Heron Therapeutics, Inc.

I thought it might be helpful to give some insight into the business as a whole and a view into the strategic direction as we move forward. Since joining the company, I have spent much of my time trying to understand each department, headcount, spend, and how the company functions as a unit. The goal has been to do a thorough internal review to determine the company's business practices and strategies to develop a long-term plan that allows the company to maximize value for all shareholders. Although my review is not complete, I can tell you that I have a much better understanding of the company and many changes will be coming soon, including a reduction of cash burn, an improvement of operational efficiency, and the implementation of a realistic product forecast to more accurately determine our capital requirements moving forward. Shortly after I joined the company, I implemented the first major change, which was to flatten the executive reporting structure in the company. I hired Jason Grilio, whom I have worked with in the past, to lead our sales and marketing efforts. Jason will be improving many things with the commercial structure, including targeting, alignment, account team support, marketing message, and data to the Salesforce and management reporting. I believe these changes and many others to be updated later will continue to improve the uptake of our products. Other expense cuts we'll be implementing include less outsourcing, and dependency on consultants and a reduction in headcount. Again, I will provide more detail in the near future. As you know, I've been assessing all aspects of our business to ensure we are well positioned for the future. I recognize that this process may be causing some uncertainty and concern among our shareholders. We are committed to providing you with as much information as possible about the strategic direction changes that will be coming. We understand that you've invested your time and resources in our company, and we value your input and support. We want to keep you informed every step of the way as we navigate this process. We plan to share more details with you soon about the changes we will implement and the reasons behind them. Our goal is to create a stronger, more sustainable company that is better equipped to meet the needs of our customers and stakeholders. I appreciate your patience and understanding as we work through this process. We are confident that our changes will position us for long-term success, and we look forward to sharing more information with you soon. Go ahead, David. Thank you, Craig.

As Craig mentioned in his remarks, our net product sales for the first quarter of 2023 were 29.6 million, compared with 23.5 million in the first quarter of 2022, representing an increase of 26% over the same period in 2022. For the first quarter of 2023, Our Zinroleps nev product sales were 3.5 million. In March 2023, Oponvy became commercially available in the US. For the first quarter of 2023, Oponvy nev product sales were 244,000. Our oncology care franchise nev product sales for the first quarter were 25.8 million, which was an increase of 15% over the same quarter in the prior year. For the full year 2023, we expect oncology care franchise net product sales of $99 million to $103 million. Cost of product sales for the first quarter of 2023 were $16.9 million, compared to $11.4 million for the same period in 2022. For Q1 2023, cost of product sales included a one-time charge of $5.3 million, resulting primarily from the write-off of short-dated Zinrelif inventory. Research and development expense decreased from $42.1 million in Q1 2022 to $13.8 million for the first quarter of 2023, primarily due to a decrease in external development costs related to Zinrelif. Our sales and marketing expense decreased slightly from $23.4 million in Q1 2022 to $21.2 million for the first quarter of 2023, primarily due to a decrease in costs to support the ongoing commercialization of Zinrolef. We are reporting a loss from operations of 33.1 million for the first quarter of 2023, which compares to an operating loss of 62.9 million for Q1 2022. Our balance sheet at the end of March 2023 shows a cash balance of 60 million, down from 84.9 million at the end of December 2022. Craig, back to you. Thanks, David.

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

At this time, if you would like to ask a question, simply press star followed by the number one on your telephone keypad. Our first question will come from the line of Brandon Foulkes with Cantor Fitzgerald. Please go ahead.

Hi, thanks for taking my questions, and Craig, congratulations on the appointment. Maybe just firstly from me, just how quickly do you think we can see a return on the training of staff and then secondly i know it's early stage and we perhaps need to be just a bit patient here but any more granularity in terms of going broader and deeper into these accounts and sort of maybe some of the specifics you think you can do to change the trajectory of the elite and then lastly um you know maybe just any color and i know sort of this wasn't given during your time craig but i think we were looking for 10 volume growth in 1Q23 over 4Q2022 when we reported year-end earnings. So just any color. Did that volume growth materialize? Were there any movements on price? Just any color there. Thank you very much.

