Q1 2021 Pacira Biosciences Inc Earnings Call

[music].

Ladies and gentlemen, thank you for standing by and welcome to the Q1, 2021 poster and Biosciences earnings call.

At this time all participant lines are in a listen only mode. After the speaker's presentation, there will be a question and answer session.

To ask a question. During this session you will need to press star one on your telephone. Please be advised that today's conference is being recorded.

If you require any further assistance please press star zero.

I would now like to hand, the conference over to your Speaker today, Susan <unk> head of Investor Relations. Please go ahead.

You Tina and good morning, everyone. Welcome to today's conference call to discuss our first quarter 2021 financial results joining me as speakers on today's call are Dave stack, Chairman and Chief Executive Officer, and Charlie Reinhart, Chief Financial Officer additional members of the fear of Executive leadership team are also here for a question and answer session before.

And we begin and let me remind you that today's call will include forward looking statements based on current expectations such statements represent our judgment as of today and may involve risks and uncertainties for information concerning risk factors that could affect the company. Please refer to our filings with the SEC, which are available from the SEC or our website with that and.

I'll now turn the call over to Dave stack. Thank you Susan Good morning, everyone and thank you for joining US one year ago. When we reported our first quarter results, we were facing significant challenges and the pace of and expanding and debit.

And a blink of and I are moratorium was placed on hospitals performing elective procedures and the notion of COVID-19 treatments and vaccines seemed a long way off and I cannot tell you how proud I am of our entire per CR team as they have truly risen to the occasion over the past year to ensure that we continued our important work to provide non opioid pain management patients to patients and need.

And a difficult and dynamic environment.

Consequently, I am delighted to report the significant progress we have made thus far in 2020, one pilot highlighted by the U S approval and launch of EXPAREL and the pediatric setting and its growing utilization across a wide range of long acting regional blocks for lower and opioid pain control. Our first quarter financial performance was strong with a total sales of one one.

Third and $19 million and EXPAREL average daily sales coming in at 115% of prior year levels. Despite ongoing COVID-19 related challenges with the elective surgery market. Today. We also reported adjusted EBITDA of $36 $2 million, and we remain well positioned to deliver sustained and accelerating.

And profitability.

Before turning now to a more detailed strategic review of our business I would like to quickly cover the recently filed a lawsuit against the American Society of Anesthesiology seeking damages and the retraction of three articles published in the February issue other journal Anesthesiology.

These articles create a false and misleading impression that EXPAREL is not and effective analgesic not only were these articles scientifically and statistically unsound, but also failed to disclose that certain authors were accepting payments from competing pharmaceutical or drug device manufacturers, which is not only and ethical violation, but very likely instilled an apparent bias into.

And this body of work.

<unk> was not one taken lightly we reached out to the society and the editor and multiple times to discuss the shortcomings of the articles and our concerns around lack of proper author disclosure. These.

Request will repeatedly dismissed as you know EXPAREL as a critical piece of our business and we initiated this legal action to protect the clinical integrity of EXPAREL and ensure that false and misleading information is not inappropriate. We cited as an accurate reference and other scientific manuscript and is not used to limit access to patients and provide.

<unk>, who need a safe effective opioid alternative like EXPAREL, we would encourage you to review the declarations related to these studies, including Brown University's Professor and made analysis experts Dr. Thomas strictly knows who's statement discussed the serious methodological and statistical failings of the meta analysis.

Documents are all available on the <unk> website.

And I went to our first quarter business update we continue to execute across our state of global growth strategies first expanding the use of EXPAREL and Niobrara for opioid sparing pain management, while and they.

While enabling the migration of large painful and profitable procedures to the ASC and.

And second pursuing innovation by investing and our internally and externally sourced portfolio of non opioid pain management and regenerative health solutions, while simultaneously investing and educational programs to revolutionize medical practice through opioid sparing eras protocols and I'll start with EXPAREL.

And with more than $8 3 million patients treated since launch and excellent safety profile, a growing body of satisfied customers achieving favorable outcomes and a long exclusivity runway EXPAREL is well positioned to remain the market leader as the only long acting local analgesic approved for infiltration field block and brachial plexus nerve block.

And March FDA approved the expansion of EXPAREL label to include use and patients six years of age and older for single dose infiltration to produce post surgical local analgesia with this approval EXPAREL is now the first and only FDA approved long acting local analgesic for patients as young as age six.

Importantly, our label is not limited to cardiovascular and spinal surgeries, but rather a broad label that encompasses all surgical procedures for pediatric patients ages six and older.

The broad label is really a testament to EXPAREL and establish safety and efficacy and excellent safety profile with approximately 1 million pediatric procedures per year, we envision this to be at least and 100 billion dollar market opportunity.

The initial launch and pediatrics is underway and we are very encouraged by the high level of receptivity and enthusiasm for replacing current standards of care opioids, Epidurals and IV PCA pumps, Alaska America pumps and off label use with local analgesics with EXPAREL. We also see a halo effect and adult procedures for instance.

And spine is a tight knit group of like mine and surgeons money and practices that include adults and the technique for spine infiltration or an erector spinal block is the same for children and adults.

This opportunity provides a rapid transfer of best practice for our rector spine, a regional blocks as part of enhanced recovery pathways for both adults and children.

And the unmet need and this population is clear as physicians understand the difficulties are placing and dwelling catheters and pediatric patients just imagine trying to keep a catheter and a seven year old on top of the well known catheter and pump issues, such as dislodged meant leaking wound healing and dose dumping.

Recent article and the journal of Health Economics, and outcomes research highlighted clinical and economic outcomes associated with the use of EXPAREL versus the standard of care for the management of post surgical pain and pediatric patients undergoing spine surgery Dr.

