HRTX - NASDAQ

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Heron Therapeutics Second Quarter 2023 Earnings Conference Call. As a reminder, this conference is being recorded. Now, I would like to turn the call over to Jeff Cohen, Executive Director, Assistant General Counsel and Assistant Secretary. Please proceed.

Thank you, Krista, and good afternoon, everyone. Thank you for joining us this afternoon on the Heron Therapeutics conference call to discuss the company's financial results for the second quarter ended June 30, 2023. With me today from Heron are Craig Collard, Chief Executive Officer; Ira Duarte, Executive Vice President, Chief Financial Officer; and Bill Forbes, Executive Vice President, Chief Development Officer. 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 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; does not intend to do so. And with that, I would now like to turn the call over to Craig Collard, Chief Executive Officer.

Thanks, Jeff. Good afternoon, everyone, and thank you for joining us today for our second quarter 2023 earnings call. I'm pleased to share with you some significant developments that have transpired since our last call. Our team has been hard at work and I'm excited to provide you with updates that we believe will lead to transforming Heron into a profitable company with growing revenues, including updates on our cost reduction efforts, financing activities and changes in our executive management team, as well as an update on the status of our pending Hatch-Waxman ANDA patent litigation. On my first earnings call with Heron as CEO, I mentioned that I'd only been here four weeks and most of that time was used to assess the business and determine where we could make improvements quickly. The first step was assessing the executive leadership and making the proper changes that were needed. We made those changes and we now have a leaner organization with a new CFO, Head of Development, Head of Supply and Vendor Management, and new leadership in Sales and Marketing on the acute side of the business. I'm thrilled to announce that the new team has successfully implemented a cost reduction initiative. Through careful analysis and strategic planning, we have identified areas where we can streamline our operations and enhance efficiencies. Over the next three years, we expect to achieve a remarkable cash savings of approximately $75 million. This initiative reflects our commitment to fiscal responsibility and our dedication to optimizing our resources for sustained growth. In addition to the cost cutting measures, we were able to bolster the balance sheet by completing a $30 million equity financing with some of our largest shareholders as well as closing on an up to $50 million working capital facility. Based on our current operational plan, we expect that this will provide the company with enough capital to achieve profitability. This achievement underscores the confidence that our investors and partners have on our business strategy and growth potential of our products. We are still in the early stages of revamping Heron into a commercially-focused company with efficient operations. The changes we have made this quarter are significant and has certainly improved the business and set up a solid foundation for the future. The next phase of improvements will be focused around maximizing the growth potential of all of our products on both the acute care and oncology sides of the business. Even during this recent time of organizational change, the company is still seeing product growth. We expect this to improve dramatically as we implement new strategic plans moving forward. Now moving onto some product highlights from the quarter. On the oncology side of the business, Q2 net product sales combined for CINVANTI and SUSTOL were $27.3 million, which increased from $25.1 million for the same period in 2022. We also grew combined sales by 6% quarter-over-quarter. We are pleased to reiterate our financial guidance for the oncology franchise of $99 million to $103 million in net product sales for the full year 2023. We also recently had a favorable outcome at the Markman hearing in our pending Hatch-Waxman ANDA litigation against Fresenius to enforce our CINVANTI patents. We are pleased with the outcome and will continue to vigorously enforce and defend our patent portfolio. Moving now to the acute care side of the business, with

Thanks, Craig. Our combined product net revenues for the second quarter of 2023 were $31.8 million compared with $27.6 million in Q2 2022, representing an increase of 15% to the same period of 2022. Product net revenues for the first six months of 2023 were $61.4 million compared with $51.1 million for 2022 or an increase of 20%. Our acute care franchise net revenues for the three and six months ended June 30, 2023 were $4.5 million and $8.3 million, respectively, which increased from $2.5 million and $3.5 million, respectively, for the same period in 2022. For the three and six months ended June 30, 2023, oncology care franchise net product sales were $27.3 million and $53.1 million, respectively, which increased from $25.1 million and $47.5 million, respectively, for the same period in 2022. Our product gross profit for the quarter was $11.6 million, and $24.4 million for the six months ended June 30, 2023, representing 36.5% and 40% of net revenue, respectively. These margins were negatively impacted by write-offs of

Thanks, Ira. Operator, at this time, we'd like to open the line for questions.

[Operator Instructions] Your first question comes from the line of Serge Belanger from Needham & Company. Please go ahead. Your line is open.

