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Pacira Pharmaceuticals, Inc. (NASDAQ:PCRX)
Q1 2019 Earnings Call
May 2, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, and welcome to the Q1 2019 Pacira Biosciences 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. If anyone should require assistance during the conference, please press * then 0 on your touchtone telephone. As a reminder, this conference call is being recorded.

I would now like to turn the conference call over to your host, Susan Mesco, Head of Investor Relations. You may begin.

Susan Mesco -- Head of Investor Relations

Thank you, Kyle, and good morning, everyone. Welcome to today's conference call to discuss our first quarter 2019 financial results. Joining me on today's call are Dave Stack, Chairman and Chief Executive Officer; Dr. Rich Scranton, Chief Medical 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 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.

Dave Stack -- Chairman and Chief Executive Officer

Thank you, Susan. Good morning, everyone, and thanks for joining. We are pleased to report a very strong start to 2019, with continued momentum across all areas of the business. Let me begin with a few highlights. Today, we reported top line EXPAREL sales growth of 22%, with very encouraging growth trends for both the 10 mL and 20 mL vials. We are seeing increased penetration across the board in soft tissue procedures, which we believe are driven by the ongoing shift in the anesthesiology community toward regional approaches that utilize ultrasound-guided nerve and field blocks, both in the hospital and ambulatory settings. On the orthopedic front, we're building a broad awareness and utilization of EXPAREL, and a foundation of opioid sparing procedural solutions for rotator cuff, spine, hip fracture, and joint reconstruction procedures.

Our customer base continues to expand, and I'm happy to report that we are at a record high for active accounts, with over 300 new customers in Q1 and an average of 2,500 customers ordering each month. 10 mL growth is being driven by expanded use in brachial plexus nerve block and oral surgery, with 20 mL growth coming from soft tissue field blocks and orthopedic periarticular infiltration.

And finally, we completed our acquisition of MyoScience, which is now officially Pacira CryoTech. This transaction further solidifies our leadership in non-opioid pain management with a multimodal procedural solution for TK procedures and osteoarthritis peripheral nerve pain.

With EXPAREL now firmly on a strong growth trajectory, Pacira is well positioned to become a leading provider of non-opioid pain management and regenerative health solutions. To achieve this goal, we are advancing three global growth pillars. First, the continued expansion of EXPAREL in key surgical settings; second, leveraging our DepoFoam platform to rapidly advance new clinical candidates; and third, pursuing innovative partnerships and acquisitions that align directly with our strategy and complement our EXPAREL commercial infrastructure and physician audience along the pain continuum.

I'll start with our first pillar, expanding the use of EXPAREL. We are very pleased with the robust growth trends that we are seeing, and remain on track to deliver net EXPAREL sales of between $400 and $410 million, which would represent year-over-year growth of more than 20%. As we take a closer look at EXPAREL, I'll be focusing on three key growth drivers. First, the continued role out of EXPAREL-based opioids-sparing and enhanced recovery after surgery, or ERAS pain management protocols from influential academic teaching centers. Second, the high level of engagement from anesthesiologists who are reporting great success with EXPAREL brachial plexus nerve blocks, and then extending to EXPAREL field blocks, such as TAP and pecs block, the foundation of multimodal pain management. And third, strong traction in the orthopedic space due to our significant partnership with J&J, which has successfully solidified the role of EXPAREL as a fundamental part of procedural solutions for various orthopedic surgeries.

It is becoming clear that Pacira is being recognized as the go-to partner of choice regarding ERAS protocols. Our collaboration with Cancer Treatment Centers of America, or CTCA, is an excellent example of the real-world progress taking place. The March issue of Oncology Times featured the positive results from CTCA's ASURE program, which stands for Advanced Surgical Recovery. ASURE is using evidence-based protocols for major open intra-abdominal cancer surgeries. Under ASURE, rather than relying on epidurals and patient-controlled analgesia, CTCA is using EXPAREL transverse abdominis plane field blocks as the foundation of a multimodal regimen for managing post-surgical pain. The success of ASURE is evident in the data. In pancreaticduodenectomy, commonly known as the Whipple procedure, studies show an 85% decrease in opioid construction on post-surgical day three. This was accompanied by a 27% reduction in surgical complications, as well as a decrease in the average length from 15.1 to 5.1 days.

In radical debulking procedures for ovarian cancers, we're seeing a 94% increase in IV narcotic use and a 75% in total narcotic use over all. Here too, CTCA is achieving a significant drop in the average length of stay, which decreased from 7.1 days to 2.6 days.

We've also made considerable progress in our collaboration with MEDNAX team of Maternal-Fetal Specialists, anesthesiologists, obstetricians and perioperative nurses. Here, we're aiming to implement an innovative platform for cesarean section, featuring EXPAREL as a transverse abdominis plane block for targeted, long-lasting, opioid-free management -- pain management -- to allow new mothers the ability to recover faster and spend more time with their babies. There are approximately 100,000 C-sections performed each month in the United States, so there's clearly a significant need for non-opioid pain regimen to help eliminate the negative side effects of opioids.

The final item to touch on for ERAS is an educational platform that we are launching in partnership with the American Association of Nurse Anesthetists, or AANA. This professional association represents more than 50,000 registered nurse and student nurse anesthetists. We intend to support the AANA in establishing a broad educational platform around real-world enhanced recovery protocols for women's health. The goal here is to empower nurse anesthetists to be a key voice across multiple components of ERAS strategies.

Now, let me turn to our second growth driver, the growing interest and engagement we are seeing from the anesthesiology community. The market receptivity to EXPAREL as a brachial plexus nerve block for upper extremity procedures continues to go exceedingly well. As the only long-acting single dose nerve block available for patients undergoing these painful procedures, 10 ml EXPAREL brachial plexus blocks are becoming a mainstay of anesthesiologist practice habits, as well as their institutional protocols.

Our Phase III study of EXPAREL as a brachial plexus nerve block was recently accepted for publication in the peer-reviewed journal Pain Medicine. In this study, EXPAREL demonstrated a highly statistically significant result versus placebo with 78% reduction in opioids, while achieving a P value for pain control, and 13% of EXPAREL patients were opioid-free. To emphasize, improved pain control with reduced opioids.

