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Item 7. Management’s Discussion and Analysis

2025-02-27 compared with 2024-03-12 · 335 added, 247 removed, 684 unchanged (46% of the section changed)

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Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business, include forward-looking statements that involve risks and uncertainties.

You should review the “Risk Factors” included in Item 1A of this Annual Report on Form 10-K for a discussion of important factors that could cause our actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

You should review the sections entitled "Forward-Looking Statements" and "Risk Factors" in this Annual Report on Form 10-K for a discussion of important factors that could cause our actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Management’s discussion and analysis of financial condition and results of operations is provided as a supplement to the consolidated financial statements and notes, included in Item 8 of this Annual Report on Form 10-K to help provide an understanding of our financial condition, the changes in our financial condition and our results of operations.

Our discussion is organized as follows:

This section provides a general description of our business and operating expenses.

This section provides a general description of our business and operating expenses, as well as other matters that we believe are important to understanding our results of operations and financial condition and in anticipating future trends.

• Critical accounting estimates.

This section contains a discussion of the accounting estimates that we believe are important to our financial condition and results of operations and that require significant judgment and estimates on the part of management in their application.

This section contains a discussion of the accounting estimates that require a significant level of estimation uncertainty, and changes in which are reasonably likely to have a material effect on our financial condition or results of operations.

In addition, all of our significant accounting policies are summarized in Note 2 to the consolidated financial statements included in Item 8 of this Annual Report on Form 10-K.

• Results of operations.

This section provides an analysis of our results of operations presented in the accompanying consolidated statements of operations and comprehensive loss by comparing the results for the year ended December 31, 2023 to the results for the year ended December 31, 2022.

This section provides an analysis of our results of operations presented in the accompanying consolidated statements of operations and comprehensive loss by comparing the results for the year ended December 31, 2024 to the results for the year ended December 31, 2023 and the results for the year ended December 31, 2023 to the results for the year ended December 31, 2022.

• Liquidity and capital resources.

This section provides an analysis of our cash flows and a discussion of our outstanding commitments and contingencies that existed as of December 31, 2023.

Included in this discussion is our financial capacity to fund our future commitments and a discussion of other financing arrangements.

This section provides a discussion of our financial condition and liquidity, an analysis of our cash flows for the years ended December 31, 2024 and 2023, and a discussion of our outstanding commitments and contingencies that existed as of December 31, 2024.

We are a commercial-stage biotechnology company focused on improving the lives of patients by developing and commercializing therapeutic innovations that improve medical care.

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for the prevention of chemotherapy-induced nausea and vomiting.

Material Trends and Developments

Impact of Global Business, Political and Macroeconomic Conditions

Uncertainty in the political and macroeconomic environments presents significant risks to our business.

We are subject to continuing risks and uncertainties, including increasing financial market volatility and uncertainty,

inflation, interest rate fluctuations, uncertainty with respect to the federal budget and debt ceiling and potential government shutdowns related thereto, natural or man-made disasters, including severe weather, epidemics, pandemics, cyberattacks, acts of war or terrorism, armed conflict, or global pandemics.

We closely monitor the impacts of these factors on all aspects of our business, including the impacts on our clinical trial patients, employees, partners, suppliers, and vendors.

The ultimate impact of global economic conditions on our business remains highly uncertain and will depend on future developments and factors that continue to evolve.

Most of these developments and factors are outside of our control and could exist for an extended period of time.

As a result, we are subject to continuing risks and uncertainties and continue to closely monitor the impact of the current conditions on our business.

For more information regarding these risks and uncertainties, see the section titled "Risk Factors" in this Annual Report on Form 10-K.

Crosslink Co-Promotion Agreement

On January 5, 2024, we entered into a five-year co-promotion agreement with Crosslink Network to be the lead partner in the United States to expand the promotion of ZYNRELEF for orthopedic indications.

Under the terms of the agreement, Crosslink Network is compensated on a fixed-fee per vial basis, based on growth over a pre-determined baseline period.

Net Product Sales

Net product sales include revenue recognized for sales of ZYNRELEF, APONVIE, CINVANTI, and SUSTOL (collectively, our “Products”) to a limited number of specialty distributors and full line wholesalers (collectively, “Customers”), less applicable sales allowances.

See the “Critical Accounting Estimates” section of this Annual Report on Form 10-K for further details on our revenue recognition policy.

The revenues we generate are dependent upon and subject to several factors, including those discussed in the "Risk Factors" section of this Annual Report on Form 10-K.

Refer to the “Critical Accounting Estimates” section of this Annual Report on Form 10-K for further details on our revenue recognition policy.

Cost of Product Sales

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These costs include raw materials, labor, manufacturing and quality control overhead, and depreciation of equipment, as well as shipping and distribution costs.

The costs to produce, package and deliver our Products are dependent upon and subject to several factors as discussed in the "Risk Factors" section of this Annual Report on Form 10-K.

See the “Critical Accounting Estimates” section of this Annual Report on Form 10-K for further details on our inventory policy.

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All costs of research and development are expensed in the period incurred.

Research and development expense primarily consists of salaries, stock-based compensation expense and other related costs for personnel in manufacturing, clinical and preclinical development, regulatory, quality and medical affairs.

Research and development expense primarily consists of salaries, stock-based compensation expense and other related costs for personnel in clinical and preclinical development, regulatory, and quality.

Other research and development expense includes professional fees paid to outside service providers and consultants, facilities costs and materials used in the clinical and preclinical trials and research and development.

General and Administrative Expense

General and administrative expense primarily consists of salaries, stock-based compensation expense and other related costs for personnel in executive, finance and accounting, information technology, legal and human resource functions.

Other general and administrative expense includes professional fees for legal, investor relations, accounting and other general corporate purposes, facility costs and insurance not otherwise included in research and development expense.

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Other Income (Expense), Net

Other income (expense), net primarily consists of interest expense, income earned on our cash, cash equivalents and short-term investments, the amortization of debt issuance costs related to our convertible notes payable, the amortization of a debt discount related to our working capital line of credit, and write-off of property and equipment.

We expect total operating expenses to decrease on a year-over-year basis in 2024 as a result of our cost reduction efforts.

Our expectations are subject to various risks and assumptions, including but not limited to those listed under the section entitled “Risk Factors” in this Annual Report on Form 10-K.

Additional uncertainties are identified in the section entitled “Forward-Looking Statements” in this Annual Report on Form 10-K.

We continue to monitor the factors which may impact our business and as of the filing date of this report, we do not believe they are material.

Other income (expense), net primarily consists of interest expense, income earned on our cash, cash equivalents and short-term investments, the amortization of debt issuance costs related to our Senior Convertible Notes payable, the amortization of debt discount related to our Working Capital Facility, and write-off of property and equipment.

We may be able to control the timing and extent of the operating expenses, but some expenses may be incurred without regard to our actions due to contractual commitments.

Our expectations are subject to various risks and assumptions, including but not limited to those listed under the section entitled "Forward-Looking Statements" and “Risk Factors” in this Annual Report on Form 10-K.

Critical Accounting Estimates

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Actual results may differ materially from these estimates under different assumptions or conditions.

Management considers an accounting estimate to be critical if:

it requires a significant level of estimation uncertainty, and changes in the estimate are reasonably likely to have a material effect on our financial condition or results of operations.

Management considers an accounting estimate to be critical if it requires a significant level of estimation uncertainty, and changes in the estimate are reasonably likely to have a material effect on our financial condition or results of operations.

We believe the following critical accounting estimates describe the most significant judgments and estimates used in the preparation of our consolidated financial statements.

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Product sales allowances are based on amounts owed or to be claimed on the related sales.

Such variable consideration includes estimates that take into consideration the terms of our agreements with Customers, historical product returns, rebates or discounts taken, the shelf life of the product and specific known market events,

such as competitive pricing and new product introductions.

If actual future results vary from our estimates, we may need to adjust these estimates, which could have an effect on product sales and earnings in the period of adjustment.

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To date, our estimates have not differed materially from actuals.

However, subsequent changes in estimates may result in a material change to our product sales allowances, which could materially affect our results of operations and financial position.

However, subsequent changes in estimates may result in a material change to our product sales allowances, which could materially affect our results of operations and financial condition.

We invest in various types of securities, including U.S.

treasury bills and government agency obligations, corporate debt securities and commercial paper.

These securities have been initially valued at the transaction price and subsequently valued utilizing a third-party service provider who assesses the fair value using inputs other than quoted prices that are observable either directly or indirectly, such as yield curve, volatility factors, credit spreads, default rates, loss severity, current market and contractual prices for the underlying instruments or debt, broker and dealer quotes, as well as other relevant economic measures.

We perform certain procedures to corroborate the fair value of these holdings, and in the process, we apply judgment and estimates that if changed, could significantly affect our statements of financial positions.

These securities have been initially valued at the transaction price and subsequently valued utilizing a third-party to assess the fair value using inputs other than quoted prices that are observable either directly or indirectly, such as yield curve, volatility factors, credit spreads, default rates, loss severity, current market and contractual prices for the underlying instruments or debt, broker and dealer quotes, as well as other relevant economic measures.

To date, our estimates have not differed materially from actual values.

However, subsequent changes in estimates may result in a material change to the value of our cash equivalents and short-term investments, which could materially affect our results of operations and financial position.

Inventory is stated at the lower of cost or estimated net realizable value on a first-in, first-out, or FIFO, basis.

Inventory is stated at the lower of cost or estimated net realizable value on a first-in, first-out ("FIFO"), basis.

We periodically analyze our inventory levels and write down inventory that has become obsolete, inventory that has a cost basis in excess of its estimated realizable value and inventory quantities that are in excess of expected sales requirements as cost of product sales.

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We estimate certain costs and expenses and accrue for these liabilities as part of our process of preparing financial statements.

Examples of areas in which subjective judgment may be required include, among other things, costs associated with services provided by contract organizations for preclinical and clinical development, and manufacturing of our Products and product candidates.

