for publication in a peer reviewed journal later this year.
So Syrian sections are one of our top growth drivers and we would expect demand to accelerate as awareness mounts within the Ob anesthesia community around the efficacy safety and opioid sparing benefits of EXPAREL tap blocks to that end, we expect to have a presence at this year's meeting of the society of obstetric anesthesia impair an Italian GE or sold through a series of.
EXPAREL and opioid related presentations.
On the orthopedic front enrollment is progressing and our phase for fusion study in patients undergoing spine surgeries. This is a multi center active control real World study comparing EXPAREL multimodal regimen with the standard of care. Yet. Another example of were non opioid pain management can change the standard of care and an addressable market with an estimated 1.6 million procedures per year in the U.S.
States spine is an important growth segment in our JNJ relationship and we look forward to providing data to further our efforts here.
Turning to ex US we are advancing the review process for our market authorization application and you and continue to expect approval of this in the second half of this year, our regulatory activities in Canada also remain on track Health, Canada has validated our new drug submission and the review process is now officially underway.
In China, we have completed a pharmacokinetic study in Hong Kong with our partner nuanced biotech and we are preparing to meet with the rig with regulatory regulators soon to define next steps.
Looking ahead. The Pacira team is highly confident that express is well positioned for long term market leadership is the only non opioid single dose long acting local analgesic that is currently FDA approved for infiltration field bra block and break your plexus block there was a growing body of clinical evidence around flexible regional approaches that utilize ultrasound guided ex probably.
Thanks.
Expro formulation allows for expansion with sailing and for larger procedures as well as admixture would be pivot cane. So the pain management can be tailored to the patients need across a broad range of small and large procedures. As we are on track to expand the extra label to include pediatrics as well as lower extremity nerve blocks within the next two years.
This is the only FDA manufacture of a marketed multivesicular based multi liposome product.
EXPAREL requires a complex sterile manufacturing and fill process and the essays required for product specification and validation our proprietary to pacira.
Turning now to I have era, we continue to be highly confident in the technology behind this innovative system and the significant commercial opportunity a represents consequently, we expect Io very to approach 200 million and net sales for the 200 million net sales mark within our five year planning horizon.
As we discussed our initial focus is on two broad patient categories. The first as a combination of Io Vera plus EXPAREL as a multi modal procedural solution for total knee arthroplasty procedures in the setting Vera would be administered before surgery and EXPAREL during pursue surgery to provide patients with several months of opioid free pain control.
We've been we've begun training initiatives at multiple integrated delivery networks, all of which are seasons EXPAREL users. We're planning to use these networks to define protocols and workflow as we generate proof of principle data, we will replicate these programs and roll them out nationally.
Our second target is market is osteoarthritis patients seeking drug free opioid free surgery free pain management the last for several months.
We are targeting those patients seeking an active lifestyle, such as Gulf tenants cycling hiking or simply walking with grandchildren as well as those choosing to delay surgery for family events like vacations or weddings with Io Vera we can provide surgeons and patients control over the timing of the surgery.
As we outlined last year, we are increasing the based price per treatment to $450 for our best customers with the list price of $600 to better reflect the value of this technology delivers we're making great progress on this front consistent with many other medical device businesses Pacira is offering volume based discounts to customers. We are encouraged by the sticky nature of this business and we continue.
To build a robust pipeline of new business with large health systems.
On the manufacturing front, we've made considerable progress than expect to have an annual capacity of at least 120000 Io very smart tips by the end of this year.
In addition, we will be developing clinical data to maximize this opportunity and position I O Vera and EXPAREL as the leading multi modal solution for opioid sparing pain management before during and after surgery.
Our initial clinical development focus will be teekay with Io Vera we expect this study, which we're calling prepare to launch around the middle of this year.
There is also great interest in the marketplace for using Io Vera for long term non opioid pain management across a number of areas of high unmet need such as Hcl repair osteoarthritis of the Anquillare shoulder rig fracture passed this spasticity and plantar fasciitis.
Turning now to our second growth pillar pursuing innovative products or technologies acquisitions that aligned with our mission such as I O. Vera remain a key component of our growth strategy as they allow us to further leverage our established infrastructure and piano.
We are thoughtfully pursuing opportunities complimentary to our existing offerings, but also that are also of interest to the surgical and anesthesia audiences. We are calling on today, we see a significant opportunity to build a differentiated non opioid portfolio focused on improving patient journeys along the neural pathway and have a number of robust opportunities to consider from up.
From our business development team.
Sports Medicine is one area of strategic focus.
This rapidly growing market opportunity is driven by a continuous influx of new products and increasing incidence of sports related injuries and a significant advance in the field of regenerative Medicine Sports Medicine also offers the prospect of engaging younger patients earlier in the in their journey with pain and degenerative conditions.
This is also a well defined physician specialist group that we are already engaged with as ambulatory surgery centers are the typical site of care.
Finally, let's discuss our third global pillar advancing a pipeline of non opioid opportunities for acute and chronic pain.
Our in house team is focused on leveraging the proven safety flexibility and customize ability of our Depofoam platform last year, we announced two new Depofoam programs that were selected preclinical development first the intrathecal or subdirectory delivery of depth of a depofoam based local anesthetic.
Other than be pivot came for acute and chronic pain. We recently met with the FDA to discuss this program and we are defining our next next steps for a clinical study.
Next we are currently optimizing formulations for Depo detriment accommodating as we will begin a pilot study later this year in healthy volunteers unit using a simulated release of decks, but at commenting that mimics the future Depofoam based product profile. We look forward to keeping you apprised of our progress with both of these important programs with that I'd like to turn the call over to Charlie.
I'll review of for a review of the financials Charlie.
Thank you David Good morning, everyone I'll start by summarizing our 2019 financial results and then walk through our outlook for 2020 to remind you I'll be discussing non-GAAP financial measures. This morning, a description of these metrics along with our reconciliation to GAAP can be found in the news release, we issued this morning.
2019 was another outstanding year for Pacira with accelerating revenue growth supported by modest increases in operating expenses, yielding an increase of more than 60% in non-GAAP net income.
These results illustrate exactly why we are so bullish on the future of our business, which is on track for accelerating profitability.
These trends also support significant growth in operating cash flows, resulting in 2019 year end cash and investments of $357 million. This financial strengths leaves us well positioned to solidify our leadership in non opioid pain management and regenerative how solutions.
EXPAREL net product sales were $116.9 million for the fourth quarter and $407.9 million for the year. This was at the high end of our guided 2019 range of $400 million to $410 million for Ivera, We recorded net product sales of 3.2 million dollar.