Thank you, Brent. I would, I guess, just start by saying that, as you know, we're in cash preservation mode. And what we're really trying to do is to, you know, optimally have optimization of our resources. You know, regarding stock price and that type of thing, I believe that, again, with proper management and beginning to see consistent quarters and growth of our product, I think, again, that should affect the stock price longer term. I think in the short term, again, keep in mind I was not here for this quarter that I'm speaking of. So, you know, growth of products and that type of thing and depth in the accounts and what happened this prior quarter, I can't really speak to other than just to speak to where we are. But again, getting back to our goal is to get this company to profitability as soon as we can. And we're going to give a lot more detail around that. And that really includes minimizing our spend, being a bit more of a leader organization, and then really maximizing our efficiency and sales. Speaking specifically to Zen Relief and getting deeper into accounts and that type of thing, I agree. I think where we have usage, we can certainly get deeper into those accounts. I spoke a little bit about you know, the day I was in the field. And, you know, the thing that I left with that day really was I'm looking for things we can standardize. You know, one thing that one person doesn't account, can you really carry that across all the salespeople that we have and, you know, and create something that can be replicated? And when I saw that day that, you know, we can, I think the application issues that I had seen and heard about Again, with the proper prep and training, as I had said, it really does go away. And when the surgeon walked in to do the knee surgery that day, it was literally invisible to that person. The product was in the field, in the sterile field, if you will. They used it. And one of the things that they actually mentioned that I thought was very interesting, because we talk a lot about viscosity, the surgeon mentioned to me that I really like the viscosity. He actually called the product honey. He said, I really like the viscosity of this product because it stays where I put it. And again, I think in some ways we sort of ran from that, but I think we should be running towards it. I really do think the product is very under-optimized.

And again, the good news is the product works and it works well. Great. Thank you very much for taking my questions. You're welcome.

Your next question will come from the line of a Boris Peeker with TD Cowen. Please go ahead.

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

Yeah, no, that's a great question. I mean, one of the things I was sort of faced with when I walked into the company was, you know, where do you put your resources? Do you continue to pour more resources towards Zimmerlef or do you, move things a little bit more towards a Ponvi. I think right now, as I walked in the door, we were a little more weighted towards ZenRelief. And if you think about it, you know, ZenRelief is a trickier sell. There's a little bit more time and effort that goes on with the surgeon and the surgery suite. A Ponvi is a little bit different. It's almost like an annuity. In a sense, if you're getting formula, if you can break through PNT and get on formulary, you almost get a bit of a protocol scenario. where you're in the Epic system and you're being used all the time. And so from my perspective, a Ponvi is a much easier sell. Now, again, how it's been reacted by customers and all that, I just haven't had a chance to really see a lot of that yet. But as part of this sort of plan, as I talked about, you know, communicating more going forward, we're looking at that and we're looking to put additional resources behind a Ponvi. The really interesting thing that I've seen from the marketing data thus far on a Ponvi, though, is that the oral prepotent market is growing with literally no promotion. And that's generally . And so the takeaway from that is hospitals and physicians and anesthesiologists like this product. And it's growing without literally any promotion. So if I look at that, and then I look at the massive size of the Odansetron market, and really just look at patients that are dosed again with the same product, if we could just capture those two markets I mean, this is a multi-hundred-million-dollar drug. And so from that perspective, it really does intrigue you, you know, what we can actually do with that product. So, again, we're looking at it now and trying to, you know, sort of really look at not only how we comp our reps, but the alignment of our sales force and all that. So I think all that is up in the air at this point, but we'll have some decisions here pretty quickly.

Great. Thanks for that. So for the VAN and pre-filled syringe, what are the next steps to get them approved, and when do you expect this to be done for each of them?

I'm sorry, did you say pre-filled syringe?

And the VAN as well.

Yeah. We've got some initial timelines that I've looked at. I'm hoping we can be a little quicker on this, but it's, and we've done some work on the pre-filled syringe. So, I mean, we're sort of looking at the 26 timeframe, I think is sort of generally what I've heard, but I'm hoping we can pull that back a bit. The van will probably fall somewhere in between that and that timeframe. So I, If it does work out that way, we would have, you know, the van coming in about a year and a half or so, and then, you know, call it a year and a half after that, you'd have the pre-filled syringe. And I think in the midst of all that as well, you've also got the expansion of the label possibly with the SNDA filing.

Great. Thank you very much. You're welcome. Thank you.

Your next question will come from the line of Rohit Basin with Needed Men Company. Please go ahead.

