Hi, good morning. Welcome to the Jefferies Healthcare Conference in New York, day one. My name is Dennis Ding, biotech analyst here at Jefferies, and I have the pleasure of having Pacira BioSciences CEO Frank Lee here with us. Welcome. Frank, maybe to kind of kick things off, just give a brief overview of the company for those who aren't familiar. Just talk about the business and how things have evolved over the last year or two. Great. Thanks for the opportunity, Dennis. Great to be here. Pacira BioSciences, we're a leader. We're the leader in non-opioid pain management therapies, and you might know our market-leading products, Exparel, which is used for postoperative pain. It's a market leader there. We have ZILRETTA, which is the only long-acting FDA-approved steroid that lasts for up to three months. We have Iovera, which is a device that uses a process called cryoneurolysis, freezing the nerve to provide immediate pain relief. All three are market-leading products. We're in non-opioid pain management therapies, and these are the products that we have now, but we're shifting our focus as well now to use some of the proceeds from these market-leading products to invest in our pipeline going forward. We can talk more about that. Great. A lot of investors are talking about Exparel and the settlement situation that happened recently. Maybe help frame the settlement and how you view the settlement and how that kind of shapes the trajectory of the company over the next five, 10 years. Yeah. First, let me talk a little bit about Exparel. I mean, it's a wonderful product. I've known so many people now that have used it, and it helps. Think about this now. When you have surgery, the first few days after surgery are the worst. To the extent that you can mitigate some of that pain, all that pain, without using opioids, that's a big plus. In fact, the government recognized that as well. We'll talk more about the No Pain Act that provides additional reimbursement, but that's very, very important. For Exparel, there was a paragraph IV challenge a few years ago, and that was an overhang on the stock for a while, as we all know. As you might recall, last year, there was a ruling on the first patent. Now, of course, there are many patents that were disputed at that point in time, the first patent and the end approval. What we're very pleased about is we took a very disciplined approach to getting certainty for the company because this is the market-leading and lead product for the company. In April, we announced a very positive settlement. For those of you that know settlements, this one's quite unique in the sense that it's a volume-limited settlement. What that means is we have total exclusivity until 2030, and then between 2030 and 2039, there are different levels of market share that the generic is entitled to. Starting with high single digits, starting at 2030, that'll grow over the next four years until, let's say, roughly a third, and that'll climb to high thirties by 2039. What that means is we have visibility on our market-leading product for the next 14 years, and for the next five, we have total exclusivity in the marketplace. We think that's a very, very positive settlement, not only because of the certainty and visibility it provides, but it takes the overhang off the stock, and it still provides substantial cash flows over the next 14 years to reinvest in the pipeline. Right. I guess in a most conservative case, one would assume that the generic competitor would achieve some of those max volume share outlined in the settlement, but that may not necessarily be your base case, right, in that even though it might be high single digits in 2030, they may not achieve that. Maybe talk a little bit about your confidence around the competitor not getting to that limit. You know, what I really appreciate about the volume-limited settlement is it's clear how much volume each party will get. So there's good discipline, and we expect good discipline as we think about pricing. There's really no incentive to drop the price to the floor when you already know what volume share you're going to get. So we expect good pricing discipline, and we expect to continue to grow the market, as well as our broadly speaking share, because if you think about this now, we're very underpenetrated with this product, Exparel. And if you take a look at our TAM, it's still in the high single digits. So we still see, I think, a good possibility here for not only good pricing discipline in that 2030 to 2039, but also expanding the market. Okay. You mentioned pricing discipline multiple times. What does that mean exactly? Are you talking about keeping price generally flat starting in 2030, or there would be a little bit of erosion, but it's just kind of modest year over year? It's not like the typical generic pricing erosion that you would see normally. Yeah, it's hard to predict, Dennis, at this point in time. What I will say is if you take a look at the traditional models, and we're all aware of these traditional models, and there have been a number of studies done, the