Good morning everyone. Welcome to today's conference call to discuss our Third Quarter 2022 Financial Results. Joining me on today's call are Dave Stack, Chairman and Chief Executive Officer; Roy Winston, Chief Medical Officer; and Charlie Reinhart, Chief Financial Officer.

Additional members of our executive team will join for today's question-and-answer session. Before we begin, let me remind you that this call will include forward-looking statements based on current expectations. Such statements represent our judgment as of today and may involve risks and uncertainties.

For information concerning risk factors that could affect the company, please refer to our SEC filings which are available from the SEC or our website. With that, I will now turn the call over to Dave Stack. .

Thank you, Susan. Good morning everyone and thank you for joining us. We'll begin today's discussion with prepared remarks to cover recent business highlights before turning to your questions.

We are pleased to report our third quarter results which were a success across all measures including revenue growth, increased adjusted EBITDA, and value creation.

On the clinical and regulatory front, beyond the recently reported positive results of our two Phase 3 lower extremity nerve block studies, we are poised to deliver several additional near-term milestones across our durable opioid-sparing portfolio.

Third quarter EXPAREL sales were $132.6 million with expanding utilization across all target markets and sites of care and year-over-year growth of 9% despite a challenging macro environment. The third quarter also marked the 11 million patients treated with EXPAREL in the United States.

We began to see improvement in year-over-year EXPAREL growth trends beginning in mid-August culminating with September average daily sales exceeding 2021 by 13%. Strong sales combined with operating discipline allowed us to deliver significantly positive adjusted EBITDA of $55 million, marking our 22nd consecutive quarter of positive adjusted EBITDA.

We are pleased with this impressive record and the execution of our team in a challenging operating environment. We can unequivocally say that despite these unpredictable market conditions, Pacira has consistently delivered.

Throughout the quarter, we continue to invest in key initiatives to further improve gross margins across our safe and unique opioid-sparing portfolio.

For EXPAREL, we are now running test batches for our 200-liter manufacturing suite in San Diego and remain on track for a supplemental new drug application submission in 2023, seeking approval of this new facility which will be a significant step in improving EXPAREL gross margins. Our new ZILRETTA fill line is in the qualification phase.

We expect this line to improve future quality and yield to support anticipated growth for ZILRETTA. Finally, our new iovera° contract manufacturer is now fully online with lower unit costs benefiting margins to support future demand. Turning now to some more specifics for our EXPAREL franchise.

Regional Analgesia remains our number one topline growth driver and continues to drive paradigm shifts in patient care with long-acting EXPAREL based nerve and field blocks, accelerated recovery times, and enabling same-day surgeries.

Importantly, we expect additional expansion in the regional analgesia market following the recently announced positive trials for lower extremity nerve blocks. On the reimbursement front, we are supporting legislation such as the No Pain Act to provide Medicare reimbursement for non-opioid postsurgical pain treatments in outpatient setting.

In September, advocates from 11 states in Washington D.C. met with policymakers on Capitol Hill to voice the importance of this bipartisan legislation. Congressional passage of No Pain would provide CMS reimbursement for 70% of our total addressable market for EXPAREL with commercial and self-insured payers expected to follow.

We are also supporting initiatives to provide greater access to non-opioids for our military and government employees and retirees through a similar language to No Pain that would provide coverage to roughly 10 million lives enrolled in TRICARE.

While it's impossible to predict government action on any -- with any level of certainty, approval for any of these activities would be pure upside to the EXPAREL business.

The strong level of interest in training programs at our Innovation and Training Center in Tampa underscores the market's eagerness for education and training around EXPAREL-based regional approaches.

Year-to-date we have had 191 inbound requests from institutions for training of their anesthesia and surgery teams for selected blocks with erector spinae transversus abdominis plane and pectoralis the most frequently requested workshops. There is also significant growing interest in drug-free nerve blocks with iovera°.

These educational programs for EXPAREL and iovera° also provide increased visibility to expand our ZILRETTA customer base for surgeons seeking an alternative for non-opioid office-based osteoarthritis treatment options.