Notably, cesarean sections are emerging as an important growth driver, and we would expect this to accelerate as awareness grows around the opioid-sparing benefits of an EXPAREL TAP block. Earlier this year, we reported top line results from our Phase IV study that demonstrated the superiority of an EXPAREL TAP block to bupivacaine TAP block in patients undergoing cesarean sections. EXPAREL achieves statistically significant reductions in opioids and pain scores through 72 hours. These data have been accepted for podium presentation at the Annual Meeting of the Society of Obstetric Anesthesia and Perinatology, or SOAP, which is taking place this weekend.

ERAS protocols for nerve block and regional field blocks are also paving the way to transition procedures typically thought of as inpatient to the ambulatory setting. We know that patients prefer a 23-hour stay, and physicians prefer to practice in the ambulatory surgery centers. Perhaps most importantly, payers recognize the significant economic advantages of shifting procedures to the ambulatory setting, with cited savings as high as 40% per case. When we look at EXPAREL use by site of care, we are seeing strong year-over-year growth in every setting, with the most significant growth rates in oral surgery and ambulatory surgery centers.

On the reimbursement front, we continue to see growth drivers take hold. As you know, CMS is now reimbursing EXPAREL used in the ASC under the product-specific billing code C90290 at $1.22 per milligram. Likewise, the American Dental Association has recognized the critical need for non-opioid options by introducing a new reimbursement code for infiltration of sustained release therapeutic drug in oral surgery procedures. Both codes took effect on January 1st, and our team is working closely with ambulatory and oral surgery centers, as well as commercial payers, to overcome upfront administrative hurdles to facilitate reimbursement on a payer-by-payer basis.

Our ASC pilot program with Aetna has delivered results, and we are now meaningfully expanding this program into a national initiative. As you may recall, Aetna has a stated corporate objective of decreasing the use of opioids, and in support of this goal, they are rolling out EXPAREL carve-out agreements for ASCs across the country.

In the dental community, the demand for EXPAREL has been very strong, underscoring the need for a non-opioid option for teens and young adults undergoing wisdom tooth extraction. While it's still early days, the leading indicators around reimbursement are highly favorable and driving new EXPAREL patients. We believe this will accelerate through the year as payer practices continue to evolve, moving patients to the less expensive ambulatory environment.

The final item to discuss on the EXPAREL front is orthopedics, where we are seeing expanded use of EXPAREL in shoulder, spine, hip fracture, and joint reconstruction. Here, our significant J&J partnership has driven EXPAREL uptake through their broad commercial reach and world-class educational programs. These have provided EXPAREL visibility to thousands of healthcare practitioners.

Turning now to the second pillar of growth, leveraging the proven safety flexibility and customizability of our DepoFoam platform for acute, sub acute, and chronic pain applications. We selected two DepoFoam programs for clinical development, the intrathecal and subarachnoid delivery of DepoFoam-based local anesthetic other than bupivacaine and Depo dexmedetomidine. Both these assets provide the opportunity to provide pain control in an area of medical need where opioids would typically be the standard of care. Rich will share additional specifics in a few moments.

This brings us to our third growth pillar, pursuing innovative products or technologies that align with our strategy and are complementary to EXPAREL. Here, I would like to highlight the benefits of our recently completed acquisition of MyoScience, now known as Pacira CryoTech. This transaction adds the Iovera system to our commercial offering. Iovera is highly complementary to EXPAREL as a non-opioid therapy to deliver cryoanalgesia via a handheld device to alleviate pain by disrupting pain signals being transmitted to the brain from the site of injury or surgery. We believe Iovera will benefit greatly from our financial strength and established infrastructure, growing partnership network, and deep domain expertise in pain, and specifically in opioid-sparing strategies.

Now that the transaction is officially closed, integration is well under way. Iovera is a perfect strategic fit for EXPAREL that further solidifies our leadership position by offering healthcare providers the only multimodal procedural solution for TKA procedures. Importantly, there is a high barrier of entry, with over 99 issued patents and 11 pending patents offering protection into the 2030s, affording us the ability to invest in the clinical, educational, and commercial efforts to fully establish Iovera as a market leader in cryoanalgesia.

Our initial go-to-market strategy will focus on two broad patient care opportunities. First, Iovera and EXPAREL for non-opioid pain management before, during, and after surgery. As many as 30% of presurgical patients with end stage knee, hip, and spine osteoarthritis use prescription opioids. With Iovera, our goal is to provide patients with several months of non-opioid pain control to allow them to prepare for surgery opioid-free, along with any other rehabilitation changes like weight loss or smoking cessation. EXPAREL for surgical pain control and EXPAREL plus Iovera to control postsurgical pain provide an environment for rapid physical therapy and return to daily activities, especially normal sleep.

In this setting, we have an existing reimbursement pathway using CPT code 64640, and key opinion leaders are using Iovera and EXPAREL to achieve near opioid-free results for total knee replacements. In fact, we have signed an agreement with a major integrated delivery network for use of EXPAREL plus Iovera, with a goal of opioid-free surgery, with training to begin in the next couple of weeks.

The second market would be drug-free, opioid-free, surgery-free pain management for osteoarthritis over the course of several months for patients seeking an active lifestyle, such as golf, tennis, hiking, or simply walking with grandchildren, as well as patients who desire to delay surgery for family events such as vacations or weddings. Our initial focus will be osteoarthritis of the knee, where there is a growing body of clinical data demonstrating success with Iovera treatment. There are 14 million individuals in the United States who have symptomatic knee osteoarthritis, and nearly two million under the age of 45. Surgical intervention is typically the last resort for patients suffering from knee OA. We are currently in dialogue with KOLs who have extensive experience regarding the optimal pathway to market.

When we look at the market potential of osteoarthritis across all nerve blocks, we believe that this is a billion-dollar market, where Iovera can capture meaningful share as patients continue to seek non-opioid options for managing pain to enjoy an active lifestyle, or to delay or avoid surgery based on planned events. From a competitive standpoint, we believe Iovera technology is very well positioned, following the concept of PRP and other advanced technologies, where physician offices and ambulatory care centers plan for an Iovera Day, where the physician extender trained in the use of Iovera can treat several patients per hour for both insured and cash pay procedures.

In summary, the Iovera technology takes advantage of the body's natural response to cold. Importantly, the treatment effect is immediate, with pain relief that can last for several months as the nerve regenerates over time. There is an opportunity to repeat treatment. It is a safe technology that does not risk damage to the surrounding tissue, as a convenient handheld device or the single procedure-specific smart tip. Therapy can be delivered by anatomic landmark, ultrasound guidance, or fluoroscopy in most treatment settings, allowing medical practices to incorporate Iovera in their practice as a new revenue generator.

Now that the acquisition is closed, we're actively rolling out our commercial plans, which include expanding commercial -- I'm sorry, expanding manufacturing capacity and developing additional clinical evidence. As with EXPAREL, we will work with the government and commercial payers to provide access to Iovera outside of the bundle for HOPD, ambulatory centers, and physician offices site of care.

With that overview, I would like to now turn the call over to Dr. Richard Scranton to provide some additional color on our clinical and regulatory activities. Rich?

Richard Scranton -- Chief Medical Officer

Thanks, Dave, and good morning to all who are joining today's call. I'd like to start by reiterating our enthusiasm around the addition of Iovera to our product offering. We believe the combination of Iovera and EXPAREL will become the preferred non-opioid procedural solution for physicians, patients, and payers.

At the Annual Meeting of the American Association of Orthopedic Surgeons, or AAOS, lead doctor Dr. William Mihalko of Campbell Clinic, a national leader in sports medicine and orthopedics, presented "Cryoanalgesia: A Path to an Opioid-Free TKA, Pre-op through Rehab." This study included 125 patients undergoing TKA. Patients were randomized one-to-one, using control or cryoanalgesia. Both groups followed the same pain management protocols, with the cryoanalgesia group receiving Iovera administered to their superficial genicular nerves three to seven days before surgery. All patients were prescribed 40 opioid pills at discharge, and pills were counted at 72 hours and at two, six, and 12 weeks postoperatively.

The Iovera system met the primary and secondary endpoints, including the daily morphine equivalent, which was significantly lower, at 72 hours, six weeks, and 12 weeks, with an overall 35% reduction in daily morphine equivalence across the 12-week postoperative period in the Iovera group. The number of patients taking opioids six weeks after TKA in the control group was three times higher than the number of patients taking opioids in the cryoanalgesia group. Patients in the Iovera group demonstrated a statistically significant reduction in pain scores from baseline to 72 hours and at 12 weeks.

Looking ahead, our clinical strategy will focus on enhancing these data with new results that highlight the complementary effects of Iovera and EXPAREL. We're hearing great success stories from KOLs who are achieving near opioid-free results and improved rehabilitation and outcomes for patient undergoing knee replacements. We plan to invest in clinical initiatives that will greatly enhance the commercial value and competitive positioning of Iovera and EXPAREL as the leading multimodal solution for non-opioid pain management before, during, and after surgery. These studies will also be designed to demonstrate the health economics and value of this combined approach, which will facilitate broader market access and reimbursement. Our initial focus will be on TKA and ACL.

If we look at ACL repair, this is one of the most common injuries to the knee. It often occurs in athletes who participate in sports like soccer, football, and basketball. Active younger patients and high-level athletes often opt for surgical reconstruction, and unfortunately, severe post-surgical pain can persist for one to two weeks after this procedure. Here, we see Iovera and EXPAREL as an ideal match for providing a powerful non-opioid strategy for managing pain immediately after surgery and providing a pronounced duration of effect afterwards that enables greater rehabilitation without the need for opioids.

Now, I would like to turn the discussion to EXPAREL, where we continue to see a tremendous amount of enthusiasm and interest around using EXPAREL as the foundation of regional anesthesia approaches. Anesthesiologists are often at the forefront of innovation for non-opioid pain management, and this is underscored in the growing body of literature around EXPAREL field and nerve blocks across a variety of procedures, including shoulder, breast, and gynecology oncology.

Last month at ASRA, which is the Annual Meeting of the American Society of Regional Anesthesia and Pain Medicine, the enthusiasm at our booth for both EXPAREL and Iovera was palpable. The meeting included several posters describing the use of EXPAREL across a variety of procedures, including novel plane blocks such as the erector spinae plane block. These trends underscore the rapid evolution of the field toward regional approaches and to eliminating cumbersome pumps and catheters, given the ease of use, the safety, effectiveness, and the economic advantage when using EXPAREL. We expect this strong momentum to continue as more and more data are published highlighting the use of EXPAREL and brachial plexus nerve and field blocks.

As Dave mentioned, our Phase III study of EXPAREL as a brachial plexus nerve block has been accepted for publication, and we expect to have more details to share on this soon. This weekend, Dr. Ashraf Habib, an anesthesiologist at Duke University Medical Center, will present the results of our first C-section study as a podium presentation during the Society of Obstetric Anesthesia and Perinatology meeting in Phoenix. This presentation has also triggered inbound interest from a prestigious anesthesia journal regarding submission of the final results for publication.

Our second C-section study, which is known as CHOICE, is up and running. To remind you, this next-generation study is designed to be completely opioid-free in the EXPAREL arm. We expect to report top line results from CHOICE near the end of this year and believe these data will help transform the standard of care for mothers undergoing C-section.

Our pediatric program is also progressing nicely and actively enrolling patients. This study, which is known as PLAY, is a top priority at Pacira, given the urgent need for non-opioid alternatives for managing severe postsurgical pain in this vulnerable young population. Investigator enthusiasm remains high, and we're already hearing success stories from our centers regarding the marked improvement in pain following these invasive procedures.

Finally, our spine and hip fracture studies also continues to progress. These studies are designed to inform how best EXPAREL can be deployed to manage pain in these difficult procedures. As for the rest of the world, we have shifted our filing timeline to midyear to accommodate regulators' request in Europe and Canada to include the results from our Phase IV studies.

With the recently completed C-section study, the pillar study in TKA, the brachial plexus nerve block study, as well as earlier studies, we have a robust submission demonstrating the efficacy of EXPAREL in infiltration, field block, and peripheral nerve block in both placebo-controlled and active comparator studies. We will be seeking approval of EXPAREL for local and regional analgesia in acute pain setting for adults.

In China, we have had discussions with regulators, and we are working with our partners at Nuance Biotech to kick off a clinical program that we believe will meet the regulatory requirements for securing approval of EXPAREL with the National Medical Products Administration, and finally, our early stage DepoFoam pipeline. The team is working to advance two product candidates into the clinic.

First, the intrathecal or subarachnoid delivery of a DepoFoam-based local anesthetic other than bupivacaine for acute and chronic pain. Here, we have an opportunity to provide an alternative to the use of intrathecal or subarachnoid opioids typically delivered by pumps and catheters. And second, Depo dexmedetomidine. With this product, we see a great opportunity to address end-of-life pain and painful conditions in the elderly. We believe the extended delivery of a therapeutic dose of dexmedetomidine has the potential to offer patients preserved mental acuity and better quality of life, while also providing adequate pain control.

With that, I will turn the call over to Charlie to discuss the financial results.

Charlie Reinhart -- Chief Financial Officer

Thank you, Rich, and good morning, everyone. Before I walk through the first quarter financial results, I'd like to remind you that we'll be discussing non-GAAP financial measures. 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.

2019 is off to a great start, with a solid overall financial performance for our first quarter. I'll start with the P&L, where we did drive significant operating leverage. Net product sales of EXPAREL increased by 22% to $90.6 million for the first quarter of 2019, versus $74 million in 2018. This growth was driven by a 30% increase in unit volume, which was partially offset by the mix of vial sizes, with approximately 18% of total units sold and 10% of total sales coming from the 10 ml vial. Importantly, we continue to see strong EXPAREL demand as key drivers take hold and deliver results.

Our non-GAAP gross margin for the first quarter of 2019 was 71%, which is consistent with the 71% we reported for the first quarter of last year. Non-GAAP research and development expenses decreased to $13.2 million for the first quarter of 2019, versus $13.7 million for the first quarter of last year. The decrease in R&D was largely driven by regulatory activities that took place in 2018 in support of the FDA approval of EXPAREL as a brachial plexus nerve block for upper extremity procedures.

Our non-GAAP selling, general, and administrative expenses increased to $42.2 million in the first quarter of 2019, compared to $37.7 million for the first quarter of last year. This was driven by the deployment of our team of outpatient account managers, who are focused on driving growth and access in the ambulatory, dental, and plastic markets; our co-promotion agreement with J&J; and the rollout of new ambulatory and dental reimbursement codes. All of this resulted in non-GAAP net income of $9.2 million, or $0.22 per basic and diluted share for the first quarter of 2019, compared with non-GAAP net income of $900,000, or $0.02 per basic and diluted share, for the first quarter of last year.

Lastly, our cash position remains strong, as we ended the quarter with approximately $412.4 million in cash and investments. As a reminder, we invested $120 million of these funds in the MyoScience acquisition that closed in April.

Looking ahead, as Dave discussed, we are very pleased with sales trends and remain confident that sales will continue to accelerate throughout 2019. As such, we feel very comfortable reiterating our 2019 EXPAREL net product sales guidance of $400 million to $410 million, which we expect to follow a similar cyclical pattern to last year. As for Iovera, this product remains in the infancy of its sales trajectory, and we are very optimistic about its long-term prospects. We expect to disclose full year 2018 net Iovera sales of $5.5 million, when we file the financial information related to the acquisition on Form 8KA in June.

For the full year of 2019, we expect Iovera sales to be between $10 million and $12 million, with $8 million to $10 million forecasted during our ownership period, which began on April 9th. We plan to report these revenues in our Other product sales category. Given the strong commercial synergies, we believe Iovera will become a significant contributor to our business over time. We continue to expect the MyoScience acquisition to be modestly dilutive for 2019, while becoming accretive on a go-forward basis beginning in the second half of 2020 and accelerating thereafter.

As Dave and Rich outlined, we continue to formalize our plans to maximize the Iovera opportunity by expanding manufacturing capacity, investing in clinical trials, while capitalizing on operational synergies. We would expect 2019 Iovera expenses to be largely absorbed by our existing operational forecast. Once our plans are solidified and implementation is under way, we will update our expense forecast, should it become necessary.

As of today, guidance remains unchanged as follows: Non-GAAP gross margins of 70% to 76%, non-GAAP R&D expense of $60 million to $70 million, non-GAAP SG&A expense of $165 million to $175 million, and stock-based compensation expense of $30 million to $35 million.

With that, I will now turn the call over to the operator to begin our Q&A session. Operator?

Questions and Answers:

Operator

Ladies and gentlemen, if you have a question at this time, please press the * and then the number 1 key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the # key.

Your first question comes from the line of David Amsellem from Piper Jaffray. Your line is now open.

David Amsellem -- Piper Jaffray -- Analyst

Thanks. So, just a couple. So first, on EXPAREL and the unbundling and the ambulatory surgical center setting. I mean, I know it's early days, and this is relatively new paradigm, but is there any way for you to size up what kind of impact you think that is having, either qualitatively or quantitatively, if possible? That's number one.

And then secondly, on Iovera, can you talk about what you need to do regarding getting better reimbursement? My understanding is that today, most patients are paying straight out-of-pocket. So, is that $8 million to $10 million mostly out-of-pocket payers? And do you expect that it will have any major movement on the reimbursement front over the next few months or into next year? Thanks.

Dave Stack -- Chairman and Chief Executive Officer

Thanks, David. First, on the unbundling around ASCs, all of the -- you're right, it is early days. We do have some quantitative understanding of what's going on. We can follow same-store sales, if you will, of the Aetna centers that started using the product during the pilot phase, which goes back to December. And we see that the growth is what we would be expecting in those scenarios.

Qualitatively, what happened is the way Aetna has handled this has given really a blueprint for how other centers or how other major national payers are expecting to roll out EXPAREL. So, this is taking time, as we thought it would. You have the right -- we think we have the right mix of places that are putting EXPAREL on formulary, centers that are putting EXPAREL on formulary and then working with the payers. It is somewhat geographic, which I guess is also expected as you roll these things out. And we are in late-stage discussions with a couple of major national players, and we expect that they will roll out across their systems over the next couple of months. So, qualitatively, exactly what we were hoping for. Quantitatively, I think things are moving forward as we would have expected. And it's gonna take the rest of this year to get this thing fully implemented across all of these ambulatory centers.

David Amsellem -- Piper Jaffray -- Analyst

And then on Iovera?

Dave Stack -- Chairman and Chief Executive Officer

Oh, I'm sorry. On Iovera, they do have 64640. So, we do have reimbursement in HOPDs. There are some commercial payers who are paying for Iovera. There's a couple of things, David, honestly. We need to increase manufacturing. So, there's no point in selling something that we can't make. So, we have to integrate all of these different activities. We will be working with the reimbursement authorities to work in some additional commercial reimbursement as well as government reimbursement. It's quite a different process than drugs. And so, we're working our way through that process. I think it's one of the reasons, David, that we have focused fairly extensively and tried to, in the script, that there is a major market here following revenue opportunities that are currently being employed and the major orthopedic practices around the country for cash pays, specifically PRP and HA when it's not covered by an insurer.

So, the early work that we've done suggests that we have a very viable cash market while we work on some clinical activities and we update Iovera. The leading indicator here for all of these things, though, is our ability to make a lot of this before we turn the major Pacira engine on.

David Amsellem -- Piper Jaffray -- Analyst

Thank you.

Dave Stack -- Chairman and Chief Executive Officer

Thanks, David.

Operator

Your next question comes from the line of Randall Stanicky from RBC Capital. Your line is now open.

Randall Stanicky -- RBC Capital -- Analyst

Great, thanks. Dave, just to hit on the obvious topic here, how do you think about the Heron delay in the context of two things: number one, the traction that you can pick up with more time alone on the market; and number two, potential support to guidance without a kind of detailed voice out in the marketplace? So, obviously you reaffirmed guidance, but I have to think that you feel a little bit better about that today. And then I have a follow-up.

Dave Stack -- Chairman and Chief Executive Officer

Yeah. I mean, for traction, Randall, clearly, it gives us more time to implement these ERAS programs, more time to fully educate physicians on the benefits of EXPAREL and actually how to use the product effectively. There's a lot of places where we continue to roll along with protocol-driven or EMR-driven protocols, and giving us another period of time to institute all of these programs and to roll out the data that report referred to can only be helpful.

As we said on the last call, Randall, our bottom-up approach to the $400 million to $410 million really reflected the base business, the contribution that we expected from nerve block, what we saw going on in the ASC setting with C codes and D codes, the revenues that we expected to get from our new ambulatory sales team that was also talking to dental and plastic surgeons, and then the 3% price increase that you noted in your note of yesterday. So, when we rolled all that up, we believe that that was the right number with or without a Heron approval this year. So, it was -- I mean, obviously, it's not a bad thing for Pacira to not have a competitor on the market, but we thought that those were the right numbers, whether there was a competitor on the market or not.

Randall Stanicky -- RBC Capital -- Analyst

Okay. That's helpful. And then, I have one on Iovera. Have you disclosed what you think that the peak potential over time of this product to be? And then, the associated question, what's been the feedback from J&J? And as you think about the opportunity within the broader Pacira platform, how does J&J fit into that? Thanks.

Dave Stack -- Chairman and Chief Executive Officer

Yeah. Thanks, Randall. We haven't disclosed a peak potential over time. I mean, we closed the transaction less than a month ago. I would tell you that the feedback from the marketplace across a range of different procedures has been phenomenally positive -- as good as we could have possibly expected. And that's -- really understand that if you can control pain for a period of time and allow these patients to show up for surgery better prepared, and then have a period of time post-surgery where they can actually rehab in a more effective way, that this is a no-brainer. So, we're very excited about this opportunity, and actually, more so every day.

But it's too early for us to tell you that we think we know what peak sales are, to be honest with you, Randall. And I would have to start with what's peak manufacturing. Until I know that, there's no way I can know what peak sales are, right? And so, there's a process that we have to go through to understand how that's going to roll out. I think -- and in guidance, we talked about -- so I think you've got a follow-up?

Oh, J&J, and how do they fit in? We're talking to J&J. We have a joint steering committee coming up. They obviously are very well aware of this. We're looking at pricing, and reimbursement, and some of the topics that were covered in the first question from David. And really understanding all of those things will be fundamentally important to understanding how we roll this out, what resources are required to achieve our objectives in the short and long-term. And so, those discussions are under way, but there's nothing that I could tell you today that would make any sense. And frankly, I need to talk to them before I disclose anything to you.

Randall Stanicky -- RBC Capital -- Analyst

Okay, great. Thanks, Dave.

Dave Stack -- Chairman and Chief Executive Officer

Thanks, Randall.

Operator

Your next question comes from the line of David Steinberg from Jefferies. Your line is now open.

David Steinberg -- Jefferies -- Analyst

Thanks and good morning. I have a couple questions. So David, it looks like the Aetna pilot program's gonna expand. AFC coverage is going well. Could you give us a little more granularity on what a national rollout actually means? I know you're in a couple of states; and how is progress with other payers? And then, Charlie, I know you laid out sort of the sequencing and seasonality throughout the year, quarterly. I was curious on gross margin. This quarter, it was much lower than your annual number for last year, but similar to Q1 last year, around 71%. So, should we expect a similar progression of gross margin starting around 71%, ending the year at around 75%? Thanks.

Dave Stack -- Chairman and Chief Executive Officer

Thanks, David. I'll take the first one. So, Aetna has been ongoing, right? The pilot, as I mentioned, same-store sales, they see the same thing we see. I think it's really important to understand that they're totally dedicated to these opioid-sparing solutions. And so, almost immediately after we saw the first results of the pilot, Aetna started adding states. We're doing, I mean, in buckets, so that we can provide an appropriate amount of support to the states. And so, we're picking them up three, four, five at a time. We agree with them on where the biggest opportunity is to make a difference, and then we roll that out over, and then we do it again. And so, we expect that as that continues over the next couple of months, that it will be achieving the national program status that we're all looking for.

Importantly, David, and I'll add this in only because I think it's probably just as important, is that Aetna's really given us the opportunity, not only in the way that they agreed with folks to cover EXPAREL -- instead of waiting for the contracts with the providers to come up, they provided an addendum. And so, the providers can have access to EXPAREL on the signing of those amendments. And that's been important not only for EXPAREL, but other national players who are also interested have asked us exactly how did that happen and how did Aetna roll this out. So, they really gave us a blueprint for how to do this across the country, and other folks have taken note of that. And that's given us a very product-specific way to talk to folks about how this can be done cost-effectively and in a reasonable timeframe.

You might imagine there's a fair amount of work to be done in getting folks up to speed. Many of the doctors understand how to use EXPARE, the surgeons and anesthesiologists, because they use it in the hospital, but we still have to train the nursing teams and all the other folks, the allied personnel and the ambulatory care centers, and then, of course, the coders and everybody that run the business to understand how to use EXPAREL. And so, if that's sufficient, David. I'll turn it over Charlie to answer your second question.

Charlie Reinhart -- Chief Financial Officer

Yeah, David, I think your question was related to how we see gross margins rolling out. And last year, as I mentioned in the script, we had the same 71% first quarter. And that is impacted by the fact that we have a manufacturing shutdown in Q1. So Q1 is usually our lightest gross margin quarter or our highest COGS quarter. So, last year then rolled out and ended in a 75% gross margin for the year. That's pretty much the same target we have this year.

So, it's reasonable to think about 2019 using 2018 as a model. In fact, frankly, the same thing is probably true in the top line perspective. Now, we think first quarter of this year was really right on our target, 22% growth, which we are delighted with. And from a proportion, we have a cyclical nature to our business. So, the first quarter's generally smaller. The fourth quarter is always the biggest. Quarter two and quarter three are somewhere between those. So, on a percent of total revenue basis, I think we're right on track, and that 2019 is likely to look pretty darn close to 2018 from that perspective as well.

David Steinberg -- Jefferies -- Analyst

Okay. And just one quick follow-up. There have been reports over the last year of some sort of bupivacaine shortage on and off again. Is there currently still a shortage? And number two, is there any way to quantify to what extent you benefited, or if in fact you have benefited? Thanks.

Dave Stack -- Chairman and Chief Executive Officer

Yeah. It's episodic, David, and it doesn't have any pattern that you can recognize or benefit from. We go into places, and they tell us that they can't get bupivacaine. And then we can go into a sister hospital, and they don't have any problem. I think part of that, David, is driven by the fact that there are various strengths of bupivacaine. Some are out of stock and some are not. And so, there are institutions, the more sophisticated institutions, that can pivot and change protocols so that they can use whatever is available without having any kind of a safety concern, because the protocols can be changed quite specifically and rapidly. It's more of a problem in the less sophisticated places where they're afraid to substitute one strength for the other because they're afraid of safety issues.

So, there still is a shortage of bupivacaine. It's not quite as pronounced as it was before, because I think many people have found solutions. There is no doubt that it has been a benefit to us in some areas. We do have some major academic centers that actually started using EXPAREL because of the bupivacaine shortage, but now are fully entrenched in the use of EXPAREL through ERAS protocols. And so, I don't see them going back to bupivacaine, based on the success that they've had with EXPAREL

So, I don't think that's been material, David. It was not part of our forecast waterfall that I mentioned earlier with Randall, but it's clear that it has helped us in some cases.

David Steinberg -- Jefferies -- Analyst

Thanks very much.

Dave Stack -- Chairman and Chief Executive Officer

Thanks, David.

Operator

Your next question comes from the line of Liana Moussatos from Wedbush Securities. Your line is now open.

Liana Moussatos -- Wedbush Securities -- Analyst

Thank you for taking my questions. So, for Iovera, what's the out-of-pocket cost for a patient? And are there any plans to develop it for the Botox indications, like migraine and cosmetic dermatology?

Dave Stack -- Chairman and Chief Executive Officer

Yes, they're almost -- the first one is almost impossible for me to answer. We're not even clear on what the Medicare copay is. And I've gotten different feedback from different folks in the reimbursement world, Liana. So if you don't mind, I'll store that call, and we'll try to answer it in the script next quarter. But right now, I would tell you that it's all over the place. And a number of places, it's hard, because you -- I mean, the way the payer structure is, it's hard to collect from these patients unless you collect the actual copay. And the reimbursement is all over the place. Everything's all over the place as it relates to Iovera. And so, we gotta standardize all of this stuff and get it into a place where it would be the kind of thing that we would go to the payers with. So, today, I can't tell you -- I mean, I've got an idea what it is, but it's variable, and it's all over the place, Liana. I don't think I'd serve any purpose by telling you a number, because it's -- well, for sure, it's wrong. I just don't know how wrong. And so, I think that's the best way.

It's interesting, there is data with Iovera and migraine and Botox. And interestingly, a number of calls that have come directly to me have been about trigeminal neuralgia, specifically in migraine. It is not our intention to launch in that indication. It is another pain profile. But right now, I think the big opportunities are where we have people who are using Iovera and are very happy with it. That's largely the orthopedic community.

We will study -- as Rich mentioned, we'll have actual clinical studies in ACL repair and EXPAREL plus Botox -- or EXPAREL plus Iovera in TKAs. And then we've got a number of initiatives where physicians have been interested in how they marry these two products. And so, we've got 20 patient pilots running in a number of places looking at how this technology can really change the way medicine is practiced in a number of other procedural situations. So, stay tuned, again, I think. But it's clearly interesting to have the data, and we will be able to provide that data to people, but it is not a place where we expect to use our sales organization, for example.

