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Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Heron Therapeutics Q2 2022 Earnings Conference. As a reminder, this conference is being recorded. Now I would like to turn the call over to David Szekeres, Executive Vice President, Chief Operating Officer. Please proceed.

Good afternoon, everyone, and thank you for joining us. With me today from Heron are Barry Quart, Chief Executive Officer and Chairman; and John Poyhonen, President and Chief Commercial Officer. For those of you participating via conference call, the slides are made available via webcast and can also be accessed by going to the Investor Relations page of our website, following conclusion of today’s call. Before we begin, I would like to remind you that this call will contain forward-looking statements concerning Heron’s future expectations, plans, prospects, corporate strategy and performance, which constitute forward-looking statements for the purposes of the safe harbor provision under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements, as a result of various important factors, including those discussed in our filings with the SEC. Any forward-looking statements represent our views only as of the date of this webcast and should not be relied upon as representing our views as of any subsequent date. We specifically disclaim any obligations to update such statements. Now, I’ll turn the call over to Barry.

Thank you, David. Welcome everyone. And thank you for joining us. Second quarter has been extremely productive on a number of fronts. John will discuss details regarding our two commercial franchises, both of which showed good growth in second quarter beating consensus estimates. During second quarter, we continued to prosecute our NDA for HTX-019 for postoperative nausea and vomiting, which has the potential to be many times larger than our CINV business. Interactions with the FDA remain on track for the September 17th PDUFA date. We've also made excellent progress completing enrollment in the four clinical trials with

Thank you, Barry. I'm excited to share our second quarter commercial results. We continue to make significant progress with the

The outlook for our CINV products remains positive based on continued improving reimbursement tailwinds over the past year. As shown in the table below on Slide 21 both CINVANTI and SUSTOL are much more favorable – in a much more favorable reimbursement position versus the competition than the same time last year with generic fosaprepitant down to $27 and IV Akynzeo down to $458 based on ASP plus 4% reimbursement. In addition, the elimination of separate reimbursement for generic fosaprepitant and the hospital outpatient segment effective January 1 of this year made the CINVANTI value proposition much more attractive this year. Our full year 2022 CINV net sales guidance has been increased to a range of $93 million to $95 million representing at 11% to 14% increase over the prior year. In addition, we expect demand units in the second half of 2022 to be higher compared to the prior year, which will be partially offset by lower net sales for both products. Finally, the new CMS guidelines published in July indicated that effective January 1, 2023, that reimbursement for 340B accounts will increase the ASP plus 6% compared to the current rate of ASP minus 22.5%. With the greatest portion of our CINVANTI hospital demand unit sales in 340B accounts, we believe this new opportunity will help us increase unit sales in the fourth quarter and in 2023. That completes my prepared remarks. And I’ll now turn the call back over to Barry.

Thank you, John. In June, we announced a restructuring which included a 34% reduction in headcount by year end. Between the restructuring, improvements in gross margin from the move to large scale manufacturing and other cost cutting measures, we expect to achieve reductions of over $50 million in annual operating expenses in 2023. These reductions and burn coupled with the private placement financing announced this morning are projected to provide a cash runway through 2024 and to allow us to become cash flow positive in 2024. As of June 30, 2022, Heron had cash, cash equivalents and short-term investments of $83.5 million. Adjusting for net proceeds of $75.2 million from our August 2022 private placement, Heron had cash, cash equivalents and short-term investments of $158.7 million. Second quarter burn was $28.4 million. While burn will increase in the third quarter due to the restructuring. Fourth quarter burn minus one-time expenses is projected to be approximately $21 million with significant further reductions going into 2023. I’d like to take a minute to review a few of the key accomplishments and catalysts for the company. As we have discussed, in second quarter,

[Operator Instructions] And your first question comes from the line of Brandon Folkes with Cantor Fitzgerald. Your line is open.

Hi, thanks for taking my questions and congratulations on all the progress. Maybe just two from me. Can you just talk about some of the moving pieces that will drive cash flow positivity by 2024 as we model that? And then secondly, when you look at the 15 IDN evaluating switching that $42 million of Exparel business, what is the hurdle they’re using to evaluate the product? Is it just surgeon and patient experience? And then should they decide to switch? How quickly does that revenue take to shift? Is it a gradual switch or is it something that sort of – as of a certain date they will switch all their business? Thank you.

Thanks, Brandon. I’ll have John answer the second question first, because it certainly leads into the answer to the first question.

Good morning, Brandon. Yes. So regarding your question on the 15 IDNs, generally, there is an evaluation period that will be set based on specific surgical procedures. So what we see frequently is they’ll start if in the lower extremity arthroplasty like TKA or total hip repair, replacement rather. In addition, they’ll look at generally something in a small to medium abdominal surgery, like, bariatric surgery. And what they’re really looking at is key parameters. So they’ll look at pain reduction over three days. They’ll look at the impact on opioid usage. And importantly, they’ll also look at time to discharge. Those are generally – there may be individual differences amongst each of the IDNs, but those are – what are most typically reviewed. Respect – with respect to time to change, each of these systems is a bit different and some move more rapidly than others. I think you can see from the report that we provided today on Slide number 13, we’re actually, there’s one IDN – IDM number one that didn’t have any market share in the third or fourth quarter of last year, but went up to 14% and 41% in the second quarter. So they can move pretty quickly once they start making that type of commitment. But it’s certainly a situation where we would never expect to get a 100% of the Exparel business. I think that would be fairly rare, but we do believe that we can get a very significant portion of it. So hopefully that answers your question.

Thanks, John. Going back to the moving parts associated with becoming cash flow positive, obviously, it is partly associated with decreasing burn. As mentioned, we did a restructuring in June, reducing organization by approximately 34% and taking significant costs out of our base burnt. We’re always continuing to look at ways to be more efficient in that regard, it also an important contributor here is increasing margin. As we’ve discussed previously Heron has invested significant amount of money in moving to large scale manufacturing for CINVANTI as well as for

Your next question comes from the line of Josh Schimmer with Evercore. Your line is open.

Great. Thanks for taking the questions. I have a few if I may, but maybe we can start with the

Yes. Thanks, Josh. Good question. As you know, the first two quarters of launch were significantly hampered by the very restricted label. And we unfortunately misread the market in terms of surgeons’ willingness to use the product beyond the limited label. Although, market research had indicated that the label would not be an impediment to launching the product, it turned out to be a significant impediment in fact. So the first two quarters, obviously, the launch was much, much slower than anticipated, obviously, there’s the impact of COVID, particularly in terms of the Omicron surge early this year, right at the time, we were launching the expanded label and the broadening of covered procedures from around 2 million to over 7 million. I think we’ve now started to hit our stride in terms of moving the product into obviously new institutions starting to see the movement of IDNs to start switching versus Exparel based on both the clinical data that we have showing superiority of

Got it. I mean, given how obvious the narrow label was, why do you think your market research missed something as obvious as that factor turned out to be?

Well, I’ll let John give some color on this. But the surgeons that we interviewed for the marker research, which was a large number indicated that they were comfortable with use of a local anesthetic, they understood the pros and cons of using local anesthetics. And the fact that the label specified three specific procedures wasn’t going to be an impediment. One factor that we didn’t take into account early on was that we were actually reinforcing the limited aspect of the label, because we would not permit our sales reps to stay in the OR if the surgeon was using the product in an off label. We really reinforced the concept that the product needed to be only used in those three indicated procedures. John, I don’t know if you have anything else to add.

No, I think that you summarized it very well, Barry. The one thing I would add just based on Josh’s initial question, and if you really look at just the past two quarters, which is how we’re evaluating the launch because of the very limited label that we had at launch. During the first two quarters of launch Exparel sold just over 19,000 units. And we sold, if you start at January 1, over 21,000, so, we think we’re tracking much more favorably even with the first expansion of the label. And we think that’ll continue to expand as we get sNDA approved.

Got it. I have another couple of questions. One is on the formulary approvals, I think based on what you’ve indicated in the past, looks like there’s still maybe 700 formularies left to go. Where are you in terms of your initial expectations for formulary adoption? And what progress do you expect to make for the large number of remaining formularies where you’ve not been yet approved?

Yes, that’s a great question, Josh. So the first thing I would mention is, is that the way that we evaluate an IDN formulary approval is even if an IDN has 10 or 15 hospital accounts, and some of those IDNs, it only takes the system level approval to get it and you may get the entire number of hospitals within that IDN with just one single approval. So we’re probably undercounting it a bit. Certainly we’re getting a great success rate that we’re seeing in accounts that are evaluating

So what percent of the addressable market do you have formulary coverage for now or a clear line of sight to coverage behind a year?

So if you take a look at the percentage initially we were targeting based on the reps that we had in the field looked to be about 65% of the overall market. So right now, I would say that based on the formulary coverage that we’ve got, we’ve probably got somewhere around a third of that. So we’ve probably got, let’s say 20% to 25% of the opportunity, Josh. And by the end of the year, we would hope to push that over 30%.

That sounds like still fairly long way to go.

Well, it’s certainly, as far as getting everything opened up, but if you take a look at the number of ordering accounts and the type of business that we can generate from those ordering accounts, we think that there’ll be significant growth as we move forward. So hospitals tend to move slowly and certainly this is no different than any other hospital launch. But I think the hospitals that are using

Got it. And last question, and thank you for indulging so many. As we think about the 019 PONV opportunity, maybe you can help frame that for us relative to SUSTOL and CINVANTI and

John, do you want to take that?

Sure. It’s a great question. And from our perspective, we think that it will be much more CINVANTI like, really because if you look at it, number one,

Great. Thanks very much.

Your next question comes from the line of Boris Peaker with Cowen. Your line is open.

