Welcome back to the 2024 RBC Global Healthcare Conference. My name is Greg Renza, one of the Equity Research Analysts here at RBC, and we're pleased to have Pacira BioSciences with us today. Joining us from the company is the Chief Financial Officer, Charlie Reinhart. Charlie, thanks for joining us.
Thanks so much for having us. We appreciate it.
Great. And a lot to talk about, a lot going on. We were just mentioning that it's been an eventful week for Pacira. And maybe we to kick things off, you can just give us an overview of Pacira, the recent strategy, EXPAREL, and also some of the developments that have transpired over the last week.
So Pacira is focused on being the leader in non-opioid pain management. We have three proprietary products: EXPAREL, which is a long-acting formulation of bupivacaine that is labeled for post-surgical pain. We have ZILRETTA, which is an intra-articular injection for knee OA. That's a long-acting formulation, a different type of formulation of a steroid. And we have a very interesting medical device named iovera ° , which basically uses high temperature or, excuse me, low temperature to freeze nerves. And it's small, but it's got some interesting upside to it.
Great, great.
So as far as things that went this week, or last week, I should say. So our earnings release was at the end of market close on Tuesday of last week. We announced Wednesday evening the intent to do a convert, and we consummated that transaction on Thursday. So it's a good, really good transaction for us. The market was very strong. We were more than 5 times oversubscribed. So we hit the tights. We bought a capped call so that we're now up 80%. So puts the conversion premium a little bit under $55 a share, which was important to us. And the pricing on that was really good. So we used the proceeds to buy back roughly $200 million of the August 25 face value convert. And we also did our first share repurchase.
So part of the earnings release last Tuesday was the announcement that the Board had authorized the company to spend up to $150 million over the next couple of years in share repurchases. And we used the convert as the opportunity to do the first one. So we're really happy about that. Frankly, I think the transaction was very well received. And we're interested that the Board gave us the opportunity to go on the offensive from the share repurchase perspective. So we think that, you know, we're going to use that opportunistically in a way that we think best suits the shareholders.
Great. It's been a nice transition point for Pacira, for EXPAREL. As you're alluding to, this has been a foundational quarter, setting the stage with the guidance that you gave and the revenue performance. And as you've noted, it is all about volume. It's about expansion. And I think that there are some surgical trends that you and the team allude to. Maybe just from that top down, just talk a little bit about some of those trends across those segments that you're seeing that enable you to take advantage of some of that momentum in the surgical setting for EXPAREL.
Sure. So we have important presence in both the hard tissue slash orthopedic segments of the business and soft tissue. So you know, as far as the orthopedic side, we're growing roughly in line with the big orthopedic companies. So kind of mid single digits. Soft tissue is a little bit behind that because it has not come back in the number of procedures. So the post-pandemic growth in soft tissue has been a slower rebound. And I suspect, frankly, that people are out there, and they're looking at their financial situation. And they're asking themselves, what's my budget look like with respect to the impacts of inflation and on my rent and food and transportation side? And do I have extra a couple of $1,000 to fund my share of the copay?
And I think that's what we're waiting to kind of bounce back a little bit. As you recall, EXPAREL was previously growing in high teens growth rates. And now we're, from a volume perspective, we're kind of at market with mid single digits. And so, you know, we're asking ourselves, what do we need to do to get back? And that's one of the reasons why we're so excited about the NOPAIN opportunity. And for those who don't know what that is, CMS will begin reimbursing EXPAREL at ASP plus 6, starting January 1, 2025, in the HOPD setting. And that's really important to us. So there has been a trend of shifting surgical procedures from inpatient to the outpatient setting. And the outpatient includes both HOPD and the ASC setting. Roughly 72% of our current TAM is already performed in the outpatient setting.
The EXPAREL's biggest challenge really has been reimbursement. In the inpatient setting, we didn't have any. At this point today, we don't have any in HOPD. And that HOPD is a big portion of our business. So we're really excited about that. The key focus for the company right now is getting ready for the CMS to start reimbursing. We have a new CEO. He's investing a lot in the internal commercial infrastructure. We're hiring a new Chief Commercial Officer, a new Chief Business Officer. In the next week, I think we have 2 new senior marketing folks starting. So there's a lot of excitement around the company. We're really really, you know, asking all the questions that a new CEO should ask. And we're really excited and getting ready for NOPAIN.
Yeah. And I like how you and Frank and the team talk about NOPAIN as almost a product launch. And I think you're touching on that in your remarks and how you describe that. What is that buildup like? And how are you? How is that actually setting foot in action? That is, NOPAIN being almost a product launch for EXPAREL.
So the first part, it was to invest in some of the individuals in the company internal. What I didn't talk about is we're also making a significant investment in reimbursement internally. So market access team is being built up. We are hiring some reimbursement specialists that will be out in the field with folks. So that's new for us. So we're, you know, again, there's an awful lot going on. And everything is being kind of we reviewed as the strategic plan and how to best focus really on the reimbursement side.
Excellent. And related to that, I know certainly the 340B centers, the price and volume mix that you're even referencing. You know, what are your thoughts on the mix there and how that sort of sets up the trending into NOPAIN?
