Pacira Biosciences Inc (PCRX) 2015 Q1 法說會逐字稿

Thank you for joining the Pacira Pharmaceuticals first quarter 2015 financial results conference call. (Operator Instructions). Following the formal remarks, the Pacira Management team will open the lines for a question-and-answer period.

Please be advised that this call is being recorded at the Company's request and will be archived on the Company's website for 2 -- from 2 weeks from today's date.

I would now like to introduce your host for today's conference, Jessica Cho of Investor Relations. Ma'am, please go ahead.

Thank you, and good morning, everyone. Joining me on the call today from Pacira are Dave Stack, President, Chief Executive Officer and Chairman, and Jim Scibetta, Senior Vice President, Chief Financial Officer and Head of Technical Operations.

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, outlook and prospects, and 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 and 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, 2014, 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. 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, and good morning, everyone. It has certainly been an eventful few months at Pacira since we had our last call, including clinical and commercial progress, a disappointing regulatory development, and additional uncertainty related to a government investigation.

To summarize, in February, following constructive discussions, we reached a resolution with the FDA's Office of Prescription Drug Promotion, or OPDP.

We agreed to take corrective actions on certain promotional aspects of EXPAREL marketing in response to a Warning Letter we received from OPDP in late September. Last month we received a complete response letter from the FDA on our supplemental NDA seeking approval of EXPAREL use in nerve block to produce postsurgical analgesia.

We are working through the regulatory process and look forward to providing an update when we have greater clarity on the path forward for the nerve block indication.

And most recently, the Company received a subpoena from the US Department of Justice, U.S. Attorney's Office for the District of New Jersey, requiring the production of a broad range of documents pertaining to marketing and promotional practices related to EXPAREL.

We take this matter very seriously and intend to cooperate with the government investigation. Candidly, we expect these events to impact our rate of progress in the coming periods, which is why we are suspending annual guidance for EXPAREL revenue and non-GAAP product gross margins until we have a better level of visibility. Jim will elaborate further on this decision and update guidance for certain non-GAAP operating expenses in 2015.

However, our aspirations for the product and the Company remain undaunted. As we work together with the appropriate government entities on these regulatory matters, we plan to execute on multiple fronts in 2015.

Following an end-of-review meeting with the FDA, we remain fully committed to obtaining an FDA approval for the extended indication for EXPAREL in nerve block to produce postsurgical analgesia, and we will work together with the FDA on the necessary requirements for this indication.

In addition, we are moving forward with a Phase 3 program in support of an oral surgery indication for EXPAREL infiltration. This indication has an addressable market of approximately 27 million procedures according to our market research, which represents an exciting growth opportunity.

In addition, we are pleased by the continued proliferation of data generated in the marketplace in support of EXPAREL use, as seen in the successful rise in enhanced recovery after surgery, or ERAS, and continuous quality improvement, or CQI initiatives, which I will highlight shortly.

The first quarter showed continued progress on many fronts while financial results were mixed. We posted strong year-over-year revenue growth and our fourth straight quarter of non-GAAP profitability, but revenues were short of our expectations.

While Jim will elaborate further on the factors affecting EXPAREL sales in the first quarter, we saw persisting positive commercial and clinical trends from previous quarters. Overall, our largest customers continued to be those who have had access to EXPAREL the longest, rather than those who have the largest number of hospital beds.

Steady growth in soft tissue continued to be supported by the rise in ERAS protocols and CQI initiatives, institutionalizing EXPAREL as part of best practice regimens at hospitals and major academic teaching centers, reflecting the understood benefits of low-opioid -- of a low-opioid strategy for managing postsurgical pain.

According to Premier's utilization data, trailing 12 months from December 2013 through November 2014, orthopedics, which is roughly half the total procedure volume of soft tissue opportunity for infiltration, remains the fastest-growing market segment at 54% of EXPAREL use. In the same period, soft tissue represented 38% of EXPAREL procedures, cardiothoracic 3%, and other 5%.

As I mentioned, the market continued to generate data in a wide range of surgery types, establishing the value of EXPAREL as a platform for reducing opioid requirements, which we saw directly impact hospital resource consumption and length of stay, while improving patient satisfaction.