We accrue for costs incurred as the services are being provided by monitoring the status of the services provided, and the invoices received from our external service providers.

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To date, our estimates have not differed materially from the actual costs incurred.

However, subsequent changes in estimates may result in a material change to our accruals, which could also materially affect our results of operations and financial position.

However, subsequent changes in estimates may result in a material change to our accruals, which could also materially affect our results of operations and financial condition.

We make certain estimates and judgments in determining income tax expense for financial statement purposes.

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To date, our estimates have not materially changed.

However, subsequent changes in estimates may result in a significant change to our deferred tax assets and liabilities, which could materially affect our results of operations and financial position.

However, subsequent changes in estimates may result in a significant change to our deferred tax assets and liabilities, which could materially affect our results of operations and financial condition.

Stock-based Compensation

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Results of Operations

Years Ended December 31, 2023 and 2022

Comparison of Results of Operations

Years Ended December 31,

($ in thousands)

Net product sales

For the year ended December 31, 2023, net product sales were $127.0 million, compared to $107.7 million for the same period in 2022.

Net Product Sales – Acute Care

For the year ended December 31, 2023, net product sales of ZYNRELEF were $17.7 million, compared to $10.2 million for the same period in 2022.

The increase in net product sales of ZYNRELEF was primarily due to an increase in units sold in 2023, as compared to 2022.

For the year ended December 31, 2023, net product sales of APONVIE were $1.4 million.

APONVIE became commercially available in the U.S.

Cost of product sales

Operating expenses:

Research and development

General and administrative

Sales and marketing

Loss from operations

Net Product Sales

Years Ended December 31,

Acute Care Net Product Sales

Oncology Net Product Sales

Total Net Product Sales

Acute Care Growth

Oncology Growth

Total Net Product Sales Growth

Total acute care net product sales increased 57.3% during the year ended December 31, 2024, as compared to the prior year, primarily driven by an increase in the units sold as a result of increase in market share and new customers to the products for both ZYNRELEF and APONVIE.

In addition, the increase is attributed to the commercial launch of APONVIE in March 2023.

Total acute care net product sales increased 87.5% during the year ended December 31, 2023, as compared to the prior year, driven by an increase in the units sold as a result of increase in market share and new customers to the products, as well as commercial launch of APONVIE in the U.S.

in March 2023.

Net Product Sales – Oncology Care

For the year ended December 31, 2023, net product sales of CINVANTI were $94.9 million, compared to $87.3 million for the same period in 2022.

The increase in net product sales of CINVANTI was primarily due to an increase in units sold in 2023, as compared to 2022.

For the year ended December 31, 2023, net product sales of SUSTOL were $13.0 million, compared to $10.2 million for the same period in 2022.

The increase in net product sales of SUSTOL was primarily due to an increase in units sold in 2023, as compared to 2022.

Total oncology net product sales increased 5.8% during the year ended December 31, 2024, as compared to the prior year, primarily driven by an increase in the units sold.

Total oncology net product sales increased 10.7% during the year ended December 31, 2023, as compared to the prior year, driven by an increase in the units sold.

Cost of Product Sales

For the year ended December 31, 2023, cost of product sales was $65.1 million, compared to $54.9 million for the same period in 2022.

The increase in cost of product sales was primarily due to an increase in inventory write-offs in 2023, as compared to 2022.

For the years ended December 31, 2023 and 2022, cost of product sales included charges of $20.3 million and $8.9 million, respectively, resulting primarily from the write-off of ZYNRELEF inventory.

The increase was also due to an increase in units sold in 2023, as compared to 2022, partially offset by a decrease in cost per units for CINVANTI and ZYNRELEF, as large-scale manufacturing was validated and approved in late 2022.

We began capitalizing raw materials, labor and overhead related to the manufacturing of APONVIE following FDA approval in September 2022.

There were no commercial manufacturing costs incurred prior to FDA approval of APONVIE.

Cost of sales decreased 40.6% during the year ended December 31, 2024, as compared to the prior year and as a percentage of sales, decreased 24.4% during the same period, primarily driven by a 29.2% decrease due to reduction in inventory reserves recorded, as the year-ended December 31, 2023 included write-offs for excess and obsolete inventory, for which there were not similar reserves or write-offs in the current year, and a 10.3% decrease due to scaled production achieved in late 2022, resulting in a lower cost per unit.

Cost of sales increased 18.6% during the year ended December 31, 2023, as compared to the prior year and as a percentage of sales, increased 0.2% during the same period, primarily driven by a 20.8% increase due to inventory

reserves recorded.

This increase was partially offset by a 1.8% decrease due to scaled production achieved in late 2022, resulting in a lower cost per unit.

Research and Development Expense

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CINVANTI-related costs

APONVIE-related costs

HTX-034-related costs

SUSTOL-related costs

APONVIE-related costs

Personnel costs and other expenses

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Total research and development expense

For the year ended December 31, 2023, research and development expense was $55.9 million, compared to $107.5 million for the same period in 2022.

This decrease was primarily due to decreases in costs related to ZYNRELEF and CINVANTI, as product scale-up, validation activities and raw materials qualification were completed in 2022.

In addition, the decrease in research and development expense was due to decreases in personnel and related costs as a result of the savings from our reorganizations, as well as a decrease in non-cash, stock-based compensation expense.

Research and development expense decreased 57.4% during the year ended December 31, 2024, compared to the prior year and as a percentage of sales, decreased 19.2% during the same period, primarily due to decreased headcount and related costs as a result of the restructuring implemented in the year ended December 31, 2023, as well as a decrease in corresponding non-cash, stock-based compensation expense.

The decrease is also partially due to APONVIE becoming commercially available in March 2023, which resulted in lower research and development expense in the year ended December 31, 2024 for APONVIE.

Research and development expense decreased 52.7% during the year ended December 31, 2023, compared to the prior year and as a percentage of sales, decreased 46.0% during the same period, primarily due to decreases in costs related to ZYNRELEF and CINVANTI, as product scale-up, validation activities and raw materials qualification were completed in 2022.

In addition, the decrease in research and development expense was due to decreased headcount and related costs as a result of restructurings in the years ended December 31, 2023 and December 31, 2022, as well as a decrease in corresponding non-cash, stock-based compensation expense.

These decreases were offset by an increase in APONVIE related costs to support commercial launch in March 2023.

General and Administrative Expense

For the year ended December 31, 2023, general and administrative expense was $49.0 million, compared to $37.4 million for the same period in 2022.

The increase was primarily due to severance and non-cash, stock-based compensation expense in connection with executive departures in the second and third quarters of 2023, and ongoing legal costs associated with the CINVANTI patent litigation.

General and administrative expense decreased 18.8% during the year ended December 31, 2024, compared to the prior year and as a percentage of sales, decreased 14.8% during the same period, primarily due to decreased headcount and related costs, as a result of the restructuring implemented in the year ended December 31, 2023, and operational efficiencies.

These decreases were offset by increased legal costs due to ongoing patent litigation.

General and administrative expense increased 5.7% during the year ended December 31, 2023, compared to the prior year and as a percentage of sales, decreased 6.0% during the same period, primarily due to severance and non-cash, stock-based compensation expense in connection with the executive departures in the second and third quarters of 2023, and ongoing legal costs associated with the CINVANTI patent litigation.

Sales and Marketing Expense

For the year ended December 31, 2023, sales and marketing expense was $67.6 million, compared to $82.5 million for the same period in 2022.

The decrease was primarily due to a decrease in costs to support the ongoing commercialization of ZYNRELEF, due to improved operational efficiencies.

Other Income (Expense), Net

For the year ended December 31, 2023, other income (expense), net was $0.1 million, compared to ($7.4) million for the same period in 2022.

The change was primarily due to the write-off of property and equipment at a third-party manufacturing site in 2022, as well as an increase in interest income earned on our invested cash balances in 2023.

Restructuring Plans

See Note 7 to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for discussion of the June 2022 and June 2023 Reorganizations.

Sales and marketing expense decreased 30.4% during the year ended December 31, 2024, compared to the prior year and as a percentage of sales, decreased 20.6% during the same period, primarily due to decreased headcount and related costs, as a result of the restructuring implemented in the year ended December 31, 2023, and operational efficiencies.

Sales and marketing expense decreased 18.0% during the year ended December 31, 2023, compared to the prior year and as a percentage of sales, decreased 23.4% during the same period, primarily due to a decrease in costs to support the ongoing commercialization of ZYNRELEF, offset by costs to support commercialization of APONVIE, and due to improved operational efficiencies.

Other (Expense) Income, Net

Other (expense) income, net decreased $2.1 million during the year ended December 31, 2024, compared to the prior year, primarily due to the interest expense associated with the Working Capital Facility Agreement, which was entered into August 2023.

Other (expense) income, net increased $7.4 million during the year ended December 31, 2023, compared to the prior year, primarily due to the write-off of property and equipment at a third-party manufacturing site in 2022, as well as an increase in interest income earned on our invested cash balances in 2023.

Liquidity and Capital Resources

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Securities and Exchange Commission.

Our net loss for the year ended December 31, 2023 was $110.6 million, or $0.80 per share, compared to a net loss of $182.0 million, or $1.67 per share, for the same period in 2022.

However, we expect that we will need to refinance, or otherwise satisfy, our current indebtedness of $175.5 million to fully fund our current business plan and meet all commitments discussed below.

We continuously evaluate our liquidity and capital resources, including access to external capital, in light of current economic and market conditions and our operational performance.

Our net loss for the year ended December 31, 2024 was $13.6 million, or $0.09 per share, compared to a net loss of $110.6 million, or $0.80 per share, for the same period in 2023, and $182.0 million or $1.67 per share for the same period in 2022.

Our net cash used in operating activities for the year ended December 31, 2024 was $22.5 million, compared to $58.8 million for the same period in 2023.

The decrease in net cash used in operating activities was primarily due to a decrease in operating expenses and changes in working capital.

