Q4 2023 Heron Therapeutics Inc Earnings Call

Participants

Craig Collard; President & CEO; Heron Therapeutics Inc

Kevin Warner; SVP of Medical Affairs strategy engagements; Heron Therapeutics Inc

William Forbes; EVP, Chief Development Officer; Heron Therapeutics Inc

Ira Duarte; Chief Financial Officer; Heron Therapeutics Inc

Serge Belanger; Analyst; Needham & Company LLC

Carl Byrnes; Analyst; Northland Capital Markets

Presentation

Operator

Thank you for standing by, and welcome to the Heron Therapeutics Fourth Quarter 2023 conference call. I would now like to welcome Melissa Duran, 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 31st, 2023.
With me today from hereon are Craig Collard, Chief Executive Officer, here at Workday, Executive Vice President, Chief Financial Officer, Bill Forbes, Executive Vice President, Chief Development Officer, and Kevin Werner, Senior Vice President, Medical Affairs strategy. For those of you participating via conference call, Pfizer 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, 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 purposes of the Safe Harbor provisions 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 statement. 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 here on public periodic filings with the SEC. Except as required by law, Verint assumes no obligation to update 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.

Craig Collard

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 threshold on our development projects, Fastlane training and some insight into where we are headed strategically with our products. Since joining Heron Therapeutics as CTO back in April 2023, we have taken significant steps to get this business back on track, starting 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 and have us well-positioned as we move into 2024 and beyond. We've been able to reduce operational expenses for $182 million in 2022 to $135 million in 2023. And we should be in a range of $108 million to $116 million in operating expenses in 2024.
As part of this process, we have also looked to improve our gross margin. Historically, 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 over 70%. We anticipate future gross margins to continue to improve up into 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, has enough cash for us to reach profitability in Q4 of '24.
Before moving down the list, we were able to restart the vial access deal or ban project along with the prefilled syringe. Both of these projects are progressing nicely with the expected approval by the end of this year and a prefilled syringe approval expected in 2026.
Both of these projects will provide significant improvement to our products, which is indicated for post offers surgical pain. Our oncology franchise continues to outperform, and I'm happy to report total net revenues of $107.9 million, which exceeded full year 2023 guidance.
We are also very pleased with our performance in Q4 of 2023. For the first time in our history, we were able to do over $5 million in net revenue for the quarter, even while significant changes happening in the business. And last in January 2024 Regulus filing prostate agreement combined getting on label expansion for Centrella, these two events should have a significant impact to Zejula revenues as we move through 2024 and beyond.
Now moving to product performance during holiday franchise continues to outperform our expectations with some bond net revenues coming in at $94.9 million for the year and those dollars coming in at $13 million. We have been very pleased in the oncology franchise and we believe the pie will continue to show the same consistency as in past years, acute franchises where we anticipate the majority of our product growth to come from as we move forward.
We were very pleasingly hit a record of $5.6 million in net revenue for the quarter, which is the first time this product has ever been over $5 million per quarter. Sole acute care net revenues for the year were $19.1 million, which included a positive net revenues of $1.4 billion. We believe that only upon me are both well-positioned as we move into 2024 with across and partnership, expanded label environment, increasing morale, improves sales business and targeting. We believe this is going to be a great year for both products.
Moving to cross-link partnership. This agreement was signed on January seventh and really kicked off in early February. We began the training process of in-person training of approximately executive team, which went extremely well. We will continue that process through March and early April that will lead to having over 100 sales, both trained and ready-to-go.
Post this initial group being training, we will continue to roll out other areas of the country. As you look at the slide, it would give you a better understanding of what our footprint post all the implementation approximately will look like and consider that this will add an additional 650 reps across the country that will be fully trained. We anticipate having the entire group fully trained and up and running by the end of '24.
We also believe that we will see an impact of 24 from mismatched representatives coming into place. But I do want to temper enthusiasm. And obviously, this will take time before we really start to hit on all cylinders, I really believe the inflection for Centinela will take place as we move into 2025 after the launch of Van and having all the new reps fully trained, but we certainly have positive momentum and we believe across the Congress will have an impact in 2024.
We have been looking at doing more ASD. level, as we have tried to focus more of our efforts around orthopedic space and presenting the partnership across Lilly has become increasingly apparent that probably has a significant footprint in this space and that our product mix works in parallel with the strategy of the ASC., which to get these patients out of surgery into rebadge quickest possible are very often one-two punch for the five-year Zejula will be extremely beneficial to our potential partners at the ASC level.
I'm now going to pass it all through our newest hire, Kevin Werner, who is our new Senior VP of Medical Affairs strategy engagements tend to build a vital need for us of having handling experience with our products at the physician level and is going to have a significant influence in our CSD strategy as we move forward.

