Q3 2021 Pacira Biosciences Inc Earnings Call
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Thank you for standing by your Q3, 2021 for Seara Bioscience earnings call will begin momentarily.
Again, please standby your conference call will begin momentarily. Thank you.
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Good day, and thank you for standing by.
Welcome to the Q3, 2021 to see where Bioscience, Inc earnings call.
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After the speaker presentation, there will be a question and answer session.
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I would now like to hand, the conference over to Susan Moscow Head of Investor Relations. Please go ahead.
Thank you Amanda and good morning, everyone. Welcome to today's conference call to discuss our third quarter progress joining me our speakers on today's call are Keith bass, Chairman and Chief Executive Officer, and Charlie Reinhart, Chief Financial Officer additional members of the <unk> Executive leadership team are here for a question and answer session. Before we begin let me remind you that.
This call will include forward looking statements based on current expectations, including those related to the potential transaction between seara infection. Thank you.
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 for free on the SEC website or our website. In addition, we'd like to remind you that the required tender offer documentation for both the tiara infection has.
Been filed with the SEC. Please also refer to the information in such documents, which are available for free on the SEC website with that I will now turn the call over to Dave stack. Thank you Susie good morning, everyone and thank you for joining US we will begin today's discussion with a few prepared remarks to cover our recent business highlights before turning to your questions, where we'd like to do.
Most of our time today.
Last month, we were thrilled to deliver a major milestone in our growth strategy with our proposed acquisition of flexion Therapeutics. This transaction directly aligns with our goal of building out a robust offering of novel non opioid treatment that will allow us to broaden our differentiated portfolio of end to end solutions across the neuro pain pathway.
With <unk>, we have a highly complementary commercial asset for the treatment of osteoarthritis knee pain, which will diversify our revenue stream grow our topline and provide meaningful synergies that we will that will drive that we expect to drive substantial near and long term accretion to our cash flow and earnings.
We are developing an integrated operating plan for 2022, we expect significant operational synergies accretion and growth potential for us iretta, which will be fueled by our complementary call points in commercial activities to put some quantitative context around this the three complementary commercial assets are each on a growth strong growth project.
With year over year to date net product sales growth of 27% for EXPAREL, 76% for iron ore and an estimated 25% drill horizontal redeye as reported by flexion Therapeutics last month and based on our estimates consider only needs to capture 30% of the operational synergies to make.
This deal accretive in 2022.
Future growth opportunities for EXPAREL and <unk> were highlighted at our Investor Day last month, which we hosted from the Viscera innovation and training center in Tampa, We were joined by eight key opinion leaders who shared.
Their experiences across multiple procedures.
Dr. Jeff Jackson had a regional anesthesia at Duke University provided an excellent summary of the revolution, taking place in the field of regional anesthesia, where EXPAREL based blocks are transforming the standard of care by institutionalizing enhanced recovery after surgery or Iraq protocols that are yielding improved outcomes fast.
Recovery, better pain control and enabling the shifting of complex procedures to outpatient settings regional techniques are redefining the standard of care for post surgical pain management with field and nerve blocks is expected to grow from 20% of anesthesia procedures in 2019% to 75% by 2000.
Twenty-five EXPAREL is the only FDA approved product that allows deals and nerve blocks for single dose long acting pain control.
Dr. Sonny timber a pediatric anesthesiologists from Shriners Children's hospital discussed how EXPAREL is changing the standard of care for his institution, where they are using EXPAREL based regional techniques, such as erector spine, a or ESP blocks to achieve excellent pain control using low or no opioid regiments and highly painful procedures.
Such as Scoliosis, Ms Barr placement and colorectal surgeries.
EXPAREL is redefining pediatric post surgical post surgical pain management by displacing opioids and cumbersome catheter system, which can have a 50% value rate, especially important for this vulnerable patient population with approximately 1 million pediatric procedures per year, we envision pediatric.
To be at least a 100 billion dollar market opportunity by 2026 Dr.
Dr. Maggie holds a regional anesthesiologist and medical director at Wells to our health systems performed live demonstrations of ultrasound guided EXPAREL based ESP and tap blocks showcasing the ease of administration and superiority to general anesthesia in terms of earlier recovery and fewer side effects for example, as discussed.
By Dr. Timber EXPAREL based ESP blocks are becoming the marquee procedure for pediatric spine surgeries at influential children's hospitals across the country Dr.
Dr. Michael Wang Chief of Neurosurgery at the University of Miami Hospital highlighted how EXPAREL based ear ash protocols have paved the way for him to perform a week spinal fusion surgery and cited cost savings of more than $5000 per case as well as a reduction in procedure time of more than two hours per case, enabling the transition.
<unk> of spine procedures to outpatient settings is a game changer and represents at least a $100 million growth opportunity for EXPAREL.
Dr Pulse upbeat elite research position in sports Medicine from Greenwich, Connecticut has established new EXPAREL based clinical guidelines for shoulder surgery, where he is seeing 30% of patients go opioid free after surgery in the ambulatory surgery setting shoulder surgery is the fastest growing orthopedic procedure for EXPAREL.
In the ambulatory surgery centers.
Dr. Steve Garver, obstetric anesthesia allergist at Saddleback Medical Saddle Brook, Saddleback I'm, sorry Medical center in California highlighted his success using EXPAREL tap blocks to help new moms have opioid free pain free experience. After C section surgery C section is the cornerstone of the womens.
<unk> market with EXPAREL with sales are also expected to exceed $100 billion by 2026.
Dr. Josh Urban a worth on Nebraska, who was used Io Vera in more than 1000 patients for treating pain associated with Atheros osteoarthritis or total knee arthroplasty summarize the advantages of <unk> therapy as a long acting non pharmacologic nerve block versus the safety risks associated with heat based approaches.
We are successfully positioning <unk> as a total procedural solution for total knee arthroplasty and expanding to peripheral peripheral osteoarthritis as well as we've reported previously orthopedic procedures make up slightly more than 50% of our EXPAREL procedures.
All of these above our on label applications and are driving real time demand in the market. The event also highlighted several exciting future development opportunities such as the treatment of pain from spasticity presented by Dr. Paul Winston who is the medical director of rehabilitation and transitions at the University of British Columbia.
Victoria and also the current president of the Canadian Association of physical Medicine, and rehabilitation, Dr. Winston presented compelling data outcomes.
Peter.
Using io very cold therapy, as a novel approach for treating not only the pain of spasticity, but the spasticity itself the.
The unmet medical need is significant and the social impact and costs are extremely high with an estimated 5 million patients. We believe <unk> could make a meaningful impact for stroke and cerebral palsy multiple sclerosis, our spinal cord injury patients suffering from spasticity.
What studies are almost completed treating the pain of specificity is currently on label and we are defining our regulatory strategy to asbestos city itself to the indication specificity has the potential to be a blockbuster market cryo Vera.
From the beginning to the yen the event underscores the vast untapped market opportunity that lies ahead with a total addressable market of 32 million procedures for EXPAREL and 31 million procedures for iron ore and current single digit penetration, we feel great about the outlook for growth with each 1% incremental market share.
Gate, adding another $100 million to the topline.
A replay of our Investor day can be found on the investors section of the PCR website.
Turning to Europe, the launch of EXPAREL and <unk> are now underway in this important market, we're generating interest taking orders and expect to be shipping product by mid November we are seeing a high level of interest as Covid has caused a tremendous backlog for orthopedic procedures in Europe with waiting lists as high as two years importantly, the average.
Length of stay in Europe, several days, which provides an optimal opportunity for both EXPAREL and <unk>.
To improve pain management for patients waiting for surgery.
As well as recovery time, surgical efficiency and throughput FERC total hips and total knee procedures on the clinical front. Our team continues to make strong progress for EXPAREL to phase III registration studies for EXPAREL and lower extremity nerve block are now underway. This timeline places us on track for a regulatory.
<unk> submission in the third quarter of 2022.
Activities to support label expansion to include a pediatric nerve block program and an indication for patients under six years of age continue to progress as expected.
A number of academic collaborations are also starting these include an opioid free C section study at Henry Ford Hospital in Detroit, and ESP blocks in pediatric spine surgeries at triad hospitals, and the Cleveland clinic.
Finally, we are defining regulatory strategies and new areas of interest such as Delhi ganglion block for treatment of post operative Dysrhythmia from open heart surgery procedures with iron ore. We remain on track to report interim results from our prepare study, which is evaluating EXPAREL Nio Vera in total in the arts.
For plastic procedures. In addition, we are supporting a wide range of pilot initiatives in exciting markets, such as restless leg syndrome specificity and rib fracture.
As for the depot form pipeline, we're moving to the next cohort and our subarachnoid program for spinal administration.
Depo dexamethasone asset for particular free inflammation therapy at a high potency EXPAREL with an extended duration of action.
In closing, we feel great about where we stand today and the market dynamics. We are seeing for both products. We will continue to build on our momentum to remain highly confident and we remain highly confident in our growth outlook. Looking ahead, we intend to cement our leadership position by expanding the use of EXPAREL in iron ore and look for forward to adding so read it too.
Our commercial offerings to deliver patient end to end non opioid solutions, along the pain pathway and with that I'll now turn the call over to Charlie for a review of the financial outlook Charles.
Thank you, Dave and good morning, everyone turning to our financial outlook, we feel very confident in the financial strength of the Sierra we continue to see potential for significant revenues and cash flows to support debt reduction and continued investment in innovative non opioid additions to our pipeline ill.
I'll start with a quick update on recent EXPAREL trends as previously reported the elective surgery market faced additional pandemic related challenges in August and September due to regional surges in COVID-19, Delta Varian cases, staffing shortages and surgical fatigue from care teams addressing significant procedural backlogs.
October EXPAREL revenues already indicate that these challenges are beginning to moderate supporting our optimistic outlook for a strong fourth quarter.
On the competitive front, we've not seen any impact from the new market entrants on our base business for our ability to generate new business. A pristine safety profile continues to be a key differentiator between EXPAREL and other extended release bupivacaine formulations.
Regarding any potential generic EXPAREL I'll quickly reiterate our confidence in our proprietary position and ability to protect the thriving EXPAREL franchise to get to the finish line and potential generic would have to successfully overcome every one of the rigorous hurdles that have been established for EXPAREL, including first our.
Wrong and growing EXPAREL patent state. We currently have two Orange book listed patents and we recently received notices of allowance from the U S patent and trademark office for two additional patents, including a product composition patent that is eligible for Orange book listing several additional Orange book listed patents are forthcoming to further.
Secure our exclusivity runway.
The highest specific and rigorous regulatory criteria for approving bioequivalence established by the FDA and third the practical manufacturing challenges of the complexities of making a multipurpose secular liposome product using a validated commercial scale coal chain sterile manufacturing process with <unk>.
