Q3 2023 Heron Therapeutics Inc Earnings Call
Good day, ladies and gentlemen, and thank you for standing by welcome to the Huron Therapeutics Q3, 2023 earnings Conference call. As a reminder, this conference is being recorded now I'd like to turn the call over to Jeff Cohn Executive Director Assistant General.
Household and assistant Secretary. Please proceed.
Thank you operator, and good afternoon, everyone. Thank you for joining us on inherent Therapeutics conference call. This afternoon to discuss the company's financial results for the third quarter ended September 32020.
With me today from Harry.
Color Chief Executive Officer.
Thanks, Mark day, decorative Vice President Chief Financial Officer, Salesforce, Executive Vice President Chief Development Officer, and Brian Craig Vice President Mark.
For those of you participating via conference call slides are made available via webcast can also be accessed via the Investor Relations page of our web site. Following the conclusion of today's call.
Before we begin let.
He quickly remind you that during the course of this conference call company will make forward looking statements.
We caution you that any statement that is not a statement of historical fact.
Forward looking statements.
This includes remarks about the company's projections expectations plans beliefs and future performance.
Which constitute forward looking statements for the purposes of Safe Harbor provision.
Private Securities Litigation Reform Act.
You bet.
These statements are based on judgment and analysis as of the date. This conference call and are subject to numerous important risks and uncertainties that could.
Cause actual results to differ materially from those described.
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.
Inherent in public periodic filings with the SEC exceptive.
Except as required by law Harris takes no obligation to update these forward looking statements.
Future events or actual outcomes not.
With that I would now like to turn the call over to Craig Holler, Chief Executive Officer.
Thanks Chuck.
Good afternoon, and welcome to inherent therapeutics third quarter 2023 earnings call.
Today, we're pleased to update you on our recent strategic initiatives.
So the performance in the third quarter and guidance for the rest of 2023 as well as guidance for the full year 2024.
Over the past six months since joining <unk> as CEO, we have taken significant steps to rightsize, our business, ensuring alignment with our strategic goals.
We've implemented a comprehensive streamlining of our financial processes enhancing efficiency and accountability across the organization.
As part of our commitment to operational excellence, we have successfully combined various commercial functions, eliminating redundancies and optimizing our overall structure.
This consolidation not only enhances efficiency, but also positions us to respond more effectively to market dynamics.
Last we are excited to share that we have developed a new strategic vision that clearly defines our goals and key targets.
This vision serves as a roadmap for our future guiding our efforts to achieve sustainable growth and maximize shareholder value.
The results of our actions in the short time it has been substantial.
Our management team is not in place and the transformation era and.
And to a profitable company is happening.
We have reduced operational expenses, excluding stock comp and depreciation and amortization to $135 million in 2023 versus $182 million just last year.
We anticipate a further reduction in spend that will take our operating expenses to a range of $108 million and $160 million in 2024.
Our gross margin is also improving from 41% in 2023, 62% in 2024 and should spill over 75% in 2025 and beyond.
This change in gross margin has been due to scaling into larger pad sizes being.
Being fully realized negotiations with our manufacturing partners operational efficiencies and no more product write offs was generally due to its high inventory.
With our capital raise back in the summer and our anticipated cash balance of over $65 million at year's end.
Combined with our sand reduction we can now illustrates our investors a pathway to positive EBITDA by Q4 2024.
Based on our current plan, we do not anticipate needing any additional capital raises for the steel in the future.
Lastly, as we have created operational efficiency within our business and laid out our plan internally, we're beginning to see the impact in our product sales.
Over the last eight weeks, both generally and are finally have hit all time highs in unit sales.
We believe this momentum will continue as we move closer towards dissipated label expansion lots of the van and then ultimately the Prefilled syringe, which are all hitting the development timelines.
Moving to product performance.
The oncology care franchise continues to provide a stable base of revenue for her.
Attributed $26 $7 million in net sales for the quarter and $79 9 million in net sales year to date net.
<unk> net product sales of <unk> for the quarter were $23 3 million.
Which increased from $21 2 million for same period in 2022.
Net product sales of <unk> were $3 4 million.
Which increased from $2 7 million for the same period in 2022.
The acute care franchise continues to grow.
<unk> $4 $7 million and net sales for the quarter and $12 $9 million in net sales year to date.
We have solidified our new strategic plan and are excited to see these initiatives implemented and contribute to the continued growth of our products.
Net product sales of upon each for the quarter were $350000.
Net product sales as Emily for the quarter were $4 4 million compared to $2 $7 million in the same period in 2022.
I will now turn the call over to Ryan <unk>, our head of marketing to give you a review of our commercial strategy go ahead, Brian.
Thank you Craig.
We have solidified our strategic plans and we are excited to see implemented grow the acute care franchise.
Our sales team is exceptional and the alignment across our commercial organization has never been stronger.
The vision for acute care.
The Peri operative space as both the army and heavily offer a best in class one two punch supported by our.
We are promoting innovative solutions, the most burdensome challenges associated with surgical procedures post op nausea and vomiting.
For economy, our initial focus is above the waist surgical procedures.
These procedures, such as very accurate E&P neurological and plastics, alright, a higher sensitivity to post op nausea and vomiting.
<unk> can cause significant concerns if not properties.
Our early successes with autonomy and indicated that this is a logical we're set this starting point to get on formulary and a proven ability to extend beyond the starting point to other cities.
In addition to our clinical profile the 28 year old LNG guidelines also recommend using three different agents with distinct pathways, which supports the addition of some data.
We are generally our commercial execution with wide ranging and extruded across many specialties with dairy opportunity.
Based on our growth current base of business as well as growth opportunity. We are determined to orthopedic surgeries to be our primary focus.
Our execution will be aligned with this customer base more significantly moving forward for many years.
First the most significant pain patients may experience is associated with orthopedic procedures versus some of the other indications.
Additionally, orthopedic surgeons tend to do a higher volume of procedures, which would include the anticipated indication for Australian shareholders should we receive FDA approval on January 2013.
Focusing on any surgery also creates an opportunity to partner with distributor Representatives, which we are piloting in the field.
Yes.
<unk> was launched in March of this year, and we are continuing to gain traction in our targeted institutions.
We continue to identify advocate specialists that aimed to address the burden and improve this treatment paradigm.
Currently we have 66 P&C reviews requested by targeting customers.
<unk> reviews that have been scheduled and confirm with the date and nine new PMT approvals alone in the month of October.
The process of requesting TNT.
With a date and ultimately gaining approval can take four to six months in some cases.
This is where we're focused currently building a wide opportunity base that will result in consistent ordering at increasing volume.
To date, we have had 156 accounts complete this process and ultimately order of Hanmi.
Although the 156 new accounts, we have selected a few of countless examples that provide encouraging signs of growth.
Initial ordering in these four accounts that turn into consistent ordering at increasing levels.
These accounts and executed on the plan articulated previously starting in one surgical line library Ettrick surgery.
Seeing positive results.
And again those results organically to other surgical lines and adoption.
Our strategic plan is aligned to this prudent scenario as well as others and we are excited about what's to come as awareness grows.
Momentum is building with recent trends.
Our streamlined focus on orthopedic procedures and beginning to produce results with our most recent data week ending November 10 represented all time highs and normalizes.
Additionally, current eight week volume over the prior eight weeks represents a 16% growth rate.
We are encouraged by this recent trend trajectory that we fully expect to continue as we continue to execute against our strategy in the fourth quarter and year.
On top of the recent trends there are significant opportunities to increase that release adoption through near term regulatory and development milestones.
First is the <unk> NDA producer date scheduled for January 23rd 2024.
We anticipate a positive response from the FDA and are excited to offer 72 additional patients that may benefit from the added indications.
Should we receive approval it would increase the opportunity from approximately 7 million procedures covered by our current label and nearly $13 million procedure.
Secondly, the Lisle access deal is currently in development and planned for launch in September of 2024.
This improvement will improve withdrawal time from greater than one minute the 20% to 30%.
A market research conducted in Q3 as well as current customer feedback this improvement is significant and will expand utilization.
Lastly, the pre filled syringe is in development and will represent the most meaningful improvement and generally preparation and administration.
Hey, Jake anytime set any or all of our own withdrawal time for preparation of the equation as generally will immediately be available for application in this.
Now I'll turn it over to <unk>, our Chief Financial Officer.
Thank you Ryan.
Craig has covered our cost performance.
And I will just add a few additional points about our Q3 2023 result.
Our product gross profit for the quarter was $32 million and $37 6 million for the nine months ended September 30.
Great.
42% and 41% of net value respectively.
These margins were negatively impacted by right now.
Inventory during the nine months ended September 30.
Thank you.
We do not anticipate any loss lyft ride out in the future.
SG&A expense for the three.
Cemetery.
<unk> 23 was $24 6 million and $93 million, respectively, compared to $28 2 million.
$2 3 million.
Thank you.
Research and development expenses.
$13 $6 million and $44 9 million.
And nine months ended September 30.
Okay achieved $25 5 million.
For the.
Comparable period.
The decrease in spend was primarily related to decreases in costs related to <unk> as productive yet.
Nathan activity and raw materials.
Okay.
Thank you.
In addition, overall with now and low cost decreased due to the reduction in force.
Implemented in June 2022, and June 23.
We believe we can continue to reduce costs moving forward in this area as we continue to increase efficiency.
The net loss was $25 million, our Q3, 2020 and $41 nine clinical care to appear in 2020.
If you looked at the total year to date net 2023, and the net loss of $99 8 million.
With $152 $2 million from the comparable period 2022.
I would now I would like to give a little bit more clarity on what Craig has been talked about earlier I would like to walk you through the last three quarters and the measures we have taken to reduce our overall operating expense and cash burn.
We began implementing our corporate restructuring plan in early June which included several cost saving strategies, including a reduction.
As well.
Our companywide expense reduction.
We now have much more visibility into our operational spend.
Path to profitability.
If you look at the slide from left to right.
All operational spend in Q1 'twenty.
<unk> was about $46 million, which we reduced to $41 million.
After excluding the highlighted we organization charges of $13 million.
We further reduced the spend to.
To $34 million in Q3, 2023, and they seem to be highlighting the organization charges of $4 1 million.
You can see on the slide that our operating loss FX will stock compensation and depreciation and amortization and the previously mentioned one time charges are all up.
Great.
FIFA 19 million.
Q1, 2000 currently two $7 2 million in Q2 and $6 million in Q3 2019.
Our 2023 operating expense, excluding stock compensation, depreciation and amortization and the $17 1 million.
And that cost will be around $180 million.
We believe our operational run rate, excluding stock compensation, and depreciation and amortization going forward will be between $108 million $260 million.
Cash burn will decrease every quarter.
Stabilizer spend and revenues have been increasing every quarter.
Moving now onto our guidance for the rest of 'twenty frankly in 2024.
On the left of this slide we also anticipated results for Q4, 2000, and frankly would indicate net revenues between $30 million.
And $32 million and EBITDA, excluding stock compensation loss between $10 million and loss of $6 million.
We anticipate exiting 2019.
We will then minimum cash and cash equivalent balance of $65 million.
We are guiding to revenue of $138 million to a $158 million for 2024 and improved gross margins between 68% to 70%.
Our operating spend excluding stock compensation depreciation and amortization.
Yesterday to be between $108 million to $160 million and EBITDA, excluding stock compensation will be between a loss of $20 million to income of $3 million.
I would like to reiterate that we anticipate getting to positive EBITDA in Q4, 2024 and based on this our strong balance sheet.
Operational plan, we do not anticipate has raised any different.
Back to you Greg.
As we move to the key items from today's call you can probably set the changed confidence and our voices about this business or visit the Companys and.
And we have a team in place that is executing on the balance sheet give us the profitability without any expected to be a preferred operator.
Our operating expenses gross margins and EBITDA are all moving in the right direction on the path to profitability.
The oncology franchise continues to outperform and we are raising guidance for 2023 from $99 million to $103 million to a range of $104 million to $106 million.
Our momentum with the acute products was strong as well as definitely going to finally have both achieved record unit volume over the last eight weeks.
Yes, we have a label expansion in the van being lost presumably we should both be significant growth drivers for the product.
I would now like to open the line for questions.
Your first question comes from the line of Carl Byrnes from North capital market. Your line is slides.
Greg Congratulations on the progress and thanks for the questions.
First with the gross profit margin.
For the third quarter, excluding the inventory write offs it would be 66% if I recall from the press release.
And it looks like you're giving guidance for the fourth quarter at 62% in year 'twenty four of 68% to 70% I'm wondering if there is mix issue.
The nuances between the third quarter and fourth quarter.
Youre at 62% and how do you see gross profit margin progressing over time beyond 2024 in terms of our peak gross profit.
The target for.
Our margin target.
Yes, Karl Thanks for the question.
Again with our gross margin give us advantage first yesterday had the largest impact because of the.
Total revenue.
We basically are making the product currently a tutor manufacturers in 2022.
Really it's all of the start of 'twenty three we were.
Jason scale, so forth away from order kilogram batch to 1000 kilogram. So you had a price sort of blended with those two batch sizes.
Our primary manufacturer of alchemy, where we're now development program and then our secondary manufacturers that Syria, where we do <unk>.
Gary we make it a 300 milligram. So you also have a blend there so does that is that.
Exports out of that that's why it will continue to be more positive moving forward and again as we get into the outer years, we will have a <unk>.
<unk> gross margin of oil products and sort of that mid 70 range.
Again generally is pretty fixed.
Just had a write offs that affected us was really know there'll be changes there.
The only other product that will be affected in the future with scale that type of thing is upon being a remarkable quarter kilograms, 1000, kilogram batch there as well, which should take those margins right.
Over 70%, so again its loss as a whole we'll be in that mid seventies to possibly 80% range as we move forward.
Excellent that's very helpful. And then just a follow up I mean clearly.
You could be profitable tomorrow. If you were just to focus on the <unk> franchise, but clearly the growth is from the acute the acute care segment, where the Palm Bay and.
Xander lift so I'm wondering what your thoughts are in terms of peak sales potential for us in <unk> and <unk> and how the progression might look over time.
From yours.
Your internal analysis. Thanks.
Yes, it's an interesting point because murphy.
If I look at this from an investor viewpoint, the oncology side of the business really acts as a bit of a hedge if you will protect your investment.
What I mean by that and I think you were kind of hitting on this is that if this were just about profitability. I mean, we can be a covenant ecology company tomorrow and be EBITDA positive will fit within the end of the week and but again, that's not really where we're going we think there is a much bigger story here and there.
Really the growth stories with a few products that have the ability to dominate the perioperative space on that.
<unk> literally which again, we think can be multi $100 million products. If you just look at the market size and again, we feel with some of these things that we're doing now.
So it was early with the ban we expanded label and then ultimately the Prefilled syringe. So again, if you take a little time to get there, but there is a real growth story here on the acute side of the business that again, the beauty being is that you've got a base of business that is generating capital to continue to be more profitable.
Great. Thanks, so much and again congratulations on the progress.
Thanks Carl.
Your next question comes from the line of Boris <unk> from TD Cowen Your line is.
Thanks very much this is Nick on for Boris.
A couple from me on General left firstly with the slow growth is similar to date, so far really what's driving that 48% year over year increase in acute care franchise and on that same note does that have to do mainly with the ban in SBA and how quickly do you think that those two will have an effect like specifically how quickly will that be distributed how quicker.
We will doctors pick up the new procedures for the S&P yet thanks.
Yes, so again.
We feel pretty confident with 48% royalty get especially where the product is trending now we've got a few different things in the field that we're targeting in alignment and so on and so forth and so.
If you look at <unk>.
San Diego, which is going to expand the indications and again I'd say assuming.
Welcome to the day of January 'twenty January 23rd between now and then there's obviously some training and that type of thing that we will be doing.
And so that should be felt fairly quickly and then shortly after that as you mentioned you've got demand coming in September and our plan is to try to lead. The initial chips that are out there now as far as the inventory. If you will generally and then launched that new kit.
Seamless.
Transition and so that should be pretty easy after that and the reason that is so important and again, what we wanted our market research. The target has been with US is that the case management for this product due to the prep the product is really difficult and so if you can improve that.
Does it not only improves the sterility issue, but it also improves the pool of the product is just the mechanism of if you will it really simplifies that and we think that will really help us with the case management piece, allowing our reps to spend less time and you are sort of handily through surgeries engaged with other positions and expanding and growing.
Product and so.
It makes us probably better and then ultimately as we move towards a prefilled syringe the beauty of the Prefilled syringe that really.
It's just as simple as it takes.
The device aspect out of the drug so instead of us being a device drug type of combination we could total just a drug if you look at our drug on a clinical just clinically versus those things are on the market. It really does have a superior flavor as far as the clinical data and what it does and so forth and that's where we get a really a lot of good feedback which is why we're so positive office.
That's very helpful. And then just a follow up question.
So you mentioned that the second half of the SMB.
In January will lead to about $13 million procedures in total now with everything how many of those would then be orthopedic procedures.
Yes, so probably this is Ryan Craig so out of the additional.
$56 million procedures, probably about 70% of them are going to be ortho.
And so that's what when Craig speaking to our traction we've got 60% of our current business lines that are least orthopedic procedures as well.
So as soon as we gain approval.
Granted approval by the end of January should be a seamless communication point for us.
Where we've had the most success to date and it's obviously aligned to our strategy as well.
Got it thanks very much.
Okay.
Yes.
Your next question comes from the line of very compelling near from Needham and company. Your line is fine.
Hi, This is George.
Couple of follow up questions on Venezuela.
I assume the orthopedic focus mostly consist of.
Knee and hip surgeries.
Curious what youre competing against now is it generic bupivacaine or <unk> and then.
With the label expansion, what additional orthopedic procedures do you expect that would allow you to target.
Once we get past January assuming approval.
Okay.
Okay.
Yes, so I think youre right from a competitive standpoint.
Typically.
<unk> a lot of times now with EXPAREL will be in a nerve block that scenario so that could be.
These geologist is involved in that but.
The beauty of this product is that once this use.
And the clinical results are shown we really do get a lot of volume from the orthopedic surgeons and so we've had really had the most success there.
The other piece is probably worth mentioning is that this is where you have majority of real DFS within surgery.
Note that need to be extremely painful and so again, we think our product is very conducive for that space.
In a funny way, though just as our competitors, but again our issue has not been as much with the competitors' clinically as it has been the whole breadth of our product and that's why I continue to stress the van and so forth and so with the expanded label. We immediately we hope will pick up shoulders, and so that'll be a direct a position gives you would allocate it could move right into shortly.
With our products and that should be immediate and then we feel like closely related will hopefully be spine, which again makes it a physician group but.
Very similar categories for us.
We do quite well.
Okay.
And then in terms of a potential partnership.
Did you guys kind.
Have a nice to have or a priority going forward.
Presumably it's a priority.
Yes, it's a great question, because again going back I know I keep repeating myself, but the.
The breadth of the product and so forth is that if you think about drug reps in general they are generally not in or suites.
However, with our suite, specifically, the ortho space suite RV metal device reps. They basically in all of these surgeries and so for US we have done this in a few different territories that had success, where we had a we have a partnership with the distributor reps. So our view is that we did that on a national basis. It could get let's say a group of IRC counter.
Representatives that could complement and be there for case management. It's just an absolutely huge win for us, especially as you look at introducing demand, which would approve upon that anyway and so it doesn't make all the sense in the world.
That is a priority.
Okay. Thank you.
Congrats on the progress.
I appreciate all the numbers you gave tonight.
Thanks Kurt.
There are no further questions at this time I would like to turn the call over to Craig colored for closing remarks.
Thank you operator, I just want to thank everyone for joining the call and we do appreciate your patients. We think we're making really big strides here with the company and really beginning to turn this around.
We look forward to next quarter's call. Thank you.
Ladies and gentlemen that concludes today's conference call. Thank you for your participation you may now disconnect Goodbye.
[music].
Okay.