Pacira Biosciences Inc (PCRX) 2017 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Pacira Pharmaceuticals Second Quarter 2017 Earnings Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to turn the conference over to Susan Mesco, Head of Investor Relations.

Thank you, Latoya, and good morning, everyone. Welcome to today's conference call to discuss our second quarter 2017 financial results. Joining me on today's call are Dave Stack, our Chairman and Chief Executive Officer; Rich Scranton, our Chief Scientific Officer; and Charlie Reinhart, our Chief Financial Officer.

Before we start, let me remind you that today's call will include forward-looking statements based on current expectations. Such statements represent our judgment as of today and may involve risks and uncertainties. Please refer to our filings with the SEC, which are available from the SEC or our website, for information concerning the risk factors that could affect the company.

With that, I will now turn the call over to Dave Stack.

Thanks, Susan. Good morning, everyone, and thanks for joining. The first half of 2017 was marked by strong progress. Recent highlights include another quarter of solid growth for EXPAREL. We are on track to deliver our full year financial guidance, the PILLAR study in total knee arthroplasty, or TKA, recently published in the Journal of Arthroplasty, 2 additional Phase III studies in nerve block are complete and provide the necessary data for resubmission of our sNDA. We're seeing strong execution from our J&J partnership and our collaborations with Trinity Health and the American College of Surgeons are supporting robust educational initiatives around decreasing the use of opioids.

With these and other growth initiatives, we are very bullish about the near-term and long-term prospects for EXPAREL. The EXPAREL growth strategy is built on 3 pillars. First, generating level 1 clinical evidence; second, driving education and awareness around the need for opioid sparing solutions to patients and health care providers; and third, forming strategic collaborations with partners who share our commitment to reducing the role of the operating room as the gateway to opioid use and abuse.

Across all 3 of these pillars, our team is delivering results. I'll start with clinical data and the upcoming resubmission of our sNDA seeking expansion of the EXPAREL label to include nerve block. Our submission will include 2 highly successful Phase III efficacy studies: The original Phase III study of EXPAREL as a femoral nerve block for TKA with endpoints of 0.0001 for efficacy and 0.0016 for opioid sparing, and the more recent Phase III study of EXPAREL as a brachial plexus block with a p-value of less than 0.0001 for efficacy and less than 0.0001 for opioid reduction in shoulder surgeries, with 12% of the patients in the EXPAREL arm being opioid free.

We will also include a robust safety database and pharmacokinetic data through 120 hours from the Phase III brachial plexus block study and our second Phase III study in femoral nerve block.

To further enhance our product -- our procedure dataset, we also plan to include data from other investigator-initiated peripheral nerve block comparator studies in hand and wrist, and foot and ankle. These studies are being conducted under a Pacira grant and data is on track for later this month.

So the bottom line is, with the data from all of these studies, we believe we have all the necessary information to satisfy the FDA requirements and resubmit our sNDA for nerve block around the end of the third quarter.

Our clinical strategy also includes investing in a series of Phase IV studies to expand the use of EXPAREL and best practice infiltration technique across key surgery procedures.

Last week, our PILLAR study was published online in the Journal of Arthroplasty. PILLAR evaluated EXPAREL versus an active bupivacaine comparator in patients undergoing total knee arthroplasty. This study proves without question that EXPAREL is significantly better than bupivacaine at reducing and even eliminating opioids, while successfully managing postsurgical pain.

Patients in the EXPAREL group required 78% fewer opioids than the bupivacaine group through 48 hours. The EXPAREL group also achieved a statistically significant reduction in pain scores compared to those who did not receive EXPAREL with a p-value of 0.0381.

So in short, a significant reduction in opioids, while improving pain control in this very painful surgical procedure. The study's key secondary endpoints focused on opioid reduction. Here, we also saw impressive results.

Similar to the 48-hour endpoint, patients in the EXPAREL arm required 78% fewer opioids through 72 hours, with a p-value of 0.0108. 10% of the EXPAREL patients did not require any opioids after their surgery. This compares to 0 patients in the bupivacaine group with a p-value of less than 0.01. EXPAREL is also significantly better than bupivacaine with respect to time to first opioid rescue medication with a p-value of 0.023.

So across 16 study centers, all key metrics of the PILLAR study were highly successful in demonstrating the positive impact EXPAREL can make on postsurgical recovery, while limiting exposure to the potentially dangerous consequences of opioids.

We believe publication in this top-tier journal will drive broader formulary support and help close the operating room gateway to the opioid epidemic.

The timing of this publication could not be better as we roll out 4 J&J sales forces in real time. Our Phase IV clinical priorities also include studies in spinal fusion, C-section, colectomy, hip fracture and breast reconstruction. These studies, which mirror the design of the PILLAR TKA study, remain on track for multiple key milestones in 2017 and 2018.

We are enrolling patients in our spinal fusion study, and we are currently activating sites and screening patients for the C-section study. And as expected, we are seeing significant patient and physician interest.

More than 1 million C-sections are performed annually in the United States, and physicians and patients are eagerly seeking nonopioid alternatives for managing pain after birth.

Site selection is also underway for our Phase IV colectomy study. This study will compare postsurgical opioid consumption for 48 hours following a 4-point TAP block with either bupivacaine or EXPAREL plus bupivacaine. Secondary endpoints will compare efficacy, safety and health outcome assessments.

