Heron Therapeutics (HRTX) is a ~$1.95B market cap biotech company waiting on an FDA decision this week for their non-opioid postoperative pain management drug HTX-011. HRTX received Fast Track, Breakthrough, and Priority Review designations for HTX-011, underscoring the critical need for effective non-opioid painkillers in the wake of the ongoing opioid epidemic, which was fueled historically in part by post-surgery opioid prescriptions.
HTX-011 is an elegant and creative solution seeking to provide a better option to patients post-surgery and minimize the need for opioids. HTX-011 is a proprietary extended release combination formulation of bupivacaine and meloxicam– details about this intriguing synergistic mechanism of action are included below. Exparel, a minimally differentiated bupivacaine product approved for post-surgical analgesia (pain relief), earned >$400M in sales in 2019. Therefore we believe peak sales in the $600 – 1000M range are achievable for HTX-011 based on the potential for clinical differentiation with substantial further upside feasible pending supportive real-world data.
Heron Therapeutics (HRTX) Key Takeaways
- We are bullish on the anticipated FDA decision this week and expect to see HTX-011 approved (>90% probability of success), with some serious upside depending on the exact labeled indication.
- Based on prior stock performance and consensus analyst price targets in the $35 – 41.50 range, we believe that an approval this week should drive HRTX near to or above $30, at which point we would look to exit our position given concerns we have with launching a product like this in a COVID environment.
Heron Therapeutics (HRTX): Regulatory Background
HRTX initially filed their NDA for HTX-011 in late 2018, but received a Complete Response Letter (CRL) in April 2019 due to Chemistry, Manufacturing, and Controls (CMC) concerns. HRTX worked with their contract manufacturer and resubmitted the NDA in October 2019. HRTX reported in February 2020 that the manufacturing site had been reinspected and the FDA inspector had recommended approval of the site, potentially finally clearing the runway to an overdue FDA decision by the June 26th, 2020 PDUFA date (a three-month delay from the original March PDUFA date). These non-clinical factors are the hardest for us to predict, but we are reassured by the successful reinspection and the fact that FDA did not note any clinical deficiencies in their application.
Heron Therapeutics (HRTX): Unique Product Creatively Building on Existing Clinical Options
HTX-011 is an extended release formulation of bupivacaine and meloxicam that is applied directly into the surgical incision site without a needle.
- Bupivacaine (like other -caine drugs, e.g., lidocaine) is a commonly used injectable nerve blocker to decrease the sensation of pain, while meloxicam is a nonsteroidal anti-inflammatory drug (NSAID).
- Both drugs are generically available, though HTX-011 is a unique product using a proprietary polymer that enables extended local release, lengthening the effect time.
We think this is an exciting mechanistic approach for a number of reasons:
- Both component molecules are well-established and effective
- Inflammation creates a more acidic environment- the anti-inflammatory effects of meloxicam could mitigate this and improve bupivacaine diffusion, allowing it to exert its effect more efficiently.
- Non-needle applicator could be more convenient and user-friendly than performing multiple injections, as is required with bupivacaine.
- Local administration of meloxicam (rather than intravenous) could potentially minimize systemic effects / concerns with its use.
Heron Therapeutics (HRTX): Differentiated Data With Potential For “Opioid-sparing” Language to be Included in Label
HTX-011 demonstrated a superior reduction in pain intensity versus injected bupivacaine across two pivotal P3 trials in patients post-bunionectomy and post-herniorrhaphy procedures, respectively. This was measured by plotting patient-assessed pain intensity on a scale from 1 – 10 at various time points up to 72 hours post-surgery, and then measuring the “area under the curve” (AUC): a lower AUC indicates lower pain intensity over that time period.
- Beyond a statistically significant lower AUC over the entire 72 hour period, HTX-011 patients also demonstrated a meaningfully lower pain score at 12, 24, 36, and 48 hours post-surgery, with the scores beyond that starting to even out.
- This suggests that over the first 48 hours at least HTX-011 measurably reduces the patient experience of pain.
We were also excited to see that HTX-011 significantly reduced the total opioid medication use over that same 72 hour window:
- For the bunionectomy trial, 28.7% of HTC-011 patients were completely opioid-free versus 11% of bupivacaine-treated patients.
- In the post-herniorrhaphy trial, 51.2% of HTX-011 patients versus 40.1% of bupivacaine-treated patients were opioid-free.
- Optimistically, we would hope that this language would make its way into the FDA-approved label, which would be a huge boost for HRTX as they could then market the product with the claim that it can reduce the need for opioids.
We have some concerns with the dosing used in the trials, with the HTX-011 arms consistently containing a higher concentration of bupivacaine in the HTX-011 combination than the amount of bupivacaine used for the control arms, which could be part of the reason for the superior pain relief of the HTX-011. However we do not think the FDA will get too hung up on this as HTX-011 also resoundly beat the placebo arm.
Nonetheless we expect hospitals and other healthcare providers to test HTX-011 in the real-world versus comparable bupivacaine doses before adopting the product widely.
For context, Exparel, an extended release formulation of bupivacaine was approved in 2011 on the basis of trial demonstrating superior pain relief to placebo with no impact on opioid use: real-world studies have shown that Exparel is not much if at all better than generic bupivacaine, so the strong data for HTX-011 versus bupivacaine sets it up to be perceived as a differentiated clinical offering.
Heron Therapeutics (HRTX): Other Things to Consider
HRTX also has two already approved products in Sustol and Cinvanti, both for prevention of chemotherapy-induced nausea or vomiting (CINV). We did not consider these products to contribute meaningful upside as both products are facing challenging commercial environments due to genericization of key competitors. However, having these products in their portfolio means
HRTX already has a commercial infrastructure targeting hospitals, which should offer some synergies with the HTX-011 potential launch.
Heron Therapeutics (HRTX): A Reliable Investment?
Shares of Heron Therapeutics (HRTX) appear to be a very good investment option, with Wall Street analysts expecting its price to rise considerably in the next several months. The majority of the metrics point to this investment being highly attractive.
