Good day, ladies and gentlemen and welcome to the Q1 2018 Pacira Pharmaceuticals, Inc. Conference Call. Currently at this time all participants are in a listen-only mode. Later we will conduct a question and answer session and instructions will follow at that time. (00:00:17-00:00:26) I would like to turn the call over to your host, to Susan Mesco, Head of Investor Relations. Please go ahead.

Thank you, Dylan (00:00:32-00:00:38). Joining me on today's call are Dave Stack, Chairman and Chief Executive Officer, Dr. Rich Scranton, Chief Scientific Officer; and Charlie Reinhart, Chief Financial Officer. Before we start let me remind you that today's call will include forward-looking statements based on our current expectations. Such statements represent our judgment as of today and may involve risks and uncertainties. Please refer to our filings with the SEC, which are available from the SEC or our website for information concerning the risk factors that could affect the company. With that I will now turn the call over to Dave Stack.

Thanks, Susan. Good morning everyone and thanks for joining. 2018 is off to a terrific start. We reported strong top-line sales growth of 9% for the first quarter with monthly sales volumes increasing from 6% growth in January to over 15% in March. It is important to note that Q1 is historically our weakest annual revenue quarter. We secured FDA approval of EXPAREL as an interscalene brachial plexus block for upper extremity surgeries and launch is underway. We continue to have collaborative and productive meetings with policymakers in Washington as recently as this week who we believe now have the information required to provide opioid-sparing opportunities to address the public health emergency and Opioid Commission Report, specifically Recommendation Number 19 in that report. And our partnership with the Johnson & Johnson continues to flourish with a record high number of accounts actively ordering EXPAREL. As the only opioid-free long-acting local analgesic approved for infiltration and nerve block for post-surgical pain, EXPAREL has become the dominant platform for multi-modal durable pain management and is uniquely positioned as a critical component in reducing the role of the operating room as a primary unintended gateway to opioid misuse and abuse. As we've done on our prior calls, I'll focus my remarks today on three strategic priorities which we had previously outlined for the investor community. First, expanding the use of EXPAREL in key surgical settings through new clinical data and enhanced recovery after surgery or ERAS protocols from influential academic medical centers. Second, driving education and awareness around the need for opioid-sparing solutions within and outside of the operating room. And third, partnerships and collaborations with organizations who share our commitment to reducing or in some cases eliminating opioids in the post-surgical setting. Let's begin with the expansion of EXPAREL into nerve block.…

Thanks, Dave, and good morning to all joining today's call. After successfully securing approval of EXPAREL as a brachial plexus block, the clinical and regulatory teams are now shifting to several exciting new priorities. I'd like to start with pediatrics, where we had made considerable progress. We recently met with the FDA and solidified our pathway for developing EXPAREL for pediatric patients aged six and over into our label. We're excited about this program as there are limited options for managing severe post-surgical pain for this vulnerable population who urgently need opioid-free options. This is particularly true for children aged 6 to 12 years who do not have any other local anesthetic options that have been approved for use by the FDA. We have already initiated a pharmacokinetic and safety study to support the use of EXPAREL in children 12 to 16 years of age who are undergoing corrective spine surgery. And we are rapidly implementing the recommendations from the FDA for an extended PK and safety study that will include children 6 to 16 years of age who are undergoing cardiovascular or spine surgeries. These painful procedures are ideal for EXPAREL to provide analgesia via a long-lasting field block to manage pain and reduce the need for opioids. Our submission will also include an extensive package of real-world evidence from the Cleveland Clinic and the Premier database for several surgical procedures in patients under 18 years of age. Next, let's move to our Phase 4 caesarian section study. We continue to see great interest in this program from both patients and healthcare providers where there is a key need for a non-opioid alternative for new mothers and their babies following this common surgical procedure. The study is rolling on track and we look forward to reporting top-line data later…

