Thank you for standing by. My name is Alex, and I will be your conference operator today. At this time, I would like to welcome everyone to the Heron Therapeutics Q1 2024 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the call over to Melissa Jarel, Executive Director, Legal. Please go ahead.

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

Thanks, Melissa. Good morning, everyone, and welcome to the Heron Therapeutics' First Quarter 2024 Earnings Call. Today, we are pleased to update you on our latest achievements in Q1, including financial performance, progression on our development projects, CrossLink progression and a general corporate update. We started the quarter off with tremendous momentum. First, we signed the CrossLink agreement on January 7 and shortly after, on January 23, we received official approval of our expanded indication of ZYNRELEF, which broadens our label into spine, shoulder and other soft tissue surgical procedures. [indiscernible] these 2 events, we had a National Sales Meeting where we trained all of our sales folks on the new indications. We also developed an internal group to lead the training process of the CrossLink team. We have continued to improve our financial efficiency by reducing spend and improving margins. We believe, with this continued approach, we will achieve profitability, as predicted, by Q4 of 2024. Before we move on to product performance, I did want to show this slide to highlight what has been achieved this quarter versus just 12 months ago. As you can see, in Q1 of 2023, we had net revenues of $29.6 million, COGS of $16.8 million with an overall loss of just over $33 million. In the same time period in 2024, we had $34.6 million in net revenues, $8.4 million in COGS and a loss of $4.8 million, which is a $28.2 million positive swing in just 12 months, along with a gross margin improvement from 43% to 76%. The takeaway from this is we are on the right path and we have the business well-positioned for the future. Now, moving on to product performance, the Oncology franchise continues to outpace our expectations with CINVANTI net revenues of $25.6 million for the…

Thank you, Craig. During the last quarterly earnings call, I covered our R&D activities, which are focused on providing easier access to ZYNRELEF. I will cover some of that again here for investors that are newer to our story and provide an update on current activities as well as our near-term deliverables. Following the ZYNRELEF label expansion, R&D continues to focus on the work to modify the device component of this combination product. The first modification involves the Vial Access Needle, or VAN. The VAN is designed to improve efficiencies in preparation and it will achieve this in 2 ways. First, the withdrawal of ZYNRELEF from the vial with the VAN is approximately 3 to 4x faster than the currently marketed Basic Vial Spike, or BVS. Secondly, the VAN will allow for an even more secure presentation of the product into the sterile field in the surgical room by [ encasing ] the ZYNRELEF vial into the sterile shroud of the VAN. We believe that both the improved withdrawal time and sterile shroud will be extremely well received by operating room staff. Presently, we have completed all development and testing activities on the VAN, and we are finishing up the submission to the FDA. We anticipate the VAN approval in Q4 of this year. The ultimate solution to speed and ease of use of ZYNRELEF is the prefilled syringe, or PFS. We anticipate the PFS approval in Q4 of 2026. In this product presentation, the entire tray is sterilized and ready for immediate use. There will be no vial OF ZYNRELEF and no BVS or VAN, just the syringe itsef. The challenges to this program involve a new container closure system and the sterilization process itself. Once this is available, all barriers to preparation will be removed. With that, I will now turn this over to Ira Duarte. Ira?

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

Thank you. We will now begin the question-and-answer session. [Operator Instructions] . And your first question comes from the line of Serge Belanger with Needham. Please go ahead.

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

I'm sorry. Could you repeat the first part? A little bit got cut off on your first part of your question.

Yes. So the broad label expansion for ZYNRELEF was about 4 months ago. There's been a number of new indications. You mentioned spine, shoulder and soft tissue. Curious where the product has seen some uptake in these new indications since the expansion of the label.

So actually, interesting enough, day 1 of approval, I was able to personally sit into a spine case. We had a physician here in North Carolina that used it, and I got to watch that. But I think what you're watching happen is that we've had certainly a number of spine surgeons, orthopedic and so forth, that have tried the product, maybe shoulder or spine. But I think, again, the uptake is going to be, while people will use it, I think you're still going to have some experimentation going on about how they apply it, getting used to the product and kind of going through that whole sort of process that we go through with a product like this. It's a little bit different. So I think the results we've seen so far have been good. In the cases we've had, some of -- the case I was at that day, things went well. Kevin Warner is here as well. I don't know, Kevin, if you have any comments as well that you can maybe add to that?

