Q1 2024 Heron Therapeutics Inc Earnings Call

Participants

Craig Collard; Chief Executive Officer, Director; Heron Therapeutics Inc

William Forbes; Executive Vice President, Chief Development Officer; Heron Therapeutics Inc

Ira Duarte; Chief Financial Officer, Principal Accounting Officer; Heron Therapeutics Inc

Kevin Warner; SVP of Medical Affairs Strategy Engagements; Heron Therapeutics Inc

Serge Belanger; Senior Analyst; Needham & Company LLC

Carl Byrnes; Analyst; Northland Capital Markets

Tim Chiang; Analyst; CapitalOne

Presentation

Operator

Thank you for standing by. My name is Alex, and I will be your conference operator today. At this time, I would like to welcome everyone to the Heron Therapeutics Q1 2024 conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
If you would like to ask a question during this time, simply press star followed by a number one on your telephone keypad. If you would like to withdraw your question, press star one. Again, I would now like to turn the call over to Melissa Jerome, 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 quarter ended March 31st, 2024. With me today from hereon are Craig Collard, Chief Executive Officer, Aaron to RK, Executive Vice President and Chief Financial Officer, Bill Forbes, Executive Vice President and Chief Development Officer. For those of you participating via conference call and made available via webcast 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, and we caution you that any statement that is not a statement of historical fact is a forward-looking statements. 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 inherent public periodic filings with the SEC. Except as required by law, Verint 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 hair on Facebook.

Craig Collard

Good morning, everyone, and welcome to the Cervus First Quarter 2024 earnings call. Today, we are pleased to update you on our latest achievements in Q1, including financial performance, progress on our development projects, crosslink progression and general corporate update. We started the quarter off with tremendous momentum. First, we signed a cross agreement on January seventh and shortly after on January 23rd, we received official approval of our expanded indication of Centinela, which broadens our label into spine shoulder and other soft tissue surgical procedures.
So that leads to those. We had a national sales meeting where we train ourselves both on the new indications. We also developed an internal group to lead the training process across 19. We have continued to improve our financial efficiency by reducing spend and improving margins. We believe with this continued approach, we will achieve profitability as predicted by Q4 of 2024.
Before we move on to buy performance, I did want to show this slide to highlight what has been achieved this quarter versus just 12 months ago. As you can see, in Q1 of 2023, we had net revenues of $29.6 million, COGS of $16.8 million with an overall loss of just over $33 million in the same time period in 2024, we had $34.6 million in net revenues,$8.4 million cars and a loss of $4.8 million, which is a $28.2 million positive swing in just 12 months alone and gross margin improvement from 43% to 76%. The takeaway from this is we are on the right path and we have the business well positioned for the future.
Now moving on to product performance. The immunology franchise continues to outpace our expectations with some marketing net revenues of $25.6 million for the quarter, and first of all, net revenues of $3.6 million in the quarter. We continue to maintain our existing market share, a very competitive environment with the oncology franchise, and we believe these products will continue to show the same consistency throughout 2024.
Total acute care net revenues for the quarter were $5.5 million, which represents a 45% increase from $3.8 million in the first quarter of 2023. Because Internet net revenues for the quarter was $5 million, which represented the second straight quarter with revenues of $5 million or greater upon the net revenues for the quarter continued to increase quarter on quarter and year on year to $500,000 for the quarter ended March 31, 2024.
While we are pleased with the direction we are headed, we knew Q1 was going to be relatively flat when considering seasonality and with all the other activities we had going on during the quarter, such as label expansion training, it was the kickoff of Crossmann. I will speak to dental and performance specifically in a moment when I give an update on cross-selling, but I didn't want submission. We are seeing tremendous uptake with APOLLO-B. Our sales message is really beginning to resonate with many institutions around the country, and this will ultimately trickle down to impact net revenue growth in Q3 of 2023.
Our new management team realized that our sales message for PI and the need to be focused around the issue of PONV versus just trying to convert all of profits and any impact it can have financially in the perioperative space. We retrained our reps. We find ourselves message and improved our incentive comp plan to focus around this messaging since implementation in October of 2023, we have had over 70 P and T wins.
And as you can see from the slide, another 35 this quarter as well, once approved by PFC there, there's a bit of lag time before the sales dollars begin to take place because these accounts come on board, we are going to see a continued growth in sales of upon materially below system wide in most accounts. We were very pleased with the upon the momentum and it should only improve as we continue to bring more cross link reps onboard. This will free up more time for hire reps actually sell upon me and then rollout versus actually being present NEO or case management for Centrilift preparation.
So moving onto the cross-linked uptake training, but across 19 kicked off with the executive team in late February and with the reps at the beginning of March, we now have 216 crosslink reps consisting of joint trauma and spine that have been fully trained and are out in the field selling generally, while the fruits of the crossing partnership are not apparent in Q1, we believe that the timing of the initiation of the partnership and the training is being staged and is still ongoing, will pay dividends as more and more field reps come online. Our plan is to continue to expand our reach across the country with over 600, 50 reps being fully trained and integrated before the launch of the van in Q4 of this year. Internally, we have been amazed by the relationships across 18 have orthopedic surgical community. And we realize in time, this is going to have a substantial impact on several of revenues in just one month of their joint team being trained and promoting xeno. We already had more than 20 new orthopedic surgeons use our product in the 1 month. This is just in North Carolina, South Carolina, Georgia, which represents the inaugural region for our partnership with cross-selling.
We have seen a 12 fold increase in unit sales growth within these three states versus the rest of the country. We have had around 60 introductions and touch points to new ortho users in the month of April alone. And we anticipate 40 new users to come on within the next 30 days. We are literally just getting started in building the car, while we were driving for the impact of cross link will have is very clear and will continue to play out as we get more reps trained and integrated into the partnership element.
I'll turn the call over to Bill Forbes, our Chief Development Officer.