Turning to our second pillar -- to the second pillar of our strategy, education and awareness.

As you know, last year we launched our Choices Matter National Patient Education campaign. This robust initiative is intended to drive patient awareness of nonopioid options to control postsurgical pain and empower patients to proactively discuss these options with their surgeons. This campaign has been a great success with more than 560 million media impressions since launch.

We are currently gearing up for a second major national media initiative. We will anchor the second phase of the -- around the national report on the impact of current opioid initiation in the hospital, on the overall opioid epidemic from a societal and economic standpoint, including a volume analysis of opioid dispensing over and across specific orthopedic and soft tissue surgical models.

Additional core elements will include a broadcast public service announcement across the U.S. to raise awareness to the risks of postsurgical opioids and the available nonopioid options. A social media effort encouraging patients and clinicians to take the pledge for one less pill and commit to discussing nonopioid options.

Online clinician and patient testimonial describing first-hand experience of the value of nonopioid postsurgical recovery, some of these stories are now live on our Plan Against Pain website. And national and local media tours that will include celebrity spokespeople with EXPAREL recovery experiences to share.

We are also launching a collaboration with shatterproof.org and they will be partnering with us in the second phase of Choices Matter. Shatterproof is a national nonprofit dedicated to ending the devastation that addiction causes families. They are the nation's premier online resource for those affected by substance disorders, offering expansive evidence-based information about addiction, prevention, treatment and recovery.

Over the past 3 years, Shatterproof has worked with 75,000 families, and their advocacy efforts have helped 14 states pass life-saving legislation related to prescription drugs, addiction and overdose.

Together, we will advance our joint commitment to education and awareness about nonopioid options to decrease opioid use and abuse.

Turning to our third and final pillar, which relates to strategic collaborations. I'll start with J&J. This partnership continues to advance extraordinarily well and I am pleased with the effort -- with to report that we have shifted to execution mode with the J&J sales and medical teams now actively supporting EXPAREL as part of their product offering.

On the training front, we've seen tremendous amount of progress in a very short period of time. The J&J teams are significantly engaged and now being deployed across a range of customer opportunities.

On an account level, we are now starting to see the J&J field force open doors to new hospital systems, where we previously did not have any access.

To remind you, J&J has 4 distinct sales channels and we have defined the core procedures, which will anchor each team. Joint reconstruction will focus on hip and knee replacement, spine will target lumbar fusion, trauma will focus on hip fracture, and eventually expand to ankle and long bone fractures. And for sports medicine, we'll start with rotator cuff, and then move into total shoulder and ACL repair.

Of course, our primary current business is in joint reconstruction. And last week, we rolled out the PILLAR total knee manuscript and promotional material to the J&J team as well as to the Pacira teams. This is an exciting time with new data and significant new resources to work with health care providers to improve patient care and hospital economics.

Spine has solidified itself as the most compelling near-term opportunity. This J&J field team is highly technical and technique focused. So they are an ideal fit to help broaden the use of EXPAREL in spine procedures. We are seeing immediate interest in EXPAREL from key spine surgeons around the country.

In parallel, trauma is emerging as a powerful future outlet for growth. This will be supported by a defined best practice protocol in hip fracture with data from an investigator-initiated study expected to be published at a medical meeting early next year.

Together, we are also executing on a broad education strategy for EXPAREL, integrating the PILLAR results and virtual reality training tools as well as best practice surgical technique in spinal fusion, hip fracture and shoulder arthroplasty surgery into the J&J world-class educational programs, providing our customers and our representatives live video educational experiences.

We're also building a comprehensive library of training videos and case reports targeting key procedures such as knee, hip and spine, which are featured on the DePuy Synthes Institute website. And all of our key opinion leaders are now integrated into the Johnson & Johnson educational programs.

J&J is rolling out a branded national marketing campaign, calling out physicians to help combat the opioid epidemic, and clinical, societal and economic burdens associated with these dangerous medications.

Last month, J&J began running EXPAREL ads in Orthopedics Today. And in the coming months, they plan to expand the campaign with patient-focused marketing materials.

Finally, we are also now starting to tap into the broader capabilities within Johnson & Johnson's commercial organization, such as their national accounts group which is solely focused on hospital relationships, their care advantage orthopedic episode of care program, which is helping their customers deliver value-based data-driven care, and the upper management team who is joining our charge to discuss partnerships -- partnership opportunities with hospitals' C-suite executives around system-wide opioid sparing strategy.

All of this rapid progress underscores the commitment from both Pacira and our partner, Johnson & Johnson, to provide as many patients and health care providers as possible a nonopioid solution to manage postsurgical pain.

Conquering the opioid epidemic is of considerable interest to health care systems, physician groups, payers and employers. Here, we are also seeing terrific progress, both within existing collaborations as well as a great deal of inbound interest around new alliances with health care providers and payers. We believe recent interest reflects the meaningful progress taking place at Trinity Health as well as the American College of Surgeons.

To share some insights into these 2 unique partnerships, I'd like to introduce our Chief Scientific Officer, Dr. Rich Scranton. Rich directs all of our medical and health science activities, and plays a lead medical role in our collaborative initiatives with the health care community. Rich?

Thanks, Dave, and good morning to all joining today's call. I'll start with Trinity Health. Trinity is one of the largest multi-institutional catholic health care systems in the nation, serving communities that include more than 30 million people in 22 states. They are dedicated to building a people-centered system, in which the people and communities Trinity serves are at the center of every behavior, action and decision.

