Heron (HRTX) Q1 2026 Earnings Call Transcript

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DATE

Monday, May 11, 2026 at 8:30 a.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — Craig Collard
• Executive Vice President and Chief Financial Officer — Ira Duarte
• Executive Vice President and Chief Development Officer — William Forbes
• Chief Operating Officer — Mark Hensley
• Senior Vice President, Medical Affairs, Strategy and Engagement — Kevin Warner

TAKEAWAYS

• Total Net Sales -- $34.7 million, with March closing at over $15 million in net sales signaling sequential recovery in demand.
• Gross Margin -- 69%, temporarily below the typical low to mid-70s percent range due to higher-cost secondary CINVANTI supplier batches.
• Adjusted EBITDA -- Negative $727,000 for the quarter, attributed to storm-related revenue softness and temporary gross margin pressure.
• Acute Care Revenue -- $13.6 million, comprised of ZYNRELEF at $10.2 million and APONVIE at $3.4 million.
• Oncology Product Revenue -- $21.1 million, including CINVANTI at $20.5 million and SUSTOL at $0.6 million (planned wind down).
• ZYNRELEF Demand Units -- 22% year-over-year growth, outperforming the broader local anesthetic market which declined sequentially.
• ZYNRELEF IGNITE Program -- 111% unit volume growth across targeted accounts from last pre-IGNITE quarter of 2025 to Q4 2025; IGNITE 2.0 expands targeted accounts by 38% to 3,109 in 2026.
• APONVIE Demand -- 68% year-over-year growth in demand units; average daily units grew 70%; ordering accounts reached an all-time high of 371 in March, up 67%.
• APONVIE Market Opportunity -- P&T approved in 1,903 accounts, targeting 5.8 million medium to high-risk annual procedures.
• CINVANTI Market Share -- Maintained 25% exit share in the NK1 category, consistent with its 12-month average.
• REIGNITE Program -- New formulary wins anticipated to add approximately $10 million in annualized CINVANTI net revenue.
• Pricing Discipline -- Stable to increasing net selling prices across active products; no broad price concessions made to pursue volume.
• Sales Force Expansion -- New representatives for ZYNRELEF and aprepitant teams (APONVIE/CINVANTI) planned in Q3 2026 to drive further growth.
• Permanent J-code and NOPAIN Act -- ZYNRELEF permanent J0668 code live since October; more than 110 million commercial lives now covered outside surgical bundles.
• Guideline Inclusion -- APONVIE named in the fifth consensus guidelines as "the first and only FDA-approved IV push NK1 antagonist for the prevention of PONV in adults," receiving an A1 evidence rating.
• 2026 Guidance -- Net product sales maintained at $173 million to $183 million and adjusted EBITDA guided to $10 million to $20 million, signaling continued profitability goals and commercial expansion focus.

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RISKS

• Gross margin temporarily reduced to 69% due to high-cost batches from a secondary CINVANTI supplier; management expects normalization after these batches are worked through in the next two quarters.
• Q1 net sales and EBITDA were negatively affected by "2 weeks of severe weather early in the quarter," causing a high single-digit sequential decline in elective surgical volume and resulting in "our most difficult month since I joined the company," according to CEO Collard.
• Adjusted EBITDA was negative $727,000 for the quarter, combining the impacts of storm-driven revenue softness and temporary margin pressure.

SUMMARY

Heron Therapeutics (NASDAQ:HRTX) delivered $34.7 million in net sales, with Q1 performance impacted by severe weather that depressed elective surgical procedures, but noted a strong rebound to over $15 million in March sales. Sales of ZYNRELEF rose 27%, APONVIE expanded over 50%, and CINVANTI held stable at 25% exit share despite market volatility. Management emphasized that pricing strategies remain disciplined and current reimbursement frameworks, such as permanent J-codes and the NOPAIN Act, are supporting underlying growth. Full-year guidance was reaffirmed with net sales expected between $173 million and $183 million and adjusted EBITDA projected at $10 million to $20 million, supported by ongoing commercial execution and imminent sales force expansion.

