Pacira BioSciences - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 delivered mixed results: EPS beat but revenue slightly missed consensus; non-GAAP gross margin raised for the year on manufacturing efficiencies and RDF royalty elimination.
• Revenue was $181.1M vs consensus ~$182.8M*, driven by EXPAREL volume growth (+6% YoY) offset by vial mix and GPO discounting; non-GAAP diluted EPS was $0.74 vs consensus ~$0.71*, a beat.
• FY25 guidance tightened: total revenue narrowed to $730–$750M (from $725–$765M) and non-GAAP gross margin increased to 78–80% (from 76–78%); R&D, SG&A, and SBC ranges reiterated.
• Strategic catalysts: J&J MedTech co-promotion expected to materially extend ZILRETTA reach; new $300M revolver improves flexibility; patent and legal milestones reinforce EXPAREL runway and margin trajectory.

What Went Well and What Went Wrong

What Went Well

• EXPAREL volume growth of 6% YoY (highest in eight quarters) supported EPS beat and raised gross margin outlook; “we delivered several key milestones to advance our five-by-30 path to growth”.
• Non-GAAP gross margin improved to 82% (Q2), aided by large-scale 200L manufacturing and decommissioning of the 45L suite; full-year margin guidance raised to 78–80%.
• Market access momentum: >40M commercial lives now covered; targeting ~60M by year-end and ~100M total lives (commercial+government), creating leverage for broader EXPAREL utilization.
  Quote: “We are seeing encouraging momentum… EXPAREL is poised for sustainable growth and expanded market leadership” — CEO Frank Lee.

What Went Wrong

• Top line missed consensus as vial mix and new GPO discounting modestly pressured net sales despite stronger volume growth.
• Operating expenses rose materially (SG&A $88.6M vs $68.1M YoY; R&D $28.2M vs $20.3M), reflecting investments in commercial, medical, market access, and pipeline advancement.
• EBITDA down YoY (adjusted EBITDA $54.3M vs $62.1M) on higher opex and transitional effects; management emphasized cost actions including workforce optimization and suite decommissioning.

Transcript

Speaker 7

Okay, and thank you for standing by. Welcome to the Pacira BioSciences Q2 2025 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press *11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press *11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Susan Mesko, Head of Investor Relations. Please go ahead.

Speaker 8

Thank you. Good afternoon, everyone. Welcome to today's conference call to discuss our second quarter 2025 financial results. Joining me are Frank Lee, Chief Executive Officer; Brendan Teehan, Chief Commercial Officer; and Sean Cross, Chief Financial Officer. Tony Molloy, Chief Legal and Compliance Officer, is also here for today's question-and-answer session. Before we begin, let me remind you that this call will include forward-looking statements subject to the Safe Harbor provisions of Federal Securities Law. Such statements represent our judgment as of today and may involve risks and uncertainties. This may cause our actual results, performance, or achievements to differ materially. For information concerning risk factors that could affect the company, please refer to our filings with the SEC. These are available from the SEC or the Pacira BioSciences website. Lastly, as a reminder, we will be discussing non-GAAP financial measures on today's call.

A description of these metrics, along with our reconciliation to GAAP, can be found in the news release issued earlier this afternoon. With that, I will now turn the call over to Frank Lee.

Speaker 7

Thank you, Susan, and good afternoon, everyone. I'm pleased to report that the first half of 2025 was marked by solid execution across our corporate, clinical, and commercial initiatives. The stage is set for accelerating top-line growth in the second half of the year, and importantly, we delivered several key milestones to advance our 5x30 path to growth and value creation. To remind you, this plan supports two broad strategic imperatives: first, growing our strong commercial-based business, and second, advancing an innovative pipeline of potentially transformative assets such as PCRX-201.

