Good morning, ladies and gentlemen and welcome to the Q4 2019 Pacira BioSciences Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct the question-and answer session, and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to hand the conference over to your host, Ms. Susan Mesco, Head of Investor Relations. Please go ahead.

Thank you, Tiffany, and good morning everyone. Welcome to today's conference call to discuss our fourth quarter and full year 2019 financial results. Joining me on today's call are Dave Stack, Chairman and Chief Executive Officer; and Charlie Reinhart, Chief Financial Officer. Before we begin, 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. For information concerning risk factors that could affect the company, please refer to our filings with the SEC, which are available from the SEC or on our website. With that, I will now turn the call over to Dave Stack.

Thank you, Susan. Good morning everyone and thanks for joining us. By every measure, 2019 was an outstanding year for Pacira. We are delighted to report record revenues for EXPAREL and have now delivered six consecutive quarters of greater than 20% year-over-year growth. Demand continues to broaden within the anesthesia community, as EXPAREL-based nerve blocks and field blocks take hold as institutional protocol for a variety of surgical procedures. Our relationship with J&J has solidified the role of EXPAREL as the cornerstone of opioid-sparing protocols for painful orthopedic procedures. In addition, we enhanced our leadership in non-opioid pain management with the acquisition of iovera°, a novel cryoanalgesia device that delivers immediate and long-term pain relief. Looking forward, our mission in 2020 remains steadfast as we continue to advance our leadership in non-opioid pain management and regenerative health solutions. As Charlie will discuss later in the call, we expect robust top line growth to drive substantial operating leverage and cash flow, providing significant financial flexibility to invest in future growth opportunities. To achieve our mission, we are executing across all three of our global growth pillars. First, delivering robust revenue growth by expanding the use of EXPAREL and iovera° for opioid-sparing pain management. Second, pursuing innovative acquisition targets to improve patients' journey in the neuro pain pathway. And third, advancing a pipeline of customer-focused non-opioid pain management and regenerative health solutions. I'll start with the top line and begin with EXPAREL where we achieved over 23% year-over-year growth in product sales in 2019. This was a result of a strong demand across all procedures and sites of care. Broad EXPAREL adoption is accelerating as we remain on a clear path to achieve annual revenue growth rates in the high teens for at least the next five years with total revenue expected…

Thank you, Dave, and good morning everyone. I'll start by summarizing our 2019 financial results and then walk through our outlook for 2020. To remind you, 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 the news release we issued this morning. 2019 was another outstanding year for Pacira with accelerating revenue growth supported by modest increases in operating expenses yielding an increase of more than 60% in non-GAAP net income. These results illustrate exactly why we are so bullish on the future of our business, which is on track for accelerating profitability. These trends also support significant growth in operating cash flows resulting in 2019 year-end cash and investments of $357 million. This financial strength leaves us well positioned to solidify our leadership in non-opioid pain management and regenerative health solutions. EXPAREL net product sales were $116.9 million for the fourth quarter and $407.9 million for the year. This was at the high-end of our guided 2019 range of $400 million to $410 million. For iovera, we recorded net product sales of $3.2 million for the fourth quarter and $7.9 million for the year. This was roughly in line with the low-end of our guided range of $8 million to $10 million. Our non-GAAP gross margin was 75% for the fourth quarter and 76% for the full year in line with our full year guidance of 75% to 76%. Non-GAAP research and development expenses were $18.3 million for the fourth quarter and $67 million for the year. As discussed on our last call, this came in at the high-end of our guided range of $60 million to $70 million. The main drivers of this increased R&D spend from prior year levels were our Phase…

[Operator Instructions] Your first question comes from the line of Randall Stanicky with RBC Capital Markets.

Great. Thanks guys. Dave, can you just talk through some of the upside drivers that could come throughout 2020 that would lead you to revisit the guidance that you provided? And then also one, talk about how you're thinking about competition which as we learned last night has been delayed again. And two confirm that you've seen no growth slowdown early in the year in the EXPAREL trends. And I have a follow-up for Charlie.

