Heron Therapeutics Q1 2023 Earnings Call Transcript

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May 11, 2023

There are 8 speakers on the call.

Operator

Ladies and gentlemen, and thank you for standing by. Welcome to the Heron Therapeutics Q1 2023 Earnings Conference Call. Before we begin, I would like to remind you that this call will contain forward looking statements concerning Heron's future expectations, plans, Prospect's 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 Heron's filings with the SEC. In addition, any forward looking statements represent Heron's views only as of the date of this webcast and should not be relied upon as representing Heron's views as of any subsequent date.

Operator

Heron specifically disclaims any obligations to update such statements. Now I'll turn the call over to Craig.

Speaker 1

Thank you, operator. Good afternoon, everyone, and welcome to the Heron Therapeutics Q1 2023 earnings call. I'm Craig Collard, the new CEO of Heron Therapeutics, Today, I'll provide an overview of our recent performance, highlight key achievements, but more importantly, give some insight into my assessment of the business in my 1st 4 weeks and discuss our strategic vision moving forward. Total product net revenues For the Q1 were $29,600,000 up from $23,500,000 in the same quarter last year, an increase of over 26%. We continue to make steady progress on the oncology side of our business, But we remain excited about the market opportunity for both Zynrelief and our newly approved product, EPONVI, which was launched in March of this year.

Speaker 1

Starting with Zenerife, I realize the product has had a slow uptake since launch for a variety of reasons. Despite competing in a huge market, the product has a differentiated clinical profile that works well when used. The label has limited our ability to be the drug of choice across a variety of indications. To counter that, we filed an sNDA with an October 23 PDUFA date that if approved will expand our indications The viscous nature of our product has slowed the withdrawal from the vial compared to other drugs. To improve the handling, we recently started multiple enhancement programs to address some of the issues we have faced in the surgery During preparation, including a vial access needle or van and ultimately a prefilled syringe that could be game changing.

Speaker 1

Since joining the company, I've been able to get in the field and work with our sales representatives, which I always find helpful when trying to assess product performance issues. I'm happy to report that so far I have seen Zenerleaf used in 5 knee surgeries. I was trying to understand what really happens in the application of the product. Previously, I had heard mixed messages about the Time to draw the product out of the vial, product viscosity and general issues that would make it more difficult to use our product. What I determined from watching these surgeries is that we can replicate the success I saw on this day.

Speaker 1

The application requires training the staff as it is different, but not complex. The nursing staff even admitted that after using the product a few times, it became second nature and is now Just part of the normal routine and prep before the surgeon arrives. I think early in the launch of the product, our company did not address this issue head on. It didn't understand that this was going to require more training of our reps and highlighted our own inefficiencies. All products generally have challenges when launched The good part here is that it's not too late to get this launch back on track.

Speaker 1

Now moving to UPONV. The product was launched the month prior to my joining the company. EPONV, an injectable emulsion is the only IV substance NK1 receptor antagonist indicated for postoperative nausea and vomiting. As with Synrelief, this is a product with a great clinical profile and marketing advantages and competes in a very large market. We believe that EPONVI will be a very successful product in our portfolio and has great call point overlap with ZENRILEF.

Speaker 1

While the receptivity to the initial launch is encouraging, we will look for ways to maximize this potential and update our shareholders as we progress throughout this year. Before turning the call over to David for a financial review, I thought it might be helpful to give some insight into the business as a whole and a view into the strategic direction as we move forward. Since joining the company, I have spent much of my time trying to understand each department, headcount, spend and how the company functions as a unit. The goal has been to do a thorough internal review to determine the company's business practices and strategies to develop a long term plan that allows the company to maximize value for all shareholders. Although my review is not complete, I can tell you that I have a much better understanding of the company and many changes will be coming soon, including A reduction of cash burn and improvement of operational efficiency and the implementation of a realistic product forecast to more accurately determine our capital requirements moving forward.

Speaker 1

Shortly after I joined the company, I implemented the first major change, which was to flatten the executive reporting structure in the company. I hired Jason Griglio, whom I have worked with in the past to lead our sales and marketing efforts. Jason will be improving many things with the commercial structure, including targeting, alignment, account team support, marketing message and data Sales force and management reporting. I believe these changes and many others to be updated later will continue to improve the uptake of our products. Other expense cuts we'll be implementing include less outsourcing and dependency on consultants and a reduction in headcount.

