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spk05: Thank you for standing by and welcome to the Heron Therapeutics fourth quarter 2023 conference call. I would now like to welcome Melissa Jarrell, Executive Director Legal to begin the call.
spk06: Melissa, over to you. Thank you, Operator, and good afternoon, everyone.
spk09: Thank you for joining us on the Heron Therapeutics conference call this afternoon to discuss the company's financial results for the fourth quarter ended December 31st, 2023. With me today from Heron are Craig Collard, 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. We caution you that any statement that is not a statement of historical facts 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 State Harbor Provision under the Private Securities Legislation 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 Case Harbor Statement in today's press release and in Heron's public periodic filing 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. And with that, I would now like to turn over the call to Craig Collar, Chief Executive Officer of Heron.
spk08: Good afternoon, and welcome to the Heron Therapeutics 4th Quarter 2023 Earnings Call. Today, we are pleased to update you on our latest achievements in 2023, financial performance, progression on our development projects, cross-link training, and some insight into where we are headed strategically with our products. Since joining Heron Therapeutics as CEO back in April of 2023, we have taken significant steps to get this business back on track. It started with headcount and expense reduction combined with getting the right manager team in place. We've implemented a comprehensive streamlining of our financial processes, enhancing efficiency and accountability across the organization. As you can see from this slide, we have had a number of significant achievements in 2023 that have us well positioned as we move into 2024 and beyond. We've been able to reduce operational expenses from 182 million in 2022 to $135 million in 2023, and we should be in the range of 108 to $116 million in operating expenses in 2024. As part of this process, we have also looked to improve our gross margin. Historically, the company has had gross margins in the 50% range. However, through better inventory management, and with some renegotiations with our manufacturers, we've been able to reduce COGS and improve gross margins to over 70%. We anticipate future gross margins to continue to improve up into the mid-70s range. We completed a capital raise early in 2023, which will allow us to have enough cash to get to profitability by late 2024. We closed the year in 2023 with over $80 million in cash and cash equivalents. of 2024. Moving down the list, we were able to restart the Vial Access Needle, or VAN, project along with the pre-filled syringe. Both of these projects are progressing nicely with the expected VAN approval by the end of this year and the pre-filled syringe approval expected in 2026. Both of these projects will provide significant improvement to our product generalist, which is indicated for post-operative surgical pain. Our oncology franchise continues to outperform, and I'm happy to report total net revenues of $107.9 million, which exceeds full year 2023 guidance. We're also very pleased with interweb performance in Q4 of 2023. For the first time in our history, we were able to do over $5 million in net revenue for the quarter, even while significant change was happening in the business. And last, in January 2024, we were able to sign the crossing agreement, combined with getting our label expansion for Zenderlip.
spk06: These two events should have a significant impact to Zenderlip revenues as we move through 2024 and beyond. Now moving to product performance.
spk08: The Ecology franchise continues to outperform our expectations with some bonding net revenues coming in at $94.9 million a year, and Sustalk coming in at $13 million. We have been very pleased with the Oncology franchise, and we believe these products will continue to show the same consistency as in past years. The Acute franchise is where we anticipate the majority of our product growth to come from as we move forward. We were very pleased that we hit a record of $5.6 million in net revenue for the quarter, which is the first time this product has ever been over $5 million for a quarter. Total acute care net revenues for the year were $19.1 million, which included upon-me net revenues of $1.4 million. We believe Zenly and upon-me are both well-positioned as we move into 2024. With the Crosslink Partnership expanded label combined with increasing morale, improved sales message and targeting, we believe this is going to be a great year for both products. Moving to the Crosslink Partnership, This agreement was signed on January 7th and really got kicked off in early February. We began the training process with in-person training of the Crosslink executive team, which went extremely well. We will continue this process through March and early April that will lead to having over 150 sales folks trained and ready to go. Post this initial group being trained, we will continue to roll out other areas of the country. As you look at this slide, it will give you a better understanding of what our footprint full implementation of Crosslink will look like, and consider that this will add an additional 650 reps across the country that will be fully trained. We anticipate having the entire group fully trained and up and running by the end of 2024. We also believe that we will see an impact in 2024 from this amount of representatives coming into place. But I do want to temper the enthusiasm, as obviously this will take time before we really start to hit on all cylinders. I really believe the inflection for Zenderlift will take place as we move into 2025 after the launch of VAN and having all the new reps fully trained, but we certainly have positive momentum and we believe the Crosslink reps will have an impact in 2024. We have been looking at doing more at the ASP level as we have tried to focus more of our efforts around the orthopedic space. After signing the partnership with Crosslink, it has become increasingly apparent that Crosslink has a significant footprint in this space and that our product mix works in parallel with the strategy of the ASC, which is to get these patients out of surgery and into rehab as quick as possible. Our perioperative one-two punch with the PondV and Xenolift will be extremely beneficial to our potential partners at the ASC level. I'm now going to pass the call to our newest hire, Kevin Warner, who is our newest Senior VP of Med Affairs Strategy and Engagement. Kevin feels a vital need for us of having hands-on experience with our products at the clinician level, and is going to have a significant influence in our ASP strategy as we move forward. Go ahead, Kevin. Thank you, Craig.
