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 consolidated financial statements and related notes included in our 2024 Annual Report. Some information contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, 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 sections entitled "Forward-Looking Statements" and "Risk Factors" in our 2024 Annual Report, Quarterly Reports on Form 10-Q and other reports 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. Introduction 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 this Quarterly Report on Form 10-Q 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: • Overview . 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 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 3—Accounting Policies to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. • Results of Operations. This section provides an analysis of our results of operations presented in the accompanying condensed consolidated statements of operations and comprehensive loss by comparing the results for the three and nine months ended September 30, 2025 and 2024. • Liquidity and Capital Resources . This section provides a discussion of our financial condition and liquidity, an analysis of our cash flows for the nine months ended September 30, 2025 and 2024, and a discussion of our outstanding commitments and contingencies that existed as of September 30, 2025. 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 is replacing the current vented vial spike. 24 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 and expired March 31, 2025, 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 April 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. 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"). 25 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. Recent Events On August 8, 2025, we entered into the Second Amendment to the Working Capital Facility Agreement with Hercules Capital, Inc., as administrative agent, collateral agent and lender, which among other things, (i) provides for an aggregate principal amount of up to $150.0 million plus the accrued and unpaid paid-in-kind interest on the existing debt under the Initial Working Capital Facility Agreement, which was funded on August 12, 2025 (the “Closing Date”) and (ii) extends the maturity date of the Working Capital Facility Agreement to September 1, 2030. See Note 8 - Long-Term Debt and Convertible Notes to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. Concurrently on the Closing Date, we (i) issued and sold $35.0 million aggregate principal amount of 2031 Convertible Notes in a private placement pursuant to a note purchase agreement entered with a fund affiliated with Rubric Capital Management LP, for which we received a total of $31.9 million, net of issuance costs and original issuance discount, (ii) issued and sold 13,225,227 shares of common stock at a purchase price of $1.50 per share and 524,141 shares of Series A convertible preferred stock, which would automatically convert upon stockholder approval into 5,241,410 shares of common stock, at a conversion price of $1.50 per share (stated value of $15.00 per share) for aggregate gross proceeds of $27.7 million, (iii) exchanged all $150.0 million aggregate principal amount of the 2026 Convertible Notes outstanding for 16,666,666 shares of common stock for an aggregate principal amount of $25.0 million of the 2026 Convertible Notes and paid the remaining $125.0 million plus accrued and unpaid interest under the 2026 Convertible Notes in cash. At a special meeting of stockholders held on October 13, 2025, the Company’s stockholders approved, pursuant to Nasdaq Listing Rule 5635(d), the issuance of shares of common stock in connection with the conversion, at the option of the holders, of the 2031 Convertible Notes and the Series A convertible preferred stock. Material Trends and Developments We intend to wind down commercialization of SUSTOL over the next 12 months while we evaluate potential product updates. Subject to development progress, manufacturing readiness, and regulatory feedback, we may consider reintroducing SUSTOL as early as late 2027. During the wind down, we’ll continue to support customers and manage inventory responsibly, and we expect one time transition costs, which we’ll quantify as plans are finalized . There are no other material changes to our material trends and developments disclosures included in our 2024 Annual Report during the three and nine months ended September 30, 2025. 26 Contractual Obligations and Commitments Purchase Obligations Framework Agreement On August 6, 2025, we entered into a Framework Agreement (the “Framework Agreement”) with Patheon Austria GmbH & Co KG (“Patheon”) and Thermo Fisher Scientific Inc. (solely for purposes as specified therein). Under the Framework Agreement, Patheon will manufacture and supply specific quantities of certain products, continue to perform certain ongoing stability studies related to such products and provide warehousing services, subject to the terms of a manufacturing and supply agreement previously entered into by us and Patheon, as amended by the amendments set forth in the Framework Agreement. We are required to purchase certain quantities of such products through December 31, 2026, but our monthly payment for such products may be reduced for unreleased products or non-conforming products if the products are not released by specified release dates. The Framework Agreement was effective on August 6, 2025 and will be in effect through and terminate automatically on December 31, 2026, other than with respect to any ongoing project addendums for stability studies entered into prior to December 31, 2026. Lease Obligations We have entered into two operating leases for laboratory and office space. Our laboratory and office space in San Diego, California, a portion of which has been subleased to a third party, has a lease term that expires on December 31, 2025. Our one five-year option to renew this lease on expiration applies only with respect to the portion of the premise that has not been subleased. The lease for office space in Cary, North Carolina is expected to commence no later than May 25, 2026 and expire 111 months from the lease commencement date, with the option to extend for one additional period of 84 months upon written notice. As the lease commencement date has not yet occurred, no right-of-use asset or lease liability has been recognized in the accompanying condensed consolidated financial statements. We provided the landlord with a letter of credit for $0.2 million, which is included within cash and cash equivalents in the condensed consolidate balance sheet. 