Heron Therapeutics, Inc.

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Heron Therapeutics Q3 2021 Earnings Conference. As a reminder, this conference is being recorded. Now I would like to turn the call over to David Sakaris, Executive Vice President, Chief Operating Officer. Please proceed.

Thank you, Gigi. Good afternoon, everyone, and thank you for joining us. With me today from Heron are Barry Cort, Chief Executive Officer and Chairman of John Poyant, President and Chief Commercial Officer, and Kimberly Manhart, Executive Vice President of Drug Development and a Board Director. For those of you participating via conference call, the slides are made available via webcast and can also be accessed by going to the Investor Relations page of our website following conclusion of today's call. Before we begin, I would like to remind you that this call will contain forward-looking statements concerning inherent future expectations, plans, prospects, corporate strategy, and performance, which constitute forward-looking statements for the purposes of the safe harbor of provision under the Private Securities Litigation and Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in our filings with the SEC. In addition, any forward-looking statements represent our views only as of the date of this webcast It should not be relied upon as representing our views as of any subsequent date. We specifically disclaim any obligations to update such statements. Now, I'll turn the call over to Barry.

Thank you, David. Welcome, everyone, and thank you for joining us. The last several months have been one of the most important and productive periods in our company's history. We successfully launched ZenRelief for postoperative pain in the United States, which represents our first product in our acute care franchise and our third commercial product overall. And we were focused on creating long-term growth in this franchise with ZinRelief. We've had great success with P&T committee approvals, which is very encouraging for our first quarter of launch. Right now, we're focused on expanding the label and our commercial opportunity with ZinRelief, which I'll talk more about in a minute. We're also focused on stabilizing our sales in our oncology care franchise through this year and seeing modest growth next year. We've had successful interactions with the FDA to support the label expansion of XenRelief and to increase product supply. The FDA agreed to two SNDAs for label expansion for XenRelief. The first supplemental NDA was submitted to the FDA at the end of September and is expected to broaden the label to include foot and ankle, small to medium open abdominal, and lower extremity total joint arthroplasty surgical procedures. The FDA also agreed to contents of the second supplemental NDA to broadly cover orthopedic and soft tissue surgical procedures. The FDA-agreed studies for this second SNDA are already ongoing. The endpoints in these studies is pharmacokinetics and safety. Demonstration of efficacy is not required for approval. We expect to submit this second SNDA in the second half of 2022. If approved, this broad indication would cover over 14 million target procedures. In addition, the FDA also approved our manufacturing supplement to add a secondary supplier of our proprietary polymer. This approval is a critical step in giving us the ability to manufacture millions of doses annually and to significantly lower the cost of goods. This approval was received in under four months, and together, with future label expansions will allow us to supply a highly effective non-opioid postoperative pain drug to millions of patients annually. Overall, the quarter was outstanding for Heron. As a company, we remain in a strong position and we're looking forward to achieving additional key commercial and corporate milestones in the coming year. With that, I'll turn the call over to John to review our commercial portfolio. John?

