Q2 2021 Pacira Biosciences Inc Earnings Call
Okay.
Good day and thank you for standing by welcome to the Q2, 2021 and pause here and Biosciences, Inc. Earnings call. At this time all participants 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 1.
On your telephone please be advised that today's conference is being recorded if you are if you require any further assistance. Please press star zero and I would now like to hand, the conference over to your speaker today, Susan Mesko head of Investor Relations. Please go ahead.
And you've done and good morning, everyone. Welcome to today's conference call to discuss our second quarter progress joining me on speakers on today's call are Dave stack, Chairman and Chief Executive Officer, and Charlie Reinhart, Chief Financial Officer additional members of the executive leadership team are also here for a question and answer session before we begin let me read.
Mind, 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 I will now turn the call over to Dave stack.
Thank you Susan good morning, everyone and thank you for joining US we are taking a new approach on today's call and we will limit our prepared remarks to a few key highlights, allowing us to take more time for your questions.
We made terrific progress and the first half of 2021 with momentum growing and the second quarter second quarter revenue of $135.6 million, notably ramped up our bottom line with adjusted EBITDA coming in at $53 million, both record levels for a single quarter. Despite ongoing COVID-19 related challenges with any of them.
And surgery markets.
All market dynamics point to the strong momentum continuing for the remainder of 2021 and beyond.
Reinforcing our outlook for growth over the next 5 years with expectations for EXPAREL annual sales growth percentages and at least the high teens gross margins improving to the mid eighties and modest increases and operating expenses. These key trends should allow for <unk> to deliver operating margins that exceed 50%.
Within 5 years.
I'll start with a quick update on the lawsuit filed against the American Society of Anesthesiology seeking damages and the retraction of 3 articles published and Theyre Journal Anesthesiology.
This process is and the early stages and our next step will be moving towards discovery to advance. This case towards a resolution while the timing is on and exactly how this will play out and it's difficult to predict with any level of certainty I can tell you that we are confident and our position that the publications are maliciously false and misleading this is moving out.
Clearly and the declarations on our website.
We have not seen any material impact with EXPAREL value proposition and continuing to drive strong demand at the same time, we cannot allow these false and misleading publications to be referenced as fact on a go forward basis.
Turning to the rollout of EXPAREL and Pediatrics, we are now several weeks into the launch and it's going even better than we anticipated as you know we deployed a thoughtful gated approach to the launch targeting and Kols influencers.
This has proven to be a winning formula as we as we are seeing a high level of acceptance from prominent thought leaders. For example, EXPAREL use is rapidly expanding and scoliosis surgery, which is 1 of the most extensive invasive and painful orthopedic procedures spy and is it tightknit group of like minded surgeons, who are highly motivated to.
And minimize exposure to of children and teens to opioids, given the populations elevated risk for persistent opioid use.
We have been delighted with the high level of receptivity and enthusiasm from prominent thought leaders, who are providing a rapid transfer of best practice for establishing EXPAREL based protocols as the new standard of care, specifically and the near term through presentations at local and national pediatric meeting.
Medical education is a core component of our pediatric strategy. Our team is successfully securing the engagement of thought leaders from top children's hospitals, we are partnering with the top echelon of early adopters to deploy the education across their networks since fears of influence using programs like Fellowship training ask the expert panels technique workshop.
And awareness campaigns. These key Influencers are also generating data using EXPAREL and a broad range of procedures at leading institutions around the country, such as really children's Texas children's Scottish rights and the Shriners Hospital systems.
We are now broadening our launch initiatives to our full customer facing team and expect to trigger a chain reaction within the pediatric community that will ultimately shift EXPAREL based multimodal protocols to the standard of care for this vulnerable patient population, replacing pumps and catheters based paint.
Pain management.
The pristine safety profile of EXPAREL will continue to be the hallmark of our positioning across all pediatric and adult settings. This was validated by the over $8.8 million patients treated and the United States since launch the pediatric indication and label further underscore the safety of our depth of foam platform, which does not have any of the toxicity and say.
The warnings we have seen within the package inserts for other drug delivery technologies, specifically and the pain space.
Shifting gears to women's health Covid has escalated the need for many breast plastic and oncology surgeons to expedite discharged for their patients with EXPAREL. They are now able to meet the needs of women, who demand and opioid free experience and who don't want to stay on the hospital overnight, while simultaneously optimizing there.
Our care experience through better pain management, using EXPAREL based protocols.
C section and adoption continues to grow and obgyn and surgeons and anesthesiologists are leading the charge for evolving protocols to minimize opioids and provide new mothers with a better recovery experience efficacy section looking ahead, we see this opportunity gaining additional traction as society meetings return to in person and settings to <unk>.
And hands on education and training to life.
Turning to the lower extremity block and May we support we reported top line results from our stride study stride was designed to evaluate EXPAREL as a single acting local analgesic with no pre operative multimodal therapy and the study design to bridge upfront coverage for EXPAREL, which differs.
From real life practice, while the study did not achieve its high hurdle for the primary endpoint. We view. The result is a highly valuable opportunity to work with the FDA on defining a pathway for adding a 96 hour indication to our label.
We are preparing to meet and discuss the strive study and our lower extremity nerve block strategy with the FDA and the third quarter.
The design of the follow on study is underway. We believe these studies can be executed seamlessly as stride and gives us a strong foundation. We are currently planning a study evaluating a popliteal sciatic nerve block and patients undergoing bunion and surgery, we will only use those sites from stride that were.
Paul and followed appropriate protocol and technique.
We are also initiating a phase III and Dr. <unk> field block study to provide specific package insert guidance for dose volume use of free bupivacaine and administration technique.
We intend to launch these studies and the second half of this year.
Keep in mind and as far as our 5 year plan. The stride outcome does not material impact on our outlook. As we believe this is roughly a 15 to 18 month delay and achieving a lower extremity nerve block indication and the United States.
Internationally, we remain on track to launch EXPAREL, along with Io bearer and Europe in October of this year. The year launch will focus on only these markets, where we can secure pricing that closely aligns with the price and the United States.