Dr. Robert <unk> and his colleagues at Cleveland Clinic concluded pediatric patients undergoing spine surgery, who received EXPAREL had significantly reduced in pace and postal post surgical opioid consumption length of stay and hospital costs compared with those who did not the study was a retrospective cohort analysis of 10189 pediatrics.

BRIC patients undergoing inpatient spine surgery.

We will also be highlighting EXPAREL and the pediatric setting and I'm asked the annual meeting of the Scoliosis Research Society, where we will be discussing new and advanced techniques for the treatment of spinal conditions with leading surgeons additional near term commercial and <unk>.

Commercial initiatives include posed on the annual meeting of the pediatric Orthopedic Society of North America, New key opinion leader and Fellows training programs and ask the expert panels all of which we are launching this quarter.

As I have said before we are we.

We are deploying a thoughtful gated approach to ensure providers understand the nuances of EXPAREL versus short acting generic bupivacaine and are well prepared to achieve the best outcomes for their pediatric patients aged six and up.

Our goal is to quickly on board key opinion leaders at the most sophisticated children's hospitals to ensure that they are well equipped to deploy education across their networks and spheres of influence.

Next I'll turn to an update of the role of EXPAREL, and <unk> and playing and.

EXPAREL is playing and regional anesthesia and the market shift to outpatient settings.

The regional anesthesia field is poised for rapid expansion, given the advances and ultrasound guidance newer techniques and improved outcomes and 2020, only 20% of procedures requiring anesthesia used a regional approach given the tremendous upside potential to broaden the use of regional approaches we have invested significantly and <unk>.

Vacation and training to further expand clinician adoption of regional blocks as they represent the most important growth driver for our business and 2021 and be on extra.

EXPAREL based enhanced recovery after surgery or eras protocols and continue to revolutionize regional anesthesia by enabling earlier discharge and accelerating the migration of electric procedures to outpatient sites of care long acting EXPAREL based blocks have reliable reliably and reproducible and extended the duration of paint.

Troll from hours to several days, establishing institutional protocols that directly enable the migration of procedures, such as total joint arthroplasty spine and rotator cuff repair to outpatient markets.

The COVID-19 pandemic has further shifted the mindset of patients physicians and institutions to establish safe outpatient environment, providing a reliable and continuity of care by doing so patients will be able to obtain the care they need and importantly, we expect this transition to become permanently embedded and the health care.

<unk>, given the improved patient outcomes and satisfaction rates and economic advantages and being driven by payers determining the site of care.

These market dynamics, along with EXPAREL utilization significantly and consistently outpacing the recovery of elective surgery markets leave us well positioned for long term growth as cold as the COVID-19 crisis resolved and elective surgery demand normalizes with the continued rollout of vaccines.

Now turning to our <unk> innovation, and training center, and Tampa or the pit, which is driving delivering best practice knowledge transfer and in near real time for our key export markets.

Momentum and uptake of newer regional blocks continues to drive significant demand from both new and existing customers for education and training through live and virtual programs appetite.

We recently hosted two regional anesthesia workshops designed for health care professionals, who are seeking to advance our platform that enhances patients post surgical experience techniques are taught by expert instructors using didactic presentations and a model screening state of the art <unk> virtual cadaver imaging and ultrasound guided hands on life model.

Scanning.

In February we featured a rep and air or webinar.

And multi specialty panel discussing the migration of breast surgery to the ambulatory surgery Center. This.

And this was also featured recently at the annual meeting of the American Society of breast surgeons with over 150 health care providers and attendance and March we hope we hosted two cardio programs, a cardio thoracic bio skills lab, where key thought leaders from leading cardiac programs around the country collaborated to determine the opt.

<unk> EXPAREL technique and volume to adequately treat pain following cardio thoracic surgery.

The lab and Volte ultrasound guided Paris journal blocks, such as the pectoral intercostal and transfer and thoracic plane blocks, while capturing the spreads and distribution of EXPAREL be alive, fluoroscopy and dissection of cadaver models.

These findings will help enhance the educational offerings to both cardiac surgeons and anesthesiologists when implementing enhanced recovery pathway. It's using these newer regional blocks for cardiac procedures.

And second cardio event featured a panel of emerging regional.

On the emergency.

The second cardio event featured a panel on the emerging role of regional anesthesia cardiac <unk> protocols and included both discussion and live demonstration this.

And this program was highlighted at the society of cardiovascular Anesthesiology annual meeting last month.

And March we hosted and interactive workshop entitled Top blocks, you need to know and 2021. This workshop was broadcast live from the pit and focused on per capsule or nerve group or <unk> blocks, and erector, spinout and spine, a or ESP blocks and was featured during the American Osteopathic College of anesthesia annual meeting.

With over 100 health care providers.

It is important to note that each of these events focused on significant on label opportunities. So they are driving real time demand approximately three quarters of the attendees at the pit.

And already have experience with EXPAREL clinicians are eager to expand the use and generate data and new procedures. After seeing the positive outcomes and consistent results of regional blocks, such as a retro finding for scoliosis and cardiac surgeries and.

Beyond these on label educational programs, we have a key label expansion milestone on the near term horizon with our strides at lower extremity nerve block study that is evaluating EXPAREL as a regional block for knee as well as foot and ankle surgeries enrollment and stride is now complete and database lock is underway with top line results on track for this month if pause.

<unk>, we will move forward with an S. NDA submission seeking expansion of the EXPAREL label to include lower extremity nerve block, which we believe to be as significant as and upper extremity market.

