HRTX - NASDAQ

Thank you for standing by, and welcome to the Heron Therapeutics Fourth Quarter 2023 Conference Call. I would now like to welcome Melissa Durel [ph], Executive Director, Legal to begin the call. Melissa, over to you.

Thank you, operator, and good afternoon everyone. Thank you for joining us on the Heron Therapeutics conference call this afternoon to discuss the company's financial results for the fourth quarter ended December 31, 2023. 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 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 and does not intend to do so. And with that, I would now like to turn over the call to Craig Collard, Chief Executive Officer of Heron.

Good afternoon, and welcome to the Heron Therapeutics fourth quarter 2023 earnings call. Today, we are pleased to update you on our latest achievements in 2023 financial performance, progression on our development projects, CrossLink training and some insight into where we are headed strategically with our products. Since joined Heron Therapeutics as CEO back in April of 2023, we have taken significant steps to get this business back on track. It started with headcount and expense reduction combined with getting the right management team in place. We've implemented a comprehensive streamlining of our financial processes, enhancing efficiency and accountability across the organization. As you can see from this slide, we have had a number of significant achievements in 2023 that help us well positioned as we move into 2024 and beyond. We've been able to reduce operational expenses from $182 million in 2022 to $135 million in 2023 and we should be in the range of $108 million to $160 million in operating expenses in 2024. As part of this process, we have also looked to improve our gross margin. Historically enough, the company has had gross margins in the 50% range. However, through better inventory management and with some renegotiations with our manufacturers, we've been able to reduce COGS and improve gross margins to over 70%. We anticipate future gross margins to continue to improve up to the mid-70s range. We completed a capital raise early in 2023, which will allow us to have enough cash to get to profitability by late 2024. We closed the year in 2023 with over $80 million in cash and cash equivalents, which again is enough cash for us to reach profitability in Q4 of 2024. Moving down the list, we were able to restart the Vial Access Needle, or VAN, project along with the Prefilled Syringe. Both of these projects are progressing nicely with the expected VAN approval by the end of this year and the Prefilled Syringe approval expected in 2026. Both of these projects will provide significant improvement to our product

Thanks, Craig. I am so excited to be joining the Heron Therapeutics team in supporting the commercial portfolio of acute care and oncology care products. I have over 15 years of clinical pharmacy experience with a focus on perioperative care as a pharmacist in addition to over decade of experience in drug development, discovery and clinical trials as Director of Pharmaceutical Sciences at the Osteal Therapeutics. As Senior Vice President of Medical Affairs, Strategy and Engagement for Heron, it will be my job to support the accurate dissemination of medical information to our team and providers assuring patients have access to the best possible care, forming strategic alliances and collaborating with the medical community to assure Heron's products become part of the standard of care as medical literature dictate. I look forward to working with our team at Heron on expanding indications, access, adoption and medical literature with our current commercial portfolio and future products. I will focus on our acute care portfolio today, as I have the pleasure of having extensive real-world experience with

Thank you, Kevin. We are certainly excited to have you join our team. The development opportunities for

Thanks, Bill. Craig has covered our product performance in his comments and I will just add a few additional points about our Q4 2023 and year-to-date results. Our product gross profit for the fourth quarter was $24.3 million and $61.9 million for the 12 months ended December 31, 2023, representing 71% and 49% of net revenue, respectively. The annual margins were negatively impacted by write-offs of

The floor is now open for your questions. [Operator Instructions] Our first question comes from the line of Serge Belanger with Needham & Company. Please go ahead. Your line is open, sir. Pardon me. Your line is open. Please go ahead, Serge.

Can you hear me?

Yes, we can now. I’m sorry, Serge. We didn’t hear the part of that.

Got it, got it. So, two questions related to

Okay, sure. Yes. I would say, again, anecdotally, when we got the label expansion, obviously there's a lot of excitement when we go into, certainly centers where we already have some business. It's certainly easier to go deeper into those accounts. And we're seeing some of that. Actually, the day one of the label expansion, I saw, I guess, our first on label spine surgery. I was actually in the surgery in Asheville, North Carolina. So we're certainly getting some of that. I think that though, combined with certainly CrossLink, we had a meeting at AAOS out in San Francisco. We were with CrossLink some and had some physicians coming by the booth and everything, and just the excitement around that. But I don't think you're going to see necessarily a dramatic impact as of yet. But we're certainly seeing some impact. But I think again, over time, as I said in my comments, I think with CrossLink, with the label expansion, the launch of VAN later in the year, I think this really begins to take off late into the year, into 2025, when we really start to see an inflection. But we're certainly seeing some positive momentum. Regarding the No Pain ACT, I'm going to turn it to Kevin Warner, who can give a little bit more insight into that.

