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spk21: Thank you for standing by. My name is Hermione, and I will be your conference operator today. At this time, I would like to welcome everyone to Q1 2024 Paseura Biosciences Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to return a question, press star 1 again. I would now like to turn the call over to Susan Lesko, Head of Investor Relations. Please go ahead.
spk12: Thank you, and good afternoon, everyone. Welcome to today's conference call to discuss our first quarter 2024 financial results. Joining me are Frank Lee, Chief Executive Officer, 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 PACERO website. With that, I will now turn the call over to Frank Lee.
spk04: Thank you, Susan. Good afternoon, everyone. It's been an exciting and productive time since I joined the company earlier this year, and I'm pleased to say sales are off to a solid start and on track for all three of our trusted opioids-bearing products, which continue to make an important impact on patients' lives. This year, our priority is Expiril, which is what I'll focus on today, I'll also touch briefly on PCRx201. Let's start with XBRL. Our goals are centered on preparing the organization and marketplace to fully realize its long-term potential. Let me walk you through the progress we've made in advancing three key drivers for 2024. First, advancing the launch of XBRL and two new lower extremity nerve block indications. Second, progressing our awareness and educational activities around separate Medicare reimbursement at average selling price, or ASP, plus 6% in outpatient settings beginning in 2025 with the implementation of NoPain. And third, expanding patient access to Expiril through 340B pricing and new GPO partnerships, such as Premier. I'll start with lower extremity nerve block, where we're seeing positive market receptivity across all sites of care. Delivering four days of opioids-bearing pain control with a single 10-mL Expirel dose is an attractive value proposition to the anesthesia and surgical community for knee, foot, and ankle surgeries. Physicians are also reporting consistent results with some patients not taking any opioids. following very painful lower extremity procedures. To remind you, we launched with a strong presence in the TKA segment. We're also working to build relationships in advanced product uptake through education and training in other lower extremity procedures, like ACL repair, foot and ankle procedures.
spk13: We would expect a slower uptake in this segment of the market.
spk04: Turning now to the opportunity ahead with the upcoming changes in Expiril reimbursement for outpatient procedures. Separate CMS reimbursement of Expiril across all outpatient settings marks an important milestone. It will eliminate the cost barrier by fully reimbursing Expiril at ASP plus 6% beginning in January of 2025. Given the market steady migration away from hospital inpatient care, we see ample room for expanding expiril utilization in outpatient settings. We've allocated resources to drive education and help healthcare systems implement expiril as best practice data of care for CMS patients. 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. To maximize this important opportunity, we're enhancing our organization with new talent and capabilities to ensure operational excellence within critical functions such as marketing, strategic accounts, medical, and market assets. In parallel, we're advancing initiatives to drive awareness, education, action across key decision makers. We're also paving the way for no pain through our participation in 340B pricing and new GPO partnerships. Earlier this year, we announced a partnership with Premier whose significant network of hospitals and healthcare systems covers nearly 20% of XREL relevant market procedures. Through these preferential pricing programs, we're helping healthcare systems afford the opportunity to be at the forefront of opioid sparing pain management. While it's still early days, we're pleased with the initial data we're seeing from our partnership with Premier. In the first two months of post-launch, extra volumes at Premier accounts are up with only a modest impact on net sales dollars. In short, this partnership is starting to do what we expect it to do.
spk13: Importantly, We have two additional GPO partnerships in process.
spk04: As for Xperil and Ivera, I'm pleased to say both products are performing according to plan with solid sales growth for the quarter. With respect to margins, while Xperil landed in our guided range, Xperil and Ivera margins weighed on consolidated margins for the quarter. Charlie will share more details on margins shortly, but I want to emphasize that our primary focus is on driving top-line growth. As we grow the top lines, margins will in turn benefit. Switching gears to our research and development pipeline, I'd like to share a few quick updates on PCRx201. This novel intra-articular helper-dependent adenovirus gene therapy product candidate codes for interleukin-1 receptor antagonists, or IL-1RA, for the treatment of osteoarthritis OA of the knee. Here we believe PCRX201 has the potential to become a leading disease-modifying agent by turning the patient's own cells into therapeutic production sites of IL-1 RA. As background, IL-1 is a known inflammatory cytokine with inhibition tied to the reduction in catabolic processes in the joint that contribute to OA of the knee and progression. Last month, we presented encouraging preliminary results from a 72-patient phase one study of PCRX201 at the Osteoarthritis Research Society International, or ORSI, 2024 World Congress in Vienna. The data will also be featured at an encore podium presentation at the annual meeting of the American Society of Cell and Gene Therapy this week in Baltimore. These data showed that a single intra-articular injection of PCRX201 demonstrated sustained clinical effect as assessed by patient-reported outcomes at all dose levels for at least one year post-injection. Importantly, PCRX201 was shown to be well-calorated with a favorable safety profile. We now have data for two years, and we are preparing to submit those data for presentation at a medical meeting in the fall. Of the 14 million Americans suffering from symptomatic OA of the knee, 2 million are under the age of 45. The duration of effect for currently available treatments is limited to three to six months. Based on our market research and feedback from our scientific advisory board, improving pain and function while potentially modifying the disease for a year or more would be considered transformative by both physicians and patients. Furthermore, a year or more of durability would be clinically and economically meaningful for patients and the healthcare system. These promising preliminary findings earned PCR XCO1 the FDA's first ever regenerative medicine advanced therapy or RMAT designation for gene therapy product in osteoarthritis. Lastly, unlike other gene therapies, we believe PCR XCO1 will be able to be manufactured at large scale for a favorable cost of goods sold. Before I turn the call over to Charlie for a review of the financials, I'd like to highlight today's announcement of our plans to implement the $150 million stock repurchase plan. This stock repurchase plan underscores our confidence that we have in our growth outlook and the belief that Peixera shares offer an attractive investment opportunity given the significant value ahead. With that, I'll turn the call over to Charlie for his financial report.
spk06: Thank you, Frank, and good afternoon to all on the call. 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 afternoon. I'll start with an update on sales and margin trends, starting with X4L. First quarter X4L sales increased to $132.4 million versus $130.4 million in 2023, driven by volume growth of 3%, which was partially offset by contracted discounts with the rollout of our premier partnership in January, as well as a modest shift in vial mix. First quarter Zulretta sales increased to $25.8 million, versus $24.3 million in 2023. And Iovera sales improved to $5 million compared to $4 million in the first quarter of 2023. Turning to margins, on a consolidated basis, our first quarter non-GAAP gross margin percent was 72%. While first quarter XBRL margins landed within our full-year guided range of 74% to 76%, Zorretta and Iovera margins were below our guided range and negatively impacted consolidated gross margins for the quarter. For non-GAAP R&D expense, the first quarter increased to $16.4 million from $15.3 million reported last year. This year-over-year increase primarily relates to the startup activities for the Zorretta Phase III study in shoulder OA. Of note, the first quarter R&D expense includes $7.4 million of product development and manufacturing capacity expansion costs, which is down 4% from the prior year, as we approach the completion of our pre-commercial scale-up activities for the recently approved 200-liter Expirel manufacturing suite in San Diego. Non-GAAP SG&A expense came in at $63.8 million for the first quarter, which is up from $62.5 million last year. This increase is largely due to professional and legal fees associated with the paragraph 4 and other litigation, and to a lesser extent, costs associated with our transition to a new CEO. First quarter interest expense improved to $3.3 million versus $9.6 million reported last year. This was driven by the interest expense savings associated with the retirement of our term loan B on March 31st of 2023, using a new term loan A and cash on hand. And lastly, we delivered another quarter of significantly positive adjusted EBITDA of $44.6 million. With respect to capital allocation strategy, we're focused on creating long-term shareholder value. Today, we announced a $150 million stock repurchase plan, which gives us the flexibility to opportunistically return capital to our shareholders. We believe that our stock is undervalued, and we view our share repurchase program as a productive use of capital that will generate favorable returns for our shareholders. Turning to guidance, today we reiterate our full-year guidance for 2024 as follows. Total revenue of $680 to $705 million. Non-GAAP gross margin of 74% to 76%. Non-GAAP R&D expense of $70 to $80 million. Non-GAAP SG&A expense of $245 to $265 million. And stock-based compensation of $50 to $55 million. With that, I'll turn the call back to Frank.