Any insight into the product composition specifications were batch release records that are proprietary to <unk> and have never been disclosed.
In short we have great confidence that there will never be a generic EXPAREL and given the package inserts and safety profiles of potential competitors. We believe EXPAREL will remains the branded market leader for many years to come across a broad range of infiltration field block and nerve block procedures for adults and pediatrics.
Now, let me turn to gross margins, we continue to project gross margin improvement of 1000 basis points over the next few years with EXPAREL gross margins, reaching at least 85% by 2024 through lower cost manufacturing capacity and steadily improving volumes. During this third quarter, we began producing.
Product using our enhanced manufacturing process at our custom 200 liter suite in Swindon. We expect this facility to start benefiting gross margins in 2022, as we ramp up 200 liter manufacturing volumes and units sold.
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 around pandemic related disruptions. What I can tell you today is that we remain bullish on our long term expectations for robust top and bottom line growth and we are confident in our five year plan, which is on track to deliver a year over year revenue growth in at least the high teens gross margin.
<unk>, a 1000 basis points and operating margins that exceed 50% 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 and the number one.
To withdraw your question press the pound key.
Our first question comes from the line of David <unk> from Piper Sandler your.
Your line is open. Please go ahead.
Hey, Thanks, So just a couple on.
Collection and Silverado to the extent that you can answer them first.
Broadly Dave can you talk to.
What do you think you could do differently.
Regarding the support the commercial support of that product relative to flexion.
And this may be talk about the extent to which you might have more reach.
Into a wider audience of physicians.
With with the transaction.
That's number one and then number two now that you're sort of pivoting.
Into ortho is more deeply more deeply into chronic pain.
Think about.
The extent to which you would like to do additional acquisitions more leaning more into chronic pain.
And what is your appetite for something significant.
In the near term to intermediate term.
Thanks, David I'll grab the first piece and I'll ask Ron to comment on where we're going with with our additional BD activities.
I think David really what we're talking about here is our deep relationships with the orthopedic community.
We've had a number of discussions with folks who use zelle right up and they've given us some feedback about things that they'd like to see to make it a little bit easier for them to be able to use the product and understand the reimbursement in some of the rebate programs et cetera, So that'll be task one.
We also know that there's a number of people that have that are very close to <unk> that have not used the read at all.
And so we have an opportunity to use our network to go to a new group of folks that we think will benefit from.
Not only that the corporate relationship, but it's pretty interesting actually when they were all here last week for the <unk> two weeks ago for the analyst day.
The folks who were using silverado started selling it to the folks who weren't using it at the dinner that night and so I think just the scale of what we do here and the fact that we have multiple product going to the same customer audiences, including Io verify the way is going to help us a lot.
That's basically it.
Partial answer it to the same question is that our reps now will be dedicated to this chronic pain marketplace and will have.
I owe Vera as well as zelle reta. So we'll have a couple of different ways that we can treat these patients and we believe that it'll be based on the physicians training on the reimbursement profile, where the site of care is.
Very different aspects of this whether youre doing it in a hospital outpatient department or in the physicians office.
If the patient has a type two diabetic will offer different solutions to those patient populations et cetera. So we think theres a few considerations here that allow us to basically cast a wider net.
And.
And also from the perspective of the synergies that this allows we can do it we think very cost effectively.
And generate a lot of interest in <unk> so for.
For the second part of the question David.
I think you'll hear from Ron a chronic pain is really important but also reimbursement and I'll just make the point here that all the things that we're looking at are going to the same target audiences, which is really important when it gets back to the same answer to the same question I mean by dealing with the same physicians for all of these assets, we're able to get there.
Our idea is not only on the individual products, but on the pipeline is all this lays out in terms of how we have to develop these products and one against the other as well as the total pipeline. So Bryan can give David a few ideas on what we're thinking about here sure. David. Thank you so in terms of ortho and chronic pain.
<unk> and surrender of both at the crossroads between chronic pain in musculoskeletal, we've made investments in gene coin, which would save in a similar vein as well as spine biopharma up in that area as well when we focus on chronic pain, specifically, we get into neuropathic pain.
And we made an investment there in <unk> bio as well in terms of anything more significant I think we'll look towards the integration of flexion Enzo read out before doing something more significant at a commercial scale, but that's that.
That will primarily take place in the first half of next year and in the second half.
It may open up for other availability or opportunities and David just to reiterate I mean, what what our folks are telling us is.
They would like to have they have a long term relationship with these patients, especially the euro so I'll focus on the sports medicine focused on the spine folks so don't lose sight of.
A depo dexamethasone.
Would be a particulate free product, so think about being able to turn off the inflammation of a traumatic sports injury in a teenager and then following those patients with the same customers through the advancement of these osteoarthritis situate her scenarios until you end up with a total joint arthroplasty or a spine procedure.
Or something like that I mean, that's really the focus is where are the holes in their ability to treat all of the different aspects of these patients who might start out in their twenty's since there'll be a patient when they get into their sixties.
Okay. Thanks. Thank.
Thanks, David.
Our next question comes from the line of Gregory Windsor with RBC capital markets.
Your line is open. Please go ahead.
Thanks for taking my questions just two for me Dave. The first one is just around the commentary on certainly the elective procedure pressures than the surgical fatigue that you've commented on but also the positive shift that youre seeing in October and exiting that month I'm just.
If you could put a finer point on some of those potential drivers whether there are regional considerations or other factors that we can look for leading indicators and then secondly, just on the longer term to build on the previous question certainly.
