Heron Therapeutics (NASDAQ:HRTX) has reported a significant increase in net revenues, gross margin improvement, and a reduction in expenses for the first quarter of 2024. The company's net revenues rose to $34.6 million in Q1 2024 from $29.6 million in the same period the previous year, with a substantial increase in gross margin from 43% to 76%. Heron's oncology products, CINVANTI and SUSTOL, showed strong performance, contributing to the revenue growth. The company also provided updates on its CrossLink partnership and the expected approval of new product formats for ZYNRELEF. Heron reaffirmed its 2024 revenue guidance and anticipates positive EBITDA in the fourth quarter without the need for additional capital raising.
Key Takeaways
- Heron Therapeutics' net revenues increased to $34.6 million in Q1 2024, up from $29.6 million in Q1 2023.
- Gross margin improved dramatically to 76% from 43% in the same quarter the previous year.
- The oncology franchise, including CINVANTI and SUSTOL, delivered solid revenue figures.
- SG&A and R&D expenses decreased due to personnel and cost reductions implemented in mid-2022 and 2023.
- The company is expanding ZYNRELEF's indications and expects to have a presence in all 50 states by the end of 2024.
- Heron is in discussions with CMS regarding the No Pain Act, which will provide reimbursement for non-opioid treatments starting in Q1 2025.
Company Outlook
- Revenue guidance for 2024 is set between $138 million and $158 million.
- Gross margins are expected to improve to between 60% and 70%.
- Heron anticipates a positive EBITDA by Q4 2024.
- The company does not plan to raise additional capital.
Bearish Highlights
- Ongoing litigations present a note of caution for the company.
- The company is cautious about the timeline for achieving profitability, potentially earlier than Q4 2024.
Bullish Highlights
- Strong performance from the oncology franchise, particularly CINVANTI.
- The CrossLink partnership is progressing, with a fully trained sales force.
- Positive initial results in expanding ZYNRELEF into new indications.
Misses
- There were no specific misses reported during the earnings call.
Q&A Highlights
- The company discussed the potential impact of the No Pain Act on future reimbursement scenarios.
- Heron is actively working to ensure ZYNRELEF's continued access and reimbursement post-No Pain Act implementation.
- Expansion plans into large states and discussions with distributors, particularly in Florida, were highlighted.
Heron Therapeutics' first-quarter results for 2024 signal a strong start to the year, with increased revenues and a significant reduction in expenses. The oncology franchise remains a cornerstone of the company's success, and the expansion of ZYNRELEF into new indications and markets is a key focus for growth. The company's proactive approach to training and state expansion, along with the strategic discussions with CMS regarding the No Pain Act, positions it to potentially benefit from favorable reimbursement changes in the near future. With the expectation of continued gross margin improvement and a positive EBITDA on the horizon, Heron Therapeutics appears to be on a path towards financial stability without the immediate need for additional capital infusion.
InvestingPro Insights
Heron Therapeutics (HRTX) has been making headlines with its robust financial performance in the first quarter of 2024, showcasing a promising trajectory for the company. To provide a deeper understanding of Heron's financial health and market position, here are some key insights based on real-time data from InvestingPro:
InvestingPro Data metrics reveal a market capitalization of $432.33 million, reflecting the company's current valuation in the market. Despite the lack of profitability in the last twelve months, as indicated by a negative P/E ratio (adjusted) of -4.56, Heron has demonstrated a significant revenue growth of 17.99% over the last twelve months as of Q1 2024. This growth is consistent with the company's reported increase in net revenues and gross margin improvement. Additionally, the gross profit margin stands at 7.9%, which aligns with the improved gross margin reported in the article.
InvestingPro Tips suggest that while Heron's stock price movements have been quite volatile, the company has experienced a strong return over the last three months, with a 22.13% total return. This is particularly noteworthy considering the substantial price uptick over the last six months, boasting a 299.67% increase. However, it's important to note that analysts do not anticipate the company will be profitable this year, and Heron does not pay a dividend to shareholders.
For those interested in further analysis and additional InvestingPro Tips, there are 9 more tips available on Heron Therapeutics at https://www.investing.com/pro/HRTX. Readers looking to access this exclusive content can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. This deeper dive could provide valuable insights for investors considering Heron's potential in their portfolio.
Full transcript - Heron Therapeuti (HRTX) Q1 2024:
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.
Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions]. And your first question comes from the line of Serge Berlanger with Needham. Please go ahead.
