Okay, good afternoon. Welcome again to the 36th Annual Piper Sandler Healthcare Conference. This is David Amsellem from the Biopharma team, and our next company is Pacira BioSciences, and we have, Frank Lee, our CEO, company CEO, and actually had some news this morning on some additional IP on EXPAREL, so I know IP is on a lot of people's minds, so maybe I'll turn it over to you just to give us a little synopsis on the additional patents that are protecting the product, and I have a whole bunch of questions on all things, not just IP, but obviously the underlying business, so thanks for joining us, and I'll turn it over to you real briefly.
Yeah, well, thank you, David, for inviting me. Just at a high level, I want to come back to what we said at the beginning of the year that we're going to focus on, and we've done exactly that. So first is modernize our commercialization efforts to clarify our long-term therapeutic area strategy. And finally, focus on our culture, mission, and values. And we've done all that. And in addition, I know that during many earnings calls, we've emphasized that we continue to innovate how we produce EXPAREL, the molecule of EXPAREL. And this morning's announcement is a good indicator of that. So just very simply, the two patent families or patents that are in play, the 495 and 574, are erucic acid-based. And so this is a byproduct of the manufacturing process.
Now, this new family is very important because it's in vitro release assay-based, and it is chemical composition. It will be Orange Book listed, and it opens up a whole new family of patents. And so what's important here is that every batch of EXPAREL gets tested with the in vitro release assay. And that helps to determine its stability over time and also the release profile of bupivacaine. So it's an important announcement this morning, and it continues our efforts to have a multi-layered IP strategy with EXPAREL. And we continue to innovate, so this won't be the last.
That's helpful. So I know that there are multiple patents that are being litigated here. So maybe just a quick refresher on where each of the different cases stand. That would be a good update.
Great, so as mentioned, there are three different, let's say, paths of litigation so far. One is the 495 patent, which, as you know, we lost the first court case, and the appeal is scheduled for another, let's say, year, year and a half from now. The second is a 574 patent, which addresses many of the shortcomings of the first patent, 495. In that case, it does stipulate a volume limitation, which is very important, which is called out by the courts, so that's important, and again, both of those are erucic acid-based. Now, this new family, the IVRA-based chemistry composition, is a whole new family of patents, and again, now we'll file suit related to this particular IP and other IP to come, and so that's where we are, so we expect that to take a long time, so this is a multi-layered strategy.
It will take a long time to resolve in the courts.
So I wanted to pose a hypothetical here, and I think this is something that a lot of investors do think about, which is the potential that the generic that is approved launches. Now, obviously, they would be exposed to liability risk. At-risk launches do happen. So it's just part of the game in the generic space. So can you talk to Pacira's preparedness for that possibility, and more specifically in terms of how you plan to compete in the context of a potential competitor?
Sure. You know, I'm going to come back to what I said at the beginning of the year at the JPM organ conference. I know I should probably not utter those words at the Piper conference, but the other conference at the beginning of the year.
Where I attended.
Yeah. This is a better location, by the way. What we said is, look, we're going to modernize our commercial, medical, and market access efforts because historically, the company has been focused on physicians. And going forward, we're focused on not only physicians, but pharmacy, GPOs, payers, hospital administrators, because it's clear that EXPAREL is a good product. But the reality is that many of our customers face budget constraints and reimbursement constraints. So we've addressed that. So when we think about how we're going to compete going forward, what we see is growth in EXPAREL, not only because we're commercializing the product better, but also because the market will continue to grow due to NOPAIN legislation that we can talk about further. And you might have noticed that a new J- code, so the first J- code for EXPAREL was provided by CMS not too long ago.
This is very important because when you think about the reimbursement dynamic, payers operate off of J- codes, not C- codes, right? And so not only will the reimbursement get better, but also the process of coding and reimbursement will get easier because of C- codes. So that's a dynamic that's happening regardless of entry by one generic or not. And to the extent that one generic, if and when it does enter, we see that as competition, not a genericized market. So competition, meaning that if you take a look at comparable analogs, what you'll typically see is about a 15% price erosion over time. But of course, that's very different than having five, six, seven generics in the marketplace. So that's the second part of the answer is the market will continue to grow, and we're going to do a better job at capturing that market.