Thank you, Barry. I'm truly excited to share our third quarter commercial results. We're off to a fast start with ZenRelief despite significant headwinds in the marketplace. During my presentation, I'll start with a number of key metrics on the initial progress that we're making with the ZenRelief launch and finish with an update on our oncology care commercial results. ZinRelief is off to a strong start in our first quarter of launch with net product sales of $2.1 million. We've already established broad nationwide access of stocking and the distribution channel to ensure rapid delivery for ordering accounts. We're utilizing four full-line wholesalers, ABC, Cardinal, McKesson, and Morris Dixon, Thus far, 68 stocking distribution centers have sold ZynRelief, and 50% of these DCs have reordered. In addition, we're utilizing 10 specialty distributors to supply ambulatory surgical centers, or ASC. Thus far, 10 stocking distribution centers have sold ZynRelief, and 60% of these DCs have reordered the product. Slide number seven is an updated version of the slide we shared during our ZinRelief FDA approval conference call in May regarding successful hospital launches. As you'll see, we've added the first five quarters for Amgeso. In full transparency, their first quarter only included one month of sales. In addition, we've added the first quarter of ZinRelief net product sales. We feel like we're off to an excellent start and continue to believe that ZinRelief total net product sales will exceed those of XBRL over the initial six quarter period. Slide number eight highlights the rapid progress that ZinRelief is making with formulary access. As of the end of October, we have 126 formulary approvals. The continued impact of COVID-19 should not be underestimated. we were confident that ZIN relief would already have been added to additional formularies without the impact of COVID-19 postponing P&T committee decisions. However, in those accounts actually making P&T decisions, over 91% of hospital P&T committees are adding ZIN relief to the formulary. Importantly, 55% of our formulary approvals are for unrestricted usage of ZIN relief. We believe the broader label indications expected with our recently filed supplemental NDA will certainly drive greater usage in these hospitals and also have a significant impact on those hospitals that approve ZIN relief with restrictions to the indicated procedures. The remainder of 2021 will be a critical time for formulary access, with over 150 additional P&T committees scheduled to reviews in relief before the end of the year. We will continue to closely monitor the potential impact of COVID on the timing of P&T committee schedules. Fortunately, when we have experienced delays with P&T committee schedules, the delays have typically been for 30 to 60 days. In the hospital market, a P&T committee approval and formulary win is an important step in the process, but it's just the beginning. It's important to keep in mind that many hospitals also require a medical executive sign-off, establishment of CPOE, or computerized physician order entry, and then pharmacy stocking prior to usage in patients. Slide number nine benchmarks the number of unique accounts ordering during the first three months of launch based on Symphony Health data. we were gaining significant traction with XenRelief in the first three months of launch with 160 unique ordering accounts. We believe this compares very favorably to the Xperil launch in April of 2012 when Pacera launched Xperil with a broad label indication and no COVID to impact their results. During the past 18 months, three non-opioid analgesics, XenRelief, Xeracol, and Angizo, have launched during the COVID-19 era. ZenRelief's number of unique ordering accounts is over four times greater than the next closest competitor. In addition, ZenRelief had 50% of accounts reordering during the first three months, the greatest reorder percentage of the four products benchmarked in this analysis. While the initial ZenRelief results are strong, we're far from satisfied and will continue to grow unique ordering accounts and gain more momentum in formulary approved accounts in the fourth quarter. We're already seeing growth on both fronts in October and expect further growth in unique ordering accounts with additional formulary approvals through the remainder of the quarter. We've also seen tremendous early results on our reimbursement coverage front in both commercial and Medicaid payers. we've already obtained separate reimbursement outside of the surgical bundle for XenRelief and more than 88 million covered lives in ASCs, and in some cases also have separate reimbursement in the hospital outpatient setting. We think this is an unprecedented coverage for a new postoperative pain drug. A key component of our pricing strategy is in procedures without separate reimbursement. ZinRelief's lower acquisition cost benefits