Good day, ladies and gentlemen, and welcome to the Pacira Pharmaceuticals, Inc., Third Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. As a reminder, this conference call is being recorded. I would now like to turn the conference over to Susan Mesco, Head of Investor Relations. Ma'am, you may begin.

Thank you, Andrew, and good morning, everyone. Welcome to today's conference call to discuss our third quarter 2017 financial results. Joining me on today's call are Dave Stack, our Chairman and Chief Executive Officer; Scott Braunstein, our Chief Strategy Officer; and Charlie Reinhart, our Chief Financial Officer. Before we start, let me remind you that today's call will include forward-looking statements based on current expectations. Such statements represent our judgment as of today and may involve risks and uncertainties. Please refer to our filings with the SEC, which are available from the SEC or our website for information concerning the risk factors that could affect the company. With that, I will now turn the call over to Dave Stack.

Thanks, Susan. Good morning, everyone, and thanks for joining today. Since we last spoke, we have continued to make important progress, advancing our mission to provide EXPAREL, our opioid-free alternative, to as many patients as possible. As you know, last year, we rolled out a comprehensive strategy to significantly broaden the use of EXPAREL. This has been a significant undertaking and has required that we project how quickly major initiatives such as our PILLAR publication, our Johnson & Johnson partnership, and our Trinity collaboration would translate into accelerated growth. Like many of you, we are disappointed that our sales have not met our original expectations. As you can tell from our growth initiatives, the entire team is dedicated to maximizing the substantial potential we see for EXPAREL as we remain unwavering in our mission to providing an opioid alternative to as many patients as possible. We are most pleased with the progress we have made with our J&J partners, especially the educational initiatives to support EXPAREL. As the year progressed, leading indicators pointed to accelerated growth beginning in August. However, as you are all aware, hurricanes in the Southern United States, a region which accounts for approximately 20% of our business, had a significant impact and interrupted this forward momentum. Given these unique weather-related issues, we decided to share some monthly specifics to help put context around our Q3 results. In July, we saw year-over-year growth in daily box volumes of roughly 6%, similar to the first six months of the year. For August, this rate increased to 9% and the beginning of September was even stronger at roughly 11%. Once Hurricane Irma hit, however, we shifted to negative growth. We did not return to positive trends until the end of September and ultimately ended the month with a daily…

Thanks, Dave, and good morning to all joining today's call. There is a great deal of energy and excitement stemming from our collaboration with J&J and the teams are working extremely well together. With the initial step of training largely behind us, the current focus is on account activation and this is well underway. To remind you, in the near-term, we are focusing on those accounts where both companies have a well-established commercial presence. Account activation involved each J&J vertical working together with their Pacira colleagues to train customers on proper EXPAREL technique. For each of the last two months, the number of activated accounts has doubled. This is also a particularly exciting time for the two teams as we are in the heart of the orthopedic conference season. EXPAREL continues to be highlighted at J&J-sponsored KOL peer-to-peer presentation that features the PILLAR data, new procedural-based infiltration protocols and additional data from investigator-sponsored studies in spine, trauma, and sports medicine. Key fourth quarter meetings include the Eastern Orthopedic Association, the Orthopedic Trauma Association, the North American Spine Society, the American Association of Hip and Knee Surgeons which featured a five-physician panel moderated by Dr. Michael Mont, Chairman of Orthopaedic Surgery at the Cleveland Clinic, and the lead author of the PILLAR manuscript. Dr. Mont and colleagues discussed using multimodal pain management and moving towards opioid-free surgery, attendance was particularly robust. And starting tomorrow, the Association of Clinical Elbow and Shoulder Surgeons, or ACESS, here Dr. Paul Sethi will be setting the stage for expanding the use of EXPAREL in rotator cuff repair. Looking ahead, we remain very confident that our J&J collaboration will drive strong momentum behind EXPAREL. The level of engagement from the field is strong and there's an increasing amount of activity between the two organizations. Together with…

