Heron Therapeutics Q3 2024 Earnings Call Transcript

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November 12, 2024

There are 8 speakers on the call.

Operator

Thank you for standing by, and welcome to Huron Therapeutics Third Quarter 2024 Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. You. As a reminder, today's program is being recorded.

Operator

And now I'd like to introduce your host for today's program, Melissa Jarrell, Executive Director. Please go ahead.

Speaker 1

Thank you, operator, and good morning, everyone. Thank you for joining us on the Heron Therapeutics conference call this morning to discuss the company's financial results for the quarter ended September 30, 2024. With me today from Heron are Craig Collar, Chief Executive Officer Ira Duarte, Executive Vice President, Chief Financial Officer Bill Forbes, Executive Vice President, Chief Development Officer and Kevin Warner, Senior Vice President, Medical Affairs, Strategy and Engagement. 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 conference 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 and 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 of Heron.

Speaker 2

Thanks, Melissa. Good morning, everyone, and welcome to the Heron Therapeutics' 3rd quarter 2024 earnings call. Today, we are pleased to update you on our latest achievements for the Q3, which includes a narrowing of our financial guidance, including net revenue, adjusted operating expenses and adjusted EBITDA. We have also given a Q4 2024 net revenue guidance range of $37,000,000 to $43,000,000 based on the early success achieved already in Q4. We also received FDA approval of the vial access needle or VAN on September 24th and we have been included in the final version of the No Pain Act, which goes into effect in January of 2025.

Speaker 2

Last, our partnership with CrossLink continues to progress and we are now beginning to see the positive impact that this could have for XERLYNX as we move forward. As I move through my comments today, I will speak in greater detail about each of these achievements for Q3. Moving to financial performance. We continue to improve on our financial efficiency while growing revenues. Over the past 9 months, during the time of change and disruption of the company, we grew revenues over 12%, improved gross margin from 41% to just over 72% and doubled gross profit from $37,000,000 to $75,000,000 More importantly, we did this and burned less than $10,000,000 in cash for 2024.

Speaker 2

Now that we have expenses in line, all of our efforts have been focused on driving revenue growth of our product portfolio. We have already begun to see growth based on our weekly sales, which is why we felt it was important to give an early view into Q4, which we anticipate is going to be an excellent quarter based on our net revenue guidance of $37,000,000 to $43,000,000 I would now like to spend a few moments discussing why we believe the VAN and the No Pain Act will have a very positive impact on Zenerife. First, the VAN, which was officially approved on September 24. One of the main issues with XENRILEF has been the preparation around drawing the drug itself out of the vial while maintaining sterility. As you can see, depicted from the left to right on this slide, we've improved time of withdrawal from a couple of minutes to less than 45 seconds with a simplistic, easy to use device that creates a sterile environment once the vial is snapped into the van.

Speaker 2

We are now in the launch process and anticipate having the van on the market by the 1st week of December. Now moving to the No Pain Act. CMS recently released proposed rule for the No Pain Act for the calendar year 2025 back in June. The final version of the act was just released this past month and XENRILEF was included in the final rule. The goal of the Act is to assure patients have access to non opioid alternatives and providers are not financially incentivized to utilize opioids instead.

Speaker 2

We believe based on CMS action and endorsement of non opioid therapies that many more commercial payers could also follow suit. This is a major accomplishment for Heron and will certainly provide a nice tailwind for ZENRILEF when combined with the VAN, our expanded label and the increased commercial footprint due to the CrossLink partnership. Total Acute Care net revenues for the quarter were $7,400,000 Xenolift net revenues for the quarter were $6,300,000 APONV net revenues for the quarter were $1,100,000 While we are pleased with our progress, we also knew that we were still transitioning in Q3. We believe that moving forward, our quarterly growth should start to increase dramatically with the many things we have going on promotionally. These items will not only have an impact on SENRELEF, but across our entire product portfolio.

