Good morning. I'm Serge Belanger, one of the healthcare analysts at Needham. I want to welcome you to our 24th Annual Healthcare Conference. For our next fireside chat session, we have Pacira BioSciences. The company's CFO, Shawn Cross, is with us to talk about the company. I'll hand it over to Shawn in a few seconds so he can give us a quick overview for those who aren't familiar with Pacira. I just want to highlight that we do have the capabilities to take Q&A.
For those listening in on the portal, you can submit questions there, and we'll take them as they come in. With that being said, Shawn, if you can provide just a quick overview of the company, I think it'd be useful to start our fireside here.
Great. Yeah, thanks for having us. We appreciate being able to attend the conference. Can't believe it's been 24 years, so congrats on that one. Just a brief company overview for those of you who don't know Pacira. I can go through some recent developments and our priorities for 2025 also. The headline is we're a biopharmaceutical company that delivers innovative non-opioid pain therapies with the goal of transforming the lives of patients. The key here is non-opioid pain therapies. We'll talk about our three commercial products here in a second.
Earlier this year, we announced our 5x30 plan, which is a sort of a high-level plan that we're implementing over the next five years to transition into an innovative biopharmaceutical organization on the back of three best-in-class products that we're currently commercializing.
In terms of the 5x30 plan, there's sort of two broad strategic initiatives here. The first is accelerating and focusing on growth in our strong commercial-based business. Again, for those who haven't followed Pacira over the years, we have three best-in-class products that are generating significant cash flow. They're called EXPAREL, ZILRETTA, and iovera. EXPAREL is the market-leading long-acting local analgesic for post-surgical pain. It's applied during a surgery and provides up to 72 hours of pain relief when the pain is worse. That's sort of the pain spike.
It blunts or eliminates that for patients. It is, again, a long-acting local analgesic for post-surgical pain. The second product, and our second largest product, is called ZILRETTA. It's the only FDA-approved extended-release intra-articular corticosteroid injection that provides up to three months of osteoarthritis knee pain relief. The third product is called iovera.
It's the only novel handheld device that provides immediate, long-lasting, drug-free pain control using advanced cold technology. You can see more details for all of these products on the website. Out of the 5x30, in terms of growing the base business, there are sort of three components of that. The first is to treat more than 3 million patients with a Pacira product annually, again, greater than 3 million patients. The second is reinvigorating the top-line growth to double-digit CAGR over the next five years.
The third is to improve our gross margins by 5 percentage points over the next five years, so approximately a point a year. In terms of the second strategic imperative with regard to the 5x30 plan, it is doing business development deals/partnering transactions and building out an innovative pipeline with five novel programs in development at the end of the decade.
We are focused on musculoskeletal pain and adjacencies with the key goal of becoming the therapeutic area leader in musculoskeletal pain and adjacencies. In terms of the pipeline, we are really focused on prioritizing mid to late-stage de-risk opportunities, so more specifically, product candidates with validated mechanisms of action and reimbursement pathways.
We will take a look at, and we are taking a look at potential candidates where, with, of course, the scientific and the clinical, as well as the corporate access or the reimbursement team in parallel, just to make sure that we have checked all the boxes before we move forward with something. We recently announced the acquisition of our remaining ownership stake of a company outside of Berlin called GQ Bio, which was the innovator of our key pipeline program called PCRX- 201 that I am guessing we will talk about a little bit later.
That acquisition is sort of reflective of this 5x30 strategy by adding this very interesting, first-of-a-kind, high-capacity local delivery platform for genetic medicines. The transaction also brings us a preclinical portfolio with disease-modifying potential in prevalent musculoskeletal disease, some R&D talent, but also the opportunity for our BD team to potentially monetize the platform in therapeutic areas that are non-core to us. That is a little bit of a mouthful, but sort of for those who aren't familiar with Pacira, hopefully gives you a decent overview of what we're up to.
Thanks, Shawn. You said nice overview. I think starting in late 2023, the company underwent a variety of different changes, especially at the management level. Just curious what brought on these changes and what enhancements or additional capabilities you were looking for in these organizational changes.
