Heron Therapeutics, Inc. (NASDAQ:HRTX) Q3 2023 Earnings Call Transcript
Heron Therapeutics, Inc. (NASDAQ:HRTX) Q3 2023 Earnings Call Transcript November 14, 2023
Heron Therapeutics, Inc. beats earnings expectations. Reported EPS is $-0.17, expectations were $-0.31.
Operator: Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Heron Therapeutics Q3 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.
Jeff Cohen: Thank you, operator, and good afternoon, everyone. Thank you for joining us on the Heron Therapeutics conference call this afternoon to discuss the company's financial results for the third quarter ended September 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; and Ryan Craig, Vice President, Market. 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.
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. And with that, I would now like to turn the call over to Craig Collard, Chief Executive Officer.
Craig Collard: Thanks, Jeff. Good afternoon, and welcome to Heron Therapeutics' third quarter 2023 earnings call. Today, we are pleased to update you on our recent strategic initiatives, financial performance from the third quarter, and guidance for the rest of 2023, as well as guidance for the full-year 2024. Over the past six months since joining Heron as CEO, we have taken significant steps to right size our business, ensure an alignment with our strategic goals. We've implemented a comprehensive streamlining of our financial processes, enhancing efficiency and accountability across the organization. As part of our commitment to operational excellence, we've successfully combined various commercial functions, eliminating redundancies, and optimizing our overall structure.
This consolidation not only enhances efficiency, but also positions us to respond more effectively to market dynamics. Last, we are excited to share that we have developed a new strategic vision that clearly defines our goals and key targets. This vision serves as a roadmap for our future, guiding our efforts to achieve sustainable growth and maximize shareholder value. The results of our actions in this short time at Heron have been substantial. Our management team is now in place and the transformation of Heron into a profitable company is happening. We have reduced operational expenses excluding stock comp and depreciation and amortization to $135 million in 2023 versus $182 million just last year. We anticipate a further reduction spend that will take our operating expenses to a range of $108 million to $116 million in 2024.
Our gross margin is also improving from 41% in 2023 to 62% in 2024 and should spell in over 75% in 2025 and beyond. This change in gross margin has been due to scaling the larger batch sizes being fully realized, negotiations with our manufacturing partners, operational efficiencies, and no more product write-offs was generally due to its high inventory. With our capital raise back in the summer and our anticipated cash balance of over $65 million at year's end, combined with our spend reduction, we can now illustrate to our investors a pathway to positive EBITDA by Q4 2024. Based on our current plan we do not anticipate needing any additional capital raises for the foreseeable future. Last, as we have created operational efficiency within our business and laid out our plan internally, we are beginning to see the impact in our product sales.
Over the last eight weeks, both ZYNRELEF and APONVIE have hit all-time highs in unit sales. We believe this momentum will only continue as we move closer to our anticipated label expansion, launch of the VAN, and then ultimately the pre-filled syringe, which are all hitting the development timelines. Moving to product performance. The oncology care franchise continues to provide a stable base of revenue for Heron, contributing $26.7 million in net sales for the quarter and $79.9 million in net sales year-to-date. Net product sales of CINVANTI for the quarter were $23.3 million, which increased from $21.2 million in the same period in 2022. Net product sales of SUSTOL were $3.4 million, which increased from $2.7 million in the same period in 2022.
The acute care franchise continues to grow, achieving $4.7 million in net sales for the quarter and $12.9 million in net sales year-to-date. We have solidified our new strategic plan and are excited to see these initiatives implemented and contribute to the continued growth of our products. Net product sales of APONVIE to the quarter were $350,000. Net product sales of ZYNRELEF for the quarter were $4.4 million, compared to $2.7 million for the same period in 2022. I will now turn the call over to Ryan Craig, our Head of Marketing, to give you a brief view of our commercial strategy. Go ahead, Ryan.