Sure. Thanks Randall. It's -- as you know we come out of a 23-year -- or 23% growth in 2019. And really what the gate is on that is only 10% to 15% of the anesthesia procedures in the United States are done as a regional approach today. And so the real key and the real excitement around MEDNAX and Cancer Treatment Centers of America and Envision is teaching these -- the anesthesia community how to use these regional approaches and how to make sure that they understand EXPAREL. So, what happens here is very much excitement in the anesthesia community thinking that EXPAREL really provides them opportunities that were not valuable -- not available to them before they had a long-acting local anesthetic. They use it generally in a brachial plexus block, they move to field blocks, they see that the patients don't require opioids, that opens up the door for them to then move those patients to an ambulatory environment and it's really the reason why we're able to do these large painful procedures in a 23-hour stay environment. Things that we used to keep in the hospital because they had to have a thoracic epidural or they had to have a pain pump or something that kept them from being outside. So, the basis of our business, Randall, is twofold really, it's the regional anesthesia programs driving an improved care profile and that impair -- profile of reduced opioids allows the payers to drive the patients to a different site of care where as we've said several times they say between 35% and 40%. The reason I answer with that first is that's not only an opportunity for 2020, but with 10% to 15% of the procedures now, it's a matter of training those folks not only…

Yes. No, before we move to Charlie, is it fair to say that you've seen no change in the near-term growth trend with EXPAREL?

Yes. I'm looking around the room here at all my lawyers and stuff to make sure. Guidance is a funny thing, right? So, it's relative. So, I'm going to say yes and I'll get beat up later.

Randall early 2020 results have been pleasing to us. We're happy.

Okay, that's helpful. And then Charlie, it looks like you're containing OpEx spend. And a big part of the story that hasn't gotten a lot of attention is the operating margin or operating leverage opportunity. Can you talk about that? And maybe give us directional or specific color. Where can margins go to over the next three years?

From an operating margin perspective, so obviously, as revenues keep going up and as margins get into the mid-80s or high 80% range, we don't think that that is -- we're not going to have a lot of OpEx increases. I think from a sales and marketing perspective, we'll probably grow but we're going to start to reallocate what we do from an R&D perspective as we wind down spending on EXPAREL, we wind up spending on ioveraº, and the DepoFoam pipeline that Dave was describing those things. But we don't see that total budget changing that much. So, we really think that there is a huge -- hugely exciting story in the operating margin as you point out and that could be into the 40%-plus range over the five-year planning process.

Okay, that's great. Thanks guys.

Thanks Randall.

Your next question comes from the line of David Amsellem with Piper Jaffrey.

Thanks. Just have a couple of questions. First, Dave, you alluded to the J&J relationship early in your remarks and I wanted to get your latest thoughts on the future of that relationship and specifically how you're feeling about the economic structure of that relationship given where the growth of EXPAREL is coming from primarily? That's number one. And then number two is can you talk to the mix for EXPAREL in terms of the portion of volumes that are ultimately being used as a block versus infiltration? Just give us some metrics around that if you can? And then lastly on ioveraº, that $200 million target, does that include any of the osteoarthritis opportunities? Thanks.

Yes. Thank you, David. J&J remains a very important strategic partner for us. I mean just as a high point, it provides the opportunity for our folks to have an increased focus on the anesthesia community and on all of the things that are really driving our business. And I'll get that to the answer in your block question. J&J still owns spine, which is one of the fastest growing outpatient procedures. They still own sports medicine and we talked during the script about the pediatric indication and the strategic importance of that. J&J owns the pediatric -- just went right out of my head. The spine procedure for scoliosis, thank you Susan. Sorry guys. J&J owns the scoliosis marketplace. And so in addition to working with the ASC folks or with the orthopedic folks on moving TKAs and other orthopedic procedures through the outpatient environment, sports medicine and spine we have every intention of keeping that relationship in place and we are assuming that they will as well by the way through the conclusion at the end of 2021. We're preparing David like that's -- we're going to be on our own after that. Never say never. We'll just see how this all evolves over the next couple of years. But right now both parties are contributing materially to the growth that you're seeing on an annual basis here. So it still works in our favor. The blocks versus infiltration David, I think probably the easiest thing to say is that the vast majority of our growth on an annual basis is blocks. I think that was probably fairly apparent. The infiltration business is still there and it will always be there. For example, most of the pediatric use of the product and the studied indications are for infiltration.…

Okay. Thanks.