Covid has caused a tremendous backlog for orthopedic procedures in Europe with waiting lists as long as 2 years. In addition, the typical length of stay and Europe has several days these dynamics provide and optimal opportunity for both EXPAREL and Niobrara. The <unk> portfolio will be positioned to enable rapid recovery after surgery to address that.
<unk> markets high interest and accelerate and recovery times and discharge the increased surgical throughput and address the pulse COVID-19 elective surgery backlog.
For EXPAREL, our initial focus will be regional anesthesia protocol adoption and shoulder and total knee arthroplasty.
<unk>, we will begin by targeting painful osteoarthritis as well as total knee arthroplasty, we envision I avera, playing a key role and the long term pain management, especially as surgeons and anesthesiologists worked through the significant waiting list for elective procedures and importantly, our broad efficacy label, which covers EXPAREL administration via.
Infiltration field blocks, and both upper and lower extremity nerve blocks, along with the superior safety profile gives us a clear competitive advantage and Europe, where iron ore is already approved to remind everyone. EXPAREL is approved for a lower extremity nerve block and Europe.
We recently expanded our global footprint and 1 of the fastest growing international markets Latin America through.
And through our partnership with Euro farm.
Pro forma team has considerable scale expertise and relationships to support EXPAREL expansion. Our initial focus will be on Argentina, Brazil, Colombia, and Mexico, Europe pharma will be taking the lead and securing EXPAREL regulatory approval as well.
We have our first steering committee meeting next month to begin laying out our detailed strategy and timelines.
To cover Io Vera continued sales growth and an expanding customer base underscore the growing level of interest and our educational and commercial programs, taking hold at and highlight this novel <unk> technology and its ability to deliver drug free and surgery free pain control that endures for several months or.
Prepare study is proceeding according to plan and set for readout later this year or early 2022 are.
Our Io Vera registry is underway and we will capture real world evidence and Teekay procedures and leading centers of excellence. In addition, we will rollout a generation 2 I'll go our platform later this year and our development team and successfully developing additional smart chips that will utilize the same handheld device with separate.
Smart tips for low back pain procedures and specific spine procedures.
And our clinical development team is also moving to the next cohort of our subarachnoid program for spinal administration, and a depo dexamethasone asset for particular free inflammation therapy.
And we remain very active and the business development front, having invested in both musculoskeletal and chronic pain spaces and the first half of this year. Looking ahead. We continue to advance. These 2 key franchises with a focus on knee and spine continuum of care and bridging to chronic pain.
We plan to use the combination of strategic investments that support promising early stage platforms like gene quaint and spine and Biopharma and in licensing our acquisition transactions to build out a pipeline of innovation and.
In closing, we feel great about where we stand today and the market dynamics that we're seeing for both products. We will continue to build on our growing momentum and remain highly confident and our growth outlook. Looking ahead, we fully intend to lead the way by expanding the use of EXPAREL and Alberta and by investing and novel innovative technologies that are synergistic with our goal to bring non <unk>.
Opioid pain management, and regenerative health solutions to patients and need.
With the experience and expertise of our management team dedicated employees and over $650 million and cash. We are excited about the short term and the long term future purpose here and to improve patient care with that I'll turn the call over to Charlie to cover a few key topics.
Thank you, Dave and good morning, everyone on the financial front, we continue to deliver outstanding results with the second quarter coming in at record levels for the top and bottom lines EXPAREL utilization continues to fuel this growth with average daily sales coming in at 178% of prior year.
For the second quarter and 120% for the month of June.
To remind you in June 2020, extra all returned to year over year growth. Following the peak impact of Covid in April and May.
As we look ahead, we believe the robust 20% year over year growth rate achieved in the month of June is a strong indicator that EXPAREL growth is back to pre COVID-19 growth trends consistent with our expectation of growth rates and at least the high teens over our 5 year planning horizon.
With regard to gross margins, we continue to project growth margin improvement of 1000 and basis points over the next few years with EXPAREL gross margins, reaching at least 85%.
This will be achieved through the combination of lower cost manufacturing capacity and steadily expanding volumes.
For manufacturing yesterday, we were excited to announce a key milestone ahead of schedule with the FDA as commercial approval of our 200 liter batch manufacturing units located in our UK facility, we expect to start selling commercial product manufactured.
By this unit later this year this will deliver another uptick in gross margins in 2022, when we begin selling significant 200 liter inventory, we expect margins to exceed 85%. Once our 200 liter suite is primarily responsible for supplying EXPAREL.
Projected unit costs from the 200 liter batch process are lower than those of the current 45 liter batch units.
We have mentioned in the past per unit manufacturing costs from our UK facility are comprised if a higher proportion of variable costs, while those from our San Diego facility have a higher proportion of fixed costs and consequently sourcing total EXPAREL volume demand from our 3 manufacturing suites.
And the most economical way will require a bit of balancing because as we take volume out of the San Diego facility. The per unit fixed costs for the remaining units produced at that facility will increase.
With the Fda's approval of the 200 liter process, we have submitted our new patent for Orange book listing this product by process patent and manufacturing of bupivacaine multi the secular liposomes claims composition of EXPAREL prepared by our improved process and we will take our proprietary position to January.
<unk> 2041.
Over the last 6 years, we have invested more than $100 million and a more efficient method from making EXPAREL and a matter that meets the fda's rigorous standards for safety and bio equivalents.
This new patent is the first deliverable from our comprehensive patent strategy, adding another layer of market exclusivity and underscoring the deep multi or a secular liposome manufacturing expertise that we have accumulated over more than 25 years.
And the EXPAREL manufacturing processes are highly specific and a core competency proprietary to force Sera that we are committed to safeguard and globally.
Remember <unk> is the only company that has ever manufactured a multipurpose secular liposome at commercial scale anywhere in the world.
Regarding any potential generic EXPAREL FDA guidance established extremely rigorous hurdles for proving bioequivalence and this would have to be accomplished without infringing on the pitch to Sierra patent estate, which now includes and other strong patent to consider this.
And this would require a multiyear near decade long effort to design and construct the commercial scale manufacturing facility that would also require operational licensure and validation prior to any bio equivalent study requirements by the FDA. This is a long and extensive process with little chance of duplicating the EXPAREL.
