Pacira BioSciences, Inc. (NASDAQ:PCRX) Q4 2023 Earnings Call Transcript
Pacira BioSciences, Inc. (NASDAQ:PCRX) Q4 2023 Earnings Call Transcript February 29, 2024
Pacira BioSciences, Inc. reports earnings inline with expectations. Reported EPS is $0.89 EPS, expectations were $0.89. Pacira BioSciences, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day, and thank you for standing by. Welcome to the Q4 2023 Pacira BioSciences Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your first speaker today, Susan Mesco, Head of Investor Relations. Please go ahead.
Susan Mesco: Thank you, and good morning, everyone. Welcome to today's conference call to discuss our fourth quarter and full year 2023 financial results. Joining me are Frank Lee, Chief Executive Officer; Tony Malloy, Chief Legal Counsel; and Charlie 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.
Before turning the call over to Frank, I'd like to mention that going forward in 2024, we will be shifting the timing of our quarterly calls to post market, with an expected start time of 4:30 p.m. Eastern Time. With that, it is my pleasure to welcome Frank Lee.
Frank Lee: Well, thank you, Susan, and good morning, everyone. I'm excited to speak to you today as the new CEO of Pacira BioSciences. I was drawn to this organization because Pacira is the leader in non-opioid pain management. Pacira has market-leading products, a clear sense of purpose, a talented team and an unwavering commitment to transforming lives of patients by expanding access to opioid-sparing pain management. I was especially inspired by the team's steadfast commitment to working with leading medical societies and patient organizations to get NOPAIN over the finish line. And this legislation is a real testament to Pacira's leadership. It's been a busy and productive time since I joined the company last month, I've met with colleagues here in New Jersey and at our Science Center Campus in San Diego.
I've also received valuable feedback on our culture and met with key stakeholders. Now that I've spent several weeks listening and learning, there's no doubt. This team is highly committed to our corporate mission and the impact that our three trusted products are making in patients' lives. Consequently, I'm even more enthusiastic for Pacira and the patients we serve. This is a special company that I'm both humbled and honored to lead to this next phase of growth. While much has been accomplished, it's still early days in my tenure here at Pacira. I'm excited to continue to work with the team and our stakeholders to define a thoughtful path for long-term growth. And I look forward to sharing more details as the year progresses. That said, we're taking several steps to ensure we are fit for growth going forward and best positioned for sustainable success.
We've initiated an organizational restructuring that includes the following key changes: Reshaping our executive team and launching searches for a new position, Chief Commercial Officer and Chief Business Officer; reallocating our efforts and resources from ex U.S. markets and certain early-stage development programs to the U.S. market; reprioritizing investments to focus on NOPAIN readiness; and enhancing key commercial capabilities such as strategic and national accounts, marketing, market access, and reimbursement; and finally, doing a thorough strategic review of our pipeline and therapeutic area strategy. Going forward, we'll foster a culture we call One Pacira, grounded on key values and behaviors that enabled the whole organization to work as a united team.
For the remainder of today's call, I'd like to focus on EXPAREL, the product that will drive substantial growth in 2025 and beyond. EXPAREL recently passed the 14 million patient mark, and we're confident in its potential to grow to blockbuster status. This year, we're advancing three key drivers: first, launching EXPAREL in two new lower extremity nerve block indications; second, preparing for the launch of NOPAIN in 2025; and third, expanding access to 340B pricing and new GPO partnerships. I'll start with lower extremity nerve blocks. Our sales force is ready and the launch is officially underway. Importantly, we're going to market with an overwhelmingly positive body of data. From two head-to-head Phase III studies demonstrating 4 days of superiority over bupi.
The first study evaluated EXPAREL as a sciatic nerve block in popliteal posterior for bunionectomy. EXPAREL achieved a 44% reduction in pain scores while reducing opioid consumption by 61% versus bupi. In addition, patients who received EXPAREL were 5x more likely to be opioid-free. The second study evaluated EXPAREL as an adductor canal block for total knee orchioplasty. In this study, EXPAREL achieved statistically significant reductions in pain scores, and a 23% reduction in opioid consumption versus bupi. These results are highly significant with p-values of less than 0.01. With respect to safety, EXPAREL was well tolerated with the safety profile consistent with bupi. These positive outcomes were achieved with 10 ml dose, making a single-dose EXPAREL nerve block a very attractive value proposition to the anesthesia and surgical community for knee and foot and ankle surgeries across all sites of care.
The sciatic nerve block study in the popliteal posterior recently published online in the Journal of Clinical Anesthesia and we're working to secure publication of the TKA study. We believe this is going to be a $100 million opportunity over time. We have strong presence in where anesthesiologists are already doing adductor canal blocks with bupi. So we expect faster uptake in this segment, which is over one million procedures. Conversely, we have a very limited presence in other lower extremity procedures like ACL repair or foot and ankle procedures. So we expect uptake in these segments to be slower. Switching gears to NOPAIN, we believe will be an important event for both patients and Pacira. As you know, products used to manage postsurgical pain are largely reimbursed as part of the bundled procedure payment.