For the fourth quarter and $7.9 million for the year. This was roughly in line with the low end of our guided range of $8 million to $10 million.
Our non-GAAP gross margin was 75% for the fourth quarter and 76% for the full year inline with our full year guidance of 75% to 76%.
Non-GAAP research and development expenses were $18.3 million for the fourth quarter and $67 million for the year as discussed on our last call. This came in at the high end of our guided range of $60 million to $70 million. The main drivers of this increased R&D spend from prior year levels, where our phase three.
Eric study, our phase for opioid free section study and our phase for spine study.
To remind you in addition to traditional clinical and regulatory expenses. Our R&D line also includes product development and manufacturing capacity expansion costs, including cost of the significant scale up in the UK.
In the fourth quarter of 2019 total R&D included $8.1 million of clinical costs and $8.7 million, a product development and manufacturing capacity expansion costs for the full year R&D included $31.1 million, a clinical costs and $29.7 million.
Development and manufacturing capacity expansion costs.
Our non-GAAP selling general and administrative expenses were $47.6 million for the fourth quarter and $176.9 million for the year. This was just below our guided range of $180 million to $190 million. The main drivers for increased SGN a spanned over 2018 levels.
For additional selling and promotion activities focused on the outpatient an FC markets as well as commissions related to our Jane Jane agreement that are directly linked to growth and EXPAREL sales.
Our non-GAAP net income was $23.8 million were 56 cents per diluted share for the fourth quarter and $70.7 million or one dollar and 67 cents per diluted share for the full year.
Turning now to our financial expert expectations for 2020 for total revenues, we are guiding to a range of 485 million to $500 million, representing a year over year midpoint growth rate of 17%.
For EXPAREL as Dave just outlined all signs in the market point to another highly successful year of significant topline growth in 2020 is already off to a great start with robust year over year growth rates. We are beginning year with a guidance range of 465 million to 475 million for net expert.
Our product sales. This represents a year over year mid point growth rate, a 15%, which we view it as a conservative starting point.
It's still early days for a number of key growth drivers such as the markets migration to anesthesia driven regional techniques and EXPAREL based protocols that are enabling to shift to the 23 hour stay environment, the timing and growth trajectory of these drivers are somewhat undefined. So we will provide updates as the year progresses, and we have more visibility.
I would also remind you of the seasonality of EXPAREL the sales directly driven by procedure accounts with the first quarter typically the lightest and the fourth quarter the strongest largely due to the timing of electric elective orthopedic procedures.
As demand continues to grow in the soft tissue space, we would expect the seasonality to begin to moderate.
Fryer Vera we're guiding to a range of $15 million to $20 million in net product sales. The remaining component of 2020 revenue is approximately $5 million and product sales and royalties attributable to Liposomal bupivacaine for the animal health market via our third party license agreement.
We expect our 2020 non-GAAP gross margins to be between 67% and 68, excuse me, 76% and 78% as we begin to benefit from increasing volumes at our 45 liter sweetened Swindon.
The next key milestone will be when the second suite, a 200 leader unit comes online, which will double current capacity, we expect to start making commercial product in this suite in 2021 with 80 plus percent gross margins to begin in 2022 and improve thereafter.
For non-GAAP R&D expense, we expect to be in the range of 60 million to $70 million. This is consistent with 2019 and includes approximately 55% for clinical expense and 40% for product development and manufacturing capacity expansion costs. The remaining R&D is related to regulatory and medical science activities.
For non-GAAP SGN, a we're guiding to a range of 180 million to $190 million, which is also consistent with our 2019 guidance range.
Looking ahead to the remainder of 2020 and beyond we're very excited about our financial outlook with a rapidly growing top line steadily improving margins and appropriately managed operating expenses, we have a tremendous opportunity to invest in our business, while simultaneously ramping the top and bottom lines.
That concludes our prepared remarks, I'd now like to 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 the star and then the number why now.
Tony telephone if your question has been answered are you wish to remove yourself from the Q. Please press the pound key.
Your first question comes from the line of Randall Stanicky.
BC capital markets.
Great. Thanks, guys.
Hey, Dave can you just talked through some of the upside drivers that could come throughout 2020 that would lead you to revisit the guidance you provided and then also one talk about how you're thinking about competition, which has been learned last night's been delayed again and to confirm that you've seen no growth.
Slowdown early in the year in the EXPAREL trends and I have a follow up for Charlie.
Sure. Thanks Randall.
As you know we come out of a 23 year or 23% growth in 2019 and really what's what the gate is on that is.
Only 10, plus 10% to 15% of the.
Anesthesia procedures in the United States are done as a regional approach.
Today, and so the real key in the real excitement around Mednax in cancer treatment centers of America envision is.
Teaching these the anesthesia community how to use these regional approaches and how to make sure that they understand EXPAREL. So what happens here is you know very much excitement in the anesthesia community thinking that EXPAREL really provides them opportunities that were not valuable not available to them before they had a long acting local anesthetic.
They use it generally in a break you'll plexus block they move to field blocks. They see that the patients don't require opioids that opens up the door for them to then move those patients to an ambulatory environment and it's really the reason why we're able to do these large painful procedures in a 23 hours stay environment things that we used to keep in the hospital Bill.
Because they had to have a thoracic epidural or they have a pain pump or some something that kept them from being outside so the basis of our business. Randall is twofold really it's the regional anesthesia programs driving a improved care profile and then impaired.
Profile of reduced opioids allows the payers to drive the patients to a different site of care, where as we've said several times they say between 35 and 40%. The reason I answered with that first is that's not only an opportunity for 2020, but you know with 10% to 15% of the procedures now it's a matter of training those folks.
Not only on the use of EXPAREL, but on the on the appropriate use of ultrasound.
Being involved with all the medical programs in the fellowship programs and so we see that as a fundamental piece of the five year plan. If you look then it what what comes from the payers being able to move patients to another site of care. We're still very early in the trends and the in the migration of these patients you see that.
Masses is driving the bus here right on an annual basis, they are moving more and more procedures to the H O PD environment and then the plan is to move them to the to the ambulatory environment as a as the migration pathway almost and the real critical issue is for an S. C. We've moved.
From.
Low margin Hernias, and hysterectomy ease and things like that rate, where they had to do a lot of procedures and a data to actually make a goal of it from a financial perspective to now moving spine surgeries and knee surgeries very painful large procedures that are highly profitable for the same these same centers and so.
