Hi everyone. I'm Gary Nachman, a S enior Biopharma Biotech Analyst at Raymond James, and we're very excited to have Shawn Cross, CFO of Pacira, with us. Pacira is focused on pain management and has a few non-opioid products on the market for treating pain, the largest one being EXPAREL for post-surgical pain that's starting to benefit from the new No Pain policy implemented in the beginning of the year. The company is also looking to develop its pipeline and just announced a small deal last week for GQ Bio to help that cause. They just reported earnings last Thursday and gave solid guidance for 2025 and also gave bullish longer-term projections for the company's outlook earlier this year. It is great to have you here Shawn to talk through the Pacira story and thank you for coming.
Thanks. Thanks for having us. It's been a great conference so far.
Excellent. Since this is more of a generalist audience and people may not be as familiar with Pacira, first, spend a few minutes giving a high-level view of the company's strategy, how it's been evolving, especially with new leadership in place, and then just a quick overview of your three marketed products.
Sounds great. Just at a high level, Pacira is a commercial-stage biopharmaceutical company, and our mission is to deliver innovative non-opioid pain therapies to transform the lives of patients. With regard to the strategy, earlier this year, we unveiled something called the 5x30 strategy, which provides a roadmap for how we intend to evolve from a specialty pharmaceutical company to a more innovative biopharmaceutical company and become the therapeutic area leader in non-opioid pain and musculoskeletal pain and adjacencies. From also a high level, as Gary mentioned, generating revenue, we did just over $700 million in revenue in 2024. We have about 800 employees, a field force in the US. We manufacture two of our products at a site in San Diego, generating significant cash flow end of the year with about $485 million of cash.
We are also excited about our pipeline programs, which includes two programs that are registrational trials focused on indication expansion for two of our existing on-market assets and then also an earlier stage program called PCRX-201 that could be potentially transformative for osteoarthritis pain of the knee that will read out at the end of next year.
Yeah, no that's good. We'll dig into all that deeper. Thank you for that. Just regarding the 5x30 long-term projections that you guys laid out in early January, just describe the components of that, explain your confidence that you can achieve those objectives, and I guess the one people are most focused on in particular, some of the key factors that are expected to drive a low double-digit growth CAGR for revenue between now and the end of the decade. I think people were happy to see that long-term guidance. Just explain your confidence.
Yeah, so thanks. We wouldn't have put out these long-term objectives if we weren't confident we could achieve them. There's five key components, of course, of the 5x30, and these are high-level goals that we're looking to achieve by the end of the decade. The first surrounds patients with the goal of treating annually more than 3 million patients with Pacira products. The second is products, and that's generating double-digit compound annual growth of our existing portfolio over the next five years. Three is profitability, and that's focused on gross margin, and we intend to improve gross margins by approximately a percentage point a year. We achieve a five-point improvement over the next five years. Number four is pipeline, where we intend to have five novel programs in clinical development over the next five years. The final is partnerships.
We intend to enter into both commercial and pipeline partnerships to expand the business over the next five years. Those are sort of the high-level aspirational goals that we've put forth in January of this year.
Okay. Just dig a little deeper on the revenue. Getting to the low double-digit CAGR, what you feel the big drivers of that are when you think of the three marketed products, and then we'll dig more into the key products.
Yeah, we have a couple of tailwinds that are both from a company perspective as well as a regulatory perspective. Last year, we spent a considerable amount of time and effort modernizing our sales and marketing infrastructure to put in place a marketing, medical, and market access powerhouse to set us up to be successful to take advantage of something called the No Pain Act. The No Pain Act went into effect on January 1 of this year, which provides favorable reimbursement in the CMS for patients to be able to have access to non-opioid pain solutions in certain settings.
That opens up the door, particularly in the hospital and the ASC setting, where many non-opioid pain products were bundled into one reimbursement, whereas this now separates them from the bundle and provides incentives so the patients can receive modern, cutting-edge non-opioid pain therapies, in particular for post-operative pain. Our ioveraº product is also one of the 11 products that's involved in this No Pain Act. There are some tailwinds that we see not only based upon the infrastructure and modernization that we've implemented over the past year, but also taking advantage of the No Pain Act.
