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

Thank you, Lisa. Good afternoon, everyone, and thank you for joining us. With me today from Heron are Barry Quart, Chief Executive Officer and Chairman; John Poyhonen, President and Chief Commercial Officer; and Kimberly Manhard, Executive Vice President, Drug Development. 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. In addition, 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 obligation to update these statements. Now I’ll turn the call over to Barry.

Thank you, David. Welcome, everyone. Thank you for joining us this afternoon. For those who are wondering why this call is later in the month than usual, we are currently not an accelerated filer, and we wanted to give our newly reconstituted Board of Directors the opportunity to get to know the company before closing the quarter. We had an excellent fourth quarter and are obviously delighted with the strong increase in sales of

Thank you, Barry. We made solid progress across our acute care and oncology care franchises during the fourth quarter. During my presentation, I will start with a number of updates on key performance metrics related to

Thank you, John. We will conclude the formal presentation with our financial overview slide. Heron had cash, cash equivalents and short-term investments of $84.9 million as of December 31, 2022. Net cash used for operating activities for the three months ended December 31, 2022 was $37.5 million, including a payment of approximately $10 million for Polymer. Without the Polymer payment, our underlying burn was about $27 million, and the full impact of reducing headcount by approximately 34% last year will continue to be realized through this year and next. R&D expense declined to $11.1 million in fourth quarter 2022 compared to $28.9 million in fourth quarter of 2021 and $20.5 million last quarter. We are also working with all our manufacturers to reduce external spending over the next few years as sales continue to ramp. We would expect cash burn in the teens in the second and third quarter. Having spent the last several days with our newly reconstituted Board, I can safely say that they are completely dedicated to extending our cash runway and improving our valuation. After delving into the data and spending time with our sales force, the new Board members continue to be excited about our products. Slides 21 through 24 contain important safety information for

Thank you. [Operator Instructions] We’ll take our first question from Josh Schimmer with Evercore.

Hey, thanks for taking the questions. First a quick one on the accounts receivable line, it looks like that bumped up quarter-over-quarter. What is that attributable to?

It’s attributable to just some minor timing in payments, which as you know 100% of that gets paid and also an increase in sales over the course of the year.

Okay. I guess, I’m trying to reconcile, so the comments about the headwinds from the label and the suboptimal device – delivery device. In light of the obviously challenging launch thus far, which seemed a little bit juxtaposed to John supremely optimistic adoption metrics in the IDNs. And so trying to figure out,is there any meaningful near-term growth prospects this year? Why continue to push on commercialization until you’ve checked the box on the broader label and the simpler device product profile?

Well, I’ll let John answer. But I think to start off, we continue to see growth of the product. We’re making significant inroads what we’ve identified, obviously, is an area that – two areas that will have impact on accelerating growth over what we’re seeing today. But we want to obviously continue to get the message out, grow the product. As John talked about, there’s an opportunity for dissemination of real-world data that’s now being generated as the product has become available. And as we’ve talked about over the last year, one of the time-consuming aspects of the launch were virtually every large site conducting their own trials before they would start using the product just because of prior experience with other products in this category. And so there’s now an abundance of data going to be coming out that will continue to support adoption of the product between now and later this year when we get the expanded label and hopefully shortly after adding to the product by making it easier to use the product. So this is obviously a continuum, but we continue to see adoption. And obviously, we want to continue to push that as hard as we can. John, do you want to add to that?

Yes, certainly. So, I think if we look at the IDNs, as Barry mentioned, the fact that they are all doing internally valuations, and that takes some time. That’s an important aspect and shown in some of the growth that we’ve seen. But the results that they are generating what generally actually been terrific. And that’s why we continue to add new IDNs. We’ve added some very large ones just at the end of last year. And those accounts are very interested and excited about switching out their Exparel business for

And then, John, you provided some encouraging uptake metrics early on for APONVIE, on the other hand, you provided encouraging uptake metrics for

Yes. It’s a very fair question. And I would tell you that I think APONVIE is entirely different. First of all, we have a broad indication for PONV prevention. So, we’re not limited in the surgical procedures that we can be used. The other thing from an ease of use, Josh, we don’t have the same training hurdles. It’s really just a 30-second IV push. It’s something that hospitals are used to using every single day. So the representatives don’t have to remain in the accounts and make sure that the training is – takes place withdrawn the product from the vial. So, I think while certainly there are some very encouraging initial results that we’re seeing. We believe this is a very different product and ease of use, and we’ll have a very rapid uptake as we get going and get formulary access.

Got it. Thanks very much.

We’ll take our next question from Brandon Folkes with Cantor Fitzgerald.

Hi, congratulations on the progress and thanks for taking my questions. Maybe firstly for me, can you just elaborate on some of the options you have for shoring up your cash runway? I know you did talk about that and sort of working with the Board on that. So maybe just if you could elaborate there? And then along the same lines, how should we think about R&D going forward in light of the

Yes, thanks Brandon. So, the – in terms of the second question first, looking at R&D expense going forward, we continue to do our best to moderate R&D over the course of this year. Even with our activities in terms of trying to move the prefilled syringe forward, that’s a relatively modest investment compared to running large scale clinical trials. We will do it as economically as possible. So the – and we’ve already taken significant measures to reduce our R&D expense as I think indicative of the numbers that we put up for fourth quarter. And we’ll continue to look at ways to reduce burn both in R&D as well as elsewhere. I can’t go into specifics at this point. The Board is still in the kind of data accumulation stage and working together very closely with management and we’ll certainly provide updates when available.

Great, thanks very much. And maybe just one follow-up. In terms of the 10% growth – volume growth, any pushes and pulls around revenue that we should think about in the first quarter there, just sort of why revenue may or may not track that closely?

