Q2 2023 Pacira Pharmaceuticals Inc Earnings Call

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[noise] welcome to the queue to 2023 per Sarah Biosciences Eat earnings conference call. At this time, all participants or listen only mode. After the speaker's presentation, there will be a question and answer session.

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Thank you and good morning, everyone. Welcome to today's conference call to discuss our second quarter, 20th twenty-three financial results. Joining me on today's call our tastes that chairman and Chief Executive Officer, and Charlie Rinehart, Chief Financial Officer, Ron L. S. Chief strategy Officer Envoy Winston Chief Medical Officer are also here for today's question and answer.

Your session before we begin let me 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 S. P C or.

Our website with that I will now turn the call over to Dave <unk>. Thank.

Thank you Susan good morning, everyone and thank you for joining US we are entering the second half of the year with positive momentum after seeing a meaningfully meaningful uptick in your over your ex pro growth in June and July . In addition, recent data indicate an improving elective surgery market.

We believe will continue through the remainder of the year is the economy moderates and soft tissue elective surgeries come back we are well positioned to get back to more robust top line growth rates.

While we are encouraged by improving trends today, we are adjusting the full year sales and gross margin guidance to reflect and updated view of market conditions and procedural cadence for the year, Charlie will discuss guidance in greater detail later in the call.

And the second half of the year, we will continue to focus on three priorities growing revenue improving gross margins and expanding market access second quarter revenues of $169 million include EXPAREL sales of $135 million, driven by solid volume growth and and Ah slowly recovering market.

In addition, we continue to build awareness around so <unk> and I'll Vera with with our field based team now promoting all three of our products second quarter, Zarrella sales exceeded $29 million and I over a sales grew to more than $4 million.

Are significant topline combined with I'm growing operating discipline is driving scrubbed strong and durable cash flows that allow us to further solidify our financial condition by recently prepaying $25 million of outstanding principal under our term loan facility. The second quarter also marks or 25th consecutive quarter of <unk>.

<unk> positive adjusted EBITDA of $54 million, we continue to focus on improving gross margins and we are moving in the right direction with second quarter margins improving 273%.

Or San Diego facility is now outperforming volume targets and achieved second quarter margins of 76% for EXPAREL.

We have also made significant improvements in the quality of the 200 liter process and swimming that we expect to will begin to positively impact X pro margins later this year.

Bottom line. We believe this foundation is set for gross margins to return to the high 70 per cent range as we exit 2023 on.

On the regulatory front, we remain on track to submit a supplemental new drug application for our 200 liter facility in San Diego later this year. This will be another critical milestone towards improving EXPAREL gross margins.

In addition, the F D. A recently completed its review of our application for an improved product release assay for EXPAREL and has requested additional information to support and approval. We will submit a meeting request to define the most efficient path forward with the agency importantly, the shift and timing does not impact our ability to improve gross margins this year.

Turning now to more specifics on the commercial portfolio, starting with our EXPAREL franchise. We are pleased to report that we continue to outperform the broader elective surgery market with second quarter EXPAREL sales of $135 million, which was essentially flat versus the prior year is volume growth of 4% was offset by 340 be pricing and other discounting.

Our investment in these programs has continued to provide meaningful access to EXPAREL for larger and growing procedure base setting the stage for a meaningful inflection in the implementation of the mental pain Act in 2025.

As a reminder, our performance last year was particularly strong with EXPAREL sales at near record levels with the second quarter of 2022, being the third highest quarter ever for EXPAREL.

Importantly year over year growth rate improved as the second quarter progressed and into July , leaving us optimistic for a higher second half of the year as the market continues to normalize. We also expressed growth initiatives that we have put in place such as continued volume expansion from 340, B and tried care reimbursement as well as in.

<unk>, an oral maxwell facial plastics, and outpatient surgeries and sports medicine will contribute to revenue growth in the second half of this year.

Turning to market access we continue to expand our X pro user base, adding more than 351st time purchasing accounts. So far this year, we are seeing a growing level of EXPAREL interest among oral and maxillofacial surgeons fuelled by last year's rollout of the partnership with Sir evident we expect to launch a similar partnership in the coming months with another large <unk>.

To support organization with more than 1000 offices across 46 states.

Together, we will support training and education around best practice for Optimising patient recovery after oral surgery, using an EXPAREL based opioid sparing approach.

As expected or 340 be pricing program is continuing.

It's contrary contributing to volume growth in both existing and new business as it helps alleviate cost challenges by offering a reduced price to eligible entities were opioids are often most problematic for the first half of the year EXPAREL 340 be volumes were roughly 25% with recent weekly 340, b volumes at roughly 20%.

Gross to net remains a highly favorable level for our industry at roughly 86% and we also expect the 340 b discount to improve from roughly 28% to 25% in the second half of the year with the 2023 price increase taking effect for government orders, which were which were pricing runs in.

Two.

With a two quarter leg.