Speaker 1

Again, I will provide more detail in the near future. As you know, I've been assessing all aspects of our business We are committed to providing you with as much information as possible about the strategic direction changes that will be coming. We understand that you've invested your time and resources in our company We plan to share more details with you soon about the changes we will implement and the reasons behind them. Our goal is to create a stronger, more sustainable company that is better equipped to meet the needs of our customers and stakeholders. I appreciate your patience and understanding as we work through this process.

Speaker 1

We are confident that our changes will position us for long term success and we look forward to sharing more information with you soon. Go ahead, David. Thank you, Craig. As Craig mentioned in his remarks,

Speaker 2

our net product sales for the Q1 of 2023 were For the Q1 of 2023, our ZINRALEF net product sales were 3,500,000 In March 2023, Apomv became commercially available in the U. S. For the Q1 of 2023, The Palmd net product sales were $244,000 Our oncology care franchise net product sales for the Q1 were $25,800,000 which was an increase of 15% over the same quarter in the prior year. For the full year 2023, we expect oncology care franchise net product sales of $99,000,000 to 103,000,000 Cost of product sales for the Q1 of 2023 were $16,900,000 compared to $11,400,000 for Same period in 2022. For Q1 2023, cost of product sales included a one time charge of $5,300,000 resulting primarily from the write off of short dated XINRILUX inventory.

Speaker 2

Research and development expense decreased from $42,100,000 in Q1 2022 to $13,800,000 for the Q1 of 2023, primarily due to a decrease in external development costs related to ZINRALEF. Our sales and marketing expense decreased slightly from $23,400,000 in Q1 2022 to $21,200,000 for the Q1 of 2023, primarily due to a decrease in costs to support the ongoing commercialization of ZINRALEF. We are reporting a loss from operations of $33,100,000 for the Q1 of 2023, which compares to an operating loss of $62,900,000 for Q1 2022. Our balance sheet at the end of March 2023 shows a cash balance of 60,000,000 down from $84,900,000 at the end of December 2022. Craig, back to you.

Speaker 1

Thanks, David. Operator, we'd now like to open things up for questions. And go ahead, please.

Operator

Our first question will come from the line of Brandon Folkes with Cantor Fitzgerald. Please go ahead.

Speaker 3

Hi. Thanks for taking my questions and Craig congratulations on the appointment. Maybe just firstly from me, just How quickly do you think we can see a return on the training of staff? And then secondly, I know it's early stage and we Perhaps need to be just a bit patient, Jibet. Any more granularity in terms of going broader and deeper into these accounts and sort of Maybe some of the specifics you think you can do to change the trajectory of Xenoly.

Speaker 3

And then lastly, maybe Any color, and I know this wasn't given during your time, Craig, but I think we're looking for 10% volume growth In 1Q 'twenty three over 4Q 2022, when we reported year end earnings. So just any color, did that volume growth Materialize with any movements on price, any color there on the release?

Speaker 4

Thank you very much.

Speaker 1

Thank you, Brent. I would, I guess, just start by saying that, as you know, we're in cash preservation mode. And what we're really trying to do is to optimally have optimization of our resources. And so Regarding stock price and that type of thing, I believe that again with proper management and beginning to see consistent quarters and growth of our product, I think Again, that should affect the stock price longer term. I think in the short term, again, keep in mind, I was not here for this quarter that I'm speaking of.

Speaker 1

Growth of products and that type of thing and depth in the accounts and what happened this prior quarter, I can't really speak to other than just to speak to where we are. But again, getting back to our goal is to get this company to profitability as soon as we can. And we're going to give a lot more detail around that and that really includes minimizing our And being a bit more of a leader organization and then really maximizing our efficiency in sales. Speaking Specifically, to ZenRelief and getting deeper into accounts and that type of thing. I agree.

Speaker 1

I think where we have usage, we can certainly get deeper into those accounts. I spoke a little bit about the day I was in the field. And the thing that I left with that day really was I'm looking for things we can standardize. One thing if one person doesn't account, can you really carry that across all the salespeople that we have And create something that can be replicated. And what I saw that day that we can.

Speaker 1

I think the application issues that I had seen and heard about, Again, with the proper prep and training, as I had said, it really does go away. And when the surgeon walked in to do the knee surgery that day, It was literally invisible to that person. The product was on the in the field, in the sterile field, if you will, they used it. And one of the things that we actually mentioned that I thought was very interesting because we talked a lot about viscosity. The surgeon mentioned to me that I really like the viscosity, he actually called the product Honey.

