Good afternoon, everyone, and thank you for joining us. My name is Matt Dellatorre. I'm a biopharma analyst here at Goldman Sachs. We're very pleased to continue the next session this afternoon with Pacira BioSciences, where I'm joined by the company's CEO, Frank Lee. Frank, thank you for being here.
Yeah, thanks for the kind invitation.
Frank, maybe to start, just to get everyone up to speed before we dive into some of the specific programs, maybe for those less familiar with Pacira, give us a brief overview of the company. Then maybe frame for us where you all stand today, what your key priorities are, then how you're thinking about the outlook and strategy for the company as we head into second half and beyond.
Sure. Well, Pacira, as many of you know, is a leader in non-opioid pain management therapies. What does that mean? That means that we have three products in our portfolio, plus a pipeline that's growing that we should talk about. As we think about sort of the company's history then and now, we had a pretty substantial reset of the organization. I'm with the organization just over two years. I joined in 2024. There was a restructuring reset. In 2025, we rolled out the five by 30 strategy for value creation. What are the five things that we want to accomplish by year 2030? Those are quite simply into two different buckets. First is, what are we doing about the here and now? The last two are really more about building for the future.
It speaks to 3 million patients in 2030, double-digit CAGR, five-point expansion in margin for the first three. For the second two, we talk about five new programs in development and five partnerships. In that regard, we can go through some of the details, but we've made a lot of great progress. What to look forward to, we had very strong results in quarter one of this year with EXPAREL growing at five percent on sales, and volume was up seven percent. As the year goes on, we expect volume and sales growth to converge because we lapped our last GPO. We're quite pleased with the growth that now we've seen with our two other products. That is ZILRETTA, 15% year-on-year growth. iovera, 21% year-on-year growth. That's the care now business.
The other part of it is from a pipeline perspective, we have now three really exciting data events coming up this year. By the end of the year, we'll report on the registrational study for ZILRETTA in shoulder OA, and if positive, that could be the first drug approved for shoulder OA. Second is spasticity for iovera. Again, if approved, that's a registrational study. That could be the first medical device approved for spasticity. I have to say, the most exciting thing that I look forward to is our readout on PCRX-201, our local gene therapy for osteoarthritis. This is the phase II, part A of that study. As you know, that's an active control plus two different doses of PCRX-201, and that'll be an exciting readout and an important catalyst for us.
In the meantime, we're readying the commercially viable manufacturing process, as you know, in cell and gene therapy, that's very important. The good news is we've stood it up, and we expect to start enrolling part B of the ASCEND phase II study with commercially viable product here very soon. That's a little bit of the backdrop. You can see we're making very good progress on our plan. Existing business, strong Q1 . Pipeline events coming up really for the first time in the company's history. A few other things on the horizon.
Great. You touched on one of those goals of inflecting towards double-digit CAGR, I think by 2030. Maybe help us understand what gives you all the confidence to kind of bridge that gap where you are now. I think 2026 guidance is mid-single-digit growth. How do you get to that double digit?
Yeah. First of all, we set guidance to really make sure that we can deliver on that and all the different macro environment events that could potentially happen, right? We set that accordingly. That said, when you go back in time a little bit with NOPAIN Act legislation being enacted in January of 2025, what we said is that, "Hey, that's an important catalyst because that involves the 40 million Medicare patients in the outpatient setting." Now we say a catalyst because we need to get commercial payers to follow suit to make sure that we have the majority of patients covered under outside the bundle policies, right? Based on that, we said, look, second half of last year would be a time where we really see volume growth, and we did.
We went from about three percent volume growth in the first half of last year to about eight percent in the second half of the year. That volume growth continued into the Q1 because with EXPAREL, we saw seven percent volume growth. five percent sales growth, seven percent volume growth. The reason we believe those two growth rates will catch up to each other is because in the second half, we lap the last group purchasing organization. Going forward then, any price increases we might take would more readily flow into that math as well. That's one way of seeing line of sight to double digits. In addition to that, there are two other important growth drivers. Come end of next year for EXPAREL and ZILRETTA will start to kick in.
