Pacira Biosciences Inc (PCRX) 2017 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Pacira Pharmaceuticals, Inc., Third 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. Ma'am, you may begin.

Thank you, Andrew, and good morning, everyone. Welcome to today's conference call to discuss our third quarter 2017 financial results. Joining me on today's call are Dave Stack, our Chairman and Chief Executive Officer; Scott Braunstein, our Chief Strategy 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 today. Since we last spoke, we have continued to make important progress advancing our mission to provide EXPAREL, our opioid-free alternative, to as many patients as possible. As you know, last year, we rolled out a comprehensive strategy to significantly broaden the use of EXPAREL. This has been a significant undertaking and has required that we project how quickly major initiatives, such as our PILLAR publication, our Johnson & Johnson partnership and our Trinity collaboration, would translate into accelerated growth.

Like many of you, we are disappointed that our sales have not met our original expectations. As you can tell from our growth initiatives, the entire team is dedicated to maximizing and -- the substantial potential we see for EXPAREL, as we remain unwavering in our mission to providing an opioid alternative to as many patients as possible. We are most pleased with the progress we have made with our J&J partners, especially the educational initiatives to support EXPAREL.

As the year progressed, leading indicators pointed to accelerated growth, beginning in August. However, as you are all aware, hurricanes in the Southern United States, a region which accounts for approximately 20% of our business, had a significant impact and interrupted this forward momentum. Given these unique weather-related issues, we decided to share some monthly specifics to help put context around our Q3 results.

In July, we saw year-over-year growth in daily box volumes of roughly 6%, similar to the first 6 months of the year. For August, this rate increased to 9%, and the beginning of September was even stronger at roughly 11%. Once Hurricane Irma hit, however, we shifted to negative growth. We did not return to positive trends until the end of September and, ultimately, ended the month with daily growth box rate of -- that was 5% higher than September 2016. Charlie will provide additional comments shortly, but the good news is that we are back to seeing an uptick in box sales with October in line with the higher growth rates we saw before the hurricanes.

Our perspective is that the new guidance Charlie will provide today reflects only a shift in timing, and I want to emphasize that we remain very confident in the long-term outlook for EXPAREL. Before diving into the details, let me highlight a few recent accomplishments. We participated in several federal policy meetings, including invited testimony at the White House to the president's opioid task force to present our recommended actions to help address the opioid epidemic. The commission's final report was issued last week, and we agree with their recommendations to the president.

The publication of groundbreaking new research quantifying the devastating impact of overprescribing opioids for postsurgical pain. The FDA's acceptance of our supplemental new drug application for nerve block. A robust Johnson & Johnson partnership that is starting to drive meaningful contributions through newly activated accounts. A unique initiative with Aetna and the American Association of Oral and Maxillofacial Surgeons to use EXPAREL to reduce patients' exposure to opioids after wisdom tooth extraction. And finally, a new equity stake in a privately held TELA Bio. As Scott will detail shortly, we believe their OviTex products have the potential to emerge as a leading surgical mesh, given the differentiated and advantageous product profile.

This is just a brief glimpse of the many initiatives that we believe will provide a tailwind for near and long term. Now I'd like to take a closer look at the 3 operational pillars that drive our team every day.

First, generating Level 1 clinical data for key surgical procedures; second, driving education and awareness for patients, health care providers and payers around the need for opioid-sparing solutions; and third, partnering with those who have -- who share our commitment to reducing the role of the operating room as the gateway to the opioid epidemic.

I'll start with clinical. We were very happy to announce the FDA's review of our supplemental NDA for nerve block is now underway. The FDA acknowledged that this is a complete Class II resubmission and has provided us with a PDUFA action date of April 6, 2018. We believe that our sNDA answers all the questions by providing 2 highly statistically significant Phase III placebo-controlled efficacy studies. The original Phase III study of EXPAREL as a femoral nerve block for total knee arthroplasty and the more recent Phase III study of EXPAREL as a brachial plexus block for shoulder surgeries. Also included is data from 2 additional investigator-initiated peripheral nerve block bupivacaine comparator studies in hand and wrist and foot and ankle. Together, these procedures represent the majority of the nerve blocks currently being performed in the United States.

Some of these studies were highlighted at the New York School of Regional Anesthesia fall Symposia. Dr. Jeff Gadsden of Duke University Medical Center presented the results from our Phase III placebo-controlled trial of EXPAREL administered as a brachial plexus block in patients undergoing total shoulder arthroplasty or rotator cuff repair. The EXPAREL group achieved a significant reduction in pains scores while consuming 77% fewer opioids, both p-values less than 0.0001. Again, we see EXPAREL provided improved pain control with reduced opioids and very importantly, 13% of EXPAREL patients were opiate free through 48 hours versus 1% for placebo. Here, too, the results were highly significant with a p-value of 0.008.

Member of Dr. Admir Hadzic's team presented very exciting data from their research in Belgium. As many of you know, Dr. Hadzic is a world-renowned leader in the field of regional anesthesia. Dr. Vandepitte presented statistically -- the statistical superiority of EXPAREL admixed with bupivacaine versus bupivacaine alone for forearm nerve blocks for dupuytren contracture release, with EXPAREL patients experienced a substantially longer average sensory block of 4.3 days versus 1.2 days with a p-value of less than 0.01. Pain scores were lower through Day 5 with a p of 0.04, and only 15% of the EXPAREL patients required additional analgesia for the contracture release procedure 48 hours after EXPAREL administration. This compares with 94% of the bupivacaine patients.

The third poster by Dr. Van Boxstael compared EXPAREL to bupivacaine and general anesthesia in patients undergoing bunionectomy. In this study, the EXPAREL group consumed 83% fewer opioids versus general anesthesia and 43% fewer opioids compared to the bupivacaine group. Despite these significant reductions, the EXPAREL group achieved significantly lower pain scores compared to general anesthesia.

In sum, we believe the data supporting our submission are highly robust, and we are confident that we have fulfilled the -- all the requirements requested by the FDA. Namely, 2 highly successful placebo-controlled trials, one in upper extremity and one in lower extremity; 2 highly successful comparative studies in hand and wrist and foot and ankle; and a robust study database with pharmacokinetic data that extends to 120 hours to capture T-max for both the 133 milligram and the 266 milligram doses of EXPAREL.

