Heron Therapeutics Inc Annual Report 2018

Plain-text annual report

Table of ContentsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549Form 10-K (Mark One)☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2018or☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from toCommission file number: 001-33221HERON THERAPEUTICS, INC.(Exact name of registrant as specified in its charter) DELAWARE 94-2875566(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)4242 CAMPUS POINT COURT, SUITE 200SAN DIEGO, CA 92121(Zip Code)(Address of principal executive offices)Registrant’s telephone number, including area code:(858) 251-4400Securities registered pursuant to Section 12(b) of the Act: Title of each class: Name of each exchange on which registered:Common Stock, par value $0.01 per share The Nasdaq Capital MarketSecurities registered pursuant to Section 12(g) of the Act: NoneIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑ No ☐Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past90 days. Yes ☑ No ☐Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not becontained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment tothis Form 10-K. ☑Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growthcompany. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the ExchangeAct. Large accelerated filer ☑ Accelerated filer ☐Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐Table of ContentsIf an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revisedfinancial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑The aggregate market value of voting and non-voting common stock held by non-affiliates of the registrant as of June 30, 2018 totaled $2.8 billion based on the closingprice of $38.85 as reported by The Nasdaq Capital Market. As of February 1, 2019, there were 78,181,651 shares of the Company’s common stock ($0.01 par value)outstanding.Documents Incorporated by ReferencePortions of the registrant’s Definitive Proxy Statement related to its 2019 Annual Meeting of Stockholders’ to be held on or about June 19, 2019 are incorporated byreference into Part III of this Annual Report on Form 10-K. Such Definitive Proxy Statement will be filed with the U.S. Securities and Exchange Commission within 120days after the end of the fiscal year to which this report relates. Except as expressly incorporated by reference, the registrant’s Definitive Proxy Statement shall not bedeemed to be part of this report.Table of ContentsTABLE OF CONTENTS PART I 5 Item 1. Business 5 Item 1A. Risk Factors 20 Item 1B. Unresolved Staff Comments 44 Item 2. Properties 44 Item 3. Legal Proceedings 44 Item 4. Mine Safety Disclosures 44 PART II 45 Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 45 Item 6. Selected Financial Data 47 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 48 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 57 Item 8. Financial Statements and Supplementary Data 58 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 83 Item 9A. Controls and Procedures 83 Item 9B. Other Information 85 PART III 85 Item 10. Directors, Executive Officers and Corporate Governance 85 Item 11. Executive Compensation 85 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 85 Item 13. Certain Relationships and Related Transactions, and Director Independence 85 Item 14. Principal Accountant Fees and Services 85 PART IV 86 Item 15. Exhibits, Financial Statement Schedules 86 Exhibit Index 87 Item 16. Form 10-K Summary 89 Signatures 90 3Table of ContentsFORWARD-LOOKING STATEMENTSThis Annual Report on Form 10-K contains forward-looking statements within the meaning of the federal securities laws. We make suchforward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securitieslaws. You can identify forward-looking statements by the use of the words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “project,” “will,”“should,” “may,” “plan,” “assume” and other expressions that predict or indicate future events and trends and which do not relate to historical matters.You should not rely on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, some of which arebeyond our control. These risks, uncertainties and other factors may cause our actual results, performance or achievements to be materially differentfrom 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 SUSTOL® (granisetron) extended-release injection(“SUSTOL”), CINVANTI® (aprepitant) injectable emulsion (“CINVANTI”) and future product candidates, including HTX-011, and ourpositioning relative to competing products; • whether study results of our products are indicative of the results in future studies; • the potential regulatory approval for and commercial launch of HTX-011; • the potential market opportunities for SUSTOL, CINVANTI and HTX-011; • our competitors’ activities, including decisions as to the timing of competing product launches, generic entrants, pricing anddiscounting; • whether safety and efficacy results of our clinical studies and other required tests for approval of our product candidates provide datato warrant progression of clinical trials, potential regulatory approval or further development of any of our product candidates; • our ability to develop, acquire and advance product candidates into, and successfully complete, clinical studies, and our ability tosubmit 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 U.S. Food and Drug Administration’s (“FDA”) mandated timelinesand to obtain favorable results and comply with standard postmarketing requirements including U.S. federal advertising andpromotion 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 SUSTOL,CINVANTI or any of our product candidates; • our ability to successfully develop and achieve regulatory approval for other future product candidates utilizing our proprietaryBiochronomer® drug delivery technology (“Biochronomer Technology”); • our ability to establish key collaborations and vendor relationships for our products and any other future 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; • our ability to successfully operate in non-U.S. jurisdictions in which we may choose to do business, including compliance withapplicable regulatory requirements and laws; • uncertainties associated with obtaining and enforcing patents to protect our products, and our ability to successfully defend ourselvesagainst unforeseen third-party infringement claims; 4Table of Contents • our estimates regarding our capital 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 Annual Report on Form 10-K reflect our current views with respect to future events or to our futurefinancial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance orachievements 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 this Annual Report on Form 10-K. You should carefully review all of these factors. Given these uncertainties, you should not placeundue reliance on these forward-looking statements. These forward-looking statements were based on information, plans and estimates as of the date ofthis Annual Report on Form 10-K, and except as required by law, we assume no obligation to update any forward-looking statements to reflect changesin underlying assumptions or factors, new information, future events or other changes. These risk factors may be updated from time to time by ourfuture filings under the Securities Exchange Act of 1934 (“Exchange Act”). You should carefully review all information therein.PART IIn this Annual Report on Form 10-K, all references to “Heron,” the “Company,” “we,” “us,” “our” and similar terms refer to HeronTherapeutics, Inc. and its wholly-owned subsidiary, Heron Therapeutics, B.V. Heron Therapeutics®, the Heron logo, SUSTOL®, CINVANTI® andBiochronomer® are our trademarks. All other trademarks appearing or incorporated by reference into this Annual Report on Form 10-K are the propertyof their respective owners. ITEM 1. BUSINESS.OverviewWe are a commercial-stage biotechnology company focused on improving the lives of patients by developing best-in-class treatments toaddress some of the most important unmet patient needs. We are developing novel, patient-focused solutions that apply our innovative science andtechnologies to already-approved pharmacological agents for patients suffering from cancer or pain.On August 9, 2016, our first commercial product, SUSTOL, was approved by the FDA. SUSTOL is indicated in combination with otherantiemetics in adults for the prevention of acute and delayed nausea and vomiting associated with initial and repeat courses of moderately emetogenicchemotherapy (MEC) or anthracycline and cyclophosphamide (AC) combination chemotherapy regimens. SUSTOL is an extended-release, injectable5-hydroxytryptamine type 3 (“5-HT3”) receptor antagonist that utilizes Heron’s Biochronomer Technology to maintain therapeutic levels ofgranisetron for 5 days. We commenced commercial sales of SUSTOL in the U.S. in October 2016.On November 9, 2017, our second commercial product, CINVANTI, was approved by the FDA. CINVANTI, in combination with otherantiemetic agents, is indicated in adults for the prevention of acute and delayed nausea and vomiting associated with initial and repeat courses ofhighly emetogenic cancer chemotherapy (HEC) including high-dose cisplatin and nausea and vomiting associated with initial and repeat courses ofmoderately emetogenic cancer chemotherapy (MEC). CINVANTI is an intravenous (“IV”) formulation of aprepitant, a substance P/neurokinin-1(“NK1”) receptor antagonist. CINVANTI is the only IV formulation of an NK1 receptor antagonist indicated for the prevention of acute and delayednausea and vomiting associated with HEC and nausea and vomiting associated with MEC that is free of polysorbate 80 or any other syntheticsurfactant. We commenced commercial sales of CINVANTI in the U.S. in January 2018. 5Table of ContentsHTX-011, which utilizes Heron’s proprietary Biochronomer Technology, is an investigational, long-acting, extended-release formulation ofthe local anesthetic bupivacaine in a fixed-dose combination with the anti-inflammatory meloxicam for postoperative pain management. By deliveringsustained levels of both a potent anesthetic and a local anti-inflammatory agent directly to the site of tissue injury, HTX-011 was designed to deliversuperior pain relief while reducing the need for systemically administered pain medications such as opioids, which carry the risk of harmful side effects,abuse and addiction. HTX-011 has been shown to reduce pain significantly better than placebo or bupivacaine alone in five diverse surgical models:hernia repair, abdominoplasty, bunionectomy, total knee arthroplasty and breast augmentation. HTX-011 was granted Fast Track designation from theFDA in the fourth quarter of 2017 and Breakthrough Therapy designation in the second quarter of 2018. The FDA recently accepted our New DrugApplication (“NDA”) for HTX-011, and has granted it a Priority Review designation. The FDA set a Prescription Drug User Fee Act (“PDUFA”) goaldate of April 30, 2019 and indicated that it is not currently planning an advisory committee meeting to discuss this application.HTX-034, our next-generation product candidate for postoperative pain management, is in development for postoperative pain via localapplication. Based on the positive results of preclinical studies in which HTX-034 demonstrated significant pain reduction for seven days, we haveinitiated formal development of this next-generation postoperative pain management product candidate.Chemotherapy-Induced Nausea and Vomiting (“CINV”) Product PortfolioSUSTOLSUSTOL was our first commercial product. SUSTOL was approved by the FDA on August 9, 2016, and we commenced commercial sales inthe U.S. in October 2016.SUSTOL is indicated in combination with other antiemetics in adults for the prevention of acute and delayed nausea and vomitingassociated with initial and repeat courses of moderately emetogenic chemotherapy (MEC) or anthracycline and cyclophosphamide (AC) combinationchemotherapy regimens. SUSTOL is an extended-release, injectable 5-HT3 receptor antagonist that utilizes our Biochronomer Technology to maintaintherapeutic levels of granisetron for 5 days. The SUSTOL global Phase 3 development program was comprised of two, large, guideline-based clinicalstudies that evaluated SUSTOL’s efficacy and safety in more than 2,000 patients with cancer. SUSTOL’s efficacy in preventing nausea and vomitingwas 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 vomitingassociated 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”) andthe 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 Version1.2017. The NCCN has given SUSTOL a Category 1 recommendation, the highest level category of evidence and consensus, for use in the preventionof acute and delayed nausea and vomiting in patients receiving HEC or MEC regimens. The guidelines now identify SUSTOL as a “preferred” agent forpreventing 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 wasassigned by the Centers for Medicare and Medicaid Services (“CMS”) and will help simplify the billing and reimbursement process for prescribers ofSUSTOL.CINVANTICINVANTI is our second commercial product. CINVANTI was approved by the FDA on November 9, 2017, and we commenced commercialsales 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 vomitingassociated with initial and repeat courses of highly emetogenic cancer chemotherapy (HEC) including high-dose cisplatin and nausea and vomitingassociated with initial and repeat courses of moderately emetogenic cancer chemotherapy (MEC). 6Table of ContentsCINVANTI is an IV formulation of aprepitant, an NK1 receptor antagonist. CINVANTI is the first IV formulation to directly deliveraprepitant, the active ingredient in EMEND® capsules. Aprepitant (including its prodrug, fosaprepitant) is the only single-agent NK1 receptorantagonist to significantly reduce nausea and vomiting in both the acute phase (0 – 24 hours after chemotherapy) and the delayed phase (24 – 120hours after chemotherapy). CINVANTI is the only IV formulation of an NK1 receptor antagonist indicated for the prevention of acute and delayednausea and vomiting associated with HEC and nausea and vomiting associated with MEC that is free of polysorbate 80 or any other syntheticsurfactant.NK1 receptor antagonists are typically used in combination with 5-HT3 receptor antagonists. The only other injectable NK1 receptorantagonist currently approved in the U.S. for both acute and delayed CINV, EMEND® IV (fosaprepitant), contains polysorbate 80, a syntheticsurfactant, which has been linked to hypersensitivity reactions, including anaphylaxis, and infusion site reactions. The CINVANTI formulation doesnot 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 associatedwith MEC. Results also showed CINVANTI was better tolerated in healthy volunteers than EMEND IV, with significantly fewer adverse eventsreported with CINVANTI.In November 2018, a J-code for CINVANTI was assigned with an effective date of January 1, 2019. The new J-code was assigned by CMSand will help simplify the billing and reimbursement process for prescribers of CINVANTI.Pain Management Product PortfolioHTX-011HTX-011, which utilizes our Biochronomer Technology, is an investigational, long-acting, extended-release formulation of the localanesthetic bupivacaine in a fixed-dose combination with the anti-inflammatory meloxicam for postoperative pain management. By deliveringsustained levels of both a potent anesthetic and a local anti-inflammatory agent directly to the site of tissue injury, HTX-011 was designed to deliversuperior pain relief while reducing the need for systemically administered pain medications such as opioids, which carry the risk of harmful side effects,abuse and addiction. The FDA recently accepted our NDA for HTX-011, and has granted it a Priority Review designation. The FDA set a PDUFA goaldate of April 30, 2019 and indicated that it is not currently planning an advisory committee meeting to discuss this application.In January 2019, we reported positive topline results of a multi-center postoperative pain management study in which 63 patientsundergoing hernia repair surgery received the investigational agent, HTX-011, together with a regimen of generic over-the-counter (“OTC”) oralanalgesics (acetaminophen and ibuprofen). Designed as a follow-up to the Phase 3 study in hernia repair completed in 2018, this study included manyof the same investigators and the same entry criteria as the Phase 3 study. The goal of the current study was to increase the proportion of opioid-freepatients by combining HTX-011 with a regimen of readily available, oral analgesics. Topline results of the study include the following: • 90% of patients receiving HTX-011 with the OTC analgesic regimen did not require opioids to manage their postoperative painthrough 72 hours post-surgery, compared to 51%, 40% and 22% of patients receiving HTX-011, bupivacaine and placebo,respectively, in the prior Phase 3 study. • 81% of patients receiving HTX-011 with the OTC analgesic regimen remained opioid-free through 28 days post-surgery. • Over 72 hours post-surgery, patients receiving HTX-011 plus the OTC analgesic regimen consumed an average of 0.9 morphinemilligram equivalents (“MME”), which compares to 10.8 MME, 14.5 MME and 17.5 MME for patients receiving HTX-011,bupivacaine and placebo, respectively, in the prior Phase 3 study.In June 2018, we reported positive topline results from two completed Phase 2b studies of HTX-011: Study 209 (local administration in totalknee arthroplasty) and Study 211 (instillation or pectoral pocket nerve block in breast augmentation). HTX-011 achieved the primary endpoints inboth studies. 7Table of ContentsTotal Knee Arthroplasty — Study 209 ResultsStudy 209 was a randomized, placebo- and active-controlled, double-blind, Phase 2b clinical study in patients undergoing primaryunilateral total knee arthroplasty to evaluate the analgesic efficacy, safety and pharmacokinetics of locally administered HTX-011 into the surgicalsite. Following a dose-escalation phase, 222 patients were randomized to receive: (1) HTX-011 400 mg administered via instillation into the surgicalsite (HTX-011 alone); (2) HTX-011 400 mg administered via instillation into the surgical site with a low dose of ropivacaine injected into the posteriorcapsule (HTX-011 combination); (3) bupivacaine 125 mg administered via multiple injections into the surgical site; and (4) placebo. Ropivacaine andbupivacaine are generically available standard-of-care local anesthetics used in postoperative pain management. This study included a pre-specifiedhierarchical testing strategy for the primary and key secondary endpoints for the HTX-011 400 mg treatment groups. The primary endpoint was painintensity as measured by the Area Under the Curve (“AUC”) from 0 to 48 hours post-surgery (“AUC 0-48”) for HTX-011 compared to placebo. The keysecondary endpoint was pain intensity as measured by the AUC from 0 to 72 hours post-surgery (“AUC 0-72”) for HTX-011 compared to placebo. Theprimary and key secondary endpoints were achieved: • The HTX-011 combination and HTX-011 alone resulted in reductions of 23% and 19%, respectively, in pain intensity measured at restthrough 48 hours when compared to placebo (p<0.0001 and p=0.0002, respectively). These pain reductions from HTX-011 wereapproximately double that of bupivacaine, which resulted in a reduction of 11%. The HTX-011 combination reduction wassignificantly better than that of bupivacaine (p=0.0212). • The HTX-011 combination and HTX-011 alone resulted in reductions of 22% and 19%, respectively, in pain intensity measured at restthrough 72 hours when compared to placebo (p<0.0001 and p=0.0004, respectively). These pain reductions from HTX-011 were alsoapproximately double that of bupivacaine, which resulted in a reduction of 11%. The HTX-011 combination reduction wassignificantly better than that of bupivacaine through 72 hours (p=0.0325). • With the more conservative assessment of pain with activity, the HTX-011 combination and HTX-011 alone resulted in reductions of16% and 12%, respectively, in pain intensity measured with activity through 48 hours when compared to placebo (p<0.0001 andp=0.0017, respectively). These pain reductions from HTX-011 were significantly better than that of bupivacaine, which resulted in areduction of 4% (p=0.0012 and p=0.0366, respectively). Both the HTX-011 combination and HTX-011 alone maintained control ofpain with activity through 72 hours with a 15% (p=0.0002) and 11% (p=0.0058) reduction compared to placebo, respectively. • The HTX-011 combination significantly reduced opioid use through 48 and 72 hours compared to placebo (p=0.0091 and p=0.0253,respectively).Breast Augmentation — Study 211 ResultsStudy 211 was a randomized, placebo- and active-controlled, double-blind, Phase 2b dose-finding study in patients undergoingaugmentation mammoplasty to evaluate the analgesic efficacy, safety and pharmacokinetics of HTX-011 when administered by instillation into thesurgical site or via ultrasound-guided lateral and medial pectoral nerve block before surgery. The study consisted of three cohorts comparing HTX-011nerve block (60 mg, 120 mg, 240 mg) to the standard dose of bupivacaine 50 mg, administered as a nerve block, and placebo, and a final cohortcomparing both HTX-011 400 mg administered by instillation and HTX-011 400 mg administered as a nerve block to the same two control groups. Atotal of 243 patients were enrolled. The primary endpoint was pain intensity as measured by the AUC from 0 to 24 hours post-surgery (“AUC 0-24”)compared to placebo. The primary endpoint of the study was achieved: • HTX-011 400 mg administered by instillation into the surgical site and HTX-011 400 mg administered as a nerve block both resultedin reductions of 22% in pain intensity measured at rest through 24 hours when compared to placebo (p=0.0023 and p=0.0055,respectively). These pain reductions from HTX-011 were approximately triple that of bupivacaine administered as a nerve block,which resulted in a reduction of 8%. The HTX-011 400 mg instillation reduction was significantly better than that of bupivacaine(p=0.0383). • With the more conservative assessment of pain with activity, HTX-011 400 mg instillation and HTX-011 400 mg nerve block resultedin reductions of 24% and 23%, respectively, in pain intensity measured with activity through 24 hours when compared to placebo(p=0.0004 and p=0.0015, respectively). These pain reductions from HTX-011 were approximately double that of bupivacaineadministered as a nerve block, which resulted in a reduction of 12%. 8Table of Contents • HTX-011 400 mg instillation and HTX-011 400 mg nerve block resulted in reductions in total opioid use of 33% and 26%,respectively, when compared to placebo (p=0.0093 and p=0.0435, respectively). These reductions from HTX-011 were approximatelytriple that of bupivacaine administered as a nerve block, which resulted in a reduction of 10%. The HTX-011 400 mg instillationreduction was significantly better than that of bupivacaine (p=0.0455).There was a strong correlation between pain reduction and the pharmacokinetics of HTX-011 in both studies.HTX-011 was well tolerated in both studies, with a safety profile comparable to placebo and bupivacaine solution. There were no deaths andno clinically meaningful differences in overall adverse events, serious adverse events, premature discontinuations due to adverse events, potentiallocal anesthetic systemic toxicity related adverse events or wound healing.In June 2018, we announced that we have been granted Breakthrough Therapy designation for HTX-011 from the FDA for postoperativepain management. Breakthrough Therapy designation is designed to expedite the development and review of drugs that are intended to treat seriousconditions and for which preliminary clinical evidence indicates substantial improvement over available therapies on clinically significantendpoint(s). Breakthrough Therapy designation was granted for HTX-011 based on the results of Phase 2 studies and two recently completed Phase 3studies, which showed that HTX-011 produced significant reductions in both pain intensity and the need for opioids through 72 hours post-surgerycompared to placebo and bupivacaine solution, the standard of care.In March 2018, we reported positive topline results from EPOCH1 and EPOCH2, our pivotal Phase 3 studies of HTX-011 in bunionectomyand hernia repair, respectively. All primary and key secondary endpoints were achieved in these studies. Furthermore, HTX-011 is the only long-actinglocal anesthetic to demonstrate in Phase 3 studies significantly reduced pain and opioid use compared to bupivacaine solution, the currentstandard-of-care local anesthetic for postoperative pain control, through 72 hours.The primary and key secondary endpoints for both Phase 3 studies were identical. The primary endpoint was pain intensity as measured bythe AUC 0-72 compared to placebo. Key secondary endpoints in order of evaluation were: • comparison of AUC 0-72 of pain intensity to bupivacaine solution; • the total amount of opioid rescue medication consumption compared to placebo through 72 hours after surgery; • the proportion of patients who received no opioid rescue medication after surgery compared to bupivacaine solution; and • the total opioid consumption through 72 hours after surgery compared to bupivacaine.Bunionectomy — Study 301/EPOCH1 ResultsEPOCH1 was a randomized, placebo- and active-controlled, double-blind, Phase 3 clinical study evaluating the efficacy and safety oflocally administered HTX-011 at 60 mg compared to the standard dose of bupivacaine solution (50 mg) and placebo for postoperative pain controlfollowing bunionectomy surgery in 412 subjects. All primary and key secondary endpoints were achieved: • There was a 27% reduction in pain intensity as measured by AUC 0-72 when comparing HTX-011 to placebo (p<0.0001); • There was an 18% reduction in pain as measured by AUC 0-72 when comparing HTX-011 to bupivacaine solution (p=0.0002); • Over 72 hours post-surgery, patients receiving HTX-011 consumed 37% less opioids than placebo patients (p<0.0001) and 25% lessopioids than patients receiving bupivacaine solution (p=0.0022); and • 29% of patients receiving HTX-011 required no opioid medication for 72 hours post-surgery compared to only 2% receiving placebo(p<0.0001) and 11% receiving the standard-of-care, bupivacaine solution (p=0.0001). These results parallel the significantly reducedincidence of severe pain in patients receiving HTX-011 compared to both placebo (36% reduction; p<0.0001) and bupivacaine (29%reduction; p<0.0001). 9Table of ContentsHernia Repair — Study 302/EPOCH2 ResultsEPOCH2 was a randomized, placebo- and active-controlled, double-blind, Phase 3 clinical study evaluating the efficacy and safety oflocally administered HTX-011 at 300 mg compared to the standard dose of bupivacaine solution (75 mg) and placebo for postoperative pain controlfollowing hernia repair surgery in 418 subjects. All primary and key secondary endpoints were achieved: • There was a 23% reduction in pain intensity as measured by AUC 0-72 when comparing HTX-011 to placebo (p=0.0004); • There was a 21% reduction in pain as measured by AUC 0-72 when comparing HTX-011 to bupivacaine solution (p<0.0001); • Over 72 hours post-surgery, patients receiving HTX-011 consumed 38% less opioids than placebo patients (p=0.0001) and 25% lessopioids than patients receiving bupivacaine solution (p=0.0240); and • 51% of patients receiving HTX-011 required no opioid medication for 72 hours post-surgery compared to only 22% receiving placebo(p<0.0001) and 40% receiving the standard-of-care, bupivacaine solution (p=0.0486). These results parallel the significantly reducedincidence of severe pain in patients receiving HTX-011 compared to both placebo (40% reduction; p<0.0001) and bupivacaine (19%reduction; p=0.0372).HTX-011 was well tolerated in both studies, with a safety profile comparable to placebo and bupivacaine solution. There were no drug-related serious adverse events or discontinuations due to drug-related adverse events in HTX-011-treated patients, and there were fewer opioid-relatedadverse events in HTX-011-treated patients.HTX-011 is the only long-acting anesthetic designed to address both postoperative pain and inflammation in a single administration at thesurgical site. The unique synergy of bupivacaine and meloxicam in HTX-011 has consistently been shown to reduce pain over 72 hours significantlybetter than bupivacaine alone in multiple diverse surgical models. HTX-011 is administered as a single-dose application via needle-free syringe todirectly coat the affected tissue within the surgical site prior to suturing, which makes HTX-011’s route of administration faster, easier and potentiallysafer compared to numerous injections required with current local anesthetics.In October 2017, we announced that we have been granted Fast Track designation for HTX-011 from the FDA for local administration intothe surgical site to reduce postoperative pain and the need for opioid analgesics for 72 hours. Fast Track designation is intended to facilitate thedevelopment and expedite the review of new therapies to treat serious conditions with unmet medical needs by providing sponsors with theopportunity for frequent interactions with the FDA.Biochronomer TechnologyOur proprietary Biochronomer Technology is designed to deliver therapeutic levels of a wide range of otherwise short-actingpharmacological agents over a period from days to weeks with a single administration. Our Biochronomer Technology consists of bioerodiblepolymers 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 encapsulatedwithin the Biochronomer-based composition. Furthermore, our Biochronomer Technology is designed to permit more than one pharmacological agentto be incorporated, such that multimodal therapy can be delivered with a single administration.Sales and MarketingOur U.S.-based sales and marketing team consists of 68 employees as of February 1, 2019. The sales and marketing infrastructure includes atargeted, oncology sales force to establish relationships with a focused group of oncologists and oncology nurses. Additionally, the sales andmarketing teams manage relationships with key accounts, such as managed care organizations, group purchasing organizations, hospital systems,oncology group networks and government accounts. The sales force is supported by sales management, internal sales support, an internal marketinggroup and distribution support. We are currently building our U.S.-based sales and marketing team to support the commercialization of HTX-011, ifapproved. 10Table of ContentsCustomersSUSTOL is distributed in the U.S. through a limited number of specialty distributors (“Customers”) that subsequently resell SUSTOL tohealthcare providers, the end users of SUSTOL. CINVANTI is distributed in the U.S. through a limited number of Customers that resell CINVANTI tohealthcare providers and hospitals, the end users of CINVANTI.Sales to three different Customers separately accounted for 10% or more of our SUSTOL and CINVANTI net product sales for the year endedDecember 31, 2018. Sales to two Customers accounted for 10% or more of our SUSTOL net product sales for the year ended December 31, 2017.We have engaged a third-party service provider to act as our exclusive distributor for commercial shipment and distribution of our productsto our Customers in the U.S. In addition to distribution services, other related services, including product storage, returns, customer support andadministrative support are provided.CompetitionThe biotechnology and pharmaceutical industries are extremely competitive. Our potential competitors are many in number and includemajor and mid-sized pharmaceutical and biotechnology companies. Many of our potential competitors have significantly more financial, technical andother resources than we do, which may give them a competitive advantage. In addition, they may have substantially more experience in effectingstrategic combinations, in-licensing technology, developing drugs, obtaining regulatory approvals and manufacturing and marketing products. Wecannot give any assurances that we can compete effectively with these other biotechnology and pharmaceutical companies. SUSTOL, CINVANTI andHTX-011 compete in, and any other products that we may develop or discover, if approved, will compete in, highly competitive markets. Our potentialcompetitors in these markets may succeed in developing products that could render our products and product candidates obsolete or non-competitive.SUSTOL faces significant competition. Currently available 5-HT3 receptor antagonists include: AKYNZEO® (palonosetron, a 5-HT3receptor antagonist, combined with netupitant, an NK1 receptor antagonist, marketed by Helsinn Therapeutics (U.S.), Inc.); SANCUSO® (granisetrontransdermal patch, marketed by ProStrakan Group Plc); and generic products including ondansetron (formerly marketed by GlaxoSmithKline plc asZOFRAN), granisetron (formerly marketed by Hoffman-La Roche, Inc. as KYTRIL) and palonosetron (formerly marketed by Eisai in conjunction withHelsinn Healthcare S.A. as ALOXI). Currently, palonosetron is the only 5-HT3 receptor antagonist other than SUSTOL that is approved for theprevention of delayed CINV associated with MEC regimens. SUSTOL is indicated in combination with other antiemetics in adults for the prevention ofacute and delayed nausea and vomiting associated with initial and repeat courses of moderately emetogenic chemotherapy (MEC) or anthracycline andcyclophosphamide (AC) combination chemotherapy regimens, which is considered to be a HEC regimen by the NCCN and ASCO. No other 5-HT3receptor antagonist is specifically approved for the prevention of delayed CINV associated with a HEC regimen.NK1 receptor antagonists are also administered for the prevention of CINV, in combination with 5-HT3 receptor antagonists, to augment thetherapeutic effect of the 5-HT3 receptor antagonist. CINVANTI faces significant competition. Currently available NK1 receptor antagonists include:AKYNZEO® (palonosetron, a 5-HT3 receptor antagonist, combined with netupitant, an NK1 receptor antagonist, marketed by Eisai, Inc.); EMEND®(aprepitant, marketed by Merck & Co, Inc.); EMEND® IV (fosaprepitant, marketed by Merck & Co); VARUBI® (rolapitant, marketed byTerSeraTherapeutics LLC) and potentially other products that include an NK1 receptor antagonist that reach the market.If we are able to successfully develop HTX-011 for postoperative pain management, we will compete with MARCAINE (bupivacaine,marketed by Hospira, Inc.) and generic forms of bupivacaine; NAROPIN (ropivacaine, marketed by Fresenius Kabi USA, LLC) and generic forms ofropivacaine; EXPAREL® (bupivacaine liposome injectable suspension, marketed by Pacira Pharmaceuticals, Inc.) and potentially other products indevelopment for postoperative pain management that reach the market. 