Pacira BioSciences, Inc. (NASDAQ:PCRX) Q3 2024 Earnings Call Transcript

Pacira BioSciences, Inc. (NASDAQ:PCRX) Q3 2024 Earnings Call Transcript November 6, 2024

Pacira BioSciences, Inc. beats earnings expectations. Reported EPS is $0.79, expectations were $0.72.

Operator: Good day, and welcome to the Third Quarter 2024 Pacira Biosciences Inc. Earnings Conference Call. At this time, all participants are listen only mode. After the speaker’s presentation, there’ll be a question-and-answer session. Instructions will be given at that time. As a reminder, this call may be recorded. I would 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 third quarter 2024 financial results. Joining me are Frank Lee, Chief Executive Officer; and Shawn Cross, Chief Financial Officer; Kristen Williams, Chief Administrative Officer; Lauren Riker, Senior Vice President Finance; and Jonathan Slonin, Chief Medical Officer are also here for today’s question-and-answer session. Before we begin, let me remind you that this call will include forward looking statements subject to the safe harbor provisions of federal securities laws. Such statements represent our judgment as of today and may involve risks and uncertainties, which may cause our actual results, performance, or achievements to differ materially.

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. Lastly, as a reminder, we will be discussing non-GAAP financial measures on today’s call. A description of these metrics along with our reconciliation to GAAP can be found in the news release we issued earlier this afternoon. With that, I will now turn the call over to Frank Lee.

Frank Lee : Thank you, Susan, and good afternoon, everyone. As you know, our top priority in 2024 is to ensure that as an organization, we’re well-positioned to deliver accelerated growth in 2025 and beyond. Since our last call, we’ve continued to make important progress in three key areas. First, we’re now aligned and committed to a refreshed clear mission to deliver innovative non-opioid pain fair to transform the lives of patients. It’s a straightforward, yet compelling mission that personally resonates with me and our Pacira employees. Underpinning our mission are three guiding principles that we uphold every day. Keep the patient at the center, follow the science, and treat our people well. Second, we’ve completed a comprehensive portfolio review and defined a growth-oriented long-term plan and therapeutic area strategy focused on musculoskeletal pain and adjacencies.

These are all significant and growing markets of high unmet need that are poised for innovation. Our portfolio of products and expertise in the space leaves us well-positioned to drive innovation and create value. Third, we’ve established a foundation for a modernized best practice, commercial, market access, and medical powerhouse. In parallel, we’ll continue to advance our commercial initiatives as we lay the groundwork for expanded EXPAREL utilization ahead of the implementation of NOPAIN. As you know, this important reimbursement policy will begin providing separate outpatient reimbursement at ASP plus 6% in 2025. We’ve completed another round of market research among hospital c-suite, and key stakeholders. Similar to our original findings, awareness and understanding around NOPAIN and its potential impact on patient care is growing among these hospital decision-makers and key stakeholders.

We expect it’ll take time for customers to implement this new reimbursement across their organizations. We’re also pleased to report that EXPAREL will have its own product-specific J code beginning in January of 2025. In addition to streamlining the reimbursement, billing and coding process, a J code is more likely to be recognized and covered by commercial payers. This combined with impending reimbursement from NOPAIN is particularly important to expanding EXPAREL access across different sets of care and types of payers. As you know, we’re also partnering with GPOs in broad use and paved the way for NOPAIN. Through these preferential pricing programs, healthcare systems can afford the opportunity to be at the forefront of opioid-sparing pain management.

We recently launched a new partnership with Vizient, whose significant network covers approximately 30% of EXPAREL’s relevant market procedures. We’re on track for our third and final GPO partnership to go live at the end of this year or early next year. This agreement will cover another 20% of the market. Once completed, more than 80% of EXPAREL business will be under contract. Turning to ZILRETTA and iovera, both products are performing according to plan with solid third-quarter sales. Our Phase 3 registrational study for ZILRETTA and shoulder OA is progressing with top-line results expected in 2026. If successful, the study could make ZILRETTA the first and only long-acting steroid approved for use in shoulders. Shoulder OA represents a sizable market opportunity with approximately one million interarticular injections administered each year.