customers across all settings of care where the drug may be reimbursed under the surgical bundle payment. CMS is still reviewing our pass-through application, and we fully expect pass-through in the new year. Until December 31, 2021, CMS is reimbursing ZinRelief at 95% of average wholesale price which is a very favorable rate for Medicare patients in the outpatient setting. Yesterday, we received some great news. CMS published the Calendar Year 2022 Outpatient Prospective Payment System Final Rule and issued Zen Relief a specific C code, C9088, for separate reimbursement in the ASC setting of care effective January 1, 2022. This will have a meaningful impact since ZenRelief will have ongoing reimbursement in ASCs even beyond the typical three-year pass-through period. We have four key priorities for the remainder of the year with ZenRelief, all of them focused on building off the strong base we built in Q3. First, we'll continue to expand usage in new formulary-approved accounts with pull-through activities, including in-services, to create a positive first experience and convert surgeons into loyal users. The initial results we've seen and heard from physicians are even better than those we saw in our clinical trials, which is extremely exciting both for patients and surgeons. In fact, we have several orthopedic surgeons who have been so impressed with XenRelief's results, they've already used it in over 100 TKA cases since launch. Second, we'll continue to focus on gaining formulary access at both the integrated delivery network or IDN and hospital level to build more unique accounts that are routinely reordering. Our 91% hospital formulary approval rating demonstrates the unmet need in the marketplace and gives us great confidence for the future. Third, we'll continue to expand commercial and employer reimbursement coverage, creating a financial benefit for our customers and greater access to non-opioid solutions for patients. The critical factor in commercial payers covering XenRelief outside the surgical bundle has been the demonstration of superiority to the standard of care of bupivacaine in our clinical trials. XenRelief is the first and only local anesthetic designated extended release by the FDA with up to 72 hours of pain reduction. Yesterday's news with CMS issuing ZinRelief a specific C code for separate reimbursement and ASCs is another positive step in this process. Finally, we remain confident this strong base of ZinRelief business will put us in an excellent position to expand usage once the FDA approves our new label indications that were previously described by Barry. Now I'd like to shift gears and review the third quarter results for our oncology care franchise. The third quarter was another solid performance for the CINB franchise products with net sales of $21.1 million, which represented a 6% increase over the prior year. We did have some headwinds in the third quarter with the impact of COVID, decreasing cancer screening, and new patient starts. Secondly, CMS's oncology care model and other value-based contracts support community oncology practices move towards cheaper generic and biosimilar products. Lastly, competitive products were maintaining high value or net cost recovery to oncology practices with aggressive pricing. Nevertheless, we believe that both Cymbonti and Sustol sales are poised for growth in the clinic segment beginning in 2022. This belief is based on two key factors. First, generic fossil profit and ASP reimbursement has decreased 27% from the prior quarter, down to $36.45 in Q4 21, which makes Symbionte's value for oncology practices much more attractive in 2022. Second, as a result of COVID, There's a backlog of oncology patients, and we believe that since both products can be used in HEC and the majority of MEC regimens, as new patients reenter the system for treatment, these new patient starts will create growth opportunities for both of our products. During the fourth quarter of 2021, we expect CINV net product sales to be in the range of $20 to $22 million. During 2021, our team's done an excellent job of stabilizing our CIMV portfolio net sales and markets dominated by generic competition. As you can see in the graph, we've generally stabilized Symbante net sales and started the process of growing Substall following the refresh program we implemented in 2019. As mentioned on the previous slide, we believe that CIMV products are poised for moderate growth in 2022. On slide number 15, we take a closer look at Sustall. During the fourth quarter of 2019, we removed all discounting from Sustall in order to reset the ASP reimbursement for the product. This process takes five quarters to implement, and following the reset refresh program, we returned Sustall to growth in 2021, and we expect continued growth in 2022. Following that brief review of the oncology franchise, I'll now turn the call back over to Barry.

