Pacira Biosciences Inc (PCRX) 2011 Q1 法說會逐字稿

Thank you for joining us for the Pacira Pharmaceuticals First Quarter 2011 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 session. 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 date. At this time, I would like to introduce Jennifer Beugelmans of Pure Communications. Please go ahead.

Thank you, operator, and good morning, everyone. Welcome to Pacira's First Quarter 2011 Financial Results Conference Call. With me on the call today are Dave Stack, President and Chief Executive Officer, Jim Scibetta, Chief Financial Officer, and Taunia Markvicka, Vice President of Commercial at Pacira.

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 process 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, including 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 prospectus relating to our initial public offering filed with the Securities and Exchange Commission, and are available online at www.sec.gov, and other filings.

All of the information in this conference call is as of May 11, 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 day.

Please be advised that today's call is being recorded and web cast. To access the web cast 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. Since we just spoke with you at the end of March, I will keep my comments brief and focused on the continued progress we are making in executing our strategy to position EXPAREL as a unique and needed tool for post-surgical pain management. I've also asked Taunia to join us today to give you an overview of the upcoming and recent medical and advisory board meetings where EXPAREL has been highlighted.

We continue to believe that EXPAREL can fulfill the medical need for a long-acting, non-opioid analgesic for use in post-surgical acute care settings. Our pre-commercial activities are focused on educating physicians and hospitals about the unique health, economic, and clinical benefits of EXPAREL for patients and healthcare providers and hospitals who care for them. In a classic marketing paradigm, where we create awareness, access, adoption, and use, Taunia and her team are focusing on creating awareness of EXPAREL with our most important customer audiences.

We also understand that in order to achieve access or formulary approval, we will need to demonstrate the value proposition for EXPAREL as part of a multi-modal pain regimen. With that in mind, we are working with our hospital customers to demonstrate that the use of opioid analgesia in the post-surgical setting leads to increased resource utilization and hospital expense. This increased resource utilization often includes extended length of stay, and this has been particularly evident in patient populations known to have complications linked to opioid usage.

The total cost associated with opioid administration and adverse events, which drive resource consumption and length of stay, are particularly important in the hospital environment where the majority of patient care is paid for under capitated payment agreements where our customers receive a single capitated payment related to the individual surgical procedures.

We are working closely with hospital consortium groups and integrated health networks to conduct retrospective studies, examining data specific to each hospital group. Together, we are investigating and identifying cost outliers to prove the hypothesis that reduced opioid use will improve the quality of patient care and hospital economics. Our initial goal is to identify patient populations whoa re considered to be most problematic when opioid phase pain control is employed.

While we believe that EXPAREL will offer unique benefits to all patient populations, we also believe that certain populations have historically had challenges with opioid use, including elderly patients, patients with sleep apnea, and patients who are opioid-tolerant. We believe these patients will represent the greatest opportunity to reduce costs, and will underscore the EXPAREL value proposition and specific procedures in patient populations to our hospital customers.

We have multiple projects underway, and expect to have results from the studies over the next two to three months. Based on these retrospective studies, we will also be working with these same customers to conduct prospective clinical trials to examine the results when EXPAREL is used to replace morphine PCA, and provide pain control and reduce opioid usage. Our initial targets will be abdominal soft tissue surgeries, such as colectomy, hysterectomy, cholecystectomy, prostatectomy, and abdominoplasty.

At the end of these studies, we believe we will have the evidence necessary to demonstrate to our customers that EXPAREL is part of a multi-modal regimen can improve pain control, improve patient care, and hospital economics. We believe that these data and the hands-on experience from our influence-center hospitals using EXPAREL, we will be able to work with physicians and hospital administration who participated in these programs and who routinely provide direction and guidance for their hospital groups to accelerate formulary adoption within the hospital consortiums and quickly position EXPAREL as the new solution for improved pain management with reduced opioid consumption.

We intend to distribute these data to our key constituents through a variety of mediums. Some of these platforms include clinical pharmacology newsletters, national and regional journals, and other relevant meetings.

