Heron Therapeutics Inc
NASDAQ:HRTX
Earnings Call Analysis
Q4-2023 Analysis
Heron Therapeutics Inc
Since welcoming a new CEO in April 2023, Heron Therapeutics has undergone a significant restructuring, marked by a reduction in headcount and operational expenses, and the assembly of a strong management team. These changes reduced operating expenses from $182 million in 2022 to $135 million in 2023, with projections for 2024 expenses set between $108 million to $160 million. Seamlessly, gross margins improved considerably from the historical range of 50% to over 70%, with expectations to push into the mid-70s percentile. A capital raise early in 2023 has positioned the company with sufficient cash reserves, aiming for profitability by 2024.
Heron has made progress with its Vial Access Needle (VAN) project and prefilled syringe, expecting VAN approval by year's end and the syringe by 2026. These initiatives are anticipated to boost postoperative pain product revenues. The oncology franchise has shown outstanding performance, exceeding the full year 2023 guidance with net revenues of $107.9 million. The Acute Care net revenues touched $19.1 million, with Zynrelef and Aponvie poised for significant growth as the year progresses, supported by the new Crosslink partnership and label expansions.
The CrossLink partnership began in early 2024 with the aim to increase the sales force. After training over 150 sales representatives, a full implementation is expected by the end of 2024, adding a total of 650 reps across the country. This enlarged sales footprint is projected to impact revenues in 2024, with an inflection point anticipated in 2025 after the VAN launch and comprehensive sales team training.
Heron Therapeutics projects revenue between $138 million to $158 million for 2024, with a gross margin improving to 68%-70%. Operating expenses are estimated within $108 million to $160 million. The EBITDA outlook ranges from a potential loss of $22 million to a profit of $3 million, moving into positive territory in Q4 of 2024. These assessments factor in the stabilization of spending and increasing revenues quarter over quarter. With a reliable balance sheet and a concrete operational plan, the necessity for additional capital is not on the horizon.
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Thank you for standing by, and welcome to the Heron Therapeutics Fourth Quarter 2023 Conference Call. I would now like to welcome Melissa Dorel, Executive Director, Legal to begin the call. Melissa, over to you.
Thank you, operator, and good afternoon to 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 31, 2023. With me today from Heron are Craig Collard, Chief Executive Officer; Ira Duarte, Executive Vice President, Chief Financial Officer; Bill Ford, Executive Vice President, Chief Development Officer; and Kevin Werner, 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 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 being 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.
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, pression on our development projects, crossing training and some insight into where we are headed strategically with our products. This joined Heron Therapeutics as CEO back in April of 2023, we have taken significant steps to get this business back on track. It started 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 on this slide, we have had a number of significant achievements in 2023 that help us well positioned as we move into 2024 and beyond. We've been able to reduce operational expenses from $182 million in 2022 to $135 million in 2023 and we should be in the range of $108 million to $160 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 to over 70%. We anticipate future gross margins to continue to improve up to 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 2024.
We closed the year in 2023 with over $80 million in cash and cash equivalents, which again is enough cash for us to reach profitability in Q4 of 2024. Moving down the list, we were able to restart the Vial Access Needle or VAN project along with the prefilled syringe. Both of these projects are progressing nicely with the expected VAN approval by the end of this year and the prefilled syringe approval expected in 2026. Both of these projects will provide significant improvement to our products analyst, 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're also very pleased with OLED 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 change was happening in the business. And last, in January 2024, we were able to sign the cross-link agreement, combined with getting our label expansion for Zynrelef. These 2 events should have a significant impact to Zynrelef revenues as we move through 2024 and beyond.
Now moving to product performance. The oncology franchise continues to outperform our expectations with combines net revenues coming in at $94.9 million for the year and SUSTOL coming in at $13 million. We have been very pleased with the oncology franchise, and we believe these products will continue to show the same consistency as in past years. The Acute franchise is where we anticipate the majority of our product growth to come from as we move forward. We were very pleased inlet 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. Total Acute care net revenues for the year were $19.1 million, which included a positive net revenues of $1.4 million. We believe Zynrelef and Aponvie are both well positioned as we move into 2024. With the CrossLink partnership expanded label, combined with increasing morale, improved sales message and targeting we believe this is going to be a great year for both products.
Moving to the Crosslink partnership. This agreement was signed on January 7 and really that kicked off in early February. We began the training process of in-person training of the CrossLink executive team, which went extremely well. We will continue this process through March and early April that will lead to having over 150 sales folks trained and ready to go. Post this initial group being trained, 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 full implementation across line 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 2024. We also believe that we will see an impact in '24 from this amount of representatives coming into place. But I do want to temper enthusiasm is obviously, this will take time before we really structure on all cylinders. I really believe the inflection for Zynrelef 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 the Crosslinkers will have an impact in 2024.
