Heron Therapeutics, Inc. (HRTX) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Heron Therapeutics conference call to discuss the FDA approval of ZYNRELEF. As a reminder, this conference is being recorded. Now I would like to turn over the call to David Szekeres, Executive Vice President, Chief Operating Officer. Sir, please go ahead.

Thank you, Ural. 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; Kimberly Manhard, Executive Vice President, Drug Development and Board Director; Chris Storgard, Chief Medical Officer; and Mike Mathews, Senior Vice President, Acute Care franchise. 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. Barry will provide introductory remarks and offer context around the FDA approval of ZYNRELEF, the trade name for HTX-011 and will review the approved indication and important attributes of the label. We have 2 surgeons with us today who have used ZYNRELEF in clinical trials and want to like to give their perspective on the product and the label. Then John will discuss our commercial plans for ZYNRELEF before opening the call for your questions. 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 this 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. I'm extraordinarily pleased to report that late yesterday the FDA approved ZYNRELEF for treatment of postoperative pain. I've included our pipeline slide in the presentation today, not only because I'm excited to show the ZYNRELEF bar all the way over to the right, but it is also to -- a reminder that today we celebrate our third U.S. FDA product approval. You'll hear shortly how we are putting to use all the experience gained from our prior launches to lay the groundwork for a blockbuster ZYNRELEF launch. I think it's also important to remember why we initiated the development of HTX-011. Millions of Americans become persistent opioid users after receiving opioids for postoperative pain and over 1 billion opioid pills end up in medicine cabinets and street corners from unused discharge medication after surgery. Unfortunately, the problem has only gotten worse since we began. While all of our collective attention has been laser-focused on COVID, the number of people dying from opioid overdose in the U.S. has skyrocketed. So the need for better non-opioid alternatives is greater than ever. ZYNRELEF's approved indication and limitations of use are shown on Slide 5. We're very pleased with our label, and I would like to review with you some of the unique positive attributes on Slide 6. ZYNRELEF is the first modified local anesthetic to be classified by FDA as an extended-release product. That's because ZYNRELEF is the only bupivacaine product that demonstrate superiority to immediate release bupivacaine for an extended period, in our case 72 hours. As you saw in the indication statement, the 72-hour duration of activity has been accepted by the FDA, and we are pleased to have the pain curves from those studies in the label showing the prolonged benefit versus standard of care, keeping with other recently approved products in this category the focus on opioid-free as it is the most clinically meaningful opioid endpoint. The clinical data section presents significantly increased proportion of patients completely opioid-free, in both Phase III studies versus both placebo and bupivacaine. Standard NSAID class warnings are included, with modification due to single local application, allowing for additional NSAID use in multimodal analgesic regimens with monitoring. Now moving to Slide 7. Although we're ecstatic with the approval and happy with the indication statement, there is more work to be done. Our ultimate goal is to achieve the broadest possible indication for ZYNRELEF. I'm sure on the call -- those on the call are wondering why we did not get a broader indication now. Unfortunately, the FDA changed the rules for development of modified-release local anesthetics when they withdrew the draft guidance document on the development of pain drugs rather than granting a broad indication based on one soft tissue and one bony surgical model. FDA approved other modified-release local anesthetics for specific indications based on positive randomized controlled trials in specific surgical procedures beginning in 2020. Heron sought advice from FDA throughout development regarding our intent to obtain a broad label for ZYNRELEF, the only modified local -- modified-release local anesthetic to demonstrate superiority to bupivacaine solution. We believe from our prior interactions that the ZYNRELEF studies included in the NDA would be sufficient to obtain a broad indication. Unfortunately, we learned during recent label negotiations that more PK and safety data and additional procedures would be required to support a broad label. Fortunately, Heron has multiple studies in process intended to support expanded use, which should provide this information. Because we have already demonstrated efficacy and consistent pharmacokinetics across a very broad range of procedures, we are confident in our ability to generate the data needed to obtain the desired label. I would now like to introduce Dr. Alan Rechter, who is an orthopedic surgeon and Dr. Tim Beard, who is a general surgeon. Dr. Rechter, can you provide the audience with an overview of your experience with ZYNRELEF and your thoughts about the product?

