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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 March 31, 2022

☐

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 May 3, 2022 was 102,479,577.

HERON THERAPEUTICS, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022

TABLE OF CONTENTS

PART I.	FINANCIAL INFORMATION

ITEM 1.	Condensed Consolidated Financial Statements

	Condensed Consolidated Balance Sheets as of March 31, 2022 (Unaudited) and December 31, 2021…...…	2

	Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2022 and 2021 (Unaudited)	3

	Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2022 and 2021 (Unaudited)	4

	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 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

PART I.

FINANCIAL INFORMATION

ITEM 1.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

HERON THERAPEUTICS, INC.

Condensed Consolidated Balance Sheets

(In thousands)

	March 31, 2022			December 31, 2021
	(Unaudited)			(See Note 2)
ASSETS
Current assets:
Cash and cash equivalents	$	56,911		$	90,541
Short-term investments		54,999			67,039
Accounts receivable, net		41,103			35,499
Inventory		56,470			48,382
Prepaid expenses and other current assets		13,110			12,962
Total current assets		222,593			254,423
Property and equipment, net		23,858			23,734
Right-of-use lease assets		9,295			9,829
Other assets		17,977			17,720
Total assets	$	273,723		$	305,706
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	8,226		$	3,803
Accrued clinical and manufacturing liabilities		37,277			23,716
Accrued payroll and employee liabilities		12,214			15,263
Other accrued liabilities		32,800			25,859
Current lease liabilities		2,484			2,417
Total current liabilities		93,001			71,058
Non-current lease liabilities		7,391			7,996
Non-current convertible notes payable, net		149,132			149,082
Other non-current liabilities		241			—
Total liabilities		249,765			228,136
Stockholders’ equity:
Common stock		1,021			1,020
Additional paid-in capital		1,700,264			1,689,987
Accumulated other comprehensive loss		(8	)		(6	)
Accumulated deficit		(1,677,319	)		(1,613,431	)
Total stockholders’ equity		23,958			77,570
Total liabilities and stockholders’ equity	$	273,723		$	305,706

See accompanying notes.

HERON THERAPEUTICS, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

(In thousands, except per share amounts)

	Three Months Ended March 31,
	2022			2021
Revenues:
Net product sales	$	23,457		$	20,018
Operating expenses:
Cost of product sales		11,355			9,207
Research and development		42,070			38,116
General and administrative		9,533			9,573
Sales and marketing		23,422			15,236
Total operating expenses		86,380			72,132
Loss from operations		(62,923	)		(52,114	)
Other expense, net		(965	)		(500	)
Net loss		(63,888	)		(52,614	)
Other comprehensive loss:
Unrealized losses on short-term investments		(2	)		(136	)
Comprehensive loss	$	(63,890	)	$	(52,750	)
Basic and diluted net loss per share	$	(0.63	)	$	(0.58	)
Shares used in computing basic and diluted net loss per share		102,123			91,388

See accompanying notes.

HERON THERAPEUTICS, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(In thousands)

	Common Stock				Additional			Accumulated Other						Total
	Shares		Amount		Paid-In Capital			Comprehensive Loss			Accumulated Deficit			Stockholders’ Equity
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

	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

See accompanying notes.

