Q1 2020 Earnings Call

[music].

Good morning, ladies and gentlemen, and welcome to the Q1 2020 Pacira bio sites.

Earnings Conference call as a reminder, this conference call is being recorded.

I'd now like they have the conference over to your host Mrs. Z. Misco head of Investor Relations. Please.

Go ahead.

Thank you need a and good morning, everyone. Welcome to today's conference call to discuss our first quarter 2020 financial results joining me on today's call or Dave Stack, 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.

For staging and isolation of surgical patients in the A.S.C. environment away from the more crowded hospitals importantly, the long term friends along with the expanding use of X. <unk> in an increasing number of procedures highlights the market's desire for opioids bearing post surgical pain management.

This is supported by the growing demand for <unk>, which continues unabated for the first 11 weeks of the year.

With with sales tracking ahead of plan and you're over your growth rates of 21% for January and 22% for February we saw demand continue to expand within the N.S.D. should community with X. for L. base nerve blocks and feel blocks, taking hold his institutional protocol for a variety of surgical procedures.

We had a very strong first quarter with total revenues of $105.7 million well, even the knees challenging times the 16%. Your your growth is in line with our long term guidance for top line growth in high teams.

Today, we are pausing our annual guidance, we will look to provide greater granularity on our 2020 projections once we have more data and real world insight.

Into this unprecedented situation.

Typically when hospitals will be in a position to resume elective surgeries and how quickly the surgical backlog can be relieved.

Even with a significant short term disruption and revenues, we believe the natural curtailing of operating expense expenditures, resulting from coping 19 restrictions will still allow us to be adjusted even up positive for the full year and we are very well positioned to quickly ramp up as the world Reopens for business Importantly, we are on solid financial footing with 354.

A million dollars in cash and investments.

Like also to touch on our manufacturing as we've gotten some questions on this in recent weeks the manufacturing affects <unk> are fully operational as they are deemed essential in the states in which we operate we have not had any disruption an A.P.I. sourcing or any aspects of our manufacturing supply needed to ensure unnecessary inventory for patients I.

Production is back up and running after a temporary home Fremont, California triggered by a three week shelter and placed order so that the team could implement proper social distancing and other safety protocols, we do not have any exposure in China, or Italy, and if not learn to any supply interruptions or late deliveries from any of our suppliers, we're monitoring our supply chain closely.

And as of today, we have no issues with manufacturing operations ongoing we have sufficient inventory to supply our original 2020 revenue expectations and satisfy any search and demand.

Let's turn out to a more detailed discussion of x. for out.

Or during the first quarter of 2020, we posted a nearly 12% you're over your growth in product sales. Despite the fact that economic impersonal activity essentially came to a halt in mid March.

Soft precipitously drop to begin or begin in the second half of March and continue through the end of April with a decline in year over year experts sales of approximately seven per 70% during this.

Period, However was states now lifting surgical restrictions, we have seen positive signs of a rebound over the past three weeks.

To make these numbers as real time as possible, we are comparing Friday to Thursday, two weeks ago, and one week ago to this week ending this morning.

Comparing last week to two weeks ago, we saw 39% increase in ordering customers and a 32% increase in X.P.L. sales and comparing this week to last week, we see an additional 47% and or increase in ordering customers and a 51% increase in next Perl sales again.

This is real time as of this morning.

While these recent sales data are very encouraging we do not know how long some states will mandates stay at home orders or how quickly the surgical community and especially hospital impatient surgery will return to business as usual during the time when elective surgery is limited our teams are focused on education planning and targeting in anticipation of increase surgical volumes to address the demand that is building.

An example of the education. We are currently providing is <unk>, an enabler of reduce length of stay through through regional anal g.'s yeah.

This is not only an important today as health care providers work to get patients out of the hospital to reduce the risk of infection and release hospital beds, but it is also a key trend and healthcare with many large painful procedures, such a spine surgery and told only arthroplasty shifting to the 23 hour environment, where X. Perot is the perfect solution info.

Back we believe that the cold at 19 situation may actually accelerate the migration from impatient settings to way of sees that was already taking place before this pandemic patients are more motivated than ever to avoid hospital stays and hospital resources continue to be deployed to the sick as patients. Additionally, we see this transition for those surgeries, where I see a recovery is not necessity.

And for which a 23 hours to eight is preferable as we aim to reduce exposure to the virus in the surgical setting.

Can see for the rapid increase in customer ordering of X. Parral, a growing number of states are now relaxing mandates and allowing elective surgeries, including in A.S.C.'s and hospital outpatient facilities, we are working closely with a surgical.

Banana <unk> communities and key states, such as Texas, California, Florida in New York, Ohio in Georgia, as well as an additional 11 states currently allowing elective procedures to begin treating the backlog of surgical patients.

As we expect they have ceased to come back on line earlier than hospitals, which will need to time to recover from the cold at 19 burden.

When they start to admit more surgical patients we are ready to ramp up in lock step with them. As a reminder, 60 per cent of extra x. Perl relevant procedures were already.

Being performed outside of the hospital inpatient setting in Q. for 2000 in 19.

I see customers are illegal to get back up to speed as quickly as possible to benefit their patients who have been deprived of important surgical interventions. These facilities are planning to operate six or seven days a week and in many cases 24 by seven.

