By Sonya Colberg

Heron Therapeutics Inc (NASDAQ:HRTX), a tiny drug company with no approved product and nothing but losses to report, may be just about ready to drop eye-popping news on investors.

“At some point in time, we’ll probably do a small equity raise to top off the tank,” CEO Barry Quart told TheStreetSweeper.

How small?

“I would not anticipate the raise being any substantially different than the raises we have done in the last year or two,” he said in a phone interview out of his San Diego office.  

“Those were … around $60 million or so,” he said, adding the raise might wait until data for a post-operation pain program is released this summer.

Asked why he has been selling Heron stock – $130,000 worth in the past few weeks – he said that has nothing to do with his perception of the company’s future.

Though his compensation exceeds $8 million, the chief executive said he simply needed to pay for two upcoming weddings.

Those stock sales, along with sales by another officer, have occurred amid a stock price pop of some 40 percent since January. Eager, biotech-fevered investors have been looking for study results for Heron’s top candidate, Sustol, plus eventual FDA approval to begin marketing, along with more news of its post-operative pain gel.

But Mr. Quart said investors may simply be just starting to pay attention to the company.

“Heron is the rebranding of a company that had a long and checkered past … A.P. Pharma,” he said. “I think the story had grown old and there wasn’t a lot of interest in our lead product – not a lot of significant, broad interest – in our lead product, which is for chemotherapy-induced nausea and vomiting.”

Will the company continue its Phoenix-like rise? Or will Heron become tomorrow’s biotech dodo bird?

While investors may find various viewpoints here, we’ll lay out some key concerns surrounding this company that remains unprofitable  – after 32 years of trying.

*Heron’s Food and Drug Administration applications fail, projected launches fail, but dilutive stock offerings are common.

*Not only is the CEO selling stock, so is a senior vice president.  The two both sold shares in March, significantly … before release of study results and before resubmission of its new drug application to the FDA.

*Risk to potential sales includes heavy competition, small market and unfortunate timing as the leading drug goes generic.

*The $420 million market cap reflects full success. Should Heron actually succeed at virtually any level, we believe there’s little upside remaining.

Here are the details:

*History of multiple FDA applications, projected “launches.” All failed.

Redwood City, Calif.-based Heron has been trying for years to get the US Food and Drug Administration to approve Sustol (APF530) under a new drug application or NDA that would allow the drug to be sold. It has tried since May 2009.

Heron’s application for its nausea and vomiting drug got its first denial letter or “complete response letter” in March 2010, sending the stock down 54 percent.

The FDA’s “CLR” to Heron (then A.P. Pharma) pointed to major concerns in multiple areas, including the two-syringe system, manufacturing deficiencies found during inspections, and a need for reanalysis of efficacy data.

In March 2013, the agency once again rejected the APF530 (Sustol) application, citing many of the same issues the company had been told to address in 2010.

Heron has spent the past two years trying to address the concerns contained in the last FDA rejection letter.

And no one really knows whether Sustol will get yet another FDA rejection.

If it does, we can expect at least the level of investor backlash that the stock endured previously. On March 28, 2013, the stock collapsed to 52 cents, a 12 percent drop in premarket trading when the company disclosed the Sustol application denial. The chart shows the decline, adjusted for the stock split.

And the price remained in the $6-$10 range for months, as the reverse stock split-adjusted chart shows.

Yet after four years of vainly trying to satisfy the FDA, the company made this bold projection in March 2013:product launch for the first half of 2014, versus our prior guidance of the second half of 2013.”

Naturally, investors anticipated “product launch.”

What they got was entirely different. Heron launched another round of equity/convertible debt – a more than $57 million public offering.

Rebranding began largely in mid-2013, including management changes, the company name change and a 1:20 reverse stock split to support its Nasdaq listing.

Then, yet another delay popped up in January 2014, followed by another delay June 2, 2014:

 “…Heron plans to resubmit the NDA in the fourth quarter of 2014 versus the Company’s previous projection of a mid-year 2014 resubmission,” explained as due to the desire to include anticipated Sustol study results with the submission.

So, “product launch” was toned down to “resubmitting the NDA” … and again delayed.

Then, just as before, Heron followed the June 2, 2014 delay announcement with another public offering  later that month – this time producing about $63 million.

Obviously, that touted 2014 NDA resubmission date is delayed again – by at least two more quarters.

“Our plan is to file mid-year to get approval, hopefully, by the end of this year, ready to launch early next year,” Mr. Quart told TheStreetSweeper.

*Generously-paid executives are selling stock in their own company

Before the much-touted Sustol study results come in and before another attempt to get FDA approval, both Mr. Quart and the technical operations senior vice president, Paul Marshall, sold stock.

These sales were through new automatic trading plans the two officers and the company president set up just last December, the same month Mr. Quart made a non-open-market disposition of 10,928 shares.

Mr. Quart told TheStreetSweeper that he sold stock to pay for his daughter’s wedding and his own wedding scheduled for June.

Yet Heron has not been stingy with salary, options and other compensation for the top six executives – and Mr. Quart earns the second-highest pay.