Our net cash provided by investing activities for the year ended December 31, 2023 was $18.0 million, compared to net cash used in investing activities of $3.3 million for the same period in 2022.

The increase in cash provided by investing activities was primarily due to net maturities of short-term investments of $19.5 million for the year ended December 31, 2023, compared to net purchases of short-term investments of $1.7 million for the same period in 2022.

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 and stock-based compensation expenses, primarily as a result of the restructuring implemented in 2023, offset by the net increase in write-offs of property and equipment of $3.8 million during the year ended December 31, 2024, and changes in working capital, specifically accounts receivable due to timing of collections, inventory as a result of write-offs incurred, prepaid assets due to the timing of payments, and accounts payable and accrued expenses, including payroll and employee liabilities due to the timing of payments and reduced headcount.

Our net cash provided by investing activities for the year ended December 31, 2024 was $18.7 million, compared to $18.0 million for the same period in 2023.

The increase in cash provided by investing activities was primarily due to net maturities of short-term investments of $20.4 million for the year ended December 31, 2024, compared to net maturities of short-term investments of $19.5 million for the same period in 2023.

Our net cash provided by financing activities for the year ended December 31, 2024 was $0.9 million, compared to $54.1 million for the same period in 2023.

The decrease in cash provided by financing activities was primarily due to net proceeds of $54.1 million received from debt and equity financings completed in the third quarter of 2023, compared to net proceeds of $75.1 million received from an equity financing in 2022.

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

The decrease in cash provided by financing activities was primarily due to net proceeds of $54.1 million received from debt and equity financings completed in the third quarter of 2023.

There were no comparable transactions in the year ended December 31, 2024.

The net cash provided by financing activities for the year ended December 31, 2024 was a result of proceeds from transactions under the Employee Stock Purchase Plan and the equity incentive plan.

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.

Material Cash Requirements

As of December 31, 2024, $150.0 million in aggregate principal amount of the Senior Convertible Notes were outstanding (see Note 8 to the Consolidated Financial Statements included in this Annual Report on Form 10-K).

The Senior Convertible Notes mature on May 26, 2026, unless earlier converted, redeemed or repurchased.

As of December 31, 2024, $25.5 million aggregate principal amount under the Working Capital Facility was outstanding (see Note 8 to the Consolidated Financial Statements included in this Annual Report on Form 10-K).

The Working Capital Facility has a four year term and matures on the earlier of earlier of (a) September 1, 2027 and (b) to the extent that any of the Senior Convertible Notes remain outstanding on such date, (i) May 12, 2026 or (ii) in the event that the maturity date of any of the Senior Convertible Notes is extended, prior to May 12, 2026, to August 11, 2026 or later, the date that is ninety-one days prior to the maturity date of such further extended Senior Convertible Notes.

As of December 31, 2024, the total amount of availability under the Working Capital Facility is approximately $10 million.

At December 31, 2024, purchase obligations primarily consisted of non-cancellable commitments with third-party manufacturers in connection with the manufacturing of our Products.

Total purchase obligations of $49.2 million were not included in our consolidated financial statements for the year ended December 31, 2024, with $37.4 million due in one year and $11.8 million due within two years.

We intend to use our current financial resources to fund our commitments under these purchase obligations.

As of December 31, 2024, we had an operating lease for 52,148 square feet of laboratory and office space in San Diego, California, with a lease term that expires on December 31, 2025.

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In September 2023, we also entered into a sublease agreement to sublet 5,840 square feet of office space in Cary, North Carolina, with a lease term that expires on April 30, 2025.

As of December 31, 2023, we had total operating lease obligations of $6.3 million, with $3.2 million due in one year and $3.1 million due within two to three years.

At December 31, 2023, purchase obligations primarily consisted of non-cancellable commitments with third-party manufacturers in connection with the manufacturing of our Products.

Total purchase obligations of $60.2 million were not included in our consolidated financial statements for the year ended December 31, 2023, with $39.0 million due in one year and $21.2 million due within two to three years.

We intend to use our current financial resources to fund our commitments under these purchase obligations.

As of December 31, 2023, $150.0 million aggregate principal amount of the convertible notes were outstanding (see Note 8 to the Consolidated Financial Statements included in this Annual Report on Form 10-K).

The senior unsecured convertible notes mature on May 26, 2026, unless earlier converted, redeemed or repurchased.

As of December 31, 2023, $25.2 million aggregate principal amount under the working capital facility was outstanding (see Note 8 to the Consolidated Financial Statements included in this Annual Report on Form 10-K).

The working capital facility has a four year term, with a springing maturity date that is 91 days prior to the stated maturity of our existing senior unsecured convertible notes (if still outstanding at such time).

We enter into agreements with clinical sites and clinical research organizations for the conduct of our clinical trials and contract manufacturing organizations for the manufacture and supply of preclinical, clinical and commercial materials and drug product.

We make payments to these clinical sites and clinical research organizations based in part on the number of eligible patients enrolled and the length of their participation in the clinical trials.

In September 2024, we entered into a short-term sublease agreement to sublet 9,882 square feet of office space in Cary, North Carolina, with a lease term that expires on August 31, 2025.

As of December 31, 2024, we had total operating lease obligations of $3.0 million, all of which is due within one year.

We enter into agreements with contract manufacturing organizations for the manufacture and supply of commercial materials and drug product.

In some of our agreements with contract manufacturing organizations, we are required to meet minimum purchase obligations.

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QUANTITATIVE AND QUALITAT IVE DISCLOSURES ABOUT MARKET RISK.

Not required for smaller reporting companies.

Interest Rate Risk

We invest in marketable securities in accordance with our investment policy.

The primary objectives of our investment policy are to preserve capital, maintain proper liquidity to meet operating needs and maximize yields.

Our investment policy specifies credit quality standards for our investments and limits the amount of credit exposure to any single issue, issuer or type of investment.

We place our excess cash with high credit quality financial institutions, commercial companies, and government agencies in order to limit the amount of credit exposure.

Some of the securities we invest in may have market risk.

This means that a change in prevailing interest rates may cause the principal amount of the investment to fluctuate.

Our investment exposure to market risk for changes in interest rates relates to the increase or decrease in the amount of interest income we can earn on our portfolio, changes in the market value due to changes in interest rates and other market factors, as well as the increase or decrease in any realized gains and losses.

Our investment portfolio includes only marketable securities and instruments with active secondary or resale markets to help ensure portfolio liquidity.

We generally have the ability to hold our fixed-income investments to maturity and, therefore, do not expect that our operating results, financial condition or cash flows will be materially impacted due to a sudden change in interest rates.

However, our future investment income may fall short of expectations due to changes in interest rates, or we may suffer losses in principal if forced to sell securities which have declined in market value due to changes in interest rates or other factors, such as changes in credit risk related to the securities’ issuers.

To minimize this risk, we schedule our investments to have maturities that coincide with our expected cash flow needs, thus avoiding the need to redeem an investment prior to its maturity date.

Accordingly, we do not believe that we have material exposure to interest rate risk arising from our investments.

We have not realized any significant losses from our investments.

We do not use interest rate derivative instruments to manage exposure to interest rate changes.

We ensure the safety and preservation of invested principal funds by limiting default risk, market risk and reinvestment risk.

We reduce default risk by investing in investment grade securities.

Foreign Currency Exchange Rate Risk

Most of our revenues and expenses are denominated in the U.S.

We also incur transactions in foreign currency, principally denominated in Euros, primarily related to contract manufacturing, and we expect to continue to do so.

Our limited foreign currency exposure is to fluctuations in the Euro.

We do not anticipate that foreign currency transaction gains or losses will be significant at our current level of operations.

However, transaction gains or losses may become significant in the future.

We have not engaged in foreign currency hedging to date.

Foreign currency gains or losses are included in the line items to which they relate in the Consolidated Statements of Operations and Comprehensive Loss.

Inflation Risk

Inflation generally impacts us by potentially increasing our operating expenses, including cost of product sales.

We do not believe that inflation has had a material impact on our business or results of operations during the periods for which the consolidated financial statements are presented in this report.

Significant adverse changes in inflation could negatively impact our future results of operations.

FINANCIAL STATEMENT S AND SUPPLEMENTARY DATA.

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We have audited the accompanying consolidated balance sheets of Heron Therapeutics, Inc.

and subsidiaries (the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of operations and comprehensive loss, stockholders’ equity (deficit), and cash flows for each of the years in the two-year period ended December 31, 2023, and the related notes (collectively referred to as the "consolidated financial statements").

and subsidiaries (the “Company”) as of December 31, 2024 and 2023, and the related consolidated statements of operations and comprehensive loss, stockholders’ equity (deficit), and cash flows for each of the years in the three-year period ended December 31, 2024, and the related notes (collectively referred to as the "consolidated financial statements").

We also have audited the Company’s internal control over financial reporting as of December 31, 2024, based on criteria established in 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on criteria established in 2013 Internal Control—Integrated Framework issued by the COSO.

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The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control Over Financial Reporting.

Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the entity’s internal control over financial reporting based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

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We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

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Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

An entity’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance

with accounting principles generally accepted in the United States of America.

An entity’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the entity;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the entity are being made only in accordance with authorizations of management and directors of the entity;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the entity’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matter

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

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and (2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Product Returns

Description of the Matter

As discussed in Notes 2 and 5 to the consolidated financial statements, the Company earns its revenue through the sale of its products to a limited number of distributors that resell to healthcare providers and hospitals, the end users of the Company’s products.

The Company recognizes product sales allowances as a reduction of product sales in the same period the related revenue is recognized.

Product sales allowances are based on amounts owed or to be claimed on the related sales.

Such variable consideration includes estimates that take into consideration the terms of the Company’s agreements with customers, historical product returns, the shelf life of the product and specific known market events, such as competitive pricing and new product introductions.

As of December 31, 2023, the Company’s allowance for product returns totaled $4.8 million.