Thank you, Scott, and good morning, everyone. Before I review our third quarter results, I'd like to remind you that I will be discussing non-GAAP financial measures this morning. A description of these metrics along with our reconciliation to GAAP can be found in this morning's press release. Net product sales of EXPAREL were $66.8 million for the third quarter of 2017, compared to $64.9 million for the same period last year, roughly a 3% increase. Recall, however, that this quarterly revenue figure was achieved with two fewer selling days in the third quarter. Another significant influence in third quarter sales was the hurricanes. As Dave mentioned, we started to see an acceleration in daily sales growth in August, which is often the weakest month of this quarter. The growth trend carried into early September, but turned negative as Hurricane Irma hit the Southern United States. By the end of September, our business was rebounding, and we achieved daily sales growth of approximately 5% for the month. As you know, we're advancing a number of key value drivers such our J&J partnership, the rollout of the PILLAR publication, collaborations with hospital systems and payers, and patient and physician education. We are convinced that we are investing in the right strategy to deliver sustained, long-term growth. Based on the recent sales trends discussed today, we believe the acceleration in EXPAREL growth expected during the second half of 2017 has begun, but the timing and magnitude of this improvement, along with the impact of the hurricanes, makes it unlikely that full-year EXPAREL net product sales will achieve our original guidance. As a result, today, we are revising our guidance for full-year 2017 EXPAREL net product sales to a range of $280 million to $285 million. This assumes year-over-year growth in fourth quarter…

Thanks, Charlie. So, as we look at our growth outlook for 2018 and beyond, we believe Pacira is in great shape. 2017 has been a year of important progress and the stage is set for several key milestones over the next few quarters including delivering full-year EXPAREL sales of $280 million to $285 million, securing FDA approval of our sNDA submission for nerve block, completing our C-section study and reporting top-line results, updating our Phase 4 strategy to include MIS spine procedures, continuing to broaden the national education and awareness about opioid alternatives for postsurgical pain management through our Choices Matter campaign, and forming new collaborations with healthcare providers and payers who share our passion for providing patient care through opioid minimization strategies. Our expectation is that we will announce several additional partnerships with hospital systems, physician organizations and payers over the next several months, working with the Opioid Commission on a final report and CMS to unbundle EXPAREL to allow surgeons access to all available tools to address the opioid epidemic and to turn off the OR as the gateway to the opioid epidemic. And with that, I'd like to turn the call over to the operator. Andrew?

Thank you, sir. Our first question comes from Randall Stanicky with RBC Capital Markets. Your line is now open.

Great. Thanks, guys. Dave, I want to follow up on your last comment. Can you just talk logistically about what needs to happen to make the recommendations in the Christie letter actually happen, and I'm talking about getting the government reimbursement here for the hospital-based surgical pain procedures, whether it's coding or what specifically those next steps that us and investors should be watching for? And then secondly, I appreciate that you want to keep expectations in check for EXPAREL as we head into the end of the year, but we're hearing anecdotes that October was an unusually strong month for spine. So, the question is, are you seeing similarly better volumes of EXPAREL from the J&J partnership in the ortho side of the business? And then if I could just tack one on for Charlie. Can you just comment on the Symphony data and are you happy with how that is tracking your EXPAREL sales? Thanks, guys.

Thanks, Randall. I'll just start out with the obvious, Randall. We've had the report, it's still marked draft and we've only had the data for a week. I mean, I would say a couple of things. We do have appointments with the folks that you would expect us to be interacting within Washington. This is also a place where our J&J partnership adds great strength to our ability to work with the folks down there given the breadth of their resources and their relationships in the Beltway. So, we do believe that we're benefiting from both of those things as well as the almost unbelievably strong commitment of Governor Christie and Congressman Kennedy in this area. So, the process is just starting. I'll remind everybody that we do have a code for EXPAREL that is used in many ambulatory markets of C9290. So, there's a number of ways that this could evolve as we work through the process of satisfying the needs of the Opioid Commission. It could be as simple as reinstating the code and moving from a supply to a discrete payment or they may decide that there's another way that they want to handle it to narrow the playing field to just EXPAREL. We just don't know exactly how that's all going to go yet, but it is under active – I mean, there are resources being placed against it and we're actively working on it. So, I can't tell you exactly what to look for, Randall. I wish I could.

You wanted me – I'll jump in, Randall. Talk a little bit about J&J, you commented on spine. As a reminder – and I've had this discussion with lots of folks – J&J has four distinct sales organizations. We expected the most attention early days to be placed in recon and spine. We have talked publicly that our spine share, as an organization it's substantially lower than our recon share. And there's great opportunity, particularly in patients who are high – have a high opioid burden, length of stay is really limited, or affected by pain in that area, where there's no use of cocktails or very little use of cocktails. So, we've always viewed spine as a unique opportunity for the organization. I'll just remind everyone as well that we're at the early days of our trauma and fracture launches, as well as our sports launches. The J&J organization has been a great partner in those as well. We're going to be focusing more and more resources in those marketplaces, and I think finally, you should expect us to have a bigger presence with Johnson & Johnson in the foot and ankle market in 2018. Just a reminder for all, this view with J&J was not about their recon presence alone, it was about their strength across the orthopedic business. And I think they've turned out to really live up to expectations in terms of helping us map out plans in each of those marketplaces.

