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spk11: Ladies and gentlemen, thank you for standing by and welcome to the Pacera Biosciences second quarter 2022 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. To withdraw your question, simply press star one again. I would now like to turn the call over to Susan Masco, Head of Investor Relations. Please go ahead.
spk00: Thank you, Paula, and good morning, everyone. Welcome to today's conference call to discuss our second quarter 2022 financial results. Joining me on today's call are Dave Stack, Chairman and Chief Executive Officer, and Charlie Reinhart, Chief Financial Officer. Additional members of our executive team will join 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 the company's filings with the SEC, which are available from the SEC RR website. With that, I will now turn the call over to Dave Stack.
spk06: Thank you, Susan. Good morning, everyone, and thank you for joining us. We'll begin today's discussion with brief prepared remarks to cover recent business highlights before turning to your questions. I continue to be proud of our team and its performance. We posted record revenue for the second quarter and continue to drive innovation and non-opioid pain management with notable progress across our portfolio throughout the first half of the year. Second quarter Expirel sales were $137 million, making it the second highest quarter ever for the product. Zaretta was also a key contributor for the quarter, with sales exceeding $27 million, underscoring the rationale for our flexion acquisition last year and the success of our integration. Despite ongoing headwinds, including labor shortages, COVID intrusions, reduced hospital services, decreased hours at ambulatory surgery centers, and the impact of inflation on certain elective procedures, Expirel continues to outpace the elective surgery market recovery with expanding utilization across all target market and sites of care. I invite you to review our most recent IQVIA data in the investor relations section of our website. Strong sales combined with operating discipline allowed us to deliver significantly positive adjusted EBITDA of $44.9 million, marking our 21st consecutive quarter of positive adjusted EBITDA. We are proud of this record and our ability to manage our business across a variety of unpredictable market conditions. I can unequivocally say that Becerra has consistently delivered. In addition to our continued revenue growth, we continue to invest in key initiatives to further improve our gross margins, including our 200-liter XPREL suite in San Diego, which is now fully installed. We are currently commissioning the equipment and expect to submit our application for FDA approval of this new facility in 2023. This expansion provides significant scale that will allow us to further support XPREL top-line growth and improved margins. a new Zaretta fill line that aims to improve quality and yield, and the successful transition of our Iovera activities from Fremont to our San Diego facility and a contract manufacturer. Turning now to an overview of our XPREL franchise. Regional analgesia remains our number one top-line growth driver as long-acting XPREL-based nerve and field blocks are enabling accelerated recovery times and same-day surgeries which continue to drive paradigm changes in patient care. Our anesthesia and surgeon customers see the clear advantages of XPREL-based blocks as they continue to replace cumbersome antiquated pumps and catheters. Improved patient satisfaction and reduced economics of care utilizing the outpatient environment allow for continued improvements in XPREL reimbursement. CMS recently issued proposed outpatient prospective payment system rule for 2023 with XPREL continuing to qualify for separate reimbursement for ambulatory surgery centers under reimbursement code C9290. The agency is also seeking comments and data on whether to expand the current ASC policy to hospital outpatient settings. In parallel to our CMS initiatives, we are also following legislative action, such as the No Pain Act, which would ensure equal access to all non-opioid opportunities in outpatient environments for Medicare beneficiaries. Our state-of-the-art PIT Training and Innovation Center in Tampa continues to facilitate real-time best practice knowledge transfer and accelerate surgical migration to outpatient sites of care. In 2022 alone, we have received 142 inbound requests from institutions requesting training for their anesthesia and surgery teams on select blocks, with erector spinae, transverse abdominis plane, and pectoralis blocks the most highly requested. Our training programs at the Pitt, as well as our in-person medical society meetings, are enabling us to directly engage with clinicians who remain eager for education and training around regional pain management approaches for Expirel. This is also a strong and growing interest in drug-free nerve blocks with Iovera. These educational programs for Expirel and Iovera also provide increased visibility to expand our Xperia customer base. We are making real progress on the build out of our second innovation and training facility in Houston, which remains on track to open later this year. We expect Houston will have an equally positive impact on expanding Xperia and Iovera expertise among clinicians, especially for field blocks and nerve block procedures. Importantly, we continue to advance our robust patent strategy around Xperia to fortify our intellectual property with new patents that extend protection to January 22, 2041. We now have six patents listed in the FDA Orange Book and recently received a notice of allowance for a seventh patent that we expect to issue very soon. We recently finalized a new agreement with one of the largest faith-based private healthcare systems in the United States. This national health system operates in 19 states with more than 140 hospitals and approximately 30 ambulatory surgery centers. We will work together to institutionalize Expirel-based opioid sparing protocols across service lines with their sites of care through extensive localized training provided by our field-based clinical education teams. This agreement also provides an opportunity to expand iOVERA utilization within this system. We are also launching a new partnership with a large group purchasing organization in the dental space. that will allow access to Expirel at one of the nation's largest dental support organizations, serving over 600 affiliated dentists at approximately 400 practices in 42 states. Together, we will support