TSN Article January 2, 2019

Can Heron’s HTX-011 Help American Combat the Opioid Epidemic?

The U.S. opioid epidemic is ongoing. A recent compilation of statistics from the Centers for Disease Control, the Agency for Healthcare Research, and Quality and the U.S. Department of Health and Human Services evidence the magnitude of the epidemic. In 2016, providers wrote more than 214 million opioid-based prescriptions—a rate of 65.5 prescriptions per 100 people. As many as 1 in 5 Americans receive prescription opioids long-term for noncancer pain in primary care settings. At least 11 million people were considered to have abused opioids in 2016 and over 40,000 have died from opioid overdose annually. A recent report authored by the Council of Economic Advisors, an agency within the Executive Office of the President of the United States titled from The Underestimated Cost of the Opioid Crisis, counts the estimated cost of lost life from this devastating epidemic in the hundreds of billions of dollars annually.

Each and every day people from all walks of life and socioeconomic levels suffer the depredations of this epidemic.  In late 2018, Surgeon General Jerome A. Adams, M.D., M.P.H, noted at a fireside chat with Heron Therapeutics Inc. (Nasdaq: HRTX) “addressing the opioid crisis with all the resources possible and the best science we have is a top priority for me as Surgeon General and for everyone at HHS.”  Dr. Adams continued that “I believe it is important to foster new partnerships to create a future in which far fewer Americans suffer from pain or opioid addition.”

FDA Grants Priority Review Designation for Heron HXT-011

It was announced by the U.S. Food and Drug Administration (FDA) that it has granted Heron Therapeutics its new drug application (NDA) for investigational agent HXT-011 for Priority Review designation. HTX-011 is a long-acting, extended-release formulation of the local anesthetic bupivacaine in a fixed-dose combination with the anti-inflammatory meloxicam for the management of postoperative pain. According to the commercial-stage biotech venture, HXT-011 is the first and only dual-action fixed-combination product specifically designed to address both postoperative pain and inflammation in a single administration at the surgical site. The basis of the NDA includes data from five (5) Phase 2 clinical trials and two (2) Phase 3 clinical trials that included over 1,000 patients undergoing five varied surgical procedures.

According to Heron’s recent press release, the FDA had granted Breakthrough Therapy designation to HTX-011 based on the results of Phase 2 studies and two completed Phase 3 studies. The clinical trial results evidenced considerable reductions in both pain intensity and the need for opioids through 72 hours post-surgery compared to placebo and bupivacaine solution—the standard of care. FDA Priority Review designation is applied to drugs that if approved, would be significant improvements in the safety or effectiveness of the treatment or prevention of serious conditions. It is widely known that many patients receive opioids to cope with postsurgical pain. Considerable evidence exists that a considerable number of addictions thereafter ensue. This has been especially prevalent over the past decade.

Heron Therapeutics

Based in San Diego, California, Heron Therapeutics Inc. (Heron) is a biotech venture that develops medicines to address unmet needs. Founded back in 1983 as A.P. Pharma, it’s product candidates utilize its proprietary Biochronomer drug delivery technology, which delivers therapeutic levels of a range of short-acting pharmacological agents over a period from days to weeks with a single administration. The company’s offerings include SUSTOL (granisetron) extended-release injection for the prevention of acute and delayed chemotherapy-induced nausea and vomiting (CINV) associated with moderately emetogenic chemotherapy, or anthracycline and cyclophosphamide combination chemotherapy regimens. In addition to the HTX-011 currently under FDA review, the company is developing CINVANTI, a neurokinin-1 receptor antagonist aprepitant for the prevention of CINV.

Financial Overview

According to TrialSite News review the company’s market capitalization has not surprisingly increased with the FDA news—as of writing at $25.94 and $2.02 billion. This is based on existing revenue and, of course, the future potential with HTX-011 should it be approved and, importantly, should the company execute to commercial plan. The present revenue total is approximately $58 million; EBITDA at a material loss of $190 million. According to Yahoo Finance, cash reserves total $364 million and their operating cash flow based on their last statement is in the red at -$205 million. With a staggering 35X revenue valuation, investors are making big bets that Heron will execute commercially or be acquired at a premium.