spk04: Thank you, Charlie. In closing, I'm very pleased with the progress we've made thus far in 2024, leveraging growth opportunities for ExpoRail, launching new indications, preparing for the significant reimbursement opportunity that lies ahead next year, and also growing Zoretta and Ivera. The progress we're making is setting the stage for us to further entrench our leadership position in providing non-opioid pain management solutions. We're sharply focused on growth, and as we continue to execute our growth strategy, we'll create value for shareholders, healthcare systems, and most importantly, transform the lives of the patients we serve. With that operator, we're ready to open the call for questions.
spk21: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the Q&A. If you would like to withdraw your question, simply press star one again. If you are called upon to ask your question and are listening via loud speaker on your device, please pick up your handset to ensure that your phone is not on mute when asking your question. Again, press star one to join the queue, and your first question comes from the line of Gregor Lorenza with RBC Capital Markets. Please go ahead.
spk25: Thank you. Good afternoon, Frank and the CIRA team. Congrats on the progress, and thanks for taking my question. Frank, I appreciate all the updates in the color on XBRL for the quarter, especially on Premier and the GPO contract. I was wondering if you and the team could just comment on how you view the cadence of the contracting that you alluded to with a couple more potentially coming online. How should we be thinking about that and its impact and the influence on XBRL performance over 2024?
spk04: Yeah, thanks, Greg. Thanks for the question. We're excited about what we're seeing. It's still early days now, right, because we signed this thing in January. It's early days, but we're excited about what we're seeing from my comments, and we're working on a couple more, as you mentioned. Let me turn it over to Charlie. He gives a little bit more color on that.
spk06: Hey, Greg. So the The expectation from a rollout perspective is that we would likely have a second contract kind of later in the second quarter and maybe another one in the third quarter. So the contracts are rolling in throughout the year. And as Frank said, you know, the first quarter of the activity probably isn't at its peak, so it takes a little time for them to get warmed up. But we anticipate, you know, by the end of this year that we'll have three active GPO relationships.
spk04: And let me just add some additional color there. In addition to the contracts, what this enables to do is to partner with the GPOs to better educate their membership on what's coming with respect to outpatient reimbursement and SP Plus 6, you know, starting in January 2025.
spk24: Got it. That makes sense.
spk25: And maybe keeping with a similar theme for my question, and I know it's too early to tell when it comes to 2025, as you just mentioned, but when it comes to that call it a bolus of patients with no pain, at what point would you have some comfort in talking about what that trajectory could look like? Of course, with the 6 million patients for CMS and then that additional is a double when it comes to the commercial opportunity. At what point should we start thinking about your comfort level as you prepare for kind of that trajectory of those patients and capturing that opportunity from 2025 and beyond? Thanks again and congrats, Frank.
spk04: Yeah, that's a good question, Greg. We're doing a lot of work now. So as you know from prior discussions, we've reallocated our resources toward no pain. And so a lot of folks are working on getting not only ourselves prepared, but the market prepared. We're going to have a better view as we get closer to the end of the year. And I know that there's quite a bit of interest in terms of thinking about how we model the uptake of No Pain. And my sense is that the work that we're doing now with a number of partners and having discussions in various settings, along with some qualitative and quantitative research that we're doing, in partnership with various parties, we're going to have much better insight into the uptake of no pain come towards the end of the year. And we'll be able to provide some better clarity in terms of what segments we think are going to uptake earlier on versus later. And of course, as we mentioned, it'll take some time for commercial payers to follow suit. And so we're focused on that as well. Broadly speaking, as we mentioned before, Susan Mesko, our head of IR, We'll be hosting some information settings in the fall. That timing will release in due course, which will provide better clarity on some initial feedback that we're getting from the marketplace. I think, Greg, if there are no other questions, we can move to the next caller.
spk21: Your next question comes from the line of David Ancelin with Piper Center. Please go ahead.
spk23: I have a couple questions. First, I know you said, Frank, that it's going to take some time for commercial payers to follow suit as it relates to no pain. I guess my question here is can you talk to your dialogue with commercial plans and ultimately your confidence that these commercial plans will indeed follow suit? And then secondly, when you talk about that lag time, if you will, with commercial plans, is that more of a 2026 event? Just help us understand that. how long it might take for them to follow the lead of CMS. And then the last question is just on the cost structure. You talked about 201 and, of course, allocating resources to NoPain. I'm wondering where Zulretta and Iovera fit in terms of the long-term strategy of the company going forward. Thanks. Thanks.
spk04: David, thanks for the questions. First, let me just provide a little bit of context on the opportunity known as no pain. But, you know, I think we're trying to really make sure we focus on this one as outpatient reimbursement at ASP plus six for CMS patients. Initially, as you know, we've quantified that as approximately four million patients in the HOPD setting. and about 4 million in the ASC setting, which is quite substantial. So we've got a fair amount of opportunity right in front of us that we need to make sure that we do a good job of education in the marketplace to provide those patients with access to Expiril. As we stand up the broader commercial organization, and I think you've heard me say before that we are bolstering our commercial resources commercial, medical, and importantly, market access. So that's in progress. We've reallocated resources from other parts of the company to bolster that area. And as we start to further now make progress there, and again, I think that's going to be more towards the end of the year, we're going to have much better clarity in terms of specifically how we see no pain playing out over the course of 25, 26, and 27. So that's where we are with that. With regard to Zoretta and Iavera, as you heard earlier, we're making good progress there. We're making good progress. And sales are very solid in terms of what we've been able to deliver. And that will continue from what we can see. But as I've said before, we are sharply focused on growing Xparel. So in terms of disproportionate resourcing towards Xparel, we're doing that. We are treating this like a product launch. And so that's how we're approaching this situation.
spk06: Hey, David, this is Charlie. Just building on your comment of 201, you know, please note we are investing in clinical trials for both Silreta and Iovera with the shoulder OA study and the spasticity study.
spk11: So there is investment going on. Got it. Helpful. Thanks. Thanks David.
spk21: Your next question comes from the line of JPMorgan. Please go ahead.
spk10: Hey guys, thanks for taking my question. I just had a couple of questions on the 495 patent challenge from eVenus. I was just wondering if you guys could give us some latest kind of thinking you guys have in terms of, you know, what are some of the more likely scenarios that could play out and what actions kind of market actions eVenus could take in the meantime, based on the ruling and just want to confirm is expectation that The ruling from the judge comes still comes in July or is there any kind of change on that front?
