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spk06: Thank you for standing by. My name is Hermione, and I will be your conference operator today. At this time, I would like to welcome everyone to Heron Therapeutics Q2 2024 conference call. All lines have been placed on mute to prevent any background noise. After the speakers 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 a question, press star 1 again. I would now like to turn the call over to Melissa Jarrell, Executive Director, Legal. Please go ahead.
spk10: 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 quarter ended June 30, 2024. 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 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 State 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 informed 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 State Harbor statement in today's text release and inherent 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 it over to Pride Collar, Chief Executive Officer of Heron.
spk12: Thanks, Melissa. Good morning, everyone, and welcome to the Heron Therapeutics Second Quarter 2024 earnings call. Today, we are pleased to update you on our latest achievements for the second quarter, which includes a narrowing of our financial guidance and a view into our financial performance, discussion of our product performance, progression of the Vial Access Needle or VAN towards our September 23rd -to-date, the publishing of the long-awaited No Paying Act, which includes ZenoF, and last, an update on the billing and training of
spk04: our partners at Crosswind. From moving to financial performance,
spk12: I believe this slide demonstrates the impact our new management team has had on this business as we compare first half of 2024 with the first half of 2023. Keep in mind, the management team was not fully in place until August of 2023. Since arriving, we have been able to establish the proper financial management that has allowed us to reduce spins dramatically while still growing top-line revenue. As you can see from the slide, revenues are up 15%. Gross margin has improved from 40% to 73%, and operating expenses have been reduced by over $36 million when comparing the first six months of 2024 to the same period in
spk02: 2023.
spk12: Now moving to product performance, the ecology franchise continues to outpace our expectations with Sylvaki Net Revenues of $24.9 million for the quarter, and Suspal Net Revenues of $4.3 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 similar consistency throughout 2024. Total acute care net revenues for the quarter were $6.8 million, which is record revenue for our acute business. Zenerleaf Net Revenues for the quarter were $5.8 million. Apongi Net Revenues for the quarter were $1 million, which is double versus Q1 of this year. While we are pleased with the direction we are headed, we realize we are still transitioning with our new expanded Zenerleaf label, bringing on the CrossLink team, the advanced submission and launch later this year, which will all have a dramatic impact to not only Zenerleaf as we move later in the year and into 2025, but also Apongi, as these actions will free up more selling time for our sales team and allow us to create better pull-through with our account wins. As we think about Apongi performance, it's important to know that Apongi is the type of product where systematic wins are possible. What I mean specifically is when we win at the P&P and formula level, protocols can be put in place where Apongi is used throughout a hospital system for a specific patient or surgery type. As you can see on this slide, we continue to gain P&P wins and new customers ordering. The goal with any new account win is to establish a protocol, get product ordering set up in our hospital system, and then move to expand usage within the hospital.
spk04: Slide
spk12: 10 provides a dashboard of how we forecast our Apongi business. We've established sharing by account size based on the number of surgical procedures within each account. Commercially, this allows us to better focus our sales team and evaluate account performance within each tier. We believe the greatest opportunity resides in the surgical patients that present to the operating room with moderate and high-quality results at the risk of having post-operative nausea anomaly. This risk evaluation already happens preoperatively across the country and uses a validated series of questions to reliably classify these patients. The medical literature informs us that approximately one in two patients, or 50%, present as moderate to high risk. Our internal sales target is to achieve market penetration of 40% of that 50% of high-risk patients, or if you will, 20% of the overall surgical opportunity with our converted business. The opportunity we have today reflects a $30 million potential from the 320 accounts currently under contract. Our confidence in Apongi is based on the ease of use, the superior onset of action via the intravenous administration, the absence of infusing reactions, as well as the absence of certain central nervous systems and cardiovascular side effects, seen with other agents. We believe there's an opportunity to convert business to the use of Apongi when other approaches to preventing POMV still report an approximate 30% failure rate in this high-risk population. Of course, slide 10 only takes into account the business Heron has today. There are an estimated 75 million surgical procedures in the US every year. While penetrating 20% of the entire market may not be achievable, Heron does believe that as we convert more accounts than
spk04: Apongi is our hidden gem. Moving to Zendralab,
spk12: it's important to note the progress and the number of improvements to the product that we have coming in 2024. In January, it started off with a much-anticipated label expansion, which now allows Zendralab to be used much more broadly throughout the number of surgeries within a given hospital or ASC. Second is the introduction of the van, which is approved in September, will go live in Q4. Next was the inclusion of Zendralab in the much-anticipated No Pain Act, which will continue to allow Zendralab to be reimbursed outside the surgical bundle, and last, the Cross-Leak Partnership, which continues to progress. Now, understanding the impact of the van is a bit easier when you see both devices depicted together. Our current perfect configuration with a VDS or Vented Vial Spike on the left-hand side of the slide is a much more difficult to use as compared to the van or Vial Access Needle on the right-hand side of the slide. The two main advantages that the van offers is ferility and speed of product withdrawal from the vial. The preparation of Zendralab has been at the Achilles' heel since launch. We believe the launch of the van later this year, combined with the expanded label and having a cross-linked presence within the OR study, is going to provide a tremendous boost to Zendralab for
spk04: years to come. Now, moving to No Pain Act. CMS recently released its