All in all of the 340 B program is doing what it was designed to do expanding the EXPAREL user base and growing volumes within existing and naive businesses. This.

This investment advances our mission to provide an an opioid alternative to as many patients as possible regardless of income level. Our insurance status further 340, b as paving the way for us to leverage no pain. Since we are accessing a significantly larger pool of patients and their surgeon providers, who want to perform more outpatient procedures.

CMS recently issued their proposed outpatient prospective payment system rule for 2024 with EXPAREL continuing to qualify for separate reimbursement in the ambulatory surgery Center under reimbursement code C. 90, 290. Their preliminary rule also notes that the agency will implement the no pain act, which mandated CMS to begin reimburse.

Eating separately for Nonopioid products for post surgical pain, and all outpatient settings on January 1st 2025.

No pain will provide a reimbursement pathway for nearly $20 million EXPAREL relevant marker procedures, and we expect commercial and self insured payers to follow the lead of CMS reimbursement in the hospital outpatient setting as well as ambulatory surgery centers will cover more than 70% of the current total addressable market for EXPAREL and.

In parallel we are seeing expanding access to Nonopioid pain management for government employees are military and their families through efforts like no pain in October of this year Tri care will adopt the CMS Medicare reimbursement methodology for ambulatory surgery centers and begin providing separate reimbursement for EXPAREL in this setting we would.

<unk> tried care to also a mere CMS policy in the hospital outpatient setting with the implementation of no pain.

There are roughly 10 million members enrolled in Tri care for primary or secondary coverage.

Importantly, no pain Tri care, and 340, B R, especially meaningful to the migration of lower margins soft tissue procedures to the hospital outpatient settings. These programs will assist eligible health care systems and affording the opportunity to offer Nonopioid pain control for these populations.

Our state of the art training and innovation centres continue to support the market's demand for best practice knowledge transfer to accelerate surgical migration to outpatient sites of care in the first half of the year. Our educational program provided training in more than 140 onsite in Enfield events to more than 4200 up health care providers, who want to be.

At the forefront of opioids bearing pain management and pediatrics interest continues to grow as new data are generated or commercial organization is focusing on top pediatric institutions and EXPAREL use continues to significantly expand it influential hospitals such as the Shriners system in Wisconsin Children's we also have secured several.

Recent wins and spying programs and other centers of excellence, including Cincinnati Children's Hospital Chop in Philadelphia Children's Hospital, Colorado Mercy children's in Kansas City in Seattle Children's we will look forward to building on our success and to initiating a registration study later this year to support the expansion of EXPAREL label to incur.

<unk> patients aged zero to six years on.

On the regulatory front, we are advancing the F. D. A review process for our supplemental new drug application to expand the X pro label with a Purdue for the action date of November 13th.

To remind you of this application is seeking expansion of the EXPAREL label to include two key lower extremity nerve block indications that we expect will significantly extend our reach into surgeries of the knee media lower leg foot and ankle representing more than $3 million annual procedures. Finally, our phase one study in EXPAREL for intra thecal.

Asian continues and is on track for completion around the end of this year switch.

Switching gears tools, Loretta and I'll Vera while our full 200 person field based team is broadening education and awareness around these complimentary and Standalone Nonopioid solutions for managing osteoarthritis pain. So far this year. The team added more than 270, new first time purchasing zilretta customers and over 100, new Iowa very cusp.

Rumors several milestones are on track for the next year and current and new indications for both products for Zilretta, we expect to initiate two new label expansion studies. These include a shoulder osteoarthritis study in a diabetes safety study and knee osteoarthritis importantly, if our shoulder study a successful so reta should become.

The only the first and only approved corticosteroids specifically for shoulder away. Both studies will evaluate sorretto versus triamcinolone with the goal of adding a superiority claim to those iretta label <unk>.

<unk>, we recently announced our newest partnership with renowned professional golfer Lexi Thompson, who who will be advocating and educating athletes their families and fans about nonopioid solutions like Io Vera. We also have a new broadcast television commercial that started running last month on the golf channel and other slept more networks to drive you.

To learn more at <unk> Dot com.

On a clinical front, we continue to be excited about the prospects for <unk> as a potential.

<unk> game changer, and spastic last month, Dr. Gerald Francisco from the University of Texas Health Sciences Center highlighted Io Vera and cry on neural lysis as promising technologies in his keynote address entitled Looking ahead exciting prospects in specificity management at the 20 twenty-three International society of physical and rehabilitation <unk>.

<unk> conference.

Ah registration study of I'll Vera for the treatment of specificity remains on track to launch later this year as you know this is a highly dissatisfied market with inadequate treatment options currently limited to phenol and toxins alright very expansion activities also include a new I over a smart tip for medio branch blocks for low back pain.

We expect to have on the market in 2024.

Beyond our commercial portfolio, we have an exciting earlier stage portfolio of new product development opportunities that include P. C. R X 201, a novel and to articulate gene therapy product candidate that produces <unk> for osteoarthritis as you may recall data from our first phase one study were very encouraging with the greatest level of ethics.

