Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Heron Therapeutics Q4 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, Morena. 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; and Chris Storgard, our Chief medical Officer.

For those of you participating via conference call, the slides are made available via webcast and can also be accessed by going to the Investor Relations page of our website following conclusion of today’s call.

Before we begin, I would like to remind you that this call will contain forward-looking statements concerning 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. 2021 was one of the most important and productive years in our company’s history. We obtained initial approval, and successfully launched ZYNRELEF for postoperative pain in the United States.

And only five months after launch, we obtained approval for a substantially expanded indication statement, which greatly improves our ability to commercialize the product. With our CINV franchise, we stabilized revenue in a predominantly generic market and see a path for its modest growth in the future.

We also filed an NDA for our fourth commercial product, HTX-019 for postoperative nausea and vomiting or PONV, which has the potential to be many times larger than our CINV business. Lastly, we’ve also focused our energies on both cutting costs, such as eliminating more than half of our leased office space and partnering ex-U.S.

territories ZYNRELEF, to extend our cash runway. As we reported in December, and in little over two months from submission, the FDA approved our first of two planned supplemental NDAs to expand the indication statement for ZYNRELEF to cover approximately 7 million procedures, compared to only about 2 million in the original label.

The first supplemental NDA approved by the FDA in mid-December broadened the label to include foot and ankle, small-to-medium open abdominal and lower extremity total joint arthroplasty surgical procedures. The FDA also agreed to contents of the second supplemental NDA to broadly cover orthopedic and soft tissue surgical procedures.

The status of the FDA agreed studies for this second supplemental NDA are listed on slide 5. The endpoint in these studies is pharmacokinetics and safety. Demonstration of efficacy is not required for approval. We expect to submit sNDA number two late in the second half of this year.

Approval of sNDA number two should expand the label to cover essentially all 14 million target procedures. In addition to sNDA 1, the FDA also approved our manufacturing supplements for a secondary supplier of our proprietary polymer and significant increases in batch size for both, ZYNRELEF and CINVANTI.

These approvals are critical to allow us to manufacture sufficient quantities of these important products at a significantly lower cost of goods. Overall, fourth quarter and 2021 as a whole were outstanding for Heron. I will now turn the call over to John to review our achievement of important commercial and corporate milestones in 2021..

Thank you, Barry. I’m excited to share our fourth quarter commercial results. We continue to make significant progress with launching ZYNRELEF. During my presentation, I’ll start with a number of updates on key metrics. And also expand our reporting with new metrics related to ZYNRELEF demand unit volume with hospitals and ASC.

Then, I’ll finish up with an update on our commercial results with our oncology care business. On slide number 7, I’ll start by summarizing the ZYNRELEF launch highlights to-date. Our first two quarters of launch have been challenging with initial FDA label indication with only three specific procedures and the continued impact of COVID-19.

Nevertheless, we’ve made incredible progress with a number of leading indicators, which gives us confidence that ZYNRELEF will eventually become the market leader in postoperative pain. We continue to gain formulary approvals for ZYNRELEF and targeted hospitals and IDNs at a rapid rate. This represents our pipeline for growth.

We’re very pleased by the growth and the number of unique ordering accounts and importantly, we’re also seeing excellent growth and the reorder rates. In addition, we’re seeing significant growth in the volume of demand units for ZYNRELEF on a quarterly and monthly basis. I’ll share specifics on all these metrics later in the presentation.

As we announced in December, our R&D team worked with the FDA to gain significant label expansion of ZYNRELEF’s indicated procedures in record time. This expands the target market from about 2 million surgical procedures to approximately 7 million surgical procedures.

We are already seeing the initial impact of this expanded label with increased ZYNRELEF usage with existing surgeons. As we expected, the third quarter ended with excess initial stocking inventory and the distribution channel.

Since that time, we’ve made meaningful progress and burning through that inventory based on increases in ZYNRELEF demand unit volume sales. Finally, our team has done an outstanding job increasing the separate reimbursement for ZYNRELEF outside the surgical bundle. Now, let’s dive into the details.

