Thank you for standing by, and welcome to the Heron Therapeutics Second Quarter 2025 Earnings Conference Call. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Melissa Jarel, Executive Director of Legal at Heron. Please go ahead.

Thank you, operator, and hello, everyone. Thank you for joining us on the Heron Therapeutics conference call today to discuss the company's financial results for the quarter ended June 30, 2025. With me today from Heron are Craig Collard, Chief Executive Officer; Ira Duarte, Executive Vice President, Chief Financial Officer; Bill Forbes, Executive Vice President, Chief Development Officer; Mark Hensley, Chief Operating Officer; and Kevin Werner, Senior Vice President, Medical Affairs, Strategy and Engagement. For those of you participating via conference call, slides are made available via webcast and can also be accessed via the Investor Relations page of 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 the 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 periodic 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. Hello, everyone, and welcome to Heron Therapeutics Second Quarter 2025 Earnings Call. Today, we're thrilled to share results and progress for the second quarter and first half of 2025. It's been an incredibly active and transformative period for Team Heron, and I want to begin by recognizing the tremendous effort and dedication our team has demonstrated. One of the most significant milestones this quarter was the successful completion of our new financing. This was a complex and critical undertaking, and I'm proud to say that our team executed it with precision and focus as usual. The financing strengthens our balance sheet, enhances our financial flexibility, and positions us to accelerate our strategic initiatives with confidence. This achievement reflects not only our commitment to operational excellence but also the strong belief our partners and investors have in Heron's long-term vision. With this new capital in place, we're better equipped to drive innovation, expand our commercial initiatives, and continue delivering value to both patients and shareholders. Beyond the successful financing, Team Heron delivered strong operational and financial performance in the second quarter. We generated total net revenues of $37.2 million for the quarter and $76.1 million for the first half of 2025. This performance resulted in adjusted EBITDA of $7.9 million for the first half of the year, reflecting our continued focus on disciplined execution and operational efficiency. Importantly, we're seeing consistent product demand growth with ZYNRELEF and APONVIE, which has outpaced net revenue growth over the past two quarters. This is a key indicator of the underlying strength of our business and the growing adoption of our products. Mark will provide more detail on this dynamic later in our prepared remarks. Another major milestone this quarter was the transition from a C-code to a permanent J-code for ZYNRELEF that will become effective October 1. This is a significant win for Heron and for the providers who rely on ZYNRELEF in their practice. The J-code will streamline reimbursement processes and reduce the administrative burden, especially as the NOPAIN act continues to gain traction. We believe this change will improve access and coverage across both government and commercial payers, ultimately supporting broader adoption and better patient outcomes. Taken together, these achievements underscore the momentum we're building across the organization. We're executing on our strategy, strengthening our financial foundation, and positioning Heron for long-term growth. I'd now like to turn the call over to Mark Hensley, our Chief Operating Officer, to cover product performance and many of the new initiatives we believe will be catalysts for future growth. Go ahead, Mark.

