Heron Therapeutics - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 was operationally constructive but headline results modest: revenue of $37.2M (+3% YoY, -4% QoQ) and GAAP diluted EPS of $(0.02), with product gross margin of 73.5% vs 70.8% a year ago, aided by lower reserves; management cited a ~$(0.4)M wholesaler drawdown tied to the 400mg VAN transition as a transitory headwind.
• Acute Care momentum continued: ZYNRELEF unit demand +6.3% q/q and APONVIE +19% q/q; Oncology was steady with CINVANTI resilient; cash and short-term investments were $40.6M at quarter-end.
• 2025 net revenue guidance was maintained at $153–$163M, while Adjusted EBITDA guidance was raised to $9–$13M, reflecting YTD Adjusted EBITDA of $8.0M; management highlighted levers for 2H acceleration (dedicated sales teams, CrossLink incentives, J-code effective Oct 1).
• Balance sheet de-risked: comprehensive capital restructuring extended maturities to 2030, reduced total debt from $175M to $145M, added new 2031 converts, and raised $27.7M gross in equity; CFO indicated credit cost “a little bit north of 10%” and ~$11–12M net cash added at closing—potential stock catalysts alongside revenue reacceleration and J-code ramp.

What Went Well and What Went Wrong

• What Went Well

  • ZYNRELEF and APONVIE demand trends were strong: +6.3% and +19% q/q, respectively; APONVIE now has a dedicated sales team (launched July 1) to drive further adoption.
  • Margin execution: product gross margin reached 73.5% (vs 70.8% in Q2’24), benefiting from mix and lower reserves/write-offs, despite VAN transition dynamics.
  • Capital structure reset: new Hercules facility (up to $150M), exchange/retirement of 2026 converts, issuance of 2031 converts ($35M), and $27.7M equity placement—pushing maturities to ≥2030 and reducing total debt to ~$145M.

• What Went Wrong

  • Headline miss vs S&P consensus: revenue $37.2M vs $38.1M* and EPS $(0.02) vs $(0.01)*; wholesaler inventory normalization (~$(0.4)M) masked underlying demand growth.
  • Oncology softness YoY: Q2 Oncology -9% YoY due to SUSTOL (-43%); CINVANTI down modestly (-3%).
  • Shares outstanding likely to trend higher post-transactions; CFO guided to pro forma common shares of ~183M, with incremental potential from converts—an overhang until growth inflects.

Transcript

Speaker 0

Super 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. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star one one on your telephone. If your question has been answered and you'd like to remove yourself from the queue, simply press star one one again. As a reminder, today's program is being recorded. Now I'd like to introduce your host for today's program, Melissa Jarel, Executive Director of Legal at Heron Therapeutics. Please go ahead.

Speaker 5

Thank you, operator, and hello everyone. Thank you for joining us on the Heron Therapeutics conference call today to discuss the company's financial results for the quarter ended June 30, 2025. 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. 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.

I would now like to turn the call over to Craig Collard, Chief Executive Officer of Heron.

Speaker 1

Thanks, Melissa. Hello everyone, and welcome to Heron Therapeutics' second quarter 2025 earnings call. Today, we're thrilled to share results and progress for the second quarter and first half of 2025. It's been an incredibly active and transformative period for Team Heron, and I want to begin by recognizing the tremendous effort and dedication our team has demonstrated. 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. The financing strengthens our balance sheet, 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.

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. 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 the quarter and $76.1 million for the first half of 2025. This performance resulted in an adjusted EBITDA of $7.9 million for the first half of the year, reflecting our continued focus on disciplined execution and operational efficiency. Importantly, we're seeing consistent product demand growth with ZYNRELEF and APONVIE, 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. 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 permanent J code for ZYNRELEF that will become effective October 1. This is a significant win for Heron and for the providers who rely on ZYNRELEF in their practice. The J code will streamline reimbursement processes and reduce administrative burden, especially as the No Pay Act continues to gain traction. 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. 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 of the new initiatives we believe will be catalysts for future growth.

