Pacira Biosciences Inc (PCRX) 2012 Q2 法說會逐字稿

Thank you for joining us for the Pacira Pharmaceuticals Second Quarter of 2012 Financial Results Conference Call. At this time, all participants are in the listen-only mode. Following formal remarks, Pacira's management team will open the line for a question and answer period. Please be advised that this call is being recorded at the company's request and at the archive on the company's advice for two weeks from today's date. At this time, I would like to introduce Jennifer LaVin of Pure Communications. Please go ahead, ma'am.

Thanks very much, Catherine. Thank you and good morning everyone. Welcome again to Pacira's Second Quarter 2012 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; and Taunia Markvicka, Vice President of Commercial Operations.

Before I turn the call over to management team for their prepared remarks, I'd like to remind you that certain 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 company's plans to develop and commercialize EXPAREL, the success of the commercialization 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 the market, Pacira's commercialization and marketing capabilities, and other statements containing the words "believes," "anticipates," "plans," "expects," and similar expressions. 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 and other risks and uncertainties are described the risk factor section of Pacira's most recent annual report and Form 10-K for the fiscal year and the December 31, 2011 and its other filings with the SEC, which are available through the Investor Section of the Pacira website at www.pacira.com or on the SEC website at sec.gov.

All the information in this conference is as of today, August 9, 2012, and should not be relied upon as representing the company's views of any other subsequent date. While the company may elect to update these forward-looking statements at some point in the future, the company specifically disclaims any obligations to do so. Therefore, you should not rely on these forward-looking statements as representing company views as of any date subsequent to today. With that, I'll turn it over to Dave Stack. Dave?

Thanks, Jennifer. Good morning everyone and thank you for joining us for this review of our second quarter results. On the call today, I will first be making some remarks about our commercialization success to date with EXPAREL and our upcoming plans for label expansion. Then Jim will provide a summary of our secondary quarter 2012 financials and update our general outlook for the rest of the year. We will then open up the call for questions.

With almost one full quarter of EXPAREL's sales behind us, we are extremely pleased with where we are today. The $2.3 million in EXPAREL revenue in the quarter and the launch trajectory gives confidence that the market not only understands the EXPAREL value proposition but also recognizes the unmet medical need for reduced opioid pain management strategies that EXPAREL fulfills.

As a reminder, for those of you who may be new to the Pacira's story, EXPAREL is our novel treatment for postsurgical pain management for which we received the FDA approval in late 2011. The approval provides us with a broad indication, administration into the surgical site to produce postsurgical analgesia. With this indication, we estimate that EXPAREL can be positioned for use in approximately 45 million inpatient procedures and 30 million outpatient procedures in the United States in 2012.

EXPAREL is now the first and only multivesicular liposome local anesthetic for use in peri- or post-surgical setting, using the same infiltration technique as currently marketed local anesthetic such as bupivacaine, both providing local analgesia for up to 72 hours with the reduced need for opioids.

As of August 3, 428 accounts have ordered EXPAREL. This is an increase from 164 accounts since our May 8 conference call. As of last Friday, 49% of these 428 accounts have reordered EXPAREL and even more importantly, 55% of hospital accounts have reordered, a number that we believe indicate the product is performing and meeting customer expectations. On average, we have been adding about 26 new accounts per week. Keep in mind that each new customer represents a very different size account but we are, needless to say, very pleased with the pace of new business.

We're also very satisfied with the structure and size of our current sales force as they not only provide product access through successful formulary approval but also provide continuing education and services to new and existing company, customers, on the appropriate use of EXPAREL.

As many of you know, we are under a one-year agreement for our sales force with Quintiles. Based on their achievements to date, we do intend to bring the sales force in-house at the end of the current agreement. Also in support of this, we have initiated several strategic hires in HR and finance and regulatory to support the integration and expansion of our commercial and medical organization as we prepare for 2013 and the continued aggressive growth of EXPAREL.

In terms of market penetration, we believe there is a significant medical need for a long-acting nonopioid local pain management tool and we have only just scratched the surface. We now have access in 50% of our targeted top 100 hospital accounts, accounts that we believe represent over 15% of the total market and we also have access in 30% of our top 500 targeted hospital accounts, which we believe represent about 50% of the total market potential for EXPAREL.

We also have access in 7 of 10 largest hospital systems across the country based on soft-tissue procedures and we have upcoming P&P date in the next few months for the remaining three. As of June 30, we calculate that our current sales represent just 0.1% market share of only the 14 abdominal and perianal soft tissue inpatient surgeries in the United States that have been the focus of our launch strategy.