• CINVANTI channel inventory issues in Q4 2025 were resolved, with Q1 pricing strategy and volumes stabilizing at targeted levels.
• ZYNRELEF benefits from streamlined reimbursement across approximately 110 million commercial lives, improving billing office workflow and reducing payer friction.
• The ZYNRELEF prefilled syringe program remains on track, with 12-month stability data anticipated in Q1 2027 and the formulation positioned to align with institutional preferences for ready-to-use systems.
• APONVIE's inclusion in revised clinical guidelines and expanded P&T approvals provide new tailwinds for institutional adoption across larger addressable markets.
• Mark Hensley signaled "alignment between Heron and CrossLink now is almost 90% in terms of our focus," indicating tight strategic collaboration supporting ZYNRELEF growth in targeted accounts.

INDUSTRY GLOSSARY

• NK1: Neurokinin-1 receptor antagonist, a class of drugs used to prevent nausea and vomiting associated with chemotherapy or surgery.
• J-code: A permanent reimbursement code used in the U.S. healthcare system for drugs administered by physicians, critical for product billing and commercial adoption.
• P&T Committee: Pharmacy and Therapeutics Committee; an institutional body that reviews and approves drugs for hospital or health system formularies.
• IGNITE Program: Heron's incentive initiative with orthopedic distribution partners to accelerate commercial adoption of ZYNRELEF in targeted accounts.
• REIGNITE Program: Heron's commercial access initiative targeting CINVANTI formulary wins, particularly in major teaching hospitals.
• NOPAIN Act: U.S. legislation affecting hospital reimbursement for non-opioid pain therapies, streamlining separate payment outside bundled surgical payments.
• PONV: Postoperative nausea and vomiting, a frequent perioperative complication targeted by APONVIE and referenced in updated clinical guidelines.
• PDNV: Post-discharge nausea and vomiting, a complication occurring after surgical discharge, addressed in the latest consensus guidelines supporting APONVIE's clinical positioning.
• PFS: Prefilled syringe, a drug delivery format designed to improve workflow, safety, and adoption in institutional settings.

Full Conference Call Transcript

Craig Collard, Chief Executive Officer; Ira Duarte, Executive Vice President and Chief Financial Officer; Bill Forbes, Executive Vice President and Chief Development Officer; Mark Hensley, Chief Operating Officer; and Kevin Warner, Senior Vice President, Medical Affairs, Strategy and Engagement. For those of you participating via conference call, slides are made available via webcast and can also be accessed via the Investor Relations page of our website following the conclusion of today's call. Before we begin, let me quickly remind you that during the course of this conference call, the company will make forward-looking statements. We caution you that any statement that is not a statement of historical fact is a forward-looking statement.

This includes remarks about the company's projections, expectations, plans, beliefs and future performance, all of which constitute forward-looking statements for the purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. These statements are based on judgment and analysis as of the date of this conference call and are subject to numerous important risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. The risks and uncertainties associated with the forward-looking statements made in this conference call and webcast are described in the safe harbor statement in today's press release and in Heron's public periodic filings with the SEC.

Except as required by law, Heron assumes no obligation to update these forward-looking statements to reflect future events or actual outcomes and does not intend to do so. And with that, I would now like to turn the call over to Craig Collard, Chief Executive Officer of Heron.

Craig Collard: Thanks, Melissa. Hello, everyone, and welcome to Heron Therapeutics First Quarter 2026 Earnings Call. Today, we're thrilled to share our financial results and provide commercial updates on our business. I'd like to begin by highlighting several key accomplishments. Coming off a strong fourth quarter of 2025, we entered the new year with tremendous momentum. As expected, the first quarter of any year historically brings seasonal headwinds driven by co-pay resets and insurance adjustments, and this year was no exception. However, 2026 presented additional challenges for us, 2 weeks of severe weather early in the quarter that significantly compounded the typical seasonal softness, making January our most difficult month since I joined the company.

The impact of the weather was felt most acutely in elective surgeries, which are highly sensitive to extreme conditions and saw a sharp decline during that period. Importantly, this was not an isolated experience. Multiple publicly traded pharmaceutical and surgical companies have reported the same weather-driven disruption across January and February. The breadth of this industry-wide impact validates that the headwinds we faced were external and temporary in nature, not reflective of any underlying weakness in our business or markets. Despite this, the team responded well. February brought a clear upward trend and March closed strongly with over $15 million in net sales, demonstrating the underlying strength and resilience of the business.

While the weather undoubtedly weighed on our Q1 results, it has not shaken our confidence in the year ahead. We fully expect the remaining deferred elective procedures to be rescheduled throughout the remainder of 2026, creating a meaningful tailwind as we progress through the year. This aligns with our historical pattern where Q3 and Q4 consistently represent our highest volume quarters, and we anticipate 2026 will be no different. Turning to our Acute Care portfolio. We delivered revenue growth of 32% compared to the same period last year, with ZYNRELEF growing 27% and APONVIE growing over 50%, respectively. Two structural drivers are worth highlighting.

Our IGNITE program, the incentive program with our orthopedic distribution partners has been very successful, and we're continuing it into 2026 as a key growth driver for ZYNRELEF. With APONVIE, we are beginning to realize the commercial benefits of its inclusion in the fifth consensus guidelines for the management of postoperative nausea and vomiting, a meaningful clinical endorsement that we believe will serve as a sustained tailwind for adoption. We will provide additional detail later in the presentation on the strategic and commercial implications of that inclusion. Turning to our sales force expansion. Implementation is on track for the third quarter with the recruitment already underway.

We view this as a significant catalyst for growth across our portfolio, and we will walk through the strategy in more detail in the presentation. Moving on to oncology. We continue to deliver solid performance with CINVANTI despite increased competitive pressure. For the quarter, CINVANTI maintained exit market share of 25% in the NK1 category. And although net sales reflected normal quarter-to-quarter timing, CINVANTI itself has remained resilient, demonstrating strong customer loyalty and continued demand even in this very competitive landscape. We have a number of new accounts coming on board in Q2 that we anticipate could add upwards of $10 million in net revenue on an annualized basis.

We will cover this in greater detail as part of the commercial performance update. Before I turn things over to Mark to cover our commercial performance, I want to take a moment again to recognize the entire Heron team for their performance this quarter. We fight every day in a very competitive environment, and this quarter offered other challenges that we had no control over, yet our team continues to persevere and move forward. I will now turn the call over to Mark to cover our commercial performance. Go ahead, Mark.

Mark Hensley: Thanks, Craig. Moving to product performance, starting with our overall net sales picture for the quarter. This chart shows quarterly net revenue for each product across the last 4 quarters. Total net sales of $34.7 million in Q1. On the Acute Care side, $13.6 million combined: ZYNRELEF at $10.2 million, APONVIE at $3.4 million; on the oncology side, $21.1 million combined: CINVANTI at $20.5 million, SUSTOL at $0.6 million, reflecting the planned wind down we previously discussed. You can see the sequential dynamics on each product. A few of these reflect ordering and channel patterns rather than changes in underlying demand.

The cleaner read on adoption across all 4 products is the demand unit and ordering account data, which I'll cover in detail as we go. But before we get into individual product performance, there's an important strategic point on the next slide. This slide shows our net selling price per unit across the 4 products over the last 4 quarters. The Y-axis values aren't displayed. What matters is the directional trend within each product. Starting with ZYNRELEF, net selling price has been steadily increasing across the period. Our pricing posture is holding and the J-code and NOPAIN environment are supporting that trajectory. For APONVIE, net price has been stable.

That's what we'd expect for a product still in its growth phase, where our focus is volume penetration rather than per unit price extraction. On CINVANTI, you'll notice the Q4 bar is slightly lower than the surrounding quarters with Q1 returning to a level consistent with our strategy. That Q4 dynamic was temporary and Q1 reflected normal channel ordering patterns following the Q4 activity. The more important point, our underlying pricing strategy on CINVANTI is intact and disciplined and SUSTOL declining in line with planned wind down. The headline message of this slide is straightforward. Across our active commercial products, we are maintaining pricing discipline and not chasing volume through price concessions. That's a deliberate strategic choice.

It protects the long-term economics of the franchise and supports the durable recurring demand we're building. Now on to ZYNRELEF. You can see the 2 charts on the slide, average daily units on the left, ordering accounts on the right. Both have continued to trend up through Q1. The number I'd anchor on is demand unit growth of 22% year-over-year. The broader local anesthetic market was down sequentially in Q1. In that environment, ZYNRELEF outgrew the market on a year-over-year basis and held share sequentially. The underlying franchise is performing. On reimbursement, the permanent J-code, J0668 has been live since October.

Combined with the NOPAIN Act framework that took effect at the start of 2025, the reimbursement environment for ZYNRELEF is the cleanest it's been since launch. That framework streamlines reimbursement across approximately 110 million covered lives on the commercial side. Two quarters in, reimbursement conversations are smoother and the friction at the billing office level continues to come down. Looking at the Q2 through Q4 drivers on the right side of the slide, IGNITE has been extended throughout 2026 and expanded with IGNITE 2.0, which I'll cover on the next 2 slides. We're also seeing expansion of users within accounts, meaning more surgeons within each adopting institution moving on to ZYNRELEF as part of their protocol.

And we'll be expanding our ZYNRELEF sales team in Q3 2026, targeted geographies where all 3 foundational drivers are fully in place: formulary access, the IGNITE program, and payer coverage. That expansion sits alongside the aprepitant team expansion, I'll cover on the APONVIE slide, reflecting our confidence in the trajectory of both franchises. On the longer-term side, our prefilled syringe presentation is in late-stage development. Bill will cover that in more detail later in the presentation. Moving on to Slide 10. Here is the data behind IGNITE 1.0. The chart shows ZYNRELEF unit volume across our IGNITE targeted accounts, pre-IGNITE versus post-IGNITE.

We went from approximately 9,000 units in the last pre-IGNITE quarter of last year to over 19,000 units by Q4 of last year. That's 111% growth within these targeted accounts in just two quarters of the program. This is the data that gave us the conviction to extend IGNITE through 2026 and expand it further. On Slide 11, you can see what IGNITE 2.0 looks like. IGNITE 1.0 in the second half of 2025 covered 2,261 accounts. IGNITE 2.0, which is now live for full year '26, covers 3,109 accounts. That's a 38% increase, adding 848 additional accounts to the program.

More accounts in the program means more concentrated distributor focus on the institutions we've identified as most likely to adopt and deepen ZYNRELEF use. The structural drivers that produced 111% unit growth in IGNITE 1.0 are now applied to a meaningfully larger base of accounts in 2026. I will now turn it over to Bill to cover the prefilled syringe.

William Forbes: Thank you, Mark. This slide highlights the strong momentum in our Acute Care franchise and the continued advancement of the ZYNRELEF prefilled syringe program. We have seen consistent and accelerating adoption across our device preparation platforms as we transition from the vented vial spike or VVS to the significantly improved vile access needle or VAN. This evolution has been well received and reflects clear progress in ease of use and workflow efficiency. At the same time, market demand continues to shift toward ready-to-use systems, which are emerging as an important growth driver as hospitals prioritize efficiency, safety and streamlined operating room workflows.

Independent third-party forecasts reinforce the durability of this trend with prefilled syringe adoption expected to scale meaningfully over time. From a program standpoint, the ZYNRELEF PFS is fully funded and on track. It was designed to align with contemporary health system expectations, including both ASHP and Joint Commission guidance, while improving operating room workflow, reducing preparation steps and lowering the risk of medication errors and contamination. The development program is well advanced. Registration batches have been manufactured and placed on stability, and we remain on track to generate 12-month stability data in the first quarter of 2027. Mark, I'll turn it back to you.

Mark Hensley: Thanks, Bill. Now to APONVIE. There are two charts on this slide, average daily units on the left, ordering accounts on the right. Both showed continued steady upward trajectory through Q1. On the Q1 metrics, APONVIE demand units grew 68% year-over-year. Average daily units grew 70% over Q1 of last year. We exited Q1 with 371 ordering accounts in March. That's an all-time high for the product and up 67% versus March of last year. And APONVIE is now P&T approved in 1,903 accounts, representing 5.8 million medium to high-risk procedures annually. The last number defines the size of the addressable opportunity that APONVIE has now been formally cleared into.

On the growth drivers ahead, APONVIE's permanent product-specific J-code became active April 1, having a permanent dedicated billing code in place removes a layer of reimbursement complexity for the product. We'll be expanding our dedicated aprepitant sales force in Q3 2026. That team currently covers both APONVIE and CINVANTI and the expansion adds capacity to support both products. And lastly, APONVIE has been prominently included in the fifth consensus guidelines for the management of postoperative nausea and vomiting. That's a meaningful clinical catalyst. I'll hand it over to Kevin to walk through the guidelines and what they mean for the product.

Kevin Warner: Thanks, Mark. We wanted to provide a brief overview to help the Street understand the broader clinical and economic significance of the recently published fifth consensus guidelines for the management of postoperative nausea and vomiting. These guidelines represent an important shift in perioperative care, moving from reactive management of PONV toward a far more proactive patient-centered prevention strategy. From a medical affairs perspective, guideline updates are highly important because they often serve as the foundation for durable institutional change. Historically, adoption occurs over time through provider education, EMR order sets, anesthesia workflows, perioperative pathways and treatment algorithms. Once integrated into institutional protocols, these practices tend to become highly durable standards of care.

Importantly, the updated guidelines substantially elevated the role of NK1 antagonist within multimodal prophylaxis strategies. Aprepitant-based therapies, including APONVIE, received an A1 evidence rating for prevention of PONV in adults, reflecting the highest level of evidence supporting efficacy and safety. APONVIE is specifically named within the guidelines as the first and only FDA-approved IV push NK1 antagonist for the prevention of PONV in adults. We believe this distinction is clinically meaningful because it combines efficacy, workflow efficiency and ease of perioperative implementation in a way that supports both providers and patients. Another key evolution within the guidelines is the broader recommendation for multimodal prophylaxis.

While patient and procedure-specific risk stratification remains central, the updated guidance recognizes that the benefit of prophylaxis often outweighs the risk of undertreatment. As a result, many institutions are expected to adopt a more liberal prophylaxis strategy across broader patient populations. The guidelines specifically recommend that patients with greater than two risk factors, representing roughly half of the surgical population received 3 to 4 prophylactic interventions. These medium and high-risk patients often require highly effective antiemetic strategies without adding recovery-limiting adverse effects. We believe APONVIE is uniquely positioned in this setting. Its efficacy profile, combined with a differentiated safety profile that does not overlap with many commonly used antiemetics supports use in patients where prevention matters most.

Importantly, APONVIE provides antiemetic protection without contributing to sedation or negatively impacting postoperative recovery pathways, which is increasingly important in enhanced recovery protocols and ambulatory surgery. One of the most significant additions to the Fifth Edition guidelines was the expanded focus on post-discharge nausea and vomiting, or PDNV. The guidelines emphasize that PONV is not simply an acute PACU complication. For many patients, symptoms occur after discharge when clinical support resources are less available. The guidelines cite data showing approximately 37% of patients may experience PDNV with implications for dehydration, wound complications, unplanned health care utilization and potential readmissions.

As outpatient surgery volumes continue to expand and same-day discharge becomes increasingly common, these downstream complications become even more relevant in value-based care models. Importantly, the guidelines now recommend that patients at risk for PDNV receive prophylactic long-acting antiemetics prior to discharge. We believe APONVIE aligns well with this recommendation given its 48-hour duration of action and ability to provide extended receptor coverage during the vulnerable post-discharge period. The guidelines also reinforce several important differentiators associated with APONVIE and MK1 antagonist therapy more broadly. APONVIE is administered as a simple 30-second IV push with rapid onset and greater than or equal to 97% receptor occupancy within 5 minutes, integrating efficiently into standard anesthesia workflows.

This becomes particularly relevant for providers who may not have had adequate preoperative time or oral administration or who are caring for patients with limitations to oral therapies, including those with gastroparesis, GLP-1 utilization, diabetes-related GI dysfunction or altered gastric emptying. The strength of evidence supporting aprepitant-based therapy was also highlighted throughout the guidelines multiple randomized trials demonstrated aprepitant to be comparable or superior to ondansetron for prevention of PONV. Meta-analysis showed significant reductions in PONV risk when used alone or within multimodal regimens. And a large Cochrane systemic review evaluating nearly 100,000 patients ranked aprepitant as the single most effective antiemetic.

Importantly, the updated guidelines frame PONV prevention not simply as a patient comfort initiative, but as a meaningful clinical quality and operational issue. Poorly controlled PONV contributes to extended PACU stays, rescue medication use, delayed discharge, dehydration, wound stress, aspiration concerns and readmissions. In many high-risk procedures, including abdominal bariatric, ENT, ophthalmology and other belt-up surgeries, preventing vomiting is viewed as critically important to protecting surgical outcomes and patient safety. Appropriate prophylaxis also supports perioperative operational efficiency by reducing nursing burden, minimizing recovery delays, improving throughput and enhancing both patient and staff satisfaction. The guidelines additionally highlighted the pharmacoeconomic value of effective prophylaxis strategies. One metric discussed was number needed to treat or NNT.

For aprepitant combined with dexamethasone, the reported NNT was 3.8, meaning approximately four patients treated prevents one additional case of PONV. Compared with many commonly used antiemetics, this represents a highly favorable value proposition. From a health system perspective, this becomes clinically and economically meaningful very quickly. A single episode of PONV has been estimated to cost approximately $1,000 when considering rescue therapy, nursing utilization, prolonged PACU time and delayed discharge. When viewed in that context, preventing complications with an intervention costing approximately $60 per dose becomes highly rational and understandable for providers and institutions alike, particularly as value-based care models increasingly focus on patient satisfaction, throughput, readmissions, recovery quality and total episode of care costs.

Ultimately, we believe the fifth consensus guidelines reinforce several important macro trends shaping the perioperative landscape, including greater use of multimodal prophylaxis, increasing recognition of post-discharge nausea vomiting, continued migration toward outpatient surgery, demand for workflow efficiency and the growing need for safe, effective nonsedating long-acting therapies that support enhanced recovery pathways, which we believe APONVIE is uniquely positioned to address. I will now turn the call back to Mark to discuss our oncology supportive care franchise.

Mark Hensley: Thanks, Kevin. Turning to oncology supportive care. There are 2 charts on this slide, average daily units on the left, ordering accounts on the right. CINVANTI's average daily units have remained resilient, sustaining a consistent trend in utilization throughout 2024 and into 2026. That's a meaningful durability marker for a product in its mature commercial phase in a category that has faced steady competitive pressure. On ordering accounts, you can see the two layers on the right chart. The blue line shows existing accounts running at approximately 1,100 every month, which speaks to the stickiness of the customer base. The purple line shows new and returning accounts averaging about 59 per month in Q1 of '26.

In March specifically, 1,188 accounts ordered CINVANTI. That number was in line with the 12-month average of approximately 1,200 accounts. On market share, CINVANTI ended Q1 with 25% exit share in March of 2026. That was also in line with the 12-month average. The stability is the takeaway. We are holding our position in a competitive category. Looking at growth drivers for the rest of 2026, Greg referenced a number of new accounts coming online this year. Those new formulary wins are due to our REIGNITE program. It's focused on CINVANTI access to major teaching hospitals, where we have already secured formulary wins and the near-term pipeline represents approximately $10 million in new opportunity.

And as I mentioned earlier, our dedicated aprepitant sales force expansion in the third quarter of 2026 will support CINVANTI as well as APONVIE. CINVANTI will be promoted in the second position by that team. Now to the broader category dynamics. On the next slide, the chart shows the broader NK1 category for chemotherapy-induced nausea and vomiting over the last 12 months. The stacked bars show total category units broken out by competitor product. The percentages at the top of each bar show month-over-month volatility in the overall category, ranging from down 19% in some months to up 21% in others. The line running across the chart is CINVANTI's market share within that category.

Despite all the category level volatility, CINVANTI's share has been remarkably stable. The 12-month average is 25%. March 2026 closed at 25%. That share stability in a category where the underlying volume is highly variable month-to-month is the durability marker for this franchise. To wrap up the commercial section, ZYNRELEF demand grew 22% year-over-year with IGNITE 2.0 expanding our targeted account base by 38% for 2026. APONVIE demand grew 68%. Ordering accounts hit an all-time high and the fifth consensus guidelines have positioned the product as the evidence-graded standard for PONV prophylaxis. CINVANTI held a stable 25% market share in a volatile category with reignite building approximately $10 million of near-term pipeline.

Across all of it, our pricing discipline is intact. Our structural drivers are in place, and our commercial leverage continues to expand with both our ZYNRELEF team and our dedicated aprepitant team set to expand in Q3. The drivers we put in motion in '25 are working as designed, and we have line of sight to deliver on the full year framework we laid out in February. With that, I'll now turn it over to Ira.

Ira Duarte: Thank you, Mark. As Craig noted, our financial results this quarter came in modestly below plan. That said, while winter storms are outside of our control, how we manage our business in response to them is not. And disciplined cost management remains a hallmark of this team that our shareholders have come to rely on. Net revenues for the quarter were $34.7 million, with gross margin coming in at 69%, below our typical low to mid-70s percent range. As we have discussed in prior calls, we have a secondary supplier for CINVANTI and carried a contractual obligation to produce a certain inventory quantities over the past year.

That secondary product is manufactured in smaller batch sizes at roughly 3x the cost per batch of our primary supplier. This inventory will work its way through our system over the next two quarters, after which we will return exclusively to our primary supplier. Once those contractual obligations are fulfilled, we expect gross margins to normalize back to the mid-70% range. Adjusted EBITDA was negative $727,000 for the quarter, reflecting the combined impact of the storm-related revenue softness and the temporary gross margin pressure from our secondary CINVANTI supplier. Both factors are temporary, and we expect adjusted EBITDA to return to positive territory as we move through 2026. Looking ahead, the recovery is already underway.

As noted earlier on the call, March net revenues returned to over $15 million, a strong signal for the second quarter and one that reinforces our confidence in achieving our full year targets. To reaffirm our 2026 guidance, we are maintaining net product sales of $173 million to $183 million and adjusted EBITDA of $10 million to $20 million, reflecting continued profitability alongside meaningful commercial expansion. With that, we are happy to open the call for questions.

Operator: [Operator Instructions] Our first question will be coming from the line of Brandon Folkes of H.C. Wainwright.

Brandon Folkes: Maybe just a few from me. Firstly, on your guidance, can you just talk about some of the pushes and pulls on ZYNRELEF that you assume to meet the overall company level revenue guidance? Do you assume ZYNRELEF taking market share? And then maybe secondly, apologies if I missed this. Can you just give me some details on the Baxter settlement, sort of what that allows, what that sort of keeps exclusivity? Yes, that's it for me. Maybe one more, just you talked about friction. So can you just talk about how you meaningfully change the adoption curve across ZYNRELEF and APONVIE. And on ZYNRELEF, it sounds like there's friction in sort of the office to decide to use ZYNRELEF.

How do you change that ahead of the prefilled syringe and eliminate the friction you're seeing today so that the prefilled syringe can sort of maximize the value that it can bring?

Craig Collard: Brandon, thank you for the questions. I'll start with the Baxter settlement, and then I'll turn it to Mark. Look, based on the terms of the settlement, we really can't go into the details of that other than to say that the dates and everything that have been published. But outside of that, we're just forbidden from saying anything on that. So I'll turn it over to Mark to talk about the ZYNRELEF questions that you asked.