Thanks, David.

Your next question comes from the line of David Steinberg with Jefferies.

Yeah. Thanks. I was wondering if you could give us some more color on the rollout for C-sections. I know that EXPAREL is already approved for using C-sections as a nerve block indication. As such what, sort of, revenues have you actually generated in C-section? And if it's de minimis, what are the key factors that are going to drive the timing and the key factors that are going to drive usage? Is it this paper you indicated it will be completion of Phase IV studies? And then secondly, are there any situations that you've seen where some hospitals or purchasing groups might be delaying a purchase of EXPAREL as they wait for a competitive product and want to play off the two companies against each other to get a lower price point? And then along the same lines, Heron is making some news is that when they do get approved or if they get approved, when they launch their product they're going to come in at a lower price point than EXPAREL. And if they do so and some purchasing groups say something to the effect of, I know you're on the formulary, but there's a lower-priced product. You need to play ball with us coming with a lower price point. What would be your response? Thanks.

Thanks, David. First, for the rollout of C-section is the first two pieces of that are -- we referred already to the MEDNAX relationship where we've trained something in the order of 4,000 health care providers on C-sections and on OB anesthesia regional approaches. Again that relationship has been gated by the paper that we expect to come out any day from anesthesia and analgesia. So there's always some forward thinkers who are using the product because they've been to training sessions and because it's approved for plane blocks. And so it's an on-label indication. We would expect that the vast majority of the growth will come in as a future directed response to the first paper that showed a 52% reduction in opioids and that the vast majority of the patients in that took one or fewer opioids and shows the benefits of reduced opioids. These -- so that's sort of stage one and we expect that to be in the very near term days to weeks. The second piece will be as the CHOICE data. So CHOICE is the opioid-free program where we compared EXPAREL to a spinal morphine-based initiative. With a third arm where it was an EXPAREL TAP plus a very low dose of opioids and showed that you indeed can do an opioid-free C-section that you can have equal or improve pain control and without any of the side effects of opioids. The patients stay in the hospital for a shorter period of time or have the opportunity at least to stay in the hospital for a shorter period of time. The SOAP meeting is in May. We expect to have a series of abstracts and presentations there. And then that publication will come out sometime later in the year. So, we see all of…

Okay. Thank you.

Thanks.

Your next question comes from the line of Greg Fraser with SunTrust.

Good morning folks. Thanks for taking the question. In terms of competition to the extent that 011 can eat in to EXPAREL use, what are the settings or procedures where EXPAREL is used now that you think could be more at risk than others? And then, on C-section you mentioned a number of health care providers that you've trained on the use of EXPAREL. Can you put that into context in terms of the number of C-sections they represent or the proportion of the U.S. market they account for? Thank you.

Yes. It's -- they're all a moment in time when it comes to how many people have been trained for. When you start -- well, maybe I'll answer the question in one very broad way. There is no data source that tells you exactly how many C-sections each of the different anesthesia groups around the country do. You can extrapolate it from hospitals, but it's using different data sets and extrapolating them into a median of some sort. So, it gets a little bit sloppy. We're pretty comfortable that we've already trained OB anesthesiologists who would do more than 10% of the C-sections in the United States. If you look at anesthesia and CRNAs as a group, the folks who would be the largest providers of anesthesia there's roughly 110,000 of those folks in the United States. By the end of 2020, we would expect that we would have treated roughly 50% of all of those folks. So, if you said then that there were 1.2 million or 1.3 million C-sections in the United States and you just use the raw number that we've trained half of them on regional approaches, you would expect then that we would have treated or we would have the opportunity to be involved in 650,000 C-sections as we exit 2020. It's sort of a piece together approach, but it's the only data that we have. Does that makes sense?

Yes that makes sense.

And then -- yes and I mean you've got a small volume product that you can't dilute, you can't add pre-bupivacaine. I mean, I think they -- some significant issues about NSAIDs and neurotoxicity and a number of different issues that they're going to have to address. I think it's actually quite a good drug for bunions. I don't -- I think that's about the end of it as far as we're concerned.

Okay. Thanks for the color.

Thanks, Greg.

