UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

Commission file number: 001-33221

HERON THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)	94-2875566 (I.R.S. Employer Identification No.)
4242 Campus Point Court, Suite 200 San Diego, CA	92121
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (858) 251-4400

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	HRTX	The Nasdaq Capital Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☑
Non-accelerated filer	☐	Smaller reporting company	☑
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

The number of shares of the registrant’s common stock, par value $0.01 per share, outstanding as of May 2, 2024 was 150,653,158.

HERON THERAPEUTICS, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2024

TABLE OF CONTENTS

PART I.	FINANCIAL INFORMATION
ITEM 1.	Condensed Consolidated Financial Statements
	Condensed Consolidated Balance Sheets as of March 31, 2024 (Unaudited) and December 31, 2023	2
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2024 and 2023 (Unaudited)	3
	Condensed Consolidated Statements of Stockholders’ Deficit for the Three Months Ended March 31, 2024 and 2023 (Unaudited)	4
	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2024 and 2023 (Unaudited)	5
	Notes to Condensed Consolidated Financial Statements (Unaudited)	6
ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	18
ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	25
ITEM 4.	Controls and Procedures	25
PART II.	OTHER INFORMATION
ITEM 1.	Legal Proceedings	26
ITEM 1A.	Risk Factors	26
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
ITEM 3.	Defaults upon Senior Securities	27
ITEM 4.	Mine Safety Disclosures	27
ITEM 5.	Other Information	27
ITEM 6.	Exhibits	28
	SIGNATURES	29

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PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

HERON THERAPEUTICS, INC.

Condensed Consolidated Balance Sheets

(In thousands)

	March 31, 2024			December 31, 2023
	(Unaudited)			(See Note 2)
ASSETS
Current assets:
Cash and cash equivalents	$	20,450		$	28,677
Short-term investments		51,074			51,732
Accounts receivable, net		65,322			60,137
Inventory		42,473			42,110
Prepaid expenses and other current assets		6,584			6,118
Total current assets		185,903			188,774
Property and equipment, net		19,306			20,166
Right-of-use lease assets		4,794			5,438
Other assets		7,884			8,128
Total assets	$	217,887		$	222,506
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	837		$	3,240
Accrued clinical and manufacturing liabilities		19,943			22,291
Accrued payroll and employee liabilities		7,647			9,224
Other accrued liabilities		43,814			41,855
Current lease liabilities		3,137			3,075
Total current liabilities		75,378			79,685
Non-current lease liabilities		2,045			2,800
Non-current notes payable, net		24,447			24,263
Non-current convertible notes payable, net		149,542			149,490
Other non-current liabilities		241			241
Total liabilities		251,653			256,479
Stockholders’ deficit:
Common stock		1,504			1,503
Additional paid-in capital		1,873,910			1,870,525
Accumulated other comprehensive (loss)/income		(6	)		13
Accumulated deficit		(1,909,174	)		(1,906,014	)
Total stockholders’ deficit		(33,766	)		(33,973	)
Total liabilities and stockholders’ deficit	$	217,887		$	222,506

See accompanying notes.

2

HERON THERAPEUTICS, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

(In thousands, except per share amounts)

	Three Months Ended March 31,
	2024			2023
Revenues:
Net product sales	$	34,670		$	29,615
Cost of product sales		8,444			16,854
Gross profit		26,226			12,761
Operating expenses:
Research and development		4,608			8,836
General and administrative		14,974			15,834
Sales and marketing		11,442			21,154
Total operating expenses		31,024			45,824
Loss from operations		(4,798	)		(33,063	)
Other income, net		1,638			295
Net loss		(3,160	)		(32,768	)
Other comprehensive loss:
Unrealized (losses) gains on short-term investments		(19	)		28
Comprehensive loss	$	(3,179	)	$	(32,740	)
Basic and diluted net loss per share	$	(0.02	)	$	(0.27	)
Weighted average common shares outstanding, basic and diluted		151,199			119,246

See accompanying notes.

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HERON THERAPEUTICS, INC.

