Pacira BioSciences, Inc.

Good day, and thank you for standing by. Welcome to the Q2 2023 Pacera Biosciences, Inc. Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Susan Mesto, Head of Investor Relations. Please go ahead.

Thank you, Gerald, and good morning, everyone. Welcome to today's conference call to discuss our second quarter 2023 financial results. Joining me on today's call are Dave Stack, Chairman and Chief Executive Officer, and Charlie Reinhart, Chief Financial Officer. Ron Ellis, Chief Strategy Officer, and Roy Winston, 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 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 are entering the second half of the year with positive momentum after seeing a meaningful uptick in year-over-year ex pro growth in June and July. In addition, recent data indicate an improving elective surgery market that we believe will continue through the remainder of the year. As the economy moderates and soft tissue elective surgeries come back, we are well positioned to get back to more robust top-line growth rates. While we are encouraged by improving trends, today we are adjusting the full year's sales and gross margin guidance to reflect an updated view of market conditions and procedural cadence for the year. Charlie will discuss guidance in greater detail later in the call. In the second half of the year, we will continue to focus on three priorities, growing revenue, improving gross margins, and expanding market access. Second quarter revenues of $169 million include X per L sales of 135 million driven by solid volume growth and in a slowly recovering market. In addition, we continue to build awareness around Zaretta and Iovera with our field-based team now promoting all three of our products. Second quarter Zaretta sales exceeded $29 million and Iovera sales grew to more than $4 million. Our significant top line combined with ongoing operating discipline is driving strong and durable cash flows that allow us to further solidify our financial condition by recently prepaying $25 million of outstanding principal under our term loan aid facility. The second quarter also marks our 25th consecutive quarter of significantly positive adjusted EBITDA of $54 million. We continue to focus on improving gross margins and we are moving in the right direction with second quarter margins improving to 73%. Our San Diego facility is now outperforming volume targets and achieved second quarter margins of 76% for XPREL. We have also made significant improvements in the quality of the 200 liter process in Swindon that we expect will begin to positively impact XPREL margins later this year. Bottom line, we believe that the foundation is set for gross margins to return to the high 70% range as we exit 2023. On the regulatory front, we remain on track to submit a supplemental new drug application for our 200-liter facility in San Diego later this year. This will be another critical milestone towards improving Expirel gross margins. In addition, the FDA recently completed its review of our application for an improved product release assay for Expirel and has requested additional information to support an approval. We will submit a meeting request to define the most efficient path forward with the agency. Importantly, this shift in timing does not impact our ability to improve gross margins this year. Turning now to more specifics on the commercial portfolio, starting with our XPREL franchise. We are pleased to report that we continue to outperform the broader elective surgery market with second quarter XPREL sales of $135 million, which was essentially flat versus the prior year as volume growth of 4% was offset by 340B pricing and other discounting. Our investment in these programs has continued to provide meaningful access to XPREL for a larger and growing procedure base, setting the stage for meaningful inflection in the implementation of the No Pain Act in 2025. As a reminder, our performance last year was particularly strong with XPREL sales at near record levels with the second quarter of 2022 being the third highest quarter ever for X4L. Importantly, year-over-year growth rate improved as the second quarter progressed and into July, leaving us optimistic for a higher second half of the year as the market continues to normalize. We also expect that growth initiatives that we have put in place, such as continued volume expansion from 340B and TRICARE reimbursement, as well as initiatives in oral maxillofacial plastics and outpatient surgeries, and sports medicine will contribute to revenue growth in the second half of this year. Turning to market access, we continue to expand our Expirel user base, adding more than 350 first-time purchasing accounts so far this year. We are seeing a growing level of Expirel interest among oral and maxillofacial surgeons fueled by last year's rollout of the partnership with CeraVident. We expect to launch a similar partnership in the coming months with another large dental support organization with more than 1,000 offices across 46 states. Together, we will support training and education around best practice for optimizing patient recovery after oral surgery using an XPREL-based opioid sparing approach. As expected, our 340B pricing program is contributing to volume growth in both existing and new business as it helps alleviate cost challenges by offering a reduced price to eligible entities where opioids are often most problematic. For the first half of the year, XPREL 340B volumes were roughly 25%, with recent weekly 340B volumes at roughly 20%. Gross to net remains a highly favorable level for our industry at roughly 86%, and we also expect the 340B discount to improve from roughly 28% to 25% in the second half of the year, with the 2023 price increase taking effect for government orders where pricing runs with a two-quarter lag. All in all, the 340B program is doing what it was designed to do, expanding the XPREL user base and growing volumes within existing and naive businesses. This investment advances our mission to provide an opioid alternative to as many patients as possible, regardless of income level or insurance status. Further, 340B is paving the way for us to leverage no pain since we are accessing a significantly larger pool of patients and their surgeon providers who want to perform more outpatient procedures. CMS recently issued their proposed outpatient prospective payment system