Heron Therapeutics Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 14, 2023

Key Takeaways

  • Implemented a cost reduction initiative expected to deliver approximately $75 million in cash savings over the next three years, strengthening the path to profitability.
  • Completed a $30 million equity financing with key shareholders and secured an up to $50 million working capital facility, bolstering the balance sheet and providing sufficient runway to reach profitability.
  • Combined Q2 net sales for SYNBONTI and SUSTOL were $27.3 million (up from $25.1 million in Q2 2022), and full‐year 2023 oncology guidance of $99 million–$103 million was reaffirmed.
  • Acute care products gained traction as Zynrelef sales rose to $4.2 million (11% quarter-over-quarter unit growth) and PONVee launched in March 2023 with positive early feedback and initial hospital system adoptions.
  • FDA extended the PDUFA date for the Zynrelef sNDA by three months to January 23, 2024, due to a major amendment, delaying the anticipated label expansion.
AI Generated. May Contain Errors.
Earnings Conference Call
Heron Therapeutics Q2 2023
00:00 / 00:00

There are 9 speakers on the call.

Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Heron Therapeutics Second Quarter 2023 Earnings Conference Call. As a reminder, this conference is being recorded. Now, I would like to turn the call over to Jeff Cohen, Executive Director, Assistant General Counsel and Assistant Secretary, please proceed.

Speaker 1

Thank you, Christa, and good afternoon, everyone. Thank you for joining us this afternoon on the Heron Therapeutics conference call to discuss the company's financial results for the Q2 ended June 30, 2023. With me today from Heron are Craig Collard, Chief Executive Officer Ira Duarte, Executive Vice President, Chief Financial Officer and Bill Forbes, Executive Vice President, Chief Development Officer. For those of you participating via conference call, slides are made available via webcast and can also be accessed via the Investor Relations page of our website following the conclusion of today's call. Before we begin, Let me quickly remind you that during the course of this call, the company will make forward looking statements.

Speaker 1

We caution you that any statement that is not a statement of historical fact is a forward looking statement. This includes remarks about the company's projections, expectations, plans, beliefs and future performance, all of which constitute forward looking statements for the purposes of the Safe Harbor provision under the Private Securities Litigation Reform Act of 1995. These statements are based on judgment and analysis as of the date of this conference call and are subject to numerous important risks and uncertainties that could cause actual results to differ materially from those described in the forward looking statements. The risks and uncertainties associated with the forward looking statements made in this conference call and webcast are described in the Safe Harbor statement in today's press release and in Heron's public periodic filings with the SEC. Except as required by law, Heron assumes no obligation to update these forward looking statements to reflect future events or actual outcomes, does not intend to do so.

Speaker 1

And with that, I would now like to turn the call over to Craig Collard, Chief Executive Officer.

Speaker 2

Thanks, Jeff. Good afternoon, everyone, and thank you for joining us today for our Q2 2023 earnings call. I am pleased to share with you some significant developments that have transpired since our last call. Our team has been hard at work I'm excited to provide you with updates that we believe will lead to transforming inherent into a profitable company with growing revenues, including updates on our cost reduction efforts, financing activities and changes in our executive management team, as well as an update on the status of our pending Hash Blackman, ANDA Patent Litigation. On my first earnings call with Aaron as CEO, I mentioned that I'd only been here 4 weeks and most of that time was used to assess the business and determine where we could make improvements quickly.

Speaker 2

The first step was assessing the executive leadership and making the proper changes that were needed. We made those changes and we now have a leaner organization with a new CFO, Head of Development, Head of Supply and Vendor Management and new leadership in sales and marketing on the acute side of the business. I am thrilled to announce that the new team has successfully implemented a cost reduction initiative. Through careful analysis and strategic planning, we have identified areas where we can streamline our operations and enhance efficiencies. Over the next 3 years, we expect to achieve a remarkable cash savings of approximately $75,000,000 This initiative reflects our commitment to fiscal responsibility and our dedication to optimizing our resources for sustained growth.

