Executive Summary / Key Takeaways

• Strategic Transformation and Financial Strength: Heron Therapeutics has successfully executed a comprehensive turnaround, achieving GAAP net income in Q4 2024 and significantly improving its financial position through a recent capital restructuring. This reduced total debt from $175 million to $145 million, extended maturities to at least 2030, and added $11 million-$12 million in net cash, providing a robust foundation for future growth.
• Differentiated Acute Care Portfolio Driving Growth: The acute care franchise, featuring ZYNRELEF for postoperative pain and APONVIE for postoperative nausea and vomiting, is Heron's primary growth engine. ZYNRELEF saw Q2 2025 net sales grow 40.4% year-over-year, while APONVIE surged 141.6%, both benefiting from proprietary Biochronomer technology, strategic commercial initiatives, and favorable reimbursement changes.
• Technological Edge and Operational Catalysts: Heron's Biochronomer drug delivery technology provides a competitive moat, enabling ZYNRELEF's 72-hour pain relief and APONVIE's rapid, sustained action. Key operational catalysts like the ZYNRELEF Vial Access Needle (VAN) launch, the upcoming permanent J-code (October 1, 2025), and the NOPAIN Act are expected to accelerate adoption and streamline reimbursement.
• Revised Upward Guidance Reflects Confidence: Management has reaffirmed its 2025 net revenue guidance of $153 million to $163 million and raised its adjusted EBITDA guidance to $9 million-$13 million, signaling strong confidence in continued operational efficiencies and the growth trajectory of its acute care products.
• Competitive Positioning and Future Outlook: While facing competition in both oncology and acute care markets, Heron differentiates through its innovative formulations and extended-release capabilities. The company's focus on targeted commercial expansion and ongoing R&D, including a Prefilled Syringe for ZYNRELEF targeting late 2026/early 2027 approval, positions it for sustained long-term value creation.

A New Chapter for Heron: Leveraging Innovation in Acute and Oncology Care

Heron Therapeutics, Inc. (NASDAQ:HRTX) is a commercial-stage biotechnology company that has undergone a significant transformation, repositioning itself for sustainable growth and profitability. Founded in 1983, Heron has evolved to leverage advanced science and proprietary technologies to develop and commercialize therapeutic innovations across acute care and oncology. The company's strategic focus now centers on disciplined execution, optimizing commercial performance, and capitalizing on its differentiated product portfolio, particularly within the high-growth acute care segment.

The broader healthcare landscape presents both opportunities and challenges. The growing emphasis on non-opioid pain management, driven by initiatives like the NOPAIN Act, creates a favorable environment for ZYNRELEF. Similarly, the demand for effective supportive care in oncology remains robust, though highly competitive. Heron's strategy is to carve out a distinct market position by offering products that improve patient outcomes through enhanced delivery mechanisms, thereby addressing critical unmet needs.

The Biochronomer Advantage: A Foundation of Differentiated Technology

At the heart of Heron's innovative approach is its proprietary Biochronomer drug delivery technology. This advanced platform is designed to deliver therapeutic levels of a wide range of otherwise short-acting pharmacological agents over extended periods—from days to weeks—with a single administration. The technology utilizes polymers that undergo controlled hydrolysis, ensuring a sustained and predictable release of the encapsulated drug. A key advantage is its ability to incorporate more than one pharmacological agent, enabling multimodal therapy from a single administration. Toxicology studies in animals and humans have consistently demonstrated the safety of the Biochronomer polymer.

This technology provides tangible and quantifiable benefits across Heron's product portfolio. For ZYNRELEF, the dual-acting local anesthetic, Biochronomer enables up to 72 hours of postoperative pain relief. This extended duration is a critical differentiator, as Phase 3 studies demonstrated significantly reduced pain and a higher proportion of patients requiring no opioids through the first 72 hours following surgery compared to bupivacaine solution, the current standard-of-care local anesthetic. This directly translates to improved patient experience and reduced reliance on opioids, a major public health priority. For investors, this technological edge enhances ZYNRELEF's competitive moat, supports premium pricing, and drives market adoption by offering a superior clinical profile.

Heron's commitment to technological advancement extends to its R&D pipeline. The company is actively developing a Prefilled Syringe (PFS) for ZYNRELEF, which is anticipated to be the "gold standard" for administration. This initiative aims to further simplify drug preparation and administration, building on the improvements already seen with the Vial Access Needle (VAN). Management is targeting approval for the PFS around late 2026 or early 2027. This continuous innovation reinforces Heron's long-term growth strategy by enhancing product usability and expanding market appeal.

Strategic Turnaround and Financial Discipline

Since the arrival of a new management team in April 2023, Heron has executed a remarkable financial turnaround. The focus on disciplined execution and capital efficiency has yielded significant results. In 2024, the company achieved a 14% year-over-year revenue growth, reaching $144.2 million. More impressively, gross margin improved substantially by 24 percentage points, from 49% in 2023 to approximately 73% in 2024. This was coupled with a reduction of over $80 million in operating expenses since 2022.