Pharmacokinetic profile since we have never disclosed our proprietary batch specifications or release assay.
And short we've great confidence that we'll never be a generic EXPAREL and given the package inserts we have seen for potential competitors. We believe EXPAREL will remain the branded market leader for many years to come based on safety across a broad range of infiltration field block and nerve block procedures for both adults and pediatric.
<unk>.
While we are currently not providing 2021 guidance given the continued uncertainty around COVID-19, and the pace of recovery for elective surgery market. We will continue to report preliminary monthly product sales to share intra quarter trends with you. We will consider changing this practice as we have more visibility post.
Coke.
And the Covid variance with increasing infection rates and the lack of clarity around soft tissue surgeries delayed by Covid returning to the market and the back half of this year lead us to the conclusion that providing guidance at this time is not warranted.
We remain bullish on <unk> and our long term expectations for robust top and bottom line growth and we are confident and our 5 year plan, which is on track to deliver revenues that will approach $1 billion for EXPAREL and $200 million for iron ore gross margin improvement of 101000 basis points and operating margins that exceed 50.
3% by the end of our planning period.
With that I'll ask the operator to begin our Q&A session operator.
As a reminder to ask a question you will need to press star 1 on your telephone to withdraw your question press the pound key.
And by while we compile the Q&A roster.
Our first question comes from the line of David and Sal.
And then with Piper Sandler.
And David and sell them. Your line is open. Please go ahead.
Please go ahead and see if your phone is on mute.
Great.
Yes.
Maybe we can come back I can't hear you.
Okay.
Our no domination.
Got it. Thanks for your question comes from the line of Daniel Bernstein with RBC capital markets.
Hey, good morning, and thanks for the question I've got a couple.
First with respect to elective procedures that were pushed out of 2020 can you talk about what you saw during the second quarter in terms of the number of those procedures that came back and have your expectations for the second half of the year changed since your last update I think in the past you've talked about roughly half of the 4 million warehouse procedures potentially coming back during the <unk>.
And second half of this year.
And the situation with Delta variant is clearly still evolving but thus far.
Have you seen any impact on overall procedure volumes or EXPAREL use, particularly in those regions of the country that are most affected.
Thanks Daniel.
First of all I mean.
We thought that they were 4 million procedures that were not performed and our Tam in 2020.
We've as we went into the last Q call.
We revised the number of patients who we thought would come back for procedures, and 2021, and $2000.22 million to $3 million given the number of patients who expired.
And really important the number of patients who no longer had employer provided insurance.
And so we're.
That net number was dropped largely because of the environment and some of the things that have happened as a result of the COVID-19 experience.
And so far what we've seen is.
Bob.
And the quarter very little difference Daniel as we went through the second quarter as we got to the last couple of weeks of July we did see a little bit of softness and the marketplace. We frankly don't know whether that was related to victims to vacations and we have seen some fairly protracted vaca.
<unk> and the marketplace with folks just saying look you know I've got a huge backlog, but my family really needs to get away and spend some time together and we certainly all understand that so.
We don't know frankly, whether that's anything related to delta or whether that's just the July.
On the phenomena that we would've seen under any circumstances.
Can tell you that.
Already disclosed of course, the first couple of months and July was what you would expect for July on a forecasting basis. So.
I guess the broad answer is nothing material, we are watching some hospitals and certain specific areas as you mentioned that.
And that her sequestering beds for Covid again.
But so far we've seen no impact on the ASC or the H O P. D, which are now responsible for over 70% of our business. So we think that the impact will be muted in any case.
Got it thanks for the color and if I could ask 1 follow up on on capital allocation and.
And the I'd say enviable position of having cash and investments of almost $650 million and growing and I realize that your priority is business development, but and the absence of suitable targets and specifically large targets is there a point at which you start thinking about returning some of that cash to shareholders whether via share repurchases.
Or perhaps a special dividend.
Yeah, we we've initiated that discussion with the board Daniel we haven't made any decisions on that yet but clearly.
Our preference would be to create value by bringing in additional assets that benefit from the relationships, we have with anesthesiologists and orthopedic guys and spine et cetera.
And the absence of our ability to find those kinds of assets, we are talking to a capital allocation that would return.
Funds back to the shareholders, but we're not there yet and.
We have a number of things and business development that were actively pursuing so.
But over time and Charlie outline on.
We expect that our net income is going to grow quite rapidly as the top line growth. So there may be a point, even with some aggressive BD.
And even with large targets that we'll be in that position several years down the road, but I don't think we're looking at that and the short term.
Daniel don't don't forget that in the near term on.
On April 1 of next year, we'll have $160 million of the first convert comes due so that's also and our time horizon.
Okay. Thanks.
And your next question comes from the line of David and from with Piper Sandler.
Thanks, and my apologies for a tech issue before so just a couple of questions. So first I wanted to get your.
Your latest thinking.
Regarding long term.
Operating leverage.
Particularly with Swindon.
On line.
And this isn't a question about say 2022 guidance, but really more about.
And how you think about the direction not just of gross margins, but also EBITDA margins also realize that capital allocation and acquiring other assets is a priority but.
Ideally do you have a long term EBITDA margin targets.
That you'd like to share, particularly now with Swindon.
On line. So that's number 1 number 2 is on the foot and ankle study on stride and I apologize if I missed this.
So you've talked in the past about another.
Another study can.
Can you just go into more detail on what you think you need to do to sort of get over the hump so to speak regarding debt.
Zero to 96 hour endpoint, if and <unk>.
And that is still going to be the endpoint going forward just.
And just help us understand your thinking on next steps on that program. Thank you.
Sure and.
David Let me start by saying you know we don't intend on this call to give long term net income guidance and <unk> and <unk>.
I'll try not to do that actually.
But we think we're in a very strong position.
You know we have to start out with gross margin and I'll ask Charlie to give any comments. He has here and the second but if margins improve to something over 85% and.
And we think that we're in a position where frankly, we disconnected the generation of additional revenue from the traditional way of just calculating a percentage of growth sales as all of the expense items. So we think that our R&D budget stays in the area of 60 to $60 million to $70 million with everything that we.
We know is currently in the BD pipeline as well as EXPAREL and iron ore.