As you focus on your multi year growth and revenue potential.
In addition to what's already can offer I'm curious if you can comment on flexible lease earlier.
Pipeline with 201, and 301, but maybe just a word on how youre thinking about the chronic pain and even the.
Were lethargic relief landscape.
Across a variety of novel targets that do exist in the early stage I face today. Thank you very much yeah. Thanks, Greg that's a that's a mouthful, but so the first one is.
Is pretty pretty easy from a from what we've seen and I think Charlie talked about this a little bit I mean, we're not where we need to be and where we want to be yet, but you can see that week by week the market is getting stronger.
Stronger both in new new customers total number of customers ordering the size of the orders I mean, we're not back to June yet, but we're moving in that direction and Youll see improvement every week and including this week so far by the way we can remember we get data every morning at seven o'clock.
So we've seen yesterday.
So I think COVID-19 is largely behind us and we don't really see much of of people that tell us that COVID-19 is having a big impact I think we're seeing the front end of that for the really painful procedures.
But what you've seen from some of the device manufacturers. This week as they started to report on these lower pain acuity procedures, starting to come back to the marketplace yet.
I can't tell you that we've actually got visibility on that Greg, but I'll tell you I'm happy to hear that they think that that is happening because so far everything thats come back about 74% of the ambulatory surgery procedures as we went through the summer.
But we're actually ortho and so this was this was very largely a north well recovery and at the soft tissues are coming back now that's good we still do see.
Some short comings and the labor market.
As it relates specifically to being able to get nursing teams to work on weekends.
There's a whole bunch of things going on there of course, they have to be able to do a certain number of procedures. So they have to work 12 months 14 hour days to make it worthwhile to open the place that still has some reticence in the mandates and all the rest of the things are are still confusing in the marketplace. So I can't tell you that that's cleared up but I think that's what.
We're seeing modest progress in on a weekend week basis, and why we see these elective surgeries coming back.
As we go forward there is a whole lot of things out there that are addressing what we see as a fairly dramatic need in the chronic pain area.
Ron outlined a number of the things that we're looking at specifically.
I think we have to be careful in how we address our participation in the clinical development of these products, but things like.
Gene therapy and.
Some of the.
One our A's and the NAV seventeens, especially different preparations are those products that give you the idea that we might be able to sidestep. Some of the adverse events that have been problematic in the past I think are of real value to us and Ron sit right across the table for me. So it's silly for me to keep talking when he's sitting right here so all of that.
As to the comment.
And Greg Thank you in terms of the.
The patient journey per Se, we shared a couple of slides during the analyst meeting of how we think about the knee osteoarthritis or joint OA space as well.
Chronic for Tibor journey back pain, and we are looking to add assets in that middle category as Dave mentioned Depo dexamethasone may be available for spine to red oak for knee, it's starting to patients off and an EXPAREL at the end of that journey in terms of.
The exact collection pipeline, we're looking forward to getting the data on both assets. The phase one data for 201 and 301 later this year or the beginning of next and have some decisions on that if you may recall the 201 product is.
It was licensed from a company that we've invested in gene client. So they share the same platform as well as the HVAC platform. So a lot of similarity there an overlapping interest in 301 as Dave mentioned, the sodium channel modulator may be interesting in terms of a reduction in motor weakness, but we're looking forward.
Seeing the data on both assets soon.
Yes, so I think that pretty much sums up where we are Greg.
Okay.
Thank you very much guys I appreciate the color.
Thank you.
Your next question comes from the line of David Steinberg with Jefferies.
Your line is now open.
The competitor.
The EXPAREL has been out in the <unk>.
Now for little over quarter.
So your.
R&D meeting a couple of weeks ago, we heard from.
A bunch of the clinicians in their view, but just more more broadly.
What are your salespeople hearing and seeing from the field now that it's been after the quarter end have you lost out in any hospital formulary P&C discussions.
To them.
And then secondly, I know you've been talking about gross margin improvement Charlie just mentioned over the next couple of years.
Just in your most recent quarter. It looked like it was the lowest gross margin over the last year and 100 basis points lower from last quarter. I know these things move around a lot, but just curious why that why the somewhat softer gross margins this quarter. Thanks.
Thanks, David.
Mentioned in the script so it's.
Transitory issue and we're going to be back at it and fully expect to get to the mid eighties. Yeah. I think EXPAREL was where we thought it was gonna be David I O'hara.
And building out some additional capacity for Iowa, where I had an impact greater impact based on lower revenues as Charlie said, so the impact was really on both sides.
Okay that makes sense just one quick follow up just to clarify the backlog situation I think most recently.
Had indicated that the backlog does that 3 million procedures.
And that you've thought about $1 billion would be next year, but.
Ongoing in more recent development of fatigue and agencies.
<unk> is that is that still the cadence to think $3 million backlog patients and a million next year with $2 million to be done this year or has that changed a bit.
I think we as well as you I think your question leads me right to the answer David right is that we do see it extended alpha.
And it becomes more of a 22 event than we ever thought it was going to be and I think all of the companies that work in this space are reporting similar kinds of activities, I think where where the 3 million number that you referenced starts to fall apart as.
These patients.
Some of them have been a year and a half without surgery now and there is every reason to expect that some ASI three patients would be and now HSA for patients and nations and no longer appropriate for surgery.
I think these these procedures that have gone on for this extended period of time become much more difficult to do and much less likely to be done.
Which is where the insurance companies are trying to send all these patients and so you do see.
A pool of patients out there that are going to be directed by their insurance carrier to go get these procedures and an outpatient.