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, stock-based compensation and accounting for debt and equity transactions. 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. 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 are no material changes to our critical accounting estimates disclosures included in our 2024 Annual Report, during the three and nine months ended September 30, 2025. Recent Accounting Pronouncements See Note 3 - Accounting Policies - Recent Accounting Pronouncements to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. 27 Results of Operations for the Three and Nine Months Ended September 30, 2025 and 2024 The following table summarizes the results of our operations for the three and nine months ended September 30, 2025 and 2024 (in thousands): Three Months Ended September 30, Nine Months Ended September 30, ($ in thousands) 2025 % of Sales 2024 % of Sales 2025 % of Sales 2024 % of Sales Net product sales $ 38,213 $ 32,810 $ 114,316 $ 103,504 Cost of product sales 11,914 31.2 % 9,458 28.8 % 30,228 26.4 % 28,420 27.5 % Gross profit $ 26,299 $ 23,352 $ 84,088 $ 75,084 Operating expenses: Research and development 3,470 9.1 % 4,465 13.6 % 8,683 7.6 % 13,505 13.0 % General and administrative 13,980 36.6 % 12,373 37.7 % 41,153 36.0 % 41,252 39.9 % Sales and marketing 12,942 33.9 % 10,972 33.4 % 36,828 32.2 % 36,028 34.8 % Loss from operations $ (4,093 ) (9.7%) $ (4,458 ) (13.6%) $ (2,576 ) (1.9%) $ (15,701 ) (15.2%) Net Product Sales Three Months Ended September 30, Nine Months Ended September 30, 2025 2024 2025 2024 Acute Care Net Product Sales $ 12,347 $ 7,385 $ 33,300 $ 19,676 Oncology Net Product Sales 25,866 25,425 81,016 83,828 Total Net Product Sales $ 38,213 $ 32,810 $ 114,316 $ 103,504 Total acute care net product sales increased 67.2% or $4.9 million during the three months ended September 30, 2025, as compared to the comparable period in 2024. Total acute care net product sales increased 69.2% or $13.6 million during the nine months ended September 30, 2025, as compared to the comparable period in 2024. These increases were primarily attributable to an increase in the units sold as a result of an increase in market share and new customers for both ZYNRELEF and APONVIE. Total oncology net product sales increased 1.7% or $0.4 million during the three months ended September 30, 2025, as compared to the comparable period in 2024. The increase was primarily attributable to an increase in units sold, offset by an increase in discounts, rebates and administrative fees. Total oncology net product sales decreased 3.4% or $2.8 million during the nine months ended September 30, 2025, as compared to the comparable period in 2024. The decrease was primarily attributable to market competition from branded products and generics. The competition and decreases in oncology net product sales are expected to continue for the foreseeable future. Cost of Product Sales and Gross Profit Cost of product sales increased by 26.0% or $2.5 million during the three months ended September 30, 2025, as compared to the comparable period in 2024 and as a percentage of sales increased 2.4% during the same period. Cost of product sales increased by 6.4% or $1.8 million during the nine months ended September 30, 2025, as compared to the comparable period in 2024 and as a percentage of sales decreased by 1.1% during the same period. Gross profit for the three months ended September 30, 2025 was 68.8%, compared to 71.2% for the comparable period ended September 30, 2024. Gross profit for the nine months ended September 30, 2025 was 73.6%, compared to 72.5% for the comparable period ended September 30, 2024. 28 The increase in cost of product sales for the three months ended September 30, 2025, as compared to the same period ended September 30, 2024, is primarily attributable to an increase of $1.4 million of inventory reserves and write-offs recorded and an increase of $1.3 million in the cost of units sold, primarily due to supplier mix. The increase in cost of product sales for the nine months ended September 30, 2025, as compared to the same period ended September 30, 2024, is primarily attributable to an increase in units sold combined with a lower cost per unit due to supplier mix. Research and Development Expense Reclassification of Certain Expenses The table of research and development expense below for the three and nine months ended September 30, 2024 reflect reclassification of certain expenses amongst products to align with the Company's presentation for the three and nine months ended September 30, 2025 as a result of further review of the nature of the expenses. This presentation results in no change to total operating expenses, loss from operations or net loss and no pro forma financial information is necessary. Research and development expense consisted of the following (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2025 2024 2025 2024 ZYNRELEF-related costs $ 1,944 $ 2,426 $ 3,861 $ 5,056 SUSTOL-related costs — 53 75 312 CINVANTI-related costs — 319 302 1,180 APONVIE-related costs — 157 1 396 Personnel costs and other expenses 1,249 1,149 3,647 4,946 Stock-based compensation expense 277 361 797 1,615 Total research and development expense $ 3,470 $ 4,465 $ 8,683 $ 13,505 Research and development expense decreased by $1.0 million or 22.3%, during the three months ended September 30, 2025 compared to the same period in 2024. The decrease in costs is primarily attributable to a $0.8 million decrease in contract services due to timing and a $0.4 million decrease in write-offs of property and equipment. Research and development expense decreased by $4.8 million or 35.7%, during the nine months ended September 