With all of these data and the experience in hand, we will work with our hospital customers to develop patient protocols so that hospitals can develop models which will allow them to predict which patients will benefit most from reduced opioid pain management strategies.

By the time we are ready to launch, we believe the benefit of incorporating EXPAREL into post-surgical pain management regimens will be clearly articulated and well-understood by key hospitals and key opinion leaders. With that, I'd like to turn the call over to Taunia for a brief update on our recent educational and awareness activities. Taunia?

Thanks, Dave. As mentioned, the expansion of our pre-commercial and educational efforts include several key targets in soft-tissue surgical procedures. Within plastic surgery, we're ramping up our efforts to showcase EXPAREL to the physician group. Just last week, we presented new Phase III data at the 2011 Annual SAMBA meeting, which is the Society of Ambulatory Anesthesia, from a study that evaluated the extent and duration of the analgesic effect of EXPAREL in patients undergoing breast augmentation. Results of this study demonstrated the ability of EXPAREL to decrease post-surgical pain, reduce opioid loads, and provide superior duration of analgesia, compared to standard bupivacaine.

According to the American Society of Plastic Surgeons, there were 295,203 total breast augmentation procedures performed in 2010. Breast augmentation has continued to be the most commonly performed plastic surgery procedure in the United States since 2006. Based upon these statistics and the unique characteristics of EXPAREL, we believe plastic surgery, and more specifically breast augmentation procedures, will be a key market for us.

Later this month, we are hosting a Northeast Advisory Meeting with ten key plastic surgeons. And we will be pursuing additional follow-up meetings with our top enrollers. To compliment these efforts, we are establishing a formal advisory board with several leading plastic surgeons. We will work closely with the board to discuss the introduction of EXPAREL, as well as additional potential in abdominoplasty and other key plastic surgery procedures.

Colorectal surgery will also be a key market for EXPAREL. And we are excited to be showcasing our Phase III hemorrhoidectomy data at the upcoming AFCRS, or American Society of Colon and Rectal Surgeons meeting in Vancouver. During the meeting, we will also be sponsoring an advisory board, round table advisory dinners, one-on-one hospitality meetings, and our first Pacira Corporate booth.

Within anesthesia, our data has been, or is soon to be, highlighted in nine poster presentations at leading anesthesia meetings, including SAMBA, ASRA, which is the American Society of Regional Anesthesia and Pain Medicine, and IARS, the International Anesthesia Research Society. We have also recently formed an advisory board with a group of world class anesthesiologists and are beginning to see the results of this formal outreach. Some examples of the fruits of these efforts include several presentations on EXPAREL and our DepoFoam technology, as well as early protocols that outline how we can support our alignment with anesthesiologists. Anesthesiologists are key customers. As members of the surgical team, they are often the gatekeeper to the adoption of new medications for pain management.

Finally, within pharmacy, we have begun to initiate critical account profiling around formulary reviews. We have also established a series of advisory meetings with key customers to insure we are working with our pharmacy customers to provide the right information to support the market introduction for EXPAREL.

In addition to these efforts, we also recently completed a significant project with IMS to identify key accounts to optimize our targeting and field force deployment. We believe we are executing a dynamic pre-commercial launch plan that will strongly position EXPAREL as an important foundation for post-surgical pain management, with unique characteristics that can satisfy patients and physicians on med needs.

We are very excited about the traction we are gaining to-date and the opportunity ahead of us. With that, I'd like to turn the call over to Jim for our financial results. Jim?

Thanks, Taunia. Since we issued a press release this morning with our results, I'll limit my comments to our financial highlights. As reported, during the first quarter of 2011, our net loss was $9.8 million, or $0.98 per share. To avoid confusion, I should note that the reported loss per share reflects a weighted average share count of 10 million shares in Q1, which is confounded by the IPO in February and the shares that were issued in previous debt in shares that were converted at the time. As of March 31, 2011, we had approximately 17.2 million shares outstanding. And on a fully diluted bases, we had approximately 19.8 million shares outstanding.