Thank you, John, and thanks for the fantastic first quarter launch. I'd now like to turn the discussion over to postoperative nausea and vomiting, or as known as PONV. It's a large and important new market for Heron, beautifully aligned with our current commercial efforts in the postoperative pain space. The PONV opportunity is about 20 times the size of CINV, and HDX 019 has substantial advantages over available products. We had a successful pre-NDA meeting with the FDA to align on our planned submission, which we plan to submit this quarter. Based on a standard 10-month review period, we could be launching HDX 019 in fourth quarter of next year, with the opportunity for several hundred millions in sales. To highlight why we are so excited about this product, here's a direct comparison of two dose levels of Aprepitent to the current market leader on Dansetron, looking at the percent of patients with no vomiting after surgery and patients prophylaxed with these agents. I think everyone on this call would like to be in the top two at Prevident Arms versus Ondansetron. While there are approximately 65 million surgical and diagnostic procedures each year where patients are at risk for PONV, we would be focused on the high to moderate risk patients shown in the top pie chart. Based on risk factors, there's approximately 35 million patients a year currently receiving prophylaxis for PONV, usually with ondansetron. Within the group, patients with high to moderate risk for PONV should receive a second agent, such as HDX019. Of even greater importance are the approximately 5 million patients who are having surgical procedures where vomiting or retching could adversely affect their recovery. This is an important target group for HDX019. Moving into PONV fits perfectly with Heron's commercial strategy. We have two primary components of our strategy. First is to establish Heron as a leading company in acute care. As I described earlier, XenRelief is currently, is clearly off to a fast start, and despite the headwinds, had an excellent first quarter of launch. Our agreement with the FDA to expand the label indications once approved will accelerate XenRelief's growth in the future. With the submission of the NDA for HTX019 for PONV this quarter, we will be in the enviable position of potentially adding a second commercial product to the acute care franchise in the fourth quarter of next year. This product will allow us to optimize our acute care resources with the same commercial team and customers. The second component of our commercial strategy is to return to growth maximize the profitability of the oncology care business. To recap, we have stabilized sales in a competitive generic market and are poised for moderate growth in 2022. In addition, we've taken important steps to maximize profitability of our oncology care products. The first step is to invest in large-scale manufacturing for Symbonti. which will significantly reduce COGS in 2022. We also have better aligned our resources to support maximizing profitability with a significant cost savings. Throughout the call today, you've heard the commercial numbers from both our product franchises. But to wrap up on our financials, I'll quickly recap these numbers and provide a little more detail on our overall financial picture. Our net product sales for the third quarter of 2021 for both our commercial franchises was $23.2 million compared to $20 million for the same period in 2020, which represents a 16% increase in year-over-year growth. For ZinRelief, I recorded $2.1 million in net product sales for the first quarter of 2021. For Symante, net product sales were 18 million in the third quarter, compared to 19.8 million in the same period in 2020. For Sustol, net product sales were 3.1 million for the third quarter of 2021, compared to 0.2 million in the same period in 2020, with Sustol demand units increasing by 22 percent over the prior quarter. In the fourth quarter of 2021, we expect net product sales for the oncology care franchise in the range of 20 to 22 million. And in 2022, we expect to see moderate growth in net product sales. In terms of our operations, net cash used for operating activities during the nine months ended September 30, 2021, was 158.1 million. compared to $132.3 million for the same period in 2020. The increase in our net cash use for operating activities was primarily due to changes in working capital related to the launch of ZimRelief in July 2021, including manufacturing of commercial inventory. We expect net cash use for operating activities of $45 to $48 million in the fourth quarter, and we anticipate that our net cash usage will continue to moderate lower in 2022 as net product sales increase and we realize cost savings from reduced expenses in the oncology care franchise and from anticipated large-scale manufacturing. Finally, as of September 30, 2021, we had cash, cash equivalents, and short-term investments of $202.8 million. Overall, I'm very pleased with our progress over the last several months, and we look forward to carrying our momentum through the end of 2021 as we look forward to expanded commercial opportunity for Zen Relief through 2022 and continue to execute driving our oncology care franchise forward. With that, we're ready to take questions. Gigi?