spk04: Thanks for the questions Hardik Just a little bit of background and so we do expect the ruling on the first patent litigation sometime by end of June and so that's what that's consistent with what we said before and And just to remind, we've got a number of other patents that will need to be litigated. In addition, of course, eVenus will need to get their product approved and eventually decide to launch the product at some point. So there are a number of things ahead, but let me turn it over to Kristen to provide some additional color here.
spk01: Yeah, thanks. As Frank said, there really isn't an update since we talked to you all at the end of February on the 495 trial. We still expect it to read out by July 1st, which is when the 30-month stay is up. So we look forward to the court's opinion being issued before then. And as Frank mentioned, and as we've reiterated, and we actually put a little detail in our release, we continue to produce new IP around X4L. orange book listed patents, and those are additional hurdles that eVenus would, you know, need to get through in order to eventually launch a product. So, you know, it's in our release, but we did just have in March three additional orange book listed patents, two method of use, and another composition of matter, and those are in addition to the other ones after 495. So, there are quite a few patents that we still need to get through, but As I said, we're looking forward to getting resolution to 495 here in short order, and then we'll continue to produce new IP, and they will continue to have to work through our other patents that are all on the orange book here.
spk10: Great. Thank you. And then just one more on, you mentioned the external gross margin was within the full year guidance range. I was wondering if you could give a little bit more kind of granular detail about how margins are progressing among the various facilities, for example, the one in the UK versus in San Diego.
spk04: Yeah, thanks for that, Hardik. You know, I think overall we're progressing well. We haven't really broken it down specifically by site. As you know, the 200-liter facility is coming in, is going to come online later on this year. I don't know, Charlie, if you want to say a few words about margins.
spk06: No, listen, in the long term, the improvement in gross margins is going to be driven by two major factors for Expro. One is the manufacturing equipment the vial is manufactured on, so the 200 liter is generally less expensive than the 45s. But probably even more importantly is the total volume. So we're focused on expanding top line and driving volume so that margins can follow.
spk11: Thank you.
spk21: Your next question comes from the line of Gary and Nakma with Raymond James. Please go ahead.
spk03: Great. Good afternoon. Frank, first talk more about your progress with the modernization of the commercial organization. Do you think you'll have most of that in place by mid-year as you prepare for no pay next year? I think that's been the target. What big hires still need to take place? And then how aggressive do you plan on being with the share buyback? How is that contemplated with the convert coming due next year? And you have to maintain a certain amount of cash for that, so maybe talk through that as well.
spk04: Great. Thanks for the questions, Gary. First on the commercial organization, as I mentioned earlier, we're making very good progress on modernizing and bolstering the commercial, medical, and market access organizations at a high level we've talked about plans and we're making good progress on plans to hire a chief commercial officer and that's on track in addition we're expanding the number of folks in our field reimbursement management team payer team as well as market access strategy and operations so those are all things that are on track In addition, we're looking very carefully at the broader commercial organization, including bolstering our resourcing of our marketing teams and medical teams. So those things are right on track and, again, supported by reallocating our resources away from certain areas of the company and investing them here, where we believe it's going to make a difference here for our no-pain launch. So that's a comment on our commercial organization, and I'd characterize it as we're making good progress. And largely speaking, we expect that to be in place sometime in the second half of the year. With respect to this year of buyback, let me turn it to Charlie here. I'll just say that it really does underscore our confidence in our growth outlook. And it's an attractive investment given the value that we believe is ahead. So, Charlie, let me turn it over to you.
spk06: Thank you, Frank. And Gary, thanks for the question. So, you know, listen, as you point out that we have a business that's operationally cash flow positive. We generate cash every year. You know, we just reported having roughly $326 million on the balance sheet. As you point out, we do need a certain amount of money on the balance sheet to repay the the $400 million of August 25 notes next year. And so we're going to balance priorities, and we're not going to make any commitments about when we're going to spend the $150 million. We're going to use it opportunistically as we think benefits our shareholders.
spk13: And we will balance all of the needs from a cash flow perspective over time.
spk14: All right, great. Actually, maybe one follow-up for Frank.
spk03: Just what are the next steps for 201? You seem pretty excited about the data you've seen there so far, you know, following the phase one. You know, what comes next? What sort of resources will you put behind it? Charlie, you mentioned before you are investing a little bit in pipelines. So I'm curious, you know, is that something that could start this year or will you likely wait until, you know, to see how things unfold next year? Thanks.
spk04: Yeah, Gary, so it's an important question. There'll be certainly quite a bit more effort this year in terms of planning and thinking through what we need to do, but in terms of any sort of spend and investment, largely that'll be ahead of us in 25, 26, and 27. And so we're excited about it. As I mentioned, we have had an opportunity to review the data with the Scientific Advisory Board. We've also presented some of the data, as I mentioned, at ORSI and this week at ASGCT, and so we continue to vet the data. We also continue to think through clinical development strategy going forward, but in terms of activity, a lot of it this year will be vetting our strategy and planning, and the investments will largely occur in 25 and beyond.
spk14: Okay, that makes sense. Thank you. Thanks, Gary.
spk21: Your next questions come from the line of Des Joleski with Juris Securities. Please go ahead.
spk07: Hi. This is Jeremy on for lives. Thanks for taking our questions. How do you view the opportunity with PCRx201 and how exactly does the recent designation help you? Thanks.
spk04: Yeah. You know, it's a very interesting opportunity because this is the first RMAT designation for gene therapy in osteoarthritis. And what that means is that the FDA and the company will work closely as we think about further vetting the data and development strategies. So this is a wonderful opportunity to make sure that we stay close with the FDA. And to the extent that we develop this asset going forward, this could truly be transformational for patients. As I mentioned earlier, based on our market research and discussions with thought leaders, current treatments offer patients three to six months of benefit and durability, whereas we know that for market research, 12 months or more is considered transformational. And so to the extent that PCRX201 can deliver that, this could be an important new treatment option for patients. So we'll continue to vet the data, put the development plan together, but we're very excited about the data, and obviously based on the RMAT designation, FDA as well.
spk11: Thank you.
spk21: Your next questions come from the left of Oren Diznat with HA Warning. Please go ahead.
spk19: Thanks. Thanks. Congrats on a pretty clean quarter. A couple questions. Just to build on earlier questions about the commercial follow-on after no pain kicks in, I just want to make sure I understand what we're talking about here. Like, obviously, a pretty small overall market share of the broader landscape of procedures. I think you've highlighted in the past about 12 million relevant outpatient commercial procedures. And so I just want to understand when you talk about following on, Do you mean plans are just not covering XBRL at all, hence your small market share now, and they'll maybe feel compelled to cover it if CMS is? Or is it about improvement in terms and access with those plans? Just help me understand what we're even talking about here a bit. I do have a follow-up.
spk04: Yeah, so thanks for that question, Oren. What I'm talking about is oftentimes CMS will come out first with reimbursement, and commercial plans will take some time to evaluate when and if they'll cover the new therapy. And so our task at hand now is to work very closely with the commercial payers to accelerate that adoption on the commercial side of things. Now, that said, we do have a C code, and oftentimes, you know, that can be reimbursed in the ASC setting currently, but it's not straightforward as it could be. And so here we have an opportunity with no pain and CMS reimbursement to use this now to engage commercial payers to follow suit sooner than they normally would. And so that's really it. But I'll remind you again that there's a substantial opportunity just with the CMS patients. What we're trying to do now is to really make this even a broader impact. So that's the idea.