Bundled reimbursement incentivizes the use of cheaper generic approaches to managing postsurgical pain that often incorporate opioids. Financial pressures facing health care systems further incentivize cost-driven approaches. NOPAIN mandates separate CMS reimbursement of non-opioid therapies for postsurgical pain relief across all outpatient settings. It will eliminate the cost period by fully reimbursing at average selling price, or ASP, plus 6% beginning January 2025. There are roughly 6 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. As a first step, we'll be allocating resources to drive education and to help health care systems implement EXPAREL as the best practice standard of care for CMS patients.
The value proposition is clear as a recent review of 5-year real-world Medicare claims data for hospital outpatient procedures demonstrated a significant correlation between EXPAREL utilization and improved patient outcomes, including opioid prescription pills, emergency room visits and hospital admissions. These data were published in the Journal of Medical Economics. Over time, as we underscore the value of EXPAREL is providing to CMS patients, we're hopeful commercial payers will be compelled to follow suit and provide separate coverage to another 12 million outpatient procedures. We've been paving the way for NOPAIN through our investments in 340B pricing and new GPO partnerships, such as our recently announced deal with Premier, whose significant network of hospitals and health care systems covers nearly 20% of EXPAREL relevant market procedures.
These programs assist health care systems in affording the opportunity to improve patient care through best practice pain management. Our customers will have a favorable acquisition cost and once NOPAIN tax effect next year, they'll be reimbursed at ASP plus 6. In 2024, we're preparing for NOPAIN as we would a new product launch because it's that important. To ensure readiness, we'll be enhancing our commercial organization with new talent and expertise to ensure operational excellence within critical functions such as marketing, strategic accounts, market access and reimbursement. We'll also be investing in programs to drive awareness and education and action across key decision-makers and sites. We'll track and update you on our progress during the course of the year.
We believe NOPAIN will result in accelerated and sustainable growth beginning in 2025 that will drive EXPAREL to blockbuster status. As we do this, we'll hold the bar high with respect to resource allocation and strong execution. Before turning the call over to Tony, I'd like to highlight the FDA's recent approval of our sNDA for our 200-liter manufacturing suite in San Diego. This enhanced 200-liter manufacturing process is just another example of how the Pacira team continues to innovate and augment our broad IP estate with new EXPAREL patents. Our strong and growing patent estate leaves us confident that our EXPAREL franchise is well protected and positioned to drive significant and durable long-term sales growth. as a potential generic would have to successfully litigate and overcome all of our EXPAREL patents.
With that, I'll turn the call over to Tony Malloy, our Chief Legal Counsel, for his review of our recent Paragraph IV litigation and next steps.
Anthony Malloy: Thanks, Frank, and good morning to all on the call. I'd like to take a few minutes to update you on the status of our patent infringement lawsuit against eVenus. As background, Pacira initiated this litigation in the U.S. District Court of New Jersey, after receiving notice from eVenus that they submitted an abbreviated new drug application, or ANDA, to the FDA with the Paragraph IV certification seeking authorization for a generic version of EXPAREL. This first lawsuit alleges patent infringement of EXPAREL U.S. patent number 11033495 or the 495 patent. The 495 patent claims composition of EXPAREL made using an enhanced manufacturing process which was a result of several years of innovation by the Pacira scientific team, with an investment exceeding $100 million.
The 5-day bench trial concluded on February 14, and we are currently engaged in post-trial briefings, with closing arguments set for May 2. We expect the judge to rule on the 495 case before the expiration of the 30-month stay on July 1. We are confident in our position, our 495 patent and the related 2041 expiry, and we stand ready to engage the core with it in the event of any decision. A second patent infringement suit is also underway in the U.S. District Court of New Jersey, alleging infringement of U.S. patent number 11426348, or the 348 patent, which claims composition of matter for EXPAREL. The trial date has not been set for the 348 patent litigation. The 495 and 348 patents are just two deliverables from our comprehensive and growing patent portfolio.
Our efforts continue to bear fruit by listing additional patents in the FDA Orange Book. We also have additional notices of allowance from the U.S. Patent and Trademark Office and further applications are being prosecuted. These include chemical composition, product by process, method of use and process patents. Many of these patents will qualify for listing in the FDA Orange book. It is important to note that the FDA has established extremely rigorous hurdles for proving bioequivalence to a multivesicular liposomal bupivacaine, and this would have to be accomplished without infringing on the broad Pacira patent state. We know consistently manufacturing EXPAREL would be extremely challenging for a potential generic. Since Pacira is the only company to manufacture multivesicular liposomal products at commercial scale, with more than 20 years of expertise in doing so.
