Heron Therapeutics, Inc.

Good day and thank you for standing by. Welcome to the Heron Therapeutics Q1 2025 conference call. At this time all participants are in a listen-only mode. Please be advised that today's conference is being recorded. After the speaker's presentation there will be a question and answer session. To ask a question please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question please press star 1 1 again. I would now like to hand the conference over to your speaker today, Melissa Jarrell, Executive Director of Legal at Heron.

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 March 31st 2025. 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 Werner, 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 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 Heron Therapeutics first quarter 2025 earnings call. Today we are extremely excited to share our results for the first quarter of 2025. After establishing the company's financial foundation in 2024, we are now focused on targeted product growth for our two key assets, the general F and upon V, while continuing to maintain and grow Sinvanti and Sustol within clinics and select hospital accounts. With general S formulary status now covering approximately 19% of all orthopedic procedures and key catalysts such as our expanded label, the van launch, the approval of the no pain act, and the cross-link partnership, we see a clear opportunity to drive deeper adoption in a market where we already have access and the potential to expand coverage as interest grows nationwide. In 2025, we will focus on discipline execution, optimizing commercial performance, and selectively expanding the team where it directly supports higher return growth opportunities. Looking at our achievements in Q1, we generated total net revenues of approximately $39 million, achieved a record quarterly adjusted EBITDA of $6.2 million, and reported net income of $2.6 million. Since joining the company in 2023, our management team has been clear in our commitment to not only reach profitability, but also to execute with consistency. In addition, we reached a settlement agreement with Mylan Pharmaceuticals regarding the Sinvanti and upon V products, avoiding costly litigation fees and removing uncertainty around the outcome of the litigation. Lastly, as we continue advancing our commercial plans, hiring the right commercial leader was a key priority. We're pleased to share that Mark Hensley joined us on April 28th. Mark, who previously worked with me at Biloxus as our commercial lead, brings deep expertise from a career spent entirely in the hospital market. He is the missing piece to the puzzle as we move into this next phase of growth. Now moving on to product performance. The oncology franchise continues to outperform our expectations, with combined net revenues from Sinvanti and Sustol reaching $28.6 million for the quarter. We have maintained market share in a highly competitive environment, and we believe these products will continue to deliver consistent performance throughout 2025. We are extremely pleased with the results of our oncology supportive care franchise, and we are actively exploring creative strategies to drive continued growth in this market. Sinvanti, our lead product for chemotherapy-induced nausea and vomiting, or CINV, continues its strong growth. While I spoke earlier about the over-oncology franchise, you can see on the left side of this slide that Sinvanti is steadily increasing in average daily units, even within a highly competitive market. Now that the company is commercializing Sinvanti through a more focused account team across our entire portfolio, we are seeing positive results. New accounts, shown in green on the graph, and defined as those who have ordered within the past three months are growing at a healthy rate and benefited from the IV bag shortage in October of last year, as reflected in the spike on the graph. Existing accounts, depicted by the blue line and defined as those with continuous product orders, are also experiencing steady growth since the new management team joined in April of 2023. Sinvanti's well-established safety profile and competitive advantages, such as the IV push administration, support its continued upward trajectory and unit growth. The key to sustaining consistency with this product will be the strategic management of our average selling price, or ASP. Now moving on to the acute hospital side of our business, both upon V and Zenerlef experienced significant growth in Q1 of 2025, up over 432 percent and 60 percent, respectively, compared to the same period last year. We believe these two products have significant growth opportunity. Building on our efforts to strengthen our financial foundation last year, including that significant cost restructuring and the completion of numerous strategic initiatives, the full focus of the organization will emphasize product growth and execution this year. Today, the company is well positioned for sustainable, scalable, and capital-efficient growth. With upon V, we are beginning to see a dramatic shift in key trends, particularly in average daily units and the number of ordering accounts. We believe this growth will continue throughout 2025 and beyond as our pull-through efforts drive expanded product adoption within hospital institutions. Our goal with upon V is to continue building awareness, focusing our message on its strong safety profile and unique mechanism of action. Post-operative nausea and vomiting or PONV is a serious issue that can often be mitigated by the addition of upon V as the provider's third agent of choice in a multimodal approach to PONV therapy for moderate to severe cases. A similar positive trend is emerging with Zenerlef. Our daily unit sales are steadily increasing and we are onboarding new accounts at a much faster rate than in the past. With the van launch just getting underway and the cross link partnership fully integrated, we believe Zenerlef is positioned to show a significantly stronger growth trajectory as we approach Q3 and beyond. Many of the current initiatives around Zenerlef are already in motion but require time to take full effect. As both daily unit volumes and the number of ordering accounts continue to rise, we remain confident in Zenerlef's multi-hundred million dollar potential provided we can continue to improve execution and expand usage within our existing access points. Our top priority for 2025 is disciplined execution, converting access into sustained case-level market share, optimizing our current commercial footprint and selectively investing in team expansion where it directly supports high return growth opportunities. 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 March 31, 2025 was 30.4 million or 78 percent which increased from 76 percent for the same period in 2024. This is due to a lower cost per unit in the three months ended March 31, 2025 as a result of production efficiencies compared to the same period ended March 31, 2024 offset by an increase in the units sold. SGA expenses for the three months ended March 31, 2025 were 25 million dollars compared to 26.4 million dollars in the same period in 2024. The decrease was primarily related to decreases in personnel and related costs and legal expense related to the timing of patent litigation offset by increased sales and marketing spend to support revenue growth. Research and development expenses were 2.3 million dollars for the three months ended March 31, 2025 compared to 4.6 million dollars in the comparable period in 2024. The decrease was primarily related to decreases in personnel and related costs due to the determinations in 2024 as well as decrease in development activities. We achieved net income for the three months ended March 31, 2025 of 2.6 million dollars. During the comparable period in 2024, we had a net loss of 3.2 million dollars. Cash and short-term investments at March 31, 2025 was 50.7 million dollars. If we had excluded depreciation and stock-based compensation, our adjusted EBITDA results would have been a positive 6.2 million operating income compared to a loss of 0.7 million for the same period in 2024. We are revising our previously given guidance for adjusted EBITDA range of 0 to 8 million dollars to a range of 4 million to 12 million dollars. And now we would like to open the call for any questions.

Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To answer the driver question, please press star 1-1 again. One moment for questions. Our first question comes from Claire Don with Jeffreese. You may proceed.

Hi guys. Congrats on the great quarter. So, the question is on the semantic litigation settlements. To understand, you might not be able to share details of quantitatively. So, I'm wondering whether you can give any qualitative comments and how should we think about the implications of settlement for maybe your near-term financials or guidance? Thank you. And I have a follow-up also.

So, to not only continue with Sanvanti, but also to grow upon the...

Got it. And based on what you've seen so far with after Zinlarov then launched no PIN Act taking effect in April and continued causing partnership. So, how should we think about or what should we expect in terms of sales momentum in the back half of the year?

Yeah, no, that's a great question because when you look at sort of Q4 to Q1 and net revenues were fairly similar, but if you look at demand, we were actually up 2% in unit demand in the market was actually down 5.3%. And so, what we foresee in front of us, we've got a number of accounts. Actually, I think there's six accounts right now that we're in the onboarding process, meaning they've gone through P&T and we're now getting to training physicians and training the hospital and getting things in Epic system and so forth. And this just takes time. And so, one of the things that we're extremely excited about are bringing these accounts on board. And so, for us, we can sort of see this coming. And if you think about all the things that are moving as far as moving pieces right now with the Crosslink partnership and just our messaging and

really

getting this to hit on all cylinders, we see this all kind of coming together mid-year and beyond. And so, I feel extremely confident that you're going to really see a different inflection as we move towards the end of the year. And we feel very comfortable with consensus numbers and hitting those as we move forward.

Got it. Thank you and congrats again.

Thanks, Claire.

Thank you. Our next question goes from Serge Berlinger with Needham. You may proceed.

Hi, good morning. Thanks for taking my questions. The first one, Craig, can you just talk about the 1Q trends, whether the usual seasonality was what you were expecting or similar to prior years? And then maybe just secondly for Ira, just highlight some of the changes to the guidance and what's driving the EBITDA increase.

Thanks. Thanks, Serge. And great question. Again, I thought the trends were fairly consistent with what we've seen in the past, whether it's copay resets or deductibles or what have you, you typically see a little bit of a fall off in Q1. But again, we were pleased because with all the other things going on, we were actually up versus the market. So I think it's a positive sign. But again, we have much bigger hopes than growing 2% versus the market. And so, I think as we move forward again, as I said before, to Claire's point, I think there's a lot coming at the end of the year with the number of accounts we have coming on board and really just getting this cross link partnership where it's really just functioning and going just continue to become more efficient, I guess. And one of the things too that we're looking to do is that as we're onboarding a number of these accounts, we're looking to do a little bit more of a targeted expansion, as I said in my pair of remarks. And what I mean by that is that we onboard these accounts, from time to time, we have gaps as far as being able to do this as fast as we want, and we may need more coverage in a certain account based on the cross link overlay of their footprint. And so, we are going to expand in some areas like that. It may be headcounts such as an MSL, medical sales liaison, it may be some kind of clinical support staff or even sales rep. And so, we're really taking a much more of a targeted approach versus just an all out expansion. And we're going to do that where we have access and where things are going well as far as a new account coming on board and so forth. So, that's why we're really upbeat about what we see and what's coming towards the end of the year. So, I'll turn it over to you on the other question.