Elective surgery center, but more of them are an opioid would've been the case, if we would've done on the timeline that would've been appropriate for the patient.
And as the disease progresses, these folks are less and less likely to be appropriate for the AFC and so we do see more patients than we ever did before struggling with their insurance company to find to be able to marry where the insurance company wants to pay for the procedure with somebody who is willing to do it not only at that.
At <unk> at a certain environment, but at a certain price right. If you've become a very complex chronic patient on opioids and the and the United Once they have you done at an AFC at a 40% discount to an inpatient that create some tension in the marketplace, that's going to take some time to work our way through.
Got it thank you Dave.
David.
The next question comes to value beside from Berkeley.
Your line is now open.
Good morning, and thanks for the question and.
Just from Maine, but clean.
With the recent notices a follow on that.
Can you describe.
The IP forest fencing, and they embody finished doing talent five four challenges and the other link basically the Obelia thing.
Secondly in the longer term dynamics that he lied iPad.
Using a meeting skater, we look at tab $900 million potential EXPAREL really know by 2025 Ah what part of this would be for main smash in Marquette anime me can you provide some context around the related title of these markets.
<unk>.
I'm, sorry, Benji our connection isn't very good velocity I may have to ask you for some clarity on exactly what your question was I think the first one was IPX lucidity.
That is right.
When do you expect to see the Orange book listing on the more details about the patent claims Oh, which strengthens your IP.
Yes. Thank you.
So we expect that they will be listed by the end of this year at least the ones that have currently been prosecuted we expect to have more that will also be coming along so what you're seeing now is just the tip of of what we expect to have happen. So we think there'll be a regular cadence here for another half dozen patents.
Not all will be Orange book listed blotchy, but certainly some will so we would expect that we would have four to six Orange book listed patents that would have to be navigated I should also tell you that Charlie reference the press release of yesterday.
We actually asked the PTO to look at the paragraph four filing before they send us the acceptance of those patents and they did and so the patent office has already looked at the peak for filing and still issued those patents to us.
The P. Four was was filed so.
Our belief in our position here is growing.
And so we feel pretty well, we feel increasingly positive about where we are in this whole thing.
So come again now with the second part of the question because it was all taken care of.
And the last time so yeah.
My question was on the longer term dynamic as you pointed out a day to maintain skater, which flavors EXPAREL, let around 882 $900 million by 2025.
What part of this would be from the international market as just taught to expand internationally and also can you provide some context around the relative sizes of thoughts on things market. Thank you.
Yeah.
Always it's important philosophy, especially given our mission to provide an opioid alternative to as many patients as possible.
We expect to be profitable in the middle of.
23.
So our 24 I'm sorry, so there is a reason to operate here, but as you would see in our five year plan. It does call out for our board that 95% of our revenues are still going to be in the United States. So important good business profitable business, but but does not.
Not material to the long term viability in the EBITDA numbers that we expect to obtain as we go forward in Europe, the biggest customer or at least as we see this is going to be the UK.
They are they are way behind in terms of total joined arthroplasty.
And their length of stay is nearly four days.
Time lag is over two years and so the NHS has actually worked with a number of orthopedic groups.
Transitioning through Iraq protocols into something that looks like the U S marketplace without the ambulatory facilities, where a patient can go so what we're working on with with them is how do we use their current hospital facilities, where we perform something that looks very much like a same day surgery.
Without having the same day surgery center to do it in right and so that's the kind of thing that they fully understand that that they need to catch up and they can't catch up with a four day length of stay right and so.
That's an that's an EXPAREL on I'll Vera great interest on using a non opioid to be able to control pain, especially in the more serious patients while they're waiting this extended period of time in order to get their surgical procedure. So we have big hopes for both of them.
It will be led by the UK will focus on knees and shoulders out of the blocks.
But we're already getting a lot of interest in spine and some of the other procedures because they are hearing about all these things at the conferences, Frank and so almost immediately there's request for what are the year S. Protocols that these individually as they are using et cetera.
In Latin America, we have a a partner.
In Latin America, Brazil, basically and then it's Brazil, administer Brazil, and then that's behind Brazil, as a whole bunch of smaller countries, but.
There's there's there's like over 20 countries or close to 19 countries involved in the deal.
But Brazil calls the shots on pricing and on the regulatory approval pathway and the indications and everything else and so you really don't do much until you know exactly what your status is in Brazil.
In Canada, we have a partner for Iowa, Vera and it just so happens that.
The Premier specificity Guy in the World is in Canada, and so Paul Winston has the opportunity then basically to lead the way with our Canadian partner and the use of Iowa Zero first spastic.
First specificity pain, and then hopefully, we'll we'll we'll be able to figure out a pathway that will get us an indication for specificity itself.
But those are those are the big markets.
Be some other opportunities here over the next couple of quarters.
But it really is.
A lot of this is driven by our capacity to have close to $2 billion of product at this improving margin that Charlie pointed out by 2024. So if you could make a couple of billion dollars worth of this stuff at 85% then we should be finding ways to sell 2 billion.
Worth of it at 85%, how we're not there yet.
But for the first time, we have the capacity to make more than we can sell and so that puts us into in a very different category. When it comes to looking at the different world marketplaces.
Thank you Dave lay a phone.
Thanks Bye.
Our next question comes from Grant, Greg Frasier from curious security your.
You're lying is now open.
Sure.