William Forbes

who had had bill payment crack during the last quarterly earnings call, I covered our R&D activities, which are focused on providing easier access to terminal. I will cover some of that again here for investors that are newer to our story and provide an update on current activities as well as our near-term deliverables. Following in general, that label expansion, R&D continues to focus on the work to modify the device component of this combination product first modification involves the vial access needle for BAN, Savanna designed to improve efficiencies and preparation, and it will achieve this in two ways. First, the withdraw of xeno left from the vial with the van and approximately three to four times faster than the currently marketed pension buyout by or VBS.
Secondly, the Van will allow for an even more secure presentation of the product into the sterile field in the surgical room minus 18, the dental lab vial into this Darryl's droughts of the day. We believe that both the improved withdrawal time and sterile shroud will be extremely well received by operating room staff. Presently, we are completing our development and testing activities on the van and we are finishing up the submission to the FDA. We anticipate the ban approval in Q4 of this year. We also have solutions at speed and ease of use. Avenova is a prefilled syringe or PFS. We anticipate the PMA approval in Q4 of 2020 fifth. In this product presentation, the entire created sterilized and ready for immediate use. There will be no vials. Nevertheless, no VDSL or van, just at the register the challenges to this program involving new container closure system in the sterilization process itself. Once this is available, all barriers to preparation will be removed.
With that, I will now turn this over to Aaron to work at Sierra.

Ira Duarte

Thank though. Craig has covered our power performance and oftentimes results in his comments, and I will add some additional points for Q1 2024 results outside of gross profit for the first quarter was $26.2 million or 76%, which increased from 43% in the first quarter of 2023. The benefit from the production scale-up and validation activities and raw material qualifications completed in late 2022 was more fully realized in 2024 as compared to the same period in 2023.
Sg&a expenses for the three months ended March 31, 2024 were $26.4 million compared to $37 million in the same period in 2023. The decrease was primarily related to decrease in personnel and related costs due to the reduction in force implemented in June 2022 and June 2023. Printers and development expenses were $4.6 million for the three months ended March 31, 2024 compared to $8.8 million in the comparable period in 2023. The decrease was primarily related to a decrease in personnel and related costs due to reduction in force implemented in both June 2022 and June 2023. As noted in the 10Q, the condensed consolidated statements of operations and comprehensive loss as of March 31, 2024 reflect the reclassification of certain expenses from research and development, general and administrative expenses to align with a function of expenses incurred. This resulted in no change to total operating expenses.
Net loss was $3.2 million for Q1 2024 and $32.7 million for the comparable period in 2023. We are we affirming our previously given guidance for revenue of $138 million to $158 million for 2024 and improved gross margins between 6% to 8%. Our operating spend, excluding stock compensation and depreciation and amortization, is anticipated to be between $108 million to $160 million and EBITDA, excluding stock comp, will be between a loss of $22 million to income of $3 million. I would like to reiterate that we anticipate generating positive EBITDA in Q4 2024. And based on this, our strong balance sheet and our current operational plan, we do not anticipate having to raise additional capital. And now we'd like to open the call for any questions.

