Thank you for standing by. My name is Jermaine, and I will be your conference operator today. At this time, I would like to welcome everyone to Heron Therapeutics Q2 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 afternoon, everyone. Thank you for joining us on the Heron Therapeutics conference call this afternoon to discuss the company's financial results for the quarter ended June 30, 2024. With me today from Heron are Craig Collard, Chief Executive Officer; Ira Duarte, Executive Vice President, Chief Financial Officer; Bill Forbes, Executive Vice President and Chief Development Officer; and Kevin Warner, Senior Vice President, Medical Affairs Strategy & Engagement. For those of you participating via conference call, slides are made available via webcast and can also be accessed via the Investor Relations page of our website following the conclusion of today's call. Before we begin, let me remind you that during the course of this conference call, the company will make forward-looking statements. We caution you that any statement that is not a statement of historical fact is a forward-looking statement. This includes remarks about the company's projections, expectations, plans, beliefs and future performance, all of which constitute forward-looking statements for the purposes of the Safe Harbor provision under the Private Securities Litigation Reform Act of 1995. These statements are based on judgment and analysis as of the date of this conference call and are subject to numerous important risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. The risks and uncertainties associated with the forward-looking statements made in this conference call and webcast are described in the safe harbor statement in today's press release and inherent public periodic filings with the SEC. Except as required by law, Heron assumes no obligation to update these forward-looking statements to reflect future events or actual outcomes and does not intend to do so. And with that, I would now like to turn it over to Craig Collard, Chief Executive Officer of Heron.

Thanks, Melissa. Good morning, everyone, and welcome to the Heron Therapeutics second quarter 2024 earnings call. Today, we are pleased to update you on our latest achievements for the second quarter, which includes a narrowing of our financial guidance and a view into our financial performance, discussion of our product performance, progression of the Vial Access Needle or VAN towards our September 23 PDUFA date, the publishing of the long awaited NOPAIN Act, which includes ZYNRELEF and last, an update on the building and training of our partners at CrossLink. Now moving to financial performance. I believe this slide illustrates the impact our new management team has had in this business as we compare first half of 2024 with the first half of 2023. Keep in mind, the management team was not fully in place until August of 2023. Since arriving, we have been able to establish the proper financial management that has allowed us to reduce spends dramatically, while still growing top line revenue. As you can see from the slide, revenues were up 15%, gross margin has improved from 40% to 73%, and operating expenses have been reduced by over $36 million, when comparing the first 6 months of 2024, the same period in 2023. Now moving to product performance. The oncology franchise continues to outpace our expectations with CINVANTI net revenues up $24.9 million for the quarter and SUSTOL net revenues was $4.3 million for the quarter. We continue to maintain our existing market share in a very competitive environment with the oncology franchise, and we believe these products will continue to show similar consistency throughout 2024. Total acute care net revenues for the quarter were $6.8 million, which is record revenue for our acute business. ZYNRELEF net revenues for the quarter were $5.8 million. APONVIE net…

Thanks, Craig. Craig has covered our product performance and operating results in his comments, and I will add some additional points for our Q2 2024 results. Our product gross profit for the 3 months ended June 30, 2024, was $25.5 million or 71%, which increased from 37% for the same period in 2023. This was primarily due to the fact that the current quarter did not see the significant inventory write-offs. We experienced in the comparable quarter of 2023. Year-to-date, our product gross profit was $51.7 million or 73%, an increase from 40% for the same period in 2023. SG&A expenses for the 3 and 6 months ended June 30, 2024, were $27.5 million and $53.9 million, respectively, compared to $40.8 million and $77.8 million, respectively, in the same period in 2023. The decrease was primarily related to a decrease in personnel and related costs due to the reductions in force the prior years as well as improved cost efficiencies along all departments. Research and development expenses were $4.4 million and $9 million for the 3 and 6 months ended June 30, 2024, compared to $13.2 million and $22 million in the comparable period in 2023. The decrease was primarily related to decreases in personnel and related costs due to the reductions in force implemented in previous years as well as decreases in development activities. During the quarter, we incurred inventory write-offs of $1.6 million, but unlike last year's write-off, these were not related to inventory management. In addition, we also reported asset payment write-off of $1.3 million related to projects no longer part of the company's forward-looking strategy. As you will see on the Slide, if you exclude depreciation and amortization, stock-based compensation, the inventory write-off and the asset impairment write-off, our adjusted operating results would have been positive…

[Operator Instructions] And your first question comes from the line of Brandon Folkes with Rodman & Renshaw. Please go ahead.

