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Pacira BioSciences, Inc. (NASDAQ:PCRX)
Q4 2020 Earnings Call
Feb 25, 2021, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. And welcome to the 2020 Pacira BioSciences Earnings Conference Call. [Operator Instructions] [Operator Instructions]

I would now like to hand the conference over to your speaker today, Susan Mesco, Head of Investor Relations. Ma'am, please go ahead.

Susan Mesco -- Head of Investor Relations

Thank you, Tina, and good morning, everyone. Welcome to today's conference call to discuss our fourth quarter and full year 2020 financial results. Joining me as speakers on today's call are Dave Stack, Chairman and Chief Executive Officer; and Charlie Reinhart, Chief Financial Officer. Additional members of the Pacira executive leadership team are also in the room for today's question-and-answer session.

Before we begin, let me remind you that today's call will include forward-looking statements based on our current expectations. Such statements represent our judgment as of today and may involve risks and uncertainties. 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 our website.

With that, I will now turn the call over to Dave Stack.

David Stack -- Chief Executive Officer and Chairman

Thank you, Susan. Good morning, everyone, and thank you for joining us. 2020 was a difficult year for people around the world. Like all of you, we entered 2021 with great hope that the vaccines developed by our industry colleagues will stem the tide of the global pandemic. COVID-19 has further escalated our nation's opioid crisis placing an even brighter spotlight on the tremendous need for opioid-sparing pain management to avoid this key gateway to addiction.

A rising number of drug-related fatalities continue given the health, social and economic disruptions that are facing our country. Equally important is the pain that patients have had to endure due to COVID-related delays in necessary surgical procedures. Expedited recovery is even more critical than ever, and we are dedicating considerable resources to develop and implement EXPAREL-based enhanced recovery after surgery, or ERAS, protocols that are enabling earlier discharge and accelerating the migration of elective procedures to outpatient sites of care.

I am both proud and delighted to report that during these challenging times, we quickly adapted to our customer needs to provide opioid-free pain relief in a virtual world. This translated into record revenues for 2020 despite ongoing geographic disruptions in care delivery. This success is really a testament to the Pacira team and their steadfast commitment to provide an opioid alternative to as many patients as possible and redefine the role of opioids as rescue medication while enabling elective surgery migration to outpatient care.

As noted in today's press release, our 2020 revenues were our highest ever, coming in at $430 million for 2021 despite COVID-related challenges. The overwhelming needs of the marketplace and transformation under way in the ambulatory surgery care setting allowed EXPAREL average daily sales to return to year-over-year growth in June. Attractive growth continued throughout the remainder of 2020, and we see this trend continuing right into 2021.

None of these numbers should come as a surprise as we have aimed to be as transparent as possible during these unprecedented times by reporting our preliminary monthly sales. While we feel incredibly bullish about our long-term business prospects and revenue opportunity, near-term uncertainties around COVID remain, which can impact our business on a variety of levels. To provide you with insight on intra-quarter trends, we will continue to share monthly sales until we have visibility necessary to reinstate guidance.

Today, we also reported $113 million in adjusted EBITDA for 2020. As we continue to grow our top line and improve our gross margin, we are in an extraordinarily strong position to deliver accelerating profitability while continuing to support our top and bottom line growth with appropriate investments and operating expense. The vision we laid out years ago that highlighted the transition from an inpatient surgery-based company to an outpatient anesthesia-based company is translating elegantly into a powerful earnings story.

This ongoing evolution of the marketplace is the direct result of EXPAREL-based ERAS protocols. The important changes under way in the surgical sites of care are redefining medical practice for lowering the opioid postsurgical pain control, leaving us very bullish on our long-term growth outlook. Turning now to a more detailed strategic review of the business. 2020 was highlighted by a strong execution across two robust global growth strategies.

First, expanding the use of EXPAREL and iovera for opioid-sparing pain management while enabling the migration of large painful and profitable procedures to the ambulatory surgery center and hospital outpatient department settings. Second, pursuing innovation by investing in our internally and externally sourced portfolio of non-opioid pain management and regenerative health solutions while simultaneously advancing partnerships and education designed to revolutionize medical practice through the best practice opioid-sparing ERAS protocols.

I'll start with EXPAREL. With more than eight million patients treated since launch, EXPAREL remains well positioned for a long-term market leadership as the only long-acting local analgesic approved for infiltration, field block and brachial plexus nerve block. In January, we completed a smooth transition with our partners at J&J. For the last several months, we've been rolling out additional customer-facing resources to help support the market's continuing shift toward anesthesia-driven regional pain management and the migration of procedures to outpatient sites of care.

In fact, we believe the increased use of regional anesthesia is the most important driver of our business for 2021. In 2020, only 20% of anesthesia procedures used the regional approach. The field is poised for rapid expansion given advances in ultrasound guidance, newer techniques and improved outcomes. We are paving the way for EXPAREL to revolutionize the practice of regional anesthesia through our expanding networks of anesthesia group partnerships and robust educational and training initiatives.

This is the key to the future and the focus of our state-of-the-art training center in Tampa, the PITT. For decades, anesthesiologists have had a high level of interest in regional blocks, but with short-acting agents only providing hours of pain control, it was difficult to justify a timed return on investment. Fast forward to today, long-acting EXPAREL-based blocks have extended the duration of pain control to several days, allowing the EXPAREL block to be administered before patients arrive in the OR, truly a significantly positive change in the paradigm of patient care.

Our anesthesia customers see the strong advantages of using blocks and replacing antiquated pumps and catheters. Additionally, the ASC environment is an area where EXPAREL reimbursement is consistently improving as payers and self-insured employers continue to drive the shift from inpatient to outpatient care, given the economic benefits. This is especially important for elective surgeries.

Not only are these market dynamics fundamental to our growth but also directly correlate to patient outcomes and satisfaction rates, given the compelling advantages of opioid-sparing regional approaches. I would like to highlight a few markets where we see continuing regional anesthesia redefine best practice for postsurgical pain control. EXPAREL administered as a brachial plexus nerve block continues to be a massive commercial opportunity.

To remind you, an EXPAREL brachial plexus block provides coverage for the upper quadrant, so not only the rotator cuff and shoulder arthroplasty but also elbow, wrist and hand procedures. We see brachial plexus nerve block as an addressable market of more than three million patients per year. Our customers are consistently reporting positive results. Surgeons are not only delighted with clinical outcomes but they also prefer the demonstrated consistent results of anesthesiologists administering single-injection blocks preoperatively versus infiltration at the end of the case.

After having success in brachial plexus blocks, anesthesiologists can broaden their use to a whole range of long-acting EXPAREL regional, field and nerve blocks. Transverse abdominis, or TAP, blocks are a significant market, where EXPAREL provides long-acting pain control for the abdominal region as EXPAREL TAP block opens the door for more than six million abdominal and colorectal procedures per year and supports the migration of these painful procedures to the ASC space.

There's a growing body of evidence supporting the safety and efficacy of TAP blocks. With only single high -- with only high single-digit penetration and a surge of interest, we expect this market to be a significant long-term growth pillar. Turning to women's health. We are also seeing strong uptake in the regional blocks for a variety of surgeons -- surgeries where EXPAREL is transforming the standard of care for women and enabling earlier discharge.

Our Phase IV data great -- generated great interest in establishing EXPAREL-based TAP blocks as institutional protocol in cesarean section, gynecologic oncology and abdominoplasty procedures. There is also growing utilization of pectoralis, or PEC, blocks for mastectomy and breast reconstruction and migrating these procedures to outpatient care. We are seeing significant demand among women for non-opioid pain control. Opioid addiction in women is growing at an alarming rate, with women 40% more likely to become newly persistent users of opioids following surgery.

With just under four million gynecologic oncology, C-section and breast procedures each year in the United States, women's health is a major opportunity that we remain in the infancy of tapping. We are also seeing the emergence of newer regional blocks driving significant demand in the market for information and training, with detailed live and virtual programs taking place regularly at the PITT innovation and training facility in Tampa.

The erector spinae, or ESP, block is another field block technique that is expanding a safe and effective approach for providing non-opioid pain control that extends from the bottom of the neck to the hip. This versatile block, which is relatively easy to perform, is growing in popularity for spine, scoliosis and cardiothoracic procedures. A significant transformation is under way in the spine market. Historically, spine surgeries were largely confined to the inpatient setting with only a small percentage performed at outpatient sites of care.

With the emergence of safe and effective blocks and opioid-sparing ERAS protocols, spinal procedures are on a trajectory like other painful orthopedic procedures with a rising number of ASCs specializing in these complex surgeries. With EXPAREL representing less than 2% of the total cost of the spine surgery case and 2.8 million procedures each year, this market is poised to be a key long-term revenue driver. In the cardiothoracic market, we have a growing single-digit penetration.

With 1.5 million procedures per year, this -- there is great interest in making sure these patients do not leave the hospital relying on opioids to manage pain. Further, based on package inserts for other long-acting local analgesics, we believe EXPAREL has a clear safety advantage, especially for cardiac patients. The pericapsular nerve group, or PENG, block is a newer regional technique that targets the anterior hip capsule. The PENG block has garnered great interest as it offers anesthesiologists and surgeons a means of shifting hip replacements to the outpatient setting.

This is especially important since CMS has added total hip arthroplasty procedures to the ASC-covered list effective January 1, 2021, joining knee arthroplasty, which was added in January of 2020. Beyond the significant on-label opportunities I just highlighted, we are working to further broaden the EXPAREL label with key milestones on the near-term horizon. As you know, the FDA is reviewing our supplemental new drug application seeking approval for EXPAREL in patients aged six and older.

The PFUDA action date is set for March 22. Having pediatrics on the label is of critical importance, given the significant unmet need for non-opioid options for managing postsurgical pain in this vulnerable patient population. With approximately one million pediatric patients per year, where catheters and pumps are currently the mainstay of postsurgical pain control, we see a significant unmet need and envision this to be a minimum of $100 million opportunity.

Beyond pediatrics, we are also advancing our Phase III STRIDE study to evaluate EXPAREL versus bupivacaine as a nerve block for lower extremity procedures. We anticipate completion of enrollment by the end of the first quarter with a clinical study report in the second quarter, and if successful, an approval in the second quarter of 2022. We believe the lower extremity opportunity to be as significant as the upper extremity market. We also continue to make progress in markets outside the United States.

We remain on track to launch EXPAREL along with iovera in Europe in the middle of this year. Importantly, our broad efficacy label, which covers EXPAREL administration via infiltration, field blocks, and importantly, both upper and lower extremity nerve blocks along with a superior safety profile, we have a clear competitive advantage in Europe where iovera is already approved. For Canada, we remain in labeling discussions with health authorities.

Given the current status, it is not likely we will launch in Canada, as we will not jeopardize the brand with labeling that is not in harmony with major country regulatory authorities. In China, we are working with our partners to determine possible next steps in the regulatory process to provide EXPAREL to this market without any potential for proprietary data to be used to develop a generic. Before turning over to iovera, I would likely -- I would quickly like to touch on the market exclusivity for EXPAREL. Our own books -- Orange Book-listed patent expires later this year.

We have several unpublished and pending patents around the product, process and manufacturing that are -- that we are confident will extend our proprietary position well into the 2040s. Remember, Pacira is the only company that has ever manufactured a multivesicular liposome at commercial scale anywhere in the world. Our sterile cold chain manufacturing expertise has been developed over 20 years of experience. Regarding any potential generic EXPAREL, the FDA's 2018 draft guidance on a multivesicular liposome, bupivacaine, established an extremely rigorous hurdle.

This will require a multiyear, near decade-long effort to design and construct a dedicated commercial scale manufacturing facility that would then require an operational license and validation prior to any bioequivalent study requirements by the FDA. This is a long and extensive process and little chance of duplicating the EXPAREL pharmacokinetic profile since we have never disclosed our proprietary batch specifications or release assay. In short, we have great confidence that there will never be a generic EXPAREL.

