Heron Therapeutics(HRTX) - 2019 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Condensed Consolidated Financial Statements The unaudited condensed consolidated financial statements reflect a decrease in total assets, an increased net loss due to higher operating expenses, and reduced net cash used in operating activities for the first half of 2019 Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2019 (Unaudited) | December 31, 2018 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $53,038 | $31,836 | | Short-term investments | $222,967 | $300,535 | | Total current assets | $380,835 | $447,248 | | Total assets | $411,666 | $462,179 | | Liabilities & Equity | | | | Total current liabilities | $95,056 | $92,019 | | Total liabilities | $106,307 | $92,019 | | Total stockholders' equity | $305,359 | $370,160 | | Total liabilities and stockholders' equity | $411,666 | $462,179 | - Total assets decreased from $462.2 million at the end of 2018 to $411.7 million as of June 30, 2019, mainly due to a decrease in short-term investments[9] - Total liabilities increased to $106.3 million, partly due to the recognition of new lease liabilities[9] Condensed Consolidated Statements of Operations and Comprehensive Loss Statement of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Net product sales | $36,659 | $17,277 | $68,261 | $28,844 | | Total operating expenses | $88,438 | $56,130 | $184,740 | $119,687 | | Loss from operations | ($51,779) | ($38,853) | ($116,479) | ($90,843) | | Net loss | ($50,222) | ($38,670) | ($113,234) | ($90,935) | | Basic and diluted net loss per share | ($0.63) | ($0.54) | ($1.43) | ($1.33) | - Net product sales more than doubled for both the three and six-month periods ended June 30, 2019, compared to the same periods in 2018[12] - Net loss also widened due to significant increases in operating expenses, particularly in R&D and Sales & Marketing[12] Condensed Consolidated Statements of Cash Flows Cash Flow Summary for Six Months Ended June 30 (in thousands) | Activity | 2019 | 2018 | | :--- | :--- | :--- | | Net cash used for operating activities | ($72,132) | ($122,442) | | Net cash provided by (used for) investing activities | $75,949 | ($137,623) | | Net cash provided by financing activities | $17,385 | $374,416 | | Net increase in cash and cash equivalents | $21,202 | $114,351 | - Net cash used for operating activities decreased significantly in the first half of 2019 compared to 2018, primarily due to changes in working capital[19] - Financing activities provided substantially less cash in 2019, as 2018 included $363.1 million from common stock sales[19][138] Notes to Condensed Consolidated Financial Statements - The company is a commercial-stage biotechnology firm with two approved products, SUSTOL and CINVANTI, for chemotherapy-induced nausea and vomiting (CINV)[22][23][24] - The FDA issued a Complete Response Letter (CRL) for the company's investigational postoperative pain product, HTX-011, on April 30, 2019, citing the need for additional Chemistry, Manufacturing, and Controls (CMC) and non-clinical information, with no further clinical studies required[25] - As of June 30, 2019, the company had $276.0 million in cash, cash equivalents, and short-term investments, which management believes is sufficient to fund operations for at least one year[27] - The company adopted the new lease accounting standard ASC 842 on January 1, 2019, resulting in the recognition of $13.7 million in right-of-use lease assets and $14.5 million in lease liabilities[41][65] - A securities class action complaint was filed against the company on June 3, 2019, following the announcement of the CRL for HTX-011[84] Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes the company's financial performance, highlighting increased product sales, rising operating expenses, and the regulatory status of key product candidates, alongside liquidity assessment Product Portfolio Update - CINVANTI: The FDA approved a supplemental New Drug Application (sNDA) on February 26, 2019, expanding its administration to a 2-minute IV injection, in addition to the previous 30-minute infusion[91][103] - HTX-011: The company received a Complete Response Letter (CRL) from the FDA on April 30, 2019, requesting additional CMC and non-clinical information but no new clinical safety or efficacy studies, while a Marketing Authorisation Application (MAA) was validated by the European Medicines Agency (EMA) in April 2019, with an opinion expected in the first half of 2020[92][104] - HTX-034: The company has initiated formal development of HTX-034, its next-generation product candidate for postoperative pain management, following positive preclinical results showing pain reduction for seven days[26][93] Results of Operations Net Product Sales (in millions) | Product | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | CINVANTI | $33.2 | $11.2 | $61.2 | $16.4 | | SUSTOL | $3.5 | $6.1 | $7.1 | $12.4 | | Total | $36.7 | $17.3 | $68.3 | $28.8 | Operating Expenses (in millions) | Expense Category | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Cost of Product Sales | $13.6 | $5.2 | $28.6 | $8.4 | | Research and Development | $41.4 | $30.2 | $84.4 | $69.7 | | General and Administrative | $9.8 | $6.2 | $19.4 | $13.2 | | Sales and Marketing | $23.6 | $14.5 | $52.4 | $28.4 | - The increase in Sales and Marketing expense was primarily due to costs to support launch preparation activities for HTX-011 and one-time costs related to the retirement of the company's President[132] - The increase in Research and Development expense was driven by higher costs for HTX-011 and the new HTX-034 program, along with increased personnel and stock-based compensation costs[129][130] Liquidity and Capital Resources - As of June 30, 2019, the company had $276.0 million in cash, cash equivalents, and short-term investments, down from $332.4 million at the end of 2018[134] - Management believes that the current cash position is sufficient to fund operations for at least one year from the filing date of this Form 10-Q[134] - Net cash used for operating activities for the first six months of 2019 was $72.1 million, a decrease from $122.4 million in the same period of 2018, mainly due to working capital changes related to the CINVANTI launch in 2018[136] Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk is interest rate exposure on its investment portfolio, mitigated by short-term, investment-grade securities and no material foreign currency risk - The company's primary market risk is interest rate risk on its investment portfolio of cash, cash equivalents, and short-term investments[142] - Default risk is mitigated by investing in high-quality, short-term securities like U.S. treasury bills, corporate debt, and commercial paper[142] - The company's convertible debt carries a fixed interest rate, so it is not exposed to interest rate risk on its debt obligations[142] Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[144] - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, these controls[145] PART II. OTHER INFORMATION Legal Proceedings The company, CEO, and CFO face a federal securities class action lawsuit alleging violations related to the stock price decline following the HTX-011 CRL announcement - A federal securities class action complaint was filed against the Company, its CEO, and CFO on June 3, 2019[84] - The lawsuit is linked to the market value decline following the announcement of the FDA's Complete Response Letter for HTX-011[84] Risk Factors The company details significant risks including product commercialization dependence, regulatory uncertainties for HTX-011, intense competition, financial condition, and reliance on third-party manufacturing - Product Dependence: The company's success is substantially dependent on its ability to commercialize SUSTOL, CINVANTI, and HTX-011, if approved[149] - Regulatory Risk: The FDA issued a Complete Response Letter (CRL) for HTX-011 on April 30, 2019, citing the need for additional CMC and non-clinical information, which could delay or prevent approval[151][160] - Competition: The company faces intense competition from existing branded products and expects increased competition from generic versions of ALOXI (competing with SUSTOL) and EMEND IV (competing with CINVANTI)[176][177][181][182] - Financial Condition: The company has a history of losses ($1.1 billion accumulated deficit as of June 30, 2019) and may need to raise additional capital in the future to fund operations[190][194] - Manufacturing Reliance: The company depends on third-party suppliers and contract manufacturers for its products, including single-source suppliers for critical components, which poses a risk of supply interruption[170][174] Unregistered Sales of Equity Securities and Use of Proceeds None reported for the period - The company reported no unregistered sales of equity securities during the period[260] Exhibits The report lists exhibits filed, including an executive employment agreement, CEO and CFO certifications pursuant to the Sarbanes-Oxley Act, and XBRL data files - Exhibits filed with the report include an Executive Employment Agreement for John Poyhonen, Sarbanes-Oxley Act certifications, and XBRL data files[265]