Q3 2020 Pacira Biosciences Inc Earnings Call
[music].
Biosite <unk> earnings conference call.
It could affect the company. Please refer to the Companys filings with the SEC, which are available from the SEC or our website with that I will now turn the call over to Dave stack. Thank you Susan Good morning, everyone and thank you for joining us to review our third quarter financial results and recent business highlights. The 2020 COVID-19 pandemic continues to escalate.
Our nations opioid crisis with the rising number of drug related fatalities, given the health social and economic disruptions facing our nation never before has there been a more urgent need for opioid sparing pain management I am incredibly proud of how Pacira Pacira team has remained steadfast in advancing our mission to provide an opioid alternative to as many patients as possible.
Our efforts to date position us to deliver a solid rebound from the unanticipated interruptions of patient care. During this ongoing pandemic, we remain nimble and have adapted by deploying digital and educational tools in order to meet the needs of our customers, including the recent Grand opening of our state of the art Pacira innovation and training facility for the pit.
Which I will cover in greater detail shortly.
As Charlie will discuss later in this call we reported net revenue of $117.5 million for the third quarter, an increase of 12% over last year.
The overwhelming needs of the marketplace and the transformation underway in the ambulatory surgery Center model have allowed EXPAREL average daily sales to return to year over year growth in June and attractive trends continue with average daily sales in July and 109% August 111% September 110% and October.
Over through this morning over 111% of 2019 levels on a day worked basis.
Approved for infiltration field block and break your plexus nerve block.
We have seen key states show signs of recovery since hitting the bottom in April but we have not seen a full return to normalization. Despite these headwinds X pro average daily sales achieved 10% growth in the third quarter compared to 2019 importantly, when we compare EXPAREL weekly revenue growth to acute procedural claims data since the pre credit with us.
Pre covance baseline in February espresso growth rates have consistently and significantly exceeded those of the elective surgery market.
The most recent weekly data for mid October showing elective surgery procedures in the United States down by 26% and X per hour up by 13% we.
We believe this is a particularly strong indicator of the expanded role EXPAREL is playing and shifting a variety of complex surgical procedures to the 23 hour stay environment as well as broadening utilization and non elective procedures, such as C sections, cardio thoracic oncology surgeries when elective surgery market normalizes. This data implies that X.
Per hour is very well positioned for further growth.
With long term shift of complex surgeries to the 20 through our setting there is a significant demand in the market for new information research and training and the use of regional anesthesia less than 20% of the current anesthesia procedures are using a regional approach through our expanding network of anesthesia group partnerships and robust educational and training initiatives.
We are paving the way for long term EXPAREL based blocks to revolutionize the practice of local energies you a.
Feel blocker nerve block provides the basis of migration from inpatient to 20 through our state facilities not only is fundamental to our growth it directly correlates with patient outcomes and satisfaction rates.
I'd like to highlight a few key markets, where we are seeing accelerating demand. We would expect this growth to continue as awareness mounts around the opioid sparing benefits of EXPAREL based regional approaches.
EXPAREL administered as a break you'll plexus nerve block continues to be a massive commercial opportunity.
To remind you an extra break you'll plexus block provides coverage for the upper quadrant not.
Not also not only rotator cuff and shoulder arthroplasty, but also elbow wrist and hand procedures, we see break you'll plexus nerve block as an addressable market of more than 3 million procedures per year.
Our customers are consistently reporting positive results surgeons are not only impressed with the with clinical outcomes, but they prefer administering a break you'll plexus block pre operatively and avoiding the infiltration at the end of the case, our anesthesiologist customers see the strong advantages of using blocks as a vehicle of shifting procedures to the MSCI setting by replay.
Leasing antiquated pumps, and catheters, which often become dislodged and preventive procedure from taking place in the 23, our site of care a.
Additionally, the environment is an area, where EXPAREL reimbursement is consistently improving as payers and self insured employers continue to drive the shift from inpatient to outpatient care and this is especially important for elective procedures elective surgeries and a cold environment.
After having success with Brachia plexus block anesthesiologist want to broaden our use of EXPAREL with additional field blocks transversus abdominis or tap blocks are a significant market or EXPAREL is providing long acting pain control and the abdominal region and EXPAREL tap block opens the door for more than 6 million abdominal and colorectal procedures per year.
Year and supports that migration of these procedures to the AOCI space.
With only high single digit penetration, we are expect expect expanding.
Use pipe to be accurate, we are I'm, sorry, with high single digit penetration, we expect expanding use to be a significant growth driver.
Women's Health is also an important growth driver.
We are seeing anesthesia, driven EXPAREL base tap and perilous or pecked blocks take hold as institutional protocol for Syrian section abdominal plastique gynecologic oncology mastectomy and breast reconstruction procedures. There is a significant and growing demand among women for managing pain with non opioid options opioid addiction and.
Women is growing at an alarming rate and studies have shown that women are 40% more likely to be become new newly persistent users of opioids following surgery.
So sorry in sections are a great example of how EXPAREL will be a key component in transforming the standard of care for women we.
We are using the data from our two successful phase four studies to educate stakeholders about the opioid sparing benefits of espresso based tap blocks. This is especially relevant for moms, who are navigating childbirth. During the cobot a pandemic most pregnant women prefer an opioid free experience. So we are use also using real world evidence from physician thought leaders to drive.
Women and health care providers to act with EXPAREL. The women's health market is comprised of just under 4 million procedures per year in the United States with only mid single digit penetration we remain in the infancy of tapping this market and see this as an enormous opportunity for pacira moving forward another.
