Welcome back, everyone, to the 2025 RBC Global Healthcare Conference. My name is Greg Renza, one of the biotech analysts, and we're pleased to be joined now by Pacira BioSciences. Joining us from the company is the Chief Executive Officer, Frank Lee. Frank, great to see you. Thanks for being here.
Good to see you, Greg. Yeah, happy to be here.
Great, great. Always a lot going on in the external landscape, but there's as much going on in Pacira as well. A lot of developments over 2025 so far and just a short few months we've been through. Maybe to start off, Frank, just give us an overview of Pacira. Maybe those who are not familiar or coming back to the story with respect to EXPAREL and just the opportunity in non-opioid pain relief.
Sure. Can you all hear me okay? Yeah, am I coming through? Okay, good.
We're good.
All right. Great to be here. For those of you that aren't familiar with Pacira, we're very much focused on non-opioid, innovative non-opioid pain management therapies. If you take a look at our portfolio now, we have three products that generate over $700 million in sales this year. It is a very healthy cash flow generating business. We're now shifting our focus to building our pipeline as well. It is led by a product called PCRX 201, which is an exciting product that we can talk about a little bit that really has, in my view, the opportunity to truly transform how we think about osteoarthritis of the knee and perhaps other joints. We also have a platform around this as well. This is the first lead molecule.
You can think about Pacira as a company now that has a strong cash flow generating business that's now shifting its focus to further building out an innovative pipeline in pain, and specifically musculoskeletal pain and those adjacencies. We think it's an area that we are leading now and we can further lead and innovate going forward. It's an exciting time. When you think about the company, I've been with the company now for about almost 18 months. We've accomplished a lot. We've transformed the board, the management team, the strategy. In fact, if you think about just this year, our stock actually has performed very, very well relative to the indexes and our peers. Why is that?
Because we've been able to take this overhang that we had on the stock with respect to the Paragraph IV litigation around EXPAREL. We've got a really great settlement there that gives us visibility out to 2039. That is a positive. In addition to that, now we've listed additional Orange Book patents, as well as we recently won a case against RDF, which provides better margins. All of that combined and leading up to that gave us a lot of confidence to think about this strategy that we call 5x30. That is how we've kind of come to 2025. A lot of the 5x30 is now really starting to play out the way we wanted to.
Frank, if you could maybe just lay out some of those 5x30 objectives. This is the concept of your pedigree and your team are really rooted in innovation. You've got the cash flows from EXPAREL and from your portfolio, and you're transitioning that to longer-term visibility. Maybe lay out some of those objectives and how they tie to the imperatives you have for the company today.
Sure. You know, we put a lot of thought into this. As I mentioned, we rolled this out early this year, and the actual investor reaction to that was very positive. Further positive when we settled the paragraph four litigation, et cetera. What are those five things? We put a lot of thought into this. Number one, first and foremost, in 2030, so these are five things by 2030, we want to be helping more than 3 million patients in that year. Right now we sit around 2.4, give or take, plus minus this year. Number two, we said we want to be between now and then growing at double digits. Okay. As you know, historically, we've been at low single digits, right? That has changed a little bit in quarter one. We'll talk a little bit about that.
The third thing is expanding our margins by five percentage points, at least five percentage points. The recent RDF litigation win and some things that we've done around moving our manufacturing to a larger scale are going to help us do that. We have visibility into that in addition to the volumes that we'll drive. Importantly now, those are the things that are around the current business. The last two are really about how do we accelerate our future pipeline. Five novel projects in development by 2030. We already have the lead-off batter and 201. We've got some other things planned. Secondly, and this goes both to development and commercialization, five partnerships. There are opportunities where we could have partners help us commercialize our products in ways that we can't, for example, outside of the U.S.
Right now, we only sell our products in the U.S. There are opportunities outside the U.S. for all three of our products. Even in the U.S., there might be certain segments of customers that others can reach better than we can more efficiently. Secondly, as we think about partnerships in development, there are opportunities to make sure that we participate in those transformative treatments, potentially transformative, but in a risk-adjusted way. It is not just by ourselves. Those are the five things that we laid out. The investor sentiment was very positive coming out of that. We have been able to build on that with some of the things that we have been able to demonstrate that support that we are tracking to those 5x30.
