Operator
Good day and thank you for standing by. Welcome to Pacira Biosciences' second quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. You'll hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Susan Mesko, Head of Investor Relations. Please go ahead.
Good afternoon, everyone. Welcome to today's conference call to discuss our second quarter of 2026 financial results. Joining me are Frank Lee, Chief Executive Officer, Brendan Tehan, Chief Commercial Officer, and Sean Cross, Chief Financial Officer. Kristen Williams, Chief Administrative Officer and Secretary, Tony Malloy, Chief Legal Officer, and Jonathan Slonin, Chief Medical Officer, are also here for today's question-and-answer session. Before we begin, let me remind you that this call will include forward-looking statements subject to the safe harbor provisions of federal securities laws. Such statements represent our judgment as of today and may involve risks and uncertainties. This may cause our actual results, performance, or achievements to differ materially. For information concerning risk factors that could affect the company, please refer to our filings with the SEC or the PECIRO website. Lastly, as a reminder, we will be discussing non-GAAP financial measures on today's call. A description of these metrics along with our reconciliation to GAAP can be found in the news release issued this afternoon. With that, I will now turn the call over to Frank Lee.
Thank you, Susan, and good afternoon to everyone joining today's call. On behalf of the remarkable team here at Acera, I'm pleased to share our continued progress in executing our 5x30 strategy and transitioning into a more innovation-driven biopharmaceutical company. Our second quarter performance reflects disciplined execution of our 5x30 strategy, translating into commercial momentum strong cast generations pipeline advancement and high-caliber partnerships furthermore our 5 by 30 progress was clearly recognized the decisive shareholder vote for both our strategy and director nominees at our annual meeting in June notable second quarter accomplishments include revenues of more than $109 million dollars even as macroeconomic pressures weighed on certain elective procedures in the hospital setting. Adjusted EBITDAB nearly 50 million dollars. Establishing a scalable commercially viable US-based manufacturing process for PCRX 201, a testament to our team's clinical development and manufacturing capabilities. Opening enrollment in Part B of our Phase II Ascent study for PCRX 201, completing enrollment in IOVERA registrational study in spasticity, and completing the IOVERA divestiture on July 31st, and forming a partnership in spasticity with Zimmer Biomet. You know, I'd like to thank the PASERA and Zimmer Biomet teams for working so collaboratively and efficiently over the past 30 days to close this transaction I look forward to continued partnership with our Zimmer biomedic colleagues going forward I'll begin with a high-level overview of Expiril and then Bren will cover additional commercial details shortly Expiril continues to increase penetration share across all segments despite softness and certain deferrable soft tissue procedures which historically wax and wane with macroeconomic conditions this is particularly notable in inpatient settings for separate reimbursement outside the bundle is not available looking ahead we believe we're well positioned to continue to outperform the elective surgery market by advancing three key priorities first expanding patient access by broadening commercial payer coverage we recently secured a major win with United Healthcare now providing separate reimbursement for extra outside of the surgical bundle this milestone brings our total covered lives to 150 million at mid-year and well within reach of our full-year goal of 160 million covered lives separately on Zolretta Brent has some great news to share about Zolretta coverage on United Healthcare second generating disseminating compelling health economic data to strengthen the expo value proposition here we're also seeing strong momentum with many commercial plans reimbursing significantly higher than CMS and third increasing penetration in existing and new accounts while driving expansion within macroeconomic resilient procedures and outpatient sites of care turning the lifecycle management remain on track to report top-line results for our phase 3 study of Zolretta and shoulder OA later this year. If approved, Zylretta would become the first drug with an FDA-approved indication specifically for shoulder-away. We also recently completed enrollment in our Registrational Ayovera Spasticity Study and remain on track to report top-line results before year-end. As a reminder, we will collaborate with Zimmer Biomet on advancing the spasticity program. The transaction structure provides us with the opportunity to receive additional compensation assuming clinical and regulatory success. Beyond our commercial products, our pipeline is entering what we believe will be a catalyst-rich period. We expect top-line data from PCRX-201 later this year and continue to advance PCRX-2002 with Phase II development scheduled to begin later this year. pcrx-2002 is a novel hydrogel formulation of ropivacaine designed to provide both rapid onset and long-acting analgesia from a single simple installation into the surgical field it's successful we believe it has potential to complement X beryl and further strengthen our leadership position in post-surgical pain management let me spend a moment on pcrx-201 which we believe has potential to represent a paradigm shift in the treatment of me away our scalable commercial manufacturing process is