training and education around best practice for optimizing patient recovery after oral maxillofacial surgery using an Expirel-based opioid sparing approach. This partnership will also include working with the group purchasing organization to introduce Expirel to their network of more than 1,100 dental accounts, drilling down into a few key Expirel markets. Orthopedic procedures continue to be a key growth driver, with the most recent annualized IQVIA data from January showing year-over-year utilization up 24%. Expirel-based regional protocols are safely and reliably enabling a shift to orthopedic procedures with XBRL utilization of 34% over the prior year in 23-hour sites of care. In pediatrics, our initiatives continue to make strong progress. Safety continues to be the mission critical message, and awareness around efficacy continues to mount as new data is generated. Investigators from Scottish Rite for Children Hospital in Dallas, Texas, highlighted their experience in a study of children undergoing posterior spinal fusion surgery. The study compared Expirel infiltration to a continuous epidural infusion of ropivacaine. The Expirel group consumed significantly less opioid from 24 to 48 hours and ambulated 6.8 hours sooner. The study, authored by Doctors McClintosh and McLeod, was published in the May issue of the Journal of Pediatric Orthopedic Society of North America. and will be featured at the annual scoliosis research meeting taking place in St. Louis in September. This is a meaningful advance in treating these children who many times require multiple surgeries with multiple opioid exposures. Separately, our medical education platform continues to generate awareness through our monthly series, The Pediatric Exchange, which features thought leaders from leading pediatric centers such as Shriners Hospitals, Cleveland Clinic, and Rady's Children's Hospital in San Diego. In women's health, we continue to see significant growth with success in C-section driving expanded utilization and breast augmentation and gynecologic oncology procedures where there is a strong shift to 23-hour sites of care. Regarding our European launch, we are seeing slow but steady progress in our launches across several key countries. In the UK, several important national health service trust hospitals have adopted Expirel and the value proposition is clear and relevant in the surgical backlog, with Expirel enabling reduced length of stay and increased surgical throughput. New customer feedback has been positive with strong retention, and we've had several repeat orders from major influence hospitals. Moving forward, we continue to strengthen our team, confident that over time, Europe represents an important market opportunity for Expirel and Pacera. Moving to the Expirel pipeline, both of our phase three studies evaluating lower extremity nerve blocks are now fully enrolled. We expect to report top line results from the first study in early September, with data from the second study to follow approximately six weeks later. If successful, these studies will support a supplemental NDA filing early next year. We believe the lower extremity nerve block label is at least as significant as the upper extremity market, with roughly 3 million procedures a year and an addressable market opportunity of approximately $100 million. Planning is also underway for a multi-center registration study of Expirel as a stellate ganglia block for treating refractory cardiac ventricular dysrhythmias and for use to prevent postoperative atrial fibrillation after open heart surgery. Dr. Shiv Kumar, director of the UCLA Cardiac Arrhythmia Center and world-renowned expert in mechanisms of cardiac dysrhythmias, is collaborating with the team. We are working with a steering committee of key opinion leaders in regional anesthesia and stellate ganglia blocks who will convene this fall to help finalize study design. After an FDA meeting to align our regulatory strategy for expanding the Expirel label to include this indication, we will proceed with a registration trial. A stellate ganglia block utilizing Expirel, which lasts for several days, will address a significant unmet need in patients with ventricular and atrial dysrhythmias. Beyond our success with Expirel, our second quarter sales were augmented by strong Xereta performance which underscores the successful integration and strong rationale for the acquisition. Xeretum remains at the early stage of its growth trajectory, and we remain confident it will be an important revenue and earnings contributor as the only FDA-approved extended-release corticosteroid for osteoarthritis pain in the knee. Currently, we are finalizing the designs for label expansion studies in shoulder osteoarthritis and type 2 diabetes. We have reanalyzed the flexion diabetes data and believe there is a tremendous opportunity in providing the diabetic and pre-diabetic community an intra-articular steroid that improves efficacy and is significantly safer with reduced glycemic spikes. To that end, we are in the process of initiating a study in diabetes with osteoarthritis, comparing Xilretta to an immediate-release triamcinolone acetonide. We are also preparing to study Xilretta and shoulder osteoarthritis which could make Xereta the first and only approved steroid for use in shoulders. These studies also provide an incremental opportunity for Xereta to enhance commercial reimbursement as we demonstrate superiority versus immediate release of triamcinolone acetonide for diabetic patients and for shoulder surgery. Moving to Iovera, our novel handheld cryotherapy device. The rollout of the Generation 2 device to our broad customer base is underway. and the market feedback on the new and improved platform has been very positive, with practitioners appreciating the more user-friendly design and increased efficiencies. We recently launched an Iovera partnership with the Professional Golf Association of America's Corporation Tour, or the PGA Senior Tour, through which we had a dedicated Iovera presence at two major tournaments in Q2. Our next event will be the Charles Schwab Cup Championship in November 2021, where we will have a PGA Champions Tour player wearing the Iovera logo and an Iovera Cool Zone tent, which will allow spectators and guests of the PGA Champions Tour to make appointments with local providers for Iovera treatments. Our sports initiatives also include teaming up with the NFL Alumni Association to increase awareness of the availability and benefits of non-opioid pain management options. Together, we will focus on educating retired players, staff, and