This drives Trinity's passion to reduce opioid harm and addiction. They recently published their public policy position statement on opioids, entitled, Reducing Opioid Harm: Promoting People-Centered Care, which forms the framework for a number of the collaborative educational initiatives throughout the Trinity system, including an educational forum in the fall that will feature national experts and public officials.

Substance abuse electronic medical alerts that will be implemented across Trinity to add an increased level of diligence and safety for patients who may be susceptible to opioid abuse, misuse or addiction.

An educational series for residents on the appropriate use of opioids and the provider's role in the midst of the opioid crisis. And a broad system-wide awareness campaign focusing on reducing opioid harm that will target pharmacy, nurses, physicians and quality administrators.

Essentially, Trinity is creating and fostering a system-wide core competency around opioid minimization strategies.

American College of Surgeons is also supporting a comprehensive clinician and patient education to reduce avoidable exposure to opioids, their side effects and long-term health risks.

With more than 80,000 members, the American College of Surgeons is the world's largest surgical organization. Their July bulletin features an article entitled, The Opioid epidemic: What can surgeons do about it? This important report is a call to action to the surgeon community and highlights the responsibility to understand and mitigate the risks of opioids.

The American College of Surgeons' Board of Governors also recently completed their official policy statement on prescription opioids and this will be published online in the August issue of their bulletin.

As Dave mentioned, these unique and successful collaborations are prompting additional collaborative discussions with other health care systems as well as payers and even employers.

Payers are now recognizing the value of EXPAREL and the important role it can play in improving patient care. They are seeking educational materials around opioid sparing options and some are also interested in partnering with Pacira to establish specific mechanisms within their system to enforce opioid sparing strategies.

All in all, we're very pleased with the interest we're seeing from key organizations interested in partnering with Pacira to make a meaningful difference in addressing the opioid epidemic. Moreover, as you can tell, we have seen real action from these organizations with the commitment to align in a number of initiatives to reduce postsurgical opioid use as quickly as possible.

With that, I'll turn it back over to Dave.

Thanks, Rich. So overall, Pacira is in great shape for a strong finish to 2017 and continued growth beyond. We look forward to delivering on a number of key milestones for the remainder of this year, including a full year financial guidance, including EXPAREL sales of $290 million to $310 million, filling our -- filing -- I'm sorry, our sNDA with the FDA to expand EXPAREL label to include nerve block, enrolling the spine and C-section studies, launching our studies in colorectal and hip fracture and breast reconstruction procedures, broadening national education awareness about nonopioid initiatives and forming new collaborations with providers and payers who share our passion for improving patient care through opioid minimization strategies.

And with that, I'd like to turn the call over to our CFO, Charlie Reinhart to walk through our second quarter financial results.

Thank you, Dave, and good morning, everyone. Financially, Pacira continues to be in great shape. Second quarter EXPAREL sales grew 6% and we're confident that growth will accelerate in the second half of the year as we -- and we will achieve our full year guidance of $290 million to $310 million.

Before I walk through the second quarter results, I'd like to remind you that we will be discussing non-GAAP financial measures this morning. A description of these metrics, along with the reconciliation to GAAP, can be found in the press release we issued this morning.

Net product sales of EXPAREL were $69.8 million for the second quarter of 2017 compared to $65.8 million last year.

As discussed on prior calls, we believe a number of key value drivers, such as our J&J partnership, the publication of the PILLAR study in The Journal of Arthroplasty, and the educational initiatives underway at Trinity Health and the American College of Surgeons will start to take hold in the second half of 2017, and become the foundation for sustained growth of EXPAREL.

Our non-GAAP gross margin for the second quarter of 2017 was 69%, consistent with non-GAAP gross margins for the same period last year. Overall, we continue to expect our full year non-GAAP gross margin to be in line with our guidance of roughly 70%.

Non-GAAP research and development expenses increased to $18.2 million for the second quarter of 2017 versus $8.3 million for the second quarter last year. The increase in R&D was largely driven by costs related to the 2 Phase III nerve block studies as well as our Phase IV infiltration studies in spine and C-section surgeries. We expect R&D spend to decline in the second half of this year, now that our 2 nerve block studies are complete.

Our non-GAAP selling, general and administrative expenses were $34.2 million in the second quarter of 2017, compared to $31.4 million for the same period last year. This increase was largely attributable to an increase in the number of commercial personnel versus the second quarter of 2016, investments in educational initiatives around EXPAREL best practice technique in key surgical procedures and commission expense related to our J&J partnership.

During the second quarter, we recorded a $5 million nonrecurring charge, $500,000 of which was included in cost of goods sold, related to the discontinuation of DepoCyt production. As previously disclosed, this was due to persistent technical issues specific to DepoCyt.

The bottom line was non-GAAP net loss of $4.4 million or $0.11 per diluted share for the second quarter of 2017, compared with non-GAAP net income of $7.9 million or $0.19 per diluted share for the second quarter of 2016. Lastly, we are well capitalized and ended the quarter with roughly $382 million in cash, cash equivalents and investments.

Looking ahead, we remain on track to deliver our full year financial guidance that we provided in March, namely: EXPAREL net product sales of $290 million to $310 million; non-GAAP gross margins of approximately 70%; non-GAAP R&D expense of $50 million to $60 million; non-GAAP SG&A expense of $145 million to $155 million; and stock-based compensation expense of $30 million to $35 million.