Notable second quarter accomplishments include the following: improving EXPAREL performance with 6% year-over-year volume growth, the highest in eight quarters, strong commercial progress allowing us to reiterate and narrow our range for revenue guidance, favorable gross margins supporting an increase in guidance, enhanced capital structure and liquidity with a new $300 million revolver and significant reduction of debt, and finally, disciplined strategic capital allocation with the repurchase of $50 million of common stock. Brendan and Sean will share more specifics on the quarter shortly. I'll begin with a high-level overview of our commercial portfolio, where our three best-in-class products continue to generate significant cash flow. Our flagship product, EXPAREL, in the first half of 2025 was marked by solid execution across three priorities: market access, awareness, and utilization. We now have a strong base to build on, and we're seeing encouraging momentum across key leading indicators for EXPAREL.

On the market access front, we continue to advocate for expanded patient access to opioid-sparing pain therapies. To that end, we're pleased to see a new policy outlined by CMS in its preliminary rule for 2026. CMS is proposing to completely phase out an inpatient-only list over the next three years, starting with the removal of hundreds of procedures in 2026. In parallel, many of these procedures will be added to its list of procedures covered in ambulatory surgical centers. We believe this will enhance the EXPAREL market opportunity in the outpatient settings. On the IP front, our legal team secured a favorable re-examination of our 495 patent from the U.S. Patent and Trademark Office. Importantly, during this process, we amended the patent's claims to add volume limitations and to address other issues noted in the New Jersey Court's opinion last June.

The 495 patent will be reissued shortly, and we believe it will be the strongest in our heuristic asset family of patents. In parallel, the team continues to innovate and expand our heuristic asset and IVRA patent families with two new patents. Both claim EXPAREL composition and are listed in the FDA's Orange Book with exclusivity into the 2040s. Shifting gears to strategic partnerships, a key component of 5x30 with an objective of five partnerships by 2030. We recently executed a potentially transformative collaboration with Johnson & Johnson MedTech for ZILRETTA. We believe this will significantly expand our reach and patient access for ZILRETTA. The proven long-lasting benefits of ZILRETTA and its distinct mechanism of action make it an ideal addition to the Johnson & Johnson MedTech's existing portfolio of OA pain solutions. Because there's no one-size-fits-all for treating patients suffering from OA pain, a personalized approach is essential.

With a highly complementary non-opioid option, the Johnson & Johnson MedTech team would better support multiple treatment paths and improve the patient journey. For Pacira, this collaboration essentially doubles our sales calls for ZILRETTA, which is a promotion-responsive product. It gives us access to a well-established team and an extensive customer base. These relationships span a variety of physician specialists beyond orthopedics, such as sports medicine, osteopathy, pain management, and rheumatology. We believe this will meaningfully accelerate the ZILRETTA growth trajectory in an efficient manner. As the gross margins enhanced manufacturing efficiencies, it allowed us to increase our full-year guidance. This is a result of a multi-year investment in our 200-liter facilities in Swindon and San Diego. These suites provide ample capacity to meet demand with more favorable cost structure and manufacturing yields. Carrying out our pipeline, we're focused on becoming the therapeutic area leader in musculoskeletal pain and adjacencies.

These are large markets with high unmet patient needs. Our two registrational studies for ZILRETTA in the shoulder OA and iovera in spasticity are progressing according to plans. To further solidify our leadership in opioid-sparing innovation, we're advancing innovations in Genicular Outcomes Registry, or IGOR. Pacira designed this comprehensive prospective observational real-world study in the interest of science, not as a health authority obligation. OA is a unique condition that patients live with for decades and receive a myriad of pain treatments as their disease progresses. IGOR is positioned to provide in-depth insights into the patient journey, and we're capturing clinical and economic data as well as patient-reported outcomes. Its potential for meaningful insights is better than any known OA registry of its kind. With over 2,500 patients enrolled to date and growing, IGOR is now bearing fruit. Recent and upcoming publications are further reinforcing the value of our products.