Kevin Warner

Thank you, Craig, so basically Heron Therapeutics team and supporting the commercial portfolio of acute care and oncology care products and over 15 years of clinical benefit with a focus on peri-operative care pharmacists. In addition, over a decade of experience in drug development, discovery and clinical trials as Director of pharmaceutical, thanks to the Ocular Therapeutix as Senior Vice President of Medical Affairs strategy engagement.
For ahead, it will be my job to support the accurate determination of medical information to our team and providers to screening patients have access to the best possible care forming strategic alliances and collaborating with medical community through a shared heritage products become part of the standard of care and medical surgery day. I look forward to working with us in Manhattan, expanding indications, access adoption in medical literature with our current commercial portfolio and future products.
I will focus on our acute care portfolio today and that had the pleasure of having extensive real-world experience with federally and upon the witnessing the positive impact on our patients and health systems as recovery after surgery protocols, evidence-based protocols that are essential to patient outcome and seeing the financial viability of our health system.
The primary clinical focuses of enhanced recovery after surgery are reducing postoperative pain while minimizing or good consumption and the control of postoperative nausea, vomiting, postoperative pain and postoperative nausea and vomiting by two of the most common concern for both patients and clinicians. At NOV Anaheim, we offer what we consider best in class long acting solutions to these problems, implementation of federally antibody at the foundation of our enhanced recovery after surgery protocols, we believe may improve overall guest satisfaction, clinical outcome and overall quality of life institutional level, while supporting enhanced recovery after surgery or literally that Apache can have a positive financial impact on our institutions.
Both products are currently separately payable in the hospital, outpatient and ambulatory surgical centers by Veeva. In addition, many commercial payers providing coverage predominantly outside of the surgical bundle, improving the efficacy of our enhanced recovery after surgery, both of amendment separate reimbursement outside of the physical bundle as critical to the financial viability of our health system and clinical outcomes of our patients, box touch on timely aprepitant injectable emulsion and the current unmet need and lack of awareness, postoperative nausea and vomiting.
Often overlooked or under-recognized secondaries, the timing and different phases of care in which patients can experience it of that. We do not have the ammonia plant, number one, most undesirable, both that application by patient, but also prevent clinical risk factors as well that can lead to increased length of stay readmissions and surgical complications. Both tablet and the running rate agent had 80% in high-risk patients.
The current guidelines recommend the use of three or four agents and patient risk factors making them monitor TIGRIS in the United States before over $65 billion diagnostic and surgical procedures, of which 50% of those patients are at moderate to high risk for postoperative nausea vomiting. In fact, it is that on the market, an oral formulation and as a pro-drug infusion passive product in the oral formulation and delayed onset of action of about 1.5 hours.
Passive drug requires compounding and it's one of the 30 minute infusion, followed by systemic conversion prodrug to the active quarter because of this had not been widely adopted in our asset base despite a drug and being ranked the number one, most effective anti-emetic for large-scale impact from an analysis of nearly 100,000 patients, along with the efficacy impact and also has an excellent safety profile without sharing typical side effects that are commonly used antiemetic therapy such as QT prolongation, sedation and backhaul.
As you come back or actually a fair amount of side effects, safety profile is critical and we are combining multiple agents for our moderate and high-risk patient handling 32nd, IV push and rapid high receptor occupancy will allow for greater implementation of a complicated issue. Perioperative pain by those providers, maybe anesthesia most likely to prescribe.
Finally, safety and efficacy profile in the long acting solution with a 48 hour duration, one of our most productive postoperative complication postoperative nausea and vomiting. We're looking forward to the updated guidelines on the progression of both.
That's enough about me expected in 2024, which will enhance the education and awareness around its impact upon the scenario for generally, our focus will be on broadening provider awareness and associated patient impact to clinical trials and the ability to speak for themselves being the first and only FDA-approved extended-release tenants that have proven to reduce pain and opioid consumption.
Now I want to highlight some of the significant drivers to growth that have been implemented or will be this year. First of all, the significant label expansion presumably approved by the FDA on January 23rd, 2024 facilities have now indicated in adults for installations produce postsurgical analgesia for up to 72 hours after soft tissue and orthopedic procedures, including foot and ankle procedures, which direct exposure to articular cartilage is voided.
It has essentially doubled the number of significant features as a clinician when I think of indicated procedures and appropriate facilities, is there any procedure which provided would typically Prescott and WholeView a postoperative, it shouldn't be considerations daily as a combination product for postoperative analgesia to minimize or eliminate the need for opioids, minimizing the acute pain risk of developing chronic pain and or clinical recovery for label expansion will also have a great impact on formularies substitution.
Both partners have been hesitant to adoption due to the limited number of indications that vaccinating need for having multiple agents on formulary and subsequent budget impact with the new brand name of that, generally other agents that have claimed long acting but have not proven superior to standard of care and that it can be removed from forming very conveniently can be impacted in the long acting foundational element, along with cheaper generic anesthetic for the acute phase.
Additionally, third-party data continues to surface service with the bulk that align with our clinical trial showing significant impact on postoperative pain, opioid consumption, length of stay and functional outcomes. You're good at it and it continues to be at the top of our new speed passing U.S. health system, an estimated $1.5 trillion in 2020 and many patient lives.
Major cutting bodies and government agencies are taking notice and stepping in joint commission now with metrics, broker stewardship to be accredited and no pain Act, which will begin in 2025, will provide payment for not only joining the outpatient surgical study has proven to reduce or eliminate the need for opioids, along with the opioid settlement currently being distributed to states and the amount of $53 million that will be utilized to support awareness, prevention treatment of the opioid epidemic.
All these factors will have major impact on awareness and adoption is definitely one of the most important factors, I believe will be the cross-selling partnership that Craig outlined previously.
Having the additional boots on the ground, if you will, will be critical to the successful implementation of definitely the foundation of multimodal analgesia across the nation. Jay, you both after the pain and the need for opioid across the surgical paradigm. I would like to now turn the call over to Dr. Bill Forbes.

