HERON THERAPEUTICS, INC. /DE/ 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read together with our condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q and the audited financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2024, which was filed with the U.S. Securities and Exchange Commission (“SEC”) on February 27, 2025 (the "2024 Annual Report"). This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. In some cases, you can identify forward-looking statements by the use of the words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “project,” “will,” “would,” “could,” “should,” “may,” “might,” “plan,” “assume” and other expressions that predict or indicate future events and trends and which do not relate to historical matters. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations and financial position, business and commercialization strategy, products and product candidates, research pipeline, ongoing and planned preclinical studies and clinical trials, regulatory submissions and approvals, addressable patient population, research and development expenses, timing and likelihood of success, as well as plans and objectives of management for future operations, are forward-looking statements. You should not rely on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, some of which are beyond our control. These risks, uncertainties and other factors may cause our actual results, performance or achievements to be materially different from our anticipated future results, performance or achievements expressed or implied by the forward-looking statements. Factors that might cause these differences include the following: • our ability to successfully commercialize, market and achieve market acceptance of ZYNRELEF ® (bupivacaine and meloxicam) extended-release solution (“ZYNRELEF”), APONVIE ® (aprepitant) injectable emulsion (“APONVIE”), CINVANTI ® (aprepitant) injectable emulsion (“CINVANTI”), and SUSTOL ® (granisetron) extended-release injection (“SUSTOL” and together with ZYNRELEF, APONVIE and CINVANTI, our "Products") in the United States (“U.S.”) , and our positioning relative to products that now or in the future compete with our Products or product candidates; • our estimates regarding the potential market opportunities for our Products and our product candidates, if approved, and our ability to capture the potential additional market opportunity from the expanded ZYNRELEF label approved in the U.S.; • our ability to establish and maintain successful commercial arrangements like our co-promotion agreement with CrossLink Network, LLC ("CrossLink Network"); • the realization of anticipated benefits from our co-promotion agreement with CrossLink Network; • the outcome of our pending abbreviated new drug application litigation; • whether we are required to write-off any additional inventory in the future; • our ability to establish satisfactory pricing and obtain adequate reimbursement from government and third-party payors of our Products and product candidates that receive regulatory approvals; • whether study results of our Products and product candidates are indicative of the results in future studies; • our ability to successfully launch VAN in the US; • the potential regulatory approval for, and commercial launch of, our product candidates, if approved; • our competitors’ activities, including decisions as to the timing of competing product launches, generic entrants, pricing and discounting; • whether safety and efficacy results of our clinical studies and other required tests for expansion of the indications for our Products and approval of our product candidates provide data to warrant progression of clinical trials, potential regulatory approval or further development of any of our Products or product candidates; 18 • our ability to develop, acquire and advance product candidates into, and successfully complete, clinical studies, and our ability to submit for and obtain regulatory approval for product candidates in our anticipated timing, or at all; • our ability to meet the postmarketing study requirements within the mandated timelines of the U.S. Food and Drug Administration ("FDA") and to obtain favorable results and comply with standard postmarketing requirements, including U.S. federal advertising and promotion laws, federal and state anti-fraud and abuse laws, healthcare information privacy and security laws, safety information, safety surveillance and disclosure of payments or other transfers of value to healthcare professionals and entities for Products or any of our product candidates; • our ability to successfully develop and achieve regulatory approval for any product candidates utilizing our proprietary Biochronomer ® drug delivery technology (“Biochronomer Technology”); • our ability to establish key collaborations and vendor relationships for our Products and our product candidates; • our ability to successfully develop and commercialize any technology that we may in-license or products we may acquire; • our reliance on third-party contract manufacturers to