Q2 2025 Heron Therapeutics Inc Earnings Call
Speaker #2: Thank you for standing by and welcome to the HERON THERAPEUTICS second quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode.
Speaker #2: After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you'll need to press star 11 on your telephone.
Speaker #2: If your question has been answered, and you'd like to remove yourself from the queue, simply press star 11 again. As a reminder, today's program is being recorded.
Speaker #2: And now I'd like to introduce your host for today's program, Melissa Jarel. Executive Director of Legal at HERON. Please go head.
Speaker #3: Thank ou, operator. And hello, everyone. Thank you joining us on the HERON Therapeutics conference call today to discuss the company's financial results for the quarter ended June 30th, 2025.
Speaker #3: 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; Mark Hensley, Chief Operating Officer; and Kevin Warner, Senior Vice President, Medical Affairs, Strategy and Engagement.
Speaker #3: 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.
Speaker #3: 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.
Speaker #3: 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.
Speaker #3: 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.
Speaker #3: 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.
Speaker #3: 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.
Speaker #3: And with that, I would now like to turn the call over to Craig Collard, Chief Executive Officer of Heron.
Speaker #4: Thanks, Melissa. Hello, everyone, and welcome to ERON Therapeutics second quarter 2025 earnings call. Today, we're thrilled to share our results and progress for the second quarter and first half 2025.
Speaker #4: It's been an redibly active and transformative period for Team HERON. And I want to begin by recognizing the tremendous effort and dedication our team has demonstrated.
Speaker #4: One of the most significant milestones this quarter was the successful completion of our new financing. This was a complex and critical undertaking, and I'm proud to say our team executed it with precision and focus, as usual.
Speaker #4: The financing strengthens our balance sheet and enhances our financial flexibility and positions us to accelerate our strategic initiatives with confidence. This achievement reflects not only our commitment to operational excellence, but also the strong belief our partners and investors have in HERON's long-term vision.
Speaker #4: With this new capital in place, we're better equipped to drive innovation, expand our commercial initiatives, and continue delivering value to both patients and shareholders.
Speaker #4: Beyond the successful financing, Team HERON delivered strong operational and financial performance in the second quarter. We generated total net revenues of $37.2 million for quarter, and $76.1 million for the first half of 2025.
Speaker #4: This performance resulted in adjusted EBITDA of $7.9 million for the first half of the year, reflecting our continued focus on disciplined execution and operational efficiency.
Speaker #4: Importantly, we're seeing consistent product demand growth with Zenerlef and UponV, which has outpaced net revenue growth over the past two quarters. This is a key indicator of the underlying strength of our business and the growing adoption of our products.
Speaker #4: Mark will provide more detail on this dynamic later in our prepared remarks. Another major milestone this quarter was the transition from a C code to a Permit J code for Zenerlef, that will become effective October 1st.
Speaker #4: This is a significant win for HERON and for the providers who rely on Zenerlef in their practice. The J code will streamline reimbursement processes and reduce administrative burden, especially as the no-paying act continues to gain traction.
Speaker #4: We believe this change will improve the access and coverage across both government and commercial payers, ultimately supporting broader adoption and better patient outcomes. Taken together, these achievements underscore the momentum we're building across the organization.
Speaker #4: We're executing on our strategy, strengthening our financial foundation, and positioning HERON for long-term growth. I'd now like to turn the call over to Mark Hensley, our Chief Operating Officer, to cover product performance and many the new initiatives we believe will be catalysts future growth.
Speaker #4: Go head, Mark.
Speaker #5: Thanks, Craig. Q2 was a transitional quarter for HERON, as we implemented several key commercial changes designed to strengthen execution in the second half of the year and beyond.
Speaker #5: Combined net revenues from UponV and Zenerlef totaled $10.7 million for the second quarter, and $20.9 million year to date. This reflects strong year-over-year growth of 55.5% for the quarter and 70.5% for the first half of '25, compared to the same periods in 2024.
Speaker #5: Across the acute care franchise, demand growth was encouraging, with unit growth across both Zenerlef and UponV. While reported revenue was relatively flat quarter over quarter, this masks meaningful progress in foundational work that will support growth in the second half of the year.