Our second innovation and training facility in Houston remains on track to open in December and we expect this facility to have an equally positive impact on expanding EXPAREL and iovera° expertise among clinicians, with a focus on Texas, which is nearly 20% of our EXPAREL business.

Importantly, we continue to advance our robust patent strategy around EXPAREL by fortifying our intellectual property with new patents and extended protection to January 22 of 2041. We now have eight patents listed in the FDA Orange Book and recently received a notice of allowance for a 9th patent, which we expect will issue very soon.

With no commercially viable alternative for long-lasting non-opioid postsurgical pain management, EXPAREL provides improved patient care, as well as a durable revenue stream for continued expansion of our commercial products and robust pipeline.

As a reminder, any generic filer would have to demonstrate that they do not infringe on every claim within these nine patents, as well as any future patents. From a new customer acquisition standpoint, last quarter, we discussed the rollout of an agreement with one of the largest faith-based private health care systems in the United States.

This national health system operates in 19 states with more than 140 hospitals and approximately 30 ambulatory surgery centers. I am pleased to report that EXPAREL is now on formulary at 100% of the hospitals in this system, as a field or nerve block in both adult and pediatric patients.

Since launching this partnership, EXPAREL has seen a significant increase in ordering accounts, within this system and we expect these positive trends to continue. Switching gears to pricing.

With increased manufacturing capacity and improving gross margins, we are now offering 340B pricing, which opens the opportunity to 5,200 accounts that are not currently purchasing EXPAREL under the 340B program.

This will provide meaningful upside to the business and the opportunity to extend the reach of EXPAREL to uninsured or low-income patients to particularly vulnerable populations where access to opioid-sparing regimen is key.

Drilling down into a few key EXPAREL markets, orthopedic procedures continue to be a key growth driver with the continued shift of these highly painful surgeries to the outpatient environment using regional approaches.

A great example of the -- is the interscalene brachial plexus nerve block, where we continue to drive awareness and education around the superior clinical efficacy, cost efficiency and safety of EXPAREL-based solutions for upper extremities surgeries, like rotator cuff repair and total shoulder arthroplasty.

Here, we believe an EXPAREL-based block will become entrenched as a standard of care for the three million shoulder procedures performed annually in the United States. In women's health, we are also seeing increased market penetration.

We are continuing to educate obstetric anesthesiologists by engaging with key leaders and societies to discuss regional blocks including tap blocks and the value of EXPAREL, even when a short-acting spinal anesthesia is utilized.

Breast and plastic surgeons are seeking ways to optimize their protocols and to incorporate EXPAREL to manage pain and minimize opioids to shift procedures to the outpatient settings.

We are also seeing growth and interest in erector spinae blocks for gynecologic oncology procedures to optimize pain management for this patient population, eliminating the use of opioids, which can also downregulate the patient's immune system, especially important in oncology procedures.

Our pediatric initiatives are centered on our educational programs that highlight the pristine safety and efficacy profile of EXPAREL. These programs include the pediatric exchange which features internationally renowned thought leaders, who share their insights on their procedure techniques via monthly interactive webinars.

We are also seeing increased demand for EXPAREL among pediatric spine clinicians. We believe this advocacy is a direct result of several podium presentations on the use of EXPAREL in scoliosis and spine deformity procedures, with three positive data presentations at the Scoliosis Research Society Annual Meeting this past September.

Turning to the oral and maxillofacial marketplace, where we recently announced our initiative with Sevaredent to provide expanded access to EXPAREL for patients undergoing procedures, ranging from third molar and full mouth extractions to dentures and implants.

This agreement will facilitate easier access to long-acting EXPAREL non-opioid pain control for over 1,800 dental practices within their network. We are working on several similar partnerships across the portfolio and look forward to sharing these with you soon. Outside the United States, we continue to make slow but steady progress.

We recently appointed a new General Manager for these territories and our team is developing the business and securing approval for EXPAREL access from hospital pharmacy departments.

We have a significant opportunity in these markets for EXPAREL, to expand rapid recovery after surgery to positively impact the dynamics related to waiting lists for elective surgery in the UK and Europe.