supply our Products and product candidates, if approved; • unanticipated delays due to manufacturing difficulties, supply constraints or changes in the regulatory environment, including as a result of geopolitical uncertainty; • our ability to successfully operate in non-U.S. jurisdictions in which we may choose to do business, including compliance with applicable regulatory requirements and laws; • uncertainties associated with obtaining and enforcing patents and trade secrets to protect our Products, our product candidates, our Biochronomer Technology and our other technology; • our ability to successfully defend ourselves against unforeseen third-party infringement claims and other litigation involving our Products and product candidates; • our estimates regarding our capital requirements; • our inability or delay in achieving profitability; • the impacts of general business, financial market, and economic conditions, including the impact of conflicts in Ukraine and the Middle East, global pandemics such as COVID-19, tariffs and other trade protection measures, and other sources of volatility, which could adversely affect our financial condition, results of operations and cash flows; • the impact of evolving legal and regulatory requirements and interpretations thereof, including the U.S. Supreme Court decision regarding deference to federal administrative agencies' interpretations of federal statutes; • our ability to obtain additional financing and raise capital as necessary to fund operations or pursue business opportunities; • the impact of global economic and political developments on our business, including economic slowdowns or recessions and market disruptions that may result from, among others, global conflicts, economic sanctions, an inflationary environment, which could harm our commercialization effort, as well as the value of our common stock and our ability to access capital markets, and • those risks listed under the section entitled "Risk Factors" in Part I, Item 1A "Risk Factors" of the 2024 Annual Report and Part II, Item IA "Risk Factors" in this Quarterly Report on Form 10-Q. Any forward-looking statements in this Quarterly Report on Form 10-Q reflect our current views with respect to future events or to our future financial performance. Given these uncertainties, you should not place undue reliance on these forward-looking statements. These forward-looking statements were based on information, plans and estimates as of the date of this Quarterly Report on Form 10-Q, and except as required by law, we assume no obligation to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes. These risk factors may be updated by our future filings under the Securities Exchange Act of 1934, as amended (“Exchange Act”). You should carefully review all information therein. 19 Overview We are a commercial-stage biotechnology company focused on improving the lives of patients by developing and commercializing therapeutic innovations that improve medical care. Our advanced science, patented technologies, and innovative approach to drug discovery and development have allowed us to create and commercialize a portfolio of products that aim to advance the standard of care for acute care and oncology patients. Acute Care Product Portfolio ZYNRELEF ZYNRELEF is a dual-acting local anesthetic that delivers a fixed-dose combination of the local anesthetic bupivacaine and a low dose of the nonsteroidal anti-inflammatory drug meloxicam. ZYNRELEF is the first and only modified-release local anesthetic to be classified by the FDA as an extended-release product because ZYNRELEF demonstrated in Phase 3 studies significantly reduced pain and significantly increased proportion of patients requiring no opioids through the first 72 hours following surgery compared to bupivacaine solution, the current standard-of-care local anesthetic for postoperative pain control. ZYNRELEF was initially approved by the FDA in May 2021, and we commenced commercial sales in the U.S. in July 2021. In each of December 2021 and January 2024, the FDA approved an expansion of ZYNRELEF's indication. ZYNRELEF is approved for use in adults for postsurgical analgesia for up to 72 hours after soft tissue and orthopedic surgical procedures including foot and ankle, and other orthopedic surgical procedures in which direct exposure to articular cartilage is avoided. In September 2024, the FDA approved the prior approval supplement (“PAS”) application for ZYNRELEF Vial Access Needle ("VAN"), which will replace the current vented vial spike. In March 2022, the Centers for Medicare and Medicaid Services (“CMS”) approved a 3-year transitional pass-through status of ZYNRELEF, which became effective on April 1, 2022, for separate reimbursement outside of the surgical bundle payment in the Hospital Outpatient Department ("HOPD") setting of care. In addition, in December 2022, H.R. 2617, the omnibus spending bill was approved by Congress, which includes the Non-Opioids Prevent Addiction in the Nation (NOPAIN) Act which directs CMS to provide separate Medicare reimbursement for non-opioid treatments that are used to manage pain during surgeries conducted in hospital outpatient departments or in ambulatory surgical centers. To qualify, the non-opioid treatment must demonstrate the ability to replace, reduce, or avoid intraoperative or postoperative opioid use or the quantity of opioids prescribed in a clinical trial or through data published in a peer-reviewed journal. The hospital outpatient prospective payment system and ambulatory surgical center proposed rule for calendar year 2025 includes ZYNRELEF as a qualifying non-opioid requiring CMS to provide separate Medicare reimbursement in both the hospital outpatient department and ambulatory surgical center settings from January 1, 2025, through December 31, 2027. APONVIE APONVIE is the first and only intravenous formulation of a substance P/neurokinin-1 (“NK1”) receptor antagonist indicated for postoperative nausea and vomiting (“PONV”) in adults. Delivered via a single 30-second intravenous (“IV”) injection, APONVIE has demonstrated rapid achievement of therapeutic drug levels ideally suited for the surgical setting. APONVIE was approved by the FDA in September 2022 and became commercially available in the U.S. in March 2023. APONVIE is indicated for the prevention of PONV in adults. CMS granted pass-through payment status for APONVIE, effective April 1, 2023. Oncology Care Product Portfolio CINVANTI CINVANTI is an IV formulation of aprepitant, a substance NK1 receptor antagonist. CINVANTI is the first IV formulation to directly deliver aprepitant, the active ingredient in EMEND® capsules. Aprepitant (including its prodrug, fosaprepitant) is a single-agent NK1 receptor antagonist to significantly reduce nausea and vomiting in both the acute phase (0–24 hours after chemotherapy) and the delayed phase (24–120 hours after chemotherapy). CINVANTI is the first and only IV formulation of an NK1 receptor antagonist indicated for the prevention of acute and delayed nausea and vomiting associated with Highly Emetogenic Cancer ("HEC") and nausea and vomiting associated with Moderately Emetogenic Cancer ("MEC") that is free of synthetic surfactants, including polysorbate 80. 20 CINVANTI, in combination with other antiemetic agents, is indicated in adults for the prevention of acute and delayed nausea and vomiting associated with initial and repeat courses of HEC including high-dose cisplatin as a single-dose regimen, delayed nausea and vomiting associated with initial and repeat courses of MEC as a single-dose regimen, and nausea and vomiting associated with initial and repeat courses of MEC as a 3-day regimen. NK1 receptor antagonists are typically used in combination with 5-hydroxytryptamine ("5-HT3") receptor antagonists. The only other injectable NK1 receptor antagonist currently approved in the U.S. for both acute and delayed chemotherapy induced nausea and vomiting (“CINV”), EMEND® IV (fosaprepitant), contains polysorbate 80, a synthetic surfactant, which has been linked to hypersensitivity reactions, including anaphylaxis, and infusion site reactions. The CINVANTI formulation does not contain polysorbate 80 or any other synthetic surfactant. Our CINVANTI data has demonstrated the bioequivalence of CINVANTI to EMEND IV, supporting its efficacy for the prevention of both acute and delayed nausea and vomiting associated with HEC and nausea and vomiting associated with MEC. Results also showed CINVANTI was better tolerated in healthy volunteers than EMEND IV, with significantly fewer adverse events reported with CINVANTI. CINVANTI was approved by the FDA in November 2017, and we commenced commercial sales in the U.S. in January 2018. SUSTOL SUSTOL is the first extended-release 5-HT3 receptor antagonist approved for the prevention of acute and delayed nausea and vomiting associated with both MEC and anthracycline and cyclophosphamide ("AC") combination chemotherapy regimens. A standard of care in the treatment of breast cancer and other cancer types, AC regimens are among the most commonly prescribed HEC regimens, as defined by both the National Comprehensive Cancer Network (“NCCN”) and the American Society of Clinical Oncology (“ASCO”). SUSTOL is indicated in combination with other antiemetics in adults for the prevention of acute and delayed nausea and vomiting associated with initial and repeat courses of MEC or AC combination chemotherapy regimens. SUSTOL is an extended-release, injectable 5-HT3 receptor antagonist that utilizes our Biochronomer Technology to maintain therapeutic levels of granisetron for ≥5 days. The SUSTOL global Phase 3 development program was comprised of two, large, guideline-based clinical studies that evaluated SUSTOL’s efficacy and safety in more than 2,000 patients with cancer. SUSTOL’s efficacy in preventing nausea and vomiting was evaluated in both the acute phase (0–24 hours following chemotherapy) and the delayed phase (24–120 hours following chemotherapy). SUSTOL was approved by the FDA in August 2016, and we commenced commercial sales in the U.S. in October 2016. Biochronomer Technology