Ryan Craig: Thank you, Craig. We've solidified our strategic plan that we're excited to see implemented and grow the acute care franchise. Our sales team is exceptional and the alignment across our commercial organization had never been stronger. The vision for acute care is to own the perioperative space as both the APONVIE and the ZYNRELEF offer a best-in-class 1-2 punch supported by our clinical profile. We are promoting innovative solutions to two of the most burdensome challenges associated with surgical procedures, post-op nausea and vomiting, and pain. For APONVIE, our initial focus is above the waste surgical procedures. These procedures, such as Bariatric, ENT, Neurological, and Plastics, are at a higher sensitivity to post-op nausea and vomiting, as PONV can cause significant concerns if not properly managed.
Our early successes with APONVIE have indicated that this is a logical, receptive starting point to get on a formulary and a proven ability to expand beyond this starting point to other surgical ones. In addition to our clinical profile the 2020 PONV guidelines also recommend using three different agents with distinct pathways, which supports the addition of PONVs protocols. With ZYNRELEF, our commercial execution was wide ranging and expanded across many specialties with varying opportunities of success. Based on our growth, current base of business, as well as growth opportunity, we have determined orthopedic surgeries to be our primary focus. Our execution will be aligned with this customer base more significantly moving forward for many reasons.
First, the most significant pain patients may experience is associated with orthopedic procedures versus some of the other indications. Additionally, orthopedic surgeons tend to do a higher volume of procedures, which would include the anticipated indications for spine and shoulder should we receive sNDA approval on January 23rd from the FDA. Focusing on orthopedic surgery also creates an opportunity to partner with distributor representatives, which we have piloted in the field and have had terrific success. APONVIE was launched in March of this year, and we are continuing to gain traction in our targeted institution. We continue to identify advocate specialists that aim to address the burden of PONV and improve its treatment paradigm. Currently, we have 66 P&T reviews requested by targeted customers, 10 P&T reviews that have been scheduled and confirmed with the date, and nine new P&T approvals alone in the month of October.
The process of requesting P&T, confirming with a date, and ultimately gaining approval can take four to six months in some cases. This is where we are focused currently, building a wide opportunity base that will result in consistent ordering at increasing volumes. To-date, we have had 156 accounts complete this process and ultimately order a PONV. Of those 156 new accounts, we have selected a few accounts as examples that provide encouraging signs of growth. Initial ordering in these four accounts has turned into consistent ordering at increasing levels. These accounts have executed on the plan articulated previously, starting in one surgical line like bariatric surgery, seeing positive results, communicating those results organically to other surgical lines and adoption then expands.
Our strategic plan is aligned to this proven scenario as well as others, and we are excited about what's to come as awareness grows. Momentum is building with recent trends of ZYNRELEF. Our streamlined focus on orthopedic procedures is beginning to produce results, with our most recent data week ending November 10th, representing all-time highs in normalized unit. Additionally, current eight-week volume over the prior eight-weeks represents a 16% growth rate. We are encouraged by this recent trend trajectory that we fully expect to continue as we continue to execute against our strategy in the fourth quarter and beyond. On top of the recent trends, there are significant opportunities to increase ZYNRELEF adoption through near-term regulatory and development milestones.
First is the sNDA PDUFA Date scheduled for January 23, 2024. We anticipate a positive response from the FDA and are excited to offer ZYNRELEF to additional patients that may benefit from the added indications. Should we receive approval, it would increase the opportunity from approximately 7 million procedures covered by our current label to nearly 13 million procedures. Secondly, the Vial Access Needle is currently in development and planned for launch in September of 2024. This improvement will improve withdrawal time from greater than one minute to 20 seconds to 30 seconds. In market research conducted in Q3, as well as current customer feedback, this improvement is significant and would expand utilization. Lastly, the pre-filled syringe is in development and will represent the most meaningful improvement in ZYNRELEF preparation and administration.
It takes any time spent in the OR on withdrawal time or preparation out of the equation as ZYNRELEF would immediately be available for application in this product enhancement. Now I'll turn it over to Ira Duarte, our Chief Financial Officer.