Condensed Consolidated Statements of Stockholders’ Deficit

(Unaudited)

(In thousands)

	Common Stock
	Shares		Amount		Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total Stockholders’ Deficit
Balance as of December 31, 2023 (audited)		150,285	$	1,503	$	1,870,525	$	13		$	(1,906,014	)	$	(33,973	)
Issuance of common stock under equity incentive plan		93		1		10		—			—			11
Stock-based compensation expense		—		—		3,375		—			—			3,375
Net loss		—		—		—		—			(3,160	)		(3,160	)
Net unrealized gains on short-term investments		—		—		—		(19	)		—			(19	)
Comprehensive loss														(3,179	)
Balance as of March 31, 2024 (unaudited)		150,378		1,504		1,873,910		(6	)		(1,909,174	)		(33,766	)

	Common Stock
	Shares		Amount		Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total Stockholders’ Deficit
Balance as of December 31, 2022 (audited)		119,155	$	1,191	$	1,807,855		$	(19	)	$	(1,795,455	)	$	13,572
Issuance of common stock under equity incentive plan		125		2		(210	)		—			—			(208	)
Stock-based compensation expense		—		—		7,947			—			—			7,947
Net loss		—		—		—			—			(32,768	)		(32,768	)
Net unrealized losses on short-term investments		—		—		—			28			—			28
Comprehensive loss															(32,740	)
Balance as of March 31, 2023 (unaudited)		119,280		1,193		1,815,592			9			(1,828,223	)		(11,429	)

See accompanying notes.

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HERON THERAPEUTICS, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

	Three Months Ended March 31,
	2024			2023
Operating activities:
Net loss	$	(3,160	)	$	(32,768	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense		3,375			7,947
Depreciation and amortization		689			718
Amortization of debt discount		88			—
Amortization of debt issuance costs		52			51
Accretion of discount on short-term investments		(638	)		(474	)
Impairment of property and equipment		170			154
Changes in operating assets and liabilities:
Accounts receivable		(5,185	)		601
Inventory		(363	)		2,514
Prepaid expenses and other assets		(222	)		906
Accounts payable		(2,403	)		840
Accrued clinical and manufacturing liabilities		(2,347	)		(3,195	)
Accrued payroll and employee liabilities		(1,577	)		(3,906	)
Other accrued and other non-current liabilities		2,005			1,712
Net cash used in operating activities		(9,516	)		(24,900	)
Investing activities:
Purchases of short-term investments		(37,892	)		(13,942	)
Maturities and sales of short-term investments		39,170			51,000
Purchases of property and equipment		—			(224	)
Net cash provided by investing activities		1,278			36,834
Financing activities:
Payments for stock issued under the equity incentive plan		11			(208	)
Net cash provided by (used in) financing activities		11			(208	)
Net (decrease) increase in cash and cash equivalents		(8,227	)		11,726
Cash and cash equivalents at beginning of period		28,677			15,364
Cash and cash equivalents at end of period	$	20,450		$	27,090
Supplemental disclosure of cash flow information:
Interest paid	$	649		$	—

See accompanying notes.

5

HERON THERAPEUTICS, INC.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

In this Quarterly Report on Form 10-Q, all references to “Heron,” the “Company,” “we,” “us,” “our” and similar terms refer to Heron Therapeutics, Inc. and its wholly owned subsidiary, Heron Therapeutics B.V. Heron Therapeutics®, the Heron logo, ZYNRELEF®, APONVIE®, CINVANTI®, SUSTOL®, and Biochronomer® are our trademarks. All other trademarks appearing or incorporated by reference into this Quarterly Report on Form 10-Q are the property of their respective owners.

1. Business

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.

ZYNRELEF (bupivacaine and meloxicam) extended-release solution (“ZYNRELEF”) is approved in the United States (“U.S.”) for the management of postoperative pain. APONVIE (aprepitant) injectable emulsion (“APONVIE”) is approved in the U.S. for the prevention of postoperative nausea and vomiting. CINVANTI (aprepitant) injectable emulsion (“CINVANTI”) and SUSTOL (granisetron) extended-release injection (“SUSTOL”) are both approved in the U.S. for the prevention of chemotherapy-induced nausea and vomiting.

As of March 31, 2024, we had cash, cash equivalents and short-term investments of $71.5 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 one year from the date this Quarterly Report on Form 10-Q is filed with the U.S. Securities and Exchange Commission (“SEC”).

2. Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the requirements of the SEC for interim reporting. Accordingly, since they are interim statements, they do not include all of the information and disclosures required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for other quarters or the year ending December 31, 2024. The condensed consolidated balance sheet as of December 31, 2023 has been derived from the audited financial statements as of that date. For more complete financial information, these condensed consolidated financial statements and the notes thereto should be read in conjunction with the audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the SEC on March 12, 2024.

Reclassification of Certain Expenses

The condensed consolidated statements of operations and comprehensive loss for the three months ended March 31, 2023 reflects reclassification of certain expenses from research and development to general and administrative expenses to align with the Company's presentation for the three months ended March 31, 2024 as a result of the restructuring implemented in 2023, the realignment of the Company's departments and the function of the expenses incurred. This presentation results in no change to total operating expenses, loss from operations or net loss and no pro forma financial information is necessary.