In March and April alone, we saw over 20 datasets representing 11 different medical meetings, and procedures ranging from robotic-assisted hysterectomy, colorectal resection, gynecological resection, and breast reconstruction, to total knee and hip arthroplasties.

One large analysis from the Texas Center for Joint Replacement, assessing 2,248 patients undergoing total knee and hip replacement, showed that EXPAREL patients had significantly shorter stays in the hospital and reported significantly better pain scores.

Those factors result in an average cost savings of $1,246 per patient, which translates to approximately $1.5 million in overall cost savings, largely a result of eliminating the need for femoral nerve catheters, knee immobilizers and patient-controlled analgesia, or PCA pumps, to deliver IV opioids.

Other study findings consistently demonstrated that EXPAREL, when compared to standard of care, rendered a significant reduction in opioid use in institutions which have incorporated EXPAREL into their ERAS and CQI protocols for treating postsurgical pain.

One particular study from the Mayo Clinic, presented at the Miami Breast Cancer Conference, showed a 71% reduction in opioids when an ERAS pathway with EXPAREL was utilized in mastectomy procedures.

Also impressive was preliminary data collected by the SwiftPath program -- 224 primary total joint replacements performed in an outpatient environment resulted in an average length of stay of 0.59 days, zero readmissions, and zero rehabilitation discharges to skilled nursing facilities.

Coming up in May, we expect at least ten data presentations at national meetings. Of note, there will be two data presentations at the Plastic Surgery Research Council, assessing patients undergoing breast reconstruction, a particularly vulnerable patient population for which low-opioid treatment strategies are particularly interesting.

At the Society of Colon and Rectal Surgeons Annual Meeting, we expect to see data using a new value realization tool which assesses pharmacoeconomic implications of postsurgical pain management interventions. EXPAREL patients had a significantly lower daily pain score, significantly less postoperative complications, shorter length of stay, and decreased overall per-patient cost by $1,755.

At the International Society for Pharmacoeconomics and Outcomes Research, a study of patients undergoing total knee arthroplasty will show that significantly more patients who received EXPAREL by local infiltration, versus continuous nerve block via elastomeric pumps, were able to ambulate on the day of surgery, with 50% of the EXPAREL arm discharged in 3 days or less, compared to 19% of the patients in the elastomeric pump group. Total cost for EXPAREL patients were $366 less in the -- than the elastomeric pump patients.

While we look forward to the future, let me shift the focus back to the opportunity for EXPAREL infiltration in oral surgery. The self-pay appeal and the significant interest in the oral surgery market in reduced-opioid treatment strategies for pain control, coupled with the relatively short development timeline, make oral surgery a practical and attractive development program for EXPAREL.

As I described before, there are roughly 27 million addressable procedures for oral surgery, comprised of 10 million third molar extractions and 17 million oral maxillofacial procedures.

We remain on track with our expected timeline. We anticipate initiating a Phase 3 study in third molar extractions this year, with data in hand by the end of 2015, and expect to file an sNDA in early 2016.

Additionally, our animal health partner, Aritana, which is developing their bupivacaine extended-release injectable suspension product, has indicated that they are on track for 2016 approval in dogs.

On the strategic front, we are also engaged in discussions with potential partners for several ex-US territories, and expect to update you on any progress on future calls.

With these mid- to long-term opportunities on horizon, we continue to have our eye on the big picture for both EXPAREL and Pacira. Note that roughly 72 million surgeries are performed annually in the United States, virtually all patients received opioids for pain control, and it is estimated that more than 2 million patients a year are introduced to opioids in the acute postsurgical environment, to be long-term or chronic users.

As an example, third molar extraction patients, on average just 20 years old, often have their initial introduction to opioids in this oral surgery setting.

As we continue to work together with key policy and provider constituents to address the public health problem of the opioid epidemic, our objective remains to get to the root of the problem, which is exposure to opioids, by providing an alternative to opioid-based treatment strategies.

Beyond EXPAREL, we have two DepoFoam-based product candidates. We plan to develop these two distinct opportunities based on DepoFoam proprietary intellectual property through 505(b)(2) clinical development and regulatory pathways, potentially diminishing cost of clinical development and time to market.

