Heron Therapeutics Q1 2024 Earnings Call Transcript

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Provided by Quartr
May 7, 2024

There are 10 speakers on the call.

Operator

Thank you for standing by. My name is Alex, and I will be your conference operator today. At this time, I would like to welcome everyone to the Heron Therapeutics Q1 2024 Conference Call. I would now like to turn the call over to Melissa Jaral, Executive Director, Legal. 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 March 31, 2024. With me today from Heron are Craig Hallard, Chief Executive Officer Ira Duarte, Executive Vice President and Chief Financial Officer Bill Ford, Executive Vice President and Chief Development Officer. For those of you participating via the conference call, these 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 Taron's public periodic filings with the SEC. Except as required by law, Caron assumes no obligation to update these forward looking statements to reflect future events or actual outcome 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 Q1 2024 earnings call. Today, we are pleased to update you on our latest achievements in Q1, including financial performance, progression on our development projects, cross linked progression and general corporate update. We started the quarter off with tremendous momentum. First, we signed the cross linked agreement on January 7 and shortly after on January 23, we received official approval of our expanded indication of ZenerLev, which broadens our label in the spine, shoulder and other soft tissue surgical procedures.

Speaker 2

Soon after these two events, we had a national sales meeting where we trained all of our sales folks on the new indications. We also developed an internal group to lead the training process of the CrossLink team. We have continued to improve our financial efficiency by reducing spends and improving margins. We believe with this continued approach, we will achieve profitability as predicted by Q4 of 2024. Before we move on to product performance, I did want to show this slide to highlight what has been achieved this quarter versus just 12 months ago.

Speaker 2

As you can see in Q1 of 2023, we had net revenues of $29,600,000 COGS of $16,800,000 with an overall loss of just over $33,000,000 In the same time period in 2024, we had $34,600,000 in net revenues, dollars 8,400,000 in COGS and a loss of $4,800,000 which is a $28,200,000 positive swing in just 12 months along with a gross margin improvement from 43% to 76%. The takeaway from this is we are on the right path and we have the business well positioned for the future. Now moving on to product performance. The oncology franchise continues to outpace our expectations with CIMONTI net revenues of $25,600,000 for the quarter and SUSTOL net revenues of $3,600,000 for the quarter. We continue to maintain our existing market share in a very competitive environment with the oncology franchise, we believe these products will continue to show the safe consistency throughout 2024.

Speaker 2

Total acute care net revenues for the quarter were $5,500,000 which represents a 45% increase from $3,800,000 in the Q1 of 2023. Zimrilef net revenues for the quarter was $5,000,000 which represented the 2nd straight quarter with revenues of $5,000,000 or greater. Apology net revenues for the quarter continued to increase quarter on quarter and year on year to $500,000 for the quarter ended March 31, 2024. While we are pleased with the direction we are headed, we knew Q1 was going to be relatively flat when considering seasonality and with all the other activities we had going during the quarter, such as label expansion training and with the kickoff of CrossLink. I will speak to Zeneralift performance specifically in a moment when I give an update on CrossLink, but I did want to mention we are seeing tremendous uptake with Apanvi.

Speaker 2

Our sales message is really beginning to resonate with many institutions around the country and this will ultimately trickle down to impact net revenue growth. In Q3 of 2023, our new management team realized that our sales message for eponvii needed to be focused around the issue of POMV versus just trying to convert oral oprevitin and the impact it can have financially in the perioperative space. We retrained our reps, refined our sales message and improved our incentive comp plan to focus around this messaging. Since implementation in October of 2023, we have had over 70 P and T wins. And as you can see from the slide, another 35 this quarter as well.

Speaker 2

Once approved by P and T, there is a bit of lag time before the sales force begins to take place. But as these accounts come on board, we're going to see a continued growth in sales as eponvii generally goes system wide in most accounts. We are very pleased with the eponvii momentum, and this should only improve as we continue to bring more cross linked reps on board. This will free up more time for our hearing reps actually sell UPONV and ZENRILEV versus actually being present in the OR during case management for Xenrelaf preparation. Now moving on to the CrossLink update.

Speaker 2

Training for the CrossLink team kicked off with executive team in late February and with the reps at the beginning of March. We now have 216 CrossLink reps consisting of joint, trauma and spine that have been fully trained and are out in the field selling Zimura. While the fruits of the CrossLink partnership are not apparent in Q1, we believe that the timing of the initiation of the partnership and the training that is being staged and is still ongoing will pay many dividends as more and more field reps come online. Our plan is to continue to expand our reach across the country with over 650 reps being fully trained and integrated before the launch of the band in Q4 of this year. Internally, we have been amazed by the relationships the CrossLink team has the orthopedic surgical community, and we realized in time this is going to have a substantial impact on Zenerlab revenues.

