What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-06 compared with 2024-05-07 · 48 added, 38 removed, 135 unchanged (39% of the section changed)

11 unchanged sentences

• our estimates regarding the potential market opportunities for our Products and our product candidates, if approved, and our ability to capture the potential additional market opportunity from the expanded ZYNRELEF label recently approved in the U.S.;

• our ability to establish and maintain successful commercial arrangements like our co-promotion agreement with CrossLink Life Sciences, LLC ("CrossLink");

• the realization of anticipated benefits from our co-promotion agreement with CrossLink;

• the outcome of our pending abbreviated new drug application litigation;

• whether we are required to write-off any additional inventory in the future;

• our ability to establish satisfactory pricing and obtain adequate reimbursement from government and third-party payors of our Products and product candidates that receive regulatory approvals;

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Food and Drug Administration ("FDA")and to obtain favorable results and comply with standard postmarketing requirements, including U.S.

federal advertising and promotion laws, federal and state anti-fraud and abuse laws, healthcare information privacy

and security laws, safety information, safety surveillance and disclosure of payments or other transfers of value to healthcare professionals and entities for Products or any of our product candidates;

federal advertising and promotion laws, federal and state anti-fraud and abuse laws, healthcare information privacy and security laws, safety information, safety surveillance and disclosure of payments or other transfers of value to healthcare professionals and entities for Products or any of our product candidates;

• our ability to successfully develop and achieve regulatory approval for any product candidates utilizing our proprietary Biochronomer ® drug delivery technology (“Biochronomer Technology”);

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• the impact of our 2023 restructuring activities, including the reduced headcount and external spend;

• our inability or delay in achieving profitability;

• the impact of evolving legal and regulatory requirements, including emerging environmental, social and governance requirements;

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ZYNRELEF is the first and only modified-release local anesthetic to be classified by the FDA as an extended-release product because ZYNRELEF demonstrated in Phase 3 studies significantly reduced pain and significantly increased proportion of patients requiring no opioids through the first 72 hours following surgery compared to bupivacaine solution, the current standard-of-care local anesthetic for postoperative pain control.

In January 2024, we entered into a five-year distributor partnership with CrossLink Life Sciences, LLC (“Crosslink”) to expand the sales network supporting ZYNRELEF.

In May 2024, we submitted a prior approval supplement (“PAS”) for the addition of a vial access needle (“VAN”) in the ZYNRELEF co-packaged combination product kit.

The FDA accepted the VAN PAS for filing and set a Prescription Drug User Fee Act goal date of September 23, 2024.

If approved, the introduction of the VAN will replace the current vented vial spike and has the potential to simplify aseptic preparation, while also significantly reducing ZYNRELEF's withdrawal time from up to three minutes down to between twenty and forty-five seconds.

The user-friendly "container-like" design of the VAN may enhance the safe use of ZYNRELEF, increase adoption, and improve the preparation process.

If approved, the VAN is expected to be available for use in the fourth quarter of this year.

In January 2024, we entered into a five-year distributor partnership with CrossLink to expand the sales network supporting ZYNRELEF.

CrossLink will be the lead partner in the U.S.

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In total, we anticipate that approximately 650 representatives will be added to Heron’s sales network over 2024.

In March 2022, the Centers for Medicare and Medicaid Services (“CMS”) approved a 3-year transitional pass-through status of ZYNRELEF, which became effective on April 1, 2022, for separate reimbursement outside of the surgical bundle payment in the Hospital Outpatient Department (“HOPD”) setting of care.

In addition, in December 2022, H.R.

2617, the omnibus spending bill was approved by Congress that includes a provision requiring CMS to pay for certain non-opioids outside the existing bundled payment for surgeries for the period January 1, 2025 through December 31, 2027.

2617, the omnibus spending bill was approved by Congress.

The bill includes the Non-Opioids Prevent Addiction in the Nation (NOPAIN) Act which directs CMS to provide separate Medicare reimbursement for non-opioid treatments that are used to manage pain during surgeries conducted in hospital outpatient departments or in ambulatory surgical centers.