HERON THERAPEUTICS, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

	Three Months Ended March 31,
	2022			2021
Operating activities:
Net loss	$	(63,888	)	$	(52,614	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense		10,915			11,486
Depreciation and amortization		721			739
Amortization of debt discount		—			502
Amortization of debt issuance costs		50			—
Amortization of premium on short-term investments		104			48
Impairment of property and equipment		47			80
Loss on disposal of property and equipment		96			—
Change in operating assets and liabilities:
Accounts receivable		(5,604	)		3,325
Inventory		(8,088	)		(724	)
Prepaid expenses and other assets		(405	)		(2,718	)
Accounts payable		4,423			1,164
Accrued clinical and manufacturing liabilities		13,561			4,257
Accrued payroll and employee liabilities		(3,049	)		(3,968	)
Other accrued and other non-current liabilities		7,178			(3,515	)
Net cash used in operating activities		(43,939	)		(41,938	)
Investing activities:
Purchases of short-term investments		(38,023	)		(44,058	)
Maturities and sales of short-term investments		49,957			40,500
Purchases of property and equipment		(1,044	)		(786	)
Proceeds from the sale of property and equipment		56			—
Net cash provided by (used in) investing activities		10,946			(4,344	)
Financing activities:
Net proceeds from issuance of common stock under equity incentive plan		(637	)		883
Net cash (used in) provided by financing activities		(637	)		883
Net decrease in cash and cash equivalents		(33,630	)		(45,399	)
Cash and cash equivalents at beginning of year		90,541			105,138
Cash and cash equivalents at end of period	$	56,911		$	59,739

See accompanying notes.

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 and HTX-034, an investigational agent, our next-generation product candidate for the management of postoperative pain (collectively, our “Product Candidates”).

We have incurred significant operating losses and negative cash flows from operations, and we had an accumulated deficit of $1.7 billion as of March 31, 2022. As of March 31, 2022, we had cash, cash equivalents and short-term investments of $111.9 million. Based on our current operating plan and projections, management believes that the Company’s existing cash, cash equivalents and short-term investments 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”). In order to meet our cash requirements, we may be required to obtain additional funds and if we are not able to obtain adequate funds, we may be required to delay, reduce the scope of, or eliminate one or more of our product development programs and reduce personnel-related and other costs, which could have a material adverse effect on our business.

Our capital requirements and liquidity for the next twelve months will depend on numerous factors, including but not limited to: the degree of commercial success of our Products; the impact of competitive products; the timing and cost to manufacture our Products; the costs associated with the U.S. commercial launch of ZYNRELEF and PONV, if approved, and making ZYNRELEF commercially available outside of the U.S.; the time, cost and outcome involved in seeking a further expanded label for ZYNRELEF in the U.S., as well as other regulatory approvals; our ability to establish and maintain strategic collaborations or partnerships for research, development, clinical testing, manufacturing and marketing of our Products and Product Candidates; the scope, rate of progress, results and costs of preclinical testing and clinical trials; the number and characteristics of product development programs we pursue and the pace of each program, including the timing of clinical trials; the extent of the impact of the ongoing COVID-19 pandemic on our business; and general market conditions. Management’s view of our liquidity relies on estimates and assumptions about the market opportunity for the expanded U.S. label of ZYNRELEF, which estimates and assumptions are subject to significant uncertainty, particularly due to the short amount of time that has passed since the label was expanded in December 2021.

We may not be able to raise sufficient additional capital when needed on favorable terms, or at all. If we are unable to obtain adequate funds, we may be required to curtail significantly or cease our operations. If we issue additional equity securities or securities convertible into equity securities to raise funds, our stockholders will suffer dilution of their investment, and such issuance may adversely affect the market price of our common stock.

Any new debt financing we enter into may involve covenants that restrict our operations. These restrictive covenants may include, among other things, limitations on borrowing and specific restrictions on the use of our assets, as well as prohibitions on our ability to create liens, pay dividends, redeem capital stock or make investments. In the event that additional funds are obtained through arrangements with collaborative partners, these arrangements may require us to relinquish rights to some of our technologies, Product Candidates or Products on terms that are not favorable to us or require us to enter into a collaboration arrangement that we would otherwise seek to develop and commercialize ourselves. If adequate funds are not available, we may default on our indebtedness, which could have a material adverse effect on our business.

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 months ended March 31, 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.

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.

The following table includes the percentage of net product sales and accounts receivable balances for our three major Customers, each of which comprised 10% or more of our net product sales:

	Net Product Sales			Accounts Receivable
	Three Months Ended March 31, 2022			As of March 31, 2022
Customer A		45.1	%		55.4	%
Customer B		35.4	%		28.7	%
Customer C		18.3	%		14.8	%
Total		98.8	%		98.9	%

Accounts Receivable, Net

Accounts receivable are recorded at the invoice amount, net of an allowance for credit losses. The allowance for credit losses reflects accounts receivable balances that are believed to be uncollectible. In estimating the allowance for credit losses, we consider: (1) our historical experience with collections and write-offs; (2) the credit quality of our Customers and any recent or anticipated changes thereto; (3) the outstanding balances and past due amounts from our Customers; and (4) reasonable and supportable forecast of economic conditions expected to exist throughout the contractual term of the receivable.

We offered extended payment terms to our Customers in connection with our product launches of CINVANTI and ZYNRELEF in January 2018 and July 2021, respectively. In addition, we offered extended payment terms to our Customers in January 2021 when we reinstated the promotion and contracting of SUSTOL. These extended payment terms were offered in anticipation of the timing of reimbursement by government and commercial payers. Effective January 2019, we shortened payment terms to our CINVANTI Customers. As of March 31, 2022, extended payment terms given to our Customers were evaluated in accordance with GAAP and did not impact the collectability of accounts receivables. As of March 31, 2022, extended payment terms given to our Customers were evaluated in accordance with GAAP and did not impact the collectability of accounts receivables.

Inventory

Inventory is stated at the lower of cost or estimated net realizable value on a first-in, first-out, or FIFO, basis. We periodically analyze our inventory levels and write down inventory that has become obsolete, inventory that has a cost basis in excess of its estimated realizable value and inventory quantities that are in excess of expected sales requirements as cost of product sales. The determination of whether inventory costs will be realizable requires estimates by management. If actual market conditions are less favorable than projected by management, additional write-downs of inventory may be required, which would be recorded as cost of product sales.

Leases

We determine if an arrangement is a lease or contains lease components at inception. Operating leases with an initial term greater than 12 months, are recorded as lease liabilities with corresponding right-of-use (“ROU”) lease assets on the condensed consolidated balance sheets. ROU lease assets represent our right to use the underlying assets over the lease term, and lease liabilities represent the present value of our obligation to make lease payments arising from the lease. Lease liabilities are recognized at the lease commencement based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. The ROU lease assets equal the lease liabilities, less unamortized lease incentives, unamortized initial direct costs and the cumulative difference between rent expense and amounts paid under the lease. The lease term includes any option to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense is recognized on a straight-line basis over the lease term. We have lease agreements with both lease and non-lease components, which are generally accounted for separately.

Revenue Recognition

Revenue is recognized in accordance with the Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“Topic 606”). Topic 606 is based on the principle that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

Product Sales

Our Products are distributed in the U.S. through a limited number of Customers that resell to healthcare providers and hospitals, the end users of our Products.

Revenue is recognized in an amount that reflects the consideration we expect to receive in exchange for our Products. To determine revenue recognition for contracts with customers within the scope of Topic 606, we perform the following 5 steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations of the contract(s); (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract(s); and (v) recognize revenue when (or as) we satisfy the performance obligations.

Product Sales Allowances

We recognize product sales allowances as a reduction of product sales in the same period the related revenue is recognized. Product sales allowances are based on amounts owed or to be claimed on the related sales. These estimates take into consideration the terms of our agreements with Customers, historical product returns, rebates or discounts taken, the shelf life of the product and specific known market events, such as competitive pricing and new product introductions. If actual future results vary from our estimates, we may need to adjust these estimates, which could have an effect on product sales and earnings in the period of adjustment. Our product sales allowances include:

•

Product Returns—We allow our Customers to return product for credit for up to 12 months after its product expiration date. As such, there may be a significant period of time between the time the product is shipped and the time the credit is issued on returned product.

•

Distributor Fees—We offer contractually determined discounts to our Customers. These discounts are paid no later than two months after the quarter in which product was shipped.