That is with LG Chem. They're starting in Korea and Thailand, but they have rights to sell EXPAREL and ZILRETTA in the Asia-Pacific region. That's another growth driver, and we'll continue to sign ex-U.S. agreements. Finally, and very importantly, we've got a very strong focus on expanding access to the tune of covered lives outside of the bundle. Right now, one could argue that, "Hey, Frank, don't you have coverage at 100%?" That's yes, but that's included in the bundle. If you talk about outside the bundle reimbursement, that is being reimbursed separately for a product like EXPAREL, we have that for 110 million covered lives out of what? 300 plus million in the U.S. We've got some work to do there, and we're really pushing on that. What to look forward to in the second half of the year?
I would say that look forward to expansion in covered lives in a significant way.
When we do that and we get to a tipping point, that is the majority of lives are covered under outside the bundle reimbursement, that is for Medicare, ASP+ six or for commercial. What we're seeing now is ASP+ 29%. You'll start to see even more of an acceleration. Those are some of the key growth drivers. One is GPO agreement.
Any potential future price increases, ex-U.S. revenue.
Right?
This idea that we're going to continue to push on covered lives.
Would that come on kind of with each of the big three PBMs? Those would kind of be in blocks as you expand to the commercial?
We're looking primarily at directly to payers.
Directly to payers, okay.
We already have some of the big ones already.
What we're looking to do is really get some of the remaining big ones on board. And again, this is outside of the bundle reimbursement. Just to really double-click on that, if one gets a knee replacement surgery, the facility will get one total fee-
Right
Regardless of what you use. What NOPAIN Act and outside the reimbursement bundle does is provide that incremental reimbursement for the product that you use.
Historically, that's been the primary barrier. Clinically, EXPAREL does a fine job of preventing pain after surgery. Clinically, one of the barriers has been, well, gosh, if I get one payment inside the bundle, then many folks are incented to use the least expensive as opposed to the most effective. What we see based on if you follow our press releases, we've had a few recently. We've invested in collecting these data, health economics and outcomes research data, that definitively shows that EXPAREL is saving the system costs, patient outcomes are improving. As you see more and more access and those announcements come through, there's good reason why.
Great. You kind of walked us through some of these maybe commercial levers and how we'll see the volume and sales growth kind of converge. Maybe shifting over to market exclusivity.
I think you guys have highlighted 21 Orange Book listed patents for EXPAREL, then you have a kind of favorable volume limited-
settlement with a single approved generic starting in 2030. You clearly have some runway set out. I guess, how should we think about other avenues you all are taking to address potentially other generic entrants, and just kind of how we should think about that aspect of the drug?
Sure. Broadly speaking, as we all know, in biopharma, this is inherent in this industry, right? You innovate, you put IP around it, and over time you diversify your portfolio and you bolster your IP. That's how we go about our business. Let me talk to you a little bit about then and now when it comes to the IP. Then, this is before my time a bit, we had one Orange Book listed patent. That was a 495 patent. That patent, we got a ruling against it in 2024. What did we do? Well, what we did was we further bolstered the strength of that patent for specifically the volume limitation that the judge called out.
Now it was re-examined by the patent office, reissued after the USPTO looked at all the different court filings, that patent is one of our stronger patents now. In addition to that, we put another 20 patents in the Orange Book, and as you know, manufacturing patents by statute can't be listed in the Orange Book.
These are composition of matter and product by process patents, which are stronger. They cut across two different families, and now we believe we've got a very strong patent portfolio based on the investments that we made. What is that exactly? Well, we found another way to really construct this molecule using a larger scale process.
which develops a better molecule on a number of different fronts. That is really the thesis behind it, and we continue to innovate. What to expect is more patents forthcoming during the course of this year and next year. From a court proceeding standpoint, we think that the whole process will last through 2030, with really the Markman hearing hasn't even started yet. To really determine if there are any merits to the different ANDA applications, and that will be determined by the FDA in due course, but to the particular patent filings as well. We have a long journey ahead of us. Again, what can we do as an organization? First is strengthen our patent estate, which we have, and the other piece of it is broadly diversifying our portfolio, which as you can see from the pipeline we are doing.
Right.
Finally, what I would say is that. From a legal proceeding standpoint, as I mentioned, this will take some time to resolve, and a lot of things can happen before then.
Yeah. We should assume any additional entrants would be post 2030, and it would perhaps.
Well, we feel reasonably certain that the court case won't be done until 2030.