Yes, definitely. Thanks for the question, Serge. As far as the expanded label goes, it does a couple of things. First off, the formulary access, a lot of times, when these institutions review a product, they want to be able to bring it on and [ cover it in ] all of their procedures, right, and not have a onesie-twosie approach with multiple branded drugs on their shelves. So having that broad label was a big move forward for us [indiscernible] formulary accesses. They all take time, right? So the review process takes 2 to 3 months, getting in the electronic medical record build. So seeing the rollout and the effects of that broad label is going to be Q3, Q4 as we expand and educate on it and what that label provides. But as far as the procedures go, definitely some significant target procedures. One nice target procedure that everybody can appreciate is the soft tissue space with C-section. Obviously, a new mother, we don't want to have to exposure her to opioids, and it's a very painful procedure, so we can facilitate that recovery, get her out of the hospital exposure to opioids and without exposing that infant to opioids. But definitely, the other ortho procedures, spine and shoulder, is the primary target, and we're seeing excellent results in those procedures.

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

Nice progress.

Your next question comes from the line of Carl Byrnes from Northland Capital Market.

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

Thanks for the question. I was anticipating that somebody might ask that. Look, we're really pleased with the way things are going. And again, we're a little under. Obviously, the range we gave on expenses was $108 million to $116 million. And if you just multiply it by 4, obviously, we're on the lower end of that, and we're hoping that continues. I think our maybe reasoning for not improving guidance or narrowing guidance at this point is really due to ongoing litigations that we have. And again, we're -- while we feel like we've got our hands around the business and we have this under control, there are still things that are happening development-wise and within the legal realm that could vary a bit. So we're trying to be a little bit cautious here. I guess maybe conservative is the word. But again, we're really pleased with the way things are going, and we -- with how expenses came out this quarter. Regarding margins, again, one of the things that's helped us, we have renegotiated a few things at our manufacturers and that has helped keep certainly COGS down. But we also this quarter primarily just used APONVIE with CINVANTI. And so we have a secondary manufacturer as well that we have not used this quarter. And so that has helped margins a bit, take us up to kind of the 76% range. I still think, throughout the year, we're going to be on the lower end of the 70% range. But again, we're going to try to manage that as best we can. But we're extremely pleased with where we are, and we're hoping that, again, we end up at the lower end of that expense range. And so if that does happen, obviously, there is a possibility that we could get to profitability earlier. But at this point, we're still committed to Q4.

Your next question comes from the line of Tim Chiang with Capital One.

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

So, Tim, thanks for the question. Again, we've been extremely pretty pleased with CrossLink. Again, I used the word amazing on my comments, but the relationships that I think these guys bring are just a little different than what we have as a pharma company. And keep in mind that, in a lot of cases -- CrossLink's been around 4 years. and a lot of the reps have 10, 15, 20 years' experience with these physicians and being with them every day. So it's just a different relationship. And so it allows us to get in front of these folks. It allows us to have more time to explain some of the situations with ZYNRELEF and so forth. And so as we've mentioned, it frees up time for our reps and that type of thing. But from a training perspective, again, we've been moving fairly quickly. I want to turn it over to David Barozzino. He's been directly involved and, again, has been at these training -- the meetings and can give you a little more insight into kind of exactly what's going on and where we're going next.

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

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

Yes, 100%. We -- that is definitely a focal point. I think you could lump, like, New York, Florida, Texas, California, as 4 big states. And we are in active discussions with some distributors down there as well.

Okay. Super. Very helpful. Thanks.

Your next question comes from the line of Kelly Shi with Jefferies.

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

Yes. This is Kevin Warner again. Thanks for that question. So NOPAIN Act is coming into effect Q1 of 2025. It's going to provide reimbursement outside of the surgical bundle for our HOPD patients, our outpatient procedure department in the hospital, and our ASCs for these non-opioids that have been proven to reduce opioid consumption. So right now, ZYNRELEF has passed through, as you alluded to, and that expires Q1 of 2025. So the NOPAIN Act goes into effect starting Q1. We've already had conversations with CMS, very productive conversations, highlighted all the criteria to qualify for the NOPAIN Act, which ZYNRELEF qualifies for all of those criteria, except one, and that one is the fact that we have pass-through status. So that's why we had this open dialogue, to make sure that we don't fall off in that interim period. And we're confident that they'll pick it up and pass it through right on. There won't be any hitch in that pass-through status to make sure our institutions still have access and reimbursement for ZYNRELEF. As far as extending the duration, NOPAIN Act was originally designed to be a 5-year act. Unfortunately, it took some time to get passed through Congress, so a little later than desired, but as of right now, through the end of '27, as expected. We definitely have a lot of encouragement and support from our community, and obviously, the opioid epidemic, the concerns of that. We expect them to continue to extend and provide payments for these non-opioids for our country and for our patients.

Super helpful.

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

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

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