Heron Therapeutics - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 net product sales were $40.78M (+19.1% YoY) and GAAP net income was $3.66M ($0.02 EPS), marking profitability for the quarter; product gross margin was 74.9%, up from 71.1% in Q4 2023.
• Acute Care momentum: ZYNRELEF delivered record Q4 net revenue of $8.46M (+48.5% YoY) and APONVIE reached $1.93M (+311% YoY), while Oncology net revenue rose to $30.39M (+8.3% YoY) with CINVANTI at $26.87M (+10.7% YoY).
• 2025 guidance introduced: Net revenue $153–$163M and adjusted EBITDA $0–$8M; FY 2024 adjusted EBITDA delivered at $8.6M, above prior 2024 guidance of $2–$5M, underscoring improved operating efficiency.
• Key catalysts for 2025: NOPAIN Act separate payment starting April 1, 2025, VAN device to simplify ZYNRELEF prep and speed withdrawal, and expanded label indications; management expects ZYNRELEF inflection mid-year as VAN (200mg) fully rolls out and CrossLink reach strengthens.
• Legal overhang reduced: U.S. District Court ruled in favor of Heron, upholding validity of CINVANTI patents expiring in 2035, supporting oncology cash flow durability.

What Went Well and What Went Wrong

What Went Well

• “We successfully achieved profitability not only for the fourth quarter of 2024, but also for the full year,” highlighting net income of $3.6M in Q4 and $8.6M adjusted EBITDA in 2024.
• ZYNRELEF momentum: “Record net revenues of $8.5M in Q4… achieved with minimal impact from the VAN launch,” suggesting further upside as VAN and NOPAIN tailwinds build.
• Gross margin expansion and OpEx control: Product gross margin improved to 74.9% in Q4; SG&A down vs 2023, with R&D also lower; management emphasized cash burn of ~$21M in 2024 and operational efficiency.

What Went Wrong

• Competitive and ASP pressure ahead in Oncology: Management adopted “a more conservative approach to our outlook for CINVANTI,” anticipating increased competition and lower ASP despite unit growth.
• Near-term lumpiness in cash flow/EBITDA: CFO flagged quarterly variability due to legal spend and PFS development; early 2025 may see uneven quarters before steadier exit run-rate.
• SUSTOL declined YoY in Q4 (-7.4%), tempering Oncology growth mix despite CINVANTI strength.

Transcript

Operator (participant)

Good day and thank you for standing by, and welcome to the Heron Therapeutics Q4 2024 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 the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference call is being recorded. I would now like to hand the conference over to your speaker today, Melissa Jarrel, Executive Director of Legal. Please go ahead.

Melissa Jarel (Executive Director of Legal)

Thank you, Operator, and good morning, everyone. Thank you for joining us on the Heron Therapeutics conference call this morning to discuss the company's financial results for the fourth quarter ended December 31, 2024. 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; 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 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 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 statement. 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.

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

Craig Collard (CEO)

Thanks, Melissa. Good morning, everyone, and welcome to Heron Therapeutics' fourth quarter 2024 earnings call. Today, we're extremely excited to share our results for the quarter as well as our performance for the full year 2024. Since joining the company in April of 2023, our goal as a management team has been to reposition the business for future growth and achieve profitability by the fourth quarter of 2024. As we focused on positioning the company for growth, we successfully expanded the product labeling for ZYNRELEF, doubling the number of approved indicated procedures. We also signed, trained, and integrated our CrossLink partnership, which includes over 800 distributor representatives focused on the orthopedic space. Additionally, we secured inclusion in the NOPAIN Act, which expands reimbursement for ZYNRELEF outside of the surgical bundle, allowing more patients access to a non-opioid alternative for post-operative pain.

In late September, we received approval of the Vial Access Needle, or VAN, and launched the new device in mid-December. The VAN significantly improves the preparation time and may enhance the safe use of our product. We are already receiving positive feedback, with many noting that this is a dramatic improvement over the previously used vented vial spike. Lastly, in early December 2024, the U.S. District Court ruled in favor of Heron in our patent lawsuit against Fresenius Kabi, upholding the validity of the CINVANTI patents, which are set to expire in 2035. Despite all the changes and accomplishments over the past 18 months, we successfully achieved profitability not only for the fourth quarter of 2024, but also for the full year. We finished the quarter with a net income of $3.6 million.