And given the package inserts that we have seen for potential competitors, EXPAREL will remain the branded market leader for many years to come given our broad label excellent safety profile and flexible product features and benefits. Switching gears to iovera, our innovative system, which delivers a non-pharmacologic nerve block using the body's natural response to cold to safely and immediately reduce pain. COVID-19 made 2020 a very difficult year for iovera and triggered significant clinical and commercial delays.

While it has proven more difficult to achieve our initial objectives for iovera, we have implemented several commercial enhancements that we believe will start to take hold in 2021. We recently established a high-caliber management team of roughly 30 sales managers that will be dedicated to iovera, focusing on two specific opportunities: one is the procedural solution of iovera plus EXPAREL to improve total knee arthroplasty during, before and after surgery; the second is iovera for opioid-free, surgeries-free and drug-free osteoarthritis pain control.

Simply put, if somebody is not ready for surgery or is not a surgical candidate for some reason, we can turn the pain signal off for several months with a simple 20-minute procedure. This allows them to play golf, walk on the beach or enjoy a family occasion such as a wedding or a vacation, all the things that folks might not be able to do with significant osteoarthritis pain. On the clinical front, our prepared trial is enrolling patients to evaluate iovera and EXPAREL for opioid-sparing pain management for patients undergoing total knee arthroplasty.

We expect enrollment to move before the end of this year. In parallel, we are launching an iovera registry to capture real-world experience for the use of TKA procedures with leading academic and orthopedic centers of excellence. We are also encouraged by the excitement around using iovera for other key areas. Key opinion leaders in orthopedic, spine and anesthesia are interested in replacing heat-based radio frequency ablation with iovera cold therapy.

We are seeing great interest across a wide range of treatment opportunities such as low back pain, spine spasticity and rib fracture, and we will use investigator-initiated studies and grants to develop data across these areas. To remind you, iovera reimbursement in the hospital outpatient department setting is highly favorable, with Medicare paying $900 to $1,900 for iovera procedures targeting nerves around the knee. We continue to work to further enhance reimbursement to expand patient access to iovera.

Our team of reimbursement specialists are experts in the space and working to maximize fee schedules for the value provided. We are also interacting with commercial payers who understand the economic advantages and improve patient outcomes associated with low or no opioid strategies. In sum, we remain highly confident in the technology behind the innovative system with sales potential approaching $200 million within our five year planning horizon. Turning now to business development.

Our team is leading a robust effort and thoughtfully pursuing opportunities of interest to surgical and anesthesia audiences we are calling on today. We believe our leadership position in opioid-sparing pain control provides us with a significant opportunity to build a differentiated portfolio to improve the patient journey along the neuro pain pathway. We recently announced a strategic investment in GeneQuine. This transaction provides us the opportunity to participate in the development of an exciting disease-modifying gene therapy for osteoarthritis.

GeneQuine's lead product candidate, GQ-303, is currently in preclinical development as a treatment for osteoarthritis. 303's helper-dependent adenovirus vectors express PRG4, a protein that plays an important physiologic in regulating OA through lubrication and decreased inflammation. Finally, let's touch on some of our internally sourced non-opioid opportunities for acute and chronic pain.

To augment our business development efforts, our in-house team is focusing on leveraging the proven safety, flexibility and customizability of our DepoFoam platform. Our lead program is an epidural delivery of DepoFoam-based local anesthetic for acute and chronic pain. We are conducting a Phase I pilot study with EXPAREL, which will allow us to make a go, no-go decision in the next phase of development. We're also looking to add different DepoFoam opportunities that target inflammation and chronic pain. We look forward to keeping you appraised of our progress of this early stage pipeline.

And with that, I'd like to turn the call over to Charlie for a review of the financials.

Charlie?

Charles Reinhart -- Chief Financial Officer

Thank you, Dave, and good morning, everyone. Before discussing our fourth quarter financial results, I'd like to remind you that I will be discussing non-GAAP financial measures this morning, which we believe more accurately reflect our business results. A description of these metrics, along with our reconciliation to GAAP can be found in the press release we issued this morning. I would like to begin by reinforcing Dave's sentiment. We remain very bullish on the outlook for our business.

Market indicators are strong with EXPAREL continuing to outperform the elective surgery market, leaving us on track for accelerating top and bottom line growth as widespread deployment of the COVID-19 vaccines will further support the recovery and growth of elective surgery volumes. The COVID-19 pandemic has also acted as a catalyst for accelerating the shift of many procedures to outpatient settings, where we remain ideally positioned to serve patients.

We ended 2020 with more than $617 million of cash and investments. This strong foundation and our ability to generate high levels of operating cash flow leave us well equipped to continue to invest in internal and external growth opportunities that align with our mission. Fourth quarter total revenues of $131 million or approximately 107% of total revenues for the fourth quarter of 2019, our highest quarter ever despite the ongoing pandemic-related challenges.

Fourth quarter net product sales of EXPAREL were $125.3 million, which was approximately 107% of the fourth quarter of 2019. For iovera, we reported net product sales of $2.4 million for the fourth quarter of 2020, down 25% from the $3.2 million for the fourth quarter of 2019 due to COVID-related commercial challenges. Our non-GAAP gross margin for the fourth quarter of 2020 was 74% versus 75% for the fourth quarter of 2019.

Our investment in the expansion of manufacturing capacity in San Diego to include a 200-liter batch process suite was the primary driver of this change. Non-GAAP research and development expenses were $14.1 million in the fourth quarter of 2020 versus $18.3 million in 2019. The reduction was primarily driven by the capitalization of expenditures on our Swindon-based 200-liter manufacturing suite as we transition from the development phase to the registration phase.

Non-GAAP SG&A expenses were $44.7 million for the fourth quarter of 2020 versus $47.6 million in 2019. The reduction is primarily attributable to decreased sales commissions to DePuy Synthes, which were directly linked to year-over-year EXPAREL growth as well as the use of lower cost virtual tools and the cancellation of in-person meetings, medical conferences and nonessential travel due to the COVID-19 pandemic. To remind you, our agreement with DePuy Synthes concluded in January 2021.