Hi, good afternoon. Just a couple of questions for us. First one, regarding achieving profitability. I think in the past, you've talked about a late 2024 timeline for that. Is that still the target, or has that changed given the regulatory delay around

Hi, Serge. Thanks for the question. So, regarding profitability, again, we have said that we believe we would achieve profitability in late 2024. I think the takeaway here is based on the monies we've raised, again, we don't think we'll need to raise any more monies in order to get to that point. And we built that forecast without the upside of the sNDA for the VAN or anything like that. So this is more of just a trend forecast on how the product was performing. And so with the cost reduction efforts we've made, we are able to get to profitability within that timeframe. There could be some upside from some things we're doing. Again, assuming we get the label expansion, we're anticipating -- assuming that some of the things that we implement will have a positive impact on

Hi, Serge. This is Bill Forbes. Yes, so the current package insert allows for periarticular instillation for up to 72 hours of analgesia with bunionectomy, open inguinal herniorrhaphy and total knee arthroplasty. What we're proposing in the sNDA is that we go to postsurgical analgesia for soft tissue in orthopedic. So, maybe I'll step back a little bit here and just kind of talk broadly about the submission that was put in here at Heron. And

Yes. Thank you.

Your next question comes from the line of Boris Peaker from TD Cowen. Please go ahead. Your line is open.

Great. Thanks. Two questions on my end. First, in terms of profitability. I'm just curious, Craig, do you think Heron can become a profitable organization based on supportive care alone? Like if we exclude

We really hadn't looked at it that way. But I mean, again, now you're talking if we put total focus around APONVIE and didn't promote

Great. And on

Yes. I think where we've had the most success to this point has really been within knee and hip. I mean that's where a majority of the procedures are being performed. And again, once these hospitals or ASCs get passed sort of the prep issue, we're seeing data that suggest once we have a sort of four-month usage, we typically keep those customers. So that's where we've had the most success to date.

Great. Thank you very much for taking my questions.

Thank you.

[Operator Instructions] Your next question -- we have no further questions in the queue at this time. Oh, I'm sorry, we do. Carl Byrnes from Northland Capital Markets. Please go ahead. Your line is open.

Thanks. Congratulations on the progress, and thanks for the question. Any thoughts with respect to

Well, thanks, Carl. Sorry, we almost cut you off there, so I apologize for that. Yes, one of the things we've been looking to do is what can we do outside of things that were used as far as improving

Got it. Thanks. And then kind of switching gears a little bit. If we look at SG&A, which is around -- I think, around $36.4 million and R&D at $17.6 million, can you quantify how much in the quarter was related to severance and potentially kind of one-time extraordinary-type charges? And what you expect the expense levels to be, if you're able to quantify for the third quarter? Or if that's not possible? Or do you expect additional one-time severance and one-time type charges to hit the third quarter? Thanks.

Yes. I think we publicly released, we have about $5.9 million in one-time charge that will come through to the end of this year. So, go in 2024, you will see our operating expenses -- they've been [advanced, levelling] (ph) up at $120 million for the year, $120 million in 2024, and we believe we cut probably another $10 million of that going forward.

Got it. Thanks.

[Operator Instructions] Your next question comes from the line of Kelly Shi from Jefferies. Please go ahead. Your line is open.

Hi. This is [Clara] (ph) on for Kelly. Thanks for taking my question. So, I have two questions. For APONVIE, so this is the first full quarter of sales. Seems like you had a lot of positive feedback from physicians. So, just wondering how should we think about the sales growth trajectory from now on for APONVIE.

Yes. No, it's a great question. We haven't had a ton of time with APONVIE, but the biggest difference with APONVIE versus

Great. And also for

Yes. Well, I think the good news is the VAN is on track from a timeline perspective. We do believe we'll have that out in midyear of next year. And it does two things. One, it helps with the sterility issue, it makes that [indiscernible]. And two, it's going to change the time to pull the product. So instead of three to four minutes, it could be upwards of 20 to 30 seconds. And so I think it's dramatically going to impact the product from a standpoint of just ease of use. Again, our -- I mentioned before about looking to possibly partner with a surgical partner in the surgical suite. I think that's something as well as we lead into the VAN and with an expanded label and hopefully expanded footprint. All of those things should lead to higher sales and higher sales growth But again, I want to reiterate, we have not forecasted that as far as getting us to profitability. These would be additional sales. So, we feel pretty comfortable with that. And again, everything seems to be on track from a timeline perspective.

Okay. Very helpful. Thank you.

Thank you.

We have no further questions in the queue at this time. Craig, I'll turn it back to you for closing remarks.

I just want to thank everyone again. This is our second earnings call, but we really do appreciate the time and patience. I think the business is making some strides in transforming. It's going to take a little bit of time, but we're getting there. And I think we've had some significant things that have happened this quarter. So, we look forward to updating everyone next quarter. Thank you.