Speaker 1

I really like the viscosity of this product because it stays where I put it. And again, I think in some ways we sort of ran from that, but I think we should be running towards it. I really do think the product It's very under optimized. And again, the good news is the product works and it works well.

Speaker 3

Great. Thank you very much for taking my questions.

Speaker 1

You're welcome.

Operator

Your next Question will come from the line of Boris Peaker with TD Cowen. Please go ahead.

Speaker 5

Hi, this is Nick on for Boris. Thanks for taking our question. Just Quickly on EPONVI, how are you thinking about marketing this moving forward? I know that you mentioned that there are a lot of similarities between like Calls that you'll make with the Doponvie and Zimrilef. But I was just thinking about like separately how would you be planning to market this to potentially have a faster growth than Zimrilef did?

Speaker 1

Yes. No, it's a great question. I mean, one of the things I was sort of faced with when I walked into the company was, where do you put your resources? Do you continue to pour more resources Zenerleaf or do you move things a little bit more towards a PONVIE. I think right now, as I walked in the door, we were a little more weighted towards Zenerleaf.

Speaker 1

And if you think about it, Zenerleaf is a trickier sell. There's a little bit more time and effort that goes on with the surgeon and in the surgery suite. The PONV is a little bit different. It's almost like an annuity. In a sense, if you're getting formula if you can break through P and T and get on formulary, you Almost get a bit of a protocol scenario where you're in the Epic system and you're being used all the time.

Speaker 1

And so from my perspective, OPANVIA is a much easier sell. Now again, How it's been reacted by customers and all that, I just haven't had a chance to really see a lot of that yet. But as part of this Plan as I talked about communicating more going forward. We're looking at that and we're looking to put additional resources behind the PONV. The really interesting thing that I've seen from the marketing data thus far on PONVIO is that the oral prepotent market is growing with literally no promotion and that's And so the takeaway from that is hospitals And physicians and anesthesiologists like this product and it's growing without literally any promotion.

Speaker 1

So if I look at that and then I look at the massive size of the odandertron market And really just look at patients that are dosed again with the same product. If we could just capture those two markets, I mean this is a multi $100,000,000 drug. And so From that perspective, it really does intrigue you about what we can actually do with that product. So again, we're looking at it now and trying to sort of really Look at not only how we comp our reps, but the alignment of our sales force and all that. So I think all that is up in the air at this point, but we'll have some decisions here pretty quickly.

Speaker 5

Great. Thanks for that. And space, so for the VAN and prefilled syringe, what are the next steps to get them approved and when do you expect to be done for each of them? I'm sorry, did

Speaker 1

you say prefilled syringe?

Speaker 5

And the VAN As well? Yes.

Speaker 1

We've got some initial timelines that I've looked at. I'm hoping we can be a little quicker on this, but it's and we've done some work on the pre filled syringe. So I mean, we're sort of looking at the 2026 timeframe, I think is sort of generally what I've heard, but I'm hoping we can pull that back a bit. The VAN will probably Also more in between that, in that timeframe. So if it does work out that way, we would have the van coming In about a year and a half or so and then probably a year and a half after that you'd have the prefilled syringe.

Speaker 1

And I think in the midst of all that as well, you've also got the expansion of the label possibly with the

Speaker 5

Great. Thank you very much.

Speaker 1

You're welcome. Thank you.

Operator

Your next question will come from the line of Rohit Bassim with Needham and Company. Please go ahead.

Speaker 6

Hi, this is Rohit on for Serge. Thanks for taking our questions. For the CINV franchise, the previous management provided prior guidance of $99,000,000 to $103,000,000 Does this guidance still stand? And then secondly, you mentioned reducing cash burn. Do you have any plans to pull back on the sales force?

Speaker 6

Thanks.

Speaker 1

Yes. So on the CMV franchise first, I've seen that we've given guidance in the past. And what I can tell you is I think that the CMV Franchise is moving along quite nicely and it's fairly steady. What I didn't like when I initially saw that just being perfectly honest, I haven't been involved in a company that gave Partial guidance on partial products. So what I would prefer to do is, as we get our hands around this is give guidance a little more from a company standpoint And less about particular products.

Speaker 1

So that's sort of the reasoning and that was my decision. But I can tell you that things are moving along fairly steadily. Regarding I'm trying to think of the other part of your question.

Speaker 6

Yes. So you mentioned reducing cash burn.

Speaker 1

Do you have any plans for

Speaker 6

the sales force?