Speaker 2

Earlier, I spoke about the VAN and the No Pain Act, both of which will have an impact in 2025. Right now, we are seeing early results that the CrossLink partnership is beginning to drive ZEMERALF growth. Our team has trained almost 700 CrossLink distributors and contractors whose early impact is shown here. When a CrossLink rep makes a material impact on an account like a key introduction or a trial from a new surgeon, our sales force marked that account as a CrossLink account. On the left, you can see that there is a growing number of these cross link accounts that are ordering Zenerife.

Speaker 2

We are currently adding an average of 21 newly ordering cross link accounts per month. If we set a threshold of 20 units in the 1st month, we are currently averaging 7 of these qualified crosslink accounts per month. These metrics are key drivers of our forecast for 2025. In the middle chart, we see a steady increase in monthly units among crossing accounts as a whole. And on the right, another way to look at this contribution is the cumulative number of ZenerLift units since the CrossLink program began in April.

Speaker 2

Nearly 40,000 units have been ordered in CrossLink accounts to date amounting to roughly $4,400,000 in net revenue. Annualizing the October units would result in over $10,000,000 in net revenue. I want to emphasize that this program is just getting underway and these are early results. We are very excited about how this partnership will perform once we are running on all cylinders for a quarter of 2. Now moving to Apline V.

Speaker 2

Throughout 2024, we have been integrating our business units under the One Heron initiative I've discussed previously. As a reminder, the One Heron approach was implemented so all of our customer facing teams would sell our entire product portfolio versus having 2 divisions within 1 small company only focused around acute or oncology. Again, our mantra internally is accountability and efficiency. One of the key benefits of this approach has been the cooperation among the teams on gaining access and adoption of a PONVIE. Our top down national accounts team and specialty access teams are working hand in hand with our on the ground territory business managers to generate wins and coordinate pull through.

Speaker 2

When you look at the two charts shown here, it is clear that a PONV is growing and we expect to be entering 2025 on a new trajectory. The number of accounts ordering a PONV has tripled over the last 12 months, but even 182 ordering in October is just scratching the surface for what we think this product can do. As more and more providers gain access to a PONV in their hospitals, the number of average daily units sold to a PONV has really accelerated in 2024. This is where I think the new trajectory can really be seen. If you simply annualize the 6.52 average daily units in October, this would translate over $7,000,000 in sales.

Speaker 2

The team is really motivated by the momentum we've gained with AponB. Just like with ZINRALEF, we're excited for what is to come. Moving on to product performance with our oncology franchise. The oncology franchise continues to provide a strong foundational base for our company. Cinvanti produced net revenues of $22,600,000 for the quarter and Sustal had net revenues of $2,800,000 for the quarter.

Speaker 2

Although net revenues were down a bit from Q2, We anticipate bouncing back strong in Q4 and throughout 2025. As we have stated before, we are in a very competitive market with Cinvanti, which can cause quarterly fluctuations, but the clinical value that Cinvanti brings has allowed us to maintain around a 20% share of this market. We also still believe that we will prevail in the ANDA litigation and anticipate that Cinvanti will have full protection until patent expiry in 2,035. I will now turn the call over to Ira Duarte, our CFO to cover our financials and update our financial guidance. Go ahead, Ira.

Speaker 3

Thank you, Craig. Our product gross profit for the 3 months ended September 30, 2024 was $23,400,000 or 71 percent, which increased from 42% for the same period in 2023. This was primarily due to the fact that the current quarter did not see the significant inventory write offs we experienced in the comparable quarter of 2023. Year to date, our product gross profit was $75,100,000 or 73%, an increase from 41% for the same period in 2020 3. SG and A expenses for the 3 9 months ended September 30, 2024 were $23,300,000 $77,300,000 respectively, compared to $28,800,000 and $106,700,000 respectively in the same periods in 2023.

