Heron Therapeutics, Inc. /De/ Q3 FY2022 Earnings Call

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Heron Therapeutics Q3 2022 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, Dennis. 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 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 Heron's 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. Welcome everyone. And thank you for joining us. The third quarter has been productive on a number of fronts and disappointing on others. We're obviously delighted with the approval of APONVIE, our fourth commercial product. APONVIE is indicated for the prevention of postoperative nausea and vomiting, or PONV, in adults. APONVIE will be available in the first quarter as a very convenient room temperature-stable, ready-to-use 32 milligram single dose vial for direct administration as a 30-second intravenous injection prior to the induction of anesthesia. It will be the only intravenous NK1 receptor antagonist available for PONV. As we discussed on our NDA approval call in September, APONVIE was approved based on the results from two randomized internal trials of aprepitant against the standard-of-care on granisetron in patients undergoing open abdominal surgery. In both studies, more than twice as many patients receiving granisetron for prophylaxis vomited through 48 hours post-surgery compared to those who received aprepitant. We firmly believe that APONVIE will follow in the footsteps of CINVANTI and quickly become an important product for both clinicians and patients. John will describe the commercial opportunity and our pricing strategy. John will also touch on our successful CINV franchise, which continues to show growth in the face of generic competition, and is well on its way to achieving $93 million to $95 million in net product sales this year. Where we have been less successful is in the launch of ZYNRELEF. We are disappointed in the third quarter results. An 18% quarter-over-quarter growth in units is not satisfactory. We understand this and are doing everything possible to change the launch trajectory. You will hear about good progress in moving IDNs to exchange ZYNRELEF for EXPAREL. We're also taking a page from the EXPAREL launch and have initiated activities to get more field personnel involved through contract relationships, which John will briefly discuss with more information on future calls. Fortunately, as elective surgeries began to rise in October and the early stages of our new strategies take hold, we had our best month ever, and all signs point to an improved fourth quarter. Last December, we were able to get an improved indication statement with no new data covering seven million procedures for ZYNRELEF. We also reached a written agreement with the FDA about what new data would be needed to achieve a full label covering the 14 million soft tissue and orthopedic procedures we originally targeted. We have now completed the agreed-upon studies and are deep into preparing what we call sNDA2, designed to obtain the broader indication. The sNDA is planned for submission late this year. As a reminder, the key endpoints for these studies were safety and pharmacokinetics. I'm pleased to report that no new unique safety issues were observed. And we found consistent bupivacaine PK following ZYNRELEF administration in these additional procedures. You can see on this slide the dose normalized CMAX of bupivacaine with ZYNRELEF is generally stable and lower than bupivacaine HCL. We believe these results will provide the basis for expanded indications next year, alleviating a major headwind for ZYNRELEF. I will now turn the call over to John.

