Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Heron Therapeutics Fourth Quarter 2022 Earnings Conference. As a reminder, this conference is being recorded. And now I would like to turn the call over to David Szekeres, Executive Vice President, Chief Operating Officer. Please proceed.

Thank you, Lisa. 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, Drug Development. 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 obligation to update these statements. Now I’ll turn the call over to Barry.

Thank you, David. Welcome, everyone. Thank you for joining us this afternoon. For those who are wondering why this call is later in the month than usual, we are currently not an accelerated filer, and we wanted to give our newly reconstituted Board of Directors the opportunity to get to know the company before closing the quarter. We had an excellent fourth quarter and are obviously delighted with the strong increase in sales of ZYNRELEF last quarter, along with the growth of our CINV business. This month’s launch of APONVIE, our fourth commercial product, rounds out our portfolio. First quarter has started off more slowly for ZYNRELEF, due to the normal seasonal decline in surgeries in the first quarter of each year. Even with the expected decline in surgeries, we continue to see growth of ZYNRELEF, albeit at a slower pace than fourth quarter. The Board has been working hard with the management team to develop a strategy to accelerate growth of ZYNRELEF and our other products. The real-world experience with ZYNRELEF continues to show strong efficacy, consistent with our clinical trials, but feedback from customers is that there are two opportunities to improve growth, expanding the label and improving withdrawal of the drug product from the vial. Correcting the limited label is already in progress with our December submission of sNDA number two, requesting a label bringing soft tissue and orthopedic procedures. This requested indications, if approved, would cover essentially all our 14 million target procedures. We currently provide a vented vial spike in the ZYNRELEF kit designed to withdraw the product as simply as possible. The high turnover of nurses, post-COVID, has added an unexpected complexity. Because ZYNRELEF is viscous, it can still take several minutes to withdraw all the product, and even if the – if the…

Thank you, Barry. We made solid progress across our acute care and oncology care franchises during the fourth quarter. During my presentation, I will start with a number of updates on key performance metrics related to ZYNRELEF, then I will provide an update on our APONVIE launch and finish with an update on another strong commercial quarter with our oncology care business. I will start by summarizing ZYNRELEF’s quarterly performance of our lean performance indicators. The fourth quarter has historically been the strongest quarter of our currently indicated surgical procedures. We were able to take advantage of the seasonality as ZYNRELEF net sales grew to $3.9 million for the quarter, representing a 44% increase over the prior quarter, and a 362% increase over the same quarter in the prior year. Fourth quarter demand units grew to 20,765 units, representing a 38% increase over the prior quarter and a 301% increase over the same quarter in the prior year. Total ZYNRELEF unique ordering accounts grew to 793 through the end of the fourth quarter, compared to 704 through the end of the third quarter. Total formulary approvals for ZYNRELEF grew to 522 through the end of February 2023, compared to 416 approvals through the end of October 2022. Importantly, we’re also seeing growth with integrated delivery networks or IDNs with an updated total of 74 IDNs that have added ZYNRELEF to formulary. Gaining IDN support is a critical component to drive therapeutic interchanges with our key accounts substituting ZYNRELEF or Exparel for indicated procedures in the future. Overall, we made solid progress in Q4 and are implementing key initiatives to accelerate ZYNRELEF sales in our existing user accounts in 2023. As mentioned on the prior slide, there has been consistent quarterly seasonality in elective procedures. The fourth quarter has always been…

Thank you, John. We will conclude the formal presentation with our financial overview slide. Heron had cash, cash equivalents and short-term investments of $84.9 million as of December 31, 2022. Net cash used for operating activities for the three months ended December 31, 2022 was $37.5 million, including a payment of approximately $10 million for Polymer. Without the Polymer payment, our underlying burn was about $27 million, and the full impact of reducing headcount by approximately 34% last year will continue to be realized through this year and next. R&D expense declined to $11.1 million in fourth quarter 2022 compared to $28.9 million in fourth quarter of 2021 and $20.5 million last quarter. We are also working with all our manufacturers to reduce external spending over the next few years as sales continue to ramp. We would expect cash burn in the teens in the second and third quarter. Having spent the last several days with our newly reconstituted Board, I can safely say that they are completely dedicated to extending our cash runway and improving our valuation. After delving into the data and spending time with our sales force, the new Board members continue to be excited about our products. Slides 21 through 24 contain important safety information for ZYNRELEF and APONVIE. The slides are available on our website. With that, we are ready for your questions. Operator?

Thank you. [Operator Instructions] We’ll take our first question from Josh Schimmer with Evercore.

Hey, thanks for taking the questions. First a quick one on the accounts receivable line, it looks like that bumped up quarter-over-quarter. What is that attributable to?

It’s attributable to just some minor timing in payments, which as you know 100% of that gets paid and also an increase in sales over the course of the year.

Okay. I guess, I’m trying to reconcile, so the comments about the headwinds from the label and the suboptimal device – delivery device. In light of the obviously challenging launch thus far, which seemed a little bit juxtaposed to John supremely optimistic adoption metrics in the IDNs. And so trying to figure out,is there any meaningful near-term growth prospects this year? Why continue to push on commercialization until you’ve checked the box on the broader label and the simpler device product profile?

Well, I’ll let John answer. But I think to start off, we continue to see growth of the product. We’re making significant inroads what we’ve identified, obviously, is an area that – two areas that will have impact on accelerating growth over what we’re seeing today. But we want to obviously continue to get the message out, grow the product. As John talked about, there’s an opportunity for dissemination of real-world data that’s now being generated as the product has become available. And as we’ve talked about over the last year, one of the time-consuming aspects of the launch were virtually every large site conducting their own trials before they would start using the product just because of prior experience with other products in this category. And so there’s now an abundance of data going to be coming out that will continue to support adoption of the product between now and later this year when we get the expanded label and hopefully shortly after adding to the product by making it easier to use the product. So this is obviously a continuum, but we continue to see adoption. And obviously, we want to continue to push that as hard as we can. John, do you want to add to that?

Yes, certainly. So, I think if we look at the IDNs, as Barry mentioned, the fact that they are all doing internally valuations, and that takes some time. That’s an important aspect and shown in some of the growth that we’ve seen. But the results that they are generating what generally actually been terrific. And that’s why we continue to add new IDNs. We’ve added some very large ones just at the end of last year. And those accounts are very interested and excited about switching out their Exparel business for ZYNRELEF because of the clinical profile as well as what we have from a value proposition. Now as Barry has pointed out, there are some hurdles from a preparation standpoint. One of the ways that we’re looking to solve that is by utilization of medical device representatives. They’re in the operating room, especially for orthopedics every single day. So they can help and make sure that the products on the tray when the surgeon needs it. So it’s a short-term solution that can really help us be very effective. The other thing that we think is important is, we expect a label expansion in October, which isn’t that far away. And as accounts and IDNs have been getting great results with ZYNRELEF, they’ll look at adding additional service lines once we get that label expansion. So, I think we can continue to grow. I think the second quarter just based on seasonality has always been stronger than first quarter, and we would certainly expect that as we go forward.

And then, John, you provided some encouraging uptake metrics early on for APONVIE, on the other hand, you provided encouraging uptake metrics for ZYNRELEF, and that’s been, I think, most investors would agree to date a fairly significant disappointment. So why should we have confidence in your APONVIE commentary in light of the fact that the commentary rents in relief really didn’t portend a launch that investors have been looking for?

Yes. It’s a very fair question. And I would tell you that I think APONVIE is entirely different. First of all, we have a broad indication for PONV prevention. So, we’re not limited in the surgical procedures that we can be used. The other thing from an ease of use, Josh, we don’t have the same training hurdles. It’s really just a 30-second IV push. It’s something that hospitals are used to using every single day. So the representatives don’t have to remain in the accounts and make sure that the training is – takes place withdrawn the product from the vial. So, I think while certainly there are some very encouraging initial results that we’re seeing. We believe this is a very different product and ease of use, and we’ll have a very rapid uptake as we get going and get formulary access.

Got it. Thanks very much.

We’ll take our next question from Brandon Folkes with Cantor Fitzgerald.

Hi, congratulations on the progress and thanks for taking my questions. Maybe firstly for me, can you just elaborate on some of the options you have for shoring up your cash runway? I know you did talk about that and sort of working with the Board on that. So maybe just if you could elaborate there? And then along the same lines, how should we think about R&D going forward in light of the ZYNRELEF label expansion, sNDA now being filed, but then also the sort of prefilled syringe and VAN you talked about today? Thank you.

Yes, thanks Brandon. So, the – in terms of the second question first, looking at R&D expense going forward, we continue to do our best to moderate R&D over the course of this year. Even with our activities in terms of trying to move the prefilled syringe forward, that’s a relatively modest investment compared to running large scale clinical trials. We will do it as economically as possible. So the – and we’ve already taken significant measures to reduce our R&D expense as I think indicative of the numbers that we put up for fourth quarter. And we’ll continue to look at ways to reduce burn both in R&D as well as elsewhere. I can’t go into specifics at this point. The Board is still in the kind of data accumulation stage and working together very closely with management and we’ll certainly provide updates when available.

Great, thanks very much. And maybe just one follow-up. In terms of the 10% growth – volume growth, any pushes and pulls around revenue that we should think about in the first quarter there, just sort of why revenue may or may not track that closely?

Yes, great question. And there’s no doubt that in the first quarter as on an annual basis, you have what we showed in terms of seasonality of the use of ZYNRELEF and also ordering patterns and the mix of the two vial sizes, maybe different. So I don’t know if there’s any specifics that John or David can add in terms of Brandon’s question.

Brandon, were you asking about ZYNRELEF specifically?

Correct, yes.

Yes, so if you look at it, I think Barry [ph] is right. So what we have seen is additional general surgery procedures coming on board, which is very encouraging. Our initial launch was really focused much more on orthopedics. So with that, there’s a higher mix of the 200 milligram SKU, which would have a lower cost value. And then I think you can see that by some of the numbers historically over time from a demand standpoint. Also, as we gain business in 340B accounts, there will be a bit of reduction and what the net selling price will be. So there will be some sensitivity that we’ll continue to look at. I think the final piece is we took our first price increase in effective January 1. So there was a very minor buy-in that occurred at the end of last quarter probably in the neighborhood of a week or two. So those would be the factors that would impact the actual results for Q1.

Great. Thank you very much.

Sure.

[Operator Instructions] We’ll take our next question from Serge Belanger with Needham and Company.

Hi, good afternoon. Couple questions for us.

Hey Serge.

First one, Barry, can you just talk about the overall surgical volume trends? I know you’re – your competitor has been, as previously mentioned that the lack of full recovery has been a headwind. So just curious what you’ve seen so far this year. I know first quarter is usually slow, but usually by the time we get to March 1st to normalize. So curious what you see in terms of those trends?

Yes. And I think – I think John can comment on and get a little more color. No question, January is very slow and we’ve seen good movement in February and strong March, which leads to overall growth over the quarter. John, do you want to give any more color?

Yes. I think that if you look at the slide that we showed based on the seasonality of the product that, that continues to hold true. Overall in our indicated procedures last year they were down 4.1% or 4.6% compared to 2021 volume. So far in the first quarter of this year, they’re running very comparable to what they were in 2022 Serge, so – but it’s still early. The claims data tends to run a bit behind when the actual unit volume is available. So it’s something that we can look at and report on it during our next earnings call.

Okay. And then secondly you highlighted your plans to improve the presentation of the ZYNRELEF product. Just curious what the regulatory, I guess, implications are here. What is required from an FDA standpoint to get these improvements approved for the product presentation?