Serge Berlanger: This one, Craig, it's been about four months since you got the broad label expansion for ZYNRELEF. You highlighted some of the new indications, I think you said spine, shoulder and soft tissue procedures. Where do you think the additional uptake from these new indications will be in? And then secondly, noticed CINVANTI, a strong first quarter, just curious if that's kind of a new base level for that product going forward? Thanks.
Craig Collard: I'm sorry, could you repeat the first part? A little bit got cut off on your first part of your question?
Serge Berlanger: Yes. So the broad label expansion for ZYNRELEF was about four months ago. There's been a number of new indications, you mentioned spine, shoulder, and soft tissue. Curious where the product has seen some uptake in these new indications since the expansion of the label?
Ira Duarte: Okay. Yes. So actually interesting enough day one of approval, I was able to personally sit into a spine case. We had a physician here in North Carolina that used it, and I got to watch that. But I think what you're watching happen is that we've had certainly a number of spine surgeons, orthopedic and so forth that have tried the product in either shoulders or spine. But I think again, the uptake is going to be while people will use it. I think you're still going to have some experimentation going on about how they apply it, getting used to the product and kind of going through that whole sort of process that we go through with a product like this, it's a little bit different. So I think the results we've seen so far have been good in the cases we've had. So in the case, I was at that day, things went well. Kevin Warner is here as well. I don't know if Kevin has any comments as well you can maybe add to that.
Kevin Warner: Yes, definitely. Thanks for that question, Serge. As far as the expanded label goes, it does a couple of things. First off, the formulary access, a lot of times when these institutions review a product, they want to be able to bring it on and cover all of their procedures, right, and not have a 1Z [ph], 2Z approach with multiple branded drugs on their shelves. So having that broad label was a big move forward. For us, those formulary accesses, they all take time, right? So the review process takes two, three months getting in electronic medical record bill. So seeing the rollout and the effects of that broad label is going to be Q3, Q4 as we expand and educate on it what that label provides. But as far as procedures go, definitely some significant target procedures. One nice target procedure that everybody can appreciate is that the soft tissue space with C section. Obviously, new mother, we don't want to have to expose her to opioids and it's a very painful procedure, so we can facilitate that recovery, get her out of the hospital without exposure to opioids and we're exposing that infant to opioids. But definitely the other ortho procedures, spine and shoulder is the primary target. We're seeing excellent results in those procedures.
Ira Duarte: Yes, Serge. And regarding, I guess the second part to your question regarding CINVANTI. Listen, we've been extremely pleased with CINVANTI and SUSTOL. I think both had a really good quarter. Again, our unit volume is up and we're holding price fairly well. So again, from quarter-to-quarter things vary a bit, but the market is still growing and we're maintaining share. And so again, we've been very pleased with CINVANTI and the clinical value that it brings is helping us to certainly hold share and maintain price.
Serge Berlanger: Thank you. Nice progress.
Ira Duarte: Thanks, Serge.
Operator: Your next question comes from the line of Carl Byrnes with Northland Capital Markets. Please go ahead.
Carl Byrnes: Thanks for the question and congratulations on the quarter and the progress. Considering the demand trends that are obviously improving across the Board and the cost reductions and gross profit margin improvement. Do you think that it's possible that you might see achievement of profitability prior to the fourth quarter that you directed? Thanks.
Ira Duarte: Yes. Carl, thanks for the question. I was anticipating that somebody might ask that. Look, we're really pleased with the way things are going. And again, we're a little under obviously, the range we gave on expenses was $108 million to $116 million. And if you just multiply by four, obviously, we're on the lower end of that, and we're hoping that continues. I think our maybe reasoning for not improving guidance or narrowing guidance at this point is really due to ongoing litigations that we have. And again, while we feel like we've got our hands around the business and we have this under control, there are still things that are happening development wise and within the legal realm that could vary a bit. And so we're trying to be a little bit cautious here, I guess, maybe conservative is the word. But again, we're really pleased with the way things are going and we -- with high expenses came out this quarter. Regarding margins, again, one of the things that's helped us, we have renegotiated a few things at our manufacturers and that has helped keep certainly cogs down. But we also this quarter primarily just used APONVIE [ph] with CINVANTI. And so we have a secondary manufacturer as well that we have not used this quarter. And so that has helped margins a bit, take us up to kind of 76% range. I still think throughout the year that we're going to be on the lower end of the 70% range. But again, we're going to try to manage that as best we can, but we're extremely pleased with where we are, and we're hoping that again, we end up at the lower end of that expense range. And so if that does happen, obviously, there is a possibility that we could get to profitability earlier. But at this point, we're still committed to Q4.
Carl Byrnes: Great. Thank you.
Ira Duarte: You're welcome.
Operator: Your next question comes from the line of Tim Chiang with Capital One. Please go ahead.
Tim Chiang: Hi, thanks. Craig, could you talk just a little bit more about the CrossLink reps that you've trained? I think you said over 200. And you mentioned three specific states that you've penetrated into. What other states do you plan to be in this summer? And then how many cross linked reps do you plan to have fully trained by the fall?
Craig Collard: Yes. So Tim, thanks for the question. Again, we've been extremely pleased with CrossLink. Again, I use the word amazing on my comments, but the relationships that I think these guys bring are just a little different than what we have as a pharma company. And keep in mind that in a lot of cases, CrossLink has been around four years and a lot of the reps have 10, 15, 20 years' experience with these physicians and being with them every day. So it's just a different relationship. And so it allows us to get in front of these folks, it allows us to have more time to explain some of the situations with ZYNRELEF and so forth. And so as we've mentioned, it frees up time for our reps and that type of thing. But from a training perspective, again, we've been moving fairly quickly. I want to turn it over to David Barozzino. He's been directly involved and again has been at these training meetings and give you a little more insight into kind of exactly what's going on and where we're going next.
David Barozzino: Yes. Thank you, Craig. So Tim, thank you for the question. As it pertains to CrossLink, yes, obviously, we started in the legacy states where CrossLink is present, which is North Carolina, South Carolina, Georgia. But one of the things that is ongoing and it's ever changing is that on a weekly basis we're conducting two to three live trainings across the country. The goal by the end of 2024 is to have a presence in each state. I can tell you that we've already expanded into areas like Michigan, St. Luis, Kansas and it continues to evolve as from week-to-week. But by the end of the year, we definitely hope to have coverage in all 50 states.
Tim Chiang: Well, that's great. And maybe just one question. I seem to recall that Florida is a pretty big state for procedures. I mean, are you guys going to penetrate that state near term?
David Barozzino: Yes, 100%. We -- that is definitely a focal point. I think you could lump like New York, Florida, Texas, California as four big states. And we are in active discussions with some distributors down there as well.
Tim Chiang: Okay, super. Very helpful. Thanks.
Craig Collard: Thanks, Tim.
Operator: Your next question comes from the line of Kelly Hsieh with Jefferies. Please go ahead.
Unidentified Analyst: Hi, good morning. This is Claire on for Kelly. Congrats on the quarter and thanks for taking my question. So for ZYNRELEF, could you please talk about your qualification for the No Pay Act in the context of your path through status and how the coverage is going to change after it takes effect in 2025? And whether you could give any color of what's the latest discussion of no paying tax possibility that it will go beyond 2027? Thank you.
Kevin Warner: Yes. This is Kevin Warner again. Thanks for that question. So No Pain Act is coming into effect Q1 of 2025 and it's going to provide reimbursement outside of the surgical bundle for our HOPD patients, our outpatient procedure department in the hospital and our ASCs for these non-opioids that have been proven to reduce opioid consumption. So right now, ZYNRELEF has passed through as you alluded to and that expires Q1 of 2025. So No Pain Act goes into effect starting Q1. We've already had conversations with CMS, very productive conversation, highlighted all the criteria to qualify for the No Pain Act, which generally qualifies for all of those criteria except one. And that one is the fact that we have pass through status. So that's why we've had this open dialogue make sure that we don't to fall off in that interim period. And we're confident that they'll pick it up and pass it through rate on there won't be any get passed through status and make sure institutions still have access and reimbursement for ZYNRELEF. As far as extending the duration, No Pain Act was originally designed to be a five year act. Unfortunately it took some time to get pass through Congress, so a little later than desired. But as of right now through the end of '27, it's expected. We definitely have a lot of encouragement and support from our community. And obviously, the opioid epidemic concerns of that. We expect them to continue to extend and provide payment for these non-opioids for our country and for our patients.
Unidentified Analyst: Super helpful. Thank you.
Operator: That concludes our Q&A session. I will now turn the conference back over to Craig Collard, Chief Executive Officer for closing remarks.
Craig Collard: Yes, I just want to thank everyone again for listening today, and we look forward to speaking to everyone next quarter. Thank you.
Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
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