Pacira Biosciences Inc (PCRX) 2010 Q4 法說會逐字稿

Thank you for joining us for the Pacira Pharmaceuticals Year End 2010 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Following the formal remarks, Pacira's management team will open the lines for a question and answer period.

Please be advised that this call is being recorded at the Company's request and will be archived on the Company's website for two weeks from today's call date.

At this time I would like to introduce Jennifer Beugelmans of Pure Communications. Please, go ahead.

Thank you, Mary, and good morning, everyone. Welcome to Pacira's fourth quarter 2010 financial results conference call. With me on the call today are Dave Stack, President and Chief Executive Officer, and Jim Scibetta, Chief Financial Officer.

Before I turn the call over to the management team for their prepared remarks, I would like to remind you that certain of the remarks made by management during this call about the Company's future expectations, plans and prospects constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

These statements about the Company's future expectations, plans and prospects include statements regarding the estimate of 2011 financial performance, anticipated development and approval timelines for EXPAREL, and the efficacy and utility of EXPAREL. Any such forward-looking statements are based on assumptions that the Company believes are reasonable, but are subject to a wide range of risks and uncertainties.

Actual results may differ materially from those expressed or implied by such forward-looking statements. Many of these risks and uncertainties are described in the Risk Factor section of the final prospectus relating to our initial public offering filed with the Securities and Exchange Commission, and are available online at www.sec.gov.

All of the information in this conference call is as of March 31, 2011 and should not be relied upon as representing the Company's views as of any subsequent date. While the Company may elect to update these forward-looking statements at some point in the future, the Company specifically disclaims any obligation to do so. Therefore, you should not rely on these forward-looking statements as representing our views as of any date subsequent to today.

Please advised that today's call is being recorded and webcast. To access the webcast replay, please visit the Investor Relations section of the Company's website at www.pacira.com.

I would now like to turn the call over to Dave. Dave?

Thanks, Jennifer. Good morning. and thanks, everyone, for joining us today for our inaugural financial results call as a public company. We are very excited to have achieved public company status, and we believe we have an exciting opportunity to move the Pacira story forward in a way that will positively impact the practice of our acute care practitioners and their patients and provide positive returns to our investors.

Pacira has multiple opportunities for success. We are a commercial stage acute care company with a broad and unique pipeline of differentiated product candidates built on our proprietary DepoFoam delivery technology. We are excited that EXPAREL, our lead product candidate, has a 505b2 NDA under FDA review and an upcoming PDUFA date of July 28, 2011. Beyond EXPAREL, we have partnered and unpartnered assets that we believe will create additional value for all of our stakeholders, some of which I'd like to briefly touch upon.

DepoNSAID, which is a preclinical product candidate for use locally by infiltration and intraarticular injection, is being developed to improve efficacy and avoid the systemic side effects commonly associated with NSAID. Our DepoNSAID product will ultimately be sold by the same Pacira commercial team I will be discussing shortly when I describe the EXPAREL commercial strategy.

Our second preclinical pipeline candidate is DepoMethotrexate. DepoMethotrexate uses DepoFoam technology to deliver the same area under the curve efficacy of methotrexate without the adverse event profile typically associated with once a week administration and the resulting high Cmax.

By reducing nausea, vomiting and somnolence, we believe that DepoMethotrexate provides the opportunity for patients to tolerate methotrexate therapy as the first step in a DMARD regimen.

Also, several [hail wells] in rheumatoid arthritis have commented that a subcutaneous form of methotrexate with reduced side effects will provide the option of increasing the tolerated dose of methotrexate to improve ACR scores. Our market intelligence indicates that there are roughly 500,000 patients on methotrexate at any given time, so this will also be a sizeable commercial opportunity.

Our proprietary DepoFoam delivery technology is a multivesicular liposome platform that requires a highly technically aseptic manufacture and fill process to produce. DepoFoam enables the delivery of a product over an extended period of time and has significant advantages over other existing delivery technologies, including the use of 31 gauge needles and pen systems, the ability to target any profile between one and 30 days, a rapid 505b2 regulatory strategy, and a broad range of product candidates, including proteins and peptides.