For the full year 2024, net revenues reached $144.2 million, reflecting a 14% year-over-year increase, and we delivered an adjusted EBITDA of $8.6 million. CINVANTI net revenues rebounded from a slight downturn in Q3, finishing the fourth quarter at $26.9 million compared to $22.7 million in Q3. For the full year 2024, CINVANTI generated just over $100 million in net revenues, up from $94.8 million in 2023. ZYNRELEF achieved record net revenues of $8.5 million in Q4 of 2024, a 33% increase from $6.3 million in Q3. This growth was achieved with minimal impact from the VAN launch as it was introduced in mid-December. To highlight the progress since we joined Heron in April of 2023, it is helpful to reflect on the financials from 2022 through 2024. Net revenues grew by 14% from 2023 to 2024, while gross margin improved by 24%, increasing from 49% to approximately 73%.

Operating expenses have been reduced by over $80 million since 2022. We ended 2024 with a cash balance of just over $59 million. This has been a long journey, but I am extremely proud of all Heron team members for their sacrifices in turning this business around and achieving profitability in 2024. Now, shifting to product performance, our oncology franchise, which includes both CINVANTI and SUSTOL, continues to show growth despite a highly competitive environment. As mentioned in our last quarterly earnings call, these products can experience quarterly fluctuations, but historically have maintained annual growth. For 2025, we have taken a more conservative approach to our outlook for CINVANTI, given the increased competition entering the market and the potential pressure on our average selling price.

While we still anticipate growth in unit sales for 2025, this may come at a lower price point, which could impact net revenues for the oncology franchise. Moving on to the acute hospital side of our business, both APONVIE and ZYNRELEF have seen significant growth, up over 310% and 48% respectively in Q4 of 2024 compared to the same period last year. With APONVIE, we are beginning to see a dramatic shift in trends, particularly in average daily units and the number of ordering accounts. We believe this growth will continue in 2025 and beyond as our pull-through efforts expand product usage within hospital institutions. Additionally, we anticipate further growth as we continue adding new accounts through P&T wins and system-wide conversions. A similar trend is emerging with ZYNRELEF.

Our daily unit sales are steadily increasing, and we are onboarding new accounts at a much faster rate than in the past. We achieved record net revenues this quarter despite the Vial Access Needle not officially launching until mid-December, and our team is still finalizing training for some of our CrossLink partners. We are excited about the strong momentum we have with ZYNRELEF as we head into 2025. The efforts and accomplishments of the past 18 months are already yielding results, and we believe that as the year progresses, ZYNRELEF will experience a significant upward inflection, ultimately exceeding performance expectations. I will now turn the call over to Ira Duarte, our CFO, to cover our financials and update our financial guidance. Go ahead, Ira.

Ira Duarte (EVP and CFO)

Thank you, Craig. We continue to improve on our financial efficiency while growing revenues. Over the past 12 months, during a time of change and disruption at the company, we grew revenues 13.6%, improved gross margin from 48.8% to 73.2%, and grew gross profit by almost 71%. More importantly, we did this and burned only approximately $21 million in cash for 2024. Our product gross profit for the three months ended December 31, 2024, was $30.6 million, or 74.9%, which increased from 71.1% for the same period in 2023. This was primarily due to the fact that the current quarter did not see the significant inventory write-offs we experienced in the comparable quarter of 2023. Year to date, our product gross profit was $105.6 million, or 73.2%, as compared to $43.7 million, or 48.8% for the same period in 2023.

SG&A expenses for the three and 12 months ended December 31, 2024, were $23.2 million and $100.5 million, respectively, compared to $26.8 million and $133.4 million, respectively, in the same period in 2023. The decrease was primarily related to decreases in personnel and related costs due to the reductions in force in prior years, as well as improved cost efficiencies among all departments. These decreases were offset by increased legal expenses related to the patent litigations. Research and development expenses were $3.2 million and $16.7 million for the three and 12 months ended December 31, 2024, compared to $7.8 million and $39.1 million in the comparable periods in 2023. The decrease was primarily related to decreases in personnel and related costs due to the reductions in force implemented in previous years, as well as decrease in development activities.