Speaker 3

The decrease was primarily related to decreases in personnel and related costs due to the reductions in force in prior years as well as improved cost efficiencies among all departments. Research and development expenses were $4,500,000 $13,500,000

Speaker 4

for

Speaker 3

the 3 9 months ended September 30, 2024 compared to $9,300,000 $31,300,000 in the comparable periods in 2023. The decrease was primarily related to decreases in personnel and related costs due to the reductions in force implemented in previous years as well as decrease in development activities. As noted in 10 Q, the condensed consolidated statements of operations and comprehensive loss as of September 30, 2023, reflects reclassification of certain expenses from research and development to general and administrative expenses to align with the function of the expenses incurred. This resulted in no change to total operating expenses. The net loss was $4,800,000 for the 3 months ended September 30, 2024 and $17,200,000 for the 9 months ended September 30, 2024 compared to $25,000,000 $99,800,000 respectively for the comparable periods in 2023.

Speaker 3

Cash and short term investments at September 30, 2024 was $70,900,000 The overall year to date cash burn for the business was less than $10,000,000 Year to date, we incurred inventory write offs of $2,400,000 Unlike last year's write offs, current year write offs were not related to inventory management. In addition, we also recorded asset impairment write offs of $2,100,000 primarily related to projects no longer part of the company's forward looking strategy. As you will see on the slide, if you had excluded depreciation, stock based compensation, inventory write off and the asset impairment write offs, our adjusted EBITDA results would have been a positive $1,400,000 operating income, which represents a substantial turnaround in the financial management of the business. As a result of our year to date cost efficiency measures and overall performance, we are revising our guidance for the rest of the year. We are narrowing our net revenue range from our Q2 guidance of $138,000,000 to $158,000,000 to a right range of $140,000,000 to $146,000,000 net revenue.

Speaker 3

We are narrowing our Q2 guidance for adjusted operating expenses, which excludes stock compensation, depreciation and fixed asset write offs from our previous range of $107,000,000 to $111,000,000 to a revised range of $101,000,000 to $105,000,000 Lastly, we are nearing our Q2 adjusted EBITDA guidance range, which excludes inventory write offs, stock compensation, depreciation and fixed asset write offs of negative $10,000,000 to positive $3,000,000 to a rise range of positive $2,000,000 to positive $5,000,000 And now we'd like to open the call for any questions.

Operator

Certainly. And our first question for today comes from the line of Kelly Hsieh from Jefferies. Your question please.

Speaker 2

Hi, good morning. This is Jose for Kelly. Thanks for taking our question. Now that VAN is approved, how should we think about the uptick curve moving forward? And what is your anticipation of the customer mix between existing Zimbra lock users and new users?

Speaker 2

Thank you. Yes. Thanks for the question. So currently with the van, we anticipate having the van in the market in customers' hands by the 1st week of December. And the plan with that is to really start off with a few accounts and to get folks comfortable with that to make sure that there's no issue in launching the product and so forth.

Speaker 2

We're going to places before that are very comfortable with the product. Beyond that, we're then going to accounts where we've had an issue. And what I mean by that is an account that maybe have walked away before due to the preparation of the product. And so again, we have a number of accounts that fall into that category. So I think you have that.

Speaker 2

And then obviously with any new accounts that we have that CrossLink has brought on, we've been talking about the fact that this device is coming out and will improve the prep time. So we're extremely excited about the potential of this because it really does solve an issue that has been out there for quite a while and with the prep time of the product and also really addressing this drill early. Very helpful. Thanks.

Operator

Thank you. And our next question comes from the line of Carl Byrnes from Northland Capital Markets. Your question please.

Speaker 5

Thanks for the question. My questions on van have been answered. So I wanted to kind of circle back to CIMVANTI. I'm wondering if you could comment a little bit on the nuances in the Q3 in terms of the sequential decline and then your outlook for the Q4 given the guidance that you provided. Thanks.