With that, I will now turn the call back over to the operator to begin our Q&A session. Operator?

(Operator Instructions) And the first question is from Randall Stanicky of RBC Capital Markets.

Dave, just 2 questions for you. As we think about the J&J relationship, you talked all being in execution mode. If we look at the midpoint of guidance, it implies close to a 19% ramp over the first half. Can you just help us understand the timing? Should we start to see the pickup in the third quarter? And maybe just set expectations for us and any early feedback? And then I have one quick follow-up after that.

Yes. Sure, Randall, thank you for the questions. We are deployed now, not fully deployed, but we do see a significant interest in the marketplace. The project or the relationship was largely built upon reconstruction. And we see immediate impact from PILLAR. It's only been out for a week and we've had a number of very positive responses already from health systems and from folks who are waiting for that data to come to be able to increase their ability to access EXPAREL. I think a bit of a boost that was not entirely anticipated as we put the project together was the immediate response from spine surgeons. These are all small, Randall, but we think really indicative of where we're going. We've had project -- or we've had programs where we introduced spine surgeons to EXPAREL through our J&J partnership and we've had use in the next 48 hours after they left those educational activity. So that's the kind of response we see when we have existing relationships that open doors to folks who are intensely interested in opioids, but where we were never able to get with the size of our commercial organization. So we do see an immediate effect and we do see that ramping over the second half of the year. And also I have to remind everybody that traditionally 1/3 of our sales have been in the fourth quarter anyway. So we see a strong ramp into that.

If we see this relationship work out, why wouldn't you pursue a similar type of relationship on the oral surgery side with a dental company that can help you drive penetration into that market? And maybe just can you comment -- last quarter it sounded like you are a little bit more focused on that opportunity. Where are you in general with that market?

It's been difficult for us to get at with our own resources just because of limitations on the time that our reps spend with folks. We are addressing the oral surgery market. It will largely be through some payer relationships and we expect to announce some of those over the next couple weeks. Your first question is an interesting one about whether we would do something similar with oral maxillofacial. We don't have anybody that I know of at least that fits the bill that would be able to help us to the extent that it would -- that it would be a good return on investment for our shareholders. But we're always looking, Randall, and we're open-minded to any opportunity that would increase our opportunity to fulfill our mission of making an opioid alternative available to as many patients as possible. But we may have something that is sort of what you're talking about, but very different than what you're talking about to announce in the near future.

The next question is from David Amsellem of Piper Jaffray.

Just had a couple. First, can you just elaborate on timelines for the data readout for the various Phase IV studies that you talked about, so the colectomy study particularly interested? And also when realistically we could see data from the spinal fusion study? So maybe just give us a roadmap there in terms of timeline. And then second

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business development with some cash that you now have to deploy, can you give us your latest thoughts on how you're thinking about BD and the kind of assets you are looking for, i.e. commercial stage versus Phase III ready or NDA ready or even earlier stage assets?

Thanks, David. First question, I'll try to restate the questions. So we are currently enrolling patients in spine. We've made a couple of tweaks to the protocol, David, which we think will be helpful. And we also have significant help coming from our J&J partnership in terms of some newer sites. I can't tell you, these are clinical trials and enrollment is always a tricky thing, but we expect that we will have data right around the end of the year or the beginning of next year for the spine trial. C-section is enrolling -- is about to enroll its first patient and there is a great deal of interest. As a matter of fact, we have more sites that want to get in that study than we can handle. So I expect that, that will roll very quickly and you will see data probably around the same time frame. Our expectation is the end of the year or early next year, but again, it's clinical research, so it's hard to tell you within a couple of weeks exactly when we're going to have a dataset. The 4-point TAP colectomy study for colorectal, we are just enrolling sites now, David, so my guess is end of first quarter, some time in there, there is some limitation to our resources enrolling 3 of these trials at the same time. And breast recon, you've probably seen there's a couple of papers that have come out on breast recon just in the last couple of months. And so there is also a building amount of clinical interest in the medical community about getting that trial up and running as quickly as possible. So I think you'll see all of these as quick as we can get them enrolled. They are very much the same design as PILLAR, and so we're highly confident that we'll be able to improve patient care through these clinical programs.

The assets that we're looking for in terms of our BD response. Mostly David, we're interested in things that are of interest to orthopedic docs and soft tissue docs. So we're looking really at things that our current customers find interesting. So surgeons and anesthesiologists generally are what's guiding our activity now. That casts a pretty broad net. It's not just pain. We're interested in products for reconstruction. There's a lot of things in the plastic space that fit into that [monitor]. So we've got a number of things that we're looking at aggressively. And we'll see if we can close one of these deals here, but you're right. We have cash. We've got a number of things that we've got our eye on, but they're all things where we believe there is a high need for education and medical training that allows us to use all of the resources we have to get in and train aggressively and they're all things that are of high interest to either surgeons or anesthesiologists, so that we can convince ourselves that our cost of sales is low. And then lastly, I would say, we are also making good progress on the rest of world and expect that sometime in the next quarter that we would be able to announce at least one partnership around EXPAREL rest of world too. So sorry David, that wasn't a direct question, but it was something I didn't put in the script.

The next question is from Douglas Tsao of Barclays.