Your next question comes from the line of Liana Moussatos with Wedbush Securities.

Congratulations on a great quarter, great year. Can you give us an idea of what you think peak sales could be for pediatrics and for veterinary applications? And then for Charlie, any guidance on manufacturing expansion costs this year?

Let me make sure I got the question. You're asking about peds and vet, Liana?

Yes. Yes.

Okay. So, well, so let me give you a little bit of background at least. So, there's nothing approved other than opioids for peds. The enthusiasm in the marketplace frankly it's the first time I've ever had people get mad at me because it's -- it takes so long to get an FDA approval for something. I mean they just can't understand what's taking so long. When we look at the business ourselves, we have something like 1.1 million procedures. Remember, that we've done the work in scoliosis and cardiac surgery. So we've picked off the very top of the pain and difficulty and where patients might get opioids over and over again. And we project roughly a 50% market share at peak and -- but we lower the value of each of those patients not to be crass about it, but they would use less than a full vial of EXPAREL because of the milligram per kilogram dosing. And so we put that through at $200 a patient and you get roughly $100 million at peak. In fact, for all of these procedures, you get roughly $100 million in peak. On the vet side, you see consistent growth, but we don't have anything to do with it other than manufacturing Liana. So, we get a relatively modest royalty. The company that we sold it's called NOCITA. We -- they named it NOCITA. It was an Aratana product that's been purchased by Elanco. I know Elanco has some very specific growth thoughts around EXPAREL but it would be -- or NOCITA but it would be inappropriate for me to tell you to try to quantify that in any way other than the fact that, it is now in the hands of a much bigger organization that's thinking about outside the U.S. etcetera.

For pediatrics are you thinking about a smaller volume vial in the future?

Probably not. And I'll tell you why. One thing, we've learned in spades from the 10 ml and the 20 ml is that people usually start with the lower volume. Oral/maxillofacial surgery would be emblematic here. So they would start with a 10 ml dose, but in a very short time they would batch their patients so that they would take 4, 5 ml doses out of a 20 ml vial for cost reasons. And so the business aspect of this is that there's very little difference in the manufacturing cost of a 5 ml or a 10 ml vial. And so it's very hard to make the price materially different. It's never going to be approaching half. And so the anticipation in the marketplace is that, it might be the first purchase of somebody in a small volume facility, but almost immediately they would go to the less expensive larger SKU and divide it and that's okay within our package insert for four hours. So they're much more likely to batch the patients and pull all the doses in the morning and then use them as they go through the day. So it's -- the cost of a new line Liana is $3 million to $4 million and it takes 3 years 4 years to validate it. It's just not worth it at the end of the day. So I doubt that we'll have a smaller dosage form. Now we are looking at a prefilled syringe. We're building out a prefilled syringe line in our new facility out in San Diego for some of the pipeline stuff. If it turns out that we need it, we could very easily go to a 3 or a 5 ml prefilled syringe for another product. But right now that's not anticipated.

Got it. And then for Charlie any guidance on manufacturing expansion costs this year?

Yes as you can imagine those numbers fluctuate from year-to-year based on the actual projects. But in 2020, it's a little bit under $10 million of the total, is what we're anticipating. And I'll acknowledge that as a research and development those numbers can go up and down a little bit but that's what we're thinking at this point.

Thank you very much.

Thanks Liana.

Your next question comes from the line of Chris Schott with JPMorgan.

Great, thanks very much. Just a couple of quick ones here. Firstly when you think about acquisitions in biz dev should we be thinking about deals in the size range of what we saw with iovera? Or does the cash flow generation of the company you're expecting over the next few years allow you to look at larger transactions? And I guess a follow-up to that so if we're thinking about more smaller deals, how do you think about deploying that cash flow that's going to simply build up pretty quickly over time?

