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Good day, and thank you for standing by, and welcome to the Heron Therapeutics Q4 2024 Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] And please be advised that today's conference call is being recorded. I would now like to hand the conference over to your speaker today, Melissa Jarel, Executive Director, Legal. Please go ahead.

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 fourth quarter ended December 31st 2024. 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 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' fourth quarter 2024 earnings call. Today, we're extremely excited to share our results for the quarter as well as our performance for the full year 2024. Since joining the company in April of 2023, our goal as a management team has been to reposition the business for future growth and achieve profitability by the fourth quarter of 2024. As we focused on positioning the company for growth, we successfully expanded the product labeling for

Thank you, Craig. We continue to improve on our financial efficiency while growing revenues. Over the past 12 months during a time of change and disruption at the company, we grew revenues 13.6%, improved gross margin from 48.8% to 73.2% and grew gross profit by almost 71%. More importantly, we did this and burned only approximately $21 million in cash for 2024. Our product gross profit for the three months ended December 31st 2024 was $30.6 million or 74.9%, which increased from 71.1% for the same period in 2023. This was primarily due to the fact that the current quarter did not see the significant inventory write-offs we experienced in the comparable quarter of 2023. Year-to-date, our product gross profit was $105.6 million or 73.2% as compared to $43.7 million or 48.8% for the same period in 2023. SG&A expenses for the three and 12 months ended December 31st 2024 were $23.2 million and $100.5 million respectively compared to $26.8 million and $133.4 million respectively in the same period in 2023. The decrease was primarily related to decreases in personnel and related costs due to the reductions in force in prior years as well as improved cost efficiencies among all departments. These decreases were offset by increased legal expenses related to the patent litigations. Research and development expenses were $3.2 million and $16.7 million for the three and 12 months ended December 31st 2024, compared to $7.8 million and $39.1 million in the comparable periods in 2023. The decrease was primarily related to decreases in personnel and related costs due to the reductions in force implemented in previous years as well as decrease in development activities. We achieved net income for the three months ended December 31st 2024 of $3.7 million and had a net loss for the year ended December 31st 2024 of $13.6 million. During the comparable periods in 2023, we had net losses of $10.7 million and $110.6 million respectively. Cash and short-term investments at December 31st 2024 was $59.3 million. Year-to-date, we incurred inventory write-offs of $2.5 million. In addition, as mentioned on previous calls, we also recorded asset impairment write-offs of $2.2 million primarily related to projects no longer part of the company's forward-looking strategy. If we had excluded depreciation, stock based compensation, inventory write-offs and the asset impairment write-offs, our adjusted EBITDA results would have been a positive $8.6 million operating income, which represents a substantial turnaround in the financial management of the business. We are providing product revenues net guidance range of $153 million to $163 million and adjusted EBITDA guidance range of zero to $8 million. And now we would like to open the call for any questions.

Thank you. [Operator Instructions] And our first question comes from the line of Brandon Folkes of Rodman & Renshaw.

Hi, thanks for taking me a question and congratulations and very good quarter. And firstly, maybe just on

Thanks, Bren. Yes, let me first speak just to

Great. Thanks you so much. And then maybe just one on the sort of cash flow adjusted EBITDA. Obviously, a very positive year on that aspect. I appreciate the guidance for 2025. How should we think about it sort of on a quarterly basis? Could there be sort of a bit of lumpiness just in terms of swinging between positive and negative EBITDA or cash flow in the first half of the year and sort of as that VAN ramps up, we see exiting the year with consistent positive cash flow or do you feel like we are at a stage now where we should be thinking about positive cash flow every quarter?

Yes, Brandon, thank you for the question. Yes, it will be a little bit lumpy, primarily because of some of the legal spend in the PFS. It's really what is impacting our quarters a little bit. Overall, the results and the spend will not change significantly from this year, But those are the two factors that could provide a little bit lumpiness in the beginning of the year.

Yes. Brandon, I would add too. I mean, the one thing we've been a bit conservative on is with CINVANTI. I mean, as we see the product now, we're tracking pretty close to where we were last year. I mean, we typically have about 7% to 8% market growth in that space, and we've been maintaining roughly around 27% share. We've anticipated some competition later in the year and with ASP dipping a bit. But as we sit today, we're tracking pretty close to where we were last year. So, we've tried to be a bit conservative there. So that's another part that could move a bit.

Great. Thanks very much and congrats on the good quarter.

Thank you.

Thank you so much. Our next question comes from the line of Serge Belanger of Needham. Your line is now open.

Hi, good morning. A couple of questions On the

Yes, that's correct. Look, I think we've been really pleased with the momentum we've had. I mean, again, I mentioned the tailwinds before. But from a reimbursement standpoint, it will fully come into play on April 1. But I think the bigger thing we're getting from that is really just the noise around no pain and sort of the push if you will to look at non-opioid alternatives. I mean, that's going to help us and really anybody that's in this market selling those type of products. So I think that's been hugely helpful for us. What was the last part of your question, I'm sorry?

Yes. The momentum we saw in the fourth quarter, what was it driven by and whether it would accelerate with your (indiscernible)?

