Pacira BioSciences, Inc. (NASDAQ:PCRX) Q1 2024 Earnings Call Transcript

Pacira BioSciences, Inc. (NASDAQ:PCRX) Q1 2024 Earnings Call Transcript May 7, 2024

Pacira BioSciences, Inc. misses on earnings expectations. Reported EPS is $0.62 EPS, expectations were $0.64. PCRX isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Thank you for standing by. My name is Hermione and I will be your conference operator today. At this time, I would like to welcome everyone to Q1 2024 Pacira BioScience Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker remarks, there will be a question-and-answer session. po [Operator instructions] I would now like to turn the call over to Susan Mesco, Head of Investor Relations. Please go ahead.

Susan Mesco: Thank you and good afternoon, everyone. Welcome to today’s conference call to discuss our first quarter 2024 financial results. Joining me are Frank Lee, Chief Executive Officer, and Charles Reinhart, Chief Financial Officer. Jonathan Slonin, Chief Medical Officer is also here for today’s question-and-answer session. Before we begin, let me remind you that this call will include forward-looking statements based on current expectations. Such statements represent our judgment as of today and may involve risks and uncertainties. For information concerning risk factors that could affect the company, please refer to our filings with the SEC, which are available from the SEC or the Pacira website. With that, I will now turn the call over to Frank Lee.

Frank Lee: Thank you, Susan, and good afternoon, everyone. It’s been an exciting and productive time since I joined the company earlier this year, and I’m pleased to say sales are off to a solid start and on track, for all three of our trusted opioid-sparing products, which continue to make an important impact on patient’s lives. This year, our priority is EXPAREL, which is what I’ll focus on today. I’ll also touch briefly on PCRX-201. Let’s start with EXPAREL. Our goals are centered on preparing the organization and marketplace to fully realize its long term potential. Let me walk you through the progress we’ve made in advancing three key drivers for 2024. First, advancing the launch of EXPAREL and two, new lower extremity nerve block indications; second, progressing our awareness and educational activities around separate Medicare reimbursement at average selling price for ASP, plus 6% in outpatient settings beginning in 2025 with the implementation of NOPAIN and third, expanding patient access to EXPAREL through a 340B pricing and new GPO partnerships such as Premier.

I’ll start with lower extremity nerve block, where we’re seeing positive market receptivity across all sites of care, delivering four days of opioid-sparing pain control with a single 10 ml EXPAREL dose is an attractive value proposition to the anesthesia and surgical community; for knee, foot and ankle surgeries. Physicians are also reporting consistent results, with some patients not taking any opioids, following very painful lower extremity procedures. To remind you, we launched with a strong presence in the TKA segment. We’re also working to build relationships and advanced product uptake through education and training and other lower extremity procedures like ACL repair, foot and ankle procedures. We would expect a slower uptake in this segment of the market.

Turning now to the opportunity ahead with the upcoming changes in EXPAREL reimbursement for outpatient procedures. Separate CMS reimbursement of EXPAREL across all outpatient settings marks an important milestone. It will eliminate the cost barrier by fully reimbursing EXPAREL at ASP, plus 6%, beginning in January of 2025. Given the market’s steady migration away from hospital inpatient care, we see ample room for expanding EXPAREL utilization in outpatient settings. We’ve allocated resources to drive education and help healthcare systems implement EXPAREL as best practice standard of care for CMS patients. There are roughly six million annual CMS procedures in the outpatient settings, with a split of roughly 3.5 million procedures in the hospital outpatient settings and 2.5 million procedures performed at ambulatory surgical centers.

To maximize this important opportunity, we’re enhancing our organization with new talent and capabilities, to ensure operational excellence within critical functions such as marketing, strategic accounts, medical and market access. In parallel, we’re advancing initiatives to drive awareness, education, action across key decision makers. We’re also paving the way for NOPAIN through our participation in 340B pricing and new GPO partnerships. Earlier this year, we announced a partnership with Premier, whose significant network of hospitals and healthcare systems covers nearly 20% of EXPAREL-relevant market procedures. Through these preferential pricing programs, we’re helping healthcare systems afford the opportunity to be at the forefront of opioid sparing pain management.