Next let's turn to our continued progress and the markets outside of the United States. We remain on track to launch EXPAREL, along with Io, Vera and Europe, and the third quarter of this year.

Slight delay based on continued COVID-19 issues and key EU markets.

And <unk> launch will focus on only those markets, where we can secure pricing that closely aligns with the U S price.

COVID-19 has caused a tremendous backlog of orthopedic procedures and Europe was waiting lists as long as two years. In addition, the typical length of stay and Europe. Several days. These circumstances provide an important opportunity for both EXPAREL and <unk>, there's great interest and using EXPAREL to improve throughput by accelerating recovery times and <unk>.

Charge, while Io Vera can play a key role and long term pain management, especially as doctors worked through the significant waiting list, we would expect the United Kingdom to be our largest contributor and Europe driving more than 50% of the total business and that market.

And importantly, our broad efficacy label, which covers EXPAREL administration via infiltration field blocks, and importantly, both upper and lower extremity nerve blocks, along with the superior safety profile give us a clear competitive advantage and Europe, where iron ore is already approved for Canada, we remain and labeling discussions with health care authorities given the current.

Status. It is not likely that we will launch EXPAREL and Canada as we will not jeopardize the brand with labeling that is not in harmony with major country regulators authorities.

As for the China market, we recently terminated our agreement with our partner nuance due to the lack of regulatory pathway that makes strategic sense and protect our intellectual property without presenting the risk and put our proprietary data would be used to develop a generic competitor, we made a payment of $2 $8 million to new wins and connection with this termination.

Switching gears and Ottawa Avera, we remain highly confident and the innovative <unk> system since our acquisition and 2019, we have significantly improved the reliability of the device and launched new clinical initiatives to demonstrate its potential to improve patient care using novel coal technology towards middle administer a non pharmacologic nerve block.

To safely and immediately deliver months of non opioid pain control, we have great confidence and our long term opportunity for this important addition to our commercial portfolio.

With our dedicated out of our sales team along with recently implemented commercial enhancements and all driving new customers and expanded use I about various sales increased by 44% and the first quarter and an average number of ordering accounts is up 48% year over year.

And so with EXPAREL and the pit is providing a valuable training and educational tool for Io Vera so far in 2020. One we are posted for our various simulation labs that all focused on introducing the product to new customers participants at these programs to learn how to target superficial genicular nerves and using the <unk> smart chip with ultrasound Guy.

<unk> led by health care professionals. The lab includes didactic lectures and hands on training, including life model scanning with nerve identification, using ultrasound and and peripheral nerve stimulation.

Actual <unk> cadavers smart tip treatment steps and reviews, obviously over a system set up and hand piece operations. We recently hosted a bioware I'm sorry, we recently hosted and Io <unk> bio skills cadaver lab that investigated the utilization of <unk> as a medial branch block for back pain. During this session on multi.

<unk> team comprised of an intervention on pain management physician neurosurgeon and research engineer evaluated the current modalities of medial branch blocks and the potential for iron ore blocks as and opioid free option for the 14 million Americans suffering from low back pain.

These educational and commercial efforts are driving significant increase and our either our customer base approximately 90% and the first quarter of 2021 with a growing presence and the ASC setting and in fact, afc's represented roughly 60% of our new <unk> customers and the first quarter on.

On the clinical front preparers enrolling patients to evaluate <unk> and EXPAREL for opioid sparing pain management for patients undergoing total knee arthroplasty and we continue to expect enrollment to conclude before the end of this year and parallel we are launching and over a registry to capture real world evidence for use and teekay procedures with leading academic and orthopedic centers of X.

<unk>.

We are also encouraged by the excitement around using <unk> and other areas key opinion leaders and orthopedics spine and anesthesia are interested and replacing keep based radio frequency ablation with Io Vera cold therapy with interest across a wide range of treatment opportunities such as low back pain spy and specificity and rib fracture, we will use invest.

The Gator initiated studies and grants to develop data across these areas.

Turning now to business development our team is.

Leading a robust effort to thoughtfully pursue opportunities of interest to our surgical and anesthesia audiences. We serve today, we believe our growing leadership position and opioid sparing pain control provides us with a significant opportunity to build a differential and differentiated portfolio to improve the patient journey, along the neuro pain pathway.

Earlier this year, we announced a strategic investment and Jim Cline, a gene therapy for osteoarthritis of the knee and recently invested $3 million and spine biopharma to support their and advancement of our regenerative approach to treating low back pain caused by degenerative disc disease.

Line Biopharma lead product candidate is reminisce, a seven amino acid chain peptide that binds to and induces downregulation of transforming growth factor based on one or TGF beta one which is often highly expressed and the degenerative disc of patients with low back pain and.

We also recently made a $10 million equity investment and a privately held company with an exciting gene therapy platform, we will share more details and the coming weeks and finally to augment our business development efforts. Our in house team is focused on leveraging the proven safety efficacy and customer and customize ability of our duffel foam platform with that I'll turn the call over.

Charlie to review the financials, Charlie Thank you, Dave and good morning, everyone before discussing our first quarter financial results I'd like to remind you that I'll 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.

Let me begin by reiterating our confidence and what the future holds for our business market indicators remain strong with EXPAREL consistently outperforming the elective surgery market. This leaves us on track for accelerating top and bottom line growth as the COVID-19 pandemic continues to subside and the elective surgery volumes.

Begin to recover and normalize and we also continue to see EXPAREL, enabling the shift of many procedures to outpatient settings. The COVID-19 pandemic has only accelerated the shift and we are confident that this surgical migration will remain embedded and healthcare practice going forward.