As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from the line of Josh Schwimmer from Evercore ISI. Your line is now open.

Great, thanks so much for taking the question and thanks for providing such a detailed overview on the MIS and relief launch metrics. Just a few questions for me. First, can you help me understand the rationale for generating more PK and safety data to expand the label for the broad ortho and soft tissue indications? What data are you gonna generate there from those studies that you don't already have? And then for the ongoing launch, Where do you expect you're going to be for covered lives at the end of the year for both hospitals and ASCs after you get through these additional P&T committees? And for the wins that you've been generating, have they been in settings that are typically ex-FRL friendly or not friendly, or is it a mix of them? Thanks.

Thanks, Josh. Appreciate the questions. On the first one, So just for clarity, so the first SNDA that we've already submitted contained actually no new information, and it was based on the data we'd already generated. The agreement with the FDA was that that data would get us, as I described, a broadened indication covering foot and ankle surgical procedures small to medium open abdominal surgical procedures, and lower extremity total arthroplasty. So a clear broadening of the indication statement. To go beyond that, the agency was looking to confirm that when the product is placed in other regions of the body, that there wouldn't be any surprises in terms of the pharmacokinetics and safety. The agency, and this is not just for us, this is across all of the recently developed locally applied bupivacaine products, they're very interested in making sure that we keep the risk of last. local anesthetic systemic toxicity to a minimum. And they just want to make sure that there's no surprises in the pharmacokinetics of the product because they've indicated they've seen unusually high levels with a prior approved product, and they want to confirm that that's not the case with ours. So the agreement is that since we have the data that I just mentioned in certain regions, we're going to supplement that information and collect data in other regions that we don't have current data in. So that would be, for example, shoulder. If you're looking at getting a broad orthopedic indication, both upper and lower extremity, we'll have lower extremity from the currently submitted SNDA. They're asking for some PK data in shoulder in order to get across the board arthroplasty. They're looking for data in spine in order to include a totally broad application, indication for orthopedics, because that's an important component of orthopedics, and it's also a highly vascular area. So they want to see data in spine. A very nominal amount, but nonetheless, it's an important component of what they're looking for And we're also doing some additional work in abdominoplasty that kind of checks the box for large abdominal procedures. And so that's really the rationale for the request. As I noted, the great part of this is that there's no requirement for doing randomized efficacy studies. So there's very limited risk of failure. because we already know from the data we've collected so far that our product really releases bupivacaine independently of vascularity and independently of anatomic size, and we've already done significant work in abdominoplasty as well as a highly vascular breast augmentation mammoplasty. So we have no expectation of seeing any unusual drug levels and we just need to check that box. And so those studies are ongoing and will collect the data and allow us to submit the application in the second half of next year. And so the second part of that question I think I'll turn over to John.

Yeah, absolutely. Hi, Josh. Just wanted to clarify your question on covered lives. Were you referring to the 88 million covered lives that we currently have for separate reimbursement? I just want to make sure I understand your question correctly.

Just curious where you think you're going to be both for coverage in hospitals and for ASCs by end of the year as you get through these next round of formulary discussions.

Yeah, so... With respect to the payer mix, right now we're covering payers that represent about 220 million covered lives, and we are making good progress with additional ones. Some of them will be basically impossible to get because you'll need to have contracts that are actually developed at the provider stage rather than what they'll be able to offer. But we're taking a number of approaches to expand that as broadly as we can. One is a strategy that we're really working with employer coalitions and unions that have great interest in making sure that their employees and their families are able to remain opioid-free post-surgical procedure. So that's been something that we're gaining a lot of momentum on, and we think we'll continue to expand that number. At this point, I'm really not comfortable giving a specific number, but we have made it a top priority to make sure that ZIN relief is available and separately reimbursed with commercial payers in as many ASCs and hospital outpatient settings as possible. I think your second question was the P&T committee wins that we're getting right now with formulary acceptance. And I would say that the majority of them right now are accounts that Expirel is currently on formulary. So that would answer that question. I think one of the things that we're most excited about is that we're also able to add some major hospital systems that Expirel has never gained formulary access to. And it's really based on the strength of our clinical data. They've been doing an actual evaluation in some of these hospital systems and the results have really been stellar. So we're excited about that because our goal ultimately is not just to replace XBRL, but it's also to really make significant headway with bupivacaine in order to reach our goals. So let me know if that answered your question.

That's good. I'll let others ask. I'll jump back in the queue. Thanks.

Thank you.

Thank you. Our next question comes from the line of Brandon Folk. from Cantor Fitzgerald. Your line is now open.

Hi, thanks for taking my questions and congratulations on a good quarter. I just want to follow up on that prior question. I heard your comments about getting on formulary where Expro is, but maybe just in terms of usage, could you just elaborate if you have any feedback, if you actually are being used in place of generic bupivacaine or other branded products at this stage? And then maybe secondly, on the types of procedures, Can you just comment a little bit in terms of what procedures you are gaining traction in? Understanding you're promoting to the label, but there are a number of formularies that have not placed usage restrictions on the product. So are you hearing about much off-label usage at this stage or still a bit early? Thank you.

Yeah. Would you like me to take that, Barry? Yes, please. So with respect to are we being used, absolutely. If you take a look at those orthopedic surgeons that I referred to as using XenRelief in over 100 TKA cases, those are all hospital-based physicians. So we're clearly being used in hospitals. I will point out, and this was part of my prepared remarks, is is that the formulary approval process is only the first step. In other accounts, we haven't gotten usage even with formulary approval yet because you have to work through the medical executive sign-off, make sure you're getting through the computerized physician order entry, the pharmacy ordering. That's going to be a bit of a pent-up demand that we'll have in the marketplace, but we're very happy about the usage that we're getting thus far. I'm sorry, the second question was, could you remind me?

