Pacira Biosciences Inc (PCRX) 2018 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q1 2018 Pacira Pharmaceuticals, Inc. Earnings Conference Call. (Operator Instructions)

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to turn the call over to your host, Susan Mesco, Head of Investor Relations. Please go ahead.

Thank you, Donald.

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and financial results. Joining me on today's call are Dave Stack, Chairman and Chief Executive Officer; Dr. Rich Scranton, Chief Scientific Officer; and Charlie Reinhart, Chief Financial Officer.

Before we start, let me remind you that today's call will include forward-looking statements based on our 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. 2018 is off to a terrific start. We reported strong top line sales growth of 9% for the first quarter, with monthly sales volumes increasing from 6% growth in January to over 15% in March. It is important to note that Q1 is historically our weakest annual revenue quarter. We secured FDA approval of EXPAREL as an interscalene brachial plexus block for upper extremity surgeries, and the launch is underway.

We continue to have collaborative and productive meetings with policymakers in Washington as recently as this week who we believe now have the information required to provide opioid-sparing opportunities to address the public health emergency and opioid commission report, specifically recommendation number 19 in that report. And our partnership with Johnson & Johnson continues to flourish, with a record high number of accounts actively ordering EXPAREL.

As the only opioid-free, long-acting local analgesic approved for infiltration and nerve block for postsurgical pain, EXPAREL has become the dominant platform for multimodal durable pain management and is uniquely positioned as a critical competent in reducing the role of the operating room as a primary unintended gateway to opioid misuse and abuse.

As we've done in our primary -- on our prior calls, I'll focus my remarks today on 3 strategic priorities, which we have previously outlined for the investor community: first, expanding the use of EXPAREL as a key surgical settings -- in key surgical settings through new clinical data and Enhanced Recovery After Surgery or ERAS protocols from influential academic medical centers; second, driving education and awareness around the need for opioid-sparing solutions within and outside of the operating room; and third, partnerships and collaborations with organizations who share our commitment to reducing or in some cases eliminating opioids in the postsurgical setting.

Let's begin with the expansion of EXPAREL into nerve block. Last month, we were thrilled to announce FDA approval of our supplemental new drug application for EXPAREL as a nerve block to produce regional analgesia. This approval was based on highly statistically significant results from our Phase III placebo-controlled study in patients undergoing total shoulder arthroplasty or rotator cuff repair. Patients who received EXPAREL consumed 78% fewer opioids while experiencing significantly less pain. To repeat, a p-value for improved pain control with a 78% reduction in opioids.

In addition, 13% of EXPAREL patients were opioid free through 48 hours versus only 1% for the placebo, demonstrating the durability of pain relief provided by EXPAREL. With this label expansion, EXPAREL is now the first long-acting, single-shot nerve block available for patients undergoing highly painful procedures such as rotator cuff repair. We believe that our existing physician relationships as well as our already expanded sales and medical teams provide us with the opportunity to work with the anesthesia community to afford all patients of improved access to EXPAREL for this and for future indications.

As we've discussed on our last conference call, the expanded label creates a significant opportunity. There are roughly 1 million shoulder procedures performed annually in the United States, and brachial plexus blocks are emerging as the mainstay of postsurgical patient control. We expect our upper extremity procedures to make up more than 60% of the total EXPAREL nerve blocks within the next 2 years.

In just a few weeks since -- I'm sorry. In just the first few weeks of our nerve block launch, the market enthusiasm is palpable, and we've already seen 38% increase in sales of the 10 ml vial compared to a 13-week historical benchmark. Within days of approval, a meaningful number of anesthesiologists quickly engaged with our team to secure clinical information. And many are using EXPAREL nerve block as an integral part of their daily routine.

We have also worked with many new EXPAREL customers in both hospital and ambulatory care environments to expand the opportunity to achieve our mission to provide the -- an opioid alternative to as many patients as possible. Each day, we are receiving inbound examples of success stories from across the country where opioids have been dramatically reduced or even eliminated when EXPAREL brachial plexus blocks are administered as part of a multimodal regional anesthesia approach.

Importantly, the feedback from the market is what we saw in our clinical program. Three to 4 days after rotator -- of pain control for rotator cuff repair, what most view as the most painful surgical procedure, and patients are able to avoid the use of opioids and manage their pain only using Tylenol.