The Company’s estimated allowance for product returns requires a high degree of judgment and is subject to change based on various quantitative and qualitative factors.

As discussed in Notes 2 and 5 to the consolidated financial statements, the Company earns its revenue through the sale of its products, CINVANTI, SUSTOL, ZYNRELEF, and APONVIE, to specialty distributors.

The Company’s net product sales totaled $144.3 million for the year ended December 31, 2024.

The amount of revenue recognized is net of product sales allowances for product returns, distributor fees, group purchase organization fees, discounts and rebates, and Medicare rebates, which totaled $37.4 million as of December 31, 2024.

The allowances are recorded in the same period that the related revenue is recognized and create variability in the consideration that the Company expects to receive.

Management’s estimated allowance for product returns requires a high degree of judgment and is subject to change based on various quantitative and qualitative factors.

Accordingly, extensive audit effort and a high degree of auditor judgment were needed to evaluate management’s estimates and assumptions used in the determination of the allowance for product returns.

Therefore, we identified the Company's allowance for product returns as a critical audit matter.

Therefore, we identified management's allowance for product returns as a critical audit matter.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s process for estimating the allowance for product returns.

We evaluated the significant accounting policies relating to product returns, as well as management’s application of the policies, for appropriateness and reasonableness.

We obtained the Company’s allowance for product returns analysis and performed testing procedures on the underlying data that is used in management’s development of the product returns estimate.

We compared the significant assumptions used by management to customer contract information, historical returns data, peer group return rates where available, and current and subsequent product return activity.

In addition, we performed sensitivity analyses of significant assumptions used in the analysis to determine what changes in assumptions are particularly sensitive when calculating the amount of the allowance for product returns.

To address this matter, through our integrated audit approach, we performed both control testing as well as substantive audit procedures.

We obtained an understanding of, evaluated the design and tested the operating effectiveness of management’s controls over the Company’s processes related to recording the allowance for product returns, including testing management’s quarterly control to perform a hindsight analysis and review historical returns rates.

We also evaluated the significant accounting policies relating to product returns, as well as management’s application of the policies, for appropriateness and reasonableness.

As part of our substantive testing procedures, we selected a sample of customer transactions and performed the following procedures for each selection:

• Obtained and read contract source documents and management’s contract analyses.

• Evaluated whether the selected estimates were applied consistently across similar arrangements.

• Tested the reasonableness of management’s assumptions in calculating the allowance for product returns by comparing them to historical data, peer group information, and, where available, subsequent product returns.

• Where management used actual shipments and returns to estimate product returns, we tested the third-party reports used by management for completeness and accuracy.

Additionally, we tested the mathematical accuracy of management’s calculation of revenue, net of product sales allowances, including product returns, and the associated timing of revenue recognition, in the consolidated financial statements.

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We have served as the Company's auditor since 2006.

San Francisco, California

March 12, 2024

Orlando, Florida

February 27, 2025

PCAOB ID Number 100

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Accounts receivable, net

Inventory, net

Prepaid expenses and other current assets

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Right-of-use lease assets

LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY

LIABILITIES AND STOCKHOLDERS’ DEFICIT

Current liabilities:

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Commitments and contingencies (see Note 6)

Stockholders’ equity:

Preferred stock, $ 0.01 par value:

2,500,000 shares authorized;

no shares issued or outstanding at December 31, 2023 and 2022

Stockholders’ deficit:

Common stock, $ 0.01 par value:

400,000,000 shares authorized;

150,285,044 shares issued and outstanding at December 31, 2023 and 119,154,538 shares issued and outstanding at December 31, 2022

152,127,878 shares issued and outstanding at December 31, 2024 and 225,000,000 shares authorized;

150,285,044 shares issued and outstanding at December 31, 2023

Additional paid-in capital

Accumulated other comprehensive income (loss)

Accumulated other comprehensive income

Accumulated deficit

Total stockholders’ (deficit) equity

Total liabilities and stockholders’ equity

Total stockholders’ deficit

Total liabilities and stockholders’ deficit

See accompanying Notes to Consolidated Financial Statements.

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Loss from operations

Other income (expense), net:

Other (expense) income, net:

Interest income

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Other income (expense)

Total other income (expense), net

Total other (expense) income, net

Other comprehensive income (loss):

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HERON THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF ST OCKHOLDERS’ (DEFICIT) EQUITY

CONSOLIDATED STATEMENTS OF ST OCKHOLDERS’ EQUITY (DEFICIT)

(In thousands)

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Balance, December 31, 2023

Issuance of common stock under

Employee Stock Purchase Plan

Issuance of common stock under

equity incentive plan

Stock-based compensation expense

Comprehensive loss

Balance, December 31, 2024

See accompanying Notes to Consolidated Financial Statements.

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Operating activities:

Adjustments to reconcile net loss to net cash used for operating activities:

Adjustments to reconcile net loss to net cash used in operating activities:

Stock-based compensation expense

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Accretion of discount on short-term investments

Impairment of property and equipment

Loss on disposal of property and equipment

Retirement and impairment of property and equipment

(Gain)/Loss on disposal of property and equipment

Change in operating assets and liabilities:

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Proceeds from purchases under the Employee Stock Purchase Plan

Payments for stock issued under the equity incentive plan

Receipts (payments) for stock issued under the equity incentive plan

Proceeds from warrant exercises

Net cash provided by financing activities

Net increase (decrease) in cash and cash equivalents

Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents at beginning of year

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since its inception.

Reclassification of Certain Expenses

The consolidated statements of operations and comprehensive loss for the year ended December 31, 2023 and December 31, 2022, reflect reclassification of certain expenses from research and development to general and administrative expenses to align with the Company's presentation for the year ended December 31, 2024, as a result of the restructuring implemented in 2023 and the realignment of the Company's departments.

These reclassifications resulted in no change to total operating expenses, loss from operations or net loss and no pro forma financial information is necessary.

Use of Estimates

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We have classified our short-term investments as available-for-sale securities in the accompanying consolidated financial statements.

Available-for-sale securities are stated at fair market value, with net changes in unrealized gains and losses reported in other comprehensive loss and realized gains and losses included in other income (expense), net.

Available-for-sale securities are stated at fair

market value, with net changes in unrealized gains and losses reported in other comprehensive loss and realized gains and losses included in other income (expense), net.

The cost of securities sold is based on the specific identification method.

Interest and dividends on securities classified as available-for-sale are included in interest income within other income (expense), net.

Our bank and investment accounts have been placed under a control agreement in accordance with our working capital line of credit (see Note 8).

Our bank and investment accounts have been placed under a control agreement in accordance with our Working Capital Facility Agreement (see Note 8).

Fair Value of Financial Instruments

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The following includes the percentage of net product sales and accounts receivable balances for our three major Customers, each of which comprised 10% or more of our net product sales:

Net Product Sales

Year Ended December 31

Accounts Receivable

As of December 31,

Accounts Receivable, Net

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The allowance for credit losses reflects accounts receivable balances that are believed to be uncollectible.

In estimating the allowance for credit losses, we consider:

In estimating the

allowance for credit losses, we consider:

(1) our historical experience with collections and write-offs;

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For the years ended December 31, 2024 and 2023, we did not have any material write-offs of accounts receivable balances.

Inventory is stated at the lower of cost or estimated net realizable value on a first-in, first-out, or FIFO, basis.

Inventory is stated at the lower of cost or estimated net realizable value on a FIFO basis.

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Property and equipment is stated at cost less accumulated depreciation and amortization.

Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets (generally 5 years ).

Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets (generally five years ).

Leasehold improvements are stated at cost and amortized on a straight-line basis over the shorter of the estimated useful life of the asset or the lease term.

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Revenue is recognized in an amount that reflects the consideration we expect to receive in exchange for our Products.

To determine revenue recognition for contracts with customers within the scope of Topic 606, we perform the following 5 steps:

To determine revenue recognition for contracts with Customers within the scope of Topic 606, we perform the following five steps:

(i) identify the contract(s) with a Customer;

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Our product sales allowances include:

• Product Returns—We allow our Customers to return product for credit beginning three months prior to the product expiration date and up to 12 months after the product expiration date.

• Product Returns—We allow our Customers to return product for credit up to 12 months after the product expiration date.

As such, there may be a significant period of time between the time the product is shipped and the time the credit is issued on returned product.

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Our product sales allowances and related accruals are evaluated each reporting period and adjusted when trends or significant events indicate that a change in estimate is appropriate.

Changes in product sales allowance estimates could materially affect our results of operations and financial position.

Accrued Clinical Liabilities

We accrue clinical costs based on work performed, which relies on estimates of the progress of the trials and the related expenses incurred.

Clinical trial related contracts vary significantly in duration, and may be for a fixed amount, based on the achievement of certain contingent events or deliverables, a variable amount based on actual costs incurred, capped at a certain limit or contain a combination of these elements.

Revisions are recorded to research and development expense in the period in which the facts that give rise to the revision become known.

Historically, revisions have not resulted in material changes to research and development expense;

however, a modification in the protocol of a clinical trial or cancellation of a clinical trial could result in a material charge to our results of operations.

Changes in product sales allowance estimates could materially affect our results of operations and financial condition.

Accrued Clinical and Manufacturing Liabilities

We accrue clinical and manufacturing costs based on work performed, which relies on estimates of the progress of the work completed and the related expenses incurred.

Contracts for clinical trials and manufacturing vary significantly in duration, and may be for a fixed amount, based on the achievement of certain contingent events or deliverables, a variable amount based on actual costs incurred, capped at a certain limit or contain a combination of these elements.

Revisions are recorded to research and development expense or inventory in the period in which the facts that give rise to the revision become known.

Historically, revisions have not resulted in material changes to research and development expense or inventory.

However, a modification could result in a material charge to our results of operations.

Research and Development Expense

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For purposes of this calculation, stock options, restricted stock units, warrants and shares of common stock underlying convertible notes are considered to be common stock equivalents and are included in the calculation of diluted net loss per share only when their effect is dilutive.