Okay, that's helpful. In order to achieve that, obviously, you're very confident that we're not going to see a generic version of EXPAREL over that period of time. Let's address that. Where do you currently stand on the EXPAREL litigation with eVenus, the generic filer? What's your latest thinking on when or if eVenus could launch a generic at risk?
Sure. The common question we've been receiving since last summer. Let me just begin by saying, and Frank mentioned this several times on the earnings call last week, that we do not believe an at-risk launch is imminent. That is sort of point number one. With the backdrop, we are continuing to advance three sort of legal processes that are ongoing. The first is we filed an appeal, as you know, for the patent that was overturned last summer. That appeal was filed in September, and we anticipate that process will take 15-18 months before we get a ruling. In parallel, we also have two patent infringement lawsuits ongoing, including a more recent one for a new family of intellectual property that we feel is much stronger than some of the previous families, even though we still believe in, of course, the earlier filings.
Those trial dates have not been set yet, so that will be ongoing in parallel. In the background, the team continues to innovate. We have more patents forthcoming, and we feel strongly about the intellectual property.
Okay. One of the things that people have been talking about a lot is a possibility of a settlement. I'll just ask the question. Is there any dialogue between you and eVenus? Is that something that we should think is a possibility? What would be a realistic time frame? I know, I mean, there's a whole puzzle here that needs to be sorted through, but it sort of felt like there could be a logical path to that at some point.
Sure. Let me just again start that this is an active legal matter, so I need to be sort of very careful about what we can say. That said, we'll continue to take necessary steps to protect our intellectual property, the business, and the key stakeholders. That said, we also recognize that there is an overhang, and there could be value as it relates to certainty. If a settlement makes business and strategic sense, it's something that we would certainly contemplate as business people. I think, as Frank has said previously, we could settle tomorrow if we wanted to have an unfavorable settlement for our key stakeholders. In particular, with the backdrop of the new intellectual property and the continued innovation, we feel pretty strongly about our position, but we also recognize the potential value of certainty for the right settlement.
Okay, that's fair for the time being. Okay, let's get into the No Pain implementation and what you guys have been doing to take advantage of that. Obviously, before you joined the company, there was a lot of prep work over the course of last year, but maybe you could talk about some of the key initiatives that are going to take hold over the course of this year. What's been the early read on the overall awareness of No Pain with both physicians and payers, just to give you comfort that this is something where you're going to get significant traction?
Yeah absolutely. As you alluded to last year, we made significant progress on the commercial front, modernizing the sales and marketing infrastructure, establishing this marketing, medical, and market access powerhouse, which is particularly key as it relates to this. We formed two new GPO partnerships, as you know, and in addition to that, we received or secured a product-specific J code for EXPAREL. With that as a backdrop, we've continued these initiatives, including we're in the process of adding a third GPO partnership. Once that's in place, approximately 80% of the EXPAREL business will be under contract. That's an important number one.
In addition to that, because we've engaged with the physicians and with the payers through this marketing, medical, and market access powerhouse concept, we believe it's now time to do some targeted DTC campaign where we're now making patients aware of the No Pain Act even more than we have been previously, and also so they can advocate for themselves to have non-opioid pain solutions provided during their care. We have a pilot study ongoing in the beginning of this year. We'll certainly adjust accordingly based upon leading indicators. What we've seen so far is encouraging. Some of the feedback that we're getting from the field is that we're, again, it's early days, but we're encouraged by the progress we're making under the No Pain Act thus far.
Okay. That's definitely good to hear. I mean, this is going to be a gradual build, obviously, so it's going to take some time. We need to be a little patient. When do you think we're going to see a real inflection, particularly with EXPAREL and iovera° benefiting from this?
Yeah, I think we've said several times publicly that we anticipate this will reflect in the top line in the second half of the year. Moving these hospitals who've been doing something the same way for the last 10 years is like turning a battleship a little bit, where you have to get all the key stakeholders in place. The awareness with the physicians has always been there. Now we're doing just very sort of hands-on field work to set these institutions up for success. I'll give you even a little anecdote. I was in the field two or three weeks ago doing a field ride with one of our reps calling on hospitals. This is a hospital that's a user of EXPAREL, and there are physicians there that are advocates for EXPAREL.