SG&A.
You know there was some additional short term expense and their associated with the legal action against the anesthesia society, but that's a short term issue.
We will only add on.
Nominal number of additional reps on an annual basis, and so we're thinking something and the 5% to 6% range of increases on an annual basis.
So when we get to the bottom line.
On the net income as we said in the script will be over 50% over the 5 year planning period.
That could modify to the upside depending on what we find and the BD world.
If we if we don't buy anything it will clearly be higher than that but what we're playing now is that we believe that we will be successful and some of these BD efforts. We will have some access from some capital allocated there, but if you think that if you take our numbers out to $1 billion for EXPAREL and $200 million for iron ore.
You calculate a growth of gross margin and the 85% range for both products.
You keep G&A, our R&D relatively steady you nominally increase SG&A.
You will come to your own conclusion about where the net margin is and that leads us back to Daniel's question about some type of a special.
Distributions to shareholders or something because we will be generating a lot of cash.
On your second question relative to stride.
You know it was a bit of a fault scenario that we that was set up by the FDA that there was no.
Additional multimodal therapy that was used in addition to which growth for that first 12 hours.
And a new trial.
We will accommodate that.
There's actually 2 trials, David and 1 is going to be the traditional foot and ankle trial.
And where we will.
USA and additional therapy that will bridge the first <unk>.
And to 18 hours and and we will still extend out to 96, we believe and 96 will be the primary endpoint here.
We also are doing and that Dr Canal trial.
Largely because we want to put a specific need trial for this field block into the package insert with some specific instructions around dosing.
But we also expect expect to have a.
Similar duration of activity and there the marketplace is very much.
Form the eras protocols around a multimodal strategy and so we'll we'll do the same thing I think.
The market's a little bit confused why we didn't do anything for those first 12 hours and this trial and.
Really the only opportunity that the FDA gave us for lower extremity nerve block here and the United States was either to do and the non inferiority trial, which would have meant we had over 600 patients and that trial or study EXPAREL alone for the first 12 months to 24 hours and.
They now know what we knew then that we do need a multimodal design for those first 12 hours and that EXPAREL is at full strength and takes us up to 96.
Yes.
Okay. Thanks, Dave.
Thanks, David.
Your next question comes from the line of Chris <unk> with J P. Morgan.
Great. Thanks for the questions first 1 is on board and extremity nerve block so following up on.
On kind of an earlier question.
Interest and what feedback you've heard from physicians and Kols on the stride study and specifically on the 12% and 96 hours of pain reduction and you referenced a 15 to 18 months deferral and timelines so.
What's underpinning that view and what are the key hurdles forgetting this indication across going on at this point.
You know, it's just a matter Christopher of just getting the trial done.
We will meet with the FDA. They can clearly see now that you know there is some.
Additional therapy needed and need and the additional 12 hours.
Post the surgery, and we will go back with those protocols.
We have successful sites that we're in stride.
And those sites remain.
<unk> to us, they're very modest changes to the case report form and to the CRM into all the other.
SaaS programs et cetera that are very time consuming and get it and these things up and running.
So we expect to have this trial up and running and a very short period of time here.
And it's the only thing that that keeps us from from having this thing be successful is to get.
Get the patients through a site that is going to.
Abide by the protocol and not make not have protocol violations, which.
And where the problem with the with the other strike with the most recent stride study. So you know we think 15 to 18 months would be aggressive under normal circumstances.
But we think given this scenario, where we've got the same sites while not all the same sites with the same sites that did the trial correctly.
And frankly were responsible for the point on 3 primary.
On the statistically significant primary endpoint and the beginning of the trial at the interim analysis. So we have great confidence that we know how to do this it will be a minor adjustment to the protocol.
And we will separate out the sciatic for the lower extremity nerve block and then the adductor Canal block for the knee and do 2 separate trials that will give us and doctor and lower extremity. You know, we don't know frankly, whether the FDA then would use that to give us a broad label for the lower extremity.
But if we have foot and ankle and knee basically we've got the vast majority of all the procedures covered so it will be very much like brachial plexus for the upper quadrant and right. It's not a broad label, but it basically covers all the procedures, so no harm and they'll fall.
That's helpful and then I think.
A quick question on iron ore.
Specifically on kind of uptake curves over the next 12 to 24 months, how do we think about the size of opportunity relative between.
Between knee osteoarthritis and.
Just what are the key drivers kind of building out this market near term.
Yes, it's surprising to us and I'll be candid upfront that there is great interest and the anesthesia community around using Niobrara for OA pain.
And so.
And what we what we purchased from miles science really all were primarily related to knee. So if you look at the prepare trial, that's using IL Vera.
Several weeks before the procedure to get the patient out of the wheelchair are going up and down stairs et cetera. So we bring a better patient to the or and then use EXPAREL for the pain.
Pain storm of the Teekay and procedure itself and the prepare trial is measuring.
Functional outcomes.
And how does that patient do and PT.
Do they have better long term prognosis was they go back to work and a lot of these questions frankly, Christopher are being driven by self insured employers.
And who want to know you know how does this impact so we're spending the money and what do we get for our dollar and how does this patient come back to us or are they better than they were before are they the same as they were before and we'll try and answer all those questions and prepare.
A number of different ways that you can affect the use of Io Vera.
The anesthesiologists are using a long needle with a single larger ice ball.
And that's typically done under imaging the the sports medicine folks and the ortho folks are largely using the tried and needle which is 3.
Probes and the ice ball forms at the end of each of those probes. Those are typically done under and with anatomical landmarks and so theyre not using imaging and that requires a number of injections generally 3 or 4 injections different it's different.
Administrations, where the 190 needle and many cases, it's just a single ice ball for them and because they are actually looking at that right on the on the ultrasound. So.
It's total knee arthroplasty assay procedure.
And the primary selling right now for our field force is osteoarthritis of the knee for patients who won't get surgery or can't get surgery, because during COVID-19 and went from ASC 300, and assay for we've also have a lot of special situations people that want to dance at their daughter's wedding.
People that are going on vacation with their family and they are.
They want and have more and mobility.
Just people that belonged to a country club and aren't playing golf or tennis, because because their knees hurt.
