Q2 2022 Pacira Biosciences Inc Earnings Call
[music].
Yeah.
Ladies and gentlemen, thank you for standing by and welcome to the Sierra Biosciences second quarter 2022 earnings call.
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there will be a question and answer session.
If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad to withdraw your question simply press Star one again.
I would now like to turn the call over to Susan Masco had his Investor Relations. Please go ahead.
Thank you Paula and good morning, everyone. Welcome to today's conference call to discuss our second quarter 2022 financial results. Joining me on today's call are Dave stack, Chairman and Chief Executive Officer, and Charlie Reinhart, Chief Financial Officer additional members of our executive team will join for today's question and answer session before we begin let.
We remind you that this call will include forward looking statements based on current expectations such statements represent our judgment as of today and may involve risks and uncertainties for information concerning risk factors that could affect the company. Please refer to the company's filings with the SEC, which are available from the SEC or website with that I will now turn the.
Call over to Dave stack. Thank you Susan good morning, everyone and thank you for joining US will begin todays discussion with brief prepared remarks to cover our recent business highlights before turning to your questions I continue to be proud of our team and its performance we posted record revenue for the second quarter and continue to drive innovation in non opioid pain management with notable.
Progress across our portfolio throughout the first half of the year.
Second quarter, EXPAREL sales were $137 million, making it the second highest quarter ever for the product you write off was also a key contributor for the quarter with sales exceeding $27 million underscoring the rationale for our collection acquisition last year and the success of our integration.
<unk> ongoing headwinds, including labor shortages, Covid intrusions reduced hospital services decreased hours at ambulatory surgery centers and the impact of inflation on certain elective procedures EXPAREL continues to outpace the elective surgery market recovery with expanding utilization across all target market insights.
Sites of care.
Invite you to review our most recent <unk> data in the Investor Relations section of our website.
Strong sales combined with with operating discipline allowed us to deliver significantly positive adjusted EBITDA of $44 $9 million, marking our 20 <unk> consecutive quarter of positive adjusted EBITDA. We are proud of this record and our ability to manage our business across a variety of unpredictable market conditions I can.
Quickly say that Sierra has consistently delivered in addition to our continued revenue growth. We continued to invest in key initiatives to further improve our gross margins, including our 200 liter EXPAREL suite in San Diego, which is now fully installed we are currently commissioning any equipment and expect to submit our application for FDA approval of <unk>.
This new facility in 2023. This expansion provides significant scale that will allow us to further support EXPAREL topline growth and improved margins.
It was a red or fill line that aims to improve quality and yield and the successful transition of our Io bear activities from Fremont to our San Diego facility and a contract manufacturer.
Turning now to an overview of our EXPAREL franchise regional analgesia remains our focus.
What are our number one top line growth driver as long acting EXPAREL based nerve and field blocks are enabling accelerated recovery times and same day surgeries, which continue to drive paradigm changes in patient care.
Our anesthesia and surgeon customers see the clear advantages of EXPAREL based blocks as they continue to replace cumbersome antiquated pumps and catheters improve patient satisfaction and reduced economics of care utilizing the outpatient environment allow for continued improvements in EXPAREL reimbursement CMS recently issued proposed.
Outpatient prospective payment system rule for 2023 with EXPAREL continuing to qualify for separate reimbursement for ambulatory surgery centers under reimbursement code C. 90 to 90. The agency is also seeking comments and data and whether to expand the current AFC policy to hospital outpatient settings.
In parallel to our CMS initiatives. We are also following legislative action such as the no pain Act, which would ensure equal access to all non opioid.
<unk> and outpatient environments for medical or for Medicare beneficiaries.
Our state of the art Pitt training and innovation Center in Tampa continues to facilitate real time best practice knowledge transfer and accelerate surgical migration to outpatient sites of care in 2022 alone. We have received 142 inbound requests from institutions requesting training for their anesthesia and surgery teams.
On select blocks with erector spine, a transfer subdominant plain and pectoralis blocks. The most highly requested our training programs at the pit as well as our in person Medical society meetings are enabling us to directly engage with clinicians who remain eager for education and training around regional pain management approaches for EXPAREL.
This is also a strong and growing interest in drug free nerve blocks with Io Vera These educational programs for EXPAREL in Io bearer also provide increased visibility to expand our customer base.
We are making real progress on the build out of our second innovation and training facility in Houston, which remains on track to open later this year, we expect Houston will have an equally positive impact on expanding EXPAREL in niobrara expertise, among clinicians, especially for field blocks and nerve block procedures importantly, we continue to advance our robust.
And strategy around EXPAREL to fortify our intellectual property with new patents that extend protection to January 22041, we now have six patents listed in the FDA Orange book and recently received a notice of allowance for a seventh patent that we expect to issue very soon.
We recently finalized a new agreement with one of the largest faith based private health care systems in the United States. This National Health system operates in 19 states with more than 140 hospitals and approximately 30 ambulatory surgery centers, we will work together to institutionalize EXPAREL based opioid sparing protocols across service lines.
With their sites of care through extensive localized training provided by our field based clinical education teams. This agreement also provides an opportunity to expand io very utilization within their system.
We are also launching a new partnership with a large group purchasing organization in the dental space that will allow access to EXPAREL at one of the nations largest dental support organizations serving over 600 affiliated dentists at approximately 400 practices in 42 States together, we will support training and education.