Thanks, Craig. Q2 was a transitional quarter for Heron as we implemented several key commercial changes designed to strengthen execution in the second half of the year and beyond. Combined net revenues from APONVIE and ZYNRELEF totaled $10.7 million for the second quarter and $20.9 million year-to-date. This reflects strong year-over-year growth of 55.5% for the quarter and 70.5% for the first half of 2025 compared to the same periods in 2024. Across the Acute Care franchise, demand growth was encouraging with unit growth across both ZYNRELEF and APONVIE. While reported revenue was relatively flat quarter-over-quarter, this masks meaningful progress in foundational work that will support growth in the second half of the year. Let me walk you through the drivers in more detail, beginning with ZYNRELEF. ZYNRELEF adoption continues to accelerate with growth in average daily units and total ordering accounts now more than 700 through the month of June. ZYNRELEF demand units grew 6.3% over Q1, signaling continued momentum in provider adoption. However, Q2 revenue was impacted by a transient inventory drawdown at our wholesalers, primarily related to the transition to the 400-milligram VAN. This type of wholesaler inventory swing is common in new product transitions, and we estimate it reduced net sales by approximately $400,000 in the quarter. Importantly, this drawdown occurred while end-user demand continued to increase, and we expect wholesaler ordering patterns to normalize in Q3. Operationally, we focused the ZYNRELEF team on targeted pull-through in accounts where we already have formulary access. This alignment ensures our reps are focused on converting approved access into actual utilization. In addition, we made several enhancements to drive long-term growth. We launched a significantly enhanced per-unit compensation program with CrossLink. Beginning in July, CrossLink reps were allowed to nominate up to four accounts per territory with little or no historical ZYNRELEF use, where they believe they can make an immediate impact. Many of these accounts already had formulary access, and the enhanced incentives are in place through the end of 2025. In addition, we stood up a new Post-Operative Clinical Educator Team. These three specialists provide targeted onboarding and support in high-volume accounts, improving adoption efficiency while allowing reps to focus on growth. And importantly, we received a permanent J-code for ZYNRELEF effective October 1. While not a near-term growth catalyst on its own, the J-code streamlines reimbursement and should improve billing clarity. Taken together, these initiatives represent a reoriented and focused ZYNRELEF commercial engine, well-positioned for acceleration in the second half of the year. Turning to APONVIE. We continue to see strong trends nearing the 1,000 average daily unit mark through the month of June, while ex-factory units grew 11%, and demand units grew 19%. Net revenue grew 9% over Q1. The difference between demand and revenue reflects inventory normalization at the wholesaler level and a modest impact from standard 340B discounts as larger hospital systems came online in the quarter. To support continued growth, we launched a dedicated APONVIE sales team on July 1, consisting of six reps supported by our national account team. This team was created without incremental headcount costs, thanks to strategic consolidation of underperforming territories. We believe this targeted investment will unlock further hospital account conversion going forward. The oncology franchise continues to outperform our expectations with combined net revenues from CINVANTI and SUSTOL reaching $26.5 million for the quarter and $55.1 million year-to-date. We have maintained market share in a highly competitive environment, and we believe these products will continue to deliver consistent performance throughout 2025. We are extremely pleased with the results of our oncology supportive care franchise, and we are actively exploring creative strategies to drive continued growth in this market. In summary, Q2 was about restructuring and refocusing our commercial platform. We optimized our sales force and created dedicated teams for ZYNRELEF and APONVIE. We aligned with CrossLink around enhanced pull-through in target accounts. We supported high-volume institutions with dedicated Clinical Educators, and we made real progress in demand growth even amid temporary revenue headwinds. With these changes in place, we believe Heron is well-positioned to drive accelerating growth in the second half of 2025 and beyond. Thanks. And I'll now turn it back to you, Craig.

Thanks, Mark. Now moving to our financial performance. Our product gross profit for the three months ended June 30, 2025, was $27.3 million or 73.5%, which increased from 70.8% for the same period in 2024. For the six months ended June 30, 2025, our product gross profit was $57.8 million or 75.9%, which increased from 73.2% for the same period in 2024. This was due to an increase in units sold at a higher cost per unit sold than in 2024 due to the supplier mix, offset by lower inventory reserves and write-offs. SG&A expenses for the three and six months ended June 30, 2025, were $26 million and $51.1 million, respectively, compared to $27.5 million and $53.9 million, respectively, for the same periods in 2024. For the three months ended June 30, 2025, the decrease in SG&A expense is primarily attributed to a decrease in personnel and related expenses of $1.8 million due to terminations and one-time stock expense in 2024. For the six months ended June 30, 2025, the decrease in SG&A expense is primarily attributed to a decrease in personnel and related expenses of $3.5 million due to terminations and one-time stock expense in 2024. These decreases were offset by an increase in marketing costs of $600,000, primarily related to ZYNRELEF. Research and development expenses were $2.9 million and $5.2 million, respectively, for the three and six months ended June 30, 2025, compared to $4.4 million and $9 million, respectively, for the comparable periods in 2024. The decrease in research and development expense for the three months ended June 30, 2025, is primarily due to $1.2 million more of write-offs of property and equipment in 2024 than in 2025 and a decrease in personnel and related expenses of $300,000 due to terminations. The decrease in research and development expense for the six months ended June 30, 2025, is primarily due to the $1.2 million more of write-off of property and equipment in 2024 than in 2025 and a decrease in personnel and related expenses of $2 million due to terminations. For the three months ended June 30, 2025, we incurred a net loss of $2.4 million compared to a net loss of $9.2 million for the same period in 2024. For the six months ended June 30, 2025, we earned net income of $300,000 compared to a net loss of $12.4 million for the same period in 2024. Cash and short-term investments at June 30, 2025, were $40.6 million. If we had excluded depreciation and stock-based compensation, our adjusted EBITDA results would have been a positive $1.8 million of operating income for the three months ended June 30, 2025, compared to a loss of $1.2 million for the three months ended June 30, 2024. For the six months ended June 30, 2025, our adjusted EBITDA is $7.9 million of operating income compared to a loss of $1.9 million for the same period in 2024. On August 8, 2025, we entered into a refinancing consisting of four concurrent transactions as follows: Firstly, a new credit facility with Hercules Capital that provides for up to $150 million in aggregate principal, including $110 million funded at closing and an additional $40 million available in future tranches subject to milestone achievement. Secondly, the issuance and sale of $35 million of new 5% senior convertible notes due in 2031 to Rubric Capital. Thirdly, a placement of common stock and Series A Preferred Stock with certain investors for aggregate gross proceeds of approximately $28 million. And lastly, an exchange transaction with our current convertible note holder involving the repayment of the majority of our outstanding 1.5% senior convertible notes due in May of 2026 in cash and the conversion of a portion of the remaining notes into shares of common stock. The outstanding $150 million of aggregate principal amount of our existing 1.5% senior convertible notes due 2026 and the $25.7 million of aggregate principal amount outstanding under our prior Hercules Working Capital Facility will be fully repaid and extinguished upon the closing of these transactions, which is expected to occur on August 12, 2025. Now moving to 2025 financial guidance. Based on the continued performance of our business, we are maintaining our previously given net revenue guidance of $153 million to $163 million, and we are revising our previously given guidance of adjusted EBITDA of $4 million to $12 million to a range of $9 million to $13 million. We would now like to open the call for any questions.