For eVenus to be successful in the 495 case, the 348 case as well as any future patent litigation, they will have to overcome every one of our patents. This is in addition to establishing bioequivalence and securing approval from the FDA, which they've not done yet. Bottom line, we firmly believe we have built an extensive portfolio of intellectual property around our EXPAREL franchise and it is well protected from multiple directions. Generic attempts are contemplated for successful products like EXPAREL. We continue to have a thriving EXPAREL franchise that is supported by a strong and growing patent estate that we will continue to vigorously defend. With that, I will turn the call over to Charlie for his financial report.
Charles Reinhart: Thank you, Tony, and good morning, everyone. 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 morning. I'll start with an update on sales and margin trends. Starting with EXPAREL. Fourth quarter EXPAREL sales of $143.9 million were 4% higher than 2022. Fourth quarter ZILRETTA sales increased to $28.7 million versus $28 million for 2022. And iovera sales improved to $6 million compared to $4.6 million reported in 2022. Turning to gross margins. On a consolidated basis, our fourth quarter non-GAAP gross margin percentage was 74%. Fourth quarter EXPAREL margins were in the high 70% range as expected, but were partially offset by lower margins for ZILRETTA and iovera.
For non-GAAP R&D expense, the fourth quarter increased to $16.6 million, from the $15.7 million reported in 2022. This year-over-year increase primarily relates to start-up activities for the ZILRETTA Phase III study in shoulder OA. Non-GAAP SG&A expense came in at $57.4 million for the fourth quarter, which is up from $54.7 million in 2022. This increase is largely due to legal fees associated with the Paragraph IV and other litigation. Fourth quarter interest expense improved to $3.4 million versus the $11 million reported last year. This was driven by the interest expense savings associated with the retirement of our Term Loan B on March 31, using a new Term Loan A and cash on hand. And lastly, we delivered another quarter of significantly positive adjusted EBITDA of $65.4 million.
Turning to our outlook for 2024. Today, we are guiding to full year total revenues of $680 million to $705 million. This range assumes mid-single-digit volume growth for EXPAREL and ZILRETTA, and a low-teens growth rate for iovera. To remind you, EXPAREL volume growth will be largely offset by a lower net selling price due to our investment in expanding market access through our new GPO partnerships, which are expected to have a mid-single-digit impact on our selling price while growing volumes over time. As Frank mentioned, we believe these GPO partnerships are a core investment to ensure NOPAIN readiness in January 2025. For expenses, 2024 guidance is as follows: non-GAAP consolidated gross margins of 74% to 76%; non-GAAP research and development expense of $70 million to $80 million; non-GAAP SG&A expense of $245 million to $265 million; and finally, noncash compensation expense of $50 million to $55 million.
As Frank highlighted, underpinning our sharp focus on growth will be a commitment to solid execution and delivering on the expectations that we set by providing guidance we can confidently stand behind. With respect to our capital allocation strategy for 2024, in the near term, we are investing to ensure commercial readiness for the rollout of NOPAIN pain in 2025 and to support long-term growth. We are also planning for the retirement of debt, including the face value of our convertible notes in August 2025 and the subsequent repayment of our Term Loan A. We will continue to regularly assess our capital allocation strategy. As detailed plans for NOPAIN are implemented this year, we look forward to sharing more specifics. With that, I'll turn the call back over to Frank.
Frank Lee: Thank you, Charlie. As you may have seen today, we reported that Charlie will be stepping down as our Chief Financial Officer at the end of the year. I'd like to personally recognize him for his 8 years of financial leadership at Pacira. We're on solid financial and operational footing, and we wish Charlie all the best as he prepares for his well-deserved next chapter. In closing, let me summarize. We are sharply focused on driving long-term growth. We have three great products, and there's no question about that. We currently have the lower extremity launch, which will be a solid tailwind for EXPAREL. We have a significant catalyst ahead in NOPAIN, and in 2024, will be a key setup year to ensure we are fit for driving growth in 2025 and beyond.
To that end, we're reshaping our executive team, reallocating ex U.S. and early-stage development resources to the U.S. market and reprioritizing investments to focus on NOPAIN readiness and enhancing key commercial capabilities. Lastly, we're confident in our strong and growing intellectual property estate, and we'll continue to vigorously defend our EXPAREL franchise. As we progress through the course of this year, I look forward to sharing updates on the lower extremity nerve block launch, NOPAIN readiness, our progress in reshaping our culture and capabilities and crystallizing our long-term vision and growth strategies. I want to take a moment to applaud the dedicated and talented Pacira team, who have built a successful and sustainable business, that we're now scaling to drive EXPAREL to blockbuster status.
I also want to thank you, our shareholders and partners in this journey, for the warm welcome and encouragement I received since taking the helm at Pacira. Together, we're changing the course of pain management and hopefully saving patients from the deadly effects of opioid addiction. With that, operator, we're ready to open the call for questions.
Operator: [Operator Instructions] Our first question comes from the line of David Amsellem from Piper Sandler.
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