youth sports organizations about the importance of non-opioid options that can reduce or even eliminate the need for opioids for pain management. Turning to the Iovera pipeline, as you may recall, Dr. Paul Winston, President of the Canadian Association of Physical Medicine and Rehabilitation, has been conducting observational studies of Iovera and spasticity. The preliminary findings of Dr. Winston's research are highly encouraging, and we are now collaborating with our clinical and medical teams on publication strategies for these data. In parallel, we have submitted to the FDA our design for a registration study to evaluate Iovera as a treatment for spasticity in post-stroke patients. We have a meeting scheduled with the FDA for later this year, and we'll then proceed with the registration trial for the treatment of spasticity with Iovera. In parallel with our expirale stellate ganglia block study, Dr. Shubh Kumar is also initiating a study utilizing the Iovera Cryo technology as a long-lasting approach to effectively address various cardiac dysrhythmias. We believe Expirel and Iovera have the potential to address both acute and persistent cardiac disease in a wide range of patients. Moving now to our earlier stage pipeline opportunities where we continue to make progress. We expect to initiate the second half of our phase one study of our multivasicular liposome bupivacaine for subarachnoid analgesia later this year and move to phase two next year. In addition, we are defining clinical programs for our proprietary multi-vesicular liposome formulations of dexamethasone for inflammation and lower back pain and high dose bupivacaine for longer acting pain management of seven days or more. In closing, the progress we have made to date, along with our ambitious plans for the future, are all converging to give us even greater confidence and our ability to achieve our corporate goals for delivering strong revenue and earnings growth. With a significant patient need for opioid sparing options and limited commercial competition, we are more confident than ever in our ability to cement our leadership position in delivering patients innovative non-opioid solutions along the neural pain pathway while building significant shareholder value. With that, I'll turn the call over to Charlie for his financial highlights. Charlie?
spk05: Thank you, Dave, and good morning, everyone. I'll start with a quick update on sales and margin trends, starting with Expirel. We remain very pleased with the ongoing success of Expirel as the clear market leader in non-opioid post-surgical pain management. We saw a year-over-year increase of 5% for the second quarter and posted our second highest quarterly ever, Expirel, despite persisting regional labor shortages, other pandemic-related disruptions, and impacts of worsening economic and inflationary trends. To date, we have not seen any impact from new market entrants on our XBRL-based business or our ability to generate new business, which is not surprising, given the ability of XBRL to help facilitate the market's ongoing shift to regional analgesia and outpatient sites of care. Having treated more than 10 million patients in the U.S., we are also confident that our well-established efficacy pristine safety profile and more than a decade of physician experience will continue to be key advantages for XBRL over other extended release bupivacaine formulations. For Xolretta, we have completed the rollout of our new discounting program to normalize customer purchasing patterns and the product is performing according to plan. We continue to expect improving Xolretta sales trends through the year as we broaden education and awareness through our commercial expertise and established relationships. For Iovera, now that the rollout of Gen 2 device is underway, as Dave mentioned earlier, we expect the product to return to more robust year-over-year growth as the year progresses. We remain very optimistic in the Iovera opportunity within its current as well as new indications, such as spasticity and stellate ganglia blocks, where we are making new clinical investments. Turning the gross margins, on a consolidated basis, our second quarter non-GAAP gross margin percentage was 72%. This is comprised of non-GAAP gross margins of 73% for Expirel, 82% for Zoretta, and negative 28% for Iovera. Expirel and Iovera gross margins were negatively impacted by certain operational challenges specific to the second quarter that are now behind us. including for XBRL, based on supply chain disruption in the second quarter, we made the decision to manufacture using older, on-hand raw materials to ensure that we could meet market demands. The majority of these batches were successful, but with a higher than normal batch failure rate, causing our second quarter margins to be lower than expected. This challenge is now behind us, and we believe we have a stable source of raw materials going forward to meet increased demand. XBRL manufacturing efficiencies are now operating in line with expectations, and we expect gross margins to improve in the second half of this year and continue to improve by two to three percentage points per year, ultimately reaching the mid-80% range. For Iovera, second quarter margins were impacted by activities to support the shift to our Generation 2 device, which included downtime for training at our contract manufacturer. We also incurred overlapping expenses from the transition of activities from Fremont to our San Diego facility for the hand pieces and to a new contract manufacturer for the smart tips. Importantly, these activities are now complete. The Fremont office is closed, the Gen 2 rollout is underway, and Iovera margins are now beginning to benefit from the reduced unit costs at the contract manufacturer. These investments are important to the short and long-term opportunities for Iovera as a drug-free nerve block, as well as additional opportunities in spasticity and stellate ganglia block. Looking ahead, we continue to expect to see gross margins improve for all three products and to reach the mid-80% range. While we are currently not providing 2022 revenue or gross margin guidance, given the continued uncertainty around labor shortages, other COVID-related disruptions, impacts from the recent worsening economic and inflationary trends, and the pace of recovery for the elective surgery market, we remain committed to the transparency of reporting preliminary monthly product sales to share inter-quarter trends with you. We will consider adjusting this practice for all three products as the year