spk19: Okay. So just so I'm clear, I mean, you obviously have a lot of outpatient use now, like you said. I mean, it's a $500, $600 million product, not all inpatient. So I just wanted to understand, is how that's being done now suboptimal even across the entire board of your commercial outpatient reimbursement, and that could change meaningfully at some point afterwards?
spk04: Yeah, you know, what's important with no pain legislation is in the outpatient setting, it provides for ASP plus 6% reimbursement, which, for example, in the HOPD is pulling that thing out of the bundle. So this is important. So the product will be reimbursed separately. So now if you add up favorable access through 340B or GPOs, and you add on top of that ASP plus 6 reimbursement, I think this provides for an attractive value proposition given what XBRL delivers on the clinical setting, and oftentimes some of the cost issues have been a barrier. So this is important. So to the extent that that sort of reimbursement formula is followed to any extent by commercial payers, this will be something that further accelerates launch.
spk19: Okay. And then just to follow up, I don't want to parse your language too closely. I know that can be pretty irritating. But you said to the extent we develop this asset going forward, and I want to know if I should interpret that as just to the extent it bears developing going forward based on how the data turns out, or maybe if you are looking to out-license this to another company for someone else to take it forward potentially.
spk04: I'm sorry, which product are we talking about?
spk19: Sorry, for 201.
spk04: For 201? Yeah. Ah, I see. I see. Look, first, we're very excited about 201. We're going to go through a lot of thinking here about our development strategy. We have no plans to do anything but that right now. So that's what I'd say to you. Yeah.
spk13: All right. I appreciate it. Take care. All right.
spk21: Your next question comes from the line of . Please go ahead. Hi.
spk20: Good evening, and thanks for the question. So a couple from me. While I can understand the rationale for the share report, I'm curious to know the capital allocation factors when you're deciding the quantum of $120 million, one, and two, I'm not sure if you've covered this already, so again, if you could take us through the growth and the dynamics of the quarter and how it changed in the previous quarter and what are the scenarios that we expect for the year. And maybe just take a quick question on the 18 million procedures that are going to be covered. Are these 18 million procedures going to be fully implemented through the next quarter?
spk04: Hey, Balaji, you were breaking up on me there a little bit. So I think your first question was related to the stock repurchase, if that's correct. And so, again, yeah, so what I'll underscore here is the confidence we have in our growth outlook and the fact that it's an attractive investment given that outlook going forward. If your question is about sort of the cadence and the and the amount, maybe I can, you know, turn that over to Charlie. Yeah.
spk06: Hey, Balaji. It's Charlie here. And so I think one of your questions might have been about the amount. And so, you know, from our perspective, you know, we looked at what typical first-time people size, and it was kind of 10% to 15% of market cap, and that's really how we came up with $150 million. Okay. We also note that we have between now and the end of 2026 to utilize it, but if we utilize it more quickly and it makes sense, we can go back to the well and get another authorization. So this is something we're going to try. We're going to use it opportunistically and hopefully to everybody's benefit.
spk04: Thanks, Charlie. And I think, Balaji, your other question was about broadly no pain and just some numbers. So You know, 18 million total that we believe are outpatient procedures that could, you know, fall under no pain. Now, specifically with respect to the settings and patient populations, so out of that 18 million, 6 million CMS and 12 million commercial. And so inside that 6 million, is roughly about 4 million that lie within the HOPD setting and 2 million that are within the ASC setting. Whereas in the commercial, that 12 million in the commercial is roughly about 4 million in the HOPD setting and about 8 million in the ASC setting. So hopefully that's clear.
spk20: If I could ask a follow-up there, Frank, just what percent of these 18 million procedures would be incremental to Xperil, that is those who are not on Xperil today, through any pathway?
spk04: Yeah, I think by and large this is going to be a very favorable impact, and particularly if I think about the CMS patients right out of the gate, 6 million CMS patients in the HOPD specifically and ASC. You know, I can't give you a hard number right now about how much is incremental, but what I can say is that our penetration, largely speaking, is fairly low. And a lot of that is due to the cost barriers that have existed. And hence, you know, that was the thinking behind making sure that we drive no pain legislation to passage. And so the company saw that early on and has worked over the past seven years with our Voices Coalition in partnership And that's why this thing was passed. And so fundamentally, it's pulling the drug reimbursement or product reimbursement out of the bundle. So there's not a financial disincentive to use the best product for the patients. So hopefully that's clear. So I think given our low share penetration in this marketplace, we've got substantial room to further penetrate where those cost barriers are the real issue.
spk14: Thanks, Frank.
spk21: Your last question comes from the line of John Glonka with Needham and Company. Please go ahead.
spk08: Hi, everyone. This is John on for surge. Thanks for taking our questions today. We have two questions regarding expo pricing for this year and beyond. First, can you provide some context on what the discount looks like right now to improve the user base and what the strategy might look like for the rest of the year based on what you've seen so far?
spk09: And then when no paying comes into effect next year, what does the pricing strategy look like at that point with improved reimbursement? Thanks.
spk04: Yeah. So, Charlie, maybe you want to talk a little bit about XBRL pricing strategy. What I'll say here is that, you know, when you think about what we're doing with GPO and access to 340B, that's very favorable. So I'll say that. And with no pain, obviously the reimbursement then gets better as opposed to the pricing. And so beyond that, Charlie, maybe you want to add a little bit of color.
spk06: Sure. So if we think about XBRL's total gross to net at this point, it's a hair under 84%. And that includes product returns and prompt pay discount. It includes 340B. a series of individual customer contracts, and over time it will also include the GPOs as well. I think that was probably your question. If you're talking about pricing, actually price increases. You know, we've been pretty modest in that regard. We did one in January. And, you know, we're really focused on expansion of the top line by volume, not so much price.
spk08: Yeah, I think really just for next year when no pain comes to effect, do you see the pricing kind of taking a, you know, I don't know, a more lumpy change at the beginning of the year, or do you see more of a gradual flip from a discount to a price increase?
spk06: So ASP plus six is critically important in the outpatient setting to drive volume. ASP Plus 6 has nothing to do with our whack or the prices we will charge. So I don't know that we will change our strategy in any way, shape, or form. We're just going to try to educate our potential customers so that they can benefit from ASP Plus 6 and we can benefit from volume.
spk04: John, I want to go back to we're sharply focused on growth. Doing so solves a lot of things, including margin. some of the questions earlier. And this is the opportunity for us to drive penetration and growth with this catalyst of no pain. So that's what we're focused on.
spk11: Great. Thanks.
spk21: That concludes our Q&A session. I will now turn the conference back over to Susan Mesko, Head of Investor Relations, for closing remarks.
spk12: Thank you, Hermione, and thanks to all on the call for your questions and time today. We are excited about the opportunities that lie ahead for us. Throughout the balance of the year, we will continue to ensure we are well positioned for long-term success. The opioid epidemic continues to be a national crisis, underscoring the vital importance of our mission. Thank you, and stay well.