Recently, we had an opportunity to highlight the benefits of EXPAREL administered as a single-shot brachial plexus block with 2 prominent medical societies. At the meeting of the American Society of Regional Anesthesia and Pain Medicine, we experienced an overwhelming level of engagement and enthusiasm. Anesthesiologists, the key gatekeepers of pain management strategies, showed tremendous interest in simplifying their approach to patient pain relief and have expressed a strong desire to eliminate and replace cumbersome delivery technologies like pumps and catheters, replacing these antiquated technologies with a single long-acting EXPAREL nerve block to turn off pain at the surgical site.

And at the New York Society for Regional Analgesia (sic) [New York School for Regional Analgesia] or NYSORA, we featured a video of -- for their 24,000 members in which Dr. Admir Hadzic, a prominent leader in anesthesia for over 2 decades, reviewed the data underlying the approval of EXPAREL for use in interscalene brachial plexus block. NYSORA is the global leader in health care provider -- providing education in regional analgesia, and this video will be part of the NYSORA Academy's ongoing educational forums.

Beyond this new indication, we continue to work on additional clinical and regulatory initiatives to expand EXPAREL's availability to physicians and patients. Recent advances include progressing programs in other key surgical settings such as our Phase IV study in C-section; there are approximately 100,000 C-sections performed each month in the United States, and top line results are on track for later this year; solidifying our regulatory path forward with FDA for EXPAREL and pediatric patients; submitting a marketing authorization application for the European Union later this year for both infiltration and nerve block; and launching a Phase I study of DepoMeloxicam.

Dr. Rich Scranton will provide further details on these areas shortly.

Now I'd like to turn to the second pillar of our strategy, education and awareness. We continue to be in active discussions with policymakers and payers to expand access to EXPAREL as an opioid-sparing option to address the national opioid health emergency. We are working with CMS leadership to drive welcome change around reimbursement practices with [to funnel] EXPAREL within their fixed payment to outpatient and ambulatory surgical centers.

As I've highlighted before, we believe this is an inappropriate classification. It does not make sense to bundle EXPAREL simply because it is administered during the surgery. In fact, most transverse abdominis plane or TAP blocks and nerve block procedures are performed prior to the patient entering the operating room and not during the surgical procedure in the operating room at all.

Based on our interactions to date as well as discussions taking place within the House and Senate, it is clear that there is bipartisan support from federal policymakers for legislative change around rate-setting policies that serve to discourage the use of non-opioid treatments for surgical pain management.

From the committee reports last week, we affirm that a legislative approach to the opioid epidemic will not benefit any one product or company and will focus on defining the best possible solutions for patients in our society as a whole. There are several mechanisms available to make appropriate changes, and Pacira is an active participant in these discussions. We are confident that we will see meaningful steps taken this year to address the opportunities and suggestions outlined in the President's opioid commission report.

Securing a separate reimbursement for EXPAREL would create a significant opportunity for Pacira. Many commercial payers already recognize the economic advantage of EXPAREL, with several using their specialty pharmacy network to support coverage and expand the use of EXPAREL-based ERAS multimodal protocols. This approach shifts many inpatient procedures to the ambulatory or outpatient setting and can yield payers savings of roughly 40% per case.

To further expand the use of EXPAREL in the ambulatory setting, we will be rolling out a focused sales team later this year. These specialists will target ambulatory surgery centers as well as oral/maxillofacial and plastic surgeons. This team will be a key resource for working with ambulatory centers to secure local market ambulatory surgery center reimbursement for EXPAREL.

Let me now move on to the third and final strategic pillar, partnerships. Our partnership with Johnson & Johnson continues to exceed our expectations, with J&J regularly opening doors to new hospital systems where we previously did not have any access. Dennis McLoughlin, our VP of Alliance Management, has been point on leading this collaboration since its launch in 2017. And he continues to spearhead all of these important programs, which are on track with strong results. To remind you, our collaboration with Johnson & Johnson involves 4 sales verticals: joint reconstruction, spine, trauma and sports medicine. We are seeing strong account growth across the board. Joint recon and spine remain highly engaged, and there has been considerable recent uptick in engagement from the sports medicine and trauma teams, driven by the approval of nerve block and the preparation of our Phase IV programs in hip fracture and spine. Importantly, our colleagues at Johnson & Johnson are excited about the approval for brachial plexus block, and the teams are working together as we actively rollout training for this new indication.