We also received formal approval from the European Medicines Agency for marketing authorization for an expanded indication of EXPAREL, to include use in children aged six and older. On the clinical front, we announced positive top line data in September for our two Phase III registration studies of EXPAREL for lower extremity nerve block procedures.

The first study was a single-dose thermal nerve block in the adductor canal for total knee arthroplasty, and the second was a single-dose sciatic nerve block in the popliteal fossa for bunionectomy.

Both studies achieved primary and secondary endpoints of statistically significant reductions in postsurgical pain and opioid consumption through 96 hours. These data provide a strong support, for the supplemental new drug application, we are planning to submit in the first quarter of 2023.

Roy Winston, our Chief Medical Officer will provide additional color on these studies in a couple of minutes. We also have a number of near-term value creation programs for iovera with additional smart tips for spine and low back pain, as well as a very exciting program for the treatment of spasticity, as well as the pain of spasticity.

For ZILRETTA, we will launch clinical programs for the treatment of diabetic patients with osteoarthritis knee pain, as well as a shoulder arthroplasty trial. Roy will comment on these programs as well. We continue to advance our proprietary multivesicular liposome pipeline.

We expect to complete our Phase 1 study of our EXPAREL program for intrathecal administration in the first quarter of 2023.

We also expect to initiate trials for a multivesicular liposome dexamethasone formulation and low back pain in the second quarter of 2023, as well as our 20-milligram multivesicular liposome bupivacaine formulation as a nerve block or a field block for longer-lasting pain, and chronic pain in the third quarter of 2023.

Turning to our earlier-stage acquired assets, we recently finished analyzing data from our Phase 1 studies of PCRX-201 and PCRX-301, which we acquired as part of the Flexion transaction. 201 is a novel intra-articular gene therapy product candidate that provides IL-1RA for osteoarthritis.

301 is a locally administered Nav1.7 inhibitor product candidate formulated for extended release and a thermo-sensitive hydrogel. Due to a lack of clinical efficacy formulation challenges and commercial viability we have made the strategic decision to no longer pursue the clinical development of 301.

Based upon very compelling initial Phase I efficacy and safety data for 201, we are working with the investigators and scheduling an FDA meeting to discuss the regulatory path work forward for osteoarthritis of the knee a very important and exciting addition to our durable non-opioid pain management pipeline.

In addition to this exciting progress, taking place within our earlier stage pipeline, we also have several important near-term low-risk expansion opportunities, within our commercial portfolio to improve patient care for pain management and regenerative health.

Now, I'd like to turn the call over to Roy Winston, our Chief Medical Officer to summarize some of these key value-creating milestones that we expect to deliver in the next year.

Roy?.

Thanks, Dave. This is an exciting time not only for us at Pacira, but for the many patients providers and payers seeking safe and effective opioid-free options for pain management. I'll start with lower extremity nerve block as Dave mentioned. Our two registration studies were both successful.

In our most recent reported study, sciatic nerve block in the popliteal fossa patients, who received a single-dose EXPAREL block has significantly lower pain scores and require significantly fewer opioids than patients who received a bupivacaine block for the 96 hours after surgery.

These results were highly significant with p-values of less than 0.00001. EXPAREL has demonstrated statistical and clinically meaningful superiority in terms of opioid-free patients versus bupivacaine.

In our study is a femoral nerve block in the adductor canal for patients undergoing total knee arthroplasty, the EXPAREL group also achieved significantly lower pain scores, while requiring significantly fewer opioids versus bupivacaine for the 96 hours after surgery. These data were also highly significant with a p-value of less than 0.01.

As for next steps, we will be submitting an sNDA to the FDA for expansion of our label to include both sciatic and femoral nerve block in the adductor canal. With the submission date in the first quarter of next year we are planning for approval in the fourth quarter of 2023.

These studies clearly demonstrate four days of clinically meaningful reductions in both pain and opioids versus the active comparator bupivacaine.

We believe adding these two additional nerve block indications to our label will significantly extend our reach into surgeries of the knee, medial lower leg and ankle, representing in excess of three million additional annual procedures.