It would be just like a development of any other device similar to the Luer Lock Applicator that we provide in the kit. You have to go through a normal manufacturing activities in terms of demonstration of the sterility. How you’re using radiation to sterilize the device and packaging of that device. You put all of that material together, all of that’s being done by an external manufacturer. That contract manufacturer has many, many of these type of devices that they make. They’re expert at this activity, and so they provide all that information for the filing. And then it’s really a question of two parallel paths that can be taken, filing 510(k) as a device as well as filing pre-approval supplement in order to package the product in the kit. The 510(k) goes faster generally, and so we’re currently evaluating opportunities to see if we can accelerate this process using that approach. There’s some technical issues associated with that that we need to work through with the FDA. But in either pathway it’s really development of the device in showing that you can write instructions on how to use it appropriately. Not a lot of big hurdles. This is a – although the device is quite novel and how we’ve – can designed it. The general concept of a vial access needle is extremely common, and the amount of education or instruction in order to use it will be really minimal.

Thank you.

We’ll take our next question from Kelly Shi with Jefferies.

Hi. This is Claire [ph] on for Kelly. Thanks for taking my question. So my first questions on ZYNRELEF. So I wonder if you can give us more color on your strategy on getting more uptick from those accounts already have consistent ordering? And what do you think will be the inflection point in terms of the sales trajectory for ZYNRELEF? And also, can you share a little bit more about the progress on the EU launch? Thanks.

Yes. John, do you want to take the first part?

Of course. So our focus right now is in our existing accounts, making sure that our representatives are able to really maximize the number of surgeons using a product. So oftentimes in these initial evaluations that are coming about, they’ll start with maybe two or three orthopedic surgeons, and there may be five to eight in practice. So our goal is to really leverage the positive results at the initial trial period had and expand to those other surgeons. The other thing that we’re looking to do is expand within the procedures that we’re doing, so if we’re starting with total, someone maybe could go on mute, there’s an awful lot of background noise there. Thank you so much. So the other thing that we’re doing is looking to expand the surgical procedures. So if someone’s starting in TKA, we’re obviously looking to do hips. We’re also then looking to expand within an account to other surgical lines. So if it’s going well in orthopedics, what can we do in general surgery and pediatrics, what can we do in C-section, where are additional places that we can grow the business. And we are beginning to see good traction on taking that approach. Some of the flexible resources that we’re adding like the medical device reps are helping a lot too, because they have such a strong relationship with orthopedic surgeons, there may be some that we don’t have strong relationships and are harder to convert. And we’ve already seen growth coming from accounts by using that. So there’s a variety of really strategies that we’re using there. But I think most of it is just making sure that we’re leaving no stone unturned within accounts that already have existing business.

Yes. And on the EU question, really no update. We have continually seen a challenging process to find an EU partner, and we have no intention of launching the product ourself that’s an expensive endeavor, and we certainly would not want to use our cash for that at this time.

Got it. That’s very helpful. And on the APONVIE the launch, you have talked about the early signals you have seen from the launch two weeks ago. And could you maybe give us more color on APONVIE ramp-up? And like what are the additional cells or you might need to support the APONVIE ramp-up? And how should we expect the cost increase associated with that? Thank you.

Yes. John, do you want to take that?

Of course. So with respect to the sales ramp up, it will really be determined on how quickly we can get formulary approval. So that’s a key priority that we have right now. As with any of our products, we don’t give guidance to during a launch phase. So we’re really not providing any additional insights at this time. What we hope to do is continue to provide updates on the progress as we get further in, but we’re only two weeks out. With respect to the additional cost, we’re using our existing ZYNRELEF sales force. They call on the exact same audience. Our team is already calling on anesthesiologists, on pharmacy, on surgeons. And fortunately, there’s a tremendous overlap of the target accounts that we’re going after, especially the oral aprepitant accounts with the ZYNRELEF accounts that we have. So it’s a very small percentage of the overall budget that’s used incrementally to launch APONVIE compared to what we’re doing as a commercial spend.

Got it. Thank you.

And that does conclude the question-and-answer session. I would like to turn the call back over to Dr. Quart for any additional or closing remarks.

Thank you, and thanks everyone for joining us today on the call. We look forward to keeping you updated in the future.

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