11Table of ContentsManufacturing and Clinical SuppliesWe do not own or operate manufacturing facilities for the production of commercial or clinical quantities of SUSTOL, CINVANTI orHTX-011. We rely on a small number of third-party manufacturers to produce our compounds and expect to continue to do so to meet the preclinicaland clinical requirements of our product candidates and for all of our commercial needs. We currently have long-term commercial supply agreementswith certain third-party manufacturers. Our manufacturing and processing agreements require that all third-party contract manufacturers and processorsproduce active pharmaceutical ingredients and finished products in accordance with the FDA’s current Good Manufacturing Practices (“cGMP”) andall other applicable laws and regulations. We maintain confidentiality agreements with potential and existing manufacturers in order to protect ourproprietary rights related to SUSTOL, CINVANTI, HTX-011, HTX-034 and our Biochronomer Technology.Some of the critical materials and components used in manufacturing SUSTOL, CINVANTI and HTX-011 are sourced from single suppliers.An interruption in the supply of a key material could significantly delay our research and development process or increase our expenses forcommercialization or development of products. Specialized materials must often be manufactured for the first time for use in drug deliverytechnologies, or materials may be used in the technologies in a manner that is different from their customary commercial uses. The quality of materialscan be critical to the performance of a drug delivery technology, so a reliable source that provides a consistent supply of materials is important.Materials or components needed for our drug delivery technologies may be difficult to obtain on commercially reasonable terms, particularly whenrelatively small quantities are required or if the materials traditionally have not been used in pharmaceutical products.Intellectual PropertyOur success will depend in large part on our ability to: • obtain and maintain international and domestic patents and other legal protections for the proprietary technology, inventions andimprovements we consider important to our business; • prosecute and defend our patents; • preserve our trade secrets; and • operate without infringing the patents and proprietary rights of other parties.We intend to continue to seek appropriate patent protection for the product candidates in our research and development programs and theiruses by filing patent applications in the U.S. and other selected countries. We intend for these patent applications to cover, where possible, claims forcomposition of matter, medical uses, processes for preparation and formulations.We have filed a number of U.S. patent applications on inventions relating to the composition of a variety of polymers, specific products,product groups and processing technology. As of December 31, 2018, we had a total of 25 issued U.S. patents and an additional 32 issued (orregistered) foreign patents. The patents on the bioerodible technologies expire between May 2021 and March 2026. Currently, SUSTOL is covered byseven patents issued in the U.S. and by 30 patents issued in foreign countries including Austria, Belgium, Canada, Denmark, Finland, France, Germany,Greece, Ireland, Italy, Japan, Luxembourg, Netherlands, Portugal, Spain, Sweden, Switzerland, Taiwan and the United Kingdom. U.S. patents coveringSUSTOL have expiration dates ranging from May 2021 to September 2024; foreign patents covering SUSTOL have expiration dates ranging from May2021 to September 2025. Currently, CINVANTI is covered by five patents issued in the U.S. with expiration dates of September 2035. HTX-011 isprotected by eight patents issued in the U.S. with expiration dates ranging from May 2021 to April 2035 and one patent issued in Mexico and onepatent issued in Japan both with expiration dates of March 2034. Our policy is to actively seek patent protection in the U.S. and to pursue equivalentpatent claims in selected foreign countries, thereby seeking patent coverage for novel technologies and compositions of matter that may becommercially important to the development of our business. Granted patents include claims covering the product composition, methods of use andmethods of preparation. Our existing patents may not cover future products, additional patents may not be issued and current patents, or patents issuedin the future, may not provide meaningful protection or prove to be of commercial benefit. 12Table of ContentsAlthough we believe that our rights under patent applications we own provide a competitive advantage, the patent positions ofpharmaceutical and biotechnology companies are highly uncertain and involve complex legal and factual questions. We may not be able to developpatentable products or processes, and may not be able to obtain patents from pending applications. Even if patent claims are allowed, the claims maynot issue, or in the event of issuance, may not be sufficient to protect the technology owned by or licensed to us. Any patents or patent rights that weobtain may be circumvented, challenged or invalidated by our competitors.We also rely on trade secrets, proprietary know-how and continuing innovation to develop and maintain our competitive position. We seekprotection of these trade secrets, proprietary know-how and any continuing innovation, in part, through confidentiality and proprietary informationagreements. However, these agreements may not provide meaningful protection for, or adequate remedies to protect, our technology in the event ofunauthorized use or disclosure of information. Furthermore, our trade secrets may otherwise become known to, or be independently developed by, ourcompetitors.Government RegulationPharmaceutical RegulationPharmaceutical products that we market in the U.S. are subject to extensive government regulation. Likewise, if we seek to market anddistribute any such products abroad, they would also be subject to extensive foreign government regulation.In the U.S., the FDA regulates pharmaceutical products. FDA regulations govern the testing, research and development activities,manufacturing, quality, storage, advertising, promotion, labeling, sale and distribution of pharmaceutical products. Accordingly, there is a rigorousprocess for the approval of new drugs and ongoing oversight of marketed products. We are also subject to foreign regulatory requirements governingclinical trials and drug products if products are tested or marketed abroad. The approval process outside the U.S. varies from jurisdiction to jurisdictionand the time required may be longer or shorter than that required for FDA approval.See Item 1A. Risk Factors of this Annual Report on Form 10-K for a discussion of the factors that could adversely impact our development ofcommercial products and industry regulation.Regulation in the U.S.The FDA testing and approval process requires substantial time, effort and money. The FDA approval process for new drugs includes,without limitation: • preclinical studies; • submission in the U.S. of an Investigational New Drug application (“IND”), for clinical trials conducted in the U.S.; • adequate and well-controlled human clinical trials to establish safety and efficacy of the product; • review of an NDA in the U.S.; and • inspection of the facilities used in the manufacturing of the drug to assess compliance with the FDA’s current cGMP regulations.The FDA monitors the progress of trials conducted in the U.S. under an IND and may, at its discretion, re-evaluate, alter, suspend or terminatetesting based on the data accumulated to that point and the FDA’s risk/benefit assessment with regard to the patients enrolled in the trial. The FDA mayalso place a hold on one or more clinical trials conducted under an IND for a drug if it deems warranted. Furthermore, even after regulatory approval ofan NDA is obtained, under certain circumstances, such as later discovery of previously unknown problems, the FDA can withdraw approval or subjectthe drug to additional restrictions. 13Table of ContentsPreclinical TestingPreclinical studies include laboratory evaluation of the product and animal studies to assess the potential safety and effectiveness of theproduct. Most of these studies must be performed according to Good Laboratory Practices, a system of management controls for laboratories andresearch organizations to ensure the consistency and reliability of results.An IND is the request for authorization from the FDA to administer an investigational new drug product to humans. The IND includesinformation regarding the preclinical studies, the investigational product’s chemistry and manufacturing, supporting data and literature and theinvestigational plan and protocol(s). Clinical trials may begin 30 days after an IND is received, unless the FDA raises concerns or questions about theconduct of the clinical trials. If concerns or questions are raised, an IND sponsor and the FDA must resolve any outstanding concerns before clinicaltrials can proceed. An IND must become effective before human clinical trials begin. We have filed INDs in the U.S. and Clinical Trial Applications(“CTAs”) in the European Union (“EU”), and we may file additional INDs and CTAs in the future. We cannot assure that submission of any additionalINDs or CTAs for any of our product candidates will result in authorization to commence clinical trials.Clinical TrialsClinical trials involve the administration of the product candidate that is the subject of the trial to volunteers or patients under thesupervision of a qualified principal investigator and in accordance with a clinical trial protocol, which sets forth details, such as the study objectives,enrollment criteria and the safety and effectiveness criteria to be evaluated. Each clinical trial must be reviewed and approved by an independentinstitutional review board (“IRB”) in the U.S. or ethics committee in the EU at each institution at which the study will be conducted. The IRB or ethicscommittee will consider, among other things, ethical factors, safety of human subjects and the possible liability of the institution arising from theconduct of the proposed clinical trial. In addition, clinical trials in the U.S. must be performed according to good clinical practices, which areenumerated in FDA regulations and guidance documents. Some studies include oversight by an independent group of experts, known as a data safetymonitoring board, which authorizes whether a study may move forward based on certain data from the study and may stop the clinical trial if itdetermines that there is an unacceptable safety risk for subjects or other grounds.The FDA may order the temporary, or permanent, discontinuation of a clinical trial at any time, or impose other sanctions, if it believes thatthe clinical trial is not being conducted in accordance with FDA requirements or presents an unacceptable risk to the clinical trial patients. An IRB mayalso require the clinical trial at the site to be halted, either temporarily or permanently, for failure to comply with the IRB’s requirements, or it mayimpose other conditions.Clinical trials in the U.S. typically are conducted in sequential phases: Phases 1, 2, 3 and 4. The phases may overlap. The FDA may requirethat we suspend clinical trials at any time on various grounds, including if the FDA makes a finding that the subjects participating in the trial are beingexposed to an unacceptable health risk.In Phase 1 clinical trials, the investigational product is usually tested on a small number of healthy volunteers to determine safety, anyadverse effects, proper dosage, absorption, metabolism, distribution, excretion and other drug effects. Follow-on Phase 1b clinical trials may alsoevaluate efficacy with respect to trial participants.In Phase 2 clinical trials, the investigational product is usually tested on a limited number of patients (generally up to several hundred) topreliminarily evaluate the efficacy of the drug for specific, targeted indications, to determine dosage tolerance and optimal dosage, and to identifypossible adverse effects and safety risks. Multiple Phase 2 clinical trials may be conducted to obtain information prior to beginning Phase 3 clinicaltrials.In Phase 3 clinical trials, the investigational product is administered to an expanded patient population to confirm proof of concept andefficacy claims, provide evidence of clinical efficacy and to further test for safety, generally at multiple clinical sites.In Phase 4 clinical trials or other post-approval commitments, additional studies and patient follow-up are conducted to gain experiencefrom the treatment of patients in the intended therapeutic indication. The FDA may require a commitment to conduct post-approval Phase 4 studies as acondition of approval. Additional studies and follow-up may be conducted to document a clinical benefit where drugs are approved under acceleratedapproval regulations and based on surrogate endpoints. In clinical trials, surrogate endpoints are alternative measurements of the symptoms of a diseaseor condition that are substituted for measurements of observable clinical symptoms. Failure to timely conduct Phase 4 clinical trials and follow-upcould result in withdrawal of approval for products approved under accelerated approval regulations. 14Table of ContentsClinical Data Review and Approval in the U.S.The data from the clinical trials, together with preclinical data and other supporting information that establishes a drug candidate’s safety,are submitted to the FDA in the form of an NDA, or NDA supplement (for approval of a new indication if the product candidate is already approved foranother indication). Under applicable laws and FDA regulations, the FDA reviews the NDA within 60 days of receipt of the NDA to determine whetherthe application will be accepted for filing based on the FDA’s threshold determination that the NDA is sufficiently complete to permit substantivereview. If deemed complete, the FDA will “file” the NDA, thereby triggering substantive review of the application. The FDA can refuse to file any NDAthat it deems incomplete or not properly reviewable.The FDA has established internal substantive review goals of ten months for most NDAs. The FDA has various programs, includingBreakthrough, Fast Track, Priority Review, which are intended to expedite or simplify the process for reviewing drugs, and/or provide for approvalbased on surrogate endpoints. Even if a drug qualifies for one or more of these programs, the FDA may later decide that the drug no longer meets theconditions for qualification or that the period for FDA review or approval will not be shortened. Generally, drugs that may be eligible for theseprograms are those for serious or life-threatening conditions, those with the potential to address unmet medical needs, and those that offer meaningfulbenefits over existing treatments. For example, Fast Track is a process designed to facilitate the development, and expedite the review, of drugs to treatserious diseases and fill an unmet medical need. The request may be made at the time of IND submission and generally no later than the pre-NDAmeeting. The FDA will respond within 60 calendar days of receipt of the request. Priority Review designation, which is requested at the time of an NDAsubmission, is designed to give drugs that offer major advances in treatment or provide a treatment where no adequate therapy exists, an initial reviewwithin six months as compared to a standard review time of ten months. Although Fast Track and Priority Review do not affect the standards forapproval, the FDA will attempt to facilitate early and frequent meetings with a sponsor of a Fast Track designated drug and expedite review of theapplication for a drug designated for Priority Review. Accelerated approval provides an expedited approval of drugs that treat serious diseases and thatfill an unmet medical need based on a surrogate endpoint. The FDA, however, is not legally required to complete its review within these periods, andthese performance goals may change over time.If the FDA approves the NDA, it will issue an approval letter authorizing the commercial marketing of the drug with prescribing informationfor specific indications. As a condition of NDA approval, the FDA may require a risk evaluation and mitigation strategy (“REMS”), to help ensure thatthe benefits of the drug outweigh the potential risks. REMS can include medication guides, communication plans for healthcare professionals, andelements to assure safe use. Additionally, the FDA will inspect the facility or the facilities at which the drug is manufactured. Moreover, productapproval may require substantial post-approval testing and surveillance to monitor the drug’s safety or efficacy. Once granted, product approvals maybe withdrawn if compliance with regulatory standards is not maintained or problems are identified following initial marketing. In many cases, theoutcome of the review, even if generally favorable, is not an actual approval, but a “complete response” that generally outlines the deficiencies in thesubmission, which may require substantial additional testing or information before the FDA will reconsider the application. If, or when, thosedeficiencies have been addressed to the FDA’s satisfaction in a resubmission of the NDA, the FDA will issue an approval letter.Satisfaction of FDA requirements or similar requirements of state, local and foreign regulatory agencies typically takes several years andrequires the expenditure of substantial financial resources. Information generated in this process is susceptible to varying interpretations that coulddelay, limit or prevent regulatory approval at any stage of the process. Accordingly, the actual time and expense required to bring a product to marketmay vary substantially. Data obtained from clinical activities is not always conclusive and may be susceptible to varying interpretations, which coulddelay, limit or prevent regulatory approval. Success in early stage clinical trials does not ensure success in later stage clinical trials. Even if a productcandidate receives regulatory approval, the approval may be significantly limited to specific disease states, patient populations and dosages, or haveconditions placed on it that restrict the commercial applications, advertising, promotion or distribution of these products.Once issued, the FDA may withdraw product approval if ongoing regulatory standards are not met or if safety problems occur after theproduct reaches the market. In addition, the FDA may require testing and surveillance programs to monitor the safety or effectiveness of approvedproducts which have been commercialized, and the FDA has the power to prevent or limit further marketing of a product based on the results of thesepost-marketing programs. The FDA may also request or require additional Phase 4 clinical trials after a product is approved. The results of Phase 4clinical trials can confirm the effectiveness of a product candidate and can provide important safety information to augment the FDA’s voluntaryadverse drug reaction reporting system. Any products manufactured or distributed by us pursuant to FDA approvals would be subject to continuingregulation by the FDA, including record-keeping requirements and reporting of adverse experiences with the drug. Drug manufacturers and theirsubcontractors are required to register their establishments with the FDA and certain state agencies and are subject to periodic unannouncedinspections by the FDA and certain state agencies for compliance with cGMPs, which impose certain procedural and documentation requirements on usand our third-party manufacturers. 15Table of ContentsIn addition, both before and after approval is sought, we are required to comply with a number of FDA requirements. For example, we arerequired to report certain adverse reactions and production problems, if any, to the FDA, and to comply with certain limitations and other requirementsconcerning advertising and promotion for our products. In addition, quality control and manufacturing procedures must continue to conform to cGMPafter approval, and the FDA periodically inspects manufacturing facilities to assess compliance with continuing cGMP. In addition, discovery ofproblems, such as safety problems, may result in changes in labeling or restrictions on a product manufacturer or NDA holder, including removal of theproduct from the market.The FDA closely regulates the marketing and promotion of drugs. Approval may be subject to post-marketing surveillance and other record-keeping and reporting obligations, and involve ongoing requirements. Product approvals may be withdrawn if compliance with regulatory standards isnot maintained or if problems occur following initial marketing. A company can make only those claims relating to safety and efficacy that areapproved by the FDA. Failure to comply with these requirements can result in adverse publicity, warning letters, corrective advertising and potentialcivil and criminal penalties.Clinical Trial Conduct and Product Approval Regulation in Non-U.S. JurisdictionsIn addition to regulations in the U.S., we may be subject to a variety of foreign regulations governing clinical trials and commercial salesand distribution of our products. Our clinical trials conducted in the EU must be done under an Investigational Medicinal Product Dossier, and theoversight of an ethics committee. If we market our products in foreign countries, we also will be subject to foreign regulatory requirements governingmarketing approval for pharmaceutical products. The requirements governing the conduct of clinical trials, product approval, pricing andreimbursement vary widely from country to country. Whether or not FDA approval has been obtained, approval of a product by the comparableregulatory authorities of foreign countries must be obtained before manufacturing or marketing the product in those countries. The approval processvaries from country to country and the time required for such approvals may differ substantially from that required for FDA approval. There is noassurance that any future FDA approval of any of our product candidates will result in similar foreign approvals or vice versa. The process for clinicaltrials in the EU is similar, and trials are heavily scrutinized by the designated ethics committee.Section 505(b)(2) ApplicationsSome of our product candidates may be eligible for submission of applications for approval under the FDA’s Section 505(b)(2) approvalprocess, which provides an alternate path to FDA approval for new or improved formulations or new uses of previously approved products.Section 505(b)(2) was enacted as part of the Drug Price Competition and Patent Term Restoration Act of 1984, also known as the Hatch-Waxman Act,and allows approval of NDAs that rely, at least in part, on studies that were not conducted by or for the applicant and to which the applicant has notobtained a right of reference. Such studies can be provided by published literature, or the FDA can rely on previous findings of safety and efficacy for apreviously approved drug. If the 505(b)(2) applicant can establish that reliance on the FDA’s previous approval is scientifically appropriate, it mayeliminate the need to conduct certain preclinical studies or clinical trials of the new product. Section 505(b)(2) applications may be submitted for drugproducts that represent a modification (e.g., a new indication or new dosage form) of an eligible approved drug. In such cases, the additionalinformation in 505(b)(2) applications necessary to support the change from the previously approved drug is frequently provided by new studiessubmitted by the applicant. Because a Section 505(b)(2) application relies in part on previous studies or previous FDA findings of safety andeffectiveness, preparing 505(b)(2) applications is generally less costly and time-consuming than preparing an NDA based entirely on new data andinformation from a full set of clinical trials. The FDA may approve the new product candidate for all, or some, of the label indications for which thereferenced product has been approved, as well as for any new indication sought by the Section 505(b)(2) applicant. The law governing Section 505(b)(2) or FDA’s current policies may change in such a way as to adversely affect our applications for approval that seek to utilize the Section 505(b)(2)approach. Such changes could result in additional costs associated with additional studies or clinical trials and delays.The FDA provides that reviews and/or approvals of applications submitted under Section 505(b)(2) will be delayed in various circumstances.For example, the holder of the NDA for the listed drug may be entitled to a period of market exclusivity during which the FDA will not approve, andmay not even review, a Section 505(b)(2) application from other sponsors. If the listed drug is claimed by one or more patents that the NDA holder haslisted with the FDA, the Section 505(b)(2) applicant must submit a certification with respect to each such patent. If the 505(b)(2) applicant certifies thata listed patent is invalid, unenforceable or not infringed by the product that is the subject of the Section 505(b)(2) application, it must notify the patentholder and the NDA holder. If, within 45 days of providing this notice, the NDA holder sues the 505(b)(2) applicant for patent infringement, the FDAwill not approve the Section 505(b)(2) application until the earlier of a court decision favorable to the Section 505(b)(2) applicant or the expiration of30 months. The regulations governing marketing exclusivity and patent protection are complex, and it is often unclear how they will be applied inparticular circumstances. 16Table of ContentsDrug Enforcement Agency RegulationOur research and development processes involve the controlled use of hazardous materials, including chemicals. Some of these hazardousmaterials are considered to be controlled substances and subject to regulation by the U.S. Drug Enforcement Agency (“DEA”). Controlled substancesare those drugs that appear on one of five schedules promulgated and administered by the DEA under the Controlled Substances Act (“CSA”). The CSAgoverns, among other things, the distribution, recordkeeping, handling, security and disposal of controlled substances. We must be registered by theDEA in order to engage in these activities, and we are subject to periodic and ongoing inspections by the DEA and similar state drug enforcementauthorities to assess ongoing compliance with the DEA’s regulations. Any failure to comply with these regulations could lead to a variety of sanctions,including the revocation, or a denial of renewal, of the DEA registration, injunctions or civil or criminal penalties.Third-Party Payor Coverage and ReimbursementCommercial success of SUSTOL, CINVANTI and any of our other product candidates that are approved or commercialized for any indicationwill depend, in part, on the availability of coverage and reimbursement from third-party payors at the federal, state and private levels. Governmentpayor programs, including Medicare and Medicaid, private health care insurance companies and managed care plans have attempted to control costsby limiting coverage and the amount of reimbursement for particular procedures or drug treatments. The U.S. Congress and state legislatures, from timeto time, propose and adopt initiatives aimed at cost containment. Ongoing federal and state government initiatives directed at lowering the total cost ofhealth care will likely continue to focus on health care reform, the cost of prescription pharmaceuticals and on the reform of the Medicare andMedicaid payment systems. Examples of how limits on drug coverage and reimbursement in the U.S. may cause reduced payments for drugs in thefuture include: • changing Medicare reimbursement methodologies; • fluctuating decisions on which drugs to include in formularies; • revising drug rebate calculations under the Medicaid program or requiring that new or additional rebates be provided to Medicare,Medicaid and other federal or state healthcare programs; and • reforming drug importation laws.Some third-party payors also require pre-approval of coverage for new drug therapies before they will reimburse health care providers thatuse such therapies. While we cannot predict whether any proposed cost-containment measures will be adopted or otherwise implemented in the future,the announcement or adoption of these proposals could have a material adverse effect on our ability to obtain adequate prices for our productcandidates and to operate profitably.Reimbursement systems in international markets vary significantly by country and, within some countries, by region. Reimbursementapprovals must be obtained on a country-by-country basis. In many foreign markets, including markets in which we hope to sell our products, thepricing of prescription pharmaceuticals is subject to government pricing control. In these markets, once marketing approval is received, pricingnegotiations could take significant additional time. As in the U.S., the lack of satisfactory reimbursement or inadequate government pricing of any ofour products would limit widespread use and lower potential product revenues.Anti-Kickback, Fraud and Abuse and False Claims RegulationWe are subject to health care fraud and abuse regulation and enforcement by both the federal government and the states in which we conductour business. Healthcare providers, physicians and third-party payors play a primary role in the recommendation and prescription of SUSTOL,CINVANTI and any other product candidates for which we obtain marketing approval. Arrangements with third-party payors and customers mayexpose us to applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements andrelationships through which we market, sell and distribute our products for which we obtain marketing approval. 17Table of ContentsRegulations under applicable federal and state healthcare laws and regulations include the federal health care programs’ Anti-Kickback Law,which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly orindirectly, in exchange for or to induce either the referral or purchase of any good or service for which payment may be made under federal health careprograms such as the Medicare and Medicaid programs. Remuneration has been broadly defined to include anything of value, including cash,improper discounts, and free or reduced price items and services. Many states have similar laws that apply to their state health care programs as well asprivate payors. In addition, the False Claims Act (“FCA”) imposes liability on persons who, among other things, present or cause to be presented falseor fraudulent claims for payment by a federal health care program. The FCA has been used to prosecute persons submitting claims for payment that areinaccurate or fraudulent, that are for services not provided as claimed, or for services that are not medically necessary. Actions under the FCA may bebrought by the Attorney General or as a qui tam action by a private individual in the name of the government. Violations of the FCA can result insignificant monetary penalties and treble damages. The federal government is using the FCA, and the accompanying threat of significant liability, inits investigation and prosecution of pharmaceutical and biotechnology companies throughout the country, for example, in connection with thepromotion of products for unapproved uses and other sales and marketing practices.The risk of being found in violation of these laws is increased by the fact that many of them have not been fully interpreted by the regulatoryauthorities or the courts, and their provisions are open to a variety of interpretations. Moreover, recent health care reform legislation has strengthenedmany of these laws. For example, the Patient Protection and Affordable Care Act (“PPACA”), among other things, amends the intent requirement of thefederal anti-kickback and criminal health care fraud statutes to clarify that a person or entity does not need to have actual knowledge of this statute orspecific intent to violate it. In addition, PPACA provides that a claim including items or services resulting from a violation of the federal anti-kickbackstatute constitutes a false or fraudulent claim for purposes of the false claims statutes.The continuing interpretation and application of these laws could have a material adverse impact on our business and our ability to competeshould we commence marketing a product.Federal and State Sunshine LawsWe must comply with federal “sunshine” laws, now known as Open Payments that require transparency regarding financial arrangementswith health care providers. This would include the reporting and disclosure requirements imposed by the PPACA on drug manufacturers regarding any“payment or transfer of value” made or distributed to physicians and teaching hospitals. Failure to submit required information can result in civilmonetary penalties. A number of states have laws that require the implementation of commercial compliance programs, impose restrictions on drugmanufacturer marketing practices and/or require pharmaceutical companies to track and report payments, gifts and other benefits provided tophysicians and other health care professionals and entities.Foreign Corrupt Practices ActWe are subject to the Foreign Corrupt Practices Act of 1997 (“FCPA”). The FCPA and other similar anti-bribery laws in other jurisdictions,such as the U.K. Bribery Act, generally prohibit companies and their intermediaries from providing money or anything of value to officials of foreigngovernments, foreign political parties, or international organizations with the intent to obtain or retain business or seek a business advantage.Recently, there has been a substantial increase in anti-bribery law enforcement activity by U.S. regulators, with more frequent and aggressiveinvestigations and enforcement proceedings by both the Department of Justice and the U.S. Securities and Exchange Commission (“SEC”). Adetermination that our operations or activities are not, or were not, in compliance with U.S. or foreign laws or regulations could result in the impositionof substantial fines, interruptions of business, loss of supplier, vendor or other third-party relationships, termination of necessary licenses and permitsand other legal or equitable sanctions. Other internal or government investigations or legal or regulatory proceedings, including lawsuits brought byprivate litigants, may also follow as a consequence. 18Table of ContentsPatient Privacy and Data SecurityWe are required to comply, as applicable, with numerous federal and state laws, including state security breach notification laws, state healthinformation privacy laws and federal and state consumer protection laws, and to govern the collection, use and disclosure of personal information.Other countries also have, or are developing, laws governing the collection, use and transmission of personal information, such as the General DataProtection Regulation in the European Union that became effective in May 2018. In addition, most healthcare providers who prescribe SUSTOL orCINVANTI or who may prescribe other products we may sell in the future and from whom we may obtain patient health information are subject toprivacy and security requirements under the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), as amended by the HealthInformation Technology and Clinical Health Act, and its implementing regulations. We are not a HIPAA covered entity, do not intend to become one,and we do not operate as a business associate to any covered entities. Therefore, these privacy and security requirements do not apply to us. However,we could be subject to civil and criminal penalties if we knowingly obtain individually identifiable health information from a covered entity in amanner that is not authorized or permitted by HIPAA or for aiding and abetting the violation of HIPAA. The legislative and regulatory landscape forprivacy and data protection continues to evolve, and there has been an increasing amount of focus on privacy and data protection issues with thepotential to affect our business, including recently enacted laws in a majority of states requiring security breach notification. These laws could createliability for us or increase our cost of doing business, and any failure to comply could result in harm to our reputation, and potentially fines andpenalties.In addition, state laws govern the privacy and security of health information in certain circumstances, many of which differ from each otherin significant ways and may not have the same effect, thus complicating compliance efforts.Environmental, Health and Safety LawsOur operations are subject to complex and increasingly stringent environmental, health and safety laws and regulations. Further, in thefuture, we may open manufacturing facilities that would likely be subject to environmental and health and safety authorities in the relevantjurisdictions. These authorities typically administer laws which regulate, among other matters, the emission of pollutants into the air (including theworkplace), the discharge of pollutants into bodies of water, the storage, use, handling and disposal of hazardous substances, the exposure of persons tohazardous substances, and the general health, safety and welfare of employees and members of the public. Violations of these laws could subject us tostrict liability, fines or liability to third parties.Other LawsWe are subject to a variety of financial disclosure and securities trading regulations as a public company in the U.S., including laws relatingto the oversight activities of the SEC and the regulations of The Nasdaq Capital Market, on which our shares are traded. We are also subject to variouslaws, regulations and recommendations relating to safe working conditions, laboratory practices and the experimental use of animals.EmployeesAs of February 1, 2019, we had 198 full-time employees; 103 are involved in research and development activities, 68 are involved in salesand marketing activities and 27 are involved in administration, human resources, finance, legal and information technology. None of our employeesare covered by a collective bargaining agreement and management considers relations with our employees to be good.Company InformationWe were founded in February 1983 as a California corporation under the name AMCO Polymerics, Inc. (“AMCO”). AMCO changed its nameto Advanced Polymer Systems, Inc. (“APS”) in 1984 and was reincorporated in the state of Delaware in 1987. APS changed its name to A.P. Pharma,Inc. (“APP”) in May 2001. In January 2014, APP changed its name to Heron Therapeutics, Inc. 19Table of ContentsOur website address is www.herontx.com. We make our periodic and current reports available on our website, free of charge, as soon asreasonably practicable after such material is electronically filed with, or furnished to, the SEC. No portion of our website is incorporated by referenceinto this Annual Report on Form 10-K. We file our annual, quarterly and special reports, proxy statements and other information with the SEC. Ourfilings with the SEC are also available to the public on the SEC’s website at http://www.sec.gov. Additional information regarding us, including ouraudited financial statements and descriptions of our business, is contained in the documents incorporated by reference in this Annual Report on Form10-K. Our common stock is traded on The Nasdaq Capital Market, under the symbol “HRTX.” ITEM 1A. RISK FACTORS.You should carefully consider the following information about risks and uncertainties that may affect us or our business, together with theother information appearing elsewhere in this Annual Report on Form 10-K. If any of the following events, described as risks, actually occur, ourbusiness, financial condition, results of operations and future growth prospects would likely be materially and adversely affected. In thesecircumstances, the market price of our common stock could decline, and you may lose all or part of your investment in our securities. An investment inour securities is speculative and involves a high degree of risk. You should not invest in our securities if you cannot bear the economic risk of yourinvestment for an indefinite period of time and cannot afford to lose your entire investment.Risks Related to Our BusinessWe are substantially dependent on the success of SUSTOL and CINVANTI, and if either SUSTOL or CINVANTI do not attain market acceptance byhealthcare professionals and patients, our business and results of operations will suffer.The success of our business is substantially dependent on our ability to commercialize our approved products, SUSTOL and CINVANTI.Although members of our management team have prior experience launching new drugs, SUSTOL and CINVANTI are the first two products that wehave launched.Further, even if our sales organization performs as expected, the revenue that we may receive from the sales of SUSTOL and CINVANTI maybe less than anticipated due to factors that are outside of our control. These factors that may affect revenue include: • the scope of our approved product labels; • the perception of physicians and other members of the health care community of the safety and efficacy and cost-competitivenessrelative to that of competing products; • our ability to maintain successful sales, marketing and educational programs for certain physicians and other health care providers; • our ability to raise patient and physician awareness of CINV associated with AC combination chemotherapy regimens, MEC or HECand encourage physicians to look for incidence of CINV among patients; • the cost-effectiveness of our products; • acceptance by institutional formulary committees; • patient and physician satisfaction with our products; • the size of the potential market for our products; • our ability to obtain adequate reimbursement from government and third-party payors; • unfavorable publicity concerning our products or similar products; • the introduction, availability and acceptance of competing treatments; 20Table of Contents • adverse event information relating to our products or similar classes of drugs; • product liability litigation alleging injuries relating to the products or similar classes of drugs; • our ability to maintain and defend our patents for SUSTOL and CINVANTI; • our ability to continue to have SUSTOL and CINVANTI manufactured at commercial production levels successfully and on a timelybasis; • the availability of raw materials necessary to manufacture SUSTOL and CINVANTI; • our ability to access third parties to manufacture and distribute our products on acceptable terms or at all; • regulatory developments related to the manufacture or continued use of our products; • conduct of post-approval study requirements and the results thereof; • the extent and effectiveness of sales and marketing and distribution support for our products; • our competitors’ activities, including decisions as to the timing of competing product launches, generic entrants, pricing anddiscounting; and • any other material adverse developments with respect to the commercialization of our products.Our business will be adversely affected if, due to these or other factors, our commercialization of SUSTOL or CINVANTI does not achievethe acceptance and demand necessary to sustain revenue growth. If we are unable to successfully commercialize SUSTOL or CINVANTI, our businessand results of operations will suffer.If we are unable to develop and maintain sales, marketing and distribution capabilities or enter into agreements with third parties to sell and marketSUSTOL, CINVANTI or any other products we may develop, our product sales may be adversely affected.We have established an internal sales organization for the sale, marketing and distribution of SUSTOL and CINVANTI. In order tosuccessfully commercialize any other product we may develop, we must increase our sales, marketing, distribution and other non-technical capabilitiesor make arrangements with third parties to perform these services. The development of a sales organization to market SUSTOL, CINVANTI or any otherproduct we may develop, is expensive and time consuming, and we cannot be certain that we will be able to successfully develop this capacity or thatthis function will execute as expected. If we are unable to establish adequate sales, marketing and distribution capabilities, whether independently orwith third parties, we may not be able to generate product revenue and our business and results of operations will suffer.If we cannot establish satisfactory pricing of SUSTOL, CINVANTI or any other products we may develop that is also acceptable to the U.S.government, insurance companies, managed care organizations and other payors, or arrange for favorable reimbursement policies, our productsales may be adversely affected and our future revenue may suffer.The continuing efforts of the U.S. government, insurance companies, managed care organizations and other payors of health care costs tocontain or reduce costs of health care may adversely affect our ability to generate adequate revenues and gross margins to make SUSTOL, CINVANTIor any other product we may develop commercially viable. Our ability to commercialize SUSTOL, CINVANTI or any other product we may developsuccessfully will depend in part on the extent to which governmental authorities, private health insurers and other organizations establish appropriatereimbursement levels for the cost of such products and related treatments and for what uses reimbursement will be provided. 21Table of ContentsAdoption of SUSTOL, CINVANTI or any other product we may develop by the medical community may be limited if third-party payors willnot offer adequate coverage. In addition, third-party payors often challenge the price and cost-effectiveness of medical products and services and suchpressure may increase in the future. In many cases, uncertainty exists as to the adequate reimbursement status of newly approved healthcare products.Accordingly, SUSTOL, CINVANTI or any other product we may develop may not be reimbursable by certain third-party payors at the time ofcommercial launch and potentially for an extended period of time thereafter. In addition, products may not be considered cost-effective and adequatethird-party reimbursement may not be available to enable us to maintain price levels sufficient to realize a profit.Legislation and regulations affecting the pricing of pharmaceuticals may change and any such changes could further limit reimbursement.Cost control initiatives may decrease coverage and payment levels for SUSTOL, CINVANTI or any other product we may develop and, in turn, thereimbursement that we receive. We are unable to predict all changes to the coverage or reimbursement methodologies that will be applied by private orgovernment payors to SUSTOL, CINVANTI or any other product we may develop. If SUSTOL, CINVANTI or any other products we develop do notreceive adequate reimbursement, our revenue could be severely limited.In the U.S., given recent federal and state government initiatives directed at lowering the total cost of health care, the U.S. Congress and statelegislatures will likely continue to focus on health care reform, reducing the cost of prescription pharmaceuticals and reforming the Medicare andMedicaid systems. For example, the Patient Protection and Affordable Care Act (“PPACA”) encourages comparative effectiveness research. Anyadverse findings for our products from such research may negatively impact reimbursement available for our products. Similarly, the SUPPORT forPatients and Communities Act (the “SUPPORT Act”), which was signed into law on October 24, 2018, encourages the prevention and treatment ofopioid addiction and the development of non-opioid pain management treatments. Although it is too early to assess the impact of the SUPPORT Act, itcould potentially increase competition for HTX-011, if approved, and have other negative impacts on our business. Economic pressure on statebudgets may result in states increasingly seeking to achieve budget savings through mechanisms that limit coverage or payment for drugs. StateMedicaid programs are increasingly asking manufacturers to pay supplemental rebates and requiring prior authorization by the state program for use ofany drug for which supplemental rebates are not being paid. Further, the trend toward managed health care in the U.S., which could significantlyinfluence the purchase of health care services and products, may result in lower prices for SUSTOL, CINVANTI or any other product we may developfor marketing. While we cannot predict whether any legislative or regulatory proposals affecting our business will be adopted, the announcement oradoption of these proposals could have a material and adverse effect on our potential revenues and gross margins.If we fail to comply with our reporting and payment obligations under U.S. governmental pricing and contracting programs, we could be subject toadditional reimbursement requirements, penalties and fines, which could have a material adverse effect on our business, financial condition, andresults of operations.The Medicare program and certain government pricing programs, including the Medicaid drug rebate program, the Public Health Services’340B drug pricing program, and the pricing program under the Veterans Health Care Act of 1992 impact the reimbursement we may receive from salesof SUSTOL, CINVANTI or any other products that are approved for marketing. Pricing and rebate calculations vary among programs. The calculationsare complex and are often subject to interpretation by manufacturers, governmental or regulatory agencies, and the courts. We are required to submit anumber of different pricing calculations to government agencies on a quarterly basis. Failure to comply with our reporting and payment obligationsunder U.S. governmental pricing and contracting programs may result in additional payments, penalties and fines due to government agencies, whichmay have a material adverse effect on our business, financial condition and results of operations. 22Table of ContentsBecause the results of preclinical studies and clinical trials are not necessarily predictive of future results, we can provide no assurances thatHTX-011 or any of our other product candidates will have favorable results in future studies or trials or receive regulatory approval.Positive results from preclinical studies or clinical trials should not be relied on as evidence that later or larger-scale studies or trials willsucceed. Even if our product candidates achieve positive results in early-stage preclinical studies or clinical trials, we will be required to demonstratethat these product candidates are safe and effective for use in Phase 3 studies before we can seek regulatory approvals for their commercial sale. Even ifour early-stage preclinical studies or clinical trials achieve the specified endpoints, the FDA may determine that these data are not sufficient to allowthe commencement of Phase 3 studies. There is an extremely high historical rate of failure of product candidates proceeding through clinical trials inour industry. There is no guarantee that the efficacy of any product candidate, including HTX-011, shown in early patient studies will be replicated ormaintained in future studies and/or larger patient populations. Similarly, favorable safety and tolerability data seen in short-term studies might not bereplicated in studies of longer duration and/or larger patient populations. If any product candidate demonstrates insufficient safety or efficacy in anypreclinical study or clinical trial, we would experience potentially significant delays in, or be required to abandon, development of that productcandidate. In addition, product candidates in Phase 3 studies may fail to show the desired safety and efficacy despite having progressed throughpreclinical and earlier stage clinical trials, which could delay, limit or prevent regulatory approval. Further, data obtained from pivotal clinical trialsare susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. If we delay or abandon our efforts to develop any ofour product candidates, we may not be able to generate sufficient revenues to become profitable, and our reputation in the industry and in theinvestment community would likely be significantly damaged, each of which would cause our stock price to decrease significantly.Although the FDA has granted Fast Track, Breakthrough Therapy and Priority Review designations to HTX-011, there can be no assurance thatHTX-011 or any of our other future product candidates that receive such designations will receive regulatory approval any sooner than otherproduct candidates that do not have such designations, or at all.In October 2017, we announced that we have been granted Fast Track designation for HTX-011 from the FDA for local administration intothe surgical site to reduce postoperative pain and the need for opioid analgesics for 72 hours. In June 2018, we announced that we have been grantedBreakthrough Therapy designation for HTX-011 from the FDA for postoperative pain management. In December 2018, we announced that we havebeen granted Priority Review designation for HTX-011 from the FDA for postoperative pain management. Fast Track designation is intended tofacilitate the development and expedite the review of new therapies to treat serious conditions with unmet medical needs by providing sponsors withthe opportunity for frequent interactions with the FDA. Breakthrough Therapy designation is designed to expedite the development and review ofdrugs that are intended to treat serious conditions and for which preliminary clinical evidence indicates substantial improvement over availabletherapies on clinically significant endpoint(s). Priority Review designation is for drugs that, if approved, would be significant improvements in thesafety or effectiveness of the treatment or prevention of serious conditions. Product candidates that receive Fast Track or Breakthrough Therapydesignation may receive more frequent interactions with the FDA regarding the product candidate’s development plan and clinical trials and may beeligible for the FDA’s Rolling Review and Priority Review. Priority Review designation is intended to direct overall attention and resources of theFDA to the evaluation of such applications and means that the FDA’s goal is to take action on such applications within six months compared to 10months under standard review. Despite receiving Fast Track, Breakthrough Therapy and Priority Review designations, we can provide no assurancesthat HTX-011 or any of our other future product candidates that receive such designations will receive regulatory approval any sooner than otherproduct candidates that do not have such designations, or at all. The FDA may also withdraw Fast Track or Breakthrough Therapy designations if itdetermines that HTX-011 no longer meets the relevant criteria.Our product platforms or product development efforts may not produce safe, efficacious or commercially viable products, and, if we are unable todevelop new products, our business may suffer.Our long-term viability and growth will depend on the successful development of products through our research and development activities.Product development is very expensive and involves a high degree of risk. Only a small number of research and development programs result in thecommercialization of a product. Success in preclinical work or early-stage clinical trials does not ensure that later-stage or larger-scale clinical trialswill be successful. Our ability to complete our clinical trials in a timely fashion depends in large part on a number of key factors, including protocoldesign, regulatory and institutional review board approval, the rate of patient enrollment in clinical trials and compliance with extensive current GoodClinical Practices (“cGCP”). 23Table of ContentsIn addition, because we fund the development of our product candidates, we may not be able to continue to fund all such developmentefforts to completion or to provide the support necessary to perform the clinical trials, obtain regulatory approvals, or market any approved products. Ifour drug delivery technologies or product development efforts fail to result in the successful development and commercialization of productcandidates, or if our new products do not perform as anticipated, such events could materially adversely affect our business, financial condition, cashflows and results of operations.We rely on third parties to conduct our preclinical testing and conduct our clinical trials, and their failure to perform their obligations in a timelyand competent manner may delay development and commercialization of our product candidates and our business could be substantially harmed.We have used contract research organizations (“CROs”) to oversee our clinical trials for SUSTOL, CINVANTI and HTX-011, and we expectto use the same or similar organizations for our future clinical trials and pipeline programs. There can be no assurance that these CROs will performtheir obligations at all times in a competent or timely fashion, and we must rigorously oversee their activities in order to be confident in their conductof these trials on our behalf. If the CROs fail to commit resources to our product candidates, our clinical programs related to our product candidatescould be delayed, terminated or unsuccessful, and we may not be able to obtain regulatory approval for, or successfully commercialize, them. Differentcultural and operational issues in foreign countries could cause delays or unexpected problems with patient enrollment or with the data obtained fromthose locations. If we experience significant delays in the progress of our clinical trials or experience doubts with respect to the quality of data derivedfrom our clinical trials, we could face significant delays in gaining necessary product approvals.We also rely on third parties to assist in conducting our preclinical studies in accordance with Good Laboratory Practices and the AnimalWelfare Act requirements. We, our CROs, and other third parties are required to comply with cGCP, which are regulations and guidelines enforced bythe FDA, the Competent Authorities of the Member States of the European Economic Area and comparable foreign regulatory authorities. Regulatoryauthorities enforce cGCP through periodic inspections of trial sponsors, principal investigators and trial sites. If we or any of our CROs fail to complywith applicable cGCP, the clinical data generated in the clinical trials may be deemed unreliable, and the FDA or comparable foreign regulatoryauthorities may require us to perform additional clinical trials before approving our marketing applications. We cannot be certain that on inspection bya given regulatory authority, such regulatory authority will determine that any of our ongoing or future clinical trials comply with cGCP. In addition,all of our clinical trials must be conducted with product produced under cGCP. Failure to comply with these regulations may require us to repeatpreclinical and clinical trials, which would delay the regulatory approval process.Our CROs and other third parties we may engage to support our development programs are not our employees, and, except for remediesavailable to us under our agreements with such CROs, we cannot control whether or not they devote sufficient time and resources to our ongoingclinical, nonclinical and preclinical programs. Outsourcing these functions involves risk that third parties may not perform to our standards, may notproduce results in a timely manner, or may fail to perform at all. If CROs do not successfully carry out their contractual duties or obligations or meetexpected deadlines or if the quality or accuracy of the preclinical results or clinical data they obtain is compromised due to the failure to adhere to testrequirements, our clinical protocols, regulatory requirements or for other reasons, our clinical trials may be extended, delayed or terminated and wemay not be able to obtain regulatory approval for or successfully commercialize our product candidates. As a result, our results of operations and thecommercial prospects for our product candidates would be harmed, our costs could increase and our ability to generate revenues could be delayed.If our suppliers and contract manufacturers are unable to manufacture in commercially viable quantities, we could face delays in our ability tocommercialize SUSTOL, CINVANTI or any other products we may develop, our costs will increase and our product sales may be severely hindered.If in the future any of our product candidates are approved for commercial sale, we will need to be able to consistently manufacture ourproducts in larger quantities and be able to show equivalency to the FDA in the manufacture of our products at commercial scale as compared todevelopment batch size. The commercial success of our products will be dependent on the ability of our contract manufacturers to produce a product incommercial quantities at competitive costs of manufacture in a process that is validated by the FDA. We have scaled-up manufacturing for SUSTOLand CINVANTI in order to realize important economies of scale, and these activities took time to implement, required additional capital investment,process development and validation studies and regulatory approval. We are in the process of scaling up manufacturing for HTX-011. We cannotguarantee that we will be successful in achieving competitive manufacturing costs through such scaled-up activities. 24Table of ContentsThe manufacture of pharmaceutical products is a highly complex process in which a variety of difficulties may arise from time to time,including product loss due to material failure, equipment failure, vendor error, operator error, labor shortages, inability to obtain material, equipment ortransportation, physical or electronic security breaches and natural disasters. Problems with manufacturing processes could result in product defects ormanufacturing failures, which could require us to delay shipment of products or recall products previously shipped, or could impair our ability toexpand into new markets or supply products in existing markets. We may not be able to resolve any such problems in a timely manner, if at all.We depend on third-party suppliers and contract manufacturers to manufacture SUSTOL, CINVANTI and HTX-011, and we expect to do the samefor any future products that we develop; if our contract manufacturers do not perform as expected, our business could suffer.We do not own or operate manufacturing facilities for the production of commercial or clinical quantities of any product, includingSUSTOL, CINVANTI and HTX-011. Our ability to successfully commercialize SUSTOL, CINVANTI and HTX-011, as well as any other products orproduct candidates that we may develop, depends in part on our ability to arrange for and rely on other parties to manufacture our products at acompetitive cost, in accordance with regulatory requirements, and in sufficient quantities for clinical testing and eventual commercialization. Wecurrently rely on a small number of third-party manufacturers to produce compounds used in our product development activities and expect tocontinue to do so to meet the preclinical and clinical requirements of our potential products and for all of our commercial needs. Certain contractmanufacturers are, at the present time (and are expected to be for the foreseeable future), our sole resource to manufacture certain key components ofSUSTOL, CINVANTI and HTX-011, as well as key components for product candidates in clinical and preclinical testing in our research anddevelopment program. Although we entered into long-term commercial manufacturing agreements for the manufacture of SUSTOL, CINVANTI andHTX-011, and we have a long-term agreement for the manufacture of our Biochronomer Technology, we might not be able to successfully negotiatelong-term agreements with any additional third parties, or we might not receive all required regulatory approvals to utilize such third parties, and,accordingly, we might not be able to reduce or remove our dependence on a single supplier for the commercial manufacturing of SUSTOL, CINVANTIand HTX-011, or any other product we may develop for marketing. We may have difficulties with these manufacturer relationships, and we may not beable to find replacement contract manufacturers on satisfactory terms or on a timely basis. Also, due to regulatory and technical requirements, we mayhave limited ability to shift production to a different third-party should the need arise. We cannot be certain that we could reach agreement onreasonable terms, if at all, with such a manufacturer. Even if we were to reach agreement, the transition of the manufacturing process to a different third-party could take a significant amount of time and money, and may not be successful.Further, we, along with our contract manufacturers, are required to comply with FDA and foreign regulatory requirements related to producttesting, quality assurance, manufacturing and documentation. Our contract manufacturers may not be able to comply with the applicable FDA orforeign regulatory requirements. They may be required to pass an FDA preapproval inspection for conformity with cGMP before we can obtainapproval to manufacture our products and will be subject to ongoing, periodic, unannounced inspection by the FDA and corresponding state agenciesto ensure strict compliance with cGMP, and other applicable government regulations and corresponding foreign standards. If we and our contractmanufacturers fail to achieve and maintain high manufacturing standards in compliance with cGMP, or fail to scale-up manufacturing processes in atimely manner, we may experience manufacturing errors resulting in defective products that could be harmful to patients, product recalls orwithdrawals, delays or interruptions of production or failures in product testing or delivery, delay or prevention of filing or approval of marketingapplications for our products, cost overruns or other problems that could seriously harm our business. Not complying with FDA or foreign regulatoryrequirements could result in an enforcement action, such as a product recall, or prevent commercialization of our product candidates and delay ourbusiness development activities. In addition, such failure could be the basis for the FDA or foreign regulators to issue a warning or untitled letter ortake other regulatory or legal action, including recall or seizure, total or partial suspension of production, suspension of ongoing clinical trials, refusalto approve pending applications or supplemental applications, and potentially civil and/or criminal penalties depending on the matter.SUSTOL, CINVANTI, HTX-011 or any of our other product candidates may be in competition with other products for access to the facilitiesof third parties. Consequently, SUSTOL, CINVANTI, HTX-011 or any of our other product candidates may be subject to manufacturing delays if ourcontractors give other companies’ products greater priority than our products. For this and other reasons, our third-party contract manufacturers maynot be able to manufacture SUSTOL, CINVANTI, HTX-011 or any of our other product candidates in a cost-effective or timely manner. If notmanufactured in a timely manner, the clinical development of any of our product candidates or their submission for regulatory approval could bedelayed, and our ability to deliver products to market on a timely basis could be impaired. This could increase our costs, cause us to lose revenue ormarket share and damage our reputation. 