We are now working with key opinion leaders to publish these data to deliver strong evidence in the literature and implement them into practice guidelines for EXPAREL as a single-dose nerve block in lower extremity procedures.

On the pediatric front, we now have alignment with the FDA and EMA regarding next tests for adding patients zero to six years of age to our US and EU labels. The study is expected to begin next year and will involve three age-based cohorts. We look forward to minimizing exposure to opioids for this vulnerable population. Turning to ZILRETTA.

We are preparing to launch two label expansion studies next year. The first will be a study in diabetics with knee osteoarthritis and will compare ZILRETTA to immediate-release triamcinolone acetonide.

After analyzing the data from our Flexion study previously completed, we believe there is tremendous opportunity in providing the diabetic and pre-diabetic community an intra-articular steroid that improves efficacy and is significantly safer with reduced glycemic spikes.

We are also finalizing our protocol to study ZILRETTA in shoulder osteoarthritis, after receiving positive feedback from key opinion leaders. This study could make ZILRETTA the first and only approved steroid for use in shoulders. We expect to complete the diabetes trial in 2023 and the shoulder trial in the first half of 2024.

These studies will establish ZILRETTA as the gold standard in patients with diabetes for both knee and shoulder by demonstrating superiority versus immediate release triamcinolone acetonide. Importantly, these two studies may also provide incremental opportunity for enhancing ZILRETTA commercial reimbursement.

We also significantly advanced our regulatory registration activities for iovera° in spasticity. In September, we met with the FDA and now have clarity on study design and pathway to approve for iovera° as a treatment for spasticity.

The study will evaluate iovera° versus sham in adult patients and is on track to launch in early 2023 with enrollment to conclude before the end of the year to support a 510(k) marketing approval.

To remind you, pain associated with spasticity is already currently on label and we started educating physician, specialists around the potential value of iovera° in this setting.

We believe using iovera° to treat spasticity will completely disrupt the current treatment paradigm, bringing tremendous relief to patients and value creation for Pacira shareholders.

Lastly for iovera°, we recently completed enrollment in a study evaluating iovera° as a medial branch block to treat low back pain and expect to report data and launch the new Smart Tips in 2023. With that, I'll turn the call over to Charlie for his financial highlights..

Thank you, Roy, and good morning, everyone. I'll start with an update on sales and margin trends. Starting with EXPAREL. We had a solid quarter with year-over-year increase in sales of 9% despite challenging market conditions.

To-date, we have not seen any impact from new market entrants on our EXPAREL base business or our ability to generate new business, which is not surprising given the role that EXPAREL plays in facilitating the market's ongoing shift to regional analgesia and outpatient sites of care.

With more than 11 million patients treated in the US, a well-established safety and efficacy profile and a significant exclusivity runway providing significant barriers to entry, we continue to have great confidence in the long-term market leadership for EXPAREL.

ZILRETTA continues to be a meaningful addition to the Pacira portfolio with third quarter sales of $26.5 million. We continue to expect improving ZILRETTA sales trends as we broaden education and awareness around its value in treating patients with unique care needs such as diabetic patients.

For iovera°, now that the rollout of the Gen 2 device is underway and we continue the transition of our customer base to this improved device, we expect demand and sales growth to gain momentum going forward.

We also remain optimistic in the iovera° opportunity, new indications such as spasticity and medial branch blocks where we are making new clinical investments. Turning to gross margins.

On a consolidated basis, our third quarter total non-GAAP gross margin percentage was 72%, which is comprised of non-GAAP gross margins of 74% for EXPAREL, 76% for ZILRETTA and 35% for iovera°. For iovera° gross margins include an estimate of the planned cost to replace current Generation 1 handheld devices with the new Gen 2 device.

Third quarter ZILRETTA margins were impacted by the timing of one failed manufacturing line, which aligns with our full year expectations. Excluding this lot, third quarter ZILRETTA non-GAAP margins would have exceeded 90%.

