Pacira Biosciences Inc (PCRX) 2014 Q2 法說會逐字稿

Thank you for joining the Pacira Pharmaceuticals Second Quarter 2014 Financial Result Conference Call. (Operator Instructions.) Following the formal remarks, Pacira management team will open all the lines for a question-and-answer period. Please be advised that this 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 Jessica Cho of Pacira Pharmaceuticals. Ma'am, you may begin.

Thank you and good morning, everyone. Joining me on the call today from Pacira are Dave Stack, President, Chief Executive Officer and Chairman; Jim Scibetta, Senior Vice President and Chief Financial Officer; and Taunia Markvicka, Senior Vice President and Chief Commercial Officer.

Before I turn the call over to the management team for their prepared remarks, I would like to remind you that certain remarks made by management during this call about the Company's future expectations, plans and prospects, including those regarding EXPAREL; Pacira's plans to expand the indications of EXPAREL, including for nerve block and the related timing and success of an sNDA, as well as for chronic pain; Pacira's plans to evaluate, develop and pursue additional DepoFoam-based product candidates; production in Suite A and Suite C; a manufacturing relationship with Patheon; anticipated fixed costs, gross margins and operating leverage; and other statements containing the words ?believes,? ?anticipates,? ?plans,? ?expects,? and similar expressions, constitute forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995. Any such forward-looking statements are based on assumptions that the Company believes are reasonable that 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 in the ?Risk Factors? section of Pacira's most recent Annual Report on Form 10-K for the fiscal year ended December 31, 2013, and in other filings with the SEC which are available through the Investors and Media section of the Pacira website at www.pacira.com or on the SEC website at www.sec.gov.

During the course of this call, we will also refer to certain non-GAAP financial measures, including non-GAAP net income or loss and non-GAAP EPS. Definitions of these non-GAAP financial measures and reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included in the earnings release for the quarter.

And with that, we'll hear first from Dave.

Thanks, Jess. Good morning, everyone, and thank you for joining us today.

The main focus of today's call is EXPAREL, our primary product on the market now for 9 full quarters.

Let me begin with our latest commercial metrics for the quarter.

We reported $44.9 million of EXPAREL sales in the second quarter, up 31% from the previous quarter. For Q2, we saw the base of our business continue to grow with 363 new accounts, an average of 28 new customers per week. As of June 30, 2014, a total of 2,815 distinct customers have ordered EXPAREL since launch, with 469 ordering more than $100,000 worth of product, an increase of 139 customers, or 42%, from the previous quarter.

Overall, we see continued growth in the base of new customers, along with continued strong growth with hospital customers that have had access to EXPAREL for a longer time period, a testimony to the efficacy and safety of EXPAREL, as well as the execution of our commercial and professional service teams in educating and training on the appropriate use of the product.

While we are delighted with our second-quarter performance, we would like to go over the various market dynamics at play, starting with the seasonal influence on EXPAREL's sales trajectory. Recall that in contrast to the 31% jump quarter over quarter in Q2, in Q1 we experienced a 13% increase from the previous quarter. This trend is in line with the expectations on seasonality that we've provided to The Street for the rest of the year. We expect market share gains in each quarter, but with a weaker first and third quarters driven by market share growth and the stronger second and fourth quarters driven by market share growth as well as high procedure volumes.

As stated, our largest customers tend to be those accounts that have had access to EXPAREL the longest, which indicates that our customers are discovering new ways to expand EXPAREL use in hospitals across different procedures. Correlating with this movement, we saw the persisting trend of earlier adopters removing formulary restrictions and new adopters gaining formulary access without restrictions. With access with over 2,800 customers today, which allow -- we have access with over 2,800 customers today, which allows us to deploy the vast majority of our customer-focused field resources in hospitals where we have unrestricted access to ensure best-practice appropriate use and the best possible patient experience.

The same market forces we've seen driving overall surgical procedures for the past several quarters are still at work. Our initial commercial launch into soft tissue procedures -- which have steadily grown from the mainstay of gastrointestinal, genitourinary and abdominoplasties -- is expanding to oncology and cosmetic reconstruction, typified by linear procedure-driven growth. In this market segment, we continue to see growth of TAP infiltration procedures where EXPAREL is infiltrated into the transverse abdominis plane of the abdomen under ultrasound guidance.