In addition, we believe the insights gained from IGOR will support much-needed innovation and new product development for treating OA pain. PCRX-201 is a great example of innovation that we believe has the potential to revolutionize the treatment landscape. Clinical data continue to underscore the promise and disease-modifying potential of PCRX-201 and the HCAD platform. In June, we presented three-year follow-up data at the European Alliance of Associations for Rheumatology Conference. Very few OA studies reach such a milestone for study duration. Results showed that a single intra-articular injection of PCRX-201 was well tolerated with sustained efficacy through three years. In addition, we're making great progress enrolling our phase 2 Ascend study with enrollment in Part A on track to conclude by year-end. Beyond PCRX-201, we have a promising portfolio of other HCAD platform-based assets that may have disease-modifying potential in other musculoskeletal diseases and adjacencies.

We look forward to sharing more as the year progresses. In summary, this quarter is marked by solid execution across corporate, clinical, and commercial initiatives, as well as delivery of key milestones that advance our 5x30 strategy. With that, I'd like to turn the call over to Brendan to share more details on our commercial performance on the second quarter. Brendan?

Speaker 1

Thank you, Frank, and good afternoon to all joining us today. I'm excited to share a few highlights of the strong progress we've been making on the commercial front. Significant second quarter revenues were driven by improving EXPAREL volume growth of 6%. This is a twofold increase over the 3% year-over-year growth in the first quarter of 2025 and the second quarter of 2024. As Frank mentioned, during the first half of the year, we were sharply focused on establishing a foundation to support sustainable top-line growth. We made great strides expanding physician and payer awareness around no pain. As you know, this is an important shift in reimbursement policy and represents a significant opportunity to broaden EXPAREL utilization in outpatient procedures. As expected, we are seeing robust momentum from leading indicators as we head further into the year.

These data reinforce our confidence that EXPAREL is well-positioned for steadily improving year-over-year growth as the year progresses. I'll start with market access, where we've made terrific progress that is driving change. In addition to clinical value, accounts consider market access for their specific patient population when making decisions. Here, we're focusing on highlighting EXPAREL's clinical and economic value to national, regional, and local commercial plans with real-world evidence. We're excited to report we are tracking ahead of plan and are maintaining a strong pace expanding our commercial coverage map. We currently estimate more than 40 million commercial lives now have access to EXPAREL via separate reimbursement outside of the bundle. We'll continue our efforts to expand access, and we are on track to reach 60 million covered commercial lives by the end of this year.

This positions us to exit the year with a total covered population of nearly 100 million lives across both commercial and government payers. As we gain critical mass of coverage, we're creating increased leverage amongst our practices for broader EXPAREL utilization. Importantly, our payer progress has been strategic, focusing on key markets with high procedural volumes. We've prioritized our top five states, which collectively account for roughly 40% of EXPAREL volumes. We are steadily expanding coverage and estimate that we will soon have the majority of lives covered in these top states. Coupled with this progress, we continue to see strong and growing utilization of the EXPAREL J code with an increasingly favorable payer mix. We're also utilizing our strategic pricing programs as important tools to expand patient access. Through these preferential pricing programs, healthcare systems can afford the opportunity to be at the forefront of opioid-sparing pain management.

On the GPO front, we're excited to have signed our third partnership in the second quarter, and it's off to an excellent start. With this agreement, we now have more than 80% of our EXPAREL business under contracted pricing, which is predicated on driving volume growth. Our pricing strategy is performing according to plan, with our contracted business delivering high single-digit volume growth thus far. We expect this to accelerate over time and with only a modest impact on net sales dollars. Switching gears to awareness, our market research is showing increasing awareness among formulary decision-makers, namely surgeons and anesthesiologists. As a reminder, it will take time for broader market adoption. Of those who indicated their facility would adopt CMS reimbursement guidelines, approximately 75% reported implementation could take six months to a year.

