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Form 10-Q HERON THERAPEUTICS, INC. For: Jun 30

August 9, 2022 8:27 AM EDT

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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 June 30, 2022

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 August 1, 2022 was 102,632,160.

 

 

 


 

HERON THERAPEUTICS, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2022

TABLE OF CONTENTS

 

PART I.

 

FINANCIAL INFORMATION

 

 

 

 

 

 

 

ITEM 1.

 

Condensed Consolidated Financial Statements

 

 

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of June 30, 2022 (Unaudited) and December 31, 2021

 

2

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three and Six Months Ended June 30, 2022 and 2021 (Unaudited)

 

3

 

 

 

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the Three and Six Months Ended June 30, 2022 and 2021 (Unaudited)

 

4

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2022 and 2021 (Unaudited)

 

5

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

6

 

 

 

 

 

ITEM 2.

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

 

17

 

 

 

 

 

ITEM 3.

 

Quantitative and Qualitative Disclosures about Market Risk

 

25

 

 

 

 

 

ITEM 4.

 

Controls and Procedures

 

25

 

 

 

 

 

PART II.

 

OTHER INFORMATION

 

 

 

 

 

 

 

ITEM 1A.

 

Risk Factors

 

26

 

 

 

 

 

ITEM 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

57

 

 

 

 

 

ITEM 3.

 

Defaults upon Senior Securities

 

57

 

 

 

 

 

ITEM 4.

 

Mine Safety Disclosures

 

57

 

 

 

 

 

ITEM 5.

 

Other Information

 

57

 

 

 

 

 

ITEM 6.

 

Exhibits

 

58

 

 

 

 

 

 

 

SIGNATURES

 

59

 

1


 

PART I.

FINANCIAL INFORMATION

ITEM 1.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

HERON THERAPEUTICS, INC.

Condensed Consolidated Balance Sheets

(In thousands)

 

 

 

June 30,

2022

 

 

December 31,

2021

 

 

 

(Unaudited)

 

 

(See Note 2)

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

48,609

 

 

$

90,541

 

Short-term investments

 

 

34,929

 

 

 

67,039

 

Accounts receivable, net

 

 

40,303

 

 

 

35,499

 

Inventory

 

 

61,318

 

 

 

48,382

 

Prepaid expenses and other current assets

 

 

9,050

 

 

 

12,962

 

Total current assets

 

 

194,209

 

 

 

254,423

 

Property and equipment, net

 

 

23,468

 

 

 

23,734

 

Right-of-use lease assets

 

 

8,754

 

 

 

9,829

 

Other assets

 

 

17,534

 

 

 

17,720

 

Total assets

 

$

243,965

 

 

$

305,706

 

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

13,804

 

 

$

3,803

 

Accrued clinical and manufacturing liabilities

 

 

43,670

 

 

 

23,716

 

Accrued payroll and employee liabilities

 

 

16,323

 

 

 

15,263

 

Other accrued liabilities

 

 

33,152

 

 

 

25,859

 

Current lease liabilities

 

 

2,549

 

 

 

2,417

 

Total current liabilities

 

 

109,498

 

 

 

71,058

 

Non-current lease liabilities

 

 

6,780

 

 

 

7,996

 

Non-current convertible notes payable, net

 

 

149,182

 

 

 

149,082

 

Other non-current liabilities

 

 

241

 

 

 

 

Total liabilities

 

 

265,701

 

 

 

228,136

 

Stockholders’ equity (deficit):

 

 

 

 

 

 

 

 

Common stock

 

 

1,025

 

 

 

1,020

 

Additional paid-in capital

 

 

1,710,928

 

 

 

1,689,987

 

Accumulated other comprehensive loss

 

 

(11

)

 

 

(6

)

Accumulated deficit

 

 

(1,733,678

)

 

 

(1,613,431

)

Total stockholders’ equity (deficit)

 

 

(21,736

)

 

 

77,570

 

Total liabilities and stockholders’ equity (deficit)

 

$

243,965

 

 

$

305,706

 

 

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 June 30,

 

 

Six Months Ended June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net product sales

 

$

27,630

 

 

$

22,443

 

 

$

51,087

 

 

$

42,461

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of product sales

 

 

16,175

 

 

 

14,522

 

 

 

27,530

 

 

 

23,729

 

Research and development

 

 

28,834

 

 

 

35,233

 

 

 

70,904

 

 

 

73,349

 

General and administrative

 

 

9,181

 

 

 

10,907

 

 

 

18,714

 

 

 

20,480

 

Sales and marketing

 

 

22,938

 

 

 

22,250

 

 

 

46,360

 

 

 

37,486

 

Total operating expenses

 

 

77,128

 

 

 

82,912

 

 

 

163,508

 

 

 

155,044

 

Loss from operations

 

 

(49,498

)

 

 

(60,469

)

 

 

(112,421

)

 

 

(112,583

)

Other expense, net

 

 

(6,861

)

 

 

(546

)

 

 

(7,826

)

 

 

(1,046

)

Net loss

 

 

(56,359

)

 

 

(61,015

)

 

 

(120,247

)

 

 

(113,629

)

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized losses on short-term investments

 

 

(3

)

 

 

(80

)

 

 

(5

)

 

 

(216

)

Comprehensive loss

 

$

(56,362

)

 

$

(61,095

)

 

$

(120,252

)

 

$

(113,845

)

Basic and diluted net loss per share

 

$

(0.55

)

 

$

(0.62

)

 

$

(1.18

)

 

$

(1.20

)

Shares used in computing basic and diluted net loss per share

 

 

102,405

 

 

 

98,459

 

 

 

102,265

 

 

 

94,943

 

 

See accompanying notes.

3


HERON THERAPEUTICS, INC.

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

(Unaudited)

(In thousands)

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Additional Paid-In

Capital

 

 

Accumulated Other Comprehensive

Loss

 

 

Accumulated

Deficit

 

 

Total Stockholders’

Equity (Deficit)

 

Balance as of December 31, 2021

 

 

102,005

 

 

$

1,020

 

 

$

1,689,987

 

 

$

(6

)

 

$

(1,613,431

)

 

$

77,570

 

Issuance of common stock under equity incentive plan

 

 

138

 

 

 

1

 

 

 

(638

)

 

 

 

 

 

 

 

 

(637

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

10,915

 

 

 

 

 

 

 

 

 

10,915

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(63,888

)

 

 

(63,888

)

Net unrealized loss on short-term investments

 

 

 

 

 

 

 

 

 

 

 

(2

)

 

 

 

 

 

(2

)

Comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(63,890

)

Balance as of March 31, 2022

 

 

102,143

 

 

 

1,021

 

 

 

1,700,264

 

 

 

(8

)

 

 

(1,677,319

)

 

 

23,958

 

Issuance of common stock under equity incentive plan

 

 

154

 

 

 

2

 

 

 

(459

)

 

 

 

 

 

 

 

 

(457

)

Issuance of common stock on under the employee stock purchase plan

 

 

201

 

 

 

2

 

 

 

770

 

 

 

 

 

 

 

 

 

772

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

10,353

 

 

 

 

 

 

 

 

 

10,353

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(56,359

)

 

 

(56,359

)

Net unrealized loss on short-term investments

 

 

 

 

 

 

 

 

 

 

 

(3

)

 

 

 

 

 

(3

)

Comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(56,362

)

Balance as of June 30, 2022

 

 

102,498

 

 

$

1,025

 

 

$

1,710,928

 

 

$

(11

)

 

$

(1,733,678

)

 

$

(21,736

)

 

 

 

Common Stock

 

 

Additional

 

 

Accumulated

Other

 

 

 

 

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

Paid-In

Capital

 

 

Comprehensive

Income

 

 

Accumulated

Deficit

 

 

Stockholders’

Equity

 

Balance as of December 31, 2020

 

 

91,310

 

 

$

913

 

 

$

1,628,070

 

 

$

257

 

 

$

(1,392,748

)

 

$

236,492

 

Conversion benefit included in Convertible Notes issued

 

 

 

 

 

 

 

 

114

 

 

 

 

 

 

 

 

 

114

 

Issuance of common stock under equity incentive plan

 

 

97

 

 

 

1

 

 

 

882

 

 

 

 

 

 

 

 

 

883

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

11,486

 

 

 

 

 

 

 

 

 

11,486

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(52,614

)

 

 

(52,614

)

Net unrealized loss on short-term investments

 

 

 

 

 

 

 

 

 

 

 

(136

)

 

 

 

 

 

(136

)

Comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(52,750

)

Balance as of March 31, 2021

 

 

91,407

 

 

 

914

 

 

 

1,640,552

 

 

 

121

 

 

 

(1,445,362

)

 

 

196,225

 

Conversion benefit included in Convertible Notes

   issued

 

 

 

 

 

 

 

 

116

 

 

 

 

 

 

 

 

 

116

 

Issuance of common stock under equity incentive plan

 

 

313

 

 

 

4

 

 

 

4,214

 

 

 

 

 

 

 

 

 

4,218

 

Issuance of common stock under the employee stock purchase plan

 

 

110

 

 

 

1

 

 

 

1,528

 

 

 

 

 

 

 

 

 

1,529

 

Issuance of common stock on exercise of warrants

 

 

195

 

 

 

2

 

 

 

(2

)

 

 

 

 

 

 

 

 

 

Issuance of common stock on conversion of notes

 

 

9,849

 

 

 

98

 

 

 

7,780

 

 

 

 

 

 

 

 

 

7,878

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

11,241

 

 

 

 

 

 

 

 

 

11,241

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(61,015

)

 

 

(61,015

)

Net unrealized loss on short-term investments

 

 

 

 

 

 

 

 

 

 

 

(80

)

 

 

 

 

 

(80

)

Comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(61,095

)

Balance as of June 30, 2021

 

 

101,874

 

 

$

1,019

 

 

$

1,665,429

 

 

$

41

 

 

$

(1,506,377

)

 

$

160,112

 

 

See accompanying notes.

4


HERON THERAPEUTICS, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

 

 

Six Months Ended

June 30,

 

 

 

2022

 

 

2021

 

Operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(120,247

)

 

$

(113,629

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

21,268

 

 

 

22,727

 

Depreciation and amortization

 

 

1,392

 

 

 

1,473

 

Amortization of debt discount

 

 

 

 

 

785

 

Amortization of debt issuance costs

 

 

100

 

 

 

 

Amortization of premium on short-term investments

 

 

93

 

 

 

178

 

Impairment of property and equipment

 

 

88

 

 

 

190

 

Loss on disposal of property and equipment

 

 

96

 

 

 

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(4,804

)

 

 

(765

)

Inventory

 

 

(12,936

)

 

 

(895

)

Prepaid expenses and other assets

 

 

4,098

 

 

 

(1,783

)

Accounts payable

 

 

10,001

 

 

 

10,717

 

Accrued clinical and manufacturing liabilities

 

 

19,954

 

 

 

(26,055

)

Accrued payroll and employee liabilities

 

 

1,060

 

 

 

84

 

Other accrued and other non-current liabilities

 

 

7,525

 

 

 

2,043

 

Net cash used in operating activities

 

 

(72,312

)

 

 

(104,930

)

Investing activities:

 

 

 

 

 

 

 

 

Purchases of short-term investments

 

 

(58,945

)

 

 

(62,046

)

Maturities and sales of short-term investments

 

 

90,957

 

 

 

98,500

 

Purchases of property and equipment

 

 

(1,366

)

 

 

(1,101

)

Proceeds from the sale of property and equipment

 

 

56

 

 

 

 

Net cash provided by investing activities

 

 

30,702

 

 

 

35,353

 

Financing activities:

 

 

 

 

 

 

 

 

Net proceeds from convertible note financing

 

 

 

 

 

148,982

 

Net proceeds from issuance of common stock under equity incentive plan

 

 

(1,094

)

 

 

5,101

 

Proceeds from purchases under the employee stock purchase plan

 

 

772

 

 

 

1,529

 

Net cash (used in) provided by financing activities

 

 

(322

)

 

 

155,612

 

Net (decrease) increase in cash and cash equivalents

 

 

(41,932

)

 

 

86,035

 

Cash and cash equivalents at beginning of year

 

 

90,541

 

 

 

105,138

 

Cash and cash equivalents at end of period

 

$

48,609

 

 

$

191,173

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Interest paid

 

$

1,125

 

 

$

 

 

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®, 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.

CINVANTI (aprepitant) injectable emulsion (“CINVANTI”) and SUSTOL (granisetron) extended-release injection (“SUSTOL”) are both approved in the United States (“U.S.”) for the prevention of chemotherapy-induced nausea and vomiting. ZYNRELEF (bupivacaine and meloxicam) extended-release solution (“ZYNRELEF”) is approved in the U.S., 31 European countries and Canada for the management of postoperative pain. Within our acute care franchise, we are also developing HTX-019, an investigational agent for the prevention of postoperative nausea and vomiting (“PONV”) and HTX-034, an investigational agent, our next-generation product candidate for the management of postoperative pain (collectively, our “Product Candidates”).

As of June 30, 2022, we had cash, cash equivalents and short-term investments of $83.5 million. On August 8, 2022, we entered into a private placement agreement to sell shares of our common stock and pre-funded warrants (see Note 12). The private placement is subject to standard and customary closing conditions, and it is scheduled to close and fund on August 11, 2022. Adjusting for net proceeds of $75.2 million from the private placement, the Company will have cash, cash equivalents and short-term investments of $158.7 million. Based on our current operating plan and projections, management believes that the Company’s cash, cash equivalents and short-term investments, including the net proceeds from the August 8, 2022 private placement, will be sufficient to meet the Company’s anticipated cash requirements for 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”).

Based on our cash balance of $83.5 million at June 30, 2022, without taking into account the net proceeds from the private placement noted above, there is substantial doubt about our ability to continue as a going concern for at least one year from the date this Quarterly Report on Form 10-Q is filed with the SEC.

2. Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, 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 and six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for other quarters or the year ending December 31, 2022. The condensed consolidated balance sheet as of December 31, 2021 has been derived from the audited financial statements as of that date, but does not include all of the information and disclosures required by GAAP. 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, 2021, which was filed with the SEC on February 28, 2022.

 

 


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 loss and realized gains and losses included in other 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.

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 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.

 

CINVANTI, SUSTOL and ZYNRELEF (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.