Several simple principal concepts underlie DepoMeloxicam and DepoTranexamic Acid. We seek to replace cumbersome catheter reservoir pump systems with a single-dose injection, and replace the stomach dosing with local peripheral injection of drug, thereby avoiding unwanted side effects.

I will now turn the call over to Jim to discuss our financial results and provide an update on our manufacturing capacity.

Thanks, Dave. Let me start by summarizing the overall results in the first quarter. We announced total revenues of $58.3 million, up 59% from last year's first quarter. Total sales were primarily driven by $56 million of EXPAREL revenues, compared to $34.4 million in Q1 of last year.

We noted on our year-end fourth quarter call in February that for hospital-based products Q1 is not comparable to Q4, because of the seasonality of Q1's lower hospital procedure activity compared to the previous quarter.

We also noted at the time the impact of severe weather patterns on scheduled surgical procedures. Surgical procedure volume in Q1 was further impacted by the growing number of high-deductible insurance plans which shift surgeries, especially elective surgeries, out to later in the year.

This latter dynamic has a meaningful impact on us, given that over 50% of our business is in orthopedic procedures, which have a significant elective component.

One consequence of the complete response to the nerve block sNDA in March was that, in the absence of a new customer launch, we went ahead and implemented our second price increase for EXPAREL on April 1, in line with our annual expectations for nominal price increases going forward.

We estimate there was a modest [buy-in] impact in Q1 sales of about $2 million, resulting from the price increase, which is roughly the amount of volume discount-related buy-in activity we experienced at the end of Q4.

Since launch through Q1, a total of 3,498 accounts have ordered EXPAREL, which increased 43% from the same period last year. 835 of these customers have ordered $100,000 worth of product, 162 have ordered $0.5 million worth, and 36 have ordered $1 million worth of product since launch. Comparable commercial metrics available to us -- customers ordering $100,000 worth of EXPAREL grew 153% over last year's Q1.

In Q1, non-GAAP gross margins improved to 72%, up from 71% in the previous quarter, and up from 52% in Q1 of 2014. Despite the 59% increase in total revenues compared to Q1 of 2014, total non-GAAP operating expenses increased only 13% over Q1 of 2014 to $47.5 million.

Non-GAAP net income was $9.8 million, or $0.23 per diluted share, in contrast to a non-GAAP net loss of $6.5 million, or $0.19 per diluted and basic share for Q1 of last year.

Stock-based compensation was $7.5 million in Q1 2015, constituting 6%, 25% and 16% of COGS, R&D and SG&A respectively on a GAAP basis. Adjusted EBITDA for the quarter was $13.5 million, and we finished Q1 with cash and investments of approximately $175 million.

Looking ahead, as Dave noted, we're suspending full-year 2015 guidance for EXPAREL revenues, and as a logical consequence we're also suspending guidance on non-GAAP product gross margins.

We've spoken about how we're operating in an environment where our hospital customers face increasing pressures to tightly manage costs stemming from multiple flanks, including the Affordable Care Act, governmental and private payer pricing pressures, and the evolving accountable care organization environment; and that there's a significant body of evidence that EXPAREL, as part of a multimodal pain management regimen, can more than offset its acquisition cost by helping reduce patient length of stay and resource consumption, thereby actually alleviating some of the financial pressures our customers are facing.

So, we feel our value proposition is significant and clear. But you heard Dave outline the recent developments that took place in Q1 and in April, relating to the Warning Letter and its subsequent resolution, the complete response letter regarding the sNDA for the nerve block indication; and then just a few weeks ago, the US Department of Justice inquiry.

The combined effect of these recent developments make it difficult for us to assess the trajectory of future EXPAREL sales, which is why we've suspended guidance.

We're affirming the 2015 expense guidance we provided for our R&D and SG&A expenses. On a non-GAAP basis, excluding stock-based compensation, we expect R&D expense of $25 million to $30 million, and SG&A expense of $115 million to $125 million.