Liana Moussatos -- Wedbush Securities -- Analyst

Okay. And what about -- for the guidance of $8 million to $10 million for 2019, what pricing are you assuming for that? And what about collaborating or out-licensing migraine?

Dave Stack -- Chairman and Chief Executive Officer

So, I'll take the first question, the $8 million to $10 million. So, we closed the deal on April 9th, right? So, that's the first piece of it. We really see -- well, there's two aspects to this. One is, we want all of our commercial resources focused on driving EXPAREL and making sure that we maximize the EXPAREL opportunity this year. So, the way we're rolling this out, Liana, is we brought over a number of high-end MyoScience resources. And the first issue -- the first topic from a commercial perspective is to stabilize the marketplace and make sure nobody has a bad experience with Iovera. So, we want to take really good care of everybody who's currently using it.

From there, we've -- as I mentioned to David Steinberg, we're figuring out exactly how many units we can make, and putting on additional manufacturing resources, and trying to understand how much we can make, and then what do we want to do with those as we share those across the commercial opportunity and OA, as well as the opportunity and marrying that opportunity with additional data from Rich and his group. So, I don't see us using our big sales forces for anything this year, frankly, other than when there's an opportunity and we can leverage EXPAREL to get Iovera into an institution. Then the sales force is calling the regional directors, and we're marrying it up with the Iovera resources.

So, we're really dedicated 2019 and that number of $8 million to $10 million to cleaning up manufacturing clinical reimbursement, what the pricing strategy is. I can't give you a direct answer in your pricing question because we have a number of existing contracts that are still in place. And so, what I will tell you is that our intention -- strategically, our intention is to have a significantly different price once we standardize all the pricing around Pacira CryoTech and it becomes an asset that we marry with EXPAREL. The prices that MyoScience was selling this technology at are very low, and frankly, don't in any way reflect the value that is embedded in the opportunity with Iovera. So the price will come up. Today, it's still low. The new contracts are higher, but they're still not where we think they should be.

Liana Moussatos -- Wedbush Securities -- Analyst

Thank you. That was very helpful.

Dave Stack -- Chairman and Chief Executive Officer

Thanks.

Operator

Your next question comes from the line of Gary Nachman from BMO Capital Markets. Your line is now open.

Gary Nachman -- BMO Capital Markets -- Analyst

Hi, good morning. It was helpful to get the split between 10 and 20 ml vials. So, how should that trend in 2019 as you get more traction with nerve block and oral surgery? If you could just give us some more color on how you're penetrating in each of those indications, that would be very helpful.

Dave Stack -- Chairman and Chief Executive Officer

Yeah. It's not quite that easy, Gary. Thank you, by the way, for the call. I mean, it's interesting, and you have to be careful, because EXPAREL -- so, think of the 10 ml, the vials being in the late teens in terms of the percentage of vials that we're selling, but half the price or a little more than half the price. So, it's only -- it's less than 10% of the revenue. So, you can see explosive growth at OMF. But then when you look at our waterfall and you see the contribution and the revenue line, it still isn't as impressive as the number of people who are using the product, because it's half the price.

What we think -- so, for small incisions in plastic surgery and for oral/maxillofacial, virtually all of the use is 10 ml vials. And that's what it's gonna be. It's gonna grow. It's nice business. None of us are gonna send our kids to college on any of that, right? What's really exciting to us is we see the anesthesiologists, who in many cases were told that EXPAREL either doesn't work for as long as we thought it did or didn't work at all, in some cases, have been able to use the 10 ml vial at the roughly $170-plus price. They see that not only does it work, but the patients are being discharged from very painful procedures like a rotator cuff with no opioids at all and just Tylenol, and they move quite rapidly from the 10 ml vial for brachial plexus nerve block to a 20 ml vial for a TAP block, or a pecs block, or a fascia iliaca block, etc.

So, we see the 10 ml in the anesthesia marketplace, which is where most of our growth is, frankly -- is from anesthesia in one form or another as a leverage point that allows them access to the product and then they pretty quickly move to 20 ml. So, it's a mix of which procedure they're gonna use it for, whether it's a nerve block or a field block, which makes it very difficult to answer your question effectively.

Gary Nachman -- BMO Capital Markets -- Analyst

Okay. Well, I appreciate the effort. And then of the expanded indications for EXPAREL, pediatric, C-section, spine, hip, what are you most excited about, and how long before those could start to materialize? And then, how aggressively will you be looking for additional products to add to the portfolio, or do you have enough on your plate right now after the MyoScience deal,? Not to get too greedy there?

Dave Stack -- Chairman and Chief Executive Officer

No, that's OK. You always have to be careful here because that's Ron's job. So, I mean, Ron is doing a great job, and we're keeping him busy. So, it's an easy one for me. While we're interested in all of those, and hip fracture is really interesting, because 35% of patients who would break their hip today will be dead 12 months from the date of the accident, and that's just not acceptable. It is not a huge business opportunity, Gary. There's a couple hundred thousand of those on an annual basis in the United States, but it's a huge moral responsibility, if you will, to get that trial done and get it right.

What I'm most excited about by a long shot is peds. There is nothing currently available for pain control in pediatrics other than opioids, believe it or not. None of the other local anesthetics are indicated for use in peds. And when we tell the medical community that, they actually become angry, in many cases. So, we see a huge opportunity for pediatrics, both as a business opportunity and to improve medical care. I don't know -- I don't remember exactly what Rich said in his script, but we expect that we'll have data. We're in almost daily contact with the FDA on this topic regarding PK and making sure that we get all the different patient populations right.

We are studying an infiltration indication first, and then we will follow that quite rapidly with a nerve block indication. It's not easy, Gary, just only because if you think about no such thing as a rotator cuff in young kids, no such thing as a bunion or a hemorrhoid in young kids. And so, in a lot of case here, we're following new ground, not only with the dose and the administration technique but exactly how are you gonna prove efficacy. So, there is very close collaboration with the FDA. And this is for the clinical group. This is priority number one for Pacira, is to get something into the hands of the docs so we can help these kids.

Gary Nachman -- BMO Capital Markets -- Analyst

Okay. And then just in terms of how aggressive you are; just, I guess, Ron, how much you're making him work? Looking to -- MyoScience is a pretty good size deal for you guys. So, I'm curious if there's still a lot more that you're looking at currently.

Dave Stack -- Chairman and Chief Executive Officer

Yeah. So, I would say we're not looking for any other commercial deals for the next year-and-a-half. The strategy is that when you look at regenerative medicine, and especially in the orthopedics field, a lot of that is being practiced by the docs where we already have a relationship. So, the broad strategy is that these physicians would like to have a relationship with patients earlier in their disease progression. And so, we see an opportunity to continue to fill up the portfolio so we can support earlier interventions between our current customers and their patients. And that goes all the way to regeneration of both cartilage and bone.

And so, what we're looking at primarily are clinical candidates that would require some time, and we would use that time, obviously, to maximize Iovera and EXPAREL. The assets are less intensive because they're earlier. We've got a lot of expertise in pain management clinical trials. And so, the assets can benefit from our expertise. We wouldn't -- well, at least for anything that I know about today, Gary, we wouldn't bring in anything that would hit the marketplace before we have a chance to really refine EXPAREL plus Iovera.

Gary Nachman -- BMO Capital Markets -- Analyst

Okay. And just back to pediatric. Last quick one. How long before you think you would potentially be able to file for that indication? That would be a separate indication that you'd have to file for, correct?

Richard Scranton -- Chief Medical Officer

Yeah, this is Rich. Right, yes. There will be a separate filing, the -- we're actively enrolling now. We're working with leading institutions across the country, over 24 leading academic institutions. We'll give some more guidance as far as how well all that enrollment's going. But we are anticipating finishing that by this year. That's our goal to get it to, and then we would have to file.

Gary Nachman -- BMO Capital Markets -- Analyst

Right. So you could probably file next year, it sounds like?

Richard Scranton -- Chief Medical Officer

Right.

Gary Nachman -- BMO Capital Markets -- Analyst

Okay. All right, thanks, guys.

Dave Stack -- Chairman and Chief Executive Officer

And we're learning a lot, Gary. And there's a lot of interest in the ped community in actually even sharing what they're learning as we go through this trial. So, this is one of those areas where there's nothing, and so the docs are quite anxious to get going, so.

Gary Nachman -- BMO Capital Markets -- Analyst

Okay. Thank you.

Dave Stack -- Chairman and Chief Executive Officer

Thanks, Gary.

Operator

Your next question comes from the line of Serge Belanger from Needham & Company. Your line is now open.

Serge Belanger -- Needham & Company -- Analyst

Hi, good morning. First, a question on the overall marketplace for EXPAREL. Last year, there was discussions from CMS on unbundling in the hospital outpatient segments. Just wanted to know if you've gotten any visibility if that's going forward? Is that something that could happen in 2020? And if it did, would the impact be as important as it was in the ASC setting?

Dave Stack -- Chairman and Chief Executive Officer

Yeah. A couple ways, Serge, to answer that. So, we believe that total joints will be removed from the inpatient-only list in 2020. So, we think that we'll get our -- that the joint business will move largely to the ambulatory practice in 2020 under any case. We do continue to work with the folks down in D.C. about how we can provide opioid alternative to as many patients as possible. And so, we're working with many of the same people we worked on for the ASC. We're in the middle of that process, so it probably wouldn't be good form for me to disclose anything that would be out of the ordinary on a call like this. But the same people that worked with CMS on EXPAREL's behalf are working on EXPAREL's behalf now for HOPD, and hopefully, we'll have a positive result to that.

Serge Belanger -- Needham & Company -- Analyst

Okay. And then just, I guess, a follow-up on Gary's prior question around nerve blocks. You've now had the label expansion for over a year. Do you feel you're still scratching the surface for that market segment, or do you think you'll reach a steady -- do you see yourself reaching a steady state over the next 12 months or so?

Dave Stack -- Chairman and Chief Executive Officer

No, I don't, actually. Well, we are absolutely just scratching the surface. And regional anesthesia is growing very rapidly. So, the product is growing rapidly inside a relatively new medical group, and we are inventing new -- I don't know if we're actually inventing new blocks, but there's new blocks -- every couple of months, we get a new block that wants to be studied. And so, it's not just TAPS now. It's QA, or QLs and there's all kinds of blocks that we're looking at in all kinds of different ways. So, for example, now for anterior intercostal, we used to do it as an anterior intercostal. Now there's three or four different ways that we can achieve the same thing. And so, we're looking at easier and easier ways to broaden the opportunity to do a single infiltration or nerve block, but get a much greater benefit in terms of the area that's covered to provide that pain control.

So, not only are we just scratching the surface, but we're working with these folks on how do you use EXPAREL in order to maximize the opportunity and to be able to replace a catheter, and a pump, and all the other stuff that goes with that is very attractive to these guys. And so, this is a very rapidly growing area. We're in the right place at the right time. And my guess is it'll be a bunch of years before I can tell you we're anything close to a steady state.

Serge Belanger -- Needham & Company -- Analyst

Thank you.

Dave Stack -- Chairman and Chief Executive Officer

Thanks. Well, thank you, everybody. Thanks for your questions this morning. We look forward to providing additional updates in the future. Next up for us is Bank of America and RBC later this month, followed by Jefferies in June. We look forward to seeing you soon. Thanks a lot.

Operator

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

Duration: 61 minutes

Call participants:

Susan Mesco -- Head of Investor Relations

Dave Stack -- Chairman and Chief Executive Officer

Richard Scranton -- Chief Medical Officer

Charlie Reinhart -- Chief Financial Officer

David Amsellem -- Piper Jaffray -- Analyst

Randall Stanicky -- RBC Capital -- Analyst

David Steinberg -- Jefferies -- Analyst

Liana Moussatos -- Wedbush Securities -- Analyst

Gary Nachman -- BMO Capital Markets -- Analyst

Serge Belanger -- Needham & Company -- Analyst

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