Pacira Biosciences Inc (PCRX) 2011 Q4 法說會逐字稿

Thank you for joining us for the Pacira Pharmaceuticals Year-end 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 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 date.

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

Thank you, and good morning, everyone. Welcome to Pacira's End-of-Year 2011 Financial Results Conference Call. Joining me on the call today from Pacira are Dave Stack, President and Chief Executive Officer; Jim Scibetta, Chief Financial Officer. Taunia Markvicka, Vice President, Commercial Operations, is also with us today and will be participating in the Q&A discussion.

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 about the Company's plans to develop and commercialize EXPAREL, the success and timing of the commercial launch of EXPAREL, the rate and degree of market acceptance of EXPAREL, the size and growth of the potential markets for EXPAREL, and the Company's ability to serve those markets, and Pacira's commercialization and marketing capabilities.

Any such forward-looking statements are based on assumptions that the Company believes are reasonable, but are subject to a wide variety of risks and uncertainties. Actual results may differ materially from those expressed or implied by such forward-looking statements. Many of these and other risks and uncertainties are described in the Risk Factor Section and elsewhere in Pacira's Annual Report on Form 10-K, which will be filed this week and with its other filings with the SEC, which are available through the Investor Section of the Pacira website, or on the SEC website at SEC.gov.

All the information in the conference call is as of today, March 27, 2012, 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 in 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 company views as of any date subsequent to today.

Please be advised that today's call is being recorded and webcast. To access the webcast, please visit the Investor Relation's section of the Company's website at Pacira.com.

I will now turn the call over to Dave Stack. Dave?

Thanks, Jennifer. Good morning, everyone, and thank you for joining us. On this call today, I will first be making some remarks about the significant accomplishments we achieved last year, and will follow that with an update on our commercial plans and strategy for EXPAREL. Jim will then provide a summary of our 2011 financials and give a general outlook for 2012. We will then open the call up for questions. Most of you know Taunia Markvicka, who is also with us here today for the Q&A.

2011 was a very important year for Pacira. As you know, in February of last year we completed our initial public offering, netting the Company approximately $37 million. In November, we also completed a successful secondary offering that netted us approximately $49 million to fund the launch of our leading product, EXPAREL, for which we received FDA approval in late October.

For those of you new to the Pacira story, EXPAREL is bupivacaine delivered via our proprietary multivesicular liposome technology, administered by local infiltration for postsurgical pain control. The approval provides us with a broad label opportunity -- administration into the surgical site to produce postsurgical anesthesia.

With this label, EXPAREL is the first and only multivesicular liposome anesthetic for use in the peri- or postsurgical setting, using the same infiltration technique that is currently marketed in local anesthetics such as lidocaine and bupivacaine. Importantly, a single intraoperative dose of EXPAREL delivers bupivacaine for an extended period of time, providing analgesia with reduced opioid requirements for up to 72 hours.

Using the data that supported our regulatory filing, and data from other completed and ongoing studies throughout 2011, we were able to present positive findings on the safety and efficacy of EXPAREL across multiple surgical models.

As the key component of our marketing strategy, EXPAREL data were presented through more than 40 publications and presentations during 2011, including many of the top industry conferences and peer reviewed journals, and we achieved more than 1,700 interactions with key attending leading customers as a result.

With the EXPAREL launch plans underway, we hired a sales management team of seven regional leaders toward the end of 2011, who are now overseeing our 63-person sales force. This Pacira dedicated team was contracted through our agreement with Quintiles. The sales team has been fully engaged in EXPAREL commercial activities since mid-January.

Based on where we are today, we believe we are on track for our commercial launch of EXPAREL in the US during the week of April 9. As such, I wanted to outline some details of this commercial launch and our overall marketing strategy.

With our currently approved indication, we believe there are approximately 24 million inpatient surgical procedures performed in the US annually where EXPAREL may add value as a non-opioid postsurgical pain management tool. Initially, we are focused on abdominal soft tissue surgeries typically performed by colorectal surgeons, general surgeons and OB/GYNs. We believe there are more than 14 million of these procedures in the US annually where we believe EXPAREL can add value.

There are also approximately 1 million plastic surgery procedures, tummy tucks and breast augmentations where we believe that EXPAREL can provide differentiated utility, and another 1 million elastomeric pumps delivering bupivacaine that we believe can be replaced with a single intraoperative infiltration with EXPAREL. We estimate that our current sales force can cover more than 80% of this target market.

We have now publicly disclosed that the wholesale acquisition costs, or WAC, for EXPAREL will be $285 per 20 milliliter vial, with one vial representing one surgery. This price compares very favorably to the competition with bupivacaine delivered via an elastomeric pump costing about $450 per procedure, and the use of opioids by PCA approximately $500 per patient, with no additional cost adjustments for safety and adverse events, which are actually quite common.

Our launch strategy provides the opportunity to work with plastic surgeons to provide non-opioid analgesia without the need for elastomeric pumps in their clinical practice. And we are also working with pharmacy groups to replace the broader use of elastomeric pumps based on patient safety and compliance, as well as cost.

For the longer term, our commercial activity is primarily focused on positioning EXPAREL appropriately for formulary approval. Our goal is to demonstrate EXPAREL as an integral part of a multi-modal pain regimen.

We are working closely with our hospital customers and key opinion leaders to demonstrate the EXPAREL value proposition, which includes reduced opioid consumption, improved quality of patient care, hospital economics, and patient satisfaction, which is consistent with the growing awareness in the marketplace and an increased emphasis on HCAHPS and patient satisfaction as a reimbursement tool.

In preparation for the upcoming launch, our commercial team has been working to identify product champions at key institutions for pharmacy therapeutic committee reviews, to support formulary approvals and to establish the optimal clinical role for EXPAREL among our key customers.

We have been very pleased with our tangible success to-date. Specifically, in our top 100 accounts, we have identified 70 champions, and access has been secured in 33 of these top 100 customers. In our top 500 accounts, we have identified 324 champions and secured access in 53. Lastly, in our top 1,000 targeted accounts, 478 champions have been identified with access secured in over 200 accounts.

In addition, we have presented EXPAREL to more than 600 plastic surgeons, and more than 200 have indicated they would bring the product into their surgical cases upon availability.

While we are currently focused on executing a broad hospital launch of EXPAREL in the coming weeks, we are also ensuring that all of its clinical health economic benefits and proper utilization techniques are widely understood. As such, our commercial plan for 2012 includes an aggressive publication plan, multiple hospital and physician education and preceptorship programs, and the completion of prospective health outcome studies highlighting the economic benefits of incorporating EXPAREL into postsurgical pain management regimens.

We are currently on track for more than 20 publications in the first half of 2012. We have a number of key publications and data presentations for EXPAREL to support the formulary acceptance and to highlight outcomes and analyses demonstrating the burden of opioids.

Specifically, these publications include head-to-head data comparing EXPAREL to bupivacaine in soft tissue surgery, the Phase II hemorrhoidectomy program; the impact of postsurgical opioid use and adverse events on economic outcomes in hysterectomy surgeries; cardiac safety; program-wide efficacy and safety; a national database examining the effects of opioid-related adverse events and outcomes; and, the impact of opioid-related adverse events on length of stay and hospital costs in patients undergoing laparoscopic colectomy.

We also have an extensive Phase IV program underway that includes prospective studies focused on demonstrating the benefits of incorporating EXPAREL into postsurgical pain management protocols at our customer hospitals with their patients and surgeons. We are working with these integrated health systems customers to demonstrate prospectively how the use of EXPAREL will improve patient care and hospital economics by improving postsurgical pain management, reducing the opioid requirement and reducing opioid related adverse events.

For example, with our health systems partners, we have initiatives underway to establish centers of excellence utilizing a multimodal pain management regimen with the foundation of EXPAREL. In addition, a significant initiative to improve safety, ease of use, and economics by replacing elastomeric pumps is set to roll out in May.