Go ahead, Mark.

Speaker 0

Thanks, Craig. Q2 was a transitional quarter for Heron Therapeutics as we implemented several key commercial changes designed to strengthen execution in the second half of the year and beyond. Combined net revenues from APONVIE and ZYNRELEF 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 2025 compared to the same periods in 2024. Across the acute care franchise, demand growth was encouraging, with unit growth across both ZYNRELEF and APONVIE. While reported revenue was relatively flat quarter over quarter, this masks meaningful progress and foundational work that will support growth in the second half of the year. Let me walk you through the drivers in more detail, beginning with ZYNRELEF.

ZYNRELEF adoption continues to accelerate, with growth in average daily units and total ordering accounts now more than 700 through the month of June. ZYNRELEF 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, primarily related to the transition to the 400 milligram VAN. 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. Importantly, this drawdown occurred while end-user demand continued to increase, and we expect wholesaler ordering patterns to normalize in Q3. Operationally, we focused the ZYNRELEF team on targeted pull-through and accounts where we already have formulary access. 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 significantly enhanced per-unit compensation program with CrossLink. Beginning in July, CrossLink reps were allowed to nominate up to four accounts per territory with little or no historical ZYNRELEF use, where they believe they could make an immediate impact. 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 postoperative clinical educator team. 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 permanent J code for ZYNRELEF effective October 1. 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 ZYNRELEF commercial engine, well positioned for acceleration in the second half of the year.

Turning to APONVIE, we continue to see strong trends, nearing the 1,000 average daily unit mark through the month of June. While ex-factory units grew 11%, demand units grew 19%. 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 340B discounts as larger hospital systems came online in the quarter. To support continued growth, we launched a dedicated APONVIE sales team on July 1, 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. 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 CINVANTI and SUSTOL reaching $26.5 million for the quarter and $55.1 million year to date.

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. In summary, Q2 was about restructuring and refocusing our commercial platform. We optimized our sales force and created dedicated teams for ZYNRELEF and APONVIE. We aligned with CrossLink around enhanced pull-through and target accounts. 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 Therapeutics is well positioned to drive accelerating growth in the second half of 2025 and beyond. Thanks, and I'll now turn it back to you, Craig.

Speaker 1

Thanks, Mark. Now moving to our financial performance. Our product gross profit for the three months ended June 30, 2025 was $27.3 million, or 73.5%, which increased from 70.8% for the same period in 2024. For the six months ended June 30, 2025, our product gross profit was $57.8 million, or 75.9%, which increased from 73.2% for the same period in 2024. 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. SG&A expenses for three and six months ended June 30, 2025 were $26 million and $51.1 million, respectively, compared to $27.5 million and $53.9 million, respectively, for the same periods in 2024.

For the three months ended June 30, 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. For the six months ended June 30, 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. These decreases were offset by an increase in marketing costs of $600,000, primarily related to ZYNRELEF. Research and development expenses were $2.9 million and $5.2 million, respectively, for the three and six months ended June 30, 2025, compared to $4.4 million and $9 million, respectively, for the comparable periods in 2024.

The decrease in research and development expense for the three months ended June 30, 2025 is primarily due to $1.2 million more of 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. The decrease in research and development expense for the six months ended June 30, 2025 is primarily due to the $1.2 million more of write-offs of property and equipment in 2024 than in 2025, and a decrease in personnel and related expenses of $2 million due to terminations. For the three months ended June 30, 2025, we incurred a net loss of $2.4 million compared to a net loss of $9.2 million for the same period in 2024.

For the six months ended June 30, 2025, we earned net income of $300,000 compared to a net loss of $12.4 million for the same period in 2024. Cash and short-term investments at June 30, 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 30, 2025, compared to a loss of $1.2 million for the three months ended June 30, 2024. For the six months ended June 30, 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. On August 8, 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 an additional $40 million available in future tranches subject to milestone achievement. Secondly, the issuance and sale of $35 million of new 5% senior convertible notes due in 2031 to Rubric Capital. Thirdly, a placement of common stock and 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 the conversion of a portion of the remaining notes into shares of common stock.