Also, on the regulatory front, I'd like to briefly touch on important progress taking place to expand our current infiltration label to include pediatrics. We have assembled an extensive package of real-world evidence on the use of EXPAREL from the Cleveland Clinic and the Premier database from patients under the age of 18 for several surgical procedures. We are currently working with the FDA to define a regulatory pathway using these data as the core of our submission. Pediatric patients currently have no approved alternatives to opioids for the management of severe postsurgical pain and are in desperate need of options. So we are aggressively moving forward to make EXPAREL available to this particularly vulnerable patient population.

Turning to clinical. As you know, our team is advancing a series of Phase IV studies designed to demonstrate best-practice infiltration technique in key surgical procedures. The first of these was our PILLAR study in total knee arthroplasty. The study was published this July in the Journal of Arthroplasty, and we are receiving positive feedback from our customers about the importance of this 16-center trial compared to bupivacaine. PILLAR demonstrated, without question, that EXPAREL is significantly better than bupivacaine at reducing or eliminating opioids while successfully managing postsurgical pain. Our partner, Johnson & Johnson, is highlighting the PILLAR studies at numerous orthopedic conferences this fall, including last week's American Academy of Hip and Knee Surgeons Meeting. Scott will share some more details shortly.

As the results from our second femoral nerve block trial -- I'm sorry, after the results from our second femoral nerve block trial, we conducted a complete analysis of our clinical trial program with a specific focus on education and training of clinical trial sites, including bedside caregivers understanding the opioid minimization and opioid-free objectives of these trials. This work has cost us to slow these trials to ensure that clinical sites clearly understand all aspects of the trials and the administration of EXPAREL. We continue to see strong interest from our C-section study. Both patients and health care providers clearly see the benefit of a non-opioid alternative for new mothers and their babies following this common surgical procedure. The study is currently enrolling patients.

In spine, we recently decided to adapt our clinical strategy to accommodate the evolution of the field towards minimally invasive spine surgeries, or MIS, rather than continue our work in open-fusion procedures. This open-fusion trial was of interest to surgeons when developed a couple of years ago but is not believed to be as relevant today, making the enrollment in this trial very challenging. We are seeing significantly greater clinician interest in working on a minimally invasive spine protocol, utilizing a more patient-centric approach and the most advanced surgical techniques. Along with Johnson & Johnson and their spine KOLs, we expect to begin enrolling this trial in the next couple of months.

We have updated our protocols in training and education plans for our colorectal path trial, our breast -- PEC I, II trial and our hip fracture trial, and we expect to initiate these trials shortly.

Turning to the second pillar of our strategy, education and awareness. Here, we're seeing tremendous results. We were excited to receive an invitation to testify in Washington, D.C, before the President's Commission on Combating Drug Addiction and the Opioid Crisis. This is a testament to our leadership in the field. The meeting consisted of statements from invested -- invited government, nonprofit and business organizations. This important platform gave us the opportunity to discuss the critical nature of clinician and patient access to non-opioid medications that could effectively manage postsurgical pain while reducing opioid requirements. As the only single-dose long-acting local analgesic for postsurgical pain, EXPAREL is uniquely positioned to play an important role in addressing this national epidemic. Last week the commission issued their final report with a comprehensive list of more than 50 urgent actions for the federal government. Among these was a recommendation for CMS to review and modify rate-setting policies that discourage the use of non-opioid treatments for pain, such as bundled payments, that make alternative treatments cost prohibitive for hospitals and health care providers, particularly those options treating immediate postsurgical pain.

Moving to other key commercial -- commercialization initiatives. In September, we published results from a report representing the most current analysis of national trends in opioid prescribing. The analysis, conducted by QuintilesIMS Institute, describes the risk of opioid overprescribing and validates that surgery has become an inadvertent gateway to opioid abuse and misuse. Key findings in the report include: 90% of surgical patients are exposed to opioids to manage postsurgical pain, and those given prescriptions receive an average of 85 pills each. Nearly $3 million individuals who had surgery in 2016, became persistent opioid users. 2 million of these patients were women, and overprescribing of opioids after surgery resulted in 3.3 billion unused pills in 2016 alone. We have launched a broad collaboration with shatterproof.org to disseminate this compelling data. As you may recall, Shatterproof is a national nonprofit dedicated to ending the devastation of addiction. With more than 20 million Americans in recovery, they are very eager to partner with us on generating awareness.

At a recent meeting, we discussed our extensive educational initiatives with Governor Chris Christie and his team, and we are working with his office to share online assets by linking the Plan Against Pain website with a Reach New Jersey addiction task force website.

Another important accomplishment was the launch of our new exparel.com product website. The new site showcases important educational resources, such as step-by-step videos, demonstrating best-practice infiltration as well as case reports. There is also an interactive surgeon-selector tool that allows patients to connect with physicians who use EXPAREL, including filtering by ZIP Code and by surgical specialty. Health care providers who are using EXPAREL can join this growing online network directly through the website. Since launching in -- the site in September, we've received terrific feedback with 23,000 unique visitors and a database of over 2,000 surgeons in 15 distinct specialties. As we continue to work with payers to meet their strategic goals for minimizing or eliminating opioids, it is critically important that payers and self-insured employers with a strategy to pay for opioid-free pain management as well as patients who desire opioid-minimized or opioid-free care, can use Surgeon Selector to locate health care providers and centers of excellence with the advanced education and training to meet their needs.

Let me now move on to our third and final strategic pillar: partnerships. I'll start with our recently announced collaboration with Aetna and the American Association of Oral Maxillofacial Surgeons. We are very excited about this collaboration, which is focusing on reducing opioid exposure for patients undergoing wisdom tooth extractions. The first phase of the collaboration is training physicians on the importance of opioid reduction and opioid-free surgery as well as the appropriate use of EXPAREL. Many teens and young adults are first exposed to opioids when they get their wisdom teeth removed, so this is a particularly vulnerable population where it is important to drive change. As you can imagine, reducing or avoiding opioids altogether is appealing to patients, parents, physicians and payers. There are 3.5 million such procedures each year in the United States. With expanded support from payers, we believe these procedures provide a meaningful market for Pacira, where we will -- where we have seen consistent, rapid growth over the last 3 quarters.

