Heron Therapeutics, Inc.

Good day and thank you for standing by and welcome to the Heron Therapeutics Q4 2024 conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw a question, please press star 1-1 again. And please be advised that today's conference call is being recorded. I would now like to hand the conference over to your speaker today, Melissa Sherrill, Executive Director of Flegal.

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 fourth quarter ended December 31, 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 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 analysis as of the date of this conference call and are subject to numerous important risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statement. The risks and uncertainties associated with the forward-looking statements made in this conference call and webcast are described in the Safe Harbor Statement in today's press release and in Heron's public periodic filings with the 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 Heron Therapeutics' fourth quarter of 2024 earnings call. Today, we're extremely excited to share our results for the quarter, as well as our performance for the full year, 2024. Since joining the company in April of 2023, our goal as a management team has been to reposition the business for future growth and achieve profitability by the fourth quarter of 2024. As we focused on positioning the company for growth, we successfully expanded the product labeling for Zenderlab, doubling the number of approved indicator procedures. We also signed, trained, and integrated our Crosslink partnership, which includes over 800 distributor representatives focused on the orthopedic space. Additionally, we secured inclusion in the No Pain Act, which expands reimbursement for ZENERLEP outside of the surgical bundle, allowing more patients access to a non-opioid alternative for post-operative pain. In late September, we received approval of the Vial Access Needle, or VAN, and launched the new device in mid-December. The van significantly improves the preparation time and may enhance the safe use of our product. We are already receiving positive feedback, with many noting that this is a dramatic improvement over the previously used Benadol spike. Lastly, in early December of 2024, the U.S. District Court ruled in favor of Heron and our patent lawsuit against Fresenius Cabi upholding the validity of the Cimbanti patents, which are set to expire in 2035. Despite all the changes and accomplishments over the past 18 months, we successfully achieved profitability not only for the fourth quarter of 2024, but also for the full year. We finished the quarter with a net income of $3.6 million. For the full year of 2024, net revenues reached $144.2 million, reflecting a 14% year-over-year increase, and we delivered an adjusted EBITDA of $8.6 million. Sinvanti net revenues rebounded from a slight downturn in Q3, finishing the fourth quarter at $26.9 million compared to $22.7 million in Q3. For the full year of 2024, Sinvanti generated just over $100 million in net revenues, up from $94.8 million in 2023. Zemerleth achieved record net revenues of $8.5 million in Q4 of 2024, a 33% increase from $6.3 million in Q3. This growth was achieved with mental impact from the van launch as it was introduced in mid-December. To highlight the progress since we joined Heron in April of 2023, it is helpful to reflect on the financials from 2022 through 2024. Net revenues grew by 14% from 23 to 24, while gross margin improved by 24%, increasing from 49% to approximately 73%. Operating expenses have been reduced by over $80 million since 2022. We ended 2024 with a cash balance of just over $59 million. This has been a long journey, but I am extremely proud of all Heron team members for their sacrifices in turning this business around and achieving profitability in 2024. Now shifting to product performance, our oncology franchise, which includes both Symbonti and Sustol, continues to show growth despite a highly competitive environment. As mentioned in our last quarterly earnings call, these products can experience quarterly fluctuations, but historically have maintained annual growth. For 2025, we have taken a more conservative approach to our outlook for Cervante, given the increased competition entering the market and the potential pressure on our average selling price. While we still anticipate growth in unit sales for 2025, this may come at a lower price point, which could impact net revenues for the oncology franchise. Moving on to the acute hospital side of our business, both Aponvy and Zenilab have seen significant growth, up over 310% and 48% respectively in Q4 of 2024 compared to the same period last year. With Aponvy, we are beginning to see a dramatic shift in trends, particularly in average daily units and the number of ordering accounts. We believe this growth will continue in 2025 and beyond, as our pull-through efforts expand product usage within hospital institutions. Additionally, we anticipate further growth as we continue adding new accounts through P&T wins and system-wide conversions. A similar trend is emerging with Zenderlab. Our daily unit sales are steadily increasing, and we are onboarding new accounts at a much faster rate than in the past. We achieved record net revenues this quarter, despite the van not officially launching, until mid-December, and our team is still finalizing training for some of our cross-link partners. We are excited about the strong momentum we have with Zenrolef as we head into 2025. The efforts and accomplishments of the past 18 months are already yielding results, and we believe that as the year progresses, Zenrolef will experience a significant upward inflection, ultimately exceeding performance expectations. 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. We continue to improve on our financial efficiency while growing revenues. Over the past 12 months, during a time of change and disruption at the company, we grew revenues 13.6%, improved gross margin from 48.8% to 73.2%, and grew gross profit by almost 71%. More importantly, we did this and burned only approximately $21 million in cash for 2024. Our product gross profit for the three months ended December 31, 2024 was $30.6 million or 74.9%, which increased from 71.1% for the same period in 2023. This was primarily due to the fact that the current quarter did not see the significant inventory vitals we experienced in the comparable quarter of 2023. Year-to-date, our product gross profit was $105.6 million, or 73.2%, as compared to $43.7 million, or 48.8% for the same period in 2023. SG&A expenses for the three and 12 months ended December 31, 2024, with $23.2 million and $100.5 million, respectively, compared to $26.8 million, and $133.4 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 among all departments. These decreases were offset by increased legal expenses related to the patent litigation. Research and development expenses were $3.2 million and $16.7 million for the three and 12 months ended December 31, 2024, compared to $7.8 million and $39.1 million in the comparable periods 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 decrease in development activities. We achieved net income for the three months ended December 31st, 2024 of $3.7 million and had a net loss for the year ended December 31st, 2024 of $13.6 million. During the comparable periods in 2023, we had net losses of $10.7 million and $110.6 million, respectively. Cash and short-term investments at December 31st, 2024 was $59.3 million. Year to date, we incurred inventory write-offs of $2.5 million. In addition, as mentioned on previous calls, we also recorded asset impairment write-offs of $2.2 million, primarily related to projects no longer part of the company's forward-looking strategy. If we had excluded depreciation, stock-based compensation, inventory write-offs, and the asset impairment write-offs, our adjusted EBITDA results would have been a positive $8.6 million operating income which represents a substantial turnaround in the financial management of the business. We are providing product revenues net guidance range of $153 million to $163 million and adjusted EBITDA guidance range of $0 to $8 million. And now we would like to open the call for any questions.