As for iovera, on Friday, CMS issued their final hospital outpatient and ASC prospective payment system rule for 2025. We’re pleased to see that the rule includes a newly created product-specific code for iovera C-9809. In its final rule, CMS concluded that iovera meets the statutory requirements of NOPAIN and qualifies for separate reimbursement in both the hospital and ASC settings. Importantly, the rule adopts a consistent add-on payment of up to $255 in addition to the standard iovera procedural rates in the hospital outpatient and ASC sites of care. Our registrational study for iovera for the treatment of spasticity is also underway with top line results expected in 2026. Given the significant lack of innovation and patient unmet need in this debilitating condition, we believe iovera may offer a novel approach for patients with moderate to severe spasticity who are seeking treatment.

The iovera team is also preparing to file for approval of a new iovera smart tip later this year. This tip is specifically designed for use in chronic low back pain, which impacts millions of Americans and often leads to poor quality of life, disability and prescription opioid use. Switching gears for early stage pipeline, we continue to be encouraged by the potential of PCRX-201 or novel gene therapy for the treatment of osteoarthritis in the knee. Its innovative high-capacity adenovirus or HCAd design manufacturing process and local administration solves many of the challenges that have made gene therapy inaccessible for common diseases. Key attributes of 201 include the following. The HCAd viral vector is more efficient at delivering genes and the cells than other vectors.

This means less medications are needed to achieve the desired effect. PCRX-201 is delivering medicine where it matters. It’s injected locally into the knee joint capsule and contained there leading to a robust clinical effect and favorable safety profile. Smaller doses, local administration and scalable manufacturing result in an attractive cost-of-goods profile. PCRX-201 has already exceeded expectations in an early stage clinical trial in this large Phase 1 study of 72 patients with moderate to severe Knee OA, a single interarticular injection of PCRX-201, demonstrated pain relief and durability across all levels of disease severity as measured by the WOMAC scores. The study enrolled two three-dose cohorts, a co-administered steroid cohort, and a cohort that did not receive a steroid.

Earlier this year, we presented one-year data. PCRX-201 was well tolerated with efficacy observed across all doses, studied the greatest efficacy was observed in the steroid pretreated group with 75% of patients achieving at least 50% improvement in pain and stiffness versus baseline for all three doses, a 20% improvement is considered clinically meaningful. So these results are highly encouraging. We continue to follow these patients and look forward to reporting exciting new two-year data at the American College of Rheumatology’s annual meeting next week. While other therapies typically provide relief for three to six months, PCRX-201 has already set a new standard with a year or more of sustained pain relief from a single injection. PCRX-201 is the first gene therapy to achieve these results and the only OA gene therapy to earn the FDA’s RMAT designation, a testament to its promise and potential to revolutionize the treatment of knee OA.

As a primer to PCRX-201 presentation at ACR, we made an educational webinar available in the investor section of our website. We invite you to watch and learn more about this exciting asset. The last item I’ll quickly touch on before closing is the District Court’s recent ruling on our 495 patent litigation. While this was of course not the outcome we had hoped for, it is important to remember that this was only the first case. Our legal strategy is comprehensive includes pursuing an appellate review with respect to an injunction based on information received through ongoing court proceedings. We do not believe irreparable harm from an at-risk launch is imminent at this time. If this changes, we’re prepared to adjust to our legal strategy accordingly.

As a reminder, in order to be commercially successful, we believe eVenus will need to have overcome all of our patents. Importantly, the team continues to innovate and additional patents are forthcoming. We’re also awaiting a trial date for the second lawsuit that’s progressing in the New Jersey District Court. This case involves our 574 patent, which we believe represents a higher hurdle for defendants to clear. The 574 patent claims composition of EXPAREL, but includes the volume limitation the judge found lacking in the 495 case. We will continue to take the necessary steps to protect the interests of our business, shareholders, patients, and other stakeholders. We firmly believe we built a strong portfolio of intellectual property and that the EXPAREL franchise is well protected on multiple levels.

Before I turn the call over, I’d like to formally welcome our new Chief Financial officer, Shawn Cross. Sean’s a seasoned industry veteran with more than 25 years of global experience as a biotechnology executive board member and investment banker, and I’m confident he’ll be a great steward of our financials and provide valuable insights and strategies as we advance our plan for long-term growth and value creation. I’d like to thank Lauren Riker our Senior Vice President Finance, who served as our interim CFO. Lauren has been with Pacira for 13 years during which time she has demonstrated exceptional leadership and financial acumen. I am grateful to Lauren for ongoing dedication and willingness to accept this responsibility during this transitional period.

With that, I’ll turn the call over to Sean for a review of our financials.