To qualify, the non-opioid treatment must demonstrate the ability to replace, reduce, or avoid intraoperative or postoperative opioid use or the quantity of opioids prescribed in a clinical trial or through data published in a peer-reviewed journal.

The hospital outpatient prospective payment system and ambulatory surgical center proposed rule for calendar year 2025 includes ZYNRELEF as a qualifying non-opioid requiring CMS to provide separate Medicare reimbursement in both the hospital outpatient department and ambulatory surgical center settings from January 1, 2025 through December 31, 2027.

APONVIE was approved by the FDA in September 2022 and became commercially available in the U.S.

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In January 2018, a product-specific billing code, or permanent J-code (“J-code”), for SUSTOL became available.

The new J-code was assigned by CMS and has helped simplify the billing an d reimbursement process for prescribers of SUSTOL.

The new J-code was assigned by CMS and has helped simplify the billing and reimbursement process for prescribers of SUSTOL.

CINVANTI was approved by the FDA in November 2017, and we commenced commercial sales in the U.S.

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NK1 receptor antagonists are typically used in combination with 5-HT3 receptor antagonists.

The only other injectable NK1 receptor antagonist currently approved in the U.S.

Unlike CINVANTI many other injectable NK1 receptor antagonists currently approved in the U.S.

for both acute and delayed chemotherapy induced nausea and vomiting (“CINV”), EMEND® IV (fosaprepitant), contains polysorbate 80, a synthetic surfactant, which has been linked to hypersensitivity reactions, including anaphylaxis, and infusion site reactions.

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Critical Accounting Estimates

The discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements, which have been prepared in accordance with U.S.

generally accepted accounting principles.

The discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements, which have been prepared in accordance with GAAP.

The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.

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See Note 3 to the condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q.

Results of Operations for the Three Months Ended March 31, 2024 and 2023

Results of Operations for the Three and Six Months Ended June 30, 2024 and 2023

Net Product Sales

For the three months ended March 31, 2024 and March 31, 2023, net product sales were $34.7 million and $29.6 million, respectively.

For the three and six months ended June 30, 2024, net product sales were $36.0 million and $70.7 million, respectively, compared to $31.8 million and $61.4 million, respectively, for the same periods in 2023.

Net Product Sales – Acute Care

For the three months ended March 31, 2024 and March 31, 2023, net product sales of ZYNRELEF were $5.0 million and $3.5 million, respectively.

For the three months ended March 31, 2024 and March 31, 2023, net product sales of APONVIE were $0.5 million and $0.3 million, respectively.

For the three and six months ended June 30, 2024, net product sales of ZYNRELEF were $5.8 million and $10.8 million, respectively, compared to $4.1 million and $7.7 million, respectively, for the same periods in 2023.

For the three and six months ended June 30, 2024, net product sales of APONVIE were $1.0 million and $1.5 million, respectively, compared to $0.3 million and $0.6 million, respectively, for the same periods in 2023.

The increase in net product sales for both ZYNRELEF and APONVIE is attributed to an increase in the units sold in 2024 as compared to 2023.

Net Product Sales – Oncology Care

For the three months ended March 31, 2024 and March 31, 2023, net product sales of CINVANTI were $25.6 million and $22.8 million, respectively.

For the three months ended March 31, 2024 and March 31, 2023, net product sales of SUSTOL were $3.6 million and $3.0 million, respectively.

For the three and six months ended June 30, 2024, net product sales of CINVANTI were $24.9 million and $50.5 million, respectively, compared to $24.5 million and $47.3 million, respectively, for the same periods in 2023.

For the three and six months ended June 30, 2024, net product sales of SUSTOL were $4.3 million and $7.9 million, respectively, compared to $2.9 million and $5.8 million, respectively, for the same periods in 2023.

The increase in net product sales for both CINVANTI and SUSTOL is attributed to an increase in the units sold in 2024 as compared to 2023.