And, Randall, just again to probably state the obvious, but we do see a – I mean, we see an uptick, as we said, during the script. We've got PILLAR out there. We were – we had very strong discussions at the recent AAHKS meeting, the American Academy of Hip and Knee Surgeons. There's a number of things going on with Johnson & Johnson that Scott's talked about. We see a number of different citings in the soft tissue space. You probably saw yesterday that Becker's has picked up Dr. Cosgrove's comments from Cleveland Clinic about the use of EXPAREL in mastectomy as one of the ways that they're addressing the opioid epidemic. So, there is a number of tailwinds that are pushing us along. I can't tell you that we can say exactly that we know that spine is responsible for the uptick in box sales. What we can tell you very specifically though is that the spine team at J&J has been responsible for opening up a number of doors and has introduced us to a number of people and a number of different formulary opportunities that we never would have had without them. So, Charlie, do you want to talk about Symphony for a second?

Sure. Randall, so, am I happy with Symphony data? I think, the honest answer is no, I'm not. They tend to be more variable in the beginning of the quarter. I think their weekly data is more variable than their monthly. Their monthly is more variable than their quarterly. I don't think it's any different for other people. So I understand that everybody has to look at it because it's data out there. And as an investor, you can't not look at it. I get it. I just can't be responsible for explaining it.

Okay. Great. Thanks a lot, guys.

Thanks, Randall.

Thank you. Our next question comes from the line of Douglas Tsao with Barclays. Your line is now open.

Hi. Good morning. Thanks for taking the questions. Just maybe, Charlie, provide a little bit more context around the new guidance range. If I look at the low end, it sort of implies de minimis year-on-year growth, which doesn't necessarily sort of jive with sort of the comments that through October you had started to sort of see that pick up reacceleration back to sort of high-single digit or even double digit, sort of year-on-year growth numbers. So that would just be helpful. Obviously, things have come together a little bit more, and so is there some sort of extra measure or conservatism baked into that?

Yeah. Thanks for the call, Doug, I appreciate it. I think it's a great question. And so when we were evaluating where we thought we should be based on all of the data points, we created a range which we were comfortable with. But frankly, I don't agree that the bottom end of the range is de minimis. It's consistent with what we've seen so far year-to-date. It is roughly 6% revenue-ish growth, which is we – for the first nine months, we're right around 5%. So it's a hair up, and the top-line is – the top of the range is 13% growth. We've said we've started to see trends, but again it's early in the quarter. So we're trying to develop a range we're comfortable with and we're comfortable with $280 million to $285 million.

And then as a follow-up in terms of what you're thinking about in terms of the growth opportunity in ortho from J&J, is it going to be – should we think about this as sort of the different buckets be it spine, sports, trauma or will it be more a function of just as different sales reps become activated?

Well, Doug, we're seeing activations across all four organizations, all four groups of representatives. Our educational programs are happening across all four educational buckets. As I mentioned, ACESS which is starting tomorrow will really feature the first major presentation in infiltration of a rotator cuff. So we have some new datasets, which are really going to be a prime piece of the story, particularly in the sports market, particularly in the fracture marketplace. And as those protocols develop, as datasets develop, you should expect a more and more consistent messaging from all of the J&J organizations within their representative group. We do believe each of the opportunities are meaningful. I think, really, what J&J brings us is the ability to look at all of these marketplaces. And, in fact, people always ask me, why did we do this deal. And when our team sat down as a group and recognized that there were somewhere close to a dozen key market opportunities, C-section falling to the top of the list in soft tissue, colorectal on the list in soft tissue. We had an equal number in the orthopedic world, and one that we just as a smaller company couldn't master ourselves. And we're really confident that J&J will help us as a combined entity really hit all of those major markets both in orthopedics, and over time, in soft tissue as well.

And then, Scott, just as a quick follow-up. I mean, just how do you think about or approach sort of approaching an institution as a whole because, obviously, you sort of have both the ortho side, as well as the soft tissue side in many institutions. And so how do you go about if that hospital has not provided access to the product broadly?