Lastly in the third quarter, EXPAREL margins were impacted by supply chain quality issues with several lot failures caused by faulty – as well as write-offs of certain backup parts previously purchased to mitigate potential COVID-related supply chain risk. These charges were specific to the third quarter with no impact on the lots that were released.

Looking ahead, we expect fourth quarter margins to rebound into the high 70s resulting in full year margins one to two points better than 2021 and then resume at two to three point per year improvement until we reach full year total gross margins in the mid-80% range.

While we are currently not providing 2022 revenue or gross margin guidance, given continued market uncertainties, we remain committed to the transparency of reporting preliminary monthly product sales to share inter-quarter trends with you. We will consider adjusting this practice for all three products as visibility improves. Turning to expenses.

Third quarter non-GAAP R&D expense was $17.6 million reflecting ongoing investments in our clinical stage pipeline. Today, we are reiterating our full year non-GAAP R&D expense guidance of $75 million to $85 million. Our third quarter non-GAAP SG&A expense was $52 million.

We currently expect full year non-GAAP SG&A expense to come in at the low end of our guided range of $220 million to $230 million. Interest expense was $9.9 million for the third quarter of 2022. To remind you, most of the interest expense relates to our Term Loan B financing, which has a floating interest rate of SOFR plus 700 basis points.

The remainder of interest expense is primarily related to our convertible notes. For modeling purposes going forward, based on current interest rates, interest expense will be approximately $10 million per quarter. Other expense was $10.6 million for the quarter and includes a $10 million impairment charge for an equity investment. Turning to taxes.

Our GAAP P&L includes a third quarter tax expense of $2.8 million, which translates into a GAAP effective tax rate of 133%. This was driven by permanent differences related to expenses not allowed for tax purposes, namely the operating loss of our US – our ex-US business and the write-off of the equity investment.

For non-GAAP purposes, our adjusted results reflect an effective tax rate of 29% for the third quarter and 27% year-to-date. We expect effective tax rate for our full year adjusted net income for 2022 of 26%. And lastly, despite challenging market conditions, we delivered another quarter of significantly positive adjusted EBITDA of $55 million.

In summary, Pacira continues to operate from a position of financial strength.

Despite ongoing headwinds, we continue to deliver impressive financial results and remain bullish on our 5-year plan for year-over-year top line growth in the mid-teens in 2023 and beyond, gross margin improvement to the mid-80% range, modest year-over-year increases in operating expenses and adjusted EBITDA margins that exceed 50%.

That concluded our prepared remarks. I'd like to now turn the call over to the operator to begin our Q&A session.

Operator?.

Thank you. At this time we will conduct a question-and-answer session [Operator Instructions] Our first question comes from Gregory Renza of RBC Capital Markets. Gregory, your line is open..

Great, thanks. Good morning, Dave and team. Thanks for taking my question and congrats on all the progress. Dave, maybe more of a question for Charlie as well, I appreciate all the color about the business as you look to fourth quarter and of course 2023.

And while understanding you'll maintain the status quo on the pre-reporting and appreciating the uncertainty with the larger dynamics, I'm just curious, how are you thinking about the process for getting comfortable with predictability and for forecasting in greater increments beyond monthly? What are those pushes and pulls? And how would that process be influenced with the evolving dynamics there? Thank you very much..

Thanks for the question, Greg. What we see in the market still is just not predictable. And what we've seen and even if we talk about recent months we will have a very strong week followed by a week that is not what we were expecting followed by a strong week.

And so what we're really looking for in terms of improving the outlook is, just some consistency on the weekly numbers, so that we can feel like we can give a number with some certainty that we're able to predict what's going to happen in the short-term. And so, we like giving out the monthly numbers.

It does foster a good discussion and an exchange with the analyst community. We would really very much like to be providing annual guidance for revenue. But right now, I can tell you Greg, that I would be comfortable.

And if we were we would have to come with very conservative numbers just because Monday-to-Monday just to give you an example over the last two weeks the delta of difference between those two Mondays was 40%. And so the weeks end up being -- the first couple of weeks in October were not strong at all after a very strong September.