Thank you, Barry. We are making strides across our acute care and oncology care divisions. In my presentation, I'll begin with updates on key performance metrics for ZYNRELEF. Next, I will discuss our APONVIE pricing strategy, and conclude with highlights from a strong commercial quarter in our oncology care business. To start, I'll summarize ZYNRELEF's quarterly performance indicators. Despite the third quarter's performance being affected by a decline in indicated surgical procedures, which I will elaborate on later, ZYNRELEF net sales rose to $2.7 million for the quarter, marking an 8% increase from the previous quarter. Demand units for the third quarter grew to 15,077 units, an 18% increase over the prior quarter. This growth was hampered by an unexpectedly slow July. The disparity between the 8% increase in net sales and the 18% rise in unit demand can be attributed to a lower ZYNRELEF net price, primarily due to higher 340B sales and a greater percentage of purchased 200 milligram SKUs to support ZYNRELEF's growth in general surgery and foot and ankle procedures. Unique ordering accounts for ZYNRELEF climbed to 704, with a strong reorder rate of 84%. Total formulary approvals for ZYNRELEF increased to 416. Notably, we have seen growth within Integrated Delivery Networks (IDNs), with 66 IDNs adding ZYNRELEF to their formularies. Gaining IDN support is essential for driving therapeutic interchanges, where key accounts may replace EXPAREL with ZYNRELEF for relevant procedures moving forward. While we made headway in Q3, we recognize that there is room for improvement. We have adjusted our Q4 priorities to enhance ZYNRELEF sales and support our existing accounts. As I mentioned earlier, Q3 performance was negatively affected by a decrease in indicated procedures. The volume of indicated procedures has not yet returned to 2019 levels. It was particularly low in July and August of 2022, and the first ten weeks of Q3 saw an 11% decline from the first ten weeks of Q2. Despite this market weakness, ZYNRELEF experienced an 18% growth in Q3, continuing its steady progress. In contrast, Symphony data shows that EXPAREL's total unit demand volume fell by 3% in Q3 versus the previous quarter. ZYNRELEF's unit demand rose by 18% in Q3 compared to Q2, resulting in an average of 1,160 units per week during the quarter. October was promising as we reached our highest volume month ever with 6,534 units, translating into 1,475 units per week, which is a 27% increase over the Q3 weekly average. Historically, Q4 has been the strongest for elective surgical procedures, and we are optimistic about our quarter start. Based on this growth, we forecast ZYNRELEF net product sales will increase by 30% to 40% in Q4 compared to the last quarter. Formulary approvals rose to a total of 416 by the end of October, and the majority of hospital P&T committees are adding ZYNRELEF to their formulary. Importantly, around 68% of our formulary approvals allow unrestricted use of ZYNRELEF. A key strategic focus is deploying more resources to existing user accounts to drive sales in Q4. Additionally, we aim to expand the procedures and surgeons using ZYNRELEF, especially in IDNs, to accelerate volume and sales. While new formulary approvals are important for establishing our pipeline, our current ordering accounts remain the top priority for our commercial team. Now, I want to discuss our strategy targeting IDNs to create opportunities for switching from EXPAREL to ZYNRELEF for indicated procedures. So far, 66 IDNs have added ZYNRELEF to their formularies, with 35% of approvals allowing unrestricted use. These IDNs account for over one million annual ZYNRELEF indicated procedures. Our IDN formulary expansion currently represents $143 million in annual EXPAREL sales. We have 15 IDNs at various stages considering the switch to ZYNRELEF for indicated procedures. Each of these 15 IDNs has started internal trials, with positive feedback reported across various surgical procedures. Although large IDNs require time to transition, five have already agreed to switch to ZYNRELEF for indicated procedures. We introduced a new metric last quarter to assess our impact with IDNs: branded market share, defined as ZYNRELEF units divided by the total units of EXPAREL and ZYNRELEF. In the 66 IDNs with formulary approval, we've seen solid growth in branded market share. It's crucial to remember that adding new IDNs can initially lower our market share as we build business in these accounts. For instance, when we reported 57, it has now risen to 66. Progressing IDNs towards evaluating therapeutic interchange is vital for ZYNRELEF growth. The 15 IDNs assessing therapeutic interchange have a combined 12.4% branded market share in Q3, which is more than 50% higher than the average for the 66 IDNs with ZYNRELEF on formulary. Moreover, our branded unit market share for the top five IDN accounts that are evaluating it indicates substantial potential for growth, exceeding 50% for Q3 based on current indicated procedures. A market share of 50% approaches the upper limit until we secure another label expansion, expected in the second half of 2023. Today, I will concentrate on pricing, cost savings, and reimbursement benefits. Transitioning to ZYNRELEF offers a cost savings of 25% to 32% from wholesale acquisition cost. We implemented a 25% discount from WAC pricing in Q4 and introduced 340B pricing for EXPAREL. Even with 340B pricing, ZYNRELEF delivers savings of 23% to 31% for 340B accounts over EXPAREL. Many 340B customers have conveyed that our response to the ZYNRELEF pricing strategy comes too late. According to Symphony data, 45% of EXPAREL's hospital sales occur in 340B eligible accounts, and a 23% discount could significantly impact sales and profits. We don't think they would have accepted this reduction had they not noticed our growing traction in 340B accounts. From a reimbursement standpoint, using ZYNRELEF is notably more profitable for Medicare patients in hospital outpatient and ASC settings. 