The 5x30 came, you established that in the first part of the year. The settlement came, which you've referenced. You've alluded to the visibility into the 2030s. Maybe just provide a little more detail on how that's removed, that overhang on the stock, which you mentioned, but how does it remove the overhang on execution to give you comfort that these revenues have durability, not just in this decade, but potentially beyond?
Yeah, that's a good question. EXPAREL is an amazing product, I have to tell you. And so is ZILRETTA and iovera. I can tell you from personal experience, my mom has had ZILRETTA, and other family members are going to get EXPAREL very soon. These are great products that have a tremendous impact on patients' lives. I'm convinced of it. When you step back a little bit, this Paragraph IV litigation has been ongoing for a long time, a long time. Of course, this litigation now puts an overhang on the stock because there's not certainty. As I said before, when I first came into the job 18 months ago, I value certainty as much as any other investor, but we've got to get certainty on terms that give us visibility into transforming our business.
I mean, I can tell you that with a lot of the team's help and a lot of productive discussions, I was very pleased when we were able to announce that settlement because for those that aren't familiar, that was around the April timeframe. What is that settlement? That settlement says it's a volume-limited entry settlement. It's not your classic one-year entry and it's done. In year one, it's high single digits and that grows to low 30s over five years. After that, it's high 30s for the balance of the time, all the way out to 2039. 2039. That gives us 14 years of visibility. On top of that, we continue to innovate. We currently have 19 Orange Book-listed patents, and we continue to innovate. The bar is getting higher and higher with respect to our IP.
Any potential entrant outside of the party that we settled with would need to overcome all of those patents and produce the product, which is no small feat. Okay. As I mentioned earlier, we're getting more and more efficient at how we produce the product. We can talk a little bit more about that across our two sites. It gives me a lot of confidence because it's volume-limited. When it's volume-limited, you might imagine there's not an incentive to heavily discount on either party. It's volume-limited.
Yeah.
Okay. It is a very constructive, very, I would say, positive settlement for the company and for the other party. It gives us a lot of visibility. If you think about how the market might expand over time as well. These cash flows can be utilized now to pivot the company towards more innovative products.
All these developments really tie well together, the long-term visibility, the pipeline and investments that you're striving for. Maybe when it comes to visibility, let's talk near-term as well and talk 2025 and some of the important commercial dynamics that you mentioned just with your recent quarter release and how you think the business and EXPAREL is doing within the commercial setting now. Maybe walk us through some of those first quarter dynamics and the guidance that you and Shawn and the team have put forth and what should visibility for 2025 look like for EXPAREL?
Sure. Let me start at the high level and drill down to maybe what happened this past quarter. At a high level, again, the story here for Pacira is we've got a different vision, right? We can utilize our current business to fuel this pipeline. It directly ties to 5x30. Let's tie 5x30 and what's happened to what's happened in the first quarter, first four or five months of the year. The first quarter, EXPAREL grew by, if you look at average daily sales, because there are different number of selling days per quarter when you compare to last year, it grew by 7%. That's very different than where EXPAREL was a year ago. There is low single digits. Okay. That's an early indicator.
Zilretta and iovera were flat to slightly declining only because we've pivoted our organization now from one sales force selling all three products to three separate sales forces individually now focused on their particular product. This is very important. We spent a good chunk of last year standing up a powerhouse, what I call a commercial medical market access organization. We have great products. Now we've got some reimbursement tailwinds both for iovera and EXPAREL. We did not talk about iovera. That is included in no pain. Now we wanted to make sure that we've got a focused selling effort. We stood up those three sales forces. I have a lot of confidence that each one of these sales forces now will execute to the plan. Early signal is on EXPAREL, 7% average daily sales growth as opposed to low single digits previously.
ZILRETTA and iovera, a little flatter because we had to shift the field force and stand up two separate sales forces for those. My sense is as we move towards the second half of the year, and I've always said that with no pain, it's going to be the second half of the year before we start to see meaningful uptake on no pain. I said that from the beginning. You can go back to the JPMorgan transcript back in 2024, a day after I started. I've been very consistent with that. We can talk about why.
Yeah, let's do that. Yeah. Let's talk about the no pain dynamics, the reorg, the blocking and tackling, the positioning for success internally. You have got potential tailwinds. The GPO contract, of course, is another consideration here and how you are setting up there. With respect to no pain, just walk us through that trajectory, the receptivity within the community and how that translates to this sort of backloaded impact.
Sure. We're starting to see some encouraging signs of adoption in the smaller community settings where there aren't as many stakeholders, okay, inside the hospital. We've definitely started to see uptake in the ambulatory surgical centers, again, where let's say there aren't as many stakeholders to manage inside that institution. Now, as you start to get into larger and larger health systems, each hospital may have its own pharmacy. There's a whole network there. They have their own systems and some systems are 20 hospitals-30 hospitals. These take a little while to adopt. Now, think about this. There's a little bit of muscle memory in these larger systems. EXPAREL has been out there for a long time. So think about the things you do every day, muscle memory. If you go to Starbucks every morning at 7:00 A.M., you know that this is how things work out there.
We have to help our customers overcome some of this muscle memory and let them know that, hey, you know what? In the outpatient setting for Medicare patients, it's ASP + 6% now. On top of that, you still get what you got in the bundled payment. This has been pulled out. This is an extra payment. It makes a lot of sense, both clinically and financially to do that, right? It's a great product. Now it's financially appropriate. The other thing is we're seeing encouraging signs that commercial payers, commercial payers are starting to follow suit. Okay. We'll have an update for you as we go through the middle of the year. What I didn't want to do is give you a minute-by-minute kind of, you know, how many covered lives do you have?
You know, this, you know, if you step back from my own experience, you know, I've been in this industry 30 plus years, there's a tipping point when it comes to commercial payers. Okay. It's no good if you just have a little bit of coverage. You need a decent amount of coverage. And, you know, it varies by region. Now, as you know, there are about 18 million procedures that fall under, we think, broadly, you know, no pain. About 6 million of those are directly covered by CMS. We have those 6 million, and we're going to work on that. The other 12 million are covered by commercial payers. We've always said that it's going to probably take, if you look at market analogs, a year to two years for commercial payers to follow suit with respect to what CMS is doing.
Now, what we're encouraged by right now is that we're starting to see activity a little sooner than we expected, to be honest with you. Okay. I'm not sure if you know it or not, but CMS concluded that this is budget neutral to them. Now, think about that. Think about how many times CMS provides additional reimbursement for something. This is budget neutral. If you think about it from a commercial payer's hat now, this should be a good thing for their respective members, right? We're starting to see those kinds of signs. We think there'll be a tipping point at some point where both CMS-covered patients and commercial-paid patients start to make up the bulk of what they do.
They can just have their protocols and procedures be very consistent as opposed to trying to call out one type of patient versus another kind of patient. Does that help you a little bit?
Absolutely. Certainly, the granularity is key. That is what investors want. I respect, as you mentioned, just getting a blow-by-blow is very difficult. It does take time. I think there are some dynamics to appreciate across all these stakeholders, the pharmacies, the billers, the coders as well. We need to leave time for the pipeline and for PCRX 201 because, as you mentioned, you joining 18 months ago, maybe that was not why you joined the company, but I would say that you have been increasingly constructive on the target product profile on some of the building data. Let's just talk about your excitement and what you see in this profile for, frankly, an intra-articular therapy, what this means for potential patients in the space.
Sure. Just to wrap this up a little bit for the first three things around the 5x30, you can see now we have some tailwinds that we're going to execute towards double-digit growth. When we do that, it's going to benefit margins. We just won the RDF case, which provides low single-digit favorability. That's why we got visibility into expanding margins. Now, we switch gears to the pipeline. I have to tell you, I'm being very, very transparent. When I first saw the asset, when I came into the job, I said, "No, we're not doing gene therapy." Okay. We're not doing gene therapy. We're not doing cell therapy. We're not doing anything that looks and smells like it. Okay. Now, what convinced me? What convinced me? When I looked at the product and the platform, what I saw, number one, was really convincing data.
Seventy-two patients, phase one. When I dug in there, what I saw was that this is sort of the anti-gene therapy of gene therapies. This is local injection, very small amounts. The pathway is known, IL-1. There are two approved IL-1 agents out there, right, that block that pathway. It just so happens that they do not work long enough. You would have to continuously be injecting your knee. Okay. This blocks IL-1 Ra, which is very well known. There is clinical data available from two different products. It does this so efficiently that, you know, what we see is very little immunogenicity around this. All the things that you might want to sort of tick off when you think about gene therapy, I thought, gosh, low cost of goods and small amounts, potential to redose. That is very interesting. It is locally injected, not systemically injected.
The adverse event safety profile is very good. And it's a known pathway. I thought, all right, okay. Now let's take a look at the data. At the time, we had two-year data. Over 70% of patients responded 50% or better from baseline on the WOMAC pain and stiffness scales. Now, think about that. When you look at all of the trials in OA, we all know about the placebo response. I asked the team, go back and take a look at all the placebo responses. The magnitude and duration of the placebo response is about two points over three to six months. Okay. You can do your own homework around that. What we saw is almost four points of improvement on that scale and durability out to two years. Now we're going to share three-year data here pretty soon at EULAR.
I got pretty excited about that. That is just a start because we acquired GQ Bio, the company that we had a partnership with for 201 because we like 201 and we like what they have, some other projects that they are thinking about. We like the platform. This platform is an HCAb platform, high-capacity adenovirus, as opposed to AAV. Big platform. It is sort of the semi-truck as opposed to the compact car. You can put 30,000 base pairs in this thing, right? Think about what else could be important here to be locally injected. Even with 201, we start with the knee, but we could go to other joints, right? Again, when you think about gene therapy, typically you see data sets that are 5, 10 patients. This is 72 patients for a phase one followed for three years.
All of those things combined, I thought, you know what? I'm changing my mind. We're going to go after this and we like it so much. We're going to go buy the company. We did so in a very disciplined way. When you take a look at the transaction, we already owned a small proportion of the company. We bought the rest. Okay. We're going to have a bit of an R&D day, so to speak, probably second half of the year sometime, showcase a little bit of what we have. We're excited about it. Yeah.
Multi-three-year data coming up. What do you think the street investors need to see to maybe earn the appreciation that you've grown to develop with the program? Maybe to that, what are the next steps in development?
Sure. You know what? I'd encourage investors to take off the traditional gene and cell therapy hat for a second. Okay. Take the hat off and look at this opportunity through a different set of eyes, right? To say, gosh, I mean, put the gene therapy thing aside for a second. Look at the data. Look how this is administered. Look how this is produced. Look at the data around existing products in this pathway. I think the more you look at the data, the more I think you'll be convinced, as I am, that this truly has a potential to bring gene therapy to the masses, right? Because currently, gene therapy is all about rare diseases. This could be truly the first one for broad patient populations.
If you take a look at all the things that you'd want to check off, if you think about a concept like that, this one does that.
You mentioned that GQ and the transaction you did. I'm hearing other platform, other potential assets. Can you just give us a teaser of what you're thinking when it comes to other potential programs that could come from this platform?
You will have to tune in next time. We do have a number of projects. Now they are called Pacira Germany. We are very glad to have our research colleagues. If you think about this, it is not only the platform, but it is also a really talented group of people and capabilities around research that we did not have before, right? Previously, Pacira was a little more especially pharma. In that setting, it is really more about process development, right? This gives us now a capability in research in a very disciplined way. Known platform, small group of people, expertise, lots of other ideas about other genes that can be encoded. Again, thinking about all in the lens of locally administered because of all the benefits that come with that. Okay.
Great. Frank, I know we're just up on time. We didn't even get to talk to ZILRETTA and iovera. We look forward to how 201 develops, the EXPAREL certainty, and the rest of the pipeline building towards 5x30. Thank you very much for joining.
All right. Thank you.