Another key target is the cardio thoracic market, where we have a growing single digit penetration with 1.5 million procedures a year, we see the opportunity for major revenue producer similar to see section the.
The procedure accounts I just shared are based on Q via procedural claims data and EXPAREL utilization data, which we receive on a six month lag. These and other procedural data are summarized in the investor deck on our website.
To remind you of the key markets I just touched on are all on label.
Beyond our on label initiatives, we are working to further broadening the reach of the EXPAREL label first we are working with the FDA to advance their review of our supplemental new drug application seeking approval of EXPAREL and patients ages six and older. The PDUFA action date is set for March 22nd 2021.
Our submission is based on positive data from our place study of EXPAREL and children undergoing cardiac and spine surgeries, having pediatrics on a label as a critical components importance given the significant unmet need for non opioid options for managing Postsurgical pain in this vulnerable patient population.
Further with only opioid opioids currently approved for Postsurgical pain management in children. We believe it will be difficult to limit access to the only approved long acting local analgesic, especially when parents are part of the decision process with approximately 1 million pediatric procedures per year, where catheters and pumps or the mainstay of Postsurgical pain control.
Will we see a significant unmet need and envision this to be a $100 million market opportunity.
On Pediatrics, we are walk also working to expand the X. pro label to include lower extremity nerve blocks are phase three stride study is enrolling patients to evaluate EXPAREL versus people Mccain as a nerve block in adult patients undergoing lower extremity procedures, such as foot and ankle surgeries. We're currently planning for topline data around the end of the first quarter of 2020.
One and approval in early 2022, we believe the lower extremity market opportunity is at least as significant as the upper extremity market.
We also continue to advance our regulatory strategy for EXPAREL outside the United States in September the European regulatory agencies issued a positive opinion recommending approval for EXPAREL across a variety of surgical settings and administration techniques. We expect a final decision next month we.
We anticipate launching EXPAREL, along with Io Vera and Europe around the middle of next year, and we look forward to the opportunity to bring a safe and effective opioid alternative to surgical patients across Europe.
We remain in labeling discussions with the Canadian health authorities, and we are working with our partners in China to determine possible next steps and the regulatory process.
Moving now to our collaboration with the Pew Cynthia we continue to work with our counterparts to support a smooth transition in this agreement as this agreement approaches its conclusion in January of 2021.
We've been rolling out additional customer facing resources as the orthopedic market continues to move towards anesthesia, driven regional pain management and the migration of complex procedures to the 23 our sites of care.
Due to this transition and a major growth driver for EXPAREL is education and training for our anesthesia partners. This is such an important element of our future growth that we are investing in this critical innovated innovative and we are investing in this critical.
Innovative step and we're thrilled to recently opened the Pacira innovation and training center in Tampa or the pit the pit as an adaptable facility equipped with state of the our technology and audio visual capabilities to support a range of educational events from didactic presentation to hands on workshops. It was designed with guidance and input from leading regional anesthesia.
Colleges, who are in the forefront of this field.
The pits the pits live format for simultaneous peer to peer interface will allow world, leading physicians to collaborate educate and share clinical experiences with each other in a virtual environment, where anesthesiologist and surgeons leaders can continue to innovate with new EXPAREL based field and nerve blocks. This feature has become that much more important.
With the recent pandemic.
The pit will play a critical role in the creation of enduring educational materials and will support optimal opioid sparing pain management techniques and protocols using EXPAREL based regional approaches. This facility also differentiate differentiates pacira as a partner of choice for in licensing assets switching gears to our Vera as you know we kicked off the relaunch of <unk>.
While Vera after our national meeting in February given the impact of COVID-19, our commercial and clinical initiatives have been significantly delayed we remain highly confident in the technology behind this innovative system and a significant commercial opportunity. It represents with sales potential approaching the $200 million Mark within our five year planning horizon, given the unforeseen in.
Packed due to cold and we have adjusted our near term commercial strategy to support orthopedic customers and their patients who have been impacted by delayed total knee arthroplasty surgery and osteoarthritis by positioning Io Vera as a proven tool for opioid prepaid management to bridge this unfortunate gap to surgery.
On the eye over a clinical front prepare is enrolling patients to evaluate aisle Vera and expertise for opioid sparing pain management for patients undergoing total knee arthroplasty with Io Vera patients can prepare for surgery with several months of non opioid pain control. We also expect that EXPAREL plus Io Vera as a procedural solution for total knee arthroplasty.
Lastly, postsurgical pain will provide a more rapid functional recovery.
In parallel we are launching an Io Vera registry to capture real world evidence for the use of Teekay procedures with leading academic and orthopedic centers of excellence key opinion leaders and anesthesiologist continue to have great interest in using AI of Vera across a wide range of treatment opportunities such as low back pain spine spasticity and rip fracture, where these thought leaders have.
Experiencing in experience in developing treatment guidelines.
We will use investigator initiated studies and grants to develop data across these areas turning now to our second pillar pursuing innovative products or technologies that align with our mission and allow us to further leverage our established infrastructure and PNM.
We are thoughtfully pursuing opportunities that are of interest to our surgical and anesthesia audiences. We believe that our leadership position in providing opioid free pain control. The patients provides us with a significant opportunity to build a differentiated portfolio of non opioid and regenerative health solutions to improve the patient journey, along the neural pathway and we expect that.
Of additional partnerships to discuss with you shortly.
Finally, let's discuss our third pillar advancing our 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. We are evaluating two programs for clinical development, our lead program as an interest equal or subtract nine delivery of Depofoam based local anesthetic.