Thank you, Rich, and good morning, everyone. Before I walk through the first quarter financial results I'd like to remind you that we will be discussing non-GAAP financial measures this morning. The press release we issued this morning includes a description of these metrics and why we believe they provide additional insights into the financial aspects of our business. The press release also includes a reconciliation to GAAP for these measures. Overall, we had a great quarter. Net product sales of EXPAREL increased by 9% to $74 million for the first quarter of 2018 compared to $67.7 million in 2017. During the first quarter, we continue to see an increase in EXPAREL demand in both new accounts and existing accounts. We believe this is driven by the successful execution of our three-part EXPAREL growth strategy that Dave just described. Our non-GAAP gross margin for the first quarter of 2018 was 71% versus 67% for the first quarter of last year. Our first quarter 2017 gross margin was unfavorably impacted by the cost of several discarded lots of DepoCyt(e). As you may recall, we discontinued the manufacture of DepoCyt(e) in June 2017. Non-GAAP research and development expenses decreased to $13.7 million for the first quarter of 2018 versus $16 million for the first quarter of last year. The decrease in R&D was largely driven by the completion of our Phase 3 studies in nerve block. Our non-GAAP selling, general and administrative expenses were relatively flat, coming in at $37.7 million in the first quarter of 2018, compared with $36.8 million for the first quarter of last year. All of this resulted in non-GAAP net income of $900,000 or $0.02 per basic and diluted share for the first quarter of 2018, compared with a non-GAAP net loss of $7.3 million or $0.19…

Thanks, Charlie. In closing, 2018 is off to a great start and we believe Pacira is well-positioned for continued success. By year-end, we look forward to achieving many important value-creating milestones, including achieving a highly successful launch of EXPAREL as a brachial plexus nerve block for regional analgesia, achieving our full-year EXPAREL sales guidance, completing the C-section study, and reporting top-line results, launching additional on-label clinical studies in hip fracture and spine, securing separate reimbursement for EXPAREL for both public and private payers, broadening national education and awareness around non-opioid alternatives for post-surgical pain management through our Choices Matter campaign, and forming new collaborations with healthcare providers and payers who share our passion for improving patient care through opioid minimization strategies. And with that, I'd like to turn the call over to Dylan to begin our Q&A session. Dylan?

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

Hi, good morning. This is Ashley Ryu for Randall. Charlie, you've talked about early enthusiasm for nerve block and I know it's early and you touched upon why you haven't raised guidance to be more conservative. But I think during the sNDA kind of update call, I think Dave said something along the lines of like stay tuned for 1Q around guidance. Is there anything that you've seen thus far that makes you maybe a little bit less confident around nerve block? Or why wouldn't you raise, just given kind of what was said about a month ago?

Well, on the contrary, I don't think there's anything that we've seen in actual results that gives us pause. Frankly, I think it gives us confidence around our financial guidance. The question is really that of timing and when do we know enough to know when the right change to guidance would be. And at this point, we're a couple weeks into an important product launch and all of the early indicators are quite positive. But I don't know how to put that into a dollar figure at this point and so once we are more confident of that, we'll do that.

Got it. And just following up on the regulatory side, you guys have a lot of updates coming up with both the CMS J code update and obviously you guys are working through the House draft bill as well. What are your expectations around kind of the likelihood for a positive outcome for both and just if you can provide more of an update on how you see the J code kind of shaking out?

I think we're – well, first, thanks Ashley, for the question. I mean, we're highly engaged with all of the appropriate people in D.C., as a matter of fact, I was there most of the day yesterday. And I think we are as well-positioned as we could possibly be both with the policymakers at HHS and CMS, where we have a very good relationship. There is real interest in improving patient care and providing a non-opioid alternative to their constituents, as well as on the legislative side, both with Energy and Commerce and with Ways and Means. And so I think we're positioned well. There's a lot of moving parts actually down there and for me to tell you what I think is going to happen, I think, it doesn't make a lot of – it just – it's what I think and I think we've done everything we can do. I think there's a great appetite in D.C. to solve this problem in one way or another and they've got a number of different alternatives that they could take. We believe that we will be part of any or all of those. And so we're in a good spot from our perspective.

Got it. Thank you so much.

Thank you, Ashley.

Thank you. Our next question comes from David Amsellem of Piper Jaffray. Your question please. David A. Amsellem - Piper Jaffray & Co.: Thanks. So I wanted to ask a long-term oriented question on the competitive landscape and specifically wanted to get your thoughts on other long-acting non-opioid modalities, specifically Heron's HTX-011. And just give me your general sense, Dave, on how you see the competitive dynamic shaking out in terms of your respective role in the marketplace versus Heron's and whether or not you see EXPAREL carving out certain niche areas and Heron carving out other niche areas. I just wanted to get your sense of how the competitive dynamics longer term will shake out in your view. Thanks.