Approximately 60% expressed a willingness to place EXPAREL on formulary in light of separate reimbursement, with the highest level coming from surgeons and anesthesiologists. Importantly, these key physician stakeholders are critical voices in driving institutional change, with a growing number already taking first steps, such as P&T committee meetings and reevaluating formulary status. This research aligns with the real-time EXPAREL utilization data we're seeing in the market. Faster adoption is taking place within community hospitals and ambulatory surgery centers, where we're seeing high single to low double-digit volume growth. Decision-making in these settings is more streamlined, enabling faster adoption to take advantage of the no-pain value proposition. Beyond the early adopters, year-over-year growth in the hospital setting has improved from a low single-digit percentage to a mid-single-digit percentage, with the academic segment returning to growth.

We've also secured multiple formulary wins at large integrated delivery networks and major national healthcare systems. These accounts are delivering an early lift in volumes after more fully understanding the value of EXPAREL unlocked by no pain. We expect these trends to accelerate as expanding commercial coverage further enhances the value proposition and drives policy change. Turning to our other products, as you may recall, we started the year with a new sales team supporting ZILRETTA and iovera. The team has begun to hit its stride, and we are confident these products are back on track for improving growth as the year progresses. We look forward to the second half of the year and reporting additional commercial progress on future calls. With that, I will turn the call over to Sean for his review of the financials.

Speaker 2

Thank you, Brendan. I'll start with an update on sales and margin trends. Second quarter EXPAREL sales increased to $142.9 million versus $136.9 million in 2024. Sales growth of 4% was driven by improving volume growth of 6%, which was partially offset by a shift in bio mix and discounting. Second quarter ZILRETTA sales were $31.3 million versus the $30.7 million reported in 2024. Looking ahead with our new partnership with Johnson & Johnson MedTech and other programs, we believe the foundation is set for improving growth. For iovera, second quarter sales were $5.6 million compared to $5.7 million in the second quarter of 2024. Turning to gross margins, on a consolidated basis, our second quarter non-GAAP gross margin improved to 82% versus 76% last year. Gross margins continue to benefit from the improved costs and efficiencies of our two large-scale manufacturing suites.

With these suites now consistently producing commercial supply, we have ample capacity to meet the growing demand for EXPAREL. As a result, we have decommissioned our first-generation 45-liter suite located in San Diego and optimized our workforce accordingly. We expect these changes will benefit our income statement through a $13 million annual reduction in operating expenses that will begin in the third quarter. For non-GAAP R&D expense, the second quarter increased to $24.7 million from $18.4 million reported last year. This increase relates to the strong enrollment in Part A of our phase 2 Ascend study of PCRX-201, as well as expenses associated with the ZILRETTA/iovera registrational studies. Non-GAAP SG&A expense came in at $77.2 million for the second quarter, which is up from $59 million last year. This increase is largely due to investments in our commercial, medical, and market access organization, targeted marketing initiatives, and field force expansion.

All of this resulted in another quarter of significant adjusted EBITDA of $54.3 million for the second quarter. As for the balance sheet, we continue to operate from a position of strength. In July, we bolstered our liquidity and financial flexibility with a new $300 million five-year revolving credit facility. We used an initial draw of approximately $100 million to fully repay our term loan A. This new revolver will also benefit interest expense with an annualized savings of 60 basis points beginning in 2026, with no amortization requirements. In addition, we recently repaid our August 2025 convertible notes with cash on hand. Taking this into account, along with RDS repayment of the EXPAREL royalties, we ended the quarter with pro forma cash and investments of approximately $270 million.

With a business that is producing significant operating cash flow, we are well equipped to advance our 5x30 growth strategy and create shareholder value. We are also taking a disciplined approach to capital allocation, where we are focusing on three areas. First, accelerating growth in our best-in-class base business. Second, advancing an innovative pipeline and becoming the leader in musculoskeletal pain and adjacencies. Third, opportunistically returning capital to shareholders. During the second quarter, we executed $50 million in share repurchases and retired approximately 2 million shares of common stock. This is in addition to the $25 million repurchase executed last year. To remind you, we have approximately $250 million remaining under our current buyback authorization, which runs through the end of 2026. We will continue to be opportunistic with stock repurchases, given what we believe is a significant disconnect in our market valuation.