So the acceleration is not only the payers driving the patients out of the hospital for cost reasons, but a growing ambulatory environment, where the quality of care is equal at least two a hospital setting and so the patients want to go there the docs want to practice there the payers want them to go there. So it's really a perfect storm so those two things.
Going to sustain us not only for 20, and then beyond I mean outside of that you know the short term things that you would expect to see the spike from our own opportunity well first of all we're waiting for the first see section paper to come out in a and we expect that to happen any day now.
Those we've trained.
Over 500 hospital neonatology and see section units on the use of EXPAREL as soon as at journal comes out that will trigger those activities going into execution mode. So thats, a very short term driver.
No the the desire to it.
Attend these innovation labs that we outlined in the script is intense and so you can see an immediate reaction. We run. These innovation labs guys you didn't learn how to use these and you can see the hospital.
Response to that training program is very short term. So you'll continue to see those as we go around the country and perform these labs I would also say, we're having this call in Tampa.
Because we're building out a training and education center here in Tampa.
We're about a half a mile from the airport and that will give us another place where we can train folks very effectively.
All of these different ways to use regional anesthesia to improve patient care and get a model. The hospital. So I'll stop Randall on that point in I hope that that covers both of what we're talking about so far you had a question for Charlie.
Yeah, No 10 before we move to Charlie is it fair to say that you've seen no change in the near term growth trend with EXPAREL.
Yes, I am looking around the room here, but all my lawyers and stuff to make sure to.
Guidance is a funny thing right at so its relative so I'm going to say, yes. It does get beat up later Randall.
Early 2020 of results have been pleasing to us we're happy Okay. That's helpful. And then Charlie you know it looks like your containing opex spend and a big part of the story that hasn't gotten a lot of attention is the operating margin or operating leverage opportunity can you talk about that and maybe.
Give us directional or specific color work at work in margins go to over the next three years.
From an operating margin perspective, so obviously as revenues keep going up and as margins get into the mid eightys or high 80% range. We felt we don't think that that is we're not going to have a lot of opex increases I think from a sales and marketing perspective, we'll probably.
As we grow but we're going to start to reallocate what we do from an R&D perspective, as we wind down spending on EXPAREL, we wind up spending on I have era, and the Depofoam pipeline that Dave was describing those things, but we don't see that that total budget changing that much. So we really think that there was a huge.
Hugely exciting story in the operating margin as you point out and that could be it into the 40 plus percent range over the five year planning process.
Okay. That's great. Thanks, guys.
Thanks Randall.
Your next question comes from the line of David Amsellem with Piper Jaffray.
Yes.
Thanks, So just wanted a couple of questions first Dave you alluded to.
The JNJ relationship early in your remarks, and I wanted to get your latest thoughts on the future of that relationship and specifically, how you're feeling about the economic structure of that relationship given where the growth of EXPAREL is coming from primarily.
Thats number one and then number two is can you talk to the mix.
Our EXPAREL in terms of the portion of volumes that are ultimately being used as a block versus infiltration just give us some metrics around that if you can.
And then lastly on there that 200 million target does that include any of the osteoarthritis.
For todays thanks.
Yes, Thank you David.
Jay Jay.
It remains a very important strategic partner for us.
You know I mean, just as a is a highpoint.
It provides the opportunity for our folks to have an increased focus on the anesthesia community and on all of the things that are really driving our business and I'll get that to answer in the or black question.
Jay and Jade still owns spine, which is one of the fastest growing outpatient procedures.
They still own sports medicine, and we talked during the script about.
Of the pediatric indication in a strategic importance of that JNJ owns the.
The the pediatric just want right out of my head the.
I will facilitate the spine procedure for scoliosis. Thank you Susan sorry, guys that JNJ owns the scoliosis marketplace and so you know in addition to.
Working with the AMC folks are with the orthopedic folks on moving Teekays.
In other orthopedic procedures to the outpatient environment.
Sports medicine in spine.
We have every intention of keeping that relationship in place and we are assuming that they will as well by the way.
Through the conclusion at the end of 2021.
We are preparing David like Thats were going to be on our own after that I'll never say never we'll just see how this all evolves over the next couple of years, but right now both parties are contributing materially to the growth that you're seeing on an annual basis here. So it's still works in our favor the blocks versus infiltration, David I think probably the easiest thing to say is that the.
Vast majority of our growth on an annual basis is blocks.
I think that was probably fairly apparent.
The infiltration business is still there the in it will always be there for example, most of the pediatric use of the product in the studied indications are for.
Infiltration there are simply procedures that you just can't block because there's just no way that you can get to a nerve that would provide appropriate pain control without having to worry about motor blockade in some of the other things that the clinicians have to worry about so you know I mean, the best example, probably as Pete.
Itself, where we have this we're having discussions with the FDA on a pediatric nerve block, but you can't figure out, which one you want to do right, it's very difficult to figure out what nerve you're going to block in up in a Pete.
All of the normal things that we would do for an adult from a peripheral nerve perspective.
Other than may be an open compound fracture of the owner or the summer are just not apparent in children very much. The situation. We were in with Burundians in Emirates. I mean, we don't have either one of the Pete So we're trying to figure out exactly what we're going to study so.
And then I would lastly say that.
The practice of medicine in many cases is driving folks they use both a block and an infiltration and so you run the risk of double counting when you start to parse this out to specifically right. So.
If you went to Walter Reed for example, you would see amuse a nerve block and at an AD dr. nerve block off label.
And then they would do a very articulate.
Very particular injection with what was left one vial of EXPAREL, but use both for our nerve block and an infiltration. So it makes it very difficult to.
To tell you that its 50 50, I would say that 80% plus of the growth anticipated. This year is going to be associated with a nerve block.
And as you just I'll just make one other point, David before I move over to our Vera the.
The point here is that when when youd not only can and anesthesiologist use all of their training and knowledge of the neuro anatomy, but when they do that procedure under ultrasound guidance, our confidence that we've got an effective block goes way out.
So if you're going to do a knee and an ambulatory surgery center and I'm going to have mind done tomorrow by the way. So this is very relevant to me you have to know that that nerve block whatever you've done for pain control is going to be effective because the freight the patients going to be there for a couple of hours and you're not going to see them again, and so they can't rise and pain.
Right and so we're not wouldn't anesthesiologists does an ultrasound guided nerve block our Q weigh on that procedure is substantially better than when a surgeon is doing an ultra array and infiltration without the guidance of ultrasound and all of the other things that the anesthesiologists know about so yes, it's hard.
To disconnect nerve block from a FC those two things are both.
Driving outpatient growth for Io Vera.
We're still defining exactly how big the osteoarthritis market is.
I would tell you that the early response from the marketplace is actually.
A little more positive actually than we would hope in some cases, we've had to put a muffler on the salesforce to keep them from running all over the place because the doctors are their customers are so excited about being able to control pain for several months without opioids and without a surgical intervention and so we we are starting.
With a relative soft launch coming out of our national meeting last year, and we expect that that will ramp up over the next few years.
The majority of this years I over our revenue is from hospitals and you will see the osteoarthritis piece of that grow.
Likely substantially materially over the next two or three years.
Okay. Thanks.
Thanks, David.
Your next question comes from the line that David Steinberg with Jefferies.
Yes. Thanks, I was wondering if you give us some more color on.
The rollout.
Sections and know that EXPAREL is already approved for use in C sections as a nerve block indication.
As such.
What's sort of revenues have you actually generated see section and if it's de minimis, what whether the key factors that are going to drive the timing and the key factors are going to drive usage is this paper you indicated at the completion of Phase four studies and then and then secondly.
Are there any situation you seen where some hospitals are confusing groups might be delaying purchases as well as late as a weight.
A little color and want to play off the two companies against each other to get a lower price point in and then along the same lives.
Karen is.
Consumables is that when they do get approved source they get approved.
When they launched a product they're going to come in at a lower price points and expert on the state do so.
Some purchasing groups say something to the effect of.
And they are in the formulary, but theres, a lower priced product needs to play ball with us coming with a lower price point what would be response. Thanks.
Thanks, David.
First for the rollout of see section there the first two pieces of that.
Our.
We referred are ready to the Mednax relationship where we've trained.
You know something in the order of 4000 healthcare providers.
On.
Cease on C sections and on Ob anesthesia regional approaches again.
That relationship has been gated by the paper that we expect to come out any day from anesthesia and analgesia. So theres always some forward thinkers, who are using the product because they've been to training sessions and because it's approved.
For.
For a plane blocks and so it's an open label indication.
We would expect that the vast majority of the growth will come in as a future directed response to the first paper that showed a 52% reduction in opioids and that the vast majority of the of the patients in that took one or fewer opioids.
And shows the benefits of reduced opioids.
These so thats sort of stage, one and we expect that to be in the very near term days two weeks the second piece will be.
As the choice data so choices the opioid free program, where we compare it expert panel to a spinal morphine based initiative with a third arm, where it was an expert tap plus a very low dose of opioids and show that you. Indeed can do an opioid free see section that you can have.
You know equal or improved pain control and without any of the side effects of opioids. The patients stay in the hospital for a shorter period of time or have the opportunity at least to stay in capital for a shorter period of time. The soap meeting is in May we expect to have a series of abstracts and presentations there and then that publication will come out sometime.
Later in the year. So we see all of those as acceleration points I'd also point out that see section as an integral part of everything we're doing with.
The envision relationship to sell envision is also very interested in having a C section, though and Ob anesthesia component to the training programs that we're going through with them. So there are a number of critical accelerators as we go through the year, but it also is something thats going to extend beyond 2020, we wouldn't be able to train 25.
Thousand.
Health care providers all in 2020.
So that's that's sort of the C section data.
On the competitive piece.
Well I don't believe I think it'll be very difficult for a hospital to stock more than one product. When you have such a clear differentiation for the safety profile of our product that the drug with the huge safety.
The opportunity is also the product Thats got all of the experience in the marketplace all the protocols and year ask programs all of the anesthesiologist trained on the product.
Vastly different label and.
It all in all of these years of experience so.
Do we have folks tell us that they are hoping that theres some pricing tension in the marketplace almost always pharmacists of course, we do.
Our answer to that frankly is.
You are going to have a product that has some safety issues. That's why it's going to have a black box.
We have no intentions of having any pricing considerations as a result of a a product that we don't think is anywhere as near the equal of EXPAREL. So from a pricing perspective on ongoing basis I don't expect any in any implications for express at all.
That's all I got David.
Okay. Thank you.
Thank you Nick.
Your next question comes from the line of Greg Fraser Sanchez.
Good morning, those thanks for taking the question.
In terms of competition during today's sent to the extent that one one can eat and thats probably use what are the settings are procedures were EXPAREL. He is now that you think could be more at risk and others.
And then on fee section you mentioned, a number of health care providers trained.
Thanks, Fred can you put that into context in terms of a number of C sections, Hey, Representer portion of the U.S. market.
Hey account for thank you.
Yeah. It's.
No they're all a moment in time when it comes to how many people have been trained for.
When you start well maybe I'll answer the question in one very Broadway.
There is no data source that tells you exactly how many C sections each of the different anesthesia groups around the country do.
You can extrapolated from hospitals, but it's using different data sets and extrapolating into a a median of some sort so it gets a little bit sloppy.
We're pretty comfortable that we've already trained Ob anesthesiologists, who would do more than 10% of the C sections in the United States.
If you look at anesthesia and CRN A's as a group of folks who would be largely the largest providers of anesthesia. There's roughly 110000 of those folks in the United States by the end of 2020, we would expect that we would have treated roughly 50% of all of those folks.
So if if you said that there were 1.200 million or a million 300000 C sections in the United States and you just use the raw number that we've trained half of them on regional approaches you would expect them that we would have treated or we would have the opportunity to be involved in 650000 C sections as we exit 2020.
Well thats, it's sort of a piece together approach, but it's the only data that we have.
Okay that makes sense.
Yes that thanks and then.
Yes, and ill I mean, you've got a small volume product that you can't dilute you can add freebies hurricane I mean.
Now I think they ill some significant issues about end saizen neurotoxicity in a number of different issues that they're going to have to address I think it's actually quite a good drug for burundians.
I don't I think thats about the end of it as far as where concern.
Okay. Thanks for the color.
Thanks, Greg.
Your next question comes from the line of Liana Moussatos with web Wedbush Securities.
Congratulations on a great great quarter, great year.
Can you.
Give us an eye.
Can you give us an idea what you think peak sales could be for pediatrics Sanford veterinary applications, and then for Charlie any guidance on manufacturing expansion cost this year.
Okay.
Let me make sure I got the question, you're asking about speeds in that Oleanna, yes, yeah.
Okay.
So ill.
Well, so let me give you a little bit of background at least so theres nothing approved rather than opioids repeats.
The enthusiasm in the marketplace frankly, it's the first time I've ever had people get Mad at me because it's so it takes so long to get.
FDA approval for something I mean, they just can't understand whats taken so long.
When we look at at the business ourselves, we have something like a million 100000 procedures.