For the quarter ended March 31, 2011, our total revenues were $3.9 million, compared with $4.8 million for Q1 of 2010. The $900,000 decrease was primarily attributable to a $1.2 million decline in supply revenue, which, as I discussed in detail during our year-end earnings call, reflects the variable nature of product orders from Pacira's commercial partners and our practice of running periodic manufacturing campaigns of several lots at a time to increase manufacturing efficiency, resulting in supply revenue not following uniformly within quarters.

Our royalty revenue, which is based on a percentage of end-user sales of the DepoCyt(e) and DepoDur products that are sold by our commercial partners, and therefore a decent proxy for product activity trends, increased modestly in the quarter-over-quarter comparative periods.

I also want to point out that the $1.5 million up-front license fee we received in Q1 from Novo Nordisk, which you may recall was related to the transaction we announced in January that could ultimately generate up to $44 million of development and sales-based milestone payments, and a single digit royalty on significant product revenues, did not contribute materially toward our Q1 revenue as that license fee is to be advertised over the estimated contract term.

Turning to cash, as of March 31, 2011, we reported unrestricted cash of $59.3 million. Our cash burn in the quarter was only about $5 million. The cash burn was, of course, mitigated by the $1.5 million cash received from the Novo deal. And I also want to point out that the mechanics of our royalty interest obligation with Paul Capital, our cash burn, finally in Q1, compared to the other three calendar quarters. As of March 31 of every year, we receive the unused reserve funds, if any, accumulated in the lock box account in Q2 from the previous year, which this March 31 amounted to approximately $900,000.

We are reiterating our financial guidance provided for 2011. As we stated previously, we remain focused on maximizing out cash resources available at the time EXPAREL is approved, in order to preserve operating flexibility going into the launch. Until EXPAREL is approved, we will not trigger expenditures that materially contribute to our 2011 cash burn for the purposes of funding the commercial sales force, late-stage EXPAREL nerve block, and epidural trials, the next stage of EXPAREL commercial manufacturing, and pipeline activities.

Based upon this, our current operating plan, which excludes 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 our cash burn in the fourth quarter of 2011 to be no greater than $25 million, and that includes a $10 million milestone that's payable to SkyePharma upon the first commercial sale of EXPAREL.

We also continue to expect DepoCyt(e) and DepoDur supply revenue and royalties, and collaborative licensing and development revenues resulting from DepoFoam-based partnerships to be in the $14 million to $16 million range in 2011. Any revenue that we generate from EXPAREL in 2011 is outside of, and would be incremental to, the revenue that is subject to our guidance. I'll now turn the call back to Dave.

Thanks, Jim. I'd like to conclude our prepared remarks by reiterating that we believe we are successfully executing a dynamic pre-commercial plan that should position EXPAREL for success. We are greatly encouraged by the feedback and interest we have to-date, and firmly believe EXPAREL is a large product opportunity that can satisfy significant unmet needs with post-surgical pain management. We look forward to updating you on our progress in future quarters. With that, I'd like to open the call for questions.

(Operator Instructions)

Our first question will come from the line of Richard Lau with Wedbush Securities. Please proceed with your question.

Good morning, guys.

Good morning, Richard.

I was wondering if you guys could talk in a little bit more detail about the prospective trials for EXPAREL in the TCA setting, in terms of what those trials might look like and when we could start seeing data from them?

Yes. The idea here, Richard, as you know, is to identify in our consortium hospitals - to make it specific, again, if you were working with a premier hospital or an Ovation hospital, to identify the problem specific in their hospitals and their case mix. And then the protocols are going to be for the soft tissue indications that we outlined. So, think about things like open colectomy and laparoscopic colostomy. And in those trials, we will compare morphine PCA with a morphine rescue, specifically to EXPAREL and a morphine rescue with a primary end point being morphine consumption.

And we expect to start those trials once we have identified the target patient populations and the best influence hospitals for us to deploy that resource. That will probably happen some time in the June, July timeframe. Those trials will take somewhere in the 60- to 90-day timeframe to complete. So we'll have data as we come up to launch, assuming that we're lucky enough to get an approval on July 28, and we launch on October 1.

Okay. Great. Thank you.

Okay. Thanks.

Our next question comes from the line of David Amsellem with Piper Jaffray. Please proceed with your question.