Orthopedics continues to evolve from knees, hips, hands, wrists, shoulders and foot and ankle to spine, fractures, trauma and, more recently, sports medicine. Orthopedics remains the fastest-growing market segment, comprising 42% of EXPAREL procedures, according to the latest premier hospital utilization data as of March 2014. In orthopedics, it is common for physicians to adopt EXPAREL for the vast majority of their total (inaudible) arthroplasties, which fuels the rapid growth of this market segment.

With the diversity and range of EXPAREL use in different procedure types, providing the appropriate educational resources for hands-on clinical technical technique, best-practice experience and institutional integration of hospital orders has become an integral part of our commercialization process. Customers are exploring the most appropriate dose, volume, timing and infiltration technique for the specific surgical procedure of interest.

As we've previously conveyed, we plan to augment our roughly 70 surgical account specialists with 15 additional folks this year and next year, capping at a total of around 100. And we expect our 45 clinical educators -- nurses, pharmacists, Pharm.Ds and physicians -- to grow to roughly 60 [FDEs] by the end of 2015.

To reiterate, these health care professionals are a unique strategic asset. They are a specialized geographically-dispersed group that is specifically trained to educate on pain management, EXPAREL procedure-specific technique and best practice to improve outcomes, as they are a large part of our value proposition for both EXPAREL and Pacira.

Going back to my earlier statement that we believe that we have adequate hospital access, keep in mind that we don't need an expansive geographic footprint for EXPAREL, even with the approval of the nerve block indication expected March 5 under the Prescription Drug User Fee Act, or PDUFA, since the bulk of our product growth stems from expanding EXPAREL use within existing customer base.

We have also expanded our clinical development resources to meet the growing needs of the Company. We have a dedicated Phase IV team working on development initiatives in infiltration, including TAP and pharmacokinetic and pharmacodynamics in various procedures. These Phase IV studies are typically done with a surgical specialty which has specific -- which has requested specific information be developed on the best-practice use of EXPAREL. We also have a team dedicated to help outcomes in value analysis, focused on working with our customers on capturing the patient satisfaction and economic value proposition of the use of EXPAREL for post-surgical pain. This team is responsible for many of the economic analyses you have seen and will continue to see in support of EXPAREL and improved care with the benefit of improved hospital economics.

Finally, our Phase II/III clinical development team has been expanded for additional EXPAREL development work for the nerve block indication, as well as for the development of EXPAREL in chronic pain and for the clinical development of our planned pipeline programs.

We added to our body of clinical work in Q2 with a final study concluding the improved initiative, a series of open-label studies in open colectomy, laparoscopic colectomy and ileostomy reversal. The pooled analysis evaluated 191 patients, comparing total narcotic consumption and health economic outcomes between patients receiving an EXPAREL-based multimodal regimen versus a narcotic-based standard of care regimen for full surgical pain management. Consistent with our previous findings, results showed a 60% reduction in the amount of narcotic required to achieve pain control, with a 1.4-day reduction in hospital length of stay and mean savings of $2,455 per patient.

Likewise, the proven utility of EXPAREL to improve patient care with improved economic outcomes has been a fundamental part of demonstrating the benefits of reduced narcotic strategy in different surgical models and clinical situations. Dr. Sam Balkhy recently presented data on the use of EXPAREL in minimally-invasive cardiothoracic surgery at a National Society for Minimally-Invasive Cardiothoracic Surgery meeting in Boston. Also, an infiltration practices working group chaired by Drs. Girish Joshi and Fred Cushner published Best Practice Infiltration Guidelines for Hip and Knee Procedures for EXPAREL. The work product from this group of key opinion leaders is critically important in supporting the use of EXPAREL in infiltration, especially in orthopedics with procedure-specific technique to ensure best patient care.

Going forward, we will be publishing extensively on areas of interest to the anesthesia customer in preparation for the nerve block launch. In addition to Pacira-sponsored studies, presentations of independent investigator-initiated data is expected at soft tissue and orthopedic meetings. In September, data comparing epidural blocks to EXPAREL TAP infiltration following open total hysterectomy procedures -- which demonstrates a reduction in PACU time, opioid use and associated side effects -- will be presented at the European Society for Regional Anesthesia. Data will also be presented highlighting a decrease in falls and opioid-related adverse events when EXPAREL was infiltrated in open general and colorectal procedures. This data will be presented at the American College of Surgeons meeting.

