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spk01: 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. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. I would now like to turn the call over to Melissa Jarrell, executive director of LEGO. Please go ahead.
spk02: Thank you, operator, and good morning,
spk05: 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 Coller, chief executive officer, Ira Duarte, executive vice president, chief financial officer, Bill Ford, executive vice president, chief development officer. For those of you participating via conference call, are made available via webcast and can also be accessed via the investor relations page or 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 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 Security 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 statement. 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 FTC. 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 the call over to Craig Collard, Chief Executive Officer of Heron.
spk11: Thanks, Melissa. Good morning, everyone, and welcome to the Heron Therapeutics first quarter 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-link progression, and general corporate updates. We started the quarter off with tremendous momentum. First, we signed the cross-link agreement on January 7, and shortly after, on January 23, we received official approval of our expanded indication of Xenolet, which broadens our label into spine, shoulder, and other soft tissue surgical procedures. 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 cross-link 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. As you can see, in Q1 of 2023, we had net revenues of $29.6 million, COGS of $16.8 million, with an overall loss of just over $33 million. In the same time period in 2024, we had $34.6 million in net revenues, $8.4 million in COGS, and a loss of $4.8 million, which is a $28.2 million 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
spk02: we have the business well positioned for the future. Now moving on to product performance,
spk11: the ecology franchise continues to outpace our expectations with some monty net revenues of $25.6 million for the quarter and sustle net revenues of $3.6 million for the quarter. We continue to maintain our existing market share in a very competitive environment with the ecology franchise, and we believe these products will continue to show the same consistency throughout 2024. Total acute care net revenues for the quarter were $5.5 million, which represents a 45% increase from $3.8 million in the first quarter of 2023. Zenderleaf net revenues for the quarter was $5 million, which represented the second straight quarter with revenues of $5 million or greater. A hobby net revenues for the quarter continue to increase quarter on quarter and year on year to $500,000 for the quarter and in March 31st, 2024. While we are pleased with the direction we are headed, we knew Q1 was going to be relatively flat with considering seasonality and with all the other activities we had going on during the quarter, such as label expansion training and with the kickoff of CrossLink. I will speak to Zenderleaf performance specifically in a moment when I give an update on CrossLink, but I did want to mention we are seeing tremendous uptake with a Ponzi. 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 Ponzi needed to be focused around the issue of PONV versus just trying to convert oral or prepotent 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&T wins, and as you can see from the slide, another 35 this quarter as well. Once approved by P&T, there is a bit of lag time before the sales bolus begins to take place, but as these accounts come on board, we are going to see a continued growth in sales as a Ponzi generally goes system-wide in most accounts. We are very pleased with the Ponzi momentum, and this should only improve as we continue to bring more CrossLink reps on board so that this will free up more time for our Heron reps actually still upon P&Zenrelif versus actually being present in the OR during case management for Zenrelif preparation. Now moving on to the CrossLink update. Training for the CrossLink team kicked off with the 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 Zenrelif. 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 this year. Internally, we have been amazed by the relationships the CrossLink team has with the orthopedic surgical community and we realize in time this is going to have a substantial impact on Zenrelif revenues. In just one month of their joint team being trained and promoting Zenrelif, we already had more than 20 new orthopedic surgeons use our product in the first 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 were literally just getting started and 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. I will now turn the call over to Bill Forbes, our Chief Development Officer. Go ahead, Bill.
spk06: Thank you, Craig. During the last quarterly earnings call, I covered our R&D activities, which are focused on providing easier access to Zenrelif. 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 Zenrelif label expansion, R&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 VAN. The VAN is designed to improve efficiencies in preparation and it will achieve this in two ways. First, the withdrawal of Zenrelif from the vial with the VAN is approximately three to four times faster than the currently marketed Vented Vial Spike or VVF. 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 Zenrelif vial into the sterile shroud of the VAN. 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 VAN and we are finishing up this submission to the FDA. We anticipate the VAN approval in Q4 of this year. The ultimate solution to speed and ease of use of Zenrelif is a pre-filled 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 vial of Zenrelif and no VVF or VAN, just the syringe itself. 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 Dworkic.
spk03: Ira? Thanks, Bill. Craig has covered our product performance and OPEC's results in his comments and I will add some additional points for our Q1 2024 results. Our product growth profit for the first quarter was $26.2 million, or 76%, which increased from 43% in the first quarter of 2023. The benefits from the production scale-up, validation activities, and raw material qualifications completed in late 2022 was more fully realized in 2024 as compared to the same period in 2023. SGA expenses for the three months ended March 31st, 2024, were $26.4 million compared to $37 million in the same period in 2023. The decrease was primarily related to decrease in personnel and related costs due to the reduction for implemented in June 2022 and June 2023. Research and development expenses were $4.6 million for the three months ended March 31st, 2024, compared to $8.8 million in the comparable period in 2023. The decrease was primarily related to decrease in personnel and related costs due to the reduction for implemented in both June 2022 and June 2023. As noted in the 10-Q, the condensed consolidated statements of operations and comprehensive laws as of March 31st, 2024 reflects declassification 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. The net loss was $3.2 million for Q1, 2024, and $32.7 million for the comparable period in 2023. We are reaffirming our previously given guidance for revenue of $138 million to $158 million for 2024 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 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 in 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
spk02: now we'd like to open the call for any questions.
spk01: Thank you, we will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. If you are called upon to ask your question in a listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, press star one to join the queue. And your first question comes from the line of search, Ballinger, we need them, please go ahead.