In the procedures, right, in terms of unrestricted usage, is it all being used online, or are you caring about some off-label usage at this stage?

Yeah, thanks, Brandon. I appreciate the reminder there. What we have seen is we're only promoting on label our three indicated procedures. And as I talked about from a formulary approval standpoint, 55% of hospitals and IDNs that have approved us is for unrestricted use. So we have heard anecdotally about use outside of the indicated procedures. When surgeons doing a case there, our representatives leave the operating room since we can't be part of that. But we have heard anecdotally about cases like with orthopedic surgeons having good results in TKA, using it in total hip replacement, and having very fine results there. But that's obviously not something that we're promoting. It's all been anecdotal information thus far. Barry, I don't know if you wanted to say anything else about that.

No, look, I think you covered it exactly right. We clearly have heard about the use of the product outside of the three surgical procedures and the indication. And we, through medical affairs, collect that information. We want it to help us. in terms of any future clinical studies that we might be doing, like the spine study, learn from positive experience that people have already had. But as already noted several times, we clearly don't promote on it. We don't allow the reps to go into the OR when that kind of procedure is being done. Obviously, a lot of that is going to change. once we have the expansion of the label. And we look forward to that because that's going to really open up the opportunity for a lot of valuable communication with surgeons and really get the best possible outcome for patients.

Great. Thank you very much.

Thank you. Our next question is from the line of Boris Peeker from Cowen. Your line is now open.

Great. My next question is maybe a little more focusing on the formulary discussions. I'm curious, are you being compared directly to Xperil? And are these facilities ending up choosing one drug over another? Or in many cases, are they putting both Xperil and Zinrolab on the formulary?

John, you want to start that one too? Sure.

So, yeah, that's a great question, Boris. In the vast majority of accounts that we have been added to formulary, they've actually maintained XBRL on formulary if it had been on formulary to begin with, as I talked about in the earlier question that Josh asked, really talked about how the fact that we're getting both accounts where XBRL is on formulary and where it isn't. But that's really not surprising. We're not looking to have them kicked off formulary. They certainly have indications, whether it's for things like pediatrics or nerve block where they wouldn't use in relief. And so we have no problem with that. What our goal is, is to get access to the product, have a great experience for surgeons and patients and get as much usage as we possibly can. So we're not looking for this to be an either or situation. But if, you know, certainly some accounts may in the future, look to make therapeutic substitutions within label, you know, we'd be all for that as well.

Yeah, I'll just remind everyone that, you know, XBRL has single digit penetration in terms of the potential patient population. And so, and, you know, again, it's not our intent to try to get them removed from formularies. Our intent is to get our product used in as many patients as possible and get the best outcome for those patients as possible. So the fact that they would stay on formulary and particularly stay on for those indications, very specific indications like pediatrics and nerve block we don't have is expected. So hopefully that answers your question.

Yeah, it's certainly helpful. My last question is, so you received the C code. Can you comment the competitive advantage that it gives you, and how should we actually see that competitive advantage evolving?

Go ahead, John.

Go ahead, Perry. Well, I was going to say that the C code is really what's established for the ambulatory surgical center market. and that will become effective January 1st of 2022. So from a competitive advantage standpoint, we'll be in the same position as other companies that are being reimbursed in that setting of care. In addition, CMS continues their evaluation of XenRelief for pass-through status. That's where we think one of the major advantages could be because pass-through status could provide reimbursement not only in the ambulatory surgical center of care, but also in the hospital outpatient setting of care. And that's a place where the leading branded product, X4L, does not have coverage.

And when would you get that past their status?

Well, they are still evaluating our application. So as I talked about in my comments, we expect that sometime in the new year. Generally, they make their determination about four to six months two to four weeks prior to the end of the quarter, so we could hear as soon as early to mid-December on the CMS decision.

Great. Thanks for taking my questions.