As we execute 5x30, we expect to prioritize accretive opportunities that benefit operating margins to enhance shareholder value. That brings us to our full-year P&L guidance for 2025. Today, we are narrowing our range for full-year revenue guidance to $730 to $750 million. In addition, we are increasing our guidance for non-GAAP gross margins to 78% to 80%, from our previous range of 76% to 78%. 2025 margins benefited from increased manufacturing efficiencies, favorable production volumes, and the elimination of our EXPAREL royalty obligation. We remain well positioned to achieve our five-year goal of steadily expanding margins with a 5 percentage point improvement over 2024. We are reiterating all of our other financial guidance ranges as follows: non-GAAP R&D expense of $90 to $105 million, non-GAAP SG&A expense of $290 to $320 million, stock-based compensation of $56 to $61 million.

Lastly, for those modeling EBITDA, we expect our full-year 2025 depreciation expense to be approximately $35 million. Looking ahead, with the commercial investments we've made, we expect to achieve sustainable earnings growth driven by improving sales, enhanced gross margins, and stabilizing operating expenses. In addition, opportunistic stock repurchases and reductions in share count will further enhance EPS. With that, I'll turn the call back to Frank.

Speaker 7

Thank you, Sean. In closing, I want to thank our entire team for their strong execution and dedication throughout the first half of the year. We've already achieved meaningful milestones that advance our 5x30 strategy and position us for sustainable success. With this foundation in place, we're entering the second half of the year with strong momentum and a clear focus on further accelerating growth. Thank you again for joining us today and for your continued support and confidence in our mission. With that, operator, we're ready to open the call for questions.

Speaker 9

Thank you. At this time, we will conduct a question-and-answer session. As a reminder, to ask a question, you'll need to press *11 on your telephone and wait for your name to be announced. To withdraw your question, please press *11 again. Please stand by while we compile the Q&A roster. Our first question comes from Leszek Sulewski with Truist Securities. Your line is open.

Good evening. Thank you for taking our questions. I have a couple. First, maybe could you provide some commentary around the new partnership with Johnson & Johnson MedTech on ZILRETTA? How does that compare to the previous co-promote with Johnson & Johnson on EXPAREL? As a follow-up, what are the economics on this partnership? What assumptions can we derive from this strategy? Any figurative commentary would be helpful. My second question is around the third GPO. What are the expectations for impact to gross to net? A couple more, just progress on the sales for expansion and maybe one for Sean. Appreciate the commentary around the expected savings on the consolidation of plans. How do we kind of view the gross margin outlook into the second half and then into next year? Thank you.

Speaker 7

Thanks, Les, for the question. It's Frank Lee here. First of all, let me just say before we jump into this, and I'll turn to Sean and Brendan for some commentary here, that I have to say I'm really proud of the team on executing on all fronts here across the entirety of the business. Whether it's growth and revenue, it's margins, pipeline, IP, et cetera, there's a lot of activity that happened this year. Net net, it's a strong foundation for growth going forward. Let me just comment a little bit about the Johnson & Johnson MedTech partnership, and then I'll turn to Sean for gross and nets and some commentary about gross margin and then maybe a little bit about the sales force. At a high level, just to remind everybody that the Johnson & Johnson MedTech partnership previously was for EXPAREL, and that was prior to COVID.

During COVID, as we all know, the dynamics changed. Prior to that, that was a very successful partnership. The events of COVID led to the discontinuation of that particular partnership. We've always appreciated Johnson & Johnson MedTech's capabilities and partnership there. This particular partnership is now with ZILRETTA, which is in a very different setting under different circumstances. That's as a high-level overview. Sean, maybe you could speak to gross nets and gross margins as that's at Westas.