and visibility progresses. Turning to expenses, second quarter non-GAAP R&D expense was $24.8 million dollars, reflecting additional investments in our two lower extremity nerve block studies and ongoing investments in our proprietary multivesicular lipid pipeline. We continue to expect R&D expense to tail off in the second half of the year, with enrollment now complete in our lower extremity nerve block studies. And today, we are reiterating our full year non-GAAP R&D expense guidance of $75 to $85 million. Our second quarter non-GAAP SG&A expense was $56.5 million, and tracking in line with our full-year guided range of $220 to $230 million, which we are reiterating today. As discussed in today's release, today we are revising our guidance for stock-based compensation expense to the range of $47 to $50 million to more accurately reflect this year's equity grants, including our annual mid-year equity grants. Interest expense was $8.8 million for the second quarter. Most of this interest expense relates to our term loan B financing for $375 million with a floating interest rate of SOFR plus 700 basis points. The remainder of this interest expense relates to our convertible notes. For modeling purposes going forward, based on current interest rates, interest expense will be approximately $10 million per quarter. As a reminder, the term loan B is a partially amortizing loan with principal repayments due quarterly beginning at the annual rate of 10% of the original principal balance and increasing to 15% in the later stages of the loan. Our first quarterly principal repayment of $9.4 million was made at the end of Q2. In addition to these scheduled quarterly principal repayments, the term loan B also provides for the reduction of principal with set percentages of annual excess free cash flow with no prepayment penalties, and the ability for us to expand upon these repayments further at very modest prepayment penalties that are eliminated altogether after year three. Our original forecast indicated that the term loan B would be completely repaid during year four of this five-year loan. Based on today's interest rate environment, however, we are exploring ways to reduce the total interest cost of this loan more quickly. Our GAAP P&L reflects a second quarter effective tax rate of 10%, which benefited from the impact of a discrete tax deduction related to equity compensation transactions, often referred to as an equity windfall deduction, and acquisition-related benefits. For non-GAAP purposes, our adjusted results reflected an effective tax rate of 26% for the second quarter and 25% year-to-date, which we continue to believe is an appropriate effective tax rate for our full-year adjusted net income for 2022. And lastly, despite challenging market conditions, we delivered another quarter of significantly positive adjusted EBITDA of $44.9 million. In summary, Pacira continues to operate from a position of financial strength. Despite ongoing headwinds, including labor shortages, continued COVID intrusions, reduced hospital services, decreased hours at ambulatory centers, and the impact of inflation on certain elective procedures, we continue to deliver impressive financial results and remain bullish in our five-year plan for year-over-year top-line growth in the mid-to-high teens in 2023 and beyond. gross margin improvements to the mid-80% range, modest year-over-year increases in operating expenses, and adjusted EBITDA margins that exceed 50%. That concludes our prepared remarks. I'd like to now turn the call over to the operator to begin our Q&A session. Operator?
spk11: Thank you. The floor is now open for your questions. If you would like to ask a question, please press star 1 on your telephone keypad. If at any point you would like to withdraw from the queue, simply press star 1 again. Your first question comes from David M. Solomon.
spk08: Thanks for taking my question. So I just have a couple. So first, can you just walk me through your thought process on when market dynamics you think might improve vis-a-vis things like staffing shortages? So that's number one. Number two, as you look at the third quarter, you know, one thing that sort of struck me about 2Q is that the comps were difficult year over year in 2Q. So can you talk to year over year comps in 3Q and how that would speak to the growth trajectory of X4L irrespective of, you know, the headwinds that you've been talking about? Thank you.
spk06: Yeah, thank you, David. And, you know, really, in our minds, the comments, your questions are interrelated, actually. You know, for number one, we do see things resolving modestly, slowly, I guess is the better way to put it. Ironically, to some extent, inflation appears to be driving the labor market in a more positive direction than we had seen. You know, and very simply put, you know, when it costs $140 to fill your gas tank up, you realize that your cash balance doesn't last as long as you were hoping it might. And so we do see that the labor market is easing, although slowly it at least is positive for the first time in a few quarters. And so not a bad thing for sure. You are exactly correct relative to the comps in Q2. As a matter of fact, today, after three days, three selling days of August, you would see the impact of a better comp for us on a year-on-year basis. And so, you know, we do expect to have the optics of our business change quite significantly based on the third quarter of last year versus the third quarter of this year. And so far, we're seeing that in the first few days of August, David. you know, positive. We're making progress every day. Some of these big relationships that we announced today are adding real benefits, and we can see it in real time as we look at the numbers. And so we're excited about going forward with all the clinical programs we're doing as well. So thanks for the question.
spk08: You got it. Thank you.
spk11: Your next question comes from the line of Chris Nayar.
spk02: Chris, your line is open. Great. Thanks for taking the questions.
spk03: The first one's on expectations for the electric procedure market. So you've talked about a more gradual recovery in the electric procedure market in the first half of 2022. So maybe you could talk about labor shortages and what impact you're seeing that have on volumes and maybe a timeline for where we see greater normalization. In the past, we've talked about kind of a backlog of deferred procedures. It seems like that's less and less likely to really see flow through into volumes. Maybe any color perspective you have there, that would be helpful.
spk06: Yep, thank you, Chris. You know, we see the labor shortage actually as having tentacles in a number of different ways in the marketplace. I'll give you a couple of specific examples. I mean, the big one is You know, the Mondays for us are still the lowest revenue day of the week for Expirel. And that is largely related to the fact that ambulatory surgery centers still are not open as a general rule on weekends. You know, the inability to be able to get a nursing team to work a 12- or a 14-hour day on a Saturday has really limited the opportunity for the ambulatory surgery centers to open at all. in terms of the revenue required to cover costs, et cetera. And so that to us would be a major opportunity when we start to see Saturday work in the ambulatory surgery centers to address these backlogs. Some of the less obvious ways that the labor shortage is impacting is the inability of hospitals and, again, ASCs to be able to cover PACUs for the period of time that we saw in the pre-COVID environment. So, for example, it would be routine for PACUs to be open until 10 o'clock at night or, in some cases, midnight, which allowed surgeries to go on into the early evening hours and still be able to release patients on a same-day basis. The impact of the fact that they've shortened these PACU hours, in some cases, to 6 o'clock at night, has meant that in spine cases, for example, spine surgeons that were routinely doing two surgeries three days a week were forced to not have a surgery start after 2 o'clock. And so these folks went to one surgery five days a week, and now in many cases have been told that it's one surgery four days a week. And so you can see how the combination of these things has a fairly dramatic impact on our business. And we do start to see some of these PACU hours coming back and some of these places being able to add these second surgeries for these protracted cases on an ambulatory basis. Your question on the backlog is an interesting one because the thoughts that we had in the beginning days of COVID have changed. And frankly, the market is much more Difficult to predict and we thought it was going to be a couple of years ago What we see in the marketplace actually is that the high acuity pain procedures largely orthopedics specifically total joints shoulder and spine are continuing to be done and They are continuing to be done largely in ambulatory surgery centers because these are high acuity profitable procedures and and especially in environments where the surgeons own part of the ambulatory surgery center, those procedures are getting done on a relatively routine basis. The ones that are more difficult to get done are the soft tissue procedures, right, the hernias and the colorectal procedures. And, you know, the scenario there is the hospitals are struggling to get those procedures done given the... the reimbursement that's being offered by the payers, and in the hospital outpatient environment, which would be the normal place where those procedures might get done, lower acuity, lower margin procedures, we just don't have enough of the capacity to be able to do those procedures at a price that the centers are able to perform the surgeries at. So you've got a fairly complex market where most of the ASC space is being taken up by ortho procedures and the reimbursement that's being offered for these less security soft tissue procedures is just not appropriate for many centers to be doing them in an inpatient basis and even struggling to do them in an outpatient basis. So we see the marketplace is resolving a lot of those things. You know, there are discussions going on with the payers in order to facilitate these procedures being done in the hospital outpatient department. And we think that that will continue as we go through the year. Our own expectation is that Q3 will resolve slowly and we'll be closer to a pre-COVID normalized environment as we get into fourth quarter this year.
spk03: Great, that's helpful. And then a second one, if I could, on capital allocation priorities, could you talk about how you see capital allocation, specifically the balance between business development and the opportunity for additional debt pay down? And I think more broadly speaking about kind of the business development market, what are you seeing out there? I think you've seen a pullback in terms of valuations for commercial stage companies. Has that really translated to earlier stage companies? And in particular, I guess, what type of assets are you looking at and what would be the ideal fit for a mysterious portfolio today?
spk06: Yeah, we'd love to find another flexion, Chris, if we found one. We don't have anything, you know, on the immediate term for a commercial asset that would, you know, be fit for purpose the way Zoretta was. You are correct that there's a lot more interest in private companies as well as some of the smaller public companies. The inability to raise financing is leading to some more aggressive activity on that front relative to the opportunity for M&A or licensing or even partnerships in some cases. So we've got a lot of things that we're looking at. Our focus has been on the knee and the patient journey to a total knee arthroplasty, and so we're looking at a number of pain opportunities in the gene therapy and cell therapy space, a number of compounds that are available for us to take through clinical development, but most of these are earlier, Chris, and we don't have a lot of stuff that's commercially viable in the next two or three years. The second place that we're aggressively looking is in the vertebral space. We have a number of opportunities for products that would be in the degenerative disc disease space and low back pain. You know, big opportunities in places where we're already working with folks on degenerative disc disease for pain management that, you know, regenerative medicine, things like spine biopharma with a 7-amino acid peptide that would be used in conjunction with a pain injection for low back pain. So, you know, we're actively looking at these things. We would love to do a commercial transaction if we can find an appropriate asset. You know, we're wide open to larger agreements, and some of those are starting to percolate to the top, but nothing that really would be of interest in the next couple of years. And so most of the stuff we're working on takes advantage of our commercial and clinical expertise. to develop earlier assets for organizations that are either struggling financially or just plain don't want to be a commercial company.
spk03: Great. Thanks for taking the questions.
spk06: Thanks, Chris.
spk11: Your next question comes from Alana Balaji-Prasad.
spk01: Hi. Good morning, and thanks for taking the questions. Dave, could you provide some incremental clarity around the recent CMS reimbursement and what was incremental to XPREL? Also, the timelines and impact around the expansion to the hospital opiate outpatient setting and what it means to you. Secondly, you commented and called out a couple of new agreements, including with the NHS, if I got it right. So, I want to understand the impact of this. What would 140 hospitals and 30 ASCs partnering with Pacera mean in the longer run, and when could we start seeing the impact of this in the P&L? Thanks.
spk06: Thanks, Balaji. First, the clarity around CMS reimbursement. So, important for us to keep C9290 for ASCs as a minimum. We have been very active with CMS in discussing the availability of non-opioid opportunities for some of the economically distressed areas of the United States and areas where there are no ASCs and the only real access that these folks would have would be in the HOPD. While it wasn't a specific win, CMS asking for comments with both data and discussion points in the marketplace around HOPD and the need for reimbursement. In the HOPD, we think in many ways goes back to the question that Chris just asked that non-opioid alternatives in the HOPD would be really important to lower socioeconomic populations and the fact that many of these places do not have any access to opioid-free opportunities at all. Ironically, when CMS approved C9290 for Expirel in the ASC, many counties around the country actually took Expirel off a formula in the HOPD because they wanted folks to go to the ASC. Then you got yourself in a scenario where there was no ASC and in fact what happened is these lower socioeconomic counties actually lost all opportunities to avail themselves of a low opioid or for a no opioid opportunity for surgical platforms. So it's really important that we stay on top of this. We are actively working with CMS on the HOPD opportunity and we expect that to continue as we get through this comment period that goes into September. The expansion of the HOPD is really two things. It's the hospitals requiring to do surgeries, and so if they are searching for opportunities to be able to do surgeries in a way that are economically possible and appropriate for the hospital resource considerations. And so there are many areas around the country where the ASCs are taking off the higher volume, higher profit margin procedures. And in fact, a demonstration of that is we know of several dozen orthopedic and spine hospitals that are being built around the country specifically to address this need, given the lack of capacity in the ASCs to take on more and more spine and joint procedures. So then these lower acuity, lower margin procedures fall into the more traditional hospital network. And given the cost opportunities around an outpatient hospital procedure versus an inpatient hospital procedure, hospitals really are in a position where they have to figure out how to do these because surgeries really are the revenue engine of many of the medical centers around the country. you see people aggressively pursuing how to transfer inpatient beds to outpatient opportunities and how to work with the payers in order to provide the opportunity to have a soft tissue procedure done in a local environment rather than having to go to a different environment in order to get these surgeries done. So it's a complex problem. It's something that's going to take some time. It already has taken some time. and we see that things are starting to loosen up in the actual marketplaces around the country. The new agreements are an important aspect of all of this. We are making progress with folks who understand that opioid sparing is a very important consideration for patients, especially for moms, and we see that in this faith-based opportunity that we discussed. and it's not only a revenue opportunity, Balaji, but it's an opportunity for us to be able to work with these folks and to let patients in the states where they operate understand that there are opioid-free opportunities, remembering that there are 20 million Americans in recovery, and we hear literally daily from patients who are interested in an opioid-free opportunity and are searching for a place where Those kinds of opportunities to have an opioid-free surgery are available. This strategic partnership allows us to be able to billboard that and let folks know that these opportunities are indeed available and you're not going to get 90 Percocet when you leave the operating room. The dental is just as important. The first interaction of most teens with opioids is when they have a third molar extraction. So, we've been working with this organization and providing protocols. We are educating them and providing Expirel for their first few cases so that they can have real-time experience with our folks there to be able to understand how we provide an opioid-free third molar extraction and keep these kids from getting opioids in their teens. really important things for us, both on a revenue basis, but also on demonstrating the opportunity for opioid-free surgeries and hopefully taking advantage of that. Thank you, Dave. Thanks, Elijah.
spk11: Your next question comes from the line of Gregory Renza.
spk09: Hey, good morning, Dave and team. Congrats on the progress, and thanks for taking my question. Dave, I just wanted to revisit some of those macro questions teams that you commented on earlier. Just more specifically, I think there's just an emerging increase in investor interest in understanding potential impacts from a recession and even job losses that perhaps relate to coverage loss in lives. I'm just curious if you had any thoughts on how that potentially could impact surgical volumes, your mix, and what you're seeing with XBRL in the marketplace? And of course, I know the data aren't in and it is speculative, but just your higher level thoughts on recession impacts to XBRL performance would be very helpful. Thanks.
spk06: You know, thanks, Greg. It's a really interesting question, and we spent a fair amount of time trying to determine exactly what the different drivers are here, as you would expect. You know, we have consumer surveys of our own, as well as the history of both inflationary markets, Greg, as well as recessionary markets, and it's pretty clear that patients' ability to pay co-pays and to be able to afford insurances that would pay for especially soft tissue and lower acuity kinds of surgical procedures are impacted. If we balance that against where we are We think that that will have a modest dampening effect on the rebound of procedures, but we also know that the backlog of procedures that's out there and the fact that some of these patients have continued to have issues associated with the fact that they didn't have surgeries over the last 24 to 30 months, in many cases, are a powerful motivator in the opposite direction. We're watching it closely, Greg. You know, neither high inflation or a recession are going to be good for us in terms of, you know, the rebound in procedures. But we also think that there is a strong motivation from these high acuity procedures that are continuing to be done. And we don't see any change there or very little change there. and the increased opportunities to be able to do soft tissue procedures at a cost that's appropriate for the hospitals. We think that CMS and the ability of these folks that are covered by Medicare hopefully would dampen the effect of both a recession and a high inflation environment. Other than that, it's more of a balancing act in terms of how fast some of these things come back and we just go from there. I don't know how to give you very specific data. Our own internal consumer kinds of things were more dramatic in terms of inflation having a negative impact 60 days ago than they are now. But I don't know how to measure that in terms of something quantifiable that I can tell you there's X percentage or anything like that, but it does appear that people are less sensitive to inflation today than they were 60 days ago.