Great. Thanks for taking my question. This is Nick on for Boris. I just have a few questions. The first is for the IDN that are evaluating the therapeutic interchange around how long will those individual trials take? I know that you mentioned that they could be in like a different – a couple of different surgeries. Do you know like how long – how many patients, for example, they would need and how many surgeries they would need in each indication? And also on top of that, could the hospital or IND – IDN decide to only have therapeutic interchange for one surgery, for example, or would it have to be a total therapeutic interchange?

John, do you want to take that?

Sure. So really they’re all over the board on the length of time and Nick, as you suggested, it really depends on the number of surgical procedures that they’ll be evaluating. Generally, there’ll be a bony model and a soft tissue in accounts that are looking at it. And it depends on the number of accounts or hospitals within an IDN that may be conducting it. As far as the size, we’ve seen accounts looking at several 100 to make their decision. We’ve seen some that are more in the 50 of each range. So it really depends on an account by account basis. So it’s tough to predict, but what I can say is that during the second quarter, we have the first IDN that really started their evaluation. I would say probably in March. And by the end of the second quarter, they had made their decision and it was positive for

Great. Thank you. And then just a follow-up on that. What would it take for the rest of the IDNs that currently are not actually evaluating therapeutic interchange? But what would it take for them to start evaluating that? Is that something that you would’ve to do on your end or is it more so just takes time for them?

Based on the feedback that we’re hearing, some of them just want to give a bit more experience with

Great. Thank you very much.

Certainly.

Your next question comes line of Serge Belanger with Needham and Company. Your line is open.

Hi, good morning. Couple questions on

Okay. So the first question on where is the business coming from? If you look at it right now, it’s been about 65% coming from hospitals, 35% from ASCs. That would be from an ordering account perspective. So if you convert that into units, it’s about 80% hospital, 20% ASCs. So I think that was your first question. Where’s the business coming from? It’s really coming from both Exparel and bupivacaine as I mentioned in my last response. There were certainly some accounts that had never used Exparel or had stopped using it where we’ve got a 100% share of the branded product there. What we’re especially excited about is we continue to see good traction against the bupivacaine and the generic cocktails based on the superior clinical results. We’ve got a couple of accounts that have been doing very extensive evaluations of this with several 100 patients that they’ve been doing all on their own. And they’ll be looking to publish in the second half of the year, which we think will be a great benefit for us as we go forward. And finally, on the 40% to 50% growth, there has been some softness in the overall elected surgery market during 2022. But certainly, we continue to see good growth as we enter Q3 with

Okay. And then on the upcoming PONV product PDUFA, I don’t know if you’ve mentioned this in the past. But did you require – did the NDA review require a site inspection and has that inspection taking place? Secondly, what kind of marketing – additional marketing expense should we expect with this launch? Just thinking of how that could impact the OpEx progression in 2023? Thanks.

Yes. Thanks Serge. So this product which is a smaller vial of CINVANTI, which as you know, we’ve made and sold over 2 million vials of CINVANTI to date did not require an inspection. We are in the very end stage here of the review cycle. There’s no indication that that situation will change. And the manufacturer for HTX-019 is also a manufacturer for CINVANTI. So I think there’s a very significant track record of that manufacturer being able to make the product, certainly a larger bio size of it.\ In terms of sales – expenses and expansion really excellent question, because it leads to a point that we should have highlighted when the question was asked previously. And that is one of the great things about HTX-019 is it utilizes our resources that are already focused in the acute care setting. And so we don’t anticipate significant additional investment is necessary because we already have the reps out in the field, they’re already talking to surgeons, an anesthesiologist, exactly the target audience for HTX-019. And so it’s a perfect segue for them to add this into the bag, as they say without the significant additional cost and without the need for any substantial increases in personnel. So very economical and really an exciting product when one looks at the published data on how effective the molecule can be for PONV. And as John mentioned in today’s world, the biggest issue is getting patients out the door because there’s not sufficient staff for patients to be kept in the PACU. And we’re seeing surgeries not being scheduled into the afternoon as they might otherwise be because there’s concern about not having staff or recovery. So if you can use easy to use safe product that helps you get patients out the door in the ASC setting, for example, we think this is going to be extremely attractive.

And just one more, I guess, is this a product that’s going to require kind of the same approval process via P&T formularies for adoption?

Yes, certainly as a hospital product it would still need to go to formulary committee in the hospital setting. Again, however, the molecule itself is very well known. It’s simply a more convenient approach towards administration of a product that’s already being used in over a 0.5 million oral pills for PONV. And so we’re certainly going to press very hard to get that acceptance from P&T committees as quickly as possible in terms of the launch. But it probably has the most similarities to CINVANTI in that regard as well, which certainly required formulary approval. And as you remember back when we launched that product that process went relatively smoothly. And obviously, we took a large portion of the amend market within the first two years of launch.

Thanks for taking the questions.

Yes, certainly. There are no further questions at this time. I will now turn the call back over to Barry for closing remarks.

Thank you. And thanks everyone for joining us on the call today. We’re really pleased with the progress this quarter and we look forward to keeping you updated.