Speaker 2

Sure, happy to. The gross and net is pretty simple. It's a low single-digit impact, plus or minus 1% is a reasonable modeling, but that's pretty straightforward. With regard to gross margin outlook for the second half and into next year, as we discussed, the team is doing a great job, and we've benefited from increased production efficiencies, favorable production volumes, and again, very proud of the teams that we could raise to full-year margin guidance to a range of 78 to 80%. We'll provide another update in Q3 as things progress. Just as a reminder, there can be pretty significant quarter-over-quarter variations. One bad batch in a quarter, you take a charge for that quarter. Based upon how the team is doing, we're confident that we'll, in terms of raising the range to 78 to 80%.

Going into next year, there's a plan for just relentless continuous improvement at the manufacturing sites. That's something, again, we'll try and update later. The goal is to 5% improvement as per our 5x30 plan, and that continuous improvement will continue into next year.

Speaker 7

Thanks, Sean. Brendan, maybe you want us to talk about sales force expansion?

Speaker 1

Yeah, sure. Thanks for the question. We are excited about the focus we're able to provide to all three of our assets. We have a team in ZILRETTA and iovera that have now gotten more and more experience with their target audience. I think they're hitting their stride and beginning to improve in our overall performance there. Equally excited about what we're seeing with EXPAREL, not only in terms of what we've seen for no-pain execution, but also significant formulary wins, both at IDMs and large healthcare systems. I think we're also bolstered by improving commercial coverage, as you heard from my prepared comments.

Speaker 7

Thanks, Brendan. The last part of it, Les, you asked about the economics of Johnson & Johnson MedTech. We're not going to go into details here, but what we can say is, number one, it's reflected in the guidance, and we expect this to be beneficial in 2026.

Speaker 1

Very helpful. Thank you.

Speaker 9

Next question comes from Serge Belanger with Needham.

Hi, this is John on for Serge today. Thanks for taking my question. Just a quick one regarding surgery volumes. Can you just give us a little bit of color on what you saw in the second quarter and then what you're seeing, I guess, through the first month of the third quarter, and in which settings you think you're seeing the most traction at this time? Thanks.

Speaker 7

Thanks, John. We can't go into specifics about how this quarter started, so you'll have to wait till next quarter about that. I'm going to turn to Brendan here to talk a little bit about kind of what we're seeing in volumes over the course of the first half here.

Speaker 1

For sure. Actually, I'm encouraged by what we've seen for EXPAREL volumes in light of what the broader market has looked like. For us, at least, the most recent data points we've seen would suggest that surgery outpatient case volumes are slightly down in the second quarter versus the same time last year. I see more inpatient surgery kind of flat, comparatively speaking. That said, to have seen the progress that we have in the HOPD or the outpatient setting for community hospitals as well as in ambulatory surgery centers is very encouraging.

Great. If I could just have a quick follow-up, you mentioned having 40 million commercial lives under having EXPAREL access and looking to get to 60 million by the end of the year, and then 100 million of total lives covered across commercial and government providers. I'm just curious where the focus might be in terms of making gains throughout the remainder of this year and then into next year.

Sure. Thanks for the question, John. I would say that we've been as strategic as we can be with especially regional plans. We're trying to align as best we possibly can our surgical volumes and opportunity with those large regional payer plans. Of course, we will be opportunistic, and I think we're also seeing a number of national plans start to really embrace no pain, start to see reimbursement outside of the bundle. We are encouraged with what we've seen through the first half of the year and a couple of very recent wins as well. We will continue to pursue that. We know that there's kind of a tipping point for our customers when they see not only reimbursement from CMS, but a preponderance of their commercial lives being covered as well.

Speaker 7

Yeah, John, let me just add to that. I have to say that I'm very pleased with what progress we've made on the commercial payer front and probably market access. You know, as we had talked about before, no pain was actually enacted. Getting commercial payers to adopt sooner rather than later was important. Oftentimes, this can take years. I'm really proud of the market access team for what they've accomplished. This is ahead of our plans. I think to the extent that we hit our target end of the year of $100 million total, that'll be a really great accomplishment.

Great. Thank you.

Speaker 9

Our next question comes from Gary Nachman with Raymond James.

