HERON THERAPEUTICS, INC. /DE/ Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Financial efficiency: Grew revenues over 12% in 9 months, improved gross margin to over 72%, doubled gross profit, and burned less than $10 million in cash in 2024.
• VAN approval: FDA approved the Vial Access Needle (VAN) on September 24, with anticipation of being on the market by the first week of December.
• NOPAIN Act: Included in the final version, effective January 2025, expected to boost ZYNRELEF.
• CrossLink partnership: Over 700 distributors/contractors trained, 40,000 units ordered in CrossLink accounts ($4.4 million net revenue), and annualizing October units would yield over $10 million.
• APONVIE growth: Number of accounts ordering tripled in 12 months, with average daily units accelerating.
• Oncology franchise: CINVANTI net revenues $22.6M, SUSTOL $2.8M, with anticipation of a bounce back in Q4 2024 and 2025.

Segment Performance

• Acute care net revenues: $7.4 million
• ZYNRELEF net revenues: $6.3 million
• APONVIE net revenues: $1.1 million
• Oncology franchise: CINVANTI produced net revenues of $22.6 million for the quarter, SUSTOL had net revenues of $2.8 million. Over the past 9 months, revenues grew over 12%, gross margin improved from 41% to over 72%, and gross profit doubled from $37 million to $75 million.

Guidance

• Revised net revenue range for the rest of 2024: $140 million to $146 million (narrowed from $138 million to $158 million).
• Adjusted operating expenses range: $101 million to $105 million (narrowed from $107 million to $111 million).
• Adjusted EBITDA range: $2 million to $5 million (previously negative $10 million to positive $3 million).
• Q4 2024 net revenue guidance: $37 million to $43 million.

Risks

• Competitive market: Quarterly fluctuations in CINVANTI due to a competitive landscape.
• Litigation: Uncertainties around CINVANTI ANDA litigation, with a court decision expected by December 14, 2024.
• Operational: Prior inventory write-offs and asset impairments, and dependence on successful uptake of VAN, NOPAIN Act, and CrossLink partnership.

Question and Answer

Q: Now that VAN is approved, how should we think about the uptake curve moving forward? And what is your anticipation of the customer mix between existing ZYNRELEF users and new users?

A: Craig Collard states VAN will be on the market by the first week of December, starting with some accounts and then moving to others, with CrossLink bringing new users.

Q: My questions on VAN have been answered. So I wanted to kind of circle back to CINVANTI. I'm wondering if you could comment a little bit on the nuances in the third quarter in terms of the sequential decline and then your outlook for the fourth quarter, given the guidance that you provided.

A: Craig Collard mentions CINVANTI faced a large account loss in Q3 but anticipates a bounce back in Q4 due to the 'One Heron' approach and 340B uptake.

Q: OpEx also took a tick down from second quarter. Just wondering if this is a function of lower sales in the third quarter or it's a new base level we should think of going forward? And then, Craig, going back to the litigation around CINVANTI, do you still expect a court decision next month or by the end of the year?

A: Ira Duarte says OpEx is managed efficiently, not a new base level. Craig Collard states litigation is expected to be resolved by December 14, 2024.

Q: The NOPAIN Act, how much of a tailwind can this be?

A: Craig Collard says the NOPAIN Act will provide significant awareness and tailwind for ZYNRELEF.

Q: I just want to follow-up on the guidance. So maybe when we're talking about the sequential revenue from 3Q to 4Q, can you just elaborate a little bit further about the CINVANTI bounce back that you're referring to versus the VAN uptake for ZYNRELEF? Maybe -- and then along those lines, how should we think about the tailwind from the VAN just in terms of timing? Are you assuming the tailwind begins in 4Q? Or should we be thinking about that tailwind as a 2025 event?

A: Craig Collard explains CINVANTI is bouncing back in Q4 due to 340B uptake, and VAN's tailwind is expected to start in Q1 2025.

Q: I'm wondering if you can give us a bit of an update on the development of the Prefilled Syringe.

A: William Forbes states the Prefilled Syringe program is progressing, with a slight delay due to machine parts, targeting approval end of 2026/first quarter 2027.