Until 2030.
Right. For the two other ANDA filings.
For-
For the first one, it was a very favorable volume limited settlement. No entry until 2030, and then from then on, a gradual entry to the high 30%, then flat, and unlimited entry starting in 2039. That's a very favorable settlement. You might ask, "Well, gosh, I mean, that seems favorable if you lost the first court case." Well, if you think about the other patents that we have, it makes a lot more sense.
Interesting. Maybe moving over to your knee pain products.
Both ZILRETTA and iovera has double-digit growth in 1Q. In contrast to that, your guidance assumes relatively flat year-over-year revenue growth. I guess, what do you want to see to give you confidence in revising that guide higher?
As a part of rolling out our five by 30, we said, "Look, these are very different products being sold to very different audiences." We had to focus and make sure the EXPAREL team had the capacity to really pull through NOPAIN and expand commercial payer access, as we talked about. What did we do in 2025? We went from one sales force selling all three products to three separate sales forces. We also signed a co-promote agreement with Johnson & Johnson MedTech, now called DePuy, for ZILRETTA. That agreement took a little bit of time to get on its feet. Now based on Q1 results, you can see that it's driving 15% year-over-year growth.
For iovera, what we did there is instead of having pharmaceutical representatives sell a medical device, we've got medical device representatives selling a medical device, which is very different. If you know MedTech, you know that's regulatory compliance, just the way you interact with your customer is very different in the expectations. Now that's starting to show good momentum with 21% sales. That was the idea. Now one data point doesn't make a trend, we've been very careful about, Shawn has as well, and Susan, about how we set guidance, and we want to see a little bit more before we adjust it either way.
Interesting. Okay. Potential for that to be sustainable if things go well. Okay. How about maybe switching to margins. Maybe give us a little color on what's driving 2026 gross margins. I think they're a little bit below 25%, and then how we should think maybe the cadence for the year and going into 2027.
Well, first off, from a margin perspective, let me take a step back. There's a big difference then and now consistent with our transformation story. There was a time when we were literally living hand-to-mouth on our products, and that gross margin was around 76% very consistently. In the course of just about a year now, we've taken it to 81%.
You could argue, "Well, gosh, Frank, I mean, it seems like you've already made your goal of five by 30, five-point expansion." Rightly so because we delivered based on the team's efforts, that kind of margin expansion in just over a year. That said, now we're selling through some of that inventory that we manufactured last year, and because we didn't throw away as much because we got better at making the stuff. This year, as you know, by accounting standards, these lots are bigger now. If we have a missed lot, then it really hits this year's or this quarter in that quarter. We just want to be mindful of that in terms of before we adjust a lot of things.
We'll see that in the first few quarters as we've talked about, and Shawn's provided good guidance around this, fairly stable to what we saw before. A little bit of a dip in quarter four before we start to catch back up again.
Okay, great. Maybe now coming to the pipeline. You touched on this a bit in your intro segment when you gave us an overview. You have a number of maybe catalysts coming up. You highlighted Part A for 201. Maybe just walk us through more broadly what we'll see later this year and then what we might be able to expect over the next 18 months.
Sure. I'm really excited about PCRX-201. I've been in this industry, what, 35 years. I think about this as local gene therapy for the masses, right, as opposed to systemic gene therapy for the few, rare orphan. Very different approach. What we're talking about is gene therapy that you locally inject, at least as a start, in the knee for osteoarthritis of the knee. All we're doing, it's a de-risk mechanism of action. We know that blocking IL-1 is important. There are two drugs already approved, one a small molecule, one a monoclonal antibody, to block IL-1. All we're doing here is delivering instructions to the body's cells to produce more IL-1RA, receptor antagonist, when there's inflammation. It has an inducible promoter.
By the phase I results, which is 72 patients, quite durable responses relative to baseline. At one year, over 70% of the patients had a 50% or greater response, which is quite substantial. The relevance or the importance of Part A is now we have a control, an active control. We have an active control and a short-acting steroid, two different doses of PCRX-201 with the steroid. That's at 52 weeks. This isn't a short-term study. It's not statistically powered to look at efficacy, but we'll be looking at different trends. As you might imagine, a short-acting steroid will have an effect, and that effect will
Whereas what we'd expect for PCRX-201 is that, again, we'd have an effect over time relative to baseline.
