Susan Mesco - Pacira Pharmaceuticals, Inc. David Stack - Pacira Pharmaceuticals, Inc. Richard E. Scranton - Pacira Pharmaceuticals, Inc. Charles A. Reinhart III - Pacira Pharmaceuticals, Inc..

Ashley Ryu - RBC Capital Markets LLC David A. Amsellem - Piper Jaffray & Co. Dana Flanders - Goldman Sachs & Co. LLC Oren Livnat - H. C. Wainwright & Co. LLC David Michael Steinberg - Jefferies LLC.

Good day, ladies and gentlemen and welcome to the Q1 2018 Pacira Pharmaceuticals, Inc. Conference Call. Currently at this time all participants are in a listen-only mode. Later we will conduct a question and answer session and instructions will follow at that time.

(00:00:17-00:00:26) I would like to turn the call over to your host, to Susan Mesco, Head of Investor Relations. Please go ahead..

Thank you, Dylan (00:00:32-00:00:38). 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 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 the 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 post-surgical pain, EXPAREL has become the dominant platform for multi-modal durable pain management and is uniquely positioned as a critical component in reducing the role of the operating room as a primary unintended gateway to opioid misuse and abuse.

As we've done on our prior calls, I'll focus my remarks today on three strategic priorities which we had previously outlined for the investor community. First, expanding the use of EXPAREL 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 post-surgical 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 of EXPAREL as a nerve block to produce regional analgesia. This approval was based on highly statistically significant results from our Phase 3 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 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 post-surgical pain control.

We expect our upper extremity procedures to make up more than 60% of the total EXPAREL nerve blocks within the next two years. 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 blocks 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 an opiate 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 multi-modal, regional analgesia approach. Importantly, the feedback from the market is what we saw in our clinical program.

3 to 4 days 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 two 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, show 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, or NYSORA (sic) [New York School of Regional Anesthesia] (00:06:31), we featured a video for their 24,000 members in which Dr. Admir Hadzic, a prominent leader in anesthesia for over two decades, reviewed the data underlying the approval of EXPAREL for use in interscalene brachial plexus block.

NYSORA is the global leader in healthcare providing education in regional [ph] analgesia (00:06:53) 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 4 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 in pediatric patients, submitting a Marketing Authorization Application for the European Union later this year for both infiltration and nerve block and launching a Phase 1 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 to fund our 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 transversus 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 (00:08:43) reports last week, we affirmed 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 and 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 multi-modal 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 oromaxillofacial (00:09:47) 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 JNJ 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 four 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's 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 4 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 roll out training for this new indication. As we highlighted earlier, the nerve block indication enhances the opportunity to move many 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 the use of DPS (00:11:17) 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 University of Tennessee Medical Center, WellStar Health System, the Illinois Surgical Quality Improvement Collaborative and the Cancer Treatment Centers of America continue to support active educational initiatives.

These partnerships provide a multi-pronged approach to addressing the opioid epidemic through direct healthcare 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 at 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 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 had made considerable progress.

We recently met with the FDA and solidified our pathway for developing EXPAREL for pediatric patients aged six and over into our label. We're excited about this program as there are limited options for managing severe post-surgical 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 4 caesarian section study.

We continue to see great interest in this program from both patients and healthcare providers where there is a key need for a non-opioid alternative for new mothers and their babies following this common surgical procedure. The study is rolling on track and we look forward to reporting top-line data later this year.

Also, based on positive feedback from our 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 plans for clinical studies in hip fracture and spine surgeries. These studies incorporate inputs from our colleagues at JNJ 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 timelines 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 Application 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 UK National Institute of Health Research. I'll finish by briefly touching on the early stage pipeline. We are preparing to launch a Phase 1 study of DepoMeloxicam, a long-acting, non-steroidal designed to treat moderate to severe pain as part of a non-opioid, multi-modal regimen.

We will use this data from this study to make a go/no-go decision for a Phase 3 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?.

EXPAREL net product sales of $300 million to $310 million, which we remind you, does not yet include any 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 of $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 post-surgical pain management through our Choices Matter campaign, and forming new collaborations with healthcare providers and payers who share our passion for improving patient care through opioid minimization strategies.

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

Dylan?.

Thank you, sir. Our first question comes from Randall Stanicky of RBC Capital Markets. Your question, please..

Hi, good morning. This is Ashley Ryu 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 Dave 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 said 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 and when do we know enough to know when the right change to guidance would be.

And at this point, we're a couple 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 of 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 both the CMS J code update and obviously you guys are working through the House draft bill as well.

What are your expectations around kind of the likelihood for a positive outcome for both and just 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 of 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 the legislative side, both with Energy and Commerce and with Ways and Means. And so I think we're positioned well.

There's a lot of moving parts actually down there and for me to tell you what I think is going to happen, I think, it doesn't make a lot of – it just – it's what I think and I think 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..

Got it. Thank you so much..

Thank you, Ashley..

Thank you. Our next question comes from David Amsellem of Piper Jaffray. Your question please..

Thanks. So I 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 how you see the competitive dynamic shaking out in terms of your respective role in the marketplace versus Heron's 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..

Thanks, David. That's a very broad question, as I'm sure you're aware.

Let me just start out by saying that if you read the ASRA papers they make a comment that I think is very interesting from a clinicians and a healthcare 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 (00:26:55) 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 healthcare providers.

We are very strong in the ambulatory care environment with Aetna, which has been disclosed publicly that a whole number of additional commercial payers who are paying for EXPAREL based on moving patients 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's available to the competitive technologies..

Okay. That's helpful. Thank you..

Thanks..

Thank you. Our next question comes from Dana Flanders of Goldman Sachs. Please go ahead..

Hi. Thank you very much for the questions.

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..

One is that it will open up the opportunity for patients and I'll use brachial plexus, with a 10 cc dose that it's a $170 WAC, not only to get a four 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 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, no, it does. That's very helpful. Thank you. And my quick follow-up just on the global opportunity for EXPAREL. I know it's something that you mentioned in this call as well as before. Can you just help frame just how you are thinking about that? I think you mentioned 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 magnitude of when that could come on? Thank you..

Yeah. Thanks, again, Dana. We've got term sheets for a number of territories and so that's why we have some confidence in making the statement that there will be some announcements over the next couple of quarters. There's two aspects. One is protecting your borders, so you'd be interested in a Canadian relationship, for example.

And then the big markets are in Europe and China and there is some discussions with the rest of the world, in 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 are 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 we should have started here that our intention, our strategy here is not to do this ourselves unless there is 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's just big period. But there is great interest there in opioid-sparing going all the way back to the opioid wars (00:33:53). 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..

Thank you..

Thank you..

Thank you. Our next question comes from Chris Schott of JPMorgan. Your question, please..

Hi. Thank you for taking my question. This is actually Caterina (00:34:14) on for Chris.

So I guess can you talk more about your infiltration studies in terms of the updated timelines 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? Thanks..

Thank you, Caterina (00:34:33). 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 experience 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 or 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 JNJ 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 can go to the academic centers that are developing these ERAS protocols and work with them for a couple days and then go home (00:35:51) with an experiential way of understanding their ERAS so that I can take this to my hospital and my patients than it is for you to continue to develop clinical data and 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 we 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 can be discharged in 48 hours and go back to their nursing home or go back to their home situation without losing their beds (00:37:22), et cetera., et cetera.

So they are 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..

Great. Thank you so much..

Okay. Thank you..

Thank you. And our last question comes from Oren Livnat of H. C. Wainwright. Your question, please? Ms. Wainwright (sic) [Mr.

Livnat] (00:38:24)?.

Oren, are you on mute?.

No.

Can you hear me?.

Okay. Yeah, we can hear you now..

Okay. It wasn't on mute. Strange. Thanks. Just a couple questions. Firstly, 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 may be what are your multiple mechanisms you've 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 Q-code.

Can you talk about just 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 competitive landscape. Thanks..

Yeah. 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 discreet payment.

So the way that this unwinds is a unbundling of the four 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 a number of different ways that you could achieve a discreet 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 C9290 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. There's two strategies here. One is the unbundling and the other is the 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 (00:40:52), but it is not all or nothing for sure.

As a matter of fact, it is the lesser of the two opportunities that are currently in front of us..

Great. Thanks. I mean, that'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 is 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 two 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 the relatively similar profiles of the product set, it's going to be all or nothing? And that there is maybe a major incumbency advantage there..

Well, let me separate the questions if you don't mind. I don't think that we believe that the profiles of the two products are relatively similar. I will answer your question that I think it will 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 a great value and incumbency in that regard. We also believe that the vast majority of the upper quadrant procedures, for example, are going to be 10 mL vials, where your 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..

Thanks. Appreciate it..

Thanks..

Thank you. Our next question comes from David Steinberg of Jefferies. Please go ahead..

Yeah. Thanks very much. Two questions. First is, I know you haven't really discussed it that much and sort of 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 the oral surgery community is going? And I note you mentioned you're going to expand your sales force and part of that was into the oral and maxillary area, and would that involve sort of reinvigoration and higher level investment into that community? And then just secondly, to follow-up on the ex-U.S.

opportunity, I know you talked about filing strategy, some of the countries you're particularly enthused about entering. Curious, could you give us, just from a 20,000-foot view sense of what sort of peak sales opportunity you 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 for quite a while? Thanks..

Yeah. 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 and are (00:44:15) 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 JNJ partnership as well.

I would tell you a very small team here over the last two quarters has been working telesales with the plastic surgery audiences and with the oromaxillofacial (00:44:40) 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 accentuate it 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, its connecting the ambulatory care people with the payers because the payers want the ambulatory care center to use EXPAREL, but there is 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 is 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 two things. So 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 is we talk 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 backdoor, 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 are going to use it in spine, the cost threshold is very low and if you think you are going to use it in ambulatory care, it's actually non-existent.

So it really is highly dependent on how we're developing the product, what the Phase 4 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. We're pretty sure that whatever the price is, is going to be the 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..

Thank you..

Right..

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, Dylan. 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 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..