On the manufacturing front, we continue to make EXPAREL product at our Science Center Campus in San Diego, with impressive gross margins as reported. Further, we remain on track for additional capacity to be approved and up and running in the second half of 2016 at our partner Patheon's facility in the UK.

In this endeavor, we recently achieved a major milestone in that the new manufacturing skids that were designed, fabricated and assembled in the US, have been shipped over to the UK and are now in place at the Patheon site to begin their developmental path towards 2016 approval.

This milestone was achieved just a little over a year after we entered into our agreement with Patheon, an impressive feat that is a testament to the partnership relationship between Pacira and Patheon.

For the new manufacturing process, DepoFoam spray, we remain on track for a Type C meeting in Q2 to gain clarity on the regulatory pathway. As we've said, we believe the DepoFoam spray process, if eventually applied to EXPAREL, could provide significant advantages in the form of improved gross margins, enhanced formal intellectual property protection, and potentially tax advantages resulting from where the IP is domiciled and the technology is being developed.

So, there's no doubt we face challenges ahead in the near term, as we manage through our business opportunities amidst very real external challenges. But in the broader picture, Q1 was the fourth consecutive quarter of non-GAAP profitability, with further substantiation of our significant operating leverage, evidenced by high gross margins in a modest-sized specialty commercial organization.

Looking further down the road, we'll continue to focus on seeking approval for expanded indications for nerve block and for oral surgery to produce postsurgical analgesia; we will aggressively develop future DepoFoam-based products in-house; and we'll be open to the exploration of product acquisition opportunities that are a strategic fit.

With no generic threats or foreseeable competitors on the horizon for EXPAREL, and with a proprietary technology platform that has proven otherwise be safe, and three marketed products on the basis of novel and useful patient solutions, we'll concentrate on implementing our strategy for EXPAREL and beyond as planned. We look forward to updating you on new developments.

And with that, Mallory, we'd like to open the call for our Q&A session.

(Operator Instructions). Doug Tsao, Barclays.

I guess, Jim and Dave, what I think a lot of us are trying to sort of understand right now is, when we sort of separate out factors like the DOJ subpoena and the investigation, versus factors like pressure on hospitals -- sort of, how those all contribute to the decision to withdraw guidance, and if there's one that was ultimately more important than others.

And then, I guess, Dave, when you think about the end opportunity for EXPAREL, has that changed at all?

Good morning, Doug. Thanks for the question. No, what -- and I think what Jim was conveying in his prepared remarks, really were that what we're seeing is the combined impact of all of these different issues that we've had to face here over the last several months.

And really, the decision to suspend was around the critical of -- mass of all that, and our discomfort with providing any specific guidance that we could stand behind with any comfort. And that's really where the decision came from, Doug. There really is no one of those things that is any more important or any more instrumental in our decision than any other.

I would tell you that, over time, we do not -- we think we have to clean all these things up, and we have to very careful that we do all the right things in order to achieve the future indications going forward.

But, no; my confidence in the long term benefit of EXPAREL to patient care, if anything, continues to grow as we work with various academic -- especially major academic institutions on CQI and ERAS programs, and we see the benefit of those programs.

And if I look out over the next several years, Doug, I think, while some of the issues that Jim raised are short-term issues for us to address in our business, over time, as you see the opioid epidemic being addressed in a more specific way by policy [in] hospital administration, and as you see the move from inpatient to outpatient procedures as a consequence of the ACOs and the ACA initiatives, I think our business model gains traction as actually increasingly important to the practice of medicine going forward; but acknowledging that the next few quarters is going to be difficult for us to be able to forecast.

And then I guess sort of -- not asking for specific numbers, but it's your expectation that EXPAREL volume should continue to grow as we move through the year.

Doug, if -- we -- I mean, we suspended guidance. I don't think it would be appropriate for me to make any other comments other than that. I mean, I think that's what we're trying to be, for today at least -- to be true to ourselves more than anything else.

Okay. I'll hop out of the queue for now.

Gary Nachman, Goldman Sachs.

Just to follow up on that last question, could you at least comment what demand has looked like so far in April? Are you seeing at least an improvement relative to the seasonal weakness in 1Q?

And any changes to how the physicians have been using EXPAREL since you changed your promotional practices after the OPDP Warning Letter?

