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

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Heron Therapeutics conference call. As a reminder, this conference is being recorded. Now I would like to turn the call over to David Szekeres, Executive Vice President, Chief Operating Officer. Please proceed.

Thank you, Jay. Good morning, everyone, and thank you for joining us today to discuss the label expansion for ZYNRELEF. With me today from Heron are Barry Quart, Chief Executive Officer and Chairman; and John Poyhonen, President and Chief Commercial Officer. For those of you participating via conference call, the slides are made available via webcast and can also be accessed by going to the Investor Relations page of our website following the conclusion of today's call. 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 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. Welcome, everyone. Thank you for joining us. We are extraordinarily pleased to announce the approval of our recent supplemental New Drug Application with the expansion of the ZYNRELEF indication statement to include foot and ankle surgical procedures, small-to-medium open abdominal surgical procedures, and lower extremity total joint arthroplasty surgical procedures. In a little over 2 months, the FDA approved our sNDA, expanding the commercial opportunity to approximately 7 million procedures a year. The label expansion also greatly improves the opportunity for therapeutic substitution. As a reminder, during our recent Type C meeting with the FDA, we also reached agreement on the contents of a second sNDA to expand the indications even more broadly to cover essentially all our 14 million target procedures. Submission of the second sNDA is targeted for second half of next year. Even before we realized the significant benefits of the extended label, we continue to have a strong launch. We now have 270 unique ordering accounts, with 58% reordering, and excellent feedback from surgeons using the product. Sales growth is expected to significantly accelerate with the approval of the expanded label for ZYNRELEF. One area where we have been uniquely successful is in obtaining reimbursement for ZYNRELEF outside the surgical bundle through commercial payers and Medicaid, with now approximately 120 million covered lives in the ASC setting of care. We've previously noted that the FDA has also approved our large-scale supplier of polymer, which gives us the ability to manufacture millions of doses of ZYNRELEF annually at a significantly reduced cost of goods. With regard to our planned second sNDA targeted for filing in the second half of next year, we are moving along well with enrollment. We have previously noted that the primary end points for these studies are pharmacokinetics and safety. No additional large randomized trials are required for expanding the label to cover all targeted orthopedics and soft tissue procedures. The next 2 slides cover important safety information and are available on our website or see the full prescribing information. Thank you for your attention. We will now open the call for questions. Operator?

Thank you. [Operator Instructions] Our first question comes from the line of Serge Belanger of Needham & Company.

Just one question. Based on your update in terms of the unique accounts ordering and the number of covered lives now receiving reimbursed -- pass-through reimbursement, just curious, we've seen a large -- a big increase since your last update in early November. What was that driven by? And should we expect that those levels to continue accelerating through the end of the year and into '22?

Thanks, Serge. I'll turn it over to John Poyhonen, who runs our commercial team and is also responsible for the group that has been working diligently with employers, labor unions and insurers to expand the coverage. John?

Yes, absolutely. So Serge, we are absolutely thrilled, obviously, with this significant expansion to the labeled indications and our ability to actually promote much more broadly than we've been able to in the past. If you look at the number of unique ordering accounts, when we reported on November 3, we had 160 ordering accounts. And to have grown that already to 270 is very gratifying. I really think that we're going to continue to see growth during the remainder of this year. But the acceleration will really take place next year, and that's what that expanded label indication. As we get into the end of the year, we do have some pent-up demand where we have formulary approvals and accounts that are just getting ready to start using it. What's exciting is we continue to aggressively increase the formulary approvals and also the percentage of accounts that are putting ZYNRELEF on the formulary in an unrestricted basis. But it really sets us up ideally for this expansion. The team has also done an amazing job of increasing the number of covered lives. When we spoke in November, we had 88 million covered lives, and we've grown that to 120 million. But the total pot of commercial covered lives is about 220 million. Some of those just won't come. They have contracts with individual institutions and IDNs, and we won't be able to get them, but it continues to be a key priority as we go forward. So happy to answer any follow-up questions you might have, Serge.

Next question comes from the line of Josh Schimmer of Evercore.

Congratulations on the update. Just I'm curious to hear how you envision the margins evolving over the next couple of years with the new manufacturing facility coming online. And what ultimately you expect your product margin to be?

Our goal for the manufacturing has been to -- and also in concert with our selection of pricing, is to get to normal pharmaceutical margins. So for a sterile product like ours, that would be 80% or better. And the 2 key components there is large-scale manufacturing of the polymer at a low price, and then scaling up the actual manufacturing of the product at our filler, who takes the polymer, mixes it with bupivacaine, meloxicam and the excipient fills it into a vial and packages it. That activity is very far along as well. And so we're -- I'm confident that we should be starting to move towards that target margin next year. We'll need to get to kind of full scale to achieve optimal pricing. But I think we're very far along in getting to normal pharmaceutical margins.

[Operator Instructions] No further question at this time, and I would like to turn the call over to Barry for closing remarks.

Well, thank you again for joining us for this call. We're really pleased with the label expansion for ZYNRELEF, and we look forward to keeping you updated on the great progress we are making.

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