All of this resulted in non-GAAP adjusted EBITDA of $42.9 million for the fourth quarter of 2020 versus $29.1 million in the fourth quarter of 2019. As Dave mentioned earlier, we are committed to reporting preliminary monthly product sales until we have the visibility necessary to fully reinstate financial guidance. With respect to taxes, beginning in the first quarter of 2021, our P&L will reflect a federal and state income tax provision using an estimated combined rate of 25%.

We continue to expect to become a cash taxpayer during the second half of 2022. Lastly, our long-term expectations for robust top and bottom line growth remain very bullish, and we believe that by the end of our five year planning period, revenues will be approaching $1 billion for EXPAREL and $200 million for iovera. Gross margins will have improved 1,000 basis points, and operating margins will exceed 50% for our current base business.

With that financial review, let me turn the call back to Dave for his closing remarks.

David Stack -- Chief Executive Officer and Chairman

Thank you, Charlie. As 2021 unfolds, we begin to gain control over the COVID-19 pandemic through vaccines and new treatment options. Like all of you, we are looking forward to the world returning to a sense of normalcy. Despite the challenges we have faced with COVID-19 throughout 2020, we solidified our leadership role in non-opioid pain management by expanding the use of EXPAREL and its critical role in accelerating recovery and enabling that transition of surgeries to the 23-hour setting.

Weekly elective surgery data from IQVIA, which we have summarized in our investor presentations available on our website, continue to show EXPAREL consistently and significantly outperforming the market. These trends leave us very well positioned for more robust growth as the elective procedures normalize.

We expect a very exciting 2021 as we build our progress made in 2020 and further entrench EXPAREL as the leader in non-opioid postsurgical pain management and advance iovera in several orthopedic settings, achieve a number of value-creating milestones through additional strategic investments and collaborations. We entered the New Year with a stronger position than ever to advance our mission of providing an opioid alternative to as many patients as possible using multimodal ERAS protocols and shifting opioids to the rescue-only scenario.

With that, I'll turn the call over to Tina to begin our Q&A session. Tina?

Questions and Answers:

Operator

[Operator Instructions] And our first question is from Randall Stanicky with RBC Capital Markets.

Randall Stanicky -- RBC Capital Markets -- Analyst

Great. Dave, just to go back to your last comment there. There is a lot of focus on the reopen right now. How does that impact this year? And I'm really thinking about the opportunity for a volume boost for EXPAREL. Is that a 5% or 10% boost? And when do you think that starts to flow in? And then on the 0other end of that, we've talked a lot about the move to the ambulatory and outpatient setting. I think you're now in the low to mid-60% range.

Does any of that get pulled back into the hospital as the reopen takes place? And then my second question, just curious if you can comment on your view of the stickiness of your revenue and volume base ahead of what could be another competitor coming into the surgical pain area over the next several months?

David Stack -- Chief Executive Officer and Chairman

Thanks, Randall. First, on the reopening, I think our message is pretty consistent and what's rolling out is pretty much what we thought was going to happen so far in 2021. I mean, in our forecast for this year is that the first quarter would look pretty much like the last two or three quarters relative to growth versus the year before. I think it's fair to say that the impact of weather over the last couple of weeks, especially, is an added complication to getting these elective surgeries done.

But I think, generally, what we thought was going to happen is that the first quarter would look a lot like last year with modest growth. We would start to see these surgical -- these elective surgical procedures come back out in Q2, and that we would see that accelerate pretty aggressively into Q3 and Q4. And based on the information we have on hand today, I don't see that there's any real reason to change that.

So we're pretty consistent that these four million procedures that we think are warehoused in the elective surgery total addressable market for Pacira will be an important growth factor in the second half of the year, but it's going to take us a little while yet to get there. And I don't see that changing in any meaningful way. The ASC question is an interesting one for us. And we don't see anything reversing in that area.

In fact, quite the opposite. I mean I think it's important for everybody to know that the people who own the environment of care now are not the providers, they're the payers. And the major payers and the self-insured payers and CMS are all aggressively moving patients to the ambulatory surgery market. So I don't think that we'll see any remove back to the hospital. In fact, our patient surveys suggest that patients don't want to go back into a COVID environment.

Our providers actually are increasingly aggressive about telling us that they have control over the environment and they have more control over the environment in a surgical. And in ASC, they can actually have access to drugs like EXPAREL and different devices and things that's denied access in hospital settings. And interesting that when you talk to these guys, Randall, they would tell you, I don't miss any of the kids' sporting events because I don't spend half a day rounding anymore like I did several years ago. It's really been an aggressive move by the providers as well.

And then as I said earlier, the payers are in firm control of moving these procedures. And we had our national meeting last year, and we had a little segment that I think is meaningful to this group. Five years ago, you would've had to get a prior authorization to have a total knee arthroplasty in an ambulatory surgery center. Today, you'll have to get a prior authorization to have a total near knee arthroplasty in the hospital. And so it's come full circle, and I don't see that changing.

In fact, we think it's going to continue to accelerate as these elective surgeries come back out of the warehouse. And then the stickiness, I think we've seen the direct approval, and it was very, what would you say, limited in terms of the indication with significant drawbacks and a black box warning.

I don't think any of that changes going forward. And where we are, as we've continued to develop our field blocks and nerve blocks and we develop infiltration across a broad spectrum, there is no reason to believe that anything that's in development is going to have a label that's even close to what's represented by EXPAREL today. And so we're very bullish about the future. And the competitors, frankly, I think, will help accelerate our growth.

Randall Stanicky -- RBC Capital Markets -- Analyst

That's OK. Thanks, Dave.

David Stack -- Chief Executive Officer and Chairman

Thanks, Randall.

Operator

Your next question is from David Amsellem with Piper Sandler.