spk12: Outpatient Perspective Payment System, OPPS, and Invitory Surgical Center ASD Proposed Rule for calendar year 2025. The rule included the non-opioid policy for pain relief, which was supported by the No Pain Act. As expected, Zendralab was a main product in the rule. This will benefit Heron and our patients on multiple levels. The inclusion of Zendralab in the rule will increase awareness, remove financial barriers, encourage adoption, and endorses its use. The acronym, No Pain, stands for non-opioids prevent addiction in the nation, which in itself is a strong endorsement. The goal of the act was to ensure patients have access to non-opioid alternatives and providers are not financially incentivized to utilize opioids instead. To be included, the medications must have an indication for post-opioid pain, non-act on the body's opioid receptors, and have proven efficacy in the ability to replace, reduce, or avoid intraoperative and post-operative opioid use. CMS agreed that Zendralab's clinical attributes satisfy these requirements. CMS proposed to include Zendralab in the policy for calendar year 2025. Effective April 1st, 2025, which will ensure Zendralab is eligible for separate payment outside of the surgical handle. We believe based on the CMS action and the endorsement of non-opioid therapies that many more commercial payers could also follow suit. Overall, we were extremely pleased with the proposed rule and this will ultimately support increased adoption of Zendralab. Training for the cross-linked team kicked off with executive teams in late February and with the reps at the beginning of March. As of today, we have 561 cross-linked reps consisting of joint trauma and spine that have been fully trained and are in the field selling Zendralab in 28 states. Now, obviously, all of these new sales folks were not in the field in Q2, and while we are pleased with our progress, there is a learning curve that's part of this process. As an example, once a new cross-linked group comes out of training, the process begins for our sales teams to interact, to determine position and account targeting, IDA and the formulary strategy, product messaging to a given account, and ultimately a planned attack within a territory. Our plan is still to continue to expand our reach across the country, with over 650 reps being fully trained and integrated before the launch of the van in Q4 this year. We continue to be impressed by the cross-linked team and the relationships they have with the orthopedic surgical community, and we realize at times this is going to have a substantial impact on Zendralab revenues. In Q2 alone, we have over 350 new surgeon introductions generating 98 new prescribing positions that translates to 33 new ordering accounts. It's obvious this has not had a major impact on revenues yet, but we believe the impact will be substantial over time. Many of these new introductions are with top prescribing physicians with deep relationships with cross-linked. As with any new drug, it takes some time for physicians to get comfortable with something new or different, especially due to the unique delivery and application of Zendralab. We are extremely pleased with the progress we have made in getting the cross-linked team trained and in the field. We believe this partnership is going to completely change the direction of Zendralab as we move into 2025 and beyond. I will now turn the call over to Eri DeWerke, our CFO, to fill out our financials and update our financial
spk02: guidance. Go ahead, Eri.
spk11: Thanks, Craig. Craig has covered our product performance and operating results in this time, and I will add some additional points for our Q2 2024 results. Our product gross profit for the three months ended June 30th, 2024 was $25.5 million, or 71%, which increased from 37% for the same period in 2023. This was primarily due to the fact that the current quarter did not see the significant inventory rise we experienced in the comparable quarter of 2023. Year to date, our product gross profit was $51.7 million, or 73%, an increase from 40% for the same period in 2023. SGNet expenses for the three and six months ended June 30th, 2024 were $27.5 million and $53.9 million respectively, compared to $40.8 million and $77.8 million respectively in the same period in 2023. The decrease was primarily related to decreases in personnel and related costs due to the reductions in force in prior years, as well as improved cost efficiencies along all departments. Research and development expenses were $4.4 million and $9 million for the three and six months ended June 30th, 2024, compared to $13.2 million and $22 million in the comparable period in 2023. The decrease was primarily related to decreases in personnel and related costs due to the reductions in force implemented in previous years, as well as decreases in development activities. During the quarter, we incurred inventory write-offs of $1.6 million, but unlike last year's write-offs, these were not related to inventory management. In addition, we also reported an accident payment write-off of $1.3 million related to projects no longer part of the company's forward-looking strategy. As you will see on the slides, if we had exclusive depreciation and amortization, stock-based compensation, the inventory write-off, and the accident payment write-off, our adjusted operating results would have been a ,000,000 operating income, which represents a substantial turnaround in the financial management of our business. As noted in the 10Q, the Condemned Consolidated Statement of Operations and Comprehensive Laws as of June 30th, 2023, reflects re-convocation of certain expenses from research and development to general and administrative expenses to align with function of the expenses incurred. This resulted in no change to total operating expenses. The net loss was $9.2 million for the three months ended June 30th, 2024, and $12.4 million for the six months ended June 30th, 2024, compared to $42.1 million and $74.8 million respectively for the comparable periods in 2023. Half the short-term investment at June 30th, 2024 was $63.7 million. As you can see from these results, we have made tremendous progress in cutting expenses and creating efficiencies within the company over the last 12 months. We are therefore narrowing our previously given guidance range of $108 million to $160 million for adjusted operating expenses to a range of $107 million to $111 million. Adjusted operating expenses exclude stock-based compensation, depreciation, and amortization, and going forward, we will also exclude impairment of long-lived assets and inventory write-offs. We are also narrowing our previously given guidance range for adjusted EBITDA of $22 million loss, $3 million income, to a range of $10 million loss to $3 million income. Adjusted EBITDA excludes stock-based compensation, depreciation, and amortization, and going forward, we will also exclude impairment of long-lived assets and inventory write-offs. And now we would like to open the call for any questions.