Sure. Good morning, especially to those on the early risers on the West Coast. And thanks, Barry, and congratulations. I'm Dr. Alan Rechter. I'm a double board-certified orthopedic surgeon at Orthopaedic Associates in Houston, Texas. I've been in practice for over 25 years. In my practice, I perform joint replacement surgeries. And for those of you who have had one or these days watch one on YouTube, you know it's a painful procedure. It's literally a procedure where we use hammers and saws. So the success of a procedure like that is what we call a 50-50 procedure. 50% of its success is based on what we do in the operating room, putting that incorrectly and whatnot. But the other 50% is what the patient does. And if you have a patient that can't do the rehab because of pain, then the results are compromised. So anything that controls or eliminates the pain is big. Based on my experience of ZYNRELEF, I believe that we found kind of a game-changing drug that's now available. It was obvious when we saw the patients for follow-up is they had hardly taken any of their pain medications and their motion was amazing when most patients were struggling. Remember, when you're dealing with trials, especially one that's a double-blinded trial, the doctor doesn't know and neither does the patient, whether they're getting the drug. But when it's obvious on follow-up which patients got ZYNRELEF, I think that says a lot. Some of the patients didn't take any pain pills at all. And when you're dealing with narcotics, drugs that can cause dizziness, constipation, makes them a fall risk, but just in general, the patients overall just don't feel well taking it. Anything that can decrease the need for that is a winner. When most of the pain -- most of the total knee patients that we were seeing would normally take, I think, on average, 60 to 90 pain pills after such a surgery, we were seeing that the patients where ZYNRELEF were taking less than 10. So again, very important, and something that can give relief for 72 hours is even more impressive. So in my experience, I believe ZYNRELEF offers a safe and effective treatment for surgical pain. More importantly, it's one that it's not an opioid. I find that it was highly effective for the pain associated with total joint surgery, but I do see that it probably has value in other orthopedic procedures as well. And don't kid yourself, if you think about the set above the knee joint, it's got joint cartilage were ones that are getting to replace a loss of joint cartilage, but they still have joint lining and other structures. But that's similar to what you see in the hip, knee or shoulder. So in my opinion, I believe that it's going to show value in other joint replacements, but in general, other surgeries as well. So I want to thank you for allowing me to share my experiences, and I'll hand it over to Dr. Beard to share his.

Morning, everyone. Thank you, Dr. Rechter. So my name is Tim Beard. I'm a board-certified general surgeon at Summit Health here in Bend, Oregon, where it is pretty early. And I've been practicing medicine for over 20 years in the multispecialty group. In my practice, I perform a lot of general surgery, including open inguinal hernia repairs. Many of my patients postoperatively worry about how painful it's going to be and how we can manage their postoperative pain. I think people get a little bit confused. I think hernia is not a big deal, but it's actually one of the more painful surgeries I do. I can go -- take a colon out of someone and they don't have as much pain as a hernia repair. So it is a big -- a big deal for patients as far as getting them back to work. The problem with open hernia repairs in the past is that the current local anesthetics that we use don't last very long. Even the so-called long-acting ones that are out there now, most of us think last maybe 18, 20 hours at best and then it wears off. So then we give people a prescription for opioids for pain management after surgery. The problem with opioids is what Dr. Rechter said, I think, well, is that they have so many side effects. And a lot of people just don't like how they feel on opioids. Hernia repairs, probably similar to total joints are done a lot on older people. A lot of older people just don't like how opioids make them feel. Plus, they don't like the side effects of opioids, a big one for older people is the constipation is caused by opioids. So if we can avoid opioids, that would be just a big win for us on hernia repairs. As a first and now only FDA-approved extended-release dual-acting local anesthetic, ZYNRELEF is an important breakthrough for the management of postoperative pain. In my experience, it provides analgesia for up to 72 hours, which is the critical window. That's when the people have the most pain, and it has ability to significantly reduce or possibly eliminate opioid utilization following surgery. So my experience with the drug was in the HOPE trial, which is a little bit different than what Dr. Rechter talked about. In the HOPE trial, everyone ZYNRELEF. It wasn't blinded. We knew they were getting it. They also then got a mixture of Tylenol and ibuprofen they could take to help with their pain. We had over 20 patients enrolled in our site, and we didn't have to give opioids to any of those patients after open hernia surgery, which is really unheard of. Again, they all knew they were getting the drug, and they were taking this combination of Tylenol, ibuprofen for pain. But we were able to get all those patients through a pretty painful surgery without any opioids, which to me is just game changing in pain management for these types of patients. And I also agree with Dr. Rechter that while maybe the FDA indication was fairly limited, we will probably push the envelope here a little bit at our place and use it in other procedures where it would seem to me, obviously, to work as well. So with this approval, ZYNRELEF is now the first and only FDA-approved local anesthetic designated as extended release. I wholeheartedly agree with Dr. Rechter that ZYNRELEF has the potential to use in more types of procedures to deliver superior pain relief compared to the current standard of care. I think ZYNRELEF really represents a new foundation for postoperative pain with the ability to change the way pain is managed, keeping more patients out of severe pain and very importantly, opioid-free following surgery. I look forward to being able to use this product with my patients. We're very excited to start using it. And thanks, everyone, for your time.