It had taken until mid-February to get all the key stakeholders into one room to discuss the implementation of how they can expand EXPAREL access using No Pain. It went even down to the detail of the IT person updating the code in the system that EXPAREL, as you know, comes in, we sell it in 20 and 10 mL vials, but the reimbursement is done in milligrams. There are little details like that that are working through the system. It is a long-winded way of saying that we anticipate for this and other reasons, we'll see a real uptick in the second half of the year.
Okay, good. You mentioned a third GPO that's going to be finalized, and that's going to happen sometime in the first half of this year. Maybe just take a step back and talk about the strategy of contracting with these three large GPOs that you said will get you coverage for about 80% of covered lives. Just the process, what sort of discounts you have to give up in order to get that and make sure that you have the increased utilization and just the overall impact on the gross to nets as a result of that and how you're able to manage that?
Yeah, sure. The high level is we believe these GPO relationships are important investments in the growth of EXPAREL. It is the next stage of growth. As you mentioned, the third and final partnership will happen this year. With regard to the gross to net discount, think about it in the sort of mid-single digits to provide that favorable pricing for them, which ultimately over time will be made up in volume.
Okay. Your guidance for this year, if I recall correctly, implies about mid-single digit growth, right, for the EXPAREL franchise, about 6%, I think, or so at the midpoint. One of the things that you mentioned is that you also can take a little bit of price, increase to help offset a few of those percentage points. Is that something that you think will be consistent going forward, or is this really just the year where you need to absorb that, and then going forward next year and beyond, it's sort of not an issue?
Yeah. The guidance reflects a couple of things. It's a strategic approach in this transformation to an innovative biopharmaceutical company. As it relates to the GPOs, we had one on board for all of last year. There's another one that came on board in the second half of the year, and then we'll have the third here in the first half in the coming months. When you think about sort of a full year run rate, you'll see that in all of them on board for a year by mid-2026. That's how I would think about that. With regard to the sort of mid-single digit growth rate, just sort of a step back and a reminder, the company's growth on the top line from 2023 to 2024 was about 4%. EXPAREL grew 3%.
Whether it's extrapolation or interpolation, the math people in the room can tell me what the right term is. If you think about the second half of the year being where we're seeing the real uptick in EXPAREL and iovera º with No Pain, and then basing that on the previous year's 4% growth, 6% sort of feels about right.
Okay. Most of the device companies, they talk about procedure growth somewhere in the mid-single digit range, at least for ortho. I'm not sure as much about soft tissue. Maybe it's a little lighter than that. You are assuming for now that you are going to grow roughly in line with the market, but that's going to accelerate, right? You should grow ahead of the market over time.
You can sort of do the modeling on what the first quarter's looks like. We do not provide quarterly guidance, but again, if you think about 4% last year and sort of a ramp in the tail end of this year. Now, of course, we hope we overachieve and we are operating to be successful here and overachieve, but the 6% sort of makes sense based upon history and what we are seeing in the early days of No Pain.
Okay. Great. Got it. All right. Another element of your 2025 guidance is that you also had much higher spend than the street was expecting because you're investing behind No Pain. And as you mentioned in your opening remarks, also trying to build out the pipeline more. Just talk through that rationale, why you guys are confident you're going to get a good ROI on those investments. I think for a number of years, an important part of the story was the improving operating leverage. I guess that's going to take a little bit of a pause because you want to really invest behind the growth.
Yeah. So again, as mentioned, 4% growth year over year in similar probably 2022 to 2023. We're confident with this investment in DTC very selectively. There's a whole ROI story here with regard to the 5x30 goal of achieving a double-digit CAGR over the next five years. It's pretty simple math on if we can grow it 10% CAGR over the next five years, what the value is in the future compared to growing 3% or 4%. That's, I think, an important observation with regard to the ROI. In terms of the increase in R&D and SG&A spending, just a quick reminder also, if you look at the year-over-year growth, it's pretty significant.