And then, we had a really good last two weeks in October. So I don't know how to carry that forward in an appropriate way to give some confidence to the market when we just see this continued variability. Everything is growing. Everything is doing fine. The business is strong. It's just not predictable on a week-to-week basis..

Yeah. That makes a great deal of sense. We appreciate that. And maybe if I could Dave just sneak one in on iovera°. And certainly nice to see some of the progress with Gen 2 of course and you mentioned of spasticity and the expansion there.

When we think about iovera° contribution longer term and as you have laid out nicely the longer-term top line to 2030 across the various aspects of the business how does iovera° factor into that? I do recall seeing the collective opportunity I think in your past presentations about in excess of $200 million.

I'm just curious, if you had any updated thoughts on those targets. Thanks..

Yeah. Yeah. Thank you, Greg. When we bought the iovera° system from MyoScience we talked about $200 million of the initial indications that we had. I don't think it will be a surprise to anybody that we launched this product twice with a dedicated -- small dedicated sales team that ran into COVID both times.

And so it has not been a straight line and it certainly has not gone as planned. Right now what we see with iovera° is very significant interest in the marketplace and to be quite candid Greg from places that we never predicted when we gave the first indication of $200 million of total value.

So what we see with iovera° is there is a very viable marketplace for blocking the pain signal from a surgical wound or from some sort of pain to the brain. What the investigators in the marketplace have taught us is that there's an even more viable marketplace for blocking the pain signal an average brain signal from the brain to a body part.

And so the treatment of spasticity becomes -- well, I don't want to give you the wrong impression so we have a number of indications for the use of iovera° in pain.

And Charlie and Roy both touched on a medial branch block where we have a separate tip that we are now in human investigations where we can turn the pain signal off for spine surgeries and spine pain and for low back pain.

And we will continue to develop this product as for what we originally bought with a better application of the device, which frankly performed fine in clinical testing. But when we got it out in the marketplace and the guys tried to have it go around curves and stuff like that it didn't work very well.

So the new device is much more predictable and much more consistent in terms of reliability for our customers and that support. When we look at the pain of spasticity that's coming from a marketplace Greg that basically is demanding that we teach them how to turn the pain signal off in these spastic indications for several months.

And so the ad boards that we've had have basically come back to us and said on label for the pain of spasticity and that will allow us to be trained on the device and trained on the techniques while we study the treatment of spasticity.

And as Roy outlined earlier, we think that is a relatively modest sized trial against the sham, so that we can get an indication as a 510(k) device in a relatively short time frame, while we then move on to studying the drugs -- studying the device in comparative trials.

So I would tell you now in the five-year plan without violating any guidance or giving any specific numbers, I would tell you our expectations for iovera° are well-beyond the $200 million that we had when we bought the asset for TKA and peripheral knee pain.

A long answer to a fairly simple question, but I think it's important because there's a lot going on with iovera°. And it's really interesting that when Paul Winston gives a talk anywhere in the world, we know about it within hours that people are calling and they want the units and they want to be trained on how to use this device.

And below what we just talked about spasticity, the world experts in stellate ganglion blockade are very interested in how they turn off the pain signal again an aberrant brain signal to the different parts of the body.

The studied indication will be cardiac dysrhythmias, but there's a lot of applications to come where turning off a brain signal for months turns out to have all kinds of positive implications for patient care going forward..

Thank you. One moment while our next question is loaded. Our next question comes from Serge Belanger of Needham. Serge, your line is open..

Hi, good morning. I guess a question for Dave to start off.

Just to drill down on your prior answer regarding the continuing volatility in the market, can you just give us a little color on what you think is driving that volatility? Is it still staffing shortages? And whether or not your ASCs and HOPDs are operating at capacity?.

Yeah. It's primarily staffing shortages Serge. And when we talk to CEOs and people who are running hospitals and ambulatory surgery centers, staffing both for RNs and for certain areas of the country anesthesiologists is basically limiting the number of procedures they can do.

And the answer to your question is we do see some modest improvement in ASCs and opening on weekends and having longer hours for things like spine surgery and knee surgery where an inability to have nursing coverage for the PACU was really the reason that they were cutting off those surgical procedures earlier in the day than would be normal practice.