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 Capital working capital facility will be fully repaid and extinguished upon the closing of these transactions, which is expected to occur on August 12, 2025. 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. We would now like to open the call for any questions.

Speaker 6

Certainly, and our first question for today comes from the line of Yuxi Dong from Jefferies LLC. Your question, please.

Speaker 4

Hi, good morning. One question on ZYNRELEF. Can you give us more detail on the 400 milligram transition and how much of Q2 revenue was impacted, and maybe how much of the impact was on the timing, and whether you expect it to fully normalize in the second half with the Vial Access Needle (VAN) transition completing in the third quarter? I have a follow-up. Thank you.

Speaker 2

Hi, good morning, and thank you for the question. The Vial Access Needle (VAN) 400 milligram transition began at the end of Q4, so really late December. Most of Q1, we were in transition, and by Q2, we no longer were selling any of the VVS, but the inventory buildup at the end of Q4 and into Q1 didn't normalize until Q2. We do expect the Q3 normalization of inventory to be complete as of July 1st.

Speaker 4

Got it. On the J code for ZYNRELEF, can you give us some comments on how this plays a role in reimbursement along with the No Pay Act, and your thoughts on the impact on the adoption moving forward?

Speaker 2

Yeah, hi, Clara. This is Craig. Although we were excited to get the J code, what we've sort of seen over time as we have passed through reimbursement with the C code, it's not that that's not recognized, but the J code is much more universally recognized, if you will. Certainly with commercial payers, they're a lot more used to dealing with that. I think with no paying, what you're going to see over time, and we're beginning to see this with certain payers, is that they're going to pick up what CMS or Medicare is doing. If that happens more, we think, again, having a J code is just going to make it more conducive for reimbursement and make it simpler.

We don't necessarily see an impact immediately, but as this plays out and commercial payers come on board and reimbursement gets more synonymous with basically these products being paid for outside of the surgical bundle, I think you're going to see a shift that whereas J code really does help us longer term.

Speaker 4

Thank you. That was helpful, and congrats on all the progress.

Speaker 2

Thanks, Clara.

Speaker 6

Thank you. Our next question comes from the line of Brandon Folkes from H.C. Wainwright & Co. Your question, please.

Speaker 7

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 ZYNRELEF salesforce reorganization, can you just elaborate sort of what drove that and what that does to the CrossLink partnership? Then secondly, on APONVIE, it looked like demand grew 19%, revenue 9%. Is that just inventory movement, or are you taking a different approach to pricing in terms of getting in, just, you know, in terms of getting volume on that product? Thank you.

Speaker 2

Hey, Brandon, thanks for the question. On the ZYNRELEF salesforce, prior to July 1, we had one team that was essentially comp 50-50 on APONVIE and ZYNRELEF. As we evaluated the team, we think that the profiles of those two teams should be different in terms of their skill set. A ZYNRELEF rep is primarily focused in the OR on surgeons, and an APONVIE rep is typically your traditional hospital sales rep. For that reason, we've divided the teams up. The ZYNRELEF team stayed relatively similar to what it was. The APONVIE team is small. It's only six IBMs today, or Institutional Business Managers today, but we think the team that we put in place there will have a meaningful impact on APONVIE long term. As it relates to CrossLink, we've had a really nice agreement in place with them. We started that in 2024.

We've built out a really nice network across the country. What we wanted to do was really engage them focused on specific accounts. We've allowed them to pick four accounts from a list that we provided, primarily accounts where we already have formulary access. We've significantly enhanced the incentive around those accounts on a per-unit basis. We've aligned that with our current ZYNRELEF sales team's targets as well. We feel like we're much better targeted in terms of overlap between the two teams, and we have the incentives in place right now to really drive momentum on the back half of the year. As it relates to the APONVIE sales, it's primarily a wholesaler inventory adjustment as we pared down inventory coming out of Q4 and Q1.