We ended the first quarter with more than $625 million of cash and investments. This strong financial foundation and the cash generating nature of our business leaves us well equipped to continue to invest and internal and external growth opportunities that align with our vision to become the global leader and innovative non opioid.

And pain management and regenerative health solutions.

First quarter total revenues of $119 million were driven by $114 $7 million and EXPAREL sales on an average daily basis. This was 115% of the first quarter of 2020 due to the expanding utilization of long acting EXPAREL based regional approaches.

For <unk>, we reported net product sales of $3 3 million for the first quarter of 2021 and increase of 44% from the $22 3 million for the first quarter of 2020, primarily due to significant COVID-19 related shutdowns last year.

And importantly, we're also starting to see many of our new commercial initiatives start to kick in with the greatest demand for iron ore coming from pain relief for patients and advance of a teekay a procedure as well as chronic pain management for those with mild to severe osteoarthritis of the knee.

Our non-GAAP gross margin for the first quarter of 2021 improved to 75% versus 73% for the first quarter of 2020.

And this was due to sales of lower cost product manufactured at our custom suite in Swindon UK as well as the impacts of pricing and vial mix. We continue to expect adjusted gross margins to progress towards 85% is the 200 liter batch facility comes online and our investment and the second generation <unk> products.

Complete.

Non-GAAP research and development expenses were $14 8 million and the first quarter of 2021 versus $14 $6 million and 2020 increases and clinical and regulatory costs were offset by reductions in manufacturing capacity expansion costs with our Swindon based 200 liter manufacturing suite <unk>.

Vance, Inc. From the development phase to the registration phase.

Non-GAAP SG&A expenses were $41 million and the first quarter of 2021 versus $38 $3 million and 2020, while sales and marketing expenses declined due to decreased sales commissions to Pew Synthes with the conclusion of the agreement in January 2021, our G&A expenses increased.

<unk> on a year over year basis due to an insurance recovery of $2 1 million received in early 2020 related to legal expenses for the Doj claims and all of which were fully resolved in 2020.

With respect to taxes on a non-GAAP basis, the first quarter tax rate came in at approximately 25%, which is where we expect to land for the full year to remind you we expect to become a cash taxpayer during the second half of 2022.

All of this resulted in non-GAAP adjusted EBITDA of $36 $2 million and the first quarter of 2021 versus $26 9 million and the first quarter of 2020.

While we are not currently providing 2021 guidance given the continued uncertainty around COVID-19, and the pace of recovery for elective the elective surgery market. We will continue to report preliminary monthly product sales to share inter quarter trends with you.

We will consider changing this practice as we have more visibility post COVID-19.

For April 2021, we continue to see strong sales as we saw in March and expect to report a significant year over year increase one report monthly sales next week.

To remind you in 2020, we saw a precipitous drop in sales beginning in the second half of March and continued through the end of April with a decline and year over year EXPAREL sales of approximately 70% during this period.

Lastly, we remain very bullish on our long term expectations for robust top and bottom line growth. We believe that by the end of our five year planning period revenues will be approaching $1 billion for EXPAREL and $200 million for <unk> gross margins will have improved 1000 basis points and operating margins will exceed 50.

Percent for our current base business.

With that financial overview, let me turn the call back to Dave for his closing remarks. Thank you for that review Charlie looking back over the past year, we emerge from this unplugged unprecedented global pandemic and lockdown as a stronger company, we have become more resilient as a team and United around the shared sense of purpose for the important work that we're doing at <unk>.

<unk> accelerated the transition to the ASC setting and has opened the door for a variety of digital interfaces from our meetings with some of you to medical meetings to training physicians and more these changes are likely here to stay and we have embraced them. One thing that has not changed with the pandemic is the need for improved.

Non opioid pain management.

The pandemic has had a devastating impact on our society with increased opioid adverse events here per seara continues to lead the way by expanding the use of EXPAREL and <unk> and by investing and novel innovative technologies that are synergistic with our goal of bringing non opioid pain management and regenerative how.

And solutions to patients and need with that I'll turn the call over to Tina to begin our Q&A session Pina.

As a reminder to ask a question first on one on your telephone keypad and our first question is from David and film with Piper Sandler.

Hey, Thanks, So just a couple so first.

<unk> the matter with the American Society of Anesthesiologists, and then just looking ahead and obviously this is a core audience for UC.

Is there should we be and all worried that this is something that.

Could in any way have no unintended consequence of alienating your core constituency, particularly in the context of a competitor.

And that.

Could be coming to market I realize that the product is not.

Cannot be used as a nerve block.

In terms of creating noise I mean, how do you how should we think about that and what's your thought process.

So that's number one and then.

Joined late so I apologize.

And I missed this but can you just talk about cadence of recovery in elective procedure volumes as the year progresses, and I guess, what I'm asking here is and the second half are you expecting sort of fully normal per.

Pace of electric procedure volumes, particularly as we enter the back half of the year. Thanks.

Thanks, David.

I do.

Don't see.

If anything actually we think that the legal action against the society is having a positive benefit.

Yes.

The Society is has done what it has done and we believe that we didn't have any option frankly, but to defend ourselves against what was clearly a well thought out.

Tempt to defame EXPAREL, what we've gotten from the medical community is great support for.

And there are some questions before people read the trickled ninos.

And the declaration and before they read the declaration on CME and on conflict of interest et cetera, but as soon as folks understand what the legal issues are here, we've had great support from the anesthesia community.

Up to and including several people wrote rebuttals to those articles and asked for them to be published and the same journal and they were told by the editor that he would not publish any of those because they didn't follow the scientific process. So given some of the ways that this has been positioned.

I think you know.

The folks who are members of the society, who are using EXPAREL not only to enhance their practice by increasing the.

And the reliability and the viability of regional blocks, but also.

<unk> is making this migration to ambulatory surgery center possible, which is really how high value to the anesthesiology community I think we see a clear separation between the journal and the society and the folks who are actually practicing regional blocks and the marketplace.

If you judge by April and the first few days in May.

And we don't have anything to worry about in terms of any kind of a retro beautiful action actually things are going very very well. In addition to what we've what we talked about this morning on the second point.

And I'll be consistent here, David with what we said in the past and God knows if we're right, but we are starting to see some of this start to rectify itself. So what we said is Q1 will be pretty much a continuation of Q4, and I think thats pretty much what happened, we think and Q2, we're going to start to see these things start to modify.

And at least on our models, we've got 5% of the 4 million procedures and our Tam that we're not done in 2020 coming back to the marketplace and those are almost entirely orthopedic procedures.

And then as we go to the back half of the year, we think that something like half of those 4 million procedures will come back now this is just and our Tam by the way, but we think half of those procedures will come back to the marketplace and so.

And our manufacturing forecast we have included the opportunity.

We will treat the percentage of those patients and addition to what's going on now.

Not quite as clear as a normalized market where people that have pain go and get their surgery.

<unk> got these patients coming back to the marketplace and be prioritized in many cases, so theres still is and expanded time lag even for new patients today.

But I think that that will resolve itself over and over the next year or so just one extra piece of insight because I think it is really valuable as we will benefit greatly from our strength and orthopedics and the reason I say that is that the orthopedic community has and extended relationship with their customers.

Patients and many cases, its decades long and so those patients remain in contact with those surgeons and the waiting list for how you move those patients and <unk> an opportunity to do elective procedure is vibrant and very different.

The soft tissue, we're talking about colorectal belly, where we've had a number of calls with primary care docs.

And ask them. The simple question would you would you refer a patient for surgery.

From a telehealth call and there are some exceptions, but generally speaking the answer is no.

And so that that pathway has to rebuild itself right, where the patients' lives go to see the physician the physician wants to look at the blood work and see the patient and all of those things and then you will see the primary care <unk> surgery start to go come back online, we think that will be more of a fourth quarter event.

So that's a long answer to a fairly simple question, David but we think yes, not all of these patients will be able to come back because we just don't have the capacity, but we think the.

The ambulatory surgery centers will prioritize the high profit.

Total joints spine.

Rotator cuff et cetera.

Okay. No that's helpful. Thanks, Thanks, David.

Thank you. Your next question is from Daniel Bernstein with RBC capital markets.

Hey, good morning, Thank you.

Two questions.

We started to see more companies reintroduce full year financial guidance clearly you've held off for now can you talk a little bit more about what you are waiting to see and the market before doing so and doesn't certainty around a potential competitor approval. Later this month factor and does that decision at all.

If we look at the weekly elective surgery data you provided on your slide deck and Theres been a fairly tight correlation between weekly elective surgeries and expertly usage over the last year or so, but that's actually diverged a bit and the last few weeks elective surgeries have declined while EXPAREL has held reasonably steady can you discuss what's driving those trends.

Thank you.

Sure.

The first one is easy.

And a potential competitor has had no impact on on anything that we're doing here spin.

Specifically with guidance and I think more of what we were seeing as we went through the first quarter Daniel was.

And the spikes and.

COVID-19 related closures and the marketplace moving around.

Some weeks, where some of our bigger states.

We're not performing at the same level it.

And there was no consistency and the marketplace, I guess, especially and the states that provide the majority of our business and so all of that and really more waiting to see how the pediatric launch was going to go.

What kind of reception, we were going to get in the marketplace. When we were talking to.

The general pediatric population et cetera.

I think with what we're seeing now I think we will be and a much better position for the next call.

But I think coming into this call. There were just too many unknowns for us to make a statement and if we did it would have been so.

Modified with with risk adjustment that it wouldn't have nobody would've been happy with us.

So it just made sense to keep.

Presenting data on a on a.

A monthly basis.

<unk> had a really interesting impact because it gives us a lot more opportunity and interact with the marketplace.

And then only waiting for the queue call on a regular basis. So we probably I would be surprised if we continue to do both.

But right now you know yet to be determined but as I said and to David's question, We've had a strong.

<unk> PR and so I think we're in a much different position when it comes to determining how we how we provide guidance going forward.

On the <unk> chart.

We just have to be really careful with that data Daniel because thats claims based data.

And so you will see that that modifies over weeks right and as more claims for that week. That's reported come online you'll see that the GAAP narrows between EXPAREL and the elective procedures, what we pay more attention to is how EXPAREL is always on the top of the line.

And the elective procedures still remain generally modestly on the bottom of the line, which tells US that we are not only growing.

On a market share, but as the electric procedures come back referenced the answer I just gave to David that we will have a share of the market and these elective ASC procedures that is higher than what it is and the hospital marketplace and what it is and the and the hospital outpatient environment.

And again goes back to providing guidance with some <unk>.

Certainty that we're going to be and the right band.

Got it thank you thanks, Dan.

Your next question is from Greg Fraser with COVID-19 Securities.

Good morning folks thanks for taking the question.

And I just wanted to follow up on debt on the anesthesiology and that or are you aware of any proposed changes to protocols are reimbursed and stemming from those articles and can you also comment on whether there's been any discussions with needs and the company and the Asa's and filed the complaint.

We have some examples Greg where.

And especially remember we're launching peds and so folks are looking for formulary approvals and things like that there are some.