To facilitate this activity we have rolled out a program available through June which offers ambulatory surgical centres plastic surgery offices in rural maxillofacial practices to order x. for all at a discount and with extended payment terms. Our expectations are the more than 80 per cent of that leave procedures will be rescheduled well the lion's share made up in 2020.

Yeah.

We have also been working closely with our partners that <unk> opinion leaders in the area joint reconstruction spine in sports medicine at a time, where else are predicts surgeons have experienced a dramatic reduction in scheduled surgeries here, we have focused on creating new marketing materials to provide virtual education, Ron expert L. based regional approaches as an important in April.

Reduced length of stay to shift major orthopedic procedures like T.K., it's fine to the 23 hours sight of care. This is especially important when surgeons have not had access to <unk> in a hospital and for surgeons new to operating in the A.S.C. setting.

It is likely to be some time before we fully returned to normal terms of X. pro use we expect elective procedures to be largely open to all patients in the second half of the year and we believe that significant opportunities ahead of us to support the market in addressing surgical backlog <unk> slower and Oldfield strategies.

Said, we also have a base of business that is being driven by the use of x. per hour and not elective emerging <unk>.

Procedures, such a c. section and trauma surgery as well as gynecologic on college, he breast cancer cardiovascular and it's fine cases, even in markets with restricted access to elective surgery, increasing extra using C. section continues to be one of our top growth drivers and we expect semantic continue to increase given the current marketplace dynamic.

Plus schedule C. sections can continue to occur many hospitals are limiting and restricting the presence of birth partners and women are very hesitant about being admitted to the hospital most pregnant women already want no period free experience. So this is accelerating our anesthesia training programs to the opiates bring benefits of an expert tap block.

We only launched the broad marketing and awareness program for C. section in early 2020, swearing the infancy of happiness market segment, and we see this as a terrific near term opportunity to improve patient care and hospital economics.

We recently hosted a web in R., highlighting the benefits of X.P.L. based half block for our our from our Opie like free choice study more than 150 providers payers and policy decision makers participated which underscores the growing demand for limiting the time, new mother spend and the hospital for a C. section as you know we have a robust clinical program intended for.

To drive X. Pro growth. These include our phase three stride study of X. <unk> as a lower extremity nerve block our face for fusion study and spine procedures and our face for prepare study of <unk> in total knee arthroplasty as a procedural solution. These studies are on pause for now, but we look forward to completing each.

Timely manner.

The team is also working towards securing X.P.L. approvals in Europe, and Canada by the end of 2020 to date interactions with regulatory agencies in Canada, and the you have progressed using virtual communications.

From a strategic perspective, we have pediatrics on our label heavy pediatrics are label is of critical importance to walk you stakeholders parents children doctors and patients and payers. There was an urgent need for no. Good options to manage post surgical pain in this vulnerable population here, we remain on track of submit R.S.M.D.A. for pediatrics in the next few weeks.

Building on our 23% next pro growth in 2019, as well as multiple new data sets package insert expansions an internal launch international launches, we remain confident that once the other side of procedural disruptions due to coping 19, we will be in a position to deliver rapidly growing top line steadily improving margins and.

Separately managed operating expenses.

The way here is that we have a tremendous opportunity to invest in our business, while simultaneously ramping the top and bottom lines now turning to wild hair off we continue to be highly confident that the technology behind this in a beta system and a significant commercial or opportunity. It represents we kicked off or we launch of aisle Vera at our national meeting in February the long.

Now delayed given the impact of covert 19 and as as a result, we are temporarily suspended Versailles guidance. We recently introduced <unk> initiative offering a kit containing all components of cryoanalgesia treatment at a reduced price. This will help are also orthopedic customers offer pain management to patients who have delayed T.K. procedures to to cold at night.

Teen this well of course help patients while concurrently generating incremental cash flow for provider practices. During this difficult time over the last six week, who felt a series of webinars with our customer facing organization as well as orthopedic surgeons to discuss how I olvera provide several months of pain control across a range of patient needs patients <unk>.

Bearing for T.K. surgery patients, who surgery has been delayed as well as patients who are hoping to delay surgery, but have asked you arthritic pain impacting their daily life. We are also continuing with our dilemma programs for <unk>. In addition to launching a study of <unk> plus x. problem T.K. The prepare study we are developing clinical data in a wide range of treatment opportunities for.

<unk> low back pain foot and ankle pain fractured ribs spine and shoulder as examples.

Before turning the call over to Charlie I'd like to briefly comment on the business development, we continue to.

Two thoughtfully and Opportunistically pursue assets <unk> complimentary to our existing offerings that are also of interest to the surgical anesthesiology <unk>. We call on today that said we are at least we're focused on supporting our partner surgeons and anesthesiologists and we'll avoid heavy up front any help from heavy up front cash requirements.

In the near term sorry.

Let me remind you of the unique opportunity we find ourselves in today, our portfolio of innovative nano P. I'd products allows us to address to national public health crises that delay in surgery and the demand backlog driven by the cold in 19 pandemic as well as the ongoing okay. I'd crisis that has been further exacerbated with the patients.

Requiring opioids for pain control, while waiting surgery and was that I'd like to turn to call over to Charlie for review in the financials Charlie.

Thank you day, even good morning, everyone I'll start by summarizing our first quarter 2020 financial results and then we'll review our outlook for 2020, including the effects of the global coded 19 pandemic.