Yes. Thanks Chris. I'm laughing because it's the topic of conversation all day yesterday here. So we -- I think there's two aspects to that. We have the opportunity to do larger deals and as time goes on we are looking at larger deals. I don't think we still approached anything that would be considered transformative given the size of the EXPAREL opportunity and what we think the subarachnoid opportunity is for levobupivacaine. But we are looking at larger opportunities than we would have two years ago for sure. I think the other aspect of it is a deal that we just absolutely could not have looked at a couple of years ago because of a risk profile, now come into view as well because we do have the opportunity to have cash transactions. We are more open-minded about some things that might be a really big opportunity that might benefit from our expertise in clinical development and commercial development that would have been out of bounds a couple of years ago that might actually be in play now. So we're looking at all of those things. We are keenly aware of a combination of Randall's question and your question of what the cash starts to look like here over time? Maybe the most appropriate way for me to answer your question is, we've got a lot of BD opportunities. Ron and his team are very active. We've got them in both the pain space and in the regenerative medicine space. And so our plan in the 5-year plan is not to let that cash pile get high enough that we have to start to consider what are we going to do in terms of pressure from the other side because we've got too much money.

And Chris recall that at this point at least we have a convert that's due in April of 2022 amounting to $345 million from a principal perspective and our current position has been that we will have cash to pay that off if we choose to do that.

I think Chris, you're going to see a couple of transactions. We hope at least. We'll see a couple of transactions this year for sure.

Okay very helpful. And just a last quick one for me. As we think about the mix of business I think you talked a lot about outpatient. But sorry if I missed this, but what percent of your business right now comes from ASCs in terms of the EXPAREL business overall?

Yes. The only way we really get good data there is in and out. So we can tell you who was treated as an inpatient and who was treated as an outpatient. As we have this call, our inpatient business is about 40%. Our outpatient business and that includes HOPD and ASC and plastic surgeons in their office and oral/maxillofacial surgeons in their office, so again it gets a little bit messy. The market share in ASC is still modest single digits. The big part of that is HOPD looking for a home basically. I mean in a lot of places where we haven't had a full extension to ambulatory care is in states where for certificate of need reasons there aren't a lot of ambulatory opportunities. So another growth driver as we go forward is insurance carriers who are insisting on this ambulatory care that we referenced in the call. And so we continue -- we still expect that by 2025, 70% of the procedures in America will be done in an ASC setting. And that will afford about 2 million patients a year that fall within our TAM. So it's not a perfect answer to your question, Chris, but we are already an outpatient-levered company and we expect that trend to continue a lot. And just to put the final touch on that, because it's not always obvious to folks is a number of the tools that especially anesthesiologists would use in an inpatient setting like doing a thoracic epidural where the patient has to lay on their belly for two days just by definition, that's not possible in an ambulatory environment. So we not only see the patients moving out but we see the opportunity to have EXPAREL enable that transition or that migration are greatly enhanced. So that's why it's such a big part of our program going forward.

Thanks so much.

Thanks Chris.

Your next question comes from the line of Serge Belanger with Needham & Company.

Hi good morning. Just to follow-up on the prior question. I think in the past you said about 55% of EXPAREL use was outside the hospital. Where do you expect that number to be in 2020? And then I guess a follow-up to that is what would unbundling in the hospital outpatient setting mean as a growth driver?

Well, we are unbundled outside of the hospital setting. I mean there is a payment -- a CMS payment for EXPAREL outside of the hospital and the ASC setting today. So we have the answer to that. And CMS is paying $1.25 a milligram. Most of the commercial payers are paying 15% to 20% more than that. For -- we're talking about EXPAREL I assume. And so you continue to see -- well let me go back to your first question. So we said on the call that 60% of our patients now are outside the hospital. If we stick only to postsurgical pain as it would traditionally have been treated in the hospital setting it's probably in the 55% range, again. And that's going to continue to grow by 5%, 8%, 10% a year depending on which part of the country you're in and whether they actually have access to ambulatory care. So you can add over the next five years that that grows by something in the neighborhood of 5% on an annual basis. But remember it's a combination of hospital outpatient and ASCs. And in different parts of the country you will have a very high percentage of that in an ASC environment. And in certain parts of the country you will have a very high percentage of that in the hospital outpatient department. And I think the real interest here is that the payers, especially, the big payers are driving this transition because of the cost of care and the acceptance of patients to be treated in an ambulatory environment. So again it's not a perfect -- the data that you're asking for just doesn't exist in a way that I can just provide it to you or give you a reference. It's piecing together a number of different things. But today it's 55%. I think over this planning period it's going to be 75%. And I mean I can give you one reference. There was a paper written by the Campbell Clinic where they referenced by 2025 they expected that 17% of the surgeries in the United States would be done in an inpatient environment. And we agree with that by the way. And that those patients would either be medically indigent or they would have five or more comorbidities. So you get a pretty clear picture from that as to where the world is going here.