25Table of ContentsCertain of the components used in the manufacture of SUSTOL, CINVANTI, HTX-011 and our other product candidates are sourced from a singlevendor.Some of the critical materials and components used in manufacturing SUSTOL, CINVANTI, HTX-011 and our other product candidates aresourced from single suppliers. An interruption in the supply of a key material could significantly delay our research and development process orincrease our expenses for commercialization or development products. Specialized materials must often be manufactured for the first time for use indrug delivery technologies, or materials may be used in the technologies in a manner different from their customary commercial uses. The quality ofmaterials can be critical to the performance of a drug delivery technology, so a reliable source that provides a consistent supply of materials isimportant. Materials or components needed for our drug delivery technologies may be difficult to obtain on commercially reasonable terms,particularly when relatively small quantities are required or if the materials traditionally have not been used in pharmaceutical products.We have, or may have, significant inventory levels of drug products, and write-downs related to the impairment of those inventories may adverselyimpact or delay our profitability.We maintain significant inventory levels of drug products, and we may increase those inventory levels as we continue to commercialize ourdrug products. We determine inventory levels of drug products based on a variety of estimates, including timing of FDA approval of our drug products,market demand for our drug products and those of our competitors, entrance of competing drug products, introduction of new, or changes ininterpretations of, pharmaceutical regulation, and changes in healthcare provider and insurer reimbursement policies. These estimates are inherentlydifficult to make and may be inaccurate. We analyze our inventory levels and will write down inventory that has become obsolete. If our initialestimate of the appropriate inventory levels of drug products is or becomes inaccurate, write-downs of inventory may be required, which would berecorded as cost of product sales and thereby adversely impact or delay our profitability.We face intense competition from other companies developing products for the prevention of CINV or postoperative pain.SUSTOL faces significant competition. Currently available 5-HT3 receptor antagonists include: AKYNZEO® (palonosetron, a 5-HT3receptor antagonist, combined with netupitant, an NK1 receptor antagonist, marketed by Helsinn Therapeutics (U.S.), Inc.); SANCUSO® (granisetrontransdermal patch, marketed by ProStrakan Group Plc); and generic products including ondansetron (formerly marketed by GlaxoSmithKline plc asZOFRAN), granisetron (formerly marketed by Hoffman-La Roche, Inc. as KYTRIL) and palonosetron (formerly marketed by Eisai in conjunction withHelsinn Healthcare S.A. as ALOXI). Currently, palonosetron is the only 5-HT3 receptor antagonist other than SUSTOL that is approved for theprevention of delayed CINV associated with MEC regimens. SUSTOL is indicated in combination with other antiemetics in adults for the prevention ofacute and delayed nausea and vomiting associated with initial and repeat courses of moderately emetogenic chemotherapy (MEC) or anthracycline andcyclophosphamide (AC) combination chemotherapy regimens, which is considered to be a HEC regimen by the NCCN and ASCO. No other 5-HT3receptor antagonist is specifically approved for the prevention of delayed CINV associated with a HEC regimen.NK1 receptor antagonists are also administered for the prevention of CINV, in combination with 5-HT3 receptor antagonists, to augment thetherapeutic effect of the 5-HT3 receptor antagonist. CINVANTI faces significant competition. Currently available NK1 receptor antagonists include:AKYNZEO® (palonosetron, a 5-HT3 receptor antagonist, combined with netupitant, an NK1 receptor antagonist, marketed by Eisai, Inc.); EMEND®(aprepitant, marketed by Merck & Co, Inc.); EMEND® IV (fosaprepitant, marketed by Merck & Co); VARUBI® (rolapitant, marketed byTerSeraTherapeutics LLC) and potentially other products that include an NK1 receptor antagonist that reach the market.If we are able to successfully develop HTX-011 for postoperative pain management, we will compete with MARCAINE (bupivacaine,marketed by Hospira, Inc.) and generic forms of bupivacaine; NAROPIN (ropivacaine, marketed by Fresenius Kabi USA, LLC) and generic forms ofropivacaine; EXPAREL® (bupivacaine liposome injectable suspension, marketed by Pacira Pharmaceuticals, Inc.) and potentially other products indevelopment for postoperative pain management that reach the market. 26Table of ContentsSmall or early-stage companies and research institutions may also prove to be significant competitors, particularly through collaborativearrangements with large and established pharmaceutical companies. We will also face competition from these parties in recruiting and retainingqualified scientific and management personnel, establishing clinical trial sites and patient registration for clinical trials, and acquiring and in-licensingtechnologies and products complementary to our programs or potentially advantageous to our business. If any of our competitors succeed in obtainingapproval from the FDA or other regulatory authorities for their products sooner than we do or for products that are more effective or less costly thanours, our commercial opportunity could be significantly reduced. Major technological changes can happen quickly in the biotechnology andpharmaceutical industries, and the development of technologically improved or different products or drug delivery technologies may make ourproduct candidates or platform technologies obsolete or noncompetitive.Our products may face competition from lower cost generic products offered by our competitors.Pricing for therapeutics can be extremely competitive, and strict formulary guidelines enforced by payors may create significant challengesin the acceptance and profitability of branded products. The market for generic products can be very lucrative, and it is dominated by companies thatmay have much larger distribution capabilities than we may have in the future. It can be very difficult to predict the timing of the launch of genericproducts given the commonality of litigation with manufacturers over anticipated patent expiration. Our inability to accurately foresee and plan forgeneric product launches that may compete with our products may significantly impact our potential revenues from such products. On the expiration orloss of patent protection for a branded product, or on the “at-risk” launch (despite pending patent infringement litigation against the generic product)by a manufacturer of a generic version of a drug that may compete with one of our products, we could quickly lose a significant portion of our sales ofthat product. The inability for a branded product we may sell to successfully compete against generic products could negatively impact sales of ourproduct, reduce our ability to grow our business and significantly harm our business prospects.For example, while we had expected that generic versions of ALOXI (palonosetron) would launch in September 2018 following theexpiration of the ALOXI patents, a U.S. Court of Appeals for the Federal Circuit decision in May 2017 ruled in favor of a generic drug companychallenging the ALOXI patents, thereby potentially accelerating the entry of generic versions of ALOXI (palonosetron). The Supreme Court grantedcertiorari in June 2018 and affirmed the Federal Circuit decision in January 2019. As a result of this litigation, generic versions of ALOXI(palonosetron) have entered the market and we expect increased competition for SUSTOL, which could reduce SUSTOL sales and harm our businessprospects. These and other risks related to the entry of generic product competing with SUSTOL are difficult to assess in terms of timing and impact onour operations and prospects.If we are unable to recruit and retain skilled employees, we may not be able to achieve our objectives.We depend on a small number of key management and personnel. Retaining our current employees and recruiting qualified personnel toperform future research and development and commercialization work will be critical to our success. Competition is always present for highly skilledand experienced personnel, and an inability to recruit or retain sufficient skilled personnel could result in delays in our business growth anddevelopment and adversely impact our research and development or commercial activities. If we lose key members of our senior management team, wemay not be able to find suitable replacements and our business may be harmed as a result.Our business strategy may include acquisitions of other businesses, products or product licenses. We may not be able to successfully manage suchactivities.We may engage in strategic transactions that could cause us to incur contingent liabilities, commitments or significant expense. In thecourse of pursuing strategic opportunities, we may evaluate potential acquisitions, licenses or investments in strategic technologies, products orbusinesses. Future acquisitions, licenses or investments could subject us to a number of risks, including, but not limited to: • our inability to appropriately evaluate and take into consideration the potential uncertainties associated with the other party to such atransaction, including, but not limited to, the prospects of that party and their existing products or product candidates and regulatoryapprovals; • difficulties associated with realizing the perceived potential for commercial success with respect to any acquired or licensedtechnology, product or business; • our ability to effectively integrate any new technology, product and/or business including personnel, intellectual property or businessrelationships into our Company; 27Table of Contents • our inability to generate revenues from acquired or licensed technology and/or products sufficient to meet our objectives inundertaking the acquisition or license or even to offset the associated acquisition and maintenance costs and/or assumption ofliabilities; and • the distraction of our management from our existing product development programs and initiatives in pursuing an acquisition orlicense.In connection with an acquisition or license, we must estimate the value of the transaction by making certain assumptions that may prove tobe incorrect, which could cause us to fail to realize the anticipated benefits of a transaction. Any strategic transaction we may pursue may not result inthe benefits we initially anticipate, may result in costs that end up outweighing the benefits and may adversely impact our financial condition and bedetrimental to our future business prospects.Our business strategy may include entry into collaborative agreements. We may not be able to enter into collaborative agreements or may not beable to negotiate commercially acceptable terms for these agreements.Our current business strategy may include the entry into collaborative agreements for the development and commercialization of ourproducts and product candidates. The negotiation and consummation of these types of agreements typically involve simultaneous discussions withmultiple potential collaborators and require significant time and resources from our officers, business development and research and development staff.In addition, in attracting the attention of pharmaceutical and biotechnology company collaborators, we compete with numerous other third parties withproduct opportunities as well as the collaborators’ own internal product opportunities. We may not be able to consummate collaborative agreements, orwe may not be able to negotiate commercially acceptable terms for these agreements.If we do enter into such arrangements, we could be dependent on the subsequent success of these other parties in performing their respectiveresponsibilities and the cooperation of our partners. Our collaborators may not cooperate with us or perform their obligations under our agreementswith them. We cannot control the amount and timing of our collaborators’ resources that will be devoted to researching our product candidatespursuant to our collaborative agreements with them. Our collaborators may choose to pursue existing or alternative technologies in preference to thosebeing developed in collaboration with us.Under agreements with any collaborators we may work with in the future, we may rely significantly on them to, among other activities: • fund research and development activities with us; • pay us fees on the achievement of milestones; and • market for or with us any commercial products that result from our collaborations.If we do not consummate collaborative agreements, we may use our financial resources more rapidly on our product development efforts,continue to defer certain development activities or forego the exploitation of certain geographic territories, any of which could have a material adverseeffect on our business prospects. Further, we may not be successful in overseeing any such collaborative arrangements. If we fail to establish andmaintain necessary collaborative relationships, our business prospects could suffer.Natural disasters, acts of war or terrorism or resource shortages could disrupt our investigational drug candidate development and approved drugcommercialization efforts and adversely affect results.Our ongoing or planned clinical studies and approved drug commercialization efforts could be delayed or disrupted indefinitely on theoccurrence of a natural disaster or act of war or terrorism. We are also vulnerable to damage from other disasters, such as power loss, fire, floods,hurricanes and similar events. For example, a natural disaster, or act of war or terrorism, and the resulting damage could negatively impact enrollmentand participation in our clinical studies, divert attention and resources at our research sites, cause unanticipated delays in the collection and receipt ofdata from our clinical studies, cause unanticipated delays in communications with, and any required approvals from, the FDA and other regulatoryauthorities, and cause unanticipated delays in the manufacturing and distribution of SUSTOL, CINVANTI, HTX-011 and any other products we maydevelop. If a significant disaster occurs, our ability to continue our operations could be seriously impaired and we may not have adequate insurance tocover any resulting losses. Any significant unrecoverable losses could seriously impair our operations and financial condition. 28Table of ContentsRisks Related to Our Financial ConditionWe have a history of losses, we expect to generate losses in the near future, and we may never achieve or maintain profitability.We have incurred significant operating losses and negative cash flows from operations and had an accumulated deficit of $960.7 millionthrough December 31, 2018. We expect to continue to generate substantial losses over at least the next several years as we: • expand product development activities with respect to our product candidates; • conduct preclinical development and clinical trials for our product candidates; • pursue regulatory approvals for any current or future product candidates; and • engage in commercialization efforts for any future approved product candidates.In addition, the amount we spend will impact our profitability. Our spending will depend, in part, on: • the number of product candidates we pursue; • the progress of our research and development programs for our product candidates, including clinical trials; • the time and expense required to pursue FDA and/or non-U.S. regulatory approvals for our product candidates, whether such approvalsare obtained and the scope of any approved product label; • the cost of possible acquisitions of technologies, compounds, product rights or companies; • the cost of obtaining licenses to use technology owned by others for proprietary products and otherwise; • the time and expense required to prosecute, enforce and/or challenge patent and other intellectual property rights; • the costs of potential litigation; and • the costs associated with recruiting and compensating a highly skilled workforce in an environment where competition for suchemployees may be intense.To achieve and sustain profitability, we must, alone or in cooperation with others, successfully develop, obtain regulatory approval for,manufacture, market and sell our products, including our current work commercializing SUSTOL and CINVANTI and our anticipated workcommercializing HTX-011, if approved. We will incur substantial expenses in our efforts to develop and commercialize our products and we may nevergenerate sufficient revenue to become profitable or to sustain profitability. 29Table of ContentsAdditional capital may be needed in the future to enable us to implement our business plan, and we may be unable to raise capital, which wouldforce us to limit or cease our operations and related product development programs.As of December 31, 2018, we had cash, cash equivalents and short-term investments of $332.4 million. Historically, we have financed ouroperations, including technology and product research and development, primarily through sales of our common stock and debt financings. Ourcapital requirements going forward will depend on numerous factors, including but not limited to: the costs associated with the commercial launch ofCINVANTI and HTX-011, if approved; the degree of commercial success of SUSTOL, CINVANTI and HTX-011, if approved; the scope, rate ofprogress, results and costs of preclinical testing and clinical trials; the timing and cost to manufacture our products; the number and characteristics ofproduct development programs we pursue and the pace of each program, including the timing of clinical trials; the time, cost and outcome involved inseeking other regulatory approvals; scientific progress in our research and development programs; the magnitude and scope of our research anddevelopment programs; our ability to establish and maintain strategic collaborations or partnerships for research, development, clinical testing,manufacturing and marketing of our product candidates; the cost and timing of establishing sales, marketing and distribution capabilities if wecommercialize products independently; the cost of establishing clinical and commercial supplies of our product candidates and any products that wemay develop; and general market conditions.We may not be able to raise additional capital when needed or desired, or we may need to raise additional capital on unfavorable terms, whichcould result in dilution to existing stockholders.We may not be able to raise sufficient additional capital when needed on favorable terms, or at all. If we are unable to obtain adequate funds,we may be required to curtail significantly or cease our operations.The timing and degree of any future capital requirements will depend on many factors, including: • our ability to successfully commercialize, market and achieve market acceptance of SUSTOL, CINVANTI and HTX-011, if approved; • the status of regulatory approval of any pending applications with the FDA, or other regulators, as the case may be, and the costsinvolved with pursuing regulatory approvals; • the number and characteristics of product development programs we pursue and the pace of each program; • the scope, rate of progress, results and costs of preclinical testing and clinical trials; • our ability to establish and maintain strategic collaborations or partnerships for research, development, clinical testing, manufacturingand marketing of our product candidates; • the cost and timing of establishing or enlarging sales and marketing capabilities; and • the cost of establishing supply arrangements for clinical and commercial development of our product candidates and any products thatwe may develop.If we issue additional equity securities or securities convertible into equity securities to raise funds, our stockholders will suffer dilution oftheir investment, and such issuance may adversely affect the market price of our common stock.Any new debt financing we enter into may involve covenants that restrict our operations. These restrictive covenants may include, amongother things, limitations on borrowing and specific restrictions on the use of our assets, as well as prohibitions on our ability to create liens, paydividends, redeem capital stock or make investments. Our Senior Secured Convertible Notes (“Convertible Notes”) also include restrictions on our useof cash and financial activities, and are secured by liens on substantially all of our assets. In the event that additional funds are obtained througharrangements with collaborative partners, these arrangements may require us to relinquish rights to some of our technologies, product candidates orproducts on terms that are not favorable to us or require us to enter into a collaboration arrangement that we would otherwise seek to develop andcommercialize ourselves. If adequate funds are not available, we may default on our indebtedness, be required to delay, reduce the scope of, oreliminate one or more of our product development programs and reduce personnel-related and other costs, which would have a material adverse effecton our business. 30Table of ContentsProvisions contained in our debt instruments limit our ability to incur additional indebtedness.The Convertible Notes are secured by substantially all of our assets, including our bank and investment accounts, and the terms of theConvertible Notes require us to seek approval from the holders of the Convertible Notes before taking certain actions, including incurring certainadditional indebtedness or modifying the terms of certain existing indebtedness. The Convertible Notes also contain provisions that trigger events ofdefault on any default of our financial obligations under certain material contracts we may enter into. In addition, potential third-party lenders may beunwilling to subordinate new debt to the Convertible Notes. As a result, we may not be able to raise funds through the issuance of debt in the future,which could impair our ability to finance our business obligations or pursue business expansion initiatives.We could be exposed to significant product liability claims that could be time-consuming and costly to defend, divert management attention andadversely impact our ability to obtain and maintain insurance coverage.The administration of drugs in humans, whether in clinical studies or commercially, carries the inherent risk of product liability claimswhether or not the drugs are actually the cause of an injury. SUSTOL, CINVANTI, our product candidates and products that we may commerciallymarket in the future may cause, or may appear to have caused, injury or dangerous drug reactions, and we may not learn about or understand thoseeffects until the product or product candidate has been administered to patients for a prolonged period of time.Although we are insured against such risks up to an annual aggregate limit in connection with clinical trials and commercial sales of ourproducts, our present product liability insurance may be inadequate and may not fully cover the costs of any claim or any ultimate damages we mightbe required to pay. Product liability claims or other claims related to our products, regardless of their outcome, could require us to spend significanttime and money in litigation or to pay significant damages. Any successful product liability claim may prevent us from obtaining adequate productliability insurance in the future on commercially desirable or reasonable terms. In addition, product liability coverage may cease to be available insufficient amounts or at an acceptable cost. An inability to obtain sufficient insurance coverage at an acceptable cost or otherwise to protect againstpotential product liability claims could prevent or inhibit the commercialization of our products. A product liability claim could also significantlyharm our reputation and delay market acceptance of our products.The investment of our cash is subject to risks, which may cause losses or adversely affect the liquidity of these investments and our results ofoperations, liquidity and financial condition.Our investments of cash, cash equivalents and short-term investments are subject to general credit, liquidity, market and interest rate risks,which have been and may, in the future, be exacerbated by a U.S. and/or global financial crisis. We may realize losses in the fair value of certain of ourinvestments or a complete loss of these investments if the credit markets tighten, which would have an adverse effect on our results of operations,liquidity and financial condition.Risks Related to Our IndustryDrug development involves a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictiveof future trial results.Conducting clinical trials is a lengthy, time-consuming and expensive process. For example, we incurred significant expenses in developingSUSTOL and CINVANTI, with no guarantees that doing so would result in a commercially viable product. Before obtaining regulatory approvals forthe commercial sale of any products, we, or our potential partners, must demonstrate through preclinical testing and clinical trials that our productcandidates are safe and effective for their intended uses in humans. We have incurred and will continue to incur substantial expense and devote asignificant amount of time to preclinical testing and clinical trials. 31Table of ContentsThe outcome of clinical testing is inherently uncertain. Failure can occur at any time during the clinical trial process. The results ofpreclinical studies and early clinical trials of product candidates may not be predictive of the results of later stage clinical trials. In addition,regulations are not static, and regulatory agencies, including the FDA, alter their staff, interpretations and practices and may in the future impose morestringent requirements than are currently in effect, which may adversely affect our planned drug development and/or our commercialization efforts.Satisfying regulatory requirements typically takes a significant number of years and can vary substantially based on the type, complexity and noveltyof the product candidate. Our business, results of operations and financial condition may be materially adversely affected by any delays in, ortermination of, our clinical trials. Factors that could impede our ability to generate commercially viable products through the conduct of clinical trialsinclude: • insufficient funds to conduct clinical trials; • the inability to find partners, if necessary, for support, including research, development, manufacturing or clinical needs; • the failure of tests or studies necessary to submit an NDA, such as clinical studies, bioequivalence studies in support of a 505(b)(2)regulatory filing, or stability studies; • the failure of clinical trials to demonstrate the safety and efficacy of our product candidates to the extent necessary to obtainregulatory approvals; • the failure by us or third-party investigators, CROs, or other third parties involved in the research to adhere to regulatory requirementsapplicable to the conduct of clinical trials; • the failure of preclinical testing and early clinical trials to predict results of later clinical trials; • any delay in completion of clinical trials caused by a regional disturbance where we or our collaborative partners are enrolling patientsin clinical studies, such as a pandemic, terrorist activities, or war, political unrest, a natural disaster or any other reason or event,resulting in increased costs; • any delay in obtaining advice from the FDA or similar regulatory authorities; and • the inability to obtain regulatory approval of our product candidates following completion of clinical trials, or delays in obtainingsuch approvals.There can be no assurance that if our clinical trials are successfully initiated and completed we will be able to obtain approval by the FDA inthe U.S. or similar regulatory authorities elsewhere in the world in a timely manner, if at all. If we fail to successfully develop and commercialize one ormore of our product candidates, we may be unable to generate sufficient revenues to attain profitability, and our reputation in the industry and in theinvestment community would likely be damaged, each of which would cause our stock price to decrease.Delays in clinical testing could increase our costs and delay our ability to obtain regulatory approval and commercialize our product candidates.Before we can receive regulatory approval for the commercial sale of our potential products, the FDA and comparable authorities in non-U.S.jurisdictions require extensive preclinical safety testing and clinical trials to demonstrate their safety and efficacy. Significant delays in preclinical andclinical testing could materially impact our product development costs and delay regulatory approval of our product candidates. Our ability tocomplete clinical trials in a timely manner could be impacted by, among other factors: • delay or failure in reaching agreement with the FDA or comparable foreign regulatory authority on a trial design that we are able toexecute; • delay or failure in obtaining authorization to commence a trial or inability to comply with conditions imposed by a regulatoryauthority regarding the scope or design of a clinical study; • delay or failure in reaching agreement on acceptable terms with prospective CROs and clinical trial sites, the terms of which can besubject to extensive negotiation and may vary significantly among different CROs and trial sites; 32Table of Contents • delay or failure in obtaining Institutional Review Board (“IRB”) approval or the approval of other reviewing entities, includingcomparable foreign entities, to conduct a clinical trial at each site; • withdrawal of clinical trial sites from our clinical trials as a result of changing standards of care or the ineligibility of a site toparticipate in our clinical trials; • delay or failure in obtaining clinical materials; • delay or failure in recruiting and enrolling suitable subjects to participate in a trial; • delay or failure of subjects completing a trial or returning for post-treatment follow-up; • clinical sites and investigators deviating from trial protocol, failing to conduct the trial in accordance with regulatory requirements, ordropping out of a trial; • inability to identify and maintain a sufficient number of trial sites, many of which may already be engaged in other clinical trialprograms, including some that may be for the same indication; • failure of our third-party clinical trial managers to satisfy their contractual duties or meet expected deadlines; • delay or failure in adding new clinical trial sites; • ambiguous or negative interim results or results that are inconsistent with earlier results; • feedback from the FDA, the IRB, data safety monitoring boards or comparable foreign entities, or results from earlier stage orconcurrent preclinical and clinical studies that might require modification to the protocol; • decisions by the FDA, the IRB, comparable foreign regulatory entities, or recommendations by a data safety monitoring board orcomparable foreign regulatory entity to suspend or terminate clinical trials at any time for safety issues or for any other reason; • unacceptable risk-benefit profiles or unforeseen safety issues or adverse side effects; • failure to demonstrate a benefit from using a drug; • manufacturing issues, including problems with manufacturing or obtaining from third parties sufficient quantities of a productcandidate for use in clinical trials; and • changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial.Patient enrollment, a significant factor in the timing of clinical trials, is affected by many factors including the size and nature of the patientpopulation, the proximity of subjects to clinical sites, the eligibility criteria for the trial, the design of the clinical trial, the ability to obtain andmaintain patient consents, whether enrolled subjects drop out before completion, competing clinical trials and clinicians’ and patients’ perceptions asto the potential advantages of the drug being studied in relation to other available therapies, including any new drugs that may be approved for theindications we investigate. Furthermore, we rely on CROs and clinical trial sites to ensure the proper and timely conduct of our clinical trials and whilewe have agreements governing their activities, we have limited influence over CROs’ actual performance.Our failure to successfully establish, recruit for, and oversee our clinical trials could delay our product development efforts and negativelyimpact our business. If we experience delays in the completion of any ongoing study, the commercial prospects of HTX-011 or any of our other productcandidates could be harmed, and our ability to generate product revenue will be delayed. Any delays in completing our clinical trials will increase ourcosts, slow our product candidates’ development and approval process and jeopardize our ability to commence product sales and generate revenues.Any of these occurrences may harm our business, financial condition and prospects significantly. 33Table of ContentsWe may not obtain regulatory approval for our product candidates in development. Regulatory approval may also be delayed or revoked or mayimpose limitations on the indicated uses of a proposed product. If we are unable to obtain regulatory approval for our product candidates indevelopment, our business will be substantially harmed.The process for obtaining regulatory approval of a new drug is time consuming, is subject to unanticipated delays and costs and requires thecommitment of substantial resources. Any product that we or our potential future collaborative partners develop must receive all necessary regulatoryagency approvals or clearances before it may be marketed in the U.S. or other countries. Human pharmaceutical products are subject to rigorouspreclinical and clinical testing and other requirements by the FDA in the U.S. and similar health authorities in foreign countries. We may not receivenecessary regulatory approvals or clearances to market our product candidates currently in development in the U.S. or in other jurisdictions, as a resultof changes in regulatory policies prior to approval or other events. Additionally, data obtained from preclinical and clinical activities, or from stabilityor bioequivalence studies, are susceptible to varying interpretations that could delay, limit or prevent regulatory agency approvals or clearances.Our product candidates could fail to receive regulatory approval from the FDA or a comparable foreign regulatory authority for manyreasons, including: • disagreement with the design or implementation of our clinical trials; • failure to demonstrate that the product candidate is safe and effective for its proposed indication; • failure of clinical trial results to meet the level of statistical significance required for approval; • the failure of third parties to manage and conduct the trials or perform necessary oversight to meet expected deadlines or to complywith regulatory requirements; • failure to demonstrate that the product candidate’s clinical and other benefits outweigh its safety risks; • disagreement with our interpretation of data from preclinical studies or clinical trials; • the insufficiency of data collected from clinical trials to support the submission and filing of an NDA or other submission or to obtainregulatory approval; • disapproval of the manufacturing processes or facilities of third-party manufacturers with whom we contract for clinical andcommercial supplies; and • changes in approval policies or regulations that render our preclinical and clinical data insufficient for approval.The FDA or a comparable non-U.S. regulatory authority may require additional preclinical or clinical data to support approval, such asconfirmatory studies and other data or studies to address questions or concerns that may arise during the FDA review process. Additionally, in 2013,2018 and 2019, the U.S. federal government entered shutdowns suspending services deemed non-essential as a result of the failure by Congress toenact regular appropriations. Our development and commercialization activities could be harmed or delayed by a similar shutdown of the U.S. federalgovernment in the future, which may significantly delay the FDA’s ability to timely review and process any submissions we have filed or may file orcause other regulatory delays, which could have a material adverse effect on our business.Even if granted, regulatory approvals may include significant limitations on the uses for which products may be marketed. Failure to complywith applicable regulatory requirements can, among other things, result in warning letters, imposition of civil penalties or other monetary payments,delay in approving or refusal to approve a product candidate, suspension or withdrawal of regulatory approval, product recall or seizure, operatingrestrictions, interruption of clinical trials or manufacturing, injunctions and criminal prosecution.In addition, the marketing and manufacturing of products are subject to continuing FDA review, and later discovery of previously unknownproblems with a product, its manufacture or its marketing may result in the FDA requiring further clinical research or restrictions on the product or themanufacturer, including withdrawal of the product from the market. 34Table of ContentsFailure to obtain regulatory approval in international jurisdictions would prevent SUSTOL, CINVANTI, HTX-011 or any other products we maydevelop from being marketed abroad.In the event we pursue the right to market and sell SUSTOL, CINVANTI, HTX-011 or any other products we may develop in jurisdictionsother than the U.S., we would be required to obtain separate marketing approvals and comply with numerous and varying regulatory requirements ineach foreign country. The approval procedure varies among countries and can involve additional testing. The time required to obtain approval maydiffer substantially from that required to obtain FDA approval. The regulatory approval process outside the U.S. generally includes all of the risksassociated with obtaining FDA approval. In addition, in many countries outside the U.S., it is required that the product be approved for reimbursementbefore the product can be approved for sale in that country. In the event we choose to pursue them, we may not obtain approvals from regulatoryauthorities outside the U.S. on a timely basis, if at all. Approval by the FDA does not ensure approval by regulatory authorities in other countries orjurisdictions, and approval by one regulatory authority outside the U.S. does not ensure approval by regulatory authorities in other countries orjurisdictions or by the FDA. If we are unable in the future to obtain approval of a product candidate by regulatory authorities in non-U.S. jurisdictions,the commercial prospects of that product candidate may be significantly diminished and our business prospects could decline.Even if our product candidates in development receive regulatory approval, they may still face future development and regulatory difficulties. If wefail to comply with continuing federal, state and foreign regulations, we could lose our approvals to market drugs, and our business would beseriously harmed.Even if we obtain regulatory approval for our product candidates in development, they remain subject to ongoing requirements of the FDAand comparable foreign regulatory authorities, including requirements related to manufacturing, quality control, further development, labeling,packaging, storage, distribution, safety surveillance, import, export, advertising, promotion, recordkeeping, and reporting of safety and otherpostmarket information. Following initial regulatory approval for drugs we develop, including SUSTOL, CINVANTI or any other products we maydevelop, we remain subject to continuing regulatory review, including review of adverse drug experiences and clinical results that may be reportedafter drug products become commercially available. This would include results from any postmarketing tests or continued actions required as acondition of approval. The manufacturer and manufacturing facilities we use to make any of our drug candidates will also be subject to periodic reviewand inspection by the FDA. If a previously unknown problem or problems with a product or a manufacturing and laboratory facility used by us isdiscovered, the FDA or foreign regulatory agency may impose restrictions on that product or on the manufacturing facility, including requiring us towithdraw the product from the market. Any changes to an approved product, including the way it is manufactured or promoted, often require FDAapproval before the product, as modified, can be marketed. We and our contract manufacturers will also be subject to ongoing FDA requirements forsubmission of safety and other postmarket information. If we and our contract manufacturers fail to comply with applicable regulatory requirements, aregulatory agency may: • issue warning letters; • impose civil or criminal penalties; • suspend or withdraw our regulatory approval; • suspend or terminate any of our ongoing clinical trials; • refuse to approve pending applications or supplements to approved applications filed by us; • impose restrictions on our operations; • close the facilities of our contract manufacturers; or • seize or detain products or require a product recall.The occurrence of any event or penalty described above may inhibit our ability to commercialize our products and generate revenue. 35Table of ContentsAdditionally, such regulatory review covers a company’s activities in the promotion of its drugs, with significant potential penalties andrestrictions for promotion of drugs for an unapproved use or other inappropriate sales and marketing activities. Advertising and promotion of anyproduct candidate that obtains approval in the U.S. will be heavily scrutinized by the FDA, the Department of Justice, and the Department of Healthand Human Services’ Office of Inspector General. Violations of applicable advertising and promotion laws and regulations, including promotion ofproducts for unapproved (or off-label) uses, are subject to enforcement letters, inquiries and investigations and civil and criminal sanctions by the FDA.We are also required to submit information on our open and completed clinical trials to public registries and databases; failure to comply with theserequirements could expose us to negative publicity, fines and penalties that could harm our business. We are also required to comply with therequirements to submit to governmental authorities information on payments to physicians and certain other third parties; failure to comply with theserequirements could expose us to negative publicity, fines and penalties that could harm our business.The commercial use of our products may cause unintended side effects or adverse reactions, or incidents of misuse may occur, which could adverselyaffect our business.We cannot predict whether any commercial use of our product candidates, once approved, will produce undesirable or unintended sideeffects that have not been evident in clinical trials conducted for such product candidates to date. Additionally, incidents of product misuse may occur.These events, including the reporting of adverse safety events, among others, could result in product recalls, product liability actions or withdrawals oradditional regulatory controls (including additional regulatory scrutiny and requirements for additional labeling), all of which could have a materialadverse effect on our business, financial condition, cash flows and results of operations.If we cannot establish pricing of our product candidates acceptable to the U.S. or foreign governments, insurance companies, managed careorganizations and other payors, or arrange for favorable reimbursement policies, our product sales will be severely hindered.The continuing efforts of the U.S. and foreign governments, insurance companies, managed care organizations and other payors of healthcare costs to contain or reduce costs of health care may adversely affect our ability to generate adequate revenues and gross margins to make theproducts we develop commercially viable. Our ability to commercialize any product candidates successfully will depend in part on the extent to whichgovernmental authorities, private health insurers and other organizations establish appropriate reimbursement levels for the cost of such products andrelated treatments and for what uses reimbursement will be provided.In the U.S., given recent federal and state government initiatives directed at lowering the total cost of health care, the U.S. Congress and statelegislatures will likely continue to focus on health care reform, reducing the cost of prescription pharmaceuticals and reforming the Medicare andMedicaid systems. For example, the PPACA encourages comparative effectiveness research. Any adverse findings for our products from such researchmay negatively impact reimbursement available for our products. Similarly, the SUPPORT Act, which was signed into law on October 24, 2018,encourages the prevention and treatment of opioid addiction and the development of non-opioid pain management treatments. Although it is too earlyto assess the impact of the SUPPORT Act, it could potentially increase competition for HTX-011 and have other negative impacts on our business.Economic pressure on state budgets may result in states increasingly seeking to achieve budget savings through mechanisms that limit coverage orpayment for drugs. State Medicaid programs are increasingly asking manufacturers to pay supplemental rebates and requiring prior authorization bythe state program for use of any drug for which supplemental rebates are not being paid. Further, the trend toward managed health care in the U.S.,which could significantly influence the purchase of health care services and products, may result in lower prices for our products, once approved formarketing. While we cannot predict whether any legislative or regulatory proposals affecting our business will be adopted, the announcement oradoption of these proposals could have a material and adverse effect on our potential revenues and gross margins. 36Table of ContentsThe pharmaceutical industry is subject to significant regulation and oversight pursuant to anti-kickback laws, false claims statutes, and anti-corruption laws, which may result in significant additional expense and limit our ability to commercialize our products. In addition, any failure tocomply with these regulations could result in substantial fines or penalties.We are subject to health care fraud and abuse regulations that are enforced by both the federal government and the states in which weconduct our business. Healthcare providers, physicians and third-party payors play a primary role in the recommendation and prescription of anyproduct with marketing approval. Our future arrangements with third-party payors and customers may expose us to broadly applicable fraud and abuseand other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, selland distribute our products with marketing approval. Restrictions under applicable federal and state healthcare laws and regulations include, but arenot limited to, the following: • the Federal health care programs’ Anti-Kickback Law, which prohibits, among other things, persons from knowingly and willfullysoliciting, receiving, offering or paying remuneration, directly or indirectly, in exchange for or to induce either the referral of anindividual for, or the purchase, lease, order or recommendation of, any good or service for which payment may be made under federalhealth care programs such as the Medicare and Medicaid programs; • federal false claims laws, which prohibit, among other things, individuals or entities from knowingly presenting, or causing to bepresented, claims for payment from Medicare, Medicaid or other federal health care programs that are false or fraudulent. This falseclaims liability may attach in the event that a company is found to have knowingly submitted false average sales price, best price orother pricing data to the government or to have unlawfully promoted its products; • federal “sunshine” laws, now known as Open Payments, that require transparency regarding financial arrangements with health careproviders, such as the reporting and disclosure requirements imposed by the PPACA on drug manufacturers regarding any “payment ortransfer of value” made or distributed to physicians and teaching hospitals; and • state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws, which may apply to items orservices reimbursed by any third-party payor, including commercial insurers.The risk of being found in violation of these laws is increased by the fact that many of them have not been fully interpreted by the regulatoryauthorities or the courts, and their provisions are open to a variety of interpretations. Moreover, recent health care reform legislation has strengthenedmany of these laws. For example, the PPACA, among other things, amends the intent requirement of the federal anti-kickback and criminal health carefraud statutes to clarify that a person or entity does not need to have actual knowledge of this statute or specific intent to violate it. In addition, PPACAprovides that a claim including items or services resulting from a violation of the federal anti-kickback statute constitutes a false or fraudulent claim forpurposes of the false claims statutes. Finally, some states, such as California, Massachusetts and Vermont, mandate implementation of commercialcompliance programs to ensure compliance with these laws.In addition, a number of states have laws that require pharmaceutical companies to track and report payments, gifts and other benefitsprovided to physicians and other health care professionals and entities. Similarly, the federal Physician Payments Sunshine Act within PPACA requirespharmaceutical companies to report to the federal government certain payments to physicians and teaching hospitals. The Physician PaymentsSunshine Act provisions require manufacturers that participate in federal health care programs to begin collecting such information after a six-monthperiod following commercial launch of a product; however, state law equivalents may require compliance beginning at commercial launch.In addition, we may in the future be subject to the Foreign Corrupt Practices Act of 1977, as amended (“FCPA”). The FCPA and similar anti-bribery laws in other jurisdictions generally prohibit companies and their intermediaries from providing money or anything of value to officials offoreign governments, foreign political parties, or international organizations with the intent to obtain or retain business or seek a business advantage.Recently, there has been a substantial increase in anti-bribery law enforcement activity by U.S. regulators, with more frequent and aggressiveinvestigations and enforcement proceedings by both the Department of Justice and the U.S. Securities and Exchange Commission (“SEC”). Adetermination that our operations or activities are not, or were not, in compliance with U.S. or foreign laws or regulations could result in the impositionof substantial fines, interruptions of business, loss of supplier, vendor or other third-party relationships, termination of necessary licenses and permits,and other legal or equitable sanctions. Other internal or government investigations or legal or regulatory proceedings, including lawsuits brought byprivate litigants, may also follow as a consequence. 37Table of ContentsChanges in laws affecting the healthcare industry could also adversely affect our revenues and profitability, including new laws, regulationsor judicial decisions, or new interpretations of existing laws, regulations or decisions related to patent protection and enforcement, healthcareavailability, and product pricing and marketing. Changes in FDA regulations and regulations issued by other regulatory agencies inside and outside ofthe U.S., including new or different approval requirements, timelines and processes, may also delay or prevent the approval of product candidates,require additional safety monitoring, labeling changes, restrictions on product distribution or other measures that could increase our costs of doingbusiness and adversely affect the market for our products. The enactment in the U.S. of healthcare reform, new legislation or implementation of existingstatutory provisions on importation of lower-cost competing drugs from other jurisdictions and legislation on comparative effectiveness research areexamples of previously enacted and possible future changes in laws that could adversely affect our business.If our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, wemay be subject to significant civil, criminal and administrative penalties, damages, fines, exclusion from government-funded healthcare programs, likeMedicare and Medicaid, and the curtailment or restructuring of our operations. Any penalties, damages, fines, curtailment or restructuring of ouroperations could adversely affect our ability to operate our business and our financial results. Although compliance programs can mitigate the risk ofinvestigation and prosecution for violations of these laws, the risks cannot be entirely eliminated. Any action against us for violation of these laws orregulations, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our management’s attention fromthe operation of our business. Moreover, achieving and sustaining compliance with applicable federal and state privacy, security and fraud laws mayprove costly.We may incur significant liability if it is determined that we are promoting the “off-label” use of drugs or promoting in a non-truthful andmisleading way.We are prohibited from promoting SUSTOL, CINVANTI or any other products we may develop for “off-label” uses or promoting in anon-truthful and misleading way that are not described in its labeling and that differ from the uses approved by the FDA. Physicians may prescribe drugproducts for off-label uses, and such off-label uses are common across medical specialties. The FDA and other regulatory agencies do not regulate aphysician’s choice of treatments. However, they do restrict pharmaceutical companies and their sales representatives’ dissemination of informationconcerning off-label use. The FDA and other regulatory agencies actively enforce regulations prohibiting promotion of products for off-label uses andthe promotion of products for which marketing authorization has not been obtained. A company that is found to have promoted products for off-labeluses may be subject to significant liability, including civil and administrative remedies as well as criminal sanctions. Notwithstanding the regulatoryrestrictions on off-label promotion, the FDA and other regulatory authorities allow companies to engage in truthful, non-misleading, andnon-promotional scientific exchanges concerning their products.The FDA or other regulatory authorities may conclude that we have violated applicable laws, rules or regulations, and we may therefore besubject to significant liability, including civil and administrative remedies, as well as criminal sanctions. Such enforcement actions could cause usreputational harm and divert the attention of our management from our business operations. Likewise, our distribution and contracting partners andthose providing vendor support services may also be the subject of regulatory investigations involving, or remedies or sanctions for, off-labelpromotion of SUSTOL, CINVANTI or any other products we may develop, which may adversely impact sales of SUSTOL, CINVANTI or any otherproducts we may develop or trigger indemnification obligations. These consequences, could, in turn, have a material adverse effect on our business,financial condition and results of operations and could cause the market value of our common shares to decline.Health care reform could increase our expenses and adversely affect the commercial success of our products.The PPACA includes numerous provisions that affect pharmaceutical companies, some of which became effective immediately on enactmentof the law, and others of which are scheduled to take effect over the next several years. For example, the PPACA seeks to expand healthcare coverage tothe uninsured through private health insurance reforms and an expansion of Medicaid. The PPACA also imposes substantial costs on pharmaceuticalmanufacturers, such as an increase in liability for rebates paid to Medicaid, new drug discounts that must be offered to certain enrollees in the Medicareprescription drug benefit and an annual fee imposed on all manufacturers of brand prescription drugs in the U.S. The PPACA also requires increaseddisclosure obligations—including those required under the “sunshine” laws—and an expansion of an existing program requiring pharmaceuticaldiscounts to certain types of hospitals and federally subsidized clinics and contains cost-containment measures that could reduce reimbursement levelsfor pharmaceutical products. These and other aspects of the PPACA, including the regulations that may be imposed in connection with theimplementation of the PPACA, could increase our expenses and adversely affect our ability to successfully commercialize our products and productcandidates. 38Table of ContentsOur employees may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, whichcould have a material adverse effect on our business.We are exposed to the risk of employee fraud or other misconduct. Misconduct by employees could include intentional failures to complywith FDA regulations or similar regulations of comparable foreign regulatory authorities, provide accurate information to the FDA or comparableforeign regulatory authorities, comply with manufacturing standards we have established, comply with federal and state healthcare fraud and abuselaws and regulations and similar laws and regulations established and enforced by comparable foreign regulatory authorities, report financialinformation or data accurately, or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in the healthcareindustry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws andregulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs andother business arrangements. Employee misconduct could also involve the improper use of information obtained in the course of clinical trials, whichcould result in regulatory sanctions and serious harm to our reputation. It is not always possible to identify and deter employee misconduct, and theprecautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting usfrom governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any suchactions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impacton our business and results of operations, including the imposition of significant fines or other sanctions.We are subject to certain data privacy and security requirements, which are very complex and difficult to comply with at times. Any failure to ensureadherence to these requirements could subject us to fines, penalties and damage our reputation.We are required to comply, as applicable, with numerous federal and state laws, including state security breach notification laws, state healthinformation privacy laws and federal and state consumer protection laws, which govern the collection, use and disclosure of personal information.Other countries also have, or are developing, laws governing the collection, use and transmission of personal information, such as the General DataProtection Regulation in the European Union that became effective in May 2018. In addition, most healthcare providers who may prescribe productswe may sell in the future and from whom we may obtain patient health information are subject to privacy and security requirements under the HealthInsurance Portability and Accountability Act of 1996 (“HIPAA”). We are not a HIPAA covered entity, do not intend to become one, and we do notoperate as a business associate to any covered entities. Therefore, these privacy and security requirements do not apply to us. However, we could besubject to criminal penalties if we knowingly obtain individually identifiable health information from a covered entity in a manner that is notauthorized or permitted by HIPAA or for aiding and abetting the violation of HIPAA. We are unable to predict whether our actions could be subject toprosecution in the event of an impermissible disclosure of health information to us. These laws could create liability for us or increase our cost of doingbusiness, and any failure to comply could result in harm to our reputation and potentially fines and penalties.Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business andreputation to suffer.In the ordinary course of our business, we collect and store sensitive data, including intellectual property, our proprietary businessinformation and that of our suppliers, as well as personally identifiable information of clinical trial participants and employees. Similarly, our third-party providers possess certain of our sensitive data. The secure maintenance of this information is critical to our operations and business strategy.Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employeeerror, malfeasance or other disruptions. Any such breach could compromise our networks and the information stored there could be accessed, publiclydisclosed, lost or stolen. The legislative and regulatory landscape for privacy and data protection continues to evolve, and there has been an increasingamount of focus on privacy and data protection issues with the potential to affect our business, including recently enacted laws in a majority of statesrequiring security breach notification. Thus, any access, disclosure or other loss of information, including our data being breached at our partners orthird-party providers, could result in legal claims or proceedings and liability under laws that protect the privacy of personal information, disrupt ouroperations and damage our reputation, which could adversely affect our business. Although we are insured against such risks up to an annual aggregatelimit, our cyber liability insurance may be inadequate and may not fully cover the costs of any claim or any ultimate damages we might be required topay. Any successful cyber liability claim may prevent us from obtaining adequate cyber liability insurance in the future on commercially desirable orreasonable terms. In addition, cyber liability coverage may cease to be available in sufficient amounts or at an acceptable cost. An inability to obtainsufficient cyber coverage at an acceptable cost or otherwise to protect against potential cyber liability claims could prevent or inhibit the developmentor commercialization of our products. A cyber liability claim could also significantly harm our reputation and delay market acceptance of our products. 39Table of ContentsOur use of hazardous materials could subject us to liabilities, fines and sanctions.Our laboratory and clinical testing sometimes involve use of hazardous, radioactive or otherwise toxic materials. We are subject to federal,state and local laws and regulations governing how we use, manufacture, handle, store and dispose of these materials.Although we believe that our safety procedures for handling and disposing of such materials comply in all material respects with all federal,state and local regulations and standards, there is always the risk of accidental contamination or injury from these materials. In the event of an accident,we could be held liable for any damages that result, and we could also be subject to fines and penalties and such liability and costs could exceed ourfinancial resources. If we fail to comply with these regulations and standards or with the conditions attached to our operating licenses, the licensescould be revoked, and we could be subjected to criminal sanctions and substantial financial liability or be required to suspend or modify ouroperations. Compliance with environmental and other laws may be expensive and current or future regulations may impair our product developmentefforts.Risks Related to Our Intellectual PropertyIf we are unable to adequately protect or enforce our intellectual property rights, we may lose valuable assets or incur costly litigation to protect ourrights.Our success will depend in part on our ability to obtain patents and maintain trade secret protection, as well as successfully defending thesepatents against challenges, while operating without infringing the proprietary rights of others. We have filed a number of U.S. patent applications oninventions relating to the composition of a variety of polymers, specific products, product groups and processing technology. As of December 31,2018, we had a total of 25 issued U.S. patents and an additional 32 issued (or registered) foreign patents. The patents on the bioerodible technologiesexpire between May 2021 and March 2026. Currently, SUSTOL is covered by seven patents issued in the U.S. and by 30 patents issued in foreigncountries including Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, Luxembourg, Netherlands, Portugal,Spain, Sweden, Switzerland, Taiwan, and the United Kingdom. U.S. patents covering SUSTOL have expiration dates ranging from May 2021 toSeptember 2024; foreign patents covering SUSTOL have expiration dates ranging from May 2021 to September 2025. Currently, CINVANTI iscovered by five patents issued in the U.S. with expiration dates of September 2035. HTX-011 is protected by eight patents issued in the U.S. withexpiration dates ranging from May 2021 to April 2035 and one patent issued in Mexico and one patent issued in Japan both with expiration dates ofMarch 2034. Our policy is to actively seek patent protection in the U.S. and to pursue equivalent patent claims in selected foreign countries, therebyseeking patent coverage for novel technologies and compositions of matter that may be commercially important to the development of our business.Granted patents include claims covering the product composition, methods of use and methods of preparation. Our existing patents may not coverfuture products, additional patents may not be issued and current patents, or patents issued in the future, may not provide meaningful protection orprove to be of commercial benefit.The patent positions of pharmaceutical companies, including ours, are uncertain and involve complex legal and factual questions. Inaddition, the coverage claimed in a patent application can be significantly reduced before the patent is issued. Consequently, our patent applicationsmay not issue into patents, and any issued patents may not provide sufficient protection for our product candidates or provide sufficient protection toafford us a commercial advantage against competitive technologies or may be held invalid if challenged or circumvented. Patent applications in theU.S. are maintained in confidence for at least 18 months after their filing. Consequently, we cannot be certain that the patent applications we arepursuing will lead to the issuance of any patent or be free from infringement or other claims from other parties. Our competitors may also independentlydevelop products similar to ours or design around or otherwise circumvent patents issued to us or licensed by us. In addition, the laws of some foreigncountries may not protect our proprietary rights to the same extent as U.S. laws.We may enter into collaborative agreements that may subject us to obligations that must be fulfilled and require us to manage complexrelationships with third parties. In the future, if we are unable to meet our obligations or manage our relationships with our collaborators under theseagreements our revenue may decrease. The loss or diminution of our intellectual property rights could result in a decision by our third-partycollaborators to terminate their agreements with us. In addition, these agreements are generally complex and contain provisions that could give rise tolegal disputes, including potential disputes concerning ownership of intellectual property and data under collaborations. Such disputes can lead tolengthy, expensive litigation or arbitration, requiring us to divert management time and resources to such dispute. 40Table of ContentsBecause the patent positions of pharmaceutical and biotechnology companies involve complex legal and factual questions, enforceabilityof patents cannot be predicted with certainty. The ultimate degree of patent protection that will be afforded to products and processes, including ours,in the U.S., remains uncertain and is dependent on the scope of protection decided on by the patent offices, courts and lawmakers in these countries.The America Invents Act, which was enacted in 2011 and reformed certain patent laws in the U.S., may create additional uncertainty. Patents, if issued,may be challenged, invalidated or circumvented. As more products are commercialized using our proprietary product platforms, or as any productachieves greater commercial success, our patents become more likely to be subject to challenge by potential competitors.We also rely on trade secrets, technical know-how and continuing technological innovation to develop and maintain our competitiveposition. We require our employees, consultants, advisors and collaborators to execute appropriate confidentiality and assignment-of-inventionsagreements with us. These agreements typically provide that all materials and confidential information developed or made known to the individualduring the course of the individual’s relationship with us is to be kept confidential and not disclosed to third parties except in specific circumstances,and that all inventions arising out of the individual’s relationship with us shall be our exclusive property. These agreements may be breached, and insome instances, we may not have an appropriate remedy available for breach of the agreements. Furthermore, our competitors may independentlydevelop substantially equivalent proprietary information and techniques, reverse engineer our information and techniques, or otherwise gain access toour proprietary technology. We may be unable to meaningfully protect our rights in trade secrets, technical know-how and other non-patentedtechnology. We may have to resort to litigation to protect our intellectual property rights, or to determine their scope, validity or enforceability. Inaddition, interference proceedings declared by the U.S. Patent and Trademark Office may be necessary to determine the priority of inventions withrespect to our patent applications. Enforcing or defending our proprietary rights is expensive, could cause diversion of our resources and may not provesuccessful. In addition, courts outside the U.S. may be less willing to protect trade secrets. Costly and time-consuming litigation could be necessary toseek to enforce and determine the scope of our proprietary rights. Any failure to enforce or protect our rights could cause us to lose the ability toexclude others from using our technology to develop or sell competing products.We may infringe on the intellectual property rights of others, and any litigation could force us to stop developing or selling potential products andcould be costly, divert management attention and harm our business.We must be able to develop products without infringing the proprietary rights of other parties. Because the markets in which we operateinvolve established competitors with significant patent portfolios, including patents relating to the composition of a variety of polymers, specificproducts, product groups and processing technology, it could be difficult for us to use our technologies or develop products without infringing theproprietary rights of others. Therefore, there is risk that third parties may make claims of infringement against our products or technologies. We may notbe able to design around the patented technologies or inventions of others, and we may not be able to obtain licenses to use patented technologies onacceptable terms, or at all. If we cannot operate without infringing the proprietary rights of others, we will not be able to develop or commercializesome or all of our product candidates, and consequently will not be able to earn product revenue.There is considerable uncertainty within the pharmaceutical industry about the validity, scope and enforceability of many issued patents inthe U.S. and elsewhere in the world. We cannot currently determine the ultimate scope and validity of patents that may be granted to third parties in thefuture or which patents might be asserted to be infringed by any future manufacture, use or sale of our products. In part as a result of this uncertainty,there has been, and we expect that there may continue to be, significant litigation in the pharmaceutical industry regarding patents and otherintellectual property rights. We may have to enforce our intellectual property rights against third parties who infringe our patents and other intellectualproperty or challenge our patent or trademark applications. For example, in the U.S., putative generics of innovator drug products (including productsin which the innovation comprises a new drug delivery method for an existing product, such as the drug delivery market occupied by us) may fileAbbreviated New Drug Applications (“ANDA”) and, in doing so, certify that their products either do not infringe the innovator’s patents or that theinnovator’s patents are invalid. This often results in litigation between the innovator and the ANDA applicant. This type of litigation is commonlyknown as “Paragraph IV” litigation in the U.S. These litigations could result in new or additional generic competition to any of our products that maybe marketed in the future and a potential reduction in product revenue. 41Table of ContentsIf we are required to defend ourselves in a patent-infringement lawsuit, we could incur substantial costs, and the lawsuit could divertmanagement attention, regardless of the lawsuit’s merit or outcome. These legal actions could seek damages and seek to enjoin testing, manufacturingand marketing of the accused product or process. In addition to potential liability for significant damages, we could be required to redesign affectedproducts or obtain a license to continue to manufacture or market the accused product or process and any license required under any such patent maynot be made available to us on acceptable terms, if at all. Competitors may sue us as a way of delaying the introduction of our products. Any litigation,including any interference or derivation proceedings to determine priority of inventions, oppositions or other post-grant review proceedings to patentsin the U.S. or in countries outside the U.S., or litigation against our partners may be costly and time-consuming and could harm our business. Weexpect that litigation may be necessary in some instances to determine the validity and scope of certain of our proprietary rights. Litigation may benecessary in other instances to determine the validity, scope and/or non-infringement of certain patent rights claimed by third parties to be pertinent tothe manufacture, use or sale of our products. Ultimately, the outcome of such litigation could adversely affect the validity and scope of our patent orother proprietary rights or hinder our ability to manufacture and market our products.Periodically, we review publicly available information regarding the development efforts of others in order to determine whether theseefforts may violate our proprietary rights. We may determine that litigation is necessary to enforce our proprietary rights against others. Such litigationcould result in substantial expense, regardless of its outcome, and may not be resolved in our favor.Risks Related to Our Common StockThe price of our common stock has been and may continue to be volatile.The stock markets, in general, and in particular with respect to biotech and life sciences companies, have experienced extreme volatility thathas often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading priceof our common stock. In addition, the limited trading volume of our stock may contribute to its volatility. Our stock price may be particularly volatilegiven the stage of our business.In the past, following periods of volatility in the market price of a particular company’s securities, litigation has often been brought againstthat company. If litigation of this type is brought against us, it could be extremely expensive and divert management’s attention and our Company’sresources.Our certificate of incorporation, our bylaws and Delaware law contain provisions that could discourage another company from acquiring us andmay prevent attempts by our stockholders to replace or remove our current management.Provisions of Delaware law, our certificate of incorporation and our bylaws may discourage, delay or prevent a merger or acquisition thatstockholders may consider favorable, including transactions in which you might otherwise receive a premium for your shares. In addition, theseprovisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult forstockholders to replace or remove our board of directors. These provisions include authorizing the issuance of “blank check” preferred stock withoutany need for action by stockholders.In addition, Section 203 of Delaware General Corporation Law, which is applicable to us, may discourage, delay or prevent a change incontrol of our Company by prohibiting stockholders owning in excess of 15% of our outstanding voting stock from merging or combining with us,unless certain approvals are obtained.Conversion of our Convertible Notes would result in substantial dilution for our existing stockholders.Our Convertible Notes bear interest at a rate of 6% per annum, payable quarterly in cash or in kind, at the election of the holders of theConvertible Notes. The Convertible Notes are convertible into shares of our common stock at a rate of 1,250 shares for every $1,000 of principal andaccrued interest that is being converted. In the event the holders of the Convertible Notes were to opt to convert in full the outstanding principal andaccrued interest due under the Convertible Notes as of December 31, 2018, we would be required to issue an aggregate of 8,472,820 shares,representing 9.8% of our outstanding shares, after giving effect to such conversion. This would result in substantial dilution of our existingstockholders. 42Table of ContentsConcentration in stockholder ownership could influence strategic actions.Our directors, executive officers, principal stockholders and affiliated entities currently beneficially own or control a significant percentageof our outstanding common stock. Based on information set forth in a Form 5 filed with the SEC on February 14, 2019, the beneficial ownership in ourcommon stock, as determined in accordance with Rule 13d-3 of the Exchange Act, of Tang Capital Partners, LP (“TCP”) was 5,753,096 shares, or 7.4%of our outstanding shares of common stock on December 31, 2018. In addition, as of December 31, 2018, TCP has the right to acquire 6,778,256 shareson conversion of the Convertible Notes.Such a substantial concentration of common stock ownership or control could significantly influence corporate actions on various strategicmatters, including, for example, receptivity to collaborations and merger or sale overtures to the extent that stockholder approval is required for suchtransactions. Further, covenants contained in the Convertible Notes would require approval from the noteholders for any change of control transactionwe might consider. Accordingly, we may only be able to pursue transactions that are supported by these large stockholders. In addition, the conversionof the Convertible Notes, the exercise of these warrants, or the sale by our current stockholders of a substantial number of shares, or the expectation thatsuch exercises or sales may occur, could significantly reduce the market price of our common stock.Future utilization of net operating loss carry-forwards may be impaired due to recent changes in ownership.We believe our net operating losses and tax attributes may be subject to limitation under Section 382 of the Internal Revenue Code of 1986.As a result, our deferred tax assets, and related valuation allowance, have been reduced for the estimated impact of the net operating losses and creditsthat we currently estimate may expire unused. Utilization of our remaining net operating loss and research and development credit carryforwards maystill be subject to substantial annual limitations due to ownership change limitations provided by the Internal Revenue Code and similar stateprovisions for ownership changes after December 31, 2017, including those that may come in conjunction with future equity financings or markettrades by our stockholders.Our business could be negatively affected as a result of the actions of activist stockholders.Proxy contests have been waged against many companies in the biopharmaceutical industry over the last few years. If faced with a proxycontest, we may not be able to respond successfully to the contest, which would be disruptive to our business. Even if we are successful, our businesscould be adversely affected by a proxy contest involving us because: • responding to proxy contests and other actions by activist stockholders can be costly and time-consuming, disrupting operations anddiverting the attention of management and employees, and can lead to uncertainty; • perceived uncertainties as to future direction may result in the loss of potential acquisitions, collaborations or in-licensingopportunities, and may make it more difficult to attract and retain qualified personnel and business partners; and • if individuals are elected to our board of directors with a specific agenda, it may adversely affect our ability to effectively implementour strategic plan in a timely manner and create additional value for our stockholders.These actions could cause the market price of our common stock to experience periods of volatility. 43Table of ContentsIf we identify a material weakness in our internal control over financial reporting, our ability to meet our reporting obligations and the tradingprice of our common stock could be negatively affected.A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is areasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis. Accordingly, amaterial weakness increases the risk that the financial information we report contains material errors.We regularly review and update our internal controls, disclosure controls and procedures and corporate governance policies. In addition, weare required under the Sarbanes-Oxley Act of 2002 to report annually on our internal control over financial reporting. Any system of internal controls,however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that theobjectives of the system are met. If we, or our independent registered public accounting firm, determine that our internal controls over financialreporting are not effective, or we discover areas that need improvement in the future, these shortcomings could have an adverse effect on our businessand financial results.If we cannot conclude that we have effective internal control over our financial reporting, or if our independent registered public accountingfirm is unable to provide an unqualified opinion regarding the effectiveness of our internal control over financial reporting, investors could loseconfidence in the reliability of our financial statements. Failure to comply with reporting requirements could also subject us to sanctions and/orinvestigations by the SEC, The Nasdaq Capital Market or other regulatory authorities.Because we do not anticipate paying any cash dividends on our common stock in the foreseeable future, capital appreciation, if any, will be thesource of gain for our stockholders.We have never declared or paid cash dividends on our common stock. We currently intend to retain all of our current and future earnings tofinance the growth and development of our business. As a result, capital appreciation, if any, of our common stock will be the sole source of gain forour stockholders for the foreseeable future. ITEM 1B. UNRESOLVED STAFF COMMENTS.None.ITEM 2. PROPERTIES.We lease 28,275 square feet of laboratory and office space in San Diego, California under a lease that began on December 1, 2016 andexpires on April 15, 2024. In May 2018, we entered into a lease amendment to expand our space in San Diego, adding an additional 23,873 square feet.The lease of the additional space began on September 7, 2018 and expires on December 31, 2025. We have one 5-year option to renew this lease onexpiration. We lease 26,067 square feet of laboratory, office and warehouse space in Redwood City, California. The lease for the Redwood City spaceexpires on May 31, 2019. On March 15, 2018, we entered into a sublease agreement for the Redwood City property. The sublease agreement expires onMay 31, 2019. We also lease 1,898 square feet of office space in Jersey City, New Jersey. The lease for the Jersey City office space expires on June 30,2019. For the year ended December 31, 2018, rent expense for all properties was $3.2 million. We believe our facilities are adequate and suitable forour current needs and that we will be able to obtain new or additional leased space in the future when necessary. ITEM 3.LEGAL PROCEEDINGS.We are not currently a party to any material legal proceedings. ITEM 4.MINE SAFETY DISCLOSURES.Not applicable. 44Table of ContentsPART II ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASESOF EQUITY SECURITIES.Information About Our Common StockShares of our common stock are traded on The Nasdaq Capital Market, under the symbol “HRTX.”StockholdersThe number of record holders of our common stock as of February 1, 2019 was 119.Dividend PolicyWe have never paid dividends on our common stock. We currently intend to retain all available funds and any future earnings for use in theoperation and expansion of our business, and we do not anticipate paying any cash dividends in the foreseeable future. 45Table of ContentsStock Performance GraphThe following is not deemed “filed” with the SEC and is not to be incorporated by reference into any filing we make under the Securities Actof 1933, as amended, whether made before or after the date hereof and irrespective of any general incorporation by reference language in such filing.The following graph shows the value of an investment of $100 on December 31, 2013 in Heron Therapeutics, Inc. common stock, theNasdaq Composite Index (U.S.) and the Nasdaq Biotechnology Index. All values assume reinvestment of the pretax value of dividends paid bycompanies included in these indices and are calculated as of December 31st of each year. Our common stock has traded on The Nasdaq Capital Marketsince January 2014. Prior to that, shares of our common stock were traded on the OTC Bulletin Board under the symbol “APPA.OB.” The comparisonsshown in the graph are based on historical data and we caution that the stock price performance shown in the graph is not indicative of, nor intended toforecast, the potential future performance of our stock. 12/13 12/14 12/15 12/16 12/17 12/18 Heron Therapeutics, Inc. $100.00 $113.03 $300.00 $147.19 $203.37 $291.46 Nasdaq Composite Index 100.00 114.62 122.81 133.19 172.11 165.84 Nasdaq Biotechnology Index 100.00 131.71 140.56 112.25 133.67 121.24 46Table of ContentsIssuer Purchases of SecuritiesNone.Unregistered Sales of Equity Securities and Use of ProceedsNone. ITEM 6.SELECTED FINANCIAL DATA.The following Selected Financial Data should be read in conjunction with “Management’s Discussion and Analysis of Financial Conditionand Results of Operations” included in Item 7 and the Consolidated Financial Statements and Notes included in Item 8 of this Annual Report onForm 10-K. Years Ended December 31, 2018 2017 2016 2015 2014 (In thousands, except per share amounts) Statements of Operations Data: Revenues: Net product sales $77,474 $30,767 $1,279 $— $— Operating expenses: Cost of product sales 27,512 4,588 35 — — Research and development 140,032 138,582 103,125 61,183 54,833 General and administrative 29,263 25,554 21,366 18,395 11,020 Sales and marketing 64,604 56,601 47,668 17,347 8,708 Loss from operations (183,937) (194,558) (170,915) (96,925) (74,561) Other income (expense), net 5,097 (2,926) (2,228) (666) (1,806) Net loss $(178,840) $(197,484) $(173,143) $(97,591) $(76,367) Basic and diluted net loss per common share $(2.44) $(3.65) $(4.56) $(2.95) $(2.87) Shares used in computing basic and diluted net loss per share 73,193 54,040 37,925 33,081 26,569 Balance Sheet Data: Cash and cash equivalents $31,836 $144,583 $13,414 $75,180 $72,675 Short-term investments 300,535 27,796 37,724 55,986 — Working capital 355,229 124,892 23,410 115,016 60,112 Total assets 462,179 234,307 67,482 137,845 76,682 Promissory note payable to related party — 25,000 50,000 — — Accumulated deficit (960,721) (783,455) (585,971) (412,828) (315,237) Total stockholders’ equity (deficit) 370,160 131,136 (21,251) 118,110 63,062 47Table of ContentsITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.You should read the following discussion and analysis of our financial condition and results of operations together with our auditedfinancial statements and the related notes and other financial information included elsewhere in this Annual Report on Form 10-K. Some of theinformation contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect toour plans and strategy for our business, include forward-looking statements that involve risks and uncertainties. You should review the “Risk Factors”included in Item 1A of this Annual Report on Form 10-K for a discussion of important factors that could cause our actual results to differ materiallyfrom the results described in or implied by the forward-looking statements contained in the following discussion and analysis.IntroductionManagement’s discussion and analysis of financial condition and results of operations is provided as a supplement to the ConsolidatedFinancial Statements and Notes, included in Item 8 of this Annual Report on Form 10-K, to help provide an understanding of our financial condition,the changes in our financial condition and our results of operations. Our discussion is organized as follows: • Overview. This section provides a general description of our business and operating expenses. • Critical accounting policies and estimates. This section contains a discussion of the accounting policies that we believe are importantto our financial condition and results of operations and that require significant judgment and estimates on the part of management intheir application. In addition, all of our significant accounting policies, including the critical accounting policies and estimates, aresummarized in Note 2 to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K. • Results of operations. This section provides an analysis of our results of operations presented in the accompanying consolidatedstatements of operations and comprehensive loss by comparing the results for the year ended December 31, 2018 to the results for theyear ended December 31, 2017 and comparing the results for the year ended December 31, 2017 to the results for the year endedDecember 31, 2016. • Liquidity and capital resources. This section provides an analysis of our cash flows and a discussion of our outstanding commitmentsand contingencies that existed as of December 31, 2018. Included in this discussion is our financial capacity to fund our futurecommitments and a discussion of other financing arrangements.OverviewWe are a commercial-stage biotechnology company focused on improving the lives of patients by developing best-in-class treatments toaddress some of the most important unmet patient needs. We are developing novel, patient-focused solutions that apply our innovative science andtechnologies to already-approved pharmacological agents for patients suffering from cancer or pain.On August 9, 2016, our first commercial product, SUSTOL, was approved by the U.S. Food and Drug Administration (“FDA”). SUSTOL isindicated in combination with other antiemetics in adults for the prevention of acute and delayed nausea and vomiting associated with initial andrepeat 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 Heron’s Biochronomer Technologyto maintain therapeutic levels of granisetron for 5 days. We commenced commercial sales of SUSTOL in the U.S. in October 2016.On November 9, 2017, our second commercial product, CINVANTI, was approved by the FDA. CINVANTI, in combination with otherantiemetic agents, is indicated in adults for the prevention of acute and delayed nausea and vomiting associated with initial and repeat courses ofhighly emetogenic cancer chemotherapy (HEC) including high-dose cisplatin and nausea and vomiting associated with initial and repeat courses ofmoderately emetogenic cancer chemotherapy (MEC). CINVANTI is an intravenous (“IV”) formulation of aprepitant, a substance P/neurokinin-1(“NK1”) receptor antagonist. CINVANTI is the only IV formulation of an NK1 receptor antagonist indicated for the prevention of acute and delayednausea and vomiting associated with HEC and nausea and vomiting associated with MEC that is free of polysorbate 80 or any other syntheticsurfactant. We commenced commercial sales of CINVANTI in the U.S. in January 2018. 48Table of ContentsHTX-011, which utilizes Heron’s proprietary Biochronomer Technology, is an investigational, long-acting, extended-release formulation ofthe local anesthetic bupivacaine in a fixed-dose combination with the anti-inflammatory meloxicam for postoperative pain management. By deliveringsustained levels of both a potent anesthetic and a local anti-inflammatory agent directly to the site of tissue injury, HTX-011 was designed to deliversuperior pain relief while reducing the need for systemically administered pain medications such as opioids, which carry the risk of harmful side effects,abuse and addiction. HTX-011 has been shown to reduce pain significantly better than placebo or bupivacaine alone in five diverse surgical models:hernia repair, abdominoplasty, bunionectomy, total knee arthroplasty and breast augmentation. HTX-011 was granted Fast Track designation from theFDA in the fourth quarter of 2017 and Breakthrough Therapy designation in the second quarter of 2018. The FDA recently accepted our New DrugApplication (“NDA”) for HTX-011, and has granted it a Priority Review designation. The FDA set a Prescription Drug User Fee Act (“PDUFA”) goaldate of April 30, 2019 and indicated that it is not currently planning an advisory committee meeting to discuss this application.HTX-034, our next-generation product candidate for postoperative pain management, is in development for postoperative pain via localapplication. Based on the positive results of preclinical studies in which HTX-034 demonstrated significant pain reduction for seven days, we haveinitiated formal development of this next-generation postoperative pain management product candidate.Net Product SalesNet product sales include revenue recognized for sales of SUSTOL and CINVANTI to a limited number of specialty distributors(“Customers”), less applicable sales allowances. See the “Critical Accounting Policies and Estimates” section of this Annual Report on Form 10-K forfurther details on our revenue recognition policy.Cost of Product SalesCost of product sales relates to the costs to produce, package and deliver SUSTOL and CINVANTI to our Customers. These costs includelabor, raw materials, manufacturing and quality control overhead, and depreciation of equipment. See the “Critical Accounting Policies and Estimates”section of this Annual Report on Form 10-K for further details on our inventory policy.Research and Development ExpenseAll costs of research and development are expensed in the period incurred. Research and development expense primarily consists of salariesand related costs for personnel, stock-based compensation expense, fees paid to outside service providers and consultants, facilities costs and materialsused in the clinical and preclinical trials and research and development.At this time, due to the risks inherent in the clinical trial process, we are unable to estimate with any certainty the costs we will incur in thecontinued development of our product candidates. Other than costs for outsourced services associated with our clinical programs, we generally do nottrack research and development expense by project; rather, we track such expense by the type of cost incurred.We expect research and development expense to increase in 2019 to support our ongoing research and development efforts for our productcandidates, including HTX-011 and HTX-034 clinical and manufacturing costs and costs for post-marketing requirements for SUSTOL and CINVANTI.The lengthy process of completing our clinical trials and seeking regulatory approval for our product candidates requires the expenditure of substantialresources.General and Administrative ExpenseGeneral and administrative expense primarily consists of salaries, stock-based compensation expense and other related costs for personnel inexecutive, finance and accounting, information technology, legal and human resource functions. Other general and administrative expense includesprofessional fees for legal, investor relations, accounting and other general corporate purposes, facility costs and insurance not otherwise included inresearch and development expense. We expect general and administrative expense to increase in 2019 to support our ongoing development andcommercialization efforts. 49Table of ContentsSales and Marketing ExpenseSales and marketing expense primarily consists of salaries and related costs for personnel, stock-based compensation expense and otherrelated costs for sales operations, marketing and market access. Other sales and marketing costs include professional fees and commercialization costsrelated to SUSTOL and CINVANTI. We expect sales and marketing expense to increase in 2019 to support the ongoing commercialization of SUSTOLand CINVANTI, as well as support for the launch of HTX-011, if approved. The commercial launch process requires the expenditure of substantialresources. We commenced commercial sales of CINVANTI in the U.S. in January 2018.Other Income (Expense), NetOther income (expense), net primarily consists of interest income earned on our cash, cash equivalents and short-term investments, otherincome resulting from the disgorgement of short-swing profits arising from the sales of our common stock by a beneficial owner pursuant toSection 16(b) of the Securities and Exchange Act of 1934. In addition, other income (expense), net includes interest expense on the SubordinatedSecured Promissory Note (“Promissory Note”), as well as interest expense and amortization of debt discount related to our Senior Secured ConvertibleNotes (“Convertible Notes”) and gains (losses) from the disposal of fixed assets.Critical Accounting Policies and EstimatesThe discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, whichhave been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires us tomake estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assetsand liabilities. We evaluate our estimates on an ongoing basis, including those related to revenue recognition, inventory, accrued clinical liabilities,income taxes, and stock-based compensation. We base our estimates on historical experience and on assumptions that we believe to be reasonableunder the circumstances, the results of which form the basis of making judgments about the carrying values of assets and liabilities that are not readilyapparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions.Our critical accounting policies used in the preparation of our consolidated financial statements involve significant judgments and estimatesand include the following:Revenue RecognitionProduct SalesSUSTOL is distributed in the U.S. through a limited number of Customers that resell SUSTOL to healthcare providers, the end users ofSUSTOL. CINVANTI is distributed in the U.S. through a limited number of Customers that resell CINVANTI to healthcare providers and hospitals, theend users of CINVANTI.Adoption of Topic 606On January 1, 2018, we adopted the Financial Accounting Standards Board Accounting Standards Update No. 2014-09, Revenue fromContracts with Customers (“Topic 606”) using the modified retrospective approach applied to those contracts that were not completed as of January 1,2018. Results from reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted andcontinue to be reported in accordance with our historical accounting under the FASB ASC Topic 605, Revenue Recognition (“Topic 605”). Prior to theadoption of Topic 606, we recognized product sales as revenue to the extent that our Customers had resold our products to end users (sell-throughapproach). With the adoption of Topic 606, we recognize product sales as revenue when our products are sold to our Customers (sell-in approach).Product sales under both Topic 605 and 606 are reported net of product sales allowances, which include product returns.Revenue is recognized in an amount that reflects the consideration we expect to receive in exchange for our products. To determine revenuerecognition for contracts with customers within the scope of Topic 606, we performed the following five steps: (i) identify the contract(s) with acustomer; (ii) identify the performance obligations of the contract(s); (iii) determine the transaction price; (iv) allocate the transaction price to theperformance obligations in the contract(s); and (v) recognize revenue when (or as) we satisfy the performance obligations. 