We also have an APC Code or an Ambulatory Procedure Code that allows for a separate payment for EXPAREL in the ambulatory care setting for Medicare patients and we are awaiting information on a possible J-Code designation from CMS. If we are successful in achieving a J-Code, we will have the basis of a broad ambulatory surgeries market opportunity.

Anecdotally, we have been receiving very positive feedback from a broad array of physicians. Sharing with us our experience with EXPAREL and the impact of reduced opioid post-surgical pain management with a positive impact on patient satisfaction and reduced length of stay. We've also heard multiple instances where surgeons who have used EXPAREL in one of their institutions have insisted on gaining access to EXPAREL at other facilities where they also perform surgical procedures. In these instances, the marketplace is creating its own leverage based on this new paradigm for post-surgical pain

Since our product launch, we have held nearly 20 major educational sessions with key customers including two simulcasts, six presentations at major meetings, eight speaker training meetings, and three webinars with our GPO partner education teams. In addition, we've had a promotion educational presence at 25 regional medical meetings and we have had more than 30 meetings through our speaker's bureau. Also, the International Guidelines Center or IGC, recently launched new infiltration guidelines, developed by consensus from a prominent working group of surgeons on best infiltration practices. This is important since we are dependent on the infiltration technique to achieve the maximum benefit from the use of EXPAREL.

As we mentioned in prior calls, our improved and fact-based TAP studies in the real world setting are now coming to a fruition with our first improved study and open colectomy and TAP infiltration in robotic prostatectomy, generating interesting data to support the clinical and economic value of EXPAREL.

In the coming months, we will be presenting data from these studies as well as the major pain survey. We have presentations scheduled and several upcoming meetings including the American College of Surgeons, the American Society of Anesthesiology, the American Society of Plastic Surgeons, and the New York School of Regional Anesthesia. In addition, we anticipate publishing more than a dozen manuscripts, focusing on EXPAREL, the [burden] of opioids in post-surgical pain management and the opportunity to improve the quality of care and hospital economics.

As you've heard, as mentioned previously, we believe there is a large market opportunity for the use of EXPAREL in nerve block procedures, where the local anesthetic is placed in close proximity to a nerve, typically under ultrasound guidance to create local analgesia. Bupivacaine is a standard of care in many nerve block procedures, creating a customer base already familiar with the drug and the injection techniques.

We recently met with the FDA to discuss the protocol for our phase II to III program, testing the safety and efficacy of EXPAREL for a nerve block indication. Based on this meeting, we are expecting to launch a blinded randomized placebo controlled study in the second half of this year. If all goes well, we are [turning] a supplemental NDA filing with the FDA around the end of 2013 or early 2014. The anesthesia community is looking forward to learning more about the results of this important trial and we already have a great deal of interest in trial participation for many leading institutions.

Before I turn it over to Jim to discuss our finances -- financials in detail, I did want to comment on our overall financial strength. As you can see from our current quarterly financial results, we have been spending to support the launch of EXPAREL minus the one-time $10 million payment to Skye Pharma upon the launch of EXPAREL. These expenses consist primarily of sales and marketing to support the launch and manufacturing costs as we invest in an expanded production suite that we expect to come online in 2013 to support projected market demand in 2014.

We believe this investment to be necessary to fully support the successful commercialization of EXPAREL and ensure that we have enough supply to meet the increasing demand we see in the market. We do not believe we have any generic competition for EXPAREL or any DepoFoam-based products. While we understand that this does appear from this quarter alone that we are burning cash at a high rate, based on our current sales and expense projections, we believe that we have sufficient cash to break -- to reach breakeven and will not need to return to the capital markets for funding. With that, I'll turn it over to Jim to address these issues in more detail. Jim?

Thanks, Dave. For the second quarter ending June 30, 2012, our total revenues were $12.3 million compared with $3.6 million for the quarter ending June 30, 2011. Most important as Dave discussed, EXPAREL revenue in the initial launch quarter was $2.3 million. As a reminder, there is no wholesale stocking of EXPAREL as we ship products in boxes of ten vials for overnight delivery directly to end user customers, not the wholesalers and we recognize revenue upon delivery.

In addition, based on our customer initial order cycles and customer reorder patterns, we believe there's no material amount of stocking at the customer level either. Now product sales of DepoCyt increased $1.2 million versus the second quarter of 2011 due to a higher number of lots sold to commercial partners. Collaborative licensing and development revenue increased $5.3 million year over year, primarily due to recognition of deferred revenue, resulting from the termination of the DepoDur license agreement by EKR Therapeutics.