Shawn Cross: Thank you, Frank, for that warm welcome and good afternoon to all on the call. I’m excited to join Pacira at this important juncture because I’m strongly aligned with the company’s important mission to deliver innovative non-opioid pain therapies. Pacira is on strong financial footing with a business that is generating significant cash flow driven by three best-in-class market-leading products. I’m excited to work alongside the talented and dedicated Pacira leadership team as we invest in our next phase of growth and beyond. Turning now to the financials. I’ll start with an update on sales and margin trends. Third quarter EXPAREL sales increased to 132 million versus 128.7 million in 2023. Volume growth and a January 2024 price increase were largely offset by a shift in vial mix and discounting associated with the launch of our premier and Vizient partnerships.

Third quarter ZILRETTA sales of 28.4 million were essentially flat versus the 28.8 million reported in 2023. For iovera sales were 5.7 million compared to 5.3 million in the third quarter of 2023. Turning to gross margins. On a consolidated basis, our third quarter non-GAAP gross margin was 78%, this was driven by strong margins for all three products. For non-GAAP R&D expense, the third quarter decreased to 17.3 million from 18.6 million reported last year. This decrease relates to declines in product development and manufacturing capacity expansion costs, as well as regulatory expenses. These declines were partially offset by clinical study startup costs. As a reminder, our pre-commercial scale-up activities are now complete in the 200-liter EXPAREL manufacturing suite in San Diego began producing commercial inventory in July.

Non-GAAP SG&A expense came in at 65.0 million for the third quarter, which is up from 58.9 million last year. This increases largely due to litigation costs, as well as the investments we are making in our commercial medical and market access organizations. All of this resulted in another quarter of significant adjusted EBITDA of 54.7 million. One last item to note on our GAAP P&L is 163.2 million non-cash non-recurring charge related to goodwill impairment. This was assessed following the New Jersey District Court’s decision on our first EXPAREL patent lawsuit. As for the balance sheet, we exited the third quarter in a position of strength with more than 450 million of cash and investments. With a business that is producing significant cash flow, we are well-equipped to advance our long-term growth strategy and drive long-term shareholder value.

Turning to guidance. Today, we are reiterating our full-year guidance for 2024 as follows, total revenue of 680 million to 705 million, non-GAAP gross margins 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. And with that, I’ll turn the call back to Frank.

Frank Lee : Thank you, Shawn. In closing, I’m proud of the significant strides that Pacira team has made this year, including important progress on the market access front. This includes new J Code for EXPAREL and separate CMS coverage for both EXPAREL and iovera under NOPAIN. I’m energized by the potential for which she has to come. All of the work completed to date positions us well to enter 2025 from a renewed place of focus on execution commitment to our mission and strategic clarity on musculoskeletal pain and adjacencies. We’re confident that investments we’re making will support and expand our leadership position in non-opioid pain management and ensure we are positioned for long-term growth and success. With that, operator, we’re ready to open the call for questions.

Q&A Session

Operator: [Operator Instructions] Our first question comes from Oren Livnat with H.C. Wainwright. Your line is open.

Oren Livnat: Thanks for taking the questions. I have a couple. Just first, I think you mentioned in the script that, we take customers a little bit of time, to, I guess, implement NOPAIN changes. I’m just curious, can you just talk about how comfortable you are with your ability to hit the ground running there with all the investments and improvements you’ve made in the last 6 months? And, I guess, I’m not expecting guidance, but can you just put a little more color around what kind of ramp implementation on your customer end you expect? And maybe how long it would take customers to follow on, on the commercial side? Thanks. And I have a follow-up.

Frank Lee: Well, thanks for the question, Oren. And as you mentioned, I’m super proud of the team and what we’ve accomplished. As you know, when we set out and provided our strategic direction in JPMorgan earlier this year, we talked about investing to grow in the business and solidifying our mission, our long term strategy and importantly, the commercial market access and medical organization and you can see that those efforts are actually paying off. If you take a look at the progress we’ve made now on, for the first time, having a J code for EXPAREL and now expanded reimbursement and inclusion, and they’ll pay for both EXPAREL and iovero and this is really a testament to the team’s efforts this year. So I’m super proud and confident about the direction we’re headed.

As it relates to NOPAIN, I do believe that it will take our customers some time, as I mentioned. So it won’t be immediate. It will take some time for the customers to incorporate this into their sometimes large and complex organizations. And we’re doing a lot now, but I would suspect that it’s more second half of the year, next year, etc, and onward, where we’ll start to see some real signs that it’s taking hold.