<unk> observed at the lowest dose studied based on this positive data we are planning to launch a second phase one study for P. C. R X 201, and osteoarthritis of the knee. We are currently finalizing our protocol after receiving input from the FDA.

We also continue to advance phase one readiness activities for our internal multi particular liposome pipeline, which includes a multiple of secular <unk> on dexamethasone formulation for low back pain, and a multi vesiculobullous owned bupivacaine formulation as a nerve block or field block for longer lasting chronic pain, where patients are most at risk for becoming a.

Dicta to their pain medications and with that I'd like to turn the call over to Charlie for his financial review Charlie.

Thank you, Dave and good morning, everyone to remind you I will be discussing non-GAAP financial measures. This morning, a description of these metrics along with our reconciliation gap can be found in the news release, we issued this morning.

Start with an update on sales and margin trends <unk>.

Starting with EXPAREL, we had a solid second quarter with net EXPAREL sales coming in at $135.1 million second quarter average daily volume growth of 4% was offset by the impacts of our investment in the 340 B program and other contracting activities as Dave mentioned, we were encouraged to see <unk>.

Proved year over year growth in June and July .

These data leave us optimistic the second half of the year will be stronger than the first half of the year.

For Zilretta second quarter sales with $29.3 million with our 200 person field force now promoting education and awareness, we continue to see encouraging uptick in the first time customers and expect Zilretta growth will accelerate over time as the team continues to grow our user base.

For Io Vera second quarter sales came in at $4.4 million here too we are seeing strong growth in our customer base and expect demand and sales to gain momentum with a full field based team generating awareness around the advantages of a drug free nerve block with I Rivera.

We also expect our sports initiatives with NFL alumni the PGA in the LPGA to drive awareness around Iowa, there is an innovative opioid free option for managing pain.

Turning to gross margins on a consolidated basis, our second quarter non-GAAP gross margin percent with 73%. This is comprised of non-GAAP gross margins of 72% for EXPAREL, 82% for <unk> and 78% for Io Vera.

As Dave mentioned or San Diego facility is performing in line with expectations and achieved EXPAREL margins of 76% for the second quarter for Swindon, while we've made significant improvements in the 200 liter process. At this facility. These changes did not take hold quickly enough to drive a more favorable impact to the.

Overall mix of EXPAREL units sold in the second quarter with units produce at the higher cost San Diego 45 litre facility, representing a significantly greater proportion of total units sold versus units from the lower cost Swindon facility.

The good news is that the Swindon production is now on track and we expect to exit the year with margins in the high 70 per cent range as we shift to a more favorable mix of commercial products sold.

Turning to expenses non-GAAP R&D expense for the second quarter was $17 $1 million down from $24.8 million last year the year over year decline primarily relates to completion of our two lower extremity nerve Black studies, which was partially offset by production development and capacity.

Expansion costs for the 200 liter facility in San Diego, We expect to see an increase in R&D expense and the back half of the year with the launch of new clinical programs.

non-GAAP SG&A expense came in at $57.1 million, which is in line with the $56.5 million reported last year, we expect to see a decline in SG&A expense in the back half of the year.

Second quarter interest expense improved significantly to $3.9 million versus the $8.8 million reported last year. This.

This was driven by the interest expense savings associated with the retirement of our term loan B on March 31st using a new term loan a in cash on hand.

As you know that the Sierra leadership team is constantly assessing the best use of capital in ways to optimize our balance sheet to that and last week. We made a 25 million dollar principal prepayment on the term loan a and we continue to fully expect our significant cash <unk>.

Cash flow outlook will enable early retirement of the remaining term loan a balance of approximately $122 million.

For modeling purposes, the $25 million prepayment and will result in interest expense savings of roughly $1 million in the second half of the year.

And lastly, despite some challenges we delivered another quarter of significantly positive adjusted EBITDA of $54.3 million.

As for guidance as noted in today's really release, we are updating our full year guidance for the following P&L line items to reflect our current views of market conditions and actual results for the first half of the year.

EXPAREL net sales of $550 million to $560 million versus previous guidance of $570 million to $580 million with respect to cadence. The first quarter of 2023 appears to have shifted away from typical seasonal trends and will represent a slightly.

Higher percentage of the full year than it has historically similar to 2022, when we had one quarter outlier with the second quarter. It in your record levels.

We now believe the first three quarters of the year will be more evenly balanced in terms of percentage contribution to full year EXPAREL sales.

With the market showing signs of normalization and 340 be hitting its one year anniversary in October we continue to believe that the fourth quarter will be the strongest performer and the largest contributor to full year EXPAREL sales.

<unk> net sales of $110 million to $115 million versus previous guidance of $115 million to $125 million.

non-GAAP gross margins of 73% to 74% versus previous guidance of 76% to 78% in stock based compensation of $46 million to $49 million versus previous guidance of $51 million to $54 million.

Today, we are also reiterating our full year 2023 guidance for the phone.

<unk> net sales of $17 million to $20 million non-GAAP R&D expense of $70 million to $80 million non-GAAP SG&A expense of $220 million to $230 million.

In summary, we remain bullish in our five year plan with year over year top line growth returning to more robust rates as economic conditions improve an elective surgery market normalizes.

Gross margin improving modest year over year increase this operating expenses and adjusted EBITDA margins that exceed 50 per cent.

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 we will know conduct a question and answer session. As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be now.

While you're questions. Please press star one one again, please stand by while we compile the Q&A roster.

Our first question comes from the line of David and sell them from Piper Sandwich lying is now yours.

Hey, Thanks, So just had a few questions I know you talked about underlying elective surgical dynamics, but with improvement I I guess I would've thought we would see more robust volume growth for.

EXPAREL and it doesn't seem to be there. So I'm just wondering out loud is there something else that we're missing on the volume side is this something regarding underlying commercial execution that were missing and and just help enlighten us as to what is happening here in one.

Hi, it's EXPAREL seems to be lagging and the overall recovery of the electric surgical space. So that's number one number two you've talked about margin expansion in operating leverage for a number of years here you are guiding down for gross margins I get your remarks on Swindon.

But at what point and you take more aggressive measures to deliver on my operating leverage that you've talked about again for a number of years and is there a sense of accountability that.

The margin expansion in operating leverage that you've decided in the past just hasn't come to pass yet. So I'm wondering if you can give us some thoughts on that thank you.

Good good morning, David and Thanks first on the on the first question you know as we come out or if we came into and out of Q2 of this year April was very soft David and actually one of the worst months that we've seen in since since the pandemic and so.

You know we saw that that increased his or the the market conditions improved at least related to EXPAREL as we got into June and July so.

Now as we look at commercial execution I don't believe that there's any issues in the marketplace related to how we're being viewed I think the marketplace continues to be financially strained, especially in the hospital marketplace and we do talk to folks regularly about the H O P D marketplace.

<unk> and these low margins soft tissue procedures that are difficult for the providers to do because of the low margin aspects of what they're doing and the you know trying to move these procedures from the hospital inpatient to the hospital outpatient environment.

Which is helpful. But it still doesn't provide the kind of return that would provide comfort to people who are using 30 minutes of their all our time for a very low return on investment. So what were what I'm trying to point out here is that you know the issue here really is that people are struggling to be able to provide their.

Patients with a low opioid alternative and we cure that with the institution of the <unk> you know so I don't I don't believe that this is a commercial execution story as much as it is a macro story with customers and patients who are being squeezed in the cost of a.

Nonopioid treatment theory therapy is quite a bit different than the ability to use EXPAREL and opioids and many of our patients are being treated with bupivacaine and opioids purely because either the system or the patient can afford the more costly nonopioid therapies, so hopefully that <unk>.

<unk> some color to Q1 on queue to all for your comments on your part David and you know we've struggled and you know if you go back to the first quarter of 2020th 2022 are gross margin was in the 79 per cent range and then we ran into a series of issues that have.

Been well described we thought we were coming out of those issues and that we were going to have some more significant recovery and 20th 22, and then we had yet another acute issue in in Swindon It caused us to improve but not at the level that we were expecting with the with the guidance of Charlie just gave so.

You know the the the lower guidance is really a conservative measure to make sure that we that we meet these new milestones.

What will happen here over the next what several quarters is the.

The cadence is we have to fix with it I mean, that's number one as we sit here today Science Center is the most reliable material that we produce but it's also the most expensive. So we need to fix went in because it's it's the least costly materials that we can make and.

So you know that is high on the list and we think that we've achieved that for the most part we're still it's not perfect yet, but we've made great progress over the last two months. We will also open a 200 litre facility in San Diego and that will provide us the opportunity to have significant capacity and again lower the cost.

And then I think slightly under appreciated is the fact that when those two facilities are running efficiently and we can depend on them. We will close at least one of the 25 or the 45 litre facilities in San Diego and the cost associated with that the savings associated with that.

His material and so that's the plan and that should all happened here.

As we get into the first part of 22 or 24, we should start to see material. That's been produced in these lower cost facilities and that will enable us to get into this you know 80 ish per cent range that we've been talking about for quite a while.

And it is also David a revenue story right. I mean, you know obviously, we need we need more revenue in order to be able to make more material to have a lower gross margin, but that I think is obvious to everybody, but that's the cadence of what we're doing here.

Okay. Thanks.

I just need <unk> why are you continuing to invest significant further significantly in I have era.

That's an easy one for me David I owe Vera.

It to me remains a opportunity to change patients' lives.

When we see what we're doing on the market and we see the response to how the product is being used in the marketplace.

It truly is a a game changer and you know again, we've got to be able to do that studies and provide the data that allows us to have a label that can turn the salesforce onto these things, but we are seeing real growth in cash market opportunities.

We're seeing physicians, who are opening I'll Vera only cash cash paid facilities on the outside of the organization both in the U S and in Europe .

We now have spastic hospitals, who are using Iowa <unk>. Many of these programs are quite Nathan but real.

And as we do the specificity trials and we think that that trial can be done reasonably quickly and because it's a device. It can be approved reasonably quickly five 10-K that this product and spastic will be a very important asset for EXPAREL.

And our <unk> for the company and for our shareholders and that is.

<unk> a 25 events. So that's it's not something that we have to wait a long period of time for but we're seeing.

Significant interest in the marketplace not only from physicians for from societies and people are starting to really understand the value of cryo neural lysis and so I think it's a fair question clearly on the amount that you know how long it's taken us to get going here, but I think that we're in a tipping point with where I'll variable will start.

Really change lives and add significantly to the value of <unk> and up as a company.

Thank you.

Thanks, David.

Thank you one moment please.

Our next question comes from the line up.

Gregory Rosa R. B C capital market. Please proceed.

Great. Good morning, David team I appreciate all the call and thanks for taking my questions.

Maybe maybe for you and for Charlie just just on the revised guidance I'm just curious to add you set the full year earlier in the year and leading to where we are now I know you've acknowledged potentially this tale of two has for the year, but are you and Charlie applying a more cautious methodology are there newer inputs.

That I think you're right informing the potential predictability just walk us through just that process and how you've really incorporate some of the new data points and how it's changed maybe your your degree of confidence and then just that day may broadly <unk> for you as you are commenting on now that degree of optimism for the second half of.

A year.

Just just curious did you just build on that a little bit maybe just put the other way what is your level of concern that that the disconnect that that was that you've covered earlier between X pearl in the broader market can persist or you know maybe more relevantly that definitely gap can close and export expert can sort of you know certainly outside and growth here. Thanks. Thanks, so much for the <unk>.

<unk> yeah.

Yeah, no. Thank you Greg so when we when we set out the annual goal we were looking at the expectation that procedures would be a 6% to 8% growth analysis for the.

Period of the year, what we saw Greg was 6% in the first quarter, 4% in the second quarter and so the second quarter is where we start to take a look again and it's largely an analysis around soft tissue procedures.

We've got a lot of data now Greg on on what the issues are related to patients getting these these elective surgeries, especially soft tissue elective surgeries and you know the impact of of of inflation is real labor is real mortality as it relates to looking back.

Words that the patients who expired as a result of.

Of the Covid pandemic. So you know as we're looking forward here, we've taken that six to eight number down to 4% for the third quarter and then we make it up in the fourth quarter with something that approaches you know the high end of what we originally thought at eight per cent are in the range of 8% plus.

So as we move into the back half of the year. We do have a number of things that we think will will help US close. This gap first is tri care you know we've got a million patients we are increasingly strong at the military installations themselves.

And so we do C V a business picking up and you know the the military year closes at the end of September so for us assess and D. O D. We should have a strong influence in the third quarter from from the military accounts. We also have tried care kicking in on December 1st and.

The east that will largely be for EXPAREL in the west we expect to have a positive impact across the entire portfolio. So you know that is a relatively strong opportunity for us located in several states, where we are the strongest so there is a allocation of new business coming from.

Those places.

They knew all M F S site that we.

Or a partnership that we cited in the script is a major player in when we mirror that against the <unk> experience. We saw that those organizations those dental service organizations have the opportunity to move very quickly.

To have their members adopt this new strategy and be educated on this new Nonopioid strategy and then you know a modest benefit but a benefit nonetheless from the 340 be pricing, which provides a 1% tailwind for the year and are roughly three per cent tailwind as we go into the second half of.

A year or so when we roll those things together, Greg you know we are comfortable that we can meet the the opportunity that we have to get into the 550 range that Charlie talked about it between 550 and 560, So I hope that answers your question, but please come right back if it doesn't.

Now that that's very helpful. In data I appreciate the additional color.

Thank you one moment please.

Our next question comes from the lineup.

Glynn.

Hello, I'm Jeffrey Please proceed.

Oh, Yeah, good morning, and thanks for taking my question, Hey, Dave not not to beat this expro horse to death here, but you know when I will get the full six months or to coming into this year. We thought we ended the year with you seemingly giving somewhat conservative guidance and now you know you're taking the guidance than mid year and I. Appreciate the last couple of months seemingly looks better.

But when you look at the first half of the year I mean, what played out differently relative.

Bless you.

Relative to what you would have thought is it just that the pricing dynamics of EXPAREL versus <unk> and and you opioids is just creating a much larger headwind than you thought is that the primary issue here because it sounds like 340, b the volumes airplane out as expected and the pricing related to that.

It was kinda is expected so I'm just trying to really figure out what what what's gone different relative to what you thought at the beginning of the year.

It's it's really it's it's two things Glen and you're you're accurate in your assessment I mean 340, B has been slightly heavier for the first six months of the year than we anticipated as we came into the year. Although you know net impact on the bottom line is is modest it re.

Really is you know the discussions we have with customers and a lot of these are based on our discussions relative to try care and and no pain, where you know they're the pharmacy is being squeezed is not the right word but it's the word that comes to mind I mean, there's some.

Man's being made in the hospitals and many of the treatment centers on cost savings and where can they save money relative to you know their budget and what we hear from these folks is that you know the C. F O and the C E O R less aware of.

The issues of opioids and consider opioids to be free actually because the prescriptions that they radar fill the outside the hospital Underpart D. So there is really no cost to the use of opioids and so our clinicians don't like the way that this is being done but really have no choice, but to use the lowest cost alter.

<unk> and so they're using bupivacaine and they're using and they're supplementing that with opioids is the only treatment option that's available and many treatment centers and so we we had we've seen that in the past of course, but I think the pressure on pharmacy in on hospital systems from a cost perspective here.

Has been intensified and and so you know again another reason why we are so hopeful it when we get no pain approved and as we roll Tri care out there and as we put 340 be in front of folks that we've got solutions to this cost issue that will allow us to improve patient care.

An opioid not <unk> an offer nonopioid alternatives, but you know, but we're you know we're not massively behind where we thought we were gonna be where we're behind and we are restating for sure to be conservative, but we think we're in a good spot and relative to everything that's right in front of us with <unk> lower extremity nerve.

Block and no pain, no pain as we get into 2025.

<unk> I appreciate those comments and so now sort of looking forward. It's it's <unk> I guess hard to think that anything changes in the next 18 months. So it was it was all kind of window dressing go ahead, no pain coming in 2025 and have you started to think about you know how much of an impact bone pain can have in 2025 and.

You know my my follow up and then I'll then I'll hop office, you know with no pain no less than 18 months away does that change depending upon your view of the opportunities that change how you think about capital allocation policies may be shifting away from business development and maybe focus on focusing on repurchasing somebody your own stock here you know in.

Low to mid thirties, just given you know the seemingly large opportunity you know just 17 months away now and I'll stop there.

Sure No fair enough Glenn So we do we have a very significant product launch around to produce a date of lower extremity nerve block on November 13th that brings another 3 million patients to be under the the protection I guess of a package insert.

It is surprising to us that many of these situations that I. Just described to your first question are a result of not having a direct package insert that allows our customers are physician customers to show to a pharmacist or to a C. F. O that we have a direct label for.

A lower extremity nerve block and that's the guys under which many of these access denial programs are built so we cure that with a lower extremity nerve block and we have some confidence that that will happen in November so that'll be a very important launch later this year and into next year. We also do see that.

There are some early signs that there is recovery and some of the areas that have cost us some issue inflation modestly labor modestly the the restocking if that's not an inappropriate word for the the number of patients who are now.

<unk> Ah Ah cute or a chronically ill and having a cute soft tissue surgeries as a result of their chronic illness and I I raised that point because one of the issues that has caused the soft tissue market to be soft is that the patients who who would've done it would've.

Had many of the soft tissue procedures that we're not seeing expired during the pandemic and so we do believe that that the market is slowly seeing the recovery of those things coming up those patients coming back and we'll be getting more of the soft tissue procedures. As we go forward through this year or next year.

Sure. So we don't believe that the 2024 is a is is anything but a year to focus on all of the good things that are going on with lower extremity nerve block in Tri care. It is also a year to get ready for no pain. I mean, we are talking to many of our customers about the impact of no.

Pain and showing them the blended rate of what how important no pain will be to them. So give you. A specific example, we'll show a hospital that 60 per cent of it or 70 per cent of their business is outside the hospital and will be totally reimbursed and when we do that that the average cost of EXPAREL for these accounts is going to be in the <unk>.

$70 range, which surely that splendid of course across all of their sites of care and that makes it comparative to almost anything that is out there. The other piece of that is when we have no pain <unk>.

<unk> EXPAREL will be the only zero cost opportunity to treat pain, even bupivacaine will have a cost that <unk> that will be not <unk> not appropriate with with EXPAREL. So that's the first part the second part is we we have a tight we have a we still have a <unk>.

And we want to retire that using cash and we have a convert that comes due in August of 25, we have the option of using cash or stock and depending on the share price you rightly point out that you share prices and our viewing appropriately low today, we will pay that off as cash to the <unk>.

Extent that that's possible and we continue to believe that that's the best use of cash as we go forward. So those are our two priority <unk> focuses we really have I've put back burner can smell slow burner for the BD opportunity. So that we can address those two opportunities to delever as we go forward.

Thanks for the comments.

Thanks Glenn.

Thank you one moment.

Alright next I'll come from <unk> philosophy from <unk> Securities. Please proceed.

<unk>. Good morning. Thank you for taking my questions just to go back to EXPAREL on 4% volume growth.