Speaker 2

In just 1 month of their joint team being trained and promoting ZenerLift, we already had more than 20 new orthopedic surgeons use our product in the 1st month. This is just in North Carolina, South Carolina and Georgia, which represents the inaugural region for our partnership with CrossLink. We have seen a 12 fold increase in unit sales growth within these three states versus the rest of the country. We have had around 60 introductions and touch points to new ortho users in the month of April alone, and we anticipate 40 new users to come on within the next 30 days. We are literally just getting started in building the car while we were driving, but the impact that CrossLink will have is very clear and will continue to play out as we get more reps trained and integrated into the partnership.

Speaker 2

I will now turn the call over to Bill Forbes, our Chief Development Officer. Go ahead, Bill.

Speaker 3

Thank you, Craig. During the last quarterly earnings call, I covered our R and D activities, which are focused on providing easier access to ZEMRABLE. I will cover some of that again here for investors that are newer to our story and provide an update on current activities as well as our near term deliverables. Following the Xenolab label expansion, R and D continues to focus on the work to modify the device component of this combination product. The first modification involves the vial access needle or band.

Speaker 3

The band is designed to improve efficiencies in preparation and it will achieve this in 2 ways. First, the withdrawal of XENERLEV from the vial with the VAN is approximately 3 to 4 times faster than the currently marketed vented vial spike or VBS. Secondly, the VAN will allow for an even more secure presentation of the product into the sterile field in the surgical room by encasing the ZenoLev vial into the sterile shroud of the band. We believe that both the improved withdrawal time and the sterile shroud will be extremely well received by operating room staff. Presently, we have completed all development and testing activities on the band and we are finishing up the submission to the FDA.

Speaker 3

We anticipate the VAN approval in Q4 of this year. The ultimate solution to speed and ease of use of Zenerife is a prefilled syringe or PFS. We anticipate the PFS approval in Q4 of 2026. In this product presentation, the entire tray is sterilized and ready for immediate use. There will be no bios in MLF and no BBS or VAM, just the syringe itself.

Speaker 3

The challenges to this program involve a new container closure system and the sterilization process itself. Once this is available, all barriers to preparation will be removed. With that, I will now turn this over to Ira Duarte. Ira?

Speaker 4

Thanks, Bill. Craig has covered our product performance and OpEx results in his comments and I will add some additional points for our Q1 2024 results. Our product gross profit for the Q1 was $26,200,000 or 76%, which increased from 43% in the Q1 of 2023. The benefit from the production scale up, validation activities and raw material qualifications completed in late 2022 was more fully realized in 2020 24 as compared to the same period in 2023. SG and A expenses for the 3 months ended March 31, 2024 were $26,400,000 compared to $37,000,000 in the same period in 2023.

Speaker 4

The decrease was primarily related to decrease in personnel and related costs due to the reduction in force implemented in June 2022 June 2023. Research and development expenses were $4,600,000 for the 3 months ended March 31, 2024 compared to 8 point $8,000,000 in the comparable period in 2023. The decrease was primarily related to decrease in personnel and related costs due to reduction in force implemented in both June 2022 June 2023. As noted in the 10 Q, the condensed consolidated statements of operations and comprehensive loss as of March 31, 2024, reflects the classification of certain expenses from research and development to general and administrative expenses to align with the function of the expenses incurred. This results in no change to total operating expenses.

Speaker 4

The net loss was $3,200,000 for Q1 2024 $32,700,000 for the comparable period in 2023. We are reaffirming our previously given guidance for revenue of $138,000,000 to $158,000,000 for 20.24 and improved gross margins between 6% to 8% to 70%. Our operating spend excluding stock compensation and depreciation and amortization is anticipated to be between $108,000,000 to 160,000,000 dollars and EBITDA excluding stock comp will be between a loss of $22,000,000 to income of 3,000,000 dollars I would like to reiterate that we anticipate Gen to positive EBITDA in Q4, 2024 and based on this, our strong balance sheet and our current operational plan, we do not anticipate having to raise additional capital. And now we'd like to open the call for any questions.

Operator

Thank you. We will now begin the question and answer session. And your first question comes from the line of Serge Belanger with Needham. Please go ahead.

Speaker 5

This one, Craig, it's been about 4 months since you got the broad label expansion for ZimuraLift. You highlighted some of the new indications, I think you said spine, shoulder and soft tissue procedures. Where do you think the additional uptake from these new indications will be in? And then secondly, notice Symentia a strong Q1. Just curious if that's kind of a new base level for that product going forward?

Speaker 5

Thanks.

Speaker 2

I'm sorry, could you repeat the first part? A little bit got cut off on your first part of your question.

Speaker 5

Yes. So the broad label expansion for Zenerife was about 4 months ago. There's been a number of new indications. You mentioned spine, shoulder and soft tissue. Curious where the product has seen some uptake in these new indications since the expansion of the label?

