Heron Therapeutics, Inc.

Thank you for standing by and welcome to Huron Therapeutics third quarter 2024 conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star 11 on your telephone. If your question has been answered and you'd like to remove yourself from the queue, simply press star 11 again. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Melissa Jarl, Executive Director. Please go ahead.

Thank you, Operator, and good morning, 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 September 30th, 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 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 Securities 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 statements. 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 SEC. Except as required by law, Heron assumes no obligation to update these forward-looking statements to reflect future events or actual outcomes and does not intend to do so. And with that, I would now like to turn the call over to Craig Collard, Chief Executive Officer of Heron.

Thanks, Melissa. Good morning, everyone, and welcome to the Heron Therapeutics third quarter 2024 earnings call. Today, we are pleased to update you on our latest achievements for the third quarter, which includes a narrowing of our financial guidance, including net revenue, adjusted operating expenses, and adjusted EBITDA. We have also given a Q4 2024 net revenue guidance range of $37 million to $43 million based on the early success achieved already in Q4. We also received FDA approval of the Vial Access Needle, or VAN, on September 24th, and we have been included in the final version of the No Pain Act, which goes into effect in January of 2025. Last, our partnership with Crosslink continues to progress, and we are now beginning to see the positive impact that this could have for Zenderlef as we move forward. As I move through my comments today, I will speak in greater detail about each of these achievements for Q3. Moving to financial performance, we continue to improve on our financial efficiency while growing revenues. Over the past nine months, during a time of change and disruption at the company, we grew revenues over 12%, improved gross margin from 41% to just over 72%, and doubled gross profit from $37 million to $75 million. More importantly, We did this and burned less than $10 million in cash for 2024. Now that we have expenses in line, all of our efforts have been focused on driving revenue growth of our product portfolio. We have already begun to see growth based on our weekly sales, which is why we felt it was important to give an early view into Q4, which we anticipate is going to be an excellent quarter based on our net revenue guidance of $37 million to $43 million. I would now like to spend a few moments discussing why we believe the VAN and the No Pain Act will have a very positive impact on Xenralef. First, the VAN, which was officially approved on September 24th. One of the main issues with Xenralef has been the preparation around drawing the drug itself out of the vial while maintaining sterility. As you can see, depicted from the left to right on this slide, We have improved time of withdrawal from a couple of minutes to less than 45 seconds with a simplistic, easy-to-use device that creates a sterile environment once the vial is snapped into the van. We are now in the launch process and anticipate having the van on the market by the first week of December. Now, moving to the No Paying Act. CMS recently released a proposed rule for the No Paying Act for the calendar year 2025 back in June. The final version of the Act was just released this past month, and Zenderleff was included in the final rule. The goal of the Act is to assure patients have access to non-opioid alternatives and providers are not financially incentivized to utilize opioids instead. We believe, based on CMS action and endorsement of non-opioid therapies, that many more commercial payers could also follow suit. This is a major accomplishment for Heron. and will certainly provide a nice tailwind for Zenderleff when combined with the van, our expanded label, and the increased commercial footprint due to the Crosslink partnership. Total acute care net revenues for the quarter were $7.4 million. Zenderleff net revenues for the quarter were $6.3 million. Upon-V net revenues for the quarter were $1.1 million. While we are pleased with our progress, we also knew that we were still transitioning Q3. We believe that moving forward, our quarterly growth should start to increase dramatically with the many things we have going on promotionally. These items will not only have an impact on Zenderlef, but across our entire product portfolio. Earlier, I spoke about the VAN and the No Pain Act, both of which will have an impact in 2025. Right now, we are seeing early results that the Crosslink partnership is beginning to drive Zenderlef growth. Our team has trained almost 700 Crosslink distributors and contractors, whose early impact is shown here. When a Crosslink rep makes a material impact on an account, like a key introduction or a trial from a new surgeon, our sales force marked that account as a Crosslink account. On the left, you can see that there is a growing number of these Crosslink accounts that are ordering XenroLeft. We are currently adding an average of 21 newly ordering Crosslink accounts per month. If we set a threshold of 20 units in the first month, we are currently averaging seven of these qualified Crosslink accounts per month. These metrics are key drivers of our forecast for 2025. In the middle chart, we see a steady increase in monthly units among Crosslink accounts as a whole. And on the right, another way to look at this contribution is the cumulative number of Zenderlift units since the Crosslink program began in April. Nearly 40,000 units have been ordered in crossing accounts to date, amounting to roughly $4.4 million in net revenue. Annualizing the October units would result in over $10 million in net revenue. I want to emphasize that this program is just getting underway, and these are early results. We are very excited about how this partnership will perform once we are running on all cylinders for a quarter of two. Now, moving to applying B. Throughout 2024, we have been integrating our business units under the One Heron initiative I've discussed previously. As a reminder, the One Heron approach was implemented so all of our customer-facing teams would sell our entire product portfolio versus having two divisions within one small company only focused around acute or oncology. Again, our mantra internally is accountability and efficiency. One of the key benefits of this approach has been the cooperation among the teams on gaining access and adoption of a Ponvi. Our top-down national accounts team and specialty access teams are working hand-in-hand with our on-the-ground territory business managers to generate wins and coordinate pull-through. When you look at the two charts shown here, it is clear that a Ponvi is growing, and we expect to be entering 2025 on a new trajectory. The number of accounts ordering a Ponvi has tripled over the last 12 months. But even 182 ordering in October is just scratching the surface for what we think this product can do. As more and more providers gain access to a Ponvi in their hospitals, the number of average daily units sold of a Ponvi has really accelerated in 2024. This is where I think the new trajectory can really be seen. If you simply annualize the 652 average daily units in October, this would translate to over $7 million in sales. The team is really motivated by the momentum we've gained with Oponvy. Just like with Xenralef, we are excited for what is to come. Moving on to product performance with our Oncology franchise. The Oncology franchise continues to provide a strong foundational base for our company. Synvanti produced net revenues of $22.6 million for the quarter, and Sustol had net revenues of $2.8 million for the quarter. Although net revenues were down a bit from Q2, We anticipate bouncing back strong in Q4 and throughout 2025. As we have stated before, we are in a very competitive market with Sinvanti, which can cause quarterly fluctuations, but the clinical value that Sinvanti brings has allowed us to maintain around a 20% share of this market. We also still believe that we will prevail in the ANDA litigation and anticipate that Sinvanti will have full protection until patent expiry in 2035. I will now turn the call over to Ira Duarte, our CFO, to cover our financials and update our financial guidance. Go ahead, Ira.