Speaker #5: Let me walk you through the drivers in more detail beginning with Zenerlef. Zenerlef adoption continues to accelerate, with growth in average daily units and total ordering accounts now more than 700 through the month of June.
Speaker #5: Zenerlef demand units grew 6.3% over Q1, signaling continued momentum in provider adoption. However, Q2 revenue was impacted by a transient inventory drawdown at our wholesalers.
Speaker #5: Primarily related to the transition to the $400 milligram ban. This type of wholesaler inventory swing is common in new product transitions, and we estimate it reduced net sales by approximately $400,000 in the quarter.
Speaker #5: Importantly, this drawdown occurred while end-user demand continued to increase, and we expect wholesaler ordering patterns to normalize Q3. Operationally, we focused on Zenerlef team on targeted pull-through and accounts, where we already have formulary access.
Speaker #5: This alignment ensures our reps are focused on converting approved access into actual utilization. In addition, we made several enhancements to drive long-term growth. We launched a antly enhanced per-unit compensation program with cross-link.
Speaker #5: Beginning in July, cross-link reps were allowed to nominate up to four accounts per territory with little or no historical Zenerlef use, where they believe they could make an intermediate impact.
Speaker #5: Many of these accounts already had formulary access, and the enhanced incentives are in place through the end of 2025. In addition, we stood up a new post-operative clinical educator team.
Speaker #5: These three specialists provide targeted onboarding and support in high-volume accounts, improving adoption efficiency while allowing reps to focus on growth. Importantly, we received a Permit J code for Zenerlef, effective October 1.
Speaker #5: While not a near-term growth catalyst on its own, the J code streamlines reimbursement and should improve billing clarity. Taken together, these initiatives represent a reoriented and focused Zenerlef commercial engine, well-positioned for acceleration in the second half of the year.
Speaker #5: Turning to UponV, we continue to see strong trends, nearing the $1,000 average daily unit mark through the month of June. While X Factory units grew 11%, demand units grew 19%.
Speaker #5: Net revenue grew 9% over Q1. The difference between demand and revenue reflects inventory normalization at the wholesaler level and a modest impact from standard 340V discounts as larger hospital systems came online in the quarter.
Speaker #5: To support continued growth, we launched a dedicated UponV sales team on July 1st. Consisting of six reps supported by our national account team. This team was created without incremental headcount costs, thanks to strategic consolidation of underperforming territories.
Speaker #5: We believe this targeted investment will unlock further hospital account conversion going forward. The oncology franchise continues to outperform our expectations. With combined net revenues from Cymbonte and Sustel reaching $26.5 million for the quarter, and $55.1 million year to date.
Speaker #5: We have maintained market share in a highly competitive environment, and we believe these products will continue to deliver consistent performance throughout 2025. We are extremely pleased with the results of our oncology supportive care franchise, and we are actively exploring creative strategies to drive continued growth in this market.
Speaker #5: In summary, Q2 was about restructuring and refocusing our commercial platform. We optimized our sales force and created dedicated teams for Zenerlef and ponV. We aligned with cross-link around enhanced pull-through and target accounts.
Speaker #5: We supported high-volume institutions with dedicated clinical educators. And we made real progress in demand growth, even amid temporary revenue headwinds. With these changes in place, we believe HERON is well-positioned to drive accelerating growth in the second half of 2025 and beyond.
Speaker #5: Thanks, and I'll now turn it back you, Craig.
Speaker #2: Thanks, Mark. Now, moving to our financial performance. Our product gross profit for the three months ended June 30th, 2025, was $27.3 million or $73.5%, which increased from $70.8% for the same period in 2024.
Speaker #2: For the six months ended June 30th, 2025, our product gross profit was $57.8 million or $75.9%, which increased from $73.2% for the same period in 2024.
Speaker #2: This was due to an increase in units sold at a higher cost per unit sold than in 2024 due to the supplier mix offset by lower inventory reserves and write-offs.
Speaker #2: SG&A expenses for three and six months ended June 30th, 2025, was $26 million and $51.1 million respectively, compared to $27.5 million and $53.9 million respectively for the same periods in 2024.
Speaker #2: For the three months ended June 30th, 2025, the decrease in SG&A expense is primarily attributed to a decrease in personnel and related expenses of $1.8 million due to terminations and one-time stock expense in 2024.