Note that this revenue recognition is now complete. Net loss for the quarter end of June 30, 2012 was $8.3 million or $0.27 per share based on $31 million weighted average shares outstandings and as of June 30, 2012, the company had 32.4 million shares outstanding. You will recall that we'd provided full-year guidance for non-EXPAREL revenue in order to provide some clarity on those activities.

With EXPAREL approved, launched, and experiencing rapid uptake and compelling re-order rates in the marketplace, the materiality of non-EXPAREL activities continues to wane. So we want to note that we're modifying our non-EXPAREL revenue guidance, slightly downward for the full year 2012 from the range of $23 million to $25 million to a range of $21 million to $23 million. This is because we expect to sell few lots of DepoCyt and anticipated in Q3 and Q4 as we're currently upgrading equipment and processes that were called out by the European Regulatory Agency during a routine inspection of our DepoCyt manufacturing facility in San Diego.

Please note that this DepoCyt production facility is completely separate from and in fact a miles off the road from our EXPAREL manufacturing facility, which contains state of the art equipment, EXPAREL equipment, which of course was inspected by the FDA just prior to product approval.

As of June 30, 2012, we reported cash of $86.1 million. It's axiomatic that a launch quarter is in fact the peak cash burn quarter but even not dynamic, it was exacerbated in our second quarter by a few things worth highlighting. As Dave just mentioned, we made a one-time $10 million milestone payment to Skye Pharma as a result of the launch of EXPARAEL in the US in April. Also, as I discussed a year ago when reflecting on Q2 of 2011, our [poll] capital agreement pertaining the DepoCyt requires us to set aside approximately $2 million each year in Q2. It was used to offset royalty interest payments during the subsequent three quarters.

And we also invested about $4 million in CapEx in our manufacturing facility to expand our EXPAREL cap capacity. So while our cash burn in the quarter was a little less than $35 million, our steady state cash burn for the quarter is still low. It was approximately $23 million if you include the manufacturing CapEx and a little over $18 million if you look out to a day when we're beyond those manufacturing expenses. And of course, we expect to reduce the cash burn with EXPAREL revenue growth going forward.

Turning the cogs in manufacturing expenses, as you'll see in our 10-Q that we'll file later today, our cost of goods sold pertaining to our products, EXPAREL and DepoCyt was a little greater than our net product sales in the quarter. Looking at these numbers, we don't think our reported cogs in the quarter -- in the launch quarter is all that helpful in understanding the complete picture of margins and manufacturing cost going forward.

But focusing just on EXPAREL, we've noted previously that as a proprietary manufacturer of a novel product, we have a fixed manufacturing cost infrastructure that makes up the majority of our manufacturing costs and then our variable costs per unit are modest. Now, we've also emphasized our strategy to use our current semiautomated manufacturing line to facilitate a rapid post-approval launch but in parallel to invest in a larger capacity, fully automated, more efficient manufacturing line.

But to put some numbers around these concepts, in the current EXPAREL manufacturing line, our fixed annual expense is running in the $25 million to $30 million range and variable cost per unit manufacturing run in the 10% to 15% range. In the automated EXPAREL manufacturing line, which expanded our capacity considerably to meet demands for years out and replaces the existing manufacturing line, we expect to see similar fixed annual expenses, coupled with improved variable cost per unit manufacture, reflecting activity on a greater scale.

The consequence of course is there are EXPAREL -- as our EXPAREL revenue grows, we expect healthy gross margins; however, until our sales reach higher levels and these figures become more transparent, we wanted to make everyone aware of these costs for clarity and modeling purposes. We hope that's helpful to you all.

Looking ahead, beyond the EXPAREL revenue growth and steady state expenses, I want to highlight three things. First, we expect our CapEx related to manufacturing expansion could be approximately $5 million per quarter in Q3 and Q4 and then taper off to a maintenance level. Secondly, the only material R&D cost in the horizon that are embedded in the current quarter are for our label expansion activities through the several nerve block studies that Dave mentioned. We estimated our cost approximately $12 million to $14 million to complete those studies over the next quarters. And third, as a reminder, we own global rise of EXPAREL in human health as well as animal health.

It's only the US human health opportunity that's off the table for potential partners. So we expect to receive upfront milestones and royalty dollars for partners we established going forward.

And finally, as discussed, we're not providing cash guidance for the remainder of 2012 but we do want to reiterate that based on our EXPAREL sales trajectory and projected expenses, we do believe we have sufficient cash to become profitable. So with that, I'll now turn the call back to Dave.

Thanks, Jim. We'll open it up for questions.

Catherine?

Thank you. (Operator Instructions)

Your first question is from the line of Richard Lau from Wedbush Securities. Please proceed.

Hi. Good morning, guys and congrats on a good first quarter launch.

Good morning, Richard. Thank you.

My first question is just maybe a little bit more color on what you're hearing from physicians and now that you guys have been out there, you know, for five months now and if there have been any safety concerns so far?

Nothing, Richard. You know, we've -- we tracked this very closely of course and our, you know, a requisite number of calls into our safety department but nothing that is any way been related to EXPAREL.

Hey, good. And then maybe a little bit more color around the size of the orders, just trying to get a better sense of when these [customers] are reordering? Is the size of their orders are increasing much or is it still somewhat in the trial phase?

No. It's a little about -- Richard, you know, and in some cases, it depends on the day of the week frankly. You know, we ship Monday through Thursday so when we get bigger orders, it tends to come in on a Thursday. We've had orders -- I mean, I'm looking at Tanya now -- I think our biggest order in a single order has been eight boxes.

Yes.

But we do see the size of the orders creeping up, especially in the hospital marketplace but again, you know, we also see people ordering two or three times a week, you know, we're in the just in time kind of a strategy so we see a little bit of both but on an average, the hospital market order -- well, I should answer a little bit more broadly. The people who are using EXPAREL continue to use more and more of it. That's probably a better answer to your question.

OK. Great. And then I know July, August, September can be sort of seasonally slow times in terms of surgical procedures. Do you guys expect that to have any impact for you guys or do you think it's still early enough and the launch has sort of offsets it?

I think there's two things, Richard. I think the first reaction is that we have such a small market share as the percentage of the total that, you know, I think that is -- well, I guess two things, yes, we, you know, there is for sure a bit of a slowdown in the marketplace as you get into, you know, the end of July and the beginning of August but we have such a small market share that I don't think we see any kind of a significant impact from that, not yet.

Okay, great. And then in terms of your ex-US rights, is there any update there in terms of partnering discussions or you or maybe as you guys would seek other (inaudible) well, where maybe -- where you can use the FDA data?

Yes, we're -- yes, that's an important component as well, Richard. We do have our people who are very interested in the territories where, you know, the US approval facilitates a more rapid regulatory process for sure. We're in discussion with a number of folks on that front and we also have a number of discussions on global animal health opportunities, you know and I mean, is there any update other than to say there's a number of discussions, Richard, you know, we're moving as fast as our partners can move.

Okay. Great. That's it for me. Thanks, guys.

Thanks, Richard.

Next question comes from the line of David Amsellem from Piper Jaffray. Please proceed.

Thanks. Just a couple. So in terms of the types of procedures, surgeries in which EXPAREL is being used. Can you just give us a flavor? I mean, is there a sort of a preponderance of certain procedures that you're seeing associated with the product, casually think about that?

I think the easiest way to think about it, David, is that typically when we get on formulary, it is through a colorectal surgeon's request for the drug and so they are -- in most situations, the early adopter and then you know, once they start using the drug successfully and they talk about, you know, their ability to reduce opioids, then we start to see that use spread to other surgical audiences in the hospital but, you know, abdominal soft tissue and perianal procedures, which is where we launched, you know, by strategy, have been the lead procedures.

I think we, you know, we've seen the drug used by a number of different surgeons in the orthopedic environment and specifically, in spine surgery. You know, we've got a number of different people using it in the thoracic space as well but I would say that it -- you know, there are exceptions, of course, where, you know, somebody had clinical trial experience with the product or you know, somebody has been using bupivacaine in a specific way but if you were asking about the typical way that the product has adopted in the marketplace, it goes from the abdominal soft tissue space to other places where the surgeons are using bupivacaine.

Okay. That's very helpful. And then the second question relates to sort of the mix between more invasive inpatient surgeries versus outpatient/ambulatory surgeries. Can you give us a sense of the split right now and you know, over time, you know, how do you envision the split between inpatient invasive versus outpatient/ambulatory evolving?

Right now, that's majority of our uses in the inpatient environment. It's where we've asked our hospital sales force and our scientific affairs folks to concentrate and you know, that is the opportunity today, David. We have an APC Code but we do not have a J Code. So you know, until we get a J Code, I think we expect that we'll continue to spend our resources in the hospital environment. If we're lucky enough to get a J Code, I think we would then able to work with hospital affiliated ambulatory care centers and so, you know, you would be thinking about the same surgeons who would you move their use from the inpatient environment to the outpatient environment.

I think we can still handle that opportunity with a sales force that is relatively the same size as the one we have now. So that would be the focus. And that's about half the ambulatory surgery market.

Okay. All right. That's helpful and then last question. This is related more to the use of cash and I know you said you have enough cash to get to profitability but you are flushed of cash so I guess the question here is what's your eagerness to green light some of these other development programs? You've talked not much though but we've talked in the past about it -- you know, an NSAID program, a longer acting methotrexate program. Is there sort of an urgency over the next, say, 12 to 18 months to begin developing these programs or even others that we don't know about or is the goal to get profitable with EXPAREL and the focus on somebody's other programs?

Right now, David, we're nearly 100% focused on EXPAREL and making the launch as successful as we can. You know, we think that the nerve block program and the tap programs and some of the other regional anesthesia programs, not only offer short-term opportunities but also use the same manufacturing, you know, material so we get to fully amortize the expense that Jim just outlined and there's a number of reasons for us to continue to use the platform of EXPAREL, I think.

The current plan, David, is that -- and I think this will make sense to everybody on the call, is that, you know, as Jim outlined, if you thought about the nerve block trial taking approximately a year, you know, that would be the time when we would start to think in earnest about how we would move those resources then to another development product or another development project. But until then, I think focusing on doing nerve block as fast and as well as we can -- it's really the place that we need to lay our lumber.

Great. Okay. Thanks, Dave.

Okay, thanks, David. Thanks for your help, man.

Next question comes from the line of Corey Davis from Jefferies. Please proceed.

Hi. Good morning. I have a couple of questions. First, among the 428, I think the accounts you said that have ordered it. Can you say how many of those are cash pay versus getting it reimbursed?

Boy! You know, we've looked at it, Corey but I don't have it right off the top of my head. I mean, I would say something in the neighborhood of 100.

Okay. Just looking for -- I mean going forward, how you see that split shaking out. Are the cash pay component of your sales is going to be a significant chunk of it or is it going to be more a minority?

I think it's going to increasingly be minority.

Okay.

We always had sort of said that the cash pay opportunity, you know, an environment where you need to -- we have a hospital-based product. It's sort of helpful early on to get the winds but the hospital market really dwarfs the cash pay market as we go forward and I think we've had a pretty good success in the hospital market. So we'll continue to put a lot of resources into that opportunity.

Corey, I'll ask Taunia to jump in here for a second or two but I think one of the things that we've been a little bit surprised -- that is the opportunity to work with some of the folks in the retail environment but also to have them support the product in the hospital for reconstructive surgeries, et cetera. So Taunia, I don't know if you want to add any color to Corey's question.

Yes, absolutely. Several of the folks in the retail market have been able to get some very quick experience with the products, see the success from a pain management perspective and the patient satisfaction and they've taken that data to the hospital market and champion the product to be on formularies within the hospital environment and we are seeing that the amount of business that we can parlay into the hospital business is continuing to grow because of that strategy as well.

Yes. Not a specific answer to your question, Corey but I think that business has been more valuable to us than we thought it was going to be in that regard.

Thanks. With respect to the J Code, how important is it that you get one of those and when do you hear and what are the determinants of whether or not you get it?

We'll make a presentation on, you know, the aspects of your technology and you know, how you think it would be employed in the marketplace. In this specific situation, we talked about, you know, how you would treat multiple comorbid patients in an outpatient environment with a lower opioid dose and so I mean, I'll give you a specific.

Instead of using a Percocet or any other opioid-based regimen, could you, instead of giving somebody 60 or 90 Percocet when they leave the ambulatory environment -- if you have EXPAREL onboard and you use an NSAID and acetaminophen, could you give that patient four or six Percocet tablets and position that they would use that opioid in a rescue situation rather than the base platform for pain. You know, given all of the current information and noise in the marketplace about opioids, we thought that that was the right approach.

The other situation that we've got, Corey, is that there are some situations that have been called out by our GPO partners where patients are kept in the hospital for multiple days, largely because of the inability to control pain without morphine PCA. And we're also working with people to try to demonstrate that if you replace morphine PCA with a 72-hour EXPAREL, you actually can move some of these currently inpatient procedures to outpatient procedures. And the process is you give this presentation and then you wait and you know, we think we gave it our best shot and we're waiting.

Okay. And on your nerve block indication, can you -- sorry for my naivete but what types of procedures use nerve block and where I'm going with the question is -- is a three-day duration of anesthesia as good in those indications such as these and what you're indicated for now?

Yes, not naive at all. Corey, yes. I mean I'll tell you why there's so much interest in the marketplace. So if -- and I'll use the current example if that's okay. So today, if you were going to go for say a total knee, it would be typical, there's a lot of variation here but it would be typical that when you went in, you would get a local injection with immediate release bupivacaine, just to make sure that you were getting, you know, the appropriate amount of pain control and numbing.

If following that procedure, then you wanted to achieve several days of pain control with the nerve block, you would have to insert a [perineural] catheter, a very much like the elastomer bags and you would have to hook that up to a drug reservoir and then hook that up to a pole.

So the reason that there's interest in this is just exactly is there is an infiltration indication, we get rid of that catheter and that pump and that drug reservoir with a single injection of EXPAREL. So where is it used? I mean they are used typically in orthopedic procedures, in knee, hips, and shoulders. They're used in the cardiothoracic area a lot around you know, different thoracic procedures. Yes, the intercostal blocks. I mean there's a broad range of procedures.

And the other issue that we like about -- the other opportunity that we have here, Corey is that this is an opportunity for us to involve the anesthesia community in a very meaningful way, you know, in the overall EXPAREL program so that they can also be in full support of the use of the product in the hospital environment. They're really important to us -- an important piece of the pain management puzzle if you will in the hospital environment.

Okay. And this one, you said you'd expect to file that. You're calling it a phase II, III study -- is one study going to be sufficient for filing or would you need a second one?

No, it's a run in. So you know, we'll do a -- we'll do several doses and then a DS&B will pick the dose and then that dose will run into phase III and we've -- we need one study. We will actually do two. So our intention is to do an intercostal block study as posterolateral thoracotomy and to do a femoral nerve block as part of the TKA procedure and total knee arthroplasty.

Okay. Perfect. Great. Thanks.

Great. Thanks, Corey.

Next question comes from the line of Douglas Tsao from Barclays. Please proceed.

Hi. Good morning. Just to start off with -- I just -- sorry if we didn't get some flavor in terms of you know how many of your customers that have therefore not just reordered once but run into, as you calculated it, multiple and even sort of weekly order in half until right now.

I think the -- we've got customers that have ordered up to 15 times.

Good.

Okay. So you know, we're only four months in the launch now so that's pretty good. So there are multiple people at the 12-13 years and then we've got a couple have into moved into the 14-15 range. That's a little bit deceiving though. Because like I said earlier with Richard, I think it was -- you know, we've had people have ordered eight boxes at a time. So you know, you have to put that all into perspective.

Yes. A common pattern, we're seeing across the number of the accounts as they begin to adopt the product that you'll see frequent orders throughout days of the week and then you'll see them move to bigger order sizes as they're starting to get the basis of how frequently the product will be used.

Okay and then how, you know, what's the sort of, as you said, they typically get the product approved with, you know, one surgeon requesting that, which the timeline and sort of the pattern been in terms of expansion from that one doc using it and then talking to some of his colleagues in having it split more broadly?

Yes. Usually, it would expand inside a surgical group pretty quickly. You know, so if you got a colorectal surgeon and they're using it in this, you know, abdominal soft tissue surgeries, largely [colectomies] and things like that, that word spreads pretty quickly. You know, and then it takes a little while for the other surgical groups to pick up on it and you know, generally, there's some education involved and our reps in our medical affairs and our clinical nurse team get involved in educating these folks on appropriate use and making sure they infiltrate.

Hard question to answer, Doug, only because it's very different. You know, if they're replacing the last elastomeric pumps, then we put a program in place to do just that. If they want to do knees and hips, you know, then you have to think about how you do that and you know, and generally, we've got an increasingly large and significant group of surgeons that have had a successful experience with the drug and so we have those folks involved but if a surgeon has a specific question about a specific surgical technical, we've got people that have successfully used the product in those kinds of environments and we can hook those two people so they can have a direct conversation about how to use the product, et cetera.

So, it's hard to answer that question with great specificity and they're all a little bit different. I think what we do see though is that it gives us a lot of comfort -- is that we see geographies where hospitals are putting the drug on because the surgeons are demanding it and to us, that is sort of a real, you know, that's a significant milestones for us. The other that we're just beginning to see is we know hospitals have adopted the product widely. We start to hear nurses ask why patients weren't given EXPAREL when they come out and they don't have the same pain experience as somebody who did and so that's a real victory for us.

And so just to clarify, to make sure I understood your comment. Where you talking about sort of regions of hospitals, basically what you're talking about is one, you know, a situation where you got multiple hospitals, starting in a particular region -- one hospitals adopts and therefore other hospitals have to adopt it because those other hospitals are concerned the physicians do probably practice at multiple of them or just take their cases to one hospital. So you queue that one (inaudible)?

That's correct. Yes.

Okay and then just one final question. Just curious, you know, during the [P&T] process, what are -- what's the biggest hurdle that you faced in terms of getting approval? What's the -- you do have (inaudible) of what transpires in the P&T meetings? You know, what's the point of retention if there is one?

It is generally budget and you know, a launch on April did not provide the opportunity for somebody in the pharmacy to have a line item budget for EXPAREL in their 2012 budget and so we'll see a fair number of you know, delaying tactics and you know, people who will try to push it off is a budget exercise. I mean, in an environment, Doug, where the pharmacist is incented purely on their budget and their ability to not spend. You know, they are incentivized then to keep products like EXPAREL out of the hospital as long as possible or at least until they have a budget for it.

You know, that's the primary issue. You know, our PI does require some education, you know, in terms of the broad label and then making sure that we demonstrate hemorrhoidectomy data as the soft tissue data. So we have to make sure that we go through all of that but you know, there really is no scientific or clinical issues that we're familiar with at all that is largely presented to or are represented back and you know, I'm trying to figure out. Either I have a specific question or I'm trying to figure out how to pay for this new technology.

Okay. Great. Thank you very much.

Thanks.

Next question comes from the line of Corey Davis from Jefferies. Please proceed.

Thanks. I just want to go back to the manufacturing thing because whenever (inaudible) mentions manufacturing issues these days can set off some alarms and I heard what you said and I think what you said was that it was the European authorities that asked for something on the DepoCyt facility. But question number one is will the FDA get involved on that facility and number two is there a potential for any kind of spillover regarding the procedures and stuff that you use on that facility into the EXPAREL facility?

Yes. The FDA has inspected the same facility many times, Corey. You know, as a sterile manufacturer, we have a higher standard for regulatory involvement if you will -- sterile manufacturer, sterile field in both of our facilities. This facility is dedicated to DepoCyt. We know that the FDA, you know, understands that the MHRA gave us their feedback on some things that they would like to see as to upgrade but we don't believe that there is any issue with anything that is being done in EXPAREL as it relates to the DepoCyt inspection.

Okay. And when in 2013 would you expect to have the expanded facility up and running. I'm assuming it's going to be built first and then you have to have it inspected but probably sounds like something that's not going to be ready until in late in 2013.

Yes. I think that's accurate Corey and the reason that we weren't a lot more specific is that, you know, the FDA has a period of time in order to do that inspection. So you know, we'll be making commercial material and then it really is when the FDA inspects that facility and allows us to use that commercial material in the marketplace and that's largely outside our control and you're exactly right in thinking that that would be late in 2013.

Okay. That's all I have. Thanks.

Thanks.

Next question comes from the line of Clifford Murray from Empire Asset Management. Please proceed.

Good morning.

Good morning, Cliff.

Congratulations on a strong product launch. I have a couple of questions. I know that it's difficult for you to provide some specific timing but if you give a little more clarity on the typical wait for a J Code authorization, I would appreciate that. Number two, if you could provide a little bit of guidance on the number of procedures utilizing femoral nerve and intercostal nerve blocks in the United States annually, I would appreciate that. And the last question has to do with whether or not we're going to see some top line data from your dose ranging phase II, III trial to the nerve block indication at some point and then not too distant future?

So number of intercostal and scalene blocks, et cetera, the data is not really is easy to come up with and you know, especially when you start to pull together outpatient procedures and inpatient procedures and so I'm sure you guys know that as a result of DRGs, you know, some of these data is not -- is not as captured as clearly as we would like. Our best estimate, Cliff, working with some of our GPO partners and extrapolating some of their data to the universe, is that there's roughly 16 million nerve block procedures in the United States on an annual basis.

Now, those would not all require a 72 hours of therapy just to be clear but that gives us a big pull of patients and we do think in our primary market research confirms that you know, if there was a 72-hour nerve block preparation, that physicians would think about using it in a different way than they currently have to do with the perineural catheter and the reservoir and the pump, et cetera. So we think that there's a yin and yang there.

You know, in terms of your J Code question, I can't tell you that I can provide a lot more specificity. I would like a lot more specificity myself frankly. You know, after you make your presentation, you know, you are just in a position where you wait for the judgment. Now, these things are not done generally just around a product and so the group that does this will, you know, there's a group of presentations that are made on a day and then those decisions are generally given as a group and so, you know, we frankly are just waiting for them to determine, which products are going to cover and provide the J Code for and which ones are not and I don't know when that will happen to be perfectly honest with you.

Okay. And the third question relating to some timing on any data from nerve block trial -- even interim data on -- you know, when you swept the dosage -- the appropriate dosage to move forward into phase III, I'm presuming that you'll show the various efficacy at various dosage in both indications.

Yes, you know, if that was done in a peer review journal, Cliff, the trial is going to be done before you would ever see that data. So you know, honestly, I haven't talked to our clinical team about, you know, how we would publish that data and you know, how we would go about putting a publication together around the nerve block programs. So I'm not trying to be evasive in any way. We haven't discussed that at all.

Okay. All right. I'll get back on it. Thank you.

Thanks.

(Operator Instructions)

Next question comes from the line of Kris Jenner. Please proceed. He's from T. Rowe Price. Thank you.

Good morning, Dave.

Good morning, Kris. How are you?

Good. I have a question related to formalization of what I have heard as pretty powerful but yet anecdotal feedback from physicians relating to items such as length of stay there, individual experience with reduction in opioids and I know you're doing a wide range of activities to make this launch successful but could you just outline where in the list of priorities, getting some publication or something that could be disseminated broadly that potentially would speak to something that's powerful as a reduction in length of stay?

Yes, so just to remind everybody Kris and thanks for the question. We're doing a series of base core programs where we capture data on the current standard of care and the way that our customers are managing pain. Typically, it's morphine PCA with a morphine rescue and then after our prescribed number of patients, we take the morphine PCA away. We replace it with EXPAREL and we have EXPAREL with a morphine rescue so we have, you know, the same surgeon generally and the same support team so that the data is fairly comparable.

We do have data now on an open colectomy and the data is very positive in terms of opioid reduction and then a resulting reduction in the length of stay of these patients. We are working out a publication of that data, Kris and I would expect that we would get something out into the public domain in the next couple of months.

Yes, we've had a number of submissions -- we have a submission to a couple of key upcoming meetings for late breaking abstract and we've actually written the shell of the publication and as the data base is blocked then we have the final numbers that's going to be ready to roll here pretty quickly for submission.

Yes and just a couple of things, Kris. If you allow me to note in 30 seconds. So you know the way we see it is all of the GPO data and the individual hospital data on the cost of opioid related adverse events is going to be published over the next few months in the different pharmacy journals and in pharmacotherapy. So we will quantify that. We're also leaning a little bit on a Pfizer paper that was published several years ago that makes the observation that every 4 mg of opioid or morphine related -- resulted in an additional one-day length of stay. And so then into that context, we're launching our data that shows that we can do much better than that and that's the basis really of our LOS reduction.

Dave, just a followup question if I may. Can you just remind us about how you're ensuring that there's appropriate level of education around administration of EXPAREL such that a first time user doesn't experience, you know, a [nonefficacious] administration?

Yes. There's several and I'll (inaudible) crack the ball anything, I'll ask Taunia to jump in. So you know, the first line here, Kris, is that we've got a team of nurse educators and a team of scientific affairs folks who are all medical professionals of one description or another, who have daily and you know, regular contact with all of these folks. So we do have folks who are very well versed in the appropriate techniques in infiltration.

In addition to that Kris, the guidelines groups that I referred to in the script now has a hard copy and a video of appropriate administration techniques. They all have codes on them that they can be brought upon on the smart phones, et cetera and we have commissioned several consensus groups who are looking at different video presentations and making their own determination, which is the best technique from a group of KOLs and those videos are being made available again so that you not only can look at that but you could actually bring it up on your smart phone if you wanted a reference even while you were in a procedure or just before you did a procedure.

So we're taking all of those actions and then typically, Kris, just so everybody knows, what will happen is we won't get a formal complaint of any kind but you would hear from somebody that their results weren't quite as good as what they were expecting from talking to their colleagues and almost always, that is an issue of technique and we'll send one of our nurses in to make sure that they're administrating the product appropriately. Taunia, anything on this?

Yes, in addition, as we've run several of these educational programs, we've actually brought various surgeons into the mix to talk about their administration technique so that they are teaching surgeons that are the newer users, how they've gone through the process of making sure they're getting the efficacy that they need. So we spend a fair amount of time and a number of different avenues to do that.

Does that help, Kris?

Yes. Thanks very much and congrats on what looks like a very good roll out.

Thank you, Kris. I appreciate your help.

Thank you. I would now like to turn the call over today back. Please proceed. Thank you.

Thanks, Catherine.

Thank you again for joining us today. As a reminder, this coming Monday, August 13, we are participating in the Jefferies Healthcare Summit in Boston. This is a one on one meeting and does not include a presentation. However, we will be presenting it at the Web Bush Pack Growth Investor Conference this coming Tuesday, August 14. Our presentation is at 8.35 in the morning. We also want to (inaudible) for you that our first Investor Day will be held October 10 in New York City, more to follow on that. Thanks again everybody. We appreciate all your help and support and look forward to talking about future quarter as our launch proceeds.

Thank you for joining today's conference. This concludes the presentation. You may now disconnect and have a very good day.