Okay. And then just on the ex-U.S. strategy. With the expectations of a European approval later this year can you just talk about how you plan -- your commercial plans there? And maybe just the market dynamics?

Sure. So we're there now. We've got a small team of people on the ground in Europe. We're going to do it ourselves largely because we can't find anybody like ourselves that does regional training and education and those kinds of things right? We're -- well the device companies don't train in the nursing staff and all the other places that you need to go with EXPAREL. They're more or less home in the OR. And the drug companies just don't do what we do in terms of day-to-day physical activities of training and education for EXPAREL. I would tell you that ioveraº is approved in Europe today so we have a place to start. And we expect our group to be going alongside the regulatory process and making sure that we're engaged in key markets. We have -- we don't intend to launch on a Pan-European basis. We have five or six countries that we will launch with where there's a definition of a need for an opioid-sparing alternative and we can get a pricing profile that's appropriate for the pricing strata that's been established in the United States. And we will hire -- on the current plan we hire a couple of dozen people. It would be a mix of reps and medical science liaisons. We would focus five or six countries and we are already there working with the KOLs and most of those KOLs have learned a lot about EXPAREL by coming to these in the United States. And so we're well downstream in terms of do some clinical work and being ready to launch in Europe. In Canada, we've got a very similar situation, but even more exposure to EXPAREL. At ASA at the anesthesia meetings, for example, we have a lot of interaction with the folks from Canada from the anesthesia community. And so you can expect that we would launch in a different place there than we did here. We won't go through all of the issues associated with trying to come up with a different best practice technique for hundreds of different kinds of surgical procedures. We will more than likely work on the high end of the spectrum with anesthesia using ultrasound guidance and doing nerve blocks. And that's the way the dossiers work. Hopefully that will be the approval process and that's the way we'll go. And China -- look the Chinese sent us to a very specific place to do a PK program in Hong Kong. That trial has been done. The data looks good. We're on hold waiting for the -- all of the issues with the coronavirus to clear up so that we can go back and have a meeting with their regulators on what the next step is going to be. Anything else Serge?

No. Thank you.

Okay. Thank you.

Your next question comes from the line of Gary Nachman with BMO Capital Markets.

Hi. Good morning. Dave, just describe the training program with Envision a little more in terms of how many anesthesiologists you could reach and what sort of impact it might have? It's early but have you seen any pull-through from that program yet? And then just talk about ioveraº in the near-term how you plan to expand the use with promotional efforts and additional clinical data? The guidance $15 million to $20 million. It's still a long way to go to the $200 million. So I just want to have a better sense of when you think you'll start to get better traction with that?

Yes. So we signed the Envision deal two weeks ago, Gary. So I can't tell you that we have anything that I can point to. So how does it work? So these innovation labs we've got a group inside our organization that does this. And we have a very strong relationship with the KOL. So if I give you a really quick snapshot so there would be a didactic portion where we would talk to them about all of the aspects of multivesicular liposomes why they stay where they put it. We are one of the few companies in America that has access to a virtual cadaver. So we can put on the funny glasses and we can look and we can strip out the muscle, we can strip out all the blood vessels, we can look just at the nervesm we can put the arteries back on so that people can see how close the artery's to the nerve so they can understand how to put the drug in different places. So there's a section there that would be more or less almost a mini course and run by one of the KOLS by the way most of these -- the vast majority of these are CME. And then typically, there would be five stations each manned by an anesthesiologist KOL. And the group would break-up and they would go with live models. And they would see, again using ultrasound guidance, exactly how to pick out, where the different nerves of interest are. And so that's pretty much a freewheeling session about – I know this guy that's doing this block can you tell me, if you were going to do that block what would you do? How much do you use? What's the volume? What are your safety…

Yeah. Yeah. That was very helpful. Thanks.