340B accounts experience a financial benefit exceeding $340 per patient by using ZYNRELEF instead of EXPAREL. These economic advantages explain why large IDNs are evaluating ZYNRELEF therapeutic interchange and are keen to limit EXPAREL's usage. In closing this section on ZYNRELEF, our refocus priorities for 2022 are clear: to establish consistent ordering among our accounts. With nearly 600 accounts that have reordered, we aim to enhance sales and increase average order size by broadening the number of surgeons using ZYNRELEF and the procedures in which it is applied. In October, we began allocating new flexible resources to ensure adequate personnel for in-servicing surgeons and their staff. Essentially, we want the right resources at the right account at the right time. These new resources are particularly critical in formulary-approved IDNs with numerous hospitals where coverage can be challenging. The contracted resources afford us the flexibility to grow more swiftly. We are already observing initial impacts from these resources, expecting more significant results in Q1. Our second priority is to optimize separate reimbursement outside of the surgical bundle payment for ZYNRELEF. The CMS pass-through status for Medicare patients in hospital outpatient care is proving beneficial, particularly within IDNs. Additionally, over 200 million covered lives have approved ZYNRELEF for separate reimbursement by commercial payers and Medicaid. We will also keep pursuing formulary approvals from new targeted IDNs and hospitals to bolster our growth pipeline and therapeutic interchange opportunities. Now, let’s turn our attention to APONVIE, our product for preventing postoperative nausea and vomiting. I previously outlined the market opportunity in my September approval presentation, and today I'll delve into our pricing strategy for APONVIE. We believe that APONVIE and the PONV market represents a significant opportunity for Heron. The brand name APONVIE clearly communicates its purpose as aprepitant for PONV. Market research indicates strong healthcare provider support for this brand name, differentiating this lower dosage of aprepitant emulsion from CINVANTI, our successful CINV product. We plan to target 36 million annual procedures among patients at moderate to high risk for PONV. Currently, around 12 million high-to-moderate risk patients are receiving prophylaxis. One of our objectives is to leverage the 2020 consensus guidelines to enhance this practice, addressing a critical concern for surgical patients. Research has identified several unmet needs in the market, including a demand for a more convenient product with a faster onset, which APONVIE meets through rapid IV push and 97% receptor occupancy in five minutes. A more effective product is sought, and aprepitant is recognized as the most effective for PONV prevention. Finally, prolonged treatment is essential as APONVIE offers PONV prevention for up to 48 hours, which is increasingly relevant with the rise of outpatient surgeries. In summary, APONVIE is set to stand out in this market and is well-positioned for success. It aligns perfectly with Heron's strategy due to synergies with our commercial organization, especially as we overlap significantly with ZYNRELEF target accounts. We have established trusted relationships with anesthesia and pharmacy, which is critical for formulary access. Additionally, approximately 65% of CINVANTI business is derived from the hospital market, leveraging previous positive experiences with major hospitals and IDNs to enhance access and usage for APONVIE. I would like to share market research findings from healthcare providers regarding the pricing impact of APONVIE on their market share. The data shows overall prophylaxis usage for PONV, distributed by patient risk. Interestingly, our estimate indicates an 18% share among low-risk patients, increasing to 59% for high-risk patients. Analysis of HCP market share based on pricing ranging from $75 to $35 per APONVIE vial shows a notable shift in market share as prices approach the $65 threshold. Feedback from healthcare professionals leads us to believe that WAC pricing should be set between $65 and $55, while also considering formulary access for APONVIE. Further findings presented significant differences in formulary access for APONVIE depending on pricing, with $60 as a crucial threshold for access. Our goal is to establish a pricing strategy for APONVIE that maximizes profit contribution while balancing HCP market share and formulary access levels. Consequently, we will launch APONVIE at a WAC price of $58 per vial, with sales only to end users in packs of 10 vials. Additionally, following our corporate pricing strategy, we will provide 340B pricing to enhance access for healthcare providers and patients. With a discount of at least 23.1% from WAC, the 340B pricing for APONVIE will be under $45 per vial. Research suggests this pricing strategy will promote increased HCP market share and improved formulary access. Lastly, as Barry has noted, we remain on track for APONVIE availability in the first quarter of 2023. Moving on, I’ll review the third-quarter results for our oncology care franchise. During this quarter, our oncology care team excelled, achieving a 13% increase in net sales for our CINV portfolio compared to the same quarter last year. We are proud to have revitalized growth in our CINV franchise following challenges with generic competition and anticipate its continued success for years ahead. We project CINV net sales will be between $93 million and $95 million, reflecting an 11% to 14% increase over the previous year. The outlook remains bright for our CINV products, bolstered by favorable reimbursement trends observed over the past year. Our positioning has vastly improved compared to last year, driven by the diminishing reimbursement for generic fosaprepitant and IV Akynzeo. Additionally, the discontinuation of separate reimbursement for generic fosaprepitant in the hospital outpatient sector effective January 1 continues to strengthen CINVANTI's appeal. According to the updated CMS guidelines published in July, reimbursement for 340B accounts will increase to ASP plus 6%, a positive shift from the previous ASP minus 22.5%. Given that most of our CINV hospital demand units are in 340B accounts, we anticipate this will facilitate sales growth in Q4 and 2023. Furthermore, large-scale manufacturing for CINVANTI is now operational, with products available in the distribution channel, enhancing our gross margin significantly. That concludes my prepared remarks, and I'll now hand the call back to Barry.