As we highlighted earlier, the nerve block indication enhances the opportunity to move many patient -- inpatient procedures to the outpatient setting. We are also collaborating closely with Johnson & Johnson on our overall ambulatory strategy for EXPAREL. We and Johnson & Johnson are confident in how they use a [VPS-menal] and EXPAREL form a powerful change agent to improve patient care.

We are also happy to report today that we are extending our relationship to the soft tissue space, starting with a pilot program that will involve Ethicon, supporting EXPAREL in the field of bariatrics. Bariatrics is an important procedure for Pacira, given surgeon interest in avoiding well-known opioid adverse events such as nausea and vomiting, constipation, urinary retention and delirium.

Similarly, our collaborations with Trinity Health, Aetna, the American College of Surgeons and our more recent partnerships with the University of Tennessee Medical Center, WellStar Health Systems, the Illinois Surgical Quality Improvement Collaborative and the Cancer Treatment Centers of America continue to support active educational initiatives. These partnerships provide a multipronged approach to addressing the opioid epidemic through direct health care provider and patient education, allowing patients and payers access to opioid minimization expertise.

In tandem with our partnership experts, we continue to explore worldwide business development opportunities aimed providing the broadest possible patient and clinical populations with access to EXPAREL as well as other programs in our portfolio. We believe these global opportunities represent a very sizable market, and we expect to announce partnerships within the next couple of quarters.

Furthermore, we continue to identify growth -- external growth initiatives that will serve to broaden our portfolio. We remain very excited about the prospects of our investment in TELA Bio and their OviTex platform, which we believe is a highly differentiated and positioned to emerge as a leading bioscaffold to replace traditional surgical mesh. TELA's portfolio and therapeutic focus are all highly complementary to our commercial audience in soft tissue procedures such as colorectal surgery, ventral hernia repair and breast reconstruction. We look forward to transitioning our relationship to a more collaborative one over time.

With that, I'd like to turn the call over to Dr. Rich Scranton to provide some additional color on our clinical and regulatory activities. Rich?

Thanks, Dave, and good morning to all joining today's call. After successfully securing approval of EXPAREL as a brachial plexus block, the clinical and regulatory teams are now shifting to several exciting new priorities. I'd like to start with pediatrics, where we have made considerable progress.

We recently met with the FDA and solidified our pathway for developing EXPAREL for pediatric patients age 6 and older into our label. We're excited about this program as there are limited options for managing severe postsurgical pain for this vulnerable population who urgently need opioid-free options. This is particularly true for children aged 6 to 12 years who do not have any other local anesthetic options that have been approved for use by the FDA.

We have already initiated a pharmacokinetic and safety study to support the use of EXPAREL in children 12 to 16 years of age who are undergoing corrective spine surgery. And we are rapidly implementing the recommendations from the FDA for an extended PK and safety study that will include children 6 to 16 years of age who are undergoing cardiovascular or spine surgeries. These painful procedures are ideal for EXPAREL to provide analgesia via a long-lasting field block to manage pain and reduce the need for opioids. Our submission will also include an extensive package of real-world evidence from the Cleveland Clinic and the Premier database for several surgical procedures in patients under 18 years of age.

Next, let's move to our Phase IV Caesarean section study. We continue to see great interest in this program from both patients and health care providers where there's a key need for a non-opioid alternative for new mothers and their babies following this common surgical procedure. The study is enrolling on track, and we look forward to reporting top line data later this year.

Also, based on positive feedback from our investors -- investigators about the need to reduce the use of opioids after C-section, we are designing a follow-on study that will use patient-reported outcomes to measure the benefits of using EXPAREL in C-section, while reducing the need for opioids administered via an epidural. We have also finalized our plan for clinical studies in hip fracture and spine surgeries. These studies incorporate input from our colleagues at J&J and remain on track to launch later this year.

We continue to see positive outcomes for EXPAREL in colorectal and breast reconstruction procedures as part of ERAS protocols at centers of excellence. With an established best practice technique, our strategy is to invest in training around these ERAS protocols and to collect the data prospectively on standard of care without EXPAREL compared to an EXPAREL-based ERAS.

