This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk03: 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 Hairline Therapeutics Q2 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 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 Gile, 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 30th, 2024. With me today from Heron are Craig Pollard, 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 Securities Litigation Reform Act of 1995. These statements are based on judgment 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 press release and in Heron's public periodic filing 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 Craig Pollard, Chief Executive Officer of Charon.
spk09: 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 producer date. The publishing of the long-awaited no-paying act, which includes NLF. And last, an update on the billing and training of our partners at Crosswind.
spk06: I'm moving to financial performance.
spk09: 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 spends 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 2023. Now, moving to product performance, the Ecology franchise continues to outpace our expectations, with Sylvanki net revenues of $24.9 million for the quarter and self-sell net revenues of $4.3 million for the quarter. We continue to maintain our existing market share in a very competitive environment with the oncology 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. Zenderleaf 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 Zenderleaf label, bringing on the Crosslink team, the advanced submission and launch later this year, which will all have a dramatic impact to not only Zenderleaf, 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 note that upon me is a type of product where systematic wins are possible. What I mean specifically is when we win at the P&T and formulary level, Protocols can be put in place where quantity 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 of any new account win is to establish a protocol, get product ordering set up within a hospital system, and then move to expand usage within the hospitals. Slide 10 provides a dashboard of how we forecast our economy business. We've established tiering 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 risk of having postoperative 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 Aponvy is based on the ease of use, the superior onset of action via the intravenous administration, the absence of infusion 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 a PONV when other approaches to preventing PONV 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 that upon me is our hidden gem. Moving to Xenolab, 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 Xenolab 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, if approved in September, will go live in Q4. Next was the inclusion of Xenolab in the much-anticipated No Pain Act, which will continue to allow Xenolab to be reimbursed outside of the surgical bundle. And last, the Crosslink Partnership, which continues to progress. Now, understanding the impact of demand is a bit easier when you see both devices depicted together. Our current configuration with the VBS or Vendor Dial Spike on the left-hand side of the slide is 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 sterility and speed of product withdrawal from the vial. The preparation of Xenolith has been at the Keeley's Hill 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 ZimbaWeb for years to come.
spk06: Now moving to the No Pain Act.
spk09: CMS recently released its Outpatient Prospective Payment System, OPPS, and Ambulatory 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, Xenolab was a main product in the rule. This will benefit Heron and our patients on multiple levels. The inclusion of Xenolab in the rule will increase awareness, remove financial barriers, encourage adoption, and endorses its use. The acronym, NOPAIN, 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 postoperative pain, not act on the body's opioid receptors, and have proven efficacy in the ability to replace, reduce, or avoid intraoperative and postoperative opioid use. PMS agreed that ZMLEF's clinical attributes satisfy these requirements. CMS proposed to include ZMLEF in the policy for calendar year 2025, effective April 1, 2025, which will ensure ZMLEF is eligible for separate payment outside of the surgical bundle. 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 Xenolab. 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, and spine that have been fully trained and are in the field following Xenolab 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 physician and account targeting, IDN and 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 of 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 Zenduweb 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 Crosslane. 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 Xenrolab. 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 Xenrolab as we move into 2025 and beyond. I will now turn the call over to Eric DeWarpy, our CFO, to cover our financials and update our financial guidance.
spk06: Go ahead, Eric.
spk02: Thank you, Craig. Craig has covered our product performance and operating results in his comments, 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 order did not see the significant inventory vitals 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. SG&A expenses for the three and six months into 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 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 30, 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 asset impairment 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 slide, if we had excluded depreciation and amortization, stock-based compensation, the inventory write-off, and the asset impairment write-off, our adjusted operating results would have been a $1.7 million operating income, which represents a substantial turnaround in the financial management of our business. As noted in the 10Q, the condensed consolidated statement of operations and comprehensive loss as of June 30th, 2023, reflects reconsultation of certain expenses from research and development, to general and administrative expenses to align the function of expenses incurred. This resulted in no change to total operating expenses. The net loss was $9.2 million for the three months end of June 30th, 2024, and $12.4 million for the six months end of June 30th, 2024, compared to $42.1 million and $74.8 million, respectively, for the comparable period in 2023. Cash and short-term investments in 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 have therefore narrowed our previously given guidance range of $108 million to $160 million for justice 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, $3 million income, to a range of $10 million to $3 million income. Adjusted EBITDA excludes stock price 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.
spk04: Thank you.
spk03: The floor is 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 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.
spk04: Please go ahead.
spk01: and congratulations on a lot of good progress in the quarter. Maybe just firstly for me on ZinRelief, any color and where you've seen the most uptake across joint, trauma, and spine with the Crosslink partnership?
spk06: I'm sorry, Brad, could you say that one more time?
spk01: Any color and where you've seen the most uptake across joint, trauma, and spine with the Crosslink partnership? Anything new there that you wouldn't have expected?
spk09: 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, you know, 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, you know, specifically or have an impact, you know, in one place more than another.
spk01: 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 within 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?
spk09: Yeah. So we have been along the way, you know, 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, you know, certainly going to have an impact. But there will be certainly a briefing post the approval of exactly what we get approved and then, you know, sort of the timing to launch and all that. So we'll go through that again with them. But they are being briefed on, you know, sort of what's going on and what's coming.
spk01: Great. Thanks very much. Congrats on all that progress. Maybe just a last new 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.
spk09: Thank you. 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.
spk01: Great. Thank you very much.
spk06: Thanks, Brad.
spk04: Next question comes from the line of Serge Belanger with ETAM. Please go ahead.
spk08: Hey, good afternoon, and thanks for taking my question. The first one, Craig, on Zinrolef, 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-paying? next year. And then secondly, on CINVENTE, 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 decision, what the potential outcomes could be and things like that?
spk09: Yeah, sure. Actually, sir, 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 fees.
spk05: Yeah, thanks, Serge. 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, it's been released 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% 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. and perpetuity and continue to provide that reimbursement. So the commercial payers, if you will, they'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 CMS perspective.
spk06: Great. As you stated, you know, the trial ended in June.
spk09: And, again, as we've said 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, is burden of proof there. And again, we feel that Fresenius did not meet that, and we feel very comfortable with our position.
spk06: And do you expect a court or judge decision?
spk08: I think the current, the 31st election to expire is in December. Is that when you think you can make a court decision?
spk09: 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.
spk06: Got it. Thank you. Thank you.
spk04: Your next question comes from the line of Kelly Shee with Jefferies. Please go ahead.
spk00: Hi, this is Clara. I'm for Kelly. Thanks for taking our question. So could you remind us how many cross-link reps were in the field selling product during second quarter and how that number is going to change in the second half of 2024? 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.
spk06: states with Crosslink, which were North Carolina, South Carolina, and Georgia.
spk09: 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 van. And so You know, if you think about sort of inflection and how all this really comes together, we've had a lot of things happen this year, obviously, with the No Pay Act, the expansion of our label, getting the Crosslink 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 some of that just takes time. 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 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 sort of fully up to speed and integrated.
spk06: Thank you. Okay, thank you.
spk04: Again, if you'd like to ask a question, press star one.
spk03: on your telephone keypad. Your next question comes from the line of Kyle Barnes with Northland Capital Markets. Please go ahead.
spk07: Thanks for the question, and congratulations on your progress. In the event that we see a generic XBRL down the road, how do you see that changing the dynamics, if at all, for Xenrolib? So then I have a follow-up.
spk05: Hey, Kyle. 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 Zin relief? 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 would be the possible lack of financial benefit. So historically, most generics come to market, obviously, as a discount to the branded 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 generally for even XBRL to that extent, with the 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 liposome with bupivacaine as a regional block or an oral NAB1-8 inhibitor like Vertex, Zetrogene, You know, I see opportunities for ZynRelief 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 ZynRelief 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 ZynRelief, 266 of liposomal bupivacaine. ZynRelief's extended release. Liposomal is not. Route of administration is installation for ZynRelief, injection for ZynRelief, 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 Zinrelief, 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 in 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? Zinrelief 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 head-to-head against liposomal showing benefit. So it makes those decisions fairly simple for our institutions.
spk07: Great. Thanks, Brenton. That's very helpful. On a different topic, what are you seeing with respect to opportunities for potential complementary Tug-In acquisitions? And you know, what sort of timing might we expect in terms of some activity there? Thanks.
spk09: Yeah, no, Carl, thanks. It's a great question. We, again, 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, you know, the partnership with Crosslink 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, 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 going to be fairly active here in a very short time frame.
spk06: Excellent. Thanks. Thanks, Carl.
spk09: If there are no further questions, we just want to thank everybody for being able to call today, and we look forward to the next quarter's call.
spk03: That will conclude today's call. You may now disconnect.
Disclaimer