Thank you, John. We'll conclude the formal presentation with our financial overview slide. Heron had cash, cash equivalents and short-term investments of $121.7 million as of September 30, 2022. Net cash used for operating activities in the third quarter was $37.1 million including restructuring fees and our recent reduction in force. The full impact of reducing headcount by approximately 34% will continue to be realized through this quarter and next. The following slides in the deck contain important safety information for ZYNRELEF and APONVIE. The slides are available on our website. With that, we're ready for your questions. Dennis?

Your first question comes from Brandon Folkes with Cantor Fitzgerald. Please go ahead.

Hi, thanks for taking my questions. I appreciate the extended vaccine release performance. But no surprise, I do want to just dig in a little bit. Can you maybe just elaborate on what changed so much from the beginning of August when we held the 2Q call and guided to sort of that 40% to 50% quarter-over-quarter growth? We were past July at that stage that recorded on this call today. And then similarly, I mean, any visibility risks into the October figures you mentioned now just in light of sort of that dynamic of August and July. Were you just expecting maybe more of a bounce back in surgery? Any color would be helpful? And then maybe just to add something to that. I mean Pacira did call out an improvement in year-over-year trends in mid-August. Is there anything we should look into sort of in that comment with your results today?

Yes, thank you, Brandon. I appreciate your question. I believe you are correct in your assessment. We expected a stronger rebound following a weak July, but unfortunately, that did not happen. It can be unclear on a month-to-month basis how the macro environment affects us. You mentioned Pacira, which noted some weakness leading into October. This second part of the quarter provides reasons for the lack of anticipated rebound. Additionally, we underwent a restructuring that included some members of the commercial team, who have successfully revitalized that group. However, with any restructuring effort, there is usually some downtime needed for reorganization. John, do you have anything to add?