Sure. Well, I think, the combined entity in 2017, there has been a big focus specifically on where there is access so that we can have a very strong early day collaboration. But we've also dealt with a lot of accounts where there is limited access where we've had either our sales reps as a routine or the J&J folks interact with the hospital where there is greater formulary restrictions. We think that our PILLAR data is going to be a critical piece of gaining increased access. We've already had examples where J&J reps have made an introduction to the anesthesia side, as an example, to help with that access. So it's really been a combined effort. There's got to be a lot of teamwork. We're going through those early days now of figuring out how best to work together. But we specifically crafted this deal that Pacira reps and our leadership own the pharmacy relationship, we own the hospital relationship. But it's very nice to have a partner that when we go down to Washington, D.C., can really make a big contribution for over time hopefully on a larger IDN level. I'll stop there. Dave, do you want to add?

Yeah. I would also say, Doug, similar to the way we ended Randall's question is it is a – it's a bigger-picture view of the world in many cases where we're talking to insurance companies about achieving their goals of moving patients from an inpatient environment to an outpatient environment. And there's a number of procedures. We're looking at the global cost of care. They clearly understand that the ability to control pain without opioids allows them to achieve that endpoint. And so in that context, then Johnson & Johnson allows us to have specific resources to call on the ACA world and can call on the physicians that are doing the majority of these procedures so that we have a much more rapid response to those discussions with the insurers than we ever would have if we were by ourselves.

Okay. Great. Thank you.

Thanks, Doug.

Thank you. Our next question comes from the line of David Amsellem with Piper Jaffray. Your line is now open.

Thanks. So I just want to take a step back on the nuts and bolts of the J&J partnership. I mean, it's been several months since the partnership started. So what I want to try to tease out from you and get your thoughts here is do you think part of the problem in terms of this significant uptick in sales that you've been hoping for, part of the problem is that you're a single product company selling into a difficult call point where being part of a larger multiproduct, hospital-focused company might make things easier for EXPAREL. So can you talk about that dynamic and how that may or may not be problematic and how that potentially speaks to whether or not you should be evaluating strategic alternatives?

I'll go backwards, David. First, thanks for the question. We are always evaluating strategic alternatives as I think we've shown, the J&J partnership, Trinity partnership, American College of Surgeons, we've got a half a dozen of partnerships that are with payers and healthcare collaborators that we'll announce over the next couple of quarters. So we're strategically evaluating everything. I would tell you that EXPAREL, as a one product company in the current environment, has nothing to do with the way the Johnson & Johnson relationship is rolled out or anything else, to be perfectly candid. I can't think of a single place where somebody that would have been able to offer a surgical glue or anything else would have had any benefit. Now, I think, it is true that we have people who are significant customers of both Johnson & Johnson and DePuy and their metal, and our product, EXPAREL, and they're looking for us to help them on a broader level because of our collaboration and their needs. But that, to me, is a positive. And the way you asked the question in terms of it being a negative that EXPAREL is a one product company, I don't have anything that I – that even remotely comes to mind as an issue.

Yeah. David, the only piece I'll add and maybe this is the other end of the spectrum, and you may have been going there, but I think what we have learned from a business development standpoint, we've got some great customers out there today with EXPAREL. We've been able to leverage a lot of our customers insight into ancillary markets that in the hospital. We think wound healing, overall, is a very interesting opportunity broadly. There are some great new biologic products out there, great solutions out there. A big unmet medical need. Some opportunity for better pricing, a better value proposition, and much of our team's knowledge on that has really come through our EXPAREL relationships with certain KOLs in the community. So, we think that this general space is one that makes a lot of sense for us to spend time and energy on, and certainly, over time has a lot of natural synergies.

And I would just close, David, by saying I'll repeat that what we've said before is that we have a single mission to provide an opioid alternative to as many patients as possible and if we thought there was a better way to do that, there's nothing here that would stand in the way of that. So, that's what we do.

May I just ask a quick follow-up? So, that's helpful. I guess, and – just in that vein of talking about sales acceleration, sales uptick, and looking at the price point, is the price point something that you may revisit going forward as a way to drive greater volume growth?

We have a contracting mechanism, David that where we work with our major customers to make sure that there is a differentiation in price between our multimillion dollar customers and the customers who buy a box a quarter or something like that. So, to that extent there is in an accommodation on price. In the – well, if I knew more about how the opioid commission report was going to rollout and how we were going to be able to help our customers offset any additional cost that is being driven through the system because of a CMS coding issue rather than an actual real-life issue, then I could answer that question with a lot more of clarity. But we continue to believe that especially as we start to look at ambulatory care, as we start to rollout these new datasets and as our value proposition improves more and more, I'll give you an example, Scott, a minute ago referenced a rotator cuff study from Paul Sethi. These – many of these studies are done with a 10-ml dose of EXPAREL. So, if you looked at our rotator cuff data, you would see a 77% reduction in opioids, you would see a four-plus day pain control and roughly 13% of those patients are opioid free across the study platform. And that's accomplished with a price point of roughly a $155 net. So, I think the value proposition of EXPAREL as folks understand the global cost of opioids is something that we are not ashamed of at all. I think, there's an educational component here. We were out a couple of weeks ago, and I had a doc tell me that the pharmacist told him that EXPAREL costs $3,000 a vial. In fact, what we had sent him was the cost of a box of 10. So, education continues to be a key piece of our message. But we're not looking at any kind of a broad price decrease. I don't think that that's anything that's required at all.

Thank you.

Thank you.

Thank you. Our next question comes from Liana Moussatos with Wedbush Securities. Your line is now open.

Thank you for taking my question. What percent of sales in Q3 were for oral surgery, and what's going on there and what's the outlook?

I don't have a number off the top of my head, Liana. I'll give you a call later and I'll have to calculate it. Honestly, we don't look at that specifically, because there is a – 10 mL isn't just oral surgery. It's – there's plastics in there. There's a number of different things in there, but I could give you a couple numbers later. It's growing rapidly. It still is a – it's not a significant piece of our total business. But if I just showed you the percentage growth on a quarter-on-quarter basis, you'd say, wow. If we calculated that into dollars, you would say, wow, but it would be little letters instead of big letters, right? So, it's been growing. It's a nice piece of our business. We think the insurance carriers are largely going to help us there, because it's one of those marketplaces that's a mile wide and an inch deep.

Okay. Thank you very much.

Thanks.

Thank you. Our next question comes from Tazeen Ahmad with Bank of America. Your line is now open.

Hi. Good morning, guys. Thanks for taking my questions.

Good morning.

Maybe this first one is on guidance. So, as I guess, you try to understand the year when you first provided guidance, I guess, what aspects of the environment back then were you feeling confident about that since that it might have changed or not been as big of a driver as you might have expected?

Thanks, Tazeen, for the question. So, this is Charlie. So, when we started the year, we had basically been saying that we expected the impact of the J&J partnership, the PILLAR studies and some of the partnerships that Dave's discussed to be second-half results. And so, our original guidance made sense to us based on those impacts coming into the second half. So, we've now got three quarters reported in the second half, and frankly, obviously, we mentioned that we know what October is as well. So, we've got four out of six months done, and we know what those results are, and they're not horrible, but they're not what would get us to the original guidance. And so, it just became obvious to us that we now knew enough actual data to make a change, and so we believe we've done that appropriately.

I think, the PILLAR came out in an electronic form, but it still hasn't been published in paper in the journal. That's been a delay that has taken a little more time, so it's really been us walking with the PILLAR data, the – it isn't out in hard-copy journal form yet. And I think, the – you know, the Johnson & Johnson collaboration, we knew that it was going to be a big effort for us in order to train several thousand of their folks. We turned out that that was right, but it was a little more difficult in terms of the timing aspects of getting everybody together on both sides of the aisle, et cetera. So, it's working. It's just – we were more aggressive than we should have been in retrospect in terms of how fast that was going to happen.

Okay. Thanks, Dave. And then maybe to follow-up with that, on the J&J partnership. So, if I understand correctly, the reps are more or less trained at this point. And so, for those that are trained and are assigned to hospitals that you guys haven't been able to get to necessarily to get the formulary access, are they still being encouraged to detail to those physicians there to educate them, or are they really waiting for the drug to be put on formulary before they make more of an aggressive effort?