50Table of ContentsProduct Sales AllowancesWe recognize product sales allowances as a reduction of product sales in the same period the related revenue is recognized. Product salesallowances are based on amounts owed or to be claimed on the related sales. These estimates take into consideration the terms of our agreements withCustomers, historical product returns, rebates or discounts taken, the shelf life of the product and specific known market events, such as competitivepricing and new product introductions. If actual future results vary from our estimates, we may need to adjust these estimates, which could have aneffect 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 12 months after its product expiration date. As such, there maybe 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 monthsafter the quarter in which product was shipped. • Group Purchasing Organization (“GPO”) Discounts and Rebates — We offer cash discounts to GPO members. These discounts aretaken when the GPO members purchase SUSTOL or CINVANTI 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 thequarterly rebate purchase period. • GPO Administrative Fees — We pay administrative fees to GPOs for services and access to data. These fees are based on contractedterms 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 oneach individual state’s guidelines regarding eligibility and services. Under the Medicaid rebate programs, we pay a rebate to eachparticipating state, generally within three months after the quarter in which SUSTOL or CINVANTI was sold.We believe our estimated allowance for product returns requires a high degree of judgment and is subject to change based on our experienceand certain quantitative and qualitative factors. We believe our estimated allowances for distributor fees, GPO discounts, rebates and administrativefees 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 eventsindicate that a change in estimate is appropriate. Changes in sales allowance estimates could materially affect our results of operations and financialposition.InventoryInventory is stated at the lower of cost or estimated net realizable value on a first-in, first-out, or FIFO, basis. We periodically analyze ourinventory levels and write down inventory that has become obsolete, inventory that has a cost basis in excess of its estimated realizable value andinventory quantities that are in excess of expected sales requirements as cost of product sales. The determination of whether inventory costs will berealizable requires estimates by management. If actual market conditions are less favorable than projected by management, additional write-downs ofinventory may be required, which would be recorded as cost of product sales.Accrued Clinical LiabilitiesWe accrue clinical costs based on work performed, which relies on estimates of the progress of the clinical trials and the related expensesincurred. Clinical trial related contracts vary significantly in duration, and may be for a fixed amount, based on the achievement of certain contingentevents or deliverables, a variable amount based on actual costs incurred, capped at a certain limit or contain a combination of these elements.Revisions are recorded to research and development expense in the period in which the facts that give rise to the revision become known. Historically,revisions have not resulted in material changes to research and development expense; however, a modification in the protocol of a clinical trial orcancellation of a clinical trial could result in a material charge to our results of operations. 51Table of ContentsIncome TaxesWe make certain estimates and judgments in determining income tax expense for financial statement purposes. These estimates andjudgments occur in the calculation of certain deferred tax assets and liabilities, which arise from differences in the timing of recognition of revenue andexpense for tax and financial statement purposes. As part of the process of preparing our consolidated financial statements, we are required to estimateour income taxes for each of the jurisdictions in which we operate. This process involves estimating our current tax exposure under the most recent taxlaws and assessing temporary differences resulting from differing treatment of items for tax and financial statement purposes.We assess the likelihood that we will be able to recover our deferred tax assets. In doing so, we consider all available evidence, both positiveand negative, including our historical levels of income and losses, expectations and risks associated with estimates of future taxable income andongoing prudent and feasible tax planning strategies. A valuation allowance is provided when it is more likely than not that the deferred tax assets willnot be realized. At December 31, 2018, we established a valuation allowance to offset our deferred tax assets due to the uncertainty of realizing futuretax benefits from our net operating loss carryforwards and other deferred tax assets.Additionally, we believe that our deferred tax assets may have been limited in accordance with a provision of the Internal Revenue Code of1986, whereby net operating loss and tax credit carryforwards available for use in a given period are limited on the occurrence of certain events,including a significant change in ownership interests. As a result, our deferred tax assets and related valuation allowance were reduced for the estimatedimpact of the net operating losses and credits that may expire unused.Should there be a change in our ability to recover our deferred tax assets, we would recognize a benefit to our tax provision in the period inwhich we determine that it is more likely than not that we will recover our deferred tax assets.Stock-based CompensationWe generally grant stock-based awards under our stockholder-approved, stock-based compensation plans. We have granted, and may in thefuture grant, stock options and restricted stock awards to employees, directors, consultants and advisors under our 2007 Amended and Restated EquityIncentive Plan. In addition, all of our employees are eligible to participate in our 1997 Employee Stock Purchase Plan, which enables employees topurchase common stock at a discount through payroll deductions. Prior to our relisting on The Nasdaq Capital Market in January 2014, we issuednon-plan stock option grants to certain employees, as set forth under Item 12 of this Annual Report on Form 10-K. These non-plan stock option grantswere registered with the U.S. Securities and Exchange Commission (“SEC”) on Form S-8.We estimate the fair value of stock options granted using the Black-Scholes option pricing model. This fair value is then amortized over therequisite service periods of the awards. The Black-Scholes option pricing model requires the input of subjective assumptions, including each option’sexpected life and price volatility of the underlying stock. Expected volatility is based on our historical stock price volatility. The expected life ofemployee stock options represents the average of the contractual term of the options and the weighted-average vesting period, as permitted under thesimplified method.As stock-based compensation expense is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures.Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeituresare estimated based on historical experience. Changes in assumptions used under the Black-Scholes option pricing model could materially affect ournet loss and net loss per share.Recent Accounting PronouncementsSee Note 2 to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K. 52Table of ContentsResults of OperationsYears Ended December 31, 2018 and 2017Net Product SalesNet Product Sales for the year ended December 31, 2018 were $77.5 million, compared to $30.8 million for the same period in 2017.For the year ended December 31, 2018, net product sales of SUSTOL were $21.3 million under the new revenue recognition standard issuedby the Financial Accounting Standard Board (“FASB”), Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (“Topic606”), which we adopted on January 1, 2018. For the year ended December 31, 2018, net product sales of SUSTOL would have been $21.0 millionunder the prior revenue recognition standard issued by the FASB Accounting Standards Codification Topic 605, Revenue Recognition. For the yearended December 31, 2017, net product sales of SUSTOL were $30.8 million.For the year ended December 31, 2018, net product sales of CINVANTI were $56.2 million. There was no comparable activity in 2017, as wecommenced commercial sales of CINVANTI in the U.S. in January 2018.Cost of Product SalesFor the year ended December 31, 2018, cost of product sales was $27.5 million, compared to $4.6 million for the same period in 2017. Costof product sales primarily included raw materials, labor and overhead related to the manufacturing of SUSTOL and CINVANTI, as well as shipping anddistribution costs. In addition, cost of product sales included a one-time charge of $1.8 million resulting from the write-off of short-dated SUSTOLinventory.Prior to FDA approval, $1.4 million of costs to manufacture CINVANTI were recorded to research and development expense in prior periods.By March 31, 2018, all CINVANTI units that were manufactured prior to FDA approval had been sold. We began capitalizing raw materials, labor andoverhead related to the manufacturing of CINVANTI following FDA approval.Research and Development ExpenseResearch and development expense consisted of the following (in thousands): December 31, 2018 2017 HTX-011-related costs $ 81,855 $ 78,092 CINVANTI-related costs 7,336 15,649 SUSTOL-related costs 3,811 7,390 Personnel costs and other expenses 33,341 26,139 Stock-based compensation expense 13,689 11,312 Total research and development expense $ 140,032 $ 138,582 For the year ended December 31, 2018, research and development expense was $140.0 million, compared to $138.6 million for the sameperiod in 2017. The increase in research and development expense was primarily due to personnel costs and other expenses of $7.2 million, costsrelated to HTX-011 of $3.8 million and stock-based compensation expense of $2.4 million, partially offset by a decrease in costs related to CINVANTIand SUSTOL of $8.3 million and $3.6 million, respectively.General and Administrative ExpenseFor the year ended December 31, 2018, general and administrative expense was $29.3 million, compared to $25.6 million for the sameperiod in 2017. The increase in general and administrative expense was primarily due to facility-related costs, as well as personnel costs to support ourincreased development and commercialization efforts. 53Table of ContentsSales and Marketing ExpenseFor the year ended December 31, 2018, sales and marketing expense was $64.6 million, compared to $56.6 million for the same period in2017. The increase in sales and marketing expense was primarily due to costs to support the commercialization of SUSTOL and CINVANTI, as well asmarket research and planning for HTX-011.Other Income (Expense), NetFor the year ended December 31, 2018, other income (expense), net was $5.1 million, compared to ($2.9) million for the same period in2017. The increase in other income (expense), net was primarily due to interest income earned on our short-term investments and other incomeresulting from the disgorgement of short-swing profits arising from the sales of our common stock by a beneficial owner pursuant to Section 16(b) ofthe Securities and Exchange Act of 1934. A portion of this increase was also a result of a decrease in interest expense due to the repayment of thePromissory Note in August 2018 (see Note 8 to our Consolidated Financial Statements).Results of OperationsYears Ended December 31, 2017 and 2016Net Product SalesFor the year ended December 31, 2017, net product sales of SUSTOL were $30.8 million, compared to $1.3 million for the same period in2016. During 2017 and 2016, we recognized net product sales as revenue only when our Customers have sold SUSTOL to their customers, the endusers. We commenced commercial sales of SUSTOL in October 2016.Cost of Product SalesFor the year ended December 31, 2017, cost of product sales of $4.6 million for sales of SUSTOL, primarily included raw materials, labor andoverhead related to the manufacturing of SUSTOL, as well as shipping and distribution costs. For the year ended December 31, 2016, we recognizedcost of product sales of $35,000, as all SUSTOL units sold in 2016 were manufactured prior to the approval of SUSTOL, and the costs to manufacturesuch units were recorded to research and development expense in prior periods.Research and Development ExpenseResearch and development expense consisted of the following (in thousands): December 31, 2017 2016 HTX-011-related costs $ 78,092 $ 40,356 CINVANTI-related costs 15,649 8,675 SUSTOL-related costs 7,390 9,618 Personnel costs and other expenses 26,139 33,160 Stock-based compensation expense 11,312 11,316 Total research and development expense $ 138,582 $ 103,125 For the year ended December 31, 2017, research and development expense was $138.6 million, compared to $103.1 million for the sameperiod in 2016. The increase in research and development expense was primarily due to an increase in costs related to HTX-011 and CINVANTI of$37.7 million and $7.0 million, respectively, partially offset by a decrease in personnel costs and other expenses of $7.0 million and a decrease in costsrelated to SUSTOL of $2.2 million.General and Administrative ExpenseFor the year ended December 31, 2017, general and administrative expense was $25.6 million, compared to $21.4 million for the sameperiod in 2016. The increase in general and administrative expense was primarily due to an increase in stock-based compensation expense and anincrease in personnel costs and other expenses to support our increased development and commercialization efforts. 54Table of ContentsSales and Marketing ExpenseFor the year ended December 31, 2017, sales and marketing expense was $56.6 million, compared to $47.7 million for the same period in2016. The increase in sales and marketing expense was primarily due to external costs to support the commercialization of SUSTOL, launchpreparation activities for CINVANTI, market research and planning for HTX-011 and an increase in stock-based compensation expense.Other Income (Expense), NetFor the year ended December 31, 2017, other income (expense), net was ($2.9) million, compared to ($2.2) million for the same period in2016. The increase in other income (expense), net was primarily due to interest expense incurred in 2017 related to the Promissory Note that was issuedin August 2016, as well as interest expense and amortization of debt discount related to the Convertible Notes.Liquidity and Capital ResourcesAs of December 31, 2018, we had cash, cash equivalents and short-term investments of $332.4 million, compared to $172.4 million as ofDecember 31, 2017. Based on our current operating plan and projections, we believe that available cash, cash equivalents and short-term investmentsas of December 31, 2018 will be sufficient to fund operations for at least one year from the date this Annual Report on Form 10-K is filed with the SEC.Our net loss for the year ended December 31, 2018 was $178.8 million, or $2.44 per share, compared to a net loss of $197.5 million, or $3.65per share, for the same period in 2017.Our net cash used for operating activities for the year ended December 31, 2018 was $191.8 million, compared to $170.3 million for thesame period in 2017. The increase in net cash used for operating activities was primarily due to changes in working capital associated with thelaunches of SUSTOL and CINVANTI.Our net cash (used for) provided by investing activities for the year ended December 31, 2018 was ($278.6) million, compared to$7.7 million for the same period in 2017. The increase in cash used for investing activities was primarily due to net purchases of short-term investmentsand property and equipment of $269.4 million and $9.2 million, respectively.Our net cash provided by financing activities for the year ended December 31, 2018 was $357.6 million, compared to $293.7 million for thesame period in 2017. The increase in cash provided by financing activities was primarily due to net proceeds of $363.1 million received from twopublic offerings of our common stock completed in the second quarter of 2018 and proceeds of $18.3 million from the exercise of stock options,partially offset by the $25.0 million repayment of the Promissory Note.Historically, we have financed our operations, including technology and product research and development, primarily through sales of ourcommon stock and debt financings.Contractual ObligationsThe following table summarizes our contractual obligations as of December 31, 2018 (in thousands): Payments due by period Less than More than Total 1 year 1-3 years 3-5 years 5 years Operating lease obligations $ 17,842 $ 3,195 $ 5,523 $ 5,850 $ 3,274 Capital expenditures 5,138 5,138 — — — Purchase obligations 54,446 54,158 288 — — Total $ 77,426 $62,491 $5,811 $5,850 $3,274 55Table of ContentsWe lease 28,275 square feet of laboratory and office space in San Diego, California under a lease that began on December 1, 2016 andexpires on April 15, 2024. In May 2018, we entered into a lease amendment to expand our space in San Diego, adding an additional 23,873 square feet.The lease of the additional space began on September 7, 2018 and expires on December 31, 2025. We have one 5-year option to renew this lease onexpiration. We lease 26,067 square feet of laboratory, office and warehouse space in Redwood City, California. The lease for the Redwood City spaceexpires on May 31, 2019. On March 15, 2018, we entered into a sublease agreement for the Redwood City property. The sublease agreement expires onMay 31, 2019. We also lease 1,898 square feet of office space in Jersey City, New Jersey. The lease for the Jersey City office space expires on June 30,2019. For the year ended December 31, 2018, rent expense for all properties was $3.2 million.In August 2016, we entered into the Promissory Note with Tang Capital Partners, LP (“TCP”) whereby TCP agreed to lend us up to$100.0 million. The Promissory Note had a two-year term and bore interest at a rate of 8% per annum. The first close of $50.0 million occurred onAugust 5, 2016. The second close of an additional $50.0 million was not drawn and has expired. There were no fees, no warrants and no equityconversion features associated with this transaction. The Promissory Note was secured by a second-priority lien on substantially all of our assets. TCPis controlled by Tang Capital Management (“TCM”). The manager of TCM is Kevin C. Tang, who serves as the Chairman of our Board of Directors.The terms of the Promissory Note were determined by our independent directors to be no less favorable than terms that would be obtained in an arm’slength financing transaction. In August 2018, we paid the remaining obligation under the Promissory Note, which included $25.0 million ofoutstanding principal and $0.2 million of accrued interest. As of December 31, 2018, there were no remaining obligations under the Promissory Note.At December 31, 2018, capital expenditures consisted of non-cancellable commitments for equipment related to scale-up activities at ourthird-party manufacturers. Total capital expenditures of $3.5 million were not included in our consolidated financial statements for the year endedDecember 31, 2018. We intend to use our current financial resources to fund our commitments under the capital expenditure obligations.At December 31, 2018, purchase obligations primarily consisted of non-cancellable commitments with third-party manufacturers inconnection with the manufacturing of CINVANTI and HTX-011, as well as commitments with various vendors for sales and marketing support andpreclinical studies. Total purchase obligations of $52.0 million were not included in our consolidated financial statements for the year endedDecember 31, 2018. We intend to use our current financial resources to fund our commitments under these purchase obligations.The holders of the Convertible Notes may also require prepayment of such notes at any time at each holder’s option (see Notes toConsolidated Financial Statements included in this Annual Report on Form 10-K). As of December 31, 2018, $6.8 million aggregate principal amountof the Convertible Notes were outstanding.We enter into agreements with clinical sites and clinical research organizations for the conduct of our clinical trials. We make payments tothese sites and organizations based in part on the number of eligible patients enrolled and the length of their participation in the clinical trials. Undercertain of these agreements, we may be subject to penalties in the event that we prematurely terminate these agreements. At this time, due to thevariability associated with clinical site and contract research organization agreements, we are unable to estimate with certainty the future costs we willincur. We intend to use our current financial resources to fund our obligations under these commitments.In addition, we entered into executive employment or management retention agreements with our executive officers and certain other keyemployees that, under certain cases, provide for a one-time severance payment and certain other benefits if these executives or employees areterminated under special circumstances. These agreements generally expire on termination for cause or when we have met our obligations under theseagreements. In connection with our realignment of goals and objectives and new development focus following the approval of SUSTOL, certainemployees received a one-time severance payment on termination, as well as other benefits as required by the executive employment or managementretention agreements. We fulfilled our remaining obligation under these agreements in the first quarter of 2018 (see Note 7 to our ConsolidatedFinancial Statements).Off-Balance Sheet ArrangementsWe are not involved in any “off-balance sheet arrangements” within the meaning of the rules of the SEC. 56Table of ContentsITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.The primary objective of our investment activities is to preserve our capital to fund operations. Our exposure to market risk for changes ininterest rates relates primarily to the increase or decrease in the amount of interest income we can earn on our investment portfolio. Our risk associatedwith fluctuating interest income is limited to our investments in interest rate-sensitive financial instruments. Under our current policies, we do not useinterest rate derivative instruments to manage this exposure to interest rate changes. We mitigate default risk by investing in short-term investmentgrade securities, such as treasury-backed money market funds, U.S. treasury and agency securities, corporate debt securities and commercial paper. As aresult of the generally short-term nature of our investments, a 50-basis point movement in market interest rates would not have a material impact on thefair value of our portfolio as of December 31, 2018 and 2017. While changes in our interest rates may affect the fair value of our investment portfolio,any gains or losses are not recognized in our consolidated statements of operations and comprehensive loss until the investment is sold or if areduction in fair value is determined to be a permanent impairment. Our debt obligations on our Convertible Notes carry a fixed interest rate and, as aresult, we are not exposed to interest rate risk on our convertible debt. We seek to ensure the safety and preservation of our invested principal bylimiting default risk, market risk and reinvestment risk. We do not have any material foreign currency obligations or other derivative financialinstruments. 57Table of ContentsITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMStockholders and Board of DirectorsHeron Therapeutics, Inc.San Diego, CaliforniaOpinion on the Consolidated Financial StatementsWe have audited the accompanying consolidated balance sheets of Heron Therapeutics, Inc. (the “Company”) as of December 31, 2018 and2017, the related consolidated statements of operations and comprehensive loss, stockholders’ equity (deficit), and cash flows for each of the threeyears in the period ended December 31, 2018, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion,the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2018 and 2017, andthe results of their operations and their cash flows for each of the three years in the period ended December 31, 2018, in conformity with accountingprinciples generally accepted in the United States of America.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), theCompany’s internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control – IntegratedFramework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated February 22,2019 expressed an unqualified opinion thereon.Change in Accounting PrincipleAs discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for revenue in 2018 dueto adoption of Financial Accounting Standards Board (United States) Accounting Standard Codification Topic No. 606, Revenue from Contracts withCustomers.Basis for OpinionThese consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion onthe Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required tobe independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of theSecurities and Exchange Commission and the PCAOB.We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit toobtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether dueto error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding theamounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significantestimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our auditsprovide a reasonable basis for our opinion./s/ OUM & CO. LLPSan Francisco, CaliforniaFebruary 22, 2019We have served as the Company’s auditor since 2006. 58Table of ContentsHERON THERAPEUTICS, INC.CONSOLIDATED BALANCE SHEETS December 31, 2018 December 31, 2017 (In thousands, except par value amounts) ASSETS Current assets: Cash and cash equivalents $31,836 $144,583 Short-term investments 300,535 27,796 Accounts receivable, net 64,652 41,874 Inventory 39,032 10,108 Prepaid expenses and other current assets 11,193 3,702 Total current assets 447,248 228,063 Property and equipment, net 14,677 5,981 Other assets 254 263 Total assets $462,179 $234,307 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $16,863 $18,769 Accrued clinical and manufacturing liabilities 24,470 26,920 Accrued payroll and employee liabilities 13,397 8,860 Other accrued liabilities 32,715 17,175 Deferred revenue — 2,763 Promissory note payable to related party — 25,000 Convertible notes payable to related parties, net of discount 4,574 3,684 Total current liabilities 92,019 103,171 Commitments and contingencies (see Note 6) Stockholders’ equity (deficit): Preferred stock, $0.01 par value: 2,500 shares authorized; no shares issued or outstanding atDecember 31, 2018 and 2017 — — Common stock, $0.01 par value: 150,000 shares authorized; 78,174 and 64,609 sharesissued and outstanding at December 31, 2018 and 2017, respectively 782 646 Additional paid-in capital 1,330,186 913,955 Accumulated other comprehensive loss (87) (10) Accumulated deficit (960,721) (783,455) Total stockholders’ equity 370,160 131,136 Total liabilities and stockholders’ equity $462,179 $234,307 See accompanying Notes to Consolidated Financial Statements. 59Table of ContentsHERON THERAPEUTICS, INC.CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS Years Ended December 31, 2018 2017 2016 (In thousands, except per share amounts) Revenues: Net product sales $77,474 $30,767 $1,279 Operating expenses: Cost of product sales 27,512 4,588 35 Research and development 140,032 138,582 103,125 General and administrative 29,263 25,554 21,366 Sales and marketing 64,604 56,601 47,668 Total operating expenses 261,411 225,325 172,194 Loss from operations (183,937) (194,558) (170,915) Other income (expense), net: Interest income 5,965 1,049 445 Interest expense (2,672) (3,937) (2,664) Other (expense) income 1,804 (38) (9) Total other income (expense), net 5,097 (2,926) (2,228) Net loss (178,840) (197,484) (173,143) Other comprehensive loss: Unrealized gains (losses) on short-term investments (77) 7 23 Comprehensive loss $(178,917) $(197,477) $(173,120) Basic and diluted net loss per share $(2.44) $(3.65) $(4.56) Shares used in computing basic and diluted net loss per share 73,193 54,040 37,925 See accompanying Notes to Consolidated Financial Statements. 60Table of ContentsHERON THERAPEUTICS, INC.CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)(In thousands) AdditionalPaid-InCapital AccumulatedOtherComprehensiveLoss AccumulatedDeficit TotalStockholders’Equity(Deficit) Common Stock Shares Amount Balance, December 31, 2015 36,106 361 530,617 (40) (412,828) 118,110 Conversion benefit included in Convertible Notes issued — — 348 — — 348 Issuance of common stock under Employee Stock PurchasePlan 55 1 770 — — 771 Issuance of common stock on exercise of stock options 798 8 6,676 — — 6,684 Issuance of common stock on exercise of warrants 2,396 24 (24) — — — Stock-based compensation expense — — 25,956 — — 25,956 Net loss — — — — (173,143) (173,143) Net unrealized gain on short-term investments — — — 23 — 23 Comprehensive loss — — — — — (173,120) Balance, December 31, 2016 39,355 394 564,343 (17) (585,971) (21,251) Issuance of common stock in public offerings, net 23,822 238 306,041 — — 306,279 Conversion benefit included in Convertible Notes issued — — 369 — — 369 Issuance of common stock under Employee Stock PurchasePlan 77 1 988 — — 989 Issuance of common stock on exercise of stock options 1,351 13 11,450 — — 11,463 Issuance of common stock on exercise of warrants 4 — — — — — Issuance of warrants — — 226 — — 226 Stock-based compensation expense — — 30,538 — — 30,538 Net loss — — — — (197,484) (197,484) Net unrealized gain on short-term investments — — — 7 — 7 Comprehensive loss — — — — — (197,477) Balance, December 31, 2017 64,609 $646 $913,955 $(10) $(783,455) $131,136 Cumulative effect of adoption of new accounting standard — — — — 1,574 1,574 Issuance of common stock in public offerings, net 11,963 120 363,008 — — 363,128 Conversion benefit included in Convertible Notes issued — — 392 — — 392 Issuance of common stock under Employee Stock PurchasePlan 72 1 1,178 — — 1,179 Issuance of common stock on exercise of stock options 1,530 15 18,286 — — 18,301 Stock-based compensation expense — — 33,367 — — 33,367 Net loss — — — — (178,840) (178,840) Net unrealized loss on short-term investments — — — (77) — (77) Comprehensive loss — — — — — (178,917) Balance, December 31, 2018 78,174 $782 $1,330,186 $(87) $(960,721) $370,160 See accompanying Notes to Consolidated Financial Statements. 61Table of ContentsHERON THERAPEUTICS, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, 2018 2017 2016 (In thousands) Operating activities: Net loss $(178,840) $(197,484) $(173,143) Adjustments to reconcile net loss to net cash used for operating activities: Stock-based compensation expense 33,367 30,538 25,956 Depreciation and amortization 1,513 1,531 1,099 Amortization of debt discount 890 773 689 (Accretion of discount) amortization of premium on short-term investments (3,412) (278) 274 Impairment of property and equipment 72 — — Loss on disposal of property and equipment 29 39 9 Change in operating assets and liabilities: Accounts receivable (22,778) (39,914) (1,960) Prepaid expenses and other assets (7,482) 3 (338) Inventory (29,122) (4,768) (5,340) Accounts payable (1,906) 11,955 3,514 Accrued clinical and manufacturing liabilities (3,614) 13,713 7,976 Accrued payroll and employee liabilities 4,537 446 3,586 Deferred revenue — 1,664 1,099 Other accrued liabilities 14,941 11,482 2,482 Net cash used for operating activities (191,805) (170,300) (134,097) Investing activities: Purchases of short-term investments (497,104) (121,570) (43,318) Maturities of short-term investments 227,700 131,783 61,329 Purchases of property and equipment (9,171) (2,553) (3,135) Proceeds from the sale of property and equipment 25 78 — Net cash (used for) provided by investing activities (278,550) 7,738 14,876 Financing activities: Net proceeds from sale of common stock and/or pre-funded warrants 363,128 306,279 — Proceeds from purchases under the Employee Stock Purchase Plan 1,179 989 771 Proceeds from stock option exercises 18,301 11,463 6,684 Proceeds from issuance of promissory note payable to related party — — 50,000 Repayment of promissory note payable to related party (25,000) (25,000) — Net cash provided by financing activities 357,608 293,731 57,455 Net (decrease) increase in cash and cash equivalents (112,747) 131,169 (61,766) Cash and cash equivalents at beginning of year 144,583 13,414 75,180 Cash and cash equivalents at end of year $31,836 $144,583 $13,414 Supplemental disclosure of cash flow information: Interest paid $1,183 $2,789 $1,622Cumulative effect of adoption of new accounting standard $1,574 $— $— See accompanying Notes to Consolidated Financial Statements. 