2013 Total Compensation


Robert H. Rosen



Barry D. Quart


Executive VP, COO

Stephen R. Davis


Former Pres.,CEO,CFO

John B. Whelan


Sen. VP, Medical Officer

Mark S. Gelder


VP Finance, CFO

Brian G. Drazba

 $  933,665


The total compensation is $25.27 million – from a company making no revenue.

Mr. Quart said his own stock sales are justified because he participated in two company financings and the stock price has advanced.

“I didn’t feel that there was any reason not to take down a small percentage,” he said.

He said it’s folly to tie the company future and stock sales together and defended Mr. Marshall’s stock sales, as well.

“I’m an advocate of my management team taking a certain amount of stock off the table and diversifying their risk profile,” he said.

Maybe that’s a signal for average shareholders to do the same.

*Risk to sales potential

Should Heron get FDA approval, Sustol (an NK-1 antagonist) will be trying to squeeze out meaningful sales in a market filled with established and developing drugs for the very same chemotherapy-induced nausea and vomiting “CINV” use.

And CINV drugs are a dime a dozen. There are two main types:






5-HT3 inhibitors

Anzement (Sanof-Aventis)

Kytril (Roche)

Zofran (GlaxoSmithKline)

Aloxi (Eisai/Helsinn)

NK-1 antagonists

Emend (Merck)

Rolapitant (Tesaro)

Akynzeo (Eisai/Helsinn)



The leading therapeutic is Aloxi. “The” treatment for chemo-induced vomiting, Aloxi, faces its first drug patent expiration this month. As various companies begin manufacturing the generic version, the price will drop, likely meaning more competition for smaller sales just in time for Heron’s hoped-for market entrance.

Meanwhile, Aloxi’s manufacturer, Helsinn, received FDA approval for a treatment called Akynzeo back in October 2014.

Both Sustol and Akynzeo are designed to manage nausea and vomiting “for up to five days” after chemotherapy, shown here and here.

So, along with showing no readily discernible difference compared with the competition and trying to nab market share from established leaders in a restricted market, Sustol is also running at least two years behind Akynzeo.

*The $420 million market cap reflects full success. Should Heron actually succeed at some level, we believe there’s little upside remaining

“We have not given any guidance on revenue,” said Mr. Quart. “I think the analysts are all over the place.”

Analysts, who have underwritten Heron’s stock offerings previously, have recently lowered estimates, but still estimate an astounding $87 million in revenue in 2016.

That projection is extremely steep for a risk-filled company that has generated not one penny in revenue since 2011. A snapshot from SEC filings is below:

Even then, the miniscule revenue of 2011 and 2010 is revenue received from two companies terminating agreements with Heron, with one company saying it simply “did not see the commercial potential of the product.”

Though Sustol is the same old thing rebranded, analysts have already baked success into their projections. And since the stock is trading at nearly five times projected gross revenue, we believe there’s little room for the stock to move up if some significant revenues actually do become reality.

Mr. Quart said Heron is going after Aloxi’s 700,000 syringe units at someplace between $200 and $400 each. He said he thinks Heron can eventually penetrate 20 percent of Aloxi’s market.

“What we try to do is provide insight into what the market is like,” said Mr. Quart. “And so people can make their own judgment as to what percent of the market we’ll get.”

So Heron is expected to run up from more than a dozen quarters of zero sales suddenly to nearly a hundred million in sales?

That’s despite the fact the application hasn’t even been resubmitted to the FDA, much less received approval.

And despite the fact Heron has never manufactured at a commercial level.

And despite a sales force of four people.

And despite nine pages of risks listed by Heron.

And despite the horrible timing, two years after Helsinn has gotten a head-start selling Akynezeo.

But Mr. Quart said they can do it. And while he says he is very positive overall and hopes to diversify some of the risk into post-op bunionectomy pain treatment, only the Phase I study has been completed. Two more phases, NDA submission and a lot of uncertainty are left to go.

And, though some analysts have already figured success of Sustol and positive pain application results into their bull thesis, there’s just as much chance that history will repeat itself and hand Heron more FDA rejection letters – restarting the clock all over again.

Other features of the bull thesis include the assumption that Sustol will perform as hoped, receive FDA approval and create revenue. Some bulls also argue the chief executive has sold pharma companies previously and could do so again, though it’s unclear why a company might want a solution like those readily available now. Additionally, bulls expect the post-op pain candidate to progress and perhaps lead to discovery of additional uses for Heron’s technology.


Heron has screamed amid the biotech rally, as the market misunderstands the business, the many drugs available from established pharma, the company’s repeated delays and failures – and now the possible stock offering mentioned by Mr. Quart. Even if Heron somehow rises to the FDA’s specifications, we question the company’s competitiveness. We believe the market will soon realize revenue figures are unrealistic and that losses will continue to grow for some time.

We expect the stock to plummet. But in light of the biotech fervor, we’re anticipating the stock will begin trading in a range of $5 to $7 per share – still terribly generous.