Yes. Hey, Serge, thanks for that question. So the No Pain ACT is going to be significant from multiple facets. So what the No Pain ACT does is provide reimbursement in the hospital outpatient procedure department and the ambulatory surgical centers for products that have been proven to reduce the need for opioids. So in

Thank you.

You’re welcome.

Our next question comes from the line of Carl Byrnes with Northland Capital Markets. Please go ahead.

Thanks for the question and congratulations on the results and the progress. Understanding that 2025 is really set up to be the ramp year for

Yeah. Again, one of the reasons we did get that range was we weren't sure exactly when and how this may take off. But to your point, with expanded label, and the thing I can say about the CrossLink partnership, I mean, every now and then you do one of these where things seem to work perfectly from a standpoint of the personnel and just how things come together. And we really do feel that way. The CrossLink folks have been fantastic. They certainly are bringing different relationships that we may have currently with some of the surgeons, so forth. So that's been everything we had hoped for at this point. I think one of the surprises that we had when we did the initial training, and I was there along with our team, we did that in person. And again, it was just very receptive. We had the executive team at CrossLink. And so from there, we did another training last week in person with some of the sales folks there. And so we're going to continue to do those. And so we should – as I mentioned, we should have in the next 30 days or so about 150 reps that will be sort of fully out there and running. And so again, we will certainly see some impact. I'm just trying to temper this a bit because until we really get fully up and running and do this for a little while and train some of these other areas of the country. I don't think it's going to really take off and inflect until next year. But look, we're having positive things happen so far and we're pleased so far this has gone as planned.

Great, thanks. And then just a follow-up. There also seems to be, and you again touched on this, a significant opportunity in the ASC segment, particularly to cross sell both

Yeah. Well, certainly, the market is moving that way. And again, we've tried to, I hate to say overly simplify things, but we've really tried to go where we think we'd be most successful now and sort of niche this product a bit. And so that has led us to the orthopedic space and we'll certainly expand from there, but that really is in parallel where that space is going with ASC. So as we look at our business, we think there's a real opportunity as that space expands for us to really have a true partner there. Because again, if you think about the goal of an ASC is to get these patients out quickly to get them into rehab. The last thing you want is any patients that would have any kind of nausea associated with the surgery going back into the hospital. And so this is where APONVIE can come in and play, and so – for those higher risk patients. So with our kind of perioperative one-two punch, we really do feel that these two products are really positioned perfectly with exactly what the ASC is trying to do. And so, again, with CrossLink already having some presence there, we think that's going to be extremely helpful in opening some doors for us there and really trying to move down that path.

Great, thanks and congratulations, again.

Thanks, Carl.

[Operator Instructions] Our next question comes from the line of Kelly Shi with Jefferies. Please go ahead.

Hi, this is Claire on for Kelly. Congrats on the great progress. And just one quick question on the cost reduction. So just wondering, do you have any plan to further execute your cost reduction plan in 2024? Like, should we expect R&D and SG&A to continue go down in 2024 and 2025? And at what point, do you think your operating cost will be at a more stable level? Thank you.

Thanks, Claire. I appreciate the question. No, look, the range we've given from $108 million to $116 million. Again, we'd love to be at the lower end of that. Again, as we've made some of these changes, we're trying to now kind of sort through what that may look like this year. And we've given ourselves a little bit of wiggle room, but I don't think you're going to see significant cost reductions from here. I think we're sort of at a level now where you can kind of expect going forward. But again, we feel pretty comfortable within this range.

Got it. Thank you.

Okay. Thank you.

There are no further questions at this time. I would now like to turn the call over to Craig Collard for closing remarks.

I just want to thank everyone for joining the call today, and we really look forward to speaking to everyone next quarter. Thank you.