We have been looking at doing more on the ASP level as we have tried to focus more of our efforts around the orthopedic space. And for signing the partnership with CrossLink, it has become increasingly apparent that Crosslink has a significant footprint in this space and that our product mix [indiscernible] in parallel with the strategy which is to get these patients out of surgery and into rehabs is possible. Our carry operated 12 funds for the Aponvie and Zynrelef will be extremely beneficial to our potential partners at the ASC level. I'm now going to pass the call to Heron's [indiscernible] , Kevin Warner, who is our newest Senior VP of MedAffairs Strategy and Engagement. Ken is a vital need for us of having handling experience with our products at the clinician level and is going to have a significant influence in our ASP strategy as we move forward. Go ahead, Ken.
Thanks, Craig. So excited to be joining the Heron Therapeutics team in supporting the commercial portfolio of cute care and oncology care products, have over 15 years of clinical pharmacy experience with a focus on perioperative care and pharmacists in addition to over decorative experience in drug development, discovery and clinical trials as Director of Pharmaceutical banks as the Osteo therapeutics as Senior Vice President of Medical Affairs Strategy and engagement for Heron, it will be my job to support the accurate determination of medical information to our team and providers to sharing patients have access to the best possible care forming strategic alliances and collaborating with the medical community to assure Heron's products to become part of the panda of care as medical order dictate.
I look forward to working with our team at hero expanding indications, access, adoption and medical literature with our current commercial portfolio and future products. I will focus on our chief care portfolio today, and I've had the pleasure of having extensive real-world experience with general and upon witnessing the positive impact on our patients and health systems, enhanced recovery after surgery protocols are evidence-based protocols are essential to patient outcomes and sustaining the financial viability of our health systems. The primary clinical focuses of enhanced recovery [indiscernible] are reducing postoperative pain while minimizing pod consumption and the control of most operative note. Postoperative pain in pooperative now be inbound are 2 of the most common concerns to both patients and clinicians. [indiscernible] on offer what we consider best-in-class log acting solutions to these problems. Implementation of [ Mines and Apama ] the foundation of our enhanced recovery after surgery protocols, we believe may improve overall patient satisfaction, clinical outcomes and overall quality of life at an institutional level while supporting enhanced recovery after surgery, both literally [indiscernible] have a positive financial impact on our institutions. Both products are currently separately payable in the hospital outpatient and ambulatory surgical centers by BMS.
In addition, many commercial payers are providing coverage presently outside the surgical bundle improving the efficacy of our enhanced recovery after circuit protocols or minus separate reimbursement outside of the surgical bundle is critical to the financial viability of our health system and clinical outcomes of our patients. Pat touched on [ Pandi, ] at prepresented emulsion and the current unmet need and lack of awareness. Both have notion often overlooked or underrecognized secondary to the timing and different phases of care in which patients can experience that Posadas and bonding is rate #1 most undesirable post-compaction by patients. but also presents clinical risk factors as well that need to increase plaintiffs, readmissions and surgical complications. Post operability and admin rates can reach has had 80% in high-risk patients. The current guidelines recommend these 3 or 4 agents in patients with risk factors making them moderate to high risk. In the United States, we performed over $65 million diagnostic and surgical procedures, of which 50% of those patients are at moderate to high-risk proposed alternate [indiscernible] has been on the market in an oral formulation and as a prodrug infusion plastic production. During the formulation at the lay down a set of action of about 1 to 5 hours, passion requires compounding and is on a 30-minute infusion, followed by systemic conversion of the prodrug to the active form. Because of this, they have not been widely adopted in the perioperative space despite Aponvie being ranked the #1 most effective anemic for large-scale [indiscernible] analysis of nearly 100,000 patients. Along with the efficacy, pectin also has an excellent safety profile without sharing typical side effects of our commonly used antiemetic therapies such as QT prolongation, sedation, anticholinergic compact or expert side effects.
The safety profile is critical when we are combining multiple agents for our moderate and high-risk patients. [indiscernible] 32 IV push and rapid target receptor occupancy will allow for greater implementation of propose and the acute perioperative paid by those providers make anesthesia most likely to prescribe. Aponvie's safety and efficacy profile in the long-acting solution with a 48-hour duration to one of our most postoperative complications both opportunity and marketing. We are looking forward to the updated guidelines on the prevention of both Aponvie expected in 2024, which will enhance the education and awareness around the impact of Hamdan have. For Zynrelef, our focus will be on broadening provider awareness and associated patient impact. The clinical trials as [indiscernible] speak for themselves, being the first and only FDA-approved expense release anastatic proves pain and opioid consumption. Today, 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 for Zynrelef approved by the FDA on January 23, 2024, which binaries is now indicated in adults for installations to use pulsurgical analgesia pro to 72 hours after soft tissue and orthopedic procedures, including butane and other procedures, which direct exposure to articular paralysis voice. This has essentially doubled the number of significant indicated procedures. As a clinician, when I think of indicated procedures and appropriate system release, I consider any procedure on which provider would typically prescribe an opioid postop. They should be considering literally as the foundation post for both [indiscernible] analgesia to minimize or eliminate the need for opioids, minimizing the acute pain risk of developing chronic pain and support clinical recovery. The label expansion will also have a great impact on formulary substitution.
Some formularies have been hesitant to adopt due to the limited number of indications the [indiscernible] need for having multiple agent on formulary and subsequent budget impacts with the new broad label presently, other agents that have claimed long-acting but have not proven superior to standard of care anesthetics to be removed from formulary and [indiscernible] can be adopted as the long-acting foundational element along with cheaper generic anesthetics for the acute phase.
Additionally, third-party data continues to service would result that align with our clinical trials showing significant impacts on both doctor pain, opioid consumption, length of stay and functional outcomes. The opioid racemic continues to be at the top of our new speeds costing the U.S. health system has estimated $1.5 trillion in 2020 and many patient lives. Our major accrediting bodies and government agencies are taking notice and stepping in. The joint mission now includes metrics for opioid stewardship to be accredited and [indiscernible] , which will begin in 2025, we'll provide payment for nonopioids in the outpatient surgical study that has proven to reduce or eliminate the need for opioids. Along with the opioid settlement, currently being distributed to states in the amount of $53 million that will be utilized to support awareness, prevention, treatment of the good epidemic. All these factors will have a major impact on awareness and adoption of generally. One of the most important factors, I believe, will be the Crossman partnership that Craig outlined previously, having the additional boots on the ground, if you will, will be critical to the successful implementation of [indiscernible] as the foundation of multimodal analgesia cross tension to change how we view both operative pain and the need for opioids across the surgical paradigm. I would like to now turn the call over to Dr. Bill Ports.
Thank you, Kevin. We are certainly excited to have you join our team. The development opportunity for [ Zynrelef. ] The first was label expansion, which has been realized. The next step involves device modification in the form of the vial access needle for Vans, and the final step concludes with the precore for PFS. In regards to the ban, it is designed to improve efficiency in preparation and will achieve this in 2 ways. Firstly, the VAN will substitute the current market presentation of the device, which includes the vented vial for BS with a van still. The van will provide a more rapid and easy withdrawal of the drug product into the syringe that is used for installation into the patient by the physician. The van has been specifically designed for this purpose and testing the ban has outperformed other vented vial pipes available on the market today.
Secondly, the van will allow for an even more secure presentation of a product in Zynrelef presence in the surgical room by enhancing the Zynrelef into the sterile scout of the bank. This will result in a more efficient process for operating room staff to prepare the product for physicians. We anticipate the van approval in Q4 of this year. Of course, the ultimate solution to ease of use has been left is the PFS, and we expect the PFS to get approved in Q4 of 2026. In this product presentation, the entire trade sterilized and ready for immediate use. The challenges for 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?
Thanks, Bill. Craig has covered 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 gross profit for the fourth quarter was $24.3 million and $61.9 million for the 12 months ended December 31, 2023, representing 71% and 49% of net revenue, respectively. The annual margins were negatively impacted by write-off of general inventory during the year. We do not anticipate any loan rides in the future. SG&A expense for 3 and 12 months ended December 31, 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 3 and 12 months ended December 31, 2023, compared to $11.1 million and $107.5 million in the comparable period of 2022. The decrease in spend was primarily related to a decrease in costs related to Zynrelef as production yield of validation activities in raw material healthcare completed in 2022. In addition, overall personnel and related costs decreased due to the reductions in words implemented in June 2022 and June 2023. We believe we can continue to reduce costs moving forward in this area as we continue to increase efficiencies. The net loss was $10.7 million for Q4 2023 and $19.9 million for the comparable period in 2022. Looking for the total year-to-date net loss. 2023 has a net loss of $110.6 million compared with $182 million for the comparable period of 2022. I now would like to give a little bit more clarity on our overall operational spend and cash burn for 2023. We began implementing our corporate restructuring plan in early June, which includes several cost-saving strategies and even reduction in force as well as overall company-wide spend reduction.
We now have much more visibility into our operational spend and see clear path to profitability. If you look at the slide from [ left to right ], you will see our overall operational spend for 2023 of about $172 million which we reduced $155 million as excluding the reorganization charge of $8 million. Reducing these expenses for noncash stock compensation, not related to severance and depreciation amortization of $27 million, our cash OpEx spend was $128 million for the year. This compares to $177 million of cash OpEx spend for 2022. Please keep in mind that we started implementing our company-wide reduction in midyear 2023. And as mentioned in our previous earnings call, we believe our operational run rate excluding stock compensation and depreciation and amortization going forward will be between $108 million to $160 million and cash burn will decrease every quarter as we have stabilized our spend and revenues are increasing every quarter.
