Sunday, May 6, 2018

A current AIM Program Small Cap Equity Holding: Heron Therapeutics, Inc. (HRTX) by: Jack Senft. "Heron's Painless Drug Hurts for More Opportunity"

Jack Senft (Ticker, $HRTX): "Heron's Painless Drug Hurts For More Opportunity"

By: Jack Senft, AIM student at Marquette University

Disclosure: The AIM Equity Fund currently holds this position. This article was written by myself, and it expresses my own opinions. I am not receiving compensation for it and I have no business relationship with any company whose stock is mentioned in this article.


Heron Therapeutics, Inc. (NASDAQ:HRTX) is targeting more than 28 million annual procedures in the United States that require postoperative pain management, specifically patients who are suited for HTX-011.

• HTX-011 is seeing a unique shift towards blocking both pain and local inflammation, with possible needle-free administration.

• HTX-011 achieved all its objectives in both Phase 3 trials.

• Recent FDA approval of Pacira’s Exparel shows opportunity, along with close cross-study comparisons between HTX-011, each company’s form of bunionectomy.

• Overwhelming positive responses by physicians and pharmacists to HTX-011, enhancing that HTX-011 being preferred over Exparel.

Key points: Heron Therapeutics is in a great position for future opportunity and positive results.  Being in the opioid and pain market, extensive research has been conducted showing that more than 40 million patients undergoing surgical procedures are prescribed opioids for pain management, with only 2.6 million of those who actually take the opioid to manage that pain.  With that said, HRTX sees a theoretical market size of $9.1 billion.  This is a sum of initial targets, secondary targets, and tertiary targets, or $4.9B, $1.9B, and $2.3B respectively.

Given the declared public health emergency announcement in October 2017 for the opioid epidemic, there is currently intense regulatory pressure to reduce the number of opioid prescriptions.  Professionals have been made aware that HTX-011 is used for both blocking pain and local inflammation.  On top of this, the conditions for HTX-011 is suited perfectly for needle-free administration.  This means that only a single dose application is needed, which is applied with a syringe within the surgical site.  Once applied, it takes 72 hours for all ingredients to be released, helping ensure a low risk of overdose.

While in the Phase 3 trials, HTX-011 achieved all its primary and key secondary endpoints. In its 301 study, HTX-011 lowered the incidence of opioid related adverse events, such as nausea, vomiting, itching, digestive problems, and difficulty sleeping.  This drug has also shown no serious adverse events and no deaths.

Granted that Pacira’s Exparel received FDA approval, it still shows that there is strong desire for opioid-sparing alternatives.  Exparel’s label currently states that, “clinical benefit of this reduction has not been established.”  Yet, in Phase 3 studies, HTX-011 resulted in statistically significant improvements in total opioid use, and a higher percentage of patients who were opioid free through 72 hours.  All of these facts help to back up the point that physicians and pharmacists have positive responses to HTX-011, and that pharmacy directors strongly preferred HTX-011 over Exparel.

What has the stock done lately?

Heron Therapeutics, Inc. has recently completed a secondary stock offering.  About 6.9 million new shares were offered, which equates to about $168.7 million.  Granted this was completed towards the end of 2017, the stock has almost doubled in value.  With the announcement of more positive phase 3 trials, along with continued success might be a strong catalyst to more than double the stock yet again.

Past Year Performance: HRTX has substantially increased 100.32% in value over the past year, and it has yet to peak. In late 2017, HRTX stayed fairly level, before exploding to about $30.  A year ago, the stock was trading at $15.40, with a 52-week low at $12.70 and a high at $32.70.  This peak will be broken, pushing the price to new highs.
Source: FactSet

My Takeaway

Heron Therapeutics has seen robust growth in the past year, and they are still in a great position. HRTX sees continued opportunity, especially compared to the FDA approval of Exparel, which still shows that there is strong desire for opioid-sparing alternative.  HTX-011 unceasingly shows positive phase 3 trials, as many professionals have positive response. HTX-011 has great potential after these trials, which could push HRTX to new 52-week highs even by the end of the week, helping to reiterate a buy status.
Source: FactSet