spk13: Thank you. The
spk06: floor is now open for questions. 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 and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking a question. Again, press star one to join the queue, and your first question comes from the line of Brandon Fuchs with Rodman and
spk13: Renshaw. Please go ahead.
spk04: And congratulations on
spk07: a lot of good progress in the quarter. Maybe just firstly for me, on Zin Relief, any color and wear using the most uptake across joint, trauma, and spine with the Crosslink Partnership?
spk05: I'm sorry, Brandon, could you say that one more time?
spk07: Any color and wear you've seen the most uptake across joint, trauma, and spine with the Crosslink Partnership? Any, anything new there that you wouldn't have expected?
spk12: Yeah, no, at this point, again, we've been, as I said in my comments, we've been getting the Crosslink team up to speed, and in Q2 we had roughly a couple hundred folks, sort of, if you will, that had gone through training, and so we haven't been able to really dive into the data enough to tell where we're having the largest impact. I mean, obviously with orthopedic surgeons is where we're spending the majority of time, but at this point I just can't really dice the data into that sort of level, you know, to determine specifically you're having an impact in one place more than another.
spk07: Okay, and then maybe just, obviously, did a tremendous job during the quarter on the rep training with Crosslink. Can you just elaborate when you expect to see that revenue trajectory change for Zen Relief? Do you have to retrain the Crosslink team when the van comes out to market, or how thorough does that training need to be?
spk12: Yeah, so we have been, along the way, talking about the van, and they know that certainly it's coming, and I think it's obviously anticipated. We do anticipate being fully trained by the time the van launches, and again, so we think that's certainly gonna have an impact, but there will be certainly a briefing post, the approval of exactly what we get approved, and then sort of the timing to launch and all that, so we'll go through that again with them, but they are being briefed on sort of what's going on and what's coming.
spk07: Great, thanks so much. Congrats on all that progress. Maybe just lastly one for me. On the gross margin line, obviously tremendous progress year over year. How should we look at this quarter compared to the go-forward? And then that's it from me, thank you.
spk12: Yeah, at this point, again, we've said all along we think we'll be somewhere in the, kind of low to mid-70s, we anticipate that continuing. Again, with product base and so forth, it may vary a little bit, but we should be at our range.
spk07: Great, thank you very much.
spk04: Thanks,
spk13: Brad. Next question comes from the line of Serge Belanger with ETHAM, please go ahead.
spk02: Hi, good afternoon, and thanks for taking my question.
spk12: The first one, Craig, on Zinra left, can you just give us a picture of what the current reimbursement and coverages across the Medicare and commercial segments, and how you think that will change in the future? And how do you think that will change once you switch over to no-paying next year? And then secondly,
spk02: on Syngenti,
spk12: I think a bench trial was held last month or June, late June, in the patent infringement lawsuit. Can you just give us an update on when you expect a
spk02: decision,
spk12: what
spk02: potential outcomes could be, and things like that?
spk12: Yeah, sure. Actually, Serge, Kevin Warder is on the call as well. I'll let him get the first part of this, and then I'll address this in body piece.
spk08: Yeah, thanks, Serge. In regards to the reimbursement picture and how it looks, there's a difference between no-paying and a pass-through status product. So currently, right now, Zinra leads to reimburse via the pass-through status, and so that's all our hospital outpatient procedure department patients, and all of our AFC patients under Medicare are reimbursed. As far as the commercial payers, it's somewhere between 30 and 50% of the commercial payers. It varies by state by state, region by region. That said, with no-paying, that paradigm kind of switches because of how no-paying is phrased, and historically, a lot of commercial payers don't come on and always follow these pass-through drug stipulations, but with no-paying, and the fact that it has clinical attributes and reasoning for using non-opioids and minimizing the impact of opioids in our nation, there's more, I guess, a push for them to follow along with this statute and the fact that it could be extended in perpetuity and continue to provide that reimbursement. So the commercial payers, if you're going to want to be on the right side of the fence on this paradigm, they understand the cost efficacies and the clinical efficacies and the overall economic model. So we expect to see more commercial payers to come on board with no-paying, and no-paying really doesn't change the current reimbursement from the CMS perspective.
spk04: As you stated, the trial ended in
spk12: June, and again, as we've said all along, we feel very comfortable with what happened in the trial. We feel very strong in our positioning. And again, this case really comes down to, we have, you know, infringement has sort of been established in the case, and it all really comes down to obviousness. And again, that's where we feel, you know, the invention of the drug is really important. The decision that we made here was unique. You know, Merck had this product for years as a prepotent and was unable to get this in this form. And so that really is what this comes down to is burden of proof there. And again, we feel that, you know, Fresenius did not meet that, and
spk04: we feel very comfortable with our position. And do you expect a court or
spk02: a judge decision, I think the current, to be for the 31st, the 31st, the time section expires in December,
spk12: is
spk02: that when you think you'll get a court decision?
spk12: Yeah, so there's, yeah, remaining, you know, to be done are closing arguments. And then we're expecting a decision to be made in Q4 of this year.
spk04: Got it. Thank you.
spk13: Thank you. Your next question comes from the line of Kelly Shi with Jefferies. Please go ahead.