David Amsellem -- Piper Sandler -- Analyst

Thanks. So just a couple. First, a question for -- more for Charlie. I wanted to dig deeper into the extent to which you're going to have operating leverage and wanted to dig more deeply into the cost structure. How we should think about the trajectory of R&D and also sales and marketing spend, not just for this year but long-term? And just give us a sense of how we should think about operating leverage?

And I guess, also bundled into that question is also how we should think about gross margin expansion? That's number one. And then secondly, can you talk about how the mix for EXPAREL is evolving among hospital inpatient, hospital outpatient in ASCs. I know you've given some metrics in the past. Maybe talk about where you see the mix, particularly on the ASC front as the year progresses and also longer term? Thanks.

David Stack -- Chief Executive Officer and Chairman

Thanks, David. Go ahead, Charlie?

Charles Reinhart -- Chief Financial Officer

Sure. So let's just walk down the P&L. From a gross margin perspective, David, we still expect gross margins to go from the mid-70s to the mid-80s and perhaps a little higher than that, frankly. That is going to be driven by two factors. One is the transition away from the 45-liter batch process to the 200-liter batch process, particularly from the kind of the U.K. perspective. And the other is volume. And so because we believe volume will continue to expand, we expect those margins to follow suit based on both volume and the use of the 200-liter.

And the 200-liter in the U.K. should be operational into this year or early next year or at least, not operational but commercially available and ready to go. And so as that expands the -- its contribution to total volumes, that will have an impact on margins. From an overall non-COGS opex perspective, the size of the R&D budget is not likely to go up much, frankly. It depends on exactly what it is we're going to start investing that money in. The investment in EXPAREL is going to wind down.

We've got a couple of interesting programs related to iovera that are on the schedule at this point. And we have a DepoFoam pipeline, and Ron Ellis is always bringing interesting things into the discussion point. So we might -- we expect to have some of that cash freed up for things that aren't even on the list of our pipeline at this point. From an R&D perspective, we do not see any significant increases over the next three to five years, subject to any new BD opportunity coming online. From an SG&A perspective, G&A is going to go up very modestly.

Sales and marketing will go up a little bit more. But we think when you average those two, you're talking about something in the low mid-single-digit range. And so if sales are going up in the high teens and margins are going up from 75% to 85%, and overall opex is going to go up somewhere in the low single digits, but by definition, there's an awful lot that drops to the bottom line.

David Stack -- Chief Executive Officer and Chairman

Okay. And I'll answer your second question, David. We now have August data. It's at least six months behind. Remember, when we exited 2020, our 23-hour stay environment in our HOPD and ASC was about 60% of the business in our TAM, and two things for this year. You see these markets growing. And so instead of having 32 million patients -- or procedures in our TAM, we now have 33.5 million for 2021.

So that bolsters a little bit. And as of August, we moved from 63% to 63 -- I'm sorry, from 60% to 63.5% of the procedures actually being done in the ambulatory surgery and hospital outpatient market. In the middle of the pandemic, you saw a significant move on 32 million, a move of 3.5% is quite a lot in the middle of the pandemic. And so we see that, as I've said a couple of times now, increasing.

It's almost entirely being driven by the opportunity to do a single administration nerve or field block that gives the -- and it's done under ultrasound guidance almost always now and gives the clinicians the opportunity to have several days of pain control without a pump and a catheter, without having to use opioids.

And remember, in these markets, they don't have the access to some of the things that would traditionally be used for large abdominal surgeries, for example, like a spinal -- like a thoracic epidural. There's a number of drivers here that are moving patients to the ambulatory market. And in the ambulatory market, there's fewer options for how you treat pain. And so we're almost the perfect storm for us as we start to see these elective procedures come back out of the warehouse.

David Amsellem -- Piper Sandler -- Analyst

Okay. It's very helpful. Thanks, guys.

Charles Reinhart -- Chief Financial Officer

Thanks, David.

Operator

Your next question is from David Steinberg with Jefferies.

David Steinberg -- Jefferies -- Analyst

Thanks and good morning. I have a couple of questions. First, you've been calling out for the last year or so some new significant opportunities, one being pediatrics and the second being C-section. And I was wondering if you could give us a little more granularity. First, I mean, key assumptions which you have already rolled out. I know it was a relatively small percent of your business last year. How are you thinking about the acceleration slope of the curve this year?

I know it's a little tricky because they're hospital-based, not ASC-based. You mentioned in the last call, the advent of some of these birthing centers, which may help accelerate the trends to conduct C-sections in it. And pediatrics, I believe you're expecting approval soon. When are you expecting to launch? And what are some of your premarketing activities looking like there? And then on the financial side, I think, Charlie, you laid out some additional aspirational guidance.

Is this a shift? I think, last -- in most recent times, you've been talking about doubling of sales over five years, and this time, you talked about, I think, is it -- could you make -- I want to make sure this is correct, is it $1 billion in sales in five years for EXPAREL and $200 million for iovera, and then 50% target op margins in five years? Is that correct?

Charles Reinhart -- Chief Financial Officer

Yes. So you're right. That is the aspirational, but it's consistent with the long-range plan, the five year plan that we've been speaking from for a while now, David. And so if you go to the fact that we've been saying sales are going to be in the mid- to upper teens over the next five years and you start on today's base, that's where you end. And the $200 million for iovera is consistent with what we've been saying, I think, almost since the acquisition. So just trying to reinforce where we believe this company is going.

David Stack -- Chief Executive Officer and Chairman

So David, so the first two questions. First, I'll start with C-section. C-section is interesting, impacted by COVID, of course, and a yin and a yang, right. The girls didn't want to go into the hospital because of COVID and -- but didn't have any real choice. And so limiting length of stay led to a lot of folks adopting EXPAREL during the COVID environment. We see now that the C-section opportunity is actually the nidus of us to have interactions with hospitals that have not been major supporters of EXPAREL to date.

And some of the big OB/GYN centers around the country, we've had the opportunity to get in with EXPAREL in OB anesthesia for birthing and then extend that inside the facility when they see that this stuff really works. And when you do these regional approaches, these girls have been leaving in a day, and in many cases, wondering why they're there for a night. That has further enhanced what we introduced the last time, where OB -- large OB groups and also private equity groups building birthing centers.