Speaker #2: For the six months ended June 30th, 2025, the decrease in SG&A expense is primarily attributed to a decrease in personnel and related expenses of $3.5 million due to the terminations and one-time stock expense in 2024.
Speaker #2: These decreases were offset by an increase in marketing cost of $600,000, primarily related to Zenerlef. Research and development expenses were $2.9 million and $5.2 million respectively, for the three and six months ended June 30th, 2025, compared to $4.4 million and $9 million respectively, for the comparable periods in 2024.
Speaker #2: The decrease in research and development expense for the three months ended June 30, 2025, is primarily due to $1.2 million more in write-offs of property and equipment in 2024 than in 2025, and a decrease in personnel and related expenses of $300,000 due to terminations.
Speaker #2: The decrease in research and ment expense for the six months ended June 30th, 2025, is primarily due to the $1.2 million more of write-off of property and equipment in 2024 than in 2025, and a decrease in personnel and related expenses of $2 million due to terminations.
Speaker #2: For the three months ended June 30th, 2025, we incurred a net loss of $2.4 million compared a net loss of $9.2 million for the same period in 2024.
Speaker #2: For the six months ended June 30th, 2025, we earned net income of 300,000 compared to a net loss of $12.4 million for the same period in 2024.
Speaker #2: Cash and short-term investments at June 30th, 2025, was $40.6 million. If we excluded depreciation and stock-based compensation, our adjusted EBITDA results would have been a positive $1.8 million of operating income for the three months ended June 30th, 2025, compared to a loss of $1.2 million for the three months ended June 30th, 2024.
Speaker #2: For the six months ended June 30th, 2025, our adjusted EBITDA is $7.9 million of operating income compared to a loss of $1.9 million for the same period in 2024.
Speaker #2: On August 8th, 2025, we entered into a refinancing consisting of four concurrent transactions as follows. Firstly, a new credit facility with Hercules Capital that provides for up to $150 million in aggregate principal, including $110 million funded at closing and additional $40 million available in future tranches, subject to milestone achievement.
Speaker #2: Secondly, the issuance and sale of $35 million of new 5% senior convertible notes due in 2031 to Rubrik Capital. Thirdly, a placement of common stock in Series A preferred stock with certain investors for aggregate gross proceeds of approximately $28 million. Lastly, an exchange transaction with our current convertible noteholder involving the repayment of the majority of our outstanding 1.5% senior convertible notes due in May of 2026 in cash and a conversion of a portion of the remaining notes into shares of common stock.
Speaker #2: The outstanding $150 million of aggregate principal amount of our existing $1.5% senior convertible notes due in 2026 and the $25.7 million of aggregate principal amount outstanding under our prior Hercules Working Capital facility will be fully repaid and extinguished upon the closing of these transactions, which is expected to occur on August 12th of 2025.
Speaker #2: Now, moving to 2025 financial guidance. Based on the continued performance of our business, we are maintaining our previously given net revenue guidance of $153 million to $163 million, and we are revising our previously given guidance of adjusted EBITDA of $4 million to $12 million to a range of $9 million to $13 million.
Speaker #2: We would now like to open the call for any questions. Certainly. And our first question for today comes from the line of Clara Dunk from Jefferies.
Speaker #2: Your question, please.
Speaker #6: Hi. Good morning. So, one question on Zynquista. Could you provide more details on the VAN 400 milligram transition and how much of Q2 revenue was impacted?
Speaker #6: And maybe how much of the impact was on the timing and then whether you expected to fully normalize in the second half with VAN transition completing in, the third quarter?
Speaker #6: And I have a follow-up. Thank you.
Speaker #7: Hi. Good morning and thank you for the question. So the VAN 400 milligram transition began at the end of Q4, so really late December.
Speaker #7: Most of Q1, we were, we were in transition. And by Q2, we no longer were selling any of the VVS. But the, the inventory of buildup, at the end of Q4 and into Q1 didn't normalize until Q2.
Speaker #7: And so we do expect the Q3 normalization of inventory to be complete as of July 1st.
Speaker #6: Got it. And on the J code for Zenerlef, could you give us some comments on how this plays a, a player role in reimbursement along with no-paying act and, you ow, your thoughts on the act on the option?
Speaker #6: Moving forward.
