Heron Therapeutics, Inc. (HRTX) Q2 2026 Earnings Report, Transcript and Summary

Good day and thank you for standing by. Welcome to the Heron Therapeutics second quarter 2026 earnings conference call. [Operator Instructions] Please be advised today's conference is being recorded. I would like to hand the conference over to your speaker today, Melissa Jarel. Please go ahead.

Thank you, Operator, and good morning, everyone. Thank you for joining us on the Heron Therapeutics conference call today to discuss the company's financial results for the second quarter of 2026. With me today from Heron are Craig Collard, Chief Executive Officer; Ira Duarte, Executive Vice President, Chief Financial Officer; Bill Forbes, Executive Vice President, Chief Development Officer; Mark Hensley, Chief Operating Officer; and Kevin Warner, Senior Vice President, Medical Affairs Strategy and Engagement. For those of you participating in the conference call, slides are made available via webcast and can also be accessed via the Investor Relations page of our website following the conclusion of today's call. Before we begin, let me quickly remind you that during the course of this conference call, the company will make forward-looking statements. We caution you that any statement that is not a statement of historical fact is a forward-looking statement. This includes remarks about the company's projections, expectations, plans, beliefs, and future performance, all of which constitute forward-looking statements for the purposes of the Safe Harbor Provision under the Private Securities Litigation Reform Act of 1995. These statements are based on judgment and analysis as of the date of this conference call and are subject to numerous important risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. The risks and uncertainties associated with the forward-looking statements made in this conference call and webcast are described in the Safe Harbor statement in today's press release and in Heron's public periodic filings with the SEC. Except as required by law, Heron assumes no obligation to update these forward-looking statements to reflect future events or actual outcomes and does not intend to do so. And with that, I would now like to turn the call over to Craig Collard, Chief Executive Officer of Heron.

Thanks, Melissa. Hello, everyone, and welcome to Heron Therapeutics' second quarter 2026 earnings call. Net revenue for the quarter was $37.7 million. That is growth from the first quarter, but it is below what we expected of ourselves. CINVANTI sales were up compared to Q1 in a highly competitive market, and ZYNRELEF grew 35% year-over-year, but both were slower than we anticipated. Turning to Slide 4, let me walk through the key updates from the quarter. The acute care franchise delivered revenue growth of 44% year-over-year. ZYNRELEF grew 35%, with average daily units growing 19% year-over-year. APONVIE grew 74% year-over-year and reached 23% share of the surgical NK-1 segment, up 2 points from the first quarter. And CINVANTI came in at $21.8 million, up from $20.5 million in the first quarter. Mark will add more color in a moment to the commercial performance. Beyond the commercial results, what I want to spend the rest of my time on today is what we have done about the quarter and how we are proceeding moving forward. First, we reset the balance sheet. As we disclosed today, we amended our credit facility with Hercules. When the decision from the U.S. District Court for the District of Delaware regarding certain patents covering CINVANTI changed the outlook for the company, we went to our lender. The amendment resets our covenants through 2027 to match our new plan and reduces our principal. The terms are in the filing. Second, we tightened our spending. After the June court decision, we paused the sales force expansion we had planned for the second half of this year, and we are holding spending tightly while the competitive picture clarifies. Our spending decisions follow what the business demonstrates, not a plan that events have overtaken. Third, we are defending our oncology franchise. We have filed our appeal based on the June decision. A generic has not launched, but we are preparing for potential generic competition to CINVANTI. We have a defense strategy built around the clinical profile of the product, our customer relationships, and our contracting position, and we are executing it now before we need it. Last, we are considering strategic alternatives as we continue to execute our current plan. The company has not set a timetable for this process. There can be no assurances that it will result in any transaction, and the company does not intend to comment further on such matters unless and until it determines that additional disclosure is appropriate or required by law. Before I turn things over to Mark, I want to recognize the entire Heron team. This has been a demanding stretch, a hard quarter, a court decision we disagree with, and a lot of change, and this team has stayed focused on patients and customers through all of it. I will now turn the call over to Mark to cover our commercial performance. Go ahead, Mark.