Thank you, Craig. Our product gross profit for the three months ended September 30, 2024, was $23.4 million, or 71%, which increased from 42% for the same period in 2023. This was primarily due to the fact that the current quarter did not see the significant inventory write-offs we experienced in the comparable quarter of 2023. Year-to-date, our product gross profit was $75.1 million, or 73%, an increase from 41% for the same period in 2023. SG&A expenses for the three and nine months ended September 30, 2024, were $23.3 million and $77.3 million, respectively, compared to $28.8 million and $106.7 million, respectively, in the same periods 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 among all departments. Research and development expenses were $4.5 million and $13.5 million for the three and nine months ended September 30th, 2024, compared to $9.3 million and $31.3 million in the comparable periods in 2023. The decrease was primarily primarily related to decreases in personnel and related costs due to the reductions in force implemented in previous years, as well as decrease in development activities. As noted in 10Q, the condensed consolidated statements of operations and comprehensive loss as of September 30th, 2023 reflects reclassification 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 $4.8 million for the three months into September 30, 2024, and $17.2 million for the nine months into September 30, 2024, compared to $25 million and $99.8 million, respectively, for the comparable periods in 2023. Cash and short-term investments at September 30, 2024, was $70.9 million. The overall year-to-date cash burn for the business was less than $10 million. Year-to-date, we incurred inventory write-offs of $2.4 million. Unlike last year's write-offs, current year write-offs were not related to inventory management. In addition, we also recorded asset impairment write-offs of $2.1 million, primarily related to projects no longer part of the company's forward-looking strategy. As you will see on the slide, if you had excluded depreciation, stock-based compensation, inventory write-offs, and the asset and payment write-offs, our adjusted EBITDA results would have been a positive $1.4 million operating income, which represents a substantial turnaround in the financial management of the business. As a result of our year-to-date cost efficiency measures and overall performance, we are revising our guidance for the rest of the year. We are narrowing our net revenue range from our Q2 guidance of $138 million to $158 million to a rise range of $140 million to $146 million net revenue. We are narrowing our Q2 guidance for adjusted operating expenses, which excludes stock compensation, depreciation, and fixed asset write-offs. from our previous range of $107 million to $111 million to a revised range of $101 million to $105 million. Lastly, we are narrowing our Q2 adjusted EBITDA guidance range, which excludes inventory write-offs, stock compensation, depreciation, and fixed asset write-offs of negative $10 million to positive $3 million to a revised range of positive $2 million to positive $5 million. And now we'd like to open the call for any questions.

Certainly. And our first question for today comes from the line of Kelly Shea from Jefferies. Your question, please.

Hi, Morten. This is Jose for Kelly. Thanks for taking our question. Now that Venn is approved, should we think about the uptake curve moving forward? And what is your anticipation of the customer mix between existing Zerolux users and new users? Thank you.

Thanks for the question. So currently with the van, we anticipate having the van in the market in customers' hands by the first week of December. And the plan with that is to really start off with a few accounts and to get folks comfortable with that to make sure that there's no issue in launching the product and so forth. We're going to places before that are very comfortable with the product. Beyond that, We're then going to accounts where we've had an issue. And what I mean by that is an account that maybe have walked away before due to the preparation of the product. And so, again, we have a number of accounts that fall into that category. So I think you have that. And then obviously with any new accounts that we have that Crosslink has brought on, you know, we've been talking about the fact that this, you know, device is coming out and will improve the prep time. So we're extremely excited about the potential of this because it really does solve an issue It has been out there for quite a while and with the prep time of the product and also really addressing the sterility.

Very helpful.

Thanks. Thank you. And our next question comes from the line of Carl Burns from Northland Capital Markets. Your question, please.

Thanks for the question. My questions on Vann have been answered, so I wanted to kind of circle back to Symbonti. I'm wondering if you could comment a little bit on the nuances in the third quarter in terms of the sequential decline, and then your outlook for the fourth quarter, given the guidance that you've provided. Thanks.

Yeah, thanks, Carl. As we've said before, Sinvanti is in an extremely competitive market. It's obviously a lot of things going on with ASP reimbursement and just new folks coming into the market and so forth. And so we've historically maintained around a 28% share But again, you have these quarterly fluctuations where you lose an account, win an account, and that type of thing. So we did lose a fairly large account in Q3, which obviously showed up in net revenues. But one of the reasons we gave the guidance we did for fourth quarter is that I make the comment in my – when I was talking about Symbondi and really the entire product portfolio is that we now have this sort of one-heron approach to things. And what I really mean by that is that we're selling across the product portfolio. And we've never had that focus before with so many of our commercial-facing people. And so what we've really been able to take advantage of outside of going after new accounts is on the 340B side of the hospital with Symbonti. And so we're already seeing quite a bit of uptake in that in Q4. So we expect Symbonti to bounce back strong and, again, perform into next year. Great. Thank you.

Thank you. And as a reminder, ladies and gentlemen, if you do have a question at this time, please press star 11 on your telephone. Our next question comes to the line of Serge Bellinger from Needham. Your question, please.

Hi, good morning. Thanks for taking the question. I guess the first one on 3Q results, OPEX also took a tick down from second quarter. Just wondering if this is a function of lower sales in the third quarter or it's a new base level we should think of going forward. And then Craig, going back to the litigation reps in Venti, do you still expect a court decision next month or by the end of the year? Thanks.

No, thanks, Serge. Good to hear from you. I think I want to restate your question. I think the first question was on OpEx. Look, we're continuing to manage OpEx as efficiently as we can. The lower That falling a little bit in Q3, again, I think it's just been us managing that. I think it'll sort of level out in this sort of frame that we're in now. But, and I'll let Ira speak to that as well. But I want to come to the litigation for a second and speak to that, then I'll come back to Ira. Regarding the litigation, look, we still feel extremely strong about the case. We had closing arguments in August. and really believe that ultimately we'll win this when this is all said and done, which this has to be resolved by December 14th of this year. So we could literally get the decision, you know, any moment. But again, we anticipate winning the case and moving on in the patent, you know, extending out to 2035.

Yeah. Hi, Serge. The OPEX for Q3, yes, it did, but I wouldn't necessarily see it as a new baseline. it's basically a blend of Q2 and Q3. It was just timing and Q3 on a couple that resulted in lower expenses. So it's not, that is not the new baseline going forward.

Okay. Maybe one last one. As we think of no pain for 2025, you know, how much of a tailwind can this be? I think you have pretty comprehensive coverage right now in the ASC setting. So NHOPDs, just curious what changes and, Can it really be, I guess, how much of a tailwind can it be for the Zinrillef franchise? Are you referring to Vann?

I'm sorry, I missed the first part of that.

The No Pain Act.

How much of a tailwind can it be? Yeah, no, look, I think, again, with Crosslink, with Vann, and now No Pain, I think it's going to be a tremendous help to us. I mean, we do have reimbursement now, but one of the issues we've really suffered from for quite a while is just awareness. And I think the fact that we're mentioned in the No Pain Act, that's being talked about a lot. We're now talking about opioid abuse and so forth. And I think having us in that conversation and the fact that we are the longest acting pain relief product out there, I think is going to provide significant awareness and is going to create a significant tailwind. So we see it as really a big plus for us going forward.

Thank you.

Thank you. And our next question comes from the line of Brandon Folks from Ronman Renshaw. Your question, please.

Hi. Thanks for taking my question. I just want to follow up on the guidance. So maybe when we're talking about the sequential revenue from 3Q to 4Q, can you just elaborate a little bit further about the Sinvanti bounce back that you're referring to? versus the van uptake within relief, you know, maybe, and then along those lines, how should we think about the tailwind from the van, just in terms of timing? Are you assuming, you know, the tailwind begins in 4Q, or should we be thinking about that tailwind as 2025 event?

Yeah, thanks, Brandon. Good to hear from you. Regarding, I'll start with Sinvanti. Again, Sinvanti was no more than just an account loss in Q3. And so we've been able to, you know, win a few other accounts in Q4. And then what we've, as we began to, you know, promote this product across the portfolio, this has been going on for a few months. So it wasn't just in Q4, but again, we've picked up some business in the hospital and have really, you know, seen an uptake and I would say a bounce back to what, you know, quarterly revenues looked like prior to Q3. And so we really feel that that can continue into, into 25 and we may even gain, you know, from where we were before. So that's, where Sinvanti sits. And then, you know, then obviously it's about managing ASP, which we've, you know, historically done fairly well. So if we can maintain price and grow, you know, in these accounts, we think Sinvanti can continue to perform, you know, as we move forward. But I think the main way that I would look at Sinvanti, too, is more of a foundational business for us. It's allowing us, you know, again, sort of the cash cow, if you will, to fund what we're trying to do on the acute side with, you know, Xenoleth and Opondi. So moving to Zenderlef, what we're seeing currently is an uptick, I think, due to the Crosslink partnership. It's obviously not due to the van yet because we don't have it to market, but I don't think the van is going to have as large of an impact in Q4. I mean, it'll be out there, and I think there'll be some excitement around it, but I think to really see an upward trend is going to move into Q1, 25, and kind of beyond. But that combined with Crosslink is sort of what we're seeing now.

Great. Thank you very much. Appreciate the color.

Thank you. Our next question is a follow-up from the line of Carl Burns from Northland Capital Markets. Your question, please.

Thanks for the follow-up. I'm wondering if you can give us a bit of an update on the development of the pre-filled syringe. Thanks.

You know, thanks, Carl. Bill Forbes is here in the room with me, and I'll turn that over to him.

Morning, Carl. Yeah, we continue to progress the pre-filled syringe program. I mentioned earlier that sterilization and stability were the challenges associated with that. We've made some great progress in the last quarter along those lines. We have had a slight delay because of machine parts and being backordered, but we're moving through that as well. So overall, the program is progressing as expected, and we're very hopeful for it because we think it's going to be an advancement even beyond what the van is going to give us. Pre-built syringes, obviously, is going to be the gold standard. The approval date, by the way, we're targeting approval the very end of 2026, first quarter of 2027. Got it.

Thanks.

Thank you. This does conclude the question and answer session of today's program. I'd now like to hand the program back to management for any further remarks.

No, we just wanted to thank everyone for the questions today, and we appreciate you joining the call, and we look forward to speaking to everyone next quarter.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.