The organization, just as a reminder, is very different at the end of 2024 than it was at the beginning of 2024, which is why we specifically put in our guidance just as a reminder with the hiring in place, the marketing and medical access powerhouse, and the preparatory work for the PCRX-201 phase II. If you do an annualized run rate of Q4 2024 spending, the increase in SG&A is approximately 8%. I do not know what your economists say inflation is, so there is the logical component. Also, with regard to this platform in place, very targeted DTC spend, that is largely the increase that you will see over last year where we are putting in these targeted DTC programs. As we get leading indicators in the door with regard to success, we will adjust those accordingly.
Secondly, on the R&D side, it's an 11% increase compared to 2024, so the run rate of Q4 2024. That, again, is a very logical reflection of a couple of things. We have two ongoing registrational trials for two of our existing products that are on market, for EXPAREL and shoulder OA, and for ioveraº and spasticity. What you see in 2025 is a reflection of those ramping. Increased spend as you have more patients enrolled in the trial compared to last year, so a full year's worth of spend, which is a very logical and transparent increase. As a reminder, those trials read out at the end of or in the middle of 2026. That's what we anticipate. Those are both indication expansion opportunities.
There is a, assuming they're positive, there's a significant ROI, in our opinion, to expand the indications and the target audience for those two programs. In particular, for the ZILRETTA shoulder, there's a million intra-articular injections a year in the shoulder. There's no long-acting alternative. We think that's a real opportunity for the company. Finally, with regard to the R&D spend, we had the preparatory work for the phase II trial for PCRX-201, our novel gene therapy program for pain associated with osteoarthritis in the knee. What you're seeing is a ramping of that phase II trial, the Part A of the phase II trial, which we anticipate will read out at the end of 2026. This, again, it's all, I think, relatively modest.
Very thoughtful about the potential ROI and 11% and 8% increase with the backdrop of whatever percentage is from an inflation perspective is relatively logical and modest.
Okay, great. That color was helpful. One of the targets in the 5x30 is to improve margins by five points over the next five years. Just to clarify that that's operating margin. How much of that do you think is going to come from the gross margin line as you're improving that?
That's a gross margin.
That's gross margin. Okay.
Gross margin, yeah. 5% increase in gross margin, and that will occur for two reasons. Number one is EXPAREL volumes growth will benefit from economies of scale, so a lot of typical manufacturing. Secondly is, as you recall, we'd previously or historically been manufacturing EXPAREL in 45-liter suites. Last year, we brought on board or brought on line two 200-liter suites, which as the mix of EXPAREL that sold that comes out of the 200-liter suites, that's a natural improvement in margin. Of course, the team is just getting better every day. It's a finicky product to make, and it's 10 years of learnings and repetitions, and that will also naturally improve margins over time.
Okay. You should get an additional margin benefit on the operating line over the next five years as well. I mean, you would expect there to be, if you're going to grow in the double digits, then you're going to get some more leverage.
We should. We should. I think just as a reminder, the evolution to an innovative biopharmaceutical company, we will be continuing to invest in the sales and marketing infrastructure to drive that top line, but also be very thoughtful as it relates to R&D for indications where we believe there's a high ROI.
Okay, great. On the pipeline, understanding you're the CFO, Shawn, and not the head of R&D.
Armchair scientist.
We could keep it at a high level. The PCRX-201, I mean, that's something that I've been really interested in for a long time, even when it was part of Flexion, looking at a gene therapy for osteoarthritis of the knee. Maybe if you could just explain briefly how that works. I think that's sort of a novel concept for a lot of people, a gene therapy working locally in the knee. When you said you're going to start the phase II, just when we could see that date. I know Frank was particularly excited about what he saw with the early data.
Yeah. Thanks for the question. This is, again, the CFO's terms, gene therapy 2.0. Just recall that the typical gene therapy is for very narrow, rare indications. It's incredibly expensive. It's administered systemically. It's a one-and-done. What you've seen, again, reimbursement in the millions of dollars, whereas this is completely opposite. It is not systemic. Again, it's gene therapy 2.0, and I'll talk about a couple of features. Again, the business person's version of them.
That'll work here.
