Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Heron Therapeutics Q4 2021 Earnings Conference. As a reminder, this conference is being recorded. Now, I would like to turn the call over to David Szekeres, Executive Vice President, Chief Operating Officer. Please proceed.

Thank you, Morena. Good afternoon, everyone, and thank you for joining us. With me today from Heron are Barry Quart, Chief Executive Officer and Chairman; John Poyhonen, President and Chief Commercial Officer; and Kimberly Manhard, Executive Vice President of Drug Development and a Board Director; and Chris Storgard, our Chief medical Officer. For those of you participating via conference call, the slides are made available via webcast and can also be accessed by going to the Investor Relations page of our website following conclusion of today’s call. Before we begin, I would like to remind you that this call will contain forward-looking statements concerning Heron’s future expectations, plans, prospects, corporate strategy and performance, which constitute forward-looking statements for the purposes of the safe harbor provision under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in our filings with the SEC. In addition, any forward-looking statements represent our views only as of the date of this webcast and should not be relied upon as representing our views as of any subsequent date. We specifically disclaim any obligations to update such statements. Now, I’ll turn the call over to Barry.

Thank you, David. Welcome, everyone, and thank you for joining us. 2021 was one of the most important and productive years in our company’s history. We obtained initial approval, and successfully launched ZYNRELEF for postoperative pain in the United States. And only five months after launch, we obtained approval for a substantially expanded indication statement, which greatly improves our ability to commercialize the product. With our CINV franchise, we stabilized revenue in a predominantly generic market and see a path for its modest growth in the future. We also filed an NDA for our fourth commercial product, HTX-019 for postoperative nausea and vomiting or PONV, which has the potential to be many times larger than our CINV business. Lastly, we’ve also focused our energies on both cutting costs, such as eliminating more than half of our leased office space and partnering ex-U.S. territories ZYNRELEF, to extend our cash runway. As we reported in December, and in little over two months from submission, the FDA approved our first of two planned supplemental NDAs to expand the indication statement for ZYNRELEF to cover approximately 7 million procedures, compared to only about 2 million in the original label. The first supplemental NDA approved by the FDA in mid-December broadened the label to include foot and ankle, small-to-medium open abdominal and lower extremity total joint arthroplasty surgical procedures. The FDA also agreed to contents of the second supplemental NDA to broadly cover orthopedic and soft tissue surgical procedures. The status of the FDA agreed studies for this second supplemental NDA are listed on slide 5. The endpoint in these studies is pharmacokinetics and safety. Demonstration of efficacy is not required for approval. We expect to submit sNDA number two late in the second half of this year. Approval of sNDA number two should expand the label to cover essentially all 14 million target procedures. In addition to sNDA 1, the FDA also approved our manufacturing supplements for a secondary supplier of our proprietary polymer and significant increases in batch size for both, ZYNRELEF and CINVANTI. These approvals are critical to allow us to manufacture sufficient quantities of these important products at a significantly lower cost of goods. Overall, fourth quarter and 2021 as a whole were outstanding for Heron. I will now turn the call over to John to review our achievement of important commercial and corporate milestones in 2021.

Thank you, Barry. I’m excited to share our fourth quarter commercial results. We continue to make significant progress with launching ZYNRELEF. During my presentation, I’ll start with a number of updates on key metrics. And also expand our reporting with new metrics related to ZYNRELEF demand unit volume with hospitals and ASC. Then, I’ll finish up with an update on our commercial results with our oncology care business. On slide number 7, I’ll start by summarizing the ZYNRELEF launch highlights to-date. Our first two quarters of launch have been challenging with initial FDA label indication with only three specific procedures and the continued impact of COVID-19. Nevertheless, we’ve made incredible progress with a number of leading indicators, which gives us confidence that ZYNRELEF will eventually become the market leader in postoperative pain. We continue to gain formulary approvals for ZYNRELEF and targeted hospitals and IDNs at a rapid rate. This represents our pipeline for growth. We’re very pleased by the growth and the number of unique ordering accounts and importantly, we’re also seeing excellent growth and the reorder rates. In addition, we’re seeing significant growth in the volume of demand units for ZYNRELEF on a quarterly and monthly basis. I’ll share specifics on all these metrics later in the presentation. As we announced in December, our R&D team worked with the FDA to gain significant label expansion of ZYNRELEF’s indicated procedures in record time. This expands the target market from about 2 million surgical procedures to approximately 7 million surgical procedures. We are already seeing the initial impact of this expanded label with increased ZYNRELEF usage with existing surgeons. As we expected, the third quarter ended with excess initial stocking inventory and the distribution channel. Since that time, we’ve made meaningful progress and burning through that inventory based on increases…

Thank you, John. I would now like to take a few minutes to discuss our pending NDA for HTX-019. Postoperative nausea and vomiting is a large and important new market for Heron, but beautifully aligned with our current commercial efforts in the postoperative pain space, and builds on our extensive knowledge of nausea and vomiting. The PONV opportunity is about 25 times the size of CINV, and HTX-019 has substantial advantages over available products. The FDA has accepted our filing and given us a September 17, 2022, PDUFA action date. So, we could be launching HTX-019 in the fourth quarter of 2022 with the opportunity for several hundred million dollars in sales at peak. An easy initial target for a commercialization is conversion of over 500,000 oral aprepitant pills predicted to be sold in 2022 for PONV. The growth of oral aprepitant for PONV tells a compelling story about the opportunity for HTX-019, an easy-to-use IV form of aprepitant. Even without promotion and with significant limitations due to the oral route and a high acquisition cost, oral aprepitant has grown nicely over the last few years, including 25% growth last year. We will aggressively go after these units, after approval. Throughout the call today, you’ve heard the commercial numbers from both our product franchises. But to wrap up on our financials, I’ll quickly recap these numbers and provide a little more detail on our overall financial profile. Our net product sales for the fourth quarter of 2021 for both our commercial franchises, was $20.7 million, compared to $20.6 million for the same period in 2020. For ZYNRELEF, we recorded $0.8 million in net product sales for the fourth quarter of 2021 with ZYNRELEF demand units increasing by 126% over the prior quarter. For CINVANTI, net product sales were $17.4 million…

[Operator Instructions] Your first question is from Brandon Folkes with Cantor Fitzgerald.

Hi. Thanks for taking my questions. Maybe just two for me. Can you just elaborate a little bit on the process of maybe removing the usage restriction that may have been placed ahead of the labels expansion? So maybe some of the approvals you got before that expansion, just so that you could get 100% or maybe close to that of the formulary approvals mirroring the label, any color in terms of how long you expect that to take, how would you describe that process and when you’ll see the pull-through on the revenue side? And then, Barry, I appreciate your commentary at the end on the cash and capital situation, just thoughts or opportunities beyond what you mentioned to maybe show after extended timeline? Thank you.

Sure. Thank you, Brandon. I appreciate it. John, why don’t you respond to the question on pull-through of the expanded label and the formularies?

Yes, absolutely. So, as I indicated in the presentation, we have 260 formulary approvals as of the end of last week, February 25th, with 65% of those being unrestricted usage. So, in those accounts, Brandon, we are already able to really promote for the full label that we have. The other 35%, I think, are the accounts that -- you’ve indicated that, we have a restricted label. And we are working with those accounts. We have started working with them to expand the ability to use ZYNRELEF. And I would say that, right now, based on the feedback that I’ve seen, probably about 50% of those accounts have expanded to unrestricted usage. So, we are seeing very good results on that. The other ones are in process. And I would hope, probably by the end of April that we’ll be in a position where the vast majority of accounts would allow for unrestricted usage of ZYNRELEF, based on our new broader label.

Great. Thank you. And yes, obviously in terms of the cash position, we are very focused on expanding the runway and making sure that we can get to profitability. We are looking at not only the potential for partnering activities that have significant interest in partnering a product in several regions, as well as, a host of other approaches. We won’t go into further detail on it here, but look for something to be done in terms of shoring up balance sheet here very soon.

Thank you very much.

Your next question is from Boris Peaker of Cowen. Your line is open. Boris, your line is open.

Boris? Operator, do you want to go to the next one, and we’ll come back to Boris?

Yes, sir. And we have a question from Josh Schimmer of Evercore. Your line is open.

Great. Thanks for taking the questions. So, you provided all sorts of encouraging details on the ZYNRELEF launch, but at the end of the day, the reported itself were fairly negligible. Even if you tripled them, they’d still be rather modest. So, maybe you can help zero in on the nature and timing of the step functions in demand, either through the IDNs or elsewhere that would put ZYNRELEF on more promising trajectory? That’s number one. Number two, given the financing overhanging, is there an opportunity to monetize the CIN franchise? And if so, would you be able to carve out, 019 separately from that? And then the last question is, do you expect to report as a going concern in your 10-K?

I’ll answer the last one. And no, we do not have to identify going concern issue after a thorough assessment of finances based on reductions in our expenses, some of which I noted. And John, do you want to talk about trajectory?

Yes, sure. So, I think for the first time, Josh, what we did is we provided what the demand units look like. And clearly, you’re seeing very strong growth. Unfortunately, right at a point where we were looking at really accelerating that growth is when the Omicron surge hit, which impacted both, sales in December and January, that’s the same time that we got the FDA expansion. So, we were expecting to see very meaningful growth there. And what we are seeing is between February and January with a 42% increase in three days left that it’s starting to ramp up more in a rate that we’re comfortable with. I think the key functions really will be looking at those priorities, making sure that we’re expanding usage with the current uses of the product, also looking to expand other surgeons within the practice. But I think your point about therapeutic interchange is really a good one. And we are already talking with a number of accounts that can convert millions of dollars worth of extra business to ZYNRELEF very quickly. The most advanced ones are already doing trials within their institutions that would allow them to move very quickly on making that switch to ZYNRELEF. But it’s a bit hard to tell what that timing looks like. As you might imagine, that’s been one of our greatest challenges is it is a dynamic time, and it’s difficult to project what that ramp up rate will look like, especially when we’re just seeing the major growth between January and February. So, we only have a single data point. But it’s something that we’ll continue to track very closely. And I would hope that within the next quarter or so, we’d be in a position to give more guidance on what direction the growth rate looks like for ZYNRELEF.

And then, in terms of monetizing the CINV franchise?

Yes, absolutely. Obviously, that’s certainly one area that we are exploring in substantial detail and have had significant discussions related to it. And yes, we could carve-out HTX-019. It’s actually relatively straightforward opportunity that has been discussed as well. So, as I said, our goal is to resolve the financial overhang here reasonable soon. And that certainly is one of the options on the table.

Your next question is from Serge Belanger of Needham. Your line is open.

Hi. Good afternoon. A few questions on Exparel for me. First, on the inventory, you mentioned you have burned through a significant part of the initial channel inventory. Just curious where it stands now and if -- when will it normalize and reflect the demand of the product? Secondly, can you give us an idea of the average price per unit just so we can kind of calculate the current run rates in revenues, based on the demand units? And thirdly, and the last one, I guess, for Barry. I think in the past, you've -- your unofficial guidance for ZYNRELEF was to beat out Exparel sales for the first six quarters of launch, just curious where you stand on that, now that we're one-third into that. Thanks.

Yes, of course. Thanks, Serge. I'll turn the first question over to John. I'll just point out that he identified that we are essentially at neutral point in terms of inventory for the 400-milligram vials. So, based on virtually all of the distribution centers reordering and we're very close to it that certainly by the end of the quarter, we anticipate to be at a point where use and ordering should be close to one for the 400, and 200 is somewhat behind. 200 is a smaller percentage of the overall use in the original launch of the product because of the three specific indications. Now, with the expansion of the indications, there's many more indications where the 200-milligram vial is appropriate. So we expect that to start moving up and start burning through that inventory over the course of the next quarter. John, anything to add?

