Q1 2022 Pacira Biosciences Inc Earnings Call
Ladies and gentlemen, thank you for standing by your conference calls.
To begin momentarily again, thank you for standing by the conference costs that begin momentarily. Thank you.
[music].
Okay.
Thank you for standing by and welcome to the Q1 2022 per share Biosciences earnings Conference 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 at that time. Please press Star then one on your Touchtone telephone.
As a reminder, this call is being recorded.
Now I'll turn the conference over to your host Susan <unk> head of Investor Relations. Please go ahead.
Thank you Valerie and good morning, everyone welcome to <unk> conference call to discuss our first.
First quarter 2022 financial results joining me on today's call are chairman and Chief Executive Officer, and Charlie Reinhart, Chief Financial Officer additional members of our executive team are joining for todays question and answer session. Before we begin let me remind you that this call will include forward.
Looking statements.
Such statements represent our judgment.
And may involve risks and uncertainties are information concerning risk factors that could affect the company. Please refer to our filings with the SEC.
On the FCC, our website with that I will now turn the call over to Steve.
You, Susan and 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, we'd like to devote most of our time today. The Sierra continues to drive innovation in non opioid pain management with notable progress taking place across our entire portfolio in the first quarter of 2010.
Two we.
We are pleased to cap off the first quarter with record high EXPAREL sales that exceeded $51 million for the month of March. This is particularly impressive given the recent and ongoing pockets of persisting COVID-19 related operational disruptions in the elective surgery market, along with labor shortages, which continue across all surgical settings in the first.
Quarter, and especially around the Easter and Passover holidays in April strong top line sales, coupled with our operational efficiency objectives continue to drive attractive adjusted EBITDA margins of over 34% for the first quarter, marking our 20 consecutive quarter of positive adjusted EBITDA.
EXPAREL utilization continues to expand and support the market transition to outpatient sites of care. This is demonstrated within our latest available weekly data, which shows EXPAREL significantly and consistently outperforming the elective surgery market by a very healthy margin period over period as well as sequentially when compared to pre.
Covid baseline levels. Our most recent <unk> data are available in the Investor Relations section of our website.
Pearl based nerve blocks and field blocks are fueling a revolution in regional anesthesia. So it is not surprising that this segment is our number one growth driver anesthesiologists are developing new blocks, while protecting existing block techniques. In addition, anesthesiologists utilize imaging to ensure successful blocks and pain control to expedite recovery.
Times, and ensure best practice patient outcomes, a critically important element and ambulatory surgery cases as the aim is to discharge patients shortly after surgery.
In person society meetings are back and enabling us to engage directly with clinicians who remain eager for education and training around regional approaches for EXPAREL as well as drug free nerve blocks with IL, <unk> and intra articulate injections with <unk> for osteoarthritis pain.
We are leveraging our state of the art pit training and innovation center in Tampa to facilitate real time, best practice knowledge transfer and accelerate surgical migration to outpatient sites of care in the first quarter alone. We had 84 inbound requests for institutions requesting training for their anesthesia teams on select blocks with a rector spot.
Many block or ESP being the most requested underscoring its growing opportunity hurts popularity given its simplicity safety and broad coverage, our medical and innovation team also continues to host monthly workshops, where interest and attendance remain high.
We have launched development plans for our second innovation and training facility in Houston, which will look we will look forward to opening later this year, we expect Houston will have an equally positive impact on expanding EXPAREL, the niobrara expertise among clinicians, especially for field and nerve block procedures, which are driving the majority.
Or any of our growth.
This cutting edge facility will feature an adaptive lecture hall broadcast studio state of the art advanced imaging and dedicated space for cadaver labs and other interactive workshops. These training centers are core to developing both our physician champions of community based clinicians who want to stay on the forefront of opioids.
Pain management.
Partly we continued to advance our robust patent strategy around EXPAREL and have fortified our intellectual property with new patents, which extend protection to January 22nd 2041, We now have five patents listed in the Fda's Orange book and expect the six patents to issue in the coming weeks.
Drilling down into a few key export markets orthopedic procedures are growing significantly with our most recent <unk> data from October 2021, showing year over year extra EXPAREL utilization up 26% for this fourth PD market segment EXPAREL based regional protocols are safely and reliably.
Willing a shift of orthopedic procedures with EXPAREL utilization up 34% over the same period and a 23 hour sites of care.
In pediatrics, EXPAREL is performing very well and quickly replacing pumps and catheter as a standard of care.
We are continuing to drive medical education around the latest techniques. In addition to spine and cardiovascular surgeries, we are seeing emerging regional blocks and pediatric deformity trauma and injury related procedures. Later. This month, we are launching a new monthly production from our Tampa innovation and training center the pediatric exchange.
Which will feature pediatric surgeons anesthesiologists and nurses from nationally recognized institutions, who will share their clinical experience and outcomes with EXPAREL.
These remain early days in the pediatric market, where opioid sparing pain management in these vulnerable pediatric patients is townhome.
In women's health, we continue to see significant growth and are experiencing a powerful halo effect with success in C section driving expanded utilization and breast augmentation and gynecologic oncology procedures. We are also seeing where we are also seeing a lift to the 23 hour settings, the growing level of interest around EXPAREL regional blue.