Our proprietary Biochronomer Technology is designed to deliver therapeutic levels of a wide range of otherwise short-acting pharmacological agents over a period from days to weeks with a single administration. Our Biochronomer Technology consists of polymers that have been the subject of comprehensive animal and human toxicology studies that have shown evidence of the safety of the polymer. When administered, the polymers undergo controlled hydrolysis, resulting in a controlled, sustained release of the pharmacological agent encapsulated within the Biochronomer-based composition. Furthermore, our Biochronomer Technology is designed to permit more than one pharmacological agent to be incorporated, such that multimodal therapy can be delivered with a single administration. Critical Accounting Estimates The discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate our estimates on an ongoing basis, including those related to revenue recognition, investments, inventory and the related reserves, accrued clinical and manufacturing liabilities, income taxes and stock-based compensation. We base our estimates on historical experience and on assumptions that we believe to be reasonable under the circumstances, the results of which form the basis of making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions. 21 Our critical accounting estimates include: revenue recognition, investments, inventory and the related reserves, accrued clinical and manufacturing liabilities, income taxes, and stock-based compensation. There have been no material changes to our critical accounting estimates disclosures included in our 2024 Annual Report. Recent Accounting Pronouncements See Note 3 to the condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q. Results of Operations for the Three Months Ended March 31, 2025 and 2024 Comparison of Results of Operations Three Months Ended March 31, ($ in thousands) 2025 % of Sales 2024 % of Sales Net product sales $ 38,903 $ 34,670 Cost of product sales 8,457 21.7 % 8,444 24.4 % Gross Profit $ 30,446 $ 26,226 Operating expenses: Research and development 2,279 5.9 % 4,608 13.3 % General and administrative 12,702 32.7 % 14,974 43.2 % Sales and marketing 12,311 31.6 % 11,442 33.0 % Income (loss) from operations $ 3,154 8.1 % $ (4,798 ) (13.8%) Net Product Sales Three Months Ended March 31, 2025 2024 Acute Care Net Product Sales $ 10,302 $ 5,438 Oncology Net Product Sales 28,601 29,232 Total Net Product Sales $ 38,903 $ 34,670 Total acute care net product sales increased 89.4% or $4.9 million during the three months ended March 31, 2025, as compared to the comparable period in 2024, primarily driven by an increase in the units sold due to an increase in market share and new customers for both ZYNRELEF and APONVIE, which contributed approximately $4.1 million of the total increase in acute care net product sales. Total oncology net product sales decreased 2.2% during the three months ended March 31, 2025, as compared to the comparable period in 2024. The decrease is attributed to market competition and is expected to continue through 2025. Cost of Product Sales Cost of product sales increased by 0.2% during the three months ended March 31, 2025, as compared to the comparable period in 2024 and as a percentage of sales decreased 2.7% during the same period. Gross profit for the three months ended March 31, 2025 was 78.3%, compared to 75.6% for the comparable period ended March 31, 2024. The increase in gross profit without a corresponding increase in cost of product sales is attributed to a lower cost per unit for the units sold in the three months ended March 31, 2025 as a result of production efficiencies compared to the same period ended March 31, 2024, partially offset by an increase in the units sold. 22 Research and Development Expense Research and development expense consisted of the following (in thousands): Three Months Ended March 31, 2025 2024 ZYNRELEF-related costs $ 818 $ 636 CINVANTI-related costs — 471 APONVIE-related costs — 202 SUSTOL-related costs — 90 Personnel costs and other expenses 1,217 2,508 Stock-based compensation expense 244 701 Total research and development expense $ 2,279 $ 4,608 Research and development expense decreased by 50.5% or $2.3 million during the three months ended March 31, 2025, compared to the comparable period in 2024 and as a percentage of sales, decreased 7.4% during the same period. The decrease is primarily related to decreases in headcount and related costs, as well as a decrease in development activities. General and Administrative Expense General and administrative expense decreased by 15.2% or $2.3 million during the three months ended March 31, 2025, compared to the comparable period in 2024 and as a percentage of sales, decreased 10.5% during the same period. The decrease is primarily related to decreased headcount in 2024 and related costs, which represents approximately $1.5 million of the total decrease, and decreased legal expenses of $0.5 million related to the timing of patent litigations. Sales and Marketing Expense Sales