Q2 2023 Heron Therapeutics Inc Earnings Call
Okay.
Okay.
Good day, ladies and gentlemen, and thank you for standing by welcome to the Heron Therapeutics second quarter 2023 earnings Conference call. As a reminder, this conference is being recorded now I would like to turn the call over to Jeff Cohen Executive Director Assistant General.
Counsel and assistant Secretary. Please proceed.
Okay.
Thank you, Chris and good afternoon, everyone.
Thank you for joining us this afternoon on the Heron Therapeutics conference call to discuss the company's financial results for the second quarter ended June 32023.
With me today from Heron, or Craig Collared Chief Executive Officer.
You read Duarte Executive Vice President Chief Financial Officer, and 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 web site. Following the conclusion of today's call.
Before we begin let me quickly remind you that during the course of this 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 inherent public periodic filings with the SEC.
Except as required by law parent 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 Collared Chief Executive Officer.
Thanks, Jeff.
Good afternoon, everyone and thank you for joining us today for our second quarter 2023 earnings call.
I am pleased to share with you some significant developments that have transpired since our last call.
Our team has been hard at work and I'm excited to provide you with updates that we believe will lead the transformation.
Andrew a profitable company growing revenues, including an update on our cost reduction efforts.
Activities and changes in our executive management team as well as an update on the status of our pending hatch Waxman Anda litigation.
On my first earnings call was here as CEO I mentioned that I only been here four weeks and most of that time was used to assess the business.
Determined where we can make improvements quickly.
First step is assessing the executive leadership.
And making a proper changes that were needed.
We made those changes and we now have a leaner organization with a new CFO edit development gas supply and vendor management.
New leadership in sales and marketing on the acute side of the business.
I am thrilled to announce that the new team has successfully implemented a cost reduction initiative.
Through careful analysis and strategic planning, we have identified areas, where we can streamline our operations and enhance efficiencies.
Over the next three years, we expect to achieve a remarkable cash savings of approximately $75 million.
This initiative reflects our commitment to fiscal responsibility and our dedication to optimizing our resources for sustained growth.
In addition to the cost cutting measures, we were able to bolster the balance sheet by completing a $30 million equity financing with some of our largest shareholders as well as closing on and up to $50 million working capital facility.
Based on our current operational plan, we expect that this will provide the company enough capital to achieve profitability.
This achievement underscores the confidence that our investors and partners have on our business strategy and growth potential of our products.
We are still in the early stages of revamping Gara is a commercially focused company with efficient operations.
The changes we have made this quarter are significant certainly improve the business and sets a solid foundation for the future.
The next phase of improvements, we folks around maximizing the growth potential of all of our products on both the acute care and oncology business.
Even during this recent time of organizational change and the company is still seeing product growth.
We expect this to improve dramatically as we implement new strategic plans moving forward.
Now moving on to some product highlights from the quarter.
On the oncology side of the business Q2, net product sales combined person Bharti and <unk> were $27 $3 million, which increased from $25 1 million for the <unk>.
Same period in 2022.
We also grew combined sales by 6% quarter over quarter.
We are pleased to reiterate our financial guidance for the oncology franchise of 99 million to $103 million and net product sales for the full year 2023.
We also recently had a favorable outcome at the markman hearing in our opinion hatch Waxman Anda litigation against Brazilian.
To enforce our sandbox.
We are pleased with the outcome and we will continue to vigorously enforce to defend our patent portfolio.
Moving out to the acute care side of the business was then related to Harvey we can.
Continue to see product row on this side of the business also even though we have yet to implement many of our planned changes.
Once we accomplish many of the initiatives focused on improving the fundamentals of how we conduct our business.
And then move forward with some of the transformational initiatives.
Net product sales are generally for the quarter were $4 $2 million compared to $2 5 million for the same period in 2022.
Quarter over quarter unit growth was 11%.
Net product sales of economy for the quarter were $300000.
Upon the became commercially available in the U S on March six 2023.
During this launch phase we are receiving very positive feedback from some customers due to apply these unique clinical value.
In fact, several hospital systems have already adopted for all moderate to severe patients and many others are currently scheduled for system wide review.
The next phase of business improvement will be focused around product grow and maximizing the value of our assets.
Was that really we have three key initiatives underway to expand our business, including our file NDA.
Mobile access needles or ban and the pre filled syringe.
Literally to the unique drive with true 72 hour pain relief.
It also has pass through reimbursement status, allowing enterprise to be separately reimbursed outside of the surgical bundle in both hospital and ASC.
All of these product improvements and attributes are part of a new overall company and product strategy and should have a dramatic impact to our growth over the next several years.
This rule will isolate takeaways overnight, but our products are of great clinical profile excellent reimbursement status and with the right commercial plan, we should begin to see massive improvement.
The company to profitability.
Regarding the NDA for our label expansion presenters, we were recently informed by the FDA of a three month extension of our producer date from October 23, 2023 January 23 2024.
The division became aware of our timeline for some new non clinical data. The company was complete and in the spirit of cooperation we agreed to submit this new data to the division.
The division between the submission to be a major amendment to our SBA and accordingly extended review period by three months.
In conclusion, the past quarter has been marked by significant accomplishments and strategic moves that will undoubtedly shape the trajectory of our company.
The successful implementation of our cost reduction initiatives, the securing of debt and equity financing the favorable outcome. It is advancing markman hearing and the strengthening of our executive management team all position us for continued success and growth.
While this business will not be transformed overnight 2023 will prove to be a turnaround year for Harris.
Thank you for your patience and continued support of the company as we move through this transition I will now turn the call over to Eric <unk> our CFO .
Thanks, Craig.
Our combined product net revenues for the second quarter.
<unk> was $31 $8 million.
Compared with $27 6 million.
Q2 2020.
Representing an increase of 50%.
A 2022.
Net revenues for the first six months of 2023 were $61 4 million.
With $51 $1 million or an increase of 5%.
Our acute care franchise net revenues for the three and six months ended June 32023 were $4 5 million and $8 3 million, respectively, which increased $2 5 million and $3 5 million.
Secondly for the same period in 2018.
For the three and six months ended June 32023.
I'll call you care franchise net product sales were $27 3 million and 53 1 million.
This increased from $25 1 million to $47 5 million.
Secondly for the same period in 2022.
Our product gross profit for the quarter was $11 6 million.
And $24 $4 million for the six months ended June 32023, representing 95% and 40% of net revenues respectively.
These margins were negatively impacted by write offs.
The annualized inventory in both Q1 and Q2 2023.
We believe these margins will improve and stabilize as we are working through some inventory.
Inventory.
We also had a number of initiatives we are working through that we will discuss on future earnings.
It has a very positive impact on costs.
<unk>.
SG&A expenses for Q2, and six months ended June 32023, with $36 4 million.
$8 4 million respectively.
This is $32 1 million and $64 1 million from the DTA as of 2018.
With the increase primarily resulting from a reduction in force announced in June 2023.
Research and development expenses were $17 6 million.
$31 $4 million in Q2, and six months ended June 32009, three compared to $28 8 million and $79 million from the comparable period.
The decrease in spend was primarily related to decreases in costs related to Nols and production scale up validation activity and raw material qualifications were completed in 2014.
In addition, overall personnel and related costs decrease into the reduction was implemented in June 2022.
We believe we can continue to reduce costs moving forward in this area as we continue to increase efficiencies.
The operating loss for the quarter with $42 4 million compared with $49 5 million in Q2, 2019, and a net loss was $42 1 million for Q2, $2056 4 million for the comparable period in 2022.
Looking at the total year to date two.
2023, and a net loss of $74 8 million compared with $122 million in the comparable period of 2022.
Our balance sheet at the end of June 32023.
And short term investment balance of $33 2 million.
However, as Craig mentioned in his earlier comment we closed a capital raise of approximately $30 million.
Slide 23.
And working capital facility of up to $50 million.
2023.
These financing combined with our cost savings initiatives position us for future growth and a path to profitability.
Back to you Greg.
Hey, Joe.
Operator.
Wed like to open the line for questions.
If you would like to ask a question. Please press star one on your telephone keypad will pause for a moment to compile the Q&A roster.
Your first question comes from the line of Sara Boulanger from Needham and company. Please go ahead. Your line is open.
Hi, good afternoon.
Just a couple of questions for us.
First one regarding achieving profitability.
I think in the past you've talked about a late 2024 timeline. So that is that still the target or has that changed given the.
Regulatory delay around zero or less and maybe if you can talk about the assumptions on how we get there.
I guess secondly regarding that regulatory delay presuming the less.
Maybe just talk about.
What you expect.
Label expansion could look like once it gets approved.
Hi, Serge.
Thanks for the question so regarding profitability again, we've said that we believe we will achieve profitability in late 2024, I think the takeaway here is based on the money. We've raised again, we don't think we'll need to raise any more money is in order to get to that point.
And we built that forecast without the upside of the NDA for the van or anything like that so this is more of a just a trend forecast how the product is performing and so with the cost reduction efforts. We may we're able to get to profitability within the timeframe there could be some upside.
There are some things we're doing again, assuming we get the label expansion we are anticipating.
Assuming that some of the things that we implement.
Positive impact on literally.
Things happen.
Avi as well so.
From that standpoint, that's how we're getting to profitability at the end of 'twenty four.
Regarding the <unk> NDA and the expansion. Unlike our go forward was here with us in the room, but I'd like to speak a little bit more detail around that his thoughts. Thanks. Derrick. This is bill forward yes.
Yes, so the current package insert allows for carry articulating installation.
Two hours of analgesia with funding in SME.
Okay.
Morning.
Total knee arthroplasty.
What we're proposing in the Smes that we go to.
Post surgical analgesia for soft tissue and orthopedic so maybe I'll step back a little bit here and just kind of talk broadly about the.
<unk> mentioned that it was put in here Karen.
And I will ask has actually been studied in 2014 clinical trial eight unique surgical procedures were contributing to those 14 clinical trial for.
<unk> soft tissue in four different orthopedic surgical procedures so winter.
Windows supplemented when it actually went in with data from lumbar spinal surgery total shoulder surgery mammoplasty sanction is dominant last D. The lumbar spinal surgery total surgery has actually already been presented at western and southern Ortho conferences. So that data has already been put out there.
And.
I think in many respects this is going to broaden our label hopefully we can negotiate a favorable label explained expansion with this data.
I wanted to talk a little bit about what happened with the major amendment.
They are doing and continue to do some studies and some of those preclinical and we were doing a rabbit study met lift a little further out and this was for intra articular injection.
As I've mentioned before the indication quarter, Santa left is actually carry articulate not articulate so the label itself actually cautions.
Physicians about the use of using intra articular.
And I think from that perspective, we consider this class labeling. This particular rabbit study just slipped down a little bit further so while it is new data is not actually any R&D.
Already accounted for in our label. So I think that was kind of a disappointment on our side, we didn't feel like it was needed.
The agency or the division needed or May take notice to declare a major amendment.
So this particular filing.
So hopefully that answers your question.
Yes. Thank you.
Thank you.
Our next question comes from the line of Boris <unk>.
TD Cowen. Please go ahead your line is open.
Great. Thanks, two questions Alliance first in terms of profitability.
Just curious Craig you think heron can become a profitable organization based on supportive care alone like if we exclude general life is there an opportunity to restructure and such just to profitability without generalists.
We really haven't looked at it that way, but I mean again now youre talking.
Sure.
Total flows were upon D. As in did promote generally but all I mean, I think we would have obviously some inventory problems and that type of thing, but we really haven't analyzed it that way but.
Again, we're not looking for.
Superior growth ratings generally from a profitability standpoint, we're really only trailing the product on the current growth trajectory at all.
So again I think there is some upside there and again, we've been pretty conservative of wells with the commodity.
But I think our whole surprises that we still are getting really good results out of the deposit. So I think there's some upside here that we really haven't accounted for but I think.
<unk> of this that we've been really trying to communicate is that we wanted transparency and the fact that we're trying to do this business and good cost reductions in place that allows us to get to profitability would be fairly conservative with our outlook.
Great.
Specifically then.
Obviously talked about the three indications where it's currently a proven the label expansion path going forward, but within the approved indication do you.
Have a sense of where the sales are coming from right now just trying to better understand why it may be used in certain.
Areas versus not others.
Yes, I think where we've had the most success.
To this point has really been with EMEA.
I mean, thats, where majority of procedures are being performed.
And again once these hospitals are isc's get past sort of the prep issue.
We're seeing data that suggest once we have.
For the four month usage, we simply keep those customers. So that's why we've had the most success to date.
Great. Thank you very much for taking my questions.
Okay.
If you would like to ask a question. Please press star one on your telephone keypad.
Your next question.
We have no further questions in the queue at this time, all I'm sorry with you.
Carl Lion from Northland Capital markets. Please go ahead your line is open.
Thanks, Thanks, Congratulations on the progress and thanks for the question any thoughts with respect is that relented in terms of potential partnership.
Might that book in terms of accelerating and leveraging your existing sales force and then I have a follow up as well. Thanks.
Okay.
Thanks, Charles sorry, almost virtually all fair so apologize for that.
Yes, one of the things we've been looking to do is what can we do outside of things that we use as far as improving certainly.
Targeting and using better data.
Positioning our reps maximizing territory potential and so on and so forth.
We've been looking at looking at possibilities to partner this product the <unk>.
Biggest issue was generally does not the clinical story the true 72 hour pain relief is a big thing and we as we looked at market research and that type of thing.
That seems to have no issue there and I think we've had really good success. The issue has been with the preparation of the product in the surgical suite itself.