Got it for use in acute and chronic pain, we are conducting a phase one pilot study with EXPAREL, which will allow us to make a go no go decision in the next phase on the next phase of development, which would involve that we believe will be put mccain.
Next we are advancing preclinical and clinical dose finding studies to determine next steps for index met accommodating development. We look forward to keeping you appraised of our progress with these early stage pipeline and with that I'd like to turn the call over to Charlie for a review of the financials.
Thank you, Dave and good morning, everyone before reviewing our third quarter results I would like to remind you that I will be discussing non-GAAP financial measures. This morning, which we believe more accurately reflect our business results. A description of these metrics along with our reconciliation to GAAP can be found in the press release, we issued this morning.
I'll begin by briefly echoing Dave and saying, we remain very confident in the future of our business. The fundamentals are strong and we are on track for accelerating top and bottom line growth as staged approach to normalize and growing levels of elective and emerging procedures and hospital inpatient hospital outpatient and assay sites of care.
Furthermore, our organization is well positioned to capture the increasing number of procedures moving to the AMC setting and COVID-19 has only accelerated this shift.
We ended September with more than $575 million of cash and investments. This strong foundation and the cash generating nature of our business leave us well equipped to both fund the repayment of the principal amount of the remaining April 2022 notes and continue to invest in internal and external growth opportunities that align with our mill.
Pardon.
Third quarter total revenue of $117.5 million were approximately 112% of total revenues for the third quarter of 2019 net product sales of EXPAREL were $113.7 million, which was approximately 112% of the third quarter of 2019 as we.
Well.
For I O Vera we reported net product sales of $2.7 million for the third quarter of 2020 as compared to $2.6 million for the third quarter of 2019, we kicked off the relaunch of Iowa, there at our National meeting in February. However, the launch was interrupted in mid March when Teekay Ace in the hospital outpatient setting we're pope.
Poland due to cope with 19.
However, our focused effort with Io Vera have allowed us to offer pain solution to many of those patients that still await an opportunity to undergo surgery.
Our non-GAAP gross margin for the third quarter of 2020 was 76% versus 80% for the third quarter of 2019. The change in gross margin was primarily related to lower cost units sold in the third quarter of 2019 versus 2020, a period of scheduled downtime in San Diego during the.
Third quarter of 2020 to support the development of a new 200 leader manufacturing suite at that facility and some unplanned downtime at our UK facility.
Non-GAAP research and development expense were $13.3 million for the third quarter of 2020 versus $19 million in 2019. The decrease was primarily driven by the completion of our EXPAREL pediatric and says Aireon section studies. These decreases were partially offset by the advancement of our I O Vera and expert.
Ill trial, our phase three lower extremity nerve block study and our phase one pharmacokinetic study of EXPAREL via interest equal injection.
In addition, third quarter R&D spend benefited from reduced costs related to manufacturing capacity expansion with the transition of our 200 liter suite at our Swindon facility from the development phase to the registration phase.
Non-GAAP SGN a expense were $44.6 million in the third quarter of 2020 versus $43.4 million in 2019. The increase is primarily attributable to the termination fee associated with the conclusion of our co promotion partnership with diffuse entities. This was partially offset by raw.
Reductions in sales commissions, which are directly linked to EXPAREL growth as well as the use of lower cost virtual tools and the cancellation of in person meetings medical conferences and non essential travel due to the COVID-19 pandemic to remind you while we have not disclosed the specifics on that to Puke Commission other than to say.
It is comprised of a small percentage for renewing the prior year's base business and a larger percent on year on year sales growth prior to Cove. It. This translated into a high single digit percentage of net EXPAREL sales a.
Upon conclusion of the agreement in 2021, we would expect approximately 90% of that expense to positively impact our bottom line.
All of this resulted in non-GAAP adjusted EBITDA of $34.2 million in the third quarter of 2020 versus $24.8 million in the third quarter of 2019.
Our third quarter GAAP financial results included an income tax benefit of $124.6 million for the reversal of most of our deferred tax asset valuation allowance as a result of our 2020 operating results. We've concluded that is now likely that we will generate taxable income sufficient to reach.
Realize these deferred tax assets, given our expectations for growing revenues expanding margins and only modestly increasing operating expenses.
We continue to anticipate that the utilization of our us deferred tax assets will offset the need to pay us federal cash taxes until the second half of 2022.
As Dave mentioned earlier, we're not restating 2020 guidance today, given the continued uncertainties around COVID-19, we will continue to report preliminary monthly product sales to share inter quarter trends with you we will consider changing this practice and we.
As we have more visibility around the impacts of COVID-19.
Looking out over the long term our five year plan remains unchanged with anticipated high teen topline annual growth rate steadily improving margins appropriately manage operating expenses, all combining to make the C or a very exciting EBITDA growth story.
With that financial overview, let me turn the call back to Dave for his closing remarks. Thank you for that review, Charlie we have come through a difficult time and.
And current market trends are indicating a positive rebound we will continue to monitor COVID-19, and its impacts on the market patient care and the safety of our employees will remain will always remain the number one priority as we look ahead over the coming months, we have several value creating milestones we expect to achieve we look forward to securing regulatory approval for EXPAREL in Europe.
Expanding our US label to include Pediatrics and reporting topline results from our lower extremity nerve block study and taking full ownership of the X. Pro franchise as we wind down the partnership with diffused synergies on the very front, we have the completion of the prepare trial next chicken next year and data from the Io Vera registry.