Around best practice for optimizing patient recovery after oral maxillofacial surgery, using an EXPAREL based opioid sparing approach.
This partnership will also include working with a group purchasing organization to introduce EXPAREL to their network of more than 1100 dental accounts.
Drilling down into a few key EXPAREL markets orthopedic procedures to Kenny to continue to be a key growth driver with the most recent annualized IQ via data from January showing year over year utilization up 24%.
EXPAREL based regional protocols are safely and reliably enabling a shift to orthopedic procedures with EXPAREL utilization up 34% over the prior year and 23 hours sites of care.
In pediatrics or initiatives continued to make strong progress safety continues to be the mission critical message and awareness around efficacy continues to Mount as new data is generated investigators from Scottish right for children and hospital hospital in Dallas, Texas highlighted their experience in a study of children undergoing <unk>.
Theory or spinal fusion surgery, the study comparing EXPAREL infiltration to a continuous epidural infusion of <unk>.
The EXPAREL group consent consumed significantly less opioid from 24 to 48 hours and ambulate at six eight hours sooner. The study authored by Dr. Mclintock, Jim Mccleary was published in the May issue of the journal of pediatric Orthopedic Society of North America and will be featured at the.
Annual Scoliosis research meeting taking place in St. Louis in September .
This is a meaningful advance in treating these children, who many times require multiple surgeries with multiple opioid exposures separately, our medical education platform continues to generate awareness through our monthly series the pediatric exchange, which features thought leaders from leading pediatric centers, such as Shriners hospitals, Cleveland clinic and ratings.
<unk> hospital in San Diego and.
In women's health, we continue to see significant growth with success in C section driving expanded utilization in breast augmentation and gynecologic oncology procedures, whereas there is a strong shift to 'twenty three our sites of care.
Regarding our European launch, we are seeing slow, but steady progress in our launches across several key countries and the U K several important national Health Service Trust hospitals have adapted EXPAREL and the value proposition is clear and relevant in the surgical backlog with EXPAREL, enabling reduced length of stay and increased surgical throughput.
New customer feedback has been positive with strong retention and we've had several repeat orders from major influence hospitals moving forward. We continue to strengthen our team confident that overtime Europe represents an important market opportunity for EXPAREL and for Sierra.
Moving to the EXPAREL pipeline, both of our phase III studies evaluating lower extremity nerve blocks are now fully enrolled we expect to report topline results from the first study in early September with data from the second study to follow approximately six weeks later.
Successful. These studies will support a supplemental NDA filing early next year, we believe the lower extremity nerve block label is at least as significant as the effort as the upper extremity market with roughly 3 million procedures, a year in an addressable market opportunity of approximately $100 million planning.
Planning is also underway for a multicenter registration study of EXPAREL as a still a ganglia block for treating refractory cardiac ventricular dysrhythmias and for used to prevent postoperative atrial fibrillation after open heart surgery.
Doctor shift Kumar director of the UCLA cardiac arrhythmia center and world renowned expert in mechanisms of cardiac dysrhythmias is collaborating with the team.
We are working with a steering committee of key opinion leaders and regional anesthesia instill a ganglia blocks, who will convene this fall to help finalize study design after an FDA meeting to align our regulatory strategy for expanding the EXPAREL label to include this indication. We will proceed with a registration trial.
L. A ganglia block utilizing EXPAREL, which lasts for several days will address a significant unmet need in patients with ventricular and atrial dysrhythmias.
Beyond our success with EXPAREL, our second quarter sales were augmented by strong <unk> performance, which underscores the successful iterations integration and strong rationale for the acquisition.
So random remains at the early stage of its growth trajectory and we remain confident it will be an important revenue and earnings contributor as the only FDA approved extended release corticosteroid for osteoarthritis pain in the knee.
Currently we are finalizing the designs for label expansion studies in shoulder osteoarthritis and type two diabetes, we have reanalyzed the flexion diabetes data and believe there is a tremendous opportunity in providing the diabetic and pre diabetic community and intra articular steroid that improves efficacy and is significantly safer with reduce.
<unk> glycemic spikes to that end, we are in the process of initiating a study in diabetes with osteoarthritis comparing <unk> to immediate release Triamcinolone Acetonide.
We are also preparing to studies or reta and shoulder osteoarthritis, which could make so rather the first and only approved steroid for use in shoulders. These studies also provide an incremental opportunity for <unk> to enhanced commercial reimbursement as we demonstrate superiority versus immediate release triamcinolone acetonide for diabetic patients.
And for shoulder surgery.
Moving to our <unk>, our novel handheld cryo therapy device the rollout of the generation two device to our broad customer base is underway and the market feedback on the new and improved platform has been very positive with practitioners appreciating the more user friendly design and increased efficiencies.
We recently launched our Nio via our partnership with the professional Golf Association of America's Corporation Tour or the PGA Senior tour through which we have dedicated <unk> presence at two major tournaments in Q2.
Our next event will be the Charles Schwab Cup Championship in November where we will have a PGA champions tour player wearing the eye over a logo and in Iowa, where are cool zone, 10, which will allow spectators and guests of the PGA champions tour to make appointments with local providers for Iot. Our treatments are sports initiatives also include teaming up with.