Our collaborations with Trinity Health and the American College of Surgeons continue to support robust educational initiatives. These partnerships provide a multi-pronged approach to addressing the opioid epidemic through direct health care provider and patient education. We also continue to have discussions with other like-minded partners, including health care systems, payers and even employers.

Turning to our significant partnership with Johnson & Johnson. We continue to be very pleased with the foundation we are building through this broad collaboration. As discussed on our last call, the J&J sales and medical teams shifted to execution mode during the third quarter and began actively supporting our EXPAREL as part of their product offering. I recently presented at the Johnson & Johnson National Sales Meeting, and I was thrilled to see their robust commitment to making a real difference in reducing the role of the operating room as the gateway to opioid use and abuse. To share some additional insights in -- on Johnson & Johnson along with our recently announced investment in TELA Bio and the exciting technology underlying that business, I'd like to introduce our Chief Strategy Officer, Scott Braunstein. Scott?

Thanks, Dave, and good morning to all joining today's call. There's a great deal of energy and excitement stemming from our collaboration with J&J. And the teams are working extremely well together. With the initial step of training largely behind us, the current focus is on account activation, and this is well underway. To remind you, in the near term, we are focusing on those accounts where both companies have a well-established commercial presence. Account activation involves each J&J vertical working together with their Pacira colleagues to train customers on proper EXPAREL technique. For each of the last 2 months, the number of activated accounts has doubled. This is also a particularly exciting time for the 2 teams, as we are in the heart of the orthopedic conference season. EXPAREL continues to be highlighted at J&J-sponsored KOL peer-to-peer presentation that filler -- that feature the PILLAR data, new procedure-based infiltration protocols and additional data from investigator-sponsored studies in spine, trauma and sports medicine.

Key fourth quarter meetings include the Eastern Orthopedics Association; the Orthopedic Trauma Association; the North American Spine Society; the American Association of Hip and Knee Surgeons, which featured a 5-physician panel moderated by Dr. Michael Mont, Chairman of Orthopedic Surgery at the Cleveland Clinic and the lead author of the PILLAR manuscript. Dr. Mont and colleagues discussed using multimodal pain management and moving towards opiate-free surgery. Attendance was particularly robust. And starting tomorrow, the Association of Clinical Elbow and Shoulder Surgeons, or ACESS. Here, Dr. Paul Sethi will be setting the stage for expanding the use of EXPAREL in rotator cuff repair.

Looking ahead, we remain very confident that our J&J collaboration will drive strong momentum behind EXPAREL. The level of engagement from the field is strong, and there's an increasing amount of activity between the 2 organizations. Together with J&J, we are rolling out a number of collaborative protocols within key procedures. For example, Dr. Scott Sigman will be leading our work in ACL repair. Dr. Sigman is a world-renowned orthopedic surgeon, specializing in sports medicine.

We also continue to be encouraged by the growth potential in trauma. Dr. Nirav Amin's hip fracture study has been accepted for presentation early next year. In addition, we are expanding our focus in foot and ankle with new educational materials, such as training videos and case reports. We expect J&J to broaden their launch into these markets in 2018.

Let me now switch gears and discuss our recent investment in privately held TELA Bio. We believe that TELA Bio's OviTex platform is highly innovative and differentiated solution that is positioned to emerge as a leading surgical mesh. The TELA Bio implant synergistically blends the strength of a synthetic with the regenerative properties of a biologic in a unique embroidered construction. This enables free movement of fluid in cells through the mesh, which, we believe, will minimize the risk of seroma, a common complication in abdominal wall reconstruction. The OviTex Reinforced BioScaffold, or RBS, has been designated by the American Hernia Society as a distinct category that is entirely unique to the TELA Bio platform. This designation differentiates their product portfolio from the rest of the offerings in this space.

The RBS products have been used across a wide range of hernia patients utilizing a variety of surgical techniques. Surgeons have described numerous benefits of the technology, including ease of placement, unique permeability and handling properties as well as supplements and conformity to the surgical site. TELA Bio has exclusive commercial rights to OviTex for hernia repair, abdominal wall and breast reconstruction procedures both in the United States and the European markets. This initial Pacira investment will allow TELA Bio to scale up their existing clinical and commercial efforts in abdominal wall repair and move into new areas such as breast reconstruction. TELA Bio's portfolio and therapeutic focus are all highly complementary to the commercial audience in soft-tissue procedures, such as colorectal surgery, central hernia repair and breast recon.

While our focus -- while, of course, we're focused at the momentum of driving EXPAREL growth, we do envision transitioning our relationship to a more collaborative one over time. We feel we can provide a tremendous amount of market insight, given the commercial overlap.

With that, I'll turn the call over to Charlie, to walk through our financial results. Charlie?

Thank you, Scott, and good morning, everyone. Before I review our third quarter results, I'd like to remind you that I will be discussing non-GAAP financial measures this morning. A description of these metrics, along with our reconciliation to GAAP, can be found in this morning's press release.

Net product sales of EXPAREL were $66.8 million for the third quarter of 2017 compared to $64.9 million for the same period last year, roughly a 3% increase. Recall, however, that this quarter -- quarterly revenue figure was achieved with 2 fewer selling days in the third quarter. Another significant influence in third quarter sales was the hurricanes. As Dave mentioned, we started to see an acceleration in daily sales growth in August, which is often the weakest month of this quarter. The growth trend carried into early September but turned negative, as Hurrican Irma hit the Southern United States. By the end of September, our business was rebounding, and we achieved daily sales growth of approximately 5% for the month.

As you know, we're advancing a number of key value drivers, such as our J&J partnership, the rollout of the PILLAR publication, collaborations with hospital systems and payers and patient and physician education. We are convinced that we are investing in the right strategy to deliver a sustained long-term growth.