There is a bit of gross to net in there where we had two or three large academic centers come online in the quarter, 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 7

Great, thanks very much for taking my questions.

Speaker 2

You bet. Thanks, Brandon.

Speaker 6

Thank you. Our next question comes from the line of Serge Belanger from Needham. Your question, please.

Speaker 3

Hi, good morning. Thanks for taking the question. I guess a follow-up regarding the salesforce changes. Is this just a refocusing on the two specific products, or is there an expansion in numbers that comes along with the restructuring? Secondly, regarding ZYNRELEF, I believe No Pay Act for Heron came into effect in April. Just curious if you've noticed any changes in usage or uptake of ZYNRELEF during that transition from your original path to reimbursement to No Pay. Maybe one last one for Ira, just the new overall share count after the various transactions this morning. Thanks.

Speaker 2

I'll take the restructuring question. Craig can take the No Pay Act, and then we'll turn it over to Ira on the share count. In terms of the restructuring, we don't foresee an expansion in the teams beyond today over the short term. What you see is just a more dedicated focus by one single ZYNRELEF team, where before, they were also trying their best to also have enough time to sell APONVIE. In terms of the profile of those reps, we see them as slightly different in the strategy itself, and so we broke them apart. We hired traditional hospital reps to focus on APONVIE. That in itself is a bit of an expansion, but we were able to do all of this in a way that didn't meaningfully add to costs over the short term.

Speaker 3

Yeah, Serge, I would just add to that. I think that, you know, if you think of the country and what we've done here with ZYNRELEF and the overlap with CrossLink, think of sort of pods, if you will, or postage stamps around the country. You know, with us cleaning up 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 doing, is that we're going to see pockets where this really begins to take off. As far as expansion and that type of thing, if we do see that, obviously we're going to add more support to those areas. That's where we could expand possibly in the future. Again, this is kind of a wait and see.

Instead of just sort of blanketly, you know, sort of throwing out, you know, monies and putting 100 reps out there or what have you, we'd like to do this sort of systematically and a little bit more efficiently. I think we've shown, you know, at least over the last two years, we've tried to be, you know, very, I guess, consistent in how we manage the financial, you know, picture of the company and so forth. We want to continue to do that going forward. If you think about, you know, to your point about No Pay Act and how this plays out, we haven't seen an immediate impact yet. What we are seeing is that the conversations at pharmacy are just a little different than they have traditionally been in the past.

What I mean by that, generally, you know, a representative walks in and it's, you know, a branded product, you know, park in the last parking space in the parking lot type of thing. 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 the cost. I think, again, as I said before about, you know, commercial payers coming on board, I think you're going to see a real shift over the next, you know, year or so where commercial payers come on board, everyone 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.

Again, you know, you throw that in Vial Access Needle (VAN), the CrossLink 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. Here, I'll let you take the last piece of that.

Speaker 7

Yep. The pro forma common share is about 183 million shares, and pro forma shares, including the convert, will be about 208 million.

Speaker 3

Thank you.

Speaker 6

Thank you. As a reminder, ladies and gentlemen, if you have a question at this time, please press star one one on your telephone. Our next question comes in line of Carl Byrnes from Northland Capital Markets. Your question, please.

Speaker 3

Thanks for the question. Congratulations on the progress. I'm just wondering if you could disclose what the rate is on the senior credit facility with Hercules Capital. With respect to how much cash, you know, net of expenses, etc., when everything closes will be added to the balance sheet, excluding the $40 million additional tranches. Thanks.

Speaker 7

Yeah, the overall rate, Carl, is a little bit north of 10%. The funds to the balance sheet is probably about $11 to $12 million after all expenses.

Speaker 3

Great, thanks.

Speaker 6

Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to Craig Collard for any further remarks.

Speaker 2

Thank you everyone for the questions today. I know this was short notice. We do appreciate everyone jumping on, and we'll talk to you next quarter.

Speaker 6

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.