Speaker 1

Yes, I'm sorry, the sales force. We're looking at that. Again, we want to be more efficient. It may be more of a realignment. We're certainly not doing anything on the oncology side.

Speaker 1

I think on the acute side, we're just trying to really assess are we aligned in the proper accounts and what does that look like? Would we Trim that a bit in the short term, it's possible, but we're really more looking at how better to align to the whether it's a PONV or ZENRILEF and how we So that takes a little bit of time. And Jason, like I mentioned before, was hired just a few weeks ago and he's on top of that. And so I'm hoping we can have something a little more clear on that here very shortly.

Speaker 5

Great. Thank you. Welcome.

Operator

Your next question comes from the line of Carl Burns with Northland. Please go ahead.

Speaker 4

Thanks for the question and congratulations on the promotion. Considering the one time Zevri Lev inventory write off, which I think Was referenced at $5,300,000 If we back that out, it looks like the gross profit margin would have been around 61%. Does that sound right? And is that a number that you would expect

Speaker 1

to be sustainable in the

Speaker 4

second Going forward in future quarters?

Speaker 1

Yes, Carl, it's a great question. You said something funny when you Congratulations on the promotion. I'm hoping the next quarter or in quarters after this, what you say is, hey guys, congratulations on a great quarter. That's what we're striving for. So I'd like to get that out first, I guess.

Speaker 1

Regarding gross margin, no, we're not operating where we need to be. I would like to see us move towards under sort of a 20% COGS, Which will be 80% gross margins. That's where I'd like to strive for. And I think with what we're doing batch size wise now you're going to see some of that being reflected. I'm also looking into every manufacturing agreement we have and seeing where we can improve upon that.

Speaker 1

So ideally, I would like to get us down in sort of that, I would call it high teens to 20 range. So we're not there yet, but it was affected obviously by this one time write off of Zenerable.

Speaker 5

Thanks. You're welcome. Thank you.

Operator

Your next question comes from the line of Kelly Hsieh with Jefferies. Please go ahead.

Speaker 7

Hi, thanks for taking my question. This is Clara on for Kelly. So for the same accounts you're targeting for upon the end of Renla, What would be your strategy to maximize the synergy between those two products? And how should we expect the synergy to kind of be reflected on the sales in the coming And also for the Sarela, for the sNDA, what are some strategies and efforts to help Cirella fully recognized the additional opportunity indicated by this additional indication. Thank you.

Speaker 1

Yes. No, thanks for your question. I'll start with the sNDA. And again, as you know, we filed it with the FDA and we have a PDUFA date. But outside of that, We cannot predict what indications we will get and how broad the label that we'll ultimately receive approval of.

Speaker 1

And Our hope obviously is that it broadens it and we get all the indications we asked for, but we just don't know that yet. And so it's difficult to plan until you really know what you're going to have. So There'll be more to come on that. And really with Aponvie and Zeneralift, the synergies there, I mean, if you think about it, it's those 2 products that fit really well together. I think the question we're really struggling with right now is where do we put our resources now.

Speaker 1

Because when I look at Xenrelief and I about you have a van coming, you've got a possible expansion of sNDA and then you have really what should be game changing because it changes the whole sterility problem is the prefilled syringe. And so one could argue that in this period, should we focus more of our resources possibly on a PONV, which is a much easier sell quicker, has a bit of an annuity factor to it in a very large market. And so again, I don't have specifics yet, but that's what we're debating. And I think we'll have answers very shortly. But the good news is the products, as you mentioned, do fit well together.

Speaker 1

The call points are similar. And again, I think Over time, these products should both grow significantly. And it's just a question of which one we focus on first and how we sort of do that.

Speaker 7

Very helpful. Thank you.

Speaker 1

Okay. Thank you. You're welcome.

Operator

I will now turn the call back over to Craig for any closing remarks.

Speaker 1

Yes. Thank you, operator. First, I'd like to thank everyone from our first call here as CEO of Heron. And also really want to thank all the employees here. I mean, change is difficult.

Speaker 1

And again, there's been a lot of things going on here and we're putting a lot of information I think what you're going to see in the future is a much, much different company that again will head towards profitability and will be a success. So I'm excited about that. And again, I just want to thank everyone here that's been a part of that thus far. And we'll see you next quarter.

Operator

Ladies and gentlemen, that will conclude today's call. Thank you all for joining. You may now disconnect.

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Earnings Conference Call
Heron Therapeutics Q1 2023
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