Because we have incurred a net loss for both periods presented in the consolidated statements of operations and comprehensive loss, the following common stock equivalents were not included in the computation of net loss per share because their effect would be anti-dilutive (in thousands):

Because we have incurred a net loss for all periods presented in the consolidated statements of operations and comprehensive loss, the following common stock equivalents were not included in the computation of net loss per share because their effect would be anti-dilutive (in thousands):

Stock options outstanding

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Segment Reporting

Management has determined that we operate in one business segment which is the development and commercialization of therapeutic innovations.

Management, upon consideration of the organizational structure of the business and information reviewed by the Company's Chief Executive Officer , who is also the Company's chief operating decision maker ("CODM"), has concluded that we have one reportable segment.

All revenues for the years ended December 31, 2024, 2023 and 2022 were generated from customers in the U.S.

The CODM allocates resources and evaluates the performance of the reportable segment, which is the consolidated entity, primarily based on net income (loss) as reported on the consolidated statements of operations and comprehensive loss.

The significant expenses reviewed by the CODM are cost of product sales, research and development expenses, general and administrative expenses, and sales and marketing expenses as reported on the consolidated statements of operations and comprehensive loss.

The Company's operating segments do not record intercompany revenue nor allocate any expenses.

The CODM does not evaluate operating segments using discrete asset information.

Recent Accounting Pronouncements

In November 2023, the FASB issued ASU 2023-07 , Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which enhances segment disclosures primarily by requiring disclosure of significant segment expenses.

This standard is effective for fiscal years beginning after December 15, 2023, and interim periods beginning after December 15, 2024.

Retrospective application is required.

The Company adopted this standard in the year ended December 31, 2024 .

The adoption of this standard did no t have a material impact to the Company's disclosures.

Not Yet Adopted

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Improvements to Income Tax Disclosures (“ASU 2023-09”), to enhance income tax reporting disclosures and require disclosure of specific categories in the tabular rate reconciliation.

ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, on a prospective basis.

Early adoption and retrospective application are permitted.

We are currently evaluating the impact on our disclosures.

This standard is effective for fiscal years beginning after December 15, 2024.

The Company is currently evaluating the impact on our disclosures.

In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses ("ASU 2024-03"), which requires disaggregated disclosures of certain categories of expenses that are included in the face of the financial statements.

This standard is effective for fiscal years beginning after December 15, 2026 and interim periods beginning after December 15, 2027.

Early adoption is permitted.

The Company is currently evaluating the impact on our disclosures.

Fair Value Measurements

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Foreign corporate debt securities

commercial paper

Foreign commercial paper

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Cash and money market funds

treasury bills and agency obligations

treasury bills and government agency obligations

corporate debt securities

Foreign corporate debt securities

commercial paper

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Foreign corporate debt securities

commercial paper

Foreign commercial paper

December 31, 2023

treasury bills and agency obligations

treasury bills and government agency obligations

corporate debt securities

Foreign corporate debt securities

commercial paper

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Unrealized gains and losses associated with our investments are reported in accumulated other comprehensive income (loss).

For the year ended December 31, 2023, we recorded $ 32,000 in net unrealized gains associated with our short-term investments.

For the year ended December 31, 2024, we recorded no net unrealized gains or losses associated with our short-term investments.

For the year ended December 31, 2023, we recorded $ 32,000 in net unrealized losses associated with our short-term investments.

Realized gains and losses associated with our investments, if any, are reported in the statements of operations and comprehensive loss.

We recognized $ 1,000 in realized losses during the year ended December 31, 2023.

We recognized $ 5,000 in realized gains during the year ended December 31, 2024, $ 1,000 in realized losses during the year ended December 31, 2023.

We did no t recognize any realized gains or losses during the year ended December 31, 2022.

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As of December 31, 2023, total inventory included $ 11.2 million related to ZYNRELEF, $ 26.4 million related to CINVANTI, $ 4.1 million related to SUSTOL and $ 0.4 million related to APONVIE.

Cost of product sales for the years ended December 31, 2023 and 2022 included charges of $ 20.3 million and $ 8.9 million, respectively, resulting primarily from the write-off of ZYNRELEF inventory.

Cost of product sales for the years ended December 31, 2024 and 2023 included charges of $ 2.5 million and $ 20.3 million, respectively, relating to the reserves and write-offs of inventory.

Prepaid Expenses and Other Assets

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Property and equipment, net

Depreciation and amortization expense for the years ended December 31, 2023 and 2022 was $ 2.9 million for both periods.

Depreciation and amortization expense for the years ended December 31, 2024 and 2023 was $ 2.5 million and $ 2.9 million, respectively.

As of December 31, 2024 and 2023, $ 2.6 million and $ 6.3 million of property and equipment, respectively, was in process and not depreciated during the respective years.

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Accrued consulting and professional fees

Accrued accounts payable

Accrued interest

Other accrued liabilities

Accrued interest

Accrued accounts payable

Total other accrued liabilities

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CINVANTI net product sales

SUSTOL net product sales

ZYNRELEF net product sales

SUSTOL net product sales

APONVIE net product sales

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The space was delivered to the subtenant in March 2022.

As a result of the sublease agreement, our one 5 -year option to renew the lease on expiration applies only with respect to our remaining 28,275 square feet of laboratory and office space.

As a result of the sublease agreement, our one five -year option to renew the lease on expiration applies only with respect to our remaining 28,275 square feet of laboratory and office space.

In September 2023, we also entered into a sublease agreement to sublet 5,840 square feet of office space in Cary, North Carolina, with a lease term that expires on April 30, 2025 .

In September 2024, we entered into a short-term sublease agreement to sublet 9,882 square feet of office space in Cary, North Carolina, with a lease term that expires on August 31, 2025 .

Annual future minimum lease payments as of December 31, 2024 are as follows (in thousands):

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Total lease liabilities

Rent expense under all operating leases totaled $ 2.9 million and $ 2.8 million for the years ended December 31, 2023 and 2022, respectively.

During the years ended December 31, 2023 and 2022, we paid $ 3.0 million and $ 2.9 million, respectively, for our operating leases.

Rent expense under all operating leases totaled $ 3.0 million, $ 2.9 million and $ 2.8 million for the years ended December 31, 2024 , 2023 and 2022, respectively.

During the years ended December 31, 2024, 2023 and 2022, we paid $ 3.2 million, $ 3.0 million and $ 2.9 million, respectively, for our operating leases.

Sublease rental income for the San Diego, CA sublease totaled $ 1.3 million, $ 1.2 million and $ 1.1 million for the years ended December 31, 2024, 2023 and 2022.

Development Agreements

We make payments to these clinical sites and clinical research organizations based in part on the number of eligible patients enrolled and the length of their participation in the clinical trials.

We enter into agreements with contract manufacturing organizations for the manufacture and supply of commercial materials and drug product.

In some of our agreements with contract manufacturing organizations, we are required to meet minimum purchase obligations.

Under certain of these agreements, we may be subject to penalties in the event that we prematurely terminate these agreements.

At this time, due to the variability associated with clinical site agreements, contract research organization agreements and contract manufacturing agreements, we are unable to estimate with certainty the future costs we will incur.

At this time, due to the variability associated with contract manufacturing agreements, we are unable to estimate with certainty the future costs we will incur.

We intend to use our current financial resources to fund our obligations under these commitments.

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At December 31, 2024, purchase obligations primarily consisted of non-cancellable commitments with third-party manufacturers in connection with the manufacturing of our commercial products.

Total purchase obligations of $ 60.2 million were not included in our consolidated financial statements for the year ended December 31, 2023, with $ 39.0 million due in one year and $ 21.2 million due within two to three years .

Total purchase obligations of $ 49.2 million were not included in our consolidated financial statements for the year ended December 31, 2024, with $ 37.4 million due in one year and $ 11.8 million due within two years .

Reorganization

June 2023 Reorganization

In June 2023, we implemented a restructuring plan under which we provided or will provide employees with one-time severance payments upon termination, continuation of benefits for a specific period of time, outplacement services and certain stock award modifications.

The total amount expected to be incurred for these activities is $ 4.2 million, which primarily consists of severance payments to terminated employees.

During the year ended December 31, 2023, we recognized $ 4.2 million of the total expense, $ 2.4 million of which was included in sales and marketing expense, $ 1.7 million of which was included in research and development expense and $ 0.1 million of which was included in general and administrative expense.

As of December 31, 2023, we have paid $ 3.7 million of

the total cash severance charges.

We anticipate that the cash payments due to terminated employees will be substantially complete in the first quarter of 2024.

In June 2023, we implemented a restructuring plan under which we provided certain employees with one-time severance payments upon termination, continuation of benefits for a specific period of time, outplacement services and certain stock award modifications.

During the year ended December 31, 2023, we recognized $ 4.2 million of expense, $ 2.4 million of which was included in sales and marketing expense , $ 1.7 million of which was included in research and development expense and $ 0.1 million of which was included in general and administrative expense .

As of December 31, 2024, we paid all of the total cash severance charges.

Executive Officer Departures

During the second and third quarters of 2023, we also implemented changes to our executive leadership structure.

During the second and third quarters of 2023, we implemented changes to our executive leadership structure.

In connection with these changes, we provided five executive officers with one-time severance payments upon termination, continued benefits for a specified period of time, and certain stock award modifications.

The total expense for these activities was $ 13.4 million, $ 4.7 million of which was primarily for severance and $ 8.7 million of which was for non-cash, stock-based compensation expense.

During the year ended December 31, 2023, we recognized $ 13.4 million of the total expense, $ 7.2 million of which was included in general and administrative expense, $ 3.9 million of which was included in sales and marketing expense, and $ 2.3 million of which was included in research and development expense.

As of December 31, 2023, we have paid substantially all of the cash severance charges.

During the year ended December 31, 2023, we recognized the $ 13.4 million of expense, $ 7.2 million of which was included in general and administrative expense , $ 3.9 million of which was included in sales and marketing expense , and $ 2.3 million of which was included in research and development expense .