Slide number 8 highlights that rapid progress of ZYNRELEF is making a formulary approvals. At the end of October we reported 126 formulary approvals. This number has more than doubled and grown to 260 formulary approvals through February 25th.

Our successful formularies are even more impressive, considering the large number of delays that have resulted due to COVID. And those accounts actually making P&T decisions, over 90% of hospital P&T committees are adding ZYNRELEF to formulary. Importantly, over 60% of our formulary approvals are for unrestricted usage of ZYNRELEF.

These unrestricted formulary approvals create a significant growth opportunity with the broader label approved by the FDA in mid-December. The key drivers continued to be superior clinical data versus the standard of care, bupivacaine, demonstrating ZYNRELEF’s pain reduction for 72 hours, and a significant reduction in opioid usage.

When we combined the most effective product with ZYNRELEF’s outstanding value proposition led by our pricing strategy and reimbursement progress, these messages are clearly resonating with targeted accounts.

The remainder of the first quarter will remain very busy with over 100 additional P&T committees scheduled to review ZYNRELEF before the end of the quarter. New formulary approvals help us establish a critical pipeline for new ZYNRELEF business and remain a key priority for our commercial team.

Next, I wanted to highlight a key top down strategy of targeting integrated delivery networks or IDNs, to create new system-wide opportunities for therapeutic interchange from Exparel to ZYNRELEF for indicated procedures. Thus far, 34 IDNs have added ZYNRELEF to their formularies.

These IDN systems include nearly 270 institutions in their systems with 41% of approvals for unrestricted use of ZYNRELEF. In addition, these 34 IDNs account for an estimated 520,000 annual ZYNRELEF indicated procedures and $61 million of Exparel sales.

Our success with IDNs allows us to work with senior level decision makers, who are evaluating switching from Exparel to ZYNRELEF for indicated procedures.

Their rationale for a potential change is simple, ZYNRELEF has demonstrated superior clinical results to the standard of care bupivacaine with the cost savings of 25% to 32% based on wholesale acquisition cost and a savings of 42% to 48% based on our 340B price offering versus EXPAREL.

With ZYNRELEF’s expanded label indication, it’s not surprising that IDNs are looking to save millions of dollars for the product that actually lasts up to 72 hours. On slide number 10, we benchmarked the number of unique ordering accounts during the first six months of launch based on Symphony Health data.

We are gaining significant traction with ZYNRELEF in the first six months of launch, with 309 unique ordering accounts, which is up from 160 unique ordering accounts in the first three months of launch. During the past two years, three non-opioid analgesics ZYNRELEF, Xaracoll and Anjeso have launched during the COVID era.

ZYNRELEF’s unique number of ordering account is over 4 times greater than the next closest competitor, Anjeso. In addition, ZYNRELEF has 73% of accounts reordering during the first six months, the greatest reorder percentage for all four products benchmarked in this analysis.

We believe this is an excellent indication of the strong real world experience that surgeons are having with their patients. In addition, we feel the initial ZYNRELEF results are outstanding, considering our launch began with only three indicated procedures in the label and the impact of the COVID surge on hospital launches.

While the initial ZYNRELEF results are strong, aggressive expansion in the number of ordering accounts is a key priority in ‘22, and we continue to make strong progress underscored during the first quarter.

Slide number 11 highlights the continued progress that we’ve made with the number of unique ordering accounts and for the first time reports our ZYNRELEF demand unit volume. The number of unique ordering accounts has grown from 309 at the end of December 2021 to over 400 accounts through the end of last week.

ZYNRELEF demand unit volume grew by 126% in the fourth quarter over the third quarter. However, it’s important to recognize that the Omicron surge stunted the ZYNRELEF growth in December and January.

During these two months, our customers were faced with delays in elective surgeries as a result of policy decisions, positive patient pre-op COVID tests and staff shortages.

This unexpected surge was certainly detrimental to the positive news we received in mid-December, described earlier by Barry, which expanded ZYNRELEF’s label indication to approximately 7 million surgical procedures.

Fortunately, the COVID Omicron surge appears behind us, and we’ve seen significant increase in ZYNRELEF demand volume in February, with a 42% increase from January levels with three fewer days.