first generic entry in a classic non-volume-limited entry scenario, you might expect to see up to 15% price erosion. This is very different. This is very different. There's only one generic, number one, and it's volume-limited. I think that's more on the more pessimistic side as we think about that kind of an assumption, given the volume-limited scenario here as opposed to the open entry. Yeah. Okay, that's very helpful. If we can talk a little bit about No Pain, because that's obviously going to be a tailwind for you guys. Remind us what that is and just whether or not you guys are seeing kind of early signs of the benefits of No Pain Act in the first half of this year. Let me set some context here. The company's been around for a very long time, a recognized leader in this non-opioid pain management space. Early on, the company recognized that these surgeries were leading to an epidemic. They were contributing to this epidemic of opioid abuse. Working with patient advocacy, working with government stakeholders, physicians, patient advocacy, the company played a central role in getting this No Pain Act passed. What does it say? It basically says the following. Number one, pre-No Pain, these sorts of innovative medicines were all bundled inside one payment. If you think about getting a knee replacement surgery, it did not matter what kind of drug you were provided for postoperative pain, you just basically got one payment. Okay? There's an incentive there to use, or let's say a disincentive there to use, let's say, more innovative products that might be at higher cost or price. Although those products now will have downstream benefits of less opioid abuse, less ED visits, less side effects because of opioids. There was a recognition of that. When the No Pain Act was passed and enacted starting January 1 of this year, what did it do? If you think about the 18 million procedures a year that could qualify for, let's say, a use of these kinds of drugs, about 6 million of those are covered under CMS. Okay? What CMS said is, look, in the outpatient setting, in addition to the bundled payment, we'll provide an extra payment at ASP + 6% for innovative products like Exparel. In fact, in the No Pain Act, there were 11 products that were approved under No Pain. We have two of them, Exparel and Iovera. That is what that is. From the provider and institution perspective, they still get the bundled payment, which is good. On top of that, to the extent now that patients are treated in the outpatient setting, HOPD, ASC, they will get the ASP + 6% model, which many of you know from immunology, oncology, any place where physician-administered products are used, you have an acquisition price and you have the ASP + 6%. Now it becomes perceived more as a financially beneficial argument directly in terms of the product itself. It also provides all the benefits that I talked about post-leaving the hospital or the ASC. Okay. The No Pain Act is only for CMS, right? The six out of the 18 million procedures. In terms of the other 12 million, that's non-CMS, that's more commercial. Yeah, yeah, it's a good question, Dennis. There's always a mix. There's always a mix here in terms of CMS patients and commercial patients. Commercial patients tend to be the majority. What we're really encouraged to see is commercial payers starting to come on board and starting to basically write policies that mimic the CMS policy or better. This will take time. When we take a look at other market examples and analogs, first there will be a CMS ruling on the reimbursement, and then over time, it may take a year or two, you start to see commercial payers following suit. What I'm very pleased about, and we'll update you after the second quarter is done in our earnings call, is that we're starting to see, I think, good traction here when it comes to commercial payers. We'll be able to share that with you. We've been very pleased with how quickly commercial payers are coming on board. Now, that said, and I've always said, you can go back to the transcripts a year and a half ago, that based on our market research, it will take time for our customers to adopt No Pain. What we're seeing now is the smaller customers, let's say the community centers, community hospitals, small ASCs are adopting No Pain. The larger hospitals, the larger IDNs will take more time to adopt because you might imagine it's a very complex system there. That's what we expect, that it'll take some time, and we've always said probably around the second half of the year is when we'll start to see some really meaningful uptake. That said, as we said in our first quarter earnings, we did see 7% growth year over year on average daily sales because now there are different selling days, right, year over year versus last year. Typically, we've been bumping around at about 3% or so prior to that. That is a good early sign. How much of that do you think comes from some of these early No Pain Act or No Pain Act-like tailwinds in Q1? Yeah, we're definitely seeing that. We're definitely seeing that. As I mentioned, where we see