Through the remainder of 2014, we expect a steady stream of data based on abstracts submitted to the American Association of Hip and Knee Surgery meeting in November, with randomized control trials in total knee arthroplasty and hip arthroplasty, as well as other abstracts submitted to multiple colorectal and cosmetic surgery meetings.

In support of this continued flow of additional data on the use of EXPAREL, we will continue with a wide range of commercial initiatives, speaker programs, national simulcasts and webinars; our orthopedic partnership with CrossLink; collaborative partnerships with medical device education partners, Intuitive Surgical and Sonosite; along with procedure-specific technique guidelines and video presentations. As an example, Pacira was recognized at the Becker Spine Orthopedic and Ambulatory Surgery Conference for June for EXPAREL as one of the top innovations in spine surgery. Additionally, as you heard discussed during our last earnings call, we passed several major milestones and material achievements for EXPAREL in the second quarter, setting the foundation for continued success. We completed a public offering in early April, entered into a strategic co-production partner with Patheon, expanding our manufacturing production capacity beyond our Science Center Campus facility in San Diego to meet forecasted market demand, and submitted an sNDA to the FDA for the nerve block indication for EXPAREL.

With continued revenue growth and these strategic initiatives in place, we believe we are positioned to achieve blockbuster status for EXPAREL. We have just scratched the surface of the EXPAREL market opportunity with a 1.1% market share of the estimated 40 million procedures appropriate for EXPAREL infiltration.

EXPAREL continues to change the way medicine is practiced in ways that we could have never predicted. In fact, the 40 million procedures that we usually reference is expected to slightly -- to be slightly higher due to the revolutionary way that EXPAREL has created new treatment opportunities by simply enabling physicians to perform certain inpatient surgeries in the ambulatory care outpatient setting.

Looking further down the road, we have a series of clinical development milestones to follow the nerve block approval and launch, including a chronic pain program. Upon maximizing the EXPAREL opportunities, we are excited about the prospect of building upon the Pacira brand even further through our DepoFoam-based pipeline. With several candidates currently under evaluation, we hope to develop and commercialize the first product candidate to IND phase early in 2015.

On that ambitious note, I'll turn it over to Jim for a review of our Q2 financials and manufacturing update. Jim?

Thanks, Dave, and good morning, everyone.

We achieved several major financial milestones in Q2. The strong product update that Dave outlined indicated that EXPAREL is becoming not just a major brand, but also possibly on its way to achieving blockbuster status.

For the first time, we achieved a measure of profitability by reporting positive non-GAAP earnings. We generated cash from operations for the first time and we exited the quarter with a balance sheet that prepares us to pursue a growth strategy, absent any foreseeable uncertainties, without equity dilution. But most important, I think the impact of the Q2 results are most meaningful in the context of the company outlook, assuming we continue to execute effectively.

For EXPAREL, we're at an annual sales run rate of $180 million, and that's where we stand with a market share of just over 1%, driven only by the approved infiltration indication, a little over two years into the launch of an acute care product where launches tend to be slower but products stickier, and without the benefit of potential market -- material market expansion opportunities, including the nerve block indication which, of course, we expect to be a significant catalyst in 2015, and farther down the road, a chronic pain application and possibly a J-code which could open up a significant ambulatory surgery market.

Back to the here and now, once again, the Q2 EXPAREL sales estimates released by the third-party tracking services further support our recurrent cautionary note about relying on these numbers which have consistently shown distorted and misleading trends. We've noted that the monthly numbers have been misleading for several quarters, and this quarter both services also missed over $5 million, or 10%, of our actual sales for the full quarter.

We've guided that EXPAREL gross margins for product made in Suite A and Suite C will be 75% to 80% at peak and greater than 60% in Q4 of this year. With Suite C coming online in late Q1, coupled with the operating cost leverage we have with production in our Science Center Campus facility in San Diego, we were able to improve our gross margin to 57% in Q2, up from 50% in Q1. As we work our way toward full production capacity, we anticipate continued gross margin improvement quarter to quarter.