Yes. I think the one thing that I would add, Barry, is we feel very good about the direction we're heading in Q4, and really we're starting to see the claims data procedure trend support that, Brandon. So if we look at it, what we tend to follow is a five-week over the prior five-week indicated launch procedures. And we're finally starting to see growth of that. That was really reflected after Labor Day. We had a very strong finish to September and then really have backed that up with our strongest month ever in October, and we're a whole one week in now, but the November first week is higher than October was. So we feel good about the statement that we've made that we're looking for 30% to 40% net sales growth for the quarter.

Thank you for the information. I have a quick follow-up. You provided guidance on cash runway before, and in light of the quarter-over-quarter growth, can you confirm if you still support that cash runway after this ramp? Additionally, regarding a more constructive question, are the IDNs currently evaluating ZYNRELEF in these trials? If you successfully achieve further label expansion, how should we consider whether these IDNs will conduct another round of evaluation? Or do you believe they will simply integrate it into a broader range of surgeries than what's indicated on the label? Any insights on that would be helpful as we look ahead to the ramp in 2023. Thank you.

Thanks, Brandon. Actually, I'll turn it over to John to answer the last question first on IDNs and then I'll take cash runway.

Yes, that's a great question, Brandon. Unfortunately, it will depend on each IDN individually. Some accounts have already removed EXPAREL from their formulary. In those cases, we believe we can capture a significant portion of that business relatively quickly, while in others, it may take longer. It's a bit early to make a definitive call, but we are pleased with the great results in some accounts. One account, for example, has six hospitals, and in three of them, EXPAREL has already been removed from the formulary. These outcomes are exciting for us. We're not aiming to have EXPAREL removed; rather, we want to increase usage. In scenarios where we don't have EXPAREL as a brand or competitor, we believe the business can grow much faster with further label expansion.

Thanks, John. Yes, on cash runway, obviously cash runway, the levers are cash burn and revenue. We are working very hard to increase revenue numbers as John went through in his presentation and looking at ways to obviously control the burn. We had anticipated seeing an increase in burn this quarter when we gave the original guidance. We were finishing up the validations of large-scale manufacturing for both ZYNRELEF and CINVANTI which takes some additional resources. So that was part of the original plan. And so we are doing everything we can to maintain that guidance.

Thank you very much. I appreciate all the color.

Your next question is from the line of Josh Schimmer with Evercore. Please go ahead.

Thanks for taking the questions. I guess the first, do you expect APONVIE revenue to be greater than ZYNRELEF in either 2023 or 2024?

Well, it's a little early to be giving revenue guidance. I think the unit volumes certainly could be higher; dollar revenue would be a challenging target. John, do you have any additional color on that?

No, I think that's well stated, Barry. I don't have anything to add.

Okay. And then you have not really articulated a clear explanation as to why the ZYNRELEF launch has been so far below expectations, and it makes it kind of hard to have a lot of confidence and some of your commentary and optimism that you're going to be able to get back on track if you can't really explain how it got so off track to begin with. So can you maybe kind of list the top three or four dynamics that you think were off relative to the launch and initial expectations and how you're going to be able to correct those? Thank you.

Well, certainly I'll start and John can conclude. As you know, Josh, we got a less than ideal initial label for ZYNRELEF that had a much greater impact on utilization than initial market research would have indicated. And I think you yourself had pointed out that was a clear miss on our part that we should have appreciated that would have a bigger impact. We fumbled the ball there in terms of believing the market research, in terms of surgeons not really caring what the indication statement was. And certainly, that was a reasonable view given off-label use of our competitor's product in the nerve block space. So if it seemed reasonable, it turned out not to actually be the case. We were fortunate to get the label revised in December, which has helped to expand the utilization and has helped to bring on these therapeutic interchanges from IDNs. We're still somewhat hand-strong by the still diminished label. It means that some IDNs are not considering a therapeutic interchange because the scope of the indications isn't broad enough. So we still have obviously efforts in place as already noted to fix that issue, and we anticipate that being corrected in the second half of next year. The other challenge that we have identified is that it is taking more sales rep time per surgeon to get them familiarized with the product and to get the staff familiarized with the product. And with the much larger turnover in staff and certainly, we never anticipated pre-COVID or even as COVID started to wane, we didn't appreciate the turnover issues that hospitals would have. It’s just taking more time of the rep for individual surgeons, and that has resulted in obviously the sales reps getting to fewer new surgeons and not expanding the utilization as quickly as we certainly had projected. John, do you have any other things to add?

