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Heron Therapeutics: Momentum Building?

|About: Heron Therapeutics, Inc. (HRTX)

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It has been over six months since I did anything more than a cursory look at Heron Therapeutics (HRTX).  The shares are up over 15% since that article, but the entire biotech sector is up a similar amount since then as well.  However, analysts seem to be lining up behind the stock this week so it appears to be an appropriate time to revisit this name.

You can be young without money, but you can't be old without it.” - Tennessee Williams

Company Overview:

Heron is a small, San Diego based biopharma concern that is focused on developing novel, patient-focused solutions that apply their innovative science and technologies to already-approved pharmacological agents.  The shares currently trade right around $16.00 a share and the stock sports a ~$850 million market capitalization.

Product Portfolio/Pipeline:

The company one approved product on the market in Sustol.  From the company's website Sustol is "indicated in combination with other antiemetics in adults for the prevention of acute and delayed nausea and vomiting associated with initial and repeat courses of moderately emetogenic chemotherapy  or anthracycline and cyclophosphamide combination chemotherapy regimens.  Sales for Sustol took a big jump in the second quarter to $8.5 million from just $3.6 million in the first quarter.  The company guided that it now expects Sustol sales to be in the $25 million to $30 million range for FY2017.  The product was approved late in the summer of 2016.

Next up is CINVANTI which has a PDUFA date of November 12th.  Again from the company's website "proprietary formulation of aprepitant that has the potential to be the firstpolysorbate 80-free, intravenous formulation of this widely used pharmaceutical agent. Aprepitant (and its prodrug, fosaprepitant) is the most widely used neurokinin-1 (NK1) receptor antagonist for the prevention of chemotherapy-induced nausea and vomiting {CINV}

The company has also met with the FDA to agree on the design of a key Phase 3 study for HTX-011.  The program includes "two pivotal Phase 3 efficacy studies in bunionectomy and hernia repair and an approximately 200-patient Phase 3 safety and pharmacokinetics study to meet the target patient numbers established by the FDA and to provide further evidence of the broad utility of HTX-011 across multiple surgical models."

Analyst Commentary & Balance Sheet:

The company ended the second quarter with just under $110 million in cash and another ~$18 million in receivables on the balance.  Management has stated this is adequate to fund the company through Phase 3 results for HTX-011 which should complete late in the first half of 2018.  The company is planning to file the NDA soon thereafter, should results be positive as expected. 

Analyst commentary has been very positive of late.  Jefferies reiterated its Buy rating and $26 price target on HRTX on September 17th.  This week the following analyst firms have either assigned or initiated Buy ratings on the stock; Cantor Fitzgerald ($31 price target), Mizuho Securities ($28 price target) and Northland Securities ($40 price target).

Verdict:

I continue to think Heron has upside here.  Sustol is showing a good sales trajectory in the early stages of its rollout.  CINVANTI is likely to be approved some six weeks from now and HTX-011 might complete the approved trifecta in the back half of 2018.  

I would not be surprised if the stock ran up a bit into CINVANTI's approval in November and have added a few shares to my core stake this week.  I might initiate out of the money covered calls against part of the position if we do get a nice rally in coming weeks.  Although I remain long term bullish on HRTX, I would not be surprised if the company announces a secondary offering to raise some additional funding soon after CINVANTI's approval.

And that is my take on Heron at the moment.

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Thank You & Happy Hunting,

Bret Jensen

Founder, The Biotech ForumThe Busted IPO Forum & The Insiders Forum

Disclosure: I am/we are long HRTX.