And then iovera fair enough. Fair enough. And these are – this is not a linear progression, right? This is a – this is more – this compounds itself as you grow in the marketplace. So I fully understand your comment and your question. So on the on the hospital front, we've got a bunch of people out there who are working on iovera plus EXPAREL and as we've said a couple of times we've got some big IDNs that have already signed up. We think that that's probably the majority of the $15 million to $20 million this year. And I think – I don't think Charlie didn't pull out iovera specifically. But I think everything that was said about EXPAREL in terms of trying to provide a conservative guidance so that we don't have many of the issues that we went through in 2019 also applies to iovera. On the other side, Gary for OA, other than me and a couple of other people that have been going out and talking to folks and just sitting in doctor's office and talking to patients and stuff like that we really have done very little. In MyoScience, we just didn't have the resources to do that. So we've got 15 regions. Our commercial organization is made up of 15 regions. We now have a dedicated iovera person in each of those 15 regions. So they own the iovera goal and we'll work with their EXPAREL counterpart to – on the EXPAREL plus iovera piece of this, right? In five of our regions, we are also putting out a person who is an iovera OA person. So they will only work with orthopedic groups and spine medicine groups and CRNA groups just as a point of interest. We've got several CRNA…

Okay. And then just one quick follow-up. You addressed the BD questions earlier. But in terms of your pipeline do you think you have a lot more opportunities to develop products internally? That's been an area where it's been fits and starts over the years. So is that something that you think over time we'll see more coming out of your pipeline? Thank you.

Yeah, no, thanks Gary. We think that the subarachnoid anesthetic local anesthetic – we've talked about levobupivacaine being the actual API – is the only thing in our pipeline including BD or our own pipeline that has the potential to be as big as EXPAREL. So that's really exciting. We've got a few others that look at where opioids are the standard of care and where we think we can replace opioids and dexmedetomidine is one of those. We've just finished a very formal review Gary of using an outside resource to look at actually over 3,500 different assets. And we do have two or three more that we're going to examine here over the next couple of months to see, if we want to commit to the resources that do them. We're looking at those alongside everything that Ron has got going on and in many cases we have to be – you look at a $100 million product that we can develop in DepoFoam versus something that we think could be much larger, where we could use the same clinical resources for a merger or an acquisition candidate. So we're in the middle of that evaluation now and I would say there are other opportunities. They're small. And I don't know – I would expect fully that you'd see a couple more but probably not, there's not 10 more, if that's an appropriate answer to your question.

Okay. Yeah. That’s great. Thank you.

Thanks, Gary.

Your last question will come from the line of Ami Fadia with SVB Leerink.

Hi. Good morning. Thanks for squeezing me in. You gave us some good color on kind of how EXPAREL being used in the inpatient versus outpatient setting. A couple of follow-ups on that. Do you think that there is a trend from HOPD to ASC? Or is it -- is the bigger trend from inpatient to outpatient? And then, if you could sort of talk about -- in your current sort of base business, which is basically, let's just say, 2019 revenues of EXPAREL. What is the mix of views across infiltration and then all other blocks whether it's TAP blocks, region blocks, nerve blocks? That would be helpful. And then I have a follow-up. Thanks.

Okay. So, the medical community and the payer community, considers HOPD and ASCs to be not inpatients, right? So, it is a backwards thought process I'll have to admit, right? But, you see inpatients and generally you have a DRG and a prospective payment that covers that procedure and that's what defines a patient who is a traditional inpatient from an HOPD where they still have the cover of being close to a hospital if anything happened, but they are treated primarily as a patient that will be in a 23-hour patient environment. And the only way you can define that, I mean in terms of how the payers are thinking about it, is you will see TKA, for example, CMS. So, hips and knees were on an inpatient-only list and spine frankly until very recently. And then, you see CMS move things to the HOPD environment. And so the community is given a couple of years to define how do they do that? Could they do that? Were they successful enough that there could be a progression then from an HOPD to an ASC? And in fact you saw TKA move from an inpatient-only to an HOPD now to an ASC. And you can see the price or the reimbursement for those different procedures follow that line of thinking, right? And you can see that a knee, for example, is several thousand dollars less expensive in the ASC environment than it is in an inpatient environment for a CMS patient for example. So, that is -- that's not a trend. I mean that trend has already happened. And what's keeping it from being more aggressively instituted frankly are people who can provide regional anesthesia under ultrasound guidance because it is really a nerve block world, right? You can't --…

Yeah. That's helpful. And what's the mix of how EXPAREL is being used today, whether across infiltration versus TAP -- irrespective of the setting where it gets used?