Speaker #7: Yeah. Hi, Clara. This is Craig. no, ok, we were excited to get the J code. What, what we've sort of seen, over time, as we had passed through reimbursement with the C code, it's not that that's not recognized, but the J code is much more sort of universally, recognized, if you .
Speaker #7: And, and certainly commercial payers, they're a more, sort of used to dealing with that. So I think with no-paying, what ou're going to see over time and we're beginning to see this with certain payers is that they're gonna pick up what CMS or, or Medicare is doing.
Speaker #7: And as that happens more, we think, again, having a J code is just going to make it more conducive for reimbursement and make it simpler. So, you know, we don't necessarily see an impact immediately, but as this plays out and commercial payers come on board and reimbursements get more synonymous with, you know, basically these products being paid for outside of the surgical bundle, I think you're gonna see a shift that, with this J code, really does help us longer term.
Speaker #6: Thank you. That was helpful. And congrats on all the progress.
Speaker #7: Thanks, Clara.
Speaker #2: Thank you. And our next question comes from the line of Brandon Folks from HC Wainwright. Your question, please.
Speaker #8: Hi. Thanks for taking my questions. Maybe just two from me. I apologize if you covered some of this, just hopping between calls here. But maybe just on the Zenerlef sales force reorganization, can you just elaborate sort of what drove that and what that does to the CrossLink partnership?
Speaker #8: And then secondly, on UponV, looked like demand grew 19%, revenue 9%. Is that just inventory movement or, you know, are you taking a different approach to pricing, in terms of getting in, just, you ow, in terms of getting volume on their product?
Speaker #8: Thank ou.
Speaker #7: Hey, Brandon. Thanks for the question. So on the, on the Zenerlef sales force, prior to July 1st, we were, you know, we had one team that was essentially comp 50/50 on UponV and Zenerlef.
Speaker #7: But, you know, as we evaluated the team, we, think that the profiles of those two teams should be different in terms of their skill set.
Speaker #7: Where, you ow, as Zenerlef rep, as, as primarily focused in the OR on surgeons, and UponV rep is, is typically a, you know, our traditional hospital sales rep. And so, you know, for that reason, we, we've divided the teams up.
Speaker #7: The, the Zenerlef team stayed relatively similar to what it was. The UponV team is small. It's, it's only six IBMs today or institutional business managers today, but we think, you know, the team that we put in place there will have a meaningful impact on, on UponV long-term.
Speaker #7: As it relates to cross-link, you ow, we, we've had a really nice agreement in place with them. You know, we started that in 2024.
Speaker #7: We've built out a really nice network across the country. But what we wanted to do was really engage them focused on specific accounts. And so we've allowed them to pick four accounts from, a list that we provided, primarily accounts where we already have formulary access.
Speaker #7: And, you know, we've significantly enhanced the incentive around those accounts, you know, on a per-unit basis. And so, you know, we've aligned that with our current Zenerlef sales team's targets as well.
Speaker #7: And so we feel like we're much better targeted in terms of overlap between the two teams. We have the incentives in place right now to really drive momentum on the back half of the year.
Speaker #7: As it relates to the UponV, sales, its primarily a wholesaler inventory adjustments, as we, as we pared down inventory coming out of Q4 and, and Q1.
Speaker #7: There is a bit of, gross to net in there where we had a co, you know, two or three large academic centers come online in the quarter.
Speaker #7: and there was some kind of skew in the amount of 340B that they were acquiring, but we do expect that to normalize over the second half as more and more accounts are added.
Speaker #8: Great. Thanks very much for taking my estions.
Speaker #7: You bet. Thanks, Brandon.
Speaker #2: Thank you. And our next question comes from the line of Serge Belinger from Needham. Your question, please.
Speaker #9: Hi. Good morning. Thanks for taking my questions. I guess a, a follow-up regarding the, the sales force changes. I-is this just a, a refocusing on the, the two specific products, or is there an, an expansion in numbers that comes along with the, the restructuring?
Speaker #9: And then secondly, regarding Zenerlef, I believe no-paying for you, for Huron came into effect in, in April. So just curious if you've noticed any changes in usage or uptake of Zenerlef, during that trans just that transition.
Speaker #9: From your original pass for reimbursement to, to no-paying. oh, maybe one last one for Ira. Just the, the new overall share count after the, various transactions this morning.
Speaker #9: Thanks.
Speaker #10: So I'll take the ructuring question, Craig can take the no-paying, and then 'll, we'll turn it over to Ira on share count. So in terms of the restructuring, there, we don't foresee a, an expansion in the team's up beyond today over the short term.
Speaker #10: what we're, what you see is just a more dedicated focus by one sal one single Zenerlef team where before, you know, they were, they were also, you know, trying their best to also have enough time to, to sell UponV.
Speaker #10: And so, you know, in terms of the profile of those reps, we see them as slightly different in the strategy itself. And so, we broke them apart.
Speaker #10: We hired traditional, hospital reps to, to focus on UponV. So that in itself is, is a bit of an expansion, but we were able to do all of this, in a way that, you know, didn't meaningfully add to, to costs over the, over the short term.
Speaker #7: Yeah. Serge, I would just add to that. think that, you know, if you think the country, and what we've done here is with, with Zenerlef and, and the overlap with, cross-link, think of, sort of pods, if you will, or postage stamps the country.
Speaker #7: You know, with us cleaning the balance sheet and some of the extra money we've raised, what we think—and we're already beginning to see this a little bit with CrossLink really being a lot more engaged based on some of the incentives we're using—is that we're going to see pockets where this really begins to take off.
Speaker #7: And so, you know, as far as expansion and that type of thing, we do see that. Obviously, we're going to add more support to those areas.
Speaker #7: And so that's where we could expand, possibly in the future. But again, this is kind of a wait and see. And instead of just sort of blanketly, you know, sort of throwing out, ou know, monies and, and putting 100 reps out there or what have you, we'd like to do this sort of systematically and, and a ittle bit more efficiently.
Speaker #7: I think we've shown, you know, at ast, over the last two years, we've tried to be, you ow, very, I guess, istent in how we manage the financial, you know, picture of the company and so forth.
Speaker #7: And we wanna continue to do going forward. And, and you think about, you know, to our point about no-paying and how this plays out, we haven't seen an immediate impact yet.
Speaker #7: What we are seeing is that the conversations that pharmacy are just a little different than they have traditionally been in the past. And, and what I mean by that, generally, a, you know, a representative walks in and it's, you ow, branded product, you know, park in the last part, you know, last parking space in the parking lot type of ing.
Speaker #7: But I think what we're beginning to see now is that it's a little more open because everyone's talking reimbursement and they realize that these products, you know, can actually be a profit versus a cost.
Speaker #7: And so I think, again, as I said before about, you know, commercial payers coming on board, I think you're gonna see a real shift over the next, you ow, year or so where commercial payers come on board, everyone's systematically sort of accepts this type of thing as far as reimbursement and looks at it a little bit differently than maybe it had in the past.
Speaker #7: And so, again, you know, you throw that in, VAN, the Ross-Link incentive, the things we're doing here from a structure standpoint, we just feel like we have a lot of tailwinds that are pushing us in the right direction.
Speaker #7: And here, I'll let you take the last piece of that.
Speaker #11: Yep. the performer comments here is about $183 million shares in performer shares including the convert would be about $208 million.
Speaker #8: Thank you.
Speaker #2: Thank you. And as a reminder, ladies and gentlemen, if you have a question at this time, please press star 11 on your telephone. Our next question comes in line of Carl Burns from Northland Capital Markets.
Speaker #2: Your question, please.
Speaker #7: Thanks for the question. congratulations on the progress. just wondering if you could disclose what the, rate is on, on the senior credit facility with Hercules.
Speaker #7: And then also, with respect to how much cash, you know, net of expenses, etc., and everything closes, will be added in the balance sheet excluding the $40 million, additional tranches.
Speaker #7: Thanks.
Speaker #11: Yeah, the overall rate Carl is a little bit north of 10%. And the funds to the balance sheet are probably about $11 to $12 million.
Speaker #11: After all expenses.
Speaker #8: Great. Thanks.
Speaker #2: Thank ou. This does conclude the estion and answer session of today's program. I'd like to hand the program back to Craig Collard for any further remarks.
Speaker #7: No. Thanks everyone for the estions today. I, I know this was short notice. we do appreciate, everyone jumping on. And, we'll talk you next arter.