Speaker 2

Yes. Thanks, Karl. As we've said before, Cinvanti is in an extremely competitive market. It's obviously a lot of things going with ASP reimbursement and just new folks coming into the market and so forth. And so we've historically maintained around 28% share.

Speaker 2

But again, you have these quarterly fluctuations where you lose an account, win an account and that type of thing. And so we did lose a fairly large account in Q3, which obviously showed up in net revenues. But we wanted to one of the reasons we gave the guidance we did for Q4 is that, I'll make the comment in my when I was talking about SYNBODI and really the whole entire product portfolio is that we now have this sort of one heron approach to things. And what I really mean by that is that we're selling across the product portfolio and we've never had that quite a that focus before with so many of our commercial facing people. And so what we've really been able to take advantage of outside of going after new accounts is on the 340B side of the hospital with CIMVANTI.

Speaker 2

And so we're already seeing quite a bit of uptake in that in Q4. So we expect CIMVANTI to bounce back strong and again perform into next year.

Speaker 4

Great. Thank you.

Speaker 2

You're

Operator

welcome. Our next question comes from the line of Serge Belanger from Needham. Your question please.

Speaker 6

Hi, good morning. Thanks for taking the question. I guess the first one on 3Q results. OpEx also took a tick down from 2nd quarter. Just wondering if this is a function of lower sales in the Q3 or it's a new base level we should think of going forward?

Speaker 6

And then Craig, going back to the litigation rents in Venti, do you still expect a court decision next month or by the end of the year? Thanks.

Speaker 2

Yes. No, thanks, Serge. Good to hear from you. I think I want to restate your question. I think the first question was on OpEx.

Speaker 2

Look, we're continuing to manage OpEx as efficiently as we can. The lower that falling a little bit in Q3, again, I think it's just been us managing that. I think it will sort of level out in this sort of frame that we're in now. But and I'll let Eero speak to that as well. But I want to come to the litigation for a second and speak to that, then I'll come back to Eero.

Speaker 2

Regarding litigation, look, we still feel extremely strong about the case. We had told you in arguments in August and really believe that ultimately we'll win this when this is all said and done, which this has to be resolved by December 14 this year. So we could literally get a decision any moment. But again, we anticipate winning the case and moving on in the patent, extending out to 2,035.

Speaker 3

Yes. Hi, Suraj. The OpEx for Q3, yes, it did, but I wouldn't necessarily see it as a new baseline. It's basically a blend of Q2 and Q3. It was just timing in Q3 on a couple that resulted in lower expenses.

Speaker 3

So it's not that is not the new baseline going forward.

Speaker 6

Okay. Maybe one last one. As we think of no paying for 2025, how much of a tailwind can this be? I think you have pretty comprehensive coverage right now in the ASC setting. So NHOPDs, just curious what changes and can it really be, I guess, how much of a tailwind can it be for the ZINRA LAB franchise?

Speaker 2

Are you referring to VAN? I'm sorry, I missed the first part of that.

Speaker 6

The No Pain Act. How much of a tailwind can it

Speaker 2

be for? Yes. Look, I think again with CrossLink, with VAN and now No Pain, I think it's going to be a tremendous help to us. I mean, we do have reimbursement now, but one of the issues we've really suffered from quite a while is just awareness. And I think the fact that we're mentioned in the No Pain Act, that's being talked about a lot.

Speaker 2

We're now talking about opioid abuse and so forth. And I think having us in that conversation and the fact that we are the longest acting pain relief product out there, I think is going to provide significant awareness and is going to create a significant tailwind. So we see it as a really a big plus for us going forward. Thank you. You're welcome.

Operator

Thank you. And our next question comes from the line of Brandon Folkes from Ronnmann Renshaw. Your question please.