Tazeen, we've had a lot of places where there may be some restrictions in EXPAREL access for physicians where the J&J team has already interacted with physicians. But we've chosen, particularly in 2017, to focus on accounts where there is no formulary or limited formulary restrictions. Part of the training for the J&J reps, step one is the formalized training. Step two is this activation process where they're really in the OR with physicians and our reps, and just getting the hands-on experience of volume expanding, add mixing, and walking through cases with surgeons. And as – and we want that to be a very positive experience for them. I think, it has been an experience for them, and we want them to leave that experience as a champion of the drug. And so, the logical step after they've become a champion is to now move to physicians where access is more limited, where we then have that physician become our partner in going to the hospital formulary committee, doing a sample program, doing a continuous quality improvement program or partnering with the anesthesiologist or the recon surgeon or the colorectal surgeon who's already experienced the drug, and a group of physicians who are looking for broader access. So, it's really a step-wise approach. They turn to us for help with formulary. We are there to guide the physician through that process. But the more experience that they have where they see the drug actually perform as we expected to, we believe that will encourage them to really help us fight that fight in hospitals, which right now have greater restriction. So, that's the logic and I think right now – and I said this before, I'll share with all of you, we are seeing hundreds of e-mails everyday about this relationship and the vast majority of physician experiences and rep experiences have been very positive and we still feel as though the drug is doing exactly what we expected to do in the hands of a large number of well-trained physicians. We think that ultimately leads to greater success over the long term for our product. I'll stop there. David, do you want to add?

No. I think, Tazeen, in some cases it's just critical mass. I mean, it's just the fact that you've got all of these people who have intimate knowledge of EXPAREL even through family relationships, and I wouldn't want to lose the whole anesthesiologist portion of this. It has been a bit of a surprise to me personally that Johnson & Johnson have some many anesthesia relationships and we've been working with anesthesia now on TAP. And so, on a lot of cases, it is the combined effort where there's been an interest because of regional anesthesia and moving to outpatients and then the Johnson & Johnson guy or gal can share the information in an informal way and then that leads to some type of a broader collaboration and a formulary approval. And just so you know, our MSLs are fundamentally important in moving us into a formulary setting, and we have a group here that does nothing but provide pharmacy support and formulary approval. So, Johnson & Johnson is leaning heavily on that and that's the collaborative nature of what we try to build here. So, it is working.

Okay. And then I'm sorry if I might have missed this in your prepared remarks, but in the hospitals where you do have formulary access, the new areas that you highlighted for focus for your sales force, is there any, whether it be oncology or women in C-section or what have you, sub-segments that have been picking up use of EXPAREL faster, for example?

There's some areas where there's real interest from the medical community as well as the patient community. So, we are increasingly influencing the market and being influenced by the market through social media with Shatterproof and with BoneSmart and with breast.org. One of the areas that keeps coming to the front is mastectomy, which is why I think Cleveland Clinic and Toby Cosgrove specifically called that out in their comments last week that they're using EXPAREL in mastectomies to address the opioid epidemic. There's a number of MD Anderson doing ovarian cancer work, Mayo Clinic doing work in mastectomies as well as female cancers. So, when you put that on top of C-section, Scott mentioned this in his remarks, C-section really has touched a nerve in the marketplace. And the insurers have come to us, for example, and said we don't do well with C-section in terms of the reimbursement. And if there is a way to reduce opioids, we've got both and where we can improve patient care for mom and baby. But if you guys can give us an opportunity to get these folks out of the hospital a day or a day-and-a-half earlier that's a real win-win for us. So, folks are really interested in the C-section study and how that works. And so, I would say generally, I mean obviously MD Anderson has their own things that they're strong at. Cleveland Clinic, for example, looking at replacing epidurals. It really is every hospital has their own personality and the places where they're strongest. And generally, where those hospitals are strongest is where the greatest interest is in opioid sparing. I'll go back to Cleveland, for example, because Mike Mont is the Chief of Orthopedic Surgery and he was the PI on PILLAR that EXPAREL is now used in all joint surgery at Cleveland Clinic. So, there's a cause and effect in most of these places, and it comes from having a dramatic reason why you want to reduce opioids and then the hospitals that are proficient in performing those surgeries is really where we do the best, the quickest.

Okay. Thanks, Dave.

Thanks, Tazeen.

Thank you. Your next question comes from Flanders with Goldman Sachs. Your line is now open.

Hi. Thank you very much for the questions. My first one here, saw some positive news a couple of weeks ago with a potential competitor of yours failing the Phase 3. Just looking towards the Heron data coming out early next year, and I know we'll have to see what the data looks like. But can you just remind us how you're thinking about the competitive positioning of EXPAREL? And if Heron does get an approval, do they grow the market? Do they compete with you on price? And do you think they get a broad label? And then my second, just a quick follow-up. On the impact to EXPAREL via just the hurricane in September, I know you said it caused some negative growth in the latter part of that month. Wouldn't patients just get pushed into October and create a bolus then or am I not thinking about that correctly? Thank you very much.

Thanks, Dana. First, and I'll go backwards. In some cases, you're absolutely right. So we think, so for example, a hip or a knee more than likely was displaced and will come back. If you look at Harvey specifically and you're talking about MD Anderson, somebody was told they had Stage 3 colorectal cancer, wasn't going to sit around for a couple of weeks and wait. And so I think we've got a little bit of both. I think that the bone and joint business we will get eventually. A number of the other procedures, in some cases, just go away. But I think there was clearly a scenario where certain acute surgeries if they weren't performed in a hospital where EXPAREL was routinely available, probably were lost to the storms. And so, again, I can't quantify it. I can't especially quantify it in an accelerating marketplace, compared to a historical control it's very difficult to do, but I think there's a little bit of both to be honest with you. On the Heron question, look, we wish them well. I mean they've got a product that's a huge market, it's a huge opportunity. It's a desperate issue in the United States. I mean, from our perspective, we've got a broad label. We expect to have a pediatric claim. We expect to have a nerve block claim. We've got 72-hour 4-digit p-values for pain control in orthopedics. We have a C-section study. We've got a colorectal study. We've got a hip fracture study. We're studying MIS spine with our partner Johnson & Johnson. If you look at the nerve block data, p-value is 0.0001, 13% opioid-free and rotator cuff a hugely difficult issue. If you think about volumes and you think about 120 mLs in total knee, if you think about 100 mLs in TAPs, if you think about 100 mLs in spine surgery, all of these procedures that we think are the growing future of where EXPAREL is going to be used the strongest, then I don't think that we welcome the challenge. I don't think there's really anything here that we're afraid of. And in terms of price, I have no way to answer that, I don't know whether they would come at some type of a price point that they would think was difficult. But again, I would say that as we move a significant portion of our procedures to outpatient procedures at a 10cc dose with $170 WAC price point, I welcome their challenge there as well.

Yeah. Dave, I'd only add, we're making a significant Phase 4 investment. We think that we will be creating new and a very exciting market. C-section, Tazeen asked a question earlier, is I think a perfect example of that. We're starting to see literature in use of TAP in hysterectomy. We're getting more and more anecdotal interests in C-section. And we think a large Phase 4 study will really create a marketplace and an understanding of how to use the drug accordingly. I think our Phase 4 trials are going to really broaden the market opportunity for the space. We're not happy with where we are at roughly 3% of the market. We think there is a great opportunity for us to grow that market and that's what we're all working on, do clinical trial data through partnerships, through the government and through our partnership with J&J.

Yeah. I was going to say the J&J too. And keep in mind, we've got dozens of ERAS protocols, at Mayo, MD Anderson, Cleveland Clinic, Duke, UT Knoxville, MD Anderson. I mean, by the time that they come to market, we'll have between 4 million and 5 million patients treated in the United States. This will be fun.

Thank you. Our last question comes from Gary Nachman with BMO Capital Markets. Your line is now open.

Okay. Thanks. Good morning, guys. Not to jump the gun here, but when would you expect to provide 2018 guidance? When do you think you'll have good enough visibility on that given a lot of moving parts, and how much would you expect nerve block to help if that gets approved? Could it be a meaningful contributor next year or will it take time to ramp up. How should we think about the trajectory for that indication?

I'll tell you what, Gary, I'll go first and take the back half and then Charlie can comment. Yeah, I mean, I would tell you that there is real excitement in the marketplace about nerve block, and it comes in a number of different forms. Well, Scott and I both spent last weekend at ACAS (1:01:29) and the docs are – I mean, I'm not trying to overstate the case here. Docs are truly excited about being able to use EXPAREL, take a certain amount of the vial and do an adductor block for the front of the knee and then dilute the rest with lidocaine with bupivacaine and do a periarticular injection to the back of the knee. They really think that that's the best way to improve patient care, but now they are (01:01:53) by our package insert. When you talk to the insurance carriers about moving from in to out, a lot of those discussions have been spurred by the potential to be able to provide a regional block and have that patient have several days of pain control. They can do that block before the surgery in a 23-hour environment, and then have those patients go home in a couple of hours, very different than an infiltration in an in-patient setting. So yeah, there is real excitement. We're dealing with a number of anesthesia groups who are strongly positioning EXPAREL as a way for them to help the overall economics of a health system by providing an opportunity to improve care and move patients to the least expensive environment, and improve care in a least expensive environment. So all of those things are ongoing at the same time. And yeah, I think, for me personally, getting nerve block, getting some satisfaction on price from the government and making sure that Johnson & Johnson reaches its full potential, also the three biggest things that we're working on right now, but nerve block has to be on the top of that list. Charlie?