As of December 31, 2024, we paid all of the total cash severance charges.

June 2022 Reorganization

In June 2022, we implemented a restructuring plan under which we provided employees one-time severance payments upon termination, continuation of benefits for a specific period of time, outplacement services and certain stock award modifications.

The total amount incurred for these activities was $ 5.4 million, $ 5.0 million of which was primarily for severance and $ 0.4 million of which was for non-cash, stock-based compensation expense related to stock award modifications.

For the year ended December 31, 2022, we recognized $ 5.4 million of the total expense, $ 4.2 million of which was included in research and development expense, $ 1.0 million of which was included in sales and marketing expense, and $ 0.2 million of which was included in general and administrative expense.

As of December 31, 2023, we have paid all of the total cash severance charges.

In June 2022, we implemented a restructuring plan under which we provided certain employees one-time severance payments upon termination, continuation of benefits for a specific period of time, outplacement services and certain stock award modifications.

The total amount incurred for these activities was $ 5.4 million, $ 5.0 million of which was primarily for severance and $ 0.4 million of which was for non-cash, stock-based compensation

expense related to stock award modifications.

For the year ended December 31, 2022, we recognized the $ 5.4 million of expense, $ 4.2 million of which was included in research and development expense , $ 1.0 million of which was included in sales and marketing expense , and $ 0.2 million of which was included in general and administrative expense .

As of December 31, 2023, we paid all of the total cash severance charges.

We have accounted for these expenses in accordance with the FASB ASC Topic 420, Exit or Disposal Cost Obligations .

Convertible Notes

Long-Term Debt and Convertible Notes

Working Capital Facility Agreement

On August 9, 2023, we entered into a working capital facility agreement (the “Loan Agreement”) with Hercules Capital, Inc., as administrative agent and collateral agent, and the lenders party thereto (the “Lenders”).

The Loan Agreement provides an aggregate principal amount of up to $ 50.0 million with tranched availability as follows:

On August 9, 2023, we entered into a working capital facility agreement (the “Working Capital Facility Agreement”) with Hercules Capital, Inc., as administrative agent and collateral agent, and the lenders party thereto (the “Lenders”).

The Working Capital Facility Agreement provides an aggregate principal amount of up to $ 50.0 million with tranched availability as follows:

$ 25.0 million at closing (“tranche 1A”), $ 5.0 million available through December 15, 2024 (“tranche 1B”), and $ 20.0 million available from the earlier of:

(1) the full draw of tranche 1B and (2) the expiration of tranche 1B, and available through December 15, 2025 (“tranche 1C”), and in the case of tranches 1B and 1C, subject to certain customary conditions to draw down.

The Loan Agreement has a term of four years , with a springing maturity date that is 91 days prior to the stated maturity of our existing senior unsecured convertible notes (if still outstanding at such time).

The Working Capital Facility Agreement has a term of four years , with a springing maturity date that is 91 days prior to the stated maturity of our existing Senior Convertible Notes (as defined below) (if still outstanding at such time).

The loans thereunder do not have any scheduled amortization payments and accrue interest at a floating rate equal to, as of closing, 9.95 % per annum, payable in cash on a monthly basis and upon maturity or payoff.

In addition, under the terms of the Loan Agreement, the loans also accrue paid-in-kind interest monthly at a fixed-rate of 1.5 % per annum which is due upon maturity or payoff.

In addition, in connection with the tranche 1A funding, we issued warrants to the Lenders to purchase up to 297,619 shares of our common stock at an exercise price of $ 1.68 per share.

The warrants are equal to 2.00 % of the principal amount of loans funded by the Lenders (the “Warrant Coverage”).

The Loan Agreement also requires that we issue additional warrants to the Lenders at the time of each draw down of tranches 1B and 1C with the same Warrant Coverage.

Each warrant is exercisable for seven years from the date of issuance.

The Loan Agreement contains a minimum cash covenant, beginning on the closing date, requiring us to hold cash of no less than $ 8.5 million, if our market capitalization is less than $ 400 million.

The Loan Agreement also contains customary representations and warranties and customary affirmative and negative covenants, including, among other things, restrictions on indebtedness, liens, investments, mergers, dispositions, prepayment of other indebtedness, and dividends and other distributions, subject to certain exceptions.

We were in compliance with all covenants of the Loan Agreement as of December 31, 2023.

The Loan Agreement was accounted for in accordance with ASC Topic 470, Debt , ASC Topic 480, Distinguishing Liabilities from Equity and ASC Topic 815, Derivatives and Hedging .

In addition, under the terms of the Working Capital Facility Agreement, the loans also accrue paid-in-kind interest monthly at a fixed-rate of 1.5 % per annum which is due upon maturity or payoff.

In addition, in connection with the tranche 1A funding, we issued warrants to the Lenders to purchase up to 297,619 shares of our common stock at an exercise price of $ 1.68 per share (the "Lender Warrants").

The Lender Warrants are equal to 2.00 % of the principal amount of loans funded by the Lenders (the “Warrant Coverage”).

The Working Capital Facility Agreement also requires that we issue additional warrants to the Lenders at the time of each draw down of tranches 1B and 1C with the same Warrant Coverage.

Each Lender Warrant is exercisable for seven years from the date of issuance.

The Working Capital Facility Agreement contains a minimum cash covenant, beginning on the closing date, that requires us to hold cash of no less than $ 8.5 million, if our market capitalization is less than $ 400 million.

The Working Capital Facility Agreement also contains customary representations and warranties and customary affirmative and negative covenants, including, among other things, restrictions on indebtedness, liens, investments, mergers, dispositions, prepayment of other indebtedness, and dividends and other distributions, subject to certain exceptions.

We were in compliance with all covenants of the Working Capital Facility Agreement as of December 31, 2024.

On February 13, 2025, the Working Capital Facility Agreement was amended to extend the maturity date to the earlier of (a) September 1, 2027 and (b) to the extent that any of the Company’s Senior Convertible Notes remain outstanding on such date, (i) May 12, 2026 or (ii) in the event that the maturity date of any of the Senior Convertible Notes is extended, prior to May 12, 2026, to August 11, 2026 or later, the date that is ninety-one days prior to the maturity date of such further extended Senior Convertible Notes.

The Working Capital Facility Agreement was accounted for in accordance with ASC Topic 470, Debt , ASC Topic 480, Distinguishing Liabilities from Equity and ASC Topic 815, Derivatives and Hedging .

The initial tranche 1A funding of $ 25.0 million and the warrants issued upon closing to purchase 297,619 shares of our common stock are accounted for as freestanding debt and equity financial instruments, respectively, as they are legally detachable and separately exercisable.

The additional borrowings available under the Loan Agreement plus the additional warrants to purchase shares of our common stock, which would be issued concurrently, are accounted for as a single freestanding financial instrument that are not assets or obligations of ours;

this financial instrument meets the loan commitment derivative scope exception and will be accounted for when and if we borrow additional tranches in the future.

The additional borrowings available under the Working Capital Facility Agreement plus the additional warrants to purchase shares of our common stock, which would be issued concurrently, are accounted for as a single freestanding financial instrument that are not assets or obligations of ours;

this financial instrument meets the loan commitment derivative scope exception and will be accounted for when and if we borrow additional

tranches in the future.

The initial funding of $ 25.0 million was recorded as a liability on the condensed consolidated balance sheets.

In connection with the Loan Agreement, we recognized the initial 297,619 issued warrants at their relative fair value of $ 0.4 million, and we incurred debt issuance costs of $ 0.6 million, both of which were recorded as debt discounts.

The debt discounts and the end of term fee, of $ 0.8 million, are being amortized and accreted into interest expense using the effective interest rate method over the term of the Loan Agreement, resulting in an effective interest rate of 14.5 %.

For the year ended December 31, 2023, interest expense related to the Loan Agreement was $ 1.3 million, which included $ 1.0 million related to the stated interest rate, $ 0.2 million related to paid-in-kind interest, and $ 0.1 million related to the amortization of the debt discounts.

As of December 31, 2023, the carrying value of tranche 1A was $ 24.3 million, which is comprised of the $ 25.2 million principal amount outstanding, less debt discounts of $ 0.9 million.

In connection with the Working Capital Facility Agreement, we recognized the initial Lender Warrants at their relative fair value of $ 0.4 million, and we incurred debt issuance costs of $ 0.6 million, both of which were recorded as debt discounts.

The debt discounts and the end of term fee, of $ 0.8 million, are being amortized and accreted into interest expense using the effective interest rate method over the term of the Working Capital Facility Agreement, resulting in an effective interest rate of 14.5 %.

For the years ended December 31, 2024 and 2023, interest expense related to the Working Capital Facility Agreement was $ 3.7 million and $ 1.3 million, respectively.

Interest expense for the year ended December 31, 2024 included $ 2.6 million, related to the stated interest rate, $ 0.4 million, related to paid-in-kind interest, and $ 0.7 , related to the amortization of the debt discounts and accretion of the end of term fee.

Interest expense for the year ended December 31, 2023, included $ 1.0 million, related to the stated interest rate, $ 0.2 million related to paid-in-kind interest and $ 0.1 million related to the amortization of the debt discounts and accretion of the end of term fee.

As of December 31, 2024, the carrying value of tranche 1A was $ 25.0 million, which is comprised of the $ 25.0 million principal amount outstanding, and $ 0.5 million of accumulated paid-in-kind interest, less debt discounts of $ 0.5 million.

The end of term fee accreted as of December 31, 2024, of $ 0.4 million is recorded in other non-current liabilities on the condensed consolidated balance sheets.

As of December 31, 2023, the carrying value of tranche 1A was $ 24.3 million, which is comprised of the $ 25.0 million principal amount outstanding, and $ 0.2 million of accumulated paid-in-kind interest, less debt discounts of $ 0.9 million.

Senior Unsecured Convertible Notes

In May 2021, we entered into a note purchase agreement with funds affiliated with Baker Bros.

Advisors LP for a private placement of $ 150.0 million in Senior Unsecured Convertible Notes (“Notes”).

We received a total of $ 149.0 million, net of issuance costs, from the issuance of these Notes.

The Notes were issued at par.

The Notes bear interest at a rate of 1.5 % per annum, payable in cash semi-annually in arrears on June 15 th and December 15 th of each year, beginning on December 15, 2021 .

The Notes mature on May 26, 2026 , unless earlier converted, redeemed or repurchased.

The Notes will be subject to redemption at our option, between May 24, 2024 and May 24, 2025, but only if the last reported sale price per share of our common stock exceeds 250 % of the conversion price for a specified period of time, or on or after May 24, 2025 if the last reported sale price per share of our common stock exceeds 200 % of the conversion price for a specified period of time.

The redemption price will be equal to the principal amount of the Notes to be redeemed, plus accrued and unpaid interest.

Upon conversion, we will settle the Notes in shares of our common stock.

The initial conversion rate for the Notes is 65.4620 shares per $ 1,000 principal amount of the Notes (equivalent to an initial conversion price of $ 15.276 per share of common stock).

If a holder of the Notes converts upon a make-whole fundamental change or company redemption, the holder may be eligible to receive a make-whole premium through an increase to the conversion rate.

In May 2021, we filed a registration statement with the SEC to register for resale 12.4 million shares of our common stock underlying the Notes, including the maximum number of shares of common stock issuable under the make-whole premium.

The Notes were accounted for in accordance with ASC Subtopic 470-20, Debt with Conversion and Other Options (“ASC 470-20”) and ASC Subtopic 815-40, Contracts in Entity’s Own Equity (“ASC 815-40”).

815-40, to qualify for equity classification (or non-bifurcation, if embedded), the instrument (or embedded feature) must be both (1) indexed to the issuer’s stock and (2) meet the requirements of the equity classification guidance.

Based upon our analysis, it was determined that the Notes do contain embedded features indexed to our own stock, but do not meet the requirements for bifurcation, and therefore do not need to be separately accounted for as an equity component.

Since the embedded conversion feature meets the equity scope exception from derivative accounting, and, also since the embedded conversion option does not need to be separately accounted for as an equity component under ASC 470-20, the proceeds received from the issuance of the Notes were recorded as a liability on the consolidated balance sheets.

We incurred issuance costs related to the Notes of $ 1.0 million, which we recorded as debt issuance costs and are included as a reduction to the Notes on the consolidated balance sheets.

The debt issuance costs are being amortized to interest expense using the effective interest rate method over the term of the Notes, resulting in an effective interest rate of 1.6 %.

For the year ended December 31, 2023, interest expense related to the Notes was $ 2.5 million, which included $ 2.3 million related to the stated interest rate and $ 0.2 million related to the amortization of debt issuance costs.

As of December 31, 2023, the carrying value of the Notes was $ 149.5 million, which is comprised of the $ 150.0 million principal amount of the Notes outstanding, less debt issuance costs of $ 0.5 million.

Advisors LP for a private placement of $ 150.0 million in Senior Unsecured Convertible Notes (“Senior Convertible Notes”).

We received a total of $ 149.0 million, net of issuance costs, from the issuance of these Senior Convertible Notes.

The Senior Convertible Notes were issued at par.

The Senior Convertible Notes bear interest at a rate of 1.5 % per annum, payable in cash semi-annually in arrears on June 15 and December 15 of each year, beginning on December 15, 2021 .

The Senior Convertible Notes mature on May 26, 2026 , unless earlier converted, redeemed or repurchased.

The Senior Convertible Notes will be subject to redemption at our option, between May 24, 2024 and May 24, 2025, but only if the last reported sale price per share of our common stock exceeds 250 % of the conversion price for a specified period of time, or on or after May 24, 2025 if the last reported sale price per share of our common stock exceeds 200 % of the conversion price for a specified period of time.

The redemption price will be equal to the principal amount of the Senior Convertible Notes to be redeemed, plus accrued and unpaid interest.

Upon conversion, we will settle the Senior Convertible Notes in shares of our common stock.

The initial conversion rate for the Senior Convertible Notes is 65.4620 shares per $ 1,000 principal amount of the Senior Convertible Notes (equivalent to an initial conversion price of $ 15.276 per share of common stock).

If a holder of the Senior Convertible Notes converts upon a make-whole fundamental change or company redemption, the holder may be eligible to receive a make-whole premium through an increase to the conversion rate.

In May 2021, we filed a registration statement with the SEC to register for resale 12.4 million shares of our common stock underlying the Senior Convertible Notes, including the maximum number of shares of common stock issuable under the make-whole premium.

The Senior Convertible Notes were accounted for in accordance with ASC Subtopic 470-20, Debt with Conversion and Other Options (“ASC 470-20”) and ASC Subtopic 815-40, Contracts in Entity’s Own Equity (“ASC 815-40”).

Under ASC 815-40, to qualify for equity classification (or non-bifurcation, if embedded), the instrument (or embedded feature) must be both (1) indexed to the issuer’s stock and (2) meet the requirements of the equity classification guidance.

Based upon our analysis, it was determined that the Senior Convertible Notes do contain embedded features indexed to our own stock, but do not meet the requirements for bifurcation, and therefore do not need to be separately accounted for as an equity component.

Since the embedded conversion feature meets the equity scope exception from derivative accounting, and, also since the embedded conversion option does not need to

be separately accounted for as an equity component under ASC 470-20, the proceeds received from the issuance of the Senior Convertible Notes were recorded as a liability on the consolidated balance sheets.

We incurred issuance costs related to the Senior Convertible Notes of $ 1.0 million, which we recorded as debt issuance costs and are included as a reduction to the Senior Convertible Notes on the consolidated balance sheets.

The debt issuance costs are being amortized to interest expense using the effective interest rate method over the term of the Senior Convertible Notes, resulting in an effective interest rate of 1.6 %.

For the year ended December 31, 2024, interest expense related to the Senior Convertible Notes was $ 2.4 million, which included $ 2.2 million related to the stated interest rate and $ 0.2 million related to the amortization of debt issuance costs.

For the year ended December 31, 2023, interest expense related to the Senior Convertible Notes was $ 2.5 million, which included $ 2.3 million related to the stated interest rate and $ 0.2 million related to the amortization of debt issuance costs.

For the year ended December 31, 2022, interest expense related to the Senior Convertible Notes was $ 2.5 million, which included $ 2.3 million related to the stated interest rate and $ 0.2 million related to the amortization of debt issuance costs.

As of December 31, 2024, the carrying value of the Senior Convertible Notes was $ 149.7 million, which is comprised of the $ 150.0 million principal amount of the Senior Convertible Notes outstanding, less debt issuance costs of $ 0.3 million.

As of December 31, 2023, the carrying value of the Senior Convertible Notes was $ 149.5 million, which is comprised of the $ 150.0 million principal amount of the Senior Convertible Notes outstanding, less debt issuance costs of $ 0.5 million.

Stockholders’ Equity

2023 Private Placement

On July 21, 2023, we entered into a Securities Purchase Agreement (the “July 2023 Private Placement”) with Rubric Capital Management L.P., Velan Capital, Clearline Capital and Hercules Capital, Inc.

On July 21, 2023, we entered into a Securities Purchase Agreement (the “2023 Private Placement”) with Rubric Capital Management L.P., Velan Capital, Clearline Capital and Hercules Capital, Inc.

(collectively, the “Purchasers”) whereby we sold 20.7 million shares of our common stock in a private placement at a purchase price of $ 1.37 per share.

In addition, as a component of the July 2023 Private Placement, we sold 1.2 million pre-funded warrants to purchase shares of our common stock at a purchase price of $ 1.3699 per share.

In addition, as a component of the 2023 Private Placement, we sold 1.2 million pre-funded warrants to purchase shares of our common stock at a purchase price of $ 1.3699 per share.

The pre-funded warrants have an exercise price of $ 0.0001 per share.

The total net proceeds from the sale of the common stock and pre-funded warrants is $ 29.8 million (net of $ 0.2 million in issuance costs).

The July 2023 Private Placement closed on July 25, 2023.

The total net proceeds from the sale of the common stock and pre-funded warrants was $ 29.8 million (net of $ 0.2 million in issuance costs).

The 2023 Private Placement closed on July 25, 2023.

In August 2023, we filed a registration statement with the SEC to register for resale 21.9 million shares of our common stock.

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Restricted stock units outstanding

Stock options available for grant

Shares available for future grants under the Amended & Restated 2007 Equity Incentive Plan

Shares of common stock reserved under the Employee Stock Purchase Plan

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In 1997, our stockholders approved our Employee Stock Purchase Plan (“ESPP”) at which time a maximum of 10,000 shares of common stock were available for issuance.

In December 2007, May 2009, June 2011, May 2014, May 2015, June 2016, June 2017, June 2019, June 2021, May 2022 and June 2023, our stockholders authorized increases in the number of shares reserved for issuance under the ESPP by 5,000 , 10,000 , 25,000 , 25,000 , 100,000 , 100,000 , 200,000 , 300,000 , 200,000, 850,000 and 400,000 shares, respectively, for a total of 2,225,000 shares reserved at December 31, 2023.

In December 2007, May 2009, June 2011, May 2014, May 2015, June 2016, June 2017, June 2019, June 2021, May 2022, June 2023 and June 2024, our stockholders authorized increases in the number of shares reserved for issuance under the ESPP by 5,000 , 10,000 , 25,000 , 25,000 , 100,000 , 100,000 , 200,000 , 300,000 , 200,000, 850,000, 400,000 and 1,200,000 shares, respectively, for a total of 3,425,000 shares reserved at December 31, 2024.

Under the terms of the ESPP, employees can elect to have up to a maximum of 10 % of their base earnings withheld to purchase shares of our common stock.