In terms of product supply, we're more than fine today, but we will continue to manufacture 24/7, 365 days a year to build inventory in anticipation of continued rapid EXPAREL growth. And the Pacira and Patheon project team is working together very effectively and is on pace to establish additional EXPAREL manufacturing capacity in the second half of 2016.

Total operating expenses for the quarter were $50 million, evidencing the leverage in our operating model. Our $20 million in COGS in the quarter reflects just a 10% quarter-over-quarter increase in spite of the 30% quarter-over-quarter increase in sales.

You will recall that we guided that we expected to achieve profitability on a non-GAAP basis no later than the second half of 2014. In fact, we achieved a $1.5-million profit on a non-GAAP basis in Q2. This translates to $0.04 per share on both a basic and diluted basis. The non-GAAP profit is derived from our reported GAAP net loss of $5 million, adjusted for $1 million of non-cash debt discount amortization expenses related to our convertible notes, and $5.5 million of non-cash stock-based compensation expense. For the quarter, we had 35.5 million weighted average shares of common stock outstanding and 40.7 million diluted shares outstanding.

We generated and reported $8.2 million of cash from operations in the quarter, but to be fair, that number included the $8-million payment we received from Mundipharma, our European DepoCyte distribution partner, for extending the duration of our partnership as well as expanding their geographic reach to sell DepoCyte.

The broader point, though, is that even without that non-recurring payment, our cash from operations was a positive number, which reflects a meaningful achievement for the Company. Our CapEx in Q2 was $6 million, and as previously disclosed, that figure will grow over the next several quarters as we purchase additional proprietary manufacturing equipment and build out the additional manufacturing capacity with Patheon at their Swindon, U.K. facility.

We ended the quarter with approximately $180 million of cash and investments. We'll be investing in manufacturing capacity expansion, and we expect to move internal DepoFoam-based pipeline products forward, but we believe we have more than sufficient cash to fund these activities. And, of course, as EXPAREL revenue grows, we expect to generate significant additional cash in the years ahead.

So again, we saw a strong second quarter driving some important milestones, but we believe it's important to view the results through the lens of what it means for our future. Our second-quarter results provide additional evidence that we're now poised to take advantage of the substantial operating leverage of our business in both our manufacturing infrastructure and our specialty sales commercial organization. So with continued EXPAREL revenue growth, we anticipate only a modest increase on COGS and SG&A, translating into significant operating margins, EPS and cash generation in the years ahead.

I'll now turn the call back to Dave.

Thanks, Jim.

Sylvia, we're ready for Q&A.

Thank you. (Operator Instructions) And our first question comes from Liana Moussatos from Wedbush Securities. Your line is now open.

Congratulations on a great quarter. You mentioned a little bit about what to expect for seasonality quarter over quarter going forward for revenues. How about expenses? What should we think about the second half over the first half? And also, you mentioned a potential new product may be in the clinic in early 2015. Will that be Depo NSAID or another one?

I'll take number two and look to Jim for number one, Liana. Good morning, by the way. We've got a number of products -- potential DepoFoam-based products that we're doing primary market research on and working in the marketplace to make sure that we've got the right batting order, if you will. So Depo NSAID is prominent on the list and we're going to spend the next few months making sure that we not only know that there's a market need but that we can make it and that we can make it cost effectively from a commercial perspective and we know how to study it. So Depo NSAID's clearly going to be there. We've got a number of things that we're looking at.

Yes. And -- thanks, Liana. And in terms of our cost structure, I don't think really there's anything seasonal about that. We've got a commercial team that is growing modestly, as Dave has talked about, and as I keep emphasizing, there's significant leverage in that. And same with our manufacturing infrastructure sort of growing modestly to support what we're doing. So you'll see modest expense growth but nothing reflecting any seasonality in the business.

Will there be any kind of lumpiness like extra marketing work in Q3 or Q4?

Not material, Liana. We're ramping up for the nerve block launch and you'll see mostly publications and a lot of work on the education front through Centers of Excellence and things like that, but it really is plugged in to things that Taunia and her team were already doing.

Thank you very much.

Thank you.

Thank you. And our next question comes from Gary Nachman from Goldman Sachs. Your line is now open.