Importantly, since the inception of our launch 77% of the demand SKU volume has been for our 400-milligram product, which sells at nearly twice the price of our 200 milligram SKU.

We believe that our broad expansion of ZYNRELEF’s label indication combined with the stabilization of the impact of COVID sets us up for a strong finish to the first quarter and results for the remainder of 2022. On the prior slide, I described ZYNRELEF’s significant demand unit volume growth on both, the quarterly and monthly basis.

We believe that a large portion of this growth is being fueled by our expanded indications. As evidence in mid-January, a pulse survey was conducted with 129 orthopedic surgeons with prior use of ZYNRELEF and TKA procedures. Over 99% of surgeons surveyed were still using ZYNRELEF for their patients.

Then, we asked if they had used ZYNRELEF in total hip replacement cases, prior to the label expansion in mid-December, only 29% of surgeons indicated they had used it and THA. In the one month since the FDA approved the expanded indication, that percentage had grown to 48% of surgeons using ZYNRELEF and THA.

Importantly, 91% of those who have not tried ZYNRELEF and THA cases plan to use it within the next one to three months. Of note, there are over 600,000 THA procedures annually. So, this is an excellent illustration of how our expanded indication will allow us to accelerate ZYNRELEF’s growth.

One of the most frequent questions we receive is on the level of inventory on the distribution channel. As we expected, the third quarter ended with excess initial stocking inventory and the distribution channel. Since that time, we’ve made meaningful progress in burning through that inventory, based on increases in ZYNRELEF demand unit volume sales.

Fourth quarter net sales were $844,000 as we drew down the initial stocking inventory, based on demand orders from hospitals and ASCs. We currently have 85 distribution centers, which are selling ZYNRELEF.

In order to better understand the inventory level and the distribution channel, we are reporting ex-factory reorder rate based on demand units for both SKUs. Ultimately, our goal is to have ex-factory orders at 100% of demand unit volume, meaning a distribution channel is replenishing their inventory for every unit sold to a hospital or ASC.

Through February 24th, we’ve made outstanding progress towards this goal with the 400-milligram SKU reorder rate at 96% of demand unit volume. We expect to reach that 100% reorder rate target by the end of the first quarter.

With respect to the 200 milligram SKU, the reorder rate is currently 40%, indicating the some excess 200 milligram inventory in the distribution channel. This isn’t surprising with the 200 milligram SKU accounting for 23% of the total ZYNRELEF demand unit volume.

We’ve already observed significant improvements in the 200 milligram ex-factory reorder rate during the first quarter, and expect additional improvements through the remainder of the first quarter based on the new indicated procedures utilizing 200 milligram doses.

We’ve already seen tremendous early results on reimbursement coverage from commercial and Medicaid payers. We’ve already obtained separate reimbursement outside the surgical bundle payment for ZYNRELEF in more than 120 million covered lives in ASCs. And in some cases, it’s also separately reimbursed in the hospital outpatient setting.

A key component of our pricing strategy is even without separate reimbursement, our lower acquisition costs benefits customers across all settings of care where the drug may be paid for under the surgical bundle payment.

In the fourth quarter, CMS issued ZYNRELEF a specific C-code, C9088, for separate reimbursement and the ASC set of care, effective January 1, 2022. This will have a meaningful impact on ZYNRELEF and -- since it will have a separate reimbursement outside the surgical bundle in the ASC market, beyond the typical three year pass-through period.

CMS is still reviewing our pass-through application and we expect pass-through for separate reimbursement of ZYNRELEF for Medicare patients and the hospital outpatient setting at care to be effective April 1, 2022.

This would be a significant competitive advantage since Exparel’s pass-through status in the hospital outpatient setting of care expired years ago. On slide 15, I’ll close the ZYNRELEF section with our key priorities for 2022. Our top priority is to leverage the new indication for even faster growth.

This will be accomplished by expanding existing surgeon usage and new procedures. This is consistent with the example I shared earlier demonstrated -- demonstrating orthopedic surgeons, expanding from TKA cases alone to also include for THA patients.