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

Yes, so on the CINV franchise first, I've seen that we've given guidance in the past. And what I can tell you is I think that the CINV franchise is moving along quite nicely. and it's fairly steady. What I didn't like when I initially saw that, just being perfectly honest, I haven't been involved in a company that gave partial guidance on partial products. So what I would prefer to do as we get our hands around this is give guidance a little more from a company standpoint and less about a particular product. So that's sort of the reasoning, and that was my decision. But I can tell you that things are moving along fairly steadily. Regarding, I'm trying to think of the other part of your question.

Yeah, so you mentioned reducing cash burn. Do you have any plans for the sales force?

Yeah, I'm sorry, the sales force. We're looking at that. Again, we want to be more efficient. It may be more of a realignment. We're certainly not doing anything on the oncology side. I think on the acute side, we're just trying to really assess are we aligned in the proper accounts and what does that look like? Would we trim that a bit in the short term? It's possible, but we're really more looking at how better to align to the whether it's a PONV or Zenrelif and how we kind of go about that. So it's, you know, that takes a little bit of time. And, you know, Jason, like I mentioned before, was hired just a few weeks ago and he's on top of that. And so I'm hoping we can have something a little more clear on that here very shortly.

Great. Thank you. You're welcome.

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

Thanks for the question and congratulations on the promotion. Considering the one-time Zephyr Love inventory write-off, which I think was referenced at $5.3 million, if we back that out, it looks like the gross profit margin would have been around 61%. Does that sound right? And is that a number that you would expect to be sustainable in the second, you know, going forward in future quarters?

Yeah, Carl, it's a great question. You know, you said something funny when you congratulated me on the promotion. I'm hoping the next quarter or quarters after this, what you say is, hey, guys, congratulations on a great quarter. That's what we're striving for. So I'd like to get that out first, I guess. Regarding gross margin, no, we're not optimally where we need to be. I would like to see us move towards, you know, under sort of the 20% COGS, which will be 80% gross margins. That's where I'd like to strive for. And I think with what we're doing batch size, wise now you're going to see some of that being reflected. I'm also looking into every manufacturing agreement we have and seeing where we can improve upon that. So, ideally, I would like to get us down in sort of that, you know, I would call it high teens to 20 range. So, we're not there yet, but it was affected, obviously, by this one-time write-off of Xenrolib.

Got it. Thanks. Well, thank you.

Again, for any questions, please press star 1. Your next question comes from the line of Kelly Shih with Jefferies. Please go ahead.

Hi. Thanks for taking my question. This is Clara. I'm for Kelly. So, for the same accounts you're targeting for upon-the-end umbrella, what would be your strategy to maximize the synergy between those two products, and how should we expect the synergy? to kind of be reflected on the cells in the common quarters and also for the round-law, for the SNDA, what are some strategies and efforts to help the round-law fully recognize the additional opportunity indicated by this additional indication? Thank you.

Yeah. No, thanks for your question. I'll start with the SNDA. I mean, again, as you know, we filed it with the FDA and we have a BDUFA date, but outside of that, you know, we cannot predict, you know, what indications we will get and how broad the label will ultimately receive approval of. And so, you know, our hope, obviously, is that it broadens it and we get all the indications we asked for, but we just don't know that yet. And so, it's difficult to plan, you know, until you really know what you're going to have. So, there'll be more to come on that. And really, with Aponvy and Zinrolith, the synergies there, I mean, if you think about it, there's two products that fit really well together. I think the question we're really struggling with right now is, where do we put our resources now? Because when I look at XenRelief and I think about, you have a van coming, you've got a possible expansion of the SNDA, and then you have really what should be game-changing, because it changes the whole sterility problem, is the pre-filled syringe. And so one could argue that in this period, should we focus more of our resources possibly on a PONV, which is a much easier sell, quicker, has a bit of an annuity factor to it, in a very large market. Again, I don't have specifics yet, but that's what we're debating. And I think we'll have answers very shortly. But the good news is the products, as you mentioned, do fit well together. The call points are similar. And again, I think over time, you know, these products should both grow significantly. And it's just a question of which one we focus on first and how we sort of do that.

Very helpful. Thank you.

Okay. Thank you. You're welcome.

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

Yes, thank you, operator. First, I'd like to thank everyone for my first call here as CEO of Heron. And I also really wanted to thank all the employees here. I mean, change is difficult. And, again, there's been a lot of things going on here, and we're putting a lot of information together. And I think what you're going to see in the future is a much, much different company. that, again, will head towards profitability and will be a success. And so I'm excited about that. And, again, I just want to thank everyone here that's being a part of that thus far. And we'll see you next quarter.

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