Can you speak to the gym cyo their platform and the advantages advantages that that version will bring over the current system and then click one on EXPAREL I know, you're not providing specific guidance for sales, but you mentioned expecting robust growth in the fourth quarter. I was wondering if you could expand on what you think that is robust growth double digit teens. Any addition.
Color on that would be helpful. Thank you.
Yeah sure. The first of all it's a lot easier to the second one so jen too.
So there is some.
Ergonomic improvements.
Some are modest.
In terms of visually if you looked at it it would mean that much to you but for example, as we get into different marketplaces, where the clinician wants to be holding an ultrasound probe with one hand.
With the with Jen one you couldn't hold an ultrasound probe and you could reach all the buttons on the handheld to actually be able to to to.
Trigger the a treatment and so we move things around to accept the fact that somebody is going to want to hold this hand-held with one hand.
There's a number of other modest things.
But we will go from a.
Tip, the screws on to a tip the clips on.
There is some significant changes in the actual design of the handheld and the tip that will allow us to get a lot more.
The cartridges the N O two cartridges were not only be more robust, but we will be able to do more treatments per cartridge and that continues to go on downstream right. We continue to refine this and look at ways that we can shorten the cycle time for different procedures.
Right now, it's sort of one size fits all right you push that button you get a minute of a treatment.
That might not necessarily be true as we get into some of these other facilities, where the doctor trying to use use I ohara. So it's a bunch of things and then we get all the way in again Jen too is going to be a work in progress over time as well, but just to give you a real life example, here as the chronic pain guys start to use I O'hara.
Use floroscopy and the way the current system is set up you have to be at a 90 degree angle in order for them to cartridge to fire will that would put the hands of the operator in the in the field of of the radiation. Obviously, that's not a good idea. So there's designs that are ongoing where it will be able to.
Make different kinds of ice falls using different configurations, it might not even be a nice bottle at all it might be an ice lie.
Line, if you will that lays across the top of a nerve because it's coming in longitudinally latter rather than laterally. So just to give you a sense that there's a lot of things going on around IL Vera in these tips that will be specific for specific procedures.
Your second question, Yeah, as we get back to normal we would expect that we would be into the teens.
We were we were in the teens and obviously, we are over 25% through the third quarter. So the teams are not an unreasonable expectation.
Not there yet.
In queue for October was like it's got a lot better from flat, but it's we're not there yet just to be candid and.
But this week might be that week actually we are pretty strong so far Monday Tuesday Wednesday so.
I don't think that's an unreasonable expectation, Greg, but remember we're coming off of a not so great spot.
Great. Thank you.
Face.
Our next question comes from Anita Janina from.
Oregon Burke. Please go ahead your line is open.
Hello, Good morning.
However.
Try to find the redemption.
I know you have to buy and yet, but I'm, just saying goodbye to paying the amount of staff.
What's that.
I need to see.
Similar dynamics that yet.
And then they grabbed Q4 right.
Morning quarter cycle <unk>.
People will be more spread out again.
No well I hope not.
Thank you for the question of the dynamics of queue for really there's two things that we see here that are very strong every year. One is the whole dynamic of insurance.
And patients who are satisfied their deductible and co pays et cetera.
Especially if they're in a.
Place in their life, where there's an employment situation is unsettled and they might not have insurance next year.
See a lot of elective procedures come in especially for therapeutic procedures in the queue for driven by that dynamic.
There's not as many people employed with insurance and so that's a bit of a we can't count on that like we would have in earlier years. It still will be there for sure. We just don't know whether it's going to be as strong as it was in other years. The other dynamic that you might smile at but it's true is it.
Folks get cosmetic plastic surgery procedures as holiday gifts.
And they must know it's coming because they appear to go to the physician or the next day after the ghetto and.
It sounds crazy, but it's very strong and that week between Christmas and new year's every year.
We think that that actually will be stronger as people start to come out and do more and get back into inactive lifestyle. So.
I mean, just to give you.
Some context here.
Q4 would be roughly 30% of our business.
On a normal year and.
I think this year given the the fact that the numbers are later that we would have expected given the culvert dynamic.
That is not an unreasonable expectation again, but it's 30% of a smaller number so it's it's a little bit of game play, but you see where I'm going.
Yes.
Thank you and then.
In line.
Kick my Cat.
<unk>.
Yeah.
<unk>.
Yep.
Continuing to adopt.
No. We did so in September we train the entire field organization.
Pediatrics.
And we continue to get approvals and the major centres, which is exactly what we were hoping was going to happen Anita.
Our our team that's dedicated to Pete's has been very successful at major academic centers and that's really what we needed to accomplish right. We need the folks that look to those places for guidance to to understand how they're using it what their protocols are and then get those protocols and and send them.
Out into the community and so.
The wholesale forces trained.
The folks that ran the <unk> launch are still running the peed launch and so they are actively involved in making sure that the.
That are that the field force doesn't just go to a bunch of hospitals introduced the idea that you can replace pumps catheters, but then not follow up appropriately. So we're being manic about the fact that this is one hospital at a time when you go into a hospital and you start to sell you have to train all the folks you have to train. The nurse is you have to make sure farmers.
Or you have to make sure the C suites onboard and until that's done and we're satisfied that a patient is going to get appropriate care.
Soup to nuts, you don't go to the next hospital and that's not an easy thing for a field for us to understand as you can imagine. So we are still stringent and the way we are providing access but everybody's trained now so we have a we have a large opportunity to train.
Okay great.
Thank you and then.
Hello This is Stephanie.
Laura.
Bob.
Thanks.