Yes. I think, Barry, you summarized it very well, and I completely agree that we think from a 400 standpoint that it's going to be on a unit of demand equaling a reorder. So, that's already normalized. What we have seen with the 200-milligram SKU, Serge, is if you look at where we were in January of 388 units compared to 761, the 200-milligram SKU is growing more rapidly. And while at the end of last week, we're at a 40% reorder rate, we expect to be making very substantial progress on that between now and the end of the quarter. So I think we'll get close. I'm not sure we'll get quite there, but I would expect that it'd probably be somewhere north of 80% of the reorder rate that we'll see as we go forward by the end of the quarter. So, I think by the time we get into the end of this quarter, you're going to start seeing numbers that are much more reflective of actual demand and net sales based on ex-factory sales.

Yes, and going to the second question. Look, the way that we think about the launch, as John indicated, we've had really significant success with formularies getting into facilities. But with COVID and with the very limited initial label, it has really been a significant impediment in terms of uptake in those facilities. So, in a sense, we really look at the beginning of this year as a relaunch of the product with significantly expanded label now with COVID starting to wane in terms of its impact on us getting into P&T committees and utilization of the product. And we certainly look at six quarters, starting from January 1st is an opportunity to, in fact, meet and exceed that same uptake curve for Exparel. I think we're starting to see signs of that already in terms of significant increases in utilization just in the second half of February. And so, we're very excited looking forward to be able to demonstrate the commercial value of ZYNRELEF in the rest of this year and going forward.

I think, Serge, had one additional question, which was what should the estimate be used from a modeling standpoint and kind of net sales per unit. And if you look at the SKU mix between 400 and 200, and combine that with the gross-to-debt discount. Serge, if you use somewhere around $200 per unit, that would be a pretty good number to use for modeling purposes.

Your next question is from Kelly Shi of Jefferies. Your line is open.

My first question is, do you see any risks that if ZYNRELEF not granted pass-through status to support HOPD adoption by CMS on April 1st? I also have a couple of follow-ups. Thanks.

Sure. Well, with the expanded label, we don't see any reason that there would be any further delays in approval. We're not aware of any. The CMS has indicated they have everything they need from us. And so, we're just waiting for the notification. But, it's the government, right?

I see. I also have a couple of questions regarding the ZYNRELEF growth trajectory. The first question is I think it was just mentioned, the 47% increase of demand in February from January. I'm wondering if you -- have you observed a similar level of demand increase from last December to this January. I apologize if I missed that. And the second question is in terms of unique ordering accounts and the reordering accounts, do you see the same level of growth increase over time?

Thanks, Kelly. The first question, I'll take, and that is, no, it was relatively flat December to January. And that was right in the heart of the Omicron surge where we know quite hands on that many, many surgeries were postponed because if it wasn't an issue of the hospital having to reduce surgeries, it was in some circumstances, half the patients that were scheduled for surgery ended up testing positive for COVID when they came in a day or two before, or some of the staff testing positive and those surgeries having to be postponed. So, January was flat, and then as the COVID surge started to wane into February, we started to see surgeries pick up and a very nice increase in utilization of ZYNRELEF. John, do you want to take the second question?

Sure. From a reordering perspective, at the end of Q3, our first quarter of launch, we had a 50% reorder rate that grew to 73% during the fourth quarter or second quarter of launch. We would expect that number to continue to grow over time. As you're always adding new accounts into those that are ordering, it's going to be tough to ever get to 100%. But as we go through time, we would expect that rate to continue to increase. Certainly not at that same percentage since there's less percentage to work with, but we think we'll continue to see good growth in that, too, Kelly.

We have no more questions. And I would like to turn the call back to Barry for closing remarks.

Thank you. Thank you again for joining us on the call today. We're really pleased with the progress this quarter and look forward to keeping you updated.

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.