spk09: Great. That's very helpful. And just one last one, if I may, I believe at the top of the call in your remarks just mentioned that perhaps competition drivers were at a minimum. I'm just curious, is that something that we could see as more of a base case going forward that is a driver to extra pressure less so being thrown off from competitive options and the landscape?
spk06: Yeah, for sure, Greg. I think the ability to do nerve blocks and field blocks with an FDA-approved product is really an advantage to us. And I don't see that changing over the immediate planning period of a couple of years. You know, the reason that we're building the second innovation and training center in Tampa is to handle all of these requests we're getting for training around regional approaches and being able to move different patient populations to the less costly outpatient environments. And so I don't see that that's going to change over the next, you know, two or three years.
spk09: That's helpful. Thanks again, Dave.
spk06: Thanks.
spk11: Your next question comes from the line of Greg Frazier.
spk04: Good morning, folks. Thanks for taking the questions. I'm not sure if I missed this, but did you comment on X4L growth in July? And you mentioned inflation impacting certain electric procedures. For what types of procedures are you seeing an impact? And then on a question on Ivera, you introduced the Gen 2 device. You've seen a positive reception. You talked about the various initiatives to drive awareness. When do you think that product might start gaining more traction and seeing more use for the current indications. Thanks so much.
spk06: Yeah, thank you, Greg. So, you know, in July, we grew by between 5 and 6%. And so, you know, we continue to grow. Very modest improvements, but against the difficult comp for us. So that's not an excuse. That's just a fact, right? And so... you know, we continue to see that the product is growing. When we look at inflation impacting, it goes right back to this, you know, when you've got a patient who can't go get the mail and is just having a devastating impact on their ability to ambulate and to get around. Going to church is always high on the list. Going to the grocery store is always high on the list. You know, we find that people find a way to get those procedures done And the insurance companies and the reimbursers continue to drive those patients back to the ambulatory environment based on economics, but also based on patient satisfaction. And so those are the procedures that are getting done. The less acute, where the pain profile is not as profound, and where patients can manage the pain in a way that they think is relatively appropriate given the other demands on their resources for, you know, fuel and food and all the things that we talk about every day, all day, then you see that patients choose to try to hold off as long as they can for those kinds of procedures. And especially as we get into different times of the year, you know, in the beginning of the year, obviously you have the pressure that nobody's paid off their co-pays and and all of the annual expenses that are part of their reimbursement portfolio. As we get into the later part of the year, we see people are hoping that they have better insurance next year. And so the pressures, the pulls and the pressures are slightly different as we go through the year. But you see people trying to manage a hernia, for example, in a very different way than they would manage a knee or a shoulder. where they can't work and they can't ambulate and those kinds of things. So that's really what we see in the marketplace, and that's what the customers, that's what our patients tell us in terms of how the work is being brought to the marketplace. For the Gen 2 device, you know, this is, we didn't exactly cover ourselves in glory here, Greg, with how this thing was rolled out, you know. What we bought was not a perfect device, but we knew that. But then we made some errors in the translation of the software. Frankly, it was over-engineered for what was required. And that cost us a couple of months in ending Gen 1 and rolling out Gen 2. And so there was a several-month gap there when we didn't want to start people on Gen 1 because we were going to replace it right away with Gen 2. And there was no point in starting people on an inferior device. And so what we see starting to happen again, and this is where some of the things we called out in the call are, is there's great interest in a non-drug nerve block. We have a basis of people who are using the product. who basically didn't use the product in a lot of patients because of some of the issues that we were facing with our ability to deliver a device that was actually our best effort and was appropriate for the procedures that were being done. We've now, on the other side of that, we have a device that works. We think you'll see a number of new users, and we've had a couple of high-profile users come forward with press releases saying that they are doing drug-free nerve blocks. Some national news reports on local physicians who are doing drug-free nerve blocks. The PGA that I talked about is an interesting model for us going forward in terms of a cash market. Literally, when we've run these tournaments, we've run out of what our marketing folks would call collateral. There's great interest in people who are at these golf tournaments and how they can control pain so they can actually play golf. Admittedly, we have a strong subselection bias of the people who are at that tournament and going through that tent, but that's great to the point where in the future, we are working with local orthopedic and PM&R docs to actually staff that trailer with us so that the folks that are there can actually make an appointment from the golf tournament for an Iovera treatment And hopefully by doing that over time, we will generate a lot of geographic interest in how this happens. The same with the NFL. You'll see the president of the NFL making a very strong statement about opioid-free pain control and the devastation of opioids to many professional athletes later in their lives, et cetera. So I think we're in the right place. We're going to work hard on a cash business. Think about the PRP business where patients are willing to except a product that has no data and on a cash basis. We think, well, we know from our market research that there's a strong opportunity there. So we're generating what we're calling IOVERA days, very much analogous to a PRP day and a PM&R docs office or an orthopedic office. So we have to get many, many more users locally, Greg, We are, I mean, personally, people get to me to say who's doing these different procedures in my local market so that I can go to them and have a discussion with them about a drug-free nerve block. And what we're doing really is getting ready for these bigger opportunities, especially the spasticity opportunity where we think we can make a dramatic impact on the standard of care for these patients who have post-stroke spasticity and a number of other spastic indications. There's a lot at stake here for us, and we're working hard on it.