Thank you very much, Dr. Beard. I'll now turn the call over to John Poyhonen, who will review why we believe the current label provides the basis for a highly successful launch of ZYNRELEF. John?

Thank you, Barry. From a commercial perspective, we are absolutely thrilled with the approval of ZYNRELEF. We've developed a comprehensive go-to-market strategy, and our team is extremely well prepared for the launch. My portion of the presentation today will focus on the plan we will begin executing next week. Today, we're going to discuss an important opportunity in the field of pain management and opioid use reduction. We believe that our unique attributes will allow us to establish ZYNRELEF as the foundation of acute postoperative pain management. Our strategy is based on initially establishing ZYNRELEF as the market leader in our 3 indicated launch procedures by replacing other local anesthetics, creating a positive user experience and strong base for expansion. It is important to note, we are not just targeting Exparel, the low-hanging fruit, but we will also aggressively convert bupivacaine business based on our superior clinical data and head-to-head trials. We've established 3 strategic imperatives in our go-to-market strategy. The first is to differentiate ZYNRELEF as a new class of therapy with a synergistic mechanism of action. Our second initiative focuses on expediting access to our product with a value proposition that's truly meaningful to our customers. And finally, we'll execute a laser-focused targeting strategy based on high-value accounts and targeted procedures to accelerate ZYNRELEF sales. I will now drill down on how we plan to establish ZYNRELEF as a new class and best choice for postoperative pain. Please advance to the next slide. ZYNRELEF is the first and only extended-release dual-acting local anesthetic which we refer to as DALA. Extensive data with ZYNRELEF demonstrated more positive patients remain out of severe pain and opioid-free for 72 hours after surgery compared to the current standard of care bupivacaine. This positioning clearly differentiates ZYNRELEF from all other local anesthetics in the market. ZYNRELEF is the only long-acting analgesic with a mechanism of action designed to overcome the challenges of inflammation at the surgical site. It combines bupivacaine and a small dose of the NSAID, meloxicam. We believe the presence of meloxicam in ZYNRELEF inhibits inflammation, and as a result, normalizes the PH at the surgical site, allowing more bupivacaine to enter the nerve thereby potentiating the effect of bupivacaine so that it can provide pain relief in the critical 72-hour window when pain is most severe. Importantly, in the market research, the majority of physicians found ZYNRELEF's novel MOA to be clinically relevant and a value differentiator from Exparel and all other local anesthetics. Slide 13 helps us understand how ZYNRELEF's synergistic MOA translates into superior clinical results versus bupivacaine. Keep in mind, Exparel alone has never demonstrated head-to-head superiority versus bupivacaine by infiltration. Across product attributes, surgeons and pharmacy directors consistently prefer ZYNRELEF over Exparel because ZYNRELEF offers the following benefits: a reduction in severe pain, resulting in a significant increase in opioid-free patients; the superior efficacy profile of ZYNRELEF through 72 hours with a significant benefit over bupivacaine; and its simple route of administration, eliminating the need for up to 120 injections with no extensive training. In addition, surveyed pharmacy directors indicated they would provide better formulary access to ZYNRELEF and Exparel. Importantly, recent market research with the approved indications shows a clear preference for ZYNRELEF with similar results to the prior market research conducted. We are very fortunate to have our Phase III data, MOA data, TKA data and proven IBM Watson health economic data published along with numerous abstracts and posters. This very strong body of evidence will be critical for P&T committees' evaluations to add ZYNRELEF to the formulary. We will continue to build on this peer-reviewed data with new submissions and publications already planned for this year. Slide 15 shares market research from 386 health care providers and evaluates the attributes most important in their selection of a local anesthetic. Impressively, ZYNRELEF achieved the highest score in all 5 of the most important attributes compared to the ON-Q pump, Exparel and, most importantly, bupivacaine. We believe ZYNRELEF's category-leading perceptions will support rapid formulary access and early uptake of our products. With respect to targeted procedures, our strategy remains unchanged as we'll target 2.1 million procedures for hernia repair, bunionectomy and TKA based on our indication and our superb and unprecedented clinical data. Our goal has always been to ensure surgeons and patients have an exceptional first experience with ZYNRELEF to gain confidence with the product and to establish ZYNRELEF as the foundation of a key postoperative pain management. Based on feedback from market research and advisory boards, we also understand that surgeons will use local anesthetics in closely related procedures without any promotion at all. As we move forward, we'll work with the FDA to expand our indications to address the opportunity in 14 million high-value market procedures in the future. Our promotional efforts will focus on orthopedic surgeons, podiatrists and general surgeons for launch in our 2.1 million indicated procedures. This represents the ideal target audience based on their influence with P&T committee decisions and heavy use of Exparel. In addition, orthopedic and general surgeons account for 76% of the 14 million high-value procedures. And these relationships will be essential to building our ZYNRELEF usage following the anticipated label expansion in the future. As we look at growing ZYNRELEF and our 3 indicated launch procedures, we believe the existing Exparel business represents a great place to start, especially with TKA their largest volume procedure-based on claims data. Our strong clinical data, combined with significant financial benefits will put over 300,000 procedures in play as we launch ZYNRELEF. Now let's shift our focus to strategic imperative #2 and drill down on ZYNRELEF's superior value proposition to expedite access. We conducted extensive market research with pharmacy directors and P&T committee members to help us develop a plan to accelerate formulary access for ZYNRELEF. Based on utilizing customer feedback, we have developed an unprecedented value proposition for ZYNRELEF. It all starts with providing the only product to beat bupivacaine in head-to-head clinical trials and then establishing a lower acquisition cost based on wholesale acquisition cost or WAC, the key driver