Just, obviously, the ramp that you are expecting in the second half of the year is pretty significant and obviously, Dave, as you noted, the fourth quarter is typically pretty strong. Just curious what your sort of internal expectations? And what you're seeing just to sort of level-set people to have realistic expectations into the third quarter, which is obviously fairly seasonal? But given some of the momentum that you're reporting, should we expect to see some sort of sequential progress in the third quarter versus the second quarter?

Yes, Doug. I think it won't be as dramatic as we'll see in the third quarter as all of these things gain traction, but we do expect to see some traction in the third quarter as we benefit from recent information. I mean, this PILLAR study is a big deal in the clinical community. And we've got patients, we've been operating with folks or speaking with folks who are interested in opioid-free. And there have been no opportunities to provide opioid-free surgery until PILLAR, which was 10% opioid-free in knees and the 327 trial, which was a 12% opioid-free in shoulder surgeries. I'm not sure that the financial world understands the significance of that to the clinical world, and so we think this is a very big deal and a lot of these things will be taken on very quickly. In addition to hospital interest and clinician interest, we have payer groups, self-insured payers and labor unions, who are very interested in having their constituents have an opportunity to have minimized or [no] opioid-free surgery. And so you see the momentum building very quickly. It'll never go as fast as the expectations that the financial community has because this is operating. It's changing the way medicine is practiced, but you see very strong momentum if you're here. And we now have the manpower to execute it in the marketplace, especially in spine and trauma and places where we just weren't even going before.

And then Dave, maybe it would be helpful to sort of give an update. I mean, obviously, know we're in the midst of the J&J rollout. In terms of the Pacira sales force, are they focused exclusively now on soft tissue? And then within soft tissue, what are sort of the focus -- what's the focus in terms of sort of procedures? Or is it continuing to sort of plug away on the access side?

No. Thanks, Doug, good questions. So no, they haven't pivoted strictly to soft tissue. I mean, we are dedicated to making EXPAREL available to as many patients as possible. And so to the extent possible, and where J&J is fully deployed, we still have meetings where we have relationships and they have relationships. We still have places where we do the training. Once they've opened the door, so it isn't -- and probably never will be. There is no black line here that says, we're not going to go address an opportunity to help our J&J partners, but it is a focus where we will transfer as much of this operational resource requirements to them as possible. On the soft tissue side, the major focus, Doug, is around TAP for a couple of reasons. One is it's a very hot area and there is a tremendous amount of interest in being able to do TAP procedures. There've been a number of papers published on EXPAREL and the advantages of EXPAREL, not only in colorectal surgery but in recon surgeries, several kinds of recon surgeries actually. And just to remind everybody, our C-section trial and our colorectal trial are both TAP procedures. And just as a matter of record, we do have several opioid-free C-section datasets in house now. So you're going to see publications come out over the near term, while we are also investigating these clinical trials. So the field force is largely looking at the female health, if you will. And if you think about C-sections, breast reconstruction and the ovarian cancer trial that's being done at MD Anderson, where the primary endpoint is opioid-free, you can see that we are preparing a bundle, if you will, of clinical opportunities to work inside women's health, where there is a great desire to reduce opioids because the last thing you want to do in a gal that has cancer is downregulate her immune system through the use of opioids. I don't know -- I try to make the answers succinct, Doug. If that's not enough, I'm sure we'll talk to you later anyway, but that's the short answer.

The next question is from Corey Davis of Wainwright.

This might be kind of a moot point. But if this acceleration doesn't happen in the second half of this year, internally have you thought about that? And are there any contingency plans for what you might do in terms of increasing spending and promotion? Or might you actually cut back in spending to just say, you know what, it's not working and, therefore, we want to maximize profitability on this? Or have you not really entertained any changes in either direction?

Corey, there are so many positive things going right now with payers and labor unions and very large self-insured organizations as well as big health systems, who are reaching out to us now that, honestly, it would be a silly time to be utilizing our resource to figure out those things. We're barely able to keep up with the inbound requests for meetings with us in order to address major opportunities that we could have only dreamt about 1.5 or 2 years ago. So I think if we have to do that, we'll do it when the times comes, but right now I'll use an old Irish expression, I'm sort of ass over teakettle to try to keep up with all the inbound phone calls. I haven't taken the time to look at what might happen if nothing works that we're doing.

Okay, good. And then just, secondly, your manufacturing expansion into the U.K., are there any kind of updates there in terms of timing or still the same as in the past? Or anything you can add there would be great.

Yes, no. Corey, yes, pretty much the same. We are making validation batches and fulfilling all of the regulatory requirements to open that as a commercial facility. We expect to have commercial material from them sometime in the middle of next year. And the 200 liter, which is a significant help to us in terms of gross margins, et cetera, that extends the batch size from 45 liters to 200 liters. The skid in all of the hardware is there, all of the systems validation and all of the rest of the stuff that has to happen before you can start making a sterile product is in progress. So probably quiet on the topic, Corey, because there is not much to say. It's just getting all the work done now.

And then lastly for Charlie. Can you remind us how much you have in NOLs? And when, if ever, you might expect to start paying tax? In the out-years kind of -- any kind of guidance you can offer in terms of the tax rate would be helpful.