Mark Hensley: Yes, it's a great question. I think, kind of, 1 and 3 are, kind of, part and parcel of the same. But in terms of our confidence, there are several factors that we're looking at. First, we talked about the weather and the elective procedures being pushed out of January. Obviously, we believe those will be rescheduled throughout the year. And so certainly, that will be a nice tailwind for us. As it relates to both ZYNRELEF and APONVIE really, we're really focused on the expansion of the sales force in the kind of midyear. We certainly think that will help our share of voice and really kind of build upon the foundation that we've already built.

And then IGNITE 2.0, you see the slides and kind of what that delivered in the third and fourth quarter of last year. And so the expansion of that by 38% in 2026, we believe, will be a really nice tailwind for us as we go forward. And then on the friction piece, I think for us, we don't really see accounts that don't want to use ZYNRELEF. Really, the hardest part for us is getting to a meaningful enough number of them to have that kind of quarter-over-quarter growth that we would want to see with the product, right? And so a lot of that is the reason why we're expanding the team in the, kind of, midyear.

And certainly, that share of voice will continue to grow. And so -- because we're continuing to see market share grow within our targeted accounts, certainly within the accounts where we're aligned, not only at Heron, but within our IGNITE program. And so we just want to continue to expand upon that across the country.

Operator: And our next question will be coming from the line of Serge Belanger of Needham & Company.

John Gionco: This is John on for Serge today. First, if I could just follow up on ZYNRELEF again with regard to the 1Q winter storm headwinds. Just curious if you could quantify the impact with regard to surgical volumes for the quarter there. And then second, on the implementation of NOPAIN. Obviously, it's been online for over a year now. Curious what impacts you're seeing on commercial coverage and how this has changed over time and what you might be expecting for '26? And then if I could just squeeze one more in on the CrossLink partnership. It seems like you're adding on to the initial IGNITE program, targeting more accounts here in '26.

Curious if this is just throwing more muscle at the program to increase the accounts you're getting into and what else we might expect from this?

Mark Hensley: Great. Thank you for the questions. On surgical volume, our data shows this kind of high single-digit decline from the fourth quarter. So a pretty meaningful impact larger than we've seen in prior years. We think that's part weather-related, part a record Q4 from a surgical volume perspective and maybe some of our surgical partners just taking a deep breath in the quarter. But certainly, we expect that to significantly improve. And obviously, some of those surgeries that were lost, we would imagine that those would be rescheduled.

To your second question on commercial coverage, we -- obviously, NOPAIN is a great factor for ZYNRELEF and certainly removes the word I've been using is friction, at least on the Medicare side, on the government payer side. And since its implementation, we've seen more and more commercial payers begin to add ZYNRELEF outside of the surgical bundles, reimbursing outside of that bundle. We reported the number on the call at 110 million lives is the estimate that we have on the commercial side. And so kind of largely across the United States, very well covered for ZYNRELEF.

There are pockets where we see ZYNRELEF still bundled, but certainly, we have the ability to go in and have those conversations at the payer level. And for the most part, they're willing to listen and make some changes for our patients. And then as it relates to CrossLink, we allow them to select the accounts. And so by doing so, the natural selection gave us an expansion in that program, again, at 38%. And so the alignment between Heron and CrossLink now is almost 90% in terms of our focus. That's the highest it's ever been, significantly higher than the back half of 2025.

And so what that really means is that we have a Heron employee in the account. We have a CrossLink employee in that account. We have really good payer coverage in those accounts. That's why they were selected. And so those three pieces of the puzzle have shown us that, that's where we really have good success and are able to move ZYNRELEF forward. And so that gives us a lot of confidence for 2026.

Operator: [Operator Instructions] I would now like to turn the conference back to Craig Collard for closing remarks.

Craig Collard: Thank you, operator. I just want to thank everyone for joining the call today, and we look forward to speaking to you all next quarter.

Operator: And this concludes today's program. Thank you for participating. You may now disconnect.

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