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As of December 31, 2024, 2,537,126 shares of common stock have been issued under the ESPP and 920,953 shares of common stock are available for future issuance.

Stock Option Plans

We currently have one stock option plan from which we can grant options and restricted stock awards to employees, officers, directors and consultants.

Equity Incentive Plan

We currently have one equity incentive plan from which we can grant options, restricted stock awards, restricted stock units ("RSUs"), and stock appreciation rights to employees, officers, directors and consultants.

In December 2007, the stockholders approved our 2007 Amended and Restated Equity Incentive Plan (“2007 Plan”) at which time a maximum of 150,000 shares of common stock were available for grant.

In May 2010, June 2011, May 2014, May 2015, June 2016, June 2017, June 2019, June 2021, May 2022 and June 2023, our stockholders approved amendments to our 2007 Plan to increase the maximum number of shares of common stock available for grant by 100,000 , 4,500,000 , 1,750,000 , 4,300,000 , 3,000,000 , 5,000,000 , 7,000,000 , 2,000,000, 2,900,000 and 8,490,000 shares of common stock, respectively, resulting in an aggregate of 39,190,000 shares of common stock authorized for issuance as of December 31, 2023.

In May 2010, June 2011, May 2014, May 2015, June 2016, June 2017, June 2019, June 2021, May 2022, June 2023 and June 2024, our stockholders approved amendments to our 2007 Plan to increase the maximum number of shares of common stock available for grant by 100,000 , 4,500,000 , 1,750,000 , 4,300,000 , 3,000,000 , 5,000,000 , 7,000,000 , 2,000,000, 2,900,000, 8,490,000 and 7,500,000 shares of common stock, respectively, resulting in an aggregate of 46,690,000 shares of common stock authorized for issuance as of December 31, 2024.

At December 31, 2024, there were 12,125,013 shares available for future grant under the 2007 Plan.

Any shares that are issuable on exercise of options granted that expire, are cancelled or that we receive pursuant to a net exercise of options are available for future grant and issuance.

In 2023, we granted options to certain employees outside of our stockholder approved stock option plan.

All options to purchase our common stock were granted with an exercise price that equals fair market value of the underlying common stock on the grant dates and expire no later than 10 years from the date of grant.

The options are exercisable in accordance with vesting schedules that generally provide for them to be fully vested and exercisable 4 years after the date of grant, provided, however, that we have also issued stock options awards that are subject to market-based vesting requirements.

All stock option grants issued outside of our stockholder approved plans were approved by our Board of Directors and have been registered on Form S-8 with the SEC.

In 2020, we began granting restricted stock units (“RSUs”) to employees and non-employee directors pursuant to the 2007 Plan.

We satisfy such grants through the issuance of new shares upon vesting.

The following summarizes the stock option plan activity:

Any shares that are subject to awards granted pursuant to the 2007 Plan that expire, are cancelled or are forfeited are available for future grant under the 2007 Plan.

In 2024, we granted options and RSUs to certain employees outside of the 2007 Plan as inducement equity awards.

All such options to purchase our common stock were granted with an exercise price that equals fair market value of the underlying common stock on the grant dates and expire no later than 10 years from the date of grant.

The options are exercisable in accordance with vesting schedules that generally provide for them to be fully vested and exercisable four years after the date of grant.

All such RSUs vest ratably over four years .

All stock options and RSU granted as inducement equity awards were approved by our Board of Directors and have been registered on Form S-8 with the SEC.

The following table summarizes the stock option activity for the year ended December 31, 2024:

Outstanding Options

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Balance at December 31, 2024

The following table summarizes the RSU activity for the year ended December 31, 2024:

Outstanding RSUs

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Balance at December 31, 2024

For the year ended December 31, 2023, options cancelled (included in options outstanding) consisted of 11,508,070 options forfeited with a weighted-average exercise price of $ 13.10 and 850,226 options expired with a weighted-average exercise price of $ 7.47 .

As of December 31, 2023, options exercisable have a weighted-average remaining contractual term of 5.6 years.

The total intrinsic value of stock option exercises, which is the difference between the exercise price and closing price of our common stock on the date of exercise, during the year ended December 31, 2023 was $ 10,000 .

As of December 31, 2024, options outstanding have a weighted-average remaining contractual term of 7.8 years and options exercisable have a weighted-average remaining contractual term of 6.4 years.

Total intrinsic value of options outstanding, which is the difference between the exercise price and the closing price of our common stock on the last trading day of the calendar year, was $ 1.5 million at December 31, 2024 and $ 2.8 million at December 31, 2023.

The were no options outstanding and in-the-money at December 31, 2022.

There were no option exercises during the year ended December 31, 2022.

As of December 31, 2023, the total intrinsic value of options outstanding and exercisable was $ 137,000 .

As of December 31, 2024 and 2023, the total intrinsic value of options outstanding and exercisable was $ 385,000 and $ 137,000 , respectively.

As of December 31, 2022, there were no options outstanding and exercisable that were in-the-money.

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Exercisable at end of year

Options vested or expected to

Options vested or expected to vest

Exercise prices and weighted-average remaining contractual lives for the options outstanding as of December 31, 2024 were:

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$ 38.20 - $ 57.30

On December 31, 2023, we had reserved 25,979,791 shares of common stock for future issuance on exercise of outstanding options and vesting of outstanding restricted stock units granted under the 2007 Plan, as well as the non-plan grants.

On December 31, 2024, we had reserved 28,062,017 shares of common stock for future issuance upon exercise of outstanding options and vesting of outstanding restricted stock units granted under the 2007 Plan, as well as the inducement award grants.

Stock-Based Compensation

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Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures.

We expect to recognize this compensation cost over a weighted-average period of three years .

We expect to recognize this compensation cost over a weighted-average period of 2.4 years.

The fair value of RSUs is estimated based on the closing market price of our common stock on the date of the grant.

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We have elected to use the simplified method, as we do not have enough historical exercise experience to provide a reasonable basis on which to estimate the expected term.

The expected life for the ESPP purchase rights is 6 months, which represents the length of each purchase period.

The expected life for the ESPP purchase rights is six months , which represents the length of each purchase period.

Employee Benefit Plan

We have a defined contribution 401(k) plan (“Plan”) covering substantially all of our employees.

We make matching cash contributions equal to 50 % of each participant’s contribution during the Plan year up to a maximum amount equal to the lesser of 3 % of each participant’s annual compensation or $ 9,900 and $ 9,150 for the years ended December 31, 2023 and 2022, respectively.

For the year ended December 31, 2024, we made matching cash contributions equal to 50 % of each participant's contribution during the Plan year up to 6 % per pay period.

For the year ended December 31, 2023 and 2022, we made matching cash contributions equal to 50 % of each participant’s contribution during the Plan year up to a maximum amount equal to the lesser of 3 % of each participant’s annual compensation or $ 9,900 and $ 9,150 , respectively.

Such amounts were recorded as expense in the corresponding years.

We may also contribute additional discretionary amounts to the Plan as we determine.

For the years ended December 31, 2023 and 2022, we contributed $ 1.0 million and $ 1.4 million, respectively, to the Plan.

For the years ended December 31, 2024, 2023 and 2022, we contributed $ 0.7 million, $ 1.0 million and $ 1.4 million, respectively, to the Plan.

No discretionary contributions have been made to the Plan since its inception.

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We have established a valuation allowance to offset net deferred tax assets as of December 31, 2024 and 2023 due to the uncertainty of realizing future tax benefits from such assets.

As of December 31, 2023, we had federal and state net operating loss (“NOL”) carryforwards of $ 1.3 billion and $ 879.1 million, respectively.

The federal NOL carryforwards consist of $ 542.3 million generated before January 1, 2018, which will begin to expire in 2024 , and $ 755.7 million that can be carried forward indefinitely, but are subject to the 80 % taxable income limitation.

As of December 31, 2024 and December 31, 2023, we had federal and state net operating loss (“NOL”) carryforwards of $ 1.3 billion and $ 1.3 billion, respectively.

The federal NOL carryforwards consist of $ 542.3 million generated before January 1, 2019, which began to expire in 2024 , and $ 769.9 million that can be carried forward indefinitely, but are subject to the 80 % taxable income limitation.

The state NOL carryforwards will begin to expire in 2028 .

As of December 31, 2023, we had federal and state research and development credit carryforwards of $ 44.6 million and $ 21.7 million, respectively.

The federal research and development credit carryforwards will begin to expire in 2024 .

As of December 31, 2024 and December 31, 2023, we had federal and state research and development credit carryforwards of $ 44.4 million and $ 44.6 million, respectively.

The federal research and development credit carryforwards began to expire in 2024 .

The state research and development credit carryforwards will be carried forward indefinitely.

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The one-time $ 6.0 million refund was received in the second quarter of 2023.

Beginning January 1, 2022, the Tax Cuts and Jobs Act (the “Tax Act”) eliminated the option to deduct research and development expenditures in the current year and requires taxpayers to capitalize such expenses pursuant to IRC Section 174.

The capitalized expenses are amortized over a 5-year period for domestic expenses and over a 15-year period for foreign expenses.

As a result of this provision of the Tax Act, deferred tax assets related to capitalized research expenses increased by $ 21 million during the year ended December 31, 2022.

Subsequent Event

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

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

to expand ZYNRELEF promotion for orthopedic indications.

The partnership will launch in several phases, initially at a regional level, followed by an expanded national rollout.

In total, approximately 650 representatives will be added to Heron ’ s sales network over the year.

At this time, we cannot estimate the impact of the Crosslink agreement on our future financial results.

The Company considers events or transactions that occur after the balance sheet date but prior to the issuance of the consolidated financial statements to provide additional evidence for certain estimates or to identify matters that require additional disclosure.

The Company has concluded that no subsequent events have occurred that require disclosure, except as included in Note 8.

CHANGES IN AND DISAGREEMENTS WITH ACCOU NTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

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-K

Item 7. Management’s Discussion and Analysis