Hi, guys. Good morning. Great quarter. So first, the uptake with orthopedic surgeons has been very impressive. What other specialties are you seeing noticeable uptakes? And then on nerve block, how much off-label use do you think you're seeing currently? And just give us a little sense of how you see that market opportunity shaking out, hopefully if you get the approval next year -- or the PDUFA?

Thanks, Gary. So I'm going to ask Taunia to comment on the physician specialties. Nerve block -- we think still we have some -- there is a very modest amount of use in nerve block not material at all to the numbers that we just disclosed, in our view. We do have some folks who are experimenting with use in different nerve block applications and, frankly, some of that is to help us understand exactly the size of the opportunity, which is the second part of your question. Based on the ad boards and the feedback that we've had from the KOLs in the anesthesia community, Gary, there is significant anticipation from this physician segment actually beyond anything that I would have understood a year ago. And so we're spending a considerable amount of our time internally here getting ready for the nerve block launch and making sure that we can educate in an appropriate way and have the assistance of a number of the KOLs in the anesthesia community helping us with how the drug would be used in different treatment paradigms. So I don't know if that's a specific answer to your question. If not, come back to me. And then I'll ask T to comment on the customers and the people that are moving the product along in addition to orthopedic.

Yes. I think a couple of the customer segments that we're seeing really have some very strong interest in growth in -- you see that the orthopedic surgeons in the joint space have now really influenced a lot of the adoption in the spine space as well. So you see the spine segment -- neuro and ortho spine surgeons -- really starting to begin adopting EXPAREL into protocols and improved care pathways. The early use of EXPAREL in the cosmetic segment also is really driving now further adoption in the reconstructive segment. So reconstructive plastic surgeons and surgical oncology are really starting to pick up and begin the same process of adoption EXPAREL in the hospital segment. And then the final segment that we're seeing some real nice growth in is bariatrics. So the work done in the general surgery and colorectal space is translating nicely over into the bariatric surgeon adoption of the product as well. And we have a number of data presentations that'll be coming at several meetings in those specialty segments over the next few quarters.

And net/net, Gary, I think what we see is that actually we're growing everywhere. We just have some places where we're growing faster, and that's what's keeping T and her team on their toes.

Right. No, that's great. And then lastly, Dave, just take a minute to just go through the chronic pain -- where you are and when we're going to have additional visibility on the path forward for that indication. Thanks.

Thanks, Gary. What we're doing really is trying to understand some of the physiology and the biology and talking to some folks who are experts in the chronic pain space. We really don't anticipate having any kind of a formal program that would be material in terms of additional disclosures until after we have the nerve block indication and -- at the end of the first quarter, Gary, for obvious reasons. All of these are nerve block indications. So we're doing a lot of the background work around understanding exactly which procedures the guys do, how they code for those procedures, where they think the use of a long-acting bupivacaine would be useful and where they don't think it would be as useful, and then doing some really initial work with the KOLs again on trying to look at how this product actually works in actual practice. But the longer-based programs where you start to do real clinical work wouldn't take place until after we have the nerve block indication at the end of the first quarter.

Okay. Thanks a lot.

Thank you.

Thank you. And our next question comes from Douglas Tsao from Barclays. Your line is now open.

Hi. Good morning. So obviously, Dave, you've spoken about your best accounts are typically the ones that have had access to the technology the longest. I was just curious if you have, over the course of the commercialization of the product for two years, have learned anything that can facilitate getting new accounts -- because obviously that continues to remain very robust -- sort of up the curve a little bit more quickly to sort of accelerate the growth within those accounts?

Yes. Well, I guess I'll answer the question two ways, Doug, and then I'm going to ask Taunia to provide comments because she's in this trench every day.

Yes.

First, it's -- it is interesting that -- and I'll remind everybody on the call -- we launched with the hemorrhoid data set in soft tissue, so it was not illogical then that people would restrict us in the early days to those indications, right? And so as the product has continued to grow and the physician specialties in support of the brand have also continued to grow, what we see now is really not anything that we have strategically addressed, but we see that when a new account puts the drug on formulary, because it's not just the soft tissue guys -- it's the anesthesia guys with TAP and (inaudible) bariatric surgeons and the reconstructive guys and the orthopedic guys and the spine guys -- because all of those different specialties are now interested in the use of EXPAREL, we don't see the drug get restricted anywhere near the frequency that we did in the early days of the launch. And because of that -- really not anything that we've done from a strategic perspective -- the -- you see the adoption curve accelerated. And so -- I don't know, T, if there's anything that makes any -- add to that?