<unk> Women's health was recently evidenced by a high level of engagement at our educational events focused on neuroanatomy regional techniques and same day surgeries at recent Congresses, including the society of Gynecologic Surgeons, the societal society of Gynecologic oncology and the American Society of breast surgeons.
Guarding our European launch, we continue to make slow, but steady progress and now have a full team in place.
We've been encouraged by the strong interest in EXPAREL as physicians in Europe worked through a surgical backlog with waitlist of one to two years, we are effectively using our virtual capabilities from our Tampa Innovation Center to train European Anesthesiologists, and surgeons and best practice pain management techniques utilizing EXPAREL and <unk>.
Multimodal therapy and enhanced recovery after surgery protocols.
At the export pipeline, our two phase III studies evaluating lower extremity nerve blocks are advancing with data expected in the third quarter.
If successful these studies will support a supplemental NDA filing by the end of this year.
Planning is also underway for our multimodal registry for a multicenter registration study of EXPAREL as a still a ganglion block for treating refractory cardiac arrhythmia.
Doctors should Kumar director of UCLA, cardiac Arrhythmia center and world renowned expert in the mechanisms of cardiac arrhythmias is collaborating with the team on study design and will be the principal investigator.
Once finalized we intend to meet with the FDA to align on study design and refractories and regulatory strategy for expanding the EXPAREL label to include stomach ganglion block.
Still a block which lasts for several days with EXPAREL will be a significant improvement in patient care and Dr. Maher is leading the way forward.
And our success with EXPAREL, our acquisition of function continues to perform and support the strong rationale for this combination.
Out of the gate, our <unk> franchise has performed well while still in the early stage of its growth trajectory. We are confident this product will be an important revenue and earnings contributor to.
To better aligns the Red hat acquisition and distribution with the needs of our customers. We recently introduced a simplified volume base tiered discounting program. We expect this will normalized ordering patterns of cash outlays for our customers, while embedding silverado earlier in the treatment paradigm.
Beyond the currently marketed indications for <unk>, we continued to advance our pipeline of opportunities to drive product growth and new indications in the coming years, including a phase III label expansion study and shoulder that we intend to discuss with the FDA in the third quarter.
We are also defining a regulatory pathway to add repeat dosing and safety data in type two diabetic patients to the Silverado label.
Moving to <unk>, our novel handheld Cryotherapy device, we are working toward transitioning the market to a new generation to device the rollout of generation to our broad customer base has been slower than anticipated as we are implementing a software update to further optimize the user experience based on.
<unk> received during the initial phase of the launch to our top Albert users.
Turning to the prepare study of <unk> in Teekay. Following an interim review, we decided to close the study early.
As it was unlikely to support our commercial goals around reimbursement since the design no longer reflects the market's current practice patterns.
The market is moving rapidly towards ultrasound guided <unk> blocks delivered by anesthesiologists pain management specialists and non operative sports medicine clinicians. These providers use a longer 190 tip with ultrasound visualization to precisely target deeper nerves associated with osteoarthritis of the knee.
<unk>.
This newer approach confirms near location and ensures accuracy of treatment the <unk>.
Got a registry study is now positioned to provide real world evidence with IL barrel, which will better support our commercial initiatives by reflecting these evolving standards of care in real time <unk>.
<unk>, capturing both Io Vera Enzo read data in the osteoarthritis the treatment paradigm as leading centers with leading centers of excellence.
In addition to use and total knee arthroplasty in peripheral nerve block, we remain particularly excited for the opportunity for IOP, our cold therapy as a novel approach to treating spasticity.
As you May recall, we have been working with Dr. Paul Winston President of the Canadian Association of physical medicine, and rehabilitation, where its been conducting Io Vera observational studies and spasticity.
The preliminary findings of Doctor wins. This research continues to be highly encouraging and he is now collaborating with our clinical and medical teams on a publication strategy for these data.
In parallel we are designing a registration study to evaluate <unk> in the treatment of spasticity, we expect to meet with the FDA later this year to secure alignment on study design page.
Patients currently have limited and often costly therapeutic options. For example patients are receiving three to four botox treatments a year at 1800 to $2400 per treatment.
Another example is the off label use of phenol, a chemical neuro lytic phenol is painful requires anesthesia and has adjacent tissue scarring with outcomes that are highly variable and contrast, Albert has shown great promise in the syndication and with eye over a smart tips costing 450 to $500 Io Barak could represent.
On a tremendous value proposition asbestos city.
An effective and safe treatment for post stroke patients and pediatric cerebral pediatric cerebral palsy patients would be a significant advance in the treatment of spasticity.
In parallel to our EXPAREL stellate ganglia Black study that showed Kumar is also initiating a study utilizing <unk> trial technology to treat the stellite ganglia as a long term approach to efficacy.
Effectively I am sorry to effectively address various cardiac dysrhythmias such as those that occur post myocardial infarction.
<unk>, Ohio, Vera have the potential to address both acute and persistent cardiac disease and a wide range of patients.
Moving now to our earlier stage pipeline opportunities, where we continued to make progress.
We expect to initiate a phase II study of EXPAREL in subarachnoid MLG ship later this year.
In addition, we are defining clinical programs.
Bryan Ferry boat that particular, lithosol formulations of dexamethasone for inflammation in low back pain and high dose bupivacaine for longer acting pain management fees or more.
Lastly, we remain active in the business development front and recently made a strategic investment in Cardtronics to support the final stages of preclinical development of CX 011, and interact tequila injection designed to slow joined the generation by mediated IL six cytokines.
In closing, we started 2022 and a position of strength and we continue to feel great about where we stand today.
We have the wind in our sales and across multiple non opioid franchises and remain highly confident in our outlook for strong revenue.
And earnings growth with a significant patient need for opioid sparing options at limited commercial competition, we are more confident than ever that we have the right team the right products and the right strategy to cement our relationship our leadership position in delivering patients innovative non opioid solutions along the neural pathway.
<unk> is a significant shareholder value.
With that I'll now turn the call over to Charlie for his first quarter financial highlights. Thank you David and good morning, everyone I'll start with a quick update on sales and margin trends starting with EXPAREL. We remain very pleased with the ongoing success of EXPAREL as the clear market leader in non opioid post surgical pain management.
Our year over year increase of 13% for the first quarter and we exited the quarter on a high note with record high monthly sales for March despite persistent regional disruptions and labor shortages, resulting from the pandemic.
We have seen no impact from new market entrants on our EXPAREL base business or our ability to generate new business, which is not surprising given the markets ongoing shifts to regional anesthesia analgesia and outpatient sites of care.
Having treated more than 10 million patients in the U S. We are confident that our well established efficacy pristine safety profile and more than a decade of physician experience will continue to be key advantages for EXPAREL over other extended release bupivacaine formulations.
As expected <unk> is a perfect fit within the <unk> product portfolio. The product is off to a great start and performing according to plan, we have successfully replenished commercial inventory with appropriate dating and implemented a simplified discounting program to better support our customers we continue to expect.
Improving <unk> sales trends throughout the year, as we broadened education and awareness through our commercial expertise and established relationships.
<unk> first quarter sales were impacted by a delay in the rollout of the Gen. Two device as Steve mentioned earlier as well as <unk>.
Short term variations in regional reimbursement policies, we expect the product to return to more robust year over year growth as the year progresses, we remain very optimistic in the <unk> opportunity within its current as well as new indications such as spasticity in stellite ganglia blocks, which we are making new.
Michael investments.
Turning to gross margins on a consolidated basis, our first quarter non-GAAP gross margin percent improved to 79% versus 75% for the first quarter of 2021.
This is comprised of non-GAAP margins of 82% for EXPAREL.
73% for <unk> and 58% for iron ore.
First quarter <unk> margins were impacted by the write off of an out of spec batch that was manufactured pre acquisition and <unk> margins were impacted by overlapping expenses as we transition production to our San Diego facility and a new contract manufacturer along with our investments in <unk>.
Two device.
Looking ahead, we continue to expect to see margins improve.
All three products and to reach the mid 80% range by the end of 2024.
While we are currently not providing 2020 to revenue or gross margin guidance given the continued uncertainty around COVID-19 related disruption and the pace of recovery for the elective surgery market. We remain committed to the transparency of reporting preliminary monthly products sales for EXPAREL and <unk> to share intra quarter trends.
With you.
<unk>, we are not currently reporting preliminary monthly net product sales as the required adjustments for the legacy BD program are calculated after the end of the quarter.
We expect to begin including preliminary <unk> sales and our monthly updates in the second half of this year as we transition away from the legacy rebate program and implement our simplified discount structure.
We will consider adjusting this practice for all three products as the year end visibility progresses.
Turning to expenses first quarter non-GAAP R&D expense of $20 1 million was in line with our guided range for full year, non-GAAP R&D of $75 million to $85 million, which we are reiterating today, we would expect second quarter R&D expense to track higher and then tail off.
In the second half of the year as we complete enrollment in our lower extremity nerve block studies.
For non-GAAP SG&A expense, our first quarter spend was also in line with our guided range for full year, non-GAAP SG&A expenses of $220 million to $230 million, which we also reiterate today.
Interest expense was $10 2 million for the first quarter of 2022.
To remind you last year, we secured term loan b financing for $375 million with a floating interest rate of sofa, plus 700 basis points.
Over 80% of this quarter's interest expense was attributable to this loan with the remainder related to our convertible notes.
<unk>, the two 375% notes, which matured and were paid off on April one.
For modeling purposes going forward based on today's interest rates interest expense will be approximately $9 million per quarter for the rest of 2022.
Our GAAP P&L reflects a first quarter effective tax rate of 6%, which benefited from the impact of a discrete tax deduction related to equity compensation transactions, often referred to as an equity windfall deduction for.
For non-GAAP purposes, our adjusted results reflect an effective tax rate of 25%, which we continue to believe is an appropriate effective tax rate for the cra's adjusted net income this year.
And lastly, adjusted EBITDA continues to ramp and increased by 49% year over year to $53 $8 million a.
A record for the first quarter, and our second highest quarter ever.
In summary, our Syracuse continues to operate from a position of financial strength, despite certain regions experiencing COVID-19 related disruptions and labor shortages, we continued to deliver impressive financial results and remain bullish on our long term expectations for year over year top line growth and at least the high teens gross margin.
Movement to the mid 80% range modest year over year increases in operating expenses and adjusted EBITDA margins that exceed 50% that.
That concludes our prepared remarks, I'd like to turn the call over to the operator to begin our Q&A session operator.
Thank you again, ladies and gentlemen, if you'd like to ask a question. Please press Star then one on your Touchtone telephone again to ask a question. Please press Star then one.