for formulary decision-making with an opportunity save hospitals millions of dollars per year. We will also be offering customers 340B pricing, which creates an additional 23% discount beyond WAC. Not surprising, pharmacy directors and C-suite executives consider this an extremely valuable offering and another competitive advantage as 340B pricing has never been offered with Exparel. Shifting to reimbursement. Hospital outpatient departments will benefit from reimbursement with ZYNRELEF with Medicare patients for 3 years, creating a positive net cost recovery or profit. In this setting of care, with Medicare patients, hospital will actually earn a profit when using ZYNRELEF compared to Exparel or even bupivacaine, which are bundled under the DRG. Two additional customer economic benefits versus Exparel is our decision to utilize full line wholesalers where hospitals typically receive an additional discount of 3% to 5% from their prime vendor agreements with wholesalers. In our contracts with group purchasing organizations where we already have existing agreements with CINVANTI and are already working to finalize the addition of ZYNRELEF. In summary, we have taken every reasonable step to make it easier for customers to buy ZYNRELEF. Slide #20 summarizes our reimbursement strategy. The take-home message is we expect a permanent C-code on October 1, 2021, and a permanent J-code on January 1, 2022. As we evaluate the specific economic benefits versus Exparel, this is probably the most important slide. Let's start with the wholesale acquisition cost or WAC. Comparing ZYNRELEF to Exparel, we save customers about 22% to 28% compared to the comparable milligram SKU of Exparel, and that savings grows to 41% to 46% in 340B accounts. Importantly, our pricing strategy was designed to gain significant share from the dominant market leader, bupivacaine. And our product pricing was supported by market research to optimize the penetration of ZYNRELEF. When we compare the reimbursement in the hospital outpatient department, the economic benefits of ZYNRELEF rather than Exparel for Medicare patients is staggering, with a net cost recovery profit for ZYNRELEF compared to a cost bundled in the DRG for Exparel, which could represent $350 to $415 per patient benefit for the higher dosage SKUs. Another key benefit with ZYNRELEF is the ease of use. The needle-free application avoids the risk of inadvertent venous punctures and accidental needle sticks. There is no specialized training or certification required, and clinicians are thrilled to eliminate up to 120 injections, TKA procedures. We will launch ZYNRELEF with 2 SKUs to reduce costs and waste. Finally, it can be stored at room temperature, another competitive advantage, and the kit conveniently fits with standard operating room medication carts. Next, let's move to our third strategic imperative, a laser-focused targeting strategy. It all starts with the best product and a comprehensive launch plan, but we should never underestimate the importance of the team. We are so fortunate to have all already successfully launched 2 products, including 1 product CINVANTI with substantial hospital business. The team we already have in place will allow us to jump-start the formulary approval process and create access for ZYNRELEF with their activities beginning next week. In addition, we will be adding 89 hospital sales reps to the team with extensive experience with formulary approvals and a track record of success. Our entire team has a long-standing relationship with targeted KOLs in all types of accounts, which are critical to our successful launch. We expect the entire team to be in place along with commercial inventory supply levels in the distribution channel in July. Many of you have probably recognize this slide, but it demonstrates our ability to launch a product against a branded product, Merck's EMEND in the hospital market. After 2 years, we gained 43% of the market, and we'll leverage the success and experience we gained from CINVANTI to accelerate the results with ZYNRELEF in the postoperative pain management market. This slide shows a comparison of successful hospital launches. We will not be providing guidance for ZYNRELEF in 2021. But believe it's important to set the stage for evaluating our launch. The first point is the ramp-up for hospital launches does take time to gain access through formulary approvals, and it will not happen overnight. But our existing profiling activities provide us with a strong road map of the initial target accounts. The second point is we have great confidence in our product, our plan and our people. We expect to exceed the ramp-up of Exparel during the first 6 quarters in a meaningful way. Earlier in the presentation, I shared the significant advantages we have in the outpatient setting. As you will see on the next slide, the vast majority of outpatient procedures take place in the hospital outpatient setting where ZYNRELEF's advantages are the greatest. With rule changes by CMS for the inpatient-only procedures combined with the impact from COVID, we anticipate the outpatient procedures growth to be accelerated. The shift to the outpatient setting shown here for TKA gives us great confidence in the success we will have with ZYNRELEF during the launch. This slide summarizes the 14 million high-value market procedures that we expect to eventually target with label expansion. As you can see, 39% of the total is in the hospital outpatient setting with an additional 15% in ASCs. Importantly, 76% of our 2.1 million indicated launch procedures are in the outpatient setting and ideally suited for the launch of ZYNRELEF favorable reimbursement. The entire postoperative pain market is about $1 billion despite limitations of the current product. This includes over 18 local anesthetic units with bupivacaine accounting for over 90%. Based on these numbers, we will aggressively promote our clinical data demonstrating ZYNRELEF's superiority to bupivacaine to gain market share from the standard of care during our launch. In addition, we believe and the market research actually supports that ZYNRELEF will grow usage of local anesthetics increasing the size of this market. Our account targeting includes over 1,300 hospitals and about 600 ASCs. Through profiling efforts with population-based decision-makers, we have identified 58% of these accounts, which are classified as either green, meaning access as possible within 3 months or yellow within 4 to 8 months. This laser focus will allow us to prioritize fast-moving accounts to accelerate access to ZYNRELEF and ultimately sales during the launch period. In closing, we are absolutely thrilled with the approval of ZYNRELEF and believe we are prepared to execute a blockbuster launch. Our confidence comes from these 5 pillars, which I've described. And I'll now turn the call back over to Barry.