The NFL alumni association to increase awareness of the availability and benefits of non opioid pain management options together, we will focus on educating retired players staff in youth sports organizations about the importance of non opioid options that can reduce or even eliminate the need for opioids for pain management.
Turning to the Io Vera pipeline as you May recall, Dr. Paul Winston President of the Canadian Association of physical Medicine, and rehabilitation has been conducting observational studies of iron ore in spasticity.
The preliminary findings of Dr. Winston search research are highly encouraging and we are now collaborating with our clinical and medical teams on publication strategies for these data.
In parallel we have submitted to the FDA are designed for a registration study to evaluate <unk> as a treatment for spasticity in post stroke patients. We have a meeting scheduled with the FDA for later this year and will then proceed with a registration trial for the treatment of spasticity with Io Vera in parallel with our EXPAREL is stellar.
Ganglia Black study Dr. <unk> Kumar is also initiating a study utilizing the <unk> technology as a long lasting approach to effectively address various cardiac dysrhythmias. We believe EXPAREL Nio 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 continue to make progress we expect to initiate the second half of our phase one study of our multi versicular liposome bupivacaine for submarine Arachnoid Analgesia later this year and move to phase two next year in.
In addition, we are defining clinical programs for our proprietary multi particular liposome formulations of dexamethasone for inflammation and lower back pain and high dose bupivacaine for lower for longer acting pain management of seven days or more and closing the progress. We have made to date along with our ambitious plans for the future are all <unk>.
<unk> to give us even greater confidence in our ability to achieve our corporate goals for delivering strong revenue and earnings growth with a significant patient need for opioid sparing options and limited commercial competition, we are more confident than ever in our ability to cement our leadership position in delivering patients innovative non opioid solutions along the neuro pain.
Pathway, while building significant shareholder value with that I'll turn the call over to Charlie for his financial highlights Charlie.
Thank you, Dave 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, we saw a year over year increase of 5% for the second quarter and posted our second highest quarterly.
Lee ever EXPAREL, despite persisting regional labor shortages, other pandemic related disruptions and impacts of worsening economic and inflationary trends.
To date, we have not seen any impact from new market entrants on our EXPAREL base business or our ability to generate new business, which is not surprising given the ability of EXPAREL to help facilitate the market's ongoing shifts to regional analgesia and outpatient sites of care, having treated more than 10.
Patients in the U S. We're also confident that our well established efficacy pristine safety profile in more than a decade of physician experience will continue to be key advantages for EXPAREL over other extended release bupivacaine formulations.
For <unk>, we have completed the rollout of our new discounting program to normalized customer purchasing patterns and the product is performing according to plan. We continue to expect improving <unk> sales trends through the year as we broaden the education and awareness through our commercial expertise and established relationships.
For iron ore now just rolled out a gen. Two device is underway as Dave mentioned earlier, 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 and Stellite ganglia block.
<unk>, where we're making new clinical investments.
Turning to gross margins on a consolidated basis, our second quarter non-GAAP gross margin percentage was 72%. This was comprised of non-GAAP gross margins of 73% for EXPAREL, 82% for <unk> and negative 28% for iron ore.
EXPAREL <unk> gross margins were negatively impacted by certain operational challenge through challenges specific to the second quarter that are now behind us including for EXPAREL based on supply chain disruption in the second quarter, we made the decision to manufacturer using older on hand raw material.
<unk> to ensure that we could meet market demands. The majority of these batches were successful, but with a higher than normal batch failure rate, causing our second quarter margins to be lower than expected. This challenges now behind us and we believe we have a stable source of raw materials going forward to meet increased demand EXPAREL.
Manufacturing efficiencies are now operating in line with expectations and we expect gross margins to improve in the second half of this year and continued to improve by 2% to three percentage points per year, ultimately, reaching the mid 80% range.
For <unk> second quarter margins were impacted by activities to support the shift to our generation two device, which included downtime for training at our contract manufacturer. We also incurred overlapping expenses from the transition of activities from three months to our San Diego facility for the hand pieces and to a new car.
Tract manufacturer for the Smart chips importantly, these activities are now complete the Fremont offices closed the Gen. Two rollout is underway and <unk> margins are now beginning to benefit from the reduced unit costs at the contract manufacturer.
These investments are important to the short and long term opportunities for <unk> as a drug free nerve block as well as additional opportunities in spasticity and stellite ganglia block looks.
Looking ahead, we continue to expect to see gross margins improve for all three products and to reach the mid 80% range.
While we are currently not providing 2020 to revenue or gross margin guidance given the continued uncertainty around labor shortages other COVID-19 related disruptions impacts from the recent worsening economic and inflationary trends and the pace of recovery for the elective surgery market, we remain committed to the transparency of reporting.
Preliminary monthly product sales to share intra quarter trends with you we will consider adjusting this practice for all three products as the year end visibility progresses.
Turning to expenses second quarter, non-GAAP R&D expense was $24 8 million, reflecting additional investments in our two lower extremity nerve block studies and ongoing investments in our proprietary multi of a secular lipid pipeline. We continue to expect R&D expense to tail off in the second half of the year.
With enrollment now complete in our lower extremity nerve block studies and today, we are reiterating our full year non-GAAP R&D expense guidance of $75 million to $85 million.