This is actually Misha Dinerman for David. Good morning. Can you guys just provide more color on the studies you're running, or plan to run, regarding the pharmaco-economic outcomes related to EXPAREL?

Yes. The prospective piece of that, Misha, is what I just ran through for Richard. What runs up to that is a series of studies that are being done now where we have worked with our hospital customer groups. You know, the large consortiums and integrated health networks that I referred to in our prepared script to demonstrate to them that there are patients - patient groups - who can be identified as problematic on opioids. And that assumption is calculated against resource consumption and length of stay that drive these people to be cost outliers in this capitated environment where the hospital only gets the fixed payment for care.

We've got a half-dozen of those studies going on now, not only with the consortiums, but with many of the major players in opioid consumption and the cost of care in the post-surgical setting-involved so that we will be able to identify patient groups who are known to be problematic on opioids, and specific procedures where we can test the hypothesis that it is really morphine post-surgical pain control that is responsible for this resource consumption and length of stay in large part. Then that hypothesis will be the basis of the prospective trials that will run into the third quarter.

Okay. Great. And then, have you identified what, I guess, specific surgical populations you think are at the greatest benefit from the reduced opioid usage?

Yes. And this is to be borne out by many of the retrospective studies that are ongoing now. And please understand that it is somewhat linked to the case populations that each of the individual hospitals treat. So that's why we have to do it with the individual hospital consortiums because opioid-tolerant patients are largely found in orthopedic patients who take these opioids chronically for osteoarthritis and rheumatoid arthritis. So that patient population will most likely show up in a hospital consortium that has a large number of orthopedic procedures being performed.

But the answer to your question - yes. It is very well known that age, the elderly, do not process opioids well and, specifically, patients with sleep apnea have problems with opioids in the post-surgical environment. And then these chronic opioid users require a lot of morphine to achieve pain control because they're tolerant to morphine from their chronic use. And then, as we work with each of these individual groups, we identify certain patient populations given their case mix that they would like to look at as well.

Okay. Great. And then --

I'm sorry. Go ahead.

If I may, a bigger picture question on market opportunity. Are you surprised at all regarding the rapid uptake of cadences IV acetaminophen product? And is there any bleed-through there regarding possible implications for EXPAREL?

Our team works - one of the things that this team does, I think is a hallmark of this team, actually - is spend a lot of time working in the hospital environment and working with operating room, and anesthesiology, and surgery. And all indications we have from our anecdotal discussions with all of these guys is that they were quite excited about the opportunity to have an inject able acetaminophen product. So, no; I don't think - we're pulling for them, of course. We're hoping that they do well; and so far, I think what we've seen is about what we expected, Misha.

Okay. Great. Thank you.

You wanted to comment?

Yes. One important point there is, we just came out of an anesthesia meeting, meeting with both anesthesiologists as well as acute pain nurses, and many of those folks feel that we're a perfect compliment to [afirmev]. So they feel that EXPAREL and afirmev together could really significantly reduce the need for opioid rescue medications in these patients.

Great. Thank you.

Jonathan Aschoff, Brean Murray.

Hi, guys. It's nice to see all the pre-commercial awareness activities. And I guess all that's really left on my question list was the break-out of DepoCyt(e) and DepoDur. You pretty much addressed all the trial questions.

You're asking about the revenue breakout?

Yes.

You know, DepoCyt(e) continues to be the large, the vast majority of that. And DepoDur is a fairly modest product. Out of the -- for the quarter, the DepoCyt(e) portion of it was $2.6 million, and DepoDur we didn't produce any lots at all. So it was just royalties, which is about $50,000.

Okay. Thanks a lot.

(Operator Instructions)

Our next question will come from the line of [Ann Trumbull] with Barclays Capital. Please proceed with your question.

Good morning. Thanks for taking the question. In terms of EXPERAL's NDA, have you had any recent interaction with the FDA? And if so, can you provide any color?

Ann, it's a slippery slope; and we've just decided that we're not going to go down that road. In deference to our ongoing discussions with the FDA, we just have not commented on any of our ongoing discussions with them.