Thanks, Craig. Starting on Slide 6 with the overall net sales picture, total net sales of $37.7 million in the second quarter, up from $34.7 million in the first quarter. On the acute care side, $15.3 million combined. ZYNRELEF at $11.1 million, up from $10.2 million, and APONVIE at $4.2 million, up from $3.4 million. On the oncology side, $22.3 million combined. CINVANTI at $21.8 million, and SUSTOL at $0.5 million, continuing the planned wind-down. As always, ordering and channel patterns move quarter to quarter. The cleaner read on adoption is average daily units and ordering accounts, which is what I will focus on. Turning to Slide 7, there are 2 charts on this slide. Average daily units on the left, ordering accounts on the right. Both continue their upward trend. Net sales were $11.1 million, up 9% from the first quarter and up 35% from a year ago. The number I would anchor on is demand. Average daily units grew 19% year-over-year. And lastly, I would add IGNITE 2.0 is active across 3,150 accounts, up from 2,260 in IGNITE 1.0. This remains a site-by-site, case-by-case adoption curve. Unit growth was real this quarter, but it was below the rate we planned, and the work now is converting that access into cases and protocols in the accounts we are already in. Moving to APONVIE. The same two views for APONVIE, and both charts show the steady climb. Net sales were approximately $4.2 million, up 74% from a year ago, and up 26% from the first quarter. Share in the NK-1 segment reached 23%, up 2 points sequentially. Average daily units grew 59% year-over-year, and ordering accounts in June were up 42% from June of last year. P&T approvals now stand at 1,810 accounts, representing 6.7 million medium- to high-risk procedures annually. Demand through the quarter was steady. Now turning to CINVANTI. Average daily units on the left have held a consistent level of utilization over the past two years, and ordering accounts on the right, 1,241 in June, are in line with a 12-month average of about 1,200. Net sales were $21.8 million, up from $20.5 million in the first quarter, and down about 10% from a year ago. That year-over-year decline is the branded competition we have discussed on prior calls. The more recent picture is one of stability. Utilization has held steady, and share in June was 25%, in line with its 12-month average. The REIGNITE work on formulary position and our contracting relationships are the levers we control, and they are the foundation of how we would compete against any future entrant. Lastly, SUSTOL continues its planned wind down as we've discussed on prior calls. To wrap up the commercial section, ZYNRELEF average daily units grew 19% year-over-year. APONVIE reached 23% share of the NK-1 segment. CINVANTI declined year-over-year against branded competition, but has held steady in recent months. And the defense of contracting and formulary work is in place. That is the demand picture as it stands. I will now turn the call over to Ira to cover our financials. Go ahead, Ira.

Thank you, Mark. Craig has addressed the quarter directly. What is within our control is how we manage the business in response, and disciplined management of our balance sheet and our spending is what is important moving forward. Our full results are shown on this slide. I will cover the highlights. Net revenues for the quarter were $37.7 million compared to $34.7 million in the first quarter of 2026 and $37.2 million in the comparable prior year quarter, with gross margin coming in at 69.3%. R&D expense was $2.7 million, and SG&A expense was $25.4 million, bringing total operating expenses to $28.1 million, including stock-based compensation and depreciation. Our operating loss was $2 million and net loss was $5.5 million, compared to a net loss of $2.4 million for the comparable prior year quarter. Adjusted EBITDA was $3.2 million, up from $2.2 million in the comparable prior year quarter. We ended the quarter with $42.7 million in cash, cash equivalents, and short-term investments. Following the June court decision, we negotiated an amendment with our lender that waives the June 30 covenants and resets the schedule to match our operating plan. As part of that amendment, we agreed to a principal reduction that comes in 2 steps: $13.5 million paid at the amendment's execution plus associated fees and a potentially further $4 million reduction scheduled on or before September 15, for a total potential principal reduction of $17.5 million. Reflecting those payments, our pro forma cash is approximately $28.5 million and approximately $24.3 million after the September payment. The amendment sets monthly minimum revenue and EBITDA covenants through December 2027, along with a minimum cash covenant, and the agreement is filed with our 10-Q. We are withdrawing our full year 2026 guidance of $173 million to $183 million in net product sales and $10 million to $20 million in adjusted EBITDA. Three things make an annual number unreliable right now, and none of them is about a single quarter. First, the June court decision. The timing and terms of potential generic entry against CINVANTI, our largest product, are not events we can forecast, and any annual number would embed an assumption we are not in a position to make. Second, the actions we took ourselves after that decision. We paused the sales force expansion that our plan had assumed for the second half and we tightened spending. Our prior guidance was built on that investment plan, and it is not the plan we are currently executing on. Third, as Craig mentioned, we are considering strategic alternatives, which our amended credit agreement also reflects. Any one of these items on its own would make an annual number unreliable. This is a forecasting decision, not a statement about the underlying business. We would make the same decision regardless of the quarter's results. In place of guidance, we will report our cash position, our spending, and our covenant compliance every quarter. With that, we will open the call up for questions.