We are not back to normal. And we are -- I mean, we see the same numbers that other people see. We get the Kruger report every Friday afternoon.

I would tell you Serge just to add a little color having had dinner with two hospital CEOs in the last 10 days and talking to clinicians every day there is nobody in this marketplace that would tell you that elective surgeries are back to where they were before COVID..

Okay. You talked a little bit about targeting 340B hospitals. Maybe just tell us a little bit about what that represents in terms of the TAM for EXPAREL? And what's the process and potential time lines to capturing that opportunity?\.

So we started rolling it out mid-last month Serge and the response has been actually impressive. We've got several dozen people that have ordered already. There's roughly -- well there's over 1000 accounts who purchased EXPAREL, but who don't buy it through the 340B program who are current customers.

And then there's another 5,000 who are not customers. And so we have an innovation team and a deal desk and they are primarily working with the field force to handle these inquiries as they come in so that we can make sure we get all the appropriate information and we contract with these hospitals for 340B.

So it started out primarily with people that are using EXPAREL, and will just purchase it under this different program under the guidelines of that program and that's not a surprise. And then over the next few months we expect that the number of these hospitals that are not currently purchasing EXPAREL at all will come online.

It's -- I mean our expectation Serge is that this is a very viable opportunity. And just to add a little color to the timing. We now have the 200-liter facility in Swindon. We have another 200-liter facility in San Diego that will be producing product as we go through 2023. That gives us the capacity to be able to make these kinds of changes.

And we also by the way are part of the 340B program through ZILRETTA. So the company already is in a position where it's staffing a 340B opportunity. So it made sense at this time to add EXPAREL on the back side of that. .

Thank you..

Thanks, Serge..

One moment, while our next question is loaded. Our next question comes from Gary Nachman at BMO Capital Markets. Gary, your line is open..

Hey, guys. Good morning..

Hi, Gary..

Can you quantify a bit with EXPAREL, how much you've been penetrating in women's health and also with peds? Are you seeing good uptake there relative to your expectations? Are you seeing any challenges in those markets? Maybe just talk about that a little bit.

And then how much would lower extremity nerve block help you in terms of the market opportunity relative to the upper extremity nerve block? Is it all the same anesthesiologists that would be doing those? And do you think it would be adopted relatively quickly if you get that indication?.

Yes. Thanks, Gary. So let me take them separately. So we got approval for pediatrics in April of 2019. And so where we were -- where we focused was on the 64 biggest pediatric hospitals in America and we've made good progress there Gary.

It's been largely around some special situations largely scoliosis and spine surgery and in the Shriners' system around things like cleft palate and clubbed foot and things like that.

And the immediate uptake was around scenarios where these kids would have been exposed to opioids repeatedly over a period of the next few years right, because they're the kind of surgical procedures that require more than one visit to the OR.

What we see now is that that's expanding and we have people who are working with their -- the teams that are requesting that we teach them about appendicitis and different chest surgeries.

And the driver -- and I'm not sure we fully understood this Gary is really same-day surgery that there are NPs even more than in adults there is a desire to treat these patients on a short-term basis, but there was a real concern about whether mom and dad could actually handle the pain profile without the expensive use of opioids in that first full surgical night.

So a number of centers are working on protocols and need to get a little bit of experience so that they have some confidence that the blocks that they're using and the infiltration that they're doing is actually going to provide pain control for that first post-surgical night for all the obvious reasons, right? In women's health, a little bit of a different situation.

It is obstetrics and places like MD Anderson and Mayo and Cleveland are leading the way here. What we see is when we train these folks and generally it's around C-section that's the motivator here is a shorter-term stay for a planned obstetric surgery right? Mom and baby don't want to be in a COVID environment.

And we still don't have a system where we can do it on an outpatient basis but we do have systems where we can shorten the stay, which is the best we can do today and what people are really interested in.

And when we train these folks you see a pretty significant halo into pec blocks for mastectomies and plastic surgeries associated with reconstruction breast reconstructions and things like that. So, it's a process. It's continuing to grow.