All of those kinds of things are coming into play.
So generally the the 200 leader or the $200 million guidance is largely reflective of just those procedures on.
On a go forward basis, I mentioned that we've got a separate chip that we have great confidence, we'll have we'll be and effective.
Several months treatment from medial branch block pain, low back pain, and 14 million Americans. We're also looking at very specific spine procedures, working with spine surgeons and spine anesthesiologists, who have been the people that have actually driven on number of these protocols and are working with the prototypes on how we address the <unk>.
Coal and how we actually administer these products.
There is a lot of activity now and great interest frankly and specificity.
Looking at Spasticity and kids.
Specifically it was from some of the Schreiner physicians.
Currently they're using bolt tax which is administered on a try and missed or on a 3 times to 4 times a year basis under general anesthesia, we think we can improve that with with cold.
We're looking at root fracture and cardio thoracic procedures.
So there's a number of opportunities outside of the knee.
OA and shoulder OA and foot and ankle OA and the wrist.
So all of those things lead us to believe that this could be a very big product.
We catch a couple of breaks and if we can really be.
Very specific with the way we engineer these tips to address these specific situations.
Great. Thanks for taking the questions.
My pleasure Christopher Thanks for your interest.
And next question comes from the line of David Steinberg with Jefferies.
Thanks, very much I have a couple of questions.
The first 1 is on the backlog of procedures, Dave I know that you've talked about 3 to 4 million backlog I was wondering if you could give us some sense of the cadence do you think most of them could be finished this year or do you see a high percentage moving into next year.
And then speaking of cadence with your with the approval of the Swindon manufacturing facility for.
<unk>, Charlie you could help us with.
David.
Obviously, it's going to be some gross margin improvement going forward and now this facility is approved and Youre going to launch later this year, how we should think about the cadence of the <unk>.
Improvement this year next year and the year after for from margins. Thanks.
Thanks, David Let me I'll take the first 1 I'll turn it over to Charlie.
You know if we watch what's happening in the marketplace now David is.
A lot of what we're seeing in terms of catch up and the marketplace is the orthopedic procedures.
No.
If we go to most of the Asc's now you'd see a and.
And or schedule that is mostly hips knees spine.
And the reason for that of course is.
They are not only highly painful so you'll have a very motivated patient population.
But they're very profitable and so.
They are expensive procedures and so the insurance companies are very aggressively moving these cases towards the ambulatory surgery centers and the H O P DS.
And so that combination of highly motivated patients.
And.
Insurance carriers, both self insure your shirt and commercial as well as CMS frankly.
Our moving those patients towards the ambulatory surgery Center, where EXPAREL does very well. So that's really been the strength of what we've seen so far.
And that's driven largely by the way by the fact that and orthopedic surgeon.
Or a spine surgeon has a decade long relationship with a patient which is really quite different than a primary care patient who needs a hernia or a hemorrhoid or something like that.
So we're seeing that marketplace consolidate itself again with patients going back to those to their primary care docs and then being referred.
On.
And many of those procedures, David are ending up in the hospital.
And the hospital elective surgery Department, primarily because.
The ASC and many local environments are just and a position where they don't have to take low profit margin procedures yet.
So as we catch up with the orthopedic procedures, we believe that will start to see more on the soft tissue procedures.
Come into the ambulatory surgery market, but we think that a lot of what will happen when the hospitals get back to elective surgeries that theyre going to be stuck with these lower margin procedures that they tried to move out of the hospital through their ambulatory surgery strategies and the first place so that'll be quite an interesting phenomenon.
As we get through the rest of this year, we're clearly not going to catch up all 3 million this year David.
I think if we get into the million and a half million 6 range will be and a pretty good spot.
And so you know, we think that theres still going to be something like a million plus of these procedures that carryover into the early part of 2022 debt.
Question that we talk about all the time is if you had a hernia or if you've had a hemorrhoidectomy hour something like that that's approaching 2 years before you'll have an opportunity to get those procedures filled whether it's insurance or facility availability or whatever.
Are those patients going to have that surgery, we think the answer to that is yes, but it's not as clear cut as the.
The joints and the spine.
And.
Charlie you want to jump and furloughed for gross margin sure I'd be happy to.
So David.
At this point with debt with the first 200 liter unit.
Becoming commercially available will start to use that you know that we have 45 liter batch process units in both.
The U K and San Diego, So as volumes continue to grow.
We are projecting in our 5 year plan, we will start to more fully utilize the 200 leader.
Use the 40 fives kind of for the backup.
Hopefully in the future we will have depth of foam related pipeline products. So some of the 40 fives, probably the San Diego 45 might be.
Used for both pipeline product and to manufacture smaller batch sizes for rest of world Houston.
We're also developing a second 200 liter unit and San Diego, which we hope comes online kind of and.
The 24 early 'twenty 5 so by the end of our 5 year planning horizon, it's quite possible to EXPAREL and U S product is all 200 leader.
Product, which would be really great.
And and.
At this point, our best estimate is that the gross margins will improve a couple of percentage points each year for the next 3 or 4 years as we as we drive towards those goals.
Great.
I have a follow up question.
Severe and new competitor and if it's already been asked I apologize we're in a previous call, but I assume some TNT discussions from now happened since the hair on drug has been approved and I'm just curious.
Year on many of these formularies have you found any instances, where you've been knocked off formulary due to the hair on product.
And if so.
Why would that be given that your label is much broader than theirs.
Not 1 David.
So I don't have any I don't have any and I don't have and no response to the second part of the question we don't have 1.
Got it thanks.
Thanks, David.
Your next question comes from the line of Anita.
And then with Bamberg capital.
Hi, good morning.
Thanks for taking my question so.
Could you sort of talk about the.
With CJS.
Net.
Excellent.
Being used in the pediatric market now and we can.
And their procedures, it could possibly expand too and that kind of along the same line.
And European lines.
And what some of the procedures that are likely to use EXPAREL.
Yeah and application and then a handful.
Okay. Thanks, Anita I'm going to ask Roy right, Cleveland right right and Winston has been much closer to the pediatric procedure market. So I'm going to ask him to cover that and 1 second and in the European market, we're focusing largely on.