Our second quarter, non-GAAP , SG&A expense was $56 $5 million and tracking in line with our full year guided range of $220 million to $230 million, which we are reiterating today.
As discussed in today's release today, we are revising our guidance for stock based compensation expense to the range of $47 million to $50 million to more accurately reflect this year's equity grants, including our annual mid year equity grants.
Interest expense was $8 8 million for the second quarter. Most of this interest expense relates to our term loan b financing for $375 million with a floating interest rate of sofa, plus 700 basis points. The remainder of this interest expense relates to our convertible notes for.
Modeling purposes going forward based on current interest rates interest expense will be approximately $10 million per quarter.
As a reminder, the term loan B is a partially amortizing loans with principal repayments due quarterly beginning at the annual rate of 10% of the original principal balance and increasing to 15% in the later stages of the loan our first quarterly principal repayments repayment of $9 4 million.
Was made at the end of Q2 in.
In addition to these scheduled quarterly principal repayments. The term loan B also provides further reduction of principal with set percentages of annual excess free cash flow with no prepayment penalties and the ability for us to expand upon these repayments further at very modest prepayment penalties that are.
<unk> altogether after year three.
Our original forecast indicated that the term loan b will be completely repaid during year four of this five year alone.
Based on today's interest rate environment. However, we are exploring ways to reduce the total interest cost of this loan more quickly.
Our GAAP P&L reflects our second quarter effective tax rate of 10%, which benefited from the impact of a discrete tax deduction related to equity compensation transactions, often referred to as an equity windfall deduction and acquisition related benefits.
For non-GAAP purposes, our adjusted results reflected an effective tax rate of 26% for the second quarter and 25% year to date, which we continue to believe is an appropriate effective tax rate for our full year adjusted net income for 2022.
And lastly, despite challenging market conditions, we delivered another quarter of significantly positive adjusted EBITDA of $44 9 million in summary for Seara continues to operate from a position of financial strength, despite ongoing headwinds, including labor shortages continue COVID-19 intrusions reduced harsh.
Total services decreased hours that ambulatory centers and the impact of inflation in certain on certain elective procedures. We continue to deliver impressive financial results and remain bullish in our five year plan for year over year of topline growth in the mid to high teens in 2023 and beyond gross margin improvement.
To the mid 80% range modest year over year increases in operating expenses and adjusted EBITDA margins that exceed 50%.
That concludes our prepared remarks I'd like to now turn the call over to the operator to begin our Q&A session operator.
Thank you the floor is now open for your questions. If you would like to ask a question. Please press star one on your telephone keypad at any point you would like to withdraw from the queue simply press star one again.
Your first question comes from David <unk>.
Thanks for taking my question. So I just have a couple.
So.
Can you just walk me through your thought process on when market dynamics, you think might improve vis vis things like staffing shortages.
That's number one number two as you look at the third quarter and one thing that sort of struck me about <unk> is that the comps were differ.
Difficult.
Year over year <unk>. So can you talk to year over year comps in <unk> and how that would speak to the growth trajectory of EXPAREL irrespective of the headwinds that you've been talking about thank you.
Yes, Thank you David.
Really in our minds.
The comments your questions are interrelated actually.
For number one we do see see things resolving.
Modestly slowly I guess is the better way to put it.
Ironically to some extent inflation appears to be driving the labor market.
In a more positive direction than we had seen.
And very simply put when it costs $140 to fill your gas tank up you.
Realize that you're you're.
Your cash balance doesn't last as long as you were hoping it might and so we do see that the labor market is easing although slowly at least as positive for the first time in a few quarters and so not not a bad thing for sure.
You are exactly correct relative to the comps in Q2.
As a matter of fact today after three days three selling days of August you would see the impact of of a better comp for us on a year on year basis, and so we do expect to have.
The optics of our business changed quite significantly based on.
The third quarter of last year versus the third quarter of this year and so far we're seeing that in the first few days of August David So.
Positive, we're making progress every day some of these big relationships that we announced today.
Adding real benefits and we can see it in real time as we look at the numbers and so.
We're excited about going forward with all the clinical programs, we are doing as well so thanks for the question.
You got it thank you.
Your next question comes from the line of Chris <unk>.
Chris Your line is open.
Oh, great. Thanks for thanks for taking my questions first one is on expectations for elective procedure market you've talked about it.
We've seen a more gradual recovery in elective procedure market in the first half of.
2022, so maybe you can talk about labor shortages and what impact you're seeing that have on volumes and maybe a timeline for where we see greater normalization.
No.
In the past you've talked about kind of a backlog of deferred procedures.
It seems like that's less and less likely to really see flow through into volumes video any color perspective, you have there that would be <unk>.
So.
Yes, Thank you Chris.
We see the labor shortage actually is having tentacles in a number of different ways in the marketplace.
I'll give you a couple of specific examples I mean, the big one is.
Monday's for us are still the lowest revenue day of the of the week for <unk> or for EXPAREL and that is largely related to the fact that ambulatory surgery centers still are not open as a general rule on weekends.
The inability to be able to get a nursing team to work at 12 or 14 hours a day on a Saturday.
Is really limited the opportunity for the ambulatory surgery centers to open at all in.
In terms of the revenue required to cover costs et cetera, and so that to us would be a major opportunity when we start to see Saturday work in the ambulatory surgery centers to address these backlogs some of the more.