Hey, guys. This is Denis Reznik on for Gary Nachman. Thanks for taking our questions. You've previously talked about expanding the current suite of products ex-U.S. as a partner. Can you provide an update on how those conversations are going? What are you looking for in a partner? When do you think a deal could materialize? Would you look for a partner for all three products at once, or would you go one by one? I've got a couple of follow-ups. Thank you.

Speaker 7

Thanks, Denis. Really good questions. Indeed, we believe there are markets outside the U.S. with meaningful opportunity for all of our products. Of course, the initial focus, you know, certainly our flagship product, EXPAREL, but ZILRETTA and iovera potential there as well. We're making good progress. If you think about our 5x30 goal of having five partnerships in this timeframe, we think we're well on track. I can't give you any specific dates, but what I can tell you is that there's been very good interest. As we think about potential strategic partners, they would, of course, be leaders in their field, have meaningful penetration in a portfolio, and values that are aligned with ours. Those are some of the things that we look for. The good news is, I think that there are meaningful partners out there. We'll keep you apprised of how things are progressing.

I can tell you now that we're active in the process and that we're pleased with the kind of dialogue we're having.

Okay. If I may ask for some more color on PCRX-201 and the recent three-year data, any color you can give about the significance of it and the feedback from the poster presentations. On the ongoing phase 2, it's nice to see the enrollment going so well. Could you just remind us how many total sites you plan on having and the split between how many are in the U.S. versus ex-U.S.? Thanks.

Yeah, thanks for the question. PCRX-201, I have to tell you, there's been very good excitement about PCRX-201. As we all know, there's been a lack of innovation in broadly the OA and the knee space. The big reason why we have, in essence, breakthrough status for gene therapies is the RMAT designation. The data that we recently presented were three-year data. As I mentioned in my comments, there are very few studies that follow patients with OA of the knee out to three years. We're seeing still a very good response, a very good safety profile, and data that we've observed. Of course, this is an open-label study, and we'll know a lot more as we progress and report on our phase 2 Ascend study.

To answer your question about the response from investigators, thought leaders, et cetera, on PCRX-201, there's been a lot of great excitement about that one, number one. Number two is that as we think about the Ascend study, we haven't provided all the specifics about the number of sites, et cetera. What we can tell you is that there are three arms. One is the control, the steroid control, and then two other arms that are the steroid plus PCRX-201. We're more than halfway through our enrollment. That's progressing very, very well. We expect to be completed by the end of this year for Part A. Part B will start next year. The bottom line is we'll have some initial data, as we've talked about before, from Part A sometime towards the end of 2026, early 2027, in that time.

Great. Thanks so much, and congrats on all the progress.

Thank you.

Speaker 9

Our next question comes from Douglas Miehm with RBC Capital Markets.

Excuse me. Good afternoon, everyone. My question just has to do with the guidance. I saw that you tightened it, $730 million to $750 million now. What I'm curious about is back in Q1, when you were looking at these numbers and you had a wider range, what is it that's changed that's moved you away from, let's say, the upper end, the $750 million to $765 million? Is it more price, or is it no pain and the discussions that you're having with payers a little slower than you anticipated? Just curious about that.

Speaker 7

Thanks for the question, Douglas. Obviously, to have a launch of something like this, there are uncertainties. Of course, we provided a guidance range where we thought it was reasonable. It all comes down to just some of the fundamentals that we talked about and Brendan addressed, which is market access. To what extent could we get commercial payers to come on board along with now this new CMS reimbursement? Enough so that we have tipping points in certain geographic areas where the majority of patients, let's say, are covered under this new approach to reimburse EXPAREL. That's when meaningful change really happens. Without having some initial data, we had to provide that kind of a range. Now we have better certainty as we've now got half the year under our belt. That's why I think we can provide this more narrow range.

The midpoint hasn't changed, if that's your question, of course. I think it's really about market access, about tipping point, when the majority of patients are covered under this kind of reimbursement. After that, we'll be driving awareness and utilization because access is available for the majority of patients.