Thank you, John. I'm sure that is clear to the audience that we are extremely well prepared and excited to start competing in this market. I'll now touch briefly on cash. We ended first quarter with approximately $166 million cash, cash equivalents and short-term investments, with another approximately $39 million in accounts receivable. So we have a strong balance sheet to launch ZYNRELEF. I will now turn the call over to the operator to open it for questions.

[Operator Instructions] Your first question is from the line of Josh Schimmer from Evercore.

Congrats for getting this over the goal line. A few questions about the labeled indications. First, do you expect P&T committees to restrict use to the specific surgical settings that are on the label, number one. Number two, does the -- does this affect your launch strategy in any way in terms of the surgeons that you will be targeting at first? And then third, maybe you can elaborate a little bit on how clear the communication from the FDA has been in terms of label expansion? Is it still going to be procedure by procedure indefinitely? And what do you gauge is the probability that the FDA comes back again and ask for new comparative efficacy studies in addition to safety and PKs you had outlined?

Right. Thanks, Josh. I'm going to ask John to take the question on the P&T committees and customers, and I'll then come back and respond to the question about the FDA.

Yes, happy to do so. So with respect to P&T committees, we actually conducted extensive market research within the last 30 days and evaluated a number of alternative indication statements that we would have in the product. And I'm happy to report that with this indication statement, we still expect extremely high formulary acceptance. There was no greater restrictions that would be placed on the product. Some accounts will restrict it based on generally specialty of the physician or surgeon. But the vast majority of accounts that we spoke to would not have any restrictions at all on the product. With respect to actually targeting our targeting based on our 3 indicated launch procedures will be with orthopedic surgeons, podiatrists and obviously general surgeons. So that's what our targeting looks like. And the thing to keep in mind is this is very consistent with what our launch plan has been from day 1. We have exceptional data in those surgical procedures, and we're looking to create that initial very positive experience with surgeons when they use ZYNRELEF. So I think that address the first 2 questions.

Yes. And I'll just add to that, John, thank you, that I think we have an excellent example in our space, and that is the very narrow indication for nerve block that was given to Exparel, where it's specific to one procedure and uniquely has studies in the package insert, where basically the FDA says, don't use it in these other ones. Yet 70% of nerve block use is outside of that one specific indication. And about 80% of it is -- had targeted towards a use where the FDA basically said don't use it. So we know that clinicians, and you've heard from the 2 surgeons on the call, clinicians obviously are allowed to use products as they believe best for their patients. Bupivacaine is obviously extremely well known, and they will determine where to use the product best for their patients. Obviously, we will focus our promotional activities on our 3 indicated procedures, but it's going, as John mentioned, to really the key target audience of orthopedic surgeons and general surgeons. In terms of the FDA, look, there are still -- well, continue to be discussions with the agency on what it will take to expand the label. We already have much more data than the 3 studies that are included in the label. And so we really have a strong base for further expansion. And as noted, we're very confident that we'll be able to generate the data that they are looking for. And so you'll certainly get updates from us over the course of the next several months as we continue to get information from the agency on exactly what they're looking for.