Thank you. And as a reminder, to ask a question, please press 411 on your telephone. and wait for your name to be announced. To withdraw your question, please press star 1 1 again. And please stand by while we compile the Q&A roster. And our first question comes from the line of Brandon Fuchs of Frogman Run Show. Your line is now open.

Hi, thanks for taking my question and congratulations on a very good quarter. Firstly, maybe just on Zinrelief's performance in the quarter, Any stocking there or anything that was that sort of how we should think about ZinRelief going forward? And then staying on ZinRelief, have you had any accounts come back that were perhaps not ZinRelief users prior to the van launch and sort of inquire about the van launch? You talked about onboarding new accounts at a very strong level. In 2025, strategically, are you focusing on driving deeper usage in the current sort of high user accounts, or should we think about growing the breadth of accounts or both? Thank you.

Thanks, Brent. Yeah, let me first speak just to Xenolith performance in Q4. There's really no stocking, you know, anything like that as far as in those revenues. Actually, inventories have been quite low. We're in sort of this, you know, two-week to three-week inventory level, and VAN really didn't uh, launch fully until about mid December of, uh, of 24. So I think the impact was fairly minimal. Um, what I can tell you is what we're seeing is the, you know, the reception so far to van has been exceptional from a standpoint of just being a much more user friendly and, um, just a better customer experience. But we've, um, to date, I think we've had at least 15 accounts that we either saved or that have come back. as part of launching the van. And again, that's more in the kind of January timeframe that we've sort of seen that. And so, you know, I anticipate that we're going to continue to see, you know, pretty strong growth as if you think about, you know, the tailwinds we have with the product with no pain act with the crosslink, you know, partnership really starting to kind of come on board and get going. And then the launch of the van and also, you know, with the expanded label. And so, We've been extremely pleased how that has gone so far. We really see this product inflecting as we move later in the year. The other thing I'll mention about VAN is that we've only launched the 400 milligram to date. We have kits where you can switch over the 200 milligram, but the 200 milligram won't fully launch until right around the April timeframe to give us time to bleed out the old inventory that was out there. I think as we kind of move into kind of mid-year, you're really going to see a change as there'll be complete van, no more vented valve spike in the market.