Question and Answer Session

Operator

Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. I would like to withdraw your question simply press star one again, if you are called upon to ask your question and listening via loud speaker on your device, please pick up your handset and ensure that your phone is not on mute. When asking your question again, press star one to join the queue.
And your first question comes from the line of Serge Belanger with Needham. Please go ahead.

Serge Belanger

First one, Craig is talking about four months since you got the broad label expansion for Zimmer, unless you highlighted some of the new indications that spine shoulder and soft tissue procedures. And where do you think the additional uptake from these new indications will be? And then secondly, I noticed Synventive had a strong first quarter. I'm just curious if that's kind of a new base level for that product going forward.
Thanks.

Craig Collard

I'm sorry could you repeat the first part, but a little bit got cut off on your first part of your question.

Serge Belanger

Yes. So the broad label stage presented a lot of it was about four months ago, there's been a number of new indications. You mentioned spine, shoulder and soft tissue. Curious where the product has seen some uptake in these new indications since the expansion of the label targets.

Craig Collard

Okay. Yes. So but I actually interesting enough on day one of approval, I was able to I personally sit into a spine case. We had a position here in North Carolina that use and I got to watch that. But I think what you're watching happened is that we've had certainly a number of spine surgeons, orthopedic and so forth that have tried the product. Either shoulders are fine. But I think again, the uptake is going to be while people will use it. I think you're still going to have some experimentation going on about how they apply it, how getting used to the product and kind of go into that whole sort of process that we go through with a product like this, it's a little bit different. And so I think the results we've seen so far have been have been good. In the cases we've we've had sort of the case that was at that day, things went well.
Kevin Werner is here a lot of Kevin.
Any comments as well?

Kevin Warner

You can maybe add to that? Yes, definitely, thanks. Thanks for the question, Serge part of the expanded label goes. It does a couple of things. First off the formulary access, what happens when these institutions review of product, they want to be able to bring it on and cover all of their procedures right now have a onesie, twosie approach with multiple branded drugs on their shelves. So having that broad label is a big big move forward for us was formulary access as they all take time, right? So the review process takes two, three months getting an electronic medical record bill. So seeing the rollout and the effects of that broad label is going to be Q3 Q4 as we expand and educate on what that label provides. But as far as the procedures go, definitely some significant target procedures. One nice target procedure that everybody can appreciate is that the soft tissue space with C-section from obviously new mother, we don't want to have exposure to opioids and it's a very painful procedures. We can facilitate that recovery in and out of the hospital without exposure to opioids. And we're exposing that in-center goods. But definitely the other ortho procedures, spine and shoulder, the primary target, we're seeing excellent results in those procedures.

Craig Collard

Yes, Arjun, regarding I guess the second part of your question regarding somebody, listen, we've been extremely pleased with somebody else just all, I think both had a really good quarter. Again, our unit volume is up and we're holding price fairly well. So again, from quarter to quarter things vary a bit, but the market is still growing and we're maintaining share. And so again, we've been very pleased with somebody and the clinical value that it brings is it's helping us certainly hold share and maintain price.

Serge Belanger

Thank you. Nice progress.

Operator

Thanks to your next question comes from the line of Carl Byrnes with Northland Capital Market.

Carl Byrnes

Please call and thanks for the question and congratulations on the quarter and the progress on unit, considering demand trends that are obviously improving across the board and the cost reductions and gross profit margin improvement do you think that it's possible that you might see achievement of profitability prior to the fourth quarter that you've directed in core OpEx?

Craig Collard

up the question, and I'm anticipating that somebody might ask that, look, we're really pleased with the way things are going.
And again, we will under obviously on the range we gave on expenses was [$108 million], [$16 million] if you just multiply by four, obviously, we're on the lower end of that, and we're hoping that continues. I think our maybe reasoning for not improving guidance or narrowing guidance at this point is really due to ongoing litigations that we have.
And again, we're while we feel like we've got our hands around the business and we have this under control there are still things that are happening development-wise and within the legal realm, that could vary a bit. And so we're trying to be a little bit cautious here, I guess conservative Steward but again, we're really pleased with the way things are going and we are up with high expenses came out this quarter.
Regarding margins, again, one of the things that's helped us we have renegotiated a few things that are manufacturers, and that has helped keep certainly COGS down. But we also this quarter primarily just use Alchemy with Sibaji. And so we have a secondary manufacturer as well that we have not used this quarter. And so that has helped margins a bit will take us up to kind of 76% range.
I still think that, you know, throughout the year, we're going to be on the lower end of the 70 range. But again, we're going to trying to manage that as best we can. But we're extremely pleased with where we are, and we're hoping that again, we end up at the lower end of that expense range. And so if that does happen, obviously, there is a possibility that would begin to profitability earlier, but at this point, we're still committed to Q4.