In 2016 the company’s SUSTOL was approved. As reported in their 10Q filings, they “realigned” their goals and objectives and refocused their development efforts to the critical area of postoperative pain management.  Biotech R&D is a very expensive business and like many comparable ventures, Heron has raised capital via various debt instruments but primarily via its’ equity. The debt load appears manageable although the terms are formidable should anything go awry. However, the primary creditor is Kevin Tang (see below). A director, Mr. Tang is a seasoned biotech entrepreneur, executive and now financier.  Mr. Tang was the co-founder of San Diego-based Ardea which was acquired by AstraZeneca for $1.26 billion. Mr. Tang would appear to have an incredible track record of biotech success given the failure rates involved in the business.

Convertible Notes

In 2011, Heron secured $4.5 million from Tang Capital Partners (principal Kevin Tang was a Board member).  These hybrid instruments were convertible up to 9.99% of total outstanding common stock. It is secured by all company assets.

Promissory Note

In August 2016, Heron entered Promissory Note with Tang Capital Partners where they borrowed up to $100 million. At a two-year term and an 8% annual interest rate, the first close of $50 million occurred in August 2016.  The second close never occurred. This was a pure loan—hence no equity conversion features, etc.  The debt instrument is secured by “second-priority” lien on substantially all their assets. m


The company has embarked on a series of equity offerings to raise additional capital.  From January 2017 to June 2018 they have sold a total of 35.8 million shares for a total of $669.4 million.


Drug development represents one of the riskiest of businesses, but the rewards can be great as evidenced by Heron’s current market cap of approximately 35X revenues. Documented risk faced by the company are numerous. 

Of primary concern is that Heron is highly dependent on the success of their SUSTOL and CINVANTI products. If they do not achieve market acceptance by healthcare professionals and patients, their business operations face considerable challenges. Associated with these products are numerous sales and third-party payer assumptions that if deviated from material consequences could result. The enormous potential of HTX-011 represents a considerable driver for current valuation. Heron disclosed that the typical drug development risks– such as the fact that positive results from existing preclinical and clinical trials do not necessarily mean that the same positive results occur with larger-scale studies. Of course, Heron received Fast Track and Breakthrough Therapy designations for HTX-011 but there are no assurances that it will receive regulatory approval. Their product platform efforts may not translate to safe, efficacious or commercially viable products. 

Heron relies on third parties to conduct preclinical testing and clinical trials and the high quality; safe and efficient conduct is of paramount importance for the commercial sponsor’s success. Moreover, for approved products Heron relies on third party suppliers and contract manufacturers. The company faces competitive pressures. In the case of SUSTOL, for example they compete against the following:  

  • AKYNZEO (Helsinn Therapeutics)
    • SANCUSO (ProStrakan Group Plc)
    • Generic products

In the case of HTX-011 for the management of postoperative pain they will compete against MARCAINE, a bupivacaine marketed by Hospira, Inc. and generic forms of bupivacaine such as NAROPIN marketed by Fresenius Kabi USA, LLC as well as generic forms of ropivacaine such as EXPAREL marketed by Pacira Pharmaceuticals as well as other products in research and development stages targeting the management of postoperative pain.

Hoping for the Positive Future

The upside for HTX-011 is very promising. With HTX-011, Heron is taking on an incredibly compelling cause as well as market.  The market is calling out for post-surgery opioid alternatives where potentially millions of people have, over time, become addicted thereafter.  First the this compelling product needs to be approved by the FDA. Thereafter, the company must execute to a manufacturing and commercial distribution plan. In parallel it must work with the market (payers, healthcare providers, patients) in hope that it not only embraces, but demands the product.  All things being equal this would all translate to tremendously positive outcomes including fewer opioid addictions and material return for investors.  Assuming approval and execution, one analyst sets HTX-011 potential sales at $238 million by 2022. Factoring in existing sales of SUSTOL and CINVANTI along with HTX-011 brings Heron to a total $599 million by 2022. This will be the positive version of the future for patients and society as undoubtedly the success of a treatment such as HTX-011 could help reduce opioid prescriptions and dependence.  It would also be a momentous day for those investors that took the risk on this compelling cause.

At half billion dollars in sales in just a few years Heron would command far more economic leverage and clout in the market—affording options and the wherewithal necessary for exponential breakaway shareholder value—certainly it would make Heron an attractive acquisition target.  If the FDA approves HTX-011 and thereafter if it appears they are on the path to commercial execution the probability of not only maintaining such a high valuation (multiple on revenue) but also exponential increases becomes a reality.  Material and considerable risk noted herein and in their SEC filings present the specter of an alternative reality soon as well. We are rooting for HTX-011 approval and Heron execution moving forward for the bright positive version of the future.


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