Where it is dosed in very small amounts, you just call it microdosing, into the joint, into the knee. There is no to very limited systemic exposure. You do not have the safety concerns associated with the systemic flooding in the rare diseases. That is also important with regard to a cost perspective. If we look at the manufacturing numbers that we have internally, this will be available to the masses, and we can still make a profit margin off of that for common indications such as osteoarthritis of the knee, where there are 14 million patients that suffer from this affliction that would at least theoretically be available as potential patients if this product gets approved. What are the other features that are unique from previous gene therapies? It has something called an inducible promoter. What does that mean?
It is the product and the cells that are programmed to generate the therapeutic are only turned on when there's inflammation. Think about a smart thermostat in your house where you have it set at whatever ambient temperature you like. It gets too hot. The thermostat recognizes that. It turns on the air conditioner. The temperature comes down, and the thermostat turns off the air conditioner. With this inducible promoter, it sort of more naturally mimics the sort of natural homeostasis or how a healthy joint would react to inflammation. From a data perspective, it is very encouraging, even for us laypeople, where we published two-year data. I had a poster presentation at ACR last year, which showed in 72 patients, and admittedly, this was not a placebo-controlled trial, but there are 72 patients with moderate to severe osteoarthritis.
They received one injection, and two years later, 70% of the patients had a greater than 50% reduction in pain and stiffness in their WOMAC scores. This year, we'll be presenting three-year data. One shot, three years, very clean safety profile, and a potential game changer that could be for these patients who really haven't had anything new in the last 20 years treated by a rheumatologist. As mentioned, from a trial perspective, we continue to monitor the phase I patients. This year, we'll begin the phase II program, which will have a placebo arm, an active comparator, and then PCRX-201. Those data we anticipate will read out at the end of 2026.
That was a great explanation.
Oh, thank you.
Done. Okay. How much of the excitement around 201 was behind your decision to acquire the remaining stake in GQ Bio, which is where the technology originated, which just happened recently, picked it up for $32 million?
I think there's a couple of observations. First, one of the 5x30 key pillars is for an innovative pipeline and with five novel programs in clinical development by the end of the decade. GQ brings us this platform, not just PCRX-201, but the platform for any indication. They have an interesting preclinical pipeline that you could see on their website. There is also the opportunity to add other cytokines into this vector and think about other indications. There was a 5x30 aspect to it. Secondly, we also have a small, terrific team of experienced scientists that bring a little bit of R that complements our development capabilities. Finally, from the CFO's perspective, it made a lot of financial sense.
We paid roughly $18 million upfront, and that allows us to not have to pay up to $62 million in milestones, including a $4.5 million milestone when we begin phase II. It is sort of taking money out of one pocket and sticking it in the other. For that $18 million, the net present value on not having to pay those milestones makes a lot of financial sense.
Okay. In the last couple of minutes, we're going to stick with you as CFO and talk about capital deployment and your priorities for use of cash with respect to debt paydown, share buyback, which I know you guys have been getting a lot of questions on just given the pressure in the stock that we saw last year. Now it's rallied a bit, but you guys, I'm sure, feel that you're very undervalued, assuming you feel good about the whole generic situation. Also just reinvesting in the business, which is definitely a statement you made with your 2025 guidance.
Yeah. As expected, we regularly review capital allocation with the board. It's a constant topic of conversation and analysis. We sort of think about it in four general buckets. Number one is reinvesting in the business and with a priority of accelerating growth of our existing portfolio. The second is to be very thoughtful about research and development where we anticipate there's a positive ROI. Again, talking about the ZILRETTA shoulder indication expansion, ioveraº and spasticity. Balancing operating margins with research and development and looking at the future. Of course, you mentioned managing our balance sheet. Just as a reminder, we have a convert coming due in August. It's $202.5 million. We have a term loan A that's just north of $100 million coming due in 2028, and another convert coming due in 2029.
We think about that and what's the optimal capital structure with regard to managing the balance sheet. Yes, of course, we're returning equity to shareholders. We put a $150 million buyback in place last year. That runs through the end of 2026. Again, the board and we put sort of all of this in the mix when we're thinking about capital allocation strategy.
Okay, perfect. We're up on time. Thank you so much, Shawn. Good luck with all the progress. Thanks, everyone. Enjoy the rest of the day and conference.