Between our IP protection, which we expect to extend through 2031, and our significant technical know-how, we believe we are the only company with capability and capacity to manufacture multivesicular liposomes at commercial scale. We believe this offers significant barriers to entry, and there will not be a generic DepoFoam product. In addition, our DepoFoam technology has been validated by commercialized products and R&D partnerships.

DepoCyt(e) and DepoDur, which are marketed globally by partners, have been built upon our DepoFoam platform and, as evidenced by our recently announced deal with Novo Nordisk, DepoFoam continues to be of great interest to potential partners looking to collaborate with Pacira to create significant product opportunities based on DepoFoam's unique features and benefits.

Further, there is meaningful precedent for our EXPAREL regulatory strategy, as both DepoCyt(e) and DepoDur were approved by the FDA through the 505b2 regulatory pathways, which we are pursuing for EXPAREL.

I'd like to spend the rest of our time today bringing you up to speed on activities and developments surrounding our lead product, EXPAREL. We believe EXPAREL can fulfill the medical need for a long acting non-opioid analgesic for use in postsurgical acute care settings and beyond.

For years, the pharmaceutical industry has sought to develop a long-acting bupivacaine, which is the standard of care in postsurgical analgesia, but which only provides pain relief for up to seven yours.

We have developed a product that extends the duration of action for bupivacaine and therefore may enhance the opportunity to utilize a non-opioid bupivacaine based strategy as a platform for postsurgical pain management. I want to make sure that I'm being clear about this development breakthrough. Our DepoFoam enabled technological breakthrough fundamentally changes the manner in which postsurgical pain can be managed.

This is not a typical delivery story where the value of an extended duration action is in facilitating a patients' compliance or convenience. Today, short acting bupivacaine, a widely used and high efficacious non-opioid therapy, cannot be re-administered once the wound is closed after surgery. EXPAREL provides a treatment paradigm for up to 72 hours of bupivacaine based therapy with a simple single injection.

Based upon this and data collected to date, we are confident that EXPAREL may provide the opportunity to offer effective pain control with reduced need for opioids numerous studies that the reduced use of opioids improves patient care and hospital economics.

Currently, EXPAREL for use in infiltration procedures is under FDA review. This indication is of great interest to our potential surgery and anesthesiology customers. Each year in the US, there are approximately 45 million surgical procedures performed, and we believe that in more that one-half, or roughly 24 million of these procedures, there is a need for a long acting non-opioid analgesic.

Infiltration is the procedure where surgeons inject the wound site to provide pain control directly at the site of surgical insult before the wound closure. In fact, in these 24 million procedures, we believe the intensity and duration of pain would justify the use of EXPAREL -- where these procedures would justify the use of EXPAREL.

A [caine] is already used in more than 10 million procedures and bupivacaine is used in more than 5 million of these procedures. An important feature of EXPAREL is that this product has been engineered to be used as bupivacaine is used today, except that EXPAREL provides for an extended duration of action.

We are hard at work executing an aggressive pre-commercial launch strategy and which we believe will solidly position EXPAREL for success. What's important to note is that Pacira -- the Pacira team's confidence in EXPAREL's future and prelaunch strategy is based on our collective years of working together in the successful clinical development and commercialization of Angiomax, as well as other -- several other well known products, including Versed, Zantac and Rocephin, among others.

We have been very encouraged by the primary market research we have accumulated to date, and based on these insights we are finalizing our messaging and positioning for EXPAREL. Based on this research, roughly 80% of surgeons we surveyed use infiltration to local analgesia, and at least half of these surgeons would likely use EXPAREL.

Further data suggests that these same surgeons also expressed their use of EXPAREL would reduce their use of traditional bupivacaine, opioids, as well as general anesthesia. We believe these reductions can positively impact patient care and hospital economics as well.