So the NOLs are roughly $330 million, I believe. And the last projection in our view, that took us out into probably the second half of 2020 before we actually start to pay cash tax. Obviously, that's heavily predicated on what you think '18, '19 and '20 sales look like, but we're reasonably bullish on those years based on everything you know we've got going on here. So we do think we'll end up being a cash taxpayer. And at that first point, it would depend on what the U.S. corporate tax rate is. If you tell me what that's going to be in 2020, I'll tell you what our tax rate is.

The next question is from Dewey Steadman of Canaccord.

On DPS, obviously it's tracking fairly well with getting physicians trained and interested in the product. Do you think as DPS launches new hardware over time that, that would actually help generate acceptance as docs are coming in for training on the new hardware alongside EXPAREL?

Yes. And maybe not exactly the way you've asked the question, but as we have additional educational opportunities to bring people into their training centers, whether -- no matter what that opportunity is, whether it's new hardware or anything else in the continuum of care, the greater their interest is in attending the educational sessions, the greater the opportunity to present the care continuum and EXPAREL is part of all of those. So yes. And the same thing, by the way, as we get into Spain -- into spine and to trauma, et cetera, we're getting into places where folks haven't really thought through the opportunity for opioid-free surgery because there was no option. And so you're seeing the same kind of activity there.

Outside of new products, what really is driving docs to come in for training on DPS?

It's the continuum of care. It's all about the -- about ACOs and about affordable care. It's all about how you treat patients cost-effectively. It's the kind of total thought process that brings a clinician into the J&J family around all of the assets that are available. There are things that happen in a -- they're able to provide -- if a patient has BMI, you can go into a weight management program. If a patient is a smoker, you can go into a smoking cessation program. I mean, there are a number of opportunities here from an asset base that are available to clinicians through the Johnson & Johnson training programs that we could have -- we didn't even -- I mean, there was no chance that Pacira was ever going to get into any of those things. So there are regular updates and even the PILLAR trial is a great example, right? How much of the product do you put in all of the different body compartments, et cetera. So all of that training, it is -- this is not exactly an answer to your question, but being able to train on virtual cadavers and being able to train on virtual models is really interesting to especially the younger physicians. So there are folks go into their training programs regularly, not just because there's something new, these are things that are attended on an annual basis.

And my final question just on the competitive landscape. I guess there's a couple of competitors that could reach market with similar products or similar theories of opioid reduction over the next several years -- probably several years out at the earliest. But how do you view that? And then is it something where the market share and the market penetration is at a point right now, where more voices lift all of boats? Or do you see that as a threat to Pacira's dominance in this space?

Yes. I don't see it as a threat, so I can get that out of the way. From our -- we've had all of those products in our hands and we've used them. And I think, there are severe limitations either around volume and I'll just -- I mean, if you see the way we're going here, 120 mL was the total volume in the PILLAR trial. In the TAP trials, you'll see that we're using either 80 or 100 mL. That is a severe limitation of any delivery technology where, if you add anything to them, whether they're polyvinyls or whatever they are, they all fall apart. And so there is a severe limitation there about how much volume you need to cover the surgical wound and whether you're going to be able to use those products at all. Most of those products actually have already been described as installations, so you will not put the drug in close contact with the sensory nerves to provide pain control. You will put these products in the wound, in the median of the wound, and then the delivery -- the drug has to come off the delivery technology and find its way to the sensory nerves. And so there's a number of deficits in that. And then I think probably, the biggest thing of all, at least from the stuff that we've seen, is the base technologies themselves are neurotoxic and myelotoxic. So it'll be virtually impossible at least in the world that we live in to expect that an anesthesiologist would put anything that had any neurotoxic potential at all in close proximity to a nerve. Not only for a nerve block, but even for an infiltration. And so I don't see anything that causes us any great concern. And I would agree with you that all of the timelines that have been promised have been totally wrong. And so we -- I think you might want to [add in a] long term or ever.

The next question is from Gary Nachman of BMO Capital Markets.

Dave, are you still adding new hospitals every quarter? Or is most of the growth still coming from going deeper in the existing accounts? How might that change with J&J on board? And then, I'm curious what's the current split between ortho and soft tissue? And will all the acceleration really be on the ortho side?

Gary, we are seeing -- actually we are seeing accelerated new accounts. Many of them are ACLs -- or ACOs, I'm sorry. So we're -- or ASCs, I'm sorry. So we're seeing a number of new accounts on a monthly and a quarterly basis actually accelerating. The new accounts in hospitals, Gary, are -- we're sort of running out of hospitals to add. I think J&J will help us there, but I don't think it's going to be dramatic because, like I said, there aren't that many hospitals left where there isn't some access to EXPAREL. I think the big growth is going to be -- it's going to be -- well, J&J is going to help us for sure. I should answer your question specifically. But also start to think about a different model where through payers and insurers, care is directed to hospitals where EXPAREL is available and folks have been trained on EXPAREL. And so there are a number of ways to get at new business here. One is in the traditional way of talking to doctors and talking to hospitals about availability. The other is to talk directly to the payers and to the employers, and have them mandate that their patients receive low or no opioid treatment options. And I think that'll, in addition to providing more revenue, will cause -- will get at the leverage that we've been trying to figure out how to exert, so that everybody will have EXPAREL especially when we get the nerve block indication, Gary. I think it's going to be very difficult to operate in this environment without us actually. I mean, just think -- I mean, I'll give you one example. Think about the shoulder study. Over 1 million rotator cuff and shoulder arthroplasties done in the United States last year. You can provide 4.5 days of pain control with a single $150 injection of EXPAREL presurgery, and get that patient out of the hospital and into an ambulatory care center and home the same day as their surgery. If you can't -- if you're not willing to put EXPAREL on formulary and you can't achieve that endpoint, I don't know how you're going to be in the business.