So, you know, when we took a look at what our business was, you know, prior to a year or so ago, we really didn't have. We had a handful of contracts with individual hospitals, but we didn't have any GPOs. We didn't have 340B. And it just made sense to us that if you're going to have a hospital product, you probably need to play in those spaces. So we joined 340B, I guess, 2 years ago. And the part of the goal for 2024 is to further solidify the base, so to speak, and join a couple of the larger GPOs. And so, you know, we had been hearing from customers that we were non-compliant spend, which was starting the conversation with the black X next to you. And that we decided that wasn't the way we wanted to start.
So, you know, we're going to join a handful of the GPOs. We signed one with Premier in January. We expect to sign a second in the second quarter and a third in the third quarter. So by the end of the year, roughly 85% of our total business will have some form of contract linked to it.
Okay. And then with the Premier contract, what does that represent in terms of share or EXPAREL relevant procedures?
The Premier membership is roughly 20% of our total EXPAREL relevant procedures. So it's a little confusing because there's 2 ways to look at this. One is it happens to be true that roughly 80% of our procedures are going to be the combination of the GPOs. Another way to look at it is areas that we have contracted or have discounts. So we have a 340B business, which is roughly 24% of our business today. We have individual contracts that we have signed over time prior to GPOs with specific hospitals. That's about 30% of our business. And then there's going to be the incremental on top of that GPO impact. So it's interesting that either way gets you to about 80%-85% of our business.
It just so happens that if you look at a GPO like Premier, their members are part 340B. They may be individual contracts. And if they're not, they'll be hit by. They'll go get into the Premier GPO bucket.
Got it. Got it. So then 2 more we can look forward to over the course of this year to get to that ramp. And maybe talk a bit about the guidance that you reiterated in those pushes and pulls when it comes to EXPAREL and the portfolio.
Okay. So I mentioned earlier that the big ortho hardware companies were predicting that they were going to grow in the kind of mid-single-digit growth pattern. And so we see ourselves in line with that, with maybe a hair less than them, because we have half of our business in soft tissue, and that is growing more slowly. So that's the volume side. Kind of think mid-single-digits. The additional investment in getting access to the GPO members is going to cost us, you know, roughly offsetting. So from a top line perspective, those two numbers are offsetting. We also expanded EXPAREL's label for two new lower extremity nerve blocks in late last year. So that kind of kicked off with the national sales meeting and launching that. So we think that'll add growth as well.
So we got into, you know, a relatively modest increase. We didn't do product by product guidance, but inherent in there is a modest increase in EXPAREL.
Got it. Got it. And then what about the on the margin side? We had some consolidated gross margin report. And just talk a little bit about the contributions with EXPAREL and ZILRETTA and iovera ° .
So we got into an annual total gross margin between 74%-76%. We ended last year at 74%. So we view this as a modest improvement over 2023 actual. First quarter of this year came in at 72%, which is obviously lower than that. But we reiterated guidance because it's not unusual for some of those to be a little lumpiness in there. Last year, we ended at 74%, and we had a quarter at 72%, a quarter at 73%, and then second half in the high 70s. So, you know, we're still comfortable in that.
Yeah. And as you mentioned, sort of building with market access, what initiatives are you working on with respect to the pharmacies, the billers, the coders to enhance that? And I think this is one of the benefits of Frank coming aboard, too, is just that the operational granularity that you and the team are really taking. How are you approaching that?
So we're looking at really all the aspects we can think of. So, for example, ZILRETTA has a hub involved to help facilitate patient reimbursement. And we're thinking about, you know, does that really make sense for EXPAREL? Should we or should we not have a hub? So we're looking at that as an example. We are hiring reimbursement specialists to be in the field in each of the major sales areas so that they can help, you know, educate the salesforce and work with specific customers, particularly when we're in prepare for NOPAIN. From the access perspective, the GPOs also play into that because, again, we will no longer be non-compliant spend. So we anticipate that will facilitate some doors being opened as well.
And then as we look forward and beyond 2024, I think a hot topic has certainly been Paragraph IV filing the case with eVenus. And, you know, certainly not asking for any color commentary. But I think one thing that does bear mention is just you and the team's indication of these three recently listed Orange Book patents terms out to 2043, I believe. But just for context, how should we be thinking about the deliberations there and the fence that you continue to build with the IP estate?
I think that's a great description. It is a fence. We believe that our intellectual property portfolio is strong and really will protect us well. So there is one. It's only one patent at this point that's in the midst of the Paragraph IV challenge. Closing arguments were held last week, at which the judge asked both sides to extend her deadline by a month. So we had originally anticipated hearing a ruling by the end of June because the 30-month stay expired, you know, early July. At this point, I think it's now looking like it's going to be late July. And I don't know that either party is going to tell the judge she can't take a little more time to get to a reasoned decision. So that's what we anticipate.