William Forbes

Thank you, Kevin. We are certainly excited to have him join our team. The development opportunities presented last pendant vision. Three-step deferred was label expansion, which has been realized the next step involves device modification in the form of the bile acid needle for fans.
And I'll just conclude with a pre-filled syringe for PSS.
In regards to the van is designed to improve efficiency and preparation will achieve this in two ways. Firstly, the ban will substitute the current market presentation of the device, which includes invented vial buying for VDM with events. So Savannah will provide a more rapid and easy withdraw.
The drug product candidate, for instance, used for installation into the patient by the physician advantage has been specifically designed for this purpose and asking the van and outperform other vested buyouts both available on the market today. Secondly, the ban will allow for an even more secure presentation of a product into the sterile field present in the surgical room by facing the xeno last file into the sterile shroud of event. This will result in a more efficient process for operating staff to prepare the product for physicians. We anticipate the van approval in Q4 of this year. Of course, the ultimate solution, the ease of use and then I left is the PFS and we expect the TSA to get approved in Q4 of 2026 and then product presentation, the entire trade airline and ready for immediate needs. The challenges for this program involve a new container closure system and sterilization process itself. Once this is available, all barriers to preparation will be removed.
But that I will now turn this over to Jerry to working here at Samsung patents covering 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.

Ira Duarte

Thanks, Bill. Gross profit for the fourth quarter was $24.3 million and $61.9 million for the 12 months ended December 31st, 2023, representing 71% and 49% of net revenue, respectively. The annual margins were negatively impacted by write-offs of endless inventory during the year. We do not anticipate any large animal bridal to feature SD&A expenses for the three and 12 months ended December 31st, 2023, with $23.6 million and $116.7 million respectively, compared to $26.7 million and $119.9 million in the same period of 2022.
Research and development expenses were $10.9 million and $55.9 million for the three and 12 months ended December 31st, 2023, compared to the $11.19 million and $110.5 million in the comparable period of 2022. The decrease in spend was primarily related to decreases in past releases unless as production scaled up validation activities.
Raw material pulp came through completed in 2022 and is an overall personnel and related costs decreased due to reductions in force implemented in June 2020 to end June 2023. We believe we can continue to reduce costs moving forward in this area has continued to increase efficiency and net loss was $10.7 million for Q4 2023 and $91 million for the comparable period in 2022. Looking to total year to date of 2023, the net loss of $110.6 million compared with $182 million in the comparable period of 2022.
I'd now like to give a little bit more clarity on our overall operational spend and cash burn for 2023, we began implementing our OpEx reduction plan in early June, which includes several cost-saving strategies, including a reduction in force as well as overall company-wide expense reduction. We now have much more visibility into our operational spend and see a clear path to profitability.
If you look at the slide on that provides, you will see our overall operational spend for 2023 of about $172 million with reduced to $155 million after excluding do deal-related charges of $8 million, reducing these expenses for non-cash stock compensation and related to seven and depreciation and amortization of $27 million. Our cash OpEx spend was $100.8 million for the year.
This compares to $110 million of cash OpEx spend for 2022. Please keep in mind that we started implementing our company-wide reduction midyear 2023. As mentioned in our previous earnings call, we believe our operational run rate, excluding stock compensation and accretion, depreciation and amortization on forward will be between $108 million to $160 million, and cash burn will decrease every order that we have stabilized our spend and when revenues are increasing every quarter.
Moving now onto our guidance for 2024. We are reaffirming our previously given guidance for revenue of $138 million,$258 million for 2024 and improved gross margins between 68% to 70%. Our operating spend, excluding stock compensation and depreciation and amortization, is anticipated to be between $189 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 getting to positive EBITDA in Q4 2024. And based on this strong balance sheet and our current operation plan, we do not anticipate having to raise a little capital and now like to open the call for any questions.