We achieved net income for the three months ended December 31, 2024, of $3.7 million and had a net loss for the year ended December 31, 2024, of $13.6 million. During the comparable periods in 2023, we had net losses of $10.7 million and $110.6 million, respectively. Cash and short-term investments at December 31, 2024, was $59.3 million. Year to date, we incurred inventory write-downs of $2.5 million. In addition, as mentioned on previous calls, we also recorded asset impairment write-downs of $2.2 million, primarily related to projects no longer part of the company's forward-looking strategy. If we had excluded depreciation, stock-based compensation, inventory write-downs, and the asset impairment write-downs, our adjusted EBITDA results would have been a positive $8.6 million operating income, which represents a substantial turnaround in the financial management of the business.

We are providing product revenues net, guidance range of $153 million-$163 million, and adjusted EBITDA guidance range of $0-$8 million. We would like to open the call for any questions.

Operator (participant)

Thank you. As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Brandon Folkes of Rodman & Renshaw. Your line is now open.

Brandon Folkes (Managing Director of Equity Research)

Hi, thanks for taking my question and congratulations on a very good quarter. Firstly, maybe just on ZYNRELEF's performance in the quarter, any stocking there or anything? Or was that sort of how we should think about ZYNRELEF going forward? Staying on ZYNRELEF, have you had any accounts come back that were perhaps not ZYNRELEF users prior to the VAN launch and sort of inquire about the VAN launch? You talked about onboarding new accounts at a very strong level. In 2025, strategically, are you focusing on driving deeper usage in the current sort of high user accounts, or should we think about growing the breadth of accounts or both? Thank you.

Craig Collard (CEO)

Thanks, Brandon. Yeah, let me first speak just to ZYNRELEF performance in Q4. There's really no stocking, anything like that as far as in those revenues. Actually, inventories have been quite low. We're in sort of this two-week to three-week inventory level. And VAN really didn't launch fully until about mid-December of 2024. I think the impact was fairly minimal. What I can tell you is what we're seeing is the reception so far to VAN has been exceptional from a standpoint of just being much more user-friendly and just a better customer experience. To date, I think we've had at least 15 accounts that we either saved or that have come back as part of launching the VAN. Again, that's more in the kind of January timeframe that we've sort of seen that.

I anticipate that we're going to continue to see pretty strong growth as you think about the tailwinds we have with the product, with the NOPAIN Act, with the CrossLink partnership really starting to kind of come on board and get going, and then the launch of the VAN and also with the expanded label. We have been extremely pleased with how that has gone so far. We really see this product inflecting as we move later in the year. The other thing I'll mention about VAN is that we've only launched the 400 milligram to date. We have kits where you can switch over to the 200 milligram, but the 200 milligram will not fully launch until right around the April timeframe to give us time to sort of bleed out the old inventory that was out there.

I think as we kind of move into kind of mid-year, you're really going to see a change as there'll be complete VAN, no more vented vial spike in the market.

Brandon Folkes (Managing Director of Equity Research)

Great. Thanks very much. Maybe just one on the sort of cash flow adjusted EBITDA. Obviously, a very positive year on that aspect. Appreciate the guidance for 2025. How should we think about it sort of on a quarterly basis? Could there be sort of a bit of lumpiness just in terms of swinging between positive and negative EBITDA or cash flow in the first half of the year? Sort of as that VAN ramps up, we see exiting the year with consistent positive cash flow, or do you feel like you're at a stage now where we should be thinking about positive cash flow every quarter?

Ira Duarte (EVP and CFO)

Yeah, Brandon, thank you for the question. Yes, it will be a little bit lumpy, primarily because of some of the legal spend and the PFS. It's really what is impacting our quarters a little bit. Overall, the results and the spend will not change significantly from this year, but those are the two factors that could provide a little bit of lumpiness in the beginning of the year.

Craig Collard (CEO)

Yeah, Brandon, I would add too. I mean, the one thing we've been a bit conservative on is with CINVANTI. I mean, as we see the product now, we're tracking pretty close to where we were last year. I mean, we typically have about 7-8% market growth in that space, and we've been maintaining roughly around 27% share. We've anticipated some competition later in the year and with ASP dipping a bit. As we sit today, we're tracking pretty close to where we were last year. We've tried to be a bit conservative there. That's another part that could move a bit.