6

3. Accounting Policies

Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of Heron Therapeutics, Inc. and its wholly owned subsidiary, Heron Therapeutics B.V., which was organized in the Netherlands in March 2015. Heron Therapeutics B.V. has no operations and no material assets or liabilities, and there have been no significant transactions related to Heron Therapeutics B.V. since its inception.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and disclosures made in the accompanying notes to the financial statements. Our significant accounting policies that involve significant judgment and estimates include revenue recognition, investments, inventory and the related reserves, accrued clinical liabilities, income taxes and stock-based compensation. Actual results could differ materially from those estimates.

Cash, Cash Equivalents and Short-Term Investments

Cash and cash equivalents consist of cash and highly liquid investments with contractual maturities of three months or less from the original purchase date.

Short-term investments consist of securities with contractual maturities of greater than three months from the original purchase date. Securities with contractual maturities greater than one year are classified as short-term investments on the condensed consolidated balance sheets, as we have the ability, if necessary, to liquidate these securities to meet our liquidity needs in the next 12 months. We have classified our short-term investments as available-for-sale securities in the accompanying condensed consolidated financial statements. Available-for-sale securities are stated at fair market value, with net changes in unrealized gains and losses reported in other comprehensive income (loss) and realized gains and losses included in other income (expense), net. The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in interest income within other income (expense), net.

Our bank and investment accounts have been placed under a control agreement in accordance with our Working Capital Line of Credit (see Note 9).

Concentration of Credit Risk

Cash, cash equivalents and short-term investments are financial instruments that potentially subject us to concentrations of credit risk. We deposit our cash in financial institutions. At times, such deposits may be in excess of insured limits. We have not experienced any losses in such accounts and believe we are not exposed to significant risk with respect to our cash, cash equivalents and short-term investments, however, any loss incurred or a lack of access to such funds could have a significant adverse impact on the Company's financial condition, results of operations and cash flows.

We may also invest our excess cash in money market funds, U.S. government and agencies, corporate debt securities and commercial paper. We have established guidelines relative to our diversification of our cash investments and their maturities in an effort to maintain safety and liquidity. These guidelines are periodically reviewed and modified to take advantage of trends in yields and interest rates.

ZYNRELEF, APONVIE, CINVANTI and SUSTOL (collectively, our “Products”) are distributed in the U.S. through a limited number of specialty distributors and full line wholesalers (collectively, “Customers”) that resell to healthcare providers and hospitals, the end users of our Products.

7

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

	Net Product Sales			Accounts Receivable
	Three Months Ended March 31, 2024			As of March 31, 2024
Customer A		38.0	%		37.0	%
Customer B		24.0	%		23.0	%
Customer C		20.0	%		20.0	%
Customer D		17.0	%		20.0	%
Total		99.0	%		100.0	%

Accounts Receivable, Net

Accounts receivable are recorded at the invoice amount, net of an allowance for credit losses. The allowance for credit losses reflects accounts receivable balances that are believed to be uncollectible. In estimating the allowance for credit losses, we consider (1) our historical experience with collections and write-offs; (2) the credit quality of our Customers and any recent or anticipated changes thereto; (3) the outstanding balances and past due amounts from our Customers; and (4) reasonable and supportable forecast of economic conditions expected to exist throughout the contractual term of the receivable.

Inventory

Inventory is stated at the lower of cost or estimated net realizable value on a first-in, first-out, or FIFO, basis. We periodically analyze our inventory levels and write down inventory that has become obsolete, inventory that has a cost basis in excess of its estimated realizable value and inventory quantities that are in excess of expected sales requirements as cost of product sales. The determination of whether inventory costs will be realizable requires estimates by management. If actual market conditions are less favorable than projected by management, additional write-downs of inventory may be required, which would be recorded as cost of product sales.

Leases

We determine if an arrangement is a lease or contains lease components at inception. Operating leases with an initial term greater than 12 months are recorded as lease liabilities with corresponding right-of-use (“ROU”) lease assets on the condensed consolidated balance sheets. ROU lease assets represent our right to use the underlying assets over the lease term, and lease liabilities represent the present value of our obligation to make lease payments arising from the lease. Lease liabilities are recognized at the lease commencement based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. The ROU lease assets equal the lease liabilities, less unamortized lease incentives, unamortized initial direct costs and the cumulative difference between rent expense and amounts paid under the lease. The lease term includes any option to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense is recognized on a straight-line basis over the lease term. We have elected the practical expedient to not separate lease and non-lease components.

Revenue Recognition

Revenue is recognized in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“Topic 606”). Topic 606 is based on the principle that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

Product Sales

Our Products are distributed in the U.S. through a limited number of Customers that resell to healthcare providers and hospitals, the end users of our Products.