We saw that in Phase I in 72 patients.
We look forward to seeing the results in our Part A.
In addition to any safety, although in phase I, we really didn't see much in terms of a safety signal because it's local.
It stays there. We know through biodistribution studies, and that's, I think, a very important contributor to safety, which has been really the downfall of many a gene and cell therapy.
Right.
In addition to that, because we're locally administered in very small amounts, the cost of goods is very attractive. We will be able to price in such a way where we can be market competitive to other innovative therapies, because as you know, most gene therapies for rare orphan disease these days are close to $1 million or more. This one won't be that way because right now, there are 15 million patients in the U.S. alone that have osteoarthritis in the knee.
That's fascinating. There's no concerns from a safety perspective. You've seen no safety signals?
We haven't seen anything untoward of concern in our phase I, we follow these patients now in phase I. I think we're up to five years, we're going to publish here in the not-too-distant future. We're excited about this because you might think about the possibility here. This is a high capacity adenovirus platform, whereas most gene therapies are AAV, smaller capacity. This is the Mack truck, so to speak, in terms of how many genes it can hold, 30,000 base pairs. Theoretically, you could hold not one, but many genes. We're thinking through already, what are the other places in the body where its local gene therapy could be useful? For example, the eye, the ear.
The back. There are closed spaces where local gene therapy could be super useful, and also where there are known mechanisms of action where we could put one or two or three genes into the construct. One of the very first places we're testing that now is with our canine OA program. For those of you that own dogs, dog owners, you know that as they get older, they get OA of the knee and joints.
There's a product approved already for that.
It's doing about half a billion in sales. We're about to start the clinical part of our canine OA program, as you know, those development programs are much shorter-
than humans. We look forward to reporting those results. In due course, we'll have to figure out, are we the best ones to develop something like that, or should we get a partner?
Mm-hmm. Interesting. Maybe, I think you talked about Part A later this year.
What should we expect for Part B?
Yeah.
Yeah.
Good question. Part B, as I mentioned, the tricky part of cell and gene therapy is to stand up a commercially viable manufacturing process. Through the team's efforts, they've been working very hard on this, we're ready. We're going to dose Part B with commercially viable product. Part B will be exactly the same in terms of design to Part A. It'll just have 90 patients as opposed to the 49. As we move forward, what will happen is we have RMAT designation with the FDA, the equivalent in Europe as well. What that allows for, it's basically breakthrough designation for cell and gene therapy. What that allows for is regular dialogue with the FDA and other regulatory bodies.
As we see and really critically look at the Part A results, we can make a better determination with the FDA on what should phase III start to look like and get ready for that.
Great. Maybe pivoting to PCRX-2002.
You acquired PCRX-2002, I think, late last year.
Maybe just walk us through that asset.
Sure.
How are you thinking about the opportunity?
Sure. First of all, for PCRX-201, we also acquired GQ Bio, the owner of the platform. We have access not only to PCRX-201, but the entire platform, and that expertise, which is really important in cell and gene therapy. PCRX-2002, that's an interesting one. It's another good example of how we're thinking about building a pipeline. The mechanism is de-risked. We're just adding some additional value on top. What is it? It's ropivacaine instead of bupivacaine. We know ropivacaine works. Now, what we've put on top of that are two interesting polymers that when you actually put that into the surgical site, instill it, you squirt it in there, close up the site, it could provide postoperative pain relief for up to 14 days. We've seen this in healthy volunteers.
By contrast, EXPAREL, now you're either going to infiltrate, that is in a different pattern, you inject it into the surgical area, or what you do is you put it as a nerve block, which is put it right by the various nerves that are in play. This one has a ease of use benefit that as you squirt it in, close up the site, and a potential duration benefit. That is, instead of three or four days like EXPAREL, it could be many more days longer than that. We're excited about this one. Like I said, it could be a nice complement to EXPAREL, and we think the timing of this one could come right around that 2030 timeframe, which is important.
Yeah, that's another good example of it's a de-risked sort of known pathway and molecule, but we've kind of put a different sort of innovation around it.
That's fascinating. Maybe before we shift to capital allocation, what would be kind of an ideal label for 201 or PCRX-2002?
Yeah.