spk04: I'm so excited to be joining the Heron Therapeutics team and supporting the commercial portfolio of acute care and oncology care products. I have over 15 years of clinical pharmacy experience with a focus on perioperative care as a pharmacist, in addition to over a decade of experience in drug development, discovery, and clinical trials as Director of Pharmaceutical Sciences at Osteotherapeutics. As Senior Vice President of Medical Affairs Strategy and Engagement for Heron, it will be my job to support the accurate dissemination of medical information to our team and providers, ensuring patients have access to the best possible care. Forming strategic alliances and collaborating with the medical community to assure Heron's products become part of the standard of care as medical literature dictates. I look forward to working with our team at Heron on expanding indications, access, and future products. I will focus on our acute care portfolio today as I've had the pleasure of having extensive real-world experience with Centrelink and Aponvitae, witnessing the positive impact on our patients and health systems. Enhanced recovery after surgery protocols are evidence-based protocols that are essential to patient outcomes and sustaining the financial viability of our health system. The primary clinical focuses of enhanced recovery after surgery are reducing post-operative pain while minimizing opioid consumption, and to control postoperative nausea and vomiting. Postoperative pain and postoperative nausea and vomiting are two of the most common concerns for both patients and clinicians. XenRelease and Eponvy offer what we consider best-in-class, long-acting solutions to these problems. Implementation of XenRelease and Eponvy as the foundation of our enhanced recovery after-surgery protocols, we believe, may improve overall patient satisfaction, clinical outcomes,
spk02: and overall quality of life.
spk04: On an institutional level, while supporting enhanced recovery after surgery, both Zinnerleaf and Apami can have a positive financial impact on our institutions. Both products are currently separately payable in the hospital outpatient and ambulatory surgical centers by CMS. In addition, many commercial payers are providing coverage for Zinnerleaf outside of the surgical bundle. Improving the efficacy of our enhanced recovery after surgery protocols combined with separate reimbursement outside of the surgical bundle critical to the financial viability of our health system and clinical outcomes of our patients. I want to touch on a condy, a present and textual emulsion, and the current unmet need and lack of awareness. Postoperative nausea and vomiting is often overlooked or under-recognized, secondary to the timing and different phases of care in which patients can experience this. Postoperative nausea and vomiting is ranked E number one most undesirable post-op complication by patients. readmissions, and surgical complications. Postoperative nausea and vomiting rates can reach as high as 80% in high-risk patients. The current guidelines recommend the use of three or four agents in patients with risk factors, making them moderate to high risk. In the United States, we perform over 65 million diagnostic and surgical procedures, of which 50% of those patients are at moderate to high risk for postoperative nausea Neuroformulation is a delayed onset of action of about one to five hours. Spastic repotentant requires compounding and a 25-30 minute infusion, followed by systemic conversion of prodrug to the active form. Because of this, they have not been widely adopted in the perioperative space, despite a repotentant being ranked the number one most effective antiemetic for a large-scale paclometa analysis of nearly 100,000 patients. Along with the efficacy, repotentant also has an excellent state use anti-emetic therapies such as QT prolongation, sedation, anticholinergic effects, or exoskeletal side effects. The safety profile is critical when we are combining multiple agents for our moderate and high-risk patients. POMU's 30-second IV push and rapid target receptor occupancy will allow for greater implementation of impregnation and the acute perioperative pain by those providers, mainly anesthesia, most likely and nausea and vomiting. We're looking forward to the updated guidelines on the prevention of post-operative nausea and vomiting expected in 2024, which will enhance the education and awareness around the impact of Hanbi can have. For ZEN Relief, our focus will be on broadening