This strategic repositioning culminated in Heron achieving GAAP net income of $3.6 million in the fourth quarter of 2024 and a positive adjusted EBITDA of $8.6 million for the full year 2024. This financial discipline is a testament to the "One Heron" initiative, which integrated business units to optimize cross-portfolio selling and enhance overall efficiency. The company's cash burn for the full year 2024 was approximately $21 million, further highlighting improved financial management.

Acute Care: The Engine of Future Growth

Heron's acute care portfolio, comprising ZYNRELEF and APONVIE, is demonstrating robust growth and is central to the company's investment thesis.

ZYNRELEF: Postoperative Pain Relief Redefined

ZYNRELEF, the dual-acting local anesthetic, continues to accelerate its adoption. For the second quarter of 2025, ZYNRELEF net product sales reached $8.19 million, marking a substantial 40.4% increase compared to Q2 2024. Year-to-date, first-half 2025 net sales were $16.23 million, up 49.7% from the prior year. This growth is underpinned by strong demand, with unit demand growing 6.3% over Q1 2025, even as Q2 revenue was temporarily impacted by an estimated $400,000 wholesaler inventory drawdown related to the transition to the 400mg Vial Access Needle (VAN). Wholesaler ordering patterns are expected to normalize in Q3 2025.

The Vial Access Needle (VAN), approved in September 2024 and launched in mid-December 2024 (400mg), has been a significant operational improvement. It reduces drug preparation time from minutes to less than 45 seconds and enhances sterile use, addressing a key historical challenge. The 200mg VAN is expected to fully launch around April 2025. This improved user experience is already saving and winning back accounts.

Furthermore, ZYNRELEF is set to benefit from a permanent J-code, effective October 1, 2025. This transition from a C-code will streamline reimbursement processes, reduce administrative burden, and is expected to improve access and coverage across both government and commercial payers. This is particularly impactful as the NOPAIN Act, effective January 2025 (with ZYNRELEF qualifying from April 1, 2025), mandates separate Medicare reimbursement for non-opioid pain treatments in hospital outpatient departments and ambulatory surgical centers. Management anticipates commercial payers will increasingly follow CMS's lead, making reimbursement simpler and more conducive to broader adoption.

The CrossLink partnership, involving over 800 distributor representatives, is also a powerful growth driver. Accounts with CrossLink overlap are growing at a 30% higher rate than standalone business, with enhanced per-unit compensation programs launched in July 2025 to further incentivize targeted pull-through in accounts with existing formulary access. A new Post-Operative Clinical Educator Team provides targeted onboarding and support in high-volume accounts, improving adoption efficiency. These combined catalysts position ZYNRELEF for a significantly stronger growth trajectory in the latter half of 2025 and into 2026.

APONVIE: Expanding Presence in PONV Prevention

APONVIE, the first and only IV NK1 receptor antagonist for postoperative nausea and vomiting (PONV), is also demonstrating impressive momentum. Q2 2025 net product sales reached $2.46 million, a remarkable 141.6% increase year-over-year. For the first half of 2025, net sales were $4.72 million, up 226.7% from the comparable period in 2024. Demand units grew 19% over Q1 2025, outpacing net revenue growth (9%) due to wholesaler inventory normalization and a modest impact from 340B discounts.

APONVIE's strong safety profile and unique mechanism of action make it a compelling option for PONV prevention. Management views APONVIE as a "multi-hundred-million-dollar drug" given the 70 million surgeries performed annually in the U.S., with about half of that market experiencing moderate to severe PONV. A dedicated APONVIE sales team of six representatives was launched on July 1, 2025, without incremental headcount costs, through strategic consolidation. This targeted investment aims to unlock further hospital account conversion and expand usage beyond initial applications like bariatric surgery, leveraging the "One Heron" approach to drive system-wide adoption.

Oncology Care: The Foundational Pillar

Heron's oncology franchise, consisting of CINVANTI and SUSTOL, provides a stable, foundational revenue base for the company. For Q2 2025, combined oncology net product sales were $26.55 million, a 9.0% decrease year-over-year, primarily due to market competition from branded products and generics. First-half 2025 net sales were $55.15 million, down 5.6% from H1 2024. Despite these fluctuations, the franchise continues to outperform expectations and maintain market share (historically around 20-28%) in a highly competitive environment.

CINVANTI stands out with its competitive advantages: it is the first and only IV NK1 receptor antagonist for acute and delayed CINV that is free of synthetic surfactants (like polysorbate 80), which have been linked to hypersensitivity reactions. Clinical data also showed CINVANTI was better tolerated than EMEND IV, with significantly fewer adverse events. Its IV push administration further enhances its appeal. Heron has successfully defended its intellectual property, with a U.S. District Court ruling upholding CINVANTI patents until 2035 against Fresenius Kabi. A settlement with Mylan Pharmaceuticals in May 2025 established a generic market entry date of June 1, 2032, for CINVANTI and APONVIE, providing long-term clarity. While management takes a conservative approach to CINVANTI's 2025 outlook due to potential ASP pressure from increased competition, unit sales growth is still anticipated.