Some of them some.
Some of the less obvious ways that the labor shortages impacting is the inability of hospitals and again <unk> to be able to cover pack use for this for the period of time that we saw in the pre Covid environment. So for example, it would.
Be routine for Pac used to be open until 10 o'clock at night or in some cases midnight, which allows surgeries to go on into the early evening hours and still be able to release.
Patients on a same day basis.
The impact of the fact that they've shortened these PACU hours in some cases to six o'clock at night is meant that in spine cases for example, spine surgeons that we're routinely doing two surgeries three times three days a week, we're forced to not have a surgery start after two o'clock and so these <unk>.
<unk> went to one surgery five days a week and now in many cases have been told that it's one surgery four days a week and so you can see how the combination of these things has a fairly dramatic impact on our business and we do start to see some of these PACU hours coming back and some of these places being able to.
Add the second surgeries for these protracted cases on an ambulatory basis.
Your question on on the backlog is an interesting one because you're.
The the thoughts that we had in the beginning days of Covid have changed and frankly the market is much more <unk>.
Difficult to predict and we thought it was going to be a couple of years ago what.
What we see in the marketplace actually is that the high acuity pain.
Procedures, largely orthopedics, specifically total joints shoulder and spine are continuing to be done and they are continuing to be done largely in ambulatory surgery centers because these are.
High acuity.
Profitable procedures, and especially in environments, where the surgeons one part of the ambulatory surgery center. Those procedures are getting done on a relatively routine basis. The ones that are more difficult to get done or the soft tissue procedures right. The hernias in the.
The colorectal procedures.
And this scenario there is.
The hospitals are struggling to get those procedures done given the.
The reimbursement that's being offered by the payers.
And in the hospital outpatient environment.
Which would be the normal play.
Place, where those procedures might get done lower acuity.
Lower margin procedures, we just don't have enough of the.
Capacity to be able to do those procedures at a price that the centers are able to perform the surgeries at so you've got a you've got a fairly complex market, where most of the ASC space is being taken up by ortho procedures and the reimbursement that's being offered for these less acuity.
Soft tissue procedures is just not appropriate for many centers to be doing them in an inpatient basis and even struggling to do them in an outpatient basis. So we see the marketplace is resolving a lot of those things there are discussions going on.
With the payers in order to.
Facilitate these procedures being done in the in the hospital outpatient Department and we think that that will continue as we go through the year. Our own expectation is that Q3 will result slowly and we will be closer to a pre.
Pre COVID-19 normalized environment as we get into fourth quarter. This year.
Great. That's helpful. And then a second one if I could on capital allocation priorities could you talk about how you see capital allocation.
Typically the balance between business development and the opportunity for additional debt pay down and I think more broadly speaking about kind of a business development market. What are you seeing out there.
I think youll see a push or pull back in terms of valuations for commercial stage companies that really translated to earlier stage companies and in particular I guess at what kind of assets are you looking at and will be the ideal fit for purpose <unk> portfolio today.
Yes, we'd love to find another flagship flexion, Chris if we found one.
We don't have anything on the immediate term for a commercial asset that would be be fit for purpose the way.
<unk> was.
You are correct that there is a lot more interest in.
<unk>.
In private companies as well as some of the smaller public companies.
<unk> ability to raise financing is leading to some more aggressive activity on that front relative to the opportunity for M&A or licensing or even partnerships in some cases.
So we've got a lot of things that we're looking at.
Our focus has been on.
The knee and the patient journey.
Two a total knee arthroplasty and so we're looking at.
A number of paint opportunities in the gene therapy and cell therapy space.
A number of compounds that are available for us to take through clinical development, but most of these are earlier, Chris and we don't have a lot of stuff that's commercially.
<unk> in the next two or three years, the second place that we're aggressively looking is in the vertebral space.
We have a number of opportunities for products that would be in the degenerative disc disease space and low back pain.
Big opportunities in places, where we're already working with folks on.
On degenerative disc disease for pain management that.
Regenerative medicine things like spine biopharma with a seven amino acid peptide for that.
That would be used in conjunction with a pain injection for.
For for low back pain.
So we're actively looking at these things, where we would love to do a commercial transaction. If we can find an appropriate asset.
We're wide open to larger agreements and some of those are starting to percolate to the top but nothing that really would be of interest in the next couple of years.
And so most of the stuff we're working on it takes advantage of our commercial and clinical expertise to.
To develop earlier assets for organizations that are eagle, either struggling financially or just plain don't want to be a commercial company.
Great. Thanks for taking the questions.
Thanks, Chris.
Your next question comes from the line of <unk> Prasad.
Hi, good morning, Thanks for taking the questions.
Dan.
Provide some incremental clarity around the recent sema CMS reimbursement and <unk>.
One was incremental EXPAREL.
Also.
Timelines on impact around the expansion to the hospital opioid outpatient setting on what it means to you.
Secondly, you commented on called out a couple of new agreements, including.
Concluding with the NHS.
That's right.
So wanted to understand the impact of the smartphone what were 140 hospitals I'm 30 agencies partner.
Partnering with excellent <unk>.
I mean in the longer run and when can we start seeing the impact of this in the P&L. Thanks.
Thanks <unk>.
First the.
The clarity around CMS reimbursement, so important for us to keep see 90, 290, <unk> as a minimum.
We have been very active with CMS and discussion discussing the availability of non opioid opportunities for some of the economically distressed distressed areas of the United States and areas, where there are no afcs and the only real access that these folks would.
Half would be in the <unk>.
While it wasn't a specific win.
CMS asking for comments on with both data and.
Discussion points in the marketplace around <unk> and the need for reimbursement.
In the <unk>, we think.
In many ways goes back to the question that Chris just asked that non opioid alternatives and <unk> would be really important to lower socioeconomic.
Populations and the fact that many of these places do not have any access to opioid free opportunities at all ironically, when the when CMS approved see $92 90 for EXPAREL in the ASC many counties around the country actually took.
EXPAREL off of formulary Anda PD, because they wanted folks to go to the ASC. Alright, then you got yourself in a scenario, where there was no ASC and in fact, what happened is these lower socioeconomic counties actually lost all opportunities to avail themselves of a low opioid or for an opioid opportunity for surgical platform. So.
It's really important that we stay on top of this we are actively working with CMS on the <unk> opportunity and we expect that to continue as we get into through this comment period that goes into September .
The expansion of the H O PD is really.
Two things.
The hospitals requiring to do surgeries and so if they are searching for opportunities to be able to do surgeries in a way that are economically possible and appropriate for the hospital resource considerations and so.
There are many areas around the country, where the afcs are taking off the the higher volume higher profit margin procedures and in fact, a demonstration of that is we know of several dozen.
Orthopedic and spine hospitals that are being built around the company around the country specifically to address this need.
Given the lack of capacity in the ASC to take on more and more spine and joint procedures. So then these lower acuity lower margin procedures fall into the more traditional hospital network.
And given the cost opportunities around an outpatient hospital procedure versus an inpatient hospital procedure hospitals really are in a position where they have to figure out how to do these because surgeries really are the revenue engine of many of the medical centers around the country and so you see people aggressively pursuing how to.
To transfer inpatient beds to outpatient opportunities.
And how to work with the payers in order to.
Provide the opportunity to have a soft tissue procedure done in a local environment, rather than having to have enough to go to a different environment in order to get the surgery is done so it's.
It's a complex problem, it's something that it's going to take some time. It already has taken some time and we see that things are starting to loosen up and the actual market places around the country.
The new agreements are.
Are an important aspect of all of this.
We are making progress with folks who understand that opioid sparing is a very important consideration for patients.
Especially for moms.
And we see that in these in this faith based opportunity that we discussed.
And it's not only a revenue opportunity for <unk>, but it's an opportunity for us to be able to work with these folks and too.
Let patients and they're in the states, where they operate understand that there are opioid free opportunities.
Remembering that there are 20 million Americans in recovery.
<unk>.
Here literally daily from patients who are interested in an opioid free opportunity and are searching for a place where.
Those kinds of opportunities to have an opioid free surgery are available this.
This.
Strategic partnership allows us to be able to Billboard that and let folks know that these opportunities are indeed available and youre not going to get 90, Percocet when you leave the operating room.
The dental is just as important the first interaction of most teens with opioids is when they have a third molar extraction.
So we've been working with with this organization and providing protocols.
We are educating them and providing EXPAREL for their first few cases, so that they can have real time experience with our folks there.
To be able to understand how we provide a an opioid free third molar extraction and keep these kids from getting opioids in their teens and so really important things for us both on a revenue basis, but also on demonstrating the opportunity for opioid free surgeries and hopefully taking advantage of that.
Thanks, Dave.
Thanks <unk>.
Your next question comes from the line of Gregory Renzi.
Hey, good morning, Dave and team congrats on the progress and thanks for taking my question.
Dave I just wanted to revisit some of those macro themes that you commented on earlier.
More specifically I think theres, just an emerging increased investor interest in understanding potential impacts on.
From a recession and Eden job losses that perhaps relate to coverage loss in lines I'm. Just curious if you had any thoughts on how that potentially could impact surgical volumes your mix and what youre seeing with that with EXPAREL in the marketplace and of course I know the data arent.
And it is speculative, but just your higher level thoughts on recession impacts Q2 extra outperformance would be very helpful. Thanks.
Thanks, Greg to really interesting question and we spent a fair amount of time trying to determine exactly what the different drivers are here as you would expect.
We have consumer surveys of our own.
As well as the history of.
Both inflationary markets, Greg as well as recession recessionary markets.
And it's pretty clear that pace.
Patient ability to pay co pays.
And to be able to afford.
Insurances that would pay for especially soft tissue and lower acuity kinds of of surgical procedures are impacted.
<unk>.
If we balance that against where we are.
We think that that will have a modest dampening effect on the rebound of procedures.
But we also know that the backlog of procedures that's out there.
And the fact that some of these patients have continued to.
Have.
Issues associated with the fact that they didn't have surgeries over the last 24 to 30 months.
In many cases are a powerful motivator in the opposite direction. So we're watching it closely Greg.
Neither high inflation or a recession are going to be good for us in terms of.
The rebound in procedures, but we also think that there is a strong motivation from.
These high acuity procedures that are continuing to be done and we don't see any change there or very little change there.