provider awareness and associated patient impact. The clinical trials of ZEN Relief speak for themselves, being the first and only FDA-approved extended-release anesthetic proven to reduce pain and opioid consumption. Today I want to highlight some of the significant drivers to growth that have been implemented or will be this year. First of all, the significant label expansion for Zinnerleaf, approved by the FDA on January 23, 2024, which Zinnerleaf has now indicated in adults for installation. This has essentially doubled the number of significant indicated procedures. As a clinician, when I think of indicated procedures and appropriate use of Zin relief, I consider any procedure in which a provider would typically prescribe an opioid postoperatively. They should be considering use of Zin relief as the foundation for postoperative anesthesia to minimize or eliminate the need for opioids, minimizing the acute pain, risk of developing chronic pain, and support clinical recovery. The label expansion will also have a great impact on formulary substitution. Some formularies have been hesitant to adoption due to the limited number of indications, the fascinating need for having multiple agents on formularies, and subsequent budget impacts. With the new broad label for Zinnerleaf, other agents that have claimed long-acting but have not proven superior to standard care anesthetics can be removed from formularies and Zinnerleaf can be adopted as the long-acting foundational element along with cheaper generic anesthetics for the acute phase. Additionally, third-party data continues to surface with results that align with our clinical trials, showing significant impacts on postoperative pain, opioid consumption, length of stay, and functional outcomes. The opioid epidemic continues to be at the top of our news feeds, costing the U.S. health system an estimated $1.5 trillion in 2020 and many patient lives. Our major accrediting bodies and government agencies are taking notice and stepping in. The Joint Commission now includes metrics for opioid stewardship to be accredited. The No Pain Act, which will begin in 2025, will provide payments for non-opioids in the outpatient surgical setting that have proven to reduce or eliminate the need for opioids. Along with the opioid settlements currently being distributed to states in the amount of $53 billion that will be utilized to support awareness, prevention, treatment of the opioid epidemic. All these factors will have major impacts on awareness and adoption of Zinnerleaf. One of the most important factors, I believe, will be the cross-link partnership that Craig outlined previously. Having the additional boots on the ground, if you will, will be critical to the successful implementation of Zinnerleaf as the foundation of multimodal analgesia across the nation to change how we view post-operative pain and the need for opioids across the surgical paradigm. I would like to now send the call over to Dr. Bill Ford.
spk03: Thank you, Kevin. We are certainly excited to have you join our team. The development opportunity for ZEN-LF has envisioned three steps. The first was label expansion, which has been realized. The next step involves device modification in the form of the vial access needle, or VAN. And the final step concludes with the pre-filled syringe, or PSF. In regards to the VAN, it is designed to improve efficiency and preparation, and it will achieve this in two ways. Firstly, the van will substitute the current market presentation of the device, which includes a vented vial spike, or VBS, with the van itself. The van will provide a more rapid and easy withdrawal of the drug product into the syringe that is used for installation into the patient by the physician. The van has been specifically designed for this purpose, and in testing the van has outperformed other vented vial spikes available on the market today. Secondly, the van will allow for an even more secure presentation of the product into the sterile field present in the surgical room by encasing the ZEN-ALEPH file into the sterile shroud of the van. This will result in a more efficient process for operating room staff to prepare the product for physician use. We anticipate the van approval in Q4 of this year. Of course, the ultimate solution to ease of use of ZEN-ALEPH is the PFS, and we expect the PFS to get approved in Q4 of 2026. In this product presentation, the entire tray is sterilized and ready for immediate use. 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?