Ira Duarte: Thank you, Ryan. Craig has covered our product performance in his comments, and I will just add a few additional points about our Q3 2023 results. Our product gross profit for the quarter was $13.2 million and $37.6 million for the nine months ended September 30th, 2023, representing 42% and 41% of net revenue respectively. These margins were negatively impacted by write-offs of ZYNRELEF inventory during the nine months ended September 30th, 2023. We do not anticipate any large ZYNRELEF write-offs in the future. SG&A expenses for the three and nine months ended September 30th, 2023 were $24.6 million and $93 million respectively, compared to $28.2 million and $93.3 million in the same period of 2022. Research and development expenses were $13.6 million and $44.9 million for the three and nine months ended September 30th, 2023, compared to $25.5 million and $96.4 million in the comparable period of 2022.
The decrease in spend was primarily related to decreases in cost related to ZYNRELEF as production scale-ups, validation activities, and raw material applications were completed in 2022. In addition, overall personnel and related costs decreased due to the reductions in force implemented in June 2022 and June 2023. We believe we can continue to reduce costs moving forward in this area as we continue to increase efficiency. The net loss was $25 million for Q3 2023 and $41.9 million for the comparable period in 2022. Looking to total year-to-date net loss, 2023 is a net loss of $99.8 million, compared with $152.2 million in the comparable period of 2022. I now would like to give a little bit more clarity on what Craig has been talking about earlier, and would like to walk you through the last three quarters and the measures we have taken to reduce our overall operational spend and cash burn.
We began implementing our corporate restructuring plan in early June, which included several cost saving strategies, including a reduction in force, as well as overall company-wide spend reductions. We now have much more visibility into our operational spend and see a clear path to profitability. If you look at the slide from left to right, you will see our overall operational spend in Q1 2023 was about $46 million, which we reduced to $41 million after excluding the highlighted reorganization charges of $30 million. We further reduced these spends to $34 million in Q3 2023, after excluding the highlighted reorganization charges of $4.1 million. You can see on the slide that our operation loss after excluding stock compensation and depreciation and amortization and the previously mentioned one-time charges our overall operating cash burn decreased from $90 million in Q1 2023 to $7.2 million in Q2 2023 and $6 million in Q3 2023.
Our 2023 operating spend excluding stock compensation, depreciation and amortization and the $17.1 million in reorganization costs will be around $180 million. We believe our operational run rate excluding stock compensation and depreciation and amortization going forward will be between $108 million to $116 million and cash burn will decrease every quarter as we have stabilized our spend and revenues have been increasing every quarter. Moving now on to our guidance for the rest of 2023 and 2024. On the left of this slide, we are showing anticipated results for Q4 2023, which indicates net revenues between $30 million and $32 million, and EBITDA excluding stock compensation loss between $10 million and loss of $6 million. We anticipate exiting 2023 with a minimum cash and cash equivalent balance of $65 million.
We are guiding to revenue of $138 million to $158 million for 2024 and improved gross margins between 68% to 70%. Our operating spend, excluding stock compensation, depreciation, and amortization is anticipated to be between $108 million to $116 million. And EBITDA, excluding stock compensation, will be between a loss of $22 million to income of $3 million. I would like to reiterate that we anticipate getting 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 any additional capital. Back to you Greg.
Craig Collard: As we move to the key items from today's call you can probably sense the change in confidence and our voices about this business. Our business economy is set and we have a team in place that is executing on the balance sheet to get us the profitability without any expected need for further capital raises. Our operating expenses, gross margin, and EBITDA are all moving in the right direction on the path to profitability. The oncology franchise continues to outperform, and we are raising guidance for 2023 from $99 million to $103 million to a range of $104 million to $106 million. Our momentum with the acute products is strong as well, as ZYNRELEF and APONVIE have both achieved record unit volume over the last eight weeks. And last, we have a label expansion and the VAN being launched for ZYNRELEF, which should both be significant growth drivers for the product. I would now like to open the line for questions.
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