Yeah, absolutely. We feel very fortunate for a largely new management team to sort of take the reins from a group that carved an asset out of SkyePharma, did a Series A, took the company public, and ultimately set the foundations for a company that's generating over $700 million a year in revenue and generating significant cash flow. The board's gone through a bit of a refresh as time has gone by, and they brought in a new CEO, Frank Lee, earlier in 2024, just over a year and a quarter ago, roughly. Since that time, I came on board in October.
We recently appointed Brendan Teehan as Chief Commercial Officer, Chris Corbett, who's a long-time Genentech vet, as Chief Business Officer. They're sort of reflective of our bringing additional experience to Pacira at this important stage of our evolution.
Sort of double-clicking beyond the executive team, when Frank came on board, the company has made significant progress over the past year. That's really enhancing the organization with new talent and capabilities. Put together what Frank calls the foundation for a modernized commercial medical and market access powerhouse. That, in addition to some recent regulatory success that we've seen in implementation with regard to the NOPAIN Act, we believe this is the right foundation that can help accelerate the company's growth here over time.
It was medical market access and improving the capabilities of clinical operations for the pipeline, and then bringing on some additional senior leadership team that we feel will help us achieve one of the key components of the 5x30, which is double-digit top-line growth over the next five years.
The company provided 2025 guidance a couple of months ago. Maybe if you can just talk about the top-line part, the $725-$765 million in sales for this year, what are the main drivers for that, and what do you expect from each of your products?
Yeah, absolutely. As you mentioned, we put out guidance sort of a handful of weeks ago. As mentioned just a few moments ago, with this upgraded commercial medical market access powerhouse concept, we expect the commercial investments we made in 2024 will begin to bear fruit and enable our top line to achieve that double-digit CAGR over our five-year planning period.
For EXPAREL, as we talked about very briefly a few moments ago, there's a bipartisan act called NO PAIN, which includes 11 non-opioid pain products, which is encouraging and providing economic incentive for providers and payers to enable patients to have more cutting-edge, modern non-opioid pain solutions. EXPAREL and iovera are two of our products, are two of the 11. We're pretty proud about that.
Again, on EXPAREL, we're pleased with the positive early signs around NOPAIN with regard to some formulary wins, as well as recognition of the new J code that we achieved or that we received late last year. We also mentioned this is not a NOPAIN is not a light switch. It's going to take some time for our customers to integrate this new reimbursement.
Again, we're seeing some early signs of success and recognition of NOPAIN and expect more meaningful update to begin in the second half of the year. We would anticipate so if you look at EXPAREL, and I'll just give you a couple of specific examples off the top of my head, and if I'm off by a tiny amount, apologies in advance, and take it with a grain of salt.
Q1 over Q1 growth for EXPAREL 22 to 23 was under 1%. I think it was around 0.9%. 23 to 24, Q1 to Q1 was roughly 1.5%. If we start to see an uptick in EXPAREL in the second half of the year on the back of the NOPAIN , that's just sort of a benchmark to keep in mind where we were growing sub 2% over the past couple of years, quarter over quarter. We're excited about where we potentially can take EXPAREL on the back of NOPAIN . For ZILRETTA, which is our knee OA pain corticosteroid injection, long-acting, this is a profitable product.
It's a significant contributor to the top line. It did almost $120 million in 2024, closer to $118 million, but within spitting distance. We're excited about where we can take ZILRETTA. This is a product that's promotionally sensitive.
As mentioned, in terms of sort of modernizing our sales and marketing infrastructure, we made a number of changes in the latter part of last year to better focus on generating additional share of voice, increasing the reach, driving awareness around ZILRETTA's key advantages. We are excited about where we can take ZILRETTA. These changes will take time to bear fruit, but we do believe ZILRETTA will be capable of achieving year-over-year growth as 2025 progresses and as we get into 2026.