Speaker 4

Hi, thanks for taking my question. I just want to follow-up on the guidance. So maybe when we're talking about the sequential revenue from 3Q to 4Q, can you just elaborate a little bit further about the Cinvanti bounce back that you're referring to versus the van uptake for Zenerleaf? Maybe and then along those lines, how should we think about the tailwind from the van just in terms of timing? Are you assuming the tailwind begins in 4Q or should we be thinking about that tailwind as 2025 event?

Speaker 2

Yes. Thanks, Brandon. Good to hear from you. Regarding I'll start with Cinvanti. Again, Cinvanti was no more than just an account loss in Q3.

Speaker 2

And so we've been able to win a few other accounts in Q4. And then what we've as we began to promote this product across the portfolio, this has been going on for a few months. So it wasn't just in Q4. But again, we picked up some business in the hospital and have really seen an uptake and I would say a bounce back to what quarterly revenues look like prior to Q3. And so we really feel that that could continue into 2025 and we may even gain from where we were before.

Speaker 2

So that's where Cymbalti sits. And then obviously it's about managing ASP, which we've historically done fairly well. So if we can maintain price and grow in these accounts, we think Cymbalti can continue to perform as we move forward. But I think the main way that I would look at SYNBONTI too is more of a foundational business for us. It's allowing us again sort of the cash cow, if you will, to fund what we're trying to do on the acute side with ZENRILEF and EPONVI.

Speaker 2

So moving to ZENRILEF, what we're seeing currently is an uptick, I think, due to the CrossLink partnership. It's obviously not due to the van yet because we don't have it to market. But I don't think the van is going to have as large an impact in Q4. I mean, it will be out there and I think there'll be some excitement around it. But I think to really see an upward trend is going to move into Q1 2025 and kind of beyond.

Speaker 2

But that combined with CrossLink is sort of what we're seeing now.

Speaker 4

Great. Thank you very much. Appreciate the color.

Operator

Thank you. And our next question is a follow-up from the line of Carl Byrnes from Northland Capital Markets. Your question please.

Speaker 5

Thanks for the follow-up. I'm wondering if you can give us a bit of an update on the development of the prefilled syringe? Thanks.

Speaker 2

Thanks, Karl. Bill Forbes is here in the room with me and I'll turn that over to him. Good morning,

Speaker 7

Karl. Yes, we continue to progress the prefilled syringe program. I mentioned earlier that sterilization and stability were the challenges associated with that. We've made some great progress in the last quarter along those lines. We have had a slight delay because of machine parts and being back ordered, but we're moving through that as well.

Speaker 7

So overall, the program is progressing as expected and we're very hopeful for it because we think it's going to be an advancement even beyond what the Vans going to give us. Pre built syringes obviously is going to be the gold standard. The approval date by the way, we're targeting approval, the very end of 2026, Q1 of 2027.

Speaker 5

Got it. Thanks.

Operator

Thank you. This does conclude the question and answer session of today's program. I'd now like to hand the program back to management for any further remarks.

Speaker 2

No, we just want to thank everyone for the questions today. And we appreciate you joining the call and we look forward to speaking to everyone next quarter.

Operator

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

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Key Takeaways

  • Heron issued a Q4 2024 net revenue guidance of $37 million to $43 million based on early quarter success, part of a narrowed full-year net revenue projection of $140 million to $146 million.
  • In Q3 2024, the company achieved over 12% revenue growth over the past nine months, improved gross margin from 41% to 72%, doubled gross profit to $75 million, and maintained cash burn under $10 million year-to-date.
  • The FDA approved the Vial Access Needle (VAN) for XENRILEF on September 24, reducing drug-withdrawal time to under 45 seconds, with a planned market launch in early December.
  • XENRILEF was included in the final version of the No Pain Act, effective January 2025, endorsing non-opioid therapies and expected to drive broader payer support.
  • The CrossLink partnership has trained nearly 700 distributors, leading to ~40,000 XENRILEF units ordered (≈$4.4 million) to date, with annualized October volumes implying over $10 million in net revenue.
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Earnings Conference Call
Heron Therapeutics Q3 2024
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