Becoming available to our customers importantly, we have a financial foundation from which to achieve our goals and we are well equipped to quickly transitioned into a powerful earnings story with top line year over year growth in high teens steadily improving margins from the mid seventys to the mid Eightys percent and appropriately managed operating expenses and when.
That I will turn the call over to Deborah to begin our Q and a session.
Ever.
Thank you.
At this time, if he would like to ask a question you.
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Your first question comes from.
Jami Thanks Oliver.
Got it when does the Nicky.
With RBC capital markets.
Correct.
Hi, there.
There you go Okay. Yes can you hear me weekend Randall thanks, great. So I'm not going to ask you for 2021 guidance, but if you look at consensus still roughly the same level as pre covert implying close to 30% growth built in for next year and I suspect.
Thats, an assumption for either normalization and or some volume catch up so I don't want this to become an issue for the stock. So can you provide some context as to how you're thinking about the recovery path.
Under various scenarios, including a vaccine on the market next year I mean, I guess do you see normalization and can you quantify for us.
How much pent up demand there could be going into 2021, that's the first question and I know, it's a big one.
And secondly for Dave or Charlie I'm, getting a lot of questions around whether pacira would do or is looking at a large transaction. If you can provide context as to your current thinking on business development.
That would be helpful. Thanks.
Thanks Randall.
The first question is is.
The Holy Grail I guess in.
We are what we're thinking is that.
We still believe that over 90% of the procedures that are being delayed will be done. So we are preparing for 2021 to be a substantial improvement over 2020, now whether that is 30% or not it's going to depend a lot on how.
Ladies and gentlemen, please standby.
The.
Yeah.
Okay.
Okay.
Yes.
Okay.
Okay.
Hey, Matt.
You may begin.
Thank you sorry, guys, we had a power failure in New Jersey. The power went out this entire building so timing is everything I guess.
So Randall is the second part of your question is.
You know as we follow this acute via data there is between 30 and 40% Delta of the performance of Pacira versus the performance of elective surgeries in the United States on a week by week basis, So from a manufacturing perspective and from a resource perspective, we're getting ready for as you suggested something like a 30% rebound.
To answer your question more specifically and this is with some help from the folks that do this stuff for a living.
We're expecting that the the ambulatory surgery centers are going to remain the center of a recovery here, especially for electric for surgeries through the Q1.
What we're being told is that we can expect in more normalized ex.
Opportunity as we get into the second quarter of next year and so it isn't a perfect answer to your question.
But we see.
Some sales from.
From inpatient procedures like C sections, and things, where the baby is just not going to wait so we have to do those procedures, we see the.
The elective surgeries being impacted by the spikes not so much because of of surgery, but because of the tracing in the fact that so many patients become unavailable to surgery as a result of the spike in the tracings and so.
No we are getting ready to.
To have enough inventory to cover any expected issues as we come forward, especially as we prepare for.
The continued growth of C section and launching Pieds at the end of the first quarter. So ill come back at me on that Randall if thats not if you have a specific question inside that context on the.
On the BD front.
We have a number of opportunities that we're addressing.
I don't know how exactly we would we would define a large opportunity or a transformational transformational opportunity.
We have no financial or philosophical issue with a large opportunity. If we find one that's appropriate for the business and would add real value to our shareholders, but as we sit here today I can tell you that I don't have anything like that in hand, or even in the pipeline that I'm aware of.
Great. Thanks, Dave.
Thanks Randy.
Deborah question, Yes. Your next question comes from.
David.
Yes, absolutely with Piper Sandler.
Just a couple first Dave you talked about.
At least qualitatively and the cost structure.
And I think in the way you phrased it is appropriate management of of Opex. So I wanted to dig a little deeper into that with the unwinding of the Jane Jane partnership can you talk to what that means in 2021 and just generally.
Core your sales and marketing spend Thats number one and then unrelated to Jan Jay.
How we should think about the trajectory of R&D spend in the absence of course of any of any transactions.
Two.
And then lastly can you just give us a sense of as we move into 2021, what portion of EXPAREL usage, you think is going to be coming in coming from the assay setting I think you had said in the past maybe early this year it was something around.
60% of volumes are coming out of the seas, where do you think thats going to be trending over say the next six months or so thanks.
Yes, thanks, David So on the Opex question.
Well, let me, let me separate JNJ from from Opex for for one second so we really haven't had any.
Any real benefit of the JNJ partnership as a result of coal that since mid March. So you know and if theres any anticipation of what the world. We're look like for Pacira without Johnson and Johnson I would suggest that we've already seen that for six months and so everything we reported today really benefited very modestly if at all from the Johnson and Johnson.
Partnership so as we look forward our strategy and what you will see in 2021 is that something in the mid single digits would be the increase in operating expense that would accompany a 20% plus increase in revenues and we also expect to benefit modestly in 2000.
21, but very substantially over the five year planning period, and operating margin or gross margins as a result of the 200 liter facilities coming online both in Swindon and San Diego later in the planning period. So.
You know appropriate opex.
And as we talked about during the call.
We've added approximately 50 people in the customer facing organization as we exit this year and get into next year. There is a plan for a handful more than that but thats really all required and again I'll remind everybody that as we move from a surgical audience to an anesthesia audience. The ROI on a rough day were transforms itself to be very.
Much higher and so we are in a very good spot in terms of being able to cover the marketplace, having a fairly substantial disconnect between our revenue increase and the need to cover that with an operating expense increase.
Second is the R&D spend.
The first thing Dave.
Dave David is to just remind everybody that in our R&D spend.