Remember that we've done the work and scoliosis and cardiac surgery. So we've picked off the very top of the pain and difficulty in more patients might get opioids over and over again, and we project roughly a 50% market share at peak and but we lower the value of each of those patients not to be crash.
About it but they would use less than a full vial of EXPAREL because of the milligram per kilogram dosing and so we put that through it at $200, a patient and you'll get roughly $100 million at peak.
In fact for all of these procedures, you get roughly $100 million in peak.
On the vet side, you see consistent growth.
But we don't have anything to do with it other than manufacturing liana. So.
We get a relatively modest royalty.
Are the company that we sold.
It's called no SITA, we they named no SITA it was era and Aratana product that's been purchased by Elanco.
I know a lanco has some some.
Very specific growth thoughts around expert, but it would be around those seats, but it would be inappropriate for me to tell you to try to quantify that in any way other than the fact that it is now in the hands of a much bigger organization that is thinking about outside the us et cetera.
For Pediatrics are you thinking about a smaller.
All you file in the future.
Probably not.
And I'll tell you why wasn't one thing we've learned in spades from the 10 ml and a 20 ml is that people usually start with the lower volume oral oral maxillofacial surgery would be emblematic here. So they would start with a 10 ml dose, but in a very short time, they would batch their patients so that they would take four or five.
Mel doses out of a 20 ml vial for cost reasons and so the business aspect of this is that there's very little difference in the manufacturing cost of a fiber at 10 ml vial.
And so it's very hard to make the price.
I will materially different it's never going to be approaching half.
And so the anticipation in the marketplaces that.
It might be the first purchase of somebody in a small volume facility, but almost immediately they would go to with the less expensive larger of skew and in divide it and Thats OK within our package insert for four hours, so they're much more likely to backs the patients and pull all the doses.
In the morning and use them as they go through the day. So it's the cost of a new line.
Liana is $3 million to $4 million and it takes three years four years to validate it it's just not worth it at the end of the day, So I doubt that we'll have a.
Smaller dosage form now we are looking at a prefilled syringe, we're building out a pre filled syringe line in our new facility out in San Diego for some of the pipeline stuff. If it turns out that we need it we could very easily go to a three or five ml prefilled syringe for another product, but right now thats not anticipated.
Got it and.
And then for Charlie any guidance on manufacturing expansion costs this year.
Yes, as you can imagine those numbers fluctuate from year to year based on the actual projects, but in 2020, it's a little bit under 10 million of the total is what we're anticipating and I'll acknowledge that as at a research and development. Those numbers can go up and down a little bit if thats what were thinking at this point.
Thank you very much.
Thanks.
Your next question comes from the line of Chris Schott Flip JP Morgan.
Great. Thanks, very much just a couple of quick ones here.
First we think about acquisitions in Biz Dev should we be thinking about deals in the size range of what we saw with I O Vera or does the cash flow generation the company you're expecting over the next few years allow you to look at larger transactions and I guess, a follow up to that's it for thinking about more smaller deals. How do you think about deploying that cash flow that's going to turn defend build up pretty quickly.
The over overtime.
Yes.
Yes.
Thanks, Chris I laugh and because it's the topic of conversation all day yesterday here.
So we I think there's two aspects to that you know we have the opportunity to do larger deals and as time goes on we are looking at larger deals I don't think we still approached anything that would be considered transformative given the size of the espresso opportunity and what we think the sub or accurately opportunity is for leave open.
Okay.
But we we are looking at larger opportunities than we would have two years ago for sure I think the other aspect of it is you know a deal that we just absolutely could not have looked at a couple of years ago because of a risk profile now come into view as well because we do have.
The opportunity to have cash transactions, we are more open minded about some things that might be a really big opportunity that might benefit from our expertise in clinical development and commercial development that would've been out of bounds a couple of years ago that might actually be in play now. So we're looking at all of those things.
[music].
We know we are keenly aware of.
Nomination of Randles question in your question of what the cash.
Starts to look like year over time.
Maybe the most procreate wave for me to answer your question is.
We have got a lot of BD opportunities Ron and his team are very active.
We've got them in both the pain space and in the regenerative medicine space and so our plan in the five year plan is not to let that cash pile get high enough that we have to start to consider what are we going to do in terms of.
Pressure from the other side, because we've got too much money.
Chris recall that at this point at least we have a convert that thats due in April of 2022.
Amounted to $345 million shrunk from a principal perspective, and our current position has been that we will have cash to pay that off if we if we choose to do that.
Yes, I think Chris you're going to see a couple of transactions. We hope at least we will see a couple of transactions this year for sure.
Very helpful and just a last quick one for me. It's just as we think about the mix of business. I think you talked a lot about outpatient, but sorry, I missed as to what percent of your business right now comes from issues.
In terms of the ex roll business overall.
Yes, the only way, we really get good data there is in and out.
So we can tell you know who was treated as an inpatient and who is treated as an outpatient.
As we as we have this call our inpatient business is about 40% our outpatient business.
And that includes H O PD, and a C and plastic surgeons and their office and oral maxillofacial surgeons and their office. So again, it gets a little bit messy.
The market share in a C is still modest single digits.
The the big part of that is April PD looking for a home basically I mean, and a lot of places where we haven't had a full extension to ambulatory care is in states, where first certificate of need reasons, there aren't a lot of ambulatory opportunities. So you know another growth driver as we go forward is.
Insurance carriers, who are insisting on this ambulatory care that we referenced in the call and so we continue we still expect that by 2020, 570% of the procedures in America will be done in an FC setting and that it will afford about 2 million patients a year that fall within our.
Tan.
So it's not a perfect answer to your question Chris.
But we are already a outpatient levered company and we expect that trend to continue a lot and just to put the final touch on that.
Because it's not always obvious to folks is a number of the tools that especially anesthesiologists would use and an inpatient setting.
Like doing in thoracic epidural, where the patient has delivered on their belly for two days.
Just by definition, that's not possible and an ambulatory environment. So we not only see the patients moving out, but we see the opportunity to have EXPAREL enable that transition or that migration are greatly enhanced and so thats why its such a big part of our program going forward.
Great. Thanks, so much.
Thanks, Chris.
Your next question comes from the line of Sandridge, Ballenger with Needham and company.
Hi, good morning.
Just a follow up on the prior question I think in the past few said.
55% of EXPAREL use was outside the hospital.
Where do you expect that number two to be in 2020 and then.
I guess a follow up to that is.
What.
And bundling in the hospital outpatient setting mean as a growth driver.