Moving now on to our guidance of 2024. We are reaffirming our previously given guidance for revenue of $138 million to $158 million for 2024 and improved gross margin between 68% to 70%. Our operating spend, excluding stock compensation and depreciation cavitation is anticipated to be between $108 million to $160 million, and EBITDA, excluding stock com will be between a loss of $22 million to income of $3 million. I would like to reiterate that we anticipate to get into 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 any additional capital. And now we would like to open the call for any questions.
The floor is now open for your questions.
[Operator Instructions] Our first question comes from the line of Serge Belanger with Needham & Company.
Can you hear me?
Yes, we can now. I'm sorry, sir, we didn't hear the part of that.
Got it. So 2 questions related to Zynrelef. The first one, it's been 6 or 7 weeks since the label expansion -- just curious if you've seen any impact from -- in demand or usage sense? And then maybe secondly, if you can just talk about what the [ no-pay ] means for Zynrelef 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 25 when the no pain at takes effect?
Okay. Sure. Yes, I would say, again, anecdotally, when we got the label expansion, obviously, there's a lot of excitement. And when we go into certainly 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 1 of the label expansion, I saw, I guess, our first on-label spine surgery, I was actually in the surgery in Ashville, not Carolina. So we're certainly getting some of that.
I think that, though, combined with certainly CrossLink, a meeting at AAOS out in San Francisco, we were with cross-linksome and had some positions coming by the booth and 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 seeing some impact. But I think, again, over time, as I said in my comments, I think with CrossLink with the label expansion, the launch of Van 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 positive momentum.
Regarding the Opain Act, I'm going to turn it to Kevin Werner, who can give a little bit more insight into that.
Yes. Serge, thanks for that question. So the Opain Act is going to be significant from multiple facets. So what none does is provide reimbursement in the hospital outpatient procedure department and the ambulatory surgical centers. for products that have been proven to reduce the need for opioids. So in Zynrelef instance were already covered in both CHOPD and ASC through 2025 for Q1 and -- so Opain Act is going to go through 2027. So to essentially establish that reimbursement for our facilities through 2027. CMS has discussed a longer time frame 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 that will help us share the adoption and the pull-through for many institutions.
Our next question comes from the line of Carl Byrnes with Northland Capital Markets.
And congratulations on the results and the progress Understanding that 2025 is really set up to be the ramp year for Zynrelef and Aponvie -- how do you see -- and I know you touched on this a bit already, how do you see the cross-link collaboration and the label expansion, transitioning into in '24. I think the prior language was acute care products and 50% year-over-year growth. So comfortable with that number? Or do you think that that's likely to prove conservative?
Yes. Again, one of the reasons we did get that range was we weren't sure exactly when and how this may take off. But to your point, with expanded label and the thing I can say about the Crosslink 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. The crosslink folks have been fantastic. They certainly are bringing different relationships that we may have currently with some of the surgeons and so forth. So that's been everything we had hoped for at this point. I think one of the surprises that we had when we did the initial training, and I was there along with our team, we did that in person. And again, it was just very receptive. We had 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 trans these 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 is going as planned.
Great. And then just a follow-up. There also seems to be, and you again, touched on this, the significant opportunity in the ASC segment. particularly to cross-sell both [indiscernible] and Aponvie with your sales force and with the Crosslink collaboration. Could you want to -- can you elaborate a little bit about what your thoughts are in terms of how big that opportunity might be?
Yes. Well, certainly, the market is moving that way. And again, we've tried to I hate to say overly simplified things, but we've really tried to go where we think we'd be most successful now and sort of niche this product a bit. And so that has led us to the orthopedic space and we'll certainly expand from there. But that really is in parallel 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 into 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 Aponvie can come in and play. And so for those higher-risk patients. So with our kind of perioperative 1-2 punch, we really do feel that these 2 products are really positioned perfectly was 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 force there and really trying to move down that path.
[Operator Instructions] Our next question comes from the line of Kelly Shi with Jefferies.
This is Clare on for Kelly. Congrats on the group progress. And just one quick question on the cost reductions. So just wondering, do you have any plan to further accurate your cost reduction plan in 2024. Like should we expect R&D and SG&A to continue to go down in 2024 and 2025? And like at what point do you think your operating costs will be at a more stable level?
Thanks, Clare. I appreciate the question. No, look, the range we've given from $108 million to $116 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're trying to now kind of sort through what that may look like this year. And we've given ourselves a little bit of label 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.
There are no further questions at this time. I would now like to turn the call over to Craig Collard for closing remarks.
I just want to thank everyone for joining the call today, and we really look forward to speaking to everyone next quarter. Thank you.
This concludes today's call. You may now disconnect.