Can you just give us a little bit of the dynamics of what portion of that was on 340, B and then the existing channels how do they perform and then also on on <unk> from 20 mail to to the 10 lower dosage.

Impact on the margins Si there and then perhaps give us the latest on the paragraph four filer.

And I have a follow up on <unk>. Thank you.

Good thanks less so.

For 340 B.

You know we were we were running at <unk>.

Something that was approaching 25%.

And then over the last.

Oh, I guess, probably a month and a half now we've seen that come back to something that's closer to 20%. So we think some of the activities that are going on externally outside the company and some of our own internal activities on appropriateness of 340 be pricing are having some impact in the.

And the marketplace and so you know I I think we're on top of that list I don't think that it's gonna get higher than what we've seen in the past and I think we have some reason to believe based on our specific discussions with many many of the people in the marketplace about 340 be pricing and some of the activities that are going on in Washington that.

20 per cent of our initial approach our initial belief of conversion was was appropriate. We also it's been slower than we thought but we are seeing new customers meeting 340 be hospitals, who never purchased EXPAREL before buying.

EXPAREL or purchasing EXPAREL now and when you look at those account there is a material portion of those of those purchases that are not being purchased under 340 B. So there is some benefit to the overall franchise of selling the drug at a discount for a portion of there's patience and also having the benefit.

Of of those sales outside of 340 be pricing, so that would be that would be number one margins on.

10, a M L versus 20 M L S.

They're they're about the same you know we've taken a couple of price increases on the 10 to try to normalize the procedure value of four days of pain control. So that the 10 ml. Obviously the revenue is is lower for a 10 a M L versus a 20th.

Well, but there is a margin associated with the time 10 ml actually works out to be slightly higher than the 20th <unk>. So it's not half.

Better than than the 20th <unk> on the same procedure, but the total revenue is materially less if that's an answer to your question I think that's what you were asking.

And then the last paragraph four update is pretty easy there really is not much I mean since we had the workman hearings, we really don't have anything new to report to to the marketplace on.

You know on any activities here, it's just slow going in terms of.

What's required in order to meet the.

Demands of a 340 be filer are slow too slow to progress and so you know things are sliding backwards as timelines are not met.

Not by off very hot anyway.

Got it very helpful. Thank you <unk> what is the rate of progress I'm moving into specialty pharmacies, and what happened and somebody adoption trends from naive patients versus those on repeat those things and I'll stop there. Thank you.

Yeah, Oh, thanks again, less so we are moving towards specialty pharmacy, there's a number of reasons to adopt this you know the the H a market continues to be unsettled and especially what we saw in June where one of the more popular H as from a.

Ability to generate profit perspective took a pretty good hit on pricing. So the market is really cautious I guess is the best way to put it about buying a lot of stock because the price changes every quarter and if they've got a lot of inventory they have to try to use.

It up while they still have the old price and they don't have a lot of time associated with that so there's some drivers in the marketplace that frankly didn't exist before these these haa issues have taken hold and so.

What we see is physicians would tell us that they have you know a lot of resource tied up in prior authorizations and you know <unk> cash tied up an inventory and moving to the specialty pharmacy leaves both of those issues and we can work with them then and some things are.

<unk> you know.

<unk> customers, who would like to be buying build but when you have a product acquisition cost over $500. That's a difficult task for these especially the small orthopedic procedures. So we can we can operate in a different way with the specialty pharmacies. Then we can with a physician accounts themselves on being able to address the Custer.

Ermer needs in this market place. So that's this is in progress less you know I don't think we haven't fully optimized where we're goin' was already yet, but we expect to achieve that as we get into the later parts of this quarter.

Thank you one moment, please as I prepared with questions.

Our next question comes from the line of fire.

<unk> <unk> <unk>.

Please proceed.

Hi, Good morning. This is Michelle <unk> and our recent conversation with you were packing June you mentioned that there was a positive structural change you know demand for volumes.

And how do we reconcile that low volume full <unk> <unk> with those comments. Thank you.

Yeah. What we saw is you know I think what we were talking about was that we were seeing strength in the back half of June and that's accurate. We were unfortunately, we were coming off a ah well not unfortunately I mean, the fact is that April is very soft.

And as we got into May we saw some normalization back to what we thought was going to be the.

The case for the every month and a quarter and then we saw strengthening in the back half of June .

And I think that was the reference and so when you blend those things together, you'll get to what we reported as a 4% procedure increase and that's the cadence and so both things are true.

We did we did see strengthening in the back half of June and we had 4% volume growth, but it was it was a recovery from what was really a very soft April and then Ah recovery in May and then increasing strength as we went into the back half of June .

Got it very helpful. Thank you.

Thanks for that budget.

One moment please.

Our next question comes from the line of broken Hawthorn.

<unk>. Please proceed.

Hi, This is Robert onto your server. Thanks for taking our questions. Why do you think we haven't seen EXPAREL benefit from the improved procedure volume that we've seen with my Tech companies in hospital companies report in the first half of 23.