We believe this will provide us with the necessary and appropriate comparative real-world data without the cost and lengthy time lines associated with conducting randomized controlled studies that are not required to drive EXPAREL adoption in these important on-label indications.

Turning to Europe. As Dave mentioned, the team is preparing to file marketing authorization applications seeking EXPAREL approval for local analgesia via a field block and regional analgesia via a peripheral nerve block. We will also incorporate local experience into our filing from a study in TKA that is now underway at the University of Cambridge. This study is being funded by the U.K. National Institute of Health Research (sic) [National Institute for Health Research].

I'll finish by briefly touching on the early stage pipeline. We are preparing to launch a Phase I study of DepoMeloxicam, a long-acting nonsteroidal designed to treat moderate to severe pain as part of a non-opioid multimodal regimen. We will use this data from this study to make a go/no-go decision for a Phase III by the end of this year. We also have several DepoFoam-based products in preclinical development, while at the same time we are evaluating in-licensing opportunities. Our focus is clinical-stage assets that are complementary to our EXPAREL commercial focus and customer base.

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

Thank you, Rich. And good morning, everyone. Before I walk through the first quarter financial results, I'd like to remind you that we will be discussing non-GAAP financial measures this morning. The press release we issued this morning includes a description of these metrics and why we believe they provide additional insights into the financial aspects of our business. The press release also includes a reconciliation to GAAP for these measures.

Overall, we had a great quarter. Net product sales of EXPAREL increased by 9% to $74 million for the first quarter of 2018 compared to $67.7 million in 2017. During the first quarter, we continued to see an increase in EXPAREL demand in both new accounts and existing accounts. We believe this is driven by the successful execution of our 3-part EXPAREL growth strategy that Dave just described.

Our non-GAAP gross margin for the first quarter of 2018 was 71% versus 67% for the first quarter of last year. Our first quarter 2017 gross margin was unfavorably impacted by the cost of several discarded lots of DepoCyt. As you may recall, we discontinued the manufacture of DepoCyt in June 2017.

Non-GAAP research and development expenses decreased to $13.7 million for the first quarter of 2018 versus $16 million for the first quarter of last year. The decrease in R&D was largely driven by the completion of our Phase III studies in nerve block. Our non-GAAP selling, general and administrative expenses were relatively flat, coming in at $37.7 million in the first quarter of 2018 compared to $36.8 million for the first quarter of last year. All this resulted in non-GAAP net income of $900,000 or $0.02 per basic and diluted share for the first quarter of 2018 compared with a non-GAAP net loss of $7.3 million or $0.19 per basic and diluted share for the first quarter of last year.

Lastly, our cash position remained strong, and we ended the quarter with approximately $361.5 million in cash, cash equivalents and short- and long-term investments. Looking ahead, I am pleased to report that we remain on track to deliver on the financial guidance we provided on our fourth quarter call in February. As Dave discussed, we are very pleased with the sales trends we are now seeing and remain highly confident that sales will continue to accelerate throughout 2018.

Specifically, the key drivers for growth include our J&J partnership, the launch of EXPAREL for brachial plexus nerve block, positive shifts in reimbursement practices and the expanded use of EXPAREL in the ambulatory setting. While we are excited by the momentum we are seeing thus far in 2018, with strong trends in monthly sales volume through April, we're awaiting more visibility around the magnitude and timing of the impacts of the nerve block launch and other key growth drivers before making specific changes to our financial guidance.

Consequently, we feel very comfortable reiterating the following financial guidance: EXPAREL net product sales of $300 million to $310 million, which we remind you does not yet include an impact for the expanded nerve block indication, which we believe represents a significant commercial opportunity; non-GAAP gross margins of 70% to 72%; non-GAAP R&D expense to $50 million to $60 million; non-GAAP SG&A expense of $150 million to $160 million; and stock-based compensation expense of $30 million to $35 million.

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

Thanks, Charlie. In closing, 2018 is off to a great start, and we believe Pacira is well positioned for continued success. By year-end, we look forward to achieving many important value-creating milestones, including achieving a highly successful launch of EXPAREL as a brachial plexus nerve block for regional analgesia, achieving our full year EXPAREL sales guidance, completing the C-section study and reporting top line results, launching additional on-label clinical studies in hip fracture and spine, securing separate reimbursement for EXPAREL for both public and private payers, broadening national education and awareness around non-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 improving patient care through opioid minimization strategy.