Modest number not material to our total business, but you could see that there were some folks who are asking questions about why would you want access to a drug that is not superior to playing bupivacaine et cetera.

<unk>.

A number of things and reasons that you would want to do that so we did have a couple of surgeons, who stopped using it. They have now returned to using a given the trickle leno's Declan.

Declaration and the appearance that there's there's more to that story than it was published and the anesthesia Journal.

And more to the point is our field force was being asked a lot of questions about that and obviously didn't have a lot of things that they could say about it given the the stature of the anesthesia journals. So having the triple Leno's declaration that they can provide to their patients and having all of this stuff on our website, where where folks who want to.

No what's going on.

And can find out the other side of the story. If you will I think most pertinent to US is that we couldnt have other articles.

Referencing this as truth when <unk>.

Immediately after these articles came out we had folks do their own meta analysis on the same datasets and come to a very different conclusion. So you can't if you're <unk> you can't let this be referenced as fact, when we know that it is deeply flawed and came to a negative conclusion.

Well, there's a whole raft of reasons why that might have happened not to be gotten into here.

Part of your second question, Greg and I know this will be no surprise to you I mean, we're not in any position, where we're going to negotiate this and the.

The public domain, so theres going to be there's going to be notifications that come out between the law firms that are on the public domain and I think that'll be the the breadth of what we want to share with anybody other than that the discussions that we're having are have to be held private.

Got it totally understand and then on Europe I was just wondering if you could put some numbers around the EXPAREL opportunity and how you see the launch evolving over there and SKU years. Thank you.

Yes.

So it's very much a specific launch we're going to launch EXPAREL and something on the order of eight countries and iron ore on eight or nine countries.

As stated in the script, we really are only going to launch and places where the value that's being created by EXPAREL is recognized and the price that we're able to get.

And so.

We have.

Well I guess on a word I would say that the opportunity appears to be to be at least as big as we thought it was a couple of months ago, and I say that because we talk to a surgeon and the U K two weeks ago Friday that actually said he at 5000 patients on his waiting list.

And so there is a.

It'll take us several years to work through that.

That opportunity and so I O <unk>, while patients are waiting for years and order to get their surgery, and then EXPAREL and we're working with a number of different hospitals, now and a number of different anesthesia and surgery groups.

Who are interested in the model it's been established here in the United States and driven by Urs protocols, where we can move these patients to a shorter timeframe.

And the idea of addressing this backlog by being way more aggressive with.

Something that approaches and ambulatory surgery center.

These groups with the NHS and National Health system are forming their own ways and they are all throughput programs and their own opportunities to address this backlog. So I think where we where we go we will be very successful what the model says what our model says is that we get into 2025 between the two products.

And pushing the $100 million around and Europe and on the current model at least Greg you know somewhere in the back half of year three we become profitable in Europe. So you know it's not massive in terms of what we're what our expectations are for and the United States, but it's profitable and it supports our mission of providing and opioid alternative to as many patients.

As possible so we're happy to be going there.

Yes.

And your next question is from David Steinberg with Jefferies.

Oh, great Thanks and <unk>.

Sorry.

Questions have been asked so I'll just say on the call, but I have two questions first is.

I know that you indicated it's getting into your day that you're looking to be active and business development and M&A and <unk>.

You've done on a.

A few smaller type in licensing and acquisitions.

And I'm, just curious what your appetite and my deep or something larger I know last year around this time the company with the pandemic hitting indicated that theyre going to husband and their cash and that really do you mentioned business development and for obvious reasons.

But thats obviously changed.

Are you looking.

And.

I guess I guess, how how active are you currently and you would you be disappointed if you didn't do a few transactions this year and I guess, how big of a transaction could you do given your cash and debt capacity and that's the first question.

And then secondly, this is brands free.

Waiting for.

To date.

It's hard to find a lot of doctors, who can talk about so on one.

And we see how the Doctor panel and.

And they were somewhat knowledgeable on and visa products more as complementary versus competitive small surface areas versus large surface areas and the fact that they can't do nerve blocks and things like that would you agree with that.

And then as it related question is there some discussion going on.

They're going to.

Coming in and much lower price points and yours and I was wondering if you could comment on what your competitive response might be at that and Thats the case.

Thanks, David.

First on on the M&A question.

I mean, if you include the gene therapy.

Company that we've most recently made on investment and we've now made three.

Three investments and the last couple of months.

I think given the opportunities that we have and Ron and his team are you now.

Exhaustively looking at opportunities and the marketplace.

We don't have any emotional or financial reason, we wouldnt do a transformative larger deal. We just don't have one that we that we have confidence and David that would.

Meet the objectives of the organization in terms of.

Finances, and all the rest of that stuff. So there's no reason why we wouldn't do it there is no stated strategy that we won't do it its debt.

Most of the things that are coming to us are relatively early gene therapy and cell therapy and things like that and.

And the best way for us to have a number of shots on goal is to make these financial investments taken observer role or in some cases, taking a board seat.

With the prescribed opportunity to invest or acquire.

And in the.

Future date based on clinical milestones being met during the development process. So.

I think that that model makes a lot of sense to us we expect that we will announce several more of these over the next couple of quarters and so.

We're in a good spot if you or anybody else has a transformative transaction that they think makes sense for us. Please don't keep it a secret we've got a lot of cash you know.

This would be on our slowest quarter for.

For EBITDA, and we still had $36 million and so we think we're going to accelerate significantly as we go through the next three quarters and so.

I think were and are very strong position. It's just that we don't have anything that makes strategic sense that we're aware of today. So.

I think if that doesn't cover the first point come back to me.

On the second point.

As usual David.