Speaker 2

In addition to the cost cutting measures, we were able to bolster the balance sheet by completing a $30,000,000 equity financing with some of our largest shareholders, as well as closing on an up to $50,000,000 working capital facility. Based on our current operational We expect that this will provide the company with enough capital to achieve profitability. This achievement underscores the confidence that our investors and partners have in our business Operations. The changes we have made this quarter are significant and have certainly improved the business and set up a solid foundation for the future. The next phase of improvements will be focused around maximizing the growth potential of all of our products on both the acute care and oncology sides of the business.

Speaker 2

Even during this recent time of organizational change, the company is still seeing product growth. We expect this to improve dramatically as we implement new strategic plans moving forward. Now moving on to some product highlights from the quarter. On the oncology side of the business, Q2 net product sales combined for SYNBONTI and SUSTOL were $27,300,000 which increased from $25,100,000 for the same period in 2022. We also grew combined sales by 6% quarter over quarter.

Speaker 2

We are pleased to reiterate our financial guidance for the oncology franchise of $99,000,000 to $103,000,000 in net product sales for the full year 2023. We also recently had a favorable outcome At the Markman hearing and our pending Hatch Waxman ANDA litigation against Fresenius to enforce our SYNvanti patents. We are pleased with the outcome and will continue to vigorously enforce and defend our patent portfolio. Moving now to the Acute Care side of the business with Zenerife and Aponbee. We continue to see product growth on this side of the business also, Even though we have yet to implement many of our planned changes, once we accomplish many of the initiatives focused on improving the fundamentals of how we conduct our business, We plan to then move forward with some of the transformational initiatives.

Speaker 2

Net product sales of Zenerleaf The quarter were $4,200,000 compared to $2,500,000 for the same period in 2022. Quarter over quarter unit growth was 11%. Net product sales of the PONV for the quarter were $300,000 UPONV became commercially available in the U. S. On March 6, During this launch phase, we are receiving very positive feedback from some customers due to PONDI's unique clinical value.

Speaker 2

In fact, several hospital systems have already adopted for all moderate to severe patients and many others have currently scheduled for system wide review. The next phase of business improvement will be focused around product growth and maximizing the value of our assets. With Zimmerliq, we have 3 key initiatives underway to expand our business, including our vial sNDA, the vial access needle or VAN and the prefilled syringe. Zynoleaf is a unique product with true 72 hour pain relief. It also has pass through reimbursement status allowing our product to be separately reimbursed outside of the surgical bundle in both hospitals and ASCs.

Speaker 2

All of these product improvements and attributes are part of a new overall company and product strategy and should have a dramatic impact to our growth over the next several years. This will not take place overnight, but our products have a great clinical profile, excellent reimbursement status And with the right commercial plan, we should begin to see massive improvement that will ultimately lead the company to profitability. Regarding the sNDA for our label expansion present release, we were recently informed by the FDA of a 3 month extension of our PDUFA date From October 23, 2023 to January 23, 2024, the division became aware of our timeline For some new non clinical data, the company was completing and in the spirit of cooperation, we agreed to submit this new data to the division. The division deemed the submission to be a major amendment to our sNDA and accordingly extended review period by 3 months. In conclusion, the past quarter has been marked by significant accomplishments and strategic moves that will undoubtedly shape the trajectory of our company.

Speaker 2

The successful implementation of our cost reduction initiatives, the securing of debt and equity financing, the favorable outcome at While this business will not be transformed overnight, 2023 will prove to be a turnaround year for Heron. Thank you for your patience and continued support of the company as we move through this transition. I will now turn the call over to Ira Duarte, our CFO. Go ahead, Ira.

Speaker 3

Thanks, Craig. Our combined product net revenues for the Q2 of 2023 were $31,800,000 compared with $27,600,000 in Q2 2022, representing an increase of 15% to the same period of 2022. Product net revenues for the 1st 6 months of 2023 were $61,400,000 compared with 51.1 $1,000,000 for 20.22 or an increase of 20%. Our acute care franchise net revenues For the 3 6 months ended June 30, 2023 were $4,500,000 $8,300,000 respectively, which increased from $2,500,000 $3,500,000 respectively for the same period in 2022. For the 3 6 months ended June 30, 2023, Oncology Care franchise net product Sales were $27,300,000 $53,100,000 respectively, which increased from $25,100,000 for the quarter was $11,600,000 $24,400,000 for the 6 months ended June 30, 2023, representing 36.5% and 40% of net revenue respectively.