Second is that if and when one generic entry were to happen, we'll compete. A lot of those things that we've done to date will help us compete even better, right?
So I do have a follow-up here, and point well taken on the fact that this is a single entrant. This is not a flood of new entrants, as you often see with, say, garden variety or solid products. But that being said, with competition and some degree of price erosion, how do you think about managing the cost structure given a new reality?
Yeah. So let me just say that we do not see a generic entry imminent. We don't see it. I want to be very clear about that. We have not been provided samples of the commercial product, and we don't see a generic entry before 2026 if that were to happen. Okay? So I want to be very clear about that one. I think that when we think about the cost structure, I think it kind of goes back to how we're going to grow EXPAREL going forward. And so we've invested in EXPAREL. It's going to grow. And at some point, we'll activate the patient as well. And so if you believe that the total addressable market is anywhere near where we estimate it to be, we've got a lot of room to grow. So I think that's the way I'd sort of answer that question.
Getting right down to brass tacks here a little bit, when you think about Fresenius, which is going to be the entity that markets for the Chinese company Hengrui here in the U.S. They're a German company, fairly conservative, and they've had two Paragraph III launches at risk, but that's it, not a Paragraph IV, right? And so this would be a big step. And to the extent that that step were to be taken, there's also a question about whether the manufacturing would be in place to supply the product from China. And secondly, we grow stronger each day in terms of our ability to commercialize this product.
So let's switch gears and talk about NOPAIN and implementation. First, as a starting point, I think this is just kind of good reference material, but just talk about how much of your current EXPAREL business is coming from hospital outpatient versus ambulatory surgical centers versus inpatient. That's something that has evolved, particularly with the ASC, separate reimbursement a number of years ago. So maybe you could talk, if you could talk about that, that would be helpful.
I'd be happy to. So about 40% is inpatient, about 40% is HOPD, hospital outpatient department, and about 20% is ASC. Now, over time, what we've seen is that more and more has migrated towards outpatient department and ASC. And this works pretty well now in terms of how we think about NOPAIN, right? Because this is really for the outpatient setting, CMS patients. And now with the J- code, we can more easily engage commercial payers to help them follow suit.
Yep. And then in terms of GPO contracting, this is something that you talked about a lot. You've been very active here on GPO contracting, head of NOPAIN. Just give us an overview of the Vizient and Premier contracts. And particularly interested in how that impacts net pricing for EXPAREL.
Sure. And let me come back to the bigger picture here about historically, we've been very good at engaging physicians. And physicians appreciate EXPAREL, know the kind of impact EXPAREL can have on their patients to be opioid sparing, to provide pain relief. Now, the issue really has been more about not wanting to use EXPAREL for the clinical benefits. That's always been there. It's been really more about the budget impact. How do I code for it? How do I get reimbursed for it? When oftentimes now this is bundled inside one payment as opposed to being separate. Okay? So this is an important dynamic. And so as we think about how do we go to market, we can't ignore the cost pressures that our customers are under. And so by engaging in the group purchasing organizations, we recognize that for the first time.
We are able to engage the C-suite and pharmacy to say, "We hear you." Okay? And under the right kinds of arrangements now, you can access EXPAREL at a more favorable cost. And then starting in January 1, they'll get reimbursed at least in the outpatient setting for CMS at a more favorable reimbursement, ASP+6. So that's the idea behind it, and that's been well received as we've discussed these kinds of things with pharmacy and C-suite, etc. Now, to date, we've signed two GPO agreements, one with Premier, one with Vizient, and a third with HPG is on the horizon for probably early next year. So all told, that'll be about 80% of our business that's under contract. And over time, what we expect is about a mid-single digit impact. Okay?
Actually, you got to my next couple of questions, so I appreciate that. So thinking about EXPAREL volume growth as we move through 2025 with the impact of NOPAIN, assuming there's no disruption from a generic competitor, of course, let's just assume that no competition here. But help us understand how NOPAIN and its impact will drive an inflection of volumes, specifically in 2025. And then I guess the second part of the question is talk about how NOPAIN will flow through to commercial plans. And is that sort of a 2025 impact? Is that beyond 2025? Help us understand your thinking there.