Your next question is from the line of Brandon Folkes from Cantor Fitzgerald.

Congratulations on the approval. Maybe just for the surgeons, can you just detail a little bit more about the process for using ZYNRELEF outside of the label indications at your centers? How you go about that? And maybe how that may play into reimbursement?

Yes, I can talk about that. This is Tim Beard, the general surgeon. So we -- I think Barry mentioned it very well. If you look at Exparel, how that's used outside of its quote labeled indications, I think the same thing will happen with ZYNRELEF. So there are some differences, of course. The ZYNRELEF is more of like a honey texture. It's a little thicker. It's not a pure liquid. And so there are some limitations that way compared to Exparel. But when I -- I'm excited to use it in hernias, but also excited to use it in laparotomy incision, so a big incision through the middle of the abdomen. If we can keep those people off pain medicines, that would be a huge advantage. Currently, we do nerve blocks in all those patients. And this may just make that procedure unnecessary, which would be a big cost savings to the hospital. So we're excited to expand it. I don't think in my center, I will have any problems at all using it in places where I think it's appropriate. I can't speak for every center, but I know where I work and I work in 2 separate places, an outpatient surgery center and then an inpatient hospital. I think both places will allow us to kind of use it where we think it will work the best without much restriction at all.

Your next question is from the line of Boris Peaker from Cowen.

I just want to follow-up maybe with the general surgeon. In terms of hernia, what percentage are done as an open surgery versus laparoscopically? And would this be used in both settings or limited to just one setting, at least initially?

Yes, that's a good question. So laparoscopic and robotic are kind of the same. And so I would say at our center, it's probably 50-50 right now. And I think that really depends on where you go. Some places, it might be a little higher percentage open. In some places, it might be a little lower. But it's definitely the trend is laparoscopic and robotic, but there's sometimes you can't do those procedures, and you have to do open. So there's different indications for it. As far as I know, it only is -- can be used for an open procedure. I think it is in my opinion, a little -- it would be difficult to put it in where you do the surgery laparoscopically because you're kind of where your incisions are ways away from where you're operating that way. And it would be pretty thick to try to get in there. Now I don't know if the formulation can be changed to make it thinner. Certainly, I bet they're probably working on that would be my guess. But you want to put it where you're putting the mesh in for hernia surgery, which, again, laparoscopically is a little far away from where the incisions are. So you have to somehow get it there. And I don't know if that could be done right now.

Got it. And just a follow-up on that. You brought up to viscosity. Can you maybe comment, as we think about potential off-label usage, where does the viscosity make it a very strong advantage? And what are some of the procedures where the viscosity presents a little bit of a challenge?

Well, for me, the kind of -- again, it's kind of like honey, the viscosity be a little thicker is nice for when they talk about the needle-free application, which is true. You just kind of pace this or paint this stuff in as very -- you can see where it goes. You can see exactly where you're placing it. When you inject Exparel or just regular bupivacaine, you don't really know where it's going, and they talk about it could actually hit a vein or something that's true. With this, you kind of paced it in. So I think it's very gratifying to put it in. You know exactly where you're placing it and how -- what good a coverage you're having. Of course, the disadvantage of that is if you're trying to inject it to a skinny needle, it's tough to get through there. So that would be, I think, the disadvantage of that viscosity.

Great. Sorry, my last question here...

Okay. Go ahead. No. Please go ahead.

No, I was just going to ask in terms of time, comparing the amount of time it takes to administer ZYNRELEF versus Exparel for these common procedures from a surgical perspective.

I think the time is the same. It takes a little while to draw it up a minute or a couple of minutes. But that's -- we always drew it up before the case even started, and it's just sitting on the back table. But to put it in, it's very fast. There's no -- it doesn't take longer to apply it.

Yes. I think maybe we can ask Dr. Rechter as well in terms of a TKA, the time of administration versus 120 injections, for example.

Yes. This is Dr. Rechter. I agree. I think it's -- first of all, I think it's very easy to apply. So it's something that with the needle tip applicator goes in super-fast and easy. It spreads throughout the joint very easy and really was nothing that added any additional time to the surgery itself. When I think about it in different places, arthroscopically, the things that used to be major league open procedure to the joint are now being able to be done through the scope. So when we do an ACL reconstruction, it's a complex procedure where you're drilling bone tunnels, pulling graft through the bone tunnels, securing with screws and all things like that. They tend to be painful procedures as well, where -- I mean, 15 years ago, we used to send people home with narcotic pain pumps, and that was turned in to be a disaster. But so since that has really become an outpatient procedure, I definitely can see easily squirting that through the cannula. Our cannulas are big enough to put the 3.5 millimeter scopes. So they have to be larger than that. And usually, at the end of the procedure, we're injecting some type of a local anesthetic within the confines of the joint. So I see a perfect application in different types of arthroscopic procedures where once it's injected into the confines of the joint, with the motion of the joint, it spreads thoroughly through the entire joint anterior posterior and all around. So I think it's going to have excellent applications in that arena as well.