While we are on bundled outside of the hospital setting I mean, there is a payment an ex as CMS payment for EXPAREL outside of the hospital in the setting today.
So we have the answer to that and CMS is paying $1.25 milligram most of the commercial payers are paying 15% to 20% more than that.
[music].
No for we're talking about espresso.
And so.
You know you continue to see well, let me go back to your first question. So we set on the call. It 60% of our patients now are outside the hospital, if we stick only to postsurgical pain as it would traditionally have been treated in the hospital setting is probably in the.
55% range again, and Thats going to continue to grow by five 810% a year, depending on which are part of the country around and whether they actually have access to ambulatory care.
So you can add over the next.
Five years that that grows by something in the neighborhood of 5% on an annual basis, but remember, it's a combination of hospital outpatient and a SCS.
And in different parts of the country, you will have very high percentage of that M&A SC environment and in certain parts of the country. You will have a very high percentage of that and hospital outpatient department.
And I think the real interest here is that the payers, especially the big payers are driving this transition because of the cost of care and the acceptance of patients to be treated at an ambulatory environment. So again, it's not a perfect. The data that you are asking for just doesn't exist in a way that I can.
Just provided to you or give you a reference it's piecing together a number of different things, but today its 55% I think over this planning period, it's going to be 75% and I mean I can give you one rep. There was a paper written by the Campbell clinic, where they referenced by 2025, they expected that 17% of the search.
Stories in the United States would be done an inpatient environment and we agree with that by the way and that those patients will either have either be medically indigent or they would have five or more comorbidities. So you get a pretty clear picture from that as to where the world is going here.
Okay.
And then just.
On the next few west strategy.
With the expectations of a European approval later this year can you just talk about how you plan your commercial plans, there and maybe just the market dynamics.
Sure.
So.
So were there now and we've got a small team of people on the ground in Europe, we're going to do it ourselves.
Largely because we can't find anybody like ourselves, but that does.
Regional training and education, and those kinds of things right, we're a little we're well.
Device companies don't train in the nursing staff and all the other places that you need to go with EXPAREL in there is there more or less home in the in the O R and the drug companies just don't do what we do in terms of.
Day to day physical activities of training and education for EXPAREL.
I would tell you that idle Vera is approved in Europe today, So we have a place to start.
And we expect our group too.
We'll be going along side, the regulatory process and making sure that were engaged in key markets. We have we don't intend to launch our Pan European basis, we have five or six countries that we will launch with where.
Theres, a definition of and have a need for an opioid sparing alternative and we can get a pricing profile that's appropriate for.
The pricing strategy Thats been established in the United States.
And we will hire.
On the current plan, we hire a couple of doesn't people it would be a mix of reps and medical science liaisons, we would focus five or six countries and we are already they are working with the KL wells and most of those Kale wells have learned a lot about EXPAREL by coming to visits in the United States and so we're well downstream and.
In terms of doing some clinical work and being ready to launch in Europe in Canada, We've got a very similar situation, but even more exposure to EXPAREL.
I would say at the anesthesia meetings for example.
We have a lot of interaction with Kate with the folks from Canada from the anesthesia community and so.
You can expect that we would launch and a difference place there than we did here we won't go through all of the issues associated with trying to come up with a different best practice technique for hundreds of different kinds of surgical procedures, we will more than likely work on the high end of the spectrum with anesthesia using.
Ultrasound guidance into a nerve blocks and thats the way the the dossiers work hopefully that will be the approval process and thats the way will go.
In China.
I would.
With the Chinese send us to a very specific place to do a PK program in Hong Kong that trial has been done the data looks good we're on hold waiting for the all of the issues with the krona virus too.
Clear up so that we can go back and have a meeting with the regulators on what the next steps going to be.
Anything else search.
Oh, thank you.
Okay. Thank you.
Your next question comes from the line of carrying that Smith, let's be and capital markets.
Hi, Good morning gave just described the training program with envision a little more in terms of how many anesthesiologist you could reach and what sort of impact it might have.
It's early but have you seen any pull through from that program yet.
And then just talk about I ovarian and near term.
How you plan to expand to use with promotional efforts and additional clinical data.
The guidance 15 to 20 million, it's still a long way to go to the 200 million. So I just want to have a better sense of when you think you'll start to get better traction with that.
Yes.
So we signed the envision deal two weeks ago, Gary So I can't tell you that that.
That we have anything that I can point to.
So how does it work. So these innovation labs, we've got a group inside our organization that does this.
And we have a very strong.
Strong relationships with the code K awhile. So if I give you a really quick snapshot. So there would be a didactic portion where we would talk to them about all of the aspects of Multivesicular liposomes, why they stay where they put it.
We are one of the few companies in America that has access to a virtual cadaver. So we can put on the funny glasses and we can we can look and they can we can strip out the muscle we can strip out all the blood vessels. We can look just at the nerves. We can put the arteries back on so that people can see how close the arteries to the nerve. So they can understand how to put the drug and differ.
From places. So there is a section there that would be more or less almost a mini course and.
Run by one of the Kale wells by the way most of these the vast majority of these are see me.
And then typically there would be five.
Stations, each manned by an anesthesiologists KFL and the group would break up and they would go with life models and they would see again using ultrasound guidance exactly how to pick out where the different nerves of interest are.
And so you know thats pretty much a free wielding session about you know I know this guy that's doing this block unused can you tell me. If you were going to do that block what would you do how much do you use what's the volume what are your what are your safety considerations. You know my worried about hitting in artery, if you're doing a break you'll plexus block of my worried about hitting the.
The frontrunner of all of those different kinds of things and those go on Gary for hours.
As a matter of fact, we've had them that it would that were scheduled to go for 90 minutes and they've gone for three or four hours.
And so we'll run those in places that has already been agreed with envision around the country through the year.
The first one and I won't give you the specific numbers, but I would tell you. The first one we did we were prepared for X number of folks and more than two times that number of folks showed up.
So that will give you an idea of of how much interest there is and learning this.
And so you know as we go through the year, we'll continue to do them and then like I said. This was the primary activity of this innovation team that we have.
In each envisioned center. There is there are also resources that are dedicated to this endeavor and they have all of the eras protocols and most of what's been done in terms of the training sessions are on video. So they can watch videos they can actually.
We pull up these protocols and then they can use our proctor Palo Vars. If you will to have one of the Kale wells go into their centre and teach them how to do one or two specific blocks if thats, what they're looking for its.
It's less of an open book if you will it's more we need to learn how to do tap blocks or we need to learn how to do peck blocks or we need to learn how to do something specific right. It might be an old anesthesia group is generally in a different wing of the hospital just for C sections, but I think you get the idea of what we're doing and why you'd be so excited about it if you could treat half of the health care providers in the.