And on knees and shoulders.
Where there is the greatest backlog and we've got a unique opportunity here and where.
The National Health system the painter the convert.
The government payer.
Is working with different groups of surgeons around the country and the U K to try to expedite the.
Addressing this huge backlog of procedures that they've got so we're working with these with these folks sharing our ear as protocols with them in many cases showing are using having our surgeons talk to these folks and anesthesiologist talked to these folks about how are we doing same day surgeries.
How do our patients walk out of and ambulatory surgery center, 3 or 4 hours after a total knee.
And it makes the most sense for us to go to those procedures with both <unk> and EXPAREL.
So in Europe will focus on those and then we'll move that out to spine and hips as we move forward and then work our way backwards into the.
And the soft tissue procedures.
Largely because of the pain profile and because of the really desperate need given.
And the U K right now, it's a 27 month wait for a total knee arthroplasty. So.
We think we've got an opportunity and it'll take us several years and needed a cleanup on the front end of this and so that's where we're going to focus when we launch and we're well into the prep for that now educating these guys and sharing protocols et cetera.
I would you could you give a need at some specifics about what procedures or are leading the way with peds and where they're headed.
Sure happy to and and Dave did mention at the beginning that we did a very tight controlled launch we stuck to our pediatric idiopathic scoliosis because number 1 and that's where a lot of our data was in and number 2 it's an area of great need you have these kids that have these massive back surgeries, they're usually.
Between the ages of 10 and 16.
And they use a lot of opioids and have a tremendous amount of pain. So we launched there and we found a very rapid uptake to where the really the key opinion leaders were wrapped.
Rapidly adopting and from there there has been quite a bit of expansion for interest for instance.
Some of the Shriners hospitals now.
And you got to keep in mind that 80% of pediatric drug use is off label to begin with but in lower extremity.
They are finding that its just such an advantage to be able to give kids a block with EXPAREL instead of using catheters like they used to or plug them into our PCA device. So we're finding a very rapid.
Uptake and areas, where kids are currently being served by either IV opioids or catheters and these are large reconstructive orthopedic procedures, but they're also a big abdominal procedures and large thoracic procedures really all these large painful procedures and the thing that we are finding not only among the spine.
But even among the pediatric anesthesiologists, it's a small tightknit group, we have a lot of people doing quality improvement studies now looking at EXPAREL major institutions across the country that are beginning to use and I think in pediatrics, we expect the trend to continue because I feel like it's 1 of those things where the.
<unk> is really just to provide the best possible care for patients and that's all that the pediatric surgeons and pediatric anesthesiologists think about and I think that's what's led to the to the very quick uptake.
And so and need a very specifically right the orthopedic procedures rose referring to club foot for example.
A significant number of places that are experimenting with burns.
<unk> is called out as 1 that 1 center is using a lot of product and <unk>.
And our economies <unk>, So you know and what they're really looking at is a lot of the evolution of what we saw on adults.
But given the all of the experience we have now there's a number of places where there is very significant interest and getting these kids out of the hospital.
And if they were staying in the hospital largely to control pain with opioids or with a PCA pump and they weren't certain that they could keep the catheter and overnight.
And now they are using EXPAREL and so theres a lot of interest and that as well.
Thank you so much.
Very helpful. And then just 1 question ladies and <unk>.
And I know you are not.
And that providing too much guidance on that but I just wanted to know like would be.
And now Debbie Sky.
<unk> and inboard lower extremity crystals loans and on the launch and you are up.
And can you sort of give some color on how we should think about income.
And India.
And the second half.
Yeah, so for R&D specifically.
We think that the 60 to 70 million that we've told folks that they can count on with the current portfolio plus what we know about and BD is a good number.
On the on the sales side.
We are hiring and contract sales organization and so we will have some additional resources.
But frankly, not anything that would cause us to dramatically increase the the budgets for those for those marketplaces.
Actually I need it you know what.
The rest of 'twenty, 1 looks very much like the back half of 2019.
If you wanted and anything that was more specific in terms of what the numbers are.
The only outlier really and everything we're doing now is an increase and the G&A line as a result of.
And some some materials spend and needs and the legal action against the American and the anesthesia society outside of that the back half of 'twenty..1 is strikingly similar to the back half of 19.
Thank you Dan that's helpful.
That will be on.
Thank you and it.
Yeah.
And your next question comes from the lineup and try.
And <unk> with Wedbush Securities.
Good morning, and thank you for taking a question. This is Andre saga rudi's on for beyond Tacos.
2 quick questions here first regarding iron ore, you've previously guided it to be.
A potential $200 million potash.
Product opportunity and 5 years, how much of that comes from outside of the U S and.
And I was a follow up to the pediatric question.
Just now.
Again guidance can you just remind us what the outlook there we go.
Such a rapid.
Uptake is it potentially have to exceed the.
Believe you must have done so at a $100 million.
Alright. Thanks.
Yes, so outside the United States.
And we're looking for I O Vera.
We have signed the license agreement for Canada.
And we are launching and October into Europe.
And if you roll those numbers together you get something in the neighborhood of.
And the $70 million to $80 million range and the planning period.
I'm sorry, Andreas can you tell me what the second question was I was writing down the first question and I missed the habit and I'm sorry.
Yeah, just just on the pediatric opportunity Oh I'm sorry.
And you see guided yet so like $100 million, yes, if you could comment and nothing no. Thanks, that's a really good question actually so we guided against the Tam for adults and.
And.
So we were basically using extending orthopedics extending many of the soft tissue procedures et cetera, what we're finding is a much broader.
Desire to use the product and things like Burns.
And.
Still and <unk> I think we're in pretty good shape.
But theres a lot of pediatric procedures that would not and our adult Tam.
So I think it's safe to say today, especially given the pace of the adoption debt $100 billion from my expectations at least would be on the low side of where we're going to end up over the 5 year planning period.
We haven't come up with anything.
Specifically, we haven't guided to anything higher than that what we've looked at is the time line to $100 million.
And so I would say increased confidence and a $100 billion number and that's probably conservative given everything we know now.
Great very helpful. Thank you guys.
Thanks Andres.
Your next question comes from the line of Greg Fraser with true Securities.