While it’s still early days, we’re pleased with the initial data we’re seeing from our partnership with Premier. In the first two months of post launch, EXPAREL volumes at Premier accounts are up, with only a modest impact on net sales dollars. In short, this partnership is starting to do what we expect it to do. Importantly, we have two additional GPO partnerships in process. As for ZILRETTA and iovera, I’m pleased to say both products are performing according to plan, with solid sales growth for the quarter. With respect to margins, while EXPAREL landed in our guided range, ZILRETTA and iovera margins weighed on consolidated margins for the quarter. Charlie will share more details on margins shortly, but I want to emphasize that our primary focus is on driving top line growth.

As we grow, the top lines, margins will in turn benefit. Switching gears to our research and development pipeline, I’d like to share a few quick updates on PCRX-201, This novel intra-articular helper dependent adenovirus, gene therapy product candidate codes for Interleukin 1 receptor antagonist, or IL-1RA, for the treatment of osteoarthritis (OA) of the knee. Here, we believe PCRX-201 has the potential to become a leading disease modifying agent by turning the patient’s own cells into therapeutic production sites of IL-1RA. As background, IL-1 is a known inflammatory cytokine with inhibition tied to the reduction in catabolic processes in the joint that contribute to OA of the knee and progression. Last month, we presented encouraging preliminary results from a 72 patient Phase 1 study of PCRX-201 at the Osteoarthritis Research Society International or ORSI 2024 World Congress in Vienna.

The data will also be featured at an encore podium presentation at the Annual Meeting of the American Society of Cell and Gene Therapy this week in Baltimore. These data showed that a single intra articular injection of PCRX-201 demonstrate a sustained clinical effect, as assessed by patient reported outcomes at all dose levels for at least one year post injection. Importantly, PCRX-201 was shown to be well tolerated with a favourable safety profile. We now have data for two years, and we are preparing to submit those data for presentation at a medical meeting in the fall. Of the 14 million Americans suffering from symptomatic OA of the knee, two million are under the age of 45. The duration of effect for currently available treatments is limited to three to six months.

Based on our market research and feedback from our scientific advisory board, improving pain and function while potentially modifying the disease for a year or more would be considered transformative by both physicians and patients. Furthermore, a year or more of durability would be clinically and economically meaningful for patients and the healthcare system. These promising preliminary findings earned PCRX-201, the FDA’s first ever Regenerative Medicine Advanced Therapy, or RMAT designation for gene therapy product in osteoarthritis. Lastly, unlike other gene therapies, we believe PCRX-201 will be able to be manufactured at large scale for a favourable cost of goods sold. Before I turn the call over to Charlie for a review of the financials, I’d like to highlight today’s announcement of our plans to implement the $150 million stock repurchase plan.

This stock repurchase plan underscores our confidence that we have in our growth outlook and the belief that Pacira shares offer an attractive investment opportunity given the significant value ahead. With that, I’ll turn the call over to Charlie for his financial report.

Charles Reinhart: Thank you, Frank and good afternoon to all on the call. To remind you, I will be discussing non-GAAP financial measures this morning. A description of these metrics, along with our reconciliation to GAAP, can be found in the news release we issued this afternoon. I’ll start with an update on sales and margin trends starting with EXPAREL. First quarter EXPAREL sales increased to $132.4 million versus $130.4 million in 2023, driven by volume growth of 3%, which was partially offset by contracted discounts with the rollout of our premier partnership in January, as well as a modest shift in vial mix. First quarter ZILRETTA sales increased to $25.8 million versus $24.3 million in 2023, and iovera sales improved to $5 million compared to $4 million in the first quarter of 2023.