Based on the recent sales trends discussed today, we believe the acceleration in EXPAREL growth expected during the second half of 2017 has begun, but the timing and magnitude of this improvement, along with the impact of the hurricanes, makes it unlikely that full year EXPAREL net product sales will achieve our original guidance. As a result, today, we are revising our guidance for full year 2017 EXPAREL net product sales to a range of $280 million to $285 million. This assumes year-over-year growth in fourth quarter EXPAREL net sales of between 6% and 13%.

I'd like to reiterate Dave's remarks and say that the revised guidance we are issuing today is due a shift in timing. We remain very confident in the long-term prospects for EXPAREL and the important role it can play in fighting our nation's opioid epidemic.

Turning to the remainder of the P&L, our non-GAAP gross margin for the third quarter of 2017 was 75% versus 71% for the same period last year. This improvement in gross margins is partially due to the termination of the DepoCyt manufacturing.

Non-GAAP research and development expense increased to $11 million for the third quarter of 2017 versus $9.1 million for the same period last year. The increase in R&D was largely driven by cost related to our Phase IV infiltration studies, an increase in research grants and investments in our DepoFoam based early-stage pipeline. This was partially offset by the conclusion of our 2 Phase III nerve block studies.

Our non-GAAP selling, general and administrative expenses were $34.3 million in the third 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 field-based personnel versus the third quarter of 2016. Investments in educational initiatives around EXPAREL best-practice technique in key surgical procedures, expenses related to our J&J partnership and our Choices Matter campaign, which is raising awareness of non-opioid treatment options.

Our non-GAAP net income was $4.4 million or $0.11 per diluted share for the third quarter of 2017 compared with non-GAAP net income of $8 million or $0.20 per diluted share for the same period last year.

Finally, we are well capitalized and end the quarter with $374.9 million in cash, cash equivalents and investments. As for the remainder of our full year financial metrics, we remain on track with our previously stated guidance, namely, 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 now turn the call back over to Dave.

Thanks, Charlie. So as we look out, our growth -- as we look at our growth outlook for 2018 and beyond, we believe Pacira is in great shape. 2017 has been a year of important progress, and the stage is set for several key milestones over the next few quarters, including delivering full year EXPAREL sales of $280 million to $285 million, securing FDA approval of our sNDA submission for nerve block, completing our C-section study and reporting top line results, updating our Phase IV strategy that will include MIS spine procedures, continuing to broaden the national education and awareness about opioid alternatives for postsurgical pain management through our Choices Matter campaign and forming new collaborations with health care providers and payers who share our passion for providing patient care through opioid-minimization strategies. Our expectation is that we will announce several additional partnerships with hospital systems, physician organizations and payers over the next several months. Working with the opioid commission on -- and -- on a final report and CMS to unbundle EXPAREL to allow surgeons access to all available tools to address the opioid epidemic and to turn off the OR as the gateway to the opioid epidemic.

With that, I'd like to turn the call over to the operator. Andrew?

(Operator Instructions) Our first question comes from Randall Stanicky with RBC Capital Markets.

Dave, I want to follow up on your last comment. Can you just talk, logistically, about what needs to happen to make the recommendations in the Christie letter actually happen? And I'm talking about getting the government reimbursement here for the hospital-based surgical pain procedures, whether it's coding or what specifically those next steps that us and investors should be watching for? And then secondly, I appreciate that you want to keep expectations in check for EXPAREL as we head into the end of the year, but we're hearing anecdotes that October was an unusually strong month for spine. So the question is, are you seeing similarly better volumes of EXPAREL from the J&J partnership in the ortho side of the business? And then if I could just tack one on for Charlie, can you just comment on the Symphony data, and are you happy with how that is tracking your EXPAREL sales?

Thanks, Randall. The -- I mean, I'll just start out with the obvious, Randall, that we've had the -- the report is still marked draft, and we've only had the data for a week. I mean, I would say a couple of things. We do have appointments with the folks that you would expect us to be interacting with in Washington. This is also a place where our J&J partnership adds great strength to our ability to work with the folks down there, given the breadth of their resources and their relationships in the Beltway. So we do believe that we're benefiting from both of those things as well as the almost unbelievably strong commitment of Governor Christie and Congressman Kennedy in this area. So the process is just starting. I'll remind everybody that we do have a code for EXPAREL that is used in many ambulatory markets of C9290. So there's a number of ways that this could evolve as we work through the process of satisfying the needs of the opioid commission. It could be as simple as reinstating the code and moving from a supply to a discrete payment, or they may decide that there's another way that they want to handle it to narrow the playing field to just EXPAREL. We just don't know exactly how that's all going to go yet, but it is under active -- I mean, there are resources being placed against it, and we are actively working on it. So I can't tell you exactly what to look for, Randall, I wish I could.

You want -- I'll jump in, Randall. I'll talk a little bit about J&J. You commented on spine. As a reminder, and I've had this discussion with lots of folks, J&J has 4 distinct sales organizations. We expected the most attention early days to be placed in recon and spine. We have talked publicly that our spine share as an organization is substantially lower than our recon share, and there is great opportunity, particularly in patients who are high -- have a high opioid burden, length of stay is really limited or affected by pain in that area where there is no use of cocktails or very little use of cocktails. So we've always used spine as a unique opportunity for the organization. I'll just remind everyone as well that we're at the early days of our trauma and fracture launches as well as our sports launches. The J&J organization has been a great partner in those as well. We're going to be focusing more and more resources in those marketplaces. And then finally, you should expect us to have a bigger presence with Johnson & Johnson in the foot and ankle market in 2018. Just a reminder for all, this deal with J&J was not about their recon presence alone. It was about their strength across the orthopedics business. And I think they've turned out to really live up to expectations in terms of helping us map out plans in each of those marketplaces.

And Randall, just again, just to probably state the obvious, but we do see -- I mean, we see an uptick, as we said during the script. We've got PILLAR out there. We were -- we had very strong discussions at the recent AAHKS meeting, the American Academy of Hip and Knee Surgeons. There's a number of things going on with Johnson & Johnson that Scott's talked about. We see a number of different citings in the soft tissue space. You probably saw yesterday that Becker's picked up Dr. Cosgrove's comments from Cleveland Clinic about the use of EXPAREL in mastectomy as one of the ways that they are addressing the opioid epidemic. So there's a number of tailwinds that are pushing us along. I can't tell you that we can say exactly that we know that spine is responsible for the uptick in box sales. What we can tell you very specifically, though, is that the spine team at J&J has been responsible for opening up a number of doors and has introduced us to a number of people and a number of different formulary opportunities that we never would've had without them.