With our commercial team fully in place and with preliminary market data to guide us, we are focused on targeting and partnering with key opinion leader hospitals and physicians, to create scenarios where they can experience in their own hospital settings the impact of EXPAREL on health economics and clinical outcomes.

We believe this strategy of taking a customer equals partner approach will encourage physicians and institutions to take the role of champion for EXPAREL, as they will have seen the benefits first hand.

To support these efforts we are developing multiple advisory boards in these specialties and others, which, along with our -- the support of various centers of excellence, will serve to educate the early adopters on the role of EXPAREL in the surgical setting. We believe this support will allow us to achieve formulary success quickly, and we will serve as the foundation for continued adoption beyond the top 40 to 50 KOL hospitals that will be the target of our prelaunch commercial efforts.

Our publication plan is complementary to these efforts and equally aggressive. Historically, we have strategically opted not to publicly present a lot of our data due to competitive reasons. Now, however, based on our competitive advantages and significant development lead times, we are increasing our efforts to position our compelling data in peer reviewed forums.

In May alone, we have a presence at several medical meetings, including the American Society of Colorectal Surgeons, the American Society of Regional Anesthesia and Pain Medicine, the Society for Ambulatory Anesthesia, and the International Anesthesia Research Society.

We also have a number of presentations at national meetings on preclinical and toxicology studies for EXPAREL, as well as for our DepoFoam technology. All of these opportunities build upon our recent presentations at meetings, including the American Academy of Orthopedic Surgeons, where we won the Best Poster in the foot and ankle category, the Orthopedic Research Society and the American Society of Clinical Pharmacology and Therapeutics.

And these are instrumental in positioning EXPAREL and Pacira as a leader in specialty pharma. Please visit our website for upcoming presentation as well as materials.

We are excited about the opportunities that lie ahead for EXPAREL. Beyond infiltration, we believe that EXPAREL has tremendous upside in additional indications. EXPAREL for nerve block where bupivacaine is also a standard of care is under development.

And bupivacaine is also typically used by epidural administration, where there is significant interest in development of an EXPAREL for that indication as well. In both of these indications, EXPAREL for long term bupivacaine administration would replace the current use of catheters, drug reservoirs and pumps with a single simple injection.

Early feedback from these indications has been very enthusiastic and would increase EXPAREL's addressable market opportunity from the 24 million estimated for infiltration to 39 million potentials uses on an annual basis in the US alone. We also believe EXPAREL will have unique and valuable opportunities in markets around the world, and we look forward to discussing this potential upside with you in the coming quarters.

Though we've been quite busy since our IPO, there's a lot of activity and, perhaps more importantly, lots of excitement. We believe we are taking large steps forward and will position Pacira to emerge as a leading company that can satisfy the medical needs of our acute care customers, their patients and payers.

With that, I'd like to turn the call over to Jim for a recap of financial results and the 2011 guidance. Jim?

Thanks, Dave. Since we issued a press release this morning with our results, I'll limit my comments to our financial highlights. As reported, during the fourth quarter of 2010 our net loss was $7 million, and for the full year the net loss was $27.1 million. We narrowed our net loss in 2010 by lowering R&D expenses, which was a consequence of the completion of successful pivotal Phase III placebo controlled studies in 2009.

For the quarter ended December 31, 2010 our total revenues were $2.2 million compared with $4.3 million for the fourth quarter of 2009, with the decrease primarily due to $1.5 million lower supply revenue and a $400,000 decrease in collaborative licensing and development revenue in the fourth quarter of 2010, as compared to the fourth quarter of 2009. Total revenues for 2010 were $14.6 million, compared with $15 million for 2009.

As background, supply revenue is what we receive for shipping the DepoCyt(e) and DepoDur products we manufacture to our commercial partners. Our Q4 2010 results reflect, to a certain degree, the variability of product orders from our commercial partners, and to an even larger degree, our practice of running periodic manufacturing campaigns of several lots at a time in order to increase our manufacturing efficiencies.

