Heron Therapeutics(HRTX) - 2021 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section provides the company's financial statements, management's analysis of operations and liquidity, market risk disclosures, and internal controls Item 1. Condensed Consolidated Financial Statements This section presents the company's financial position, operating results, and cash flows, highlighting a decrease in assets and a net loss for the quarter, alongside a significant post-period convertible note conversion Condensed Consolidated Balance Sheets The balance sheet shows a decrease in total assets to $310.9 million and stockholders' equity to $196.2 million as of March 31, 2021, primarily due to reduced cash and investments Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2021 (Unaudited) | December 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $59,739 | $105,138 | | Short-term investments | $106,727 | $103,353 | | Total current assets | $272,288 | $314,196 | | Total assets | $310,932 | $353,556 | | Liabilities & Equity | | | | Total current liabilities | $100,917 | $102,503 | | Total liabilities | $114,707 | $117,064 | | Total stockholders' equity | $196,225 | $236,492 | | Total liabilities and stockholders' equity | $310,932 | $353,556 | Condensed Consolidated Statements of Operations and Comprehensive Loss Net product sales decreased to $20.0 million for Q1 2021, resulting in a net loss of $52.6 million, comparable to the prior-year period despite lower operating expenses Statement of Operations Highlights (in thousands, except per share data) | Account | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Net product sales | $20,018 | $25,400 | | Total operating expenses | $72,132 | $78,134 | | Loss from operations | $(52,114) | $(52,734) | | Net loss | $(52,614) | $(51,579) | | Basic and diluted net loss per share | $(0.58) | $(0.57) | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities increased to $41.9 million for Q1 2021, with the period ending with $59.7 million in cash and cash equivalents Cash Flow Summary (in thousands) | Activity | Three Months Ended March 31, 2021 | Three Months Ended March 31, 2020 | | :--- | :--- | :--- | | Net cash used for operating activities | $(41,938) | $(32,935) | | Net cash (used for) provided by investing activities | $(4,344) | $63,815 | | Net cash provided by financing activities | $883 | $507 | | Net (decrease) increase in cash and cash equivalents | $(45,399) | $31,387 | | Cash and cash equivalents at end of period | $59,739 | $103,285 | Notes to Condensed Consolidated Financial Statements These notes provide details on the company's commercial products and pipeline, significant customer concentration, and the post-period conversion of all outstanding Convertible Notes - Heron is a commercial-stage biotech with three approved products: SUSTOL, CINVANTI, and ZYNRELEF (approved in Europe). Its pipeline includes HTX-011 (ZYNRELEF in the U.S.), HTX-034, and HTX-019[21][22][23] - The NDA for HTX-011 in the U.S. received a Complete Response Letter (CRL) in June 2020 due to non-clinical information needs. The NDA was resubmitted in November 2020 with a PDUFA goal date of May 12, 2021[26] Customer Concentration - Q1 2021 | Customer | % of Net Product Sales | % of Accounts Receivable | | :--- | :--- | :--- | | Customer A | 47.4% | 53.6% | | Customer B | 32.7% | 34.5% | | Customer C | 19.0% | 11.3% | | Total | 99.1% | 99.4% | - In May 2021, subsequent to the quarter's end, holders of the Convertible Notes converted all outstanding principal and accrued interest, resulting in the issuance of 9.8 million shares of common stock and eliminating all obligations under the notes[87] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the Q1 2021 financial performance, noting decreased product sales due to market factors, stable R&D expenses, and sufficient liquidity for the next year Product Portfolio The company's product portfolio spans Oncology Care and Acute Care, featuring commercial products like CINVANTI and pipeline candidates such as ZYNRELEF (HTX-011) with an upcoming U.S. PDUFA date - ZYNRELEF (HTX-011) was approved in 31 European countries in September 2020 for postoperative pain. A European launch is anticipated in 2022 as manufacturing capacity is scaled[104] - The FDA issued a CRL for HTX-011 in the U.S. in June 2020, citing the need for additional non-clinical information. The NDA was resubmitted in November 2020, and the PDUFA goal date is May 12, 2021[105] - HTX-019, for PONV, demonstrated bioequivalence to oral aprepitant 40 mg in a Phase 1 trial. An NDA submission is planned for late 2021[115] Results of Operations for the Three Months Ended March 31, 2021 and 2020 Net product sales declined by 21% to $20.0 million in Q1 2021, primarily due to reduced CINVANTI