Thank you for waiting. My name is Alex, and I will be your conference operator today. I would like to welcome everyone to the Heron Therapeutics Q1 2024 Conference Call. All lines have been muted to avoid background noise. After the speakers finish their remarks, we will have a question-and-answer session. Now, I will turn the call over to Melissa Jarel, Executive Director, Legal. Please proceed.

Thank you, operator, and good morning, everyone. Thank you for joining us on the Heron Therapeutics conference call this morning to discuss the company's financial results for the quarter ended March 31, 2024. With me today from Heron are Craig Collard, Chief Executive Officer; Ira Duarte, Executive Vice President and Chief Financial Officer; Bill Forbes, Executive Vice President, Chief Development Officer. For those of you participating via conference call, it will be made available via webcast and can also be accessed via the Investor Relations page on our website following the conclusion of today's call. Before we begin, let me quickly remind you that, during the course of this conference call, the company will make forward-looking statements. We caution you that any statement that is not a statement of historical fact is a forward-looking statement. This includes remarks about the company's projections, expectations, plans, beliefs and future performance, all of which constitute forward-looking statements for the purposes of the safe harbor provision under the Private Securities Litigation Reform Act of 1995. These statements are based on judgment and analysis as of the date of this conference call and are subject to numerous important risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. The risks and uncertainties associated with forward-looking statements made in this conference call and webcast are described in the safe harbor statement in today's press release and in Heron's public filings with the SEC. Except as required by law, Heron assumes no obligation to update these forward-looking statements to reflect future events or actual outcomes and does not intend to do so. And with that, I would now like to turn the call over to Craig Collard, Chief Executive Officer of Heron.

Thanks, Melissa. Good morning, everyone, and welcome to the Heron Therapeutics' First Quarter 2024 Earnings Call. Today, we are pleased to update you on our latest achievements in Q1, including financial performance, progression on our development projects, CrossLink progression and a general corporate update. We started the quarter off with tremendous momentum. First, we signed the CrossLink agreement on January 7 and shortly after, on January 23, we received official approval of our expanded indication of ZYNRELEF, which broadens our label into spine, shoulder and other soft tissue surgical procedures. Following these two events, we had a National Sales Meeting where we trained all of our sales staff on the new indications. We also developed an internal group to lead the training process of the CrossLink team. We have continued to improve our financial efficiency by reducing spend and improving margins. We believe that with this continued approach we will achieve profitability, as predicted, by Q4 of 2024. Before we move on to product performance, I did want to show this slide to highlight what has been achieved this quarter versus just 12 months ago. As you can see, in Q1 of 2023, we had net revenues of $29.6 million, COGS of $16.8 million with an overall loss of just over $33 million. In the same time period in 2024, we had $34.6 million in net revenues, $8.4 million in COGS and a loss of $4.8 million, which is a $28.2 million positive swing in just 12 months, along with a gross margin improvement from 43% to 76%. The takeaway from this is that we are on the right path and we have the business well-positioned for the future. Now, moving on to product performance, the Oncology franchise continues to outpace our expectations with CINVANTI net revenues of $25.6 million for the quarter and SUSTOL net revenues of $3.6 million for the quarter. We continue to maintain our existing market share in a very competitive environment with the oncology franchise, and we believe these products will continue to show consistent performance throughout 2024. Total Acute Care net revenues for the quarter were $5.5 million, which represents a 45% increase from $3.8 million in the first quarter of 2023. ZYNRELEF net revenues for the quarter were $5 million, which represented the second straight quarter with revenues of $5 million or greater. APONVIE net revenues for the quarter continued to increase quarter-on-quarter and year-on-year to $500,000 for the quarter ended March 31, 2024. While we are pleased with the direction we are headed, we knew Q1 was going to be relatively flat when considering seasonality and with all the other activities we had going on during the quarter such as label expansion training and with the kickoff of CrossLink. I will speak to ZYNRELEF's performance specifically when I give an update on CrossLink, but I did want to mention we are seeing tremendous uptake with APONVIE. Our sales message is really beginning to resonate with many institutions around the country, and this will ultimately impact net revenue growth. In Q3 of 2023, our new management team realized that our sales message for APONVIE needed to focus on PONV versus just trying to convert oral medications and the impact it can have financially in the perioperative space. We retrained our reps, refined our sales message and improved our incentive compensation plan to focus on this messaging. Since implementation in October of 2023, we have had over 70 P&T wins and, as you can see from the slide, another 35 this quarter as well. Once approved by P&T, there is a bit of lag time before the sales boost begins to take place. But as these accounts come on board, we expect to see continued growth in sales as APONVIE generally bills system-wide in most accounts. We are very pleased with the APONVIE momentum, and it should only improve as we continue to bring more CrossLink reps on board. This will free up more time for our Heron sales team to actually sell APONVIE and ZYNRELEF rather than being present in the OR during case management for ZYNRELEF preparation. Now, moving on to the CrossLink update, training for the CrossLink team kicked off with the executive team in late February and with the reps at the beginning of March. We now have 216 CrossLink reps trained in joint, trauma and spine who are out in the field selling ZYNRELEF. While the fruits of the CrossLink partnership are not apparent in Q1, we believe that the timing of the initiation of the partnership and the training, which has been staged and is still ongoing, will pay many dividends as more and more field reps come online. Our plan is to continue to expand our reach across the country with over 650 reps being fully trained and integrated before the launch of the VAN in Q4 of this year. Internally, we have been amazed by the relationships the CrossLink team has in the orthopedic surgical community, and we realize, in time, this is going to have a substantial impact on ZYNRELEF revenues. In just one month of their joint team being trained and promoting ZYNRELEF, we already had more than 20 new orthopedic surgeons use our product in the first month. This is just in North Carolina, South Carolina, and Georgia, which represents the inaugural region for our partnership with CrossLink. We have seen a 12-fold increase in unit sales growth within these three states versus the rest of the country. We have had around 60 introductions and touchpoints to new orthopedic users in the month of April alone, and we anticipate 40 new users to come on within the next 30 days. We are literally just getting started and building the car while we are driving, but the impact that CrossLink will have is very clear and will continue to play out as we get more reps trained and integrated into the partnership.

Thank you, Craig. During the last quarterly earnings call, I covered our R&D activities, which are focused on providing easier access to ZYNRELEF. I will cover some of that again here for investors that are newer to our story and provide an update on current activities as well as our near-term deliverables. Following the ZYNRELEF label expansion, R&D continues to focus on the work to modify the device component of this combination product. The first modification involves the Vial Access Needle, or VAN. The VAN is designed to improve efficiencies in preparation, achieving this in two ways. First, the withdrawal of ZYNRELEF from the vial with the VAN is approximately 3 to 4 times faster than the currently marketed Basic Vial Spike, or BVS. Secondly, the VAN will allow for an even more secure presentation of the product into the sterile field in the surgical room by encasing the ZYNRELEF vial into the sterile shroud of the VAN. We believe that both the improved withdrawal time and sterile shroud will be extremely well received by operating room staff. Presently, we have completed all development and testing activities on the VAN, and we are finalizing the submission to the FDA. We anticipate the VAN approval in Q4 of this year. The ultimate solution to speed and ease of use of ZYNRELEF is the prefilled syringe, or PFS. We anticipate the PFS approval in Q4 of 2026. In this product presentation, the entire tray is sterilized and ready for immediate use. There will be no vial of ZYNRELEF and no BVS or VAN, just the syringe itself. The challenges to this program involve a new container closure system and the sterilization process itself. Once this is available, all barriers to preparation will be removed.