We expect to have these results over the next few months, with further publications expected throughout the year to support our educational efforts. We believe this comprehensive launch strategy positions us well to successfully commercialize EXPAREL, and we are looking forward to reporting on the progress of this launch as it advances.

In a very recent development, the Centers for Medicare and Medicaid Services, CMS, has issued an ambulatory procedure code for EXPAREL effective April 2, 2012, that will allow our customers to bill EXPAREL separately when used for procedures in an outpatient setting. To this end, we have profiled nearly 800 surgical outpatient centers and provided education on the efficacy and safety of EXPAREL, and we believe there is a significant opportunity in support of our launch for this important product.

With that summary of past achievements and a discussion of our exciting upcoming launch plans, I would like to remind everyone that we have a very unusual commercial opportunity for EXPAREL and Pacira. There is no known competitor for a long-acting bupivacaine in clinical development, no potential for a substitutable generic based on our proprietary DepoFoam technology platform, and no IP [cliff] since we are the only known manufacturer for multivesicular liposomes. This creates a tremendous opportunity for Pacira.

And I will now turn it over to Jim Scibetta for a review of our fourth quarter and full year 2011 results. Jim?

Thanks, Dave. With this incredibly productive year behind us, I am pleased to be able to report on our 2011 financial results and touch on what to expect for 2012. As reported, for the full year 2011, our net loss was $43.3 million, or $2.64 per share. We sold 8.1 million shares in our follow on offering completed in November, and we ended the year with 25.3 million shares outstanding.

For the full year ended December 31, 2011, our total revenues were $15.7 million compared with $14.6 million for 2010. Total operating expenses for the full year 2011 were $54.8 million, a $17.5 million increase compared to the full year 2010. The increase was primarily attributable to an increase in SG&A expenses and the impairment of certain long-lived assets.

Selling expenses increased with the hiring of commercial personnel and activities supporting the commercialization of EXPAREL, and G&A expenses increased due to additional competition-related expenses and other expenses associated with being a public company.

As of December 31, 2011, we reported cash of $77.5 million. Our cumulative cash burn for the 12 months ended December 31, 2011, was approximately $37.2 million. This was, incidentally, about $5 million less than our cash burn guidance adjusted for the mid-year approval delay for 2011.

Turning to 2012. As we've previously noted upon first commercial sale of EXPAREL, we will be making a $10 million milestone payment to SkyePharma. For activities excluding EXPAREL, we are providing revenue guidance of between $23 million and $25 million for the full year ending December 31, 2012.

But to clarify, because on the surface, that looks like a big jump from 2011, $11 million of that forecasted revenue will be GAAP-based but non-cash generating revenue due to recognition of deferred revenue resulting from the termination of the EKR agreement for DepoDur. Under the contract, EKR provided 180 day termination notice to us in early January, so this revenue will be recognized over Q1 and Q2.

And, again, this revenue guidance is just for the legacy product activity associated with DepoCyt(e) and DepoDur, and for collaborative licensing and development revenues resulting from DepoFoam-based partnerships, and it does not include any sales estimates for EXPAREL.

From a financial perspective, 2012 is about EXPAREL revenue visibility. We're excited for the commercial launch of EXPAREL, and we look forward to updating you on our traction in the marketplace in conjunction with financial results communication later this year.

With that, I'll now turn the call back to Dave.

Thanks, Jim. As you just heard, we're very excited -- we are at a very exciting point in the evolution of Pacira. Just weeks from launching our lead product, we continue to be very bullish on the potential for EXPAREL to meet a significant unmet medical need in the postsurgical pain management.

We believe we are well prepared for launch with our commercial infrastructure and strategy in place, with significant progress already made in identifying and accessing our top target accounts and with compelling data supporting the benefits of using EXPAREL in a variety of settings.

We look forward to continuing to update you on our progress. With that, I'll turn it over to Shaquana to open it up for questions. Shaquana?