spk21: Gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect. Thank you. you you Thank you. you Thank you. Thank you Thank you for standing by. My name is Hermione, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q1 2024 Pacera Biosciences earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to return a question, press star 1 again. I would now like to turn the call over to Susan Lesko, Head of Investor Relations. Please go ahead.
spk12: Thank you, and good afternoon, everyone. Welcome to today's conference call to discuss our first quarter 2024 financial results. Joining me are Frank Lee, Chief Executive Officer, 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 PACERO website. With that, I will now turn the call over to Frank Lee.
spk04: Thank you, Susan. Good afternoon, everyone. It's been an exciting and productive time since I joined the company earlier this year, and I'm pleased to say sales are off to a solid start and on track for all three of our trusted opioids-bearing products, which continue to make an important impact on patients' lives. This year, our priority is Expiril. which is what I'll focus on today, I'll also touch briefly on PCRx201. Let's start with XBRL. Our goals are centered on preparing the organization and marketplace to fully realize its long-term potential. Let me walk you through the progress we've made in advancing three key drivers for 2024. First, advancing the launch of XBRL and two new lower extremity nerve block indications. Second, progressing our awareness and educational activities around separate Medicare reimbursement at average selling price, or ASP, plus 6% in outpatient settings beginning in 2025 with the implementation of NoPain. And third, expanding patient access to Expiril through 340B pricing and new GPO partnerships, such as Premier. I'll start with lower extremity nerve block, where we're seeing positive market receptivity across all types of care. Delivering four days of opioids-bearing pain control with a single 10-mL Expirel dose is an attractive value proposition to the anesthesia and surgical community for knee, foot, and ankle surgeries. Physicians are also reporting consistent results with some patients not taking any opioids. following very painful lower extremity procedures. To remind you, we launched with a strong presence in the TKA segment. We're also working to build relationships in advanced product uptake through education and training in other lower extremity procedures, like ACL repair, foot and ankle procedures.
spk13: We would expect a slower uptake in this segment of the market.
spk04: Turning now to the opportunity ahead with the upcoming changes in Expiril reimbursement for outpatient procedures. Separate CMS reimbursement of Expiril across all outpatient settings marks an important milestone. It will eliminate the cost barrier by fully reimbursing Expiril at ASP plus 6% beginning in January of 2025. Given the market steady migration away from hospital inpatient care, we see ample room for expanding expiril utilization in outpatient settings. We've allocated resources to drive education and help healthcare systems implement expiril as best practice data of care for CMS patients. 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. To maximize this important opportunity, we're enhancing our organization with new talent and capabilities to ensure operational excellence within critical functions such as marketing, strategic accounts, medical, and market assets. In parallel, we're advancing initiatives to drive awareness, education, action across key decision makers. We're also paving the way for no pain through our participation in 340B pricing and new GPO partnerships. Earlier this year, we announced a partnership with Premier whose significant network of hospitals and healthcare systems covers nearly 20% of XREL relevant market procedures. Through these preferential pricing programs, we're helping healthcare systems afford the opportunity to be at the forefront of opioid sparing pain management. While it's still early days, we're pleased with the initial data we're seeing from our partnership with Premier. In the first two months of post-launch, extra volumes at Premier accounts are up with only a modest impact on net sales dollars. In short, this partnership is starting to do what we expect it to do. Importantly, We have two additional GPO partnerships in process. As for Xperil and Ivera, I'm pleased to say both products are performing according to plan with solid sales growth for the quarter. With respect to margins, while Xperil landed in our guided range, Xperil and Ivera margins weighed on consolidated margins for the quarter. Charlie will share more details on margins shortly, but I want to emphasize that our primary focus is on driving top-line growth. As we grow the top lines, margins will in turn benefit. Switching gears to our research and development pipeline, I'd like to share a few quick updates on PCRx201. This novel intra-articular helper-dependent adenovirus gene therapy product candidate codes for interleukin-1 receptor antagonists, or IL-1RA, for the treatment of osteoarthritis OA of the knee. Here we believe PCRX201 has the potential to become a leading disease modifying agent by turning the patient's own cells into therapeutic production sites of IL-1 RA. As background, IL-1 is a known inflammatory cytokine with inhibition tied to the reduction in catabolic processes in the joint that contribute to OA of the knee and progression. Last month, we presented encouraging preliminary results from a 72-patient phase one study of PCRX201 at the Osteoarthritis Research Society International, or ORSI, 2024 World Congress in Vienna. The data will also be featured at an encore podium presentation at the annual meeting of the American Society of Cell and Gene Therapy this week in Baltimore. These data showed that a single intra-articular injection of PCRX201 demonstrated sustained clinical effect as assessed by patient-reported outcomes at all dose levels for at least one year post-injection. Importantly, PCRX201 was shown to be well-calorated with a favorable safety profile. We now have data for two years, and we are preparing to submit those data for presentation at a medical meeting in the fall. Of the 14 million Americans suffering from symptomatic OA of the knee, 2 million are under the age of 45. The duration of effect for currently available treatments is limited to three to six months. Based on our market research and feedback from our scientific advisory board, improving pain and function while potentially modifying the disease for a year or more would be considered transformative by both physicians and patients. Furthermore, a year or more of durability would be clinically and economically meaningful for patients and the healthcare system. These promising preliminary findings earned PCR XCO1 the FDA's first ever regenerative medicine advanced therapy or RMAT designation for gene therapy product in osteoarthritis. Lastly, unlike other gene therapies, we believe PCR XCO1 will be able to be manufactured at large scale for a favorable cost of goods sold. Before I turn the call over to Charlie for a review of the financials, I'd like to highlight today's announcement of our plans to implement the $150 million stock repurchase plan. This stock repurchase plan underscores our confidence that we have in our growth outlook and the belief that Peixera shares offer an attractive investment opportunity given the significant value ahead. With that, I'll turn the call over to Charlie for his financial report.
spk06: Thank you, Frank, and good afternoon to all on the call. 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 afternoon. I'll start with an update on sales and margin trends, starting with X4L. First quarter X4L sales increased to $132.4 million versus $130.4 million in 2023, driven by volume growth of 3%, which was partially offset by contracted discounts with the rollout of our premier partnership in January, as well as a modest shift in vial mix. First quarter Zulretta sales increased to $25.8 million, versus $24.3 million in 2023. And Iovera sales improved to $5 million compared to $4 million in the first quarter of 2023. Turning to margins, on a consolidated basis, our first quarter non-GAAP gross margin percent was 72%. While first quarter expo margins landed within our full-year guided range of 74% to 76%, Zolretta and Iovera margins were below our guided range and negatively impacted consolidated gross margins for the quarter. For non-GAAP R&D expense, the first quarter increased to $16.4 million from $15.3 million reported last year. This year-over-year increase primarily relates to the startup activities for the Zolretta Phase III study in shoulder OA. Of note, the first quarter R&D expense includes $7.4 million of product development and manufacturing capacity expansion costs, which is down 4% from the prior year, as we approach the completion of our pre-commercial scale-up activities for the recently approved 200-liter Expirel manufacturing suite in San Diego. Non-GAAP SG&A expense came in at $63.8 million for the first quarter, which is up from $62.5 million last year. This increase is largely due to professional and legal fees associated with the Paragraph 4 and other litigation, and to a lesser extent, costs associated with our transition to a new CEO. First quarter interest expense improved to $3.3 million versus $9.6 million reported last year. This was driven by the interest expense savings associated with the retirement of our term loan B on March 31st of 2023, using a new term loan A and cash on hand. And lastly, we delivered another quarter of significantly positive adjusted EBITDA of $44.6 million. With respect to capital allocation strategy, we're focused on creating long-term shareholder value. Today, we announced a $150 million stock repurchase plan, which gives us the flexibility to opportunistically return capital to our shareholders. We believe that our stock is undervalued, and we view our share repurchase program as a productive use of capital that will generate favorable returns for our shareholders. Turning to guidance, today we reiterate our full-year guidance for 2024 as follows. Total revenue of $680 to $705 million. Non-GAAP gross margin of 74% to 76%. Non-GAAP R&D expense of $70 to $80 million. Non-GAAP SG&A expense of $245 to $265 million. And stock-based compensation of $50 to $55 million. With that, I'll turn the call back to Frank.
