Heron Therapeutics, Inc. /De/ Q3 FY2021 Earnings Call

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 Szekeres, 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 Quart, Chief Executive Officer and Chairman; John Poyhonen, President and Chief Commercial Officer; and Kimberly Manhard, 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 the 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 provision under the Private Securities Litigation 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 and 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. And 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 ZYNRELEF for postoperative pain in the United States, which represents our first product in our acute care franchise and our third commercial product overall. We are focused on creating long-term growth in this franchise with ZYNRELEF. 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 ZYNRELEF, 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 ZYNRELEF and to increase product supply. The FDA agreed to two supplemental NDAs for label expansion for ZYNRELEF. 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 the contents of the second supplemental NDA, to broadly cover orthopedic and soft tissue surgical procedures. The FDA agreed studies for this second supplemental NDA are already ongoing. The endpoints in these studies are pharmacokinetics and safety; demonstration of efficacy is not required for approval. We expect to submit this second supplemental NDA 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.

Thank you, Barry. I'm truly excited to share our third quarter commercial results. We're off to a fast start with ZYNRELEF 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 ZYNRELEF launch and finish with an update on our Oncology Care commercial results. ZYNRELEF is off to a strong start in our first quarter of launch with net product sales of $2.1 million. We've already established a broad nationwide access to stocking in the distribution channel to ensure rapid delivery for ordering accounts. We're utilizing four full-line wholesalers, ABC, Cargo, McKesson, and Morris & Dickson. Thus far, 68 stocking distribution centers have sold ZYNRELEF and 50% of these distribution centers have reordered. In addition, we're utilizing ten specialty distributors to supply ambulatory surgical centers. Thus far, ten stocking distribution centers have sold ZYNRELEF and 60% of these distribution centers have reordered the product. Slide number seven is an updated version of the slide we shared during our ZYNRELEF FDA approval conference call in May regarding successful hospital launches. As you'll see, we've added the first five quarters for ANJESO. In full transparency, their first quarter only included one month of sales. In addition, we have added the first quarter of ZYNRELEF net product sales. We feel like we're off to an excellent start and continue to believe that ZYNRELEF total net product sales will exceed those of EXPAREL over the initial six-quarter period. Slide number eight highlights the rapid progress that ZYNRELEF 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 are confident that ZYNRELEF 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 ZYNRELEF to formulary. Importantly, 55% of our formulary approvals are for unrestricted usage of ZYNRELEF. 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 have approved ZYNRELEF with restrictions to the indicated procedures. The remainder of 2021 will be a critical time for formulary access, with over 150 additional P&T committee meetings scheduled to review ZYNRELEF 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 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 a number of unique accounts ordering during the first three months of launch, based on Symphony Health data. We are gaining significant traction with ZYNRELEF in the first three months of launch with 160 unique ordering accounts. We believe this compares very favorably to the EXPAREL launch in April of 2012 when launched EXPAREL with a broad label indication and no COVID to impact their results. During the past 18 months, three non-opioid analgesics, ZYNRELEF, Xerocole, and (indiscernible) have launched during the COVID-19 era. ZYNRELEF's number of unique ordering accounts is over four times greater than the next closest competitor. In addition, ZYNRELEF 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 ZYNRELEF results are strong, we're far from satisfied, and we'll continue to grow unique ordering accounts and gain more momentum and 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 ZYNRELEF 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 unprecedented coverage for a new postoperative pain drug. A key component of our pricing strategy is in procedures without separate reimbursement. ZYNRELEF'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 ZYNRELEF 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 ZYNRELEF a specific C-code for separate reimbursement in the ASC setting of care effective January 1, 2022. This will have a meaningful impact since ZYNRELEF 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 ZYNRELEF, all of them focused on building off the strong base we built in Q3. First, we'll continue to expand usage and 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 ZYNRELEF results that 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 (IDN) and at the 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 ZYNRELEF outside the surgical bundle has been the demonstration of superiority to the standard of care bupivacaine in our clinical trials. ZYNRELEF is the first and only local anesthetic designated extended release by the FDA with up to 72 hours of pain reduction. Yesterday's news about CMS issuing ZYNRELEF a specific C-code for separate reimbursement in ASCs is another positive step in this process. Finally, we remain confident that the strong base of ZYNRELEF 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 CIMB 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' 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 (indiscernible) sales are poised for growth in the clinic segment beginning in 2022. This belief is based on two key factors. First, generic fast profit and ASP reimbursement has decreased 27% from the prior quarter, down to $36.45 in Q4 '21, which makes CINVANTI'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 CIMB net product sales to be in the range of $20 million to $22 million. During 2021, our team has done an excellent job of stabilizing our CINV portfolio net sales in markets dominated by generic competition. As you can see in the graph, we've generally stabilized CINVANTI net sales and started the process of growing SUSTOL following the refresh program we implemented in 2019. As mentioned on the previous slide, we believe that CINV products are poised for moderate growth in 2022. On slide number 15, we take a closer look at SUSTOL. During the fourth quarter of 2019, we removed all discounting from SUSTOL in order to reset the ASP reimbursement for the product. This process takes five quarters to implement, and following the refresh program we returned SUSTOL 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, 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 HTX-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 HTX-019 in the fourth quarter of next year, with the opportunity for several hundred million in sales. To highlight why we are so excited about this product, here's a direct comparison of two dose levels of aprepitant to the current market leader ondansetron. Looking at the percent of patients with no vomiting after surgery in patients prophylaxis with these agents. I think everyone on this call would like to be in the top two prepatent 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 HTX-019. 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 HTX-019. 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, ZYNRELEF is 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 ZYNRELEF's growth in the future. With the submission of the NDA for HTX-019 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 and 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 CINVANTI, which will significantly reduce COGS in 2022. We also have better aligned our resources to support maximizing profitability with 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 ZYNRELEF, our reported $2.1 million in net product sales for the first quarter of 2021. For CINVANTI, 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% 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 million 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 used for operating activities was primarily due to changes in working capital related to the launch of ZYNRELEF in July 2021, including manufacturing of commercial inventory. We expect net cash used for operating activities of $45 million 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 $2.29 million. Overall, I am 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 ZYNRELEF through 2022 and continue to execute, driving our oncology care franchise forward. With that, we're ready to take questions.