So Charlie, you want to talk about Symphony for a second?

Sure. Randall, so -- do -- am I happy with Symphony's data? I think the honest answer is no, I'm not. They tend to be more variable in the beginning of the quarter. I think their weekly data is more variable than their monthly. Their monthly is more variable than their quarterly. I don't think it's any different for us -- for other people. So I understand that everybody has to look at it, because it's data out there and as an investor, you can't not look at it. I get it. I just can't be responsible for explaining it.

Our next question comes from the line of Douglas Tsao with Barclays.

Just, maybe, Charlie, provide a little bit more context around the new guidance range. As I look at the low end, it sort of implies de minimis year-on-year growth, which doesn't necessarily, sort of jive with sort of the comments that through October, you had started to see that pick up reacceleration back to high-single digit or even double-digit year-on-year growth numbers. So that would just be helpful. Obviously, things have come together a little bit more. And so is there some sort of extra measure of conservatism baked into that?

Thanks for the call, Doug, appreciate it. I think it's a great question. And so when we were evaluating where we thought we should be, based on all of the data points, we created a range, which we were comfortable with. And frankly, I don't agree that the bottom line of the range is de minimis. It's consistent with what we've seen so far year-to-date. It is roughly 6% revenue-ish growth, which is -- we've -- for the first 9 months, we're right around 5%. So it's a hair up. And the top line is -- the top of the range is 13% growth. We've said we've started to see trends. But again, it's early in the quarter. So we're trying to develop a range we're comfortable with, and we were comfortable with $280 million to $285 million.

And then as a follow-up in terms of what you're thinking about in terms of the growth opportunity in ortho from J&J. Is it going to be -- should we think about this as sort of, the different buckets, be it spine, sports or trauma, or will it be more a function of just as different sales reps become activated?

Well, Doug, we're seeing activations across all 4 organizations, all 4 groups of representatives. Our educational programs are happening across all 4 educational buckets. As I mentioned, ACESS, which is starting tomorrow, will really feature the first major presentation in infiltration of a rotator cuff. So we have some new data sets, which are really going to be a prime piece of the story, particularly in the sports market, particularly in the fracture marketplace. And as those protocols develop, as data sets develop, you should expect more and more consistent messaging from all of the J&J organizations within their representative group. We do believe each of the opportunities are meaningful. I think really what J&J brings us is the ability to look at all of these marketplaces. And in fact, people always ask me, why did we do this deal. And when our team sat down as a group, and recognized that they were somewhere close to a dozen key market opportunities, C-section falling to the top of the list in soft tissue, colorectal on the list in soft tissue, we had an equal number in the orthopedic world. And one that we just as a smaller company couldn't master ourselves and we're really confident that J&J will help us as a combined entity really hit all of those major markets, both in orthopedics and over time in soft tissue as well.

And then Scott, just a quick follow-up. How do you think about or approach, sort of, approaching an institution as a whole. Because obviously, you sort of have both the ortho side as well as the soft tissue side in many institutions, and so how do you go about if that hospital has not provided access to the product broadly?

Sure. Well, I think the combined entity in 2017, there's been a big focus, specifically on where there is access, so that we can have a very strong early-day collaboration. But we've also dealt with a lot of accounts where there is limited access, where we've had either our sales reps as a routine, or the J&J folks interact with the hospital, where there's greater formulary restrictions. We think that our PILLAR data is going to be a critical piece of gaining increased access. We've already had examples where J&J reps have made an introduction to the anesthesia side, as an example to help with that access. So it's really been a combined effort. There's got to be a lot of teamwork. We're going through those early days now of figuring out how best to work together. But we specifically crafted this deal that Pacira reps and our leadership own the pharmacy relationship, we own the hospital relationship, but it's very nice to have a partner that when we go to down to Washington, D.C.,can really make a big contribution or, over time, hopefully on a larger IDN level. I'll stop there. Dave, you want to add?

I would also say, Doug, similar to the way we ended Randall's question is, it's a bigger picture view of the world in many cases where we're talking to insurance companies about achieving their goals of moving patients from an in-patient environment to an out-patient environment. And there's a number of procedures, we're looking at the global cost of care. They clearly understand that the ability to control pain without opioids allows them to achieve that end point. And so in that context then, Johnson & Johnson allows us to have specific resources to call on the ACA world and can call on the physicians that are doing the majority of these procedures, so that we have a much more rapid response to those discussions with the insurers than we ever would have if we were by ourselves.

Our next question comes from the line of David Amsellem with Piper Jaffray.

So I just want to take a step back on the nuts and bolts of the J&J partnership. I mean, it's been several months since the partnership started. So what I want to try to tease out from you and get your thoughts here is, do think part of the problem in terms of this significant uptick in sales that even helping for a part of the problem is that you're a single-product company, selling into a difficult call point, where being part of a larger multi-product hospital-focused company might make things easier for EXPAREL. So can you talk about that dynamic and how that may or may not be problematic and how that potentially speaks to whether or not you should be evaluating strategic alternatives?

I'll go backwards, David. First, thanks for the question. We're always evaluating strategic alternatives as, I think, we've shown. The J&J partnership, Trinity partnership, American College of Surgeons, we've got a half a dozen of partnerships that are with payers and health care collaborators that we'll announce over the next couple of quarters. So we're strategically evaluating everything. I would tell you that EXPAREL is a one-product company, and the current environment has nothing to do with the way the Johnson & Johnson relationship has rolled out or anything else, to be perfectly candid. I can't think of a single place where somebody that would've been able to offer a surgical glue or anything else would've had any benefit. Now I think it is true that we have people who are significant customers of both Johnson & Johnson and DePuy and their metal and our product EXPAREL, and they're looking for us to help them on a broader level, because of our collaboration and their needs. But that to me is a positive in the way you asked the question, in terms of it being a negative, that EXPAREL is a one-product company. I don't have anything that I -- that even remotely comes to mind as an issue.