Okay. Just as a follow-up, the Johnson & Johnson MedTech deal does look good on ZILRETTA. I'm curious, as we go into 2026, what in particular do you think that they're going to be able to add the greatest value to the product? I'll leave it there. Thank you.

Yeah. Thanks, Denis. I'm going to look over here. Brendan, to answer that one.

Speaker 1

Yeah. Just to reiterate, we're thrilled to have this opportunity. I spent the first half of my career at Johnson & Johnson, and it's wonderful to be partners with them again here. As Frank shared in his prepared comments, this essentially doubles our ability to reach our audience with a promotionally sensitive product like ZILRETTA. Beyond that, Johnson & Johnson MedTech has a great deal of experience in the space and a broader customer base than we were originally calling on with ZILRETTA. Coming into play in much more prominence are groups like sports medicine, some of the pain management centers, and in particular, rheumatologists. All of that, I think, expands our messaging for ZILRETTA to an audience that needs to know that they have an option beyond the HAs, many of which are not able to give more than once or twice in a year.

It's really a nice complement to their portfolio and a very logical product to have in their bag for the OA treatment journey.

Speaker 7

Excellent. Thank you.

Speaker 1

Thank you, Douglas.

Speaker 9

Our next question comes from Hardik Parikh with JPMorgan.

Hey, thanks for the questions today and thanks for the update, Frank and team. I had a couple of questions. First, just wondering, you mentioned that survey you guys had done, and you're talking about the organizations who plan to add EXPAREL to the formularies, they could take 6 to 12 months to start adopting. I'm just wondering, did you get any more color from that survey in terms of what are the gating factors that kind of lead to that 6 to 12-month timeframe? The second part is when your sales teams are pitching to various stakeholders, qualitatively, how much of the discussion is on educating on no pain versus explaining the benefits of EXPAREL relative to alternatives? Thank you.

Speaker 7

I'm going to look to Brendan here on that one as well. Brendan, thanks, Hardik.

Speaker 1

Yeah, for sure. If you go back to when No Pain went into effect, which is January, most of the time, when you're asking your audience why it might take them a little bit of time to effect that change, a lot of it is to confirm they're going to get the reimbursement that they believe is coming. They also understand that CMS, while that accounts for a significant number of procedures, it's about a third of the total. They want to see, will commercial follow that plan? As we've been updating with every earnings call, we want to put increasing points on the board for commercial coverage outside of the bundle. As that becomes reality in a variety of geographic areas, we see increasing numbers of payers come on board with EXPAREL reimbursement outside the bundle. Just speaking about how we speak about EXPAREL, let's be clear.

We are obviously excited about what No Pain means in terms of the value proposition, the enhanced value proposition for EXPAREL. The majority of our time is spent explaining what differentiates EXPAREL from alternatives and why it leads to the types of outcomes that our patients deserve. I think you'll see more of that in the second half of the year as we look to amplify that message and make sure that patients, caregivers, and physicians understand what makes EXPAREL the best choice for procedures for which it's approved.

Speaker 7

Thanks, Brendan. Let me just add to that that with regard to the health economic value proposition, it is so important in these settings, increasingly important as we go forward. As we step back, I mentioned that we have 2,500 patients in this iovera registry that follows patients through their OA of the knee journey. We think that's going to provide some really great insights into not only the value of our products, but some other products that are used in the setting and give us, again, better confidence that we'll be able to provide more patients access to our medicines.

Thank you for the color.

Speaker 9

This concludes the question-and-answer session. I would now like to turn it back to Susan for closing remarks.

Speaker 8

Thank you, Sean, and thanks to all on the call for your questions and time today. We're energized by the opportunities ahead and remain focused on executing our 5x30 growth strategy with discipline and purpose. As we move through the remainder of the year, we are confident in our ability to build on our momentum and position Pacira for long-term success. Thank you again for your continued support and be well.

Speaker 9

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