[Operator Instructions] Our first question comes from Brandon Folkes with H.C. Wainwright. Your line is open.

Maybe just three from me. Can you elaborate on your confidence in meeting the updated debt covenants should a CINVANTI generic come to market? Maybe just staying on CINVANTI. If and when a generic does launch, any reason the erosion should not look like the SUSTOL erosion curve? And then maybe just on ZYNRELEF, right? So you called out, it was below expectations. So can you just help us think about sort of what is driving this below-expectation performance recently? Do surgeons just not sort of warm to the detail? Are they just very sticky on the alternatives they use? Just any driving color in terms of, you know, what is the hurdle there in ZYNRELEF? And potentially, I mean, what can a strategic partner who's well-capitalized do differently? Thank you.

Yes. Hi, Brandon. Let me take first on the Hercules amended agreement. The way we looked at CINVANTI, again, we took a very conservative approach with how we looked at the generic launch. In reality, there's a number of factors here that are at play. First of all, we don't know when the product does come to market. We know that there's some manufacturing challenges with this product as we go through them ourselves. It's a sterile process. It's an emulsion. So all of that takes time to scale in order to meet market demand. And keep in mind, we're moving about 750,000 to 800,000 units a year. And so I don't think anyone wants to launch in that scale. Secondly, there's the reimbursement piece. You know, do they fall under our J-code or do they fall in their own J-code? And again, that can determine share as well. And it could change sort of the market dynamic. So there's a number of moving pieces, but the way we viewed this was in a really conservative kind of earlier launch scenario with Hercules on the covenant. So again, I think we're very covered there because I do think this may take a bit longer than maybe we modeled out. And so I think from that standpoint, our lenders felt very comfortable. I'll turn it over to Mark on the second piece about ZYNRELEF and kind of what's going on in the quarter.

Yes, and thanks for the question, Brandon. You know, on ZYNRELEF, the product grew 9% quarter-over-quarter. You know, as you're aware, in Q1, the market itself was down. And so we expected to recover from that, you know, quite strongly in Q2. We didn't quite get to our expectations in the second quarter, and certainly that's on us to rectify. I wouldn't point to anything necessarily about the product. Certainly the market itself is a little bit slow this time of year, and as you can look back at, you know, Slide 7 in the earnings deck, you see a really nice run-up in the back half of the year for the market and for ZYNRELEF and other products in that market. So we still expect that to occur, but certainly Q2 is on us from an execution perspective, and we'll work to fix that in the third quarter. Okay.

Thank you. One moment for our next question. Our next question comes from Serge Belanger with Needham.

I guess first one for Craig on potential generic CINVANTI. I know there's still a lack of clarity on a potential launch here, but I believe you have a couple settlement agreements around CINVANTI with some other players. Curious what the impact would be for those potential launches on those players if Azurity already does launch a generic product. And then secondly, regarding ZYNRELEF, maybe for Mark, just curious what you're seeing in terms of surgical volumes and just the overall volume of procedures over the second quarter. I believe your competitor reported some macro volatility that impacted healthcare spending. Just curious if you're seeing kind of the same thing. Thanks.

Yes, Serge. Regarding CINVANTI, whether it launches or doesn't launch, it will have no impact at all on the settlement. So that should not change.

And then as far as ZYNRELEF goes, kind of macro impacts, look, I think we still continue to make progress on P&T wins throughout the quarter. So maybe we weren't as impacted as much by that situation, or at least I didn't hear that much about it in particular. But really, it's just about time of pull-through, you know, and we were a little bit slower on a few things in the quarter than we expected and certainly, you know, hope to see those continue to pull through in the back half of the year.

Thank you. And I'm not showing any further questions at this time. I'll turn the call back over to Craig for any further remarks.

No, thanks, everyone, for joining the call this quarter and we'll talk to you next quarter. Thank you.

Thank you, ladies and gentlemen. This concludes today's presentation. We thank you for your participation. You may now disconnect and have a wonderful day.