Thanks, Bill. Craig has covered our product performance and operating expenses results in his comments, and I will add some additional points for our Q1 2024 results. Our product gross profit for the first quarter was $26.2 million, or 76%, which increased from 43% in the first quarter of 2023. The benefits from the production scale-up, validation activities and raw material qualifications completed in late 2022 were more fully realized in 2024 as compared to the same period in 2023. SG&A expenses for the three months ended March 31, 2024 were $26.4 million compared to $37 million in the same period in 2023. The decrease was primarily related to a decrease in personnel and related costs due to the reduction in workforce implemented in June 2022 and June 2023. Research and development expenses were $4.6 million for the three months ended March 31, 2024, compared to $8.8 million in the comparable period in 2023. The decrease was primarily related to a decrease in personnel and related costs due to the reduction in workforce implemented in both June 2022 and June 2023. As noted in the 10-Q, the condensed, consolidated statements of operations and comprehensive loss as of March 31, 2024 reflects reclassification of certain expenses from research and development to general and administrative expenses to align with the function of the expenses incurred. This results in no change to total operating expenses. The net loss was $3.2 million for Q1 2024 and $32.7 million for the comparable period in 2023. We are reaffirming our previously given guidance for revenue of $138 million to $158 million for 2024 and improved gross margin between 68% to 70%. Our operating spend, excluding stock compensation and depreciation and amortization, is anticipated to be between $108 million to $116 million, and EBITDA, excluding stock comps, will be between a loss of $22 million to income of $3 million. I would like to reiterate that we anticipate returning to positive EBITDA in Q4 2024. Based on this, our strong balance sheet and our current operational plan, we do not anticipate having to raise additional capital.

Craig, it's been about 4 months since you got the broad label expansion for ZYNRELEF. You highlighted some of the new indications. I think you said spine, shoulder and soft tissue procedures. Where do you think the additional uptake from these new indications will be? And then secondly, I noticed you guys had a strong first quarter. I'm just curious if that's kind of a new base level for that product going forward.

I'm sorry. Could you repeat the first part? A little bit got cut off on your first part of your question. Yes. So the broad label expansion for ZYNRELEF was about 4 months ago. There's been a number of new indications. You mentioned spine, shoulder and soft tissue. Curious where the product has seen some uptake in these new indications since the expansion of the label. So actually, interestingly enough, on day one of approval, I was able to personally observe a spine case. We had a physician here in North Carolina that used it, and I got to watch that. But I think what you're watching happen is that we've had certainly a number of spine surgeons, orthopedic and so forth, that have tried the product, perhaps in shoulder or spine. But I think, again, the uptake is going to be, while people will use it, I think you're still going to have some experimentation going on about how they apply it, getting used to the product and going through that whole sort of process that we go through with a product like this. It's a little different. So I think the results we've seen so far have been good. In the cases I've observed, things went well.

Yes, definitely. Thanks for the question, Serge. As far as the expanded label goes, it does a couple of things. First off, the formulary access, a lot of times, when these institutions review a product, they want to be able to bring it on and cover it in all of their procedures, right, and not have a onesie-twosie approach with multiple branded drugs on their shelves. So having that broad label was a big move forward for us regarding formulary access. They all take time, right? So the review process takes 2 to 3 months, getting in the electronic medical record build. So the rollout and the effects of that broad label are expected to be apparent in Q3 and Q4 as we expand and educate on it and what that label provides. But as far as the procedures go, definitely, we are targeting significant procedures. One nice target procedure that everyone can appreciate is the soft tissue space with C-section. Obviously, for a new mother, we don't want to have to expose her to opioids, and it's a very painful procedure, so we can facilitate that recovery. Overall, we're seeing excellent results in those procedures.

Yes, Serge, and regarding the second part to your question regarding CINVANTI, we've been extremely pleased with CINVANTI and SUSTOL. I think both had a really good quarter. Again, our unit volume is up, and we're holding price fairly well. So again, from quarter to quarter, things vary a bit, but the market is still growing, and we're maintaining share. So again, we've been very pleased with CINVANTI and the clinical value that it brings is helping us certainly hold share and maintain price.

Congratulations on the quarter and the progress. Considering the demand trends that are obviously occurring across the board and the cost reductions and gross profit margin improvement, do you think that it's possible that you might see achievement of profitability prior to the fourth quarter that you're directing?