As you pointed out, we have a whole series of patents. And this is one of them. There are five or six others laying in wait in various aspects of the technology, some most of which, frankly, are broader than the initial one. So we're pretty pleased about that. I mean, in all fairness, eVenus filed before they even had any idea what our patent estate was. There was only one Orange Book listed patent that they filed, and that was due to expire at the end of 2021, which it, in fact, did do. But all of the patents that have been issued recently go out to 2041. And as you point out, some of the new ones go out to 2043. So we view EXPAREL having a highly protected, very long life ahead of it. And we're excited about that.
Yeah. Sure. Sure. EXPAREL is no stranger to competition and drivers that put pressure over the years. We know that well. This is just another one. Maybe shifting quickly to ZILRETTA and iovera°. I admittedly, maybe less of a focus for the quarter. But how is Pacira aligning the commercial and marketing strategy relative to EXPAREL? How should we be thinking about the other products that you're mentioning?
Listen, Frank intentionally told me when he got here that his top 3 talking points were going to be EXPAREL, NOPAIN , EXPAREL, NOPAIN , EXPAREL, NOPAIN . And he's kept his word. And he's really focusing the organization on that because that really is the way we're going to win in the next 12 or 24 months. That's not to say that there's anything wrong with ZILRETTA and iovera ° . And in fact, we continue to invest from a clinical perspective. There's a shoulder osteoarthritis study that just kicked off for ZILRETTA. Data for that should be available second half of next year. There is a new clinical study for iovera ° in the use of with spasticity, which is a really it's a really exciting clinical application of iovera ° .
I don't know that it's the world's biggest market, but it's a very meaningful one because it really can change the outcome for some of these patients. And that study just got kicked off. And again, like the shoulder OA, data should be available in the second half of next year for that as well. As far as for the commercial plans, the iovera ° product and our view of how big it could be and when it could be and what we need to do to get it there, it is being reviewed again as part of, you know, the many different pieces of the business that's going through active review at this point. So in the meantime, ZILRETTA is chugging along. It's going to be mid single digit volume growth with a couple of points of price.
iovera ° has got a much greater growth rate, but it's a much smaller project. So that's to be expected.
Yeah. Great. And I think we've all noticed and it's acknowledged that we're hearing more about PCRX-201, the intra-articular gene therapy. Maybe just for some context, what was the impetus behind the move into gene therapy in the osteoarthritis? And maybe just remind us why we're actually talking about this more because there's been some cards turning over.
So it's probably not fair to say that we made a decision to move into it because we acquired it, and it came with ZILRETTA. It was part of the Flexion acquisition. And as often happens, you focus on one aspect of a company you acquire. You don't necessarily always appreciate what the other things that come with it. We at the acquisition, we didn't. It was in phase I. We didn't have any idea what the output would be. But subsequently, the data looks really interesting. Right now, we've presented 1-year data. So it shows clinical efficacy in reduction of pain for the 1-year time frame. And at this point, we have 2-year data, which we're hoping that gets into a medical meeting by the end of this year.
We've initiated conversations with kind of experts in the field to see what they thought about it. And the bottom line seemed to be that the other products out there or potential products out there are good for the 3-6 month time frame. And the clinicians told us basically that and I think this is their words. It'd be transformative to get out to a year. And at this point, we've got 2-year. So we think, wow, we really may have just lucked into something. It's really amazing. And so we're trying to figure out, what do we go next to develop? What's the clinical timeline? We definitely need to get out and talk to the agency about what their views are.
We're not gene therapy experts, and we acknowledge that this is a very different area. But you can't, you know, if you see something that really looks like it has potential and can really impact patients' lives. And it is in knee OA. Knee OA is one of our areas of expertise. EXPAREL is in knee OA, particularly in the postsurgical sense. And ZILRETTA and iovera ° are both there. So from that perspective, you know, it's a nice fit.
Yeah. Yeah. No, that's really complementarity. It's intuitive. And as you're saying, you're steering the asset based on the data and laying that drive the way. And maybe to that, when it comes to your resource allocation, just remind us of the allocations of R&D and spend. That's something that folks certainly ask on and just want to ensure as you're already reiterating that your focus is squarely on EXPAREL.
Yeah. You know, if I look forward based on what I know with both the shoulder OA and ZILRETTA and the spasticity for iovera ° and PCRX-201, I don't think there's a big bolus of R&D about to happen. But really, we have to figure out what is the next stage for 201. And, you know, we'll have to make a decision when we get there.
Great. Great. Just want to pitch it to the audience. Any questions in the room for Charlie? Great. Well, but we covered a great deal, Charlie. Anything else we missed or anything else you want to focus on before we break?
You know, I think we have covered the high points. I would say that the level of activity and the interest level and the passion at the company remains really high. Pacira. A lot of employees at Pacira have some personal experience related to the opioid epidemic. So honestly, I've never been in a company that, you know, everybody has a mission, but really, people get up in the morning, and they're focused on the reduction of the use of opioids. And we think we have three products that get us there. We think EXPAREL with the reimbursement is going to be a major improvement and that we really do have the ability to change patients' lives and prevent people from getting access to opioids that, therefore, have a really negative impact on their future.
Yeah. That's an important reminder. And with that, it's a good place to stop. Charlie, thank you very much. Good to see you. Thanks.