spk10: Thanks, Bill. Craig has covered our product performance in his comments, and I will just add a few additional points about our Q4 2023 end-year-to-date results. Our product gross profit for the fourth quarter was $24.3 million and $61.9 million for the 12 months ended December 31, 2023, representing 71% and 49% of net revenue, respectively. The annual margins were negatively impacted by write-offs of generalized inventory during the year. We do not anticipate any large generalized write-offs in the future. SD&A expenses for the 3 and 12 months ended December 31, 2023, with $23.6 million and $116.7 million, respectively, compared to $26.7 million and $119.9 million in the same period of 2022. Research and development expenses were $10.9 million and $55.9 million for the degree and all months ended December 31st, 2023, compared to $11.1 million and $107.5 million in the comparable period of 2022. The decrease in spend was primarily related to decreases in cost related to generalists. As production scaled up, validation activities and raw material qualifications 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 efficiencies. The net loss was $10.7 million for Q4 2023 and $19.9 million for the comparable period in 2022. Looking to a total year-to-date net loss, 2023 is a net loss of $110.6 million, compared with $182 million in the comparable period of 2022. I now would like to give a little bit more clarity on our overall operational spend and cash burn for 2023. We began implementing our corporate restructuring plan in early June, which includes several cost-saving strategies, including a reduction force, as well as overall company-wide spend reduction. We now have much more visibility into our operational spend and see clear paths to profitability. If you look at the slide from left to right, you will see our overall operational spend for 2023 of about $172 million, which we reduced to $155 million after excluding the reorganization charges of $18 million. Reducing these expenses for non-cash stock compensation, not related to severance, and depreciation and amortization of $27 million, our cash offer expense was $128 million for the year. This compares to $177 million of cash offer expense for 2022. Please keep in mind that we started implementing our company-wide reduction mid-year 2023, and as mentioned in our previous earnings call, we believe our operational run rate, excluding stock compensation and depreciation and amortization, Going forward, we'll be between $108 million to $160 million, and cash burn will decrease every quarter as we have stabilized our spend and revenues are increasing every quarter. Moving now on to our guidance for 2024. We are reaffirming our previously given guidance for revenue of $138 million to $158 million for 2024 and improved growth margins between 68% to 70%. Our operating spend, excluding stock compensation and depreciation and amortization, is anticipated to be between $108 million to $160 million, and EBITDA, excluding stock comp, will be between a loss of $22 million to income of $3 million. I would like to reiterate that we anticipate getting deposits EBITDA in Q4 2024, and based on this, our strong balance sheets and our current operation plans We do not anticipate having to raise any additional capital. And now we would like to open the call for any questions.
spk05: The floor is now open for your questions. To ask a question at this time, simply press the star followed by the number one on your telephone keypad. We'll now take a moment to compile our roster.
spk06: Our first question comes from the line of Serge Bellinger with Needham & Company. Please go ahead. Your line is open, sir.
spk05: Pardon me. Your line is open. Please go ahead, Serge. Oh, can you hear me?
spk08: Yeah, we can now. I'm sorry, Serge. We didn't hear the part of that.
spk07: Got it. Got it. So two questions related to Zinrillef. The first one, it's been six or seven weeks since the label expansion. I'm just curious if you've seen any impact in demand or usage since that. And then maybe secondly, if you can just talk about what the No Pain Act means for Zinrillef. I guess specifically, what kind of coverage do you have now and how do you think that changes once we flip the calendar to January 25th, when the No Paying Act takes effect. Thanks. Okay.
spk08: Sure. Yeah, I would say, again, anecdotally, when we got the label expansion, obviously there's a lot of excitement. When we go into certainly centers where we already have some business, it's certainly easier to go deeper into those accounts, and we're seeing some of that. Actually, the day one of the label expansion, I saw, I guess, our first unlabeled spine surgery. I was actually in the surgery in Asheville, North Carolina. So we're certainly getting some of that. I think that, though, combined with certainly Crosslink, we had a meeting at AAOS out in San Francisco. We were with Crosslink some and had some physicians coming by the booth and everything and just the excitement around that. But I don't think you're going to see necessarily a dramatic impact as of yet, but we're certainly seeing some impact. But I think, again, over time, as I said in my comments, I think with Crosslink, with the label expansion, the launch of VAN later in the year, I think this really begins to take off late into the year, into 2025 when we really start to see an inflection. But we're certainly seeing some positive momentum. Regarding the No-Pain Act, I'm going to turn it to Kevin Werner who can give a little bit more insight into that.
spk04: Kevin Werner Yeah, hey Serge, thanks for that question. So the No-Pain Act is going to be significant from multiple facets. What the No Pain Act does is provide reimbursement in the hospital outpatient procedure department and the ambulatory surgical centers for products that have been proven to reduce the need for opioids. So in the ZinRelease instance, we're already covered in both the HOPD and ASC through 2025 for Q1. So the No Pain Act is going to go through 2027, so it'll essentially establish that reimbursement for our facilities through 2027. And CMS has discussed a longer timeframe from that beyond, possibly extending all the way to 2030. So we look forward to working with our legislatures on that and continuing to get reimbursement for our patients to ensure that it is covered. But that will help assure the adoption and the pull-through for many institutions.