and marketing expense increased by 7.6% or $0.9 million during the three months ended March 31, 2025, compared to the comparable period in 2024, and as a percentage of sales, decreased by 1.4% during the same period. The increase in sales and marketing expense is attributed to increased marketing and sales spend to support revenue growth of the acute care products, of approximately $1.0 million. Other (Expense) Income, Net Other (expense) income, net decreased 131.7% during the three months ended March 31, 2025, compared to the comparable period in 2024, primarily due to the one time settlement gain contingency related to a legal dispute in 2024. Liquidity and Capital Resources As of March 31, 2025, we had cash, cash equivalents and short-term investments of $50.7 million. Based on our current operating plan and projections, management believes that the Company's cash, cash equivalents, and short-term investments, will be sufficient to meet the Company's anticipated cash requirements for a period of at least the next twelve months from the date this Quarterly Report on Form 10-Q is filed with the SEC. However, we expect these financing sources will not be sufficient to repay the $150.0 million of Senior Convertible Notes coming due in May 2026. We expect to finance our future cash needs, including refinancing of our indebtedness through a combination of debt financing transactions, equity offerings, collaborations or a combination of these approaches. If we issue additional equity securities or securities convertible into equity securities to raise funds, our stockholders will suffer dilution of their investment, and in the case of preferred equity securities or convertible debt, those securities could provide for rights, preferences or privileges senior to those of our common stock, and such issuances may adversely affect the market price of our common stock. Our ability to raise additional funds may also be adversely impacted by negative global economic conditions and disruptions to, and volatility in, the credit and financial markets in the U. S. and worldwide or other factors, including those addressed under the section entitled "Risk Factors" in Part I, Item 1A "Risk Factors" of the 2024 Annual Report and Part II, Item 1A "Risk Factors" in this Quarterly Report on Form 10-Q. There can be no assurance that we will be successful in acquiring additional funding at levels sufficient to fund our operations or on terms favorable or acceptable to us, if at all. If adequate funds are not available, we may default on our indebtedness, be required to further delay, reduce the scope of, or eliminate one or more of our product development programs and reduce personnel-related and other costs, which would have a negative impact on our business. 23 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 future cash requirements and the adequacy of our available funds will depend on many factors, primarily including our ability to generate revenue and the scope and costs of our commercial and research and development activities. Our net income for the three months ended March 31, 2025 was $2.6 million, or $0.02 per share, compared to a net loss of $3.2 million, or $0.02 per share, for the same period in 2024. Our net cash used in operating activities for the three months ended March 31, 2025 and March 31, 2024 was $8.9 million and $9.5 million, respectively. The decrease in net cash used in operating activities was primarily due to the net income for the three months ended March 31, 2025, compared to the net loss for the prior period in 2024, decreases in operating spend and stock-based compensation expenses, and changes in working capital, specifically accounts receivable due to timing of collections, prepaid assets due to the timing of payments, and accounts payable and accrued expenses, including payroll and employee related liabilities due to the timing of payments and reduced headcount. Our net cash provided by investing activities for the three months ended March 31, 2025, and March 31, 2024 was $2.3 million, and $1.3 million, respectively. The increase in net cash provided by investing activities was primarily due to net maturities of short-term investments of $2.3 million for the three months ended March 31, 2025 compared to $1.3 million for the three months ended March 31, 2024. Our net cash provided by financing activities for the three months ended March 31, 2025, and March 31, 2024 was $0.06 million, and $0.01 million, respectively. Historically, we have financed our operations, including technology and product research and development, primarily through sales of our common stock, product sales and debt financings. 24 ITEM 3. QUANTITATIVE AND QUALITATI VE DISCLOSURES ABOUT MARKET RISK Quantitative and qualitative disclosures about market risk appear in “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Quantitative and Qualitative Disclosures about Market Risk” in the Company’s 2024 Annual Report on Form 10-K. There were no material changes to this information during the three months ended March 31, 2025.