Mind, you I will be discussing non gap financial measures. This morning, which we believe more accurately reflect our business results a description of these metrics along with our <unk> conciliation together can be found in the news release, we issued this morning.

Let me start by reiterating points the fundamentals of our business are very strong pacira is well equipped to successfully navigate these challenging times and withstand any temporary disruption to our business. We delivered top line revenue growth 25 per cent in 2019.

Strong ear every year growth trends continue through mid March we remain very optimistic about the future of our business, which is on track for accelerating profitability once hospitals in A.S.C.'s or back to regularly performing electives and emergency procedures.

We ended the first quarter in very strong financial position with approximately $354 million of cash and investments.

Total revenues increased like 16% in the first quarter of 2020. This was primarily driven by yet product sales of extra which increased by 12% to 100 and.

$1.3 million in the first quarter of 2020 as compared to $90.6 million for the same period last year.

<unk>, we reported next product sales of $2.3 million in the first quarter of 2020.

Or non gap gross margin for the first quarter of 2020 improve just 73% versus 71% in 2000 in 1990.

<unk> gap research and development expenses were $14.6 million in the first quarter of 2020 versus $13.2 million in 2019. The increase was primarily driven by increased regulatory activities to support.

The label and geographic expansion of <unk> as well as costs related to work. These three and a score studies of X. room.

Non gap S.G.N. expenses were $38.3 million in the first quarter of 2020 versus $42.2 million in 2019.

Decreases primarily attributable to reductions in J., and J. commissions, partially offset by additional spending and promotional activities and supportive <unk> gross including the expansion of our field force.

J commissions are directly linked to X. borough gross which was impacted by the mandated delay in elected surgical procedures.

All of this resulted in non gap net income of $22.8 million in the first quarter of 2020 or 53 cents per diluted share versus $9.3 million worth 22 cents per diluted share in 2019.

Turning out to our outlook for the remainder of 2020, we are especially happy to report that we are whether encoded related disruptions without making any reductions in force.

Lately value or accounts staff in sales team or subject matter experts are and are glad to be able to support them through these unprecedented times.

Dave's noted we are confident that we will make up any disruption to our upcoming poorly sales with a building backlog elective surgeries and increasing realization of hospitals executed greater volume up emergence surgeries as capacity freeze up.

As mentioned by Dave and today's release, we are extremely optimistic of our long term outlet.

However, we are temporarily pausing or 2020 financial guidance, given the uncertainties around <unk> 19, and the timing of hospital, an A.S.C.'s returning to New York.

Like most companies, we continuously seek to reduce costs, while fully <unk> being committed to providing the necessary investments are the growth of our products future indications and pipeline in many ways reductions are occurring naturally in the current environment.

Major meetings have been cancelled we have virtually no t. any expenses most clinical activity have been suspended hiring is on hold.

Programs are taking place virtually we expected some of these changes like virtual training will continue for ongoing savings moving forward.

There's a fluid situation operating spending as being mine is very closely with potential significant full year reductions in r. and D.N.S.G.N.A. expenses, given the social distancing and stay at home regulations implemented by state and local governments, we remain committed to profitability and believed for the full year, we are well <unk>.

<unk> to still deliver positive either.

Or long term growth projections remain unchanged and we expect a high team hotline annual growth rate Hoover, our five year planning horizon.

That financial overview, let me turn to call it back to date for his closing remarks.

Thanks, you Charlie before opening the call to your questions I want to underscore one important point. This pause after 2020 guidance and no way undermines our confidence in the long term outlook for our business.

While we are experiencing a short term revenue deferral, we believe our opioid spring innovative products products combined with a great market need for a nano p. a pain management provides a compelling long term investment opportunity.

Remain steadfast in our long term strategy to position Pacira as the leading provider of not help your pain management and regenerate L. solutions. We believe the fundamentals our business will continue to fuel our long term expansion. We are committed to advancing these goals and we believe they will create increasing shareholder value.

Neatest that concludes our prepared remarks, I'd like now to turn to call over to you to begin R.Q. and a session.

Okay.

In order to ask a question. Please price star in the number one on your telephone keypad again that is <unk> Oh your telephone keypad.

<unk>.

Randles Stinky with I.B.C. capital.

Right. Thanks, Hey, Dave survey feedback that we receive both room and it's easy all just as well or those was that roughly a third of volumes could be moved to to A.S.C. help manage volumes that sounds like you're seeing similar trends. So what did you see in here and more importantly can you help us understand what.

One of your volumes were A.S.C.P. for the pandemic and how do you think that what do you think that will look like as we come up with it since 2021, and then I have one put follow up to but.

Yeah, a couple things Rendell first just to make sure. We're all talking about the same thing when we say 23 hours stay environment, we're talking about ambulatory care as well as hospital outpatient right. So those are two marketplaces that both foster this movement to less expensive less intense environment.

The reason I mention that is that A.S. There are several states that R.A.S.C. very heavy and we have several states where there are virtually no way how sees it all and so you know in the nature of your question you almost have to look at it state by state to understand how this thing is on whining and you have to be able to tease out hospital out.

Station from pure A.S.C.'s.

It you know, it's we don't have a really good data source and we have virtually no data sources other than yesterday sales and the day before sales to be able to answer. Your question, you know and and a very appropriate kind of way Randall I think it's safe to say that you know what we are seeing is a.