Sure. And I have to say, as I was coming out of my retirement state and contemplating coming back into the workforce, I had an opportunity to look at many different companies. But what really impressed me about Pacira was not only the product portfolio and the mission of the company, but the kind of leadership position it took in this industry. So if you just step back for a second and think about how hard it is to get the government to pay more. Just think about that now. Okay? How hard it is. And it took seven years of effort with coalitions, with a lot of other groups to make that happen. And so this isn't insignificant in terms of reimbursement. It's ASP plus six. And so I was super impressed with the company's commitment to the space.
In fact, I think most of you may know it, but maybe not, that there are only 11 products covered under NOPAIN. And we have two of them, right? And so we have not only EXPAREL, but iovera, which was a last-minute add. And in that case, physicians will get another $255 for every procedure on top of what they make, right? So this is a significant thing. And when the company was going through this, we were adamant that other products be included in NOPAIN, not just our products. So that's number one. Number two is if we think about how this will play out in 2025 and beyond, I would think about this as a relaunch of EXPAREL. Okay? Why do I say that?
Because when you typically launch a product, you not only want to go to physicians, you also want to go to payers and other administrators, and all of that should be smoothed over so that the product can really get to that peak sales in five or six years like most products do. What's happened in this case is we launched the product early on without a lot of support from payers and reimbursement and pharmacy and C-suite, so there was that tension there, which I think limited the upside of the product, so now here we sit on the verge of January 1, and we're going to relaunch this thing. Okay? We're going to relaunch it with not only clinical benefit, but also the other things that we just talked about that improve access and reimbursement.
And in that case, we think we're going to see a significant inflection that we'll start to see probably second half of the year and start to gain momentum as we get into 2026. And why do I say that? I say that because it takes a while for hospital systems, ASCs, and other customers to put this into their systems and to re-educate their staffs, right? And so we already know based on our interactions with patients, I'm sorry, with customers so far that they see this as a very positive thing. The discussions with pharmacy have gotten to be much more collaborative as opposed to adversarial for all the reasons that we've talked about. And we've done some tracking studies, and we know that now awareness and education of NOPAIN is headed in the right direction.
But I think in short, we'll provide guidance early next year on exactly what to expect. But I would generally expect that the uptake will start to gain momentum second half of the year and definitely start to gain significant momentum into 2026 and beyond. And if we think about a relaunch kind of mindset, typically that kind of peak to a time to peak is sort of in that five-year timeframe.
Sure. Yeah. That's helpful. So switching gears, in the past, this is a little bit of a backward-looking question, but I think it's important. In the past, there have been some manufacturing challenges. And so with that in mind, how confident are you that you've put the manufacturing issues squarely in the rearview mirror, particularly with the 200-liter facility up in San Diego up and running?
Yeah, so as most folks know here, liposomal products are notoriously difficult to manufacture. I'm a chemical engineer. I spent some time in my early days in manufacturing, so I can attest to that, all right? That said, the team has been working very hard. As you know, we have the 200-liter facility in San Diego that came online middle of this year, and we have another 200-liter facility in Swindon, U.K. I don't know that manufacturing issues will ever be fully behind us, if I'm very honest with you, and I think that plays into some of the thinking about competitors as well, okay, and so I'm always of the mind that you give people enough time and money, and they will figure it out. In this case, this company has had a lot of time and money, and we haven't totally figured it out.
But we are gaining on it, right? Why are we gaining on it? Because we have this 200-liter facility in San Diego that is, it's cranking now. Okay? And the good news is the Swindon, U.K. facility is now hitting all-time highs in terms of production, which is very important. And as we think about margins, I sort of think about margins as, grow the top line significantly, and margins will follow, right? So that's the approach that we're taking. And I would expect that on occasion, we're going to have the manufacturing hiccups here and there because this is a notoriously difficult product to manufacture.
Yeah. And nothing you're saying surprises me, just given the history, and this is a difficult product. But I am going to try to drill down a little bit on where you think steady- state margins, gross margins could be. I think your predecessor had talked aspirationally of being in the $80 millions, I think low $80 millions. And that's with the 200-liter facility in San Diego and Swindon being online. Is that realistic? Is there even a "steady state" just given the challenges associated with making the product?
Yeah. Well, I'm going to come back to not focusing so much on margins, but growing the top line. All right? We have a J- code. We have NOPAIN. We have a commercial organization that is now modernized. And I would expect to see significant top line growth. And when we do that, margins will naturally improve. And along the way, we'll probably have a hiccup or two in manufacturing. So that's what it is. And I wouldn't forget the rest of the portfolio either because if you think about ZILRETTA, that has room to grow. And that product is promotionally responsive. And I'll have to say that I lovingly say that that's the third child that's probably gotten the least attention because we've got EXPAREL, of course, that gets talked about a lot. iovera, which is the bright, shiny object, which does amazing things for patients.
And we're going to do better at providing payers the data they need to support it. But this ZILRETTA product has room to grow. And so in addition to that, iovera, as I mentioned earlier, now has coverage under NOPAIN.
I wanted to come back to iovera and ZILRETTA. Before I do that, I wish we had more time because I think this is a really interesting product, which is 201. We have four minutes, so we'll just hit the high notes.
Pretty good in four minutes.
Yeah. So let's just talk about the product mechanistically, more specifically the rationale targeting IL-1. And also you've talked about your particular high-capacity adenoviral vector. So I know there's a lot there to unpack, but just talk about these different elements of the product and how you think it profiles.
This molecule originally came from the Flexion Therapeutics acquisition. And when I came on board, I said, "We're absolutely not doing gene therapy." Okay? How's that for a start? But as I engaged with the team and looked at the data, I became convinced because this is almost the anti-gene therapy of gene therapies. Why do I say that? It's because unlike most gene therapies that are systemically administered, this one is only locally administered in very small quantities, which helps with safety and helps with cost of goods. And this one is gene therapy for common prevalent populations, not rare disease populations. That's very important. And when I looked at the data, what I saw was 72 patients. We just presented our 104-week data at the American College of Rheumatology. 104 weeks, two-year data roughly, 70% of patients improved 50% or more from baseline, and that was sustained.
That is not placebo effect. Okay? And so I became convinced that this could be a truly transformative product in osteoarthritis of the knee. And we're moving forward with additional controlled studies that'll read out in 2026. So that's number one. Number two, if I think about this platform now, where else could we take it? Because osteoarthritis of the knee is important, but so is the hand and other places. And because of this high-capacity adenovirus, it can accommodate big genes as opposed to AAV, which is smaller genes. So it's got a lot of room for growth. And in addition to that, with regard to the data and the mechanism, this is a mechanism that's well-studied, well-known. So some of you may know Kineret. That's exactly the same mechanism. So this receptor, this pathway, there's proof of concept already.
The only reason that it's not widely used in OA is because it has a very short half-life and it's systemically administered. Okay? So now here you have it. You've got something that's local. You make in very small quantities. Cost of goods is very attractive. Big market. The pathway is known. There's already proof of concept. So a lot of things add up here to say this could be something truly transformational and also potentially a platform for other molecules going forward.
Yeah. In the minute or so we have left, I wanted to toggle over to capital deployment. I think that's something that particularly with the uncertainty over exclusivity on EXPAREL, I mean, that's something that's on a lot of people's minds, so just high level, how are you thinking about capital deployment? Where do buybacks fit into your overall deployment strategy, and what about biz dev and in licensing?
Sure. You know, Shawn Cross, who's our new CFO, is on board. He's been doing a lot of work on capital allocation. And at a high level, we aim for creating long-term value. And what is that going to do? It's going to help us focus on how do we grow our existing portfolio in a reasonable rate? How do we build a pipeline in a very, I would say, methodical fashion? And so that's what we're going to focus on. We're not going to take big risks, but that's what we'll focus on.
I'll leave it there. We're out of time. Thanks, Frank. Thanks to everyone in the audience.
Sure. Okay. Thanks.
Great. I'd like to welcome everyone to the Piper Sandler Healthcare Conference. We have our next company, Ocular Therapeutix. I'd like to thank Pravin Dugel, introduce him, Executive Chairman, President, CEO of Ocular Therapeutix. So welcome, Pravin.
Very nice. Thank you.
Great to have you. So I guess maybe just start off, for those that are unfamiliar with Ocular, just give us maybe an overview.