Congratulations on a lot of good progress in the quarter. Maybe just firstly for me, on ZYNRELEF. Any color on where you see the most uptake across joint trauma and spine with the CrossLink partnership?

I'm sorry, Brandon, could you say it one more time?

Any color on where you're seeing the most uptake across joint trauma and spine with the CrossLink partnership? Anything new there that you wouldn't have expected?

Yes. No, at this point, again, as I've said in my comments, we've been getting the CrossLink team up to speed. And in Q2, we had roughly a couple of hundred folks sort of, if you will, had gone through training. And so we haven't been able to really dive into the data not to tell where we have the largest impact. I mean, obviously, with orthopedic surgeons is where we're spending a majority of time. But at this point, I just can't really dice the data into that sort of level in order to determine specifically or have an impact in one place more than another.

Okay. And then maybe just, obviously, you did a tremendous job during the quarter on the rep training with CrossLink. Can you just elaborate when you expect to see that revenue trajectory change with ZYNRELEF? Do you have to retrain the CrossLink team when the VAN comes out to market or how thorough does that training need to be?

Yes. So we have been along the way talking about the VAN, and they know that certainly is coming. And I think it's obviously anticipated. We do anticipate being fully trained by the time the VAN launches. And again, so we think that's certainly going to have an impact, but there will be certainly a briefing post the approval of exactly what we get approved and then sort of the timing to launch and all that. So we'll go through that again with them, but they are being briefed on sort of what's going on and what's coming.

Great. Thanks so much. Great to know that progress. Maybe just lastly one for me. On the gross margin line, obviously, tremendous progress year-over-year. How should we look at this quarter compared to the go forward? And then that's it for me. Thank you.

At this point, again, we've said all along, we think we'll be somewhere in the kind of low to mid-70s. We anticipate that continuing. Again, with product mix and so forth, it may vary a little bit, but we should be in that range.

Next question comes from the line of Serge Belanger with Needham. Please go ahead.

The first one, Craig, on ZYNRELEF, can you just give us a picture of what the current reimbursement and coverages across the Medicare and Commercial segments and how you think that will change once you switch over to NOPAIN next year? And then, secondly, on CINVANTI, I think a bench trial held last month or June, late June in the patent infringement lawsuit. Can you just give us an update on when you expect a decision and what the potential outcomes could be and things like that? Thank you.

Yes, sure. Actually, Serge, Kevin Warner is on the call as well. I'll let him get the first part of this, and then I'll address the CINVANTI piece.

Thanks, Serge. In regard to the reimbursement picture and how it looks, there's a difference between NOPAIN and a pass-through status product. So currently, right now, ZYNRELEF to be reimbursed be the pass-through status. And so that's all our hospital outpatient procedure department patients and all of our ASC patients under Medicare reimbursed. As far as the commercial payers, it somewhere between 30% and 50% of the commercial payers, it varies by state-by-state, region-by-region. That said, with NOPAIN that paradigm kind of switches because of how NOPAIN is phrased and historically, a lot of commercial payers don't come on and always follow these pass-through drug stipulations but with NOPAIN, and the fact that it has clinical attributes and reasoning for using nonopioids and minimizing the impact of opioids in our nation. There's more I guess, a push for them to follow along with the statute and the fact that it could be extended in perpetuity and continue to provide that reimbursement. So the commercial payers, a few other, they're going to want to be on the right side of the fence on this paradigm, they understand the cost efficacies and the clinical efficacies and the overall economic model. So we expect to see more commercial payers to come on board with NOPAIN and NOPAIN really doesn't change the current reimbursement from the CMS perspective.

Great. As you stated, the trial ended in June. And again, as we've said all along, we feel very comfortable with what happened in the trial. We feel very strong in our positioning. And again, this change really comes down to -- infringement has sort of been established in the case, and it all really comes down to obviousness. And again, that's where we feel the invention that we made here was unique. Merck had this product for years as a product set and was unable to get this in this form. And so that really is what this comes down to burden of proof there. And again, we feel that [indiscernible] did not meet that, and we feel very comfortable with our position.