Brandon Folkes (Managing Director of Equity Research)

Great. Thanks very much, and congrats on the good quarter.

Craig Collard (CEO)

Thank you.

Operator (participant)

Thank you so much. One moment for our next question.Our next question comes from the line of Serge Belanger of Needham. Your line is now open.

Serge Belanger (Senior Research Analyst)

Hi, good morning. A couple of questions on ZYNRELEF. Looks like the product is gaining momentum here. Maybe just talk about what's been driving that momentum and what you expect from NOPAIN once it kicks in for ZYNRELEF, which I believe is in March or April.

Craig Collard (CEO)

Yes, that's correct. No, look, I think we've been really pleased with the momentum we've had. I mean, again, I mentioned the tailwinds before, but from a reimbursement standpoint, it will fully come into play on April 1. I think the bigger thing we're getting from that is really just the noise around NOPAIN and sort of the push, if you will, to look at non-opioid alternatives. I mean, that's going to help us and really anybody that's in this market selling those types of products. I think that's been going to be hugely helpful for us. What was the last part of your question? I'm sorry.

Serge Belanger (Senior Research Analyst)

Yeah, the momentum we saw in the fourth quarter, what was it driven by and whether it would accelerate with NOPAIN?

Craig Collard (CEO)

Yeah, no, no. I'm sorry. I was going to speak to CrossLink. I think, look, the CrossLink relationship is starting to really come into play. The way we look at our data, anytime we've had an overlap with a CrossLink counterpart, we view that as a CrossLink account versus an account that we're in, let's say, or a hospital system we're in where CrossLink is not. What I can tell you is that those accounts are growing at about a 30% higher rate than our sort of normal standalone business, if you will. We think that's just going to continue. I mean, with VAN, and again, as we get better at this and we better coordinate with our CrossLink counterparts, we see sort of upside as we move into the 200 milligram launching later in the year.

As we kind of move into kind of mid-year in the third quarter, I think this is really going to start to get much more efficient. I mean, again, we've got 800 people out there that are just really starting with the VAN pretty much now. The coordination of all that, I think, is coming together nicely. The growth we've experienced so far has been much different than we had in the past, and I think that's going to continue.

Serge Belanger (Senior Research Analyst)

Okay. From an OPEX perspective for 2025, should we expect some flattish growth versus 2024?

Ira Duarte (EVP and CFO)

Yeah, it will be a little higher than 2024 just because of the R&D spend for PFS that we didn't see in 2024, and then some of the legal expenses as we are trying to settle some of these cases that we have outstanding. Overall, the remaining business really remains flat, but those are the two items that might increase OPEX a little bit in 2025 or 2024.

Serge Belanger (Senior Research Analyst)

Got it. Thank you.

Operator (participant)

Thank you so much. One moment for our next question. Our next question comes from the line of Carl Byrnes of Northland Capital Markets. Your line is now open.

Carl Byrnes (Managing Director and Senior Research Analyst)

Congratulations on the progress, and thanks for the question or questions, rather. You had a really nice bump with ZYNRELEF at $8.5 million. Do you expect kind of a similar bump in the first quarter given the timing of the NOPAIN Act and given the timing of the VAN approval? If you can maybe sort of extrapolate a little bit more with the number of CrossLink reps that have been trained to market the VAN and how you see that potentially hitting an inflection point in the second half of the year in terms of significantly accelerating ZYNRELEF sales. To the same extent with respect to APONVIE. Thanks.

Craig Collard (CEO)

Yeah, no problem. As we had said, I think currently we're at right around 800 or approximately 800 CrossLink reps, and that last sort of 100-ish were sort of coming together in Q4. As we come out of into 2025, this is when this is beginning to, we think, start to hit on all cylinders as we kind of move into the year. That's kind of where that sits currently. Again, as CrossLink is coming on board and we kind of look at from Q4 to Q1, I mean, you typically have some seasonality and copay resets and that type of thing that have historically flattened the market. What I can tell you is that we are currently, when I look at daily average sales, we are actually higher thus far in Q1 than we were in Q4. We're hoping that continues.