spk04: Thanks for all the color. Yeah, thank you, Greg.
spk10: Your next question comes from the line of Serge Belanger.
spk07: Hi, good morning. Good morning, Serge. Just a couple questions. Good morning. A couple questions for me. First, on the No Pain Act, It's been a little more in the news lately. It seems to be gaining momentum. I don't know if you want to comment on whether it gets to the finish line or not, but maybe if you can talk about what impact it could have on the coverage of Xperil. And then secondly, I wanted to go back to the not so Xperil-friendly editorial that was published in the ASA journal last year. I assume it's been widely disseminated now, so if What impact, if it has had any, on either practice guidelines or have hospitals curtailed the access of its peril because of this editorial? Thank you.
spk06: Good. So first, Serge, we now have over 100 members of the House that are supporting No Pain. And we are coming up on half of the Senate We need a couple more members to have half of the Senate. So we also have over 50 affiliated organizations, both from the insurance industry as well as the AMA and the orthopedic societies, et cetera. So we're in as good a position as we can be in. Right now, we thought that we might have some action during the summer. That actually went in a different direction as a result of some of the gun legislation that was approved and some of the different mental health things that didn't appear to be appropriate for what we were looking for in terms of coverage for all non-opioid therapies. The best I can tell you is we continue to be involved with the folks, the decision makers in Washington, We are looking at something that would take place in the reconciliation bills that come out as we get later into the year, and we are in the best position we've ever been in in order to get the No-Pain Act approved. To answer your question, the No-Pain Act would require that CMS pay for products that had an indication for post-surgical pain for five years. All non-opioid products that have an indication for post-surgical pain for five years. So that would allow us to cover over 70% of the procedure marketplace for Expirel. So that would be a huge opportunity for us to be able to have reimbursement that would eliminate any encumbrance that the institutions are having around the cost of being able to provide a non-opioid alternative versus generics. And we think that would be a huge advance. Relative to the ASA, it's what it is, Serge. The article, we've stated our case that the article was completely misguided. If you read the the declarations that are on our website relative to a meta-analysis, the way that the numbers were calculated and the procedures that were embedded in that report are just totally misguided in terms of the way the product is used in the marketplace. The best point I can make is that the number one procedure that was used in that meta-analysis and I have quotes on meta-analysis, air quotes on meta-analysis, was a penile transplant procedure that we've never presented to anybody to my knowledge. And so it really is a bit of a made-up translation of how a meta-analysis should be done. Has it had an impact? Sure it has. You know, it's had some impact in the marketplace. Most folks who have used Expirel and understand the benefits of Expirel find it interesting that their society would try to limit the use of a product that is really the only product that's available that allows them to do regional anesthesia and provide better patient care and allow them to move patients to an outpatient environment and so you know it's it's a discussion point that we continue to have with the society and you know we are trying to to you know to move forward in with the ASA, but it hasn't had much of an impact on anything that we've done in terms of how we're working with the anesthesiologists who are in the trenches and who use Expirel every day for regional pain management for nerve blocks and field blocks. And I would also draw your attention, Serge, to the recent article in the ASA journal where they published a shoulder article And just to give you a sense of where the the journal itself sits and how research is done They reported that the trial was negative for expirulence shoulders and made a I don't even know difficult to understand error in the statistical profile that they used and they reported that there was no difference with a p-value of 0.098 when in fact a The P value, they had it reversed, and the P value for XPREL was 0.02. So, you know, it just gives you an idea that what's going on here is misguided for a reason, frankly, that we don't understand. But it is what it is, and XPREL continues to grow every month, and we've got a lot of good things going on, and we expect stride and approval for lower extremity nerve block will basically continue to position this misguided information that's coming out in a way that is appropriate for patients to benefit from Expirel, rather than opioids and ketamine, which seems to be the alternative that's being positioned here. Thank you. Thank you, Serge.
spk11: This concludes the question and answer session of today's call. I will now turn the floor back over to Dave Stack, Chairman and CEO, for closing remarks.
spk06: Thank you, Paula. I'd like to thank you all for participating and listening to today's conference call. We look forward to keeping you updated on our progress. Next up for us is the White Bush Conference later this month and Citi in September. Thank you all. Stay well.
spk11: Thank you. This does conclude today's call. Thank you for your participation in today's event. You may now disconnect.
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