Pacira BioSciences, Inc.

Good day, and thank you for standing by. Welcome to the Quarter 4, 2022, Pacira Biosciences, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To answer a question during the session, you'll need to press star 1-1 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Susan Meskel. Please go ahead.

Thank you, Chris, and good morning, everyone. Welcome to today's conference call to discuss our fourth quarter 2022 financial results. Joining me on the call are Dave Stack, Chairman and Chief Executive Officer, Roy Winston, Chief Medical Officer, and Charlie Reinhart, Chief Financial Officer. Additional members of our executive team are 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 the company's filings with the SEC, which are available from the SEC or our website. With that, I will now turn the call over to Dave Stack.

Thank you, Susan. Good morning, everyone, and thank you for joining us. We'll start today's call with prepared remarks covering recent business highlights before turning to your questions. 2022 was another strong year for Pacira as we continue to outperform the elective surgery market operating from a position of financial strength. We posted record revenues of 667M dollars in 2022, a 23% increase over 2021. Our growing top line combined with ongoing operating discipline drove significantly positive adjusted EBITDA of $213 million for the year and $59 million for the quarter and adjusted diluted earnings per share of $2.59 for the year and $0.80 for the quarter. Our performance allows us to fund internal and external growth initiatives while also optimizing our balance sheet with a planned prepayment of our term loan fee. This marks our ninth consecutive year of positive adjusted earnings and impressive records that we are proud of. Turning now to some specifics for our XPRO franchise, where I am pleased to report we have now treated more than 12 million patients in the United States. Regional analgesia techniques performed by surgeons and anesthesiologists continue to be a substantial growth driver. XPREL is fostering a significant paradigm shift in patient care by enabling same-day surgeries and accelerating recovery times. Surgical market procedures continue to migrate from inpatient to outpatient settings at increasing rates. The most recent rolling 12-month IQVIA procedural data from July 2022 further illustrates this shift. For hospital inpatient procedures, the market experienced a year-over-year decline of 7%. Expirel was flat year-over-year, but with growing interest in women's health, the use of Expirel for C-sections grew by 26% in the hospital inpatient setting. The outpatient procedure market demonstrated a year-over-year increase of 5%. Expirel continues to enable this growth and significantly outpaced the market with 13% year-over-year increase. Across key outpatient procedures, we continue to see strong ex-pro growth, including total joints with a 22% increase, spine with a 17% increase, breast and gynecologic oncology, each with greater than 10% increases, while both shoulder and general surgery experienced a near 10% increase. For your reference, these IQVIA data points are summarized in our investor deck, which is available on our website. In 2023, we will continue to support the market's ongoing migration through several patient-centric initiatives. On the manufacturing front, we have optimized our capacity to supply more than $1.4 billion worth of XPREL annually at the current price. Improving gross margins is a top organizational priority. We have addressed different supply chain and manufacturing issues that negatively impacted our margins for the last three quarters of 2022. We expect to see full-year margins improve in 2023 with an aim of reaching the mid-80% range over time. Some product-specific updates, including the following. For XPREL, we expect to secure FDA approval in the coming weeks for an enhanced product release assay that will improve our batch value rate, benefit margins, and support additional intellectual property protections. XBRL test batches from our 200-liter manufacturing facility in San Diego are underway, and we remain on track for a supplemental new drug application in 2023. Our new Zolretta fill line is in the qualification phase. We expect this line to improve future quality and yield to support anticipated Zolretta growth. For Iovera, with our new contract manufacturer fully online, we are now seeing lower unit costs and volume expansion, which benefit margins. With expanding manufacturing capacity and improving margins, we are advancing new programs to drive X4L volume growth and expand use in outpatient settings, starting with patient access. In October, we rolled out 340B pricing for X4L. Participation in 340B provides the opportunity to expand access to uninsured or low-income patients. These two populations are particularly vulnerable to the surgical gateway of opioid addiction and can benefit greatly from XPREL-based opioid sparing regimens. After 17 weeks, we are exactly where we thought we would be with an increase in both 340B and non-340B purchasers and an aggregate 5% discount to our overall net selling price. We believe this program will drive significant volume expansion within existing and naive 340 business representing nearly 10 million ex-pro relevant market procedures. We expect the 340B pricing program to be neutral to slightly accretive to the net revenues by the end of 2023 as we access a significantly larger pool of patients and their surgeon providers who want to perform more outpatient procedures. Importantly, 340B will pave the way for us to leverage on the new No Pain Act. This important legislation will mandate CMS reimbursement for non-opioid post-surgical pain treatments in outpatient settings beginning in 2025. No pain was signed into law in December and will provide a reimbursement pathway for nearly 20 million extra relevant market procedures, with commercial and self-insured payers expected to follow CMS. We are actively monitoring efforts to accelerate implementation prior to 2025, either through a technical amendment or regulation. We believe policymakers in Washington, D.C. will appreciate the urgency for improving access to non-opioid options given the more than 107,000 Americans who died of a drug overdose in the 12-month period ended March 2022, with more than two-thirds of these deaths involving opioids. No pain and 340B are especially meaningful to hospitals as they continue to migrate lower margin soft tissue procedures to hospital outpatient settings. Both programs will assist eligible healthcare systems in affording the opportunity to offer non-opioid pain control for these procedures while advancing our mission to provide a non-opioid pain management solution to as many patients as possible while positioning opioids for rescue use