And then also can you provide an update.

P and launch of EXPAREL and how that's good thanks.

Sure sure. Thank you I'm, sorry, I didn't catch your first name sorry about that so I mean, the answer is I'm glad you asked actually so.

The only two procedures that are growing and this is true of 2022 and it's also true of the first six months of 2023, our foot and ankle.

I'm, sorry, Hi, sorry, Jesus, Nathan knees, and hips, and and we have participated in that and our knees and hips as a growth driver are in line with what you would have heard from the med Tech companies.

The issue for us and relative to other ortho procedures like rotator cough, and you know foot and ankle and hand, and wrist and things like that those procedures are also soft enough that actually ortho overall is down the marketplace 422.

And the first six months of twenty-three is actually down year on year, you using I Q via data and that is especially true of soft tissue. So the answer to your question. The specific answer to your question is we are participating and.

And hips and knees, mostly knees by the way knees are the primary driver hips are growing and those are the only two as I said earlier and we we have a a presence in all of the rest of <unk>, which is not growing in line with hips and knees and 45 plus percent of our business.

Is actually in soft tissue, which is not growing at all in fact is has brackets around it for all of 22 and again, we only have data by our data for I Q via is on a six month lag.

We only have January as it comes to this full report of sight of care and procedures by sight of care, but in that report you can see very very clearly that hospital procedures are down and soft tissue is down in that environment everything's down in that environment.

And that soft tissue is down an outpatient environment as well and so it's because our procedure base is much broader than the med.

Med Tech companies that we have a slightly different profile as we look at how these procedures are done and how the cadence of procedures are done.

So that's that's the first part the second part is Europe Europe has been slower than we thought you know they've had a lot of issues around the war and some of the negative implications in Europe of how the importance of.

Getting new things approved on hospital formularies and things like that I would tell you that recently, we've had significant progress.

We've had several major medical institutions.

Approve EXPAREL Andi avera for us and.

And the last six weeks.

Several specificity.

Centres of excellence have approved <unk> for use in Europe .

And we've just in the last 14 days have won a 52 hospital chain and a number of major orthopedic hospitals.

In in in Europe , especially in particularly in the U K, but in many other European countries and and I would say you know, we we have I O Vera actually questions coming to us from a number of places in Europe that we have not.

Staffed with individuals, but when folks or go into their national meetings were getting the calls wondering where they can train where they can travel to to be trained across Europe and I over and of course that gives us an opportunity to talk to those same folks about EXPAREL. So Europe was slow, but I think now we are catching up.

And actually we expected Wiebold K in Europe for the next for the next six months for the bathroom, you know and to 24. So I appreciate the question.

Thank you.

Thank you.

Thank you one moment please.

Oh.

Our last question comes from in the line of Boris Pinker from T V talent. Please proceed.

Alright, Thanks for taking my question first I just want to know if you can make it has been on the F. D. A drug sports list I think for Awhile now I'm curious what you're seeing in terms of bupivacaine availability and how that may be impacting EXPAREL and my second question in terms of the Ah lower extremity nerve block have you discussed with the F. D. A if you <unk>.

Should be expecting an advisory panel on this or not thank you.

Yeah. Thank you for US you know our experienced with bupivacaine is that it had a much greater impact on the the pumps that it had on EXPAREL and the issue as we see it in our major EXPAREL institutions is not a b.

<unk> Akane shortage, it's a bupivacaine shortage of certain package sizes, and certain dosage and certain strengths.

And what I mean by that is you know if the if they have a protocol for example that says that they use 10-C sees a 0.25%, but they don't have 0.25% than what they're concerned about is that there's gonna be inappropriate administration when somebody just grabs bupivacaine and doesn't reach.

<unk> take the time to understand that all of the dosage strengths that were previously available are now available. So the net net of that is that I can't tell you that I think there's any material benefit to EXPAREL because of hurricane shortage because the in a pharmacy, obviously, they would just drive a different dosage strengths and frankly.

If there is anything they are making under 797 in a sterile environment. They would use the cheapest available for them in any case right. It's more of the floor stock and when people are taking stuff out of the.

The onsite machines that they're worried about whether the whether the nursing staff and the physicians are going to be able to follow the protocols that are written because all of the dosage strengths aren't available.

On the second piece, we've had some extensive discussions with the F. D. A and we do not expect that there was going to be an add comment.

Alright, Thanks for taking my question.

Thanks for us.

Thank you.

At this time I'm showing no further questions and I would like to turn it conference <unk>, Chairman and CEO for closing remarks.

Thank you Gerald and thanks to all on a call today for your questions. In time, we are starting the second half of the year in a positive momentum and we are excited about the opportunities that are ahead of us throughout the balance of the year. We will continue to work to transform the lives of patients who need Nonopioid pain management, which is an ongoing played throughout this country and around the world next up for US as the Wedbush Conference in New York.

Thank you all and stay well goodbye.

Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.

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