The we have both manufacturing and clinical in that spend and so.
We're putting another 200 liter facility in San Diego, you will see a slight increase in the R&D spend for a manufacturing process as a result of that activity and you we expect that the.
The clinical R&D spend.
Well My guess is David that it will increase modestly and the reason I hesitate. There is there are some questions about what we would do plus or minus different aspects of the European label, and what we would do plus or minus certain aspects of the pediatric label. So for example, if we get the broad label for.
Eric.
Pain, then you'll have one scenario, if we only get scoliosis or spine surgery and cardiac surgery. Then there is the need to do an additional trial. So there are some brackets around the opex expense, but in any case. It is not a dramatic increase over what we reported in 2020.
And then 2021 a S C.
This is a tougher one because the data that we get actually is not a six month delay. So we're working on March data as we have this call and at the end of October.
But what we see is and let me restate, where we where we exited last year. So when we left 2019, 60% of our cases, where elective 30% more urgent and 10% were other and those were primarily plastic surgery and oral maxillofacial surgery.
What we see is that we're growing the C marketplace by something like a point a month.
So right now think about something in the 63 64 range.
And that obviously has to come from the inpatient range and if we spend that forward, we think in 2020 fives.
Outpatient will be 70% plus.
Inpatient will be something in the very low twentys and other will be whatever that whatever's left right something in the in the singles in the mid single digits. So I don't know if that's enough color David but by.
By the way just so everybody knows if it's not you know broadcast quality, Charlie and I are talking to you on a same cell phone here. So we are passing this thing around the room. So this is not optimal.
We hear you just fine and that's a that's very helpful color. Thanks.
Thanks, David.
Your next question comes from David Steinberg with Jefferies.
Thanks.
And some of your new near term growth opportunities specifically see.
C section in pediatrics firsts for this as Aireon piece.
It's been on the market for a while and that not too long I was just curious if you could comment on the growth trajectory or perhaps even more granular what percent of the opportunity have you already captured and then.
In terms of the slope of that.
The trajectory.
On the one hand, some of the carriers, we've talked to a very positive they are seeing patients.
Non opioid solution patients getting out of the hospital more quickly and.
And lower costs because of that on the other hand.
It's not an assay targeted indications. So you are still facing some of the issues you had.
Historically, the hospitals, where you have hospital pharmacies, pushing back because of the differential on price versus generic be pecan and so could you comment on the trajectory and then similarly with pediatrics, it's not yet approved on the market.
The first part of that is.
Do you think some of the use is already off label and also could you comment on that.
The potential trajectory once you get approval. Thanks.
Thanks, David and David.
First on on C. section.
Maybe I'll start with the end and say that the.
Our ability to address the opportunity is still very small right I mean more nascent as it relates to see section now.
We are also in a very good position remember we had a we have a relationship with Mednax, where we train the maternal fetal.
Mednax group that represent maternal fetal services and over 500 hospitals in the United States. So we see sections growing quite quite rapidly, although still a small a modest percentage of our 400 plus million dollars in revenue.
We expect that the slope will continue in your question is insightful David We've got a number we know a number of places where private equity groups and obviously when groups are building birthing centers.
For me it sounds like what we saw in the early days of the excimer laser.
Where these centers are being built fairly quickly we know a couple are going to actually open in November.
We are based on the fact that mom can stay for one night or in some specific cases no nights.
Replacing 3.3 to 3.5 days, which is the standard of care. When opioids are used for pain control allows this this procedure to move to an ambulatory environment and move away from the Colgate exposure for mom and baby.
Theres a number of things that we've had a tackle as we've gone through that from an operational perspective how.
How do we get the pediatrician too to discharge the baby, even when the LPG when it's available to discharge mom et cetera. So there's a number of tactical things that we're working on.
So I think as you see more non hospital facilities open for as birthing centers Youre going to see the the velocity of change here.
Be quite tight.
Quite appropriate and quite extreme relative to what we do today so.
And then on TV.
There is always going to be some off label. David you know when you get into a a 16 year old or a football player who is 15 years old and they have a body weight that would suggest that there are there where it is or their doses and adult weight anyway, we have seen people adopt EXPAREL in the pediatric market, but it has been modest.
And what we're seeing as a result of the pediatric AD boards and especially the anesthesia AD boards is that they are significantly behind the way, we do adult medicine.
For pain control and that pumps and catheters are still the mainstay of the way they deliver postsurgical pain control.
That is really low hanging fruit for us and so we're working with a number of them on programs again going back to regional approaches.
How we're going to treat pediatric patients with an ESP block for example for spine surgery and scoliosis patients in kids and as we talked about a lot in the script the pit in Tampa and having the training facility, where we can do cadaver labs, and where we can have the world experts all on either video or in person doing doing the work is really.
Important and improving the velocity of best practice care. So we expect that TV is going to take off.
But I should define that market for you a little bit.
We will launch in approximately 40 major academic thought leading centers and we'll do that with a team of nurses.
Important that everybody understands that people are not little adults the pediatric profile with their patient with their with their body weight with our enzyme systems et cetera is very different so we need specific expertise to launch into that market. So we'll do that immediately after launch with a team of nurses.
With educational programs and then we'll broaden that out as we go through next year.
So I hope that that's enough David but if you come right back at me if you have another question.
[music].
Your next question comes from the logic per side with Barclays.
Hi, good morning, and thanks for taking the question.
And Charlie couple of questions from me Firstly.
You commented about early effects fairly non elective procedures could you expand further on this as to.
What button danger, what segment of procedures in Cogs, but I think our oncology is non elective and how could that be a growth driver.