rule for 2024, with Expirel continuing to qualify for separate reimbursement in the ambulatory surgery center under reimbursement code C9290. Their preliminary rule also notes that the agency will implement the No Pain Act, which mandates CMS to begin reimbursing separately for non-opioid products for post-surgical pain in all outpatient settings on January 1st, 2025. No pain will provide a reimbursement pathway for nearly 20 million Expirel-revelant marker procedures, and we expect commercial and self-insured payers to follow the lead of CMS. Reimbursement in the hospital outpatient setting, as well as ambulatory surgery centers, will cover more than 70% of the current total addressable market for Expirel. In parallel, we are seeing expanding access to non-opioid pain management for government employees, our military, and their families through efforts like No Pain. In October of this year, TRICARE will adopt the CMS Medicare reimbursement methodology for ambulatory surgery centers and begin providing separate reimbursement for Expirel in this setting. We would expect TRICARE to also mirror CMS policy in the hospital outpatient setting with the implementation of No Pain. There are roughly 10 million members enrolled in TRICARE for primary or secondary coverage. Importantly, No Pain, TRICARE, and 340B are especially meaningful to the migration of lower margin soft tissue procedures to the hospital outpatient settings. These programs will assist eligible healthcare systems in affording the opportunity to offer non-opioid pain control for these populations. Our state-of-the-art training and innovation centers continue to support the market's demand for best practice knowledge transfer to accelerate surgical migration to outpatient sites of care. In the first half of the year, our educational programs provided training in more than 140 on-site and in-field events to more than 4,200 healthcare providers who want to be at the forefront of opioids-bearing pain management. In pediatrics, interest continues to grow as new data are generated. Our commercial organization is focusing on top pediatric institutions, and expo use continues to significantly expand at influential hospitals such as the Shriner System and Wisconsin Children's. We also have secured several recent wins in spine programs at other centers of excellence, including Cincinnati Children's Hospital, CHOP in Philadelphia, Children's Hospital of Colorado, Mercy Children's in Kansas City, and Seattle Children's. We will look forward to building on our success and to initiating our registration study later this year to support the expansion of XPREL label to include patients age zero to six years. On the regulatory front, we are advancing the FDA review process for our supplemental new drug application to expand the XPREL label with a PDUFID action date of November 13th. To remind you, this application is seeking expansion of the XPREL label to include two key lower extremity nerve block indications that we expect will significantly extend our reach into surgeries of the knee, medial lower leg, foot, and ankle, representing more than 3 million annual procedures. Finally, our phase one study in Expirel for intrathecal administration continues and is on track for completion around the end of this year. Switching gears to Zoretta and Iovera, while our full 200-person field-based team is broadening education and awareness around these complementary and standalone non-opioid solutions for managing osteoarthritis pain. So far this year, the team added more than 270 new first-time purchasing Zoretta customers and over 100 new Iovera customers. Several milestones are on track for the next year in current and new indications for both products. For Zaretta, we expect to initiate two new label expansion studies. These include a shoulder osteoarthritis study and a diabetes safety study in knee osteoarthritis. Importantly, if our shoulder study is successful, Zaretta should become the first and only approved corticosteroid specifically for shoulder OA. Both studies will evaluate Zoretta versus Triamcinolone with the goal of adding a superiority claim to the Zoretta label. For Iovera, we recently announced our newest partnership with renowned professional golfer Lexi Thompson, who will be advocating and educating athletes, their families, and fans about non-opioid solutions like Iovera. We also have a new broadcast TV commercial that started running last month on the Golf Channel and other select networks, to drive viewers to learn more at iovera.com. On a clinical front, we continue to be excited about the prospects for iovera as a potential game changer in spasticity. Last month, Dr. Gerald Francisco from the University of Texas Health Sciences Center highlighted iovera and cryoneurolysis as promising technologies in his keynote address entitled, Looking Exciting Prospects in Spasticity Management at the 2023 International Society of Physical and Rehabilitation Medicine Conference. Our registration study of Iovera for the treatment of spasticity remains on track to launch later this year. As you know, this is a highly dissatisfied market with inadequate treatment options currently limited to phenol and toxins. Our Iovera expansion activities also include a new Iovera Smart Tip for medial branch blocks for low back pain, which we expect to have on the market in 2024. Beyond our commercial portfolio, we have an exciting earlier stage portfolio of new product development opportunities that include PCRx201, a novel intraarticular gene therapy product candidate that produces IL-1 RA for osteoarthritis. As you may recall, data from our first phase one study were very encouraging with the greatest level of efficacy observed at the lowest dose studied. Based on this positive data, we are planning to launch a second phase one study for PCRx201 and osteoarthritis of the knee. We are currently finalizing our protocol after receiving input from the FDA. We also continue to advance Phase I readiness activities for our internal multivasicular liposome pipeline, which includes a multivasicular liposome dexamethasone formulation for low back pain and a multivasicular liposome bupivacaine formulation as a nerve block or field block for longer-lasting chronic pain where patients are most at risk for becoming addicted to their pain medications. And with that, I'd like to turn the call over to Charlie for his financial review. Charlie?