Obviously, the market's a little bit less in surgeries as a whole in Q1, but I mean, we're anticipating to continue to grow. As we kind of look more towards mid-year, again, I think as we launch the 200 milligram VAN with the NOPAIN really starting to kick in, I think getting more noise, this is really where we see the inflection happening. The other thing that CrossLink does for us is that as they come on board more and can take our places in the surgeries and are more comfortable with the product, it allows for our reps to really get out of these surgeries on a daily basis, and CrossLink becomes our eyes and ears.

Therefore, it really allows our reps to get out and not only find more surgeons and other folks in the hospital, going as far as deeper and wider, if you will, within an institution, but it also allows us to spend more time with APONVIE. Again, we're feeling very confident we're going to continue to grow with APONVIE at a much different rate. If you think about the ability with APONVIE to really do systematic wins, our issue has been thus far really getting our representatives out of the OR and allowing them to do more pull-through with the product. Again, we think with CrossLink, that's going to help with that extremely.

Carl Byrnes (Managing Director and Senior Research Analyst)

Excellent. Excellent. I mean, it's very clear that there's a shift in terms of obviously the growth coming from the acute care products with the CINV products really being kind of a cash cow that supports cash flow. Just one other follow-on question. If you've got any thoughts with respect to the Baker Brothers debt. Thanks.

Craig Collard (CEO)

Yeah, no, I mean, with the Baker Brothers, obviously, they're a large debt holder for us and have been a great partner. We've continued to meet with them on a quarterly basis. I think as we now approach sort of the May 2026 timeframe, we intend to meet with them again. Again, we wanted to get our quarter announced and so forth and really feel like with where the business is going, we're hoping all of our investors would be excited, but we should be meeting with them very soon and to talk about options with the convert and sort of where we can go from there.

Carl Byrnes (Managing Director and Senior Research Analyst)

Yeah. I would imagine with the CINVANTI litigation largely out of the way, that kind of opens the door to discussions. Thanks.

Craig Collard (CEO)

Yeah. No, that's been a, obviously, it was an unknown, but I think now that we have clarity around that, and again, even the Mylan case is very similar to what we faced with Fresenius. I think we feel very confident about that. Yeah, it's certainly going to help those discussions.

Carl Byrnes (Managing Director and Senior Research Analyst)

Excellent. Thanks for the questions and congrats again.

Craig Collard (CEO)

Thanks, Carl.

Operator (participant)

Thank you so much. If you would like to ask a question, please press star one. Our next question comes from the line of Clara Dong of Jefferies. Your line is now open.

Clara Dong (Biotechnology Equity Research Analyst)

Hi, team. Congrats on the progress for the quarter. Just wondering, since the launch of ZYNRELEF in mid-December, seems like the ramp-up is going pretty well. I wonder if you could give us an update on where you are at for the pre-filled syringe for ZYNRELEF. Thank you.

Craig Collard (CEO)

Yes. Thanks, Clara. Bill Forbes is dialing into the call. I'll let Bill answer that as far as the development path there and where that stands.

Bill Forbes (EVP and CDO)

Hi, good morning. Thank you for your question. Yeah, just as a form of update, obviously, we're extremely pleased with the rollout of the VAN. I mean, the device development people that we have have been watching that very closely as our commercial partners have been moving that through. As we turn our attention to the pre-filled syringe, I'll just kind of recap a little bit about what I spoke on at the Investor Day meeting last year. One of the things that we have to be careful of with ZYNRELEF is moisture content. About a year ago, we put up a kind of a demo batch on stability, and we've reached the nine-month part of that, and we've been extremely happy with how that stability and that demo batch has been going. With that, we've increased our confidence in this program greatly.

We're looking for trying to launch it to the market somewhere near the end of 2026 in the first half of 2027. We continue to make progress on that. If you have any other questions, happy to entertain them.

Clara Dong (Biotechnology Equity Research Analyst)

Appreciate it. Thank you.

Operator (participant)

Thank you so much, Clara. I do not see any questions on cue. I would now like to turn the conference back to Craig Collard, CEO, for closing remarks.

Craig Collard (CEO)

Thank you, Operator. Look, we appreciate everyone joining the call today. We're obviously very excited about where we are as a company and the foundation we've built here and how we move into 2025. We look forward to talking to everyone next quarter. Thank you.

Operator (participant)

Thank you so much, presenters, and this concludes today's conference call. Thank you for participating. You may now disconnect. Have a great day.