spk02: This one, Craig,
spk10: it's been about four months since you got the broad label extension for Zinral-F. You highlighted some of the new indications, 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 Syntia, a strong first quarter. Just curious if that's kind of a new base level for that product going forward, thanks.
spk02: I'm sorry, could you repeat
spk11: the first part? A little bit got cut off on your first part of your question.
spk10: Yeah, so the broad label extension for Zinral-F was about four 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.
spk11: Okay, okay. Yeah, so actually, interesting enough, day one of approval, I was able to personally sit into a spine case. We had a physician here in North Carolina that used it, I got to watch that. But I think what you're watching happen 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. But I think, again, the uptake is going to be, while people will use it, I think you're still gonna 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 that's a little bit different. So I think the results we've seen so far have been good in the cases we've had. So in the case I was at that day, things went well. Kevin Werner's here as well. I don't know if Kevin had any comments as well, you can maybe add to that.
spk09: Yeah, definitely,
spk11: thanks
spk09: 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 wanna be able to bring it on and cover all of their procedures, right? Not have a -to-two approach with multiple branded drugs on their shelves, so having that broad label was a big move forward for us for those formulary accesses. They all take time, right? The review process takes two, three months, getting in an electronic medical record bill. So seeing the rollout and the effects of that broad label is gonna 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. One nice target procedure that everybody can appreciate is the soft tissue space with C-section. Obviously, new mother, we don't wanna have to expose her to opioids, and it's a very painful procedure, so 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, it's a primary target, and we're seeing excellent results in those procedures.
spk11: Yeah, Serge, and regarding, I guess the second part to your question regarding Sinvanti, listen, we've been extremely pleased with Sinvanti on 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. And so again, we've been very pleased with Sinvanti, and the clinical value that it brings is helping us certainly hold share and maintain price.
spk02: Thank you, nice progress. Thanks,
spk01: Serge. Your next question comes from the line of Carl Burns in Northland Capital Market. Please go ahead.
spk07: 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 of course profit margin improvement, do you think that it's possible that you might see achievement of profitability prior to the fourth quarter that you've directed? Thanks.
spk11: Yeah, Carl, 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 to 116 million, and if you just multiply by four, obviously we're on the lower end of that, and we're hoping that continues. 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 with how expenses came out this quarter. Regarding margins, again, one of the things that's helped us, we have renegotiated a few things that are manufacturers and that has helped keep certainly COGS down, but we also, this quarter, primarily just used Alchemy with Symante, 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, we're gonna be on the lower end of the 70 range, but again, we're gonna try to manage that as best we can, 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 that we could get to profitability earlier, but at this point, we're still committed to Q4.
spk02: Great, thank you. Well.
spk01: Your next question comes from the line of Tim Chang with Capital One. Please go ahead.
spk08: All right, 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 three specific states that you've penetrated into. What other states do you plan to be in this summer, and then how many cross-link reps do you plan to have fully trained by the fall?
spk11: Yeah, so Tim, basically thanks for the question. Again, we've been extremely pleased with cross-link. 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, cross-link's been around four years, and a lot of the reps have 10, 15, 20 years experience with these physicians, and being with them every day, 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 Zendral F 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. I wanna turn it over to David Barrazino. He's been directly involved, and again, has been at these training meetings, and give you a little more insight into exactly what's going on
spk09: and where we're going next. Yes, thank you, Craig. So Tim, thank you for the question. As it pertains to cross-link, yes, obviously we started in the legacy states where cross-link is present, which is 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 two to three live trainings across the country. 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 from week to week, but by the end of the year, we definitely hope to have coverage in all 50 states.
spk08: 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 gonna penetrate that state near term?
spk09: Yes, 100%. That is definitely a focal point. I think you could lump New York, Florida, Texas, California as four big states, and we are in active discussions with some distributors down there as well.
spk08: Okay, super. Very
spk02: helpful, thanks. Thanks, Tim.
spk01: Your next question comes from the line of Kelly Shi with Jefferies. Please go ahead.
spk04: Hi, good morning. This is Claire on for Kelly, and congrats on the quarter, and thanks for taking my question. So for Zimralov, could you please talk about your qualification for the No Paying Act in the context of your pass-through status and how is the coverage gonna 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 possible. What's the possibility that it will go beyond 2027? Thank you.
spk09: Yeah, this is Kevin Warner again. Thanks for that question. So No Paying Act is coming into effect Q1 of 2025 and it's gonna provide reimbursement outside of the surgical bundles 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, Zimralov has passed through, as you alluded to, and that expires Q1 of 2025. So No Paying Act goes into effect starting Q1. We've already had conversations with CMS, very productive conversations, highlighted all the criteria to qualify for the No Paying Act, which then really qualifies for all of those criteria, except one, and that one is the fact that we have pass-through status. So that's why we've had this open dialogue, 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 right on. There won't be any hitch in that pass-through status and make sure our institutions still have access and reimbursement for Zimraliv. As far as extending the duration, No Paying Act was originally designed to be a five-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 27, as expected, we definitely have a lot of encouragement and support from our community, and obviously the opioid epidemic, and we expect the concerns of that, we expect them to continue to extend and provide payment to these non-opioids for our
spk02: country and for our patients.
spk04: Super helpful, thank you.
spk02: Thanks, Claire.
spk01: That concludes our Q&A session. I will now turn the conference back over to Craig Collard, Chief Executive Officer, for closing remarks.
spk11: Yeah, I just want to thank everyone again for listening today and we look forward to speaking to everyone next quarter. Thank you.
spk01: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
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