Oren Livnat: Okay. And I guess just speaking of NOPAIN big picture, certainly a lot of us have on our mind results of the election last night and you guys, as a company and with your consultants, obviously, have a lot of experience working in Washington, and I assume we’re instrumental in maybe getting NOPAIN done in the first place. Can you help us understand your what are your expectations longer term for implementation of that plan? Do you expect it to go beyond the 3 years? Obviously, the constituencies and the Republican Party are very much affected by opioid dependence issues also. And but on the other hand, we’ve got presumably some budgetary pressures on the other side. So I’m just curious if you guys have a take or a confidence level on the long term coverage for non-opioid therapies.

Frank Lee: Yes. It’s a good question. And what we’re really encouraged by, a couple of things. First, in the 7-plus years that it’s taken to get this NOPAIN legislation across the line with a tremendous amount of support and advocacy from patient advocacy organization like Voices for Non-Opioid Choices. In that process, what we found is that there’s strong bipartisan support for, really tackling this opioid issue that’s out there still amongst patients. And so, we don’t expect that to change and we’re gonna work very closely with advocacy as we always do and that I believe that over the coming years, based on the data that we’ll collect, I’m very, very confident that these investments that came through bipartisan support will pay off, and will be recognized.

Operator: Thank you. Our next question comes from Gregory Renza with RBC Capital Markets. Your line is open.

Unidentified Analyst : It’s Anish for Greg. Thanks for the updates this quarter and for taking our questions. Just a couple. Firstly, just to drill down a bit more on the ordering over the next year, year and half, just on the GPO contracting, how should we be thinking about the onboarding process, ordering and stocking within each organization? And then on NOPAIN and reimbursement, how can this be leveraged to keep centers ordering and using EXPAREL over the generic is ASP plus 6 enough? How are you messaging and educating on this? Thanks so much.

Frank Lee : Thanks for the question, Anish and these are early days, obviously for the GPOs, and so we’re going to work very closely with our customers to make sure that they understand the GPO contracts and we can help them pull it through at the local level in a way that helps patients and their organizations the most. So stay tuned on that. We think that this is important, as we said before, to not only providing access, but fully leveraging NOPAIN and providing access to these kinds of innovative treatments. When we think about, so the whole generic situation, and I’m going to come back to — we shouldn’t jump too far ahead, as we’ve mentioned, we believe that in order for a generic to be successful, there are multiple layers of patents that need to be overcome. And as we mentioned, we not only have the 495, the 574, but we are continuing to innovate, as I mentioned earlier. So stay tuned on that.

Operator: Thank you. Our next question comes from David Amsellem with Piper Sandler. Your line is open.

David Amsellem : Thanks. I know there’s not much you can really say beyond what you’ve already said about a generic entrant, but maybe I’ll ask about it a little bit differently, which is that to the extent that an entrant materializes, I guess the question is how do you think about the cost structure? How do you think about the potential for significant cost savings? How do you think about managing your margins in the context of a single generic entrant? So that’s one set of questions. And then I guess the next question is, as it relates to generic, I mean, is there, is it something that we should be worried about on the competitive front regarding another filer or multiple filers emerging since there is one approved, it’s one thing regarding a potential launch, but how are you thinking about the potential risk of other filers on liposomal bupivacaine emerging? Thanks.

Frank Lee: Sure, David. Just maybe a few things. First, as we articulated previously to the extent, if and when there is a single generic entrance, there are a number of analogs and I believe, Susan has a study here that she can forward you that shows that typically there’s some price erosion, 15%, 20%. In that case, as we’ve said before, we consider that competition, and we’ll compete in that space. We don’t believe, as I mentioned earlier, that an at-risk launch is M&A. So we continue to drive this business and move it forward. We are certainly paying attention to the competitive environment, but we don’t have visibility into any new ANDA filers. There’s always some potential out there, but there have been no new filings that we’ve been noticed on.

Operator: Thank you. Our next question comes from Gary Nachman with Raymond James. Your line is open.

Unidentified Analyst: Hi, guys. This is Tejas on for Gary. Congrats on the quarter. Can you guys talk just a bit more about the margin, where things went right there? You guys are kind of above your full year guidance. Was that coming from the new EXPAREL facility? And then now with the second GPO contract in place, things are starting to maybe firm up on the price going into NOPAIN. How do you see that dynamic just playing out in the last quarter and then into 2025?