Certainly. And our first question for today comes from the line of Clara Dong from Jefferies.

So one question on ZYNRELEF. Can you give us more detail on the VAN 400-milligram transition and how much of Q2 revenue was impacted? And maybe how much of the impact was on the timing and whether you expect it to fully normalize in the second half with the VAN transition completed in the third quarter? And I have a follow-up.

Thank you for the question. So the VAN 400-milligram transition began at the end of Q4, so really late December. Most of Q1, we were in transition. And by Q2, we no longer were selling any of the VVS, but the inventory buildup at the end of Q4 and into Q1 didn't normalize until Q2. And so we do expect the Q3 normalization of inventory to be complete as of July 1.

Got it. And on the J-code for ZYNRELEF, can you give us some comments on how this plays a role in reimbursement along with the NOPAIN act and your thoughts on the impact on adoption moving forward?

Clara, this is Craig. Look, we were excited to get the J-code. What we've sort of seen over time as we have passed through reimbursement with the C-code, it's not that that's not recognized, but the J-code is much more universally recognized, if you will. And certainly, with commercial payers, they're a lot more used to dealing with that. So I think with NOPAIN, what you're going to see over time, and we're beginning to see this with certain payers, is that they're going to pick up what CMS or Medicare is doing. And if that happens more, we think, again, having a J-code is just going to make it more conducive for reimbursement and make it simpler. So we don't necessarily see an impact immediately. But as this plays out and commercial payers come on board and reimbursement gets more synonymous with these products being paid for outside of the surgical bundle, I think you're going to see a shift where this J-code really does help us in the longer term.

Congrats on all the progress.

And our next question comes from the line of Brandon Folkes from H.C. Wainwright.

I have just two questions. I apologize if you have already addressed some of this while I was switching between calls. First, could you elaborate on the reasons behind the ZYNRELEF sales force reorganization and its implications for the CrossLink partnership? Secondly, regarding APONVIE, it seems that demand increased by 19% and revenue by 9%. Is this mainly due to inventory movement, or are you implementing a different pricing strategy to enhance volume for that product?

Brandon, thanks for the question. So on the ZYNRELEF sales force, prior to July 1, we had one team that was essentially comp 50-50 on APONVIE and ZYNRELEF. But as we evaluated the team, we think that the profiles of those two teams should be different in terms of their skill set, where a ZYNRELEF rep is primarily focused in the OR on surgeons. And an APONVIE rep is typically your traditional hospital sales rep. And so for that reason, we've divided the teams up. The ZYNRELEF team stayed relatively similar to what it was. The APONVIE team is small; it's only six Institutional Business Managers today, but we think the team that we put in place there will have a meaningful impact on APONVIE long term. As it relates to CrossLink, we've had a really nice agreement in place with them. We started that in 2024. We've built out a really nice network across the country. But we wanted to really engage them focused on specific accounts. And so we've allowed them to pick four accounts from a list that we provide, primarily accounts where we already have formulary access. And we've significantly enhanced the incentive around those accounts on a per-unit basis. And so we've aligned that with our current ZYNRELEF sales team's targets as well. And so we feel like we're much better targeted in terms of overlap between the two teams, and we have the incentives in place right now to really drive momentum in the back half of the year. As it relates to the APONVIE sales, it's primarily a wholesaler inventory adjustment as we pared down inventory coming out of Q4 and Q1. There is a bit of gross to net in there where we had two or three large academic centers come online in the quarter. And there was some variation in the amount of 340B that they were acquiring, but we do expect that to normalize over the second half as more and more accounts are added.

And our next question comes from the line of Serge Belanger from Needham.

I guess a follow-up regarding the sales force changes. Is this just a refocusing on the two specific products? Or is there an expansion in numbers that comes along with the restructuring? And then secondly, regarding ZYNRELEF, I believe NOPAIN for Heron came into effect in April. So just curious if you've noticed any changes in usage or uptake of ZYNRELEF during that transition from your original pass-through reimbursement to NOPAIN. Maybe one last one for Ira. Just the new overall share count after the transactions this morning.

I'll take the restructuring question. Craig can take the NOPAIN and then we'll turn it over to Ira on share count. So in terms of the restructuring, we don't foresee an expansion in the teams beyond today over the short term. What you see is just a more dedicated focus by one single ZYNRELEF team, where before they were also trying their best to also have enough time to sell APONVIE. And so in terms of the profile of those reps, we see them as slightly different in the strategy itself. And so we broke them apart. We hired traditional hospital reps to focus on APONVIE. That in itself is a bit of an expansion, but we were able to do all of this in a way that didn't meaningfully add to costs over the short term.

Yes, Serge, I would just add to that. If you think of the country and what we've accomplished with ZYNRELEF and its connection with CrossLink, envision something like pods or postage stamps across the country. With our efforts to clean up the balance sheet and the additional funds we've raised, we anticipate noticing pockets where this begins to take off, as we're already observing with CrossLink becoming more engaged thanks to some of the incentives we've implemented. Regarding expansion, if we see growth in these areas, we will definitely provide more support. Thus, there's potential for future expansion, but it's a wait-and-see situation. Rather than indiscriminately investing in a large number of representatives, we prefer to approach this systematically and efficiently. Over the past two years, we've aimed to manage the company's financial picture consistently, and we intend to maintain that approach moving forward. Concerning NOPAIN and its implications, we haven't observed an immediate impact yet. However, we notice that conversations in pharmacies are evolving compared to the past. Generally, when a representative visits, it's typically about a branded product, but now discussions seem more open as everyone focuses on reimbursement and realizes these products can represent a profit instead of just a cost. As I mentioned regarding commercial payers becoming involved, we expect a significant shift in the next year as they begin to accept this type of reimbursement systematically and view it differently than before. Coupling that with VAN, the CrossLink incentives, and our structural changes, we believe we have many favorable factors working in our favor. Ira, I'll turn it over to you for the final part.

Yes, the pro forma common share is about 183 million shares, and pro forma shares, including the convert, would be about 208 million.

And our next question comes from the line of Carl Byrnes from Northland Capital Markets.

Congratulations on the progress. Just wondering if you could disclose what the rate is on the senior credit facility with Hercules. And then also with respect to how much cash, net of expenses, when everything closes will be added to the balance sheet, excluding the $40 million additional tranches?

Yes. The overall rate, Carl, is a little bit north of 10%, and the funds to the balance sheet are probably about $11 million to $12 million after all expenses.

This does conclude the question-and-answer session of today's program. I'd like to hand the program back to Craig Collard for any further remarks.

No, thanks, everyone, for the questions today. I know this was short notice. We do appreciate everyone jumping on, and we'll talk to you next quarter.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.