And with that, I'd like to turn the call over to Donald to begin of our Q&A session. Don?

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

This is Ashley Ryu on for Randall. Charlie, you've talked about early enthusiasm for nerve block. And I know it's early, and you touched upon why you haven't raised guidance to be more conservative. But I think during the sNDA kind of update call, I think they said something along the lines of like stay tuned for 1Q around guidance. Is there anything that you've seen thus far that makes you maybe a little bit less confident around nerve block? Or why wouldn't you raise just given kind of what was that about a month ago?

Well, on the contrary, I don't think there's anything that we've seen in actual results that gives us pause. Frankly, I think it gives us confidence around our financial guidance. The question is really that of timing. When do we know enough to know when the right change to guidance would be. And at this point, we're a couple of weeks into an important product launch. And all of the early indicators are quite positive. But I don't know how to put that into a dollar figure at this point. And so once we are more confident with that, we'll do that.

Got it. And just following up on the regulatory side. You guys have a lot of updates coming up with the CMS J code update. And obviously, you guys are working to the House draft bill as well. What are your expectations around kind of the likelihood for a positive outcome for both? If you can provide more of an update on how you see the J code kind of shaking out?

I think we're -- well, first, thanks, Ashley, for the question. I mean, we're highly engaged with all of the appropriate people in D.C. As a matter fact, I was there most of the day yesterday. And I think we are as well positioned as we could possibly be both with the policymakers at HHS and CMS, where we have a very good relationship. There is real interest in improving patient care and providing a non-opioid alternative to their constituents as well as on legislative side, both with Energy and Commerce, end with Ways and Means. And so I think we're positioned well. There's a lot of moving parts, Ashley, down there. And for me to tell you what I think is going to happen I think doesn't make a lot of -- it just -- it's what I think. And I think we're -- we've done everything we can do. I think there's a great appetite in D.C. to solve this problem in one way or another, and they've got a number of different alternatives that they could take. We believe that we will be part of any or all of those. And so we're in a good spot from our perspective.

Our next question comes from David Amsellem of Piper Jaffray.

Wanted to ask a long-term oriented question on the competitive landscape. And specifically wanted to get your thoughts on other long-acting non-opioid modalities, specifically Heron's HTX-011. And just give me your general sense, Dave, on the -- how you see the competitive dynamics shaking out in terms of your respective role in the marketplace versus Heron? And whether or not you see EXPAREL carving out certain niche areas and Heron carving out other niche areas? I just wanted to get your sense of how the competitive dynamics longer term will shake out in your view?

Thanks, David. That's a very broad question, as I'm sure you're aware. Let me start out by saying that if you read the ASRA papers they make a comment that I think is very interesting from a clinician's and a health care provider's point of view when they phrase EXPAREL as being physiologically appropriate for use across a broad range of surgical settings. You can see that this product can be used intrathecally. It can be used in all kinds of different ways by the physician community. And we believe that, that is very much distinctive to EXPAREL as it relates to nerve toxicity and muscle toxicity, et cetera. I think we're in a great spot. We've got a nerve block label; focus back on my comment 30 seconds ago on what that might mean to us and might not be available for others. Same thing with the TAP block. There are a number of surgical procedures that are going to be driven by anesthesiologists and folks that are doing orthopedic surgery, plastic surgery, spine surgery, et cetera, that we think are really most appropriate for a physiologically appropriate delivery technology. I think if you layer on top of that all of the strategic partnerships that we've got and our ability to work with the American College of Surgeons and all of these different health care providers, we are very strong in the ambulatory care environment with Aetna, which has been disclosed publicly, but a whole number of additional commercial payers who are paying for EXPAREL based on moving patient from in to out. So I mean maybe the simplest way for me to answer your question, David, is if you look at the delivery technology and if you look at the adverse event profile, I don't think there's any restrictions at all on where EXPAREL can be used by clinicians to improve patient care. And I'm not sure that that's an opportunity that available to the competitive technologies.

Our next question comes from Dana Flanders of Goldman Sachs.

My first here just -- as we try to think about the potential impact of a J code change, can you remind us just how many of the overall surgical procedures that you are targeting are currently in the outpatient or ambulatory setting? And then do you have a sense of just what EXPAREL's current split is for outpatient versus inpatient and just where that can go over time? And then I have a quick follow-up.