Yes, I do, Barry. I think that both of the items that you described were really important. I think the other real big impact has been that what we're finding is that every single account is virtually doing their own evaluations generally. So even though we have these wonderful well-controlled studies against the standard of care bupivacaine and beat them, they’re still evaluating the product themselves. And when we ask them that, it's - the reason comes back loud and clear - EXPAREL told us they were 72 hours and they're not, they're 24 to 30 hours. And now we need to prove it with ZYNRELEF that you're actually 72 hours. So I think having to go through that type of evaluation at every single account and in multiple procedures oftentimes. So you might have to do an orthopedic surgeon and a soft tissue has taken far more time than we ever imagined. And I think that's one of the reasons that we're really looking forward to making sure that we have the right resources available through this deployment of flexible resources as we go forward, Josh.

Yes, I would just add that we certainly knew that there would be some trials done at hospitals for the reasons that John articulated, but the size and scope of these trials and the time that it's taken is dramatically longer than we would have projected. We're getting excellent results and certainly positive feedback from these; it's just a very timely process and a slowdown introduction of the product.

That's very helpful. Thank you.

Your next question is from the line of Serge Belanger with Needham and Company. Please go ahead.

Hi, good afternoon. A couple of quick questions on ZYNRELEF to start off. It looks like the net price movement was a bit of a headwind in the third quarter, just curious if you expect additional movements in net price in the coming quarters. And then secondly, maybe just talk about what kind of market share you have in your targeted indicated procedure? Just trying - and also trying to get an idea where you're displacing EXPAREL? And then finally, I think John mentioned the deployment of additional resources in the fourth quarter kind of reinvigorate the ZYNRELEF up here. Curious what that does to OpEx and how many additional people are we talking about here? Thanks.

Hi John, you want to take that?

Sure. So you're right, Serge. There was definitely some impact on net price. I think as we've seen some shift with the broader indication that we received in December, there's been a bit of a change in the SKU mix. In the first six months, it was probably about 80% 400-milligram to 200% or excuse me 20% 200-milligram. This last quarter it was about 67% with a 43%. So just like the virtue of that SKU change, you will see a lower net price. If you take a look at that combined with the growth that we've experienced in 340B accounts, 340B accounts between the second and third quarter probably grew about 25%, which means we're going to be looking at a lower net price. So I would say from a modeling standpoint, probably us to adjust that down as we've shifted to more 200-milligrams SKU to a modeled price about $175 to $180 for net price per unit. With respect to where we were replacing EXPAREL, I talked a little bit about this concept of branded market share where we look at the percentage of ZYNRELEF units compared to the total of EXPAREL and ZYNRELEF units combined. And if you look at the overall market with that right now, ZYNRELEF shows a share of about 3.8%. You compare that to the number that we're showing in the IDNs. And you can see the IDNs even in the 66 IDNs at 8.1% and 12.4%. So we're really seeing very strong growth in those compared to the overall market, and that's one of the reasons that will continue to focus on those IDNs and especially those conducting therapeutic interchanges. And I believe your last question was how does it relate to OpEx as we look at these flexible resources. The one thing that I'll say is that these are all contracted work that we're having done. So there are not employees of the company, if you will. We have some that are full-time operating room educators that have the ability to travel or the businesses and they're really a HIT or Hospital Implementation Team where they can really help us get an IDN up and running very quickly. The others are more part-time and local flexible support. They include both OR nurses as well as other support staff. We also are using them for in-services and to leverage relationships with surgeons. We're working with some medical device reps. I think the key difference on our strategy with that compared to what other companies have done is that we're only paying if they were actually in a ZYNRELEF case if they're in the operating room and supporting the end service of it. So a very different model and incrementally certainly more than pays for itself. But as Barry mentioned, we did have some reduction that we looked at from the commercial organization and certainly can more than offset that small incremental cost as we test pilot some of these new flexible resources. So I don't know if you had anything to add Barry on that.

No, I think that you covered it well. Really, the incremental cost of these contract personnel are essentially being covered by the original commercial budget. It's not going to have a substantial impact in terms of burn. And as I previously said, controlling burn obviously is very important to us. But I do think it's important to just reiterate that these activities that John has outlined, which are just in early stages, we're seeing clear evidence of the success of these activities in terms of pull through, getting IDNs moving more quickly with these therapeutic interchanges. And we're seeing that in terms of weekly sales increases. I will say that as I mentioned previously in terms of using additional field representatives and co-promote type activities, this is a page out of the EXPAREL playbook in terms of their initial launch. It did have important impacts in terms of their launch trajectories. And so I think that this is something that we're probably a little late in the game in implementing, but it's clearly having an important impact, and we feel very confident that these activities are showing fruit and will continue to in terms of meeting the target growth that we've identified for the fourth quarter.

Just one last one to finish off. Clear to see oncology franchise at the guided sales rate of $93 million to $95 million is profitable for the company.

I'm not sure we got the end of your question, Serge. Yes, it's a very profitable franchise right now. So I'm not sure if you were looking for something more specific.

Maybe what kind of changes in reimbursements that could drive additional growth for 2023?

Yes. John outlined what is a very important driver we believe and it's to a large extent very similar to an important driver for ZYNRELEF in terms of the reimbursement of CINVANTI and SUSTOL for that matter. In the hospital setting where because of a recent Supreme Court decision, CMS will go back to the original reimbursing 340B hospitals, the full ASP plus 6% rather than minus 22.3%, and that's a huge windfall when you have a product like CINVANTI where they can make say $40 and fosaprepitant is not reimbursed at all because it's fallen below the threshold for reimbursement. And so we have a lot of 340B hospitals who moved to generic fosaprepitant to take advantage of the arbitrage that are now either coming back or evaluating coming back to soon. And that will certainly be an important driver for us into next year.

Yes, just a little more color on that, Barry, if I could. So those IDNs that moved to generic fosaprepitant during the arbitrage actually with this new reimbursement windfall for 340B hospitals, we've already signed contracts with three IDNs to come back to CINVANTI. Now IDNs, because a number of them are over 30 hospitals apiece, it takes a bit of time to get them back in using the product, but we're very optimistic about what this quarter could look like as well as going into next year. We think that could help fuel growth, and we continue to talk to other IDNs that were former users of APONVIE, and it's a perfect discussion because we're going to be out there talking to them about APONVIE as well.

Yes. I'll also add that we have been somewhat resource constrained in terms of CINVANTI up until really this quarter with limited supplies being manufactured at small scale. We have kind of slow-walked some potential opportunities just because of the fact that there is a limited amount of material that could be manufactured even though we have two contract manufacturers. We've now, as already noted, validated the larger scale manufacturing as the 10x increase, which allows us to greatly expand availability and we've put pedal to the metal in terms of going back out and looking for additional business and we'll continue to do so.

Great, thanks.

At this time, there are no further questions. I will now turn the call back over to Barry for any closing remarks.

Yes. Well, I want to thank everyone for joining us on the call today. As noted, obviously, we're very disappointed with the ZYNRELEF results in the third quarter, but very optimistic for the fourth quarter and beyond. We see that the building the base of business that John defined in the call is starting to bear fruit, and with some of the new initiatives we've put in place and the increase in procedures, we're extremely positive about the fourth quarter and moving into next year. So thank you very much for tuning in, and we look forward to keeping you updated in the future.

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