Question and Answer Session

William Forbes

The floor is now open for your questions. (Operator Instructions)
Serge Belanger, Needham & Company.

Serge Belanger

So two questions related to the left. First one, it's been six or seven weeks since the label expansion. I'm just curious if you've seen any impact from demand or usage since that. And then maybe secondly, if you can just talk about what I no pain act means for Zimmer, unless I guess specifically, what kind of coverage do you have now? And how do you think that changes once we flip the calendar to January 20 fives, when I know pain act takes effect.

Craig Collard

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 service 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 a label expansion us all I guess, 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 the combined with a certainly cross link, we had the meeting at AOS. out of San Francisco.
We were with crosslink. Simon had some additions coming by the booth, 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 we're certainly seeing some some impact. But I think again, over time, as I said in my comments, I think with cross label, the label expansion for launch of and later in the year, I think this really begins to take off late into the year into '25 when we really start to see an inflection. But we're certainly seeing some pause seen some positive momentum.
Regarding the no pain, I'm going to turn it to Kevin Werner and who can give a little bit more insight into that.

Kevin Warner

And third is thanks for that question. Other than no payback is going to be significant from multiple facets. So the Nobina does is provide reimbursement in the hospital outpatient procedure department and ambulatory surgical centers for products that have been proven to reduce the need for opioids, outsole and then release. And since we're already covered in both the HOPD. and ASC. through 2025 for Q1. So no pain Act is going to go through 2027 sort of essentially establish that reimbursement for our facilities through 2027. And CMS has discussed the longer timeframe from that beyond possibly extending all the way to 2030. So we look forward to working with our legislatures on that and continuing to get reimbursement for our patients to assure that it is covered, but it will help assure the adoption and the bold moves are coming in that direction.

Serge Belanger

Thank you.

Operator

Carl Byrnes, Northland Capital Markets.

Carl Byrnes

Thanks for the question. And congratulations on the results and the progress. I'm going to understanding the 2025 is really set up to be the ramp here present relevant Kambi. How do you see it I know you touched on this a bit already. How do you see the cross-selling collaboration and label expansion transitioning into several ourselves and '24? I think the prior language was a key acute care products and 50% year over year growth still comfortable with that number? Or do you think that that's likely to prove conservative? Thanks.

Craig Collard

And yes, again, one of the reasons we did give that range was we weren't sure exactly when and how this may take off, but to your point, expand expanded label. And the thing I'd say about the crossing 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 that the crossing folks have been fantastic. We certainly are bringing a different relationships that we may have currently with your some of the servers and so forth.
So that's been everything we had hoped for at this point. I think one of the surprises that we had and we did the initial training and I was there along with our team. We did that in person and it gives us very receptive. We have 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 in terms of these or 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 so far, this has gone as planned.

Carl Byrnes

Great, thanks. And then just a follow-up on there also seems to be if you can touch on this a significant opportunity in the ASC segment, particularly to cross sell both Zimmer 11 and upon the with your sales force and with the cross-selling collaboration, what did you want to? Can you elaborate a little bit about what your thoughts are in terms of how big that opportunity might be?

Craig Collard

Yes. Well, certainly the market is moving that way. And again, we've tried to I hate to say overly overly simplified things, but we've really tried to go where we think we'd be most successful now in sort of niche this product a bit. And so that has led us to the orthopedic space and we'll certainly go expand from there. But that really is in parallel where 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 to 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 upon we can come in and play and so for those high-risk patients. So with our kind of peri-operative 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.

Carl Byrnes

Great. Thanks, and congratulations again.

Craig Collard

Thanks, Carl.

Operator

(Operator Instructions)
Kelly Shi, Jefferies.

This is Clare on for Kelly on. Congrats on the great progress. And just one quick question on the cost reductions. Just wondering, do you have any plan to further market, Jackie, to your cost reduction plan in 2020 for like, should we expect R&D and SG&A to continue go down in 2024 and '25, unlike At what point, do you think you are operating costs will be at a more stable level? Thank you.

Craig Collard

So basically opposite question of now that the range we've given from 100 to 100, $16 million. I mean, again, we'd love to be at the lower end of that. We're just again, as we've made some of these changes, we are 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. Okay.

Operator

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

Craig Collard

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

Operator

Thank you. This concludes today's call. You may now disconnect.