Cost of Product Sales

For the three months ended March 31, 2024 and March 31, 2023, cost of product sales was $8.4 million and $16.9 million, respectively.

For the three and six months ended June 30, 2024, cost of product sales was $10.5 million and $19.0 million, respectively, compared to $20.2 million and $37.0 million, respectively, for the same periods in 2023.

Cost of product sales primarily included raw materials, labor and overhead related to the manufacturing of our Products, as well as shipping and distribution costs.

For the three months ended March 31, 2023, cost of product sales also included charges of $5.3 million, resulting primarily from the write-off of short-dated ZYNRELEF inventory.

There were no charges related to the write-off of inventory during the three months ended March 31, 2024.

For the three and six months ended June 30, 2024, cost of product sales included charges of $1.6 million relating to reserves and write-offs of inventory.

For the three and six months ended June 30, 2023, cost of product sales included charges of $7.5 million and $12.8 million, respectively, relating to the write-off of inventory.

The remaining decrease in cost of product sales is attributed to a decrease in cost per units for CINVANTI and ZYNRELEF, as large-scale manufacturing was validated and approved in late 2022.

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Three Months Ended

Six Months Ended

ZYNRELEF-related costs

SUSTOL-related costs

CINVANTI-related costs

APONVIE-related costs

SUSTOL-related costs

Personnel costs and other expenses

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Total research and development expense

For the three months ended March 31, 2024 and March 31, 2023, research and development expense was $4.6 million and $8.8 million, respectively.

For the three and six months ended June 30, 2024, research and development expense was $4.4 million and $9.0 million, respectively, compared to $13.2 million and $22.0 million, respectively, for the same periods in 2023.

The decrease in research and development expense was primarily due to our decreased headcount and related costs as a result of the restructuring implemented in 2023, as well as a decrease in non-cash, stock-based compensation expense.

The decrease is also due to decreases in costs related to ZYNRELEF and CINVANTI, as large-scale manufacturing was approved in 2022 and APONVIE as a result of the product becoming commercially available in March 2023.

The decrease is also due to decreases in costs related to ZYNRELEF, as large-scale manufacturing was approved in 2022, and APONVIE as a result of the product becoming commercially available in March 2023.

General and Administrative Expense

For the three months ended March 31, 2024 and March 31, 2023, general and administrative expense was $15.0 million and $15.8 million, respectively.

The decrease was primarily due to our decreased headcount and related costs as a result of the restructuring implemented in 2023.

For the three and six months ended June 30, 2024, general and administrative expense was $13.9 million and $28.9 million, respectively, compared to $19.6 million and $35.4 million, respectively, for the same periods in 2023.

The decrease was primarily due to our decreased headcount and related costs as a result of the restructuring implemented in 2023 and operational efficiencies.

Sales and Marketing Expense

For the three months ended March 31, 2024 and March 31, 2023, sales and marketing expense was $11.4 million and $21.2 million, respectively.

The decrease was primarily due to our decreased headcount and related costs as a result of the restructuring implemented in 2023.

Other Income, Net

For the three months ended March 31, 2024 and March 31, 2023, other income, net was $1.6 million and $0.3 million, respectively.

The increase is primarily attributed to a one time settlement gain contingency related to a legal dispute, during the three months ended March 31, 2024.

Restructuring Plans

See Note 8 to the condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q for discussion of the June 2023 Reorganization.

For the three and six months ended June 30, 2024, sales and marketing expense was $13.6 million and $25.1 million, respectively, compared to $21.2 million and $42.4 million, respectively, for the same period in 2023.

The decrease was primarily due to our decreased headcount and related costs as a result of the restructuring implemented in 2023 and operational efficiencies.

Other (Expense) Income, Net

For the three and six months ended June 30, 2024, other expense, net was $2.8 million and $1.2 million, respectively, compared to other income, net of $0.3 million and $0.6 million, respectively, for the same period in 2023.