And do you expect a [Technical Difficulty] 30-month expires in December -- is that when you think you will get a court decision?

Yes. Remaining to be done are closing orders and then we are expecting a decision to be made in Q4 of this year.

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

Hi. This is Clara on for Kelly. Thanks for taking our question. So could you remind us how many CrossLink reps are the in the field selling product during second quarter and how that number is going to change in the second half of 2024? And based on the experience we have in the field so far, I was wondering if you've heard any feedback, and if there is anything you think could be added to their training for the remaining reps or maybe also the existing reps that will be helpful in selling the product? Thank you.

[Technical Difficulty] CrossLink which were North Carolina, top line in Georgia and then we move from there. But we end up getting, I think by Q2, we had a couple of hundred reps, and we had just migrated to maybe 12 states. And so, where we sit now is 561 reps in 28 states and that continues to grow. And again, we believe we'll be over 650 at the time of launch with a VAN. And so if you think about sort of inflection and how this really comes together. We've had a lot of things happened this year, obviously, with the NOPAIN Act, the expansion of our label, getting the CrossLink folks trained. But there's another piece of this, too, which is really the integration with our sales force and managing that and working together and targeting accounts and all that and so that just takes time. So I've said all along that we view that as we launched the VAN and really kind of move out of Q4 into Q1 of '25 is really when we see a majority of inflection taking place into next year. And I guess some of this just takes time in order to get all this sort of fully up to speed and integrated.

[Operator Instructions] Your next question comes from the line of Carl Byrnes with Northland Capital Markets. Please go ahead.

Congratulations on your progress. In the event that we see a generic Exparel down the road, how do you see that changing the dynamics, if at all, for ZYNRELEF? Thanks. And then I have my follow-up as well.

Hey Carl, it's Kevin Warner. I'll jump in and take that one. Appreciate that. I guess the question is if we see a generic and then if at all, how would it impact ZYNRELEF? There's multiple barriers here to the access to the market with them, the current branded manufacturer has multiple patents that they feel confident in. Maybe we have yet to receive a sample or if it's known one of the generic manufacturer would be able to scale, if you will, as they've always cited that as being very challenging. But that said, a generic product, if it did come to market, the second major barrier will be the possible lack of financial benefit. So historically, most generics come to market, obviously, as a discount to the branded product to provide financial advantage to our healthcare system. But in today's current economic climate, specifically with the NOPAIN Act and broadening commercial reimbursement, those advantages would be mute, if you will. So generally for even Exparel to that extent with the reimbursement package from NOPAIN the follow-on commercials could trump with utilizing a genericized product. When looking at the possibility of more non-opioid analgesics just in general come to market, I see synergies rather than antagonism, with the practice of medicine moving to opioid-sparing therapies, novel mechanisms are needed in order to provide the most effective multimodal therapy. So whether it's generic liposome, bupivacaine as a regional block or an oral NAV1.8 inhibitor like Vertex Suzetrigine, I see opportunities for ZYNRELEF as the best-in-class local installation product to be combined with the other modalities as we all seek one common goal, right? And that's to minimize or eliminate the need for opioids. Looking at a fundamental level, though, just briefly considering liposomal bupivacaine as a competitor or not. You…

Great. Thanks. That's very helpful. On a different topic, what are you seeing with respect to opportunities for potential complementary tuck-in acquisitions? And what sort of timing might we expect in terms of some activity there? Thanks.

Carl, thanks for the great question. Again, we really tried to put out there certainly in this call and prior calls, is really getting our hands around the business and managing it. I think we've shown that we sort done that with the reduction of expenses and that type of thing. And now it's about growing product and the partnership with CrossLink and some of these things. But really, the next phase is what else can we do from an M&A standpoint? And again, this management team has been together before, we've done these things. And we're bringing in. This will be announced over the next few weeks. We're bringing in a business development person to head that up. And again, we're going to get a lot more active, if you will in that area, looking at things and trying to bring in complementary type of assets and/or companies that would be accretive to what we're doing. And we're going to be fairly active here in a very short timeframe.

If there are no further questions, we just want to thank everybody for being on the call today, and we look forward to next quarter's call.

That will conclude today's call. You may now disconnect.