So they started.
We think that we can complete these trials were using many of the same sites and we're using most of the same surgeons.
And so we think that will have data some time and by the middle by the mid of Q2.
That's the current plan any way now there's two separate studies what does it adds Africa now block and.
And the other is an abundance study, but it's really a sciatic block.
So.
We're hopeful that we can get both of those studies done.
And the first half of next year, so that we would submit an NDA and early in the third quarter that on a 10 month approval that would give us a launch opportunity in the second quarter of next year.
That's great.
Okay. Okay. That's helpful. Thank you.
Thanks.
Our next question comes from Chris <unk> from J P. Morgan Your line is now open.
Questions. After the first of all going twice way too expensive progression and gross margin improvement.
As we're looking at the next year I was wondering if you provide a bit more color on expectations for gross margin and expense progression through the year.
It's very helpful operating margin targets for both.
Greenberg and it also expense leveraging but I'm just thinking about the pace at which somebody's opportunities can you realize in the near term.
And then the second one is just a follow up on business development so posts.
How are you thinking about.
Capital allocation priority shifting.
And are there any significant capacity constraints pursuing additional deals would that be financial or operational integration takes so much.
Thanks, Chris.
On the first one.
There as well.
Dynamic situation, given reflection zilretta right and so.
We.
On the Io Vera EXPAREL plan.
You would expect that you would have opex.
Increasing in mid single digits.
We expect to get something like this.
You think that there is a thousand basis points, we would get 300 of them and as 22 rolls along and we use more material is actually produced in the Swindon facility.
And revenues are expected to be several times that right. So if if revenues are growing at something in the twenties and expenses are growing in single digits and we're getting a gross margin improvement at the same time.
It will improve as revenue improves of course.
But.
But without the addition of a flexion.
Expense line, then that still is not as clear as you might like it to be and frankly as I would like it to be but we don't have all of the information yet from flexion. So.
My working assumption Chris is that.
The synergies will be significant and the margins will be better than significantly better than they would have been without the Zilretta addition to the portfolio next year meeting that the synergies will will be really important if we are reaching reach our revenue.
<unk>, so I'm not giving you a perfect number based example, but it would have been good with I ovarian and EXPAREL actually would've been very good with algorithm EXPAREL it could be very very goodwill zilretta.
And so.
Everything is leaning towards.
These these margins improving dramatically as we go through the next couple of years specifically.
Yes.
Okay.
I am looking around to see if anybody's got a better idea that I just gave you a printer so far so good.
And and crickets run on the on the beauty question don't see any significant shift in strategy will continue to focus on record franchises of.
Two franchises muscle skeletal pain broken up across the osteoarthritis or to reject it back pain, and especially therapeutics, especially therapeutics you have acute pain in the chronic pain as we talked about earlier and then in regards to capital allocation will continue to look for more promising external.
<unk> opportunities and.
On a larger side beyond the integration period, which we discussed will primarily be the first half of the year of 22.
Perfect and I think and I think it's fair Chris to say.
Ask around to comment if I'm incorrect here, but I don't think you're going to see US do another 600 million dollar deal in the near term.
But there's a lot of things where.
Our ability to do clinical trials and our commercial understanding of the marketplace leads folks with earlier assets here.
I think spying bioscience is a great example of.
A certain amino acid peptide that they believe actually turns off the Ah built the progression of this disease.
That's an investment that was made against a target profile if that target profile is Matt.
We would take the asset on.
Think that style of investing over the next over the short term, while we digest the flexion deal makes a lot more sense than looking at something else, that's a significant opportunity.
That's helpful contact.
Thanks, Chris.
Our next question comes from the line is Serge Bellinger from medium and company.
Your line is now open.
Save your morning, just a couple of questions for me.
First wanted to revisit wanted the 2025 target more specifically related to.
I hope, they're reaching $200 million in sales.
And I think that's the only TK and OA knee pain.
Just curious.
Get there were just more clinical data and those specific indications and building more awareness.
Maybe what needs to be done on the payer reimbursement fronts.
In order to get there.
First it's Jen too and having a more reliable system that.
That the Doctor can count on in there have been some issues with the with the gentleman system that we that we bought.
So that will help a lot in terms of stabilizing the market.
What we need frankly has access to the customers I mean, when people use Io Vera.
If you use it you you if.
If you use it once you use it a bunch of times I mean, it was the opportunity for patient care improvement is dramatic.
So what we need frankly is.
We're increasing the size of this salesforce.
To to take Zilretta on as well, we need cope it to be behind US frankly, so that the reps have access to the Doc sets. The single biggest thing and then a system that we rely on and.
And then I would say the third biggest thing surge in this is some X. This is is a data.
Opportunity as well as reimbursement.
The reimbursement in the H O PD is very good we've got dogs, who are using that drove very successfully and workman's comp for example from a reimbursement perspective, and we're finding an increased acceptance of.
Self pay insurers and commercial insurers to pay for a non drug.
Therapy to provide pain control, especially for pre surgical patients. So I think what's been hampering us the most since we've had some of these data sets in some of these kols that are using the product is just frankly on new device to with a rep that is not known to that office.
And you go in and use and they're used to seeing drug guys and you go into a orthopedics office and you've got this thing that looks like a space age cell phone and you say you're not going to use drugs anymore. You are going to use cold and you're going to freeze the nerve and the nurse looks at you like you're just fell out of a space ship.
Right, we need to have a.
Organized marketplace that these guys can sell into that I think is probably as big as anything and then this is a little bit divergent premier question, because it does go to specificity.