8

Revenue is recognized in an amount that reflects the consideration we expect to receive in exchange for our Products. To determine revenue recognition for contracts with Customers within the scope of Topic 606, we perform the following five steps: (i) identify the contract(s) with a Customer; (ii) identify the performance obligations of the contract(s); (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract(s); and (v) recognize revenue when (or as) we satisfy the performance obligations. We recognize revenue from Product sales when there is a transfer of control of the Product to our Customers. We typically determine transfer of control based on when the Product is delivered, and title passes to our Customers.

Product Sales Allowances

We recognize product sales allowances as a reduction of product sales in the same period the related revenue is recognized. Product sales allowances are based on amounts owed or to be claimed on the related sales. Such variable consideration includes estimates that take into consideration the terms of our agreements with Customers, historical product returns, rebates or discounts taken, the shelf life of the product and specific known market events, such as competitive pricing and new product introductions. If actual future results vary from our estimates, we may need to adjust these estimates, which could have an effect on product sales and earnings in the period of adjustment. Our product sales allowances include:

•Product Returns—We allow our Customers to return product for credit beginning three months prior to the product expiration date and up to 12 months after the product expiration date. As such, there may be a significant period of time between the time the product is shipped and the time the credit is issued on returned product.

•Distributor Fees—We pay distribution service fees to our Customers based on a contractually fixed percentage of the wholesale acquisition costs and fees for data. These fees are paid no later than two months after the quarter in which product was shipped.

•Group Purchasing Organization (“GPO”) Discounts and Rebates—We offer cash discounts to GPO members. These discounts are taken when the GPO members purchase product from our Customers, who then charge back to us the discount amount. Additionally, we offer volume and contract-tier rebates to GPO members. Rebates are based on actual purchase levels during the quarterly rebate purchase period.

•GPO Administrative Fees—We pay administrative fees to GPOs for services and access to data. These fees are based on contracted terms and are paid after the quarter in which the product was purchased by the GPO's members.

•Medicaid Rebates—We participate in Medicaid rebate programs, which provide assistance to certain low-income patients based on each individual state’s guidelines regarding eligibility and services. Under the Medicaid rebate programs, we pay a rebate to each participating state, generally within six months after the quarter in which the product was sold.

•Prompt Pay Discounts—We may provide discounts on product sales to our Customers for prompt payment based on contractual terms.

We believe our estimated allowance for product returns and GPO discounts requires a high degree of judgment and is subject to change based on our experience and certain quantitative and qualitative factors. We believe our estimated allowances for distributor fees, GPO rebates and administrative fees, Medicaid rebates and prompt pay discounts do not require a high degree of judgment because the amounts are settled within a relatively short period of time.

Our product sales allowances and related accruals are evaluated each reporting period and adjusted when trends or significant events indicate that a change in estimate is appropriate. Changes in product sales allowance estimates could materially affect our results of operations and financial position.

The following table provides disaggregated net product sales (in thousands):

9

	Three Months Ended March 31,
	2024		2023
CINVANTI net product sales	$	25,617	$	22,855
SUSTOL net product sales		3,615		2,983
ZYNRELEF net product sales		5,013		3,533
APONVIE net product sales		425		244
Total net product sales	$	34,670	$	29,615

The following table provides a summary of activity with respect to our product returns, distributor fees and discounts, rebates and administrative fees, which are included in other accrued liabilities on the condensed consolidated balance sheets (in thousands):

	Product Returns			Distributor Fees			Discounts, Rebates and Administrative Fees			Total
Balance at December 31, 2023	$	4,776		$	4,419		$	27,334		$	36,529
Provision		(1,698	)		6,655			49,331			54,288
Payments/credits		(237	)		(6,085	)		(45,823	)		(52,145	)
Balance at March 31, 2024	$	2,841		$	4,989		$	30,842		$	38,672

Comprehensive Income (Loss)

Comprehensive income (loss) is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources. Net changes in unrealized gains and losses on available-for-sale securities are included in other comprehensive income (loss) and represent the difference between our net loss and comprehensive loss for all periods presented.

Net Loss per Share

Basic net loss per share is calculated by dividing the net loss by the weighted-average number of shares of common stock outstanding for the period, including pre-funded warrants to purchase shares of common stock. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of shares of common stock and common stock equivalents outstanding for the period determined using the treasury stock method. For purposes of this calculation, stock options, restricted stock units, warrants and shares of common stock underlying convertible notes are considered to be common stock equivalents and are included in the calculation of diluted net loss per share only when their effect is dilutive.

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

	March 31,
	2024		2023
Stock options outstanding		29,380		21,376
Restricted stock units outstanding		1,973		3,851
Warrants outstanding		298		8,548
Shares of common stock underlying convertible notes outstanding		9,819		9,819

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that we adopt as of the specified effective date. We have evaluated recently issued accounting pronouncements and do not believe any will have a material impact on our condensed consolidated financial statements or related financial statement disclosures.

In December 2023, the FASB issued Accounting Standards Update ("ASU") No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures ("ASU 2023-09"), to enhance income tax reporting disclosures and require disclosure of specific categories in the tabular rate reconciliation. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, on

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a prospective basis. Early adoption and retrospective application are permitted. We are currently evaluating the impact on our disclosures.

4. Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The FASB ASC Topic 820, Fair Value Measurements and Disclosures, establishes a fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:

•Level 1—Observable inputs such as quoted prices in active markets for identical assets or liabilities.

•Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

•Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

We measure cash, cash equivalents and short-term investments at fair value on a recurring basis. The fair values of such assets were as follows (in thousands):

			Fair Value Measurements at Reporting Date Using
	Balance at March 31, 2024		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and money market funds	$	15,271	$	15,271	$	—	$	—
U.S. Treasury bills and government agency obligations		40,527		40,527		—		—
U.S. corporate debt securities		11,476		—		11,476		—
Foreign corporate debt securities		4,250		—		4,250		—
Total	$	71,524	$	55,798	$	15,726	$	—

			Fair Value Measurements at Reporting Date Using
	Balance at December 31, 2023		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and money market funds	$	23,441	$	23,441	$	—	$	—
U.S. Treasury bills and government agency obligations		31,636		31,636		—		—
U.S. corporate debt securities		16,889		—		16,889		—
Foreign corporate debt securities		5,460		—		5,460
U.S. commercial paper		1,990		—		1,990		—
Foreign commercial paper		993		—		993		—
Total	$	80,409	$	55,077	$	25,332	$	—

We have not transferred any investment securities between the three levels of the fair value hierarchy, during the three months ended March 31, 2024 or March 31, 2023.

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As of March 31, 2024, cash equivalents included $5.2 million of available-for-sale securities with contractual maturities of three months or less and short-term investments included $21.4 million of available-for-sale securities with contractual maturities of three months to one year. As of December 31, 2023, cash equivalents included $5.3 million of available-for-sale securities with contractual maturities of three months or less and short-term investments included $51.7 million of available-for-sale securities with contractual maturities of three months to one year. The money market funds as of March 31, 2024 and December 31, 2023 are included in cash and cash equivalents on the condensed consolidated balance sheets.

A company may elect to use fair value to measure accounts receivable, available-for-sale securities, accounts payable, guarantees and issued debt, among others. If the use of fair value is elected, any upfront costs and fees related to the item such as debt issuance costs must be recognized in earnings and cannot be deferred. The fair value election is irrevocable and generally made on an instrument-by-instrument basis, even if a company has similar instruments that it elects not to measure based on fair value. Unrealized gains and losses on existing items for which fair value has been elected are reported as a cumulative adjustment to beginning retained earnings and any changes in fair value are recognized in earnings. We have elected to not apply the fair value option to our financial assets and liabilities.

Financial instruments, including cash, cash equivalents, receivables, inventory, prepaid expenses, other current assets, accounts payable and accrued expenses are carried at cost, which is considered to be representative of their respective fair values because of the short-term maturity of these instruments. Short-term available-for-sale investments are carried at fair value. Our notes payable and convertible notes payable outstanding at March 31, 2024 and December 31, 2023 do not have a readily available ascertainable market value; however, their carrying value, which is measured at carrying value less unamortized debt issuance costs and debt discounts, is considered to approximate their fair value.

5. Short-Term Investments

The following is a summary of our short-term investments (in thousands):

	March 31, 2024
			Gross		Gross
	Amortized		Unrealized		Unrealized			Estimated
	Cost		Gains		Losses			Fair Value
U.S. Treasury bills and government agency obligations	$	40,533	$	—	$	(6	)	$	40,527
U.S. corporate debt securities		6,298		—		(1	)		6,297
Foreign corporate debt securities		4,249		1		—			4,250
U.S. commercial paper		—		—		—			—
Foreign commercial paper		—		—		—			—
Total	$	51,080	$	1	$	(7	)	$	51,074

	December 31, 2023
			Gross		Gross
	Amortized		Unrealized		Unrealized			Estimated
	Cost		Gains		Losses			Fair Value
U.S. Treasury bills and government agency obligations	$	31,625	$	11	$	—		$	31,636
U.S. corporate debt securities		11,652		1		—			11,653
Foreign corporate debt securities		5,459		1		—			5,460
U.S. commercial paper		1,991		—		(1	)		1,990
Foreign commercial paper		993		—		—			993
Total	$	51,720	$	13	$	(1	)	$	51,732

The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. We regularly monitor and evaluate the realizable value of our marketable securities. We did not recognize any impairment losses during the three months ended March 31, 2024 and 2023.

Unrealized gains and losses associated with our investments are reported in accumulated other comprehensive income (loss). Realized gains and losses associated with our investments, if any, are reported in the statements of operations and comprehensive loss. We did not recognize any realized gains or losses during the three months ended March 31, 2024 or March 31, 2023.

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6. Inventory

Inventory consists of the following (in thousands):

	March 31, 2024		December 31, 2023
Raw materials	$	18,075	$	17,643
Work in process		16,288		14,550
Finished goods		8,110		9,917
Total inventory	$	42,473	$	42,110

As of March 31, 2024, total inventory included $27.4 million related to CINVANTI, $11.2 million related to ZYNRELEF, $3.7 million related to SUSTOL and $0.1 million related to APONVIE. As of December 31, 2023, total inventory included $26.4 million related to CINVANTI, $11.2 million related to ZYNRELEF, $4.1 million related to SUSTOL and $0.4 million for APONVIE. For the three months ended March 31, 2023, cost of product sales included charges of $5.3 million primarily relating to the write-off of short-dated ZYNRELEF inventory. There were no such charges incurred during the three months ended March 31, 2024.

7. Leases

As of March 31, 2024, we had an operating lease for 52,148 square feet of laboratory and office space in San Diego, California, with a lease term that expires on December 31, 2025. In October 2021, we entered into a sublease agreement to sublet 23,873 square feet of laboratory and office space. The space was delivered to the subtenant in March 2022. As a result of the sublease agreement, our one five-year option to renew this lease on expiration applies only with respect to our remaining 28,275 square feet of laboratory and office space.

We also have an operating lease through which we sublease 5,840 square feet of office space in Cary, North Carolina, with a lease term that expires on April 30, 2025.

During the three months ended March 31, 2024, we recognized $0.7 million of operating lease expense and we paid $0.8 million for our operating leases. During the three months ended March 31, 2023, we recognized $0.7 million of operating lease expense and we paid $0.7 million for our operating leases.

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

2024	$	2,362
2025		3,138
Total future minimum lease payments	$	5,500
Less: discount		(318	)
Total lease liabilities	$	5,182

8. Reorganizations

June 2023 Reorganization

In June 2023, we implemented a restructuring plan under which we provided employees one-time severance payments upon termination, continuation of benefits for a specific period of time, outplacement services and certain stock award modifications. The total amount incurred for these activities was $4.2 million, which primarily consists of severance payments to terminated employees. During the three months ended March 31, 2024, we paid $0.5 million of the total cash severance charges. As of March 31, 2024, we have completed payment of the cash severance charges.

Executive Officer Departures

During the second and third quarters of 2023, we also implemented changes to our executive leadership structure. In connection with these changes, we provided five executive officers with one-time severance payments upon termination, continued benefits for a specified period of time, and certain stock option modifications. The total expense for these activities was $13.4 million, $4.7 million of which was primarily for severance and $8.7 million of which was for non-cash, stock-based compensation expense, which was

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recognized in 2023. During the three months ended March 31, 2024, we paid $0.1 million of the total cash severance charges. As of March 31, 2024, we have completed payment of the cash severance charges.

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

9. Long-Term Debt and Convertible Notes

Working Capital Facility Agreement

On August 9, 2023, we entered into a working capital facility agreement (the “Loan Agreement”) with Hercules Capital, Inc., as administrative agent and collateral agent, and the lenders party thereto (the “Lenders”). The Loan Agreement provides an aggregate principal amount of up to $50.0 million with tranched availability as follows: $25.0 million at closing (“tranche 1A”), $5.0 million available through December 15, 2024 (“tranche 1B”), and $20.0 million available from the earlier of: (1) the full draw of tranche 1B and (2) the expiration of tranche 1B, and available through December 15, 2025 (“tranche 1C”), and in the case of tranches 1B and 1C, subject to certain customary conditions to draw down.

The Loan Agreement has a term of four years, with a springing maturity date that is 91 days prior to the stated maturity of our Notes (as defined below) (if still outstanding at such time). The loans thereunder do not have any scheduled amortization payments and accrue interest at a floating rate equal to, as of closing, 9.95% per annum, payable in cash on a monthly basis and upon maturity or payoff. In addition, under the terms of the Loan Agreement, the loans also accrue paid-in-kind interest at a fixed-rate of 1.5% per annum which is due upon maturity or payoff.

In addition, in connection with the tranche 1A funding, we issued warrants to the Lenders to purchase up to 297,619 shares of our common stock at an exercise price of $1.68 per share (the "Lender Warrants"). The Lender Warrants are equal to 2.00% of the principal amount of loans funded by the Lenders (the “Warrant Coverage”). The Loan Agreement also requires that we issue additional warrants to the Lenders at the time of each draw down of tranches 1B and 1C with the same Warrant Coverage. Each Lender Warrant is exercisable for seven years from the date of issuance.

The Loan Agreement contains a minimum cash covenant, beginning on the closing date, requiring us to hold cash of no less than $8.5 million, if our market capitalization is less than $400 million. The Loan Agreement also contains customary representations and warranties and customary affirmative and negative covenants, including, among other things, restrictions on indebtedness, liens, investments, mergers, dispositions, prepayment of other indebtedness, and dividends and other distributions, subject to certain exceptions. We were in compliance with all covenants of the Loan Agreement as of March 31, 2024.

The Loan Agreement was accounted for in accordance with ASC Topic 470, Debt, ASC Topic 480, Distinguishing Liabilities from Equity, and ASC Topic 815, Derivatives and Hedging. The initial tranche 1A funding of $25.0 million and the Lender Warrants are accounted for as freestanding debt and equity financial instruments, respectively, as they are legally detachable and separately exercisable. The additional borrowings available under the Loan Agreement plus the additional warrants to purchase shares of our common stock, which would be issued concurrently, are accounted for as a single freestanding financial instrument that are not assets or obligations of ours; this financial instrument meets the loan commitment derivative scope exception and will be accounted for when and if we borrow additional tranches in the future. The initial funding of $25.0 million was recorded as a liability on the condensed consolidated balance sheets.

In connection with the Loan Agreement, we recognized the initial Lender Warrants at their relative fair value of $0.4 million, and we incurred debt issuance costs of $0.6 million, both of which were recorded as debt discounts. The debt discounts and the end of term fee, of $0.8 million, are being amortized and accreted into interest expense using the effective interest rate method over the term of the Loan Agreement, resulting in an effective interest rate of 14.5%. For the three months ended March 31, 2024, interest expense related to the Loan Agreement was $0.9 million, which included $0.6 million related to the stated interest rate, $0.1 million related to paid-in-kind interest, and $0.2 million related to the amortization of the debt discounts. As of March 31, 2024, the carrying value of

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tranche 1A was $24.4 million, which is comprised of the $25.0 million principal amount outstanding, $0.2 million of accumulated paid-in-kind interest, less debt discounts of $0.8 million.

Senior Unsecured Convertible Notes

In May 2021, we entered into a note purchase agreement with funds affiliated with Baker Bros. Advisors LP for a private placement of $150.0 million in Senior Unsecured Convertible Notes (the “Notes”). We received a total of $149.0 million, net of issuance costs, from the issuance of the Notes.

The Notes were issued at par. The Notes bear interest at a rate of 1.5% per annum, payable in cash semi-annually in arrears on June 15 and December 15 of each year, beginning on December 15, 2021. The Notes mature on May 26, 2026, unless earlier converted, redeemed or repurchased.

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

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

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

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

The Notes were accounted for in accordance with ASC Subtopic 470-20, Debt with Conversion and Other Options (“ASC 470-20”), and ASC Subtopic 815-40, Contracts in Entity’s Own Equity (“ASC 815-40”). Under ASC 815-40, to qualify for equity classification (or non-bifurcation, if embedded), the instrument (or embedded feature) must be both (1) indexed to the issuer’s stock and (2) meet the requirements of the equity classification guidance. Based upon our analysis, it was determined that the Notes do contain embedded features indexed to our common stock, but do not meet the requirements for bifurcation, and therefore do not need to be separately accounted for as an equity component. Since the embedded conversion feature meets the equity scope exception from derivative accounting, and, also since the embedded conversion option does not need to be separately accounted for as an equity component under ASC 470-20, the proceeds received from the issuance of the Notes were recorded as a liability on the condensed consolidated balance sheets.

We incurred issuance costs related to the Notes of $1.0 million, which we recorded as debt issuance costs and are included as a reduction to the Notes on the condensed consolidated balance sheets. The debt issuance costs are being amortized to interest expense using the effective interest rate method over the term of the Notes, resulting in an effective interest rate of 1.6%. For the three months ended March 31, 2024, interest expense related to the Notes was $0.6 million, which included $563,000 related to the stated interest rate and $52,000 related to the amortization of debt issuance costs. For the three months ended March 31, 2023, interest expense related to the Notes was $0.6 million, which included $563,000 related to the stated interest rate and $51,000 related to the amortization of debt issuance costs. As of March 31, 2024, the carrying value of the Notes was $149.5 million, which is comprised of the $150.0 million principal amount of the Notes outstanding, less debt issuance costs of $0.5 million.

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10. Stockholders’ Deficit

2023 Private Placement

On July 21, 2023, we entered into a Securities Purchase Agreement (the “July 2023 Private Placement”) with Rubric Capital Management L.P., Velan Capital, Clearline Capital and Hercules Capital, Inc. (collectively, the “Purchasers”) whereby we sold 20.7 million shares of our common stock in a private placement at a purchase price of $1.37 per share. In addition, as a component of the July 2023 Private Placement, we sold 1.2 million pre-funded warrants to purchase shares of our common stock at a purchase price of $1.3699 per share (the "July 2023 Pre-Funded Warrants"). The July 2023 Pre-Funded Warrants have an exercise price of $0.0001 per share. The total net proceeds from the sale of the common stock and the July 2023 Pre-Funded Warrants is $29.8 million (net of $0.2 million in issuance costs). The July 2023 Private Placement closed on July 25, 2023. In August 2023, we filed a registration statement with the SEC to register for resale 21.9 million shares of our common stock. The registration statement was declared effective on August 31, 2023.

11. Equity Incentive Plan

Option Plan Activity

The following table summarizes the stock option activity for the three months ended March 31, 2024:

	Shares (in thousands)			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)
Outstanding at December 31, 2023		24,575		$	7.06		5.60
Granted		6,331		$	2.17
Exercised		(40	)	$	1.88
Expired and forfeited		(1,486	)	$	10.35
Outstanding at March 31, 2024		29,380		$	5.85		7.23

We estimated the fair value of each option grant on the grant date using the Black-Scholes option pricing model and for market-based stock option grants using the Monte Carlo simulation model. The following are the weighted-average assumptions:

	For the Three Months Ended
	March 31,
	2024			2023
Risk-free interest rate		4.2	%		3.7	%
Dividend yield		0.0	%		0.0	%
Volatility		79.7	%		63.9	%
Expected life (years)		4			6

We estimated the fair value of each purchase right granted under our 1997 Employee Stock Purchase Plan, as amended, at the beginning of each new offering period using the Black-Scholes option pricing model. There were no new offering periods during the three months ended March 31, 2024.

The following table summarizes the restricted stock unit activity (“RSUs”) for the three months ended March 31, 2024:

	Shares (in thousands)			Weighted-Average Grant Date Fair Value
Outstanding at December 31, 2023		1,405		$	4.43
Granted		949		$	2.16
Released		(125	)	$	2.56
Expired and forfeited		(256	)	$	3.85
Outstanding at March 31, 2024		1,973		$	3.09

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The fair value of RSUs is estimated based on the closing market price of our common stock on the date of the grant. RSUs generally vest quarterly over a four-year period.

Stock-Based Compensation

The following table summarizes stock-based compensation expense related to stock-based payment awards granted pursuant to all of our equity compensation arrangements (in thousands):

	Three Months Ended March 31,
	2024		2023
General and administrative	$	1,878	$	3,532
Sales and marketing		796		2,679
Research and development		701		1,736
Total stock-based compensation expense	$	3,375	$	7,947

As of March 31, 2024, there was $21.3 million of total unrecognized compensation cost related to non-vested, stock-based payment awards granted under all of our equity compensation plans and all non-plan option grants. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures. We expect to recognize this compensation cost over a weighted-average period of three years.

12. Income Taxes

Deferred income tax assets and liabilities are recognized for temporary differences between financial statements and income tax carrying values using tax rates in effect for the years such differences are expected to reverse. Due to uncertainties surrounding our ability to generate future taxable income and consequently realize such deferred income tax assets, a full valuation allowance has been established. We continue to maintain a full valuation allowance against our deferred tax assets as of March 31, 2024.

The impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more likely than not to be sustained upon audit by the relevant tax authority. An uncertain income tax position will be recognized when it is more likely than not of being sustained. The disclosures regarding uncertain tax positions included in our Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the SEC on March 12, 2024, continue to be accurate for the three months ended March 31, 2024.

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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, 2023, which was filed with the U.S. Securities and Exchange Commission (“SEC”) on March 12, 2024 (the "2023 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 recently approved in the U.S.;

•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;

•the results of the commercial launch of APONVIE in the U.S.;

•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;

•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

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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;

•the impact of our restructuring activities, including the reduced headcount and external spend;

•the impact of evolving legal and regulatory requirements, including emerging environmental, social and governance requirements;

•our ability to obtain additional financing and raise capital as necessary to fund operations or pursue business opportunities; and

•those risks listed under the section entitled "risk Factors" in Part I, Item 1A of the 2023 Annual Report.

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.