Okay. And then in terms of the FDA's recent requirement for [rems] planned of long-acting and extended release opioids, what are your thoughts of potential impact on use of EXPAREL?

I think, you know, it heightens the market awareness of the issues around opioids and I think anything that continues to make it more and more difficult to use opioids for pain control is going to work to our benefit in terms of awareness and the marketplace seeking opportunities to replace opioids. And so I think it's a net positive, although not a direct shot, if you know what I mean.

But I think it's just another brick on the load, if you will. The marketplace has really been looking for ways, not only to replace morphine, but looking for alternatives to PCA. And we see ourselves as another technology that, hopefully, will make that happen quickly.

And then, lastly, any events that we should focus on in the next few months prior to the EXPAREL PDUFA?

From a medical education perspective, we have our Phase III data coming up at [AFCRF] for the hemorrhoidectomy trial. We're getting really positive feedback so far and the enthusiasm for utilizing the product in the hemorrhoidectomy space, as well as in other colorectal procedures. And then we also have our program-wide efficacy and safety data that has been - one presented at SAMBA; the other will be presented at the IARF, which is coming up in the next week.

Thanks very much.

Thanks, Ann.

Our next question will come from the line of Matt Duffy, with Concept Capital Markets. Please proceed with your question.

Thank you for taking my question.

Dave, I wonder if you could just fill us in? Assuming you get a broad label at the end of July, anecdotally what level of interest in areas where you don't have specific data but you're still developing it? Do you expect this to start off in areas where you've got hard data already? Or is the enthusiasm a little broader than that? Thanks.

Good question, Matt. A couple of ways to go about it. Taunia and her team have done a number of secondary market research studies where we asked that very specific question. If we have data in herniorraphy, and in hemorrhoidectomy and breast augmentation, and total knee arthroplasty, and bunionectomy, et cetera, if we were able to provide that quantity of data on dosing, et cetera, what else would you like to see from us? And what we get in the vast majority of the cases is - that's plenty for me to have an opportunity to move forward to try these myself in my own surgical procedures.

It's an insightful question, Matt. One of the reasons that we chose to launch with an emphasis on the abdominal surgeries that we talked about before is that surgical wound is really pretty consistent from surgical procedure to surgical procedure. So as people learn how to use EXPAREL, for example in a colectomy, that, and especially in a lap procedure, that information will be readily transferable to the other abdominal soft tissue surgeries that they're treating.

Okay. Great. Thanks. And just anecdotally, also, what are docs looking for in terms of portion of reduction in use of opioids to be impressed with EXPAREL?

It all depends, Matt, on who you're talking to - whether they're an anesthesiologist or a surgeon. I mean, the nurses, frankly, are looking for anything that allows them to mobilize the patients more quickly and not have them walking around the hospital with the IV pole and the morphine syringes, and all the rest of that stuff.

If you say to somebody that you've got a 30% reduction in opioid, that is very meaningful to everybody. Folks get real interested in that. Anything north of there, people start to get really excited about the opportunity.

But we also always have to be mindful, Matt, that pain is so subjective that every patient really is a net of one. And so these guys are also highly mindful that it's really difficult to demonstrate across all the patients you're going to see this week that there is any one thing that we're going to be able to demonstrate.

But, overall, when you start talking about opioid reduction, and especially when you start talking about a safe mechanism of peripheral local administration, people get really excited because the other thing folks like about this is it's not a systemic therapy, that we're turning the pain off directly at the site of surgical insult. And that's what people are looking for - can I do that for an extended period of time?

All right. Okay. Great. Thanks very much.

Okay. Thanks, Matt.

At this time, we have no additional questions. I would like to hand the conference back over to Dave Stack, President and CEO for closing remarks.

Thank you very much for your time today, everybody. As I said in my closing remarks, we're excited about the opportunity. We're out working in the marketplace almost every day, and nothing happening here that leads us to believe that this is anything but a very exciting opportunity where customers are really as interested as we are in getting this thing on the market. We look forward to bringing you up-to-date as we go forward. Thanks for your time.

Thank you for attending today's conference. This concludes the presentation. You may now disconnect. And have a great day.