Turning to margins on a consolidated basis, our first quarter non-GAAP gross margin percent was 72%, while first quarter EXPAREL margins landed within our full year guided range of 74% to 76%, ZILRETTA and iovera margins were below our guided range and negatively impacted consolidated gross margins for the quarter. For non-GAAP R&D expense, the first quarter increased to $16.4 million from $15.3 million reported last year. This year-over-year increase primarily relates to the start-up activities for the ZILRETTA Phase 3 study in shoulder OA. Of note, the first quarter R&D expense includes $7.4 million of product development and manufacturing capacity expansion cost, which is down 4% from the prior year as we approach the completion of our pre-commercial scale up activities for the recently approved 200 liter EXPAREL manufacturing suite in San Diego.

Non-GAAP S&GA expense came in at $63.8 million for the first quarter, which is up from $62.5 million last year. This increase is largely due to professional and legal fees associated with the Paragraph 4 and other litigation, and to a lesser extent, costs associated with our transition to a new CEO. First quarter interest expense improved to $3.3 million versus $9.6 million reported last year. This was driven by the interest expense savings associated with retirement of our Term Loan B on March 31 of 2020, using a new Term Loan A and cash on hand. And lastly, we delivered another quarter of significantly positive adjusted EBITDA of $44.6 million. With respect to capital allocation strategy, we are focused on creating long term shareholder value.

Today we announced a $150 million stock repurchase plan, which gives us the flexibility to opportunistically return capital to our shareholders. We believe that our stock is undervalued and we view our share repurchase program as a productive use of capital that will generate favourable returns for our shareholders. Turning to guidance, today we reiterate our full year guidance for 2024 as follows; total revenue of $680 million to $705 million, non-GAAP gross margin of 74% to 76%, non-GAAP R&D expense of $70 million to $80 million non-GAAP SG&A expense of $245 million to $265 million and stock-based compensation of $50 million to $55 million. With that, I’ll turn the call back to Frank.

Frank Lee: Thank you, Charlie. In closing, I’m very pleased with the progress we’ve made thus far in 2024, leveraging growth opportunities for EXPAREL, launching new indications, preparing for the significant reimbursement opportunity that lies ahead next year and also growing ZILRETTA and iovera. The progress we’re making is setting the stage for us to further entrench our leadership position in providing non-opioid pain management solutions. We’re sharply focused on growth as we continue to execute our growth strategy will create value for shareholders, healthcare systems, and most importantly, transform the lives of the patients we serve. With that operator, we’re ready to open the call for questions.

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Q&A Session

Operator: Thank you. We will now begin the question-and-answer session. [Operator instructions] And your first question comes from the line of Gregory Renza with RBC Capital Markets. Please go ahead.

Gregory Renza: Thank you. Good afternoon Frank and Pacira team. Congrats on the progress. Thanks for taking my question. Frank, I appreciate all the updates and the color on EXPAREL for the quarter, especially on premier and the GPO contract. I was wondering if you and the team could just comment on how you view the cadence of the contracting that you alluded to with a couple more potentially coming online, how should we be thinking about that and its impact and the influence on EXPAREL performance over 2024?

Frank Lee: Yeah. Thanks, Greg. Thanks for the question. We’re excited about what we’re seeing. It’s still early days now, right, because we signed this thing in January. Its early days, but we’re excited about what we’re seeing for my comments, and we’re working on a couple more, as you mentioned. Let me turn it over to Charlie to give a little bit more color on that.

Charles Reinhart: Hey, Greg. So the expectation from a rollout perspective is that we would likely have a second contract kind of later in the second quarter and maybe another one in the third quarter. So the contracts are rolling in throughout the year and as Frank said, the first quarter of the activity probably isn’t at its peak. So it takes a little time for them to get warmed up. But we anticipate, by the end of this year that we’ll have three active GPO relationships.

Frank Lee: And let me just add some additional color there. In addition to the contracts, what this enables to do is to partner with the GPOs to better educate their membership on what’s coming with respect to outpatient reimbursement at SP plus six starting in January, 2025.