Sure. Thanks, Boris. I'll just remind everyone that the Medicare percent of patients that we're currently targeting is a little less than 20% in the ASC and in the outpatient hospital setting. And that's why the commercial coverage that John described is so exciting and important is because commercial payers are really the bulk of patients going through our two primary target areas of outpatient hospital and ASC. But the extended coverage that this C code provides going beyond you know, three years of normal pass-through. Also, it's important because it gives confidence to an ASC that may be reluctant to take on a new product if it only has temporary coverage. They're always worried that the surgeons are going to love a product that's getting reimbursed, and then three years later, they have this huge usage, and all of a sudden, the reimbursement goes away. So the fact that this is more of an expected to be continued ongoing for an extended duration is actually very positive in terms of getting more ASCs to adopt products that are covered.

Thank you. Our next question comes from the line of Serge Belanger from Needham and Company. Your line is now open.

Good afternoon. Just a couple of questions for me. First on Zin Relief, can you talk about where do you expect the product to get traction as things ramp up here? Is it going to be the ASC setting and HOPDs or hospitals? And then you discussed the label expansion plans. Curious if those plans include a nerve block indication and whether that's something you may seek separately. Thanks.

So, um, yeah, I'll, I'll take the first one search. So, uh, as far as traction, if you look at the first, uh, 160 unique ordering accounts that we had in, in July through September, uh, those accounts were divided pretty equally 50 50 on the number of ordering accounts. But a significantly higher percentage of that business was coming from the hospital setting of care, which is not surprising because, you know, hospitals obviously are performing far more procedures than what ASCs are doing. If you look at the overall ASC market, it's, you know, somewhere around 15% of our targeted procedures. So that's what we would expect. But ASCs have a lower hurdle rate as far as getting in and getting early usage. So I think that probably answered your question, Serge.

Yep.

Hopefully.

Yeah, on the label expansion, certainly the two SNDAs that we have been discussing are strictly for local application. And we don't anticipate in the future doing any additional nerve block work with ZenRelief. ZenRelief was designed based on the unique synergy that we observed between bupivacaine and the small amount of meloxicam, where we see significantly enhanced pain reduction, even in the first 24 hours, but continuing in the second 24 and in the third 24 hours of use compared to bupivacaine alone. And that's because of the local inflammation that occurs when you cut through tissue and bone, you get this local inflammation. And by using Xenrolif, you can see greater benefit from the bupivacaine. That situation would not occur in a nerve block setting. So we'd really lose the great pharmacology that we have with Xenrolif moving it into a nerve block setting. But I'll point out that, as you may be aware, our competitor is suing ASA because of a publication which highlighted that there didn't appear to be any benefit of Expirel versus bupivacaine in nerve block. And so it's our view that it's perfectly reasonable just to simply use low-cost bupivacaine where an anesthesiologist thinks there's a need for a nerve block, and then use XenRelief locally applied to provide a much longer duration of benefit. And so we think that's the optimal outcome versus trying to use an extended release product for the nerve block itself.

Okay. Just a quick one on the CINV franchise. You mentioned you expect the franchise to return to growth in 2022. Just curious if you expect to return to prior, you know, 2018 levels, for example, especially for Sinventi, given the changes based on value-based contracting reimbursement that are affecting the market dynamics?

John?

Yeah, so the guidance that we provided today, Serge, was that we expect, you know, moderate growth in 2022 and that to re-achieve those levels would be significantly higher than, you know, what I think we would define as moderate. We think with Cymbati there are a number of things that are really working in our favor. One is the generic FOSA Prevident. As I talked about in my comments, the reimbursement has gone down to $36.45. So the value that they're able to offer even by aggressive pricing for community practices isn't there. Another key factor is that with their ASP reimbursement falling so low, within the hospital market beginning January 1st of 2022, there will be no reimbursement for generic falciprepidin outside of the bundled payment. So we think those two combination of events, both, you know, the impact on the clinic market with the lower ASP and the reimbursement and no reimbursement at all in the hospital market lends itself to, you know, allowing us to get Cymbati back on the growth track as we enter 2022. I would expect that we provide a bit more guidance on that, you know, with the year-end results on what we think 2022 will look like.

Okay, great. Thank you.

Sure.

Thank you. Our next question comes from the line of Kelly Shi from Jefferies. Your line is now open.