Thank you, sir.

(Operator Instructions)

Your first question comes from the line of David Amsellem with Piper Jaffray. Please proceed.

Hey, Thanks. Just a couple of questions. On the manufacturing, can you just give us an update on what your current capacity is in terms of how many doses you can make right now and your level of confidence in your ability to meet pre-order demand in the near term? And then the last part of that question is just to talk about your margins on the current manufacturing suite, and then once you transition into another suite next year what the margins would look like then. Thanks.

Hey, David. Good morning, and thanks for the question. We've spent the last quarter making sure that we have enough inventory to launch, David. And I think we're going to get away from trying to talk to anybody about how much inventory we actually have on the shelf at any one time. I mean, there really isn't much reason for us to get into that.

We can make a lot more inventory than people think we can sell this year and we think we're going to leave it at that for now. On the margin side of the business, really -- same answer. I mean, we're just not going to get into discussions of which suite is making which product and what margins we're at at any specific time because we're going to be in a fairly dynamic situation here going forward.

And regarding the new manufacturing suite, any update on the timing of that coming on line?

No. As we said before, David, we expect to take delivery of that as this year rolls forward, probably in Q3. And then from there it's a matter of making product and working through the availability of that suite with the FDA. So, there is no specific timeframe that I can give you.

Okay. And then one last question, we had seen reports of bupivacaine shortages out in the marketplace. Can you comment on how you think that might impact your launch? And have you gotten any feedback from hospital customers that the shortages out there are putting you in a potentially advantageous position with EXPAREL?

Let me broaden your question just a little bit, David, if I may. First of all, the shortages are sterile parenteral bupivacaine injection. There is no shortage of bupivacaine API. So, we don't have any issue of securing the bupivacaine for the production of EXPAREL. Just to get that out of the way.

And I think it's an area, frankly, where we have to be careful. We believe that it will be an advantage to us where pharmacists don't want to use the available bupivacaine to fill an elastomeric pump because it takes a lot more product per patient. But I think the trap for us is that we don't want to get into a situation where EXPAREL is used ubiquitously inside the hospital environment like -- or EXPAREL is used ubiquitously like bupivacaine currently is.

I mean, that would certainly get us in trouble with our hospital customers. So, I think we have to be careful. If somebody wants to use us instead of on elastomeric pump, I think that's a real positive. Outside of that, I think we want to focus on colorectal, OB/GYN, and general surgeons in the abdominal space, which is what we're talking to our pharmacy and hospital customers about.

Taunia, any color on that?

Yes. I think, clearly, I'd reiterate many of the pharmacists are looking at ways to conserve the bupivacaine they have available today in the hospital marketplace and, therefore, the replacement of the elastomeric pumps is a real viable approach for us. And, again, we're very conscientious of making sure that our product is used in the appropriate surgical procedures so that it doesn't become used inappropriately according to our customers' needs.

Okay. Thanks, guys.

Thanks, Dave.

And your next question comes from the line of Richard Lau representing Wedbush. Please proceed.

Good morning. Just a couple quick questions. As you guys have been out there in the marketplace since January with your sales force, is there any feedback as you meet with the P&T Committees, both positive and any sort of points of push-back so far?

Yes. I think on the positive front, clearly, there's a need to improve patient satisfaction in relation to pain management in the institutions. And so, clearly, hospital customers are looking to improve and offer non-opioid options to be able to achieve that.

Our health economics data is really getting a lot of momentum. We've had the opportunity to present to a couple of C-suite members at key institutions and they've really responded very positively to the data that we have at hand.

On a challenging front, I think it's our ability to get to all of our customers with the focused field force effort that we have, and continue to work through a process that many hospitals have made very arduous over time here. So, we're just making sure that we continue to be tenacious in our approach and focus on our top tier customers in the top 500.

Great. And then can you maybe give us a quick update on your development plans in nerve block and what sort of market opportunities is there for expansion?

