Heron Therapeutics, Inc. (NASDAQ:HRTX) Q1 2024 Earnings Call Transcript May 7, 2024
Heron Therapeutics, Inc. beats earnings expectations. Reported EPS is $-0.0209, expectations were $-0.08. HRTX isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
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. [Operator Instructions]. I would now like to turn the call over to Melissa Dorel [ph], Executive Director, Legal. Please go ahead.
Unidentified Company Representative: Thank you, operator, and good morning everyone. Thank you for joining us on the Heron Therapeutics conference call this afternoon to discuss the company’s financial results for the quarter ended March 31, 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. 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.
Craig Collard: Thanks, Melissa. Good morning everyone and welcome to the Heron Therapeutics first quarter 2024 earnings call. Today, we are pleased to update you on our latest achievements in Q1 including financial performance, rationale on our development projects, CrossLink progression and general corporate updates. We started the quarter off with tremendous momentum. First, we signed the CrossLink agreement on January 7th, and shortly after on January 23, we received official approval of our expanded indication of ZYNRELEF, which broadens our label into spine, shoulder and other soft tissue surgical procedures. Soon after these two events, we had a national sales meeting where we trained all of our sales folks on the new indications.
We also developed an internal group to lead the training process of the CrossLink team. We have continued to improve our financial efficiency by reducing spends and improving margins. We believe with this continued approach, we will achieve profitability as predicted by Q4 of 2024. Before we move on to product 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 in COGS and a loss of $4.8 million, which is a $28.2 million positive swing in just 12 months along with a 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 oncology franchise continues to outpace our expectations, with CINVANTI net revenues of $25.6 million for the quarter, and SUSTOL net revenues of $3.6 million for the quarter. We continue to maintain our existing market share in 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. ZYNRELEF net revenues for the quarter was $5 million which represented the second straight quarter with revenues of $5 million or greater.
APONVIE 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 and with the kickoff of CrossLink. I will speak to ZYNRELEF performance specifically in a moment, when I give an update on CrossLink. But I did want to mention we are seeing tremendous uptake with APONVIE. 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 APONVIE needed to be focused around the issue of PONV versus just trying to convert oral aprepitant and the impact it can have financially in the perioperative space.
We retrained our reps, refined our sales message and improved our incentive comp plan to focus around this messaging. Since implementation in October of 2023, we have had over 70 P&T wins, and as you can see from the slide, another 35 this quarter as well. Once approved by P&T, there is a bit of lag time before the sales force begins to take place. But as these accounts come on board, we’re going to see a continued growth in sales as APONVIE generally goes system wide in most accounts. We are very pleased with the APONVIE momentum, and this should only improve as we continue to bring more CrossLink reps on board. This will free up more time for our Heron reps to actually sell APONVIE and ZYNRELEF versus actually being present in the OR during case management for ZYNRELEF preparation.
Now moving on to the CrossLink update. Training for the CrossLink team 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 ZYNRELEF. While the fruits of the CrossLink partnership are not apparent in Q1, we believe that the timing of the initiation of the partnership and the training that is being staged and is still ongoing will pay many dividends as more and more field reps come online. Our plan is to continue to expand our reach across the country with over 650 reps being fully trained and integrated before the launch of the plan in Q4 of this year. Internally, we have been amazed by the relationships the CrossLink team has with the orthopedic surgical community, and we realize in time this is going to have a substantial impact on ZYNRELEF revenues.
In just one month of their joint team being trained and promoting ZYNRELEF, we already had more than 20 new orthopedic surgeons use our product in the first month. This is just in North Carolina, South Carolina and Georgia, which represents the inaugural region for our partnership with CrossLink. 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 are driving, but the impact that CrossLink will have is very clear and will continue to play out as we get more reps trained and integrated into the partnership.
I will now turn the call over to Bill Forbes, our Chief Development Officer. Go ahead, Bill.
William Forbes: Thank you, Craig. During the last quarterly earnings call, I covered our R&D activities, which are focused on providing easier access to ZYNRELEF. 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 the ZYNRELEF label expansion, R&D continues to focus on the work to modify the device component of this combination product. The first modification involves the vial access needle or VAN. The VAN is designed to improve efficiencies in preparation and it will achieve this in two ways. First, the withdrawal of ZYNRELEF from the vial with the VAN is approximately 3x to 4x faster than the currently marketed Vented Vial Spike or VVS.
Secondly, the VAN will allow for an even more secure presentation of the product into the sterile field in the surgical room by encasing the ZYNRELEF vial into the sterile shroud of the VAN. We believe that both the improved withdrawal time and sterile shroud will be extremely well received by operating room staff. Presently, we have completed all development and testing activities on the VAN and we are finishing up the submission to the FDA. We anticipate the VAN approval in Q4 of this year. The ultimate solution to speed and ease of use of ZYNRELEF is a prefilled syringe or PFS. We anticipate the PFS approval in Q4 of 2026. In this product presentation, the entire tray is sterilized and ready for immediate use. There will be no vial ZYNRELEF and no VVS or VAN, just the syringe itself.
The challenges to this program involve a new container closure system and the sterilization process itself. Once this is available, all barriers to preparation will be removed. With that, I will now turn this over to Ira Duarte. Ira?
Ira Duarte: Thanks, Bill. Craig has covered our product performance and OpEx results in his comments and I will add some additional points for our Q1 2024 results. Our product 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, 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.
Research 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 decrease in personnel and related costs due to reduction in force implemented in both June 2022 and June 2023. As noted in the 10-Q, the condensed consolidated statements of operations and comprehensive loss as of March 31, 2024 reflects the classification of certain expenses from research and development to general and administrative expenses to align with the function of the expenses incurred. This results in no change to total operating expenses. The net loss was $3.2 million for Q1, 2024 and $32.7 million for the comparable period in 2023. We are reaffirming our previously given guidance for revenue of $138 million to $158 million for 2024 and improved gross margins between 60% to 70%.
Our operating expense 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 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.
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