Yes. Two additional points. Even as accounts really start to begin using the product, they may start with one specialty and we're seeing them move from a single specialty to multiple specialties much quicker. And it's probably twofold because we see a lot of data generation coming out showing the clinical and safety and technique around various procedures that we're sharing with those accounts proactively. So we go in and educate across multiple specialties in order to show them the right technique to have success very quickly.

Yes.

And lastly, Doug, I would just throw in that we are now benefiting from a lot of the work that's been done over the last couple of years. We're -- everybody should have pretty clear in their mind that when we win a 20-chain hospital, for example, we don't actually have to go in and educate and train in all 20 of those hospitals. A lot of that work is done at the major centers and then it's the people who were trained in those centers that are going out and working a day a week or a couple days a month in some of the more peripheral hospitals. And so the cost of sales there is very low and so we not only see the growth in terms of the base of the business, but we don't have to do the same amount of work in order to get those people up to speed that we would have had to do two years ago.

Okay. And then, Dave, one follow-up question in response to Gary's question. You said you'd learned a lot about the nerve block opportunity in the last year and it sort of sounds like you're incrementally -- or much more excited than you were. Just curious exactly what that was in terms of the opportunity that sort of has come to light to you in the last 12 months. Thank you.

Thanks, Doug. What we see is customers coming back to us and saying, "We shouldn't be using catheters. We shouldn't be having to put up with the issues of catheter migration" and all the other issues that they would have had to use in order to establish a nerve block over more than a single injection previous to EXPAREL. So it's been gratifying and a little bit surprising to me the way that the anesthesiologists themselves have embraced the opportunity replace a catheter, a drug reservoir and a pump with a single use of -- a single injection of EXPAREL. And so we've talked to these folks now about a broad range of specific nerve block procedures where they believe EXPAREL would be a value. And so when I talk about the interactions with the marketplace, it's not just the business end of it. It's really gratifying and interesting to talk to these people about how we can improve patient care and how we can continue to move patients who are currently treated in the hospital into a 23-hour stay environment by treating pain differently. And so you roll all that together and actually we're quite excited about the potential for a nerve block indication which, of course, then also opens up chronic pain which, a year ago, we wouldn't have even been talking about.

Okay. Great. Thank you.

Thanks.

Thank you. And our next question comes from David Amsellem from Piper Jaffray. Your line is now open.

Thanks. Just a couple. I joined late so maybe you addressed this. I had just a general question on pricing power. We've seen a lot of aggressive pricing action overall in the space and we saw a big price increase by Mallinckrodt on Ofirmev. I guess my question to you is what are your thoughts on that kind of pricing action and also on your ability and willingness to take price aggressively on EXPAREL. Thanks.

So thank you, David. So I'll be pretty unequivocal and tell you that we don't have 100%-plus price increases even in our -- that's not anything that we're even looking at. Our expectation is that we have a significant amount of pricing flexibility in the marketplace, but we continue to see significant growth opportunities for EXPAREL. And at least this teams believes that thoughtful pricing is a much more appropriate strategic approach for this brand. A couple of things. We do feel like a non-narcotic opioid pain opportunity almost demands that we make this brand available to as many patients as possible, and that's critical in our thinking. And we will raise price as we think appropriate based on the cost of the business and our desire to return profits to our shareholders, etc. But we intend to do that in a thoughtful way. And if I lay out the short-term opportunity -- and Jim talked about a couple of these things -- if you're looking at the continued expansion of the base and then you think about a nerve block indication and then you think about a J-code opportunity and then you think about a chronic pain opportunity, it just doesn't seem to me like it makes a lot of sense to raise the price dramatically and all that comes with that in terms of the resources and all the rest of the stuff. And I also tell you I think we're in the first row here of the bleachers, but I'm an interested observer to see how that price increase plays out and see whether that actually works out to their benefit or not. I'm highly skeptical.