David, the only piece I'll add, and maybe this is the other end of the spectrum, and you may have been going there, but I think what we have learned from a business development standpoint, we've got some great customers out there today with EXPAREL. We've been able to leverage a lot of our customers' insights into ancillary markets that -- in the hospital. We think wound healing, overall, is a very interesting opportunity broadly. There are some great new biologic products out there, great solutions out there, a big unmet medical need, some opportunity for better pricing, a better value proposition and much of our team's knowledge on that has really come through our EXPAREL relationships with certain KOLs in the community. So we think that this general space is one that makes a lot of sense for us to spend time and energy on and, certainly over time, has a lot of natural synergies.

And I would just close, David, by saying -- I'll repeat that what we've said before is that we have a single mission to provide an opioid alternative to as many patients as possible. And if we thought there was a better way to do that, there's nothing here that would stand in the way of that. So that's what we do. So...

May I just ask a quick follow-up? So that's helpful, I guess, and just in that vein of talking about sales, acceleration, sales uptick, and looking at the price point, is the price point something that you may revisit, going forward, as a way to drive greater volume growth?

We have a contracting mechanism, David, that where we work with our major customers to make sure that there is a differentiation in price between our multimillion-dollar customers and the customers who buy a box a quarter or something like that. So to that extent, there is an accommodation on price. In the -- well, if I knew more about how the opioid commission report was going to roll out, and how we were going to be able to help our customers offset any additional cost that is being driven through the system because of a CMS coding issue rather than an actual real-life issue, then I could answer that question with a lot more clarity. But we continue to believe that, especially as we start to look at ambulatory care, as we start to roll out these new data sets, and as our value proposition improves more and more -- I'll give you an example. Scott, a minute ago, referenced a rotator cuff study from Paul Sethi. These -- many of these studies are done with a 10 ml dose of EXPAREL. So if you looked at our rotator cuff data, you would see a 77% reduction in opioids. You would see a 4-plus day pain control and roughly 13% of those patients are opioid free across the study platform. And that's accomplished with a price point of roughly $155 net. So I think the value proposition of EXPAREL, as folks understand the global cost of opioids, is something that we are not ashamed of at all. I think there is an educational component here. We were out a couple of weeks ago, and I had a doc tell me that the pharmacist told him that EXPAREL cost $3,000 a vial. In fact, what he had sent him was the cost of a box of 10. So education continues to be a key piece of our message, but we're not looking at any kind of a broad price decrease. I don't think that that's anything that's required at all.

Our next question comes from Liana Moussatos with Wedbush Securities.

What percent of sales in Q3 were for oral surgery, and what's going on there, and what's the outlook?

I don't have a number off the top of my head, Liana. I'll give you a call later, and I'll have to calculate it honestly. We don't look at that specifically because there is -- 10 ml isn't just oral surgery. It's -- there's plastics in there. There's a number of different things in there. But I could give you a couple of numbers later. It's growing rapidly. It still is a -- it's not a significant piece of our total business. But if I just showed you the percentage growth on a quarter-on-quarter basis, you'd say, wow, if we calculated that into dollars, you would say wow, but it would be little letters instead of big letters. Right? So it's growing, it's a nice piece of our business. We think the insurance carriers are largely going to help us there, because it's one of those marketplaces that's a mile wide and an inch deep.

And our next question comes from Tazeen Ahmad with Bank of America.

Maybe, the first one is on guidance. So as I guess, you try to understand the year, when you were first provided guidance, I guess, what aspects of the environment back then were you feeling confident about that since then might have changed or not been as big of a driver as you might have expected?

Thanks, Tazeen, for the question. So this is Charlie. We started the year, we had basically been saying that we expected the impact of the JJ partnership, the PILLAR studies, some of the partnerships that Dave discussed, to be second half results. And so, our original guidance made sense to us, based on those impacts coming into the second half. So we've now got 3 quarters reported in the second half. And frankly, obviously, we mentioned that we know what October is as well. So we got 4 out of 6 months done. And we know what those results are. And they're not horrible, but they're not what would get us to the original guidance. And so it just became obvious to us that we now knew enough actual data to make a change. And so we believe we've done that appropriately.

I think, Tazeen, PILLAR came out in an electronic form, but it still hasn't been published in paper, in the journal. That's been a delay that has taken a little more time, so it's really been us walking with the PILLAR data of the -- it isn't out in hard copy journal form yet. And I think the Johnson & Johnson collaboration, we knew that it was going to be a big effort for us in order to train several thousand of their folks. We turned out that that was right, but it was a little more difficult, in terms of the timing aspects of getting everybody together on both sides of the aisle, et cetera. And so it's working. It's just -- we were more aggressive than we should've been in retrospect in terms of how fast that was going to happen.

Okay. And then maybe to follow up with that. On the J&J partnership. So if I understand correctly that the reps are more or less trained at this point. And so, for those that are trained and/or assigned to hospitals that you guys haven't been able to get to necessarily to get the formulary access. Are they still being encouraged to detail to those physicians there to educate them? Or are they really waiting for the drug to be put on formulary before they make more of an aggressive effort?

Tazeen, we've had a lot of places where there may be some restrictions in EXPAREL access for physicians, where the J&J team has already interacted with physicians. But we've chosen, particularly in '17, to focus on accounts where there is no formulary or limited formulary restriction. Part of the training for the J&J reps, step 1 is the formalized trainings. Step 2 is this activation process, where they're really in the OR with physicians and our reps. And just getting the hands-on experience of volume expanding, admixing, and walking through cases with surgeons. And as -- and we want that to be a very positive experience for them. I think it has been an experience for them. And we want them to leave that experience as a champion of the drug. And so the logical step after they've become a champion is to now move to physicians where access is more limited, where we then have that physician become our partner in going to the hospital formulary committee, doing a sample program, doing a continuous quality improvement program or partnering with the anesthesiologist or the recon surgeon or the colorectal surgeon, who's already experienced the drug. And a group of physicians who are looking for broader access. So it's really a stepwise approach. They turn to us for help with formulary. We are there to guide the physician through that process. But the more experience that they have, where they see the drug actually perform as we expect it to, we believe that will be -- encourage them to really help us fight that fight in hospitals, which are -- which right now have greater restriction. So that's the logic, and I think right now, and I've said this before, and I'll share with all of you, we are seeing hundreds of e-mails every day about this relationship and the vast majority of physician experiences and rep experiences have been very positive. And we still feel as though the drug is doing exactly what we expect it to do and in the hands of very well -- a large number of well-trained physicians, we think that ultimately leads to greater success over the long term for our product. I'll stop there. David, anything you want to add.