In addition, we’re working with accounts with an existing ZYNRELEF formulary approval to remove restrictions and allow usage in all of our newly indicated surgical procedures.

Finally, we’re beginning to gain traction with both IDNs and hospitals to revisit therapeutic interchange by switching Exparel to ZYNRELEF for indicated procedures to potentially save millions of dollars per year. Our second priority is to increase usage within ordering accounts by increasing the number of surgeons routinely using ZYNRELEF.

Many ordering accounts initially evaluated ZYNRELEF with two or three surgeons from a larger practice. Based on the excellent outcomes with their patients, we’re actively utilizing their experience to support expanded usage of ZYNRELEF with recounts. We’re gaining momentum with this approach to increase usage.

Our third priority is to continue to gain formulary approvals at new targeted IDNs and hospitals. Increased access is our pipeline for growth and allows our sales reps to expand our volume, once other accounts are in service and converted to ZYNRELEF.

Finally, we’ll continue to maximize our separate reimbursement outside of the surgical bundle payment for ZYNRELEF and the ASC setting of care. We remain optimistic that we will receive pass-through status for ZYNRELEF for Medicare patients and have the hospital outpatient setting of care effective April 1st.

In summary, we’ve made incredible progress with a number of leading indicators, which gives us confidence that 2022 will be a year of significant growth for ZYNRELEF. Now, I’d like to shift gears and review the fourth quarter results of our oncology care franchise.

Slide 17, the fourth quarter was another solid performance for CINV franchise products with net sales of $19.9 million. Significant headwinds remained in the marketplace with the impact of COVID decreasing cancer screening and new patient starts.

In addition, CMS’s oncology care model and other value-based contracts support community oncology practices move towards cheaper, generic and biosimilar products. Finally, competitive products were maintaining high value or net cost recovery to oncology practices with aggressive pricing.

We believe that a number of these headwinds will being to turnaround in 2022. On slide number 18, during 2021, our team did an excellent job of stabilizing our CINV portfolio sales and markets dominated by generic competition. More specifically, we generally stabilized CINVANTI demand unit sales at 98% of 2020 levels.

In addition, we started the process of growing SUSTOL following the Refresh Program we implemented in 2019. We believe our products are poised for moderate growth in 2022. Our belief that both, CINVANTI and SUSTOL are poised for moderate growth in 2022 is based on two key factors.

First, we’ll experience improving reimbursement tailwinds as generic fosaprepitant average sales price reimbursement has decreased to $20.50 (sic) [$28.50] in Q1 2022 and effective January 1st, separate reimbursement in the hospital outpatient segment ended, which will make CINVANTI value proposition much more attractive in 2022.

In addition, IV Akynzeo ASP reimbursement has decreased by over $190 in the past year. So, there’s less value they can offer benefiting both SUSTOL and CINVANTI. During the first quarter of 2022, we expect our CINV net product sales to be in the range of $20 million to $22 million.

A potential tailwind is the IV bag shortage some accounts are experiencing, which benefits CINVANTI as the only NK-1 that doesn’t need an IV infusion bag. In addition, there is a backlog of oncology patients as a result of COVID. And we believe that both products can be used in HEC and the majority of MEC regimens.

As new patients reenter the system for treatment, these new patients will create a growth opportunity for both our products. Finally, I wanted to close with an overview of 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 clearly off to a fast start, despite headwinds and it’s growing rapidly. Barry previously shared our agreement with the FDA for the expansion of our label indications, which will accelerate ZYNRELEF growth in the future.

Finally, we’re in an enviable position to potentially add a second commercial product HTX-019 for PONV in the fourth quarter of 2022. This product will allow us to optimize our acute care resources with the same commercial team and customer targets.

The second component of our commercial strategy is return growth and maximize the profitability of oncology care of business. 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 the profitability of oncology care products.

The first step is to invest larger scale manufacturing for CINVANTI, which will significantly reduce COGS in 2022. And we’ve also better aligned our resources to support maximizing profitability with a significant cost reductions and expense savings. That completes my prepared remarks, and I’ll now turn the call back over to Barry..