And the issue with that is the non sterile to sterile environment and then just the time that it takes too.
The pull of products out of the bottle and so we've been looking at a number of different surgical companies.
It would be distributors, if you will and.
That we could partner with we're pretty much living and surgical suites on a daily basis, although some of our competitors have done that and we think by picking a partner in the surgical suite. It will allow our reps to once more time, a physician detailing the product, but also frees them up a bit as do other things with the <unk> and on which we think could be lifted those products as well.
So I think youll see over the next.
Fairly short timeframe, we will pick a partner of some sort.
That will add to our footprint was unrelated to it I think it should be from the left side of the product and again. These are things that we have not forecasted.
Okay got it thanks, and then kind of switching gears a little bit if we look at SG&A, which as Ron I think around $36 4 million and R&D at $17 6 million.
Can you quantify how much.
In the quarter was related to severance and potentially kind of onetime extraordinary type charges and what you expect the expense levels to be.
If youre able to comp up for the <unk>.
Third quarter or.
And if that's not possible.
Do you expect additional one time.
Severance one time type charges to hit the third quarter. Thanks.
Yes.
I think we probably wouldn't really they are about $5 9 million.
One time charges that will come through into the end of this year.
Our goal in 2024, you'll see our operating expenses.
Ben bonds.
Letting up at one <unk> for the year $120 million in 2024, and we really.
Probably another $10 million of that.
Going forward.
Got it thanks.
If you would like to ask a question. Please press Star One. Your next question comes from the line of Kelly <unk> from Jefferies. Please go ahead. Your line is open.
Hi, This is Claire for Kelly, Thanks for taking my questions Joe.
I have two questions for <unk>. So this is the first full quarter of call. It seems like you had a lot of positive feedback from physicians. So just wondering how should we think about this dose trajectory from now on for Tommy.
Yes, no. That's a great question, we haven't had a ton of time deposit, but the biggest difference for the positive versus <unk> is that.
With me Gary.
I'd or a formulary win was in really it's still going to take quite a bit of work with individual surgeons notes I would say it's not.
Not necessarily a system wide conversion. The difference was upon b is that there are situations, where we can get system wide conversion and what I mean by that if you take a hospital systems like Baylor.
And we were to selectively get moderate to severe patients. We can really get all of those patients all high risk patients may be in a situation that convert to upon the epic system and so forth. So we get a system with that leads to sort of.
Our conversion if you will and so I think what you'll find over the next few quarters as it will begin to get the system wide orders that create bigger revenues almost annuities, if you will and sort of accounts going forward.
We've had a couple of hospital systems to date that have converted you haven't really seen the results yet, but you'll begin to see it and I think we have another 23 systems right now that are in review. So again, we really like the progress I think it feels a little more time, obviously to see the results from that but again in a very short time period. I think you are going to begin to see.
Some of these models, if you will beer orders that come through and ideally what we want to do as we report going forward, we'll try and give a little more inside of the pipeline hospital wins and that type of thing that we will have you will have a bit more transparency in what's really brought all of the product.
Great.
Zero loss also curious Kevin King are hot.
Physician feedback on their will happen in terms of different kinds of surgical indications and also understand that that could be available at that mid 20 client for it.
Ladies and think we can see the change of Dallas cluster Yatra. After the launch it will kind of efforts are you making between now and.
That launch.
Michelle.
Thank you.
Yes, well I think the good news is the van is on track from a timeline perspective.
We do believe we will have that out in mid year of next year and it does two things. One is also the sterility issue.
It makes it much simpler and two it's going to chip change the time to pull the products. So instead of three to four minutes. It could be upwards of 20 to 30 seconds and so I think its dramatically impact the product from the standpoint of just ease of use.
Again, our I mentioned before about looking to possibly partner with a surgical partner in the surgical suite.
I think thats, probably as well as we lead into the bed with an expanded label and hopefully expand its footprint all of those things should lead to higher sales and higher sales growth.
But again I want to reiterate we have not forecasted that as far as to get us to profitability. These would be the additional sales. So we feel pretty comfortable with that and again everything seems to be on track from a cyber perspective.
Okay very helpful. Thank you.
Thank you Lee.
No further questions in the queue at this time, Greg I'll turn it back to you for closing remarks.
I just wanted to thank everyone. Again. This is our second earnings call, but we really do appreciate your time and patience I think the business is making some strides in transforming its going to take a little bit of time, but we're getting there.
I think we've had some significant things that have happened this quarter. So we look forward to update everyone their score.
Okay.
Ladies and gentlemen. This concludes today's conference call. Thank you for your participation and you may now disconnect Goodbye.
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