And from a 2018 guidance perspective, we would typically issue that guidance in conjunction with our 2017 year-end conference call which would be late February, early March. That will be before at least the anticipated PDUFA date of April 6, so I'm not sure that we'll actually include the impact of the nerve block label without knowing exactly what the label is.

Okay. I just wanted to follow-up. Dave, what's your understanding of how much nerve block is being done with the product today? And is there any way that you're going to be able to layer J&J into the mix from a commercial standpoint? You mentioned they have good relationships with anesthesiologists or is that going to be strictly on your side with your soft tissue sales force?

It's a really interesting question, Gary. So the way we've organized it and our MSL group and a specific component of our MSL group is working very extensively with anesthesia on education on multivesicular liposomes, and making sure they understand all of the biologic and all of the safety issues associated with local anesthetics and what makes EXPAREL different, et cetera. So, we're doing as much of that training as we can right now before we actually get the nerve block label. Around the launch, we expect that we will own anesthesia. The reason I say it's interesting is because most of the procedures that will be done by an anesthesiologist will actually be orthopedic procedures. So, as we talked about during the script, think about peripheral, regional nerve block has its best applications in peripheral surgery, so think shoulder rotator cuff, ACL repair, hand and wrist, foot and ankle, right, the anesthesiologists will be trained by Pacira and all of the deep understanding of myotoxicity and neurotoxicity, and volume and ultrasound et cetera, but the procedures will be carried forward by the Johnson & Johnson ortho teams and the Johnson & Johnson ambulatory care teams. So, it's a little bit of both but really interesting for us.

And I'll just add, Gary, the J&J team will be trained in nerve block, but we have gotten very strong feedback from the anesthesia community that we really want to have a hands-on approach early days. We want the product to be successful. We know a lot of anesthesiologists, regional folks and non-regional, many still don't use ultrasound for their nerve blocks. The regional folks all do but many non-regional folks don't. So, we want to make sure this launch is done the right way in terms of the right group using the product, and the J&J people will be a part of that, but we really want the Pacira team to lead that charge.

Yeah. I think today, Gary, to answer the first part of our question, the only real reference we've got is where catheters are being used and we think that given all of the issues, one in four of those patients have significant issues of displacement and falling out and just not hitting the target nerve, et cetera. In fact, it's a big market if all we did was address that obvious market. But when you talk to the clinicians in the marketplace, most of the folks don't use those elastomeric pumps for all of the obvious reasons. And so, we think the market is much bigger than that would suggest.

Okay. And then just one last one. Scott, just to follow-up where you said that you want to sell sports to really focus on that launch. If you found a marketed asset, would you be comfortable bringing that into the bag at this point or do you think it's better maybe to wait until after you launch nerve block. Thanks.

Yeah. And I'll let Dave chime in as well. I think we all as a team are very focused on the near-term commercial execution, and we will not allow anything to interfere with that commercial execution. And so, all of our business development planning is really how to best maximize the EXPAREL effort, how to make sure that that is our focus today and I think TELA Bio is a really nice example of how we're looking to the future to think about how we might brought in our product portfolio.

Yeah. I wouldn't say no to anything, Gary, in a generic sense the way the question was asked. If an asset came with a sales organization that had deep customer relationships, we might look at it differently, but it isn't the highest thing on our list.

Okay. Great. Thanks, guys.

Thanks.

Thanks, Gary.

I'm showing no further questions. I would now like to turn the call back to Pacira CEO, Mr. Dave Stack for any further remarks.

Thanks, Andrew. Thank you for your questions and time this morning. We look forward to providing additional updates in the future. Next stop for us this month is the Jefferies Conference in London followed by the Piper Conference in New York City. We look forward to seeing you all soon. Thank you again.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may all disconnect. Everyone, have a great day.