growth is in the smaller accounts where they can move quickly, more quickly. We're getting that feedback back from the field. I would say that. Now, based on some improving commercial payer landscape, you might think about where there are geographic areas where a tipping point is starting to happen. What do I mean by that? If you're in a hospital and only, let's say, a small proportion of your patients, commercial payer and CMS are covered, then you're not going to change your practice. If it's CMS and a decent number of other commercial payers that represent now the majority, let's say, of your knee replacement surgeries, now you're going to change your practice, if that makes sense, right? There's a tipping point, and I think those tipping points will start to happen in various geographic areas as we start to see commercial payers come on board over time this year. In terms of Exparel, have you commented on the exposure to CMS versus non-CMS in terms of percentage of revenue? I'm just trying to figure out how levered are you to the CMS No Pain Act situation versus the commercial side? Yeah, it's roughly the split that we talked about, right? Let me just put some context around this. When Congress took a look at this and CMS took a look at this, what was very clear is that this is going to be budget neutral or better. Now, think about that for a second, okay? Budget neutral or better. This is a situation where CMS is paying more, not less, because of that. I really think that there's an opportunity here not only to sustain No Pain, but to broaden No Pain, to not only outpatient setting, but also include the inpatient setting. I think there are opportunities in Medicaid as well, because ultimately, this is good for patients. This is good for the health system. It's good financially. It's good from a patient outcomes perspective. If you've ever taken care of a patient who has just had knee surgery or knee replacement, shoulder surgery, etc., you will appreciate the fact that they're not experiencing pain for the first three days and they're not on opioids. I would talk to somebody who's had some recent surgery about this, because when people try Exparel, what they'll tell you is, "I'm not having surgery on the next knee without that thing." Some people will say, "I had one without it, and I just had one somehow with it, and it was a world of difference, a world of difference." I'll tell you that we are mounting, we are accelerating our efforts to collect data to support this. We have the largest registry of its kind to look at knee surgery and replacement. It's called IGOR, I-G-O-R, all right? It'll have over 3,000 patients in it by the end of this year, and it'll continue to grow. We are working with our key accounts to collect additional information, because we firmly believe that this No Pain Act is going to have a very positive impact on society, on our budgets, and on patient outcomes. Great. Maybe if I can ask a detailed question just specifically on gross margins, right? Your guidance this year on gross margins does look a little bit conservative given what you guys have shown in Q1. Plus, I believe Exparel is, or you guys will no longer be paying the low single-digit royalties to RDF. Talk about the pushes and pulls around gross margin guidance, if there's any upside that we should be expecting later this year. As you might recall, we rolled out our five by 30 path to growth starting early this year. Expanding gross margins by five points in this timeframe between now and 2030 is one of our key goals that we put a stake in the ground. We are very thoughtful about that as we rolled out the five by 30, and we should talk about the rest of it as well. With respect to gross margin, first of all, we had a very positive first quarter. I think that in terms of changing any guidance, we are going to wait on that. Obviously, there has been a little bit of uncertainty in headlines as it relates to the life sciences industry in general about taxes, tariffs, and various other things. Once that is settled, I think we will have better visibility. What I am very pleased about are our progress against our five by 30 objective of five-point expansion by 2030. What do I point to? Number one, as you mentioned, we won our RDF litigation. What that means is we no longer pay low single-digit royalties on Exparel going forward, period. That helps out the game. Number two, as you may know, we have two manufacturing sites, one in Swindon, U.K., and the second one in La Jolla and San Diego. In San Diego, we've now completed the transition from 45 L- 200 L facility. What that means is we're going to be much more efficient. We further expect over this timeframe that we're going to realize efficiencies on the margin because of that. That is not even speaking to volume. As we have always said, it is really going to be the volume that drives the margins. Even without the volume, what I am telling you is the team has been working very hard to make sure that we can achieve or exceed that growth in margin. Okay. We can take a step back. You mentioned your 5 by 30 and your 500 basis point improvement in gross margins. What are the other four components of the 5 by 30? Yeah, thanks for that, Dennis. When we rolled that out, we had actually a very positive reaction from the investment community. You might recall back in January, we rolled this out at a different bank's meeting, Dennis. No offense taken. Yeah. What are those five things? Those five things are, number one, by 2030, we're going to have more than 3 million patients treated with our products. We're sitting at about 2.4 right now. Second is we said we're going to have double-digit growth between now and 2030, and we're well on our way. We expect that come towards the end of this year, we'll be hitting that stride for all the reasons we talked about. Third is that we're going to expand our gross margin by five points. We just talked about that, and we're well on our way because of not only the 45-200 L transition, but also we won the case, which means no more low single-digit royalty on Exparel. That's really focused on our current business. What I'm also very excited about is what are we going to do about our future business? The last two relate to that. By 2030, to have five novel programs in the pipeline. We've already got a very good start to that. We made an acquisition earlier this year of a company called GQ Bio, and we should talk about this. They have a very unique platform, and we have a lead asset in development, PCRX 201. That's the first product, first novel program out of five for osteoarthritis of the knee that we've shared a number of times now, very compelling data. We'll be sharing our three-year data here shortly. Let's talk about 201 here in a second. Finally, the fifth one is around partnerships. Partnerships. What do I mean by partnerships? Number one, you may not know it, but we only sell our products here in the U.S. We have an opportunity with partners, not ourselves, by ourselves, with partners to realize the value of our products outside of the U.S. We are in the process now of engaging a number of potential partners to put that in place. Number two, we believe our products can be used very broadly across lots of different audiences here in the U.S. You talk about Exparel, you talk about ZILRETTA and Iovera. These are products that could be used in a number of different settings, accounts, specialties. We believe there is an opportunity there to have partners that expand our reach, to go to places where we do not go. We also now are open to partnerships as we think about balancing risk in the portfolio and perhaps also in areas where our products, the know-how there does not exist inside the company, but exists somewhere else. We think there are both commercial and development partnerships that will count towards that five. Those are the five that we have outlined, and we are already making good progress against those five objectives that we outlined. Great. In terms of the geographical partnership piece, obviously, a partnership there and royalties to you would be highly accretive, right? Can you just help us understand as it relates to Exparel, OUS, and things like that? What are some of the regulatory or reimbursement hurdles that may take place OUS? Yeah. From regulatory pathway, that's not an issue. Our products are approved in most of the countries. It's really a matter of making sure we're very smart about which countries, because as you know, the markets outside the U.S. are very different country by country. My expectation here is it's not all the countries. It's a subset of countries in each major geographic region. If you take a look at other non-opioid pain, kind of broadly that therapeutic area, other companies, as an example, you'll note the kinds of markets that they're in. We think it'll be an important opportunity. It certainly won't be the size of the U.S., but it'll be an important opportunity with the right partners across major geographic areas, recognizing, again, it won't be all the countries. It'll be some of the countries. That's number one. Number two, let me come back to that is ex-US. In the U.S., I would look at partnerships in a couple of different ways. Number one, we spent a lot of time and effort this past year to stand up three separate sales forces. Previously, we sold all three products under one sales force. Now what we have done is set up what we call a commercial, medical, and market access powerhouse. Now we have three separate sales forces, one selling Exparel, one selling ZILRETTA, one selling Iovera. They have capacity to carry other products in the bag. As we think about business development opportunities, we also look at those things that might fit neatly into the bag that could provide synergies. As we know, selling two or three products is synergistic because these products work together to help each other product in the bag. We're open to that possibility as well. I'd look at partnerships in two different ways that way. In terms of overall capacity to do a partnership like that, at least in the U.S., how much capacity do you have? As I mentioned, we have just one product, I'd say just. These are important products. We have second and third position available in these sales forces. As I mentioned, it's not just sales force. It's also market access and medical. These are very, very important capabilities that we stood up this year. Sorry, I guess from capacity, I mean in terms of how much additional debt or cash do you think you guys would need to do a deal like that? Oh, I see. The firepower, if you will, right? We're in a very strong position. We've got Sean here in the audience, our CFO. You may know that we reported approximately $500,000,000 in cash. We've got a convert coming due later on in the year. We're throwing off a fair amount of cash each year as well. We're not at all concerned about firepower. We have plenty of it, given the kinds of opportunities we're looking at. Let me come back to we're not going to be swinging for the fences here. When we look at this market right now, there are, I would say, more disciplined ways to grab a hold of some of these products and put them in the bag, as well as now in the pipeline, we're going to be looking for more de-risked assets where our capabilities can add to the development of that product. I want to come back to we're going to take a very disciplined approach. We're not going to be swinging for the fences with huge acquisitions or new targets, et cetera. Yeah. Okay. In the last few minutes, maybe we can talk about PCRX 201, just talk about why that asset and why do you have conviction around that asset and maybe the development path ahead in terms of clinical trials and things like that. Yeah, it's good we're ending with this because I have to tell you, when I first came on board as CEO about a year and a half ago, I did a portfolio review. I said, absolutely not, we're not doing this. We're not going forward with PCRX 201. It's gene therapy. We don't do gene therapy, period. I've been involved in this industry for over 30-plus years. Gene cell therapy, monoclonal antibodies, small molecules, everything. What I saw in this one compelled me to change my mind. What was that? Number one, the data. We have 72 patients, and it's very compelling data. Check our investor site. You'll see a number of links. What that says is instead of just a few months of relief, we're talking about years of sustained benefit, both in terms of pain and stiffness. That is not a placebo effect, okay, because we've looked at placebo effects, and it's usually about two points on WOMAC, and it wanes over six months. What you see on this one is four points of benefit on WOMAC, and it's sustained for two. In fact, the three-year data we'll be presenting here shortly. The data convinced me. Secondly, what I really like about this approach to gene therapy, it's really more of a, I would say, a delivery platform, is it's local, all right? Think about that now. This is local. It's injected right into the knee, and it stays there. That is very favorable when you think about safety and adverse events, okay? If you stand back from it, I really believe this could be the first gene therapy for the masses, for prevalent populations. Now, with an asterisk, which is we're going to be administering this locally. We will not be infusing patients with this. If you think about other joints of interest, other places where local administration could be useful, that's going to be very, very important. I'm excited about this. We've already started our phase two study that'll read out end of next year. We're very excited about this one because that one will include not only the active comparator, but also two other arms in terms of two other doses. Finally, when you take a look at this, this pathway is de-risked. There are two products already that are approved for this pathway, IL-1. All this is doing is providing some instructions for the body to do what it naturally does to produce more IL-1 Ra to block that pathway. The data demonstrates that. Okay. In terms of actually filing for approval, what do you guys need? Do you need a big phase three? Yeah, we'll have to see. We'll have to see because we have RMAT status, which is, as you all know, equivalent to breakthrough, similar in EMA as well. We have to stay close, and we will. We have that ability to do so. We're also looking at other programs using this platform. This platform, as you might think about, is more of a delivery vehicle for the instructions for the cell to produce whatever it wants to produce. We see a lot of potential here. As we move forward, we'll share with you some other ideas we have that came with the GQ Bio acquisition in addition to now some really talented research folks. Okay. Last question, do you see 201 being a meaningful contributor to your five by 30 target? We do. It is clearly one of the novel programs for the pipeline. Based on the GQ Bio acquisition and the further potential of this platform, it could also add some more programs to that goal. Yeah. Perfect. All right. That is all the time that we have. Thank you so much, Frank, for joining us. I hope you have a great day of meetings. Sure. Thanks, Dad.