Okay. And then just a split, ortho and soft tissue. And most of the acceleration, I'm assuming, will come from the ortho side. You mentioned soft tissue, the sales force really hasn't been, I guess, able to focus on that as much recently.

Yes, no. That isn't what I meant to say. I mean, we have a number of good things going in soft tissue as well. We've got soft tissue trials going in major medical centers around ovarian cancer and around breast reconstruction, around C-section. So we're doing a formal study in TAP and we're doing investigator grant studies in C-section by infiltration at the same time, so we can train on all of the various options. There is a lot written on TAP and we still have a number of programs going in TAP, Gary. I can't answer -- I wish I could answer your question with more specificity. It is clear that if we've got a couple of thousand J&J reps on the orthopedic side of our business and we've got a couple of hundred on the soft tissue side of our business with Pacira that you would expect that there will be an imbalance of new business against the orthopedic side, especially with PILLAR and hip reconstruction and spine and all the other trials that we're giving them. And I'll give you my cop out and I'll say that before I even tell you what I'm going to say. When we went from ICD-9 to ICD-10, the data that we get is largely useless. And so the reason that we don't have on our website a specific breakdown of orthopedic versus soft tissue is so many of the procedures have been reported by the providers as Other that I can't tell you that I actually know unless I take Other and split it down the middle and then it looks a lot like it used to with slight imbalance in favor of ortho.

Okay, I mean is it close to 50-50? That's what you used to say.

Yes, yes. I think so, Gary. It's probably leaning on 55 ortho.

Okay. And then on nerve block, I just want to be clear. Do you plan on filing just for the 10 mL dose or also the 20 mL? And I'm assuming it would be for a broad label, but I'm just wondering if femoral was a 20 mL and shoulder 10 mL, how would the FDA be comfortable having a broad label for that?

Yes, it's no different than what we do today, Gary. It's -- so the answer is, it will be a broad label. It will be 10 mL for upper because that's all we studied. So that's pretty much defined, right? And lower, in a number of large nerve indications, we believe that 20 mL is going to be the appropriate dose. So we will file for 10 mL and 20 mL. And then in the section of the package insert, it's Section 14 in the current package insert, if anybody wants to go look at it. In the actual studies, where you describe the clinical studies that led to the application, we will provide more granularity on when we used the 10 mL and what the results were. And when we used the 20 mL and what the results were. But again, I'll just remind everybody that when you need a short -- it all depends on what the clinical objectives are. If you need more immediate pain control because of the pain profile and you're not all that concerned about 4 days, you can use 133 and you're going to get a couple of 3 days of pain control and you can add more bupivacaine upfront. If you want to have opioid free or if your desire is to have 3 or 4 days of pain control, then you have to use 266 because you need that number of lipid particles to release the bupivacaine over time. So it's really not all that mysterious to the clinicians. It is going to be -- we're going to have to be careful how we put the dossier together. But I think the desire of the medical community to have both is pretty clear. And when 10 mL works -- we love the fact that 10 mL works, right? Because that's best for everybody.

Right, okay. And then last question, just what's happening with the early-stage pipeline, DepoMeloxicam, DepoTXA? You didn't mention that in your prepared remarks. And I thought some data was supposed to come maybe by the end of this year.

Yes, we're still working on both of them, Gary. We're trying to focus on a few things because the feedback we get is that we cover too many things in our commentary. So TXA is moving. We're moving to study in a more select patient population of cardiac patients. There's some evidence that we ought to be focusing on our ability to stabilize clots in these postsurgical procedures in patients who are heparinized or who are on a some type of blood thinning opportunity. And so we'll look at that. We will have Phase I data and then we'll repeat a trial looking at some cardiac patients. With meloxicam, we've had a slowdown in our ability to make it because of -- if you remember back on the IVRA, when we had the assay issue that caused us to have an issue with the dating, we kept that skid that was intended to make meloxicam on. We kept it in production for EXPAREL to make sure we didn't run out of EXPAREL. So we delayed meloxicam while we figure out -- and getting over to Swindon will help that a lot as well. But we'll make a batch of meloxicam here in the very near future and will put the DepoMeloxicam program back on track. But that was why there was a delay. We just -- the assay issue that we had caused us to throw away a bunch of inventory and we just had to replace that inventory before we were comfortable shutting that skid down.

Okay. But sounds like we won't have data on those until next year, probably?

I think you'll have some TXA data this year. You'll have more cardiac specific TXA data as we get into the early part of next year. And I think that's a fair comment for meloxicam.

The next question is from Irina Koffler of Mizuho.

Can you tell us some good medical conferences where we can go? And where maybe you'll be presenting your TKA data in more detail as well as the discharge readiness data and potentially nerve block? That's the first question. And then the second question I had is about clarifying the opioid utilization in the PILLAR study. I was just trying to back into total opioid use and it looks like there's about 70 patients in the EXPAREL arm. And of that arm, almost 80% of them used somewhere between 20 to 220 milligrams of opioid. So then I don't understand why in your total opioid use you reported a lower number of 18 milligram on average. And I believe it's because you're just looking at patients that were responders, but it's just not clear why there is a discrepancy in the data?