Carl Byrnes

Great. Thank you.

Operator

Your next question comes from the line of Tim Chang with Capital One. Please go ahead.

Tim Chiang

Brian takes on Craig. Could you talk just a little bit more about the crosslink reps that you've trained on? I think you said over [200]. You mentioned three specific states that you've penetrated into. What other states do you plan to be in the summer? And then how many cost linked reps do you plan to have fully trained by the fall?

Craig Collard

Yes. So Tim, thanks for the question again. We've been extremely pleased with crosslink again. I use the word amazing on my comments, but the relationships that I think these guys bring are just a little different than than what we have as a pharma company. And keep in mind that in a lot of cases, you across my has been around for years and a lot of the rest of 10, 15, 20 years' experience with these physicians and being with them every day.
So it's just a different relationship. And so it allows us to get in front of these folks that allows us to have more time to explain some of the situations with enteral up. And so forth. And so as we've mentioned, it frees up time for our reps and that type of thing. But from a training perspective, again, we've been moving fairly quickly. I wanted to turn it over to David Tarantino. He's been directly involved and again, has been at these training meetings and give you a little more insight into kind of exactly what's going on where we're going there.

Kevin Warner

Yes, Greg. So Tim, thank you for the question. As it pertains to cross-link, yes, obviously, we started in the legacy states where crosslink is prevalent, which is North Carolina, South Carolina, Georgia. One of the things that is ongoing and it's and it's ever-changing, is that on a on a weekly basis, we're conducting two to three live trainings across the country, the goal by the end of 2024 us to have a presence in each state. I can tell you that we've already expanded into areas like Michigan St. Louis, Kansas, and it continues to evolve as from week to week, but by the end of the year, we definitely hope to have coverage in all 50 states.

Tim Chiang

That's great. And maybe just one question. I seem to recall that Florida is a pretty big state for procedures. I mean, are you guys going to penetrate that state near term

Kevin Warner

yes 100%. We are that is definitely a point. I think you could look like New York, Florida, Texas, California as or big state, and we are in active discussions with distributors down there as well.

Tim Chiang

Okay. Super.
Very helpful.
Thanks.

Craig Collard

Thanks, Tim.

Operator

Your next question comes from the line of Kelly Shi with Jefferies. Please go ahead.

Good morning. This is Clare on for Kelly, and congrats on the quarter and thanks for taking my question. So for Zemiva law, and could you please talk about your qualification for the non-PET no-pay add in the context of your pass-through status on how the coverage going to change PATRICK takes effect in 2025? And whether you could give any color of what's the latest discussion of no payouts possibility that will have will go beyond 2027.
Thank you.

Kevin Warner

Yes, this is Kevin water. Again. Thanks for that question. So no pain Act is coming into effect Q1 of 2025 was going to provide reimbursement outside of the surgical bundle for our HLPD. patients are outpatient procedure department in the hospital and our ASC. offer. These not opioids that have been proven to reduce opioid consumption. So right now generally has passed through, as you alluded to, and that expires Q1 of 2025. So sylvinite goes into effect starting Q1.
We've already had conversations with CMS, very productive conversations, highlighted all the criteria to qualify for the no pain Act, which then really qualifies for all of those criteria except one. And that one is the fact that we have pass-through status. So that's why we've had this open dialogue to make sure that we don't fall off in the interim period that we're confident that they'll pick it up and pass it through rate on. There won't be any pitch that pass-through status and make sure institutions still have access and reimbursement for that release.
As far as extending the duration, no pain Act was originally designed to be a five year. Unfortunately, it took some time to get passed through Congress, so a little later than than desired. But as of right now, through the end of 27 as expected, we definitely have a lot of encouragement and support from our communities and obviously that the opioid epidemic, the concerns of that, we expect them to continue to extend and provide payments for these non-opioid for our country. And for our information.

Super helpful. Thank you.

Operator

So that concludes our Q&A session. I will now turn the conference back over to Craig Collard, Chief Executive Officer for closing remarks.

Craig Collard

Just want to thank everyone again for listening today, and we look forward to speaking everyone next quarter. Thank you.

Operator

Ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect.