Earnings Call Transcript - HRTX Q4 2024

Operator, Operator

Good day, and thank you for joining us for the Heron Therapeutics Q4 2024 Conference Call. All participants are currently in listen-only mode. Following the presentations, there will be a question-and-answer session. Please note that this conference call is being recorded. I will now turn the call over to Melissa Jarel, Executive Director of Legal. Please proceed.

Melissa Jarel, Executive Director, Legal

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 fourth quarter ended December 31st 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; and Kevin Warner, 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 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 the call over to Craig Collard, Chief Executive Officer of Heron.

Craig Collard, Chief Executive Officer

Thanks, Melissa. Good morning, everyone, and welcome to Heron Therapeutics' fourth quarter 2024 earnings call. Today, we're extremely excited to share our results for the quarter as well as our performance for the full year 2024. Since joining the company in April of 2023, our goal as a management team has been to reposition the business for future growth and achieve profitability by the fourth quarter of 2024. As we focused on positioning the company for growth, we successfully expanded the product labeling for ZYNRELEF, doubling the number of approved indication procedures. We also signed, trained and integrated our CrossLink partnership, which includes over 800 distributor representatives focused on the orthopedic space. Additionally, we secured inclusion in the NOPAIN Act, which expands reimbursement for ZYNRELEF outside of the surgical bundle, allowing more patients access to a non-opioid alternative for postoperative pain. In late September, we received approval of the vial access needle or VAN and launched the new device in mid-December. The VAN significantly improves the preparation time and may enhance the safe use of our product. We are already receiving positive feedback, with many noting that this is a dramatic improvement over the previously used VIN valve spike. Lastly, in early December 2024, the U.S. District Court ruled in favor of Heron and our patent lawsuit against Fresenius Kabi, upholding the validity of the CINVANTI patents, which are set to expire in 2035. Despite all the changes and accomplishments over the past 18 months, we successfully achieved profitability not only for the fourth quarter of 2024 but also for the full year. We finished the quarter with a net income of $3.6 million. For the full year 2024, net revenues reached $144.2 million, reflecting a 14% year-over-year increase, and we delivered an adjusted EBITDA of $8.6 million. CINVANTI net revenues rebounded from a slight downturn in Q3, finishing the fourth quarter at $26.9 million compared to $22.7 million in Q3. For the full year 2024, CINVANTI generated just over $100 million in net revenues, up from $94.8 million in 2023. ZYNRELEF achieved record net revenues of $8.5 million in Q4 of 2024, a 33% increase from $6.3 million in Q3. This growth was achieved with minimal impact from the VAN launch as it was introduced in mid-December. To highlight the progress since we joined Heron in April 2023, it is helpful to reflect on the financials from 2022 through 2024. Net revenues grew by 14% from '23 to '24, while gross margin improved by 24%, increasing from 49% to approximately 73%. Operating expenses have been reduced by over $80 million since 2022. We ended 2024 with a cash balance of just over $59 million. This has been a long journey, but I am extremely proud of all Heron team members for their sacrifices in turning this business around and achieving profitability in 2024. Now shifting to product performance, our Oncology franchise, which includes both CINVANTI and SUSTOL, continues to show growth despite a highly competitive environment. As mentioned in our last quarterly earnings call, these products can experience quarterly fluctuations, but historically have maintained annual growth. For 2025, we have taken a more conservative approach to our outlook for CINVANTI, given the increased competition entering the market and the potential pressure on our average selling price. While we still anticipate growth in unit sales for 2025, this may come at a lower price point, which could impact net revenues for the Oncology franchise. Moving on to the acute hospital side of our business, both APONVIE and ZYNRELEF have seen significant growth, up over 310% and 48% respectively in Q4 of 2024 compared to the same period last year. With APONVIE, we are beginning to see a dramatic shift in trends, particularly in average daily units and the number of orders. We believe this growth will continue in 2025 and beyond as our push through efforts expand product usage within hospital institutions. Additionally, we anticipate further growth as we continue adding new accounts through P&T wins and system-wide conversions. A similar trend is emerging with ZYNRELEF. Our daily unit sales are steadily increasing, and we are onboarding new accounts at a much faster rate than in the past. We achieved record net revenues this quarter despite the VAN not officially launching until mid-December, and our team is still finalizing training for some of our CrossLink partners. We are excited about the strong momentum we have with ZYNRELEF as we head into 2025. The efforts and accomplishments of the past eighteen months are already yielding results, and we believe that as the year progresses, ZYNRELEF will experience a significant upward inflection, ultimately exceeding performance expectations. I will now turn the call over to Ira Duarte, our CFO, to cover our financials and update our financial guidance. Go ahead, Ira.

Ira Duarte, CFO

Thank you, Craig. We continue to improve on our financial efficiency while growing revenues. Over the past 12 months during a time of change and disruption at the company, we grew revenues 13.6%, improved gross margin from 48.8% to 73.2%, and grew gross profit by almost 71%. More importantly, we did this while burning only approximately $21 million in cash for 2024. Our product gross profit for the three months ended December 31st, 2024, was $30.6 million or 74.9%, which increased from 71.1% for the same period in 2023. This was primarily due to the fact that the current quarter did not see the significant inventory write-offs we experienced in the comparable quarter of 2023. Year-to-date, our product gross profit was $105.6 million or 73.2% as compared to $43.7 million or 48.8% for the same period in 2023. SG&A expenses for the three and 12 months ended December 31st, 2024 were $23.2 million and $100.5 million, respectively, compared to $26.8 million and $133.4 million, respectively, in the same period in 2023. The decrease was primarily related to decreases in personnel and related costs due to the reductions in force in prior years as well as improved cost efficiencies among all departments. These decreases were offset by increased legal expenses related to the patent litigations. Research and development expenses were $3.2 million and $16.7 million for the three and 12 months ended December 31st, 2024, compared to $7.8 million and $39.1 million in the comparable periods in 2023. The decrease was primarily related to decreases in personnel and related costs due to the reductions in force implemented in previous years as well as decreases in development activities. We achieved net income for the three months ended December 31st, 2024, of $3.7 million and had a net loss for the year ended December 31st, 2024, of $13.6 million. During the comparable periods in 2023, we had net losses of $10.7 million and $110.6 million, respectively. Cash and short-term investments at December 31st, 2024 were $59.3 million. Year-to-date, we incurred inventory write-offs of $2.5 million. In addition, as mentioned on previous calls, we also recorded asset impairment write-offs of $2.2 million primarily related to projects no longer part of the company's forward-looking strategy. If we had excluded depreciation, stock-based compensation, inventory write-offs, and the asset impairment write-offs, our adjusted EBITDA results would have been a positive $8.6 million operating income, which represents a substantial turnaround in the financial management of the business. We are providing product revenues net guidance range of $153 million to $163 million and adjusted EBITDA guidance range of zero to $8 million. And now we would like to open the call for any questions.

Operator, Operator

Thank you. Our first question comes from Brandon Folkes of Rodman & Renshaw.

Brandon Folkes, Analyst

Hi, thanks for taking my question and congratulations on a very good quarter. And firstly, maybe just on ZYNRELEF's performance in the quarter. Any stocking there or anything or was that sort of how we should think about ZYNRELEF going forward? And then staying on ZYNRELEF, have you had any accounts come back that were perhaps not similar to the users prior to the VAN launch and sort of inquire about the VAN launch? And you talked about onboarding new accounts at a very strong level. In 2025, strategically, are you focusing on driving deeper usage in the current sort of high user accounts or should we think about growing the breadth of accounts or both? Thank you.

Craig Collard, Chief Executive Officer

Thanks, Bren. Yes, let me first speak just to ZYNRELEF's performance in Q4. There's really no stocking or anything like that as far as in those revenues. Actually, inventories have been quite low. We're in sort of this two to three-week inventory level. And VAN really didn't launch fully until about mid-December of '24. So I think the impact was fairly minimal. What I can tell you is what we're seeing is the reception so far to VAN has been exceptional from a standpoint of just being a much more user-friendly and better customer experience. We have to date, I think we've had at least 15 accounts that we either saved or that have come back as part of launching the VAN, and again, that's more in the kind of January timeframe that we've sort of seen that. So I anticipate that we're going to continue to see pretty strong growth, considering the tailwinds we have with the product, with NOPAIN Act, with the CrossLink partnership really starting to come on board and get going, and then the launch of the VAN, as well as the expanded label. We've been extremely pleased with how that has gone so far. We really see this product inflecting as we move later in the year. The other thing I'll mention about VAN is that we've only launched the 400 milligram to date. We have kits where you can switch over the 200 milligram, but the 200 milligram won't fully launch until right around the April timeframe to give us time to sort of bleed out the old inventory that was out there. So I think as we move into midyear, you're really going to see a change as there will be complete VAN, and no more VIN valve spike in the market.

Brandon Folkes, Analyst

Great. Thanks so much. And then maybe just one on the sort of cash flow adjusted EBITDA. Obviously, a very positive year on that aspect. I appreciate the guidance for 2025. How should we think about it sort of on a quarterly basis? Could there be a bit of lumpiness just in terms of swinging between positive and negative EBITDA or cash flow in the first half of the year, and sort of as that VAN ramps up, we see exiting the year with consistent positive cash flow or do you feel like we are at a stage now where we should be thinking about positive cash flow every quarter?

Ira Duarte, CFO

Yes, Brandon, thank you for the question. Yes, it will be a little bit lumpy, primarily because of some of the legal spend in the patent filings. It's really what is impacting our quarters a little bit. Overall, the results and the spend will not change significantly from this year, but those are the two factors that could provide a little bit of lumpiness in the beginning of the year.

Craig Collard, Chief Executive Officer

Yes, Brandon, I would add too. I mean, the one thing we've been a bit conservative on is with CINVANTI. I mean, as we see the product now, we're tracking pretty close to where we were last year. I mean, we typically have about 7% to 8% market growth in that space, and we've been maintaining roughly around 27% share. We've anticipated some competition later in the year and with ASP dipping a bit. But as we sit today, we're tracking pretty close to where we were last year. So we've tried to be a bit conservative there. So that's another part that could move a bit.

Brandon Folkes, Analyst

Great. Thanks very much and congrats on the good quarter.

Craig Collard, Chief Executive Officer

Thank you.

Operator, Operator

Thank you so much. Our next question comes from the line of Serge Belanger of Needham. Your line is now open.

Serge Belanger, Analyst

Hi, good morning. A couple of questions on the ZYNRELEF. It looks like the product is gaining momentum here. Maybe just talk about what's been driving that momentum and what you expect from No Pain once it kicks in for ZYNRELEF, which I believe is in March or April?

Craig Collard, Chief Executive Officer

Yes, that's correct. Look, I think we've been really pleased with the momentum we've had. I mean, again, I mentioned the tailwinds before. From a reimbursement standpoint, it will fully come into play on April 1. But I think the bigger thing we're getting from that is really just the noise around no pain and sort of the push to look at non-opioid alternatives. I mean, that's going to help us and really anybody in this market selling those types of products. So I think that's been hugely helpful for us. What was the last part of your question, I'm sorry?

Serge Belanger, Analyst

Yes. The momentum we saw in the fourth quarter, what was it driven by and whether it would accelerate with your other products?

Craig Collard, Chief Executive Officer

Yes. No. I'm sorry. I was going to speak to CrossLink. So I think, look, the CrossLink relationship is starting to really come into play. When we look at our data, anytime we've had an overlap with a CrossLink counterpart, we view that as a CrossLink account versus an account that we're in where CrossLink is not. What I can tell you is that those accounts are growing about a 30% higher rate than our normal standalone business. We think that's just going to continue. I mean, with VAN and again, as we get better at this and we better coordinate with our CrossLink counterparts, we see upside as we launch the 200 milligram later this year. As we move into midyear in the third quarter, I think this is really going to start to get much more efficient. We've got 800 people out there that are just starting with the VAN pretty much now. The coordination of all that is coming together nicely. But the growth we've experienced so far has been much different than we had in the past, and I think that's going to continue.

Serge Belanger, Analyst

Okay. And then from an OpEx perspective for 2025, should we expect some flattish growth versus 2024?

Ira Duarte, CFO

Yes. It will be a little higher than 2024 just because of the R&D spend for PFS that we didn't see in 2024 and then some of the legal expenses as we are trying to settle some of these cases that we have outstanding. Overall, the remaining business really remains flat, but those are the two items that might increase OpEx a little bit in 2025.

Serge Belanger, Analyst

Got it. Thank you.

Operator, Operator

Thank you so much. And one moment for our next question. Our next question comes from the line of Carl Byrnes of Northland Capital Markets. Your line is now open.

Carl Byrnes, Analyst

Congratulations on the progress and thanks for the questions. So you had a really nice bump with ZYNRELEF at $8.5 million. Do you expect a similar bump in the first quarter given the timing of No Pain and the timing of the VAN approval? And then if you can maybe extrapolate a bit more with the number of CrossLink reps that have been trained to market the VAN and how you see that potentially hitting an inflection point in the second half of the year in terms of significantly accelerating ZYNRELEF sales and to the same extent with respect to APONVIE? Thanks.