Would one year dosing, would that be something that's what you would target in terms of duration? How are you thinking about the potential for re-dosing?
Sure. That's a good question. I just want to really emphasize this point. For 201, the way we're studying it now is one injection, that's it.
Oh, that's it. Okay.
One injection for this study. One injection, we're following the durability of that over 52 weeks, that will be part A.
Doesn't mean it doesn't work longer, it's just saying we're reporting out in that timeframe. Okay? As I mentioned earlier, in our phase I studies, we saw the durability go much further out than that, right? It was uncontrolled.
That being said, based on our market research, what we know from physicians, from payers, is that the current standard of care provides durability of 3-6 months max. What we heard loud and clear is if you can get patients out to a year, that's considered transformational. More than that, I don't know what beyond transformational is.
Right.
Even more transformational. I don't know what the term is, right? Anyway, that's how the market is viewing it. Right. For us, as we think about that, we say, gosh, at a minimum, if we could think about getting patients out to a year with durable response, that would be important. Certainly now we have plans to think about re-dosing at the right time. Most people, if they have one knee with osteoarthritis, they have another knee with osteoarthritis, and they have other joints with osteoarthritis. What's interesting is we look at neutralizing antibodies baseline and after, and what we see is that we don't see a big spike in neutralizing antibodies because we're putting such a small amount into the joint.
It's an early indicator that perhaps re-dosing not only in the index knee, but the contralateral knee, is a possibility.
Mm-hmm. Yeah, interesting. Maybe shifting gears to capital allocation.
I think you guys have a share buyback program in place. Maybe just speak to that. How does that fit in with your kind of broader capital allocation strategy?
How does it relate to your maybe five by 30?
Yeah
aspirations?
Yeah. Before we rolled out five by 30, we took a lot of time with the board and external advisors about capital allocation. Broadly, as we think about it, is how much do we invest in the current business? One sort of proxy for that is SG&A, and for our we're right on at 45%. Okay? is at 17%, we're at 14%. As our studies that will come to conclusion at the end of this year roll off, we'll start to add some additional studies, and likely we'll be around that 17%. Okay? Separately, we look at, gosh, how do we think about our value relative to how the market is thinking about it? There came a time and we thought, gosh, the value of our company, as we see it, is higher than what the market is seeing it.
We rolled out this $300 million buyback program, we've completed $200 million of it, took out 9 million shares. We're down to 39 million shares now, which is a fairly small base. We've got $100 million left to go. We'll constantly look at is this the right time to go ahead and do the balance of that, or should we put our dollars into something else, right? We can talk about what that something else might look like. Certainly since we have the infrastructure in place now, adding an accretive asset to the bag, selling bag, would be important. If something fit nicely into the EXPAREL bag or ZILRETTA bag or iovera bag, we could bring a lot of synergy to the table, and it would be accretive out of the gate.
That's one way to think about it. The other way is, yes, continue on the buybacks. Another one is, just like we've done for PCRX-201 and PCRX-2002, be very careful about de-risked mechanisms of action.
sort of innovative ways to develop it. So it could be likely a combination of those things, but I just want to give you a sense of how carefully we've thought about these things and benchmarked ourselves.
Okay. Think kind of for BD more late stage or in market within your current commercial footprint.
Yeah.
Then in terms of maybe size or capacity, what do you think-
Yeah
is kind of a range?
I don't think you're going to see us do these kinds of bet the farm kind of things. I think these will be careful assessments and careful, I would say, investments. Take a look at what we did with GQ Bio. We bought that company. It was a very efficient use of our more of the milestones that are to come, not only the expertise, but also the preclinical programs and the platform. We got a pretty good deal on that. Same thing with the AmacaThera asset. We didn't pay a whole lot upfront, and so we're going to be very careful about this.
Great. Well, with that, Frank, thank you for joining us, and we'll be excited to watch the updates over the coming months.
Yeah. Thanks for having me here, Matt. Look, I think this is a really great story of then and now. The company has come a long way with the new board, new CEO, 5 by 30, and we're now starting to see really the benefits of this new strategy. Hopefully you see it when you take a look at the Q1 results that we've delivered and also some of the data catalysts to come. I'm excited about the balance of the year and what 2027 will hold for us as well.
Awesome. Thank you.
Okay. Thank you.