Thank you, John. I would now like to take a few minutes to discuss our pending NDA for HTX-019. Postoperative nausea and vomiting is a large and important new market for Heron, but beautifully aligned with our current commercial efforts in the postoperative pain space, and builds on our extensive knowledge of nausea and vomiting.

The PONV opportunity is about 25 times the size of CINV, and HTX-019 has substantial advantages over available products. The FDA has accepted our filing and given us a September 17, 2022, PDUFA action date. So, we could be launching HTX-019 in the fourth quarter of 2022 with the opportunity for several hundred million dollars in sales at peak.

An easy initial target for a commercialization is conversion of over 500,000 oral aprepitant pills predicted to be sold in 2022 for PONV. The growth of oral aprepitant for PONV tells a compelling story about the opportunity for HTX-019, an easy-to-use IV form of aprepitant.

Even without promotion and with significant limitations due to the oral route and a high acquisition cost, oral aprepitant has grown nicely over the last few years, including 25% growth last year. We will aggressively go after these units, after approval. 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 profile. Our net product sales for the fourth quarter of 2021 for both our commercial franchises, was $20.7 million, compared to $20.6 million for the same period in 2020.

For ZYNRELEF, we recorded $0.8 million in net product sales for the fourth quarter of 2021 with ZYNRELEF demand units increasing by 126% over the prior quarter. For CINVANTI, net product sales were $17.4 million for the fourth quarter, compared to $20.3 million for the same period in 2020.

For SUSTOL, our product sales were $2.5 million for the fourth quarter of 2021, compared to $0.3 million in the same period in 2020. In the first quarter of 2022, we expect net product sales for the oncology care franchise to range between $20 million and $22 million.

As of December 31, 2021, we had cash, cash equivalents and short-term investments of $157.6 million. In terms of our operations, net cash used for operating activities for the year ended December 31, 2021 was $203.4 million, compared to $184.8 million for the same period in 2020.

The increase in our net cash used for operating activities was predominantly 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 $44 million to $48 million in the first quarter of 2022, which includes 8.5 annual expenses that don’t reoccur in subsequent quarters.

We anticipate that our net cash usage will moderate lower in 2022 as net product sales increase, and we realize the benefits of our cost saving measures, including reduced expenses in the oncology care franchise, reduced lease expense, reduced investment in manufacturing, now that the most important improvements have been FDA approved, and from reduced COGS with larger scale manufacturing for both, ZYNRELEF and CINVANTI.

Slide 25 and 26 contain important safety information for ZYNRELEF. The slides are available on our website. With that, we’re ready for your questions.

Operator?.

[Operator Instructions] Your first question is from Brandon Folkes with Cantor Fitzgerald..

Hi. Thanks for taking my questions. Maybe just two for me.

Can you just elaborate a little bit on the process of maybe removing the usage restriction that may have been placed ahead of the labels expansion? So maybe some of the approvals you got before that expansion, just so that you could get 100% or maybe close to that of the formulary approvals mirroring the label, any color in terms of how long you expect that to take, how would you describe that process and when you’ll see the pull-through on the revenue side? And then, Barry, I appreciate your commentary at the end on the cash and capital situation, just thoughts or opportunities beyond what you mentioned to maybe show after extended timeline? Thank you..

Sure. Thank you, Brandon. I appreciate it.

John, why don’t you respond to the question on pull-through of the expanded label and the formularies?.

Yes, absolutely. So, as I indicated in the presentation, we have 260 formulary approvals as of the end of last week, February 25th, with 65% of those being unrestricted usage. So, in those accounts, Brandon, we are already able to really promote for the full label that we have.

The other 35%, I think, are the accounts that -- you’ve indicated that, we have a restricted label. And we are working with those accounts. We have started working with them to expand the ability to use ZYNRELEF.

And I would say that, right now, based on the feedback that I’ve seen, probably about 50% of those accounts have expanded to unrestricted usage. So, we are seeing very good results on that. The other ones are in process.

And I would hope, probably by the end of April that we’ll be in a position where the vast majority of accounts would allow for unrestricted usage of ZYNRELEF, based on our new broader label..