Speaker 2

Okay. Yes. So actually interesting enough day 1 of approval, I was able to personally sit into a spine case. We had a position here in North Carolina that used it and I got to watch that. But I think what you're watching is that we've had certainly a number of spine surgeons, orthopedic and so forth that have tried the product in either shoulder or spine.

Speaker 2

But I think again the uptake is going to be while people will use it, I think you're still going to have some experimentation going on about how they apply it, getting used to the product and kind of going through that whole sort of process that we go through with a product like this, it's a little bit different. So I think the results we've seen so far have been good

Speaker 6

in the

Speaker 2

cases had. Certainly, the case not was at that day, things went well. Kevin Warner is here as well. I don't know if Kevin, if you have any comments as well you can maybe add to that.

Speaker 6

Yes, definitely. Thanks for that question, Serge. As far as the expanded label goes, it does a couple of things. First off, the formulary access, a lot of times when these institutions review a product, they want to be able to bring it on and cover all of their procedures, right, not have a 1C, 2C approach with multiple branded drugs on their shelves. So having that broad label was a big move forward for us.

Speaker 6

So it's formulary accesses. They all take time, right? The review process takes 2, 3 months getting in the electronic medical record build. So seeing the rollout and the effects of that fraud label is going to be Q3, Q4 as we expand and educate on it and what that label provides. But as far as the procedures go, definitely some significant target procedures.

Speaker 6

One nice target procedure that everybody can appreciate is that the soft tissue space with C section, obviously new mother. We don't want to have to expose her to opioids and it's a very painful procedures. We can facilitate that recovery, get her out of the hospital without exposure to opioids and we're exposing that infant to opioids. But definitely the other ortho procedures spine and shoulder is the primary target. We're seeing excellent results in those procedures.

Speaker 2

Yes, Serge. And regarding, I guess the second part to your question regarding CIMVANTI, listen, we've been extremely pleased with CIMVANTI and SUSTOL. I think both had a really good quarter. Again, our unit volume is up and we're holding price fairly well. So again, from quarter to quarter things vary a bit, but the market is still growing and we're maintaining share.

Speaker 2

And so again, we've been very pleased with ZYNVATI and the clinical value that it brings is helping us certainly hold share and maintain price.

Speaker 5

Thank you. Nice progress.

Speaker 2

Thanks, Serge.

Operator

Your next question comes from the line of Carl Byrnes with Northland Capital Markets. Please go ahead.

Speaker 7

Thanks for the question and congratulations on the quarter and the progress. Considering the demand trends that are obviously improving across the board and the cost reductions and gross profit margin improvement, Do you think that it's possible that you might see achievement of profitability prior to the Q4 that you directed? Thanks.

Speaker 2

Yes. Coral, thanks for the question. I was anticipating that somebody might ask that. Look, we're really pleased with the way things are going. And again, we're a little under obviously the range we gave on expenses was $108,000,000 to $116,000,000 and if you just multiply by 4, obviously, we're on the lower end of that and we're hoping that continues.

Speaker 2

I think our maybe reasoning for not improving guidance or narrowing guidance at this point is really due to ongoing litigations that we have. And again, while we feel like we've got our hands around the business and we have this under control, there are still things that are happening development wise and within the legal realm that could vary a bit. And so we're trying to be a little bit cautious here, I guess, maybe conservative is the word. But again, we're really pleased with the way things are going and we with how expenses came out this quarter. Regarding margins, again, one of the things that's helped us, we have renegotiated a few things at our manufacturers and that has helped keep certainly COGS down.

Speaker 2

But we also this quarter primarily just used Alchemy with CIMVANTI. And so we have a secondary manufacturer as well that we have not used this quarter. And so that has helped margins a bit, take us up to kind of 76% range. I still think throughout the year that we're going to be on the lower end of the 70% range. But again, we're going to try to manage that as best we can.

Speaker 2

But we're extremely pleased with where we are and we're hoping that again we end up at the lower end of that expense range. And so if that does happen, obviously there is a possibility we could get to profitability earlier. But at this point, we're still committed to Q4.

Speaker 5

Great. Thank you.

Speaker 2

You're welcome.

Operator

Your next question comes from the line of Tim Chiang with Capital One. Please go ahead.

Speaker 8

Hi, thanks. Craig, could you talk just a little bit more about the cross link reps that you've trained? I think you said over 200. And you mentioned 3 specific states that you've penetrated into. What other states do you plan to be in this summer?

Speaker 8

And then how many cross linked reps do you plan to have fully trained by the fall?

Speaker 2

Yes. So Tim, thanks for the question. Again, we've been extremely pleased with CrossLink. Again, I use the word amazing on my comments, but the relationships that I think these guys bring are just a little different than what we have as a pharma company. And keep in mind that in a lot of cases, CrossLink has been around 4 years and a lot of the reps have 10, 15, 20 years experience with these physicians and being with them every day.