spk06: Thank you.
spk05: Our next question comes from the line of Carl Burns with Northland Capital Markets. Please go ahead.
spk01: Thanks for the question, and congratulations on the results and the progress. You know, understanding that 2025 is really set up to be the ramp year for Zimbaland and POMBI, you know, how do you see, and I know you touched on this a bit already, how do you see the cross-link collaboration and the label expansion transitioning into Zimbaland and 24? I think the prior... Language was acute care products at 50% year-over-year growth. So comfortable with that number, or do you think that that's likely to prove conservative? Thanks.
spk08: Yeah, again, one of the reasons we did get that range was we weren't sure exactly when and how this may take off. But to your point with expanded label, and the thing I can say about the cross-link partnership, I mean, every now and then you do one of these where things seem to work perfectly from a standpoint of the personnel and just, you know, how things come together. And we really do feel that way. The Crossing folks have been fantastic. They certainly are bringing, you know, different relationships that we may have currently with, you know, some of the surgeons and so forth. So that's been, you know, everything we had hoped for at this point. I think one of the surprises that we had when we did the initial training, and I was there along with, you know, our team, We did that in person and again, it was just very receptive. We had the executive team at Crosslink. And so from there, we did another training last week in person with some of the sales folks there. And so we're going to continue to do those. And so we should, as I mentioned, we should have in the next 30 days or so about 150 reps that will be sort of fully out there and running. And so again, we will certainly see some impact. I'm just trying to temper this a bit because until we really get fully up and running and do this for a little while and train some of these other areas of the country, I don't think it's going to really take off and inflect until next year. But, look, we're having positive things happen so far, and we're pleased. So, so far, this has gone as planned.
spk01: Great. Thanks. And then just a follow-up. There also seems to be, and you, again, touched on this, a significant opportunity in the ASC segment particularly to cross-sell both Zimberlab and Eponvy with your Salesforce and with the Crosslink collaboration. Can you elaborate a little bit about what your thoughts are in terms of how big that opportunity might be? Thanks.
spk08: Yeah, well, certainly the market is moving that way. And again, we've tried to, I hate to say overly simplify things, but we've really tried to go where we think we'd be most successful now and sort of niche this product a bit. And so that has led us to the orthopedic space and we'll certainly expand from there. But that really is in parallel where that space is going with ASC. So as we look at our business, we think there's a real opportunity as that space expands for us to really have a true partner there. Because again, if you think about the goal of an ASC is to get these patients out quickly, to get them into rehab, The last thing you want is any patients that would have, you know, any kind of nausea associated with the surgery going back into the hospital. And so this is where a Ponvi can come in and play. And so, you know, for those higher risk patients. So with our kind of perioperative one-two punch, we really do feel that these two products are really positioned perfectly with exactly what the ASC is trying to do. And so, again, with Crosslink already having, you know, some presence there, we think that's going to be extremely helpful in, you know, opening some doors for us there and really trying to move down that path.
spk06: Great, thanks and congratulations again. Thanks, Carl.
spk05: Again, the floor is now open for your questions. To ask a question at this time, simply press the star followed by the number one on your telephone keypad. Our next question comes from the line of Kelly Shee with Jefferies.
spk06: Please go ahead.
spk00: Hi, this is Clara for Kelly. Congrats on the great progress. And just one quick question on the cost reduction. So just wondering, do you have any plan to further execute your cost reduction plan in 2024? Like, should we expect R&D and SG&A to continue to go down in 2024 and 2025? And like, at what point do you think your operating costs will be at a more stable level? Thank you.
spk08: Thanks, Claire. I appreciate the question. No, look, the range we've given from $108 to $116 million, I mean, again, we'd love to be at the lower end of that. We're just, again, as we've made some of these changes, we're trying to, you know, now kind of sort through what that may look like this year. And we've given ourselves a little bit of wiggle room. But I don't think you're going to see significant cost reductions from here. I think we're sort of at a level now where you can kind of expect going forward. But, again, we feel pretty comfortable within this range.
spk00: Got it. Thank you.
spk06: Okay. Thank you.
spk05: There are no further questions at this time. I would now like to turn the call over to Craig Collard for closing remarks.
spk08: I just want to thank everyone for joining the call today, and we really look forward to speaking to everyone next quarter. Thank you.
spk05: This concludes today's call. You may now disconnect.
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