For iovera, which is our smaller product, we also have a key growth driver kicking in this year with separate CMS reimbursement. We received a product-specific C code last year, C9809. This is really important as physicians are now eligible to receive up to $256 for iovera when it is administered in ASC or HOPD settings via this new code.
This is in addition to the procedural fees that they already received. Just iovera is on a much smaller base, but we see the product having the ability to grow over time. To that end, we got approval for an innovative smart tip for the iovera device that was approved late last year. This is specifically designed as a medial branch block for the millions of patients in America who suffer from low back pain. That is a potential driver for us here going forward. We are pretty excited about the potential there.
Okay. Wanted to dig a little bit more on EXPAREL and NOPAIN . I guess first on EXPAREL, for those who have been following the story for a long time, surgery volumes were a key driver for EXPAREL growth. Just curious where those volumes are and whether they've stable or growing at this point.
We're not seeing any difference than over the last couple of years. Thankfully, we're post-COVID. In terms of surgical volumes, we're not hearing anything that's a headwind by any stretch of the imagination for EXPAREL. With regard to NOPAIN , this NOPAIN Act, again, it was a bipartisan act as we talked about earlier. We really think that we're, as mentioned, pleased by the early positive signs around NOPAIN . It is going to take time for our customers to integrate this new reimbursement. I'll give you an anecdote.
The executive leadership team has been doing field rides in certain geographies and having conversations and getting to know better some of our important customers. I was in Central California in mid-February, so just about six weeks ago. We were at a hospital that is a real proponent and user of EXPAREL.
Part of the reason for our visit was to help the broader team prepare for what was going to be sort of a key meeting to discuss the potential rollout of NOPAIN and where they might want to take EXPAREL, additional indications or additional surgeries compared to how they've been using it in the past, despite their enthusiasm for the product on the clinical side.
It was a little surprising to me that it took this proponent of EXPAREL six weeks to get together, the hospital pharmacist, somebody from the finance team, the surgeon champions, the OR nurses, etc., to get together. I think it's just a reflection of some of these larger bureaucracies where it took some time to get everybody's calendars aligned and to talk about the NOPAIN Act.
It is just, again, sort of an anecdote and reflector of that we expect more meaningful uptake to begin in the second half of the year as sort of these battleships get turned and where they are implementing the reimbursement and understanding at the frontline level, what does ASP plus 6% mean for them on the bottom line?
Again, the big picture year-over-year growth in our guidance is largely aligned around EXPAREL volume and sales dollars, sales dollars, sorry. The January price increase is largely offset by discounting associated with our GPO partnerships. We expect, again, the top line is a reflection largely of volume growth.
Is the NOPAIN rollout going as expected? Or I'm just curious if the changes that HHS have also impacted CMS and kind of.
Yeah, I think my tea leaves are probably as good as yours in this regard. Again, we have not seen any of these changes at CMS or FDA affect us at least near-term directly. As a reminder, it was a bipartisan bill. The first Trump administration had an initiative to focus on battling the opioid crisis. We and these two of the 11 products are part of the solution. We feel pretty good about where we are. Of course, we are keeping our eyes sort of wide open. Just as a reminder, EXPAREL was previously reimbursed by CMS as part of a bundled payment in hospital outpatient settings.
Now it has its own product-specific J code. We talked about ASP plus 6%. It basically means at a high level, we have a reimbursement pathway for approximately 18 million outpatient surgical procedures.
6 million of those have CMS coverage, and about 12 have commercial coverage. We're, again, cautiously optimistic, but keeping our eyes wide open with regard to what's happening at CMS and FDA.
Yeah. While we're on the subject of our government, one of the topics right now, obviously, tariffs is very in focus. I know pharmaceutical products have been exempted, but here's what the situation would be and if there would be any impact for EXPAREL or any of your products.
Yeah. We're, of course, doing the work and looking at the extremes. As you mentioned, pharma has been sort of spared. As we've seen some of these spontaneous decisions that can happen very quickly, we have to be sort of ready for everything. I think on the positive side that we do have a manufacturing facility in San Diego. We make EXPAREL domestically. We also have a facility in Swindon in the U.K. We can sort of ship the volume percentages over time as necessary. We also assemble the iovera product in San Diego. We do receive the tips for iovera, which are manufactured in Mexico.
Knock on wood, in terms of the grand scheme of things, even in the extreme with regard to the tariffs on those tips and the API, we're pretty fortunate that we manufacture largely in the US and are feeling pretty good about where we are, but still being mindful that things can change very quickly.
Sure. Okay. Just going back to NOPAIN quickly. In the past, Frank talked about the opportunity in the ASCs and HOPDs was about 6 million procedures covered under Medicare and another 6 million with commercial. Is that kind of still the rough outline of the numbers for the market opportunity?
Yeah. In terms of the outpatient surgical procedures, there's approximately 6 million that have CMS coverage. 12 million have commercial coverage. If you think about the total addressable market, approximately 75% of the EXPAREL relevant procedures are performed outside of the hospital inpatient setting. The way I think about it is sort of 40, 40, 20 at a high level. Approximately 40% of the total addressable market is inpatient. That's roughly 8 million, 8.1 million. Approximately 40% is in the outpatient, then another 20% at the ASC. That's sort of the big picture.
You expect the commercial plans to mirror or follow what the Medicare plans are doing in terms of coverage?
Yeah. We think they will. We've seen a few commercial payers beginning to recognize the importance of reimbursing EXPAREL outside of the bundled payment and adopting NOPAIN Act-like policies. We think it's going to take some time. We are encouraged about some early signs there.
One of the focuses ahead of NOPAIN was on expanding access. The 340B hospitals, I think you entered some GPO contracts. Where are those efforts now? Are they still ongoing? Should we expect more GPO contracts to come on board?
Yeah. We have two GPOs on board. We implemented one earlier in 2024 and then one in the second half of 2024. We anticipate the final GPO partnership, knock on wood, will be inked in the first half of this year. Once that happens, approximately 80% of the EXPAREL business will be covered by GPO partnerships. I think it is pretty remarkable that EXPAREL ramped to more than $500,000,000 annual sales without participating in 340B or GPO partnerships until recently. As you know, they are industry standard for hospital products.
It should just sort of help grease the wheels, so to speak, in terms of us playing ball and being good partners and beginning to reinvigorate the top line growth for EXPAREL in particular.
I guess how you view the competitive outlook for EXPAREL. If you've gotten investors have been asking whether the new Vertex product, the VX-548 or ZYNRELEF by Heron, is still kind of a threat to EXPAREL.
Yeah. We are not seeing, again, we want as many patients as possible to have sort of modern non-opioid pain, access to non-opioid pain therapies. We are super supportive of NOPAIN and the 11 products that are in there. In terms of Heron, we do not see a tremendous amount from them out there. Again, if that works for certain patients, that is great. We are supportive of being able to provide non-opioid pain therapies wherever possible. I think from an EXPAREL, we have had over 10 years of efficacy and safety track record.
Over 15 million patients have been the beneficiaries of EXPAREL. We are very confident that it will remain the market-leading branded long-acting local analgesic for years to come.
In terms of Vertex, it's been, I think, particularly interesting where the megaphone that they're able to speak through and for the number of investors in particular who were invested and made a lot of money in Vertex stock, it's really provided an interesting opportunity for us to start getting some inbounds for more sort of biotechy investors who maybe hadn't followed Pacira previously, but now that or had not focused on pain because the assumption was it's a largely genericized opioid market and not a lot of room for innovation, particularly because of those cost advantages for generic opioid products.
Now that Vertex is out there talking about the importance of an alternative for more modern non-opioid pain alternatives, we view it as a positive.
As a reminder, EXPAREL is utilized in the hospital or ASC setting, whereas the Vertex product is a prescription like you might get for an opioid after you have surgery. We view it as complementary. It has been interesting that, again, we're getting a lot more attention with regard now that the sort of broader biopharma and even generalist universe is hearing what Vertex has to say about non-opioid pain options.
I don't think we can speak about EXPAREL without talking about the IP.
Of course.
It took up a lot of the oxygen back in the summer last year, right? I guess curious where we are now and what we should expect in terms of a potential generic for the product.
Yeah. No, appreciate that. I think yes, you would be remiss if you didn't ask about the litigation. I think just a quick digression on the positive side where once we announced the two-year data for PCRX- 201, that helped sort of shift or balance out the conversation a little bit in terms of the future of the company. We announced that interesting two-year data last December, and we'll be announcing three-year data at some point this year in addition to some other double clicks on individual patients, which if we have time, we can talk about that, or we can do it at some other time.
The high level with regard to litigation, we're advancing three legal tracks. Nothing has changed since we put out guidance or announced Q4. Advancing three legal tracks.
The first one is an appeal, and the second two were patent infringement lawsuits. The appeal is we're pursuing an appellate review of the New Jersey court's finding that our 495 patent was not valid. That was, as you referenced, announced last summer and caused some significant pressure on the stock. That appeal was filed in September of 2024. We'd expect the appeal process to take approximately 15-18 months. Although we're confident in the appeal, we don't anticipate having really more visibility or sort of a definitive outcome until mid-2026 plus or minus.
Second, we're advancing a lawsuit against eVenus for infringement of our 574 patent. We believe the 574 patent addresses issues that the New Jersey District Court had with the 495 patent, and it's a higher hurdle for eVenus to clear. We're awaiting a trial date.
This one is going to take longer than the appeal. The third is the team continues to innovate. We announced late November, early December, plus or minus last year, the issuance of a first patent from a brand new family of patents called the 940 patent. It is related to the 200-liter manufacturing process in San Diego, and it provides protection into 2044.
We filed a separate patent infringement lawsuit against eVenus for this patent not in New Jersey, but in the Northern District of Illinois, which is Fresenius's principal place of business in the US. We also do not have a trial date yet for that, and it is going to take similarly long to the 574 process.
We get the question, I'd say, with moderate frequency, is there going to be, are we worried about an at-risk launch by eVenus/Fresenius Kabi, who's their US marketing partner? We don't believe that an at-risk launch is imminent. As a reminder, I think we're now up to 18 Orange Book listed patents, and we continue to innovate. Again, and some of this is based upon information we've received through the ongoing court proceeding, but we don't believe an at-risk launch is imminent.
Of course, if our perception were to change, we would adjust our strategy accordingly. Of course, we understand the importance of keeping investors informed and will continue to provide updates as appropriate. Unfortunately, particularly with the appeal, we're not going to hear anything until 2026.
Yeah. Do we have visibility yet on whether they have the ability to launch and supply this market, or they're staying on the sidelines?
Yeah. No, it's a good question. One thing we do know is that they are required to provide us a sample, a commercial sample, so that we can test it and see if it's actually EXPAREL or if it's some derivation of EXPAREL. They have not been able to do that, and they've told us that they aren't able to do it currently. Yes, you can read a little bit between the lines, but it's just an additional sort of data point and reinforcement that we don't think an at-risk launch is imminent.
Yeah. Just wanted to touch on ZILRETTA for a bit here. You mentioned it was a promotionally sensitive product. How can we get the additional growth out of ZILRETTA, I guess, is the first question. The second one, just where you are in terms of the coverage for the product.
Yeah. From a big-picture perspective, I think in general, orthopedics are relatively familiar with ZILRETTA, and they view the product favorably. I'm sure it's the orthopedics who are familiar. I'd say sort of in general, it's been kind of interesting that the overall awareness is relatively low, but that's something that we're, I think, excited about in terms of this medical market access powerhouse concept. That's something that we're working on to improve as we go forward.
Patients who are able to have access to ZILRETTA view the product very favorably with the ability to have sort of three months plus or minus of pain relief. We believe it can contribute to our top line growth here over time.