Great. Thanks very much. And then maybe just one on the sort of cash flow adjusted EBITDA. Obviously, you know, a very positive year on that aspect. I appreciate the guidance for 2025. How should we think about it sort of on a quarterly basis? You know, could there be sort of a bit of lumpiness just in terms of swinging between positive and negative EBITDA or cash flow in the first half of the year? And sort of as that van ramps up, you know, we see exiting the year with consistent positive cash flow, or do you feel like you're at a stage now where we should be thinking about positive cash flow every quarter?

Yeah, Brandon, thank you for the question. Yes, it will be a little bit lumpy, primarily because of some of the legal spend and the PFS. It's really...

what is impacting our quarters a little bit overall the results and the spend will not change significantly from this year but those are the two factors that could provide a little bit of lumpiness in the beginning of the year yeah brandon i would add too i mean the one thing we've been a bit conservative on is with symbonte um i mean as we see the product now we're tracking pretty close to where we were last year but we typically have about 78 seven to eight percent market growth in that space and we've been maintaining roughly around 27 share We've anticipated, you know, some competition later in the year and with ASP dipping a bit. But as we sit today, we're tracking pretty close to where we were last year. So we've tried to be a bit conservative there. So that's another, you know, part that could move a bit.

Great. Thanks very much and congrats on the good quarter. Thank you.

Thank you so much. And one moment for your next question. Our next question comes from the line of Serge Ballinger of NETAM. Your line is now open.

Hi, good morning. A couple questions on Zynrilef. Looks like the product is gaining momentum here. Maybe just talk about what's been driving that momentum and what you expect from Nopain once it kicks in for Zynrilef, which I believe is in March or April.

Yes, that's correct. I think we've been really pleased with the momentum we've had. Again, I mentioned the tailwinds before, but from a reimbursement standpoint, it will fully come into play on April 1st. But I think the bigger thing we're getting from that is really just the noise around no pain and the push, if you will, to look at non-opioid alternatives. That's going to help us and really anybody that's in this market selling those type of products. So I think that's been going to be hugely helpful for us. What was the last part of your question?

I'm sorry. Yeah, the momentum we saw in the fourth quarter, what was it driven by and whether it would accelerate?

Yeah, no, no, no. I'm sorry. I was going to speak to cross-link. So I think, look, the cross-link relationship is starting to really come into play. The way we look at our data, anytime we've had an overlap with a Crosslink counterpart, we view that as a Crosslink account versus an account that we're in, let's say, or a hospital system we're in where Crosslink is not. And what I can tell you is that those accounts are growing at about a 30% higher rate than our sort of normal, you know, standalone business, if you will. And so we think that's just going to continue. I mean, with van, and again, as we get better at this and we better coordinate with our crossing counterparts, we see, you know, sort of upside as we move into the 200 milligram launching later in the year. And as we kind of move into kind of mid year, the third quarter, I think this is really going to start to get much more efficient. I mean, again, we just, we've got 800 people out there that are just really starting with the van pretty much now. and the coordination of all that I think is coming together nicely. But the growth we've experienced so far has been much different than we had in the past, and I think that's going to continue.

Okay. And then from an OPEX perspective for 2025, should we expect some slattish growth versus 2024? Yeah.

It will be a little higher than 2024 just because of the R&D spend for PFS that we didn't see in 2024, and then some of the legal expenses as we are trying to settle some of these cases that we have outstanding. So overall, the remaining business really remains flat, but those are the two items that might increase office a little bit in 2025 or 2024. Got it. Thank you.

Thank you so much. And one moment for our next question. Our next question comes from the line of Carl Burns of Northland Capital Markets. Your line is now open.

Congratulations on the progress and thanks for the question, or questions rather. So you had a really nice bump with Zimberlab at $8.5 million. Do you expect kind of a similar bump in the first quarter given the timing of no pain and given the timing of the van approval? And then if you can maybe sort of extrapolate a little bit more with the number of crosslink reps that have been trained to market the van, and how you see that potentially hitting an inflection point in the second half of the year in terms of significantly accelerating Zimberlip sales. And to the same extent with respect at Pombing. Thanks.

Yeah. No, Carl, as we had said, I think currently we're at right around 800 or approximately 800 crosslink reps. And that last sort of 100 ish were sort of coming together in q4 so again as we come out of uh you know into 25 this is when this is beginning to you know to we think it's starting to hit on all cylinders as we kind of move into the year so that's uh kind of where that sits currently um again as as crosslink is coming on board and we kind of look at from q4 to to q1 i mean you typically have some seasonality and copay resets and that type of thing that you know that have historically flattened the market. What I can tell you is that we are currently, when I look at like daily average sales, we are actually higher thus far in Q1 than we were in Q4. So, you know, again, we're hoping that continues. Obviously the market's a little bit less in surgeries as a whole in Q1, but I mean, we're anticipating to continue to grow. And so, you know, as we kind of look more towards, you know, mid year, again, I think as we launched the 200 milligram van, with the no pain really starting to kick in, I think getting more noise, this is really where we see the inflection happening. And so the other thing that Crosslink does for us is that as they come on board more and can take our places in the surgeries and are more comfortable with the product, it allows for our reps to really get out of these, you know, surgeries on a daily basis and Crosslink becomes our eyes and ears. And so therefore it really allows our reps to get out and not only find more surgeons and other folks in the hospital, you know, going as far as deeper and wider, if you will, within an institution. But it also allows us to spend more time with a Ponvi. And, again, we're feeling very confident we're going to continue to grow Ponvi at a much different rate. And if you think about the ability with a Ponvi to really do systematic wins, our issue has been thus far is really getting our representatives out of the OR and allow them to do more pull-through with the product. And, again, we think with Crosslink that's going to, you know, help with that extremely.

Excellent, excellent. So, I mean, it's very clear that there's a shift in terms of actually the growth coming from the acute care products with the CAMD products really being kind of a cash cow that supports cash flow. And just one other follow-on question, if you've got any thoughts with respect to the Baker Brothers debt. Thanks.

Yeah, no, we've – I mean, with the Baker Brothers, obviously – They're a large demo for us and have been a great partner. We've continued to meet with them on a quarterly basis. I think as we now approach, you know, sort of the May 26 timeframe, we intend to meet with them again. Again, we wanted to get, you know, our quarter announced and so forth and really feel like with where the business is going, you know, we're hoping all of our investors would be excited, but we should be meeting with them very soon and to, you know, to talk about options with the convert and sort of where we can go from there.

Yeah, and I would imagine with the symbiotic litigation largely out of the way, that kind of opens the door to discussions.

Thanks. Yeah, no, that's been a, you know, obviously it was an unknown, but I think now that we have clarity around that, and again, even, you know, the Milan case is very similar to what we faced with Fresenius, and so we feel very confident about that. But yeah, it's certainly going to help those discussions.

Excellent. Thanks for the questions, and congrats again.

Thanks, Carlton.

Thank you so much. And again, if you would like to ask a question, please press star one, one. And our next question comes from the line of Clara Dong of Jefferies. Your line is now open.

Hi, team. Congrats on the progress for the quarter. So just wondering, you know, Since the launch of Xenrolab then in mid-December, it seems like the ramp-up is going pretty well. So, could you give us an update on where you're at for the pre-fill syringe for Xenrolab? Thank you.

Yes, thanks, Claire. Bill Forbes is dialing into the call. I'll let Bill answer that as far as the development path there and where that stands.

Good morning. Thank you for your question. Yeah, just as a form of update, obviously we're extremely pleased with the rollout of the VAN. I mean, the device development people that we have have been watching that very closely as their commercial partners have been moving that through. As we turn our attention to the pre-filled syringe, I'll just kind of recap a little bit about what I spoke on at the Investor Day meeting last year. So one of the things that we have to be careful of with Xenralef is moisture content. So about a year ago, we put up a kind of a demo batch on stability. And we've reached the nine-month part of that. And we've been extremely happy with how that stability and that demo batch has been going. So with that, we've increased our confidence in this program greatly. But we're looking for trying to launch it to the market somewhere near the end of 2026, in the first half of 2027. So we continue to make progress on that. And if you have any other questions, happy to entertain them.

Appreciate it. Thank you.

Thank you so much, Clara. And I don't see any questions on queue. I would like to turn the conference back to Craig Collard, CEO, for closing remarks.

Thank you, operator. Look, we appreciate everyone joining the call today. We're obviously very excited about where we are as a company and, you know, the foundation we've built here and how we move into 25. So we look forward to talking to everyone next quarter. Thank you.

Thank you so much, presenters, and this concludes today's conference call. Thank you for participating. You may now disconnect. Have a great day.