Great. Thank you. And yes, obviously in terms of the cash position, we are very focused on expanding the runway and making sure that we can get to profitability. We are looking at not only the potential for partnering activities that have significant interest in partnering a product in several regions, as well as, a host of other approaches.

We won’t go into further detail on it here, but look for something to be done in terms of shoring up balance sheet here very soon..

Thank you very much..

Your next question is from Boris Peaker of Cowen. Your line is open. Boris, your line is open..

Boris? Operator, do you want to go to the next one, and we’ll come back to Boris?.

Yes, sir. And we have a question from Josh Schimmer of Evercore. Your line is open..

Great. Thanks for taking the questions. So, you provided all sorts of encouraging details on the ZYNRELEF launch, but at the end of the day, the reported itself were fairly negligible. Even if you tripled them, they’d still be rather modest.

So, maybe you can help zero in on the nature and timing of the step functions in demand, either through the IDNs or elsewhere that would put ZYNRELEF on more promising trajectory? That’s number one.

Number two, given the financing overhanging, is there an opportunity to monetize the CIN franchise? And if so, would you be able to carve out, 019 separately from that? And then the last question is, do you expect to report as a going concern in your 10-K?.

I’ll answer the last one. And no, we do not have to identify going concern issue after a thorough assessment of finances based on reductions in our expenses, some of which I noted.

And John, do you want to talk about trajectory?.

Yes, sure. So, I think for the first time, Josh, what we did is we provided what the demand units look like. And clearly, you’re seeing very strong growth.

Unfortunately, right at a point where we were looking at really accelerating that growth is when the Omicron surge hit, which impacted both, sales in December and January, that’s the same time that we got the FDA expansion. So, we were expecting to see very meaningful growth there.

And what we are seeing is between February and January with a 42% increase in three days left that it’s starting to ramp up more in a rate that we’re comfortable with.

I think the key functions really will be looking at those priorities, making sure that we’re expanding usage with the current uses of the product, also looking to expand other surgeons within the practice. But I think your point about therapeutic interchange is really a good one.

And we are already talking with a number of accounts that can convert millions of dollars worth of extra business to ZYNRELEF very quickly. The most advanced ones are already doing trials within their institutions that would allow them to move very quickly on making that switch to ZYNRELEF. But it’s a bit hard to tell what that timing looks like.

As you might imagine, that’s been one of our greatest challenges is it is a dynamic time, and it’s difficult to project what that ramp up rate will look like, especially when we’re just seeing the major growth between January and February. So, we only have a single data point. But it’s something that we’ll continue to track very closely.

And I would hope that within the next quarter or so, we’d be in a position to give more guidance on what direction the growth rate looks like for ZYNRELEF..

And then, in terms of monetizing the CINV franchise?.

Yes, absolutely. Obviously, that’s certainly one area that we are exploring in substantial detail and have had significant discussions related to it. And yes, we could carve-out HTX-019. It’s actually relatively straightforward opportunity that has been discussed as well. So, as I said, our goal is to resolve the financial overhang here reasonable soon.

And that certainly is one of the options on the table..

Your next question is from Serge Belanger of Needham. Your line is open..

Hi. Good afternoon. A few questions on Exparel for me. First, on the inventory, you mentioned you have burned through a significant part of the initial channel inventory.

Just curious where it stands now and if -- when will it normalize and reflect the demand of the product? Secondly, can you give us an idea of the average price per unit just so we can kind of calculate the current run rates in revenues, based on the demand units? And thirdly, and the last one, I guess, for Barry.

I think in the past, you've -- your unofficial guidance for ZYNRELEF was to beat out Exparel sales for the first six quarters of launch, just curious where you stand on that, now that we're one-third into that. Thanks..

Yes, of course. Thanks, Serge. I'll turn the first question over to John. I'll just point out that he identified that we are essentially at neutral point in terms of inventory for the 400-milligram vials.

So, based on virtually all of the distribution centers reordering and we're very close to it that certainly by the end of the quarter, we anticipate to be at a point where use and ordering should be close to one for the 400, and 200 is somewhat behind.