These manufacturing campaigns may or may not fall uniformly within quarterly periods, and may or may not even fall uniformly within 12 month annual periods. This quarterly fluctuation is evident in the 2010 results, where we saw the total supply revenue actually increase for the full year 2010 to $7.6 million from $6.3 million in 2009, while the Q4 2010 component alone was much lower than the comparable 2009 period because of the manufacturing campaign runs.

Going forward, of course, if approved we believe that the revenue story will be squarely focused on EXPAREL. However, currently we see DepoCyt(e), which accounts for 90% of the supply revenue and royalties generated from our DepoFoam based marketed products, as a stable revenue source with modest year-over-year growth opportunities.

As I mentioned, we also saw a $400,000 decrease in collaborative licensing and development revenue in the fourth quarter of 2010 compared with the same period of 2009. This reflects that in Q4 2010 we were not actively working on Amylin activities that had been put on hold earlier in the year, and that we have not yet begun the DepoFoam based collaborative activities with Novo Nordisk that we announced in January 2011.

Turning to cash, as of December 31, 2010, we reported unrestricted cash of $26.1 million. On a pro forma basis, including the net proceeds from our February IPO, we reported cash of $64.6 million. Now, if you're trying to tie this all together, I'll note that the growth proceeds from the IPO were $42 million.

The net proceeds were $37 million after accounting for $5 million of expenses, but $1.5 million of those expenses had been incurred and paid by December 31, 2010. So, the net proceeds number that is added to our December 31, 2010 cash to derive a pro forma cash of $64.6 million is an additional $38.5 million of cash.

Now, given the IPO activity, let me briefly address our share count to avoid any confusion. At December 31, 2010 our GAAP reported common stock share count was only 575,000 shares outstanding. This, of course, was prior to not only the issuance of shares in the IPO, but also before conversion into common stock of the outstanding series A preferred stock and the secured and unsecured notes held by the Company's pre-IPO shareholders.

So today, as of March 31, 2011, following the IPO and the conversion of all of those preferred shares and notes, we have approximately 17.2 million shares of common stock outstanding, and our fully diluted share count, including warrants and stock options is 19.8 million.

Looking now into 2011. In setting the stage for 2011 guidance, a key goal is to maximize ash resources available at the time EXPAREL is approved in order to preserve operating flexibility going into the launch.

To this end, I want to underscore that we are operating under a pre-approval budget that is a very distinct entity from our anticipated post-approval budget. Prior to EXPAREL approval, we are investing in two key areas that should position us to drive value through EXPAREL.

One, the scale-up of the commercial manufacture of EXPAREL, with those expenses hitting the R&D line prior to commercialization. And two, the important pre-commercial activities that Dave spoke about, which of course will increase the selling component of our SG&A expenses.

Unless and until EXPAREL is approved, we will not trigger expenditures that material contribute to our 2011 cash burn for the purposes of funding, for example, the commercial sales force, subsequent EXPAREL nerve block and epidural trials, the next stage of EXPAREL commercial manufacturing, and pipeline activities.

Now, in terms of specific guidance for 2011, let me discuss revenues other than potential EXPAREL revenue as well as cash burn. Addressing revenue first, excluding the impact of potential sales of EXPAREL, should it be approved in the third quarter and commercialized in the fourth quarter of 2011, revenue is expected to range between $14 million and $16 million in 2011.

Revenue that is subject to our guidance includes anticipated DepoCyt(e) and DepoDur supply revenue and royalties, and collaborative licensing and development revenues resulting from DepoFoam based partnerships.

In terms of cash burn guidance, based on our current operating plan and excluding the impact of any future partnership, asset monetizations or other cash generating activities unrelated to our current operations, we expect our cash burn to be approximately $30 million cumulatively through the third quarter of 2011.

Based on the assumption that EXPAREL will be approved by the FDA in the third quarter of 2011 and that we begin commercialization in the fourth quarter, we expect cash burn in the fourth quarter of 2011 to be no greater than $25 million, including a $10 million milestone that's payable to Skye Pharmaceuticals due upon the first commercial sale of EXPAREL.

I'll now turn the call back to Dave.