And the increased opportunities to be able to do soft tissue procedures at a cost that's appropriate for the hospitals, we think that the.
CMS and <unk>.
The ability of.
These folks that are covered by Medicare hopefully would dampen the effect of both.
Recession, and a in a high inflation environment other than that it's more of a balancing act in terms of how fast some of these things come back and we just go from there I don't know how to give you very specific data.
Our own internal consumer kinds of things were more dramatic in terms of the <unk>.
Inflation, having a negative impact 60 days ago than they are now.
So, but I don't know how to measure that in terms of something quantifiable that I can tell you there is X percentage or anything like that but it does appear that people are less sensitive to inflation today than they were 60 days ago.
Great. That's very helpful and just one last one if I may I believe at the top of the call and your remarks, just mentioned that perhaps competition drivers were at a minimum I'm. Just curious is that something that we could see as more of a base case going forward that is yes.
A driver to external pressure.
Less so being thrown off from from competitive options and the landscape.
Yes for sure Greg.
I think the ability to do nerve blocks and field blocks with an FDA approved product is really an advantage to us.
And.
I don't see that changing over the immediate planning period of a couple of years.
<unk>.
The reason that we are building the second innovation and training center in Tampa is to handle all of these requests we're getting for.
Training around regional approaches and being able to move different patient populations to the less costly outpatient environments and so I don't see that thats going to change over the next two or three years.
That's helpful. Thanks again, Dave.
Thanks.
Your next question comes from the line of Greg Fraser.
Good morning folks thanks for taking the questions.
I'm not sure if I missed this but did you comment on EXPAREL growth in July .
And you mentioned inflation impacting certain electric procedures for what types of procedures are you seeing an impact.
And then.
A question on <unk> you introduce the Gen. Two device we've seen positive reception.
Got it back to the various initiatives to drive awareness when do you think that.
Product might start gaining more attraction as being more used for the current indication.
Thanks, so much.
Yes, Thank you Greg.
So.
In July we grew by.
Between five and 6% and so we continue to grow.
Very modest improvements, but against a difficult comp for us. So that's not an excuse that's just a fact right and so.
We continue to see that the product is growing.
When we look at inflation impacting it goes right back to this.
<unk> got a patient who can't go get the mail and just as just having a devastating impact on their ability to ambulate and to get around going to church is always high on our list go into the grocery store is always high on the list, we find that people find a way to get those procedures done.
And the insurance companies and the reimburses continue to drive those patients back to the ambulatory environment based on economics, but also based on patient satisfaction right and so that's those are the procedures that are going to be any that are that are getting done.
The less acute.
<unk>.
Where the pain profile is not as profound and where patients who can manage the pain.
When in a way that they think is relatively appropriate given the other demands on their resources for fuel and food and all the things that we talk about every day all day.
Then you see that patients choose to.
To try to hold off as long as they can for those kinds of procedures.
And especially as we get into different times of the year.
In the beginning of the year, obviously, you have the pressure that nobody has paid off their co pays and.
And all of the annual expenses that are part of their reimbursement profile portfolio as we get into the later part of the year. We see people are hoping that they have better insurance next year and so the pressures the polls and the pressures are slightly different as we go through the year, but you see people trying to manage a hernia for example in our <unk>.
Very different way than they would manage a knee or a shoulder.
Where they can't work and they can ambulate and those kinds of things. So that's really what we see in the marketplace and thats what the customers. That's what our patients tell us in terms of how the workers is being brought to the marketplace.
For the Gen two device.
This is we didn't exactly cover ourselves in glory here, Greg with how this thing was rolled out.
Sure.
We what we bought was not a perfect device, but we knew that.
But then we made some errors in the translation of the software frankly was over engineered for what was required and that cost US a couple of months and ending Gen. One and rolling out Gen. Two and so there was a several month gap there when we didn't want to start people on Gen. One because we were going to replace it right away with.
At two and there was no point in starting people on an inferior device and so.
What we see starting to happen again, and this is where some of the things we called out in the call are.
Is there is great interest in a non drug nerve block.
We have a basis of people who are using the product who basically didn't use the product in a lot of patient and a lot of patients because of some of the issues that we were facing with our ability to deliver of a device that was actually.
Our best effort and it was appropriate for the procedures that were being done.
Now on the other side of that we have a device that works. We have we think youll see a number of new users and we've had a couple of.
High profile users come forward with press releases, saying that they are doing drug free nerve blocks.
Some national news reports on local physicians, who are doing drug free nerve blocks.
The PGA that I talked about is an interesting model for us going forward in terms of a cash market.
Literally when we run these tournaments, we've run out of what our marketing folks would call collateral right. There is great interest in people who are at these golf tournaments and how they can control pain. So they can actually play golf right. So we admittedly we have a strong sub patient or sub selection bias of the people who are at that tournament going through.
That tenant, but thats, great to the point, where in the future we are working with local orthopedic and.
<unk> and our docs to actually staff that trailer with us so that the folks that are there can actually make an appointment from the golf tournament for Nio Vera treatment and hopefully by doing that over time, we will generate a lot of geographic interest and how this happens the same with <unk>.
With the NFL Youll see the president of the NFL, making a very strong statement about opioid free.
Pain control and the devastation of opioids too many professional athletes later in their lives et cetera. So I think we're in the right place, we're going to work hard on our cash business.