Yeah. It's -- there's no real answer to that question. I mean I'll give you what we -- how we plan against it. It's very clear that there's more nerve block than there is infiltration and that almost over 80% of the growth is in nerve block, and I include field blocks in that right? So if you said pure infiltration, I would say it's less than 40% and decreasing as a percentage of the total. Now, it's not growing so it's going to be decreasing in a market that's growing by 20-ish percent just by definition, right? And then nerve blocks and field blocks are virtually all of the growth going forward. But you always have to be a little bit careful, because as we've already said pediatrics is going to be infiltration again. So, you're going to have a dynamic a year from now when we're going to be launching into pediatrics and that one million patients are going to be almost all infiltrations because there's nothing to block, right? It's just very difficult to block something in a four-month old going into cardiac surgery.

Okay. And then the other follow-up was about...

That's a black and white world for sure.

Yeah, yeah. No. The other question was about kind of how you think about the sort of peak revenue potential of kind of the five-year plan for EXPAREL. We've seen the products use -- or sort of growth accelerate actually more in the recent years, and it seems like it's driven by the nerve block or the regional block use. Are you seeing a sort of a greater open-mindedness from these institutions to pay for a product that's a couple of hundred dollars as opposed to using bupivacaine for these nerve blocks and regional blocks? And how do you come up with that billion-dollar opportunity? If you could sort of help us think about how you think about the sizing there? That would be helpful.

Sure. So, when we find somebody who's trying to do regional blocks with bupivacaine, that's actually a best case scenario for us because they're getting eight, 10, 12 hours depending on which block you're talking about and how much volume they use and how much free bupivacaine if any they use for example. But in most cases -- and in most cases, when you switch from bupivacaine to EXPAREL, you move that from a few hours to a few days. So, I'll give you probably the best case example that I can give you. The docs used to do what they called rescue TAP blocks. And so you would have surgery. And then after the surgery the patient would wake up in pain and they would do a TAP block and the reason that they did that is because they were trying to extend the duration of that TAP block as long as they could. And generally, they would be trying to add dexamethasone, they would try to add a whole bunch of things to get in the 14 to 16-hour range because the last thing you wanted to do was to do a TAP block with bupivacaine at 3 o'clock in the afternoon. That meant that the patient was going to get 10 to 12 hours activity which meant they were going to wake up at 1 o'clock or 2 o'clock in the morning in pain again and then somebody had to do another TAP block because the drug didn't last long enough. And in fact, Ami, a lot of places stopped doing TAP blocks because of what was required to train the staff and actually do the procedure when you were only getting 10 to 12 hours of relief. Juxtapose that against EXPAREL where now because you're getting…

Got it.

Makes sense?

Yes. Thank you. That was helpful.

And so your $1 billion. So, your $1 billion question then is. So you -- so as we started out with Randall's question, you can project out over the next five years the growth of regional anesthesia. And we said early on, that only 15% of the cases in the best case scenario are being done regional now. And so you can project out the growth of what we just talked about expanding and then you can talk about the growth of folks going to an ambulatory center where you can't use all these different modalities and you have to use something where the patient doesn't get huge doses of opioids, et cetera. And if you marry those two things together you get a percentage growth on annual basis. And then if you add to that peds, we've already talked about we think that's $100 million; C-section, we think that's a $100 million; lower extremity nerve block, we think that's $100 million; rest of world, we think that's a $100 million. You could be yelling at me three or four years from now telling me that I was really conservative.

Okay, that was helpful. Thank you so much.

Thanks.

I would now like to turn the conference back -- Yes sir, I would now like to turn the call over back over to Dave Stack, Chairman and CEO for closing remarks.

Good. Thanks for your questions and for your time this morning. We look forward to providing additional updates in the near future. Next up for us is the Barclays Meeting in Miami. We look forward to seeing you soon. Thanks everybody.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day. You may now disconnect.