now up and running and enrollment in Part B of our phase 2 study is underway as a reminder top-line results for Part A are expected later this year Part A randomized 49 patients to one of three treatment groups PCRX 201 dose A PCRX 201 dose B for saline control all patients received an intra-articular corticosteroid before treatment allowing the durability of PCRX 201 to be evaluated against the standard of care. The primary objective of safety was secondary efficacy endpoints evaluated at weeks 38 and 52. We recently received some exciting news for our PCRX 201 program with the acceptance of a phase one manuscript for the publication and the Annals of rheumatic diseases the leading journal in rheumatology the paper highlights encouraging results from the 72 patient phase one study over 104 weeks we're also advancing hcat based preclinical candidates in degenerative disc disease dry eye disease and canine away we recently completed pilot safety study in canine OA our pilot efficacy study is now initiating the last item I'd like to covers important progress we've made executing new partnerships important pillar of our strategy I'll begin with the recently completed divestiture of Iovera to Zimmer biomet for Pacera the transaction sharpens our focus as an innovation driven by a pharmaceutical company while improving our margin profile further it allows us to redirect capital and resources toward higher return growth opportunities aligned with our long-term strategic priorities We're also excited about this transaction means for patients, Zimmer is uniquely positioned to maximize Iovera's global potential for patients through its scale, orthopedic leadership, and strong presence in total need. On the financial front, the zero will receive up to $140 million with $70 million up front and an additional $70 million linked to revenue-based milestones. The structure preserves our participation in Iowa's future success in both existing indications and spasticity. We're also pleased to share important progress with LG Chem's recent regulatory filing for Expiril in South Korea. This places revenues on track to beginning 2027. As we move forward in the second half of the year, we plan to provide visibility into to additional commercial partnerships outside of the US. Importantly, we expect XUX revenues to extend through the life of our patents, which provide exclusivity into the 2040s. Taken together, these transactions show how the partnership pillar of 5x30 strategy can extend our reach, improve capital efficiency, and allow us to concentrate resources on our highest priority growth opportunities. Our experience has shown that partnerships the top tier organizations can generate value beyond the initial agreement by mutually leveraging our scale expertise customer relationships for unlocking commercial value in parallel these partnerships create pathways for potential future collaborations across our portfolios in summary sarah exits the second quarter with strong execution of our 5x30 strategy with commercial momentum, a broader market access position, meaningful upcoming pipeline catalysts, and a growing roster of top-tier partners. With that, I'd like to turn the call over to Bryn to share more details on our second quarter commercial performance. Thank you, Frank, and good afternoon to all joining us today.
During the second quarter, Xperil gained penetration and share across both orthopedic and soft tissue market segments, even as the broader elective surgery market flowed in certain areas. The impact varied by procedure category. While orthopedic procedures were relatively stable, elective soft tissue procedures experienced the slowdown with more pronounced declines in the hospital inpatient setting. As a reminder, expiral volumes are approximately 60% orthopedic and 40% soft tissue. This dynamic was likely driven by factors including softer consumer healthcare spending and broader economic uncertainty impacting near-term elective soft tissue procedures. Exporo's continued penetration and share gains this quarter reinforce our confidence that the brand can deliver durable growth as access expands, procedures migrate to outpatient settings, and customers continue to prioritize opioid-sparing care. We are particularly encouraged by momentum in 23-hour sites of care. As the continued shift towards outpatient surgery and favorable reimbursement dynamics continue to provide a meaningful long-term tailwind for X4L. Another critical area where we continue to make excellent progress is market access. At the beginning of July, we shared that United Healthcare became the latest major national payer to expand coverage for X4L through separate reimbursement outside the surgical bundle. With approximately 40 million covered lives, United is not only the largest health insurer in the U.S., but also among the most influential. With United and additional recent wins, Expirel is now available to well over 150 million covered lives with separate reimbursement outside the surgical bundle. This represents roughly 50% of all medically insured lives in the U.S. and significant progress towards our year-end goal of 160 million covered lives. As providers gain visibility into expanding coverage, we anticipate further adoption and utilization for XBARL over time. We also believe United's decision will encourage additional commercial payers to evaluate similar reimbursement approaches, which could help expand patient access in the future. Looking ahead, our team remains firmly focused on expanding market access through additional commercial coverage, utilizing our growing body of compelling health economic and outcomes studies to drive awareness around the XBRL value proposition, and broadening utilization within existing and new accounts while increasing demand within new service lines less susceptible to macroeconomic pressures. Turning to Zilretta and Iovera, both products are performing well with solid growth in the quarter as the commercial investments we made last year are creating lift. For Zilretta, we are seeing demonstrated momentum from the Pacira team's focus on promotional impact along with our J&J partnership. For Iovera, the Pacira team delivered another stellar quarter, and with the Zimmer transaction now closed, we believe Iovera sits within the ideal portfolio to further unlock its full global potential. Separately on the payer front, beyond the positive coverage of Exparel, UnitedHealthcare has placed Zilretta on its preferred drug list. Importantly, this eliminates any prior authorization requirements, which is a key advantage versus competing early OA interventions. In summary, we are pleased with the first half of the year and believe we are well positioned for sustainable top-line growth for the remainder of the year and beyond. I'd like to now turn the call over to Sean for his financial review.
Thank you, Brent. We'll start with an update on revenue and margin trends. Second quarter, total revenues were 192.4 million, representing a 6% increase over the second quarter of 2025. Tax payroll remains a significant source of revenue with net sales increasing by 3% to 147.8 million versus 142.9 million in 2025. Volume growth of approximately 4% was partially offset by a shift in viral mix and discounting from our third GPO, which went live mid-2025. As we move forward for The remainder of 2026, we expect the delta between volume and revenue growth to narrow, with the recent lapping of the third GPO. For Zilretta, second quarter sales grew by 4% to $32.6 million versus $31.3 million, reported in 2025. As Bryn mentioned, this was largely attributable to the growth initiatives implemented last year, including our dedicated Zilretta sales force. sales increased by 21% to $6.8 million, compared to $5.6 million in the second quarter of 2025. Again, this was largely attributable to growth initiatives implemented last year. Turning to gross margins, on a consolidated basis, our second quarter non-GAAP gross margin was in line with our expectations at 78%, which was at 82% for last year. For non-GAAP R&D expense, the second quarter increased to $27.1 million from $24.7 million last year. This increase relates to our advancing Phase II study of PCRX 201 as well as our label expansion studies, all of which are on track for top-line readouts eight-year end. In addition, we're supporting three promising HCAD-based preclinical programs. Expense came in at $81.3 million for the second quarter versus $77.2 million last year. This increase relates to non-recurring costs specific to the contested election of directors at our 2026 annual meeting of stockholders. All of this resulted in gap net income of $4.7 million, or 12 cents, per basic diluted share, and another quarter of significant adjusted EBITDA of approximately $48.7 million. As for the balance sheet, we continue to be in a position of strength with $251 billion in cash flow investments, which will be further enhanced by a $70 million upfront payment related to the closing of the Zimmer transaction. With a strong balance sheet and a business that is producing significant operating cash flow, we believe we are well equipped to advance our 5x30 growth strategy and create shareholder value. for our full-year guidance for 2026, where we are updating the following ranges to adjust for the closing of the Zimmer transaction. The total revenue range is now $735 to $760 million versus our previously guided range of $745 to $770 million. For SG&A, we are now guiding to $310 to $330 million versus our previously guided range of $320 to $340 million. And lastly, stock-based compensation of $54 to $59 million versus our previously-guided range of $54 to $62 million. For remaining items, we are reiterating our previously-guided ranges as follows. The Exsperell net product sales of $600 to $620 million. With respect to quarterly trends, we anticipate the remainder of 2026 will largely follow historical patterns, with the fourth quarter being our largest dollar contributor. For Zulretta, our guidance assumes the remainder of 2026 will be largely in line with 2025. While we are encouraged by the recent quarterly performance, we will wait to gain more visibility before updating growth assumptions. The final component of our 2026 revenue guidance relates to approximately $7 million in expected revenues from our licensing agreement for the veterinary market. A non-GAAP gross margin of 77 to 79 percent. With respect to quarterly cadence, we expect the next quarter to continue to benefit from the sale of lower cost expiry inventory to fall within our guided range. For the fourth quarter, we expect margins to be slightly below our four-year range due to the sale of higher cost inventory as well as shutdown-related costs and other expenses. Non-GAAP R&D expense of $105 to $115 million. With the recent initiation of Part B of our Phase II Ascend study of PCRX 201, we've In certain Expril and Zilretta product development efforts, we expect an uptick in R&D expense in the fourth quarter. And lastly, for those modeling a JustViva DA, we expect our 2026 depreciation expense to be approximately $30 million. The focused business model, durable cash flows supported by Expril and Zilretta, and a pipeline entering a catalyst-rich period, we believe this year is exceptionally well-positioned for the future. With that, I'll turn the call back to Frank.
Thanks, Don. As we discussed this morning, our second quarter reflects clear progress against our 5x30 strategy. We delivered solid financial performance, formed key partnerships, and advanced multiple value-driving pipeline programs. I'm excited about the second half of the year in the base business and in our upcoming pipeline catalyst. So with that, we're ready to open up the call for questions.
Operator
Yes, thank you. At this time, we'll conduct the question-answer session, as mentioned. And as a reminder, to ask a question, you'll need to press star 1-1 on your telephone for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile our Q&A roster. Your first question comes from the line of Dennis Ding with Jeffries. Your line is now open.
Thanks for taking my question. I have two, if I may. So, number one, on no pain, is there risk of this expiring at the end of 2027? And I guess, what are the logistics here to renewing this, and there's any particular bill that we should be focused on, or do you think this would be tacked onto a larger bill? And then, number two, you guys reiterated expiry guidance despite Q2 being a little bit soft. So, I guess, talk about your confidence in navigating these broader macro dynamics around consumer and consumer spending um and i guess what's going to be the driver of growth here and do you still expect no pain driven volume acceleration in the second half or is that going to be tougher to achieve because of the macro dynamics you mentioned thanks so much hey uh dennis frankly here thanks for the question so on on the first one about no pain next break maybe some thoughts here and i'll turn it over to tony our uh general counsel and head of government relations.
First off, as we step back, as we know, at present, it's due to expire slash be re-upped at the end of last year. I'm sorry, next year. And we're making very good progress, as you've just heard from Bren, in terms of what we're doing around commercial payers. And the fact that we've got United on board is a real win. For those of you who've been around payers, United is the benchmark. And so we're really pleased by that and all the health economic data that supports inclusion in payers going forward. So bottom line there is what I'm saying is that commercial payers are picking it up. There's a clear health economic story. And so let me just turn it over to Tony to talk a little bit about no pain, which is specifically for TMS patients in the outpatient settings. So, Tony?
Thanks, Frank. We're actually working with two paths. We're working directly with CMS, who has the ability to provide basically the same reimbursement that No Pain does through through its annual rulemaking cycle and then we're also we're also working with Congress we would expect similar to last time that that this would be tacked on and be part of a larger bill we're not we're not anticipating it being a standalone legislation and the reality is these things usually happen when they need to happen and not earlier. So, we're anticipating something towards the end of next year. Thanks, Tony.
And then, Dennis, you had asked about Q2. And so, just maybe some high-level thoughts here, and I'll turn it over to Bren for some additional commentary. And just at a high level, just to make sure we're super clear on this, is we're optimistic about the second half. And the reason is, is that, you know, as Bren mentioned, we've increased penetration across all segments. So that's very important. And again, as I mentioned in my comments, these sorts of procedures and the inpatient setting that are more deferrable tend to wax and wane with macroeconomic conditions. So, I mean, with that, let me turn it to Bren for his additional thoughts here.
Yes, thanks for the question, Dennis, and Frank gives good commentary there. In the second half, we're focused on several, I think, key and important growth drivers. The first is the rapidly growing ASC and hospital outpatient segments, both of which are outpacing the broader hospital market for us. We can and will increase our breadth of coverage there to cover those procedures that are taking place. The second is this what I would call payer tipping point. UnitedHealthcare, as Frank pointed out, is a substantial addition. Even since the UnitedHealthcare contract, we've had several other payers come on board, pushing us well beyond the 150 million patient range. That, to us, is an encouraging sign of where everything is headed. And then finally, we take a lot of confidence in both the penetration and share that we've been able to generate. It is significantly outpacing the total available market near term, and we expect with these additional payer wins, it will continue long-term. That, coupled with our health economics and outcomes research data, which is an expanding evidence package that demonstrates that X-BARL is well worth the price for the substantial costs that it offsets, give us a lot of confidence, both near-term and longer-term.
Thanks, Brent. And just one last thought here, Dennis, is that as a reminder, these commercial payer wins are very important in the outpatient setting where Expiril is reimbursed outside the bundle separately. And as we've talked about before in commercial payer settings, the reimbursement, that is the remittance, is substantially higher versus the CMS reimbursement. So we've got a good tailwind there.
Operator
Thank you. Your next question, come to the line of Serge Bellinger with Needham. Your line is now open.
Hi, good afternoon. Thanks for taking my questions. I guess just a follow-up on Expero, volume growth of 4%, a bit of a step down from the prior quarters. I'm just curious if the softness that you've seen in the second quarter has continued into the third quarter and could continue later in the summer. And then now that you've divested Iovera, just curious if that kind of changes your appetite for BD and adding additional assets to the portfolio.
Hey, Serge, thanks for the question. So the first one was around Q2 and what are we seeing in Q3? I'd say it's early days. And as Bren mentioned, what we're really excited about is that in the outpatient setting and in places where we have a tailwind from a commercial payer perspective, we're seeing it substantially outperform the marketplace. And so stay tuned. Our business is focused on growth going forward in those macro resilient procedure types. And again, our penetration has increased across all these segments. So we'll see how long-lasting the cycle is. As I mentioned, these kinds of procedures in the inpatient setting, where it's not reimbursed separately outside of the bundle, tend to wax and wane historically. So second question was around Ayovera divestiture and what that means from a BD perspective. So first of all, let me just say that the team did a remarkable job. of getting us here and as you know initially we started out with partnership discussions with zimmer biomet and this matured into a very thorough process where we believe we have the right person right group of people and company taking this asset forward not only in the u.s but outside the u.s so it was closed this past friday july 31st with a tremendous effort And I'm very, very confident that this team is the right team that is Zimmer Biomat to maximize the value of Iovera, both here in the U.S. and outside of the U.S. Separately, with respect to BD, as Sean has reiterated many times, we're going to be very, very thoughtful about maximizing shareholder value and returns in our capital allocation. So we'll be looking very carefully at that, but our strategy, as we've articulated before, is to focus on those things that could be accretive in the near term and take very careful, calculated, I would say, risk-managed approaches to the pipeline. So that hasn't changed, and so we'll continue to make sure that our capital allocation is consistent with the way we've behaved going forward to maximize shareholder value.
And I guess one last thing that I'd add is that now we are very clear-minded about being a pharmaceutical company as opposed to being a pharmaceutical and medtech company, which, as we've talked about before, is very different. And I think this focus will help us execute even better, you know, going forward.
Operator
Thank you. Your last question comes from the line of Hardik Perik with J.P. Morgan. Your line is now open.
Hey, everybody. Thanks for that question. I just have a two-part one. Well, first is just kind of building off some of the earlier questions. To achieve your kind of implied second-half guide for Xperl, what have you assumed about the macro headwinds? Do you need a recovery to meet that guide? And the second part is, you know, you guys have utilized the partnership model in Zoloretta. Could you envision yourself partnering in the U.S. with Xperl with like a distributor model? Thank you.
