Heron Therapeutics, Inc. (NASDAQ:HRTX) Q1 2023 Earnings Call Transcript May 11, 2023

Heron Therapeutics, Inc. misses on earnings expectations. Reported EPS is $-0.27 EPS, expectations were $-0.2.

Operator: Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Heron Therapeutics Q1 2023 Earnings Conference. 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 Heron’s filings with the SEC. In addition, any forward-looking statements represent Heron’s views only as of the date of this webcast and should not be relied upon, as representing Heron’s views as of any subsequent date. Heron specifically disclaims any obligations to update such statements. Now, I’ll turn the call over to Craig.

Craig Collard: Thank you, operator. Good afternoon, everyone, and welcome to the Heron Therapeutics First Quarter 2023 Earnings Call. I’m Craig Collard, the new CEO of Heron Therapeutics, and I’m thrilled to be leading this organization, as we continue to make headway in the hospital and oncology markets. Today, I’ll provide an overview of our recent performance, highlight key achievements, but more importantly, give some insight into my assessment of the business in my first four weeks and discuss our strategic vision moving forward. Total product net revenues for the first quarter were $29.6 million, up from $23.5 million in the same quarter last year, an increase of over 26%. We continue to make steady progress on the oncology side of our business, but we remain excited about the market opportunity for both ZYNRELEF and our newly approved product APONVIE, which was launched in March of this year.

Starting with ZYNRELEF, I realize the product has had a slow uptake since launch for a variety of reasons. Despite competing in a huge market, the product has a differentiated clinical profile that works well when used. The label has limited our ability to be the drug of choice across a variety of indications. To counter that, we filed an sNDA within October 23 PDUFA date, that if approved, will expand our indications and number of procedures we can treat. The viscous nature of our products has slowed the withdrawal from the vial, compared to other drugs. To improve the handling, we recently started multiple enhancement programs to address some of the issues we have faced in the surgery suite during preparation, including a vial access needle or van and ultimately a prefilled syringe that could be game changing.

Since joining the company, I’ve been able to get in the field and work with our sales representatives, which I always find helpful when trying to assess product performance issues. I’m happy to report, that so far, I have seen ZYNRELEF used in 5 knee surgeries. I was trying to understand what really happens in the application of the product. Previously, I had heard mixed messages about the time to draw the product out of the vial, product viscosity and general issues that would make it more difficult to use our product. What I determined from watching these surgeries is that, we can replicate the success I saw in this day. The application requires training the staff, as it is different, but not complex. The nursing staff even admitted that after using the product a few times, it became second nature and is now just part of the normal routine and prep before the surgeon arrives.

I think early in the launch of the product, our company did not address this issue head on, and didn’t understand that this was going to require more training of our reps and highlighted our own inefficiencies. All products generally have challenges when launched and the companies that are prepared and they can move quickly are generally the companies that ultimately succeed. The good part here is that it’s not too late to get this launch back on track. Now, moving to APONVIE, the product was launched a month prior to my joining the company. APONVIE, an injectable emulsion is the only IV substance NK1 receptor antagonist indicated for postoperative nausea and vomiting. As was in relief, this is a product with a great clinical profile and marketing advantages and competes in a very large market.

We believe that APONVIE will be a very successful product in our portfolio and has great call point overlap was in relief. While the receptivity to the initial launch is encouraging, we will look for ways to maximize its potential and update our shareholders as we progress throughout this year. Before turning the call over to David for a financial review, I thought it might be helpful to give some insight into the business as a whole and a view into the strategic direction as we move forward. Since joining the company, I have spent much of my time trying to understand each department headcount, spend, and how the company functions as a unit. The goal has been to do a thorough internal review to determine the company’s business practices and strategies to develop a long-term plan that allows the company to maximize value for all shareholders.

Although my review is not complete, I can tell you that I have a much better understanding of the company and many changes will be coming soon, including a reduction of cash burn and improvement of operational efficiency and the implementation of a realistic product forecast to more accurately determine our capital requirements moving forward. Shortly after I joined the company, I implemented the first major change, which was to flatten the executive reporting structure in the company. I hired Jason Grillot, whom I have worked with in the past to lead our sales and marketing efforts. Jason will be improving many things with the commercial structure, including targeting, alignment, accounting support, marketing message, and data to the sales force and management reporting.

I believe these changes and many others to be updated later will continue to improve the uptake of our products. Other expense cuts will be implementing include less outsourcing and dependency on consultants and reduction in headcount. Again, I will provide more detail in the near future. As you know, I’ve been assessing all aspects of our business to ensure we are well-positioned for the future. I recognize that this process may be causing some uncertainty and concern among our shareholders. We are committed to providing you with as much information as possible about the strategic direction changes that will be coming. We understand that you’ve invested your time and resources in our company, and we value your input and support. We want to keep you informed every step of the way as we navigate this process.

We plan to share more details with you soon. about the changes we will implement and the reasons behind them. Our goal is to create a stronger, more sustainable company that is better equipped to meet the needs of our customers and stakeholders. I appreciate your patience and understanding as we work through this process. We are confident that our changes will position us for long-term success, and we look forward to sharing more information with you soon. Go ahead, David.

David Szekeres: Thank you, Craig. As Craig mentioned in his remarks, our net product sales for the first quarter of 2023 were $29.6 million compared with $23.5 million in the first quarter of 2022, representing an increase of 26% over the same period in 2022. For the first quarter of 2023, our ZYNRELEF net product sales were $3.5 million. In March 2023, APONVIE became commercially available in the US. For the first quarter of 2023, our ZYNRELEF net product sales were $3.5 million. In March 2023, APONVIE became commercially available in the U.S. For the first quarter of 2023, APONVIE net product sales were $244,000. Our Oncology Care franchise net product sales for the first quarter were $25.8 million, which was an increase of 15% over the same quarter in the prior year.

For the full year 2023, we expect Oncology Care franchise net product sales of $99 million to $103 million. Cost of product sales for the first quarter of 2023 were $16.9 million, compared to $11.4 million for the same period in 2022. For Q1 2023, cost of product sales included a onetime charge of $5.3 million, resulting primarily from the write-off of short-dated ZYNRELEF inventory. Research and development expense decreased from $42.1 million in Q1 2022 to $13.8 million for the first quarter of 2023, primarily due to a decrease in external development costs related to ZYNRELEF. Our sales and marketing expense decreased slightly from $23.4 million in Q1 2022 and to $21.2 million for the first quarter of 2023, primarily due to a decrease in costs to support the ongoing commercialization of ZYNRELEF.

We are reporting a loss from operations of $33.1 million for the first quarter of 2023, which compares to an operating loss of $62.9 million for Q1 2022. Our balance sheet at the end of March 2023 shows cash balance of $60 million, down from $84.9 million at the end of December 2022. Craig, back to you.

Craig Collard: Thanks, David. Operator, we’d now like to open things up for questions, and go ahead, please.

Q&A Session

Operator: [Operator Instructions] Our first question will come from the line of Brandon Folkes with Cantor Fitzgerald. Please go ahead.

Operator: Your next question will come from the line of Boris Peaker with TD Cowen. Please go ahead.

Operator: Your next question will come from the line of Rohit Bhasin with Needham & Company. Please go ahead.

Operator: Your next question comes from the line of Carl Byrnes with Northland. Please go ahead.

Operator: I will now turn the call back over to Craig for any closing remarks.

Craig Collard: Yes, thank you, operator. First, I’d like to thank everyone, from my first call here as CEO of Heron. And I also really want to thank all the employees here. I mean change is difficult. And again, there’s been a lot of things going on here, and we’re putting a lot of information together. And I think what you’re going to see in the future is a much, much different company that, again, will head towards profitability and will be a success. And so I’m excited about that. And again, I just want to thank everyone here, that’s being a part of that thus far. And we’ll see you next quarter.

Operator: Ladies and gentlemen, that will conclude today’s call. Thank you all for joining. You may now disconnect.