One moment for your first question.
Our first question comes from David Anthem Piper Sandler Your line is open.
Understood.
Hey, Thanks, and I apologize if I missed this but can you Dave just frame, how we should think about.
April and May for EXPAREL, I mean seasonally typically is better.
And the elective surgery environment, but can you talk about.
You know what youre seeing in terms of elective surgeries, how you should think about how we should think about.
The.
Not just the pace of procedures, but are you thinking about the potential for uptick in <unk>.
Overall volumes as we go more into the spring months.
And then secondly on little Red Oak can you just talk about how broadly you can get more out of the asset then your predecessors.
And I'll leave it there thanks.
Yeah sure. Thank you David.
First on elective surgeries.
David If we look at the first quarter, even I think it's.
I just can't give you a really solid answer I wish I could.
We spent last weekend with a number of very high profile.
Administrators said folks who run hospitals around the country.
There are discussions were very much mirror images of each other I mean, if we think about the first quarter.
3%, 4% in January 16% in February and 17% in March is pretty much what we think we're going to see.
We saw something in the 9% range.
Audited and early but something like that in April and we've only got a couple of days in may so far so I don't know what to tell you but.
Echoing on a more specific way, what Charlie said I mean day to day, David It's just all over the place I mean, even this week the our daily sales for Tuesday were twice what they were for Monday, which is just highly we haven't seen that before and.
And we relate most of that some of that is COVID-19. Some of that is hospital systems that just don't want to do soft tissue procedures because of the financials and valves and you saw some of that with some of the big hospital chain that reported.
But we think most of it frankly is labor, which is why we made the point around.
Around Easter and Passover I mean, just inside the month of April you had two really good weeks and two really bad weeks around the holidays and so I just don't know what to tell you.
I think what we're going to see is that orthopedic remains strong.
And is the basis of our.
Our AFC basis.
And in fact, if you look at these October numbers that we referenced earlier, 79% of the EXPAREL procedures that were done in the ambulatory surgery Center orthopedic. So you can see that the insurance companies are pushing soft tissue procedures towards the AFC to save money.
<unk> don't have capacity in the hospitals don't want to do them because of the profit margins against their cost structure. So I think the real weakness we're seeing in the marketplace frankly is more soft tissue related.
But it's unless we can unless we can have reliable surgical teams that can support the surgeons and anesthesiologists, especially in the AFC and especially around expanded hours on weekends and longer days and things like that I. Just don't know what to tell you, which is why I don't know what I would say if I was trying to.
To reinstitute guidance today anyway, so that's sort of number one ranked and come back to me, David if I raise more questions and answers.
The second part of that is the whole <unk>.
Actually it's pretty interesting David I think the read is doing well.
I think the.
The discounting program versus the rebates of the stocking in days and all the other things that we can do to make it easier for our customers to have the red are available in our offices as sort of an operational issue I think longer term.
We hear a lot about.
Repeat dosing.
And we're working with representatives from the societies, especially AOS.
On developing algorithms of care.
If we examine the marketplace in a little bit of a broader sense.
You know the whole highly neurotic acid market is now.
In a dynamic state given the fact that they are not devices anymore and they have to report their ASP.
So we think some of the things that were going on in the marketplace relative to <unk>.
What the true wholesale acquisition cost was versus the average selling price.
This scenario, which the pharma industry has to operate under a foot, which is a device was not operating under is going to cause many orthopedic customers to rethink their use of H eight from a profit motivation of perspective.
So then we're left with.
Immediate release, <unk> steroids and long release.
And really what we're looking for a first is that we need some algorithms from the societies in terms of how these various agents should be used at a normalized patient population and then as well as a.
A more specific population like type two diabetes, especially as it relates to glycemic control with an immediate versus a long acting.
Corticosteroids so.
We are working on on these algorithms working with the just started by the way I mean, we've only owned it for a few months, but talking to insurance carriers about what the optimum way is to treat their patients.
Then doing a shoulder study.
We didn't actually call this out specifically, but you'll notice that we instead of referring to specific timelines for our clinical programs. We set after meeting with the FDA and the reason for that is the FDA is having its own labor issues and it's very difficult to know when we're actually going to have these meetings.
With the FDA, So we'll do a shoulder study.
We're looking at like Sema control with type two diabetics and we want to talk to the FDA about where that's positioned in the package insert we will start a shoulder study.
You've got the design of the study and the protocol. It just doesn't make any sense for us to go down that road without talking to the FDA essentially since it's a product that we just talked about or are we just we just brought in and then lastly.
Just last week there were 24 first time.
First time customers ordering silverado, so what we see is when people come here to the pit that's where we're speaking to you from today many of them have never heard of Silverado and.
When we talk about all the things that we just discussed here.
We see people adopt that technology pretty quickly and so if we could run at 100, new customers a month for several months here, we're in a pretty good spot relative to the to the baseline that we acquired reflection. So overall, we're feeling really good about about silverado.
Less slightly less impacted by labor because it's generally administered in the physician's office or they have a J code itself.
So ret is in pretty good shape.
Thank you.
Our next question comes from Gregory Zhao of RBC capital markets. Your line is open.
Hey, good morning, Dave Charlie and team Congrats on the progress of course and thanks for taking my question, maybe just following up on the previous question and certainly some some color around I think maybe the unpredictability and the turbulence that you've described but maybe just from the angle of how.
The current environment aligns with where your expectations were at the start of the year certainly prior color had been the optimism around exiting each month.
With some degree.
<unk> returned to Dare I say normal normalcy I'm just curious if you can comment on on.
Where you are and where you see this lumpiness as it fits to where you thought we'd be at this point in time. Thank you.
Yes, Thanks, Greg.
I think the easiest way to say it is.
It's I mean, I guess the differences we were thinking that largely labor would be.
At least more sorted out and it appears to be.
And even when we came out of February and March with plus 16, plus 17, we thought actually that we were seeing a normalization in the marketplace, but when you spend time with the physicians and you really get into the mid <unk> gritty of what's keeping them from doing more surgeries in all sites of care, but.
<unk> in the ambulatory environment.
It's over and over again, it's just the willingness of of nurses.
And support staff in general.
But we're usually talking about nurse teams and.
It's a it's probably a more difficult scenario Greg than at first appears because we just can't get by PR ends on a Saturday and open an ambulatory surgery center and do six or eight needs that day.
And so the issue is that.
We're.
The nurses after the <unk>.
COVID-19 experience.
Just are taking vacations.
There's not much we can do about that and so.
Around holidays around spring breaks.
That's what we attribute the April .
Discussion around is really it was more around spring break and the fact that while they were willing to defer in the COVID-19 experience now theyre, saying this system will be here for a while that I have to take care of myself and.
So that's one big piece of it the other piece of it that's got the hospitals in a difficult situation is nurses have left their traditional employment to become travelers.
And astonishingly may be for the purposes of this discussion some of these travel nurses are getting north of $40000 a month.
And so the hospital cannot then do low margin soft tissue procedures with a nursing staff, that's making $40000 a month.
And some of the hospital system numbers that you've seen in the last two weeks are exactly that scenario.
So.
That's why I, that's why I focused on I think we can take the majority of ortho procedures and do them in the a S sees as the payers would largely.
When we get to soft tissue, we don't have the capacity and the low cost environment and the high cost environment can't afford to do and so that's where we think we see some of this.
Forecastable.
I don't even know if that's a word Greg, but you know what I mean to say here.
Opportunity to look forward and see.
Where this is going I honestly don't know I mean, we're going to be holding our breath around the next holiday I can tell you that.
Got it.
Helpful and maybe just if I may shift just quickly to the training center.
That standing up in Houston, just with respect to that versus or in addition to Tampa did can you just talk a little bit how youre going to get additional leverage or effectiveness I would add is really what is that an important network effect as you've message.
Best practices and the external opportunities for physicians.
Simply put how that investment is really going to potentiate.
Those opportunities even more so than just a single Houston facility. Thanks sure.
Yeah, no. Thanks, Greg first I mean, just to give everybody the understanding we can't satisfy the demand or even close and the Tampa facility and just this past weekend, the New York Society of regional anesthesia help their national meeting.
Pick facility here so.
And the fact that we had 84 requests for training in the first quarter alone would tell you in most of these folks want to come on Friday Saturday Sunday morning.
We just can't even come close to satisfying that demand. So in addition to that Theres. Some things that we think we can add that will make this facility.
More appropriate EBIT for some of this high end training that we're doing not only for EXPAREL, but for <unk> as well and imaging has come a long way and we're looking at imaging techniques. For example that when you run the cursor over the patient the actual software identifies the nerve so as a tree.
<unk> tool, we can do a lot of things and then an improved environment that we're in even available two years ago. When we opened this facility so.
And then I think maybe the most obvious thing at least from our perspective, Greg is that Texas. Some weeks, it's 20% of our business and so it's entirely appropriate that we go in and support the folks that are within driving distance that don't have to get out of play to come here and in fact, some of the hospitals in Texas have already <unk>.
Asked us if they could take a weekend.
Brush up on their.
Their use of EXPAREL and in many cases, I think it'll help us.
I'll have more direct impact on how we rollout I avera.
In a state that's by far the most important to us so a lot of a lot of tangential reasons that come together around a relatively modest discussion or investment. Greg. This is only a few million dollars to get this thing done it's not it's not 10 or 20 million Bucks.
Great. Thanks for taking my questions.
Thank you for the questions. Thanks.
Our next question comes from Greg Fraser Choice Securities. Your line is open.
Good morning folks thanks for taking the questions.
And I have Dara you said increasingly bullish on the potential of the technology I think there are numerous reasons for that including new indications that you've talked about but the commercial part performance has lagged a bit with sales down in the first quarter you mentioned the transition to Gen. Two and variations in reimbursement policies can you just expand on what.
What happened with reimbursement in the first quarter and can you also talk about your.
Our initiatives to expand the use of buy up Ara for the current indications and the hurdles that you have to overcome to broaden adoption. Thank you.
Sure there was a.
There was a letter that was up on a certain macs website, Greg said that.
<unk> was not paid for this as a CFS.
One of the the CFS member organizations and that has now been taken down from that website, but it had a.
A negative impact when it was up there and folks thought that there had been a change in policy and that CMS was no longer paying for a hospital outpatient use of Io Vera So that was a short term issue.
The other issue that we're on the other side of now is that when we started to rollout churn too.
There were some.
Operational issues, some mechanical software issues with Gen. Two that we never we didn't see with Gen. One.
And so we were in a position where we didn't want to send a lot of gen. One.
Units two folks knowing that we were transitioning to gen. Two in the short term future and we didn't want to send a gen. Two units that we thought could be optimized over the next couple of months and so we went through with the first quarter frankly.
Addressing a number of.
Of issues that we think are largely behind us so.
Going forward, we now have a gen. Two device that is at least on all the reports from our Super users is doing extremely well. It's a matter of fact, one of the folks were with last week I've made the comment to me that it was Dave from Jetblue.
So you'll see us now be in a position to be able to ship those to new users.
And one of those one of the users as the U S. Government frankly that we didn't want to ship anything there we didnt want to ship it to Europe . For example, because you didn't want to ship about half somebody have a bad experience and then change it right away. So.
So we're on the other side of all of that stuff now and the major issue is going to be reimbursement. It will take us a while now we were reimbursed.
Reimbursed in the H O PD.
We.
Our.
Reimbursed by many commercial payers and the <unk>.
And then I.
Physicians office.
Reimbursement is much lower than it is in the <unk> and in many cases, it's difficult for these folks to actually.
Have the desired margin opportunity so.
To accommodate that as we rollout Gen. Two we're also gonna have site of care pricing.
The pricing for the AFC and for the office office opportunities will be lined up against the reimbursement that we're seeing broad.
You know.
Different commercial Payors, and workman's comp and those kinds of special opportunities, where you see office practices at PM NR guys desiring to use the drug to address patient needs.
But just require at least some margin in order to be in order to make that happen. So we've hired somebody who is from the insurance industry and it's also an accomplished anesthesiologist to run our reimbursement program.
As we said we've got the <unk> program up and running in real time, we've got over 100 patients in that database now so we expect to be able to work with the reimbursement folks.
On the value of <unk> and <unk>.
And enhance the.
Reimbursement around IL Vera that's a longer term project in the short term, we think the pricing things that move to Gen. Two will get us back on track and Youll see a rebound from Q2 and through the rest of the year.
Great. Thanks for the color.
Thanks, Greg.
Thank you. Our next question comes from Anita.
Beringer capital your line is open.
Hi, good morning, Congrats on the progress and thanks for taking my question.
Just wanted to focus.
Get some clarity on.
But I guess I know this.
Debbie.
I'm, sorry, I know the European type two patients has been somewhat.
Not.
Not entirely.
Adopted so one day.
You know what yeah.
Looking into the kind of increases the adoption in this population.
Some conversations that therefore.
It's nice to kind of change language on the labor. Thank you.
Thank you Anita.
Collection positions.
So <unk> as a.
A downstream option for the treatment of these patients.
And I'm sure you're aware, but only <unk> only 75% of.
Of OA patients respond to a corticosteroid so.
Fair enough that youre going to want to use an immediate release product.
To establish that the patient is a responder before you go to a longer term therapy.
<unk>.
But the discussion around.
After that single bank are immediate release product why would you go back to using something other than a corticosteroid and why would you only have a single administration of <unk> in a patient population, where we know there are regular issues in the marketplace around quite steep.
VIX spikes.
And patients being ending up in the intensive care unit because they are not stable.
No.
And I want to be really clear Anita that we haven't had a meeting with the FDA yet it's not easy to get a meeting even a phone call with the FDA right now.
But the plan is.
To discuss type two diabetics and how we make an accommodation in the package insert that discusses the fact that these.
These patients should be treated separately from.
A more generic kind of approach to just patients with osteoarthritis disease. This is a special group of patients that have special needs that are not addressed by either highly erotic acid or a short acting corticosteroids.
And that's sort of in Lockstep, then with a discussion with the FDA on what their requirement would be for a.
A second dose now in the package insert in the clinical development section they do have wording around.
Around the advantages of a long acting <unk>.
Corticosteroid pork like Sema control, but it's not in the indications section and so we can have a clinical discussion with it with a physician.
That really stretches a.
Our reimbursement discussion with the payer and so those two things really R. R.
Our adjacent to each other in terms of how we will discuss with the FDA, but it starts with with patient care and improving patient care and it ends up with a more practical mechanism of what do you actually want the physicians to do right.
Alright, if you're only going to pay for an administration of one of these products. Every three months. Then you have to have some type of an algorithm of care the direct them to how that has actually affected in the marketplace and to say that youre going to give something on immediate react immediate release corticosteroid that you know doesn't last three months, but the <unk>.
And going to paper and administration every three months and you're forcing everybody through that care paradigm.
That just doesn't make any sense in the docks in the marketplace just shake their head and say, we don't know what the heck do but.
It's difficult for Us to act in this environment, if we're not going to pay for using our product, but with a WAC acquisition costs or something in the neighborhood of $500.
That makes sense.
Yes, yes, thanks for that clarity that was helpful. And then just one more question relates to the growth.
Growth opportunities like this.
I think you have about that.
For pediatric indication.
Yeah.
The soft tissue procedures growing app punch hurdle.
So among Dallas, which sort of do you anticipate growth coming from.
At a higher rate than the others.
That's I'm going to give you two different answers to that because I think there really are two I mean, we have things that we can depend on.
Because they are either not being deferred or they can't be deferred.
So you don't see anybody and pediatric deformity for example, or scoliosis, saying that theyre deferring those patients because of anything right COVID-19. It would be one thing, but nursing staffs would be the other thing so.
On the other side of the aisle, you've got C sections, and those can't be deferred either write those kids are coming one way or the other it's just a matter of how we're gonna accretive and where we're going to treat them.
So I think we can predict peds pretty well in peds is going well.
We can predict women's health pretty well.
The vast majority of soft tissue procedures actually are abdominal colorectal hernias.
Hemorrhoidectomy.
You know those kinds of procedures and those are the ones that.
There's patients who require those surgeries.
If theres an AFC in the area or in <unk> in the area of the insurance carriers of the Payors wherever they are CMS.
Is trying to move patients towards these lower cost environments. There is large places around the country and some states EBIT, where there just aren't any ambulatory surgery centers and so the hospitals are trying to.
Looked like afcs, and the way that they're going to handle some of these patients, but we're just not there yet and so.
We're just going to have to see how this market evolves now there's a number of big ambulatory surgery sport spine practice there.
Facilities being built and that will help a lot in terms of freeing up capacity for non ortho procedures.
Sure.
I don't know what to tell you about hospitals trying to become a S seats because the the inefficiencies are just <unk>.
Very difficult to overcome.
We can strip out.
Overnight nursing staff, we can strip out dietary we can strip out.
Linens and all the things that are ancillary expenses, but at the end of the day, if you still have to call.
Another facility or another function of the hospital to get an ultrasound machine down there. So you can do a nerve block.
I mean, I would tell you personally my own experience I went to help a hospital understand what they need to do and we waited for the handheld ultrasound machine to come to the operating room for longer than the procedure was supposed to take.
So it's not a simple thing to take a hospital and make it into an AFC. It. So we're somewhere in the middle there I think capacity will increase hospitals will have to figure out a way to do this because frankly, if the insurance companies are going to direct ortho and spine to the ASC. There. The only procedures are going to have left.
Right. So they are agreed they're going to do these as the basis of their operation or theyre going to have to decide they're not going to but right. Now I think some of the excuse around COVID-19 is actually more a desire for these centers to not do these procedures because of the profitability issue.
That was very helpful. Thank you.
Thanks Neil.
Thank you. Our next question comes from Serge Belanger of Needham <unk> Company. Your line is open.
Hi, good morning.
First question is.
Around your plans for Skellig Cagley on block.
I think you've talked about the potential application for cardiac that script.
It seems like it.
Departure from your current target focus, but maybe just talk about the market opportunity and whether it could have a halo effect to other procedures beyond that one.
Yeah. So.
The target indication is still a gang with yet.
And I'm glad I'm glad you asked the question I, probably should've been more clear.
And the perk up here.
This will be a anesthesia administered procedure surge under ultrasound guidance. So.
If you think about Astellas ganglia block it has broad applications in a number of different areas.
And is being used currently in an anecdotal way. It case report studies for scleroderma and Raynaud's disease.
If you think about any place that you want to increase the blood flow and plastic surgery flaps and its and then some more.
Extravagant applications, it's being used in chronic pain syndrome in PTSD and a whole bunch of things so think of it at the at the base of the thought process think about the brain.
Sending an inappropriate.
Action to the body just the opposite of what we've been doing for the last 15 years right. We've been trying to turn the pain signal off from the body to the brain now with both sell eight and with.
With specificity, we're talking about how the brain and the body interact around.
Basically what it turns out to be sympathetic nervous responses.
So turning off the stellite ganglia will turn off the reaction to manipulation of the cardiovascular system that leads to the catecholamine storm that is so destructive to these patients around <unk> and <unk>.
Longer term AF all of these different things that these patients go through Dr.
Dr. <unk> Kumar actually is an expert in sodium channel.
<unk>.
Impulse transmission and so he is the ideal person to help us through these so it's actually not as far afield as youth as it would appear this is not going to be a cardiovascular use in the trials will all be around at anesthesiologists administering this drug. So if you think about.
Somebody who is treating patients in a block room this won't be that application around an elective surgery like us.
Tapper, a packer or anything like that.
But I'd say its a very simple procedure to do.
And.
And the impact of <unk>.
Patients' lives could be profile in terms of a number of the actions we've had and many of US here have spent considerable time.
With these clinicians reviewing patient charts are actually looking at animal labs in terms of how this actually transpires.
And so it's pretty exciting and it's another reason frankly, along with peds and a lot of these different places where.
If a pharmacist is pushing back against us for orthopedics and for soft tissue. There is no way that you can use some of these pretender products or anything like this because you are putting this drug in close proximity to the brain and it has to be absolutely safe and so none of the other things that folks are trying to use a <unk>.
But place with adjuvant and things like that are going to work. So there's a couple of things at play here from a strategic perspective.
Great. Thanks, Thanks for the clarification.
Just.
One more and I apologize if I missed this.
Any update on the flexion early stage program FX 301, I think it was in a proof of concept pointing that can be trough.
Yeah. So let me go back for both search and so on 201.
We've got some pretty good data, but the cost of goods is really high and so our plan is to move to one one from an intra articular injection and the need that we have a couple of other shots on goal in that environment and to move it to a degenerative disease.
Product that would be used at one one hundreds of the dose and the knee. So the cost of goods. We think it's manageable at that at that level and 301. We have recently received the data and we haven't formally made a decision yet as to what we're going to do around 301.
But there are a number of key.
Commercial issues around temperature and as well as some of the clinical evidence that we see but we're still in the process of talking to the investigators and understanding exactly what were dealing with before we make a formal decision there.
Got it thank you.
Thanks Serge.
Thank you. Our next question comes from Gary Nachman of BMO Capital. Your line is open.
Hi, This is Evan applause on for Gary Nachman, Thanks for taking our question.
So first I just wanted to get back on the labor shortage staffing shortages, there's shortage issue.
Based on your conversations with physicians and from your perspective, what are some of the potential factors our solutions to help the labor shortages to recover and is there any sense on how long that could take.
Yes.
Yes.
It's really multi factorial, it's the labor shortage, but its also which site of care. The labor shortages are in you come to different conclusions right. When we talk to folks in the ambulatory environments.
What we're what we're trying to do is establish efficiencies so that you would need fewer.
Arms and legs in the or in one of those solutions are robots.
Last weekend, there was some extensive discussion around.
Two robots helped or hurt in terms of labor.
And can we get by with few fewer folks if we organize in a slightly different way during.
During the course of a procedure so.
You're seeing people ramp up and ancillary activities.
The kinds of things that nurses are doing today say in the past you are when you go in.
The charge nurses, there and there is put somebody else would be doing those kinds of things.
Those are all the things that the outpatient providers are trying to do and the inpatient.
Frankly, there isn't a heck of a lot they can do except for find more nurses or insert nurses to actually.
Come back to the marketplace, because an awful lot of them have just stopped working because of the COVID-19 environment because of the.
<unk>.
The <unk>.
The paid discrepancy actually when you talk to these people and again you saw it in some of the numbers from some of the hospital chains.
<unk> of the Big time, good nurses, you know the folks that people really covet have actually gone to be travelers and theyre going into these different situations and zip codes, where they might be able to interact with a specific surgeon or a specific group of surgeons and procedures that are very high profit margin procedures, where you can actually afford a 40.
<unk> thousand dollars month nurse the issue at the end of the day is who's going to do the $200 net profit margin procedures and for sure you can't do them with a $40000 nurse. So I think in some cases, it's going to be.
The nurses that are saying no to overtime and I think with time, they will come back I don't know that but I think thats a reasonable expectation given the fact that.
They made a bunch of money they can afford to go on vacations and do all the stuff. They are doing in the short term after COVID-19 over the longer term, we're expecting that more of these folks are going to come back in and for sure I can tell you I've talked to at least a half a dozen Ceos, who are working with nursing schools too.
Help with the educational curriculum and have more of these more of these folks actually do more of their nursing school training in the hospitals. So that the nursing schools can increase their enrollment without having to have additional facilities or faculty or staff. They can trade in those folks they'll actually train them and the <unk>.
Hospitals, almost think about an internship program so.
There is no good answer there I'll say it before you do.
But it's what we're working with right now.
Got it and my second question.
Would you be able to share some more color on what the feedback has been for the Gen. Two device versus Gen. One.
Oh, it's a whole another it's a whole another thing the tip is brand new in the handheld is brand new.
Frankly, it starts with what we acquired was not.
It was the best miles science could do but it was not anything that.
A more significant company from a financial perspective would've development.
It started with ergonomics.
When you understand that almost all of Biosciences business was with orthopedic surgeons. The majority of our growth is actually with anesthesiologists and so some of the things are relatively simple.
Can you have an ultrasound probe on your left hand and be able to use the <unk> device with one hand and with the Gen. One device the answer to that was no with the Gen. Two device the answer to that is yes, right all of the buckets that they need to push they could do with one hand.
The more.
Complex kinds of things that are done is.
We've been able to make them significantly less expensively, which gives us a lot of options in the marketplace in terms of pricing.
But also the <unk> too.
<unk> cartridge.
Is is able to do at least twice as many procedures now as the old one could.
So it's a series of more modest things like that that make it just a 90 day opportunity and then in the new device. We are we have a special or a new chip.
For video branch block for low back pain.
We will have a tip, that's more appropriate for things like digit Utah.
Utility et cetera, you may have seen or you probably did it to be yet, but there was a paper that came out on Wednesday.
A.
Our position in Los Angeles, who treats many of the pro athletes.
<unk> three.
Immediately baseball players with Io Vera and their ability to begin playing again when they couldnt hope that because of a thumb injury.
So we're looking at what will reintroduce a tip that is just for these.
More focal kinds of applications, where you couldnt use of spinal needle in a pump for example that would be very difficult given the flexibility of the needle et cetera. So a number of different modifications and the new devices. The gen. Two stuff, we can make a newer model of newer chip much more easily than we could have with the gen. One.
Programs the way bioscience develop the technology, so a whole series of little things that lead to a big thing in the end from a from a user perspective.
Yeah.
Great. Thank you.
Thanks.
Thank you.
Showing no further questions at this time I'd like to turn the call back over to Dave stack, Chairman and CEO for closing remark.
I'd like to thank all of you for participating and listening to today's conference call. We look forward to keeping you up to date on our progress next up is the RBC Conference. Later this month followed by the Jefferies Conference in June . Thank you, all and stay well goodbye.
Thank you ladies and gentlemen, this does conclude today's conference. Thank you all for participating you may now disconnect have a great day.
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Okay.
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