By in America by the end of this year it truly is a.
As a big opportunity for us.
Is that okay for that one for and there is yes, yeah that was very helpful. Thanks.
And then the Io Io Vera fair enough, Yeah, Yeah fair it off and I and these are this is not a linear progression right. This is this is this is a.
This is.
More.
This this compounds itself as you grow in the marketplace. So I fully understand your your comment in your question so on the.
On the hospital front, we've got a bunch of people out there who are working on Io Vera plus EXPAREL and as we've said a couple of times, we've got some big ideas that have already signed up.
Yes.
We think that that's probably the majority of the 15 to 20 million this year and I think.
I don't think Charlie Didnt pullout, Io Verus, specifically, but I think everything that was set about EXPAREL in terms of.
Trying to provide a conservative guidance. So that we don't have many of the issues that we went through in 2019 also applies to I have era.
On the other side Gary for all way.
Other than me in a couple of other people that are going out and talking to folks and just sitting and doctor's office and talking to patients and stuff like that we really have done very little in miles science, just didnt have the resources to do that so we've got 15 regions. Our commercial organization has made up of 15 regions.
We now have a dedicated aisle I over a person in each of those 15 reason regions. So they own the Io Vera goal and we'll work with direct pro counterpart.
Two on the on the expert helpless I over a piece of this right.
In five of our regions. We are also putting out a person who is a I O Vera away person. So they will only work with orthopedic groups in spine medicine groups and CRN a groups just as a point of interest we've got several CRN eight groups that are looking to open 24 hours a day.
Seven day, a week non opioid clinics around the country and of course ex prelate aisle Vera are both a big piece of that.
And so we're working with folks we were out a couple of weeks ago with a book of different poster is right for your treatment room, what do you want and just to give you a sense. The dock say I want a poster of how aisle barrel works and what freezing the nerve actually means I want to poster of Teekay.
So that I can show them, how I can use the two of them together eventually and then I'd like a poster of as a matter of fact this is an actual case can you get me four or five posters, because I'd like to go around and put them in the locker room at all the big golf clubs in the area.
That you can get you know without any drugs without any surgery, you can get plenty of relief from this that will take you through the golf season, if we do it in May June in Upstate New York for example.
So that is much more of a nascent.
Opportunity, but we think it's it may actually be bigger than the hospital opportunity when it's fully implemented and so we're just starting here. So you can think about 15 to 20 million almost as an anti to get us in the game and to pay for all of the resources, but you know as we've said with the new pricing system, we still believe that we will break.
Even on a PML basis during the back half of this year and then from there on you can see that it will be off that are basis.
Okay and then just one quick follow up you addressed the BD questions earlier, but attempt to your pipeline do you think you have a lot more opportunities to develop products internally.
That's been an area, where it's been fits and starts over the years. So is that something that you think over time, we'll see more coming out of your pipeline. Thank you.
Yes, no. Thanks, Gary.
We think that the subtract noise.
Okay.
Anesthetic local anesthetic.
We've we've talked about leave open pit Mccain being the actual pie.
Is the only thing in our pipeline, including BD or our own pipeline that has the potential to be as big as expert Paul.
So thats really exciting we've got a few others that look at where opioids are the standard of care and where we think we can replace opioids index, but a comedy in is one of those.
We've just finished a very formal review Gary on using an outside resource to look at actually over 3500 different assets and we do have two or three more that we're going to examine here over the next couple of months to see if we want to commit to the resources the do them.
We're looking at those alongside everything that Ron has got going on and you know in many cases, we have to be you look at a 100 million dollar product that we can develop and depofoam versus something that we think could be much larger where we could use the same clinical resources for our a merger and acquisition candidate so.
In the middle of that evaluation now.
I would say there are other opportunities, they're small and I don't know.
I would expect fully that you'd see a couple more but probably not theres not 10 more if that's an appropriate answer to your question. Okay. That's great. Thank you.
Thanks, Gary.
Your last question will come from July Amy data, yet with asked to BB Leerink.
Hi, good morning, Thanks, that's leading the end.
Can you give us some good color on kind of how expand it seems you can be inpatient versus outpatient setting.
Just following up on that.
You think that there was a trend from actual PD two is seal or is it is the bigger trend from inpatient to outpatient.
And then if you could sort of talk about any current set of base business niches basically let let's just say 2019th.
Revenue is an expert at.
What is the mix.
Views across infiltration and then all other blocks that David.
That blocks reasonably Johnson of Don.
That would be helpful. And then I have a follow up.
Thanks, Okay.
So the medical community in the payer community considers H O PD and as cease to be.
Not in patients right. So it is a backwards thought process I'll have to admit right, but you see in patients in generally you have a DRG and a prospective payment that covers that procedure and thats what defines a patient who is a traditional inpatient from an HR.
Oh, PD, where they still have the cover of being close to a hospital if anything happened.
But they are treated and primarily as a patient that will be in a 23 hour patient environment and the only way you can define that Ami in terms of how the how the payers are thinking about it is you will see.
Teekay for example, CMS.
So hips and knees were on an inpatient only list and spine frankly until very recently and then you see CMS move things to the H O PV environment and so that the community is given a couple of years to define how do they do that could they do that where they successful enough that there could be.
Progression then from an H.O. PD to an assay and in fact, you saw teekay move from an inpatient only to an H.O. PD now to an assay and you can see the price are the reimbursement for those different procedures follow that line of thinking right and you can see that.
Our need for example is several thousand dollars less expensive and the environment than it is in an area and then in a inpatient environment for a CMS patient for example.
So.
I know that is that's not a trend I mean that trend has already happened and.
What's what's keeping it from being more aggressively instituted frankly are people, who can provide regional anesthesia under ultrasound guidance because it is really a nerve block world.
Right. You you you can't you need to know that the drug is working and you are on a much for.
Strict timeline, so you would much rather have the anesthesiologist forgive the pain control before the surgery than you would have the surgeon give the pain control. After the surgery. Because you are you are moving you are a slave to throughput at an ambulatory environment and so you you have to be able to have some confidence that you can actually do.
456 needs in a day using one room and an ambulatory center if that makes sense.
So ill.
In a your question on.
What's happening now I think in the inpatient environment.
It's it's not an infiltration in many cases or a.
Nerve block, it's how do you provide a completely different level of pain control. So in an inpatient environment, where you had the luxury if you will have using large doses of opioids because the patient was going to be at a hospital for three to four days anyway. Your torture in the nursing staff because they have to do vitals every time.