sales, while R&D expenses remained stable and sales and marketing costs decreased Net Product Sales (in millions) | Product | Q1 2021 | Q1 2020 | Change | | :--- | :--- | :--- | :--- | | CINVANTI | $18.5 | $25.2 | -26.6% | | SUSTOL | $1.5 | $0.2 | +650% | | Total | $20.0 | $25.4 | -21.3% | - The decrease in CINVANTI sales was attributed to the COVID-19 pandemic reducing new patient starts and the lingering impact of generic arbitrage[120] Research and Development Expense Breakdown (in thousands) | Category | Q1 2021 | Q1 2020 | | :--- | :--- | :--- | | HTX-011-related costs | $17,557 | $17,231 | | PONV-related costs | $2,057 | $— | | HTX-034-related costs | $1,818 | $1,162 | | Personnel and other | $10,877 | $11,414 | | Stock-based compensation | $4,937 | $5,287 | | Total R&D Expense | $38,116 | $36,894 | - Sales and marketing expenses decreased to $15.2 million from $20.2 million year-over-year, primarily due to a reduction in costs for HTX-011 launch preparation[124] Liquidity and Capital Resources As of March 31, 2021, the company held $166.5 million in cash and investments, with management affirming sufficient liquidity for at least the next year despite $41.9 million in cash used for operations - The company had cash, cash equivalents, and short-term investments of $166.5 million as of March 31, 2021[126] - Management believes that existing cash resources are sufficient to meet anticipated cash requirements for at least one year from the filing date of this Form 10-Q[126] - Net cash used for operating activities increased to $41.9 million in Q1 2021 from $32.9 million in Q1 2020, mainly due to changes in working capital[127] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk is interest rate fluctuations on its investment portfolio, which is mitigated by investing in short-term, investment-grade securities, with no material impact expected from typical rate changes - The company's market risk is primarily from interest rate fluctuations affecting its investment portfolio of cash, cash equivalents, and short-term investments[133] - Default risk is mitigated by investing in short-term investment-grade securities. A 50-basis point change in interest rates is not expected to have a material impact on the portfolio's fair value[133] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2021, with no material changes to internal control over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[135] - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[136] PART II. OTHER INFORMATION This section covers other required disclosures including risk factors, equity sales, defaults, and exhibits Item 1A. Risk Factors The company details significant risks including dependence on product commercial success, COVID-19 impacts, regulatory approval uncertainties for HTX-011, generic competition, reliance on third-party manufacturers, and a history of operating losses - The business is substantially dependent on the commercial success of its products. Failure to achieve market acceptance for CINVANTI, SUSTOL, and ZYNRELEF (and other candidates if approved) would cause the business to suffer[140][142] - The ongoing COVID-19 pandemic could harm business through decreased sales, delays in clinical trials, and manufacturing disruptions[140][198] - The company faces intense competition, particularly from lower-cost generic products. Generic versions of EMEND IV have already increased competition for CINVANTI, and generic versions of ALOXI compete with SUSTOL[187][188][189] - The company has a history of significant operating losses ($1.4 billion accumulated deficit as of March 31, 2021) and expects to generate losses in the near future[143][203] - There is no guarantee of regulatory approval for product candidates. The FDA issued a CRL for HTX-011, and even if issues are resolved, there is significant risk that approval may not be obtained on a timely basis or at all[156][220] - The company relies on third-party suppliers and contract manufacturers, some of which are single-source, for critical components and finished products. Any disruption could severely hinder production and sales[143][171][174] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None[279] Item 3. Defaults upon Senior Securities The company reported no defaults upon senior securities - None[280] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[281] Item 5. Other Information The company reported no other information required to be disclosed under this item - None[282] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including officer certifications required by the Sarbanes-Oxley Act and XBRL data files - Exhibits include certifications from the Principal Executive Officer and Principal Financial and Accounting Officer, as well as Inline XBRL documents[284]