Speaker 2

So it's just a different relationship. And so it allows us to get in front of these folks. It allows us to have more time to explain some of the situations with Zenerife and so forth. And so as we've mentioned, it frees up time for our reps and that type of thing. But from a training perspective, again, we've been moving fairly quickly.

Speaker 2

I want to turn it over to David Barrazino. He's been directly involved and again has been at these training in meetings and give you a little more insight into kind of exactly what's going on and where we're going next.

Speaker 6

Yes. Thank you, Craig. So Tim, thank you for the question. As it pertains to CrossLink, yes, obviously, we started in the legacy states where CrossLink is present, which North Carolina, South Carolina, Georgia. But one of the things that is ongoing and it's ever changing is that on a weekly basis, we're conducting 2 to 3 live trainings across the country.

Speaker 6

The goal by the end of 2024 is to have a presence in each state. I can tell you that we've already expanded into areas like Michigan, St. Louis, Kansas, and it continues to evolve as from week to week. But by the end of the year, we definitely hope to have coverage in all 50 states.

Speaker 8

Well, that's great. And maybe just one question. I seem to recall that Florida is a pretty big state for procedures. I mean, are you guys going to penetrate that state near term?

Speaker 6

Yes, 100%. We that is definitely a focal point. I think you could lump like New York, Florida, Texas, California as 4 big states. And we are in active discussions with some distributors down there as well.

Speaker 8

Okay, super. Very helpful. Thanks.

Speaker 2

Thanks, Ted.

Operator

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

Speaker 9

Hi, good morning. This is Claire on for Kelly. Congrats on the quarter and thanks for taking my ZERRYLOV, could you please talk about your qualification for the No Pay Act in the context of your pass through status and how the coverage is going to change after it takes effect in 2025? And whether you could give any color of what's the latest discussion of no paying act's possibility that it will go beyond 2027? Thank you.

Speaker 6

Yes. This is Kevin Warner again. Thanks for that question. So No Pain Act is coming into effect Q1 of 2025 and it's going to provide reimbursement outside of the surgical bundle for our HOPD patients, our outpatient procedure department in the hospital and our ASCs for these non opioids that have been proven to reduce opioid consumption. So right now, Zenerleaf has passed through as you alluded to, and that expires Q1 of 2025.

Speaker 6

So no pain that goes into effect starting Q1. We've already had conversations with CMS, very productive conversation, highlighted all the criteria to qualify for the No Pain Act, which generally qualifies for all of those criteria except one. And that one is the fact that we have passed through status. So that's why we've had this open dialogue. We make sure that we don't fall off in that interim period and we're confident that they'll pick it up and pass it through radon.

Speaker 6

There won't be any pitch in that pass through status and make sure our institutions still have access and reimbursement for Zenerly. As far as extending the duration, the No Pain Act was originally designed to be a 5 year act. Unfortunately, it took some time to get passed through Congress, so a little later than desired. But as of right now through the end of 20 27 is expected. We definitely have a lot of encouragement and support from our community.

Speaker 6

And obviously, the opioid epidemic, the concerns of that. We expect them to continue to extend and provide payment for these non opioids for our country and for our patients.

Speaker 9

Super helpful. Thank you.

Speaker 5

Thanks, Claire.

Operator

That concludes our Q and A session. I will now turn the conference back over to Craig Collard, Chief Executive Officer for closing remarks.

Speaker 2

Yes, I want to thank everyone again for listening today and we look forward to speaking to everyone next quarter. Thank you.

Operator

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

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Key Takeaways

  • The company delivered a $28.2 million year-over-year improvement in Q1 results, with net revenues rising to $34.6 million, COGS falling to $8.4 million, and the quarterly loss narrowing to $4.8 million, while gross margin jumped from 43% to 76%.
  • The oncology franchise outperformed expectations—CIMVANTI generated $25.6 million and SUSTOL $3.6 million—while the acute care portfolio saw ZENRILEV revenues up 45% to $5.5 million and ZENRILEV’s second straight $5 million quarter.
  • The CrossLink partnership now has 216 trained reps in joint, trauma, and spine sales, driving a 12-fold unit increase in North Carolina, South Carolina, and Georgia, with plans to train over 650 reps by Q4 2024.
  • R&D efforts focus on device enhancements for ZENRILEV, with a Vial Access Needle (VAN) submission to FDA expected to be approved in Q4 2024 and a prefilled syringe slated for Q4 2026.
  • The company reaffirmed full-year 2024 guidance of $138 million–$158 million in revenue, 60%–70% gross margins, and projects positive EBITDA by Q4 2024 without needing additional capital.
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Earnings Conference Call
Heron Therapeutics Q1 2024
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