I think, Tazeen, in some cases, it's just critical mass. I mean it's just the fact that you've got all of these people who have intimate knowledge of EXPAREL even through family relationships, where -- and I wouldn't want to lose the whole anesthesiologist portion of this. It has been a bit of a surprise to me personally, that Johnson & Johnson has so many anesthesia relationships. And we've been working with anesthesia on TAP. And so in a lot of cases, it is the combined effort where there's been an interest because of regional anesthesia and moving to outpatients and then the Johnson & Johnson guy can share the -- or gal can share the information in an informal way, and then that leads to some type of a broader collaboration and a formulary approval and just so you know, there is a -- I mean, RMS cells are fundamentally important and moving us into a formulary setting. And we have a group here that does nothing but provide pharmacy support and formulary approval. So Johnson & Johnson is leaning heavily on that and that's the collaborative nature of what we try to build here. So it is working.

Okay. And then I'm sorry if I might've missed this in your prepared remarks. But in the hospitals where you do have formulary access, the new areas that you highlighted for focus for your sales force, is there any, whether it be oncology or women in C-Section or what have you, subsegments that have been picking up use of EXPAREL faster, for example?

There's some areas where there is real interest from the medical community, as well as the patient community. So we are increasingly influencing the market and being influenced by the market through social media with Shatterproof and with BoneSmart and with breasts.org. One of the areas that keeps coming to the front is mastectomy, which is why I think Cleveland Clinic and Toby Cosgrove specifically called that out in their comments last week, that they are using EXPAREL in mastectomies to address the opioid epidemic. There's a number of MD Anderson doing cervical -- I'm sorry, ovarian cancer work, Mayo Clinic doing work in mastectomies as well as female cancers. So you put that on top of C-section, Scott mentioned this in his remarks, C-section really has touched a nerve in the marketplace. And the insurers have come to us, for example, and said, we don't do well with C-section in terms of the reimbursement and if there is a way to reduce opioids, we've got both and where we can improve patient care for mon and baby, but if you guys can give us an opportunity to get these folks out of the hospital a day or a day and a half earlier that's a real win-win for us. So folks are really interested in the C-section study and how that works. And so, I would say generally, I mean, obviously, MD Anderson has their own things that they are strong at, Cleveland Clinic, for example, looking at replacing epidurals. It really is -- every hospital has their own personality and the places where they're strongest and generally where those hospitals are strongest is where the greatest interest is in opioid sparing. I'll go back to Cleveland, for example, because Mike Mont is the chief of orthopedic surgery and he was the PI on PILLAR that EXPAREL is now used in all joint surgery at Cleveland Clinic. So there is, if -- there's a cause and effect in most of these places, and it comes from having a dramatic reason why you want to reduce opioids. And then the hospitals that are proficient in performing those surgeries is really where we do the best, the quickest.

Our next question comes from Dana Flanders with Goldman Sachs.

My first one here. So some positive news, a couple of weeks ago with a potential competitor of yours failing the Phase III. Just looking towards the Heron data coming out early next year. And I know we'll have to see what the data looks like. But can you just remind us how you are thinking about the competitive positioning of EXPAREL. And if Heron does get an approval, do they grow the market? Do they compete with you on price? And how do you -- and do you think they get a broad label? And then my second, just quick follow-up. On the impact to EXPAREL, via just the hurricane in September. I know you said it caused some negative growth in the latter part of that month. Wouldn't patients just get pushed into October and create a bolus then? Or am I not thinking about that correctly?

Let me go backwards. Thanks, Dana, first, and I'll go backwards. In some cases, you're absolutely right. So, we think, so for example, a hip or knee more than likely was displaced and will come back. If you look at Harvey specifically and you're talking about MD Anderson, somebody that thought that they had -- was told they had Stage 3 colorectal cancer. Wasn't going to sit around for a couple of weeks and wait. And so I think we got a little bit of both. I think that the bone and joint business, we will get eventually. A number of the other procedures, in some cases, just go away. But I think there was clearly a scenario where certain acute surgeries, if they weren't performed in a hospital where EXPAREL was routinely available, probably were lost to the storms. And so, again, I can't quantify it. I can't especially quantify it in an accelerating marketplace compared to a historical control. It's very difficult to do. But I think there is a little bit of both, to be honest with you. On the Heron question. Look, we wish them well. They got a product that's a huge market. It's a huge opportunity. It's a desperate issue in the United States. I mean, from our perspective, we've got a broad label. We expect to have a pediatric claim. We expect to have a nerve block claim. We've got 72-hour, 4-digit p-values for pain control in orthopedics. We have a C-section study. We've got a colorectal study. We've got a hip fracture study, we're studying MIS spine with our partner Johnson & Johnson. If you look at the nerve block data, p-value is 0.0001, 13% opioid free and rotator cuff, a hugely difficult issue. If you think about volumes, and you think about 120 mls in total need, if you think about 100 mls in tax, if you think about 100 mls in spine surgery, all of these procedures that we think are the growing future of where EXPAREL is going to be used the strongest, then I don't think that we're -- we welcome the challenge, I don't think there's really anything here that we're afraid of. And in terms of price, I have no way to answer that. I don't know whether they would come at some type of a price point that they would think was difficult. But again I would say that, as we move a significant portion of our procedures to outpatient procedures at a 10 cc dose with a $170 WAC price point, I welcome their challenge there as well.