Secondly, as you transition to supporting auto patients for Iota again, how should we factor that in terms of numbers on where does this shift in strategy in play.
And maybe last one can you speak a bit more about the focus on regenerative medicine.
But in the context of sports medicine, though beyond that and how do I Miss additive business complementing the pain management component. Thank you.
Yep. Thank you.
So for non elective procedures the obvious when a c. section of course, but.
But if you went to a place like MD Anderson, you would see that there is a pain protocol rig.
Written for virtually every major procedure that they do so lung resections.
Ob view, Iran.
Cancer, Resections et cetera, the bulking procedures expressed as a standard of care. So you would see the same at Cleveland clinic, you'd see the same at Mayo, especially in Arizona facility. So there is a base of business that is growing on an annual basis.
That is that it will will be unlikely that that would move to the ambulatory environment.
Pretty much the same with some of the cardiovascular stuff that you referenced.
You don't see a bypass machine being anything that's going to be used routinely in an ambulatory center.
So there is a stable of procedures that we think will remain in the hospital environment. As we go forward and if thats, 25% of a very rapidly growing revenue number that's an important piece of our business and when we want to pay attention to and keep keep working with the customers on.
When we your second question was around idle Vera and ortho and.
So there's two things here really.
One is the what we basically purchased and that was a.
The use of Io Vera and a total knee arthroplasty to try to provide a prolonged pain control opportunity so that patients could have a more appropriate.
Physical therapy opportunity and that's why we focused on functional recovery and by the way as we talk to self insured employers like the labor unions and a lot of the big companies what they're interested in is how do I get this patient back to work and have them be more functional than they were before they left and so thats a really important.
Aspect of the of the reimbursement structure as well.
So what we see what we're doing is in prepare we are looking at using Io Vera a month before your planned teekay surgery. So that the patient can start going up and down stairs can get out of a wheelchair and start living you know start having some functional aspects to their life. So that they become a better surgical patient we use.
EXPAREL for the pain storm, so that we can get them through the surgery without the need for opioids or any or pumps or anything that would keep them in the hospital and then the plan always is to start them and physical therapy. The day after their surgery and so by moving quickly. We avoid a lot of the issues that were associated with femoral nerve blocks and patients just laying in a.
A bed for two or three days following their surgery and so we're looking at a very rapid transition back to.
The patient becoming of a functional patient and being able to do things like drive their own car to their PT go to church you know.
Go to the go to the grocery store all the things that you can't do so thats sort of one piece of it the other part of it a piece of it is and this is what we've seen.
Significantly as we've gone through the Cobot crisis is when a surgeon tells the patient that there is no room for them to have at Teekay as planned and they're going to have to wait two or three months, what do they do if they have debilitating knee pain, but we can offer that patients for several months of of pain control by by freezing that nerve so think.
About Io Vera as a non pharmacologic nerve block and we can do that nerve block that will last for several months until that patient has the opportunity to get into the AR and I'll extend that one more step to say a lot of what we're talking about with the marketplaces ortho again.
Next our incredibly interested in how you do this for shoulder or how you do this for hips, how you do it for spine, we're developing a new smart tip, hopefully, we'll be able to perform a very specific procedure for low back pain. So ortho peripheral orthopedic pain is really important to eye over as we go forward in the south.
Strategy is to provide a toolkit so that we have data both for freezing and nerve within our device and doing a nerve block with EXPAREL with X per you're going to get a few days with our very you're going to get a few months theres going to be a lot of scenarios, where you going to want to do both.
And then lastly, regenerative medicine.
So.
Our docks the docs that we are working with.
It's an interesting.
Dynamic that takes really several years to really fully understand so what happens in the market is we have big time, orthopedic surgeon and that surgeon now can control the patients pain and when they control the patients pain, then the demands of the patient or the request of the patient change materially so a patient.
That wasn't worried about playing golf because they couldn't get in and out of the car once they don't have pain and they can get in and out of the car now they start talking about well. If you did a rotator cuff I could play golf or if you. If you could repair my Hcl in a more appropriate way or you could do miniscule repair or cartilage repair and bone repair all the different things that we have.
Opportunities to do now that Didnt exist 10 years ago.
And so it's the same customers all of those procedures are being done in the ambulatory surgery develop department, so think about Hcl repair miniscule repair cartilage repair.
All of those opportunities are really a extension of pain control and the way we're operating it's the AMC, which we intend to own and it's the customers that were current currently calling on today.
Thank you.
Thanks.
Hi.
Your next question comes from Craig Frazier, we truly securities.
Good morning folks thanks for taking the questions Hey, Greg I'm curious and I'm curious, if you've seen more commercial payers, whether national or regional implement policies like what United did last year or as you're aware as payers considering similar policies.
And then on the European artists.
Yes, I'm sorry go ahead Greg.
Yes. The second question is on the European market that you plan to enter.
If you could just speak to the dynamics in those markets and whether there are parallels with the rest in terms of the shifting at procedures from hospitals to outpatient.
That really drive the need for projects for al.
Yes. Thank you. So on the first question absolutely is the answer and we see for example, Aetna is now paying for HL PD in several states.
So in addition to following CMS will see 90 to 90 and paying for ambulatory surgery. They have now seen that they can actually move.
Move these patients to these less expensive environments and.
And so many of the national payers are paying.
For EXPAREL in hospital outage outpatient department as well as the MSCI.
We also see many of the self insured employers and just as a frame of reference 85% of all the companies in the United States, who have more than 5000 employees are self insured and we're working with those self insured payers to demand that they have an opioid sparing.