Thanks, David. That's a very broad question, as I'm sure you're aware. Let me just start out by saying that if you read the ASRA papers they make a comment that I think is very interesting from a clinicians and a healthcare provider's point of view when they phrase EXPAREL as being physiologically appropriate for use across a broad range of surgical settings. You can see that this product can be used intrathecally, it can be used in all kinds of different ways by the physician community and we believe that that is very much distinctive to EXPAREL as it relates to nerve toxicity and muscle toxicity, et cetera. I think we're in a great spot. We've got a nerve block label, focus back on my comment 30 seconds ago, on what that might mean to us and might not be available (00:26:55) for others. Same thing with the TAP block. There are a number of surgical procedures that are going to be driven by anesthesiologists and folks that are doing orthopedic surgery, plastic surgery, spine surgery, et cetera that we think are really most appropriate for a physiologically appropriate delivery technology. I think if you layer on top of that all of the strategic partnerships that we've got and our ability to work with the American College of Surgeons and all of these different healthcare providers. We are very strong in the ambulatory care environment with Aetna, which has been disclosed publicly that a whole number of additional commercial payers who are paying for EXPAREL based on moving patients from in to out. So I mean, maybe the simplest way for me to answer your question, David, is if you look at the delivery technology and if you look at the adverse event profile, I don't think there's any restrictions at all on where EXPAREL can be used by clinicians to improve patient care and I'm not sure that that's an opportunity that's available to the competitive technologies. David A. Amsellem - Piper Jaffray & Co.: Okay. That's helpful. Thank you.

Thanks.

Thank you. Our next question comes from Dana Flanders of Goldman Sachs. Please go ahead. Dana Flanders - Goldman Sachs & Co. LLC: Hi. Thank you very much for the questions. My first here, just as we try to think about the potential impact of a J code change, can you remind us just how many of the overall surgical procedures that you are targeting are currently in the outpatient or ambulatory setting? And then, do you have a sense of just what EXPAREL's current split is for outpatient versus inpatient and just where that can go over time? And then I have a quick follow-up.

Yeah. And as I've said a bunch of times, Dana, the data is imperfect. The way we receive data, we can't separate hospital outpatient departments from hospitals because of the same physical pharmacy is making the purchases. What we can tell you is that if you look at purely ambulatory surgeries owned by physicians or not hospital-related, it's about 10% of our business. Let me go in a slightly different direction and I may be able to answer your question with a little bit better information. If you look at CMS patients, or patients who are over 65, they're about 47% of our business, and – so then about 57% of our business is commercial payers and not Medicare, for example. Few of those are treated on an outpatient basis today because of the lack of reimbursement and the fact that the payment for an ambulatory procedure is less than it is for an inpatient procedure. And so it's actually more difficult from a financial perspective for somebody to use these products in a skinnier DRG, if you will, outside the hospital than in. So there is really two ramifications for us to get a J code: One is that it will open up the opportunity for patients and I'll use brachial plexus, with a 10 cc dose that it's a $170 WAC, not only to get a four days of pain control in an outpatient environment, but the payer would – or the government would save 40% of the cost of care for treating that patient for the expense of $170. And so that was one of the focuses of our meetings yesterday in D.C. that from a budget perspective, this is a terrific opportunity because you really don't understand what you can do to improve patient care when…

Yeah. Thanks, again, Dana. We've got term sheets for a number of territories and so that's why we have some confidence in making the statement that there will be some announcements over the next couple of quarters. There's two aspects. One is protecting your borders, so you'd be interested in a Canadian relationship, for example. And then the big markets are in Europe and China and there is some discussions with the rest of the world, in Latin America and Japan, et cetera. If your question specifically about Europe is whether you would carve out specific territories, we're going to file a pan-European application and we're doing that ourselves because we think the people that are in the best position to have these discussions with the regulators, at least at the current time, are us. And we also wanted to wait until we had the nerve block approval, so that we could make the European application for both infiltration and nerve block, which is what they asked us to do, frankly. So I don't think – we are not going to discriminate in terms of the regulatory approval process on where the product is launched in the territories, but I think that will be dependent on who we end up with as a partner. And maybe we should have started here that our intention, our strategy here is not to do this ourselves unless there is some M&A opportunity that provides us with some commercial expertise in Europe that we do intend still to have a partner but we think we're in much better shape once we have late-stage discussions with the regulators and with our rapporteur about an approval. And then the big goal is China where just – China's just big period. But there is great interest there in opioid-sparing going all the way back to the opioid wars (00:33:53). And so there's a whole generation of Chinese folks who have a great aversion to opioids and so there's a lot of interest in our product there as well. Dana Flanders - Goldman Sachs & Co. LLC: Thank you.

Thank you.

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

Hi. Thank you for taking my question. This is actually Caterina (00:34:14) on for Chris. So I guess can you talk more about your infiltration studies in terms of the updated timelines and what you're most excited about? And I guess more broadly in light of the nerve block approval, how are you thinking about your R&D priorities and has that really changed? Thanks.

Thank you, Caterina (00:34:33). I'll ask Rich to jump in here, if I say anything that is different. There's really – as we've moved forward here, and especially now with the nerve block approval, what our customers are asking for is really more around education and training on the use of EXPAREL, especially as it relates to ERAS protocols than it is on more and more clinical data. As folks get experience with EXPAREL, they know how to use it and what they're asking for then is, how do I replace an epidural catheter with EXPAREL? And then we have some of the highly technically competent or technically demanding procedures like hip fracture where we're thinking that we'll go with a fascia iliaca field block, for example, and spine, which is turned into more an opportunity to study a broad range of procedures and then determine which of the procedures married with EXPAREL provides us the greatest opportunity to minimize opioids and improve patient care. And that's why the JNJ relationship has been so important. So what you'll see over time here is our customers are saying, it would be much better for me if I can go to the academic centers that are developing these ERAS protocols and work with them for a couple days and then go home (00:35:51) with an experiential way of understanding their ERAS so that I can take this to my hospital and my patients than it is for you to continue to develop clinical data and all of these different procedures going forward because I know how to use EXPAREL. Now I need to understand the sophisticated aspects of these ERAS protocols. And so if you say which ones are we most excited about? From our perspective C-section is huge. It's what the…

Great. Thank you so much.

Okay. Thank you.

Thank you. And our last question comes from Oren Livnat of H. C. Wainwright. Your question, please? Ms. Wainwright (sic) [Mr. Livnat] (00:38:24)?

Oren, are you on mute? Oren Livnat - H. C. Wainwright & Co. LLC: No. Can you hear me?

Okay. Yeah, we can hear you now. Oren Livnat - H. C. Wainwright & Co. LLC: Okay. It wasn't on mute. Strange. Thanks. Just a couple questions. Firstly, obviously a lot of eyes are on the reimbursement front, both legislative, I know we're all refreshing this CMS agenda page. And I'm just wondering if you could maybe just give us a little broader perspective on may be what are your multiple mechanisms you've mentioned approaching this? Because, I think, some people think it's all or nothing on legislative, some people think you need this J code or Q-code. Can you talk about just in general, what are your options if you don't show up in the agenda, let's say, for this May meeting? Why do you still have confidence that you'll potentially have other parallel mechanisms to get improved CMS reimbursement? And then I have a follow-up on competitive landscape. Thanks.

Yeah. No, the real question on the table, Oren, is the unbundling, right? We could achieve a J code, but if we were still bundled, it wouldn't do us any good because there still wouldn't be a discreet payment. So the way that this unwinds is a unbundling of the four non-opioid treatments only by the way, again, a topic of great discussion yesterday, that you unbundle, and then once it's unbundled then there are a number of different ways that you could achieve a discreet payment for EXPAREL. It doesn't have to be a J code, it could be a Q-code. They could reinstate the C-code of C9290 for 1 milligram of liposomal bupivacaine. There's a whole number of opportunities for CMS to provide a payment scheme. But the key for us is to achieve an unbundling and I think that's widely understood at HHS and CMS as well as both sides of the aisle in the legislative world. Oren Livnat - H. C. Wainwright & Co. LLC: So if we don't see – if an agenda posts tomorrow for this meeting, and you're not on there, we shouldn't think that that means you're not going to have potentially dramatically improved reimbursement in the foreseeable future?