What we're doing, some things behind the scenes, rolling out a specialty pharmacy program to help alleviate some of the costs of acquisition for our customers and some other things that we'll talk about here over time. In terms of the level of coverage, it's typically administrated in the office setting and is in a good position with stable, secure reimbursement via the J code. I think in terms of sort of looking forward, we are, just as a reminder, we're running a phase three registration trial for ZILRETTA in shoulder OA.
Assuming this is successful, it could become the first and only long-acting corticosteroid approved for shoulder OA. From a market potential perspective, there's approximately 1 million intra-articular injections performed each year for pain associated with shoulder OA. Keep an eye on that.
It's enrolling nicely at the moment, and we anticipate having a readout top line data for that phase three registrational study roughly in the middle of 2026, which is sort of a reflector of the advancement of our pipeline from a bigger picture where we have indication expanding, quote-unquote, "relatively low-risk trials for existing products." Just as mentioned, ZILRETTA in shoulder OA. We have a registrational trial ongoing for spasticity, which is an indication for iovera, and that will read out in the middle of Q2 of 2026 also.
As a reminder, we have this very innovative potential game changer in PCRX- 201 for pain and stiffness associated with osteoarthritis of the knee. We had two-year data with one injection last December. We'll have three-year data at some point in this year.
We're also moving forward with a two-part phase two trial for PCRX- 201. That is, like I said, the business person here, it's a potential game changer. You can talk to the scientists to get more detail on that one. Yeah, advancing not only sort of line extension indication expansion trials for ZILRETTA in shoulder OA, but also a potential game changer in PCRX- 201 in knee OA as well.
Okay. Clearly, there is, I guess, an increase in focus on R&D with the 5x30 strategic growth plan. I think you have talked about BD. I mean, how much appetite is there to acquire new products? Would they be more on the commercial side, or are you willing to go earlier stage development similar to 201?
Yeah. We'll continue to talk about the sort of evolution of the BD thesis, but the high level is, as we advance into, revolve into a more innovative biopharmaceutical company, we're looking to add de-risked, as we talked about previously. We don't want to take target risk. We want to make sure the product, assuming it gets approved, will have reimbursement. We're doing all of that work upfront in parallel with the goal of having five novel programs in clinical development by the end of the decade.
I think if I put on my former investment banker hat, to the extent that we are able to successfully increase the top line growth and have a nice balance of indication expansion as well as more novel products in clinical development, we're going to be thoughtful about that.
We're not going to do something crazy and become EBITDA negative, as an example, but I think we'll very thoughtfully invest in what we think are high-potential ROI programs in development while maintaining operating margins and adjusted EBITDA and cash flow.
Okay. Maybe just to wrap up, I've been following the company for a long time, but do you feel there's anything that's misunderstood or underappreciated in the current iteration of the company by investors?
No, I don't think so. I think, again, I believe the opportunity for it. We talked a little bit about Vertex earlier, and then we also talked about kind of this concept of a refreshed management team, but also there's still lots of institutional knowledge around the table. The opportunity to take for Frank to take a fresh look at the three commercial products and how can we, with IP going out to 2044 for EXPAREL with the new patents, how can we reinvigorate top line growth and get more patients' access to non-opioid pain therapies?
I think, again, we'll thoughtfully evolve the pipeline over time. Once we see three-year data, I think we'll, and with the Vertex microphone, perhaps a broader group of investors will take a look at us and start focusing on the pipeline in addition to a company that's generating significant cash.
I feel like we're in a pretty unique position where we have the risk-reward profile of significant potential upside with regard to the pipeline, but also sort of thoughtfully reinvesting in the business and making sure that we're growing the top line appropriately while maintaining a strong balance sheet and margins. Taking that financing risk off the table with a biotech or a biopharma-like pipeline leads—I'm biased, but it seems pretty interesting to me.
Okay. I think we're up on time, so I'll have to end it here. I want to thank you, Shawn, for spending time with us this afternoon, telling us more about Pacira. Appreciate your time.
Thank you. I look forward to seeing you in person. Talk to you soon.