Thank you for taking my questions. I wonder for the $2.1 million sales from this quarter, Would you be able to put a number on the split of volume from ASC settings versus hospital settings? For the ASC, is it well below 20% at this moment? And after C code in the next year, would you be able to say the different growth rates under each setting? Thank you.

Okay, so on your first question, the AFC volume, so the 2.1 is what, you know, we sold into the distribution channel. What was pulled out from a demand standpoint, it was probably about 30% in the first quarter was driven by AFC accounts. And as I talked about earlier, The mix of unique ordering accounts was about 50-50, so it gives you a sense of, you know, the greater volume coming out of the hospital marketplace. And I wasn't really sure on your second question. Could you please repeat that?

Oh, yes. So what kind of change are you expecting in terms of the volumes played under SSA versus hospital settings in the next year?

Yeah, so for that first quarter, like I said, in actual demand, it was about 70-30 with 70% being in the hospital. We would expect going forward that it would more normalize and probably with upwards of over 80% of our business coming from the hospital market and probably roughly 20% from the ASC market.

Thank you very much.

You're welcome.

Thank you again.

Thank you. Our next question comes from the line of Josh Schwimmer from Evercore ISI. Your line is now open.

Thanks for taking the follow-up. I realized I was asking the wrong question about covered lives and hospitals because they don't go by covered lives. So maybe you can talk to the successes you've had at P&T committees, at hospitals, kind of where you are in that progress, either in terms of and the percentage of hospitals that you're targeting and what the cadence of those P&T decisions will be through the rest of this year and then into 2022.

Right. So as we described today, we have 126 formulary approvals. The vast majority of that number are actually with hospital systems. We have another 150 P&T committees that are scheduled to meet between now and the end of the year, Josh. So that gives you a sense of what the total could be. We're targeting 1,300 hospitals overall. What's interesting about the P&T is every week that we update this, we're seeing more and more P&T scheduled, you know, some of them I haven't gotten into, you know, are scheduled already for 2022. But, you know, we continue to make that a priority. And, you know, we will get as many of those as we possibly can. I think what's very encouraging for us are two factors. One is that we do have a 91 percent of P&T committee approval rate in hospitals. And the fact that the majority of those hospitals are approving ZIN relief for unrestricted usage at 55%. But, you know, as far as the cadence, you know, with COVID, it's a bit hard to predict. But, you know, we'll try to provide updates as we go forward on these earnings calls of where we're at and what's in the queue for the remainder of the quarter to give you a better sense of that.

Given the target of 1,300-some-odd hospitals and the pace to date, should we expect there to be an acceleration next year, or we're just kind of continuing to slog through that large number?

I would think there's going to be an acceleration next year for a number of reasons. Some of the P&T committees have been postponed because of COVID, so we think that will help accelerate the process. You know, certainly the sooner that we get the new indicated procedures, I think that could also accelerate the process. And some hospitals, they just, you know, automatically start with a moratorium of saying we're not going to evaluate any products for six months, you know, until the product's been on the market for six months. So all those things converge to, you know, what we think should be a faster rate as we enter 2022 on formulary approval structures.

Got it. And last question on this topic. Does this kind of follow the 80-20 rule, 20% of hospitals account for 80% of volume, and you kind of target those first for P&T committees, or is it a little bit different dynamic?

So if you look at the hospitals that we're targeting, the 1,300, that gets us to about 80% of the opportunity, whether it's competitive products or, you know, it's a little less than that on the indicated procedures. It's probably 65% to 70%. You know, we always start with the ones that are the largest, as you would imagine, but sometimes those larger ones are slower, too. So... You know, we're trying to be opportunistic. All of the 1,300 hospital accounts that we're targeting are valuable, and, you know, we'll happily take any of them, but we start with the ones that have the greatest value. We've got some big ones. Yeah, without question, we've got some very big ones, yeah.

Thank you. At this time, I'm showing no further questions. I would like to turn the call back over to Barry Court for closing remarks.

Well, thank you, everyone, for participating in the call. Very exciting quarter, and we look forward to continued quarterly updates. Have a great day.

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect. Goodbye.