spk04: Thank you, Charlie. In closing, I'm very pleased with the progress we've made thus far in 2024, leveraging growth opportunities for ExpoRail, launching new indications, preparing for the significant reimbursement opportunity that lies ahead next year, and also growing Zoretta and Ivera. The progress we're making is setting the stage for us to further entrench our leadership position in providing non-opioid pain management solutions. We're sharply focused on growth. As we continue to execute our growth strategy, we'll create value for shareholders, healthcare systems, and most importantly, transform the lives of the patients we serve. With that operator, we're ready to open the call for questions.
spk21: Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the Q&A. If you would like to withdraw your question, simply press star one again. If you are called upon to ask your question and are listening via loud speaker on your device, please pick up your handset to ensure that your phone is not on mute when asking your question. Again, press star one to join the queue, and your first question comes from the line of Gregor Lorenza with RBC Capital Markets. Please go ahead.
spk25: Thank you. Good afternoon, Frank and the CIRA team. Congrats on the progress, and thanks for taking my question. Frank, I appreciate all the updates in the color on XBRL for the quarter, especially on Premier and the GPO contract. I was wondering if you and the team could just comment on how you view the cadence of the contracting that you alluded to with a couple more potentially coming online. How should we be thinking about that and its impact and the influence on XBRL performance over 2024?
spk04: Yeah, thanks, Greg. Thanks for the question. We're excited about what we're seeing. It's still early days now, right, because we signed this thing in January. It's early days, but we're excited about what we're seeing from my comments, and we're working on a couple more, as you mentioned. Let me turn it over to Charlie. He gives a little bit more color on that.
spk06: Hey, Greg. So the The expectation from a rollout perspective is that we would likely have a second contract kind of later in the second quarter and maybe another one in the third quarter. So the contracts are rolling in throughout the year. And as Frank said, you know, the first quarter of the activity probably isn't at its peak, so it takes a little time for them to get warmed up. But we anticipate, you know, by the end of this year that we'll have three active GPO relationships.
spk04: And let me just add some additional color there. In addition to the contracts, what this enables to do is to partner with the GPOs to better educate their membership on what's coming with respect to outpatient reimbursement and SP Plus 6, you know, starting in January 2025.
spk24: Got it. That makes sense.
spk25: And maybe keeping with a similar theme for my question, and I know it's too early to tell when it comes to 2025, as you just mentioned, but when it comes to that call it a bolus of patients with no pain, at what point would you have some comfort in talking about what that trajectory could look like? Of course, with the 6 million patients for CMS and then that additional is a double when it comes to the commercial opportunity. At what point should we start thinking about your comfort level as you prepare for kind of that trajectory of those patients and capturing that opportunity from 2025 and beyond? Thanks again and congrats, Frank.
spk04: Yeah, that's a good question, Greg. We're doing a lot of work now. So as you know from prior discussions, we've reallocated our resources toward no pain. And so a lot of folks are working on getting not only ourselves prepared, but the market prepared. We're going to have a better view as we get closer to the end of the year. And I know that there's quite a bit of interest in terms of thinking about how we model the uptake of No Pain. And my sense is that the work that we're doing now with a number of partners and having discussions in various settings, along with some qualitative and quantitative research that we're doing, in partnership with various parties, we're going to have much better insight into the uptake of no pain come towards the end of the year. And we'll be able to provide some better clarity in terms of what segments we think are going to uptake earlier on versus later. And of course, as we mentioned, it'll take some time for commercial payers to follow suit. And so we're focused on that as well. Broadly speaking, as we mentioned before, Susan Mesko, our head of IR, We'll be hosting some information settings in the fall, and that timing will release in due course, which will provide better clarity on some initial feedback that we're getting from the marketplace. I think, Greg, if there are no other questions, we can move to the next caller.
spk21: Your next question comes from the line of David Ancelin with Piper Center. Please go ahead.
spk23: I have a couple questions. First, I know you said, Frank, that it's going to take some time for commercial payers to follow suit as it relates to no pain. I guess my question here is can you talk to your dialogue with commercial plans and ultimately your confidence that these commercial plans will indeed follow suit? And then secondly, when you talk about that lag time, if you will, with commercial plans, is that more of a 2026 event? Just help us understand that. how long it might take for them to follow the lead of CMS. And then the last question is just on the cost structure. You talked about 201 and, of course, allocating resources to NoPain. I'm wondering where Zulretta and Iovera fit in terms of the long-term strategy of the company going forward. Thanks. Thanks.
spk04: David, thanks for the questions. First, let me just provide a little bit of context on the opportunity known as no pain. But, you know, I think we're trying to really make sure we focus on this one as outpatient reimbursement at ASP plus six for CMS patients. Initially, as you know, we've quantified that as approximately four million patients in the HOPD setting. and about 4 million in the ASC setting, which is quite substantial. So we've got a fair amount of opportunity right in front of us that we need to make sure that we do a good job of education in the marketplace to provide those patients with access to Expiril. As we stand up the broader commercial organization, and I think you've heard me say before that we are bolstering our commercial resources commercial, medical, and importantly, market access. So that's in progress. We've reallocated resources from other parts of the company to bolster that area. And as we start to further now make progress there, and again, I think that's going to be more towards the end of the year, we're going to have much better clarity in terms of specifically how we see no pain playing out over the course of 25, 26, and 27. So that's where we are with that. With regard to Zoretta and Iavera, as you heard earlier, we're making good progress there. We're making good progress, and sales are very solid in terms of what we've been able to deliver. And that will continue from what we can see. But as I've said before, we are sharply focused on growing Xperil. So in terms of disproportionate resourcing towards Xperil, we're doing that. We are treating this like a product launch. And so that's how we're approaching this situation.
spk06: Hey, David, this is Charlie. Just building on your comment of 201, you know, please note we are investing in clinical trials for both Silreta and Iovera with the shoulder OA study and the spasticity study. So there is investment going on.
spk11: Got it. Helpful. Thanks. Thanks David.
spk21: Your next question comes from the line of JPMorgan. Please go ahead.
spk10: Hey guys. Thanks for taking my question. I just had a couple of questions on the 495 patent challenge from eVenus. I was just wondering if you guys could give us some latest kind of thinking you guys have in terms of, you know, what are some of the more likely scenarios that could play out and what actions kind of market actions eVenus could take in the meantime, based on the ruling and just want to confirm is expectation that The ruling from the judge comes still comes in July or is there any kind of change on that front?