Thanks, Jim. I'd like to conclude our prepared remarks by reiterating that for EXPAREL we are executing a tightly focused, specific and pragmatic pre-commercial plan in order to effectively position EXPAREL in the marketplace. We firmly believe that EXPAREL is a large product opportunity and that there is significant enthusiasm in the acute care setting for this non-opioid analgesic for postsurgical pain management.

We are excited about our opportunities to grow EXPAREL to achieve its long term potential as well as our opportunities to develop our other brand broad base of assets. We believe that our development commercial and partnering strategies will pay long term dividends for all of our stakeholders, and we look forward to updating you on our progress.

With that, Mary, I'd like to open the call for questions.

(Operator Instructions)

Our first question comes from the line of Rich Silver, Barclays Capital.

Good morning, and thanks for all the helpful commentary. On the medical meetings that EXPAREL will have a presence, can you give us some sense of relative importance of those meetings and sort of relative exposure that you expect from the ones that you've listed in the press release? Thanks.

Yes, thanks, Rich. Most -- I would say that in most situations we are still at the stage where these are posters and abstracts that are being presented. I would tell you that we are also taking the opportunity, especially in our -- when the audience is a key audience around the launch profile, to have ad board meetings and to do a lot of one-on-one meetings.

So in that regard, Rich, I would say that the Society of Colon and Rectal Surgeons actually sort of towers above the others that are on this list. We will have a significant one-on-one presence there as well as an ad board, as well as a couple of posters that are quite important.

Other than that, at ASRA we have a med/ed symposia and that's an important group of customer bases for us as well. So I would say of the all the things that we've disclosed here, those two would be the ones that we're going to be focusing most of our resources on.

Okay. Thanks very much.

Thank you. Your next question comes from the line of David Amsellem, Piper Jaffray.

Hey, guys. Thanks for taking the questions.

Good morning, David.

Morning. So, first question, on manufacturing, can you just give us an update where the FDA is on their inspection process of the facility in California? And then a second part of that, given the transition to the new suite, how should we think about gross margin expansion in 2012 and 2013?

On the first point, David, since we've got regular communications with the FDA and out of deference to those discussions, we're not going to have any disclosures around our ongoing regulatory activities between now -- from here to the PDUFA date, at a minimum.

On the second, I'm going to --

Yes.

I'm looking at Jim here for those of you that can't see us.

I'll jump in on the second question. Obviously, we're not providing any specific guidance on that activity now. But as we've talked about with folks, once we get into the second stage of our manufacturing, our gross margins will be very compelling in the context of the pharmaceutical industry.

And even broader, I would say, that we have the opportunity to manufacture a product and all the attendant IP benefits that go along with being able to defend the product over a very long period of time. And what goes with that is an infrastructure that has some costs associated with it and makes the margins not look that great when you first launch the product.

But the variable margins, the per unit cost of manufacturing this product, is actually quite low, no matter what manufacturing suite we'll be using. So, we feel like it's a very compelling product down the road economically.

Okay, that's helpful. And then, the second question I had is assuming that eventually there's additional capital, just remind us what would be the next steps in terms of clinical development for the nerve block and the epidural expansion opportunities. In other words, what trials would come up next?

So, for nerve block, David, we are continuing to do some early work. Some of the intelligence, I guess, is, coming back from our discussions with KOLs in the nerve block space, is that as a result of ultrasound and CT guidance, the doses that are being used in nerve block are quite a bit lower than those that would be traditionally referenced.

So, there's really two important issues as we get down the road of nerve block. One is to be very certain that we can separate sensory function from motor function and that we understand the dose implications of that.

And two, is that we get a firm handle on those so that we come out of the block with -- in the current environment and with the current best practices, understanding exactly what the dose should be so we don't go backwards in our clinical program.

So, right now we're doing that work. We expect that that would move to a Phase II design where we would use a larger [end] of patients in order to clearly define the dose and the dose ranging, and then move to Phase III.