Yes. And as I've said a bunch of times, Dana, the data is imperfect. The way we receive data we can't separate hospital outpatient departments from hospitals because the same physical pharmacy is making the purchases. What we can tell you is that if you look at purely ambulatory surgeries owned by physicians or not hospital related, it's about 10% of our business. Let me go in a slightly different direction, and I may be able to answer your question and give a little bit better information. If you look at CMS patients or patients who are over 65, they're about 47% of our business. And so then about 57% of our business is commercial payers and not Medicare, for example. Few of those are treated on an outpatient basis today because of the lack of reimbursement and the fact that the payment for an ambulatory procedure is less than it is for an inpatient procedure. And so it's actually more difficult from a financial perspective for somebody to use these products in a skinnier DRG, if you will, outside the hospital than in. So there's really 2 ramifications for us to get a J code. One is that it will open up the opportunity for patients, and I'll use brachial plexus with a 10 cc dose that's $170 WAC, not only to get a 4 days of pain control in an outpatient environment, but the payer would -- or the government would save 40% of the cost of care for treating that patient for the expense of $170. And so that was one of the focuses of our meetings yesterday in D.C. that from a budget perspective this is a terrific opportunity. Because you really don't understand what you can do to improve patient care when you stop using opioids until you stop using opioids. And for the CMS population, that opportunity hasn't been created yet, right. Interesting to us on the non-CMS patient population is while the payers believe that they cover EXPAREL many of the local ambulatory care centers are -- don't have the appropriate information to bill for EXPAREL because there is no government J code. So the art is really they follow the same technical aspects of which codes to use and how to fill out the appropriate paperwork based on the J code. And because we don't have one, we have a gap that's been created for the commercial payers as well as for the CMS payers. And so getting a J code for us really provides relief from the cost of EXPAREL in the ambulatory environment on a couple of different levels. I hope that answers your question and I didn't confuse you more.

No, it does. That's very helpful. And my quick follow-up just on the global opportunity for EXPAREL. I know it's something that you mentioned on this call as well as before. Can you just help frame just how you are thinking about that? I think you mentioned that you're preparing a European filing. Are there any regions there that make the most sense to target? And how we should just think about the timing and just the magnitude of when that could come on?

Yes, thanks, again, Dana. We've got term sheets for a number of territories, and so that's why we have some confidence in making that statement that there'll be some announcements over the next couple of quarters. You know there's 2 aspects. One is protecting your border, so you'd be interested in a Canadian relationship, for example. And then the big markets are in Europe and China. And there's some discussions with the rest of the world and Latin America and Japan, et cetera. If your question specifically about Europe is whether you would carve out specific territories, we're going to file a pan-European application. And we're doing that ourselves because we think the people that are in the best position to have these discussions with the regulators at least at the current time are us. And we also wanted to wait until we had the nerve block approval so that we could make the European application for both infiltration and nerve block, which is what they asked us to do, frankly. So I don't think -- we're not going to discriminate in terms of the regulatory approval process on where the product is launched in the territories. But I think that will be dependent on who we end up with as a partner. And maybe should have started here that our intention, our strategy here is not to do this ourselves unless there's some M&A opportunity that provides us with some commercial expertise in Europe that we do intend still to have a partner. But we think we're in much better shape once we have late-stage discussions with the regulators and with our rapporteur about an approval. And then the big goal is China, where -- just China is just big period. But there's great interest there in opioid-sparing going all the way back to the opioid wars, and so there's a whole generation of Chinese folks who have a great aversion to opioids, and so there's a lot of interest in our product there as well.

Our next question comes from Chris Schott of JPMorgan.

This is actually Ekaterina on for Chris. So I guess can you talk more about your infiltration studies in terms of the updated time lines and what you're most excited about? And I guess more broadly in light of the nerve block approval, how are you thinking about your R&D priorities and has that really changed?

Thank you, Ekaterina. I'll ask Rich to jump in here if I say anything that is different. There's really -- as we've moved forward here, and especially now with the nerve block approval, what our customers are asking for is really more around education and training on the use of EXPAREL, especially as it relates to ERAS protocols than it is on more and more clinical data. As folks get experienced with EXPAREL, they know how to use it, and what they're asking for then is how do I replace an epidural catheter with EXPAREL? And then we have some of the highly technically competent for -- technically demanding procedures like hip fracture, where we're thinking that we'll go with a fascia iliaca field block, for example; and spine, which is turned into more an opportunity to study a broad range of procedures and then determine which of the procedures married with EXPAREL provides us the greatest opportunity to minimize opioids and improve patient care. And that's why the J&J relationship has been so important. So what you'll see over time here is our customers are saying it would be much better for me if I could go to the academic centers that are developing these ERAS protocols and work with them for a couple of days and then go home with an experiential way of understanding their ERAS so that I can take this to my hospital and my patient than it is for you to continue to develop clinical data in all of these different procedures going forward because I know how to use EXPAREL. Now I need to understand the sophisticated aspects of these ERAS protocols. And so if you say which ones are you most excited about, from our perspective C-section is huge. It's what the payers are most excited about. It's what the Chinese government authorities are most excited about. So then it's most exciting to us. The spine and the hip fracture; spine is exciting because it's a real area of focus for Johnson & Johnson, and that partnership is just really important to us. Hip fracture is a global problem. We've really completely changed our mind on how to do that. We used to wait for the swelling and the hematoma to go down before we operated on those people. We now think that that's exactly the wrong thing to be doing. And so these protocols are all focused on how do we intercept those patients at the emergency room and treat them very aggressively so that the surgery takes place as rapidly as possible, with EXPAREL providing several days of pain control in the immediate presurgical environment so that those patients could be discharged in 48 hours and go back to their nursing home or go back to their home situation without losing their bed, et cetera, et cetera. So they're all really important all for slightly different reasons. But we're spending our money very diligently now. Your broad question about R&D, we think what you'll see here over the next 18 months to 24 months is a move away from clinical development of EXPAREL to clinical development of our pipeline products and our M&A opportunities. And so same people, same expertise, likely a relatively flat budget based on what we know about today at least but not EXPAREL based. They will be based on additional assets.

And our last question comes from Oren Livnat of H.C. Wainwright.

Oren, are you on mute?

No, can you hear me?

Okay. Yes, we can hear you now.

Okay. I wasn't on mute. Strange. Just a couple of questions. First, obviously a lot of eyes are on the reimbursement front, both legislative. I know, we're all refreshing this CMS agenda page. And I'm just wondering if you could maybe just give us a little broader perspective on maybe what are you multiple mechanisms you mentioned approaching this? Because I think some people think it's all or nothing on legislative. Some people think you need this J code or a Q code. Can you talk about in general what are your options if you don't show up in the agenda, let's say, for this May meeting. Why do you still have confidence that you'll potentially have other parallel mechanisms to get improved CMS reimbursement? And then I have a follow-up on the competitive landscape.

Yes. No, the real question on the table, Oren, is the unbundling, right. We could achieve a J code, but if we were still bundled, it wouldn't do us any good because there still wouldn't be a discrete payment. So the way that this unwinds is a unbundling of the 4 non-opioid treatments only, by the way, again a topic of great discussion yesterday, that you unbundle. And then once it's unbundled, then there are number of different ways that you could achieve a discrete payment for EXPAREL. It doesn't have to be a J code. It could be a Q code. They could reinstate the C code of 9290 for 1 milligram of liposomal bupivacaine. There's a whole number of opportunities for CMS to provide a payment scheme. But the key for us is to achieve an unbundling. And I think that's widely understood at HHS and CMS as well as both sides of the aisle in the legislative world.

So if we don't see -- if an agenda posts tomorrow for this meeting and you're not on there, we shouldn't think that, that means you're not going to have potentially dramatically improved reimbursement in the foreseeable future?

No, that's exactly correct. It -- there's 2 strategies here, one is the unbundling and the other is a J code. So we're following through on the J code strategy so that people are educated and there is an opportunity to interact with those people based on the timing of a legislative release, but it is not all or nothing for sure. As a matter of fact, it is the lesser of the 2 opportunities that are currently in front of them.

Great. I think it's important. Also on the competitive landscape, again, you touched on this earlier about the potential different profiles of the product. But just bigger picture, you spent all these years really learning how these P&T committees work, how I guess hospitals allocate resources internally. And given what you've learned, do you see realistically a place for hospitals to have 2 different extended-release bupivacaine products in use for one kind of procedure or one kind of indication and swapping? Or do you think it's much more realistic that given relatively similar profiles of the products that it's going to be all or nothing and that there is maybe a major incumbency advantage there?