Yes, great question. And there’s no doubt that in the first quarter as on an annual basis, you have what we showed in terms of seasonality of the use of

Brandon, were you asking about

Correct, yes.

Yes, so if you look at it, I think Barry [ph] is right. So what we have seen is additional general surgery procedures coming on board, which is very encouraging. Our initial launch was really focused much more on orthopedics. So with that, there’s a higher mix of the 200 milligram SKU, which would have a lower cost value. And then I think you can see that by some of the numbers historically over time from a demand standpoint. Also, as we gain business in 340B accounts, there will be a bit of reduction and what the net selling price will be. So there will be some sensitivity that we’ll continue to look at. I think the final piece is we took our first price increase in effective January 1. So there was a very minor buy-in that occurred at the end of last quarter probably in the neighborhood of a week or two. So those would be the factors that would impact the actual results for Q1.

Great. Thank you very much.

Sure.

[Operator Instructions] We’ll take our next question from Serge Belanger with Needham and Company.

Hi, good afternoon. Couple questions for us.

Hey Serge.

First one, Barry, can you just talk about the overall surgical volume trends? I know you’re – your competitor has been, as previously mentioned that the lack of full recovery has been a headwind. So just curious what you’ve seen so far this year. I know first quarter is usually slow, but usually by the time we get to March 1st to normalize. So curious what you see in terms of those trends?

Yes. And I think – I think John can comment on and get a little more color. No question, January is very slow and we’ve seen good movement in February and strong March, which leads to overall growth over the quarter. John, do you want to give any more color?

Yes. I think that if you look at the slide that we showed based on the seasonality of the product that, that continues to hold true. Overall in our indicated procedures last year they were down 4.1% or 4.6% compared to 2021 volume. So far in the first quarter of this year, they’re running very comparable to what they were in 2022 Serge, so – but it’s still early. The claims data tends to run a bit behind when the actual unit volume is available. So it’s something that we can look at and report on it during our next earnings call.

Okay. And then secondly you highlighted your plans to improve the presentation of the

It would be just like a development of any other device similar to the Luer Lock Applicator that we provide in the kit. You have to go through a normal manufacturing activities in terms of demonstration of the sterility. How you’re using radiation to sterilize the device and packaging of that device. You put all of that material together, all of that’s being done by an external manufacturer. That contract manufacturer has many, many of these type of devices that they make. They’re expert at this activity, and so they provide all that information for the filing. And then it’s really a question of two parallel paths that can be taken, filing 510(k) as a device as well as filing pre-approval supplement in order to package the product in the kit. The 510(k) goes faster generally, and so we’re currently evaluating opportunities to see if we can accelerate this process using that approach. There’s some technical issues associated with that that we need to work through with the FDA. But in either pathway it’s really development of the device in showing that you can write instructions on how to use it appropriately. Not a lot of big hurdles. This is a – although the device is quite novel and how we’ve – can designed it. The general concept of a vial access needle is extremely common, and the amount of education or instruction in order to use it will be really minimal.

Thank you.

We’ll take our next question from Kelly Shi with Jefferies.

Hi. This is Claire [ph] on for Kelly. Thanks for taking my question. So my first questions on

Yes. John, do you want to take the first part?

Of course. So our focus right now is in our existing accounts, making sure that our representatives are able to really maximize the number of surgeons using a product. So oftentimes in these initial evaluations that are coming about, they’ll start with maybe two or three orthopedic surgeons, and there may be five to eight in practice. So our goal is to really leverage the positive results at the initial trial period had and expand to those other surgeons. The other thing that we’re looking to do is expand within the procedures that we’re doing, so if we’re starting with total, someone maybe could go on mute, there’s an awful lot of background noise there. Thank you so much. So the other thing that we’re doing is looking to expand the surgical procedures. So if someone’s starting in TKA, we’re obviously looking to do hips. We’re also then looking to expand within an account to other surgical lines. So if it’s going well in orthopedics, what can we do in general surgery and pediatrics, what can we do in C-section, where are additional places that we can grow the business. And we are beginning to see good traction on taking that approach. Some of the flexible resources that we’re adding like the medical device reps are helping a lot too, because they have such a strong relationship with orthopedic surgeons, there may be some that we don’t have strong relationships and are harder to convert. And we’ve already seen growth coming from accounts by using that. So there’s a variety of really strategies that we’re using there. But I think most of it is just making sure that we’re leaving no stone unturned within accounts that already have existing business.

Yes. And on the EU question, really no update. We have continually seen a challenging process to find an EU partner, and we have no intention of launching the product ourself that’s an expensive endeavor, and we certainly would not want to use our cash for that at this time.

Got it. That’s very helpful. And on the APONVIE the launch, you have talked about the early signals you have seen from the launch two weeks ago. And could you maybe give us more color on APONVIE ramp-up? And like what are the additional cells or you might need to support the APONVIE ramp-up? And how should we expect the cost increase associated with that? Thank you.

Yes. John, do you want to take that?

Of course. So with respect to the sales ramp up, it will really be determined on how quickly we can get formulary approval. So that’s a key priority that we have right now. As with any of our products, we don’t give guidance to during a launch phase. So we’re really not providing any additional insights at this time. What we hope to do is continue to provide updates on the progress as we get further in, but we’re only two weeks out. With respect to the additional cost, we’re using our existing

Got it. Thank you.

And that does conclude the question-and-answer session. I would like to turn the call back over to Dr. Quart for any additional or closing remarks.

Thank you, and thanks everyone for joining us today on the call. We look forward to keeping you updated in the future.