•

Group Purchasing Organization (“GPO”) Discounts and Rebates—We offer cash discounts to GPO members. These discounts are taken when the GPO members purchase product from our Customers, who then charge back to us the discount amount. Additionally, we offer volume and contract-tier rebates to GPO members. Rebates are based on actual purchase levels during the quarterly rebate purchase period.

•

GPO Administrative Fees—We pay administrative fees to GPOs for services and access to data. These fees are based on contracted terms and are paid after the quarter in which the product was purchased by the GPOs’ members.

•

Medicaid Rebates—We participate in Medicaid rebate programs, which provide assistance to certain low-income patients based on each individual state’s guidelines regarding eligibility and services. Under the Medicaid rebate programs, we pay a rebate to each participating state, generally within three months after the quarter in which the product was sold.

We believe our estimated allowance for product returns requires a high degree of judgment and is subject to change based on our experience and certain quantitative and qualitative factors. We believe our estimated allowances for distributor fees, GPO discounts, rebates and administrative fees and Medicaid rebates do not require a high degree of judgment because the amounts are settled within a relatively short period of time.

Our product sales allowances and related accruals are evaluated each reporting period and adjusted when trends or significant events indicate that a change in estimate is appropriate. Changes in product sales allowance estimates could materially affect our results of operations and financial position

Net product sales for the three months ended March 31, 2022 were $23.5 million, compared to $20.0 million for the same period in 2021. For the three months ended March 31, 2022, net products sales of CINVANTI were $20.3 million, compared to $18.5 million for the same period in 2021. For the three months ended March 31, 2022, net product sales of SUSTOL were $2.1 million, compared to $1.5 million for the same period in 2021. For the three months ended March 31, 2022, net product sales of ZYNRELEF were $1.1 million. There was no comparable activity in the first quarter of 2021, as we commenced commercial sales of ZYNRELEF in the U.S. in July 2021.

The following table provides a summary of activity with respect to our product returns, distributor fees and discounts, rebates and administrative fees, which are included in other accrued liabilities on the condensed consolidated balance sheets (in thousands):

	Product Returns			Distributor Fees			Discounts, Rebates and Administrative Fees			Total
Balance at December 31, 2021	$	2,579		$	3,466		$	16,515		$	22,560
Provision		563			4,718			36,412			41,693
Payments/credits		(389	)		(4,493	)		(32,979	)		(37,861	)
Balance at March 31, 2022	$	2,753		$	3,691		$	19,948		$	26,392

Comprehensive Loss

Comprehensive loss is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources. Net changes in unrealized gains and losses on available-for-sale securities are included in other comprehensive income (loss) and represent the difference between our net loss and comprehensive loss for both periods presented.

Net Loss per Share

Basic net loss per share is calculated by dividing the net loss by the weighted-average number of common shares outstanding for the period, without consideration of common stock equivalents. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of common shares and common stock equivalents outstanding for the period determined using the treasury stock method. For purposes of this calculation, stock options, warrants and shares of common stock underlying convertible notes are considered to be common stock equivalents and are included in the calculation of diluted net loss per share only when their effect is dilutive.

Because we have incurred a net loss for both periods presented in the unaudited condensed consolidated statements of operations and comprehensive loss, the following common stock equivalents were not included in the computation of net loss per share because their effect would be anti-dilutive (in thousands):

	March 31,
	2022		2021
Stock options outstanding		18,705		18,795
Restricted stock units outstanding		2,530		570
Warrants outstanding		—		220
Shares of common stock underlying convertible notes outstanding		9,819		9,653

Recent Accounting Pronouncements

Adopted in 2022

In August 2020, the FASB issued Accounting Standards Update (“ASU”) No. 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for convertible instruments primarily by eliminating the existing cash conversion and beneficial conversion models within Subtopic 470-20, which will result in fewer embedded conversion options being accounted for separately from the debt host. ASU 2020-06 also amends and simplifies the calculation of earnings per share relating to convertible instruments. In the first quarter of 2022, we adopted the provisions of ASU 2020-06 using the modified retrospective approach, which did not have a material impact on our results of operations, cash flows, financial condition and related disclosures (see Note 9 for further details).

4. Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The FASB ASC Topic 820, Fair Value Measurements and Disclosures, establishes a fair value hierarchy which prioritizes the inputs used in measuring fair value as follows:

•

Level 1—Observable inputs such as quoted prices in active markets for identical assets or liabilities.

•

Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

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Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

We measure cash, cash equivalents and short-term investments at fair value on a recurring basis. The fair values of such assets were as follows (in thousands):

			Fair Value Measurements at Reporting Date Using
	Balance at March 31, 2022		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and money market funds	$	36,913	$	36,913	$	—	$	—
U.S. treasury bills and government agency obligations		50,007		50,007		—		—
U.S. corporate debt securities		3,500		—		3,500		—
Foreign commercial paper		21,490		—		21,490		—
Total	$	111,910	$	86,920	$	24,990	$	—

			Fair Value Measurements at Reporting Date Using
	Balance at December 31, 2021		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash and money market funds	$	86,043	$	86,043	$	—	$	—
U.S. corporate debt securities		15,006		—		15,006		—
Foreign corporate debt securities		10,548		—		10,548		—
U.S. commercial paper		10,496		—		10,496		—
Foreign commercial paper		35,487		—		35,487		—
Total	$	157,580	$	86,043	$	71,537	$	—

We have not transferred any investment securities between the three levels of the fair value hierarchy.

As of March 31, 2022, cash equivalents included $20.0 million of available-for-sale securities with contractual maturities of three months or less and short-term investments included $55.0 million of available-for-sale securities with contractual maturities of three months to one year. As of December 31, 2021, cash equivalents included $4.5 million of available-for-sale securities with contractual maturities of three months or less and short-term investments included $67.0 million of available-for-sale securities with contractual maturities of three months to one year. The money market funds as of March 31, 2022 and December 31, 2021 are included in cash and cash equivalents on the condensed consolidated balance sheets.

A company may elect to use fair value to measure accounts and loans receivable, available-for-sale and held-to-maturity securities, equity method investments, accounts payable, guarantees and issued debt. Other eligible items include firm commitments for financial instruments that otherwise would not be recognized at inception and non-cash warranty obligations where a warrantor is permitted to pay a third party to provide the warranty goods or services. If the use of fair value is elected, any upfront costs and fees related to the item such as debt issuance costs must be recognized in earnings and cannot be deferred. The fair value election is irrevocable and generally made on an instrument-by-instrument basis, even if a company has similar instruments that it elects not to measure based on fair value. Unrealized gains and losses on existing items for which fair value has been elected are reported as a cumulative adjustment to beginning retained earnings and any changes in fair value are recognized in earnings. We have elected to not apply the fair value option to our financial assets and liabilities.

Financial instruments, including cash, cash equivalents, receivables, inventory, prepaid expenses, other current assets, accounts payable and accrued expenses are carried at cost, which is considered to be representative of their respective fair values because of the short-term maturity of these instruments. Short-term available-for-sale investments are carried at fair value. Our convertible notes outstanding at March 31, 2022 and December 31, 2021 do not have a readily available ascertainable market value, however, the carrying value is considered to approximate its fair value.

5. Short-term Investments

The following is a summary of our short-term investments (in thousands):

	March 31, 2022
			Gross		Gross
	Amortized		Unrealized		Unrealized			Estimated
	Cost		Gains		Losses			Fair Value
U.S. treasury bills and government agency obligations	$	30,016	$	—	$	(7	)	$	30,009
U.S. corporate debt securities		3,502		—		(2	)		3,500
Foreign commercial paper		21,490		—		—			21,490
Total	$	55,008	$	—	$	(9	)	$	54,999

December 31, 2021

Gross