30, 2025 compared to the same period in 2024. The decrease in costs is primarily attributable to a $2.0 million decrease in personnel and related expenses due to terminations, a decrease of $1.6 million in write-offs of property and equipment and other assets and a decrease of $0.9 million in contract services due to timing. General and Administrative Expense General and administrative expense increased by $1.6 million or 13.0%, during the three months ended September 30, 2025 compared to the same period in 2024. The increase in costs is primarily attributable to $0.8 million increase in personnel and related expenses due to net new hires and a $0.5 million increase in contract services due to timing. General and administrative expense decreased by $0.1 million or 0.2%, during the nine months ended September 30, 2025 compared to the same period in 2024. The decrease in costs is primarily attributable to a $0.7 million decrease in legal expense due to timing of litigation, a $0.6 million decrease in personnel and related costs due to terminations. These decreases were partially offset by an increase of $1.1 million in contract services due to timing. Sales and Marketing Expense Sales and marketing expense increased by $2.0 million or 18.0%, during the three months ended September 30, 2025 compared to the same period in 2024. The increase is primarily attributable to an increase in marketing costs of $1.5 million, primarily related to ZYNRELEF and a $0.3 million increase in personnel and related expenses due to net new hires. Sales and marketing expense increased by $0.8 million or 2.2%, during the nine months ended September 30, 2025 compared to the same period in 2024. The increase is primarily attributable to a $2.2 million increase in marketing costs, primarily related to 29 ZYNRELEF, partially offset by a decrease in personnel and related costs of $1.6 million as a result of a one-time stock compensation expense in 2024, which did not reoccur in 2025. Other Expense, Net For the three months ended September 30, 2025, other expense, net was $13.4 million, compared to $0.4 million, for the same period in 2024. The increase in expense is related to the loss on debt extinguishment of $11.3 million and an increase in interest expense as a result of the debt refinancing completed in 2025. For the nine months ended September 30, 2025, other expense, net, was $14.7 million compared to $1.5 million for the same period in 2024. The increase in expense is related to the loss on debt extinguishment of $11.3 million, an increase in interest expense as a result of the debt refinancing completed in 2025, and a decrease in interest income as a result of a decreasing interest rates. Liquidity and Capital Resources Sources of Liquidity As of September 30, 2025, we had cash, cash equivalents and short-term investments of $55.5 million. Our net loss for the three months ended September 30, 2025 was $17.5 million, or $0.10 per share, compared to a net loss of $4.8 million, or $0.03 per share, for the same period in 2024. Our net loss for the nine months ended September 30, 2025 was $17.2 million, or $0.11 per share, compared to a net loss of $17.2 million, or $0.11 per share, for the same period in 2024. We have incurred significant operating losses and negative cash flows from operations and had an accumulated deficit of $1.9 billion as of September 30, 2025. From our inception through September 30, 2025, we have financed our growth and operations, including technology and product research and development, primarily through the issuance of common stock, convertible notes and warrants, product sales and debt financings. 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 one year from the issuance of the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect, which would have a material impact on our operations. Future Funding Requirements 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. Cash Flows The net change in cash and cash equivalents consisted of the following: Our net cash used in operating activities for the nine months ended September 30, 2025 and September 30, 2024 was $18.4 million and $10.7 million, respectively. The increase in net cash used in operating activities of $7.7 million or 71.2%, was primarily attributable to payments for inventory, accounts payable, and accrued clinical and manufacturing liabilities, partially offset by a decrease in net loss for the nine months ended September 30, 2025 compared to the same period in 2024 and the loss on debt extinguishment recognized in the nine months ended September 30, 2025. Our net cash provided by investing activities for the nine months ended September 30, 2025, and September 30, 2024 was $21.5 million, and $7.3 million, respectively. The increase in net cash provided by investing activities of $14.2 million or approximately two-fold, was primarily attributable to net maturities of short-term investments of $21.7 million for the nine months ended September 30, 2025 compared to $8.4 million for the nine months ended September 30, 2024. Our net cash provided by financing activities for the nine months ended September 30, 2025, and September 30, 2024 was $14.2 million, and $0.5 million, respectively. The increase in net cash provided by financing activities of $13.7 million is primarily attributable to $13.4 million in cash provided through the debt and equity transactions which closed in the nine months ended September 30, 2025. 30 Material Cash Requirements There are no material changes to our material cash requirements disclosures included in our 2024 Annual Report during the three and nine months ended September 30, 2025. Off-Balance Sheet Arrangements We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC. 31 ITEM 3. QUANTITATIVE AND QUALITATI VE DISCLOSURES ABOUT MARKET RISK Quantitative and qualitative disclosures about market risk are included in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Quantitative and Qualitative Disclosures about Market Risk" in our 2024 Annual Report. There are no material changes to the quantitative and qualitative disclosures included in our 2024 Annual Report during the three and nine months ended September 30, 2025.