spk04: Thanks for the questions Hardik Just a little bit of background and so we do expect the ruling on the first patent litigation sometime by end of June and so that's what that's consistent with what we said before and And just to remind, we've got a number of other patents that will need to be litigated. In addition, of course, eVenus will need to get their product approved and eventually decide to launch the product at some point. So there are a number of things ahead, but let me turn it over to Kristen to provide some additional color here.
spk01: Yeah, thanks. As Frank said, there really isn't an update since we talked to you all at the end of February on the 495 trial. We still expect it to read out by July 1st, which is when the 30-month stay is up. So we look forward to the court's opinion being issued before then. And as Frank mentioned, and as we've reiterated, and we actually put a little detail in our release, we continue to produce new IP around X4L. orange book listed patents, and those are additional hurdles that eVenus would, you know, need to get through in order to eventually launch a product. So, you know, it's in our release, but we did just have in March three additional orange book listed patents, two method of use, and another composition of matter, and those are in addition to the other ones after 495. So, there are quite a few patents that we still need to get through, but As I said, we're looking forward to getting resolution to 495 here in short order, and then we'll continue to produce new IP, and they will continue to have to work through our other patents that are all on the orange book here.
spk10: Great. Thank you. And then just one more on, you mentioned the external gross margin was within the full-year guidance range. I was wondering if you could give a little bit more kind of granular detail about how margins are progressing among the various facilities, for example, the one in the UK versus in San Diego.
spk04: Yeah, thanks for that, Hardik. You know, I think overall we're progressing well. We haven't really broken it down specifically by site. As you know, the 200-liter facility is coming in, is going to come online later on this year. I don't know, Charlie, if you want to say a few words about margins.
spk06: No, listen, in the long term, the improvement in gross margins is going to be driven by two major factors for Expro. One is the manufacturing equipment the vial is manufactured on, so the 200 liter is generally less expensive than the 45s. But probably even more importantly is the total volume. So we're focused on expanding top line and driving volume so that margins can follow.
spk11: Thank you.
spk13: Thanks, Artic.
spk21: Your next question comes from the line of Gary Nakma with Raymond James. Please go ahead.
spk03: Great. Good afternoon. Frank, first talk more about your progress with the modernization of the commercial organization. Do you think you'll have most of that in place by mid-year as you prepare for no pay next year? I think that's been the target. What big hires still need to take place? And then how aggressive do you plan on being with the share buyback? How is that contemplated with the convert coming due next year? And you have to maintain a certain amount of cash for that, so maybe talk through that as well.
spk04: Great. Thanks for the questions, Gary. First on the commercial organization, as I mentioned earlier, we're making very good progress on modernizing and bolstering the commercial, medical, and market access organizations at a high level we've talked about plans and we're making good progress on plans to hire a chief commercial officer and that's on track in addition we're expanding the number of folks in our field reimbursement management team payer team as well as market access strategy and operations so those are all things that are on track In addition, we're looking very carefully at the broader commercial organization, including bolstering our resourcing of our marketing teams and medical teams. So those things are right on track and, again, supported by reallocating our resources away from certain areas of the company and investing them here, where we believe it's going to make a difference here for our no-pain launch. So that's a comment on our commercial organization, and I'd characterize it as we're making good progress. And largely speaking, we expect that to be in place sometime in the second half of the year. With respect to this year of buyback, let me turn it to Charlie here. I'll just say that it really does underscore our confidence in our growth outlook. And it's an attractive investment given the value that we believe is ahead. So, Charlie, let me turn it over to you.
spk06: Thank you, Frank. And Gary, thanks for the question. So, you know, listen, as you point out that we have a business that's operationally cash flow positive. We generate cash every year. You know, we just reported having roughly $326 million on the balance sheet. As you point out, we do need a certain amount of money on the balance sheet to repay the the $400 million of August 25 notes next year. And so we're going to balance priorities, and we're not going to make any commitments about when we're going to spend the $150 million. We're going to use it opportunistically as we think benefits our shareholders.
spk13: And we will balance all of the needs from a cash flow perspective over time.
spk14: All right, great. Actually, maybe one follow-up for Frank.
spk03: Just what are the next steps for 201? You seem pretty excited about the data you've seen there so far, you know, following the phase one. You know, what comes next? What sort of resources will you put behind it? Charlie, you mentioned before you are investing a little bit in pipelines. So I'm curious, you know, is that something that could start this year or will you likely wait until, you know, to see how things unfold next year? Thanks.
spk04: Yeah, Gary, so it's an important question. There'll be certainly quite a bit more effort this year in terms of planning and thinking through what we need to do, but in terms of any sort of spend and investment, largely that'll be ahead of us in 25, 26, and 27. And so we're excited about it. As I mentioned, we have had an opportunity to review the data with the Scientific Advisory Board. We've also presented some of the data, as I mentioned, at ORSI and this week at ASGCT, and so we continue to vet the data. We also continue to think through clinical development strategy going forward, but in terms of activity, a lot of it this year will be vetting our strategy and planning, and the investments will largely occur in 25 and beyond.
spk14: Okay, that makes sense. Thank you. Thanks, Gary.
spk21: Your next questions come from the line of with security. Please go ahead.
spk07: Hi, this is Jeremy . Thanks for taking our questions. How do you view the opportunity with PCRx201, and how exactly does the recent designation help you? Thanks.
spk04: Yeah, you know, it's a very interesting opportunity because this is the first RMAT designation for gene therapy in osteoarthritis. And what that means is that the FDA and the company will work closely as we think about further vetting the data and development strategies. So this is a wonderful opportunity to make sure that we stay close with the FDA. And to the extent that we develop this asset going forward, this could truly be transformational for patients. As I mentioned earlier, based on our market research and discussions with thought leaders, current treatments offer patients three to six months of benefit and durability, whereas we know that for market research, 12 months or more is considered transformational. And so to the extent that PCRX201 can deliver that, this could be an important new treatment option for patients. So we'll continue to vet the data, put the development plan together, but we're very excited about the data and obviously based on the RMAT designation, FDA as well.
spk11: Thank you.
spk21: Your next questions come from the left of Oren Diznat with HA Warning. Please go ahead.
spk19: Thanks. Thanks. Congrats on a pretty clean quarter. A couple questions. Just to build on earlier questions about the commercial follow-on after no pain kicks in, I just want to make sure I understand what we're talking about here. Obviously, you have a pretty small overall market share of the broader landscape of procedures. I think you've highlighted in the past about 12 million relevant outpatient commercial procedures. And so I just want to understand when you talk about following on, Do you mean plans are just not covering XBRL at all, hence your small market share now, and they'll maybe feel compelled to cover it if CMS is? Or is it about improvement in terms and access with those plans? Just help me understand what we're even talking about here a bit. I do have a follow-up.
spk04: Yeah, so thanks for that question, Warren. What I'm talking about is oftentimes CMS will come out first with reimbursement, and commercial plans will take some time to evaluate when and if they'll cover the new therapy. And so our task at hand now is to work very closely with the commercial payers to accelerate that adoption on the commercial side of things. Now, that said, we do have a C code, and oftentimes, you know, that can be reimbursed in the ASC setting currently, but it's not straightforward as it could be. And so here we have an opportunity with no pain and CMS reimbursement to use this now to engage commercial payers to follow suit sooner than they normally would. And so that's really it. But I'll remind you again that there's a substantial opportunity just with the CMS patients. What we're trying to do now is to really make this even a broader impact. So that's the idea.
spk19: Okay. So just so I'm clear, I mean, you obviously have a lot of outpatient use now, like you said. I mean, it's a $500, $600 million product, not all inpatient. So I just wanted to understand, is how that's being done now suboptimal even across the entire board of your commercial outpatient reimbursement, and that could change meaningfully at some point afterwards?
spk04: Yeah, you know, what's important with no pain legislation is in the outpatient setting, it provides for ASP plus 6% reimbursement, which, for example, in the HOPD is pulling that thing out of the bundle. So this is important. So the product will be reimbursed separately. So now if you add up favorable access through 340B or GPOs, and you add on top of that ASP plus 6 reimbursement, I think this provides for an attractive value proposition given what XBRL delivers on the clinical setting, and oftentimes some of the cost issues have been a barrier. So this is important. So to the extent that that sort of reimbursement formula is followed to any extent by commercial payers, this will be something that further accelerates launch.
spk19: Okay. And then just to follow up, I don't want to parse your language too closely. I know that can be pretty irritating. But you said to the extent we develop this asset going forward, and I want to know if I should interpret that as just to the extent it bears developing going forward based on how the data turns out, or maybe if you are looking to out-license this to another company for someone else to take it forward potentially.
spk04: I'm sorry, which product are we talking about?
spk19: Sorry, for 201.
spk04: You're talking about 201? Yeah. Ah, I see. I see. Look, first, we're very excited about 201. We're going to go through a lot of thinking here about our development strategy. We have no plans to do anything but that right now. So that's what I'd say to you. Yeah.
spk13: All right. I appreciate it. Take care. All right.
spk21: Your next question comes from the line of . Please go ahead. Hi.
spk20: Good evening, and thanks for the question. So a couple from me. While I can understand the rationale for the . I'm curious to know the capital allocation factors when you're deciding the quantum of $150 million, one, and two, I'm not sure if you've covered this already, so again, if you could take us through the growth and dynamics of the quarter and how it changed in the previous quarter and what are the scenarios that we expect for the year. And maybe just take a quick question on the 18 million procedures that are going to be covered. Are these 18 million procedures going to be fully implemented to the next quarter?
spk04: Hey, Balaji, you were breaking up on me there a little bit. So I think your first question was related to the stock repurchase, if that's correct. And so, again, yeah, so what I'll underscore here is the confidence we have in our growth outlook and the fact that it's an attractive investment given that outlook going forward. If your question is about sort of the cadence and the and the amount, maybe I can, you know, turn that over to Charlie. Yeah.
spk06: Hey, Balaji. It's Charlie here. And so I think one of your questions might have been about the amount. And so, you know, from our perspective, you know, we looked at what typical first-time people size, and it was kind of 10% to 15% of market cap, and that's really how we came up with $150 million. Okay. We also note that we have between now and the end of 2026 to utilize it, but if we utilize it more quickly and it makes sense, we can go back to the well and get another authorization. So this is something we're going to try. We're going to use it opportunistically and hopefully to everybody's benefit.
spk04: Thanks, Charlie. And I think, Balaji, your other question was about broadly no pain and just some numbers. So You know, 18 million total that we believe are outpatient procedures that could, you know, fall under no pain. Now, specifically with respect to the settings and patient populations, so out of that 18 million, 6 million CMS and 12 million commercial. And so inside that 6 million, is roughly about 4 million that lie within the HOPD setting and 2 million that are within the ASC setting. Whereas in the commercial, that 12 million in the commercial is roughly about 4 million in the HOPD setting and about 8 million in the ASC setting. So hopefully that's clear.
spk20: If I could ask a follow-up there, Frank, just what percent of these 18 million procedures would be incremental to Xperil, that is those who are not on Xperil today, through any pathway?
spk04: Yeah, I think by and large this is going to be a very favorable impact, and particularly if I think about the CMS patients right out of the gate, 6 million CMS patients in the HOPD specifically and ASC. You know, I can't give you a hard number right now about how much is incremental, but what I can say is that our penetration, largely speaking, is fairly low. And a lot of that is due to the cost barriers that have existed. And hence, you know, that was the thinking behind making sure that we drive no pain legislation to passage. And so the company saw that early on and has worked over the past seven years with our Voices Coalition in partnership And that's why this thing was passed. And so fundamentally, it's pulling the drug reimbursement or product reimbursement out of the bundle so there's not a financial disincentive to use the best product for the patients. So hopefully that's clear. So I think given our low share penetration in this marketplace, we've got substantial room to further penetrate where those cost barriers are the real issue.
spk14: Thanks, Frank.
spk21: Your last question comes from the line of John Glonka with Needham and Company. Please go ahead.
spk08: Hi, everyone. This is John on for surge. Thanks for taking our questions today. We have two questions regarding expo pricing for this year and beyond. First, can you provide some context on what the discount looks like right now to improve the user base and what the strategy might look like for the rest of the year based on what you've seen so far?
spk09: And then when no paying comes into effect next year, what does the pricing strategy look like at that point with improved reimbursement? Thanks.
spk04: Yeah. So, Charlie, maybe you want to talk a little bit about XBRL pricing strategy. What I'll say here is that, you know, when you think about what we're doing with GPO and access to 340B, that's very favorable. So I'll say that. And with no pain, obviously the reimbursement then gets better as opposed to the pricing. And so beyond that, Charlie, maybe you want to add a little bit of color.
spk06: Sure. So if we think about XBRL's total gross to net at this point, it's a hair under 84%. And that includes product returns and prompt pay discount. It includes 340B. a series of individual customer contracts, and over time it will also include the GPOs as well. I think that was probably your question. If you're talking about pricing, actually price increases. We've been pretty modest in that regard. We did one in January. And we're really focused on expansion of the top line by volume, not so much price.
spk08: Yeah, I think really just for next year when no pain comes to effect, do you see the pricing kind of taking a, you know, I don't know, a more lumpy change at the beginning of the year, or do you see more of a gradual flip from a discount to a price increase?
spk06: So ASP plus six is critically important in the outpatient setting to drive volume. ASP Plus 6 has nothing to do with our whack or the prices we will charge. So I don't know that we will change our strategy in any way, shape, or form. We're just going to try to educate our potential customers so that they can benefit from ASP Plus 6 and we can benefit from volume.
spk04: John, I want to go back to we're sharply focused on growth. Doing so solves a lot of things, including margin. some of the questions earlier. And this is the opportunity for us to drive penetration and growth with this catalyst of no pain. So that's what we're focused on.
spk11: Great. Thanks.
spk21: That concludes our Q&A session. I will now turn the conference back over to Susan Mesko, Head of Investor Relations, for closing remarks.
spk12: Thank you, Hermione, and thanks to all on the call for your questions and time today. We are excited about the opportunities that lie ahead for us. Throughout the balance of the year, we will continue to ensure we are well positioned for long-term success. The opioid epidemic continues to be a national crisis, underscoring the vital importance of our mission. Thank you, and stay well.
spk21: Gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
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