Yes. No. I'm sorry. I was going to speak to CrossLink. So I think look, the CrossLink relationship is starting to really come into play. When we the way we look at our data, anytime we've had an overlap with a CrossLink counterpart, we view that as a CrossLink account versus an account that we're in, let's say, our hospital system we're in where CrossLink is not and what I can tell you is that those accounts are growing about a 30% higher rate than our sort of normal standalone business, if you will. And so, we think that's just going to continue. I mean, with VAN and again, as we get better at this and we better coordinate with our CrossLink counterparts, we see sort of upside as we move into the 200 milligram launching later in the year. And as we kind move into midyear in the third quarter, I think this is really going to start to get much more efficient. I mean, again, we just we've got 800 people out there that are just really starting with the VAN pretty much now. And the coordination of all that, I think, is coming together nicely. But the growth we've experienced so far has been much different than we had in the past and I think that's going to continue.

Okay. And then from an OpEx perspective for 2025, should we expect some flattish growth versus 2024?

Yes. It will be a little higher than 2024 just because of the R&D spend for PFS that we didn't see in 2024 and then some of the legal expenses as we are going trying to settle some of these cases that we have outstanding. So overall, the remaining business really remains flat, but those are the two items that might increase OpEx a little bit in 2025 or 2024.

Got it. Thank you.

Thank you so much. And one moment for our next question. Our next question comes from the line of Carl Byrnes of Northland Capital Markets. Your line is now open.

Congratulations on the progress and thanks for the question or questions rather. So you had a really nice bump with

Yes. Carl, as we had said, I think currently we're at right around 800 or approximately 800 CrossLink reps and that last sort of 100ish were sort of coming together in Q4. So again, as we come out of into 2025, this is when this is beginning to we think it start to hit on all cylinders as we kind of move into the year. So that's kind of where that sits currently. Again, as CrossLink is coming on board and we kind of look at from Q4 to Q1, I mean, you typically have some seasonality and co-pay resets and that type of thing that have historically flattened the market. What I can tell you is that, we are currently when I look at like daily average sales, we are actually higher thus far in Q1 than we were in Q4. So again, we're hoping that continues. Obviously, the market's a little bit less in surgeries as a whole in Q1, but I mean, we're anticipating to continue to grow. And so, as we kind of look more towards midyear, again, I think as we launched the 200 milligram band with the no pain really starting to kick in, I think getting more noise, this is really where we see the inflection happening. And so the other thing that CrossLink does for us is that as they come on board more and can take our places in the surgeries and are more comfortable with the product, it allows for our reps to really get out of these surgeries on a daily basis and CrossLink becomes our eyes and ears and so therefore, it really allows our reps to get out and not only find more surgeons and other folks in the hospital going as far as deeper and wider, if you will, than an institution, but it also allows us to spend more time with the APONVIE. And again, we are feeling very confident. We are going to continue to grow APONVIE at a much different rate. And if you think about the ability with the APONVIE to really do systematic wins, our issue has been thus far is really getting our representatives out of the OR and allow them to do more pull through with the product. And again, we think with CrossLink that's going to help with that extremely.

Excellent. So I mean, it's very clear that there is a shift in terms of obviously the growth coming from the acute care products with the CA and D products really being kind of a cash cow that supports cash flow. And just one other follow-on question, if you've got any thoughts with respect to the Baker Brothers debt. Thanks.

Yes. No, we've I mean, with the Baker Brothers, obviously, they are a large demo for us and have been a great partner. We've continued to meet with them on a quarterly basis. I think as we now approach sort of the May '26 timeframe, we intend to meet with them again. Again, we wanted to get our quarter announced and so forth and really feel like with where the business is going, we are hoping all of our investors will be excited. But we should be meeting with them very soon and to talk about options with the convert and sort of where we can go from there.

Yes. And I would imagine with the CINVANTI litigation largely out of the way, that kind of opens the door to the discussions. Thanks.

Yes. No, that's been obviously, it was an unknown. But I think now that we have clarity around that and again, even the Mylan case is very similar to what we face with Fresenius. And so we feel very confident about that. But yes, it's certainly going to help those discussions.

Excellent. Thanks for the questions and congrats again.

Thanks, Carl.

Thank you so much. [Operator Instructions] And our next question comes from the line of Clara Donald of Jefferies. Your line is now open.

Hi, team. Congrats on the progress for the quarter. So just wondering, since the launch of

Yes. Thanks, Clara. Bill Forbes is dialing into the call. I'll let Bill answer that as far as the development path there and where that stands.

Hi, good morning. Thank you for your question. Yes, just as a form of update, obviously, we're extremely pleased with the rollout of the VAN. I mean, the device development people that we have, have been watching that very closely as our commercial partners have been moving that through. As we turn our attention to the prefilled syringe, I'll just kind of recap a little bit about what I spoke on at the Investor Day meeting last year. So one of the things that we have to be careful of with

Appreciate it. Thank you.

Thank you so much, Clara. And I don't see any questions on queue. I would now like to turn the conference back to Craig Collard, CEO, for closing remarks.

Thank you, operator. Look, we appreciate everyone joining the call today. We're obviously very excited about where we are as a company and the foundation we've built here and how we move into 2025. So we look forward to talking to everyone next quarter. Thank you.