I don't we're not dissatisfied with it Gary, but it's in the mix of all the other things that are going on in the marketplace. We're it's our hospital customers financially are in a difficult position. Staffing remains a major issue. And so there's a lot of things going on here.

So, I would say given the environment that we've launched into I think we're very happy with 9% growth so far this year and women's health and pediatrics are both a significant part of that. Lower extremity nerve block is a little bit clear.

And I say that because in many situations and I would tell you in my old situation the hospital pharmacy or a young anesthesiologist is looking for FDA approval before they're willing to use a new product. Very different than it was 10 years ago when the docs were using a product because they knew it worked.

Now they're looking for the cover of an FDA approval. So when we look at lower extremity nerve block our business in foot and ankle is relatively nascent. I mean it's providing an opportunity there for 96 hours of pain control is really an advance here. And we think that that's a viable alternative.

A 10 cc dose in adductor canal block actually mimics best practice in the marketplace today. The folks that are doing 15 18 procedures are all doing 10 mL adductor canal blocks and then they're doing another 10 mL as a periarticular injection into the posterior capsule and into the periosteum.

So, in many cases they're still using a 20 mL dose 10 cc into the adductor canal and then 10 cc to cover the posterior capsule pain. And so it's and the opportunity size as Roy pointed out there's three million procedures in the lower extremity. Just to be very clear EXPAREL is already used in roughly 300,000 of those cases.

So the delta of new opportunity is roughly 2.7 million patients and this will go much quicker than peds or lower extremity nerve block because the marketplace is already using EXPAREL as a 10 mL dose in the adductor canal. This will take the opportunity for pharmacy to say it's not available because it's not approved.

And some of the younger folks who actually are looking to the FDA for guidance will also be able to use the product. So this will go much faster than the other reference procedures we had..

Okay. That's really helpful. And if I could just squeeze one more quick one on ZILRETTA. Just for current use how much of it is already being used with diabetic patients? I know that's something that previous company had talked about.

Is there any awareness of the potential benefit there with diabetics? I'm just curious how important you think having that diabetic data will be to accelerate that product?.

It's very surprising Gary how little understanding of the glycemic spikes that are being caused by IR triamcinolone acetonide. It's very well understood by the endocrinologists and the folks who are helping us write these protocols are actually treating these diabetic patients when they end up in the ICU, because of these glycemic spikes.

Even our KOLs even some of the folks that are most friendly to the company and help us with all of our protocols had no idea that this was a clinical issue in the marketplace. So we think it's quite important. And when the docs have seen the data they've said, well, hell, this is crazy.

I'm going to start treating my diabetic patients, especially because we have a J-code, right? So they can treat in the office. They have a J-code. It's an easy way out for them relative to all the displacement in that marketplace, because of the HA issues, and some of the other things that are going on.

So we think that this is going to be really important for patient care. And just to put a stamp on it here about 30% of the patients who are -- who have adult OA knee pain, who are part of the medical system and being treated by physicians are diabetics. So it's a big number. It's millions..

Yes. Okay. Great. Thanks, Dave..

Okay..

Thank you for your questions. At this time, I would like to turn it back to David Stack, Chairman and CEO for closing remarks. .

End of Q&A:.

Thank you Amber, and thanks to all on the call today for your questions and your time. As you can see, we're making great progress on all fronts and 2022 is setting the stage for an even more exciting 2023 and beyond.

Moving forward, with EXPAREL continuing to drive significant and durable operating cash flows, we're well positioned for near and long-term value creation by growing our commercial portfolio through increased market penetration, new indications and enhanced reimbursement, while simultaneously advancing new product development opportunities.

The global acknowledgment of the need for non-opioid pain management is unequivocal and our leadership position in this field offers us significant and growing opportunities for years to come. We look forward to keep you updated on our progress. Next for us is, the Jefferies Conference in London and the Piper Conference in New York. Thank you.

Stay well. Bye for now. .

Thank you for your participation in today's conference. This does conclude the program and you may now disconnect..