So, I'll let Dave answer the second quarter. I'll just say that we're obviously only reporting on Q1. And then, as we look forward, making the statement that we just -- our standard for guidance is a high level of visibility that we don't have right now.

The DOJ activity just happened a couple of weeks ago, so what our customers do, and how that shows up in sales, we don't have a relevant timeframe since that activity regardless. So, I mean, I don't really want to characterize Q2 sales until we report on Q2 sales, other than that.

And first of all, thanks for the question, Gary. And what we see in the marketplace is, interestingly, that most of the ERAS and CQI programs, other than the specific SwiftPath program that was part of our prepared remarks, are in soft tissue indications, largely in different breast cancer and Ob/Gyn oncology reconstruction, et cetera, indications.

And so, it is interesting to us that -- we attribute that, by the way, to the fact that folks started using the drug in soft tissue procedures several months -- several quarters, actually, before they did in orthopedics. So, they've had more time to actually understand the benefits of reduced opioids in an EXPAREL treatment strategy.

So, I think that we're encouraged on all fronts. We don't see the physicians in any way having any lack of desire to use EXPAREL.

The pressures that Jim talked about really are based in purchasers and customers who are in difficult financial straits, who are trying to make very short-term financial decisions as it relates to their business. Very rare that we have any negative comments from clinicians about the use of EXPAREL and the benefits to their patients.

Okay. And then on nerve block, it sounds like you had the meeting with FDA already. Just maybe if you could give us a timeline, when should hear about the next steps. And it sounds like you're confident; it's a question of when, not if. So, I just want you to confirm that.

And it sounds like you're comfortable enough with the green light to move forward with oral surgery based on what came out of the meeting. I just want to make sure I heard that correctly.

So, we are in discussions with the FDA. We did have the meeting, as you ascertained, Gary. And as we get minutes and we're certain that we've got specific agreements with the FDA, we certainly will look forward to sharing all that with you as quickly as we can.

And your intuition is right, that we are going to pursue oral surgery, not necessarily as a result of the meeting that we had with the FDA on the nerve block indication, but just as an affirmation that that is an activity that is taking place as well.

Okay. Thank you.

Jonathan Aschoff, Brean Capital.

I was wondering if the monthly trends -- the $17 million, $18 million, $24 million for Jan, Feb and March -- if that was true to how it was sold over the quarter. Or, is there another quarter where IMS has gotten it wrong?

Yes, Jonathan. I mean, we -- the IMS/Wolters Kluwer maybe generally are getting a little bit better. This was the first call that I didn't -- have been a broken record and saying, affirmatively you should always ignore them.

But you will see that the two of them actually had numbers that weren't very close to each other in this quarter as well. So -- and other than that, we don't really talk about monthly trends within the quarter. So, I think I'll just leave it at that.

Okay. And just based on the last questions, you have had your FDA meeting already regarding the CRL?

That's correct.

And so, you'll await the minutes and then let us know what you'll do?

That's correct.

And that's going to be in June, maybe?

You'll know as soon as we know, Jonathan. I mean --

You'll recall, Jonathan, what we said -- complete response, early March, and we said we would -- created the expectation of roughly a 90-day timeframe for us to request the meeting, have the meeting, get the minutes, and be in a position to come back and have a decision ourselves, or an understanding of where we are; and then communicate that to you folks.

And then we've also said, and we're just saying the same thing now, that as soon as we know, we obviously want to get that information out to the marketplace.

Okay. And I do actually appreciate your ripping off the Band-Aid with the suspension of guidance. I think that's a good idea. Thanks.

Corey Davis, Canaccord Genuity.

Thanks. Dave, can you be more specific with how your marketing practices have changed both before the Warning Letter, after the Warning Letter, and now after the Department of Justice subpoena?

Yes. And I hope, Corey, that I'm really consistent here with what we've talked about previously. So, we have the broad -- we believe that we have the broad indication.

And just for the sake of everybody on this call, let me read exactly what the indication is from the package insert. And this says -- indication for EXPAREL. EXPAREL is a liposomal injection of bupivacaine, an amide-type local anesthetic indicated for administration into the surgical site to produce postsurgical analgesia. EXPAREL has not been studied in -- for use in patients younger than 18 years of age.

The agreement with OPDP is that our sales force is -- should only be providing procedure-specific information to customers on the two studied indications, and that is bunions and hemorrhoids. And as a result of the Warning Letter corrective action and the agreement with the OPDP, that is what we're doing.

So, when a customer -- when a physician asks for specific information on dosing and administration outside of those two procedures, that information is provided either through a medical information letter or through a visit from a medical affairs representative, typically a nurse or a physician, who will answer those questions and help ensure that the physician has all of the available and appropriate information to make sure that we provide best practice for patient care.

We've only received the DOJ letter 2 weeks ago. And so, since this is an information subpoena, there really has been no change in that since the -- what the FDA has asked for -- I'm sorry, what the DOJ has asked for is information on marketing and promotion practices. So, we are operating as we have under the agreement that we came to with OPDP.

Okay. And Jim, I don't want to put words in your mouth, but were you saying that the folks that are actually buying EXPAREL -- not the docs who are using it, but the people who are making the buying decisions, are becoming more hesitant to buy it because they're becoming more cost-conscious and making short-term-cost-like decisions?

I think, Corey, I was really just trying to create the context for the recent events, right? And I think you know this, but just for anybody listening, we were just -- I was just trying to remind them of the context that our customer base faces financial pressures, and that's part of the buy decision that affects our growth trajectory and so forth.

And then, with these events, it just makes it a little more difficult to sort of look at past and say that's prologue. That's really all I was saying, Corey.

Okay. And then, Dave, on the dental study, you're convinced that you only need to do one pivotal study in order to get approval in that indication. Has the FDA clearly agreed to one pivotal study there?

Yes, we've got some things that we will discuss with them on this topic as well, Corey. But remember, this is an infiltration. And so, it's an sNDA. So, what we're accomplishing by doing the Phase 3 program is putting the information in the package insert so the sales force can talk about it. Right?

So, given our agreement with OPDP now, we have a change in the strategy that we need these procedure-specific information in the package insert in order for the field force to be able to talk about it. And we believe one study is appropriate for that, but we will have some discussions to make sure that that's the case.

Okay. And last question -- I think you're also planning a study in [facets] disease. Is that still in the works?

Yes. It still is certainly on the scorecard, Corey. The issue is, that will be informed by the nerve block discussions that are ongoing with the FDA. And so, once we have affirmation of the nerve block program, then the facet joint program in chronic will be informed by that.

Okay. I got it. Thanks. That's all I had.

David Amsellem, Piper Jaffray.

Just a couple. So, on nerve block, can you talk about the extent to which the personnel changes in the pain division may or may not have had a role in the CRL, and maybe give us some qualitative context on your relationship with the division -- how it's changed in the wake of dealing with new personnel? So, that's number one.

And then number two is, you know, you talked about this cost-constrained environment, and you're citing that now as one of the factors in the suspension of the guidance.

But I guess the question that comes to my mind is, what exactly has changed, in the sense that in the fourth quarter, certainly late last year, that was not something that you had cited. Now, it's something that you're seeing.

So, I guess the question is, can you point to us -- point us in the direction that tells us, okay, what actually has changed amongst your customers? Thanks.

Thanks for the question, David. First of all, let me take the first question regarding the relationship with the FDA. Honestly, David, it really -- the change in personnel really doesn't have anything to do with Pacira. I mean, we can only work with the people who are currently at the FDA. And we believe that we have a good working relationship with those folks. And we expect that -- we're all trying to address the opportunity to provide options to opioids for the postsurgical care environment, and we're working with them effectively, we hope, and we'll report on that as soon as we have some solid agreements that we can report to you.

On the issue of cost constraint, I think the issue of direct comparisons to Q4, David, are not what Jim trying to relate.

I think what we were trying to relate was that there are issues that our customers face every day. We've previously talked about the difference in how physicians view EXPAREL versus line-item budgets, and the impact of some of the purchasers, and how those objectives might not be perfectly aligned in the hospital environment.

And I think what Jim was pointing out was that the Warning Letter and then the CRL and the anticipation that we were going to have a nerve block indication, which then led to the disappointment that we didn't get a nerve block indication, and now the DOJ, has had an impact on how people view EXPAREL from the purchasing perspective. And it's really nothing more than that.

So, it wasn't a direct comparison of Q4 to Q1. You would also understand that, in a low-procedure-volume quarter, that the optics of that are really different than when the ORs are full and you've got high-volume, high-revenue procedures.

Let me just make a broad comment about our view of disclosure too, though. I mean, we tend to, I think that -- have a track record of being very quick at disclosing events if we think they're material, whether they're good or bad, and being very cautious at making forward-looking statements, whether they're good or bad, if we don't feel comfortable with what they are. So, we didn't provide guidance the first [period] of launch. We did provide guidance, obviously, in February.

And then we had these recent events, most recently the DOJ investigation -- which, let's be honest. I mean, that creates uncertainty amongst employees; creates some uncertainty in the marketplace.

And so, what we're saying is, we don't have visibility. We can't -- unlike in the past -- recent past, or just look at trend of the recent activity and then sort of have some decent foundation for what it's going to look like going forward. So, we just don't have that comfort to provide that now. That's really our view of why we're suspending.

Okay. If I may sneak in a followup, given the events recently -- the suspension of guidance, but also given that you are profitable; you have cash -- does this -- do these events potentially drive you to get maybe aggressive in looking at other assets to acquire, or more aggressively use your cash?

We've been looking at things for the last several quarters, David, and this doesn't really change anything there. We continue to look at additional assets, especially if they are -- if we think that they're useful to the target audiences where EXPAREL is specifically -- where we don't have really any cost of sales because we're already going to that surgical audiences.

Thank you.

Liana Moussatos, Wedbush Securities.

Thank you for taking my question. Could you give us update on the two new product candidates that you mentioned at the Analyst Day in January?

Yes. So, we continue to -- I mean, still preclinical, so that everybody gets exactly the right frame of reference -- but we continue to move forward towards IND stage with those products, Liana.

And I don't -- if you're looking for a clinical development update, I assume. They are both still preclinical. We're making progress towards manufacturing of clinical batches, and look forward to having the appropriate tox, et cetera, that we will file INDs as rapidly as we can.

Will they be in the clinic next year?

We haven't provided that information, Liana. We sort of put the broad view of -- that if we -- these are both 505(b)(2)s. And they actually have a little bit of a different clinical pathway, and the only disclosure we've provided around that is that we expect them to be in late-stage Phase 3 studies by the second half of 2017, and we're still on track with that.

Yes. I would remind you, Liana, that this -- and Jim's right on point. I mean, because of the 505(b)(2) pathway and because of the FDA guidance that 50% of our Phase 3 patients need to be treated with product that was produced at the commercial scale, we actually can do clinical development faster than we can do manufacturing development. And so, the program will be somewhat guided by how fast we can provide Phase 3 material.

Got it. Thank you.

Steve Byrne, Bank of America.

Hi, guys. It's Tazeen in for Steve this morning. Thanks for taking the question. Just on oral surgeries, can you let us know how much of the oral surgeries that you mentioned are done in a hospital setting? I know there are certain categories like cosmetics where people are willing to pay out of pocket. But if it's not something where patients need to stay in the hospital afterward, do you see this as being more of an out-of-pocket pay segment?

Yes, for sure. I mean, the answer to your first question, Tazeen, is that the number of patients who are treated in the hospital is modest, generally guided by patients who have some associated comorbidity that requires that you have nursing care immediately on -- close by; not that they don't in a treatment center, but a different level of care immediately available.

One of the things that's actually attractive about this marketplace is that generally these are cash pay environments, and the clinician will bill the insurance company on behalf of the patient. And so, the physician makes the treatment decision. We think it's different but it is somewhat analogous to the plastic surgery marketplace in that regard.

Okay. And I guess, tied to that, how would your current hospital-based sales force be able to promote such an indication if it got approved? Do you anticipate needing to increase your commercial infrastructure to get penetration into that market?

Not -- very modestly. We haven't actually done all of that work, and so I can't tell you with any specificity. But I would tell you that when we built the sales organization, it was done around hospital-based procedures that we thought were appropriate for a long-acting non-opioid pain reliever.

And remember that we also built that around the decile 7, 8, 9, 10 plastic surgeons. So, to the extent that the plastic surgery opportunity and the dental surgery opportunity are analogous, the reps are already constructed around a territory alignment that would pick those up.

I think a specific answer to your question is, what you would expect is that the reps would do some -- would do their hospital work -- and you -- as I'm sure you guys know -- I know you know, Tazeen, that this typically would start 5.30, 6.00 in the morning. You'd be in the OR for a few cases. And then we'd look at dental surgery -- where the surgical account specialist could go in the afternoon or could go in off hours when they're not required to be in the hospital for any reason.

So, I would expect that there will be some modest increase in the sales organization. But nothing that you would need to be worried about or recruiting for years in advance or anything like that.

Okay. Thanks for the color on that. And then, just going back to a comment that was made a few minutes ago in response to how you've adjusted your marketing practices with regards to FDA's inquiry, did you say that the sales reps are currently only actively talking about bunions and hemorrhoids for using EXPAREL?

So, our understanding of our OPDP requirement is that the reps can -- the issue of bunions and hemorrhoids is around specific guidance to clinicians on dosing and administration. So, exactly what's the dose; exactly what's the technique, et cetera. And that's what the hospital accounts specialist can provide around bunions and hemorrhoids.

When a clinician asks about a laparoscopic procedure, for example, or an orthopedic procedure, because that information is not specifically outlined in the package insert, we provide that information either through a medical information letter; or, if the clinician would rather see one of our medical account -- or medical -- I'm sorry, medical affairs folks, who are almost entirely physicians and nurses and pharmacists, then they would have a visit from somebody other than a rep as -- to provide that guidance.

Okay. Can you just let us know, what portion of the orthopedics market have you penetrated so far?

Oh, it's -- in our -- we gave guidance that it was over 50% of our business. But it's tiny as a result of the orthopedic business. I don't have that number right off the top of my head, Tazeen, but we can get back to you.

Okay. It was more to get a sense of, if you're now no longer talking about anything outside of bunions and hemorrhoids, and let's say an orthopedic surgeon may not be fully familiar with EXPAREL, I guess, how do you expect to increase that rate of penetration into what is obviously -- been a successful market for you, but to be able to continue that trend?

It's -- so, the broad desire of the clinical community is to provide reduced-opioid treatment strategies. And so, if you focus specifically on orthopedics, as your question implies, then this started with knees. Many of the ERAS and CQI protocols that are driven independent of Pacira have included EXPAREL in their treatment guidelines.

And so, you expect that that would continue to happen as the medical community understands that the use of opioids, while fine pain relievers, have all of the consequences of nausea, vomiting, urinary retention, et cetera.

The primary growth of the product, frankly, in many of these environments, is the success of the product in the physician lounge, where clinicians relay to other clinicians that they've had experience and that they've been able to reduce opioids and improve patient care, whether that's length of stay, or patient satisfaction scores, or whatever it is.

And so, our organization has been focused around making sure that we can provide adequate information so that we assist the physicians in their use of the product.

But I wouldn't look at the way EXPAREL has been expanded from physician to physician as in the traditional retail environment, where it's one doc at a time. I mean, in the hospital, we have a more closed environment where success leads to success, and docs who are looking for opioid -- reduced-opioid treatment strategies will seek out folks that are having success in similar procedures.

So, the sales force is talking to other physicians, Tazeen. The issue that was agreed with OPDP is that we won't provide specific information on dosing and administration outside of bunions and hemorrhoids, which are specifically listed in the package insert.

Okay. Thanks, Dave.

Doug Tsao, Barclays.

My followup was asked and answered, thank you.

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

Thanks, Mallory. Thank you, everyone, for joining us today. Coming up, we'd like to note that we'll be presenting at the Bank of America Merrill Lynch 2015 Health Care Conference next month in Las Vegas. Thanks a lot, and we really appreciate your continued support. Thanks, everybody.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone have a great day.