# Heron Therapeutics, Inc.: Form 10-Q for the period ended Sep 30, 2023

- Company: [Heron Therapeutics, Inc.](/companies/hrtx.md) (CIK 818033)
- Form: 10-Q
- Filed: 2023-11-14
- Accepted by EDGAR: Nov 14, 2023, 16:15 ET
- Period: 2023-09-30
- Accession: 0000950170-23-063714
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/818033/000095017023063714/hrtx-20230930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/818033/000095017023063714/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-07-01 to 2023-09-30 | $31.4m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Revenue | 9 months, 2023-01-01 to 2023-09-30 | $92.8m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Cost of revenue | 3 months, 2023-07-01 to 2023-09-30 | $18.2m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2023-01-01 to 2023-09-30 | $55.2m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2023-07-01 to 2023-09-30 | $13.2m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2023-01-01 to 2023-09-30 | $37.6m | us-gaap:GrossProfit |
| Research and development | 3 months, 2023-07-01 to 2023-09-30 | $13.6m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 9 months, 2023-01-01 to 2023-09-30 | $44.9m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2023-07-01 to 2023-09-30 | −$24.9m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2023-01-01 to 2023-09-30 | −$100.4m | us-gaap:OperatingIncomeLoss |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | −$25.0m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | −$99.8m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.17 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2023-01-01 to 2023-09-30 | −$0.75 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | −$0.17 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | −$0.75 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-07-01 to 2023-09-30 | 144,990,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2023-01-01 to 2023-09-30 | 133,747,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | −$61.2m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2023-01-01 to 2023-09-30 | $1.3m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-09-30 | $34.9m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-09-30 | $194.0m | us-gaap:AssetsCurrent |
| Total assets | at 2023-09-30 | $229.2m | us-gaap:Assets |
| Current liabilities | at 2023-09-30 | $79.7m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-09-30 | $257.0m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-09-30 | −$27.8m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 29,447 characters.

The following discussion and analysis of our financial condition and results of operations should be read together with our condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q and the audited financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the U.S. Securities and Exchange Commission (“SEC”) on March 29, 2023.

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the federal securities laws. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. In some cases, you can identify forward-looking statements by the use of the words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “project,” “will,” “would,” “could,” “should,” “may,” “might,” “plan,” “assume” and other expressions that predict or indicate future events and trends and which do not relate to historical matters. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations and financial position, business and commercialization strategy, products and product candidates, research pipeline, ongoing and planned preclinical studies and clinical trials, regulatory submissions and approvals, addressable patient population, research and development expenses, timing and likelihood of success, as well as plans and objectives of management for future operations, are forward-looking statements. You should not rely on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, some of which are beyond our control. These risks, uncertainties and other factors may cause our actual results, performance or achievements to be materially different from our anticipated future results, performance or achievements expressed or implied by the forward-looking statements.

Factors that might cause these differences include the following:

- our ability to successfully commercialize, market and achieve market acceptance of ZYNRELEF® (bupivacaine and meloxicam) extended-release solution (“ZYNRELEF”), CINVANTI® (aprepitant) injectable emulsion (“CINVANTI”), SUSTOL® (granisetron) extended-release injection (“SUSTOL”) and APONVIE® (aprepitant) injectable emulsion (“APONVIE”) in the United States (“U.S.”) (collectively, our “Products”), and our positioning relative to products that now or in the future compete with our Products or product candidates;
- the timing of the U.S. Food and Drug Administration’s (“FDA”) review process, whether and to what degree the FDA approves our currently pending, and any future, supplemental New Drug Application (“sNDA”) for ZYNRELEF to further expand the U.S. label, and our ability to capture the potential additional market opportunity for any expanded U.S. label;
- our ability to establish satisfactory pricing and obtain adequate reimbursement from government and third-party payors of our Products and product candidates that receive regulatory approvals;
- whether study results of our Products and product candidates are indicative of the results in future studies;
- the results of the commercial launch of APONVIE in the U.S.;
- the potential regulatory approval for and commercial launch of any product candidates, if approved;
- the potential market opportunities for our Products and any product candidates, if approved;
- our competitors’ activities, including decisions as to the timing of competing product launches, generic entrants, pricing and discounting;
- whether safety and efficacy results of our clinical studies and other required tests for expansion of the indications for our Products and approval of our product candidates provide data to warrant progression of clinical trials, potential regulatory approval or further development of any of our Products or product candidates;
- our ability to develop, acquire and advance product candidates into, and successfully complete, clinical studies, and our ability to submit for and obtain regulatory approval for product candidates in our anticipated timing, or at all;
- our ability to meet the postmarketing study requirements within the FDA’s mandated timelines and to obtain favorable results and comply with standard postmarketing requirements, including U.S. federal advertising and promotion laws, federal and state anti-fraud and abuse laws, healthcare information privacy and security laws, safety information, safety

surveillance and disclosure of payments or other transfers of value to healthcare professionals and entities for Products or any of our product candidates;

- our ability to successfully develop and achieve regulatory approval for any product candidates utilizing our proprietary Biochronomer® drug delivery technology (“Biochronomer Technology”);
- our ability to establish key collaborations and vendor relationships for our Products and our product candidates;
- our ability to successfully develop and commercialize any technology that we may in-license or products we may acquire;
- unanticipated delays due to manufacturing difficulties, supply constraints or changes in the regulatory environment, including as a result of geopolitical uncertainty;
- our ability to successfully operate in non-U.S. jurisdictions in which we may choose to do business, including compliance with applicable regulatory requirements and laws;
- uncertainties associated with obtaining and enforcing patents and trade secrets to protect our Products, our product candidates, our Biochronomer Technology and our other technology, and our ability to successfully defend ourselves against unforeseen third-party infringement claims;
- our estimates regarding our capital requirements;
- the impact of our restructuring activities, including the reduced headcount and external spend;
- the impact of evolving legal and regulatory requirements, including emerging environmental, social and governance requirements; and
- our ability to obtain additional financing and raise capital as necessary to fund operations or pursue business opportunities.

Any forward-looking statements in this Quarterly Report on Form 10-Q reflect our current views with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under the section entitled “Risk Factors” in Part I, Item 1A of our 2022 Annual Report on Form 10-K. You should carefully review all of these factors. Given these uncertainties, you should not place undue reliance on these forward-looking statements. These forward-looking statements were based on information, plans and estimates as of the date of this Quarterly Report on Form 10-Q, and except as required by law, we assume no obligation to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events or other changes. These risk factors may be updated by our future filings under the Securities Exchange Act of 1934 (“Exchange Act”). You should carefully review all information therein.

### Overview

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.

### Acute Care Product Portfolio

### ZYNRELEF

ZYNRELEF was initially approved by the FDA in May 2021, and we commenced commercial sales in the U.S. in July 2021. In December 2021, the FDA approved our sNDA for ZYNRELEF, which significantly expanded the indication statement. ZYNRELEF is currently indicated for use in adults for soft tissue or periarticular instillation to produce postsurgical analgesia for up to 72 hours after foot and ankle, small-to-medium open abdominal, and lower extremity total joint arthroplasty surgical procedures.

ZYNRELEF is a dual-acting local anesthetic that delivers a fixed-dose combination of the local anesthetic bupivacaine and a low dose of the nonsteroidal anti-inflammatory drug meloxicam. ZYNRELEF is the first and only modified-release local anesthetic to be classified by the FDA as an extended-release product because ZYNRELEF demonstrated in Phase 3 studies significantly reduced pain and significantly increased proportion of patients requiring no opioids through the first 72 hours following surgery compared to bupivacaine solution, the current standard-of-care local anesthetic for postoperative pain control.

In December 2022, we submitted an sNDA to the FDA requesting expansion of the indication statement for ZYNRELEF to broadly cover soft tissue and orthopedic surgical procedures. This sNDA is based on safety and pharmacokinetic data from clinical trials in total shoulder arthroplasty, spinal surgery, abdominoplasty, and C-section showing comparable results to the previously completed pivotal safety and efficacy trials of ZYNRELEF. The FDA accepted the sNDA for filing and set a Prescription Drug User Fee Act (“PDUFA”) goal date of October 23, 2023. On July 31, 2023, Heron was notified by the FDA that the FDA was extending the goal date by three months to provide time for a full review of the submission. The FDA set a new extended PDUFA goal date of January 23, 2024.

In the fourth quarter of 2022, we validated large-scale manufacturing of our proprietary polymer and ZYNRELEF, which will allow for the manufacturing of millions of doses of ZYNRELEF annually at a significantly reduced cost of product sales.

In March 2022, the Centers for Medicare and Medicaid Services (“CMS”) approved a 3-year transitional pass-through status of ZYNRELEF, which became effective on April 1, 2022, for separate reimbursement outside of the surgical bundle payment in the Hospital Outpatient Department setting of care. In addition, in December 2022, H.R. 2617, the Omnibus spending bill was approved by Congress that includes a provision requiring CMS to pay for certain non-opioids outside the existing bundled payment for surgeries for the period January 1, 2025 to December 31, 2027.

ZYNRELEF was granted a marketing authorization by the European Commission (“EC”) in September 2020 and by the United Kingdom (“U.K.”) Regulatory Authority in January 2021. In August 2023, we cancelled the U.K. ZYNRELEF marketing authorization and, in October 2023, we cancelled the ZYNRELEF marketing authorization in the European Union (“EU”), as we do not plan to commercially launch ZYNRELEF in the U.K., the EU, or the other countries in the European Economic Area.

Health Canada issued a Notice of Compliance to commercialize ZYNRELEF in March 2022. In the second quarter of 2023, we withdrew our new drug submission, as we do not plan to commercially launch ZYNRELEF in Canada.

### APONVIE

APONVIE was approved by the FDA in September 2022 and became commercially available in the U.S. in March 2023. APONVIE is indicated for the prevention of postoperative nausea and vomiting (“PONV”) in adults. CMS granted pass-through payment status for APONVIE, effective April 1, 2023.

APONVIE is the first and only intravenous formulation of a substance P/neurokinin-1 (“NK1”) receptor antagonist indicated for PONV. Delivered via a single 30-second intravenous (“IV”) injection, APONVIE has demonstrated rapid achievement of therapeutic drug levels ideally suited for the surgical setting.

### Oncology Care Product Portfolio

### SUSTOL

SUSTOL was approved by the FDA in August 2016, and we commenced commercial sales in the U.S. in October 2016.

SUSTOL is indicated in combination with other antiemetics in adults for the prevention of acute and delayed nausea and vomiting associated with initial and repeat courses of moderately emetogenic chemotherapy (MEC) or anthracycline and cyclophosphamide (AC) combination chemotherapy regimens. SUSTOL is an extended-release, injectable 5-hydroxytryptamine type 3 (“5-HT3”) receptor antagonist that utilizes our Biochronomer Technology to maintain therapeutic levels of granisetron for ≥5 days. The SUSTOL global Phase 3 development program was comprised of two, large, guideline-based clinical studies that evaluated SUSTOL’s efficacy and safety in more than 2,000 patients with cancer. SUSTOL’s efficacy in preventing nausea and vomiting was evaluated in both the acute phase (0–24 hours following chemotherapy) and the delayed phase (24–120 hours following chemotherapy).

SUSTOL is the first extended-release 5-HT3 receptor antagonist approved for the prevention of acute and delayed nausea and vomiting associated with both MEC and AC combination chemotherapy regimens. A standard of care in the treatment of breast cancer and other cancer types, AC regimens are among the most commonly prescribed HEC regimens, as defined by both the National Comprehensive Cancer Network (“NCCN”) and the American Society of Clinical Oncology (“ASCO”).

In February 2017, the NCCN included SUSTOL as a part of its NCCN Clinical Practice Guidelines in Oncology for Antiemesis Version 1.2017. The NCCN has given SUSTOL a Category 1 recommendation, the highest-level category of evidence and consensus, for use in the prevention of acute and delayed nausea and vomiting in patients receiving HEC or MEC regimens. The guidelines now identify SUSTOL as a “preferred” agent for preventing nausea and vomiting following MEC. Further, the guidelines highlight the unique, extended-release formulation of SUSTOL.

In January 2018, a product-specific billing code, or permanent J-code (“J-code”), for SUSTOL became available. The new J-code was assigned by CMS and has helped simplify the billing and reimbursement process for prescribers of SUSTOL.

### CINVANTI

CINVANTI was approved by the FDA in November 2017, and we commenced commercial sales in the U.S. in January 2018.

CINVANTI, in combination with other antiemetic agents, is indicated in adults for the prevention of acute and delayed nausea and vomiting associated with initial and repeat courses of highly emetogenic cancer chemotherapy (HEC) including high-dose cisplatin as a single-dose regimen, delayed nausea and vomiting associated with initial and repeat courses of moderately emetogenic cancer chemotherapy (MEC) as a single-dose regimen, and nausea and vomiting associated with initial and repeat courses of MEC as a 3-day regimen.

CINVANTI is an IV formulation of aprepitant, a substance NK1 receptor antagonist. CINVANTI is the first IV formulation to directly deliver aprepitant, the active ingredient in EMEND® capsules. Aprepitant (including its prodrug, fosaprepitant) is the only single-agent NK1 receptor antagonist to significantly reduce nausea and vomiting in both the acute phase (0–24 hours after chemotherapy) and the delayed phase (24–120 hours after chemotherapy). CINVANTI is the first and only IV formulation of an NK1 receptor antagonist indicated for the prevention of acute and delayed nausea and vomiting associated with HEC and nausea and vomiting associated with MEC that is free of synthetic surfactants, including polysorbate 80.

NK1 receptor antagonists are typically used in combination with 5-HT3 receptor antagonists. The only other injectable NK1 receptor antagonist currently approved in the U.S. for both acute and delayed chemotherapy induced nausea and vomiting (“CINV”), EMEND® IV (fosaprepitant), contains polysorbate 80, a synthetic surfactant, which has been linked to hypersensitivity reactions, including anaphylaxis, and infusion site reactions. The CINVANTI formulation does not contain polysorbate 80 or any other synthetic surfactant. Our CINVANTI data has demonstrated the bioequivalence of CINVANTI to EMEND IV, supporting its efficacy for the prevention of both acute and delayed nausea and vomiting associated with HEC and nausea and vomiting associated with MEC. Results also showed CINVANTI was better tolerated in healthy volunteers than EMEND IV, with significantly fewer adverse events reported with CINVANTI.

In January 2019, a J-code for CINVANTI became available. The new J-code was assigned by CMS and has helped simplify the billing and reimbursement process for prescribers of CINVANTI.

In February 2019, the FDA approved our sNDA for CINVANTI, for IV use, which expanded the administration of CINVANTI beyond the initially approved administration method (a 30-minute IV infusion) to include a 2-minute IV injection.

In October 2019, the FDA approved our sNDA for CINVANTI to expand the indication and recommended dosage to include the 130 mg single-dose regimen for patients receiving MEC.

In the fourth quarter of 2022, we validated larger-scale manufacturing of CINVANTI, which will significantly reduce the cost of product sales.

### Biochronomer Technology

Our proprietary Biochronomer Technology is designed to deliver therapeutic levels of a wide range of otherwise short-acting pharmacological agents over a period from days to weeks with a single administration. Our Biochronomer Technology consists of polymers that have been the subject of comprehensive animal and human toxicology studies that have shown evidence of the safety of the polymer. When administered, the polymers undergo controlled hydrolysis, resulting in a controlled, sustained release of the pharmacological agent encapsulated within the Biochronomer-based composition. Furthermore, our Biochronomer Technology is designed to permit more than one pharmacological agent to be incorporated, such that multimodal therapy can be delivered with a single administration.

### Critical Accounting Estimates

The discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate our estimates on an ongoing basis, including those related to revenue recognition, investments, inventory and the related reserves, accrued research and development expenses, income taxes and stock-based compensation. We base our estimates on historical experience and on assumptions that we believe to be reasonable under the circumstances, the results of which form the basis of making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions.

Our critical accounting estimates include: revenue recognition, investments, inventory and the related reserves, accrued research and development expenses, income taxes, and stock-based compensation. There have been no material changes to our critical accounting estimates disclosures included in our Annual Report on Form 10-K for the year ended December 31, 2022, which was filed with the SEC on March 29, 2023.

### Recent Accounting Pronouncements

See Note 3 to the condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q.

### Results of Operations for the Three and Nine Months Ended September 30, 2023 and 2022

### Net Product Sales

For the three and nine months ended September 30, 2023, net product sales were $31.4 million and $92.8 million, respectively, compared to $26.6 million and $77.6 million, respectively, for the same periods in 2022.

