HERON THERAPEUTICS, INC. /DE/ Q2 FY2025 earnings call

• Successfully completed a new financing which strengthens the balance sheet and enhances financial flexibility. - Achieved total net revenues of $37.2 million in Q2 and $76.1 million in the first half of 2025, with adjusted EBITDA of $7.9 million for the first half of 2025 reflecting disciplined execution. - ZYNRELEF transitioned to a permanent J-code effective October 1, which will streamline reimbursement processes. - APONVIE and ZYNRELEF showed demand growth, with APONVIE nearing 1,000 average daily units and ZYNRELEF adoption accelerating. - Implemented commercial changes like a new sales compensation program and Post-Operative Clinical Educator Team for ZYNRELEF, and a dedicated APONVIE sales team. - Oncology franchise had strong performance, maintaining market share and exploring growth strategies.

Total net revenues for the quarter ended June 30, 2025, were $37.2 million, and for the first half of 2025 were $76.1 million. Combined net revenues from APONVIE and ZYNRELEF were $10.7 million for the second quarter and $20.9 million year-to-date, representing 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. The oncology franchise (CINVANTI and SUSTOL) had combined net revenues of $26.5 million for the second quarter and $55.1 million year-to-date. Product gross profit for the 3 months ended June 30, 2025, was $27.3 million (73.5%), increasing from 70.8% in 2024. For the 6 months ended June 30, 2025, product gross profit was $57.8 million (75.9%), up from 73.2% in 2024. SG&A expenses for the 3 and 6 months ended June 30, 2025, were $26 million and $51.1 million respectively, down from $27.5 million and $53.9 million in 2024. Research and development expenses for the 3 and 6 months ended June 30, 2025, were $2.9 million and $5.2 million respectively, down from $4.4 million and $9 million in 2024. The company incurred a net loss of $2.4 million for the 3 months ended June 30, 2025, compared to a net loss of $9.2 million in 2024, and earned net income of $300,000 for the 6 months ended June 30, 2025, compared to a net loss of $12.4 million in 2024. Cash and short-term investments at June 30, 2025, were $40.6 million. Adjusted EBITDA for the 3 months ended June 30, 2025, was a positive $1.8 million of operating income, compared to a loss of $1.2 million in 2024. For the 6 months ended June 30, 2025, adjusted EBITDA was $7.9 million of operating income, up from a loss of $1.9 million in 2024.

• Maintained net revenue guidance for 2025 at $153 million to $163 million. - Revised adjusted EBITDA guidance from $4 million to $12 million to a range of $9 million to $13 million.

• Inventory drawdowns at wholesalers during product transitions, such as the VAN 400-milligram transition for ZYNRELEF, can impact revenue in the short term. - Market competition could affect product adoption and market share. - Reimbursement policy changes may impact the commercial推广 and revenue of products.

Q: So one question on ZYNRELEF. So can you give us more detail on the VAN 400-milligram transition and how much of Q2 revenue was impacted? And maybe how much of the impact was on the timing and then whether you expect it to fully normalize in the second half with VAN transition completed in the third quarter? And I have a follow-up.

A: Thank you for the question. So the 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. And so we do expect the Q3 normalization of inventory to be complete as of July 1.

Q: And on the J-code for ZYNRELEF, maybe give us some comments on how this play a role in reimbursement along with NOPAIN act and your thoughts on the impact on the adoption moving forward?

A: Clara, this is Craig. No, look, 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 sort of universally recognized, if you will. And certainly, with commercial payers, they're a lot more sort of used to dealing with that. So I think with NOPAIN, 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. And 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. So 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 where this J-code really does help us longer term.

Q: Maybe just 2 from me. I apologize if you covered some of this just hopping between calls here. But maybe just on the ZYNRELEF sales force reorganization, can you just elaborate sort of what drove that and what that does to the CrossLink partnership? And then secondly, on APONVIE, looks 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 in terms of getting volume on that product?

A: Brandon, thanks for the question. So on the ZYNRELEF sales force, prior to July 1, we were -- we had one team that was essentially comp 50-50 on APONVIE and ZYNRELEF. But as we evaluated the team, we think that the profiles of those 2 teams should be different in terms of their skill set, where a ZYNRELEF rep is primarily focused in the OR on surgeons. And APONVIE rep is typically your traditional hospital sales rep. And so 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 6 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. As it relates to the APONVIE sales, it's primarily a wholesaler inventory adjustments as we pared down inventory coming out of Q4 and Q1. There is a bit of gross to net in there where we had 2 or 3 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.

Q: I guess a follow-up regarding the sales force changes. Is this just a refocusing on the 2 specific products? Or is there an expansion in numbers that comes along with the restructuring? And then secondly, regarding ZYNRELEF, I believe NOPAIN for Heron came into effect in April. So just curious if you've noticed any changes in usage or uptake of ZYNRELEF during that transition from your original pass-through reimbursement to NOPAIN. Maybe one last one for Ira. Just the new overall share count after the transactions this morning.

A: So I'll take the restructuring question. Craig can take the NOPAIN and then we'll turn it over to Ira on share count. So 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. And so 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. So 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. Yes, Serge, I would just add to that. I think that 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 poster stamps around the country. 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. And so 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. 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 sort of throwing out monies and putting 100 reps out there and what have you, we'd like to do this sort of systematically and a little bit more efficiently. I think we've shown at least over the last 2 years, we've tried to be very, I guess, consistent in how we manage the financial picture of the company and so forth. We want to continue to do that going forward. And if you think about -- to your point about NOPAIN 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. And what I mean by that, generally, a representative walks in and its branded product, park in the last park -- last parking space in the parking lot type of thing. But I think what we're beginning to see now is that it's a little more open because everyone is talking reimbursement, and they realize that these products can actually be a profit versus a cost. And so I think, as I said before about commercial payers coming on board, I think you're going to see a real shift over the next 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. And so again, you throw that in, 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. And Ira, I'll let you take the last piece of that. Yes. The pro forma common share is about 183 million shares and pro forma shares, including the convert would be about 208 million.

Q: Congratulations on the progress. Just wondering if you could disclose what the rate is on the senior credit facility with Hercules. And then also with respect to how much cash, net of expenses, et cetera, when everything closes will be added in the balance sheet, excluding the $40 million additional tranches?

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