Speaker 3

These margins were negatively impacted by write off of ZenoLED inventory in both Q1 and Q2 of 2023. We believe these margins will improve And stabilized as we are working through some of our vendor led inventory. We also had a number of initiatives We are working through that we will discuss on future earnings calls that should have a very positive impact on costs moving forward. SG and A expense for Q2 6 months ended June 30, 2023 were $36,400,000 68,400,000 Compared to $32,100,000 $64,100,000 in the same period of 2022 with the increase primarily resulting from our reduction in force announced in June 2023. Research and development expenses were $17,600,000 $31,400,000 in Q2 6 months ended June 30, 2023 compared to $28,800,000 and $70,900,000 in the comparable period of 2022.

Speaker 3

The decrease in spend was primarily related to decreases in costs related to Zenvella As production scale up, validation activities and raw materials qualifications were completed in 2022. In addition, overall personnel and related costs decreased due to the reduction in force implemented in June 2022. We believe we can continue to reduce costs moving forward in this area as we continue to increase efficiencies. The operating loss for the quarter was $42,400,000 compared with $49,500,000 in Q2 2022 And the net loss was $42,100,000 for Q2 2023 $56,400,000 for the comparable period in 2022. Looking to total year to date net loss, 2023 is a net loss of $74,800,000 compared with $120,200,000 in the comparable period 2022.

Speaker 3

Our balance sheet at the end of June 30, 2023 shows a cash and short term investment balance of $33,200,000 However, as Craig mentioned in his early comments, we closed the capital raise of approximately $30,000,000 in July 2023 and a working capital facility of up to $50,000,000 in August 2023. These financing combined with our cost savings initiatives position us for future growth and a path to profitability. Back to you, Craig.

Speaker 2

Thanks, Jaira. Operator, at this time, we'd like to open the line for questions.

Operator

Your first question comes from the line of Serge Belanger from Needham and Company, please go ahead. Your line is open.

Speaker 4

Hi, good afternoon. Just a couple of questions for us. First one, regarding achieving profitability. I think in the past you've talked about a late 2024 timeline. So that is that still the target or has that changed given the Regulatory delay around Zynrelestein,

Speaker 2

maybe if

Speaker 4

you can talk about the assumptions on how we get there? And I guess secondly regarding that regulatory delay for Zumilev, maybe just talk about What do you expect the label expansion could look like once it gets approved? Thanks.

Speaker 2

Hi, Serge. Thanks for the question. So regarding profitability, again, we have said that we believe we would achieve profitability In late 2024, I think the takeaway here is based on the monies we've raised, again, we don't think we'll need to raise any more monies in order to get to that point. And we built that forecast without the upside of the sNDA or the VAN or anything like that. So this is more of just a trend forecast on how the product was performing.

Speaker 2

And so with the cost reduction efforts we've made, we are able to And so with the cost reduction efforts we've made, we are able to get to profitability within that timeframe. There could be some upside From some things we're doing, again, assuming we get the label expansion we're anticipating, assuming that some of the things that we implement will have a positive impact on generally Those type of things happen and on the as well. So from that standpoint that's how we're getting to profitability at the end of 2024. Regarding the sNDA and the expansion, I'd like Bill Forbes is here with us in the room and I'd like maybe him to speak a little bit more detail around that and his thoughts.

Speaker 5

Hi, Serge. This is Bill Forbes. Yes, so the current package insert allows for periarticular installation We're up to 72 hours of analgesia with bunionectomy, open in rhino herniaopathy and total knee arthroplasty. What we're proposing in the sNDA is that we go to post surgical analgesia for soft tissue and orthopedic. So maybe I'll step back a little bit here and just kind of talk broadly about the submission that was put in here at Heron.

Speaker 5

Incentive has actually been studied in 14 clinical trials, 8 unique surgical procedures were contributing to those 14 clinical trials, 4 soft tissue and 4 different orthopedic surgical procedures. So when the supplement went in, it actually went in with The lumbar spinal surgery and total surgery has actually already been presented at Western and Southern Ortho So that data has already been put out there. And I think in many respects, this is going to broaden our label. Hopefully, We can negotiate a favorable label expansion with this data. I'm going to talk a little bit about what happened with the major amendment.

Speaker 5

We had been doing and continue to do some studies in some of those preclinical and we were doing a rapid study Let's look a little further out. This was for intra articular injection. As I mentioned before, the indication for The left is actually periarticular, not intraarticular. So the label itself actually cautions physicians about the use of Using intra articular, and I think from that perspective, we consider this class labeling. This particular RABIT study just looked out a little bit further.

Speaker 5

So while it is new data, it is not actually a new finding And it's already accounted for in our label. So I think that was kind of a disappointment on our side. We didn't feel like it was it needed that the agency or the division Needed to make note to declare a major amendment or to this particular filing because of that. So hopefully that answers your question.

Speaker 4

Yes. Thank you.

Operator

Your next question comes from the line of Boris Peaker from TD Cowen. Please go ahead. Your line is open.

Speaker 6

Great. Thanks. Two questions on my end. First, in terms Profitability. I'm just curious, Craig, you think Heron can become a profitable organization based on supportive care alone, like if we exclude Zineralev, is there an

Speaker 2

We really hadn't looked at it that way. But I mean again, now you're talking if we put total focus around PONV and didn't promote I mean, I think we would have obviously some inventory problems and that type of thing, but we really hadn't analyzed it that way. But again, we're not looking for Superior growth rate thing was in relief. From a profitability standpoint, we're really only trimming the product on the current growth trajectory it's on. So again, I think there's some upside there.

Speaker 2

And again, we've been pretty conservative as well with the PONDI. And I think our one surprise is that still are getting really good results out of ZYPOTI. So I think there's some upside here that we really haven't accounted for. But I think the point of this that we've been really trying to communicate is that We wanted transparency in the fact that we're trying to dig this business and put a cost reduction in place that allows us to get to profitability and be fairly conservative about our outlook.

Speaker 6

Great. And on XINOLABS specifically then, you've obviously talked about the 3 indications where it's currently approved and the label expansion path going forward. Within the approved indication, do you have a sense of where the sales are coming from right now? Just trying to better understand why it may be used in certain Areas versus not others?

Speaker 2

Yes. I think where we've had the most success up to this point has really been within me and hip. I mean that's where majority of procedures are being performed. And again, once these hospitals or ASCs get past sort of the prep issue, We're seeing data that suggests once we have a sort of a 4 month usage, we typically keep those customers. So that's where we've had the most success today.

Speaker 2

Great.

Speaker 6

Thank you very much for taking my questions.

Operator

Your next question we have no further questions in the queue at this time. Oh, I'm sorry, we do. Carl Lyons from Northland Capital Markets, please go ahead. Your line is open.

Speaker 7

Thanks. Congratulations Thanks for the question. Any thoughts with respect to EverLev in terms of potential partnership and what might that look in terms of accelerating and leveraging Your existing sales force. And then I have a follow-up as well.

Speaker 2

Thanks. Okay. Well, thanks, Karl. Sorry, we almost cut you off there. So I apologize for that.

Speaker 2

Yes. One of the things we've been looking to do is what can we do outside of things that we're using as far as improving Zenerleaf like Targeting and using better data, position our reps, maximizing territory potential and so on and so forth. We've been looking at possibilities to partner this product. The biggest issue with ZimmerliFe is not the clinical story. The TRU 72R pain relief is a big thing and we get as we look at market research and that type of thing, That seems to we have no issue there and I think we've had really good success.

Speaker 2

The issue has been with the preparation of the product in the surgical suite itself. And the issue with that is the non sterile to sterile environment and then just the time that it takes to pull the product out of the bottle. And so we've been looking at a number of different surgical companies that would be distributors, if you will, and that we could partner with. We're pretty much limiting those surgical I know some of our competitors have done that. And we think by picking a partner in the surgical suite, it would allow our reps to 1, spend more time with Physicians detailing the product, but also freeze them up a bit to do other things with the PONVI and Cymbanzi, and which we think would be get a lift of those products as well.