The increase in other expense is attributed to increased interest expense as a result of the working capital facility agreement entered into in August 2023 (see Note 8 for further discussion of our working capital facility agreement) and the write-off of property and equipment during the three months ended June 30, 2024, which was associated with a project for which we had a one-time settlement related to a legal dispute during the three months ended March 31, 2024.

Liquidity and Capital Resources

The Company's short-term and long-term liquidity requirements primarily arise from funding (i) sales and marketing expenses, (ii) general and administrative expenses including salaries, bonuses and commissions, (iii) working capital requirements, and (iv) research and development expenses, and (v) payments related to our outstanding convertible notes.

As of March 31, 2024, we had cash, cash equivalents and short-term investments of $71.5 million.

Based on our current operating plan and projections, management believes that the Company's cash, cash equivalents and short-term investments will be sufficient to meet the Company's anticipated cash requirements for a period of at least the next twelve months from the date this Quarterly Report on Form 10-Q is filed with the SEC.

As of June 30, 2024, we had cash, cash equivalents and short-term investments of $67.3 million.

Based on our current operating plan and projections, management believes that the Company's cash, cash equivalents, short-term investments and working capital facility, will be sufficient to meet the Company's anticipated cash requirements for a period of at least the next twelve months from the date this Quarterly Report on Form 10-Q is filed with the SEC.

Our future cash requirements and the adequacy of our available funds will depend on many factors, primarily including our ability to generate revenue and the scope and costs of our commercial and research and development activities.

Our net loss for the three months ended March 31, 2024 and March 31, 2023 was $3.2 million, or $0.02 per share, and $32.8 million, or $0.27 per share, respectively.

Our net cash used in operating activities for the three months ended March 31, 2024 and March 31, 2023 was $9.5 million, compared to $24.9 million.

The decrease in net cash used in operating activities was primarily due to a decrease in net loss as a result of decreases in operating spend, partially offset by changes in working capital, specifically accounts receivable due to timing of collections, inventory as a result of write-offs incurred during Q1 2023 which did not reoccur during Q1 2024, accounts payable due to timing of payments and accrued payroll and employee liabilities due to reduced headcount.

Our net cash provided by investing activities for the three months ended March 31, 2024 and March 31, 2023 was $1.3 million, compared to $36.8 million.

The decrease in cash provided by investing activities was primarily due to net maturities of short-term investments of $37.1 million for the three months ended March 31, 2023 compared to $1.3 million for the three months ended March 31, 2024.

Our net cash provided by financing activities for the three months ended March 31, 2024 was $0.01 million, compared to net cash used in financing activities of $0.2 million for the same period in 2023.

Our net loss for the three and six months ended June 30, 2024 was $9.2 million, or $0.06 per share, and $12.4 million, or $0.08 per share, respectively, compared to $42.1 million, or $0.35 per share and $74.8 million, or $0.63 per share, respectively, for the same period in 2023.

Our net cash used in operating activities for the six months ended June 30, 2024 and June 30, 2023 was $14.1 million and $52.1 million, respectively.

The decrease in net cash used in operating activities was primarily due to a decrease in net loss as a result of decreases in operating spend, primarily as a result of the restructuring implemented in 2023, partially offset by $3.4 million of write-offs of property and equipment during the six months ended June 30, 2024, changes in working capital, specifically accounts receivable due to timing of collections, inventory as a result of write-offs incurred during the six months ended June 30, 2024, accounts payable and accrued expenses due to timing of payments and accrued payroll and employee liabilities due to reduced headcount.

Our net cash provided by investing activities for the six months ended June 30, 2024 and June 30, 2023 was $3.3 million, and $50.1 million, respectively.

The decrease in cash provided by investing activities was primarily due to net maturities of short-term investments of $4.0 million for the six months ended June 30, 2024 compared to $50.6 million for the six months ended June 30, 2023.

Our net cash provided by financing activities for the six months ended June 30, 2024 and June 30, 2023 was $0.5 million, and $0.1 million, respectively.

Historically, we have financed our operations, including technology and product research and development, primarily through sales of our common stock, product sales and debt financings.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis