0001564590-22-028599 | 10-Q | XBRL Viewer | Heron Therapeutics INC DE

Basis of Presentation

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.

Accounting Policies

6 Months Ended

Jun. 30, 2022

Accounting Policies

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 June 30, 2022			Six Months Ended June 30, 2022			As of June 30, 2022
Customer A		42.0	%		43.4	%		51.1	%
Customer B		36.8	%		36.1	%		31.3	%
Customer C		20.0	%		19.2	%		16.4	%
Total		98.8	%		98.7	%		98.8	%

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 launch of ZYNRELEF in July 2021. 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 October 2021, we shortened payment terms to our ZYNRELEF and SUSTOL Customers.

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.

We recognize revenue from product sales when there is a transfer of control of the product to our Customers. We typically determine transfer of control based on when the product is delivered, and title passes to our Customers.

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. Such variable consideration includes estimates that 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

The following table provides disaggregated net product sales (in thousands):

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2022		2021		2022		2021
CINVANTI net product sales	$	22,661	$	19,689	$	43,004	$	38,150
SUSTOL net product sales		2,446		2,754		4,508		4,311
ZYNRELEF net product sales		2,523		—		3,575		—
Total net product sales	$	27,630	$	22,443	$	51,087	$	42,461

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		943			10,137			76,802			87,882
Payments/credits		(549	)		(8,696	)		(73,316	)		(82,561	)
Balance at June 30, 2022	$	2,973		$	4,907		$	20,001		$	27,881

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 all 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 all 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):

	June 30,
	2022		2021
Stock options outstanding		20,371		18,307
Restricted stock units outstanding		2,207		654
Warrants outstanding		—		25
Shares of common stock underlying convertible notes outstanding		9,819		9,819

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).

Fair Value Measurements

6 Months Ended

Jun. 30, 2022

Fair Value Disclosures [Abstract]

Fair Value Measurements

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.

•

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 June 30, 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	$	44,324	$	44,324	$	—	$	—
U.S. treasury bills and government agency obligations		24,978		24,978		—		—
U.S. commercial paper		4,285		—		4,285		—
Foreign commercial paper		9,951		—		9,951		—
Total	$	83,538	$	69,302	$	14,236	$	—

			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 June 30, 2022, cash equivalents included $4.3 million of available-for-sale securities with contractual maturities of three months or less and short-term investments included $34.9 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 June 30, 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 June 30, 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.

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details

Short-term Investments

6 Months Ended

Jun. 30, 2022

Short Term Investments [Abstract]

Short-term Investments

5. Short-term Investments

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

	June 30, 2022
			Gross		Gross
	Amortized		Unrealized		Unrealized			Estimated
	Cost		Gains		Losses			Fair Value
U.S. treasury bills and government agency obligations	$	24,989	$	—	$	(11	)	$	24,978
Foreign commercial paper		9,951		—		—			9,951
Total	$	34,940	$	—	$	(11	)	$	34,929

	December 31, 2021
			Gross		Gross
	Amortized		Unrealized		Unrealized			Estimated
	Cost		Gains		Losses			Fair Value
U.S. corporate debt securities	$	15,009	$	—	$	(3	)	$	15,006
Foreign corporate debt securities		10,551		—		(3	)		10,548
U.S. commercial paper		5,998		—		—			5,998
Foreign commercial paper		35,487		—		—			35,487
Total	$	67,045	$	—	$	(6	)	$	67,039

The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. We regularly monitor and evaluate the realizable value of our marketable securities. We did not recognize any impairment losses during the three and six months ended June 30, 2022 and 2021.

Unrealized gains and losses associated with our investments are reported in accumulated other comprehensive loss. Realized gains and losses associated with our investments, if any, are reported in the statements of operations and comprehensive loss. We did not recognize any realized gains or losses during the three and six months ended June 30, 2022 and 2021.

Inventory

6 Months Ended

Jun. 30, 2022

Inventory Disclosure [Abstract]

Inventory

6. Inventory

Inventory consists of the following (in thousands):

	June 30, 2022		December 31, 2021
Raw materials	$	21,831	$	21,193
Work in process		20,115		20,935
Finished goods		19,372		6,254
Total inventory	$	61,318	$	48,382

As of June 30, 2022, total inventory included $37.4 million related to ZYNRELEF, $21.4 million related to CINVANTI, and $2.5 million related to SUSTOL. As of December 31, 2021, total inventory included $23.6 million related to ZYNRELEF, $23.1 million related to CINVANTI, and $1.7 million related to SUSTOL. For the three and six months ended June 30, 2022, cost of product sales included charges of $2.5 million resulting primarily from the write-off of short-dated ZYNRELEF inventory. For the three and six months ended June 30, 2021, cost of product sales included charges of $3.1 million resulting from the write-off of short-dated SUSTOL inventory.

Leases

6 Months Ended

Jun. 30, 2022

Leases [Abstract]

Leases

7. Leases

As of June 30, 2022, we had an operating lease for 52,148 square feet of laboratory and office space in San Diego, California, with a lease term that expires on December 31, 2025. In October 2021, we entered into a sublease agreement to sublet 23,873 square feet of laboratory and office space. The space was delivered to the subtenant in March 2022. As a result of the sublease agreement, our one 5-year option to renew this lease on expiration applies only with respect to our remaining 28,275 square feet of laboratory and office space. During the three and six months ended June 30, 2022, we recognized $0.7 million and $1.4 million, respectively, of operating lease expense and we paid $0.7 million and $1.4 million, respectively, for our operating lease.

Annual future minimum lease payments as of June 30, 2022 are as follows (in thousands):

2022	$	1,450
2023		2,970
2024		3,030
2025		3,097
Total future minimum lease payments	$	10,547
Less: discount		(1,218	)
Total lease liabilities	$	9,329

Reorganizations

6 Months Ended

Jun. 30, 2022

Reorganizations [Abstract]

Reorganizations

8. Reorganizations

In June 2022, we implemented a restructuring plan under which we will provide employees one-time severance payments upon termination, continuation of benefits for a specific period of time, outplacement services and certain stock award modifications. The total amount expected to be incurred for these activities is $5.9 million, $5.5 million of which is primarily for severance and $0.4 million of which is for non-cash, stock-based compensation expense related to stock award modifications. During the three and six months ended June 30, 2022, we recognized $3.3 million of the total expense, $2.3 million of which was included in research and development expense, $0.9 million of which was included in sales and marketing expense, and $0.1 million of which was included in general and administrative expense. We expect to recognize the remaining expense during the third and fourth quarters of 2022. We anticipate that the cash payments due to terminated employees will be substantially completed in the first quarter of 2023.

In October 2021, we implemented a restructuring plan under which we provided employees one-time severance payments upon termination, continued benefits for a specific period of time, outplacement services and certain stock option modifications. The total expense for these activities was $1.4 million, $1.3 million of which was primarily for severance and $0.1 million of which was for non-cash, stock-based compensation expense related to stock option modifications. The total expense was recognized in the fourth quarter of 2021, with $1.2 million included in research and development expense and $0.2 million included in sales and marketing expense. As of June 30, 2022, we have paid $1.3 million of the total cash severance charges.

We have accounted for these expenses in accordance with the FASB ASC Topic 420, Exit or Disposal Cost Obligations.

Convertible Notes

6 Months Ended

Jun. 30, 2022

Debt Disclosure [Abstract]

Convertible Notes

9. Convertible Notes

Senior Unsecured Convertible Notes

In May 2021, we entered into a note purchase agreement with funds affiliated with Baker Bros. Advisors LP for a private placement of $150.0 million in Senior Unsecured Convertible Notes (“Notes”). We received a total of $149.0 million, net of issuance costs, from the issuance of these Notes.

The Notes were issued at par. The Notes bear interest at a rate of 1.5% per annum, payable in cash semi-annually in arrears on June 15^th and December 15^th of each year, beginning on December 15, 2021. The Notes mature on May 26, 2026, unless earlier converted, redeemed or repurchased.

The Notes will be subject to redemption at our option, between May 24, 2024 and May 24, 2025, but only if the last reported sale price per share of our common stock exceeds 250% of the conversion price for a specified period of time, or on or after May 24, 2025 if the last reported sale price per share of our common stock exceeds 200% of the conversion price for a specified period of time. The redemption price will be equal to the principal amount of the Notes to be redeemed, plus accrued and unpaid interest.

Upon conversion, we will settle the Notes in shares of our common stock. The initial conversion rate for the Notes is 65.4620 shares per $1,000 principal amount of the Notes (equivalent to an initial conversion price of $15.276 per share of common stock).

If a holder of the Notes converts upon a make-whole fundamental change or company redemption, the holder may be eligible to receive a make-whole premium through an increase to the conversion rate.

In May 2021, we filed a registration statement with the SEC to register for resale 12.4 million shares of our common stock underlying the Notes, including the maximum number of shares of common stock issuable under the make-whole premium.

The Notes were accounted for in accordance with ASC Subtopic 470-20, Debt with Conversion and Other Options (“ASC 470-20”) and ASC Subtopic 815-40, Contracts in Entity’s Own Equity (“ASC 815-40”). Under ASC 815-40, to qualify for equity classification (or non-bifurcation, if embedded), the instrument (or embedded feature) must be both (1) indexed to the issuer’s stock and (2) meet the requirements of the equity classification guidance. Based upon our analysis, it was determined that the Notes do contain embedded features indexed to our own stock, but do not meet the requirements for bifurcation, and therefore do not need to be separately accounted for as an equity component. Since the embedded conversion feature meets the equity scope exception from derivative accounting, and, also since the embedded conversion option does not need to be separately accounted for as an equity component under ASC 470-20, the proceeds received from the issuance of the Notes were recorded as a liability on the condensed consolidated balance sheets.

We incurred issuance costs related to the Notes of $1.0 million, which we recorded as debt issuance costs and are included as a reduction to the Notes on the condensed consolidated balance sheets. The debt issuance costs are being amortized to interest expense using the effective interest rate method over the term of the Notes, resulting in an effective interest rate of 1.6%. For the three months ended June 30, 2022, interest expense related to the Notes was $613,000, which included $563,000 related to the stated interest rate and $50,000 related to the amortization of debt issuance costs. For the six months ended June 30, 2022, interest expense related to the Notes was $1.2 million, which included $1.1 million related to the stated interest rate and $0.1 million related to the amortization of debt issuance costs. For the three and six months ended June 30, 2021, interest expense related to the Notes was $231,000, which included $212,000 related to the stated interest rate and $19,000 related to the amortization of debt issuance costs. As of June 30, 2022, the carrying value of the Notes was $149.2 million, which is comprised of the $150.0 million principal amount of the Notes outstanding, less debt issuance costs of $0.8 million.

Senior Secured Convertible Notes

In April 2011, we entered into a securities purchase agreement for a private placement of up to $4.5 million in Senior Secured Convertible Notes (“Convertible Notes”) with certain investors, including Tang Capital Partners, LP. We received a total of $4.3 million, net of issuance costs, from the issuance of these Convertible Notes. The Convertible Notes bore interest at 6% per annum, payable quarterly in cash or in additional principal amount of Convertible Notes, at the election of the purchasers. The Convertible Notes matured on May 2, 2021.

The Convertible Notes contained an embedded conversion feature that was in-the-money on the issuance dates. Based on an effective fixed conversion rate of 1,250 shares for every $1,000 of principal and accrued interest due under the Convertible Notes, the total conversion benefit at issuance exceeded the loan proceeds. Therefore, a debt discount was recorded in an amount equal to the face value of the Convertible Notes on the issuance dates, and we amortized the resultant debt discount over the respective 10-year term of the Convertible Notes which ended in May 2021. For the three and six months ended June 30, 2021, interest expense relating to the stated rate was $0.1 million and $0.2 million, respectively, and interest expense relating to the amortization of the debt discount was $0.3 million and $0.8 million, respectively.

In May 2021, holders of the Convertible Notes exercised their right to convert the outstanding principal and accrued interest into shares, which resulted in the issuance of 9.8 million shares of common stock. Upon issuance of these shares, there were no remaining obligations under the Convertible Notes.

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
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Equity Incentive Plan

6 Months Ended

Jun. 30, 2022

Equity [Abstract]

Equity Incentive Plan

10. Equity Incentive Plan

Option Plan Activity

The following table summarizes the stock option activity for the six months ended June 30, 2022:

	Shares (in thousands)			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)
Outstanding at December 31, 2021		18,944		$	18.71		6.59
Granted		2,629		$	3.27
Exercised		—		$	—
Expired and forfeited		(1,202	)	$	20.62
Outstanding at June 30, 2022		20,371		$	16.60		6.59

The following table summarizes the restricted stock unit activity (“RSUs”) for the six months ended June 30, 2022:

	Shares (in thousands)			Weighted-Average Grant Date Fair Value
Outstanding at December 31, 2021		2,803		$	11.51
Granted		27		$	5.23
Released		(449	)	$	11.61
Expired and forfeited		(174	)	$	11.53
Outstanding at June 30, 2022		2,207		$	11.41

Stock-based Compensation

The following table summarizes stock-based compensation expense related to stock-based payment awards granted pursuant to all of our equity compensation arrangements (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Research and development	$	4,422	$	4,672	$	8,985	$	9,609
General and administrative		2,783		2,792		5,785		5,578
Sales and marketing		3,148		3,777		6,498		7,540
Total stock-based compensation expense	$	10,353	$	11,241	$	21,268	$	22,727

As of June 30, 2022, there was $77.3 million of total unrecognized compensation cost related to non-vested, stock-based payment awards granted under all of our equity compensation plans and all non-plan option grants. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures. We expect to recognize this compensation cost over a weighted-average period of 2.3 years.The fair value of RSUs is estimated based on the closing market price of our common stock on the date of the grant. RSUs generally vest quarterly over a four-year period.

We estimated the fair value of each option grant on the grant date using the Black-Scholes option pricing model with the following weighted-average assumptions:

	June 30,
	2022			2021
Risk-free interest rate		3.1	%		1.0	%
Dividend yield		0.0	%		0.0	%
Volatility		60.8	%		66.6	%
Expected life (years)		6			6

We estimated the fair value of each purchase right granted under our 1997 Employee Stock Purchase Plan, as amended, at the beginning of each new offering period using the Black-Scholes option pricing model with the following weighted-average assumptions:

	June 30,
	2022			2021
Risk-free interest rate		1.5	%		0.04	%
Dividend yield		0.0	%		0.0	%
Volatility		75.3	%		48.3	%
Expected life (months)		6			6

Income Taxes

6 Months Ended

Jun. 30, 2022

Income Tax Disclosure [Abstract]

Income Taxes

11. Income Taxes

Deferred income tax assets and liabilities are recognized for temporary differences between financial statements and income tax carrying values using tax rates in effect for the years such differences are expected to reverse. Due to uncertainties surrounding our ability to generate future taxable income and consequently realize such deferred income tax assets, a full valuation allowance has been established. We continue to maintain a full valuation allowance against our deferred tax assets as of June 30, 2022.

The impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more likely than not to be sustained upon audit by the relevant tax authority. An uncertain income tax position will be recognized when it is more likely than not of being sustained. The disclosures regarding uncertain tax positions 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, continue to be accurate for the three and six months ended June 30, 2022.

The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information.

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 740
-SubTopic 10
-Section 50
-Paragraph 21
-URI https://asc.fasb.org/extlink&oid=121826272&loc=d3e32857-109319

Reference 2: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
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Reference 7: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 740
-URI https://asc.fasb.org/topic&trid=2144680

Reference 8: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 740
-SubTopic 30
-Section 50
-Paragraph 2
-Subparagraph (a)
-URI https://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331

Reference 9: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 235
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-Section S99
-Paragraph 1
-Subparagraph (SX 210.4-08(h)(2))
-URI https://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690

Subsequent Events

6 Months Ended

Jun. 30, 2022

Subsequent Events [Abstract]

Subsequent Events

12. Subsequent Events

On August 8, 2022, we entered into an agreement to sell 16.1 million shares of our common stock in a private placement at a purchase price of $3.10 per share. In addition, as a component of the private placement, we agreed to sell 8.5 million pre-funded warrants to purchase shares of our common stock at a purchase price of $3.0999 per share. The pre-funded warrants have an exercise price of $0.0001 per share. The total expected net proceeds from the sale of the common stock and pre-funded warrants is $75.2 million (net of $1.3 million in issuance costs).

Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2022

Principles of Consolidation

Basis of Presentation

Use of 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.

Concentration of Credit Risk

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 June 30, 2022			Six Months Ended June 30, 2022			As of June 30, 2022
Customer A		42.0	%		43.4	%		51.1	%
Customer B		36.8	%		36.1	%		31.3	%
Customer C		20.0	%		19.2	%		16.4	%
Total		98.8	%		98.7	%		98.8	%

Accounts Receivable, Net

Inventory

Leases

Revenue Recognition

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.

Product Sales Allowances

•

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.

•

The following table provides disaggregated net product sales (in thousands):

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2022		2021		2022		2021
CINVANTI net product sales	$	22,661	$	19,689	$	43,004	$	38,150
SUSTOL net product sales		2,446		2,754		4,508		4,311
ZYNRELEF net product sales		2,523		—		3,575		—
Total net product sales	$	27,630	$	22,443	$	51,087	$	42,461

	Product Returns			Distributor Fees			Discounts, Rebates and Administrative Fees			Total
Balance at December 31, 2021	$	2,579		$	3,466		$	16,515		$	22,560
Provision		943			10,137			76,802			87,882
Payments/credits		(549	)		(8,696	)		(73,316	)		(82,561	)
Balance at June 30, 2022	$	2,973		$	4,907		$	20,001		$	27,881

Comprehensive Loss

Net Loss per Share

	June 30,
	2022		2021
Stock options outstanding		20,371		18,307
Restricted stock units outstanding		2,207		654
Warrants outstanding		—		25
Shares of common stock underlying convertible notes outstanding		9,819		9,819

Recent Accounting Pronouncements

Adopted in 2022

Accounting Policies (Tables)

6 Months Ended

Jun. 30, 2022

Percentage of Net Product Sales and Accounts Receivable Balance

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 June 30, 2022			Six Months Ended June 30, 2022			As of June 30, 2022
Customer A		42.0	%		43.4	%		51.1	%
Customer B		36.8	%		36.1	%		31.3	%
Customer C		20.0	%		19.2	%		16.4	%
Total		98.8	%		98.7	%		98.8	%

Summary of Disaggregated Net Product Sales

The following table provides disaggregated net product sales (in thousands):

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2022		2021		2022		2021
CINVANTI net product sales	$	22,661	$	19,689	$	43,004	$	38,150
SUSTOL net product sales		2,446		2,754		4,508		4,311
ZYNRELEF net product sales		2,523		—		3,575		—
Total net product sales	$	27,630	$	22,443	$	51,087	$	42,461

Summary of Activity to Product Returns, Distributor Fees and Discounts, Rebates and Administrative Fees

	Product Returns			Distributor Fees			Discounts, Rebates and Administrative Fees			Total
Balance at December 31, 2021	$	2,579		$	3,466		$	16,515		$	22,560
Provision		943			10,137			76,802			87,882
Payments/credits		(549	)		(8,696	)		(73,316	)		(82,561	)
Balance at June 30, 2022	$	2,973		$	4,907		$	20,001		$	27,881

Common Stock Equivalents Excluded From Computation of Net Loss Per Share

	June 30,
	2022		2021
Stock options outstanding		20,371		18,307
Restricted stock units outstanding		2,207		654
Warrants outstanding		—		25
Shares of common stock underlying convertible notes outstanding		9,819		9,819

Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2022

Fair Value Disclosures [Abstract]

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis

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 June 30, 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	$	44,324	$	44,324	$	—	$	—
U.S. treasury bills and government agency obligations		24,978		24,978		—		—
U.S. commercial paper		4,285		—		4,285		—
Foreign commercial paper		9,951		—		9,951		—
Total	$	83,538	$	69,302	$	14,236	$	—

			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	$	—

Short-term Investments (Tables)

6 Months Ended

Jun. 30, 2022

Short Term Investments [Abstract]

Summary of Short-term Investments

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

	June 30, 2022
			Gross		Gross
	Amortized		Unrealized		Unrealized			Estimated
	Cost		Gains		Losses			Fair Value
U.S. treasury bills and government agency obligations	$	24,989	$	—	$	(11	)	$	24,978
Foreign commercial paper		9,951		—		—			9,951
Total	$	34,940	$	—	$	(11	)	$	34,929

	December 31, 2021
			Gross		Gross
	Amortized		Unrealized		Unrealized			Estimated
	Cost		Gains		Losses			Fair Value
U.S. corporate debt securities	$	15,009	$	—	$	(3	)	$	15,006
Foreign corporate debt securities		10,551		—		(3	)		10,548
U.S. commercial paper		5,998		—		—			5,998
Foreign commercial paper		35,487		—		—			35,487
Total	$	67,045	$	—	$	(6	)	$	67,039

Inventory (Tables)

6 Months Ended

Jun. 30, 2022

Inventory Disclosure [Abstract]

Schedule of Inventory

Inventory consists of the following (in thousands):

	June 30, 2022		December 31, 2021
Raw materials	$	21,831	$	21,193
Work in process		20,115		20,935
Finished goods		19,372		6,254
Total inventory	$	61,318	$	48,382

Leases (Tables)

6 Months Ended

Jun. 30, 2022

Leases [Abstract]

Summary of Future Minimum Lease Payments

Annual future minimum lease payments as of June 30, 2022 are as follows (in thousands):

2022	$	1,450
2023		2,970
2024		3,030
2025		3,097
Total future minimum lease payments	$	10,547
Less: discount		(1,218	)
Total lease liabilities	$	9,329

Equity Incentive Plan (Tables)

6 Months Ended

Jun. 30, 2022

Equity [Abstract]

Summary of Stock Option Activity

The following table summarizes the stock option activity for the six months ended June 30, 2022:

	Shares (in thousands)			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)
Outstanding at December 31, 2021		18,944		$	18.71		6.59
Granted		2,629		$	3.27
Exercised		—		$	—
Expired and forfeited		(1,202	)	$	20.62
Outstanding at June 30, 2022		20,371		$	16.60		6.59

Summary of Restricted Stock Unit Activity

The following table summarizes the restricted stock unit activity (“RSUs”) for the six months ended June 30, 2022:

	Shares (in thousands)			Weighted-Average Grant Date Fair Value
Outstanding at December 31, 2021		2,803		$	11.51
Granted		27		$	5.23
Released		(449	)	$	11.61
Expired and forfeited		(174	)	$	11.53
Outstanding at June 30, 2022		2,207		$	11.41

Summary of Stock-Based Compensation Expense related to Stock-Based Payment Awards Granted

The following table summarizes stock-based compensation expense related to stock-based payment awards granted pursuant to all of our equity compensation arrangements (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Research and development	$	4,422	$	4,672	$	8,985	$	9,609
General and administrative		2,783		2,792		5,785		5,578
Sales and marketing		3,148		3,777		6,498		7,540
Total stock-based compensation expense	$	10,353	$	11,241	$	21,268	$	22,727

Summary of Fair Value of Option Grant on Grant Date Using Black-Scholes Option Pricing Model

We estimated the fair value of each option grant on the grant date using the Black-Scholes option pricing model with the following weighted-average assumptions:

	June 30,
	2022			2021
Risk-free interest rate		3.1	%		1.0	%
Dividend yield		0.0	%		0.0	%
Volatility		60.8	%		66.6	%
Expected life (years)		6			6

Summary of Fair Value of Purchase Right Granted Using Black-Scholes Option Pricing Model

	June 30,
	2022			2021
Risk-free interest rate		1.5	%		0.04	%
Dividend yield		0.0	%		0.0	%
Volatility		75.3	%		48.3	%
Expected life (months)		6			6

Business - Additional Information (Details) $ in Millions	Aug. 08, 2022 USD ($)	Jun. 30, 2022 USD ($) Country
Business [Line Items]
Cash, cash equivalents and short-term investments		$ 83.5
Cash balance		$ 83.5
Subsequent Event
Business [Line Items]
Cash, cash equivalents and short-term investments	$ 158.7
Proceeds from issuance of private placement	$ 75.2
H T X011 \| European Countries and Canada
Business [Line Items]
Number of countries approved the drug \| Country		31

Accounting Policies - Percentage of Net Product Sales and Accounts Receivable Balance (Details) - Customer Concentration Risk	3 Months Ended	6 Months Ended
	Jun. 30, 2022	Jun. 30, 2022
Revenue Benchmark \| Largest Customer
Product Information [Line Items]
Concentration risk percentage	42.00%	43.40%
Revenue Benchmark \| Second Largest Customer
Product Information [Line Items]
Concentration risk percentage	36.80%	36.10%
Revenue Benchmark \| Third Largest Customer
Product Information [Line Items]
Concentration risk percentage	20.00%	19.20%
Revenue Benchmark \| Total Customer
Product Information [Line Items]
Concentration risk percentage	98.80%	98.70%
Accounts Receivable \| Largest Customer
Product Information [Line Items]
Concentration risk percentage	42.00%	51.10%
Accounts Receivable \| Second Largest Customer
Product Information [Line Items]
Concentration risk percentage	36.80%	31.30%
Accounts Receivable \| Third Largest Customer
Product Information [Line Items]
Concentration risk percentage	20.00%	16.40%
Accounts Receivable \| Total Customer
Product Information [Line Items]
Concentration risk percentage	98.80%	98.80%

Accounting Policies - Summary of Disaggregated Net Product Sales (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021	Jun. 30, 2022	Jun. 30, 2021
Product Information [Line Items]
Net product sales	$ 27,630	$ 22,443	$ 51,087	$ 42,461
CINVANTI
Product Information [Line Items]
Net product sales	22,661	19,689	43,004	38,150
SUSTOL
Product Information [Line Items]
Net product sales	2,446	$ 2,754	4,508	$ 4,311
ZYNRELEF
Product Information [Line Items]
Net product sales	$ 2,523		$ 3,575

Amount, including tax collected from customer, of revenue from satisfaction of performance obligation by transferring promised good or service to customer. Tax collected from customer is tax assessed by governmental authority that is both imposed on and concurrent with specific revenue-producing transaction, including, but not limited to, sales, use, value-added and excise.

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 41
-Subparagraph (a)
-URI https://asc.fasb.org/extlink&oid=126901519&loc=d3e9038-108599

Reference 2: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 606
-SubTopic 10
-Section 50
-Paragraph 5
-URI https://asc.fasb.org/extlink&oid=126920106&loc=SL49130545-203045

Reference 3: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 32
-Subparagraph (b)
-URI https://asc.fasb.org/extlink&oid=126901519&loc=d3e8933-108599

Reference 4: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 280
-SubTopic 10
-Section 50
-Paragraph 32
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Accounting Policies - Summary of Activity to Product Returns, Distributor Fees and Discounts, Rebates and Administrative Fees (Details) $ in Thousands	6 Months Ended
	Jun. 30, 2022 USD ($)
Product Information [Line Items]
Balance	$ 22,560
Provision	87,882
Payments/credits	(82,561)
Balance	27,881
Product Returns
Product Information [Line Items]
Balance	2,579
Provision	943
Payments/credits	(549)
Balance	2,973
Distributor Fees
Product Information [Line Items]
Balance	3,466
Provision	10,137
Payments/credits	(8,696)
Balance	4,907
Discounts, Rebates and Administrative Fees
Product Information [Line Items]
Balance	16,515
Provision	76,802
Payments/credits	(73,316)
Balance	$ 20,001

Accounting Policies - Common Stock Equivalents Excluded From Computation of Net Loss Per Share (Details) - shares shares in Thousands	6 Months Ended
	Jun. 30, 2022	Jun. 30, 2021
Share-based Payment Arrangement, Option
Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items]
Shares excluded (in shares)	20,371	18,307
Restricted Stock Units
Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items]
Shares excluded (in shares)	2,207	654
Warrant
Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items]
Shares excluded (in shares)		25
Convertible Debt Securities
Antidilutive Securities Excluded From Computation Of Earnings Per Share [Line Items]
Shares excluded (in shares)	9,819	9,819

Accounting Policies - Additional Information (Details) - Accounting Standards Update 2020-06	Jun. 30, 2022
Product Information [Line Items]
Change in accounting principle, accounting standards update, adopted	true
Change in accounting principle, accounting standards update, immaterial effect	true

Indicates (true false) whether accounting standards update was adopted.

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