And they hit the pain pump for example, but that's that's an option at a hospital you can do a you can put them on a pain pump and let them dose themselves every few hours.
Or even do a thoracic epidural.
All of those things would provide pain control. They would also keep you from moving that patient to a 23 hours they environment and so the art form here. If you will and we just did a 600 patient study with Cleveland clinic that you'll be reading fairly soon where we looked at the ability and large abdominal wounds to re.
We place a thoracic epidural with the next Pearl tap.
And the data is quite intriguing the pain control opportunity is there and so add large epidurals to an area, where an expert altaf allows you to move that patient to an environment that doesn't require a pain management technique that requires that you stay in the hospital. So it's not.
It really infiltration or nerve block, it's more replacing other modalities with a regional nerve block.
That.
The which is the EXPAREL tap in the situation.
That makes sense.
Yeah, that's helpful and what's your what's the mix of home expressing use today.
But I across infiltration buses that irrespective of the.
Setting when it gets here.
Yes, it's theres Theres no real answer to that question I mean, I'll give you what we see what how we plan against that it's very clear that theres more nerve block than there is infiltration and that almost.
Over 80% of the growth is in nerve block and I include field blocks in that right. So if you said pure infiltration I would say, it's less than 40 and decreasing as a percentage of the total now.
No. It's it's not growing so it's going to be decreasing at a market. This growing by 20 ish percent just by definition right and then nerve blocks and field blocks.
Our virtually all of the growth going forward, but you always have to be a little bit careful because as we've already said pediatrics is going to be infiltration again, so you're going to have a dynamic a year from now when we're going to be launching into pediatrics and that million patients are going to be almost all infiltrations because theres nothing to block right. It's just very.
Difficult to block something in a four month old going into cardiac surgery.
Mhm.
Okay.
And then the other part of like about Black and White World for sure.
Yeah, Yeah no.
The other question was about kind of how you think about the sort of peak revenue potential I'll kind of the five year plan for exposure out.
You know we've seen the products Hughes.
Or sort of growth accelerate actually more in the recent yet and it seems like it's driven by the no longer the reason that block you.
Are you seeing E.
Yeah, so to a greater open mindedness from these additions to pay for a product. That's a couple of hundred dollars as opposed to using deliver game for these no docs and recent drunk.
And how do you come up with that billion dollar opportunity. If you consider how to think about how you think about the sizing that that would be helpful.
Sure.
So when we find somebody who is trying to do regional blocks was bupa became that's actually a best case scenario for us because they're getting.
Now 810, 12 hours, depending on which block you're talking about and how much volume they use and how much freebie pivot gain if any they use for example.
But in most cases and in most cases when you switch from view pivot Kane to EXPAREL you move that from a few hours to a few days. So I'll give you probably the best case example that I can give you.
The docs used to do what they called rescue tap blocks and so you would have surgery and then after the surgery, the patient would wake up and pain and they would do a tap block.
And the reason that they did that is because they were.
They were trying to extend the duration of that tap block as long as they could and generally they would be trying to add thats a message zone. They would try to add a whole bunch of things to get in the 14 to 16 hour range because the last thing you wanted to do with the do a tap block would be pivot cane at three o'clock in the afternoon that meant that the.
Patient was going to get 10 to 12 hours activity, which meant they were going to wake up at one or two o'clock in the morning in pain again, and then somebody had to do another tap lock because the drug did it will tenant last long enough and in fact, Amy a lot of places stopped doing tap blocks because of the the the what was required to train the staff and actually.
During the procedure when you were only getting 10 to 12 hours of of relief.
Juxtapose that against EXPAREL, where now because you're getting several days you actually do it before the procedure. So today, if you were going to get a break you'll plexus block and you were in a.
Forward thinking institution in that list is growing by the way of people who are focusing on regional approaches that's the whole envision mednax. That's the basis of all of these partnerships. We have if you were going to break you'll flexes block you would go into a block Roe.
And they would say you know Ami.
You know.
I don't know.
How old you are you know you're going to get a left break your plexus, because you're having a rotator cuff.
We're going to give you tend ccs of EXPAREL and find Ccs a quarter percent you pivot gain the fellow would have you up on an ultrasound machine plus the anesthesiologists would give you that dose of EXPAREL you would have three or four days of pain control onboard you haven't had no decision yet you haven't had anything and these patients are and Thats why.
And move that patient to an ambulatory environment and the majority of those cases today are reported to us as being discharged on tylenol.
And so it changes the the basic foundation of how we practice pain management.
And so thats why tap blocks people say tap blocks of exploded no tap blocks that's been around for a very long time, a technology that allows a tap blocks to be effective for several days is the is that the beauty of extra.
Im not paying us a complement I'm just saying that's just the fact right.
And so you can see why then and anesthesia group, who gets paid for these regional approaches who can actually charge for moving a patient to a less expensive environment and actually have a partnership with the payer fewer if you worry if fewer from a big payer group Ami and we came to you and said Hey, you know we can take all.
Of these patients and we can shorten their length of stay by a day or a day at a half by go into a regional block program versus keeping them as an inpatient.
That's what that's what's happening and that's why these people are coming to us and saying can you train us on how to do all these different things.
Got it makes sense.
Yes.
Thank you.
And I don't have and so you are billion dollar. So your billion dollar yen that is.
You so as as we started out with Randles question.
You can project out over the next five years the growth of regional anesthesia, and we said early on that only 15% of the cases in the best case scenario RFP and on regional now.
And so you can project out the growth of what we just talked about expanding.
And then you can talk about the growth of folks going to an ambulatory center, where you can't use all these different modalities and you have to use something where the patient doesn't get huge doses of opioids et cetera, and if you marry those two things together you get a a percentage growth on an annual basis.
And then if you add to that piece, we've already talked about we think Thats, a 100 million see section and we think Thats, a 100 million lower extremity nerve block, we think Thats, a 100 million rest of world, We think Thats 100 million.
You could be yelling at me three or four years from now telling me that I was really conservative.
Okay.
That was helpful. Thank you for lunch.
Thanks.
I'd now like to turn the conference back.
Yes, I would now like to trying to call out for back over to add Dave stack, Chairman and CEO for closing remarks.
Good Thanks for your air for your questions and for your time. This morning, we look forward to providing additional updates in the near future next up for us as the Barclays meeting in Miami, We look forward to seeing soon thanks everybody.
Ladies and gentlemen. This concludes today's conference. Thank you for your participation and have a wonderful day you may now disconnect.
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