Gregory Renza: Got it. That makes sense. And maybe keeping with a similar theme for my question, I know it’s too early to tell when it comes to 2025, as you just mentioned, but when it comes to that, call it a bolus of patients with NOPAIN. At what point would you have some comfort in talking about what that trajectory could look like? Of course, with the six million patients for CMS and then that additional as a double when it comes to the commercial opportunity, at what point should we start thinking about your comfort level as you prepare for kind of that trajectory of those patients and capturing that opportunity from 2025 and beyond? Thanks again and congrats, Frank.

Frank Lee: Yeah, that’s a good question, Greg. We’re doing a lot of work now, so as you know from prior discussions, we’ve reallocated our resources toward NOPAIN and so a lot of folks are working on getting not only ourselves prepared, but the market prepared. We’re going to have a better view as we get closer to the end of the year. And I know that there’s quite a bit of interest in terms of thinking about how we model the uptake of NOPAIN. And my sense is that the work that we’re doing now with a number of partners and having discussions in various settings along with some qualitative and quantitative research that we’re doing in partnership with various parties, we’re going to have much better insight into the uptake of NOPAIN come towards the end of the year, and we’ll be able to provide some better clarity in terms of what segments we think are going to uptake earlier on versus later.

And of course, as we mentioned, it’ll take some time for commercial payers to follow suit and so we’re focused on that as well. Broadly speaking, as we’ve mentioned before, Susan Mesco, our Head of IR, will be hosting some information settings in the fall. That timing will release in due course, which will provide better clarity on some initial feedback that we’re getting from the marketplace. I think, Greg, if there are no other questions, we can move to the next caller.

Operator: Your next question comes from the line of David Amsellem with Piper Sandler. Please go ahead.

David Amsellem: I have a couple questions. First, I know you said, Frank, that it’s going to take some time for commercial payers to follow suit as it relates to NOPAIN. I guess my question here is, can you talk to your dialogue with commercial plans and ultimately your confidence that these commercial plans will indeed follow suit? And then secondly, when you talk about that lag time, if you will, with commercial plans, is that more of a 2026 event? Just help us understand how long it might take for them to follow the lead of CMS. And then the last question is just on the cost structure you talked about 201 and, of course, allocating resources to NOPAIN. I’m wondering where ZILRETTA and iovera fit in terms of the long-term strategy of the company going forward. Thanks.

Frank Lee: David. Thanks for the questions. First, let me just provide a little bit of context on the opportunity known as NOPAIN. But I think we’re trying to really make sure we focus on this one as outpatient reimbursement at ASP Plus 6 for CMS patients. Initially, as you know, we’ve quantified that as approximately four million patients in the HOPD setting and about four million in the ASC setting, which is quite substantial. So we’ve got a fair amount of opportunity right in front of us that we need to make sure that we do a good job of education in the marketplace to provide those patients with access to EXPAREL. As we stand up the broader commercial organization and I think you’ve heard me say before that we are bolstering our commercial resources, commercial medical, and importantly market access.

So that’s in progress. We’ve reallocated resources from other parts of the company to bolster that area and as we start to further now make progress there and again, I think that’s going to be more towards end of the year, we’re going to have much better clarity in terms of specifically how we see NOPAIN playing out over the course of ’25, ’26 and ’27. So that’s where we are with that. With regard to ZILRETTA and iovera, as you heard earlier, we’re making good progress there. We’re making good progress and sales are very solid in terms of what we’ve been able to deliver, and that’ll continue from what we can see, but as I’ve said before, we are sharply focused on growing EXPAREL. So in terms of disproportionate resourcing towards EXPAREL, we’re doing that.

We are treating this like a product launch and so that’s how we’re approaching this situation.

Charles Reinhart: Hey David, this is Charlie. Just building on your comment of 201, please note we are investing in clinical trials for both ZILRETTA and iovera with the Shoulder OA study and the spasticity study. So there is investment going on.

Operator: Your next question comes from the line of Hardik [ph] with JPMorgan. Please go ahead.