#### Net Product Sales – Acute Care

For the three and nine months ended September 30, 2023, net product sales of ZYNRELEF were $4.4 million and $12.0 million, respectively, compared to $2.7 million and $6.3 million, respectively, for the same periods in 2022. For the three and nine months ended September 30, 2023, net product sales of APONVIE were $0.3 million and $0.9 million, respectively. APONVIE became commercially available in the U.S. in March 2023.

#### Net Product Sales – Oncology Care

For the three and nine months ended September 30, 2023, net product sales of CINVANTI were $23.3 million and $70.6 million, respectively, compared to $21.2 million and $64.2 million, respectively, for the same periods in 2022. For the three and nine months ended September 30, 2023, net product sales of SUSTOL were $3.4 million and $9.3 million, respectively, compared to $2.7 million and $7.1 million, respectively, for the same periods in 2022.

### Cost of Product Sales

For the three and nine months ended September 30, 2023, cost of product sales was $18.2 million and $55.2 million, respectively, compared to $14.7 million and $42.2 million, respectively, for the same periods in 2022. Cost of product sales primarily included raw materials, labor and overhead related to the manufacturing of our Products, as well as shipping and distribution costs. For the three and nine months ended September 30, 2023, cost of product sales also included charges of $7.5 million and $20.3 million, respectively, compared to $2.0 million and $4.5 million, respectively, for the three and nine months ended September 30, 2022, resulting primarily from the write-off of ZYNRELEF inventory.

We began capitalizing raw materials, labor and overhead related to the manufacturing of APONVIE following FDA approval in September 2022. There were no costs incurred prior to FDA approval for the commercial manufacturing of APONVIE.

### Research and Development Expense

Research and development expense consisted of the following (in thousands):

|  | Three Months Ended September 30, 2023 | 2022 | Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: | ---: | ---: |
| ZYNRELEF-related costs | $2,516 | $6,940 | $9,833 | $44,555 |
| SUSTOL-related costs | 348 | 248 | 1,010 | 1,558 |
| CINVANTI-related costs | 367 | 3,055 | 1,551 | 5,132 |
| APONVIE-related costs | 1,714 | 115 | 3,564 | 843 |
| HTX-034-related costs | 67 | 304 | 83 | 591 |
| Personnel costs and other expenses | 6,238 | 9,962 | 19,814 | 29,864 |
| Stock-based compensation expense | 2,308 | 4,921 | 9,092 | 13,906 |
| Total research and development expense | $13,558 | $25,545 | $44,947 | $96,449 |

For the three and nine months ended September 30, 2023, research and development expense was $13.6 million and $44.9 million, respectively, compared to $25.5 million and $96.4 million, respectively, for the same periods in 2022. The decrease was primarily due to decreases in costs related to ZYNRELEF and CINVANTI, as production scale-up, validation activities and raw materials qualification were completed in 2022. In addition, the decrease in research and development expense was due to decreases in personnel and related costs as a result of the savings from the June 2022 reduction in force, as well as a decrease in non-cash, stock-based compensation expense.

### General and Administrative Expense

For the three and nine months ended September 30, 2023, general and administrative expense was $11.6 million and $37.7 million, respectively, compared to $9.8 million and $28.5 million, respectively, for the same periods in 2022. The increase was primarily due to severance and non-cash, stock-based compensation expense in connection with executive departures in the second and third quarters of 2023, and ongoing legal costs associated with the CINVANTI patent litigation.

### Sales and Marketing Expense

For the three and nine months ended September 30, 2023, sales and marketing expense was $13.0 million and $55.3 million, respectively, compared to $18.4 million and $64.7 million, respectively, for the same periods in 2022. The decrease was primarily due to a decrease in costs to support the ongoing commercialization of ZYNRELEF, due to improved operational efficiencies.

### Other Income (Expense), Net

For the three and nine months ended September 30, 2023, other income (expense), net was ($0.1) million and $0.6 million, respectively, compared to other expense, net of $26,000 and $7.9 million, respectively, for the same periods in 2022. The change for the three and nine months ended September 30, 2023 was primarily due to the write-off of property and equipment at a third-party manufacturing site in 2022, as well as an increase in interest income earned on our invested cash balances in 2023.

### Restructuring Plans

See Note 8 to the condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q for discussion of the June 2022 Reorganization and the June 2023 Reorganization.

### Liquidity and Capital Resources

As of September 30, 2023, we had cash, cash equivalents and short-term investments of $77.4 million. Based on our current operating plan and projections, management believes that the Company's cash, cash equivalents and short-term investments will be sufficient to meet the Company's anticipated cash requirements for a period of at least one year from the date this Quarterly Report on Form 10-Q is filed with the SEC.

Our net loss for the three and nine months ended September 30, 2023 was $25.0 million, or $0.17 per share, and $99.8 million, or $0.75 per share, respectively, compared to a net loss of $41.9 million, or $0.38 per share, and $162.2 million, or $1.54 per share, respectively, for the same periods in 2022.

Our net cash used in operating activities for the nine months ended September 30, 2023 was $61.2 million, compared to $109.4 million for the same period in 2022. The decrease in net cash used in operating activities was primarily due to a decrease in net loss, partially offset by changes in working capital.

Our net cash provided by investing activities for the nine months ended September 30, 2023 was $26.8 million, compared to net cash used for investing activities of $5.3 million for the same period in 2022. The increase in cash provided by investing activities was primarily due to net maturities of short-term investments of $28.1 million for the nine months ended September 30, 2023, compared to net purchases of short-term investments of $4.2 million for the same period in 2022.

Our net cash provided by financing activities for the nine months ended September 30, 2023 was $53.9 million, compared to $74.6 million for the same period in 2022. The decrease in cash provided by financing activities was primarily due to net proceeds of $54.1 million received from debt and equity financings completed in the third quarter of 2023, compared to net proceeds of $75.2 million received from the August 2022 private placement.

Historically, we have financed our operations, including technology and product research and development, primarily through sales of our common stock and debt financings.

On August 9, 2023, we entered into a working capital facility agreement (the “Loan Agreement”) with Hercules Capital, Inc., as administrative agent and collateral agent, and the lenders party thereto (the “Lenders”). The Loan Agreement provides an aggregate principal amount of up to $50.0 million with tranched availability as follows: $25.0 million at closing (“tranche 1A”), $5.0 million available through December 15, 2024 (“tranche 1B”), and $20.0 million available from the earlier of: (1) the full draw of tranche 1B and (2) the expiration of tranche 1B, and available through December 15, 2025 (“tranche 1C”), and in the case of tranches 1B and 1C, subject to certain customary conditions to draw down.

The Loan Agreement has a term of four years, with a springing maturity date that is 91 days prior to the stated maturity of our existing senior unsecured convertible notes (if still outstanding at such time). The loans thereunder do not have any scheduled amortization payments and accrue interest at a floating rate equal to, as of closing, 9.95% per annum, payable in cash on a monthly basis and upon maturity or payoff. In addition, under the terms of the Loan Agreement, the loans also accrue paid-in-kind interest at a fixed-rate of 1.5% per annum which is due upon maturity or payoff.

For both the three and nine months ended September 30, 2023, interest expense related to the Loan Agreement was $467,000, which included $376,000 related to the stated interest rate, $55,000 related to paid-in-kind interest, and $36,000 related to the amortization of the debt discounts. As of September 30, 2023, the carrying value of tranche 1A was $24.0 million, which is comprised of the $25.0 million principal amount outstanding, less debt discounts of $1.0 million. We were in compliance with all covenants of the Loan Agreement as of September 30, 2023. For more information on the Loan Agreement, see Note 9 “Convertible Notes” to the condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q.

## Controls and procedures

As filed, 2,394 characters.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports, filed under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer, principal financial officer, and principal accounting officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable and not absolute assurance of achieving the desired control objectives. In reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition, the design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, a control may become inadequate because of changes in conditions or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

As required by Exchange Act Rule 13a-15(b), we carried out an evaluation under the supervision and with the participation of our management, including our principal executive officer, principal financial officer, and principal accounting officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our principal executive officer, principal financial officer, and principal accounting officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

There were no changes in our internal control over financial reporting that occurred during the quarter covered by this report that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 264 characters.

Our business is subject to various risks, including those described in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022. There have been no material changes from the risk factors disclosed in Item 1A of our Annual Report on Form 10-K.

Filed Nov 14, 2023.
Source: SEC EDGAR, the filing index for accession 0000950170-23-063714. Last ingested by Listed: Nov 3, 2026, 14:24 ET. No prices; not investment advice.