Sure. We are currently working through a program where one of the things that the orthopedic surgeons want to know first and foremost is can we give a full explanation of the return of motor and sensory function following a nerve block dose. It's well-described in the literature, Richard, that motor function returns before sensory function. But all of that literature is generally from an era before we were able to use ultrasound guidance.

So, we believe that the dose with EXPAREL will benefit from the ultrasound guidance and will be lower. And so, we want to have an absolute understanding of how motor block and nerve block -- I'm sorry -- motor block and sensory block will return following a dose of EXPAREL.

The reason that's important is the primary indications here for our nerve block program will be femoral and scaling blocks, so we need to understand how we interact with the anesthesia as well as the orthopedic communities. We expect to have that data, probably, the middle of the second quarter. And we'll use that data to define the dose, which will go into a protocol that is already prepared and we'll kick off this nerve block program in Q3 in 2012.

Okay. Great. All right. Thank you, guys.

Thanks, Richard.

(Operator Instructions)

And your next question comes from the line of Ann Trimble representing [Barclay].

Hi. Thanks for taking the question. Just a couple. First, in terms of formulary access, could you review how many formularies you're targeting, and how we should think of the time frames in which you expect to get on these formularies?

Yes. I'll step back one more step, again, if you don't mind, Ann. You know we have a little bit of a different situation here than folks might be used to just from a parenteral pain control product in the hospital marketplace. Here we also -- we want to make sure the product is used appropriately because we have this infiltration technology which is, I think most people on the phone know, is after the surgery is done but before the wound is closed -- this is an injection into the deep fascia.

So, we need to make sure that the technique of the surgical procedure is best practice in order to achieve the maximum benefit from EXPAREL. That's one of the reasons why we've had such a focus on these top accounts. And I'll remind everybody the top 100 hospitals do nearly 20% of the surgeries in America. And the top 500 hospitals do over half of the surgeries in the US. That's why we're focusing on that. We really see this as a top-down educational opportunity.

So, when we're thinking about this, Ann, in a very simple sense, of those 14 million surgeries that we're talking about, we would get at over half of those if we could achieve formulary success at all 500 of the top hospitals in America. Now, that's not realistic, but that also is a number that would support a revenue target for EXPAREL that is beyond anybody's wildest dreams. So, those two things come together at some practical reality in the future here.

We've been careful to talk about access. Just to be completely candid with everybody, we do have a number of centers where they are understanding of their own laborious formulary processes Taunia just talked about. And so, we do have a number of places where they are making the drug available in advance of a formulary approval. And that's why we've talked about access.

So we'll get the drug used, and then they'll go to formulary and go through their own process. But it will be as the product is being used rather than the more traditional sense. And we would expect to be very active in achieving formulary approval in these top 500 hospitals, really, for the remainder of 2012.

Does that answer your question? Probably answers more than your question.

No, it does. It was very helpful. And in terms of the quarterly calls going forward, now that you'll be launching EXPAREL in the next week or two, will you be providing updates on the quarterly calls in terms of where you are on formulary access?

We'll continue to update the metrics that we've provided today. So, we'll continue to champion, to talk about our top 100, top 500, and top 1,000 accounts where we have access. And then, as we start to see some visibility on our numbers, we'll report on our orders and reorder metrics.

Okay. And then just to be clear, when you're discussing the fact that you've received access at these hospitals, that means these hospitals have agreed to use the product and you're in the process of getting on the formulary at those hospitals?

That's correct. It's really a dual approach. They're going to order the product and they're making it available to their surgical groups. And we're going to go through the formulary process at the same time, Ann.

Got it. And then, lastly, just turning to the P&L, in terms of the COGS for the quarter, it was a little bit higher than the previous quarters in 2011. How shall we think about this number going forward?

Yes. Just to start with your question, we got approval of EXPAREL at the beginning of Q4. So, there's some change in geography of where expenses were taking place or manufacturing expenses associated with EXPAREL -- were in R&D, and then were moved up into the cost of revenue line in Q4.