200 is a smaller percentage of the overall use in the original launch of the product because of the three specific indications. Now, with the expansion of the indications, there's many more indications where the 200-milligram vial is appropriate.

So we expect that to start moving up and start burning through that inventory over the course of the next quarter.

John, anything to add?.

Yes. I think, Barry, you summarized it very well, and I completely agree that we think from a 400 standpoint that it's going to be on a unit of demand equaling a reorder. So, that's already normalized.

What we have seen with the 200-milligram SKU, Serge, is if you look at where we were in January of 388 units compared to 761, the 200-milligram SKU is growing more rapidly. And while at the end of last week, we're at a 40% reorder rate, we expect to be making very substantial progress on that between now and the end of the quarter.

So I think we'll get close. I'm not sure we'll get quite there, but I would expect that it'd probably be somewhere north of 80% of the reorder rate that we'll see as we go forward by the end of the quarter.

So, I think by the time we get into the end of this quarter, you're going to start seeing numbers that are much more reflective of actual demand and net sales based on ex-factory sales..

Yes, and going to the second question. Look, the way that we think about the launch, as John indicated, we've had really significant success with formularies getting into facilities. But with COVID and with the very limited initial label, it has really been a significant impediment in terms of uptake in those facilities.

So, in a sense, we really look at the beginning of this year as a relaunch of the product with significantly expanded label now with COVID starting to wane in terms of its impact on us getting into P&T committees and utilization of the product.

And we certainly look at six quarters, starting from January 1st is an opportunity to, in fact, meet and exceed that same uptake curve for Exparel. I think we're starting to see signs of that already in terms of significant increases in utilization just in the second half of February.

And so, we're very excited looking forward to be able to demonstrate the commercial value of ZYNRELEF in the rest of this year and going forward..

I think, Serge, had one additional question, which was what should the estimate be used from a modeling standpoint and kind of net sales per unit. And if you look at the SKU mix between 400 and 200, and combine that with the gross-to-debt discount.

Serge, if you use somewhere around $200 per unit, that would be a pretty good number to use for modeling purposes..

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

My first question is, do you see any risks that if ZYNRELEF not granted pass-through status to support HOPD adoption by CMS on April 1st? I also have a couple of follow-ups. Thanks..

Sure. Well, with the expanded label, we don't see any reason that there would be any further delays in approval. We're not aware of any. The CMS has indicated they have everything they need from us. And so, we're just waiting for the notification.

But, it's the government, right?.

I see. I also have a couple of questions regarding the ZYNRELEF growth trajectory. The first question is I think it was just mentioned, the 47% increase of demand in February from January. I'm wondering if you -- have you observed a similar level of demand increase from last December to this January. I apologize if I missed that.

And the second question is in terms of unique ordering accounts and the reordering accounts, do you see the same level of growth increase over time?.

Thanks, Kelly. The first question, I'll take, and that is, no, it was relatively flat December to January.

And that was right in the heart of the Omicron surge where we know quite hands on that many, many surgeries were postponed because if it wasn't an issue of the hospital having to reduce surgeries, it was in some circumstances, half the patients that were scheduled for surgery ended up testing positive for COVID when they came in a day or two before, or some of the staff testing positive and those surgeries having to be postponed.

So, January was flat, and then as the COVID surge started to wane into February, we started to see surgeries pick up and a very nice increase in utilization of ZYNRELEF.

John, do you want to take the second question?.

Sure. From a reordering perspective, at the end of Q3, our first quarter of launch, we had a 50% reorder rate that grew to 73% during the fourth quarter or second quarter of launch. We would expect that number to continue to grow over time. As you're always adding new accounts into those that are ordering, it's going to be tough to ever get to 100%.

But as we go through time, we would expect that rate to continue to increase. Certainly not at that same percentage since there's less percentage to work with, but we think we'll continue to see good growth in that, too, Kelly..

We have no more questions. And I would like to turn the call back to Barry for closing remarks..

Thank you. Thank you again for joining us on the call today. We're really pleased with the progress this quarter and look forward to keeping you updated..

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