Craig Collard, Chief Executive Officer

Yes. Carl, as we've said, I think currently we're at right around 800 or approximately 800 CrossLink reps, and the last sort of 100 were sort of coming together in Q4. So as we come out into 2025, this is when we think it's going to start to hit on all cylinders. That's where that sits currently. Again, as CrossLink is coming on board and we kind of look at from Q4 to Q1, I mean, you typically have some seasonality and co-pay resets that have historically flattened the market. What I can tell you is that we are currently, when I look at daily average sales, we are actually higher thus far in Q1 than we were in Q4. So, again, we're hoping that continues. Obviously, the market's a little bit less in surgeries as a whole in Q1, but we're anticipating continued growth. As we look more towards midyear, again, I think as we launch the 200 milligram VAN with No Pain really starting to kick in, I think we're going to see the inflection happening. The other thing that CrossLink does for us is that as they come on board more and can take our places in the surgeries and are more comfortable with the product, it allows for our reps to really get out of these surgeries on a daily basis, and CrossLink becomes our eyes and ears. It enables our reps to find more surgeons and expand product usage. We are feeling very confident that we are going to continue to grow APONVIE at a much different rate. If you think about the ability with APONVIE to really do systematic wins, our issue thus far has been really getting our representatives out of the OR and allowing them to do more push-through with the product. Again, we think with CrossLink that's going to help with that significantly.

Carl Byrnes, Analyst

Excellent. So I mean, it's very clear that there is a shift in terms of obviously the growth coming from the acute care products with the CINVANTI and APONVIE really being kind of a cash cow that supports cash flow. And just one other follow-on question, if you've got any thoughts regarding the Baker Brothers' debt. Thanks.

Craig Collard, Chief Executive Officer

Yes. No, I mean, with the Baker Brothers, obviously, they are a large demographic for us and have been a great partner. We've continued to meet with them on a quarterly basis. I think as we now approach sort of the May '26 timeframe, we intend to meet with them again. We wanted to get our quarter announced and so forth, and we really feel like with where the business is going, we are hoping all of our investors will be excited. We should be meeting with them very soon to talk about options with the convert and sort of where we can go from there.

Carl Byrnes, Analyst

Yes. And I would imagine with the CINVANTI litigation largely out of the way, that kind of opens the door to the discussions. Thanks.

Craig Collard, Chief Executive Officer

Yes. No, that's been obviously, it was an unknown. But I think now that we have clarity around that, and again, even the Mylan case is very similar to what we faced with Fresenius. So, we feel very confident about that. Yes, it's certainly going to help those discussions.

Carl Byrnes, Analyst

Excellent. Thanks for the questions and congrats again.

Craig Collard, Chief Executive Officer

Thanks, Carl.

Operator, Operator

Thank you so much. And our next question comes from the line of Clara Donald of Jefferies. Your line is now open.

Clara Donald, Analyst

Hi, team. Congrats on the progress for the quarter. So just wondering, since the launch of ZYNRELEF in mid-December, it seems like the ramp-up is going pretty well. So wondering, could you give us an update on where you're at for the peripheral syringe for ZYNRELEF? Thank you.

Craig Collard, Chief Executive Officer

Yes. Thanks, Clara. Bill Forbes is dialing into the call. I'll let Bill answer that as far as the development path there and where that stands.

William Forbes, Executive Vice President, Chief Development Officer

Hi, good morning. Thank you for your question. Yes, just as a form of update, obviously, we're extremely pleased with the rollout of the VAN. The device development team has been watching that very closely as our commercial partners have been moving that through. As we turn our attention to the prefilled syringe, I'll just kind of recap a little bit about what I spoke on at the Investor Day meeting last year. One of the things that we have to be careful of with ZYNRELEF is moisture content. About a year ago, we put up a demo batch on stability, and we've reached the nine-month part of that, and we've been extremely happy with how that stability and that demo batch has been going. So with that, we've increased our confidence in this program greatly. But we're looking to launch it to the market somewhere near the end of 2026 in the first half of 2027. So we continue to make progress on that. If you have any other questions, feel free to ask.

Clara Donald, Analyst

Appreciate it. Thank you.

Operator, Operator

Thank you so much, Clara. And I don't see any questions queued up. I would now like to turn the conference back to Craig Collard, CEO, for closing remarks.

Craig Collard, Chief Executive Officer

Thank you, operator. Look, we appreciate everyone joining the call today. We're obviously very excited about where we are as a company and the foundation we've built here and how we move into 2025. So, we look forward to talking to everyone next quarter. Thank you.

Operator, Operator

Thank you so much, presenters, and this concludes today's conference call. Thank you for participating. You may now disconnect. Have a great day.