Yes. I'll have to get back to you with the answer to that question, Irina. I don't -- I'm not prepared actually to give you a reasoned response to that. I'm sure we have one. It's just that I'm not the guy and I'll -- we'll get back to you with that. On the first, PILLAR will be a trilogy of publications. It's not just the publication that's out. And so you will see significantly more data of the secondary endpoints and of this opioid problem or opioid issue that you just raised, I wasn't even aware of frankly. And so there will be additional PILLAR publications that will also come out. You will see the PILLAR data as -- let me just make sure I get this right. So you'll see the PILLAR shoulder data -- well, let me -- tell you what, I'm going to turn it over to Rich to make sure I don't get these things screwed up.

So this is Rich Scranton. The PILLAR data -- all the secondaries -- we did meet the abstract deadline and those are your chief secondaries that you're talking about and some economic endpoints will be presented, we hope at (inaudible) if it gets accepted. And that's in the fall meeting. So that's critical on that one. And they're all moving towards publication as well in parallel. As far as the nerve block, there are some opportunities coming up very quickly. There are some late breakers for NYSORA, which is also in the fall, in September in New York and then PGA meeting is another anesthesia meeting that's in New York in December. We're going to try our best to make both those deadlines for an abstract submission primarily on the shoulder study. Again, all these are dependent upon us getting accepted to present at those meetings.

Jim Jones who's our CMO is here and understands your question better than I did.

I can answer that real briefly. What that -- the figure you're looking out from the publication was just a frequency distribution that just is -- tried to give a pictorial diagram of the distribution. That middle bar where it goes from 20 to 220 milligrams, just is accounting for the number of patients in brackets. The majority of those patients are on the lower end. And if you look at the top of that, 18% had less than 20 milligrams, and that drove the mean down. This is just accounting for all of the patients to give the reader an understanding of where all the patients fell on the scheme of things. It just talked about the disproportionate distribution of the patients, where more patients taking EXPAREL had 0 to no -- or to very few opioids. So it was not a normal distribution. That's what that is meant to describe to the reader.

Okay, got it. And then -- but the other number was calculated off of responders only. I believe there was something in the manuscript on that? Only if the VAS pain intensity scores were significant, the different, the comparison?

No. Again, it's Rich Scranton, the again -- there was not a responder analysis on there as far as that goes. The opioid consumption was across the entire population. And what you're seeing there, again, I'll reiterate what Jim said, is that the way it was done, there is a significant proportion of patients who took little to no opioids on the EXPAREL arm. On the placebo arm, there was a higher proportion of people that took a very large amount of opioids and that's why when you do that analysis, we had to do appropriate analysis to account for that distribution of data. So you have 2 extremes going on. Both, I would argue, favor the benefit that EXPAREL was providing.

And if you would follow up on that, Irina, we can -- both these guys can be available whenever you want to go into that at some length.

And our last question comes from the line of Boris Peaker of Cowen.

I just had a question on the nerve block study. And specifically, are you collecting data that would enable you to calculate some kind of pharmacoeconomic benefit in a nerve block setting? And if not, do you have plans for perhaps a separate pharmacoeconomic study in a nerve block setting?

Yes. It's very difficult to collect pharmacoeconomic study in a -- or data in a protocol driven trial, Boris. It's -- actually, it's almost meaningless. What you can collect is time to discharge ready and the kinds of functional outcomes that payers and employers are looking for, but generally you have to have another opportunity to look at the opportunity to move patients to an outpatient environment, that's why time to discharge ready is appropriate, for example. So when you -- what we do measure is not only functional outcomes but discharge ready at 12 hours and 24 hours, so that we can predict for folks what the opportunity will be to move those patients from an inpatient environment to an outpatient environment. We follow these patients out to day 10, so we can report on pain management and functional opportunities out to day 10. We look at OBAS, for example, if you know that tool that really measures opioid and lifestyle in one functional number. But it is really hard to get into the kinds of things that I'm sure you're talking about in terms of pharmacoeconomic outcomes. And so we will do some additional Phase IV work and we will do a lot of work with the payers and looking at what's important to them in terms of how we move these patients largely with a regional nerve block or a peripheral nerve block the ability to not only control pain, but do it in a different environment, that's the big win here for EXPAREL.

And do you have sense of a timeline for maybe some of this Phase IV work?

Yes. I mean, we'll submit the sNDA and then we'll start working on some of the more market-directed activities almost immediately while we're going through the review process. And some of the other stuff that's coming, some of the investigator stuff, Boris, does start to get at the issue that you're raising. But again, we've already agreed with the FDA that, that is of a quality that will be included in the NDA. Remember that one of the FDA requests was that we provide information on enough -- on a number of procedures that will allow them to provide broad guidance. So that's really what we had to do as part of this part of the program, right? Once this is done and the sNDA is written, then we can start to talk about how we address the market needs.

Thank you. I would now like to turn the call back over to Dave Stack for closing remarks.

Thanks, Latoya. Thank you for your questions and the time this morning, folks. We're looking forward to providing additional updates in the future. Next up for us is the Wedbush Conference in New York followed by the Wells Fargo Conference in Boston. We look forward to seeing you soon. Thanks.

Thank you. Ladies and gentlemen, this concludes today's conference. You may now disconnect. Good day.