Good morning, folks and thanks for taking the questions the ground and I got on late so I apologize if you already covered this but did you comment on EXPAREL sales in July.
We did not we did not other than to say it looked like July.
And so given given the guidance that we've talked to about.
High teens and that would be.
Those kinds of numbers, Greg nothing that would be surprising.
Got it Greg.
As Charlie I think.
The way Im looking at it is for a couple of months and Q2 the relationship between 'twenty, 1 and 'twenty just didn't make any sense because of Covid and now June kind of.
Cross us over because at this point June 'twenty.
Was.
We had bounce back from Covid and so now starting in June we're now looking at year over year comparisons. So I think what David is saying as debt.
July was another good month, but it was.
It will compare favorably to last July, but we'll release the actual numbers.
Next week.
Got it okay.
2 key growth drivers for EXPAREL EXPAREL had been the brachial plexus nerve block indication and tap blocks and I'm curious how you would describe where you are and penetration curves for those indications would you say, it's still early days growth.
Brachial plexus is Greg Lewis clearly was on.
And not so much just brachial plexus. It was really the entre point for regional anesthesiologists to have some experience with EXPAREL.
So.
Shoulder and rotator cuff is.
Leading the way I would say you know fourth or fifth inning with that indication, but I think that would be a bit shortsighted because really what their success. There his lead docs to use EXPAREL and a number of other.
Brachial plexus procedures or procedures, where a brachial plexus block would be appropriate, but not a place that they ever would have thought about using EXPAREL before right. So and the past that they were going to do say, a carpal tunnel surgery or and elbow or a risk surgery, they would've wanted and infiltration.
Protocol just for the use of EXPAREL and that procedure now that they've seen the effectiveness across the whole quadrant based on a brachial plexus nerve block you see guys expanding the use of EXPAREL and that would that be.
Regional anesthesia procedures so.
Hi.
I think that.
And we're safe fourth or fifth inning, what youre talking about specifically rotator cuff and and.
Shoulder surgery, I think it's probably more like the bottom of the second.
If we're talking about how brachial plexus is going to change the way regional anesthesia is used to address pain control and the upper QUADRA and if that makes sense.
Pretty much the same story and tap.
Tap was something that folks were doing before EXPAREL. It was called the rescue tap and so they weighted for patients to wake up and pain and then they would do the tap hoping to get the patients through the first post surgical might.
Now we see tap.
Leading the way and increasing the confidence of the anesthesia and surgery community to try these regional blocks and so.
Tap is still really important to us as it relates to C section et cetera.
But what we've seen as a result of the success with Tac is blocks like the ESP block the erector spy and a block.
Which is useful and the scoliosis procedures that we were just talking about.
And patients or physicians are now using it and a number of different procedures.
So I think if you're talking about <unk>, specifically, it's probably again fourth inning. This is a 9 inning game on and referencing by the way and if youre talking about ESP.
The rapid expansion of PEC blocks and.
<unk> blocks and a number of different ways that the anesthesia community is learning how to use non opioid long acting regional anesthesia blocks, it's probably more like the top of the third.
Got it thanks for taking the questions.
Thanks, Greg.
Your next question comes from the line of Serge Belanger with Needham and company.
Hey, good morning, I had 2 questions. The first 1 is a follow up on the prior question related to us and Rollouts.
On the competitors made it pretty clear that the.
There'll be targeting the TK segments, just curious if you've seen things and so far.
And maybe too early given the only launched a month, but maybe if you're expecting any impact even if it's just transitory.
And then second question is related to 1 of the graphs and your slide deck.
Cash flow.
Slide number 9 and the 1 that.
Comparing the.
External sales data and on weekly basis too.
Volumes and.
The elective surgeries and we've seen external.
Really outperformed.
And elective surgery volumes.
And that outperformance I think really increased.
In June.
Just curious how we should.
Think about that and if it's an indication of.
And <unk> growing role and a C or it's really just related to how the claims data coming in.
Thank you.
Yeah, Let me take the second 1 first and search because I think you raised an important point. So it is a it is a compilation of claims data. So it does normalize over time.
Right so the delta of <unk>.
6 weeks from now is never going to be as great for last week for 2 weeks ago. For example, as the Delta and real time right. So we have real EXPAREL data and we're comparing that to accomplish and of claims data that will change as those claims data come in.
What we've seen is that even in a normalized procedure.
EXPAREL is 10 plus points higher than the elective surgery market. So when the elective surgery market is normalized you know plus minus very small amounts against the pre COVID-19 elective surgery line.
We still see that EXPAREL is doing materially better than that and I think that's what we've seen with the numbers and that's what we expect to see you.
You know again, driven and it is driven to some extent by.
The move to ambulatory surgery.
And the move to.
To hospital outpatient departments from insurance companies, insisting on those sites of care and the lack of tools that would be available to some of these physicians for pain control and the hospital that are just not available on these these.
Same day surgery environment.
But I think you know as much as anything else.
Fox are starting to see that they can do lower and opioid.
Surgeries, now and they're seeing especially and the peds market debt.
They don't need to use a pump and a catheter and they don't have to worry about whether that catheter, it's going to fall out or dislodge or whatever.
And so I think there is a base of increasing confidence and the use of EXPAREL for several days.
A single administration.
And that way and I think youll see some more confidence from the stride study, yes, we missed our primary endpoint, but having a P value of <unk> 96 hours has real value to these doctors and the marketplace and we're seeing that as well so.
I think the curves will normalize and EXPAREL will still be 10, plus points better on on a normalized basis than than the claims data for the elective surgery market in general.
Your question regarding the hair on product and knees. The only feedback that we've had is the product is very sticky its very difficult to use it changes colour rapidly and the docs were ready for that.
And you can't put it through a laparoscopic.
We haven't heard anything good I guess is what I would say.
And the package insert and the.
And yes in the package insert the pain score stays in the neighborhood of 7 through 72 hours. So.
No different than some of the verbiage that we've heard in the marketplace.
We can show the physicians the FDA approved package insert which suggest that the pain score never gets to anything like the pain score that was achieved and the pillar trial.
And with EXPAREL so.
And I.
There is very modest trial use.