only. We are also supporting the significant need for opioid-sparing pain management at our Pacira Innovation and Training Centers, as well as our in-field educational events. In 2022 alone, our educational programs provided ultrasound-based training to more than 6,000 physicians for select regional blocks with erector spinae, transverse abdominis plane, and pectoralis, the most highly requested XPREL workshops. Our Iovera workshops are also accommodating the market's growing interest and long-acting drug-free nerve blocks. These educational programs for Expirel and Iovera also provide increased visibility to expand Zoretta awareness among our customer base of surgeons seeking an alternative for non-opioid, office-based, osteoarthritis pain management solutions. With last month's opening of our second innovation and training center in Houston, we now have more than doubled our capacity to host meaningful education programs This state-of-the-art facility features a 125-seat adaptive lecture hall, broadcast studio, and both wet and dry lab space for cadaver labs and other interactive workshops, as well as advanced ultrasound with artificial intelligence training software. In fact, it is the only facility in the United States featuring simulation-based block training with computerized phantoms for user training and scoring. Our XPREL growth initiatives are supported by a strong and growing patent estate. As a reminder, we currently have eight Orange Book listed patents, and any potential generic would have to successfully overcome each claim within every one of our patents to get to the point of establishing viable equivalence at the commercial scale. With no commercially viable alternative for long-acting non-opioid post-surgical pain management, We are highly confident that X4L will maintain its well-entrenched position as the branded market leader for many years to come. Outside the United States, we continue to make steady progress. We recently appointed a new international general manager, and our team has been further developing the business by securing approval for X4L access from hospital pharmacy departments. Long wait lists for elective surgeries are overwhelming healthcare systems across the United Kingdom and Europe, and we believe Expirel can help improve this dynamic by enabling more rapid recoveries. In Latin and South America, our partner Europharma submitted for regulatory approval for Expirel in Brazil in December, and we are now focused on submitting the approval in other countries. On the regulatory front, last month we submitted our supplemental new drug application to the FDA, seeking expansion of the Expirel label to include lower exterminator block procedures. This timeline places us on track for approval in the fourth quarter of this year. Complementing Expirel, Zoretta and Iovera are serving attractive pre-surge bill segments of the market. Last month, we held our annual national sales meeting, during which we formally aligned and trained our full 240-person field force-based team as a single unit, with all account managers now selling all three products in our portfolio. With this realignment, sales territories are smaller in size, and we are significantly increasing our reach and frequency, with a three-fold anticipated increase in Zoretta and Ilvera sales calls. We also have several value-creating milestones on track for the next 12 to 24 months for Zoretta and Alvera. For Zoretta, we are now promoting safety data showing its advantages for diabetic patients with osteoarthritic knee pain. The data show clinically meaningful reductions in glycemic spikes and will be presented at the Osteoarthritic Research Society World Congress taking place in Denver next month. Roy will share more on these data momentarily. For Iovera this quarter, we are launching new commercial initiatives for the cash pay market following the concept of platelet-rich plasma, or PRP, and stem cell injections. This is a large and important lifestyle market for drug-free nerve blocks, which provide immediate pain control and can last for several months for patients who simply want to play golf, walk on the beach with their grandchildren, or dance at their child's weddings. We also recently signed a multi-year deal for Iovera to become the official non-opioid pain management partner of the Ladies Professional Golf Association or LPGA. Through this direct consumer initiative, we will be driving awareness of the benefits of Biovera and how to access the product using commercial broadcast, digital advertising, and in-person presence at tournaments and key markets nationwide. Our customers are also using Iovera for treating pain related to spasticity, which is an on-label use. We are on track to begin a registration study for the treatment of spasticity around the middle of this year. In spasticity, Iovera has the potential to be a game changer. There are approximately 10.2 million patients in the United States currently diagnosed with spasticity. 2.6 million of these patients have moderate to severe spasticity. While 42% of these patients have received at least one treatment modality, only 150,000 are currently receiving treatment with a toxin. This underscores the highly dissatisfied market with current treatment options that are inadequate. Beyond the advancing label expansion programs for our commercial portfolio, we have an exciting earlier stage portfolio of new product development opportunities that include PCRx201, a novel intracellular gene therapy product candidate that produces IL-1RA for knee osteoarthritis. Our preliminary phase one safety and efficacy data findings were compelling. Importantly, the greatest level of efficacy was observed with the lowest dose. These data will be presented at orthopedic and gene therapy meetings in the coming months. We continue to advance our internal multi-vesicular liposome pipeline. Our phase one study of Expirel for intrathecal administration continues and is on track for completion this quarter. We will also initiate phase one studies later this year for our multi-vesicular liposome dexamethasone formulation in low back pain and a 20 milligram multi-vesicular liposome bupivacaine formulation as a nerve block or field block for longer lasting or chronic pain. In addition to our internal programs, we have a portfolio of externally sourced innovation that offers us the opportunity to participate in the development of several exciting product candidates addressing pain along the neural pathway while targeting our current customer base. These opportunities include strategic investments in Spine Biopharma, GenoSense, GQ Biotherapeutics, and Carthronics. With that, I'd like to turn the call over to Roy Winston, our Chief Medical Officer, to summarize some more detail on some of the upcoming near-term value drivers from our clinical programs. Roy?