Our first question comes from Joshua Schimmer from Evercore ISI. Your line is now open.

Great. Thanks for taking the question and thanks for providing such a detailed overview on the metrics. A few questions from me. Can you help to understand the rationale for generating more PK and safety data to expand the label for the indications? What data are you going to 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 EXPAREL friendly or not friendly? Or is it a mix? Thanks.

Thanks, Josh. I appreciate the questions. On the first one, so just for clarity, the first supplemental NDA 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 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 are very interested in ensuring that we keep the risk of local anesthetic systemic toxicity to a minimum and just want to make sure that there are 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’s not the case with ours. 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 are looking at getting a broader (indiscernible) both upper and lower extremity that will have lower extremity from the current submitted sNDA. They are asking for some detailed data in shoulder in order to get across the board or to plastic. They are looking for data in spine in order to include a totally broad application – indication for orthopaedics. So that’s an important component of orthopaedics and it also a highly vascular area, so they want to see data in spine. A very nominal amount, but none the less it’s an important component of what they are looking for. And we're also doing some additional work in abdominoplasty, that kind of checks the box for large abdominal procedures. 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 and because we already know from the data we've collected so far that our product really releases bupivacaine independently of vascularity and independently about atomic size, and we've already done significant work in abdominoplasty, as well as 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 we'll 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 it over to John.

Yes, absolutely. Hi, Josh, just want 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.

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 essentially 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 procedures. So that's been something that we're gaining a lot of momentum in, 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 ZYNRELEF 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. I would say that the majority of them right now are accounts that EXPAREL 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 EXPAREL 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 been stellar. So we're excited about that because our goal ultimately is not just to replace EXPAREL; 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.

I’ll get back in the queue. Thanks.

Our next question comes from the line of Brandon Folkes from Cantor Fitzgerald.

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 EXPAREL 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 on what procedures you organic traction in understanding you're promoting to the label, but there are a number of formularies that are 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.

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 refer to as using ZYNRELEF 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, the formulary approval process is only the first step that 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, and pharmacy ordering. So 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 type of the procedures, right? In terms of (indiscernible), they have unrestricted usage, is it all being used (indiscernible)? Or are you hearing about some off-label usage at this stage?

Yes. Thanks, Brandon. I appreciate the reminder there. So 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 have approved us for unrestricted use. So we have heard anecdotally about use outside of the indicated procedures when surgeons are doing a case, and our representatives lead the operating room since we can't be part of that. But we have heard anecdotally about cases like orthopedic surgeons having good results in TKA and 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 want to say anything else about that.

No, I believe you addressed it correctly. We have indeed received feedback regarding the use of our product beyond the three surgical procedures indicated. Through our medical affairs team, we gather this information to assist with any future clinical studies we may conduct, such as the spine study, and to learn from the positive experiences reported by users. As previously mentioned, we do not promote this usage, and our representatives are not permitted to enter the operating room during such procedures. However, we anticipate significant changes following the expansion of our label, which will enable extensive communication with surgeons and help achieve the best outcomes for patients.

Great. Thank you very much.

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

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

John, do you want to start that one too?

Sure. So yes, that's a great question, Boris. In the vast majority of accounts that we have been added to formulary, they've actually maintained EXPAREL 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 EXPAREL is on formulary and where it isn't. But that's really not surprising. We're not looking to have them kicked off the formulary. They certainly have indications whether it's for things like pediatrics or nerve block where they wouldn't use ZYNRELEF. And so we have no problem with that. What our goal 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 certainly some accounts may in the future look to make therapeutic substitutions within labels, we'd be all for that as well.

Yes. I'll remind everyone that EXPAREL currently has single-digit penetration in the potential patient population. Our goal is not to have it removed from formularies, but rather to ensure our product is used by as many patients as possible to achieve the best outcomes for them. We expect it to remain on the formulary, especially for specific indications like pediatrics and nerve blocks. I hope that addresses your question.

Yes, it's certainly helpful. My last question is regarding competitors. You received a C code; can you comment on the competitive advantage that provides? Additionally, when and how should we expect to see this competitive advantage develop?

Well, go ahead, John.

Well, I was going to say that the C code was really established for the ambulatory surgical center market. That will become effective January 1, 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 ZYNRELEF for pass-through status; that's where we think one of the major advantages could be because pass-through status will provide reimbursement not only in the ambulatory surgical center of care, but also in the hospital outpatient setting where the leading branded product, EXPAREL, does not have coverage.

And when would you get that pass-through status?

Well, they're still evaluating our applications. So as I talked about in my comments, we expect that sometime in the New Year, generally, they make their determination about 2 to 4 weeks prior to the end of the quarter. So we could hear as soon as early to mid-December on the CMS decision.

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 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 the C code provides will go beyond the 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 the product is 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 expected to be continued ongoing for an extended duration is 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 & Company. Your line is now open.

Hi, good afternoon. Just a couple of questions for me. First, on ZYNRELEF, can you talk about where you expect the product to get traction as things ramp up here? Is it going to be the ASC setting, 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 see separately? Thanks.

So yes, I'll take the first one, Serge. So as far as traction, if you look at the first 160 unique ordering accounts that we had in July through September, 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 hospitals are obviously performing far more procedures than what ASCs are doing. If you look at the overall ASC market, it's 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, hopefully.

Yes. On the label expansion, certainly, the two supplemental NDAs 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 ZYNRELEF. ZYNRELEF 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 and 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 and you get this local inflammation. By using ZYNRELEF, you can see greater benefit from the bupivacaine. That situation would not occur in a nerve block setting. So we really lose the great pharmacology that we have with ZYNRELEF 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 EXPAREL versus bupivacaine in nerve block. And so it's our view that it's perfectly reasonable just to simply use low-cost bupivacaine, if an anesthesiologist thinks there's a need for a nerve block and then use ZYNRELEF 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 2018 levels, for example, especially for CINVANTI, given the changes based on value-based contracting reimbursement that are affecting the market dynamics?

John?

Yes. So the guidance that we provided today, Serge, was that we expect moderate growth in 2022 and that to reach prior levels would be significantly higher than what I think we would define as moderate. We think with CINVANTI, there are a number of things that are really working in our favor. One is the generic fosaprepitant. As I talked about in my comments, the reimbursement has gone down to $6.45. 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 1, 2022, there'll be no reimbursement for generic fosaprepitant outside of the bundled payment. So we think that those two combinations of events will allow us to get CINVANTI on the growth track as we enter 2022. I would expect that we'd provide a bit more guidance on that with the year-end results on what we think 2022 will look like.

Okay, great. Thank you.

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. For the $2.1 million in sales from this quarter, could you provide the volume figures from ASC settings compared to hospital settings? For ASC, is it currently well below 20%? And following the C code next year, can you indicate the different growth rates for each setting? Thank you.

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

Yes. So what kind of change are you expecting in terms of the volumes played under SA versus hospital settings in the next year?

Yes. 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. Our next question comes from the line of Josh Schimmer 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 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. Some of them I haven't gotten into are scheduled already for 2022. But we continue to make that a priority, and 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% P&T committee approval rate in hospitals and the fact that the majority of those hospitals are proving ZYNRELEF for unrestricted usage at 55%. But as far as the cadence, with COVID, it's a bit hard to predict. But 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 hospitals and the pace to date, should we expect there to be an acceleration next year or 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. Certainly, the sooner that we get the new indicated procedures, I think that could also accelerate the process. And some hospitals, they just automatically start with a moratorium of saying, we're not going to evaluate any products for six months until the product has been on the market for six months. So all those things converge to what we think should be a faster rate as we enter 2022 on formulary approvals.

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 it's a little less than that on the indicated procedures probably 65% to 70%. We always start with the ones that are the largest, as you would imagine. But sometimes those larger ones are slower, too. So we're trying to be opportunistic. All of the 1,300 hospital accounts that we're targeting are valuable, and we'll happily take any of them, but we start with the ones that have the greatest value.

We've got too much.

Got some very big ones, yes.

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

Well, thank you, everyone, for participating in the call. A 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.