Yes, Dave, I'll only add, we're making a significant Phase IV investment. We think, that we will be creating new and very exciting markets. C-section, Tazeen asked the question earlier, is I think is a perfect example of that. We're starting to see literature and use of TAP in hysterectomy. We are getting more and more anecdotal interest in C-section. And we think a large Phase IV study will really create a marketplace and then understanding of how to use the drug accordingly. I think our phase work -- our trials are going to really broaden the market opportunity for the space. We're not happy with where we are at roughly 3% of the market and we think there's a great opportunity for us to grow that market. That's what we're all working on, through clinical trial data, through partnerships, through the government and through our partnership with J&J.

I was going to say the J&J too. And keep in mind we have got dozens of ERAS protocols that Mayo, MD Anderson, Cleveland Clinic, Duke, UT Knoxville, MD Anderson, I mean by the time that they come to market, we'll have between 4 million and 5 million patients treated in the United States. So, this will be fun.

Our last question comes from Gary Nachman with BMO capital markets.

Not to jump the gun here, but when would you expect to provide 2018 guidance. When do you think you'll have good enough visibility on that, given a lot of moving parts? And how much would you expect nerve block to help, if that gets approved? Could it be a meaningful contributor next year? Or will it take time to ramp up? How should we think about the trajectory for that indication?

I'll tell you what, Gary, I'll go first and take the back half and then Charlie can comment. Yes, there -- I mean, I would tell you that there is real excitement in the marketplace about nerve block. And it comes in a number of different forms. There's -- well, Scott and I both spent last weekend at AAHKS, and the docs are -- I mean, I'm not trying to overstate the case here, docs are truly excited about the being able to use EXPAREL, take a certain amount of the vial and do an adductor block for the front of the knee. And then dilute the rest with bupivacaine and do a periarticular injection to the back of the knee. They really think that that's the best way to improve patient care, but now they're stymied by our package insert. When you look at -- when you talk to the insurance carriers about moving from in to out, a lot of those discussions have been spurred by the potential to be able to provide a regional block. And have that patient have several days of pain control. They can do that block before the surgery in a 23-hour environment. And then have those patients go home in a couple of hours. Very different than an infiltration in an inpatient setting. So yes, there is real excitement. We're dealing with a number of anesthesia groups, who are strongly positioning EXPAREL as a way for them to help the overall economics of a the health system, by providing an opportunity to improve care and move patients to the least expensive environment, and improve care in the least expensive environment. So all of those things are ongoing over the same time. And yes, I think, for me personally, getting nerve block, getting some satisfaction on price from the government and making sure that Johnson & Johnson reaches its full potential, those are the 3 biggest things that we're working on right now. But nerve block has to be on the top of that list. Charles?

And from a 2018 guidance perspective, we would typically issue that guidance in conjunction with our 2017 year-end conference call, which would be late February or early March. That'll be before at least the anticipated PDUFA date of April 6. So I'm not sure that we'll actually include the impact of the nerve block label without knowing exactly what the label is.

Okay. I just want to follow up. Dave, what's your understanding of how much nerve block is being done with the product today and is there any way that you're going to be able to layer J&J into the mix from a commercial standpoint? You mentioned they have good relationships with anesthesiologists. Or is that going to be strictly on your side with your soft tissue sales force?

It's a very -- it's a really interesting question, Gary. So the way it's -- the way we've organized it in our MSL group in a specific component of our MSL group is working very extensively with anesthesia on education on multivesicular liposomes and making sure they understand all of the biologic and all of the safety issues associated with local anesthetics and what makes EXPAREL different, et cetera. So we're doing as much of that training as we can right now before we actually get the nerve block label. Around the launch, we expect that we will own anesthesia. The reason I say it's interesting, is because most of the procedures that will be done by an anesthesiologist will actually be orthopedic procedures. So as we've talked about during the procedure -- or during the script, think about peripheral regional nerve block has its best applications in peripheral surgery. So think shoulder, rotator cuff, ACL repair, hand and wrist, foot and ankle, right? The anesthesiologists will be trained by Pacira and all of the deep understanding of myotoxicity and neurotoxicity and volume and ultrasound, et cetera. But the procedurals will be carried forward by the Johnson & Johnson ortho teams and the Johnson & Johnson ambulatory care team. So it's a little bit of both. But really interesting for us.

And I'll just add, Gary, the J&J team will be trained in nerve block, but we have gotten very strong feedback from the anesthesia community that we really want to have a hands-on approach early days, we want the product to be successful. We know a lot of anesthesiologists, our regional folks and non-regional, many still don't use ultrasound for their nerve blocks. The regional folks all do, but many non-regional folks don't. So we want to make sure this launch is done the right way, in terms of the right group using the product. And the J&J people will be a part of that. But we really want the Pacira team to lead that charge.

I think today, Gary, to answer the first part of your question. The only real reference we've got is where catheters are being used. And we think that, given all of the issues, 1 in 4 of those patients have significant issues of displacement and falling out and just not hitting the target nerve, et cetera. That -- it's a big market if all we did was address that obvious market, but when you talk to the clinicians in the marketplace, most of the folks don't use those elastomeric pumps for all of the obvious reasons. And so, we think the market is much bigger than that would suggest.

And then just one last one. Scott, just to follow up what you said, that you want the sales force to really focus on that launch. If you found a marketed asset, would you be comfortable bringing that into the bag at this point? Or do you think it's better maybe to wait until after you launch nerve block?

Yes and I'll let Dave chime in as well. I think we all as a team are very focused on the near-term commercial execution and we will not allow anything to interfere with that commercial execution. And so, all of our business development planning is really how to best maximize the EXPAREL effort, how to not -- how to make sure that is our focus today. And I think TELA Bio is a really nice example of how we're looking to the future, to think about how we might broaden our product portfolio.

Yes, I wouldn't say no to anything, Gary. In a generic sense the way the question was asked, if an asset came with a sales organization that had deep customer relationships or -- we might look at it differently. But it isn't the highest thing on our list.

There are no further questions. I would now like to turn the call by Pacira CEO, Mr. Dave Stack, for any further remarks.

Thanks, Andrew. Thank you for your questions and time this morning. We look forward to providing additional updates in the future. Next up for us, this month, is the Jefferies conference in London followed by the Piper conference in New York City. We look forward to seeing you all soon. Thank you again.

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