And David, just to add a couple comments on that. One is I think that we very much view this as a partnership with our customers. And Taunia and her team are always talking about the value of the product in the context of the price or relative to where it is today, and we know that some of the KOLs that support our business were also the people who supported the launch of Ofirmev, and the story is quite different now. And so it's -- for us, we're very mindful of the partnership relationship we have with our customer base. It's a critical value proposition, frankly, of the company overall. And then the other thing, which is sort of unrelated to that, is we've emphasized that we don't believe we have competition. We don't have any generic concerns. We have a long runway with this franchise. So I think we are in a -- I don't want to say unique, but certainly a different position in terms of how we look at growing this business over 5 to 10-plus-year period.

Okay. And then another question, if I may -- this is more on the overall acute pain landscape. We may or may not see new alternatives to IV PCA enter the market next year. And I guess the question that I have here is what kind of impact do you think, if any, it could have on EXPAREL? Or does it not have any impact at all? Or does it even synergize with a product like EXPAREL? How do you think about that?

In our forecast, David, it has absolutely no impact at all. We don't wish any ill fortune on anybody, but if you saw our forecast and you saw all of our footnotes, you wouldn't see that even on the page.

Yes. I think there's also -- we've also said that EXPAREL in a multimodal regimen is going to be the right thing for patient care, and based on EXPAREL being a foundation across a number of surgical procedures, that the additional multimodal approach is going to vary. So we really believe there's a huge market opportunity for a lot of players out there so we don't think that that's going to have either a major detriment or a benefit to us because there's a lot of options to add to EXPAREL.

We were all out again this week, David, and actually we all got back here late last night. And I can tell you that in the thousands of discussions we all have with customers, I still have not had my first customer where people are looking for different ways to use narcotics. They're looking to get rid of them.

Okay. Thank you.

Thank you. And our next question comes from Oren Livnat from [JPM] Securities. Your line is now open.

Thanks for taking the question. You mentioned the J-code earlier, and I'll admit some ignorance on what the implications really are for that. Can you help us better understand, given your rapid trajectory of growth you already have now -- what does that incrementally potentially do for you and maybe an update on the potential timing? And I have some follow-ups.

Yes. So what the major growth opportunity for the J-code is really in the ambulatory and the office setting where there's potential to EXPAREL in surgical procedures. And so that really opens up that segment to us in a much broader way for not only Medicare-paid patients but also commercial payers following the reimbursement pathway for the product in those settings. We're not anticipating that to be a major part of our emphasis in 2015. We believe that the really opportunity for J-code is likely somewhere in the 2016 time frame.

Yes. And I think the reason that -- so just to recap, Oren, it opens up an opportunity largely with physician-owned ambulatory centers where the cost of the drug would be imbedded in the procedure and if we can get a J-code, we would open up a separate opportunity to bill for EXPAREL in addition to the procedure. So that's why it's an extended opportunity. We also think that with the impending nerve block and all the things we've already talked about associated with nerve block that we want to be thoughtful again about the J-code and our ability to resource that additional customer base. So the timing that T just outlined is really pretty much appropriate for us.

Okay. Thanks for that. Also, on the seasonality, you've done a very good job for a couple years now warning us of potential seasonality. And I've guessed you've outperformed actually, I think, in Q1 on that front. I'm just wondering, given what you know about summer seasonal procedure volume trends and your share gains you're seeing, should we think that you could potentially see as big a sequential gain next quarter as you saw in Q1 over Q4?

Something along those lines is what we would expect. We just don't know is the answer. If your remember in the -- so we've been out two years now, and in the first year this first summer we were in a matter of a few months. So effectively, Oren, we have a one-dot trend line. So I'm at great risk when I start projecting off of a one-dot trend line. I think the important thing that we've tried to convey to folks is we don't see ourselves going backwards in any quarters, and some quarters are going to grow more than others based on the environment. And I think we would expect that in July and August, procedures slow down so so do we. So I think a Q1 comp -- who knows? I think it's probably as good as any.

Just lastly, if I may. Obviously, you're only a couple months into this Patheon official relationship on these expanded-capacity suites in the U.K. But can you just remind us -- is this first suite that you're now talking specifically in second half 2016 -- that's a duplicate of Suite C, right? So we should look at that as reasonably straightforward and reasonably low-risk when you're giving us timelines and -- your confidence level on that, right? Because you're not trying to reinvent the wheel, correct?

