Executive Summary / Key Takeaways

• Heron Therapeutics has successfully pivoted towards profitability and growth, driven by a comprehensive capital restructuring and a renewed focus on its acute care portfolio.
• The acute care franchise, featuring ZYNRELEF and APONVIE, is demonstrating significant momentum, with Q3 2025 net sales increasing by 67.2% year-over-year, and weekly unit demand for ZYNRELEF reaching historical highs in late September through October.
• Technological advancements like the ZYNRELEF Vial Access Needle (VAN) and the upcoming Prefilled Syringe (PFS), alongside strategic initiatives such as the CrossLink Ignite program and a dedicated APONVIE sales team, are enhancing product adoption and market penetration.
• The oncology care portfolio, anchored by CINVANTI, provides a stable revenue stream, while the strategic wind-down of SUSTOL commercialization aims to optimize the product pipeline for future reintroduction.
• Heron reaffirmed its 2025 net revenue guidance of $153 million to $163 million and adjusted EBITDA guidance of $9 million to $13 million, reflecting confidence in accelerating growth and sustained financial discipline.

A Strategic Pivot Towards Growth and Profitability

Heron Therapeutics, Inc., a commercial-stage biotechnology company, is strategically repositioning itself within the acute care and oncology supportive care markets. Founded in 1983, the company has evolved from A.P. Pharma, Inc. to its current identity, building a portfolio of products designed to improve medical care. This journey has been marked by significant product approvals, including SUSTOL in 2016, CINVANTI in 2017, ZYNRELEF in 2021, and APONVIE in 2022. A pivotal shift occurred in April 2023 with new management, led by CEO Craig Collard, who initiated a comprehensive strategy to achieve profitability and drive targeted growth. This involved substantial cost restructuring, reducing operating expenses by over $80 million since 2022, and culminated in the company achieving profitability for both the fourth quarter and the full year 2024.

Heron's foundational strength lies in its proprietary Biochronomer Technology, which is designed to deliver therapeutic levels of short-acting pharmacological agents over days to weeks with a single administration. This technology enables controlled, sustained release and can incorporate multiple agents for multimodal therapy. This technological differentiation is a core competitive advantage, offering tangible benefits such as simplified dosing regimens and potentially improved patient outcomes by maintaining consistent drug levels. For investors, this translates into a stronger competitive moat, supporting premium pricing in specialized markets, and fostering recurring revenue through enhanced patient and provider loyalty.

The biotechnology industry faces high R&D costs, stringent regulatory hurdles, and the need for robust intellectual property protection. These barriers to entry help Heron defend its market position by limiting new competitors. However, larger pharmaceutical companies like Merck , Teva Pharmaceutical Industries (TEVA), and Eisai (ESALY), with their extensive resources and diversified portfolios, can often navigate these challenges more effectively. Heron's strategic response involves focusing on niche markets and leveraging its technological edge to offer differentiated products.

Technological Edge: Simplifying Care, Driving Adoption

Heron's commitment to innovation is evident in its continuous development of drug delivery solutions. The company's Biochronomer Technology underpins its extended-release products, offering a distinct advantage in patient convenience and therapeutic efficacy. For example, SUSTOL, an extended-release 5-HT3 receptor antagonist, utilizes this technology to maintain therapeutic levels of granisetron for five days, a significant benefit in preventing chemotherapy-induced nausea and vomiting (CINV).

In the acute care segment, ZYNRELEF's Vial Access Needle (VAN), launched in Q3 2025, significantly improves preparation time and enhances the safe use of the product. This operational improvement has been met with exceptional reception from healthcare providers, with management noting it is a "dramatic improvement" over the previously used vented vial spike. Looking ahead, Heron is advancing a prefilled syringe (PFS) program for ZYNRELEF, targeting possible approval in late 2027. The PFS is expected to further simplify and speed up the application process, allowing the product to be "ready to go" in the sterile field, thereby accelerating account conversion and broader adoption. This focus on ease of use and efficiency directly contributes to ZYNRELEF's competitive positioning against traditional local anesthetics.

Strategic Transformation and Financial Rejuvenation

Heron's strategic pivot under new leadership has been transformative, culminating in a comprehensive capital restructuring finalized on August 8, 2025. This restructuring included a new senior credit facility with Hercules Capital, Inc. (HTGC) for up to $150 million (with $110 million funded at closing), the issuance of $35 million in new 5.0% senior convertible notes due 2031, and a private placement of common and preferred equity generating $27.7 million in gross proceeds. Crucially, this allowed for the retirement of $150 million of outstanding 2026 convertible notes, reducing total debt from $175 million to $145 million and extending maturities to at least 2030. This resolution of a significant financial "overhang" frees management to fully concentrate on commercial execution and product growth.

As of September 30, 2025, Heron reported cash, cash equivalents, and short-term investments of $55.50 million. Management believes these resources are sufficient to meet anticipated cash requirements for at least one year. The capital restructuring added approximately $11 million to $12 million to the balance sheet after all expenses. While the company reported a net loss of $17.5 million for Q3 2025, this was primarily due to an $11.3 million loss on debt extinguishment related to the refinancing. Excluding this one-time charge, the underlying operational performance reflects a stronger financial footing.

Acute Care: The Engine of Future Growth

Heron's acute care portfolio, comprising ZYNRELEF for postoperative pain and APONVIE for postoperative nausea and vomiting (PONV), is emerging as the primary growth engine. Total acute care net product sales surged by 67.2% to $12.3 million in Q3 2025 compared to Q3 2024, and by 69.2% to $33.3 million for the nine months ended September 30, 2025. This growth is largely attributable to increased units sold, driven by market share gains and new customers for both products. Management anticipates a "real momentum" and a "possible trend break" in acute care, with weekly unit demand from late September through October reaching unprecedented levels.

ZYNRELEF net sales grew 49% year-over-year to $9.3 million in Q3 2025. Average daily units increased 28% to 1,127, and ordering accounts rose from 705 to 833 over the same period. Key drivers include the Vial Access Needle (VAN) launch, the CrossLink Ignite program (an incentive-based initiative to improve distributor engagement), and the implementation of a permanent J-code for ZYNRELEF, effective October 1, 2025. The J-code is a "significant win" for Heron, streamlining reimbursement and reducing administrative burden, particularly as the NOPAIN Act gains traction. The NOPAIN Act, which directs CMS to provide separate Medicare reimbursement for non-opioid treatments in surgical settings, includes ZYNRELEF as a qualifying non-opioid from April 1, 2025, through December 31, 2027. This legislative support, coupled with increasing commercial payer coverage (estimated at 75% for ZYNRELEF indicated procedures), is expected to significantly improve access and adoption. Furthermore, the dissolution of the inpatient-only list, making approximately 285 orthopedic procedures outpatient eligible, presents a "significant tailwind" for ZYNRELEF.

APONVIE is also demonstrating robust growth, with net sales increasing 173% year-over-year to $3.0 million in Q3 2025. Demand units grew 142% year-over-year, average daily units increased from 418 to 998, and ordering accounts rose from 299 to 405. The company launched a dedicated APONVIE sales team in Q3 2025, which became fully active in Q4, to drive further hospital account conversion. The anticipated publication of the 2025 PONV prophylaxis consensus guidelines in Q4 2025, expected to include APONVIE, should "significantly increase awareness of its availability and clinical profile." Management views APONVIE as a "multi-hundred-million-dollar drug" given the vast surgical market and its unique safety profile and mechanism of action.

Oncology Care: A Stable Anchor Amidst Competition

Heron's oncology care portfolio, consisting of CINVANTI and SUSTOL, serves as a stable revenue anchor. Total oncology net product sales increased 1.7% to $25.9 million in Q3 2025. CINVANTI, an IV formulation of aprepitant for CINV prevention, continues to exceed expectations, with net sales of $24.0 million in Q3 2025, up 6% year-over-year and stable sequentially. Despite ongoing competitive pressure that has historically impacted its average selling price, CINVANTI's net sales have remained consistent. The company maintains a conservative outlook due to the competitive landscape, acknowledging potential price pressures or account losses. However, increased promotional efforts by the dedicated APONVIE sales team are also expected to create "pull-through" for CINVANTI in hospital accounts.

CINVANTI benefits from strong intellectual property protection. The U.S. District Court ruled in Heron's favor against Fresenius Kabi in December 2024, upholding patent validity until 2035. Settlement agreements with Mylan Pharmaceuticals and Qilu Pharmaceutical grant licenses for generic versions of CINVANTI (and APONVIE) to market in the U.S. starting June 1, 2032. CINVANTI's formulation, free of synthetic surfactants like polysorbate 80 (present in a competitor like EMEND IV), offers a differentiated safety profile, having demonstrated bioequivalence to EMEND IV and being better tolerated in healthy volunteers.

In contrast, SUSTOL, an extended-release 5-HT3 receptor antagonist, has been "trending downward over the past several months due to increased market competition," with net sales declining 32% to $1.9 million in Q3 2025. Heron plans to wind down SUSTOL's commercialization over the next 12 months to evaluate potential product updates, with a possible reintroduction as early as late 2027, subject to development and regulatory progress. This strategic decision, while impacting current revenue, aims to optimize the product for future market conditions.

Financial Performance and Outlook

Heron Therapeutics reported total net revenues of $38.2 million for Q3 2025 and $114.3 million year-to-date. Adjusted EBITDA for Q3 2025 was $1.5 million, contributing to a year-to-date adjusted EBITDA of $9.5 million. The gross margin for Q3 2025 was 68.8%, slightly lower due to a one-time write-off of SUSTOL polymer inventory. Excluding this, the adjusted gross profit margin would be approximately 74.5%, consistent with prior quarters.

Operating expenses reflect strategic adjustments. Research and development expenses decreased by $1 million (22.3%) in Q3 2025, primarily due to reduced contract services and property/equipment write-offs. General and administrative expenses increased by $1.6 million (13%) due to new hires and contract services, while sales and marketing expenses rose by $2 million (18%), largely driven by increased marketing costs for ZYNRELEF and personnel additions. The net loss of $17.5 million in Q3 2025 was primarily influenced by an $11.3 million loss on debt extinguishment from the refinancing.

Compared to larger competitors, Heron's TTM Gross Profit Margin of 74.61% is competitive, reflecting the value of its specialized products. However, its TTM Operating Profit Margin of 0.82% and Net Profit Margin of -0.62% indicate that while the company has achieved profitability on an adjusted EBITDA basis, it is still working towards consistent GAAP net income. This contrasts with more established players like Merck (MRK), which typically exhibit stronger overall profitability and cash flow due to their scale and diversified portfolios. Heron's focus on innovative drug delivery positions it well in terms of product performance, but it lags in overall market share capture and the strategic adaptability afforded by larger balance sheets.

Heron reaffirmed its 2025 net revenue guidance of $153 million to $163 million and adjusted EBITDA guidance of $9 million to $13 million. This guidance is underpinned by the anticipated inflection in acute care product sales, the continued stability of CINVANTI, and the strategic optimization of the SUSTOL franchise. Management expects a "different inflection" in ZYNRELEF sales towards the end of 2025 and into 2026 as new accounts onboard and strategic partnerships mature.

Risks and Considerations

Investing in Heron Therapeutics carries inherent risks. The company operates in a rapidly evolving regulatory and economic environment. Changes in government policies, laws, and regulations, including operational shifts at agencies like the FDA and CMS, could impact product approvals and reimbursement. Global economic and political developments, such as geopolitical conflicts, tariffs, and inflationary pressures, could adversely affect the company's financial condition and operations. The competitive landscape in both acute care and oncology supportive care remains intense, with potential for pricing pressures and market share erosion from branded and generic competitors. While patent litigations have seen favorable outcomes for CINVANTI, the ongoing nature of such challenges presents a continuous risk. The successful execution of the acute care growth strategy and the potential reintroduction of SUSTOL are critical for long-term value creation.

Conclusion

Heron Therapeutics stands at a pivotal juncture, having successfully navigated a significant financial restructuring and established a clear path towards sustainable growth. The company's acute care portfolio, spearheaded by ZYNRELEF and APONVIE, is demonstrating compelling momentum, fueled by technological advancements like the VAN and upcoming PFS, strategic commercial initiatives, and favorable reimbursement tailwinds from the NOPAIN Act and a permanent J-code. While the oncology franchise provides a stable financial foundation, the strategic focus on acute care is poised to drive the next phase of expansion.

Heron's technological differentiation through its Biochronomer platform offers a competitive edge in delivering enhanced patient outcomes and simplified administration, a crucial factor in a competitive market. The reaffirmed 2025 guidance reflects management's confidence in translating these operational and technological strengths into tangible financial results. For discerning investors, Heron Therapeutics represents a compelling opportunity in a biotechnology company that has demonstrated a commitment to financial discipline and is now poised for accelerated growth, leveraging its innovative drug delivery solutions to address significant unmet medical needs.