No. That's exactly correct. There's two strategies here. One is the unbundling and the other is the J code. So we're following through on the J code strategy so that people are educated and there is an opportunity to interact with those people based on the timing of a legislative release (00:40:52), but it is not all or nothing for sure. As a matter of fact, it is the lesser of the two opportunities that are currently in front of us. Oren Livnat - H. C. Wainwright & Co. LLC: Great. Thanks. I mean, that's important. Also on the competitive landscape again, you touched on this earlier about the potential different profiles of the product. But just bigger picture, you spent all these years is really learning how these P&T committees work, how I guess hospitals allocate resources internally. And given what you've learned, do you see realistically a place for hospitals to have two different extended release bupivacaine products in use for one kind of procedure, or one kind of indication, and swapping? Or do you think it's much more realistic that given the relatively similar profiles of the product set, it's going to be all or nothing? And that there is maybe a major incumbency advantage there.

Well, let me separate the questions if you don't mind. I don't think that we believe that the profiles of the two products are relatively similar. I will answer your question that I think it will be very difficult to have more than one product on the P&T. There is high sensitivity to taking something off before you put something else on. And so I think there is a great value and incumbency in that regard. We also believe that the vast majority of the upper quadrant procedures, for example, are going to be 10 mL vials, where your WAC cost is $170. So I think there's a number of reasons why incumbency could be really important here. But I think at the end of the day, the decision around which products you carry is going to be based on safety in 90% of the cases. And to me that's a no-brainer. There is no – that's just a no-brainer. I'll just leave it there. Oren Livnat - H. C. Wainwright & Co. LLC: Thanks. Appreciate it.

Thanks.

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

Yeah. Thanks very much. Two questions. First is, I know you haven't really discussed it that much and sort of downplayed it because you had a lot of other things on your plate. But I was just curious if you could give us some color on how the introductions to the oral surgery community is going? And I note you mentioned you're going to expand your sales force and part of that was into the oral and maxillary area, and would that involve sort of reinvigoration and higher level investment into that community? And then just secondly, to follow-up on the ex-U.S. opportunity, I know you talked about filing strategy, some of the countries you're particularly enthused about entering. Curious, could you give us, just from a 20,000-foot view sense of what sort of peak sales opportunity you might be looking at in both the U.S. and Asia? And would reference pricing, particularly in Europe, be a problem given that bupivacaine has been generic for quite a while? Thanks.

Yeah. No. Thanks, David. I'll take it in order as best I can, but come back to me if I don't answer your questions. So the purpose of the retail organization is exactly as you outlined. Because of all the opportunities and are (00:44:15) now accentuated by nerve block, we have increased opportunity in the hospital, but we also have a very significant opportunity outside the hospital, as we represent it with our JNJ partnership as well. I would tell you a very small team here over the last two quarters has been working telesales with the plastic surgery audiences and with the oromaxillofacial (00:44:40) surgery audiences with great success. And so we have some real reason to believe that it is an appropriate time for us to invest and going with live promotion to those people, but also accentuate it by the need, as we talked about with ambulatory care, to go into those centers and make sure that they have all the appropriate information to how to bill for EXPAREL, how to work with their payers. And in many cases, by the way, its connecting the ambulatory care people with the payers because the payers want the ambulatory care center to use EXPAREL, but there is a gap of knowledge around what is the code, what is the payment code, which procedures are you going to pay for, et cetera, et cetera. So, we just think the timing is right, but yes, we do believe that – and Charlie alluded to this, there is no expense line yet for these activities, but there's no revenue in there for these activities either. So we'll come together with those two things. So if that doesn't answer your first question, please come back to me. In terms of the rest of…

Thank you.

Right.

This concludes our Q&A session. At this time, I'd like to turn the call back to Dave Stack, Chief Executive Officer and Chairman for closing remarks. Please go ahead.

Thank you, Dylan. And thank you for your questions and time this morning. We look forward to providing additional updates in the future. And next up for us is the Deutsche Conference in Boston, followed by the Bank of America Conference in Las Vegas. We look forward to seeing you soon. Thanks again.

Thank you, ladies and gentlemen, for attending today's conference. This concludes the program. You may all disconnect. Good day.