Thank you for your question. I expected someone would bring that up. We're quite satisfied with our current progress. We are slightly below the expense range we provided, which was between $108 million and $116 million, and multiplying that by four shows we're at the lower end of this range, which we hope continues. The reason we're not adjusting or refining our guidance right now is primarily due to ongoing litigations. While we believe we have control over the business, there are still developments in terms of operations and legal matters that could affect our situation. Therefore, we're approaching this with a sense of caution, or perhaps being conservative. Nevertheless, we are pleased with our performance this quarter and the expense outcomes. Regarding margins, we've managed to negotiate some terms with our manufacturers, which has helped keep our cost of goods sold down. This quarter, we mainly utilized APONVIE alongside CINVANTI and did not use our secondary manufacturer, which contributed positively to our margins, bringing us to about 76%. I still expect that throughout the year, we will be closer to the lower end of the 70% margin range, but we plan to manage that effectively. We're very happy with our current position and hope to finish at the lower end of our expense range. If that occurs, there is a chance we could reach profitability sooner than anticipated, but for now, we remain focused on the fourth quarter.

Craig, could you talk just a little bit more about the CrossLink reps that you've trained? I think you said over 200. And you mentioned 3 specific states that you've penetrated into. What other states do you plan to be in this summer? And then how many CrossLink reps do you plan to have fully trained by the fall?

Tim, thanks for the question. Again, we've been extremely pleased with CrossLink. Again, I used the word amazing in my comments, but the relationships these reps bring are quite different than what we usually have as a pharmaceutical company. Keep in mind that, in many cases, CrossLink's been around for 4 years. A lot of the reps have 10, 15, 20 years' experience with these physicians, being with them every day. So it's just a different relationship. It allows us to get in front of these folks and have more time to explain some of the situations with ZYNRELEF and so forth. From a training perspective, we've been moving fairly quickly. I want to turn it over to David Barozzino, who's been directly involved and at these training meetings and can provide more insight into what's going on and where we're going next.

Thank you, Craig. As it pertains to CrossLink, yes, obviously, we started in the legacy states where CrossLink is present, which is North Carolina, South Carolina, and Georgia. One of the things that's ongoing and ever-changing is that on a weekly basis, we're conducting 2 to 3 live trainings across the country. The goal by the end of 2024 is to have a presence in each state. I can tell you that we've already expanded into areas like Michigan, St. Louis, Kansas, and it continues to evolve from week to week. By the end of the year, we definitely hope to have coverage in all 50 states.

That's great. And maybe just one question. I seem to recall that Florida is a pretty big state for procedures. I mean, are you guys going to penetrate that state near term?

Yes, 100%. That is definitely a focal point. I think you could lump New York, Florida, Texas, and California as four significant states. We are in active discussions with some distributors down there as well.

This is Clare on behalf of Kelly. Congrats on the quarter. So, for ZYNRELEF, could you please talk about your qualification for the NOPAIN Act in the context of your pass-through status and how the coverage is going to change after it takes effect in 2025? And whether you could give any color on what's the latest discussion surrounding the NOPAIN Act's possibility that it will go beyond 2027?

Yes, this is Kevin Warner again. Thanks for that question. The NOPAIN Act is coming into effect in Q1 of 2025. It's going to provide reimbursement outside of the surgical bundle for our HOPD patients, our outpatient procedure department in the hospital, and our ASCs for these non-opioids that have been proven to reduce opioid consumption. Currently, ZYNRELEF has pass-through status, as you alluded to, which expires in Q1 of 2025. The NOPAIN Act goes into effect starting that quarter. We've already had productive conversations with CMS, highlighting all the criteria to qualify for the NOPAIN Act. ZYNRELEF qualifies for all of those criteria, except one: the fact that we have pass-through status. That’s why we had open dialogue to ensure we don’t fall off in that interim period. We are confident that they'll pick it up and pass it through right on. There won’t be any hitch in that pass-through status to ensure our institutions still have access and reimbursement for ZYNRELEF. As for extending the duration, the NOPAIN Act was designed to be a 5-year act. Unfortunately, it took some time to get passed through Congress, so it’s coming a little later than desired, but we're expecting it to be valid through the end of 2027. We definitely have a lot of encouragement and support from our community, especially considering the concerns surrounding the opioid epidemic. We expect them to continue to extend and provide payments for these non-opioids in our country and for our patients.

Super helpful.

That concludes our Q&A session. I will now turn the conference back over to Craig Collard, Chief Executive Officer, for closing remarks.

I just want to thank everyone again for listening today, and we look forward to speaking with everyone next quarter. Thank you.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.