That's correct in everything you said. Our -- we look at the demand curve and we're basically replicating what we just did in Suite C and putting it in a different facility. So it's a lot of work internally, but as you've characterized that it's a pretty low risk and very important, obviously, as demand continues to increase that we get that online as soon as we can.

And obviously you're building excess inventory all the time. In the meantime, you've been very clear that you're going around the clock. Can you just remind us the shelf life? Is that potentially changing as you build more stability data? Could that get longer? I'm just wondering how close we're skinning this cat in theory. You're not giving us guidance, but knowing where The Street is, which is over $600 million in 2017, which is obviously above where you are now, do you feel like you have a large margin for error to build up inventory well ahead of time so that even if it was in early 2017, let's say, if you got approval, it would just slip a little bit, that you'd be good to go?

Yes. Two facts that make us very comfortable with this. One is 2-year product dating and then the second is that customers are using the product very quickly after they order it. Right? So if you put those two things together, there's no inventory in any channel other than at our third-party logistics provider when it's a finished vial ready to be shipped to customers. And when they order it, they typically use it -- I don't know -- within days, if not weeks or --. So because of that, we're very comfortable building inventory in '14 and '15 knowing that some of that'll be used in -- as we get into '16 and so forth.

Thanks so much.

Thank you, Oren.

Thank you. And our next question comes from Patti Bank from Discern Securities. Your line is now open.

Good morning. Just two quick questions. One, are there any major hospitals or hospital chains that still aren't on board at this point? And just wondering if you could maybe quantify that. And then also, Dave, you talked about having a number of potential new molecules that you're working on to put into the clinic. Are they all potentially in the same kind of therapeutic area or would you possibly have to build infrastructure into maybe complementary areas?

Thanks, Patti. There are -- there certainly are medical centers that don't have EXPAREL on formulary. Quantifying it -- we don't actually look at the world that way. If you think that we're available in two-thirds of all the hospitals in America and we need a market share of 8 in order to have a $1-billion product in the United States, we're not chasing the final 5%. And there clearly are people that just don't put any products on formulary, but especially anything that they believe has a high acquisition cost. And I guess if I was going to quantify that in any one way, I would say that where the product is not readily available is almost universally associated with a pharmacist who views the world through the acquisition cost of a product and doesn't look at the totality of a patient care experience. So if they don't care about nursing resources and narcotic-related adverse events and length of stay and they tell you -- and this actually happens -- that it doesn't make any difference to them because the only thing they're responsible for is how much it costs from a pharmacy perspective, then I'm not sure that EXPAREL is the right product for that institution in any case, and we would be much more interested in deploying our resources to people who understand that treating patients and getting patients out of the hospital sooner with fewer narcotic-related adverse events is the right way to approach this. And that's what we do. So we're not focused on that last x percent -- whatever it is. And as it currently stands, Patti, we -- the products that are in development are -- would all use the same commercial infrastructure that we currently have. We might have to add a few people based on the size of the experiences, but they would all be Taunia's commercial team plus a couple of folks and the same customer-touching resources, plus or minus a couple of folks. But with that said, I would tell you that we continue -- as a matter of fact, Taunia and I were with a group on Monday that have a lot of ideas about where we should be expanding the product opportunity for EXPAREL, and some of those are outside of our current spectrum of commercial resources. But that is not on the list of the first three or four things that we're looking at.

And did you say time frame of when we might know more on new molecules?

First quarter of '15 is when we're hoping to be able to talk to you guys exhaustively about what we've got planned.

Okay. Great. Thank you.

Okay. Thanks. So --

Thank you.

No. Go ahead, Sylvia. I'm sorry. I jumped the gun.

I'm showing no further questions. I would like to now turn the call back over to Dave Stack for closing remarks.

Thanks, Sylvia. We'd like to note that, coming up, we will be presenting at the Wedbush Life Sciences Conference in New York City on August 12. We look forward to updating all of you on EXPAREL over the next several quarters. Thanks for joining us today. Thanks, Sylvia, for all your help.

Thank you. Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone have a wonderful day.