Competitive Landscape and Strategic Positioning

Heron Therapeutics operates in competitive markets, facing both large pharmaceutical players and specialized biotechs.

In oncology supportive care, CINVANTI competes directly with Merck & Co., Inc. (MRK)'s Emend and Eisai Co., Ltd. (ESALY)'s Aloxi, as well as generic aprepitant formulations. Merck, a major pharmaceutical company, leverages its diversified portfolio and economies of scale for strong market positioning. Eisai has an established presence in anti-emetics. While these competitors benefit from larger scale and broader distribution, Heron's CINVANTI differentiates with its surfactant-free IV formulation and better tolerability, addressing a specific patient need. Heron's patent protection for CINVANTI until 2035 provides a significant competitive barrier against generic erosion for an extended period.

In acute pain management, ZYNRELEF competes with Pacira Pharmaceuticals, Inc. (PCRX)'s Exparel and other local anesthetics. Pacira specializes in non-opioid pain management and has an established market presence. ZYNRELEF's key competitive advantage, enabled by its Biochronomer technology, is its dual-acting formulation providing 72 hours of pain relief and a significantly higher proportion of opioid-free patients compared to standard bupivacaine. This positions ZYNRELEF as the longest-acting pain relief product in its category, a critical differentiator in the context of the opioid crisis.

For postoperative nausea and vomiting, APONVIE competes with other anti-emetics, including those from larger players like Pfizer Inc. (PFE). APONVIE's unique selling proposition is its status as the first and only IV formulation of an NK1 receptor antagonist for PONV, delivered via a rapid 30-second injection, achieving quick therapeutic levels. This offers a distinct advantage in the surgical setting.

Compared to larger competitors like Merck and Pfizer, Heron is a smaller player, which can lead to higher R&D intensity relative to revenue and potential vulnerabilities to pricing pressure. However, Heron's strategy focuses on niche innovation and targeted commercialization through partnerships like CrossLink and dedicated sales teams, allowing it to effectively penetrate specific market segments. While Heron's gross profit margin (TTM 74.61%) is competitive with Merck (76%) and Pacira Pharmaceuticals, Inc. (76%), its operating profit margin (TTM 0.82%) and net profit margin (TTM -0.62%) indicate the ongoing investment required for growth and commercialization, contrasting with Merck's significantly higher profitability. Heron's current ratio (TTM 0.82) and quick ratio (TTM 0.53) are lower than its peers, highlighting the importance of the recent capital restructuring to bolster liquidity.

Outlook, Guidance, and Risks

Heron's management has reaffirmed its 2025 net revenue guidance of $153 million to $163 million, reflecting confidence in the accelerating growth of its acute care products. The company has also revised its adjusted EBITDA guidance upwards, from an initial range of $4 million-$12 million to a new range of $9 million-$13 million. This upward revision underscores the company's continued focus on operational efficiencies and the strong performance observed in the first half of 2025.

Key growth drivers for the remainder of 2025 and beyond include the full market penetration of the ZYNRELEF VAN, the positive impact of the permanent J-code and NOPAIN Act on ZYNRELEF adoption and reimbursement, and the expanding hospital-wide usage of APONVIE. The ongoing development of the ZYNRELEF Prefilled Syringe, targeting late 2026/early 2027 approval, represents a significant future catalyst. While quarterly adjusted EBITDA may exhibit some lumpiness due to legal expenses and R&D spend for the PFS program, the overall trajectory is positive.

However, investors should be mindful of several risks. Heron's reliance on single vendors for certain critical manufacturing components poses supply chain risks, which could be exacerbated by geopolitical instability or regulatory changes. The evolving landscape of government policies and regulations, including the Inflation Reduction Act of 2022 (IRA), could lead to drug price negotiations and increased pricing pressure, potentially impacting future revenues. Furthermore, ongoing patent litigations, such as those with Slayback/Azurity (CINVANTI bench trial scheduled for November 17, 2025) and Qilu (consolidated CINVANTI/APONVIE trial scheduled for November 16, 2026), introduce legal uncertainty and could affect generic market entry timelines, thereby influencing future revenue streams.

Conclusion

Heron Therapeutics is in a compelling phase of its corporate journey, having successfully transitioned from a period of significant losses to one of financial discipline and growth. The recent comprehensive capital restructuring has fortified its balance sheet, providing the necessary flexibility to accelerate its strategic initiatives. At the core of its investment thesis is the differentiated acute care portfolio, ZYNRELEF and APONVIE, powered by the proprietary Biochronomer technology. These products are poised for accelerated adoption, driven by operational enhancements, favorable reimbursement changes, and targeted commercial efforts.

While the oncology franchise provides a stable, foundational revenue stream, the acute care segment is clearly the primary engine for future expansion. Heron's ability to leverage its technological advantages, execute its commercial strategy effectively, and navigate the competitive and regulatory landscapes will be paramount to realizing its multi-hundred-million-dollar product potentials and delivering sustained long-term value for shareholders. The upward revision in adjusted EBITDA guidance reflects management's confidence in this trajectory, making Heron Therapeutics a company to watch closely as its strategic resurgence continues to unfold.