Platform in there.
And there are policies and so working backwards essentially and saying.
If you're a police union if you're if you're a bus drivers. If you have people that the United Auto workers. The last thing you want is folks in your facility who are on heavy doses of opioids and who are handling heavy machinery et cetera. So we're working with those folks to demand that they have opioid out or lower or no opioid opportunities.
So stay tuned, but we've we've got dedicated resources now Greg that don't do anything but work with self insured employers don't do anything but work with many of the conch year services that are popping up that have got defined expert.
Expertise orthopedic surgeons generally by ZIP code, who are low opioid or no opioid users who are treating their patients in the ambulatory surgery center. So many of these big self insured employers are signing up with folks who have already defined where they're going to send their total joint patients and their spine patients in each zip code around the United States.
That's all very very recent and accelerating quite rapidly.
In Europe, we are going to have a well at least the discussions to date, we expect to have a label for field blocks and nerve blocks and so unlike the United States, where we launched with infiltration and went through all the trials and tribulations of our surgery audience interactions and some of the negative papers that were written we don't see.
The the need to go through that in Europe and.
And so this will be largely and anesthesia driven launch in Europe, and just to remind everybody that eras protocols actually started in Europe, so having our interactions with the international Eros Society allows us to build protocols for the use of EXPAREL in these low or no opioid regional appeal.
Cultures, and so yes, we expect that Europe will be a more defined opportunity, but we will be a rapid more rapid.
Uptake with a much more.
Appropriate audience, using ultrasound guidance and be an expert in the pain and the neural pathway.
I would also say that Theres markets in Europe, Greg that you just don't want to go too. So you can expect that we will launch into five or six major European countries, but this will not be a pan European launch for many of the reasons that I'm sure you guys know.
Great. Thanks for the color.
Thanks, Greg.
Your last question comes from the line.
Gary Nachman with Oh.
Hi, guys Brad.
Gary can you or can I interrupt for one second Debra we don't set is to be the last question. Okay. So okay. Thank you.
Hi, guys, sorry, Okay no problem.
So just a few follow ups first on the ASV ramp.
Are you offering a discount an EXPAREL and has that helped increase use in that setting. So how does net revenue per procedure and that setting differ from the inpatient setting.
And then talk about the evolving dynamics.
The efforts going after the anesthesiologists versus the orthopedics, how the sales force is changing there.
How much more will will the future growth be from the anesthesiologists.
And then just one last one.
Are you expecting that a generic profile at some point when the IP runs out next year or are the barriers still too high and are you planning to have any additional IP that could hit over the next couple of years. Thanks. Thanks, Yes, thanks, Gary so.
In the A.S.C., we do not offer any discounts or rebates of any kind so.
I haven't actually thought about it this way, Gary, but I guess, our ASP in that environment is actually modestly higher than it would be an inpatient environment, where you have big hospital chains et cetera.
In the basic difference there is that in a hospital a pharmacist looks at us as a cost.
In the ambulatory center, the folks who manage the ambulatory center look at EXPAREL as the reason that they were able to treat patients with lower an opioid treatment strategies. They can't use PCA pumps. They can't use thoracic epidurals et cetera. So we are not the bad guy in the A.C.. We are that we are the person who actually made the transition.
One possible so a much more appropriate environment for us and.
As we go forward I don't see that changing any the only difference in the environment and this probably would not be a surprise is when you're using peripheral nerve blocks and this would be the case with lorex or with with Breo plexus nerve block. It's a 10 ml dose right. So by definition, then but the the ASP per.
Our case is modestly lower but the whack price of EXPAREL on a vial basis is actually modestly higher.
So then the second question was around anesthesia and surgery and the dynamics.
I guess I'd start out Gary by saying.
Everybody is interested in pain control everybody's interested in.
Reducing the use of opioids.
The surgeons are would struggle in both the inpatient and the outpatient environment with adding a few minutes to the case by having to do an infiltration at the end of the case and there are surgeons right, they're not actually all that interested in extending the case and spending some time infiltrating they're not experts in neuro anatomy as a general.
Overall, so having a an anesthesiologist who can do a nerve block in a couple of minutes that moves it to a black room, where the patient visits before the case, so they actually have their pain control onboard before they ever go into the O R. It eliminates the need for the surgeon to.
Have to add a few minutes to the end of the case that improves throughput. It provides us a higher quality kosher quotient, because it's done under ultrasound guidance et cetera, and the anesthesiologist actually they make their living doing this and so the anesthesiologist as the expert here. They do this the surgeon is not in any great hurry to keep.
This you know doing infiltrations at the end of the case and so the vast majority of the growth that we're experiencing now is from a anesthesia driven procedure, either a field block or a.
A nerve block.
And then your last question was around the generic Thats an easy one.
We are filing some additional IP.
We do have a couple of significant IP firms working on this with us in terms of putting up the picket fences et cetera.
And I would bet you every penny I've ever made in my life that there will not be a generic expert while there is no way that anybody is going to be able to guess that the release specifications and then guess at the assay that we use to release the drug on a batch by batch basis based on those release specifications. So the FDA has determined that they have to have an exam.
Duplicate.
There are hundreds of decisions that have to be made based on the specifications of the product as we go through the manufacturing cycle. Nobody has been that Weve never told anybody what those are and you would have to understand what our proprietary assay is and be able to deploy that against the release specifications and I would tell you we have even further.
Evidence of how hard this is to make.
