Heron Therapeutics, Inc. (HRTX) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Heron Therapeutics conference call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] Now I would like to turn the call over to David Szekeres, Chief Legal, Business and Administrative Officer. Please proceed, sir.

Thank you, Michelle. Good afternoon, everyone, and thank you for joining us. With me today from Heron are Barry Quart, President and Chief Executive Officer; Kimberly Manhard, Executive Vice President, Drug Development; and John Poyhonen, Chief Commercial Officer. Before we begin, I would like to remind you that this call will contain forward-looking statements concerning Heron's future expectations, plans, prospects, corporate strategy and performance, which constitute forward-looking statements for the purposes of the safe harbor provision under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in our filings with the SEC. In addition, any forward-looking statements represent our views only as of the date of this webcast and it should not be relied upon as representing our views as of any subsequent date. We specifically disclaim any obligation to update such statements. Now I'll turn the call over to Barry.

Thank you, David. Thanks to everyone for joining us. As you have seen from our press release, we received a complete response letter from the FDA for our investigational product, HTX-011, for postoperative pain management. The CRL stated that the FDA is unable to approve the NDA in its present form based on the need for additional information on nonclinical issues. There are 4 nonclinical issues in the CRL, none of which relate to any observed toxicity. Three relate to confirming exposure of excipients in preclinical reproductive toxicology studies and the fourth relates to changing the manufacturing release specification of the allowable level of an impurity based on animal toxicology coverage. Based on our discussions with the FDA prior to the resubmission, we believe that our responses to these issues met their requirements. We do not believe that any of the issues are significant barriers to ultimate approval as all of the excipients have extensive histories of use in pharmaceuticals and the doses used in the reproductive toxicology studies of these excipients were very high multiples of the human dose based on body weight. Confirming exposure and changing a specification is a straightforward request, and it will be accomplished as soon as possible. Based on their complete review of the NDA, it is important to emphasize that the FDA did not identify any clinical, safety or efficacy issues and the manufacturing issues in the prior CR have been resolved. There is no request for further clinical studies. We plan to rapidly request a Type A meeting with the FDA to obtain their agreement on our approach to resolve the issues and resubmit the NDA as soon as possible. We are very disappointed by the CRL as it delays access to an important non-opioid analgesic to patients at this critical time when opioid usage and overdoses are increasing in many states. Turning now to our financial position. At the end of second quarter of 2020, we will have approximately $300 million in cash, $39 million in accounts receivables and a multiproduct CINV franchise that we expect to return to significant growth in the first quarter of 2021. In other words, we are well capitalized and have sufficient cash well into 2022. Operator, we'll now take questions.

[Operator Instructions] Our first question will come from the line of Josh Schimmer with Evercore ISI.

I just want to try to see if you can share additional information between what was in the first CRL that pertained to the excipients in the reproductive toxicology studies. It sounds like they're just looking for confirmation of exposure? Can that be done retrospectively? Or do you need to run additional reproductive tox studies? And if so, how long might those take?

Sure. We don't believe that we need to conduct any reproductive toxicology studies. If, in fact, we had to, that's a 6-month activity. Fortunately, there are -- that's the longest of studies would take. But we believe that this can be answered by simply providing pharmacokinetic data in the animal species used to demonstrate adequate exposure. As I said, the reproductive tox studies used very high multiples of the amount of excipients that's currently used in our product. And so we don't see that it's likely that we won't have adequate exposure. And again, these are well-known excipients that have been used in pharmaceutical products for many years.

Were there reproductive toxicology signals that the agency has been concerned about?

No. As noted previously, this is not related to any toxicity that was observed in any preclinical study. This is just basically, they want us to provide confirmation that the studies that we submitted have adequate exposure, which is an unusual request for an excipient in a reproductive tox setting, but we'll obviously fulfill that request scientifically, it's not inappropriate, and we will obviously provide them the data.

And there were no other issues that have been raised in the CRL?

So there were 3 issues -- right. It's aside from the spec. So there were 3 issues related to providing information on exposure. And then the fourth one, as noted, is to change the specification, which we are certainly happy to do.

Got it. So then maybe one -- just last question. I'm not sure how to phrase it. But these seem incredibly minor relative to the unmet need. Certainly, it wouldn't be the first time we've seen the FDA reject an application based off of very minor issues. Is there any reason to think that the pandemic disruption might be causing this? Are there other concerns that the agency may have that underlay this delay? Or how are you thinking about what seems relatively trivial and could have been confirmed with a phone call before a CRL to explain this?

Sure. Yes. Look, we know that the FDA has been overwhelmed with INDs and protocols related to COVID-19 and that the division of anesthesia, addiction medicine and pain medicine has been actively involved in those efforts. They've also had several individuals depart from the division. And so we don't know whether that was related to the lack of dialogue during the review and why these issues came up at the very end as a surprise. But as I noted, the key for us at this point is to look forward. And we know we can answer these issues and do it quickly and get to -- get this important product on the market as quickly as possible.

Our next question comes from the line of Brandon Folkes with Cantor Fitzgerald.

So firstly, can you just elaborate a little bit when these issues arose in the review? Was there some back-and-forth dialogue with the FDA before they issued the CRL? And I guess, Barry, just any additional color you can provide on your expected time line of resubmission and approval? You did provide a time line on the cash runway. So maybe just -- can you just frame that back in terms of when you're thinking around about a base case recently.

Sure. A, so we have not had any information request related to data or any outstanding issues or dialogue with the FDA since we had the call with them in February, where they extended the review. None of these issues were brought to our attention. And again, that may be because they got bombarded with COVID-19 activities pretty quickly after February. And so we obviously can't speak to what's going on within the division, but we did not have dialogue with the agency on these issues. And they came up, obviously, just at the end. So it's difficult to give exact timing. Obviously, this is all a surprise to us as of late Friday. But we believe we can request a Type A meeting very quickly. The general obligation under PDUFA's Type A meeting should occur within 30 days. We hope that it will occur within generally that time frame. And we'll have a much better understanding after that meeting in terms of how long it will be before, number one, we can resubmit, and number two, clearly, we would be requesting a Class 1 2-month review rather than a Class 2 6-month review and we'll have a better understanding of that after we have the Type A meeting. So while I'd love to give you a more detailed time line, I think we're going to have to wait for the next few months, have the Type A meeting, hopefully, again, with 30 days after the request and be able to tell you more specifics.

And our next question comes from the line of Derek Archila with Stifel.

Sorry to hear about the news. But just 2 questions from us. I guess, first, I just wanted to confirm, so these new issues that are nonclinical that are being raised, these are different from the ones that were raised in the previous CRL? And then second question, to build off the last questioner, so does the change of review that -- or class of review that you'll request, that change if you have to run the 6-month deeper tox studies?

Yes. So to answer the second question first, a Class 1 review is really based on a small amount of information submitted and really designed for labeling focus. It would certainly be a 6-month review if we had to run any new reproductive toxicology studies and submit those. And I've successfully forgot your first question, I apologize.

No, I just want to make sure. So in the new issues raised by the FDA in this CRL, are they different than the first?

Yes. These are not -- the agency has not brought up new issues, which they're not supposed to do. What they've done is reproductive tox data on the excipients -- additional reproductive tox data, I should say, on the excipients was part of the initial CRL. We provided that information. This is just an additional piece of information that they are asking related to those studies that were submitted. So it's not a -- it wouldn't be considered a new issue. It's just a continuation of essentially additional information on something that was submitted. And again, just to highlight, obviously, all the manufacturing issues that were really the primary driver of the first CRL are no longer a part of this CRL.

And our next question comes from the line of Biren Amin with Jefferies.

Barry, did you have labeling discussions with the FDA prior to the CRL?

Unfortunately, no. We have not -- we have still not received draft label comments from the agency.

Got it. And then as it relates to the confirmation of exposure, I guess what excipients -- are you able to disclose what excipients they're requesting with regards to reproductive toxicology? I guess the reason why I ask this question is, you've used certain excipients in your SUSTOL formulation, which have been FDA approved. So I just want to see how much those data that you've generated for them that they approve and whether these are new excipients or newer doses of excipients in the 011 formulation?

Yes. So again, related to SUSTOL, number one, HTX-011 uses different excipients, which is why HTX-011 is much less viscous than SUSTOL and the volume is dramatically different. So anything that was related to SUSTOL wouldn't automatically carryover in terms of its utility for 011. But just to repeat, the excipients in question have been used in pharmaceutical products, some of them dating back 30-plus years. One of them is grass and is used -- it's almost ubiquitous in food products, up to very high concentrations. So there's -- number one, we have no concerns about out reproductive toxicology with these products, and we believe we can provide very quickly the confirmation that there was adequate exposure.

And then on the allowable impurity, is this something that you're going to have to reformulate in order to get within the release specs that the FDA is requesting?

No, not at all. And this is somewhat of a, I think, an unfortunate situation as well because the standard approach obviously is for a company to try to set relatively wide specs. So even if you have a batch that's an outlier, it would still be an acceptable batch. You don't lose it because of a small deviation. And so that's the approach we take with essentially all specifications. We have had dialogue with the agency on this particular topic. We've indicated to them that we were more than willing to give on this the amount of this particular impurity. If they didn't accept our arguments as to we believe that the amount we're suggesting is justified, we have the ability to go down substantially from that request. But as noted, we didn't have that dialogue in order to just reset the specification to an area where we do have clear toxicology coverage and that -- and even at that level, we have no issues in terms of being able to manufacture the product. So there's no need to do anything to change the formulation that we currently use. We can set the spec to a lower level without having concerns.

Okay. And then maybe one last question. Given the NDA resubmission occurred about 9 months ago, it seems like you've had plenty of time and FDA has had plenty of time to go through these issues. And so I guess I want to ask, what's your confidence level that you can bring this to market with the next resubmission?

Great question. We have very high confidence that we will prevail on getting this product to the market and doing that with this next round. As noted, the issues in this letter are far fewer, really just less than a handful versus the prior questions that were asked us, and these are very straightforward to respond to. We have good intel from the agency, from people within the agency that this product is viewed positively. And so we don't have concerns that this is an indicator that we are going to have further obstacles coming forward. We have a pharm/tox reviewer that's very detail oriented, he's asking us further questions. As noted, it's unfortunate that these weren't asked earlier, and let's -- can't make excuses. We don't know their internal situation within the FDA, but they obviously have been extremely busy with COVID-19. And so that's probably more likely than not the answer. And unfortunately, we didn't have a chance to answer these questions before, but we will quickly answer them now, and there's no further significant obstacles. I will remind everyone that this product still has Breakthrough Therapy designation. It's the only extended-release local anesthetic that has beaten the standard of care bupivacaine solution, and that's why it has Breakthrough Therapy designation. So I think it's still perceived as a valuable product within the agency, and we will certainly look forward to speaking with them at the Type A meeting and working together to get this on the market as quickly as possible.

And our next question comes from the line of Ami Fadia with SVB Leerink.

I'm trying to understand just a couple of clarification questions. The 3 observations that are related to the exposure of the excipients. Now are there 3 questions regarding one excipient? Or is it there 3 different excipients on which they wanted to confirm the maximum exposure?

There's 3 excipients, one issue for each excipient that's identified and the issue is related to providing evidence of exposure.

And are all 3 used in food products?

No. One is used extensively in food products. The others are -- have a long history of use in pharmaceutical products. And one actually is also an approved drug on its own at a much, much higher exposure.

Got it. And just with regards to the change in specs. What -- can you just sort of describe to us what you would need to do to change the specs? Would you have to run validation batches or change sort of standard operating procedure? What exactly would you need to do to change the specs?

I hate to say it, but it's as simple as within our documentation for release testing of batches. There's a whole long laundry list of tests that are done to release a batch. And it would be a paper activity of striking out one number and putting in a lower number in terms of the release testing level that, that batch has to meet for it to be released, that's it. So the testing would be the same. The batch would be manufactured exactly the same. We would test the batch the same. And it just has to meet a lower threshold in terms of that impurity than in the prior batch record that we would have proposed. That's pretty much the difference. So it's not a -- there's no other activities that we have to do. We don't have to run more batches. We've already made hundreds of batches. We know the distribution of those batches with this particular impurity. We're very comfortable that we can lower the level and still not have any failed batches. And again, as I said, we've acknowledged to the FDA that we can lower this, and we're happy to have that dialogue. Unfortunately, we didn't have the dialogue, but we will resolve that quickly.

Okay. Maybe, Barry, and I think somebody asked this question earlier. All of these things seem like the things that they could be actually addressed within a quick conversation. I'm just confused why this wasn't brought up before?

I wish I had an answer for you, and I appreciate the confusion. We have the same confusion, but we have to deal with the reality in front of us. I can assure you that there's nothing else of consequence. The issues that we just have discussed are the issues in the CRL. We will get these resolved. It's an unfortunate delay in getting an important product out to patients, but we are hopeful that with -- working with the FDA, we can make that delay as short as possible. And we think that there is a good opportunity to make that happen. Because as you say, these are relatively straightforward issues that can be -- that hopefully can be resolved at our Type A meeting, and we can move quickly -- very quickly after that to resubmit. But we won't know until we have that meeting.

And I'm showing no further questions at this time. And I would like to turn the conference back over to Mr. Barry Quart for any closing remarks.

Yes. So thank you again for calling in this morning. Obviously, disappointed with the news today, but we absolutely look forward to getting this important product on the market. We think that there's a very straightforward path so we will prevail. Thank you very much.

Ladies and gentlemen, that concludes today's conference call. Thank you for participating. You may now disconnect. Goodbye.