Bounced back in both of these out of the out not both of these not inpatient environments and we also see a fair amount of business, that's being driven by the reopening of plastic surgery <unk> practices et cetera. So I think that a third is probably the right number from your.

From your.

Oh, you're you're surveys I think it would be highly dependent on which states those folks actually worked in if anything it would be conservative and in many states. It would be very conservative Randall. So you know, we think that that for sure more than half of the business that we've generated over the last three weeks is coming from a name.

Inpatient environment, if you'll allow me to to change your question slightly.

Yeah No. It's helpful. The other question to have is is.

More specific howdy.

<unk> thing hospitals or or you can eat you're going to be swept potential newark repetitive product given just the logistics of focus your around the pandemic assuming that we do see an approval over the next month or so.

Let me, let me tell you how what we're doing and then I'll translate that into a specific answer what we hear from docks, especially in in the 24 by seven scenarios in more places are going to open up and guys are going to have surgical sweets for 12 hour blocks of time is that they are going to be totally committed.

To just taking care of their surgical patients and really aren't going to have much time for anything else that comes from our discussions with them about how can we support a 24 by seven operation with virtual opportunities with key opinion leaders docks and different surgical procedures, who might be able to come on online or on a split screen scenario in and help docks true.

Surgical case, where they might not be as familiar with X. perella somebody who uses it all the time. So if I translate that into your question I think it's gonna be very difficult for anybody to get through a safety Committee and then a P.N.T. Committee you know those committees don't meet during the summer as a general rule anyway and.

I think you can you know you can extend that I think it's gonna be very difficult to get an anesthesiologist too generally would be the person who would run a P.N.T. committee for a pain product to come out of 12 hours that and then <unk> or I don't know 24 hours, a day environment or a six day work week and go to a meeting, especially if the if the.

Surgery Center that they're working in is not in the hospital, where the meeting is going to be so I think that's about as specific as I can get random.

No that's helpful for instance.

Yeah next question comes from the line of David.

What to 5%.

Thanks, So just wanted to ask a sort of general question lists list covert 19.

And with the public health.

And institutional Reverberations do you see [noise], a faster migration to the ambulatory setting in other words, you know hospitals are needed to free up capacity, but do you think that <unk>, a faster migration to A.S.C.'s happens and that.

Indoors.

Given the shock to the system in terms of capacity, so to speak and and and with that in mind. You know what does that mean for your commercial messaging and how you how you calibrate your your messaging to a your customers in the field. Thanks.

Yep, Thanks, Dave and I'll I'll take it slightly in reverse I mean, we think that it's really feel blocks a nerve blocks largely being done by anesthesiologist <unk> under ultra some guidance.

They'd give us the competence that we can provide several days of pain control and it's really having that that now or that.

That competence that we can provide several days of pain control with a high quality procedure that allows us to move these patients from an inpatient procedure to an outpatient procedure thinking specifically about things like totally arthroplasty and spine surgeries and things like that.

So you know specifically to answer your question.

We thought that by the time, we got to 2025, 70% of the surgeries and America would be done in ambulatory care centres anyway that was the normal progression that we were seeing David that about 2 million patients and our Tam on an annual basis, we're actually.

[laughter] moving from inpatient to the different outpatient opportunities that I just outlined with Randall.

So.

Given all of that we absolutely think that this is going to accelerate the move to ambulatory care in fact, when we talk to patients and when we when we do patients surveys one of the things that I think is is going to be an interesting byproduct observation a lot.

Opportunity here is to see whether whether patients actually want to go to a hospital for anything, but especially for a surgery and so you know we think we have a an opportunity to move these patients to an ambulatory facility remember that C.M.S.

Proved totally arthroplasty as an ambulatory care procedure in 20 <unk>.

[laughter], So you and they put hospital outpatient in place for hip surgery and for many spying surgeries. So you can already see that the government is leaning towards moving patients out of the hot.

Spittel, we know for example that United put out a list of 65 muscular skeletal procedures on the first of November that they would no longer pay for without prior authorization in the hospital outpatient department. They would pay only in the ambulatory Department. So I think you've got the perfect storm here of where patients don't want to go.

To the hospital surgeons generally would prefer to work and then ambulatory environment and the payers in many cases are insisting on the patients going to enable to try environment. So the answer to your question is a pretty strong absolutely.

Okay, and then if I'm going to how we can.

Sorry go ahead Dave.

Oh I was going to say I didn't answer your question about how do we direct our people then.

You know we've been we've been doing this for the last year and a half David and.

[laughter] and their when their bidding on these different procedure. So we've been working on your ass protocols for ambulatory care environments now for a couple of years and the the opportunity here is driven.

As you suggested that you know there'll be surgeons, who have not been allowed access to <unk>, who would be using it for the first time and these ambulatory environment and we've been training to that as well as surgeons, who have been operating in the hospital, but now and and ambulatory environment might actually have a different you know different view on how to use the product in terms of cost and.

Throughput et cetera. So we've got virtual programs you know that are that are on our website.

That we're sending to docks that are product specific that are <unk> specific.

And our feel for us in our education teams and especially our innovation team are all training against those things. So that we can be part of.

But the solution to how do we move these patients into these lower cost environments without sacrificing patient care.

David you on another question.

And your next question comes in a lot of great.

Huh.

<unk>.

Well you guys think you're taking the questions can you stand on your function.

Underlying you estimate the 8% different procedures will be rescheduled with the majority made up this year and sort of what are the human terms of the timing for ASCII and hospitals.

That to a new normal and can also comment on the discount that you're offering.

Sure. So you know the numbers come from what we've seen in the marketplace in from all the surveys that we've shared you know from you know from you guys Greg for one but from all of the big banks that have talked about how this is going to roll out. We also have the opportunity to talk with a number of the insurance carriers in terms of of how this is going to happen.

You know, we think that the ambulatory care centers are going to lead the way and we think that's what we're seeing right. Now we also see states, where there was not a heavy burden placed by covert 19 patients and those folks are coming back on line until we do start to see some hospitals starting to participate the reason that you come.

Muck with the.

The 80 per cent number that we outlined is that it's pretty.

Clear that there's some patients either mortality or you know patients clinical situation has deteriorated in their long no longer surgical appropriate.

And then there is a small number in there for patients who we think will not have healthcare in some cases.

That's a current.

Issue that will that will translate back to normal overtime.

And so about half of those 20 per cent that are not in the 80 per cent for this year move into Q. want them next year and and then there's you know four or 5% of those that we think are lost and then there's four or 5% of their frankly. This just a fudge factor that you know the unknown ones are so are so wide and varied that you know we just.

Can't get to you know, we're we're not saying, we know where 100% are going to be but we can be pretty clever <unk> pretty certain that as you roll out the capacity of the A.S.C.'s you can do most of these procedures, but you can't do all without the hospitals coming back on board to get us to that you know eightyish mid eighties number.

That that answers your question.

For I Olvera, what we put together was a packet that was a no capital cost of the hand helds.

And a discount below the <unk> the the base that we've told you guys before so we previously announced that the lowest price. We had was 450, we went below that price to make sure that even folks that were in C.M.S. states, where the reimbursement wasn't very good would be able to generate a small.

Profit and so you know the kit went out to these guys 20 tips two handheld and the cartridges you know to cartridges that were required.

And it was at a modest discount it was I guess, if I figured out the numbers it with something like 2020 plus percent to to what the full whack would've been but I think the big thing is that we've built.

The handheld into the cost of the tips and so there is no capital requirements. So guys didn't have to come up with a lot of money to get started that was the whole intention to to be able to defray the costs, while allowing patients to have a way to have pain control, while they're surgery was.

Was differed on the on the X. Perl side, the the discount as modest it depends on how many boxes you order, but it's in the 5% to 7% range for for the majority of these orders and the dating is even more important to the to the docks. Many of these orders are taken on a positions.

Credit card, so or or an A.S.C. credit card. So having you know a period of time to pay for that Bill is actually turns out to be quite important to them.

When we do the the programs say during the Christmas season for plastic surgeons and during the school vacations region seasons for <unk> Surgeons. For example that there is a very considerable shelf pressure and dots <unk> you know want to use it on an immediate when they have.

Patient they need to have it locally handy and so we're trying to make it really easy for the docks to have X.P.L. on the shelf and this is also turned out to be a great way for our field organization ticket into all of these different places offer. This but then have a discussion about appropriate reimbursement do they need any help with all of the <unk>.

Training modules and all the reimbursement of they need to talk to a K.L. et cetera. So it really is a number of purposes.

Great. Thank you.

Thanks right.

Your next question comes on a lot of 10 King.

Charity.

Hi, Thanks, they've you know you talked a little bit or just some of the rebound numbers recently.

You talk a little bit about just you know geography is in the U.S., you know where do you see.

Surgery, it's coming back first and and sort of you know.

Obviously, we're looking for a stabilization and then the recovery.

Can you talk a little bit about.

You know how much of the pent up demand will you'll see come back in the fourth quarter or even maybe in the third quarter.

Yeah. It is very much state specific today, Tim Thanks for the question by the way.

If if you if you I mean, we get daily sales. So it's it it's really a great tool to be able to get sales for the last night. This morning, and you know the states that are heavy A.S.C.R. The states that we tried to outline in the script.

You know, Florida, Texas, Georgia, California, our states that have a lot of A.S.C.'s and when you look at the daily sales you would see that we are that are the sales numbers that I called out in the script are heavily reliant on those markets. You would also see Tim and this is probably the nature of your.

Question that there are also other heavy A.S.C. states like New Jersey.

And you know, there's several others actually but new Jersey is the one that's you know does a lot of A.S.C. business, where we have virtually you know we're still on lockdown, we have virtually no business in those places and so you know I think that what we've seen so far is a very rapid recovery in about a third of the market.

And if those numbers proved to be true. It would suggest that you know we're gonna do very well as the rest of the the rest of the country opens up you know the Carolinas for example, New Jersey as I stayed in Pennsylvania.

There are a number of other states, where we would have a lot of A.S.C. business and the normal course of business and right now we have virtually none.

<unk>.

Oh, Yeah, I was going to say that much I should go to the back half of the year. Yeah. That's all going to be you know as I mentioned in my answer to that David you know, we can't get to doing 80% to 85% of all of the sit procedures, we would've seen in 2020, unless we have participation from hospitals.

So you know what we're what we're what we're seeing as the ambulatory centres and then some of the ancillary offices as I said, you know plastic surgery, and all them F.S. or opening up where elective surgeries are allowed what we'll need is is you know for the hospitals to get back on line, we think that's gonna happen.

You know sometime early in the third quarter at least that's our hope, but as you look out in time, that's what we're talking to surgeons about you know even in the states, where we don't have current participation. We have guys who are telling us that their scheduling cases that were scheduling our our educate.

Her teams to be in these different facilities for the first few cases et cetera. So we think that you know as you go through the next couple of months virtually all of the A.S.C.'s will be up on line in one form or another and then we're just going to have to see how fast the hospitals can recover from <unk>. We think in places like New York, It's Gonna take a long time.

In other places you know, where we didn't have that same depth of of of an issue.

We think they'll come on line faster, but when your role all that together that's when you get to that 85% you know, we're allowing for that 15% to 20% that just can't be done this year that than most of those roll into 2021.

Okay, great. Thanks, Thanks for the very helpful. It's it's an timid soft as you know you know I mean, I I'm I'm extrapolating you know the numbers that you saw from last night right you'd see you know big numbers in California, Big numbers in Texas Big numbers in Florida, and then you'd see states, where you know normally they would be huge.

<unk> and we had one order from you know from some states last night just to give you a sense.

And your next question concerning a lot of eight Steinberg with Jeffrey.

Thanks, a good morning, it's three questions [noise].

The first one is trying to get a sense of what percent extra uses for you know medically necessary procedures are like c. sections or oncology related I think Dave you'd said that you know and late March sales it plummeted, 70%.

Is that does that the the implication it by 30% of your business is medically necessary and then the second question is is understanding at J. and J's can introduce you to this year next year, a new system I think it's cause simplicity is a suite of products, including robotics and will include.

We'll see <unk>.

I was wondering when that happens.

That would help accelerate your business and also perhaps create more of a boat around your business when other competitors come on the market and then.

The third question revolves around pricing I know you said you've offered a modest discount and I are there did you also say there would be some.

It was some discounting or will be some discounting an extra thanks.

Yep, Thanks, David and thanks for the questions. So <unk> you know as we come out of of April would that 30 per cent number David <unk> you know I think that's as good as any it might be a little bit low and the reason I say that is you have to remember we have bureaucrats determining what was elective and what was emerging and there were.

Rate debates around the country about things and the people on the bureaucrats I'd had very little medical understanding of what the heck. They were talking about so it's very difficult to determine you know with the specificity that we would like around what we would consider to be in emerging.

Procedure, but if you think about you know 60% of our patients that we said, we had and q. for being done in a in I know ambulatory environment. If you marry that with 30% and you add 10% for you know plastic surgeons and all maximal facial surgeons and all of the rest of the things that are going on out there that feels about.

Right. So I I don't have any I think that's as good a number as I can give you frankly.

For J. and J., you know, we work with them closely.

Certainly if there was a new line that that allowed us to be part of the outcome projection then that would be a an interesting opportunity for us to build a mode around as you suggest I think most of these procedures are looking towards what would have been considered 10 years ago to be non traditional.

Environments of care, and frankly, I don't see our competitors offering any resistance there under any cases. So it can certainly help it's and you know are happy to have any help of course, but I think you're seeing that many of the people who are selling metal into the ambulatory care invite.

Garments and many of the service providers to the ambulatory Senator community our understanding that the key to success is pain control without opioids and I you know, it's hard to imagine again going back to randles question that in this environment anybody's going to take their nursing team and try to teach them how to use.

Anything, but what they're already doing I I just don't it just doesn't make any sense to me, but the answer to your question is yeah, we'll take the help if we can get it and then with pricing.

You know, what we've offered with X. Perl and it's it's only for ambulatory care centers for plastic surgery offices, and with oral Maxwell facial surgery offices. So it's not for the for the you know for the bulk of our or for the for the hospital marketplace at all.

And what we're offering as a small discount and dating and as I said I think Tim asked the same question is you know we're what the what the docks are really interested in is the dating and many cases you know we're selling these in a relatively non traditional way and the docks or using their credit cards and.

To to make these purchases so being able to have some time to be able to pay for it and to buy it at a slightly reduced cost I think is both a gesture of goodwill to get them back up and running and as I. Just said it also creates an opportunity for our feel forced to have a positive interaction with these folks and you know have a discussion about anything else.

They might need as they get up and running and.

You know, we'll trade a little bit of a discount for an N.P.V., where we get these sales earlier and there's clearly will be some opportunity to be able to move more expert all through these environments. As we go far away. So we thought it was a good tray.

Okay. Thanks.

Thanks, David.

And your next question comes from the line.

Most hospitals.

Security.

Thank you for taking my questions. Congratulations on some strong corridor for Charlie how should we think about operating.

Q.T. vs Q1, and then for the rest of the year.

So.

Thanks for the question at this point you know what we said is we we got rid of our guidance applause that this year for the exact same reason to you're asking and that is it's not 100% clear what's gonna happen to topics as as I noted.

Into prepared remarks, <unk> you know the clinical activity is on hold at this point, we're we're hoping optimistic lead we get that back on track when some of the surgical restrictions stop but.

Remains to be seen exactly how that happens in from an S.G.N.A. perspective, I frankly, I'm very competent we're not going anywhere near what our original guidance was from that perspective, there just so much much activity that we can't do and frankly nobody else can so.

This point Oh I can tell you is that we that we pause the guidance because we believe the numbers are likely D.B. below those guidance range for obvious reasons.

I don't know that.

From an already perspective. The question really is when we start losing patience again and you know hopefully that's in the second half a year and hopefully we can make it up and if that's true 80, we get back in the range, but it but we won't know that for awhile S.G. I think there's gonna be light and it I don't know that it'll be exact.

What it was in the first quarter.

<unk> I'm struggling with how to give you some good guidance, because frankly I'm not really sure.

<unk>, let me just see if I can let me just if I can add a couple of bullet points here only gonna and things for the question.

You know in in our in our own numbers. We've included doing all of these clinical trials. So they might be phased a couple of months later, but they would still be done in this year. So I think the r. and D. number is probably close to what you'll see I think is hardly suggest the S.G.N.A. number is going to be.

Is significantly materially reduced we're not filling open positions Ah as I answered part of the questions earlier, you know, we don't think that we're going to have the same access to physicians and to their staffs et cetera, because folks are going to be in the o. are all day.

Okay. Most every day and so we're looking at virtual training, we're looking at weekend training programs and things like that and actually where we have open territories, where re cutting those territories to pick up the big accounts, but not to do it with any new resource. So you know there are some some places where you're going to have obvious savings.

And then I relationship with Johnson and Johnson is such that you know and we've disclosed this publicly many times that they get a small royalty on replacing last year's dollars <unk>. The the major impact of covert 19 will be that the delta over last year's dollars in 2020.

We'll be modest relative to the the original expectations and so most of what Johnson and Johnson, we'd get us our partner this year will be the small end of the royalties and they will not have the benefit of the much larger royalty on new dollars and so you know I think I think r. and d. it'd be pretty much the same.

I think S.G.N.A. will be quite different.

Very helpful. Thank you.

Thanks, Thanks for the question.

And your next question comes on the line of sight to see <unk> encompassing.

Taking morning couple of questions for me first did you mentioned there was a 70 per cent dropped in a experimental demand a in April.

Reflect the overall decrease from volume of elective surgeries during that time.

And what would you estimate the <unk> non elective surgeries was also in April and then my second question is.

You mention some facilities would be running at six seven days a week, maybe even 24 seven to make up for the backlog.

How much capacity in the system is there to to run that those levels and and make up the backlogs from the decrease in the volume and procedures.

Yeah. So we don't I don't have our our data sources are three to six months behind and so I don't have any real time procedure data that I could share with you.

What we what we tried to follow in and the only data. We had for example is places like M.D. Anderson, you know maintained a steady slow or a steady flow of orders. So you can see that you know they were using the drug for oncology based urgent scenarios.

Most of the Big medical centers continued to order, but a place that would have ordered you know 10 or 15 boxes, a week was ordering one or two boxes a week. The only assumption we can draw from that is it was for the more urgent procedures. The toward generally oncology based you know we have a lot of case studies, where.

You know because of pain patients were threatening suicide in the hospitals were letting those folks operate on an urgent basis.

We had some places where a hernia became a protruding hernia. So you went from an elective too clearly an urgent scenario and those folks were allowed to operate but honestly I don't have a really good data driven answer to your question other than it appears that roughly 30% of of the procedures were.

<unk> by the local authorities to be urgent I would say in that regard that not many of those where c. sections. I mean, we have centers that have studied x. Perl tap and C. sections, who are big users of the product, but as a general rule see section is still and it's in it's infancy in terms of rolling it out nationally.

And we hope to get on that pretty quickly. Your your your next question actually gets back to my comment earlier that we have to have participation.

You know if you think about from mid March to the end of April you would figure out that something close to 20% of the surgical procedures and the United States have been differ that's on a big number that's not our Tam that's that would be the total number.

And so.

Then walked the balance of how many <unk> procedures are we doing now on a daily basis, and when do we get to that scenario, where in and out are the same in all we got to do is take care of the backlog and we don't think we're here yet so that's where the 80 per cent number comes from and you know we think that we're we're.

Doing a fair amount of business you know the numbers that we suggested you know which suggests that it's growing quickly the and this is not my number. This is a number that the banks have put out and you know the folks that I've got a lot more resource to do this stuff and I do but their general conclusion is that the hospitals can can have an increase have any ability.

Once they come back on line to increase their capacity by 30%.

<unk> no. That's an interesting number because that would tell you that we have to do surgeries in the A.S.C. because by the time the hospitals come back on line. They won't have the time or they won't have the capacity to be able to take up all of the backlog. So everything we're looking at says ambulatory care centres <unk>.

Six seven days a week 24 by seven that was the reference was to ambulatory care and then hospitals will come back up slowly and <unk>. That's the great unknown to US frankly, giving you guys then given the world in General guidance is we just don't know how fast the hospitals are going to be able to help us take care of this backlog if that makes sense.

Yep.

<unk>.

Thanks.

And your next question.

I.D.L.E.

Hearing.

Hi, this is shutting off or on me think for taking our question. We have a <unk> for let's say Oh that are already reopens. They have in a car about how much because they have already reached Uh huh.

How long they think well take for them to round, so that <unk> 30, but.

Oh. The second question is about the younger at their common that that the.

And that makes me think j. help the <unk> accelerate the ships at sea setting.

What type of procedures could it the C.S. the next to the shift to the.

Thanks.

Yeah. Thank you.

So the first up capacity question you know there there's I mean, it takes a little while to get these things up and running in many cases the and this is something we were involved with frankly before we started to see the ramp up we were working with A.S.C. chains for example, on Credentialing surgeons, who preach.

He didn't come to the A.S.C., who are anxious to get to the A.S.C. for all the reasons that we've talked about on this call. We also as we said have training programs for docks that have not had access to X.P.L. previously.

And for docks, who had <unk>, we're going to be doing different surgical procedures. When they were in the A.S.C. So all of those things have an ongoing.

Oh, I can only guess it and how much of the A.S.C. capacity. Today is is is taken you know it's I I say, it's it's probably approaching 60%, but it would be somewhere in that range. If I had to take a guess, but again I have absolutely no data sources at all other than to tell you that.

We talked a docks every day all day and they would tell you I mean I've talked to orthopedic surgeons in the last week that are doing you know normally would've done six cases, a day on a big day are doing eight or 10 cases. So in some cases I think the dock the individual docks are fully allocated but I think that the A.S.

He has now become a environment of care for docks, and some specialties, who would not have gone to the A.S.A. previously and that leads me right into your second question and I. Just give you just two seconds of history here I mean, if we go on back four or five years, you. What we would have seen that A.S.C.'s we're real.

Doing small procedures things like Hernias, and hemorrhoids and you know those kinds of things and they are low profit margin procedures and so the A.S.C.'s, we're working really hard to generate a modest return.

What's happened over the last couple of years is that led by C.M.S. The insurance carriers have understood that they can have a at least the same quality of care for the same surgical procedure done in the ambulatory environment.

And then in the hospital environment, and you know C.M.S. reimbursement for things like total knee have dropped you know fairly materially as you go from impatient to hospital outpatient to ambulatory. So the big change in the ambulatory environment is that we can now treat large painful profitable.

Procedures for the A.S.C. in that environment. So specific answer to your question Nice I had my knee replaced six weeks ago I got to the A.S.C. at 630 in the morning. They started operating on me at seven my wife, and I were home before 11 o'clock that morning.

We we increasingly talk to docks about spine surgery is being done in the A.S.C. you know, we're doing awake surgeries with spine patients now and so the ambulatory environment is a perfect application of where you would do that kind of a surgical technique. So we're starting to see large abdominal wounds change and moved to the.

The A.S.C. environment, where he we're replacing thoracic epidurals well the next Perl tap so it's really the expertise so the <unk> the regional anesthesiologist, who can provide predictable pain control, that's allowing the insurance carriers to mandate the environment of care and move that to the less expensive.

Ambulatory environment, which is an easy move because it's where the docks and the patients wannabe anyway.

Yeah.

And your final question comes from the line of scary.

But.

Mike.

Hi in morning, It <unk> I, just a couple of clashed and assume <unk> [noise].

<unk> arrived in Europe, and the second half of the year.

Your current launched plan there are there certain market that are less impacted by the pandemic that you might initially target and then secondly could you comment on the status of the lower extremity Nerf block trial, and how quickly docket soon.

What extent you expect that indication that also help accelerate the mood a certain procedures from the <unk> outpatient <unk>. Thank you.

Yeah no. Thank you so we expect to get approval from the European authorities sometime late this year.

Based on Cove. It in a number of other things that are moving around in terms of the expense line that was discussed earlier, we expect to launch that in the latter part of the first half of next year in Europe.

You are absolutely correct that we will launch into specific markets five or six markets five or six countries in Europe.

Frankly, it won't have much to do with Cove, it or at least if it does we don't fully understand that are appreciate that yet. We are plan was never to launch in more than five or six countries in Europe, just because there is a vast difference.

In the way medicine as practiced the impact of technology and some of the different markets and also the receptivity of new technologies and some of the different market. So our plan is to launch into five or six countries and do it in the back half of next year <unk> I'm sorry in the in the well.

And late in the first half of next year lower extremity nerve block and it's called the stride study it's.

If there really is is you know another major opportunity for us.

Protocol in a site selections and all of that are done we're just waiting to get comfortable now with you know that it won't have any negative consequences for colds. It in terms of where the centers that are going to execute the study are I would anticipate that in the next month will start that study it clearly will be done this year.

You know we put together a clinical study report file an S.N.D.A. sometime in the first quarter back half probably are the first quarter of next year and expect that we would have approval by the end of 2021 sort of give you a a frame of reference to the way we think about it right see section was the was the focus of the National meeting this year.

Wouldn't be the focus of the National meeting next year lower extremity nerve block would be the focus of the national meeting in January February of 2022. So you know there's a kate instead of the way. These things are developed and then there's a whole series of things with <unk> that would ride along side of those those opportunities.

Thank you.

Questions at this time.

<unk> <unk> <unk>.

Yeah the floors yours.

Thanks Nita. Thank you for your questions and a time. This morning next up will be the R.B.C. Conference. Later this month, followed by the B.M.L. Conference in June we look forward to providing additional updates in the future. Thanks again, everybody take care.

And.

<unk>.

You for your participation human now disconnect.

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