And then, Ann, we're not providing any specific guidance relative to expense items in 2012. What we have talked about, obviously, is we have sort of fixed cost infrastructure associated with our manufacturing facilities and a fairly low variable cost of manufacturing.

So, we caution about focusing on costs of margins in 2012 as we're growing revenue. But we're quite confident that if this product becomes the significant revenue opportunity we think it will, that it will drive very significant pharmaceutical-like gross margins.

Great. Thanks, very much.

Thanks, Ann.

Your next question comes from the line Corey Davis representing Jefferies. Please proceed.

Hi. Thanks. This is actually Oren Livnat for Corey. I just want to get back to the issue of "quote, unquote," access. Just trying to understand how you're actually building demand on the physician and nurse side in practice in parallel with the formulary access program.

When you have access, does that mean that you are free to be in the suites and fully training and really building awareness and demand on that side in parallel? Or, is there a gatekeeper function that until you're fully through formulary you can't really follow through? Thanks.

Thanks, Oren. And let me be clear. I don't want to make this into an issue, for sure. I'm going to turn it over to T in one second, but the access issue is really more a reflection of the pre-launch activities that we've undertaken, and we have been in these hospitals doing all of this opioid-sparing work, et cetera.

And so, our customers are making an exception and putting and allowing people to have access to this drug while they go through the formulary process. I also want to be very careful -- that is not all of what we just referenced in the hospitals where the drug will be available. We are on formulary in a formal sense in the majority of those. But there are places where access is being provided while we go through the formulary process.

And then, I'll turn it over to Taunia to specifically answer your question.

Yes. So, the majority of our customers are treating this as if they're bringing in a new product and we need to have full availability to in-service our accounts, work with the OR suite, and educate the nursing staff, the pharmacy staff, and the surgical staff, as well. So, it does allow us the opportunity to bring the product in, fully educate people on the appropriate use, and then continue to build the data to support their formulary acceptance over all.

So, there's no gatekeeper at all, Oren. In fact, it's quite the opposite. Our KOLs are not willing to wait for the formal formulary process and the pharmacies have made exceptions to allow us to complete access while they go through the formulary process.

Great. That's important. What about the plastic side? Are you getting -- you mentioned 200 docs that are really excited about this to use right out of the gates, I guess. What about just the wider acceptance overall? Is there a real pent-up demand, or is this like a real novel a-ha moment for a lot of these docs?

Yes, I mean, we have more than 200 customers that are very, very excited about using our EXPAREL. And, in fact, when you look at the number of inbound calls that we get to our medical information lines, we get about 25% to 30% of those calls from plastic surgeons looking for access to the product and ability to use it in their patient population.

And their ability to pass on the cost at sort of a full rate. Is that going to be an issue, or is cost really not an issue at this point?

That hasn't been an issue that we've heard to-date. They very much have strong interest in using it in the places that we just described, in their breast augmentation and abdominoplasty patients. So, clearly, that population of patients has the ability to support the medication. And you have different camps there. You have some plastic surgeons who are building it right into the cost of their practice, and then you have others that are offering it as an a la carte to their patients.

And it would be no surprise to you, Oren, there is no specific answer to that question. It is not an issue at all in Beverly Hills. It is rarely an issue in Houston and San Diego and Boca Raton. It's more of an issue in Columbus.

Got you. Thanks.

And, frankly, guys, it's not an issue at all where they're using elastomeric pumps because they're paying more than that already for the elastomeric pumps.

At this time, I would like to turn the call over to Dave Stack for closing remarks.

Thanks, Shaquana. And, thank you, again, for joining us today. We are excited for the commercial launch of EXPAREL, and look forward to updating you on our traction in the marketplace later this year. We also look forward to presenting at the Bank of America Merrill Lynch Investor Conference in May and the Jefferies Conference in June, and hope to see you at these or other upcoming meetings in the months ahead.

Thanks a lot, guys, and we'll talk later. Bye-bye.

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