Speaker 2

So I think you'll see over the next fairly short timeframe, we will pick a partner of some sort Our footprint was in relief. I think it should be from the low side of the product. And again these are things that we have not forecasted.

Speaker 7

Got it. Thanks. And then kind of switching gears a little bit. If we look at SG and A, Which is around, I think around $36,400,000 and R and D at $17,600,000 Can you quantify how much And the quarter was related to get a severance and potentially kind of one time extraordinary type charges and what you expect The expense levels to be, if you're able to comp out for the Q3 or if that's not possible or Do you expect additional one time severance and one time type charges to hit the Q3? Thanks.

Speaker 3

Yes. We I think we probably will release we have about $5,900,000 in one time charge That will come through to the end of this year. So going in 2024, you will see our operating expenses. There have been about, leveling up at $120,000,000 for the year, dollars 120,000,000

Operator

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

Speaker 8

Hi, this is Clara on for Kelly. Thanks for taking my questions. So I have two questions. For PAMBI, so this is the 1st full quarter of sales. It seems like you had a lot of positive feedback from physicians.

Speaker 8

So just wondering how should we think about the sales growth Trajectory from now on for PONVY?

Speaker 2

Yes. No, it's a great question. We haven't had a ton of time with the PONVY, but The biggest difference for the PONDI versus ZimmerliFe is that when we get an IDN or a formulary win with ZimmerliFe, it's still going to take quite a bit of work with individual surgeons and that type of thing. It's not necessarily a system wide conversion. The difference with the PONV is that there are situations where we can get system wide conversion.

Speaker 2

And what I mean by that, you take a Hospital systems, they like Baylor, and we were to selectively get moderate to severe patients, we can really get all of those patients. So all high risk patients Maybe the situation that converts to a PONDI and the Epic system and so forth. So we get a system win that leads to sort of a conversion, if you will. And so I think what you'll find over the next few quarters is that we'll begin to get these system wide orders that create bigger revenues, almost annuities, if you will, We've had a couple of hospital systems to date that have converted. You haven't really seen that results yet, but you'll begin to see it.

Speaker 2

And I think we have another 22 systems right now that are in review. So again, we really like the progress. I think it's going to take a little more time, obviously, See the results from that. But again, in a very short time period, I think you're going to begin to see some of these more, if you will, bigger orders that come through. And ideally what we want to do as we report going forward, we'll try to get a little more insight in the pipeline, hospital wins and that type of thing that way we'll have a bit more

Speaker 8

Great. And also for ZimriLOV, Also curious, have you seen or had different physicians' feedback on their relapse in terms of different kinds of surgical indications? And Also understand the Vant could be available by mid-twenty 24. How quickly do you think we can see the change on sales for sales improvement? Thank you.

Speaker 2

Yes. Well, I think the good news is the van is on track from a timeline perspective. We do believe we'll have that out in mid year of next year and it does two things. 1, it helps with the sterility issue, It makes that much simpler. And 2, it's one to change the time to pull the product.

Speaker 2

So Instead of 3 to 4 minutes, it could be upwards of 20 to 30 seconds. And so I think it's dramatically going to Impact the product from a standpoint of just ease of use. Again, our I mentioned before about Looking to possibly partner with a surgical partner in the surgical suite. I think that's something as well as we lead into the van and then with an expanded label, Hopefully expanded footprint, all of those things should lead to higher sales and higher sales growth. But again, I want to reiterate, we have not Forecasted that as far as getting us to profitability, these would be additional sales.

Speaker 2

So we feel pretty comfortable with that. And again, everything seems to be on track from a time line perspective.

Speaker 8

Super helpful. Thank you.

Speaker 7

Thank you.

Operator

We have no further questions in the queue at this time. Craig, I'll turn it back to you for closing remarks.

Speaker 2

I just want to thank everyone again. This is our 2nd earnings call, but we really do appreciate the time and patience. I think the business is making some strides and transforming. It's going to take a little bit of time, but we're getting there and I think we've had some significant things that have happened this quarter. So we look forward to updating everyone next quarter.

Speaker 2

Thank you.

Operator

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

Powered by Quartr