So, Howard, thanks for the question. You know, you asked about whether a quota of recovery is needed. You know, what we're basing our growth and numbers on is, you know, continued in terms of what we see right now in the softness and really growing in the places where we can grow. As Brent articulated very clearly, we've had very good success in the outpatient setting, in those procedures that are macro resilient. And you can see that we've had some substantial commercial payer wins that are directly applicable in those kind of settings. So, again, as you know, that in an inpatient setting, Expiril is not reimbursed separately outside of the bundle. And so that's what we've assumed, and we've seen good results as we've focused our business toward those segments of our business. In terms of the partnering model, I want to step back a little bit. As we've articulated in our 5x30, partnerships are very important. And to date, we've signed some very good partnerships. We've signed LG Chem. We've signed Johnson & Johnson. And now with Zimmer Biomet, a partnership for spasticity. So we remain open-minded about how we can cost-effectively and efficiently get our products out to our customers, both here in the U.S. and outside the U.S. So we remain very open-minded about that. We will certainly always have our direct field forces and support, but if the question is would we want to at some point consider partnership of Exparel to extend our reach, that's certainly within the realm of possibility, but we'd have to do that in a way that's very cost-effective and returns value to both organizations. And one of the ways we've done that is XUS. As you can see with our LG Chem partnership, and the good news there is, as I mentioned, they have already filed now in South Korea, and we are going to see the fruits of that labor in terms of revenue come to us in 2027.
Operator
Thank you. The next question comes to the line of Sahil Dhingra with RBC Capital Markets. Your line is now open.
Hi, good afternoon. This is Sahil for Daghneem. I have two questions. First is on the expedited volume growth. Could you expand what was the ASC versus HOPTE versus community hospital split in terms of the volume growth? And are larger IDNs finally moving the needle or is the growth still concentrated in the ASCs and the community hospitals?
Well, thanks for the question, Sahil, and let me address it briefly, and I'll turn it over to Bren for some additional commentary. With regard to the breakout of the X-BREL volume, as you've asked, we typically don't break it out that way, so we don't have those data to provide to you. With respect to the contribution and growth of IDNs versus other parts of our business, I'm going to turn it over to Bren for his thoughts here.
Yes, Sahih, thanks for the question. And I'm confident that the split of our business probably is reflective of other things you've heard in the second quarter. There are two dynamics that we have to take into account. One is the migration of procedures to the outpatient setting and particularly to ASCs. The hospital volumes, I think, in general are down, but they're further impacted, I would say, by this deferred elective soft tissue procedure dynamic. So XFRL volumes were still significantly higher than what we saw for hospital procedures. In ASCs, which were modestly up for total available market, I would say that we significantly outpaced that in the ASC setting, which is another reason, given the reimbursement that we've just discussed, multiple payer wins, including UnitedHealthcare in that space, that we feel confident in our ability to continue to capitalize on both the migration of procedures to that particular site of care, but also the value proposition for X4L there.
Thanks, Sahil, for the question.
Anything else? Yeah, my next question is on the PCRX 201 par-day timing. Can you tighten the year-end timeline for us, and will the data be disclosed at a medical meeting, or will it be a standalone disclosure? Thank you.
Yes, Sahil, thanks for the question. So let me step back here. I'm very excited about the upcoming catalysts as we go through the second half of the year. And certainly, the catalysts include, as I mentioned earlier, number one, the spasticity data, registrational study with IOVERA. Number two, the Zolretta shoulder OA data, which is, again, another registrational study. And number three, as you mentioned, PCRX-201, Part A. So with that, you know, Part A piece, I'm going to turn it over to Jonathan here, our chief medical officer, to talk a little bit about your question, and you had asked about timing and some other things. So Jonathan?
Thank you. So yeah, our plan is at the end of the year, we're going to have these three readouts, top-line readouts of Part A. Remember that Part A is the first part of our two-part Phase II trial and will provide insights and power for safety, and we will look for some efficacy trends. We estimate reporting those top-line results at the end of the year, and we'll continue throughout 2027 to report additional data sets.
Operator
Thank you. I'm showing no further questions at this time. I would now like to turn it back to Susan Mesko for closing remarks.
Thank you, Kathy, and thanks to all on the call for your questions and time today. We are excited about the opportunities that lie ahead for us. Throughout the remainder of the year, we will continue to ensure we are well-positioned for long-term success by executing our 5x30 plan to advance our mission. Thank you, and be well.
Operator
Thank you. This does conclude the program, and you may now disconnect.