Frank Lee: Yes. So that’s a good question. We’re certainly pleased about the margin improvement. But maybe I’ll turn to Lauren here for some additional comment.

A – Lauren Riker: Sure. Over time, we will improve gross margins by driving volume growth, and certainly, the 200-liter coming online is impacting those favorable margins. We are very pleased with our strong third quarter margins and it exceeded our guided range from 74% to 76%. But on a year to date, we believe we’ll still land within that guided range. If you look at it, we came in at 75% on a year-to-date basis. The first half was negatively impacted by ZILRETTA and iovera. So EXPAREL has been continuing to be strong and we think that will that trend will continue.

Unidentified Analyst: Thanks, Laura. All right. And then I just had another follow-up kind of pivoting a little bit to 201 and what comes next for that program. Just kind of with the difficulties on EXPAREL, are you going to try to advance that program any quicker? Is there anything you want to do to kind of bring that program front and center, just with everything that’s been going on?

Frank Lee: That’s a good question. I have to tell you, I’m personally excited about the program. I’ve seen a number of Phase 1 data sets in my time and this one that I get excited about. And I get excited about some of the data that we’ll share next week. And I guess, I’ll turn to our Chief Medical Officer, Jonathan, to talk a little bit about what’s ahead. But certainly, we’re very much excited about this locally administered gene therapy for common diseases like OA. So Jonathan, maybe you can talk about what’s ahead for us.

Jonathan Slonin: Thanks, Frank. As Frank articulated, we are really excited to be able to present our 104-week data at ACR and to talk about the potential to bring gene therapy to treat common diseases affecting millions of people. We’re also really excited about our clinical program, as that advances and we kick off the next study at the beginning of next year. Along those lines, our CMC process is progressing as well, ahead of schedule. So we are full steam ahead, and we’re very excited about the potential of 201.

Frank Lee: Yes. Let me add on to that. Sometime next year, we’ll provide better visibility into this next phase of the program and we think it holds a lot of potential, not only for OA osteoarthritis, but perhaps other common diseases as well.

Operator: Thank you. Our next question comes from Les Sulewski with Truist Securities. Your line is open.

Les Sulewski : Just a few from me. First, have (indiscernible) provided you with a sample of their ANDA product? I believe you mentioned that they’re — you’re working through some logistics on the process of getting that worked out with the magistrate judge. I just want to get the latest on that. Second, can you just remind us on the average out-of-pocket cost for iovera treatment, now that you’ve got reimbursement, how much does that 255 reimbursement cover of the total cost? And then, second or third, I guess on ZILRETTA, we’re still seeing kind of a script deterioration continuing from second quarter. What do you think is driving this and at what point to kind of see stability on the front? Thank you.

Frank Lee : Thanks for the question, Les. First on your question about the sample of product, no, we have not received the sample of the commercial product. And of course we keep an eye on that. As I mentioned, we don’t believe the launch is imminent, as I mentioned earlier. Second out of pocket is around 450 for iovera and of course for the physician now and ASC and hospital and outpatient departments, the value equation is quite improved, as I mentioned, another $255 on top of the current reimbursement. So we’re super pleased about that. And just to give a shout-out to the team. EXPAREL and iovera are among two of the 11 products that were approved. So many were not. So, it’s really a testament to the product and the team’s efforts.

And finally what I’ll say about ZILRETTA is that historically I think we’ve focused quite a bit on EXPAREL and iovera, but what we recognize now is that, there’s quite a bit of potential for ZILRETTA. It’s a very good product. Patients are very satisfied with this product, and we believe that ZILRETTA is promotionally responsive. So going forward you’ll start to see the, some of the changes that we’ve made and how we’re going to promote ZILRETTA in the field and the kinds of things that we’ll do on the marketing side. But we are bullish on ZILRETTA growth going forward.

Operator: There are no further questions at this time. I’d like to turn the call back over to Susan Mesco, Head of Investor Relations for closing remarks.

Susan Mesco : Thank you, Michelle. And thanks to all on the call for your questions and time today. We are excited about the opportunities that lie ahead for us. Throughout the remainder of the year, we’ll continue to ensure we are well-positioned for long-term success. The opioid epidemic continues to be a national crisis, underscoring the vital importance of our mission. Thank you and be well.

Operator: Thank you for your participation. This does conclude the program, and you may now disconnect. Good day.