spk01: Hi, this is Clara. I'm for Kelly. Thanks for taking our questions. So could you remind us how many cross-link graphs were in the field selling product during second quarter and how that number is going to change in the second half of 2024? And based on the experience they have in the field so far, I was wondering if you've heard any feedback and if there's anything you think could be added to their training for the remaining reps or maybe also the existing reps that would be helpful in selling the product. Thank you.
spk04: the days we've crossed link, which were North Carolina,
spk12: South Carolina and Georgia, and then we moved from there, but we end up getting, I think, by Q2, we had a couple of hundred reps and we had just migrated to maybe 12 states. And so where we sit now is 561 reps in 28 states and that continues to grow. And again, we believe we'll be over 650 at the time of launch with the band. And so, you know, if you think about sort of inflection and how this really comes together, we've had a lot of things happen this year, obviously with the NOAA PayNOT, the expansion of our label, getting the cross-linked folks trained. But there's another piece to this too, which is really the integration with our sales force and managing that and working together and targeting accounts and all that. And so that just takes time. I've said all along that we view that as we launch the band and really kind of move out of Q4 into Q1 of 25 is really when we see a majority of inflection taking place into next year. And again, some of this just takes time in order to get all this
spk04: sort of fully up to speed and integrated. Thank you. Okay, thank you.
spk06: Again, if you'd like to ask a question, press star one on your telephone keypad. Your next question comes from the line of Carl Barnes with Northland Capital Markets. Please go ahead.
spk09: Thanks for the question and congratulations on your progress. In the event that we see a generic X-Borrell down the road, how do you see that changing the dynamics, if at all, for Zenerled? Thanks, and then I have a follow-up question.
spk08: Hey, Carl, it's Kevin Warner. I'll jump in and take that one, appreciate that. You know, I guess the question is if we see a generic and then if at all, how would it impact Zenerleaf? You know, there's multiple barriers here to the access to the market with them. You know, the current brand of manufacturer has multiple patents that they feel confident in. They've yet to receive a sample or if it's known whether the generic manufacturer would be able to scale, if you will, as they've always cited that as being very challenging. But that said, a generic product, if it did come to market, a second major barrier would be the possible lack of financial benefit. So historically, most generics come to market, obviously, as a discount to the brand of product to provide financial advantage to our healthcare system. But in today's current economic climate, specifically with the No Pain Act and broadening commercial reimbursement, those advantages would be mute, if you will. So Zenerleaf or even X-Borrell to that extent with their reimbursement package from No Pain and the follow on commercials could trump utilizing a genericized product. You know, when looking at the possibility of more non-opioid analgesics just in general coming to market, I see synergies rather than antagonism. You know, with the practice of medicine moving to opioids-bearing therapies, novel mechanisms, you know, are needed in order to provide the most effective multimodal therapy. So whether it's generic liposomal bupivacaine as a regional block or an oral nabolinate inhibitor like Vertex, Zetrogen, you know, I see opportunities for Zenerleaf as the best in class local installation product to be combined with the other modalities as we all seek one common goal, right? And that's to minimize or eliminate the need for opioids. Looking at a fundamental level, though, just briefly, you know, considering liposomal bupivacaine as a competitor or not, you have to look at the key differences of what makes a drug a drug, right, if you will. So the active ingredients, the dose, the route, the frequency, the mechanism of action, and in the end, the primary prescriber. So these all differ between Zenerleaf and liposomal bupivacaine. They're different drugs. One's a combo, one's a single agent. The dose is different. Up to 400 milligrams bupivacaine of Zenerleaf, 266 of liposomal bupivacaine. Zenerleaf's extended release. Liposomal is not. Route of administration is installation for Zenerleaf, injection for liposomal bupivacaine, also the site of action, whether it's local or regional, and then possibly most importantly is who's your prescriber, if you will. So for Zenerleaf, it's the surgeon doing the installation process, and largely with liposomal now, it's mainly the anesthesiologist doing regional blockades with it. So huge differences overall when looking at is it truly a comparator when you look at those fundamentals. And in the end, the last piece I'd mention is the clinical efficacy, right? Zenerleaf has it proven through 72 hours over standard of care for pain reduction, severe pain reduction, and opioid reduction across multiple clinical trials, but also real-world trials, even -to-head against liposomal showing benefit. So it makes those decisions
spk02: fairly simple for our institutions.
spk09: Great,
spk03: thanks, Fred. That's very helpful.
spk09: On a different topic, what are you seeing with respect to opportunities for potential complementary tuck-in acquisitions? And what sort of timing might we expect in terms of some activity there?
spk12: Thanks. Yeah, no, Carl, thanks for the great question. Again, as we really tried to put out there, certainly in this call and prior calls, is really getting our hands around the business and managing it. I think we've shown that, you know, we've certainly done that through the reduction of expenses and that type of thing. And now it's about growing product and the partnership across link and some of these things. But really the next phase is what else can we do from an M&A standpoint? And again, this management team has been together before. We've done these things. And we're bringing in, this will be announced in the next few weeks, we're bringing in a business development. First thing to head that up. And again, we're gonna get a lot more, I guess a lot more active, if you will, in that area, looking at things and trying to bring in complementary type of assets and or companies that would be accreted to what we're doing. And we're gonna be fairly active here in a very short timeframe.
spk04: Excellent, thanks. Thanks, Paul. If there are no further questions, we just wanna thank everybody for being on the call today. And we look forward to the next push call.
spk13: That will conclude today's call. You may now disconnect.
spk00: Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank
spk06: you. Thank you. Thank you. I think we can temps to internal Cliff screening session. Thank you for standing by. My name is Jermaini and I will be your conference operator today. At this time, I would like to welcome everyone to Heron Therapeutics Q2 2024 conference call. All lines have been placed on mute to prevent any background noise. After the speakers 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 1 on your telephone keypad. If you would like to withdraw a question, press star 1 again. I would now like to turn the call over to Melissa Jarrell, Executive Director, Lekal. Please go ahead.
spk10: 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 quarter ended June 30, 2024. With me today from Heron are Craig Holler, Chief Executive Officer, Euron Dworkay, 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 or website following the conclusion of today's call. Before we begin, let me 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 State 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 State Harbor statement in today's petulant and in Heron's public periodic file with the FDC. 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 it over to Craig Pollard, Chief Executive Officer of Heron.
spk04: Thanks,
spk12: Melissa. Good morning, everyone, and welcome to the Heron Therapeutics Second Quarter 2024 earnings call. Today, we are pleased to update you on our latest achievements for the second quarter, which includes the narrowing of our financial guidance and a view into our financial performance, discussion of our product performance, progression of the Vial access needle or van towards our September 23rd to due to date, the publishing of the long awaited no paying acts, which includes ZMOS, and last, an update on the billing and training of our
spk04: partners across length. From moving to financial performance.
spk12: I believe this slide demonstrates the impact our new management team has had on this business as we compare first half of 2024 with the first half of 2023. Keep in mind the management team was not fully in place until August of 2023. Since arriving, we have been able to establish the proper financial management that has allowed us to reduce spins dramatically while still growing top line revenue. As you can see from the slide revenues are up 15%. Gross margin has improved from 40% to 73%. And operating expenses have been reduced by over 36 million dollars when comparing the first six months of 2024, the same period
spk04: in 2023.
spk12: Now moving to product performance. The ecology franchise continues to outpace our expectations with some body net revenues of 24.9 million dollars for the quarter and still stall net revenues of 4.3 million dollars 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 similar consistency throughout 2024. Total acute care net revenues for the quarter were 6.8 million dollars, which is record revenue for our acute business. Zimli's net revenues for the quarter were 5.8 million dollars. A Pongi net revenues for the quarter were 1 million dollars, which is double versus Q1 of this year. While we are pleased with the direction we are headed, we realize we are still transitioning with our new expanded Zenerlef label, bringing on the CrossLink team, the advanced submission and launch later this year, which will all have a dramatic impact to not only Zenerlef as we move later in the year and into 2025, but also upon me as these actions will free up more selling time for our sales team and allow us to create better pull through with our account wins. As we think about upon me performance, it's important to know that upon me is the type of product where systematic wins are possible. What I mean specifically is when we win at the P&P and formula level, protocols can be put in place where upon me is used throughout a hospital system for a specific patient or surgery type. As you can see on this slide, we continue to gain P&P wins and new customers ordering. The goal with any new account win is to establish a protocol, get product ordering set up in our hospital system, and then move to expand usage within the hospital. Slide 10 provides a dashboard of how we forecast our upon me business. We've established sharing by account size based on the number of surgical procedures within each account. Commercially, this allows us to better focus our sales team and evaluate account performance within each tier. We believe the greatest opportunity resides in the surgical patients that present the operating room with moderate and high-risk results. We also believe that the patient is at a higher risk of having post-operative nausea and vomiting. This risk evaluation already happens preoperatively across the country and uses a validated series of questions to reliably classify these patients. The medical literature informs us that approximately one in two patients or 50% present as moderate to high risk. Our internal sales target is to achieve market penetration of 40% of that 50% of high risk patients, or if you will, 20% of the overall surgical opportunity with our converted business. The opportunity we have today reflects a $30 million potential from the 320 accounts currently under contract. Our confidence in upon me is based on the ease of use, the superior onset of action via an intravenous administration, the absence of infusing reactions as well as the absence of certain central nervous systems and cardiovascular side effects seen with other agents. We believe there is an opportunity to convert business to the use of upon me when other approaches to preventing POMV still report an approximate 30% failure rate in this high-risk population. Of course, slide 10 only takes into account the business Heron has today. There are an estimated 75 million surgical procedures in the U.S. every year. While penetrating 20% of the entire market may not be achievable, Heron does believe that as we convert more accounts
spk04: than upon me is our hidden gem. Moving to
spk12: Zendralab, it's important to note the progress and the number of improvements of the product that we have coming in 2024. In January, it started off with a much-anticipated label expansion, which now allows Zendralab to be used much more broadly throughout the number of surgeries within a given hospital or AFC. Second is the introduction of the van, which is approved in September, will go live in Q4. Next was the inclusion of Zendralab in the much-anticipated No Pain Act, which will continue to allow Zendralab to be reimbursed outside the surgical bundle, and last, the cross-link partnership which continues to progress. Now understanding the impact of the van is a bit easier when you see both devices depicted together. Our current perfect configuration with a VDS or Vented Vial Spike on the left-hand side of the slide is a much more difficult to use as compared to the van or Vial Access Needle on the right-hand side of the slide. The two main advantages that the van offers is torility and speed of product withdrawal from the Vial. The preparation of Zendralab has been at the Achilles heel since launch. We believe the launch of the van later this year, combined with the expanded label and having a cross-link presence within the OR study, is going to provide tremendous boost to Zendralab for years to
spk04: come. Now moving to No Pain Act. CMS recently
spk12: released its Outpatient Perspective Payment System, OPPS, and Invitory Surgical Center ASC Proposed Rule for calendar year 2025. The rule included the non-opioid policy for pain relief, which was supported by the No Pain Act. As expected, Zendralab was a main product in the rule. This will benefit Heron and our patients on multiple levels. The inclusion of Zendralab in the rule will increase awareness, remove financial barriers, encourage adoption, and endorses its use. The acronym No Pain stands for Non-Opioids Prevent Addiction in the Nation, which in itself is a strong endorsement. The goal of the Act was to ensure patients have access to non-opioid alternatives and providers are not financially incentivized to utilize opioids instead. To be included, the medications must have an indication for post-opioid pain, non-oxygen on the body's opioid receptors, and have proven efficacy in the ability to replace, reduce, or avoid intraoperative and post-operative opioid use. CMS agreed that Zendralab's clinical attributes satisfy these requirements. CMS proposed to include Zendralab in the policy for calendar year 2025, effective April 1, 2025, which will ensure Zendralab is eligible for separate payment outside of the surgical funder. We believe based on the CMS action and the endorsement of non-opioid therapies that many more commercial payers could also follow suit. Overall, we were extremely pleased with the proposed rule, and this will ultimately support increased adoption of Zendralab. Training for the Crosslink team kicked off with the executive team in late February and with the reps at the beginning of March. As of today, we have 561 Crosslink reps consisting of joint trauma in spine that have been fully trained and are in the field still on Zendralab in 28 states. Now obviously all of these new sales folks were not in the field in Q2, and while we are pleased with our progress, there is a learning curve as part of this process. As an example, once a new Crosslink group comes out of training, the process begins for our sales teams to interact to determine physician and account targeting, IDN and formular strategy, product messaging to a given account, and ultimately a planned attack within a territory. 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 van in Q4 this year. We continue to be impressed by the Crosslink team and the relationships they have with the orthopedic surgical community, and we realize in time this is going to have a substantial impact on Zendralab revenues. In Q2 alone, we have over 350 new surgeon introductions generating 98 new prescribing physicians that translates to 33 new ordering accounts. It's obvious this has not had a major impact on revenues yet, but we believe the impact will be substantial over time. Many of these new introductions are with top prescribing physicians with deep relationships with Crosslink. As with any new drug, it takes some time for physicians to get comfortable with something new or different, especially due to the unique delivery and application of Zendralab. We are extremely pleased with the progress we have made in getting the Crosslink team trained and in the field. We believe this partnership is going to completely change the direction of Zendralab as we move into 2025 and beyond. I will now turn the call over to Erika Warke, our CFO,
spk02: to fill out our financials and update our financial guidance. Go ahead, Erika.
spk11: Thanks, Craig. Craig has covered our product performance and operating results in this comment, and I will add some additional points for our Q2 2024 results. Our product gross profit for the three months ended June 30, 2024 was $25.5 million, or 71%, which increased from 37% for the same period in 2023. This was primarily due to the fact that the current order did not see the significant inventory of the products we experienced in the comparable quarter of 2023. Year to date, our product gross profit was $51.7 million, or 73%, an increase from 40% for the same period in 2023. FG net expenses for the three and six months ended June 30, 2024 were $27.5 million and $53.9 million, respectively, compared to $40.8 million and $77.8 million, respectively, in the same period in 2023. The decrease was primarily related to decreases in personnel and related costs due to the reductions in boards in higher years, as well as improved cost efficiencies along all departments. Research and development expenses were $4.4 million and $9 million for the three and six months ended June 30, 2024, compared to $13.2 million and $22 million in the comparable periods in 2023. The decrease was primarily related to decreases in personnel and related costs due to the reductions in boards implemented in previous years, as well as decreases in development activities. During the quarter, we incurred inventory write-offs of $1.6 million, but unlike last year's write-off, these were not related to inventory management. In addition, we also reported an accident payment write-off of $1.3 million related to projects no longer part of the company's forward-looking strategy. As you will see on the slides, if we had excluded depreciation and amortization, stock-based compensation, the inventory write-off, and the accident payment write-off, our adjusted operating results would have been a ,000,000 operating income, which represents a substantial turnaround in the financial management of our business. As noted in the TENQ, the condensed consolidated statement of operations and comprehensive laws as of June 30, 2023, reflects re-convocation of certain expenses from research and development to general and administrative expenses to align with the function of the expenses incurred. This resulted in no change to total operating expenses. The net loss was $9.2 million for the three months ended June 30, 2024, and $12.4 million for the six months ended June 30, 2024, compared to $42.1 million and $74.8 million, respectively, for the comparable period in 2023. Half of the short-term investments at June 30, 2024, were $63.7 million. As you can see from these results, we have made tremendous progress in cutting expenses and creating efficiencies within the company over the last 12 months. We are therefore narrowing our previously given guidance range of $108 million to $160 million for adjusted operating expenses to a range of $107 million to $111 million. Adjusted operating expenses exclude stock-based compensation, depreciation, and amortization, and going forward, we will also exclude impairment of long-lived assets and inventory write-offs. We are also narrowing our previously given guidance range for adjusted EBITDA of $22 million loss, $3 million income to a range of $10 million to $3 million income. Adjusted EBITDA excludes stock-based compensation, depreciation, and amortization, and going forward, we will also exclude impairment of long-lived assets and inventory write-offs. And now we would like to open the call for any questions.
spk13: Thank you. The floor is
spk06: now open for questions. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask your question and are listening via a 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 1 to join the queue. And your first question comes from the line of Brandon Fox with Rodman and Renshaw.
spk13: Please go ahead.
spk04: Congratulations on a lot
spk07: of good progress in the quarter. Maybe just firstly for me, on Zinrelief, any color and where you see the most uptake across joint, trauma, and spine with the Crosslink Partnership?
spk05: I'm sorry, Brandon, could you say that one more time?
spk07: Any color and where you see the most uptake across joint, trauma, and spine with the Crosslink Partnership? Anything new there that you wouldn't have expected?
spk12: Yeah, no. At this point, again, we've been, as I said in my comments, we've been getting the Crosslink team up to speed. In Q2, we had roughly a couple hundred folks, if you will, that had gone through training. So we haven't been able to really dive into the data enough to tell where we're having the largest impact. Obviously, with orthopedic surgeons is where we're spending the majority of time. But at this point, I just can't really dice the data into that level in order to determine specifically or have an impact in one place more than another.
spk07: Okay. And then maybe just, obviously, you did a tremendous job during the quarter on the rep training with Crosslink. Can you just elaborate when you expect to see that revenue trajectory change for Zinrelief? Do you have to retrain the Crosslink team when the van comes out to market, or how thorough does that training need to be?
spk12: Yeah, so we have been along the way talking about the van, and they know that certainly is coming. And I think it's obviously anticipated. We do anticipate being fully trained by the time the van launches. And again, so we think that's certainly going to have an impact. But there will be certainly a briefing post the approval of exactly what we get approved and then sort of the timing to launch and all that. So we'll go through that again with them. But they are being briefed on what's going on and what's coming.
spk07: Great. Thanks very much. Congrats on all that line. Obviously tremendous progress year over year. How should we look at this quarter compared to the go forward? And then that's it from me. Thank you.
spk12: Yeah, at this point, again, we've said all along, we think we'll be somewhere in the, you know, kind of low to mid 70s. We anticipate that continuing. Again, with product mix and so forth, it may vary a little bit, but we should be at our range.
spk04: Great. Thank you very much. Thanks, Brad.
spk13: Next question comes from the line of Serge Belanger with Githam. Please go ahead.
spk02: Good afternoon. Thanks for taking my question.
spk12: The first one, Craig, on Zinra left, can you just give us a picture of what the current reimbursement and coverage is across the Medicare and commercial segments and how you think that will change once you switch over to no pain, neck tear? And then secondly, on Syngenti, I think a bench trial was held last month or
spk02: June,
spk12: late June
spk02: in the patent infringement lawsuit. Can you just give us an update on when you expect a decision, what potential outcomes could be and things like that?
spk12: Yeah, sure. Actually, sir, Kevin Ward is on the call as well. I'll let him get the first part of this and then I'll address this in body piece.
spk08: Yeah, thanks, Serge. You know, in regards to the reimbursement picture and how it looks, there's a difference between no pain and a pass-through status product. So currently right now, Zinra leaves to reimburse via the pass-through status. And so that's all our hospital patient procedure department patients and all of our ASC patients under Medicare are reimbursed. As far as the commercial payers, it's somewhere between 30 and 50 percent of the commercial payers. It varies by state by state, region by region. That said, with no pain, that paradigm kind of switches because of how no pain is phrased. And historically, a lot of commercial payers don't come on and always follow these pass-through drug stipulations. But with no pain and the fact that it has clinical attributes and reasoning for using non-opioids and minimizing the impact of opioids in our nation, there's more, I guess, a push for them to follow along with this statute and the fact that it could be extended in perpetuity and continue to provide that reimbursement. So the commercial payers, if you're going to want to be on the right side of the fence on this paradigm, they understand the cost efficacies and the clinical efficacies and the overall economic model. So we expect to see more commercial payers to come on board with no pain. And no pain really doesn't change the current reimbursement from the
spk04: CMS perspective.
spk12: As
spk04: you stated, the trial ended
spk12: in June. And again, as we've said all along, we feel very comfortable with what happened in the trial. We feel very strong in our positioning. And again, this case really comes down to we have, you know, infringement has sort of been established in the case, and it all really comes down to obviousness. And again, that's where we feel, you know, the invention that we made here was unique. You know, Merck had this product for years as a prepotent and was unable to get this in this form. And so that really is what this comes down to as burden of proof there. And again, we feel that, you know, Fresenius did not meet that and we feel very
spk04: comfortable with our position. Do you expect a court or a
spk02: judge decision? I think the current, the 31th, the 31th tax would say expires in December.
spk12: Is that when you think you'll
spk02: get a
spk12: court decision? Yeah, so there's, yeah, remaining, you know, to be done are closing arguments. And then we're expecting a decision to be made in Q4 of this year.
spk13: Your next question comes from the line of Kelly Shee with Jefferies. Please go ahead.
spk01: Hi, this is Clara. I'm for Kelly. Thanks for taking our question. So could you remind us how many cross-link reps are in the, were in the field selling product during second quarter and how that number is going to change in the second half of 2024? And based on the experience they have in the field so far, I was wondering if you've heard any feedback and, you know, if there is anything you could be added to their training for the remaining reps or maybe also the existing reps that will be helpful in selling the product. Thank you.
spk04: Stages we cross-linked, which were North
spk12: Carolina, Dockron in Georgia, and then we moved from there. We end up getting, I think, by Q2, we had a couple of hundred reps and we had just migrated to maybe 12 states. And so where we sit now is 561 reps in 28 states and that continues to grow. And again, we believe we'll be over 650 at the time of launch with the van. And so, you know, if you think about sort of inflection and how this really comes together, we've had a lot of things happen this year, obviously, with the NO PAYN Act, the expansion of our label, getting the cross-linked folks trained. But there's another piece, too, which is really the integration with our sales force and managing that and working together and targeting accounts and all that. And some of that just takes time. And so I've said all along that we view that as we launch the van and really kind of move out of Q4 into Q1 of 2025 is really when we see, you know, a majority of inflection taking place into next year. And again, some of this just takes time in order to get, you know, all this sort of
spk04: fully up to speed and integrated. Thank you. Okay, thank you.
spk06: Again, if you'd like to ask a question, press star 1 on your telephone keypad. Your next question comes from the line of Barnes with Northland Capital Markets. Please go ahead.
spk09: Thanks for the question and congratulations on your progress. In the event that we see a generic XPREL down the road, how do you see that changing the dynamics, if at all, for Zenerleaf? Thanks. And then I have a follow-up question.
spk08: Hey, Carol, it's Kevin Warner. I'll jump in and take that one. Appreciate that. You know, I guess the question is if we see a generic and then if at all, how would it impact Zenerleaf? You know, there's multiple barriers here to the access to the market with them. You know, the current brand of manufacture has multiple patents that they feel confident in. They've yet to receive a sample or if it's known whether the generic manufacturer would be able to scale, if you will, as they've always cited that as being very challenging. But that said, a generic product, if it did come to market, a second major barrier would be the possible lack of financial benefit. So historically, most generics come to market, obviously, as a discount to the brand of product to provide financial advantage to our health care system. But in today's current economic climate, specifically with the No Pain Act and broadening commercial reimbursement, those advantages would be mute, if you will. So Zenerleaf or even XPREL, to that extent, with their reimbursement package from No Pain and the follow-on commercials, could trump utilizing a genericized product. You know, when looking at the possibility of more non-opioid analgesics just in general coming to market, I see synergies rather than antagonism. With the practice of medicine moving to opioid sparing therapies, novel mechanisms are needed in order to provide the most effective multimodal therapy. So whether it's generic liposomal bupivacaine as a regional block or an oral NAV1-8 inhibitor like Vertex, Zetrogen, I see opportunities for Zenerleaf as the -in-class local installation product to be combined with the other modalities as we all seek one common goal, right, and that's to minimize or eliminate the need for opioids. Looking at a fundamental level, though, just briefly, considering liposomal bupivacaine as a competitor or not, you have to look at the key differences of what makes a drug a drug, right, if you will. So the active ingredients, the dose, the route, the frequency, the mechanism of action, and in the end, the primary prescriber. So these all differ between Zenerleaf and liposomal bupivacaine. They're different drugs. One's a combo. One's a single agent. The dose is different. Up to 400 milligrams of bupivacaine of Zenerleaf, 266 of liposomal bupivacaine. Zenerleaf's extended release. Liposomal is not. Route of administration is installation for Zenerleaf, injection for liposomal bupivacaine, also the site of action, whether it's local or regional, and then possibly most importantly is who's your prescriber, if you will. So for Zenerleaf, it's the surgeon doing the installation process, and largely with liposomal now, it's mainly the anesthesiologist doing regional blockades with it. So huge differences overall when looking at is it truly a comparator when you look at those fundamentals. And in the end, the last piece I'd mention is the clinical efficacy, right? Zenerleaf has proven through 72 hours over standard of care for pain reduction, severe pain reduction, and opioid reduction across multiple clinical trials, but also real world trials, even head to head against liposomal showing benefit. So it makes those decisions
spk02: fairly simple for our institutions.
spk03: Great. Thanks, Fred. That's very helpful.
spk09: On a different topic, what are you seeing with respect to opportunities for potential complementary tuck-in acquisitions, and what sort of timing might we expect in terms of some activity there?
spk12: Thanks. Yeah, no, Carl, thanks for the great question. Again, as we really tried to put out there, certainly in this call and prior calls, is really getting our hands around the business and managing it. I think we've shown that we've certainly done that through the reduction of expenses and that type of thing. And now it's about growing product and the partnership across link and some of these things. But really the next phase is what else can we do from an M&A standpoint? And again, this management team has been together before. We've done these things. And we're bringing in, this will be announced in the next few weeks, we're bringing in a business development person to head that up. And again, we're going to get a lot more active, if you will, in that area, looking at things and trying to bring in complementary types of assets and or companies that would be accreted to what we're doing. And we're going to be fairly active here in a very short timeframe.
spk04: Excellent, thanks. Thanks, Carl. If there are no further questions, we just want to thank everybody for being on the call today. And we look forward to the next call. That will conclude today's call. You may now disconnect.
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