Without getting a lot of specificity, David, largely because it's still early days in terms of how this program rolls out, if you saw our Gantt chart, for example, we need 18 to 24 months in order to be able to put that program together and file an sNDA.

So, epidural would follow very much the same plan. I mean, we have a Phase I dataset there. Not a lot has changed in terms of how bupivacaine is being used in epidurals. But that's also further away in terms of our understanding of the current use of the drugs in that marketplace.

Okay. And just one last question on epidural. So, is that greater than 18 to 24 months away from a filing -- ?

What we've talked about with folks in the past, David, is that with our resources and with our people resources in terms of the number of folks we have in clinical, we've always envisioned that we would do nerve block, and then we would do epidural sequentially.

Now, if somebody came along and wanted to partner one of those assets, or if somebody had an intense interest in one of those assets that wanted to change that paradigm, we would clearly be open to that. And there's no reason why they couldn't be developed in parallel.

But if under the current plan with Pacira providing the resources and the people to do that development, we would do them sequentially wit nerve block first.

Okay, great. Thank you.

Thanks.

Thank you. Your next question comes from the line of Richard Lau, Wedbush.

Hi, guys. Thanks for taking my questions.

Hi, Richard.

Can you talk a little bit about your current thinking in terms of timing for hiring the sales force and maybe getting some folks on contingent offers?

Yes. We -- I'll just remind everybody on the call that in a previous life I was the President and General Manager of Innovex. And (inaudible) -- sorry for Blackberry feedback, guys. And so, we do intend to use Innovex as our partner in terms of the launch of this program. Our expectation, Richard, is that obviously it'll be highly dependent on the PDUFA date and on the FDA approval process and when we would actually need a sales force.

But if I follow the current timeline that is our hoped for scenario, I guess, would be a PDUFA date in July that would lead to a launch with a sales organization in October. The reason for that is P&T committees don't meet, and you just don't want to have a sales force out there roaming around when you don't have a drug on formulary and they don't have very specific objectives to achieve.

And in order to meet that timeline, we would bring in sales management in the July, August timeframe and we would bring in reps at the end of August. We really don't need more than four to five weeks in order to be able to train a sales force and bring them up to speed.

Keeping in mind that our target for a sales force here is clinical study coordinators and ICU nurses and Pharm Ds, and people who are very skilled and aware not only of the science, but also of how a hospital operates, et cetera.

So, that's -- we wouldn't be -- we're not thinking about making any offers, indicative or otherwise, to a sales force until we have very clear visibility that we not only have a solid timeline for FDA approval, but we have a -- we're certain of what that label's going to be as well.

Okay, great. Thank you.

Thanks.

Thank you. your next question comes from the line of Jonathan Aschoff of Brean Murray.

Thanks for that. Good morning, David, and Jim.

Good morning, Jonathan.

I was wondering, regarding future potential partners, maybe there's not much you can say about this at present, but is it all EXPAREL ex-US focused, or is there more of maybe a similar amount of focus on nerve block and epi? Can you give us any color on how extensive these talks have been?

We have had discussions on different territories with all of the products in our portfolio, Jonathan, so it's not just EXPAREL. Really, in terms of nerve block and epidural for EXPAREL, we have had some peripheral discussions around different ways that we might be able to partner with different strategic opportunities, both in the US and ex-US.

We've also had some strategic discussions with folks who are in the rheumatoid arthritis space that have some strategic interest in dexamethasone -- or DepoMethotrexate as a strategic opportunity to engage RA patients before they make that biological decision. But there's really nothing that would be appropriate for any kind of specific guidance. They really are broad and they're, frankly, quite early.

Okay. Thank you very much, Dave.

Okay. Thanks, Jonathan.

Thank you. there are no other questions at this time. I would like to hand the call to Dave Stack for closing remarks.

Just to say thank you to everybody. We appreciate your time and your interest in Pacira, and we look forward to having the opportunity to meet with you personally and to bring you up to date on these quarterly calls in the future.

Thanks a lot for your time.

Thank you for your participation in today's conference. This concludes the presentation, and you may now disconnect. Have a wonderful day.