Think about the PRP business, where patients are willing to.
Except a product that has no data and.
<unk>.
On a cash basis.
We think what we know from our market research that there is a strong opportunity there.
We're generating what we're calling our Vera days very much analogous to a PRP day or day, and a <unk> office or in an orthopedic office.
So we have to get many many more users locally Greg.
Our.
Personally people get to me to say who is doing these different procedures in this local and my local market. So that I can go to them and have a discussion with them about a drug for a nerve block and what we're doing really is getting ready for these bigger opportunities, especially the specificity opportunity, where we think we can make a dramatic <unk>.
Packed on the standard of care for these patients who have post.
Stroke.
<unk> in a number of other static indications so theres a lot at stake here for us and we're working hard on it.
Okay.
Thanks for all the color.
Yes, Thank you Greg.
Your next question comes from the line of search the lion's share.
Okay.
Hi, good morning.
Good morning, Serge just a couple of questions.
Couple of questions for me first on the on the no Pain Act.
It's been a little more in the news lately it seems to be gaining momentum.
So if you want to comment on whether it gets to the finish line or not but maybe if you can talk about what impact it could have on the coverage.
<unk> barrel.
And then secondly wanted to go back to the.
Not so EXPAREL friendly editorial those published.
Assay Journal last year.
I assume it's been widely disseminated announced so.
What impact it has had any on that.
Either practice guidelines are of hospitals.
Curtail the access of its apparel because of the editorial.
Thanks.
Good so first surge we.
We now have.
Over 100 members of the house that have that are supporting no pain.
And we.
We are.
Summing up on half of the Senate.
We need a couple more members to have half of the Senate. So.
We also have over 50 affiliated organizations, both from the insurance industry as well as the MMA and the orthopedic societies et cetera. So we're in as good a position as we could be at.
Right now we're.
We thought that we might have some action during the summer.
That was actually went in a different direction as a result of some of the <unk>.
Gun legislation that was approved in some of the different mental health things that didn't appear to be appropriate for what we were looking for in terms of of coverage.
For all non opioid therapies.
The best I can tell you is we continue to be involved with the folks and the decision makers in Washington.
We are looking at something that would take place in the reconciliation bills that.
<unk> come out.
We get later into the year.
And.
We are in the best position, we've ever been in in order to get the no pain at approved.
To answer your question.
The no pain act would require that the CMS pay for.
Products that had a note that had a.
An indication for post surgical pain for five years, all of that opioid products that have an indication for post surgical pain for five years, so that would allow us to cover over 70% of the procedure marketplace for EXPAREL.
So that would be a huge opportunity for us to be able to have reimbursement that would be that would eliminate any encumbrance that.
The institutions are having around the cost of being able to provide a non opioid alternative versus generics.
We think that would be a huge advance rare.
Relative to the USA.
Got it.
It's what it is search.
The article we've stated our case.
The article was completely misguided.
If you read the.
The declarations that are on our website relative to a meta analysis.
The.
The way that the numbers were calculated and the procedures that were embedded in that report or.
Or just totally misguided in terms of the way the product is used in the marketplace. The best point I can make is that the number one procedure that was used in that meta analysis.
Have quotes on meta analysis air quotes on meta analysis.
Was a penile transplant procedure that we've never presented to anybody to my knowledge.
And so it really is a bit of a made up translation of how a meta analysis should be done.
Has it had an impact sure it has had.
Had some impact in the marketplace.
Most folks who have used EXPAREL and understand the benefits of EXPAREL.
Find it interesting that Theyre society, we tried to limit the use of a product that is really the only product. That's available that allows them to do regional anesthesia and provide better patient care and allow them to move patients to an outpatient environment and so.
Its a discussion point that we continue to have with the society.
And we are trying to.
Two to move forward with this with EASA and but it hasn't had much of an impact on anything that we've done.
In terms of how we're working with the anesthesiologists, who are in the trenches and who use EXPAREL everyday for regional pain management for our newer blocks and field blocks and I would also draw your attention Serge to the recent article in the in the ASI Journal, where they published a shoulder article.
And just to give you a sense of where the.
The journal itself sits and how research is done.
They reported that the trial was negative for EXPAREL and shoulders.
And made a.
I don't even know are difficult to understand.
Air and the statistical profile that they used and they reported that there was no difference with a P value of <unk> <unk> when in fact, the P value they had it reversed and the P value for EXPAREL was point Oh too.
So it just gives you an idea that.
What's going on here is misguided for a reason frankly that we don't understand but it is what it is and EXPAREL continues to grow every months and we've got a lot of good things going on and we expect stride and approval for lower extremity nerve block will basically.
We continue to position this.
This misguided information that's coming out in a way that is appropriate for patients to benefit from EXPAREL.
Rather than opioids, and ketamine, which seems to be the alternative that's being positioned here.
Thank you.
Thank you Serge.
This concludes the question and answer session on today's call I will now turn the floor back over to Dave stack, Chairman and CEO for closing remarks.
Thank you Paula I'd like to thank you all for participating and listening to today's conference call. We look forward to keeping you updated on our progress next up for US is the Wedbush Conference later this month and city in September . Thank you all stay well.
Thank you. This does conclude today's call. Thank you for your participation in today's event you may now disconnect.
Yes.
Yes.