Of Mirages created here right.

If we follow the EU label and for everything that I've ever done in my career. The EU label is strongly suggestive of what youre going to get into United States.

There really is no market for this product.

It's the first time in my career that I've ever seen a package insert that says this medicine should not be used for serious surgeries.

They don't define serious surgeries of course, but if you ask the patient I think youre going to find that all series all surgeries are serious.

And so on your specific topics.

Question around price.

European label is very clear that this drug is to be used on small wounds.

If you use a small wound and then you would use the 10 ml dose of EXPAREL and.

And the WAC cost for that is around $180.

The other one one company has actually said that they're going to come and the low $200.

So if you compare our small vial to their price that they've talked about on the marketplace. We're still cheaper. So the only way their argument makes any sense is if you use a 20 ml vial for EXPAREL to do a small wound.

And nobody would do that and the marketplace. In fact, I think you've seen the steady growth of our 10 ml as we continue to expand and you'll see a fair amount of 10 ml as we get into the peds market, especially in the younger children as well so the argument as with everything doesn't make any sense.

So.

I hope that they get approved I mean, we can't lose.

And if they get a CR hopefully theyre finally debt if they get approval and its a bad label and it's for sure. It will be then they can't sell it to anybody and that would be our preferred option frankly as we sit here today.

Yes.

Okay. Thank you thanks Ed.

Our next question is from Serge Belanger with Needham and company.

Hey, good morning, Thanks for taking my question.

First one is on the pediatric label expansion, David you consider consistently.

And we talked about.

Pediatric opportunity consisting of about.

On a million procedures.

Does your pediatric label allow you to capture.

Our target net hole one. Please proceed your segments does it.

And then on the European opportunity, maybe just talk about the dynamics.

On the opportunity is there a similar movement to the ASC setting and.

And how familiar R b.

The Europeans with the cryo analgesia.

Yes, Thanks, Serge first on peds.

So this label is for infiltration.

Via the the Janet Woodcock letter from the legal settlement with the FDA.

Is the same as a <unk>.

<unk> block so the $1 billion, the 1 million surgeries that we reference are available to us as a result of that label right. We also are in discussions with the FDA on patient zero to six it will probably be done in two tranches two to six and then zero to two neonates to two.

<unk>.

And we're also and discussions with the FDA on a nerve block indication.

And interestingly since we've had the launch we've talked to a number of major hospitals, who do what we've got one hospital in particular that does 2000 peripheral nerve blocks and children itself. So we think that we now have a lot more understanding of the market and the opportunity to go back to the FDA with these.

Folks who are doing these nerve blocks every day, who are using EXPAREL now and.

In order to achieve those and so the 1 million direct answer to your question is the $1 billion is the current opportunity with the current label and would be expanded if we get a nerve block label or as we go below six.

And Europe, yes. They are they are understanding of cryo analgesia.

And many markets, especially the Nordic markets for example, they actually have more exposure to cry on analgesia than we do here and the United States.

So this is not a zero based launch right. There are folks there who have been asking for X per hour for iron ore and now for for several months and so we will address those same markets.

And with many of the materials, we have here and the United States.

It's interesting every country is different.

There are some countries, where afcs and outpatient is favored.

It is more the norm to have patients stay and the hospital for and extraordinarily long length of time.

Five days plus for total knee arthroplasty, which of course is a major problem. If if you've been locked down for two years and so whats happened specifically and the UK is you have folks who are getting together and approaching the national health service with their own models for how they can.

Dress. This backlog so we're working with groups of surgeons and anesthesiologists, who have said to the NHS, we're going to go with his ear and protocols.

They might still be done and the hospital because they don't have the ASC facilities that we have right. The freestanding facilities, but you would still set up a model, where you could do knees and hips on a same day basis, and so think about it not quite as.

COVID-19 resilient, because it's actually a separate building, but using the same approaches similar to what we're seeing frankly, and some cases and spine in the United States. When we talk about same day spine and a number of cases those are actually being done in the hospital, but the patients are still being discharged without and overnight stay think about.

That same kind of a model with an ear as protocol.

And we've got a lot of friends and Europe, you know Theres a lot of folks that have been trained and in the United States were very strong and the international beer as society.

And a lot of our educational programs benefit greatly from some other folks that are now active in Europe. So.

I think we're.

Going to be slow Europe is slower to adopt and the U S is.

So this year will be modest at the revenue line, but as we said to the earlier question.

Over the next three years it'll become profitable on over the next five years. If this turns out to be a $90 million to $100 million market, it's well worth doing.

And your next question is from Anita.

And with.

Aaron Berg capital.

Hi, good morning, Thanks for taking my questions just a couple here.

And just in terms of the sales guidance.

Guidance that you have been mentioning and a possible.

200 million.

Can you just talk about what guidance monsoons.

<unk> numbers.

Quite the reimbursement and being better and natural Hebei.

Right.

And the next question is regarding that part and then thank you.

<unk> filed for a new manufacturing process related to EXPAREL.

Are we likely to see anything related to that and from Taiwan or equal.

Yes.

And it's slow and we're likely to see it maybe next year.

Thanks.

Thank you so in terms of Io Vera.

On the guidance the $200 million really comes largely from what we bought thinking about.

Total knees and.

The ability to.

Two frees the patient and a cash marketplace for osteoarthritis right.

More of a lifestyle kind of a sale and an orthopedic surgeons office for somebody that wants to play golf or walk on the beach with their grandkids are we hear a lot about I want to go on vacation my daughter's getting married all of those kinds of things. So that's primarily where the $200 million comes from as we get into the marketplace and we start to talk to people about.

<unk>.