And probably in the top three of requests that we get now over the last two months is, do we have a protocol for same-day C-section? And so we do have centers working on a protocol for a same-day C-section, where a mom doesn't have to be exposed to any COVID environments, and they would go in with the expectation elective now. So you would have the expectation that you could be scheduled in the morning and discharged the same day.

And unless there's some issue with the child, that is also a same-day discharge. So that's ongoing. And I don't see any reason why that wouldn't go forward, especially when it's sponsored by the physicians themselves building out groups. And it almost looks like a small ASC, David, but it's a birthing center and the turnover on an elective basis is just the same. Pediatrics, we've been obviously in contact with the FDA. And so we are still expecting a launch or an approval some time in late March.

And we've had a series of ad boards with pediatricians, with pediatric surgeons, with pediatric anesthesiologists, with all of those in the same call, etc. Pumps and catheters are the mainstay. It's been interesting, a complete lack of awareness by many -- I wouldn't say most, but by many and a heavy reliance on pumps and catheters. And very early on in the discussions, we hear the war stories about trying to keep a catheter in a seven year old and all the issues of the catheter falling out and pain and mom and dad don't know what to do and all of those kinds of things.

I think the market is ready for not only a non-opioid pain option but also a single administration that will lead to having the opportunity to send the patient home and not have to worry about whether the pain is going to be covered or not because they don't have to do anything if they get EXPAREL in a nerve block or in a field block, I mean. What we've done is we've hired a team of specialty nurses. We will be very careful here, David. We don't want to just have a big splash and have a lot of people dabbling with EXPAREL in kids.

So our team are all intensive -- pediatric intensive care nurses, etc. And we've targeted a group of 40, which are the most influential pediatric hospitals in the country. And then there's another group of 25 right behind them. We'll launch as soon as we can. And once we know what the package insert says, and we will take our time and work through with the key opinion leaders in pediatrics to make sure that they are 100% informed and behind us in terms of how we're going to go to the broader pediatric marketplaces.

And in fact, after the beginning of the launch, we will have programs where these KOLs tutor their own fellows from previous years on best practice use of EXPAREL in these pediatric environments. We're doing some Phase IV studies, where we will look at things like appendicitis. And our Phase IV design, things that we can do fairly quickly, so we can provide very specific data about replacing a catheter and a pump with EXPAREL.

And so we expect that this will be a big market but not a market where we can take any chances in terms of having a field force go in, talk to a bunch of people, have them start using EXPAREL without very specific guidance on weight-based dosing and how you get rid of the catheter and how you replace it with a single shot, etc. So I think that answers your question, David, unless you want to come back.

David Steinberg -- Jefferies -- Analyst

That was a very detailed answer. Thanks.

David Stack -- Chief Executive Officer and Chairman

Thanks, David.

Operator

Your next question is from Liana Moussatos with Wedbush Securities.

Shveta Dighe -- Wedbush Securities -- Analyst

Hi. This is Shveta for Liana. Thanks for taking our question. And congrats on all the progress. Can you provide some color on the European launch plan for EXPAREL? And then any comments around the top line Phase III STRIDE data expected in Q2. How big is this market opportunity? And do you see EXPAREL being prescribed off-label for lower extremity nerve block?

David Stack -- Chief Executive Officer and Chairman

Yes. Thank you. Europe is a lot of market research. We've got approved. We've got a great label. So it's all very good. In discussions now with the pricing authorities, and our current estimate is that we will launch EXPAREL and iovera in eight countries, and we will launch iovera alone in a couple of additional countries in Europe. And it's largely based on a calculation of value versus the price that we're able to get in those different countries.

So that drives roughly -- so we've had boots on the ground now for well over a year. We've got education programs going on with the Europeans. Many Europeans have got great familiarity with EXPAREL. And so we've got all of the -- what looks like a small PITT over there, where people can go and be trained with hands-on experience, etc, as soon as we know exactly what the launch dates are going to be and how we're going to launch.

Again, this is impacted by COVID more in Europe than it is in the United States. And so we're watching carefully how we can put these different resources to work. We'll have roughly a dozen medical science liaisons and folks who will work with the European KOLs to make sure that we have best practice transfer by procedure. So everything benefits from the mistakes we made, frankly, early on in the launch here in the United States. And it will be largely an anesthesia launch, again, benefiting from all of the U.S. experiences.

And we've signed a contract with a contract sales organization for roughly 30 people, who will provide a lot of the boots on the ground, at least for the first 12 months. And so we'll launch both products. We're -- the Europeans are very excited about iovera. So we think that's very good, and there's a lot of interest from the anesthesia community. What's happened over there is the fact that they don't send as many patients home quickly, and they don't have the same access in many territories to ambulatory surgery settings.

The length of stay for a knee in some of these countries is still four or five days. And we're told that in some of the key markets, the waiting list is 18 months to get a knee done. So there are some very compelling reasons for people to start to get into some of the other ways that we can get this done. I talked so much, I forgot what your second question was.

Shveta Dighe -- Wedbush Securities -- Analyst

It was around -- yes.

David Stack -- Chief Executive Officer and Chairman

STRIDE, yes. So we're nearing completion of the enrollment of that trial as a standard practice. Now you start to clean the CRS up, and you're cleaning the data as you're going along. So we think that within a couple of months, we'll have a clinical study report, and we'll have to see exactly how the data rolls out and when we have database lock, etc. But you can expect that you'll hear something about our top line data from us before the end of April. It would be the current projection. It will be a 10-month regulatory review.

So if you take a couple of months to put the sNDA together and a 10-month regulatory review, we would launch in the United States in early 2022, probably early in the second quarter of 2022. For both peds and the STRIDE study, there are European obligations. So once we get done with these studies, we will also update the dossiers for both pediatrics and the STRIDE study.

And there's really an offensive and a defensive component associated with STRIDE. So it's a study that investigates the use of EXPAREL in the adductor canal as well as in the foot and ankle innervation. So we think that about 30% of the total knees done in America today are getting an abductor canal block with EXPAREL. So we want to make sure that we cover those folks in the package insert. And if there's any issues in any of the hospitals or anything about whether it's on or off-label, we get rid of all of that. And then it opens up for everybody to be doing this in an abductor canal block.

It is clearly the best practice. And then foot and ankle adds another significant market opportunity. All in, the lower extremity nerve block is about three million procedures a year. We're also being used in a little over 20% of one million of those for TKAs. And so you'd have to take that out. But you're still well over 2.5 million -- or two million additional patients that will be available to us with a lower extremity nerve block.

Shveta Dighe -- Wedbush Securities -- Analyst

Thanks. It's very helpful.

David Stack -- Chief Executive Officer and Chairman

Thanks.

Operator

Your next question is from Balaji Prasad with Barclays.

Balaji Prasad -- Barclays -- Analyst

Hi. Good morning and thanks for taking my question. Firstly, I had a couple of questions around the IP. And I'll probably split it into two, one on the legals -- on the patent side and one on the commercial side. You mentioned that you'd be listing a couple of additional patents in the Orange Book this year. Could you describe this more and the patent production that it will extend further?

And secondly, on the China -- on your launch into China or entering into China and your comments on how you plan to think about the trade-off between potential generic access and protecting IP, how do you plan to balance this? And at what point could you think that the market opportunity is so attractive that you're still going despite generic risk in China? Thanks.

David Stack -- Chief Executive Officer and Chairman

Yes. Thank you, Balaji. The patent -- there's a whole series of patents around process and manufacturing, specifically, as we got into the 200-liter manufacturing process, there were a number of unexpected observations that the patent teams think are worthy of a patent. So we would be -- we will be patenting, and we're not in a position where we're going to instruct any potential competition or the Chinese, frankly, about exactly what the patents say. Just to be very clear, though, I don't expect that you'll see those in the Orange Book in 2021.

These will take more time than that for the PTSO to be able to provide their opinions, but there's a very high likelihood that we will have additional Orange Book-listed patents going forward. And we're not uncomfortable with that because we don't believe there's anybody on the globe that's in a position to be able to manufacture a multivesicular liposome for many, many years. So those two things are not mutually exclusive, if you will. China is a -- is our tricky call.

I can answer the second part of your question more easily can I answer the first part, to be honest with you. So we -- and I'll just give you a little bit of history here. There's great interest in China. And so we start to work through the regulatory process, and we get a notification that we have to manufacture in China, and we say we're not going to do that, and that's the end of it. And several months go by, and we get a call that says, "Well, we really have to have this product, and we're going to go forward anyway, and we put a dossier together, and it goes in for an IND."

And at the end of that, it says -- "And you have to make it in China." and so we stop again. And several months goes by, and then you're talking about the CMC section here, and you start to get questions like, "What's the model number on the mixer? Or what's the RPM speed of the propellers in the first batch versus the second batch." and it's like there's not a chance in heck that we're going to give that to anybody. And so essentially, you protect your IP by putting in a CMC section that doesn't actually say anything.

And that's what we're doing. And so if they accept the fact that they want us to launch in the country without having us to teach them how to make a generic, we are -- we would love to be able to do that. But there's not any chance that we're going to instruct the Chinese government on how to make a generic EXPAREL. And so that's where we are, Balaji. So it's a slow motion poker game.

Balaji Prasad -- Barclays -- Analyst

Thanks, David.

Operator

Your next question is from Greg Fraser with Truist Securities.

Gregory Fraser -- Truist Securities -- Analyst

Good morning, folks. Thanks for taking the questions. I have two questions. First, were there any notable changes to reimbursement or coverage policies for 2021 in addition to the CMS change for hip replacement that will be catalyst for a demand this year? And then secondly, can you provide some color on your expectations for the pace of adoption of EXPAREL for lower limb nerve block, assuming the trial is successful and that you secure approval? And whether you see any potential hurdles to rapid adoption in that area?

David Stack -- Chief Executive Officer and Chairman

Yes. Thanks, Greg. For the reimbursement, spine -- or hip was the obvious one. They also have moved -- I think, there are seven spine procedures that were moved from the inpatient-only list to the ASC list. And so we are just putting a dedicated spine team out into the field now recognizing spine as a market of its own and taking advantage of the desire of these places to move this to an ambulatory surgery center. So the big things, and we -- I mean, the first protocol every year is EXPAREL is still the only unbundled drug in the ambulatory surgery center. We achieved that.

We expect that they will raise the price. Currently, it's $1.29 a milligram. We think that will go up. So that's a win for us on an annual basis, right? And then the only thing was hip and spine that were directly related to us. Now we hear from the marketplace that there are some women's health things and some other surgeries that the docs in the women's health area, they're generally associated with these birthing centers' discussions. Are there other women's health surgeries that we could move on an elective surgery basis into an outpatient environment?

We're still working with those folks on that. On the other side, 646244 iovera actually was a significant increase in the reimbursement rate. And so ASC use of iovera, which would have been very difficult before this increase in the reimbursement now is possible, still better in the HOPD, but there is a livable reimbursement rate for iovera and the ASC now as well. And so we consider that to be a good win as well. So we continue to work on it. We've got a whole another data set now.

Tony Molloy and I are scheduling a meeting with the new CMS team as soon as they're in place, and we're going to keep going down there and trying to influence these folks in terms of -- they are the leaders, frankly. That's not the big revenue opportunity. It's creating the pathway for reimbursement that's so important when we get CMS involved. And so we're still working every time we get a chance on it, Greg. For lower extremity nerve block, those are largely guys that we do business with already.

So that certainly would be a positive when it turns in terms of the adoption of the art, if you will. As I mentioned, I think you -- in a very short period of time, I would expect that the vast majority of knees would have an adductor canal block with EXPAREL once it's on label. And we hear often about the prolonged pain in foot and ankle procedures and the need for a long-acting EXPAREL. Probably not surprising, but now we're seeing real data that the further distal you get from the cardiovasculature, from the heart, the longer the half-life.

And so it appears that we're going to be able to have quite an extended duration of action in the lower extremities, and we think that's going to be a good thing. And so one million foot and ankles, another one million knees and then all the peripheral other stuff that goes on, we think it will be an important addition, and we'll really sort of finish the nerve block. If we have upper quadrant and lower quadrant, there's really not much else we can do.

Gregory Fraser -- Truist Securities -- Analyst

Got it. Thank you.

David Stack -- Chief Executive Officer and Chairman

Thanks.

Operator

And we have time for one last question from Serge Belanger with Needham & Company.

Serge Belanger -- Needham & Company -- Analyst

Hey, good morning. Thanks for squeezing me in. Dave, my first question is about the traditional infiltration segment of the market. How big is that segment currently? And how much of the external business is represented by that segment? Where do you think it's going? And then the second question, can you just comment on the GeneQuine Biotherapeutics investment, maybe on the technology itself? And how the investment plays into your business development strategy?

David Stack -- Chief Executive Officer and Chairman

Great. So I'm going to take the first half, and Ron Ellis is with us, Serge, and I'm going to ask him to comment on the GeneQuine question. First, in terms of infiltration, we don't have a perfect data source, right? So we get data by procedure, by site of care. And some of the data sets, we can see who the provider is, but most of the time, we're actually looking at whether they used ultrasound or not.

And so we can sort of parse this out, but I want to be really clear with you that it is an imperfect multiple anecdote collaboration here that I'll tell you about. So we think that currently infiltration is about 30% of our business. And it's -- there are some places where it is the business, right? So there are certain areas where you would do a nerve block, for example, there's some literature that you don't want to do a nerve block on the shoulder of a professional athlete, for example.

And so infiltrations are still the standard of care in some of the market segments that we address. The peds launch, for example, will be an infiltration launch. We are in discussions now with a nerve block label for peds, but that will be an infiltration launch. And probably the most significant is the multi-compartment opportunity. So if you do a TKA, for example, we would do an adductor canal nerve block that would take care of the anterior of the knee largely, but you would still infiltrate the posterior capsule, and you would still infiltrate the periosteum as part of a periarticular injection.

So there's pieces of it that are never going to go away. And then there's pieces of it that are part of a bigger procedure. So it's really hard for us to parse this out in a way when I could be as specific as I'd like to be with you and say 25.5%, I just don't know. What I can tell you is that it's a very small percentage of our growth. And so as we look forward, virtually everything that's allowing us to have the confidence that we're doing a field block or a nerve block that's going to last for three or four days in a patient that we're going to discharge after a significantly painful surgery in three or four hours are being done with some type of imaging by an anesthesiologist.

And so remember, the surgeons don't get paid. When a surgeon does an infiltration at the end of the case, it's part of a bundle. When an anesthesiologist does this pre going into the operating room, it is outside the surgical bundle. So the anesthesiologist gets paid, the surgeon doesn't get paid. The anesthesiologist does it before the patient goes in the OR, the surgeon has to take a few minutes at the end of the case to do it in the OR.

The surgeon still owns the patient, again, to be very candid. But it is not as hard as you think it might be to get the surgeon to ask the anesthesiologist to actually do a nerve block once they understand the ramifications of that, especially when they move them to the ASC. And Ron's going to talk to you about GeneQuine.

Ronald J. Ellis -- Senior Vice President

Sure. Appreciate the question on GeneQuine. In terms of the technology, we find it to be quite interesting, the gene therapy for PRG4, or proteoglycan 4, which is also known as lubricin. There has been attempts in the past to formulate the actual protein, but it's been challenging to do so.

There may be some more recent breakthroughs in that space now. I think Dave has mentioned previously about how our partners in the field, the physicians themselves have spoken to us about, well, we have EXPAREL for surgery, and as Dave just mentioned, iovera for knee OA before surgery, but can you help us earlier in that patient journey?

And so this is our attempt to do so to partner with the providers and also be a partner with the patient and help them in a non-opioid way get through this. And what we really see the promise in the gene therapy is not just the efficacy but also the duration of it that we can give something with similar efficacy to what's available today or better and then also have that duration last a year as in the promise of delaying surgery eventually.

Serge Belanger -- Needham & Company -- Analyst

Thank you.

David Stack -- Chief Executive Officer and Chairman

Yes. And that's very much in concert with what our docs are looking for, Serge. Most of the high-end guys in the pain space, the sports medicine space and the orthopedic space are looking at the world in more of a boutique kind of way, where we want to have an earlier interaction with our patients, but it becomes almost a lifestyle. PRP and stem cells and lasers and all the other things that we're using exosites, for example, we're moving into that environment where -- I mean, the average age of a total knee arthroplasty in the United States last year was 59, right?

10 years ago, you would have gone to jail, right? And so it's changing very quickly, and we see that as an opportunity for us to operate with these guys in partnerships and establish how we're going to take care of these patients for 20 years instead of a 2-hour surgical operation, and that's the longer-term strategy here. So with that, I'm supposed to close. I'd like to thank you all for participating and listening to today's conference call. We look forward to keeping you updated on our progress. Next up for us is the Barclays' conference in March. Thank you all, and stay well. Goodbye.

Operator

[Operator Closing Remarks]

Duration: 63 minutes

Call participants:

Susan Mesco -- Head of Investor Relations

David Stack -- Chief Executive Officer and Chairman

Charles Reinhart -- Chief Financial Officer

Ronald J. Ellis -- Senior Vice President

Randall Stanicky -- RBC Capital Markets -- Analyst

David Amsellem -- Piper Sandler -- Analyst

David Steinberg -- Jefferies -- Analyst

Shveta Dighe -- Wedbush Securities -- Analyst

Balaji Prasad -- Barclays -- Analyst

Gregory Fraser -- Truist Securities -- Analyst

Serge Belanger -- Needham & Company -- Analyst

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