Our group in Europe, that's been over there for five years moving on X per hour and moving to the Swindon facility has been struggling to make EXPAREL again in our own facility with our own people. So if anybody told me that there was an outside group that was going to figure this out I'd say that's nonsense.
Okay, great. Thank you.
Thanks, Gary.
Your next question comes from Serge Belanger with Needham and company.
Hi, Good morning. Thanks for squeezing me in first question is around recent monthly sales trends and seasonality I think in the past or or historically.
Third quarter has seen.
Softer external sales growth followed up by a strong fourth quarters.
Did you see any of that seasonality.
In.
In the third quarter and should we expect.
I guess.
Historical strong fourth quarters to continue in this environment.
No. That's the equivalent of Randles question I mean, that's the question is do it right I mean this side.
So in the third quarter, we were not disappointed with between 10 and 12% growth.
Growth on 2019, given the pandemic and all the other issues that we have in the marketplace.
Q4 is generally driven by by elective procedures and the fact that patients have to satisfy their deductible or it's really driven by insurance.
Hi.
Should there be a modest impact.
In the fourth quarter is not as many patients have insurance given the unemployment rate probably but.
But we havent gotten far enough into the quarter, yet to fully understand that but I would also say at the same time that.
The impact of of coverage and the spikes of coated I think lay over any impact we're going to see of of patients not satisfying their deductibles in the year I think having a patient that's afraid to go out of their house.
Or a patient's mentioned contact crazed so that they're not available for surgery those are much bigger issues than than patient insurance in having paid their co pay so far so.
I think surge it's one big question that we're trying to answer and I think it's largely related to the patients psyche and on a state by state basis, whether they are willing to actually go out and get the surgery. If the capacity is there.
Okay.
Second question was about EXPAREL use in hospitals and it was a big movement towards asked season nature Ptcs, but.
Has there been any change with this movement for.
EXPAREL access or EXPAREL usage.
In the hospitals no yes, no no the change actually is in the availability of the hospital beds.
For elective procedures, but what's happened in many states is you know the governors have some.
Sequester the hospital beds for COVID-19 patients and so by virtue then out of those edicts that pay those beds of maps and available for elective procedures and so in the states, where we have a vibrant.
Ambulatory surgery environment, it's been relatively easy to move those those procedures to the ambulatory center.
And keep in mind I mean last year, we grew by 23%. So when we say that hfcs are growing fast the fastest of all that does not need in any way that hospitals are not also growing plus they're not growing about 23%.
Got it thank you.
Thanks.
Your next question comes from Amy Satya with SCB link.
Great. Thank you for squeezing me in two.
Two questions. Firstly I wanted to continue on kind of the full off how do we anticipate growth.
2021.
How much of that is dependent on.
Vaccine being available such that potential start to increase the surgical volumes. It seems that currently will yield growth is lost spot by Dennis just the underlying EBITDA, we are reduction on surgical volumes and what needs to happen next year for that to change from here. Thanks.
That we have enough visibility that.
The overall surgical volumes will actually flipped to growth.
Well in the elect environment in the elective surgery environment, it's growing now.
Relative to last year and its hindered in the as you suggest its hindered in the inpatient environment by the cobot experience and so I think on the positive side.
I can tell you that we.
We have a lot more capacity.
We continue to add ambulatory surgery centers, and we continue to move more of.
Hi resource more.
Difficult surgeries to the ambulatory surgery environment.
And for example, we saw a tremendous spike and total knee arthroplasty move into the ambulatory environment. When CMS started paying for Teekay is in the C and the CMS is going to start paying for total hip arthroplasty on January Onest of 2021.
And we also see a major push from the the payers.
To move their patients to the bar to the lower cost.
Environment of an efficacy versus an inpatient procedures. So the environment is heavily favoring moving patients out of the hospital environment when possible.
Do we have enough visibility on.
And how fast thats going to change.
Perjury, even when it's available and even when they haven't been contact traced so I think and but one thing we know for sure. The vast majority of all of these procedures are going to be done whether they're gonna come back to the market in Q1 of 21 or two two of 21. It is very clear to us that all of this backlog of.
[noise] procedures is gonna have to be satisfied and so really all we can do is continue to train on on regional anesthesia continue to you know work with the the folks on reimbursement so that we make it easier for people to move to the a S C environment and to have our reps have constant contact with these folks. So we can understand the world they're living.
And solve as many of their problems as we can other than that it's just a matter of when not if from our perspective.
Mhm. Thank you that say I have fun and my second question list just with regards to the up much an expansion that'd be <unk> see with the J&J appointment going away, what's your commitment to maintaining that margin expansion as you think about R&D investments into the <unk>.
Pipeline as well as business development.
So.
Well <unk> two different questions that right. One is you know the what we what we have prepared in our five year plan of the assets that we currently have the margin expansion is extraordinary and I think you're starting to see that and we expect that that would be further elucidated as we go through next year.
<unk>.
It's clear that and most of the be the opportunities. We have there will be some investment that's required in order to you know.
Increase the value of those assets, but I would tell you want me at anything that we have currently on the books. The investment is is very modest capital V very modest relative to the margin expansion that we expect to see over the next three or four years.
Got it.
Thank you.
At this time I would like to turn the call back over to Dave stack, Chairman and C E O for closing remarks.
Thank you Deborah I'd like to thank you all for participating in and and listening to today's conference call. We look forward to keeping you updated on our progress next up for US as the Jeffries London Conference in November followed by the Piper Conference in December. Thank you, all and stay well goodbye.
They need to determine this concludes today's conference call you may now disconnect.