Rib fracture and spasticity and spine and shoulder and all the other things I think our expectations as as this product matures and as we develop smart.

Tips, specifically for opportunities for low back pain, and spine procedures and things like that I think youre going to see that number grow so.

I would say today 200 million and over the over a five year plan actually has turned out to be a minimum expectation and as we get into these different marketplaces, I think youll see that grow.

On the IP issue we.

We filed over a dozen additional patents and there is some reason to believe that a couple of those.

And we'll be we'll be prosecuted this year.

Or early next year as you say, it's impossible to say there is no <unk> data and IP rates. So we don't have a date, but there is enough interest and this market and some of these things have been structured in such a way that we do expect to have some activity and the back half of this year actually it's not the base actually and the fourth quarter of this year.

Great. Thank you and just one more question have you come to David.

And the Depo from technology.

For other drugs and besides elsewhere.

Oh sure Yeah, I mean, we're looking at a.

Another local anesthetic actually leave all bupivacaine as an epidural opportunity now.

Especially after having discussions with the pediatric burn and folks they would like to see a.

<unk>.

A procedure, where you're not identifying a specific nerve and it's not actually and a field block and the classic definition of the term it would be more a opportunity to address a.

A more.

Broad span and brought it and extended the need for pain control right when youre, taking the skin off of a patient scalp and transferring it to the station space. For example, how do you address that marketplace.

If we could do that and a more broad spectrum way with something like a depth drill application and that would be the way to go we've continued to look at a number of things.

We're looking at anti Inflammatories and and Depo foam now we've got a number of things against the strategy of any place that you use a catheter for a.

On a subarachnoid use can we replace that catheter with EXPAREL and any place that you use on opioids as a standard of care can you replace those with EXPAREL. So our group continues and we Havent R&D group out in San Diego. They continue to investigate these things and the hope is that we're going to and be able to supplement.

The products that are coming in from the from outside with products that are going to be developed with our own depot technology here, but it's so far it's.

We've looked at antibiotics very difficult.

You've got and infection rate of point <unk>, 5% and if you've got a 30% Delta benefit is your is your threshold for four and.

And efficacy trial Youre talking about 30000 patients.

Those kinds of hurdles make it very difficult to develop and some other markets that we're currently and.

Thank you and we have time for one last question from Christopher <unk> with Jpmorgan.

Great. Thanks for the questions first one for the regional anesthesia market, you've talked about fairly low penetration rates for overall surgeries at 20%.

When we think about the <unk> business, including the shift to the ASC setting how should we think about where that number could go over time and the pace of that change and then second one as we think about the recovery of elective procedure market through 2020, one what does that mean for the for your margins near term and should we think about certain expenses coming back into the.

The P&L with the recovery.

Yes, Thanks, Chris.

And so we've set a couple of times debt. If you look at all other procedures that are being done by anesthesiologists, only about 20% of them on a regional.

Remember that before.

And before EXPAREL had the claims.

On the docks head and intense interest and how they make these procedures last longer they had and intend to interest and all of these different blocks that we're investigating now but because they only work for a few hours. There was no way to make to have a justification for the time and resources invested in those blocks.

And I'll just give you a quick example, four or five years ago the.

And the anesthesiologist would have done what they called a rescue tap were they weighted for the patient to wake up and pain and then they gave them a tap block, hoping that they were going to extend the duration of paint and truth control through the first post surgical night now and we're doing these blocks into these <unk> vascular environments. These blocks are lasting for several days and so on.

And our own internal thinking is that with the pit and with our strategic relationships with a number of the big anesthesia groups that over the next two.

And to 15 months, we can double that to 40% and the the reimbursement for these regional blocks because they allow patients to be moved to the outpatient environment et cetera are significantly higher. They are then went on anesthesiologists performs a traditional procedure. So the regional anesthesia groups themselves.

<unk> are interested in moving this along and so to the point, where probably the most dramatic example, I can give you is the anesthesia groups have tied a significant part of the physicians bonuses to their understanding and moving towards regional blocs.

And one of the main places that they're learning how to do that is and our facility the pit and from our manuscripts that are coming out of the pit on.

And what's the volume how many dermatology do you hit with different volumes and ultrasound nerve stimulation all of those things that are required so.

And I will never get to 100%, but I think the guys that are coming in and the games that are coming out of out of their residency and fellowships are all ultrasound savvy and so they very much migrate towards.

Regional programs, and so youre going to see and increase into something that's over 70% for sure over the next four or five years, and then I think it's going to be a generational thing where the older guys. Just just started and stopped practicing and net growth from there.

Elective procedures and the back half of the year.

It doesn't mean I mean.

So the budget is the budget pretty much we don't anticipate having any additional expenses to whats currently budgeted for 2021.

So.

One of the beauties of regional programs and our move away from a surgical audience where.

There were 500 different procedures that they were doing to a regional approach where a single block can cover a whole bunch of different.

Procedures is that the ROI per Rep day work from our field force goes up dramatically and so we don't see any additional expenses coming back to the market to our P&L and 2021.

And so you know.

Beyond the budgeted expenses and just the Cogs and the debt.

The cost associated with producing additional medicines everything will fall to the bottom line for both products.

Perfect.

Good.

And I will now hand, the call back over to Dave stack, Chairman and CEO for closing remarks, Thanks, Dana I'd like to thank you all for participating and listening to today's conference call. We look forward to keeping you updated on our progress next up for US is the RBC Conference. Later this month. Thanks to you all stay well bye bye.

Thank you again for joining US today. This does conclude today's presentation you may now disconnect.

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And then.

Okay.

And in Germany.

Moving on.

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