I don't expect it to have any impact on EXPAREL over time.
Yeah.
And your follow ups and you're good.
No I'm good. Thank you okay. Thanks, Matt.
Your next question comes from the line of Gary Nachman with BMO capital.
Hi, guys. Thanks, and good morning, I'll begin on the competitive dynamics with parents product.
And if it is used in some fashion.
Do you think there'll be able to get any sort of penetration and the asp's or are you expecting to really dominate that portion and the market.
And discuss it there are some barriers there based on your experience with the uptake and the ASC.
Sure.
Yes.
Gary honestly, the only reason that the only reason and I think even they would admit this that anybody would use central office, because it's less expensive and EXPAREL and the ASC is routinely EXPAREL is reimbursed.
So there would be if somebody was going to try it only because it was cheap.
And that opportunity wouldn't exist because both are going to be reimbursed and fact recently CMS increased the reimbursement of EXPAREL from $1.29, a milligram to $1.33, a milligram, so big customers, who have contracts with us can actually.
Purchase EXPAREL at a slight discount to the reimbursement that they get from CMS and we routinely see the commercial payers and the self insured payers fall.
CMS is lead and so.
I think of all the places that you might use this product the least that we're worried about is and ASC because there is.
And as a narrow label you you can only use it for a few things.
I think the package insert as really damaging not only the safety section, but you know the data that shows that it's 70 to $36.48, and 72 hours. The pain score is still hovering around 7 and a total knee arthroplasty that is just not acceptable.
So like I said, if somebody was going to use it because they were trying to save a couple of bucks.
It's reimbursed, it's reimbursed that even that option falls away. So I don't I just don't see it.
Yes.
Okay.
And then just a follow up on EXPAREL, just comment a little more on the trends Youre seeing and C section.
Referenced in a previous question are there certain types of hospitals that are driving most of the adoption, thus far or is the uptake more broad based and any change of how you view that opportunity at this point.
And then I'll just squeeze in 1 last 1.
Sure.
And what types of deals have you been most focused on recently would they likely be similar to spine and <unk> are you considering anything much more significant at this point to diversify the portfolio more rapidly.
And further leverage the infrastructure, especially now that you have a competitor in this space.
So women's health you know, it's no surprise, Gary that its the big institutions, the big Women's health and institutions that are most interested and.
Providing a short term stay.
We see that and a number of different places you know, we see moms who are really.
Interested in it.
That's so much opioid sparing, it's how do I minimize the exposure of the mom and baby to any any possibility of being in a COVID-19 environment and we're starting to see private equity firms and some obgyn groups around the country building out Berthing centers.
And our involvement there is generally we get a call and they are looking for a same day enhanced recovery after surgery protocol.
Which takes us into all kinds of curious areas like how.
How do you discharge the baby on the afternoon, right, because theres no pediatrician standing around and Ah and.
And Ah Birthing center or in a place that so the problems the hurdles that we have to overcome or more.
Technical around you changed the way that a C section would be handled so significantly that you have to really construct a way that you can discharge mom and baby are relatively short time after so.
You can see that there is real interest and moving these scales out of the hospital as quickly as possible or not putting them in the hospital at all.
And that's largely borne and the big cities, where you have got you now.
Aggressive centers, it's also born frankly, and the southeast and.
Tennessee, Alabama, Arkansas, where the Big hospital chains would tell you that they lose money on every C section that they do.
These are largely.
Involved and some type of social services payer system and those payer systems, just don't support the mandate for 3 days.
And so they're trying to change those regulations that say that those gals can stay in the hospital for up to 3 days and have free access to opioids, largely driven by the financing associated with treating that patient population. So again, it's a bit of a different reason to try to shorten the length of stay but it has the same outcome from a provider.
<unk>.
Your last question relative to BD.
Basically what we've said Gary as you know, we don't have any philosophical or emotional reason that we wouldn't do a big transaction, we have plenty of access to capital given our current scenario or situation.
So we would love to do something that further enhances our ability to.
To address our infrastructure opportunities and our relationship with all of these big physician groups et cetera, We just haven't found the right the right deal yet and.
You know I think we are price conscious we're not going to do something silly.
But we will do that deal if we find it and and.
And we can justify the price and make sure that we're creating value for shareholders. There is no reason why we wouldn't Gary.
Okay very helpful. Thank you. Thanks.
Thanks, Matt.
And your next question comes from the line of Tim Chiang with Northland capital.
Hi, Thanks, David could you talk a little bit just about this recent patent that you guys were issued on EXPAREL you know how important is this 495 patent.
And.
Sort of comment on just what additional IP you plan to put around etch Perot.
That'd be great. Thanks, Yeah, Thanks, Tim hugely important.
As background, our IP with our Orange book listed IP was going to expire on.
December 24th of this year. So now the current patent will extend out to 2041.
Its associated Tim with observations that were unexpected.
As we've gone into larger processes, but also and ways that we've improved the manufacturing process for EXPAREL and so.
We think as it relates to the manufacturer and multi visit Cuba liposomes.
No are very difficult and the first place.
We further tightened the specs and the opportunity for anybody to be able to make a generic EXPAREL and.
As it's outlined and the points to consider from the FDA that it would have to be and exact duplicate.
It also Tim to answer the second part of your question.
There are additional product and process opportunities like our current Orange book listed patents that have been filed with the PTO.
And I think probably most important of those is the new IP gives us an opportunity to also have new IP associated with a new assay. So we release EXPAREL against a proprietary assay and.
And having and improved proprietary assay that tightens the specs around what a generic would have to look like.
And NAV or telling anybody what those specs are or what this assay is I think makes it is pretty much impenetrable in terms of.
The patent of state around EXPAREL.
Okay, Great. That's helpful. Thanks, David.
Good Thanks, Tim good to talk to you man.
Thank you I will now turn the call back on Dave Stack, Chairman and CEO for closing remarks.
Thank you Doug I'd like to thank you all for participating in today's call. We look forward to keeping you updated on our progress next up with US is the Wedbush Conference next week, Thanks, I'll stay well goodbye.
Thank you for participating on today's conference call you may now disconnect.
Yes.
[music].
And then.
[music].