But the interest in specificity has been overwhelming.
And we have a series of AD boards with the world Kols and specificity over the next several months and I think you're going to see some real interest in specificity.
The average sell price for this unit is with a tip is something in the neighborhood of $450. When you look at the look at the use of Botox, it's between six and $12000 depending on the dose when you look at phenol or when you look at the back Wilson.
In the back.
The pumps. The marketplace is is just littered with failed opportunities to treat specificity pain. So.
It may be cheating a little bit against the way you ask the question, but I just think $200 billion is not an issue anymore. If it works and specificity and it is specificity pain.
So.
Just to be completely completely candidate so sure.
Alright.
And let me squeezing more and more.
And you're prepared comments you talked about.
Regional anesthesia approaches withdrawing from 20% to 75%.
In 2025.
Just curious what that means for the installation market.
Will there be one in 2025 is going forward.
Yes, yes, there will be there are some places where you just can't do it nerve block right and so.
Well for first of all and peace right now the indication we have is for infiltration. It is now trend nerve blocks. So.
So we're training and we're talking to guys about it.
Infiltration I'll give you. An example, when you do a knee for example.
We're doing and that Doctor can help block, but at the same time most of the dots would address the pain in the anterior either doing by doing a perry articulate infiltration, where they they actually inject the periosteum. It might also put some drug in the posterior capsule, but they would do a direct injection into the posted up into the periosteum or are we.
Have guys for and Gals for ACL repair for an example doing different kinds of Infiltrations.
And so I think you're going to see a combination.
It's interesting in the marketplace because we define this this way for the FDA in for you guys in the marketplace. The docks think that these discussions are nonsense that they're all nerve blocks in one case, you're blocking little nerves with an infiltration because you can't see them one at a time.
And the and the nerve block or the field block indication you can see them. So you'll have a greater opportunity to define them an ultrasound but.
<unk> all the time that my positioning is stupid on these calls.
Because the nerve is a nerve in a nerve block is a nerve block and the way you define it because the FDA forces you to doesn't make any sense to the anesthesia community.
So.
Okay.
Great. Thank you.
Thanks Serge.
Our next question comes from Andreas on your rights from my Bush.
Your line is now open.
This whole sticking on the topic of a bioware.
Prepare.
They prepare study results are expected.
Late this year early next year.
How how are those.
Results I mean, what can be when can we expect from Israel. Some how are they going to.
In essence.
At.
Add to that.
Yeah.
Profile for for for our warehouse and then secondly, and I don't know if this was asked earlier pardon me if it was just on the other.
Partnerships that you have with the spine by our et cetera remedies disc.
Data, we have kind of some time in 2022 is that still a timeline or when can we expect data from from Ah.
What program and I think I'm going to take number one random comment on number 200 <unk>. Thanks for the questions.
So really the prepare study is done mostly for reimbursements and mostly to.
Provide data for self insured employers right. So what the what the self insured and by the way I don't think that.
The market in general the financial community in general understands.
How much weight to self insured employers now carry in the marketplace and how they're defining what they want to use and how important opioids varying is and so this is done looking at functional end points.
When does the patient ambulate when do they get into Petey, how long are they and how long does it take before they can drive.
And the Big question is.
I am going to pay X amount of money to have this procedure do I get a patient back that's actually in better shape than they were before I center to the physician and so those are the big questions that prepare will answer.
And it it will also be useful for us in addressing.
The CMS and the commercial payers with a reimbursement outside of.
The H O PD into the AFC and then looking in the other direction working with those same groups of people and now this is not prepare but we'll do a separate OA study to look at things like workman's comp and if you can handle those those.
Really painful patients who have very significant showing issues. If you could turn to page signal off and those patients what does that look like relative to the current cost of care and what it costs you to treat these chronic patients those are really the two angles that we're taking with <unk>. So it's as much.
Reimbursement story as it is a clinical efficacy story.
And what we're trying to show and I think we are showing frankly, because we talk to the guys who are doing the trials.
Is that the idea here is to get patients off opioids to have them stop smoking. If they are abusing alcohol to get them to stop abusing alcohol, if they need to get into a BMI range that supports a total knee arthroplasty procedure, how do we allow them to do that one of the big thoughts is if.
We could turn off their pain, we could let them start going down the stairs, we could get him out of the wheelchair even simple things like.
With dogs.
Can you walk to the mailbox everyday I want you to walk to the mailbox and get your mail I mean, it doesn't sound like anything to you and me, but if you've been in a wheelchair for 18 months, that's a big deal and so we're trying to turn a pain signal off get the patient to be a better patient for the surgery itself and then almost by definition, they become a better patient and the poster.
Trickle environment, which is why we're focused on functional outcomes.
If that makes sense.
They are very helpful color.
A quick question on that one on the progress is limited.
Yes.
Andreas what's wrong just on remedies, we expect a phase III program to open in the early 2002 timeline in 9222, Yes, and then four.
Result in the first half of 23.
Fantastic. Thank so very helpful color and congrats on the program.
Okay, great. Thanks Andress.
Which includes a Q&A session at this time I'd like to turn the call back over to Kate's tax or closing remarks. Thanks.
Thanks, Amanda I would like to thank you all for participating in listening to today's conference call. We look forward to keeping you updated on our progress next up for US is preparing burg and the Jeffries conferences. Later this month, thank you all and stay well.
This concludes today's conference call. Thank you for participating you may now disconnect.
Really 17 at the end.
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