Your next question is from the line of Derek Archila from Stifel.

Congrats on the news guys. Maybe first question is for Barry. I guess can you just give us a sense of how long it would take to basically accumulate the required PK and safety data to actually broaden the label? I guess, when could you think about refiling or filing an sNDA to get that broader label? And then second question is more around the market opportunity based on the label and comparing it to the EU label. So obviously, you guys talked about the 2.1 million procedures based on the U.S. label. What are the opportunities based on the EU label and the indications stated there?

Yes. Sure. So as noted, we're still in the process of getting complete understanding from the FDA as to what they'll require for a broad end label. And in the meantime, obviously, we're continuing to generate data. We not only collect PK and safety, we obviously also collect efficacy data. So we have even a stronger package than they've indicated is necessary. But we'll -- it's going to take a few months, hopefully, to get a complete answer from them. And at that point, we can give you more clarity on the timing of a submission. But I'll just point out that we conducted the Phase III trials. They were completely enrolled, and we hit the endpoint in less than 6 months. So clearly, doing a few hundred additional patients for safety and PK is going to go very quickly. So I don't see this as a long process. And again, as John mentioned, our intent from the beginning was to launch to the 3 surgeries that are in our current indication statement. That's where we have spectacular data. That's where we have the best information to provide to clinicians. So really, this -- the time between now and eventual expansion, we were going to be focusing our attention on those procedures anyway. So we don't see this in really having very much effect at all in terms of our planning for the launch of the product.

Your next question is from the line of Serge Belanger from Needham & Company.

Congratulations. First question is on your pricing decision, decision to price at a discount versus a premium. I think there's some product and label attributes here that could warrant a premium. Just wanted to know your taking behind your decision to discount.

Yes. Well, I appreciate the comments. And certainly, given that, as noted already, that we are the only product to demonstrate consistently in Phase III studies, superiority to standard of care. One could certainly have positioned the product at a premium to other products on the market. But as John mentioned, our interest is obviously going after the low-hanging fruit of current Exparel sales, but more important is the 18 million units of bupivacaine. That's where that's really an untapped market. With the commercial efforts with Exparel, they have about 10% of the market. That leaves 90% of the market untapped. So we made the determination that in order to get the best access to that 18 million units, we needed to appropriately price the product. And that's based on extensive multiple market research studies. And so that really was the focus of our pricing decision.

Okay. And then on label expansions, I think you conducted Phase II or Phase IIb trials in abdominoplasty, in breast augmentation as part of the development plan of ZYNRELEF. Should we expect those 2 indications to be kind of the first ones to be -- for the label to be expanded to? Or is there a different strategy?

Again, great question. That would certainly make sense. Again, until we have a very clear agreement with the agency on what their new thinking is, I don't want to give any expectations that then have to change down the road. This is an evolving process with the agency. As noted, they withdrew the draft guidance. They didn't provide any new guidance, and it's been really an evolving process. Of course, we're lucky enough to be kind of in the middle of that process. But nonetheless, not an issue in terms of how we're going to act and we'll generate the data that they want. Not a problem. So at this point, we can't give an answer.

Your next question is from the line of Dana Flanders from Guggenheim.

Great. I just had 2 quick ones. I think in your prepared remarks, you had commented that you expect ZYNRELEF to exceed kind of the ramp of Exparel in the first 6 quarters. Could you just elaborate on that and discuss why you expect that in a little bit more detail? And then my second question, how do you think about target market share in the indications that you're approved in? I think TESARO has talked about TKA share in the 20%-plus range or so. How are you just thinking about the ramp in market share to kind of a peak number 5 years from now?

Sure. Well, I think on the last question, again, we're not going to give any specific guidance, but I think showing the information on CINVANTI and our ability to get over 40% of that market within 2 years, we're showing that because we have the same level, if not higher level of confidence in ZYNRELEF. So not to say that we'll get 40% of the entire market in that period of time. And I think that -- I've lost my train of thought, I apologize on your first question. John, did you want to take that question as well?

Yes. I think Barry is absolutely right. We're not going to give specific numbers. And if you take a look at what the market research has said, we feel like we can do significantly better than what Exparel has been able to achieve in TKA. Now keep in mind that this is based on the clinical data that we've shown in the product profile. So it needs to get in surgeons' hands. And as we've heard from Dr. Rechter, he's having exceptional experience with the product, and we would certainly expect other surgeons to have something similar. But projecting 5 years out is a bit difficult at this time. But based on the market research that we've done thus far, we've certainly seen numbers and share that far exceed what we've heard -- what you referenced for Exparel in TKA.

Your next question is from the line of Kelly Shi from Jefferies.

Congrats for the approval. And my first question is for surgeons. So when you look at -- I mean, based on your clinical experience, do you expect 011 to be applied to surgicals at all scales, especially for the large surgical operations? And I will have a follow-up.

It's Dr. Rechter. I do think so. I mean, initially, clearly, I think that we would see it being used in joint replacements. It's being used in bunions and hernia surgery. But again, each surgeon then would see where they could use it in other places. With orthopedics in general, our surgeries have been pushed towards an outpatient setting for almost everything at this point. So except for trauma, you can get your hip replacement and end up going home the same day, and that was unheard of. I mean 10 years ago, it was a 3, 4-day hospital stay, but we are finding that the patients weren't doing as well risk. The DVT risks were higher because they were in the hospital. So anything that we can do to get the patient up and moving is a win. So what we found with the ZYNRELEF is that the patients were able to get up and move much sooner. And for a patient to have a 72-hour of cover for pain relief, we found it to be amazing in that setting. So when you start thinking about some of the other things that we do, hip replacement, which is a great example, you have a patient that's having a hip replacement. It's similar. You're using a hammer to put those in, and you're using drills and saws. So you expect that to be a painful procedure. But if you can apply the ZYNRELEF to the area and then the patient is able to be discharged, get up and walk and move around, you would expect that some of the complications, which are associated with joint replacement, which are DVTs, which is a big one, you get a blood clot into the leg, it can go to the heart and/or to the lungs rather, and people can die from them. So anything that you can do to mitigate those type of things is huge. So I think that you'll see from a surgeon standpoint, initially, at least with orthopedists, they would use it in total knee replacement. They would feel comfortable with it. And again, it's something I think they're going to feel comfortable with pretty quickly because the oral form has been out for so long and safely been used that I think that they're going to find the applications very easy. The success is very good. And there'll be no reason not to think that you'd use it in another setting, whether it's a hip replacement, shoulder replacement. And then again, moving on to potentially arthroscopic procedures as well.

I also have a question about what is the split between Medicare and commercial insurance to cover your initially targeted 3 surgical procedures? And also, can you talk about the launch plan for European market? And what is the difference to U.S. market regarding targeted hospitals reimbursement strategy and also pricing?

Considering we have 1 minute, I don't think we'll be able to get all of those answers. Thank you. I'll have John take the first question.

Yes. With respect to the reimbursement, so initially, we'll have reimbursement that will be based on miscellaneous, J and C-codes for ZYNRELEF. That's represented at 95% of AWP. So think of WAC times 120% and then 95% of that. So that reimbursement for Medicare patients will be very strong. Within most of the commercial payers, they currently consider it as part of the bundle, but there's more and more that are looking it. You can reduce opioids and have opioid-free patients. That's something very appealing to employers. And certainly, as we go forward, we would look to work with commercial payers to carve-out, hopefully, products like ZYNRELEF that offers benefits over the standard of care from an opioid reduction.

So on Europe, stay tuned, we're in discussions with potential partners, which will determine the launch strategy and timing. So I think there we'll go 1 minute over. I think Josh has a question, and then we'll have to end it.

Your last question is from the line of Josh Schimmer from Evercore.

Just wanted to ask about the July launch and what you'll be able to achieve. Before then, will you have an opportunity to gain formulary access for early adopters by then? Or will the formulary adoption work start in July?

John?

Yes, absolutely. So as I mentioned in my prepared remarks, Josh, we'll be looking to actually start working next week with scheduling P&T committees for formulary approval. With the targeting and the profiling that we've already conducted, we know which accounts will move very rapidly. And those would be considered the green accounts that will work in 0 to 6 months. Right now, it's really getting on the agenda for the next P&T committee. So what we're looking to do is have this all teed up. And by the time we have the reps fully in place in July, we'd be very close to getting some initial formulary wins so they can do the pull-through in those accounts. So that's one of the key advantages that we have with our existing organization. In addition, in the ASC market, frequently, they don't have the same formulary restrictions, and they can use the product much more quickly. And we'll utilize our CINV sales force to start calling on those. So we'll start seeing initial sales beginning in July between the formulary wins that we'll get in the third quarter as well as the ASC market. So hopefully, that answered your question.

There are no further question. I will hand it over to Mr. Barry Quart for closing remarks.

Thank you. And thank you, again, everyone on the call today. I appreciate you joining us. We're exceptionally pleased with the approval of ZYNRELEF and look forward to keeping you updated on our launch plans and success. Thank you. Operator, you can now close.

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