I -- well, let me separate the questions, if you don't mind. I don't think that we believe that the profiles of the 2 products are relatively similar. I will answer your question, and I think it would be very difficult to have more than one product on the P&T. There is high sensitivity to taking something off before you put something else on. And so I think there is great value in incumbency in that regard. I also -- we also believe that the vast majority of the upper quadrant procedures, for example, are going to be 10 ml vials, where you WAC cost is $170. So I think there's a number of reasons why incumbency could be really important here. But I think at the end of the day the decision around which products you carry is going to be based on safety in 90% of the cases. And to me, that's a no-brainer. There is no -- that's just a no-brainer. I'll just leave it there.

Our next question comes from David Steinberg of Jefferies.

Two questions. First is, I know you haven't really discussed it that much and sort of have downplayed it because you had a lot of other things on your plate. But I was just curious if you could give us some color on how the introductions to oral surgery community is going? And I know you mentioned you're going to expand your sales force, and part of that was into oral and maxillary area. And would that involve sort of a reinvigoration, a higher-level investment into that community? And then just secondly to follow up on the ex U.S. opportunity. You talked about filing strategies, some of the countries you're particularly enthused about entering. Curious, could you give us just from a 20,000-foot view, a sense of what sort of peak sales opportunity we might be looking at in both the U.S. and Asia? And would reference pricing, particularly in Europe, be a problem given that bupivacaine has been generic can for quite a while?

Yes. No, thanks, David. I'll take it in order as best I can, but come back to me if I don't answer your questions. So the purpose of the retail organization is exactly as you outlined. Because of all the opportunities that are now accentuated by nerve block, we have increased opportunity in the hospital; but we also have a very significant opportunity outside the hospital, as we represent it with our J&J partnership as well. I would tell you a very small team here over the last 2 quarters has been working telesales with plastic surgery audiences and with oral/maxillofacial surgery audiences with great success. And so we have some real reason to believe that it is an appropriate time for us to invest and going with live promotion to those people but also accentuated by the need, as we talked about with ambulatory, care to go into those centers and make sure that they have all the appropriate information to how to bill for EXPAREL, how to work with their payers. And in many cases, by the way, it's connecting the ambulatory care people with the payers because the payers want the ambulatory care center to use EXPAREL. But there's a gap of knowledge around what is the code, what is the payment code, which procedures are you going to pay for, et cetera, et cetera. So we just think the timing is right. But yes, we do believe that, and Charlie alluded to this, there's no expense line yet for these activities, but there's no revenue in there for these activities either. So we'll come together with those 2 things. So that -- if that doesn't answer your first question, please come back to me. In terms of the rest of the world, one of the things that we've been very cognizant of as we've talked to folks in Europe and China is what the introductory price is. And we don't have a direct opportunity to impact on the price that our partner chooses, but we can do market research around which procedures are going to be most important to those partners and to their patients and back door, if you will, into what the cost sensitivity is around the procedures where the product is going to be used. For example, David, if somebody thinks you're going to use the product in a hernia, the cost threshold is pretty high. If you think you're going to use it in spine, the cost threshold is very low. And if you think you're going to use it in ambulatory care, it's actually nonexistent. So it really is highly dependent on how we're developing the product, what the Phase IV program looks like and what the package insert looks like. And so that's had a lot to do with why we've been a little bit slow to announce some of these, because we wanted to get some of this additional work before we have a partnership for exactly the reason that you outlined. We can't raise the price in Europe or in China. But we're pretty sure that whatever the price is, it's going to be price. And so we'd rather wait and do it right than do it fast and end up with a price we don't like.

This concludes our Q&A session. At this time, I'd like to turn the call back to Dave Stack, Chief Executive Officer and Chairman, for closing remarks. Please go ahead.

Thank you, Donald, and thank you for your questions and time this morning. We look forward to providing additional updates in the future. And next up for us is the Deutsche Bank Conference in Boston followed by the Bank of America Conference in Las Vegas. We look forward to seeing you soon. Thanks again.

Thank you, ladies and gentlemen for attending today's conference. This concludes the program. You may all disconnect. Good day.