Yeah, as far as EBITDA, hi Serge. Thanks for the question. EBITDA, we obviously had a very strong first quarter and some of that is due to efficiencies on the overall spend. Some of that is on the announcement for the settlement, the future spend on that. So, overall, we feel very comfortable that the rest of the year will be fairly positive and have revised guidance on that.

Thank you.

Thank you. And as a reminder, to ask a question, please press star 1-1 on your telephone. Our next question comes from Carl Burns with Northland Capital Markets. You may proceed.

Thanks for the question and congratulations on the results and the progress. It looks like the profit margin came in around 78.3%. I'm wondering if you can talk a little bit about how you expect that to progress through the balance of the year or if there was any anomalies. Obviously, the Sinvadi sales were higher than expected, which should be part of it. Thanks. And then I'll follow up as well.

Okay, thanks Carl. Yeah, gross margin is a little higher than typical. I mean, we've said we thought we would be in sort of this low to mid 70s. And basically what you had happen is exactly what you said. Some of the sales were up and we've got two different manufacturers and we're still using the manufacturer. We have higher scale or larger scale. And so most of those loss came through there. As we go through the year, you're going to see us incorporate some of the lots from where we have smaller scale. And so that may come down a little bit. But again, we still should be in that sort of mid 70s range.

Got it. Thanks. And then switching gears to a Pondi, as a third light agent, obviously the sales there again higher than expected. How do you see it progressing? And what do you see as sort of near term and long term potential in terms of peak sales? That's obviously referencing long term.

Thanks. Yeah, no, it's Pondi. We get so caught up sometimes, I think talking about Zenralif, but Pondi is a product that once we go into a hospital system, we really don't lose these accounts. I mean, it's a product that works extremely well. It's extremely safe. And we continue to have good experiences with that. But the issue we've had is that we're getting a lot of formulary wins and P&T wins. So we're getting access. But typically where Pondi starts is sort of like a bariatric surgery or something like that. And then what you see happen as they get more usage of the product, you typically see it sort of broaden out throughout the hospital. This is where we're trying to focus now. And this is sort of a twofold problem because as we have said all along, the more we can integrate our cross link partnership, it allows our reps to get out of the OR cases and get out in the hospital and do more selling. And so as they're doing that, that should affect the Pondi pull through. So you can imagine if I've got access with bariatric surgery, now my reps are able to go into the PACU and speak to some of those nurses and so forth and talk to anesthesiology, we can get more pull through and get sort of this system wide usage with the Pondi. And so listen, I think the Pondi is going to continue to grow. We've got a very unique safety profile and a unique MOA. And our real goal with this is to be the first choice when you go to a third line agent. And if that happens, this is a multi hundred million dollar drug because there's 70 million surgeries a year that occur in the US. And so about half of that market is moderate to severe, which is sort of our sweet spot as far as patients go. And so again, we think we're going to continue to see tremendous growth. And I think it's only going to get better as we get better with our cross link partners and move our reps out of the kind of the OR suite.

Great, thanks.

That's

very helpful. And then switching back to Zendralem, considering the formulary wins and new accounts coming on, and obviously you have a feel for the timing of that, how do you see an inflection or the timing of an inflection where Zendralem, you start achieving sequential revenue growth? Again, I know you mentioned two percent unit growth versus the market being down. And that may be related to, somewhat related to deductible resets and such, given the fourth quarter, first quarter transition. But I'm just wondering when you might expect to see that inflection and Zendralem sales taking off.

Thanks. Yeah, so we know currently we have five new accounts that I think are in Michigan, North Carolina, and a couple of the states that are ready to onboard. And these counts alone are numerous amount of surgeries, not only in ortho, but obviously throughout the hospital. They're also aligned with our cross link partnership. So our footprints overlap with this and we have access. So look, we know that those counts are in the process of onboarding. This should take place, you know, kind of June, July, as far as getting these things fully onboard. So, you know, where I really see the product beginning to change is as we move into kind of, you know, later in the Q3 and the Q4, I think you're going to see a really different inflection, especially as we come out of the year into 26. And so not only do I think we'll hit consensus this year with our numbers, but I really think next, you know, as we move into next year, as these accounts come on board, and again, we continue to get better with our partnership cross link, I think this is really going to change the direction of this product.

Great, excellent. And again, congratulations on the progress and results.

Thanks. Thanks,

Pearl.

Thank you. I would now like to turn the call back over to Craig Collard for any closing remarks.

I just would like to thank all the employees at Heron. We had a great quarter and we continue to, you know, to execute as we move forward. And we want to thank everyone for being on the call today and we'll see you next quarter. Thank

you. This concludes the conference. Thank you for your participation. You may now disconnect.