62Table of ContentsHERON THERAPEUTICS, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1.Organization and BusinessHeron Therapeutics, Inc. (“Company”, “Heron”, or “we”) is a commercial-stage biotechnology company focused on improving the lives ofpatients by developing best-in-class treatments to address some of the most important unmet patient needs. We are developing novel, patient-focusedsolutions that apply our innovative science and technologies to already-approved pharmacological agents for patients suffering from cancer or pain.On August 9, 2016, our first commercial product, SUSTOL, was approved by the U.S. Food and Drug Administration (“FDA”). SUSTOL isindicated in combination with other antiemetics in adults for the prevention of acute and delayed nausea and vomiting associated with initial andrepeat 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 Heron’s Biochronomer Technologyto maintain therapeutic levels of granisetron for 5 days. We commenced commercial sales of SUSTOL in the U.S. in October 2016.On November 9, 2017, our second commercial product, CINVANTI, was approved by the FDA. CINVANTI, in combination with otherantiemetic agents, is indicated in adults for the prevention of acute and delayed nausea and vomiting associated with initial and repeat courses ofhighly emetogenic cancer chemotherapy (HEC) including high-dose cisplatin and nausea and vomiting associated with initial and repeat courses ofmoderately emetogenic cancer chemotherapy (MEC). CINVANTI is an intravenous (“IV”) formulation of aprepitant, a substance P/neurokinin-1(“NK1”) receptor antagonist. CINVANTI is the only IV formulation of an NK1 receptor antagonist indicated for the prevention of acute and delayednausea and vomiting associated with HEC and nausea and vomiting associated with MEC that is free of polysorbate 80 or any other syntheticsurfactant. We commenced commercial sales of CINVANTI in the U.S. in January 2018.HTX-011, which utilizes Heron’s proprietary Biochronomer Technology, is an investigational, long-acting, extended-release formulation ofthe local anesthetic bupivacaine in a fixed-dose combination with the anti-inflammatory meloxicam for postoperative pain management. By deliveringsustained levels of both a potent anesthetic and a local anti-inflammatory agent directly to the site of tissue injury, HTX-011 was designed to deliversuperior pain relief while reducing the need for systemically administered pain medications such as opioids, which carry the risk of harmful side effects,abuse and addiction. HTX-011 has been shown to reduce pain significantly better than placebo or bupivacaine alone in five diverse surgical models:hernia repair, abdominoplasty, bunionectomy, total knee arthroplasty and breast augmentation. HTX-011 was granted Fast Track designation from theFDA in the fourth quarter of 2017 and Breakthrough Therapy designation in the second quarter of 2018. The FDA recently accepted our New DrugApplication NDA for HTX-011, and has granted it a Priority Review designation. The FDA set a Prescription Drug User Fee Act goal date of April 30,2019 and indicated that it is not currently planning an advisory committee meeting to discuss this application.HTX-034, our next-generation product candidate for postoperative pain management, is in development for postoperative pain via localapplication. Based on the positive results of preclinical studies in which HTX-034 demonstrated significant pain reduction for seven days, we haveinitiated formal development of this next-generation postoperative pain management product candidate.As of December 31, 2018, we had $332.4 million in cash, cash equivalents and short-term investments. We have incurred significantoperating losses and negative cash flows from operations. Management believes that cash, cash equivalents and short-term investments as ofDecember 31, 2018 will be sufficient to fund operations for at least one year from the date this Annual Report on Form 10-K is filed with the U.S.Securities and Exchange Commission (“SEC”). 2.Summary of Significant Accounting PoliciesPrinciples of ConsolidationThe accompanying 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 orliabilities, and there have been no significant transactions related to Heron Therapeutics, B.V. since its inception. 63Table of ContentsUse of EstimatesThe preparation of financial statements in conformity with accounting principles generally accepted in the U.S. (“GAAP”) requiresmanagement to make estimates and assumptions that affect the amounts reported in the financial statements and disclosures made in the accompanyingnotes to the financial statements. Our significant accounting policies that involve significant judgment and estimates include revenue recognition,inventory and related reserves, accrued clinical liabilities, income taxes and stock-based compensation. Actual results could differ materially fromthose estimates.Cash, Cash Equivalents and Short-Term InvestmentsCash and cash equivalents consist of cash and highly liquid investments with contractual maturities of three months or less from the originalpurchase date.Short-term investments consist of securities with contractual maturities of greater than three months to one year from the original purchasedate. We have classified our short-term investments as available-for-sale securities in the accompanying consolidated financial statements.Available-for-sale securities are stated at fair market value, with the net change in unrealized gains and losses reported in other comprehensive loss andrealized gains and losses included in other income (expense), net. The cost of securities sold is based on the specific identification method. Interest anddividends on securities classified as available-for-sale are included in interest income.Our bank and investment accounts have been placed under control agreements in accordance with our Senior Secured Convertible Notes(“Convertible Notes”) (see Note 8).Fair Value of Financial InstrumentsA company may elect to use fair value to measure accounts and loans receivable, available-for-sale and held-to-maturity securities, equitymethod investments, accounts payable, guarantees and issued debt. Other eligible items include firm commitments for financial instruments thatotherwise would not be recognized at inception and non-cash warranty obligations where a warrantor is permitted to pay a third party to provide thewarranty 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 berecognized in earnings and cannot be deferred. The fair value election is irrevocable and generally made on an instrument-by-instrument basis, even ifa company has similar instruments that it elects not to measure based on fair value. Unrealized gains and losses on existing items for which fair valuehas been elected are reported as a cumulative adjustment to beginning retained earnings and any changes in fair value are recognized in earnings. Wehave elected to not apply the fair value option to our financial assets and liabilities.Financial instruments, including cash and cash equivalents, receivables, inventory, prepaid expenses, other current assets, accounts payableand accrued expenses, are carried at cost, which is considered to be representative of their respective fair values because of the short-term maturity ofthese instruments. Short-term available-for-sale investments are carried at fair value (see Note 3). Our Convertible Notes outstanding atDecember 31, 2018 do not have a readily available ascertainable market value, however, the carrying value is considered to approximate its fair value.Concentration of Credit RiskCash, cash equivalents and short-term investments are financial instruments that potentially subject us to concentrations of credit risk. Wedeposit our cash in financial institutions. At times, such deposits may be in excess of insured limits. We may also invest our excess cash in moneymarket funds, U.S. government and agencies, corporate debt securities and commercial paper. We have established guidelines relative to ourdiversification of our cash investments and their maturities in an effort to maintain safety and liquidity. These guidelines are periodically reviewed andmodified to take advantage of trends in yields and interest rates.Our products are distributed in the U.S. through a limited number of specialty distributors and full line wholesalers (collectively,“Customers”) that resell our products to healthcare providers and hospitals, the end users. 64Table of ContentsThe following table includes the percentage of net product sales and accounts receivable balances for our three major Customers, each ofwhich comprised 10% or more of our net product sales: Net Product Sales Accounts Receivable Year Ended December 31, 2018 As of December 31, 2018 Customer A 41.7% 38.7% Customer B 34.9% 46.1% Customer C 22.5% 14.8% Total 99.1% 99.6% Accounts Receivable, NetAccounts receivable are recorded at the invoice amount, net of an allowance for doubtful accounts. The allowance for doubtful accountsreflects accounts receivable balances that are believed to be uncollectible. In estimating the allowance for doubtful accounts, we consider: (1) ourhistorical experience with collections and write-offs; (2) the credit quality of our Customers and any recent or anticipated changes thereto; and (3) theoutstanding balances and past due amounts from our Customers.We offered extended payment terms to our Customers in connection with our product launches of SUSTOL and CINVANTI in October 2016and January 2018, respectively, in anticipation of the timing in reimbursement by government and commercial payers. Effective January 2018, weshortened payment terms to certain of our SUSTOL Customers. As of December 31, 2018, extended payment terms given to our Customers wereevaluated in accordance with GAAP and did not impact the collectability of accounts receivables.As of December 31, 2018, we determined that an allowance for doubtful accounts was not required. For the year ended December 31, 2018,we did not write off any accounts receivable balances.InventoryInventory is stated at the lower of cost or estimated net realizable value on a first-in, first-out, or FIFO, basis. We periodically analyze ourinventory levels and write down inventory that has become obsolete, inventory that has a cost basis in excess of its estimated realizable value andinventory quantities that are in excess of expected sales requirements as cost of product sales. The determination of whether inventory costs will berealizable requires estimates by management. If actual market conditions are less favorable than projected by management, additional write-downs ofinventory may be required, which would be recorded as cost of product sales.Property and EquipmentProperty and equipment is stated at cost less accumulated depreciation and amortization. Depreciation is calculated on a straight-line basisover the estimated useful lives of the assets (generally five years). Leasehold improvements are stated at cost and amortized on a straight-line basis overthe shorter of the estimated useful life of the asset or the lease term.Impairment of Long-Lived AssetsIf indicators of impairment exist, we assess the recoverability of the affected long-lived assets by determining whether the carrying value ofsuch assets can be recovered through undiscounted future operating cash flows. If impairment is indicated, we measure the amount of such impairmentby comparing the carrying value of the asset to the fair value of the asset and record the impairment as a reduction in the carrying value of the relatedasset with a corresponding charge to operating expenses. Estimating the undiscounted future operating cash flows associated with long-lived assetsrequires judgment and assumptions that could differ materially from actual results. 65Table of ContentsRevenue RecognitionIn May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenuefrom Contracts with Customers (“Topic 606”). Topic 606 is based on the principle that revenue should be recognized to depict the transfer of promisedgoods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods orservices. Topic 606 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Accordingly, inthe first quarter of 2018, we adopted Topic 606 using the modified retrospective approach. Under this approach, incremental disclosures are providedto present each financial statement line item for 2018 under the prior standard. As a result of the adoption of Topic 606, we recorded a cumulativeadjustment to accumulated deficit of $1.6 million on January 1, 2018. This adjustment reflects the acceleration of $2.9 million in gross product salesless $1.1 million in product sales allowances and $0.2 million in cost of product sales (see Note 5).Accrued Clinical LiabilitiesWe accrue clinical costs based on work performed, which relies on estimates of the progress of the trials and the related expenses incurred.Clinical trial related contracts vary significantly in duration, and may be for a fixed amount, based on the achievement of certain contingent events ordeliverables, a variable amount based on actual costs incurred, capped at a certain limit or contain a combination of these elements. Revisions arerecorded to research and development expense in the period in which the facts that give rise to the revision become known. Historically, revisions havenot resulted in material changes to research and development expense; however, a modification in the protocol of a clinical trial or cancellation of aclinical trial could result in a material charge to our results of operations.Research and Development ExpenseAll costs of research and development are expensed in the period incurred. Research and development expense primarily consist ofpersonnel and related costs, stock-based compensation expense, fees paid to outside service providers and consultants, facilities costs and materialsused in clinical and preclinical trials and research and development.Patent CostsWe incur outside legal fees in connection with filing and maintaining our various patent applications. All patent costs are expensed asincurred and are included in general and administrative expense in the consolidated statements of operations and comprehensive loss.Stock-Based Compensation ExpenseWe estimate the fair value of stock-based payment awards using the Black-Scholes option pricing model. This fair value is then amortizedusing the straight-line single-option method of attributing the value of stock-based compensation to expense over the requisite service periods of theawards. The Black-Scholes option pricing model requires the input of complex and subjective assumptions, including each option’s expected life andprice volatility of the underlying stock.As stock-based compensation expense is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures.Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeituresare estimated based on historical data.WarrantsWe have issued warrants to purchase shares of our common stock in conjunction with certain equity financings or in exchange for services.The terms of the warrants were evaluated to determine the appropriate classification as equity or a liability.Income TaxesWe recognize the impact of a tax position in our consolidated financial statements if the position is more likely than not to be sustained onexamination and on the technical merits of the position. The total amount of unrecognized tax benefits, if recognized, would affect other tax accounts,primarily deferred taxes in future periods, and would not affect our effective tax rate, since we maintain a full valuation allowance against our deferredtax assets (see Note 10). We recognize interest and penalties related to income tax matters in income tax expense. 66Table of ContentsComprehensive LossComprehensive loss is defined as the change in equity during a period from transactions and other events and circumstances from non-ownersources. Net changes in unrealized gains and losses on available-for-sale securities are included in other comprehensive loss and represent thedifference between our net loss and comprehensive net loss for all periods presented.Net Loss per ShareBasic 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 share equivalents. Diluted net loss per share is computed by dividing the net loss by the weighted-average number ofcommon 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 inthe 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 consolidated statements of operations and comprehensive loss, thefollowing common stock equivalents were not included in the computation of net loss per share because their effect would be anti-dilutive (inthousands): December 31, 2018 2017 2016 Stock options outstanding 15,265 13,463 11,845 Warrants outstanding 640 620 600 Shares of common stock underlying Convertible Notes outstanding 8,473 7,983 7,521 Recent Accounting PronouncementsRecently AdoptedIn May 2017, the FASB issued ASU No. 2017-09, Compensation – Stock Compensation: Scope of Modification Accounting (“ASU 2017-09”).The amendments in ASU 2017-09 provide guidance about which changes to the terms or conditions of a stock-based payment award require an entityto apply modification accounting in Topic 718. In the first quarter of 2018, we adopted the provisions of ASU 2017-09, which did not have a materialimpact on our results of operations or financial condition.Not Yet AdoptedIn February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which provides principles for the recognition,measurement, presentation and disclosure of leases for both lessees and lessors. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842):Targeted Improvements and ASU No. 2018-10, Codification Improvements to Topic 842, Leases. ASU 2016-02 and the subsequent modifications areidentified as “ASC 842.” ASC 842 requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on theprinciple of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense isrecognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record aright-of-use asset and a lease liability for all leases with a term of greater than twelve months, regardless of classification. Leases with a term of twelvemonths or less will be accounted for similar to existing guidance for operating leases. ASC 842 is effective for fiscal years beginning afterDecember 15, 2018, including interim periods within those fiscal years. We adopted the provisions of ASU 2016-02 on January 1, 2019 using thealternative modified transition method. We are still in the process of finalizing our assessment of the impact of ASC 842 on our results of operationsand related disclosures. We are also implementing additional internal controls to enable future preparation of financial information and disclosures inaccordance with ASC 842. 67Table of ContentsIn August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820) - Disclosure Framework - Changes to the DisclosureRequirements for Fair Value Measurement (“ASU 2018-13”), which is designed to improve the effectiveness of disclosures by removing, modifyingand adding disclosures related to fair value measurements. ASU 2018-13 is effective for fiscal years beginning after December 15, 2019, includinginterim periods within those fiscal years. Early adoption is permitted. We plan to adopt the provisions of ASU 2018-13 in the first quarter of 2020, andwe are currently evaluating the impact on our consolidated financial statements. 3.Fair Value MeasurementsFair 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 ormost advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuationtechniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The FASB AccountingStandards Codification (“ASC”) Topic 820, Fair Value Measurements & Disclosures, establishes a fair value hierarchy which prioritizes the inputsused 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 forsubstantially 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 orliabilities.We measure cash equivalents and short-term investments at fair value on a recurring basis. The fair values of these such assets were asfollows (in thousands): Fair Value Measurements at Reporting Date Using Balance atDecember 31,2018 Quoted Prices inActive Marketsfor IdenticalAssets(Level 1) SignificantOtherObservableInputs(Level 2) SignificantUnobservableInputs(Level 3) Money market funds $13,874 $13,874 $— $— U.S. treasury bills and government agency obligations 59,741 59,741 — — U.S. corporate debt securities 59,087 — 59,087 — Foreign corporate debt securities 5,046 — 5,046 — U.S. commercial paper 61,885 — 61,885 — Foreign commercial paper 123,861 — 123,861 — Total $323,494 $73,615 $249,879 $— Fair Value Measurements at Reporting Date Using Balance atDecember 31,2017 Quoted Prices inActive Marketsfor IdenticalAssets (Level 1) SignificantOtherObservableInputs(Level 2) SignificantUnobservableInputs(Level 3) Money market funds $91,386 $91,386 $— $— U.S. corporate debt securities 17,520 — 17,520 — U.S. commercial paper 39,863 — 39,863 — Foreign commercial paper 19,854 — 19,854 — Total $168,623 $91,386 $77,237 $— We have not transferred any investment securities between the three levels of the fair value hierarchy. 68Table of ContentsAs of December 31, 2018, cash equivalents included $9.1 million of available-for-sale securities with contractual maturities of three monthsor less, and short-term investments included $300.5 million of available-for-sale securities with contractual maturities of three months to one year. Asof December 31, 2017, cash equivalents included $49.4 million of available-for-sale securities with contractual maturities of three months or less, andshort-term investments included $27.8 million of available-for-sale securities with contractual maturities of three months to one year. The moneymarket funds as of December 31, 2018 and 2017 are included in cash and cash equivalents on the consolidated balance sheets.Unrealized gains and losses associated with our investments are reported in accumulated other comprehensive loss. For the year endedDecember 31, 2018, we recorded $77,000 in net unrealized losses associated with our short-term investments. For the years ended December 31, 2017and 2016, we recorded $7,000 and $23,000, respectively, in net unrealized gains associated with our short-term investments.Realized gains and losses associated with our investments, if any, are reported in the statements of operations and comprehensive loss. Wedid not recognize any realized gains or losses during the years ended December 31, 2018, 2017 and 2016. 4.Balance Sheet DetailsShort-Term InvestmentsThe following is a summary of our short-term investments (in thousands): December 31, 2018 AmortizedCost GrossUnrealizedGains GrossUnrealizedLosses EstimatedFair Value U.S. treasury bills and government agency obligations $59,747 $— $(6) $59,741 U.S. corporate debt 59,164 — (77) 59,087 Foreign corporate debt 5,041 5 — 5,046 U.S. commercial paper 52,800 — — 52,800 Foreign commercial paper 123,870 — (9) 123,861 Total $300,622 $5 $(92) $300,535 December 31, 2017 AmortizedCost GrossUnrealizedGains GrossUnrealizedLosses EstimatedFair Value U.S. corporate debt securities $13,003 $— $(10) $12,993 U.S. commercial paper 4,929 — — 4,929 Foreign commercial paper 9,874 — — 9,874 Total $27,806 $— $(10) $27,796 The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. We regularly monitorand evaluate the realizable value of our marketable securities. We did not recognize any impairment losses for the years ended December 31, 2018 and2017. 69Table of ContentsInventoryInventory consists of the following (in thousands): December 31, 2018 2017 Raw materials $10,112 $2,754 Work in process 20,604 4,166 Finished goods 8,316 3,188 Total inventory $39,032 $10,108 As of December 31, 2018, total inventory included $6.7 million related to SUSTOL and $32.3 million related to CINVANTI. As ofDecember 31, 2017, total inventory included $7.1 million related to SUSTOL and $3.0 million related to CINVANTI.Property and EquipmentProperty and equipment, net consists of the following (in thousands): December 31, 2018 2017 Scientific equipment $18,077 $9,742 Leasehold improvements 1,783 1,654 Computer equipment and software 1,190 1,420 Furniture, fixtures and office equipment 1,722 1,024 Property and equipment, gross 22,772 13,840 Less: accumulated depreciation and amortization (8,095) (7,859) Property and equipment, net $14,677 $5,981 Depreciation and amortization expense for the years ended December 31, 2018, 2017 and 2016 was $1.5 million, $1.5 million and$1.1 million, respectively. As of December 31, 2018 and 2017, $10.3 million and $2.0 million of property and equipment, respectively, was in processand not depreciated during the respective years.Accrued Payroll and Employee Liabilities and Other Accrued LiabilitiesAccrued payroll and employee liabilities consist of the following (in thousands): December 31, 2018 2017 Accrued employee salaries and benefits $2,330 $1,292 Accrued bonuses 9,139 5,044 Accrued vacation 1,928 1,438 Accrued expenses for realignment (see Note 7) — 1,086 Total accrued payroll and employee liabilities $13,397 $8,860 70Table of ContentsOther accrued liabilities consist of the following (in thousands): December 31, 2018 2017 Accrued product sales allowances $25,503 $9,319 Accrued consulting and professional fees 5,768 6,869 Deferred rent 780 651 Accrued accounts payable 224 148 Other accrued liabilities 440 188 Total other accrued liabilities $32,715 $17,175 5.Revenue RecognitionProduct SalesSUSTOL is distributed in the U.S. through a limited number of Customers that resell SUSTOL to healthcare providers, the end users ofSUSTOL. CINVANTI is distributed in the U.S. through a limited number of Customers that resell CINVANTI to healthcare providers and hospitals, theend users of CINVANTI.Adoption of Topic 606On January 1, 2018, we adopted Topic 606 using the modified retrospective approach applied to those contracts that were not completed asof January 1, 2018. Results from reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are notadjusted and continue to be reported in accordance with our historical accounting under the FASB ASC Topic 605, Revenue Recognition (“Topic605”). Prior to the adoption of Topic 606, we recognized product sales as revenue to the extent that our Customers had resold our products to end users(sell-through approach). With the adoption of Topic 606, we recognize product sales as revenue when our products are sold to our Customers (sell-inapproach). Product sales under both Topic 605 and 606 are reported net of product sales allowances, which include product returns.Revenue is recognized in an amount that reflects the consideration we expect to receive in exchange for our products. To determine revenuerecognition for contracts with customers within the scope of Topic 606, we performed the following five steps: (i) identify the contract(s) with acustomer; (ii) identify the performance obligations of the contract(s); (iii) determine the transaction price; (iv) allocate the transaction price to theperformance obligations in the contract(s); and (v) recognize revenue when (or as) we satisfy the performance obligations.The following table shows the reconciliation of assets and liabilities disclosed in our Annual Report on Form 10-K for the year endedDecember 31, 2017, as adjusted, due to the modified retrospective adoption of Topic 606 on January 1, 2018 (in thousands): As ReportedUnder Topic605 Effect ofChange As AdjustedUnder Topic606 Inventory $ 10,108 $(198) $9,910 Other accrued liabilities 17,175 991 18,166 Deferred revenue 2,763 (2,763) — Accumulated deficit (783,455) 1,574 (781,881) 71Table of ContentsThe following table shows the unaudited condensed consolidated financial statement line items as if revenue from contracts with customershad been accounted for under Topic 605 (in thousands, except per share data): As ReportedUnder Topic606 Effect ofChange As CalculatedUnder Topic605 Consolidated Balance Sheet as of December 31, 2018: Inventory $39,032 $2,181 $41,213 Other accrued liabilities 32,715 (7,195) 25,520 Deferred revenue — 14,010 14,010 Accumulated deficit (960,721) (4,634) (965,355) Consolidated Statement of Operations for the Year Ended December 31, 2018: Net product sales $77,474 $(5,043) $72,431 Cost of product sales 27,512 (1,983) 25,529 Loss from operations (183,937) (3,060) (186,997) Net loss (178,840) (3,060) (181,900) Basic and diluted net loss per share (2.44) (0.05) (2.49) Consolidated Statement of Cash Flows for the Year Ended December 31, 2018: Net loss $(178,840) $(3,060) $(181,900) Adjustments to reconcile net loss to net cash used in operating activities: Inventory (29,122) (1,983) (31,105) Other accrued liabilities 14,941 (6,204) 8,737 Deferred revenue — 11,247 11,247 Product Sales AllowancesWe recognize product sales allowances as a reduction of product sales in the same period the related revenue is recognized. Product salesallowances are based on amounts owed or to be claimed on the related sales. These estimates take into consideration the terms of our agreements withCustomers, historical product returns, rebates or discounts taken, the shelf life of the product and specific known market events, such as competitivepricing and new product introductions. If actual future results vary from our estimates, we may need to adjust these estimates, which could have aneffect 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 12 months after its product expiration date. As such, there maybe 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 monthsafter the quarter in which product was shipped. • Group Purchasing Organization (“GPO”) Discounts and Rebates — We offer cash discounts to GPO members. These discounts aretaken when the GPO members purchase SUSTOL or CINVANTI 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 thequarterly rebate purchase period. • GPO Administrative Fees — We pay administrative fees to GPOs for services and access to data. These fees are based on contractedterms 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 oneach individual state’s guidelines regarding eligibility and services. Under the Medicaid rebate programs, we pay a rebate to eachparticipating state, generally within three months after the quarter in which SUSTOL or CINVANTI was sold. 72Table of ContentsWe believe our estimated allowance for product returns requires a high degree of judgment and is subject to change based on our experienceand certain quantitative and qualitative factors. We believe our estimated allowances for distributor fees, GPO discounts, rebates and administrativefees 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 eventsindicate that a change in estimate is appropriate. Changes in sales allowance estimates could materially affect our results of operations and financialposition.The following table provides a summary of activity with respect to our product returns, distributor fees and discounts, rebates andadministrative fees, which are included in other accrued liabilities on the condensed consolidated balance sheets (in thousands): ProductReturns DistributorFees Discounts,Rebates andAdministrativeFees Total Balance at December 31, 2017 $521 $580 $8,218 $9,319 Provision 464 7,555 58,504 66,523 Payments/credits (38) (5,322) (44,979) (50,339) Balance at December 31, 2018 $947 $2,813 $21,743 $ 25,503 6.Commitments and ContingenciesLeasesWe lease 28,275 square feet of laboratory and office space in San Diego, California under a lease that began on December 1, 2016 andexpires on April 15, 2024. In May 2018, we entered into a lease amendment to expand our space in San Diego, adding an additional 23,873 square feet.The lease of the additional space began on September 7, 2018 and expires on December 31, 2025. We have one 5-year option to renew this lease onexpiration. We lease 26,067 square feet of laboratory, office and warehouse space in Redwood City, California. The lease for the Redwood City spaceexpires on May 31, 2019. On March 15, 2018, we entered into a sublease agreement for the Redwood City property. The sublease agreement expires onMay 31, 2019. We also lease 1,898 square feet of office space in Jersey City, New Jersey. The lease for the Jersey City office space expires on June 30,2019. For the year ended December 31, 2018, rent expense for all properties was $3.2 million. We believe our facilities are adequate and suitable forour current needs and that we will be able to obtain new or additional leased space in the future when necessary.Annual future minimum lease payments as of December 31, 2018 are as follows (in thousands): Year ended December 31: 2019 $3,195 2020 2,722 2021 2,801 2022 2,883 2023 2,967 Thereafter 3,274 Total future minimum lease payments $ 17,842 Rent expense under all operating leases totaled $3.2 million, $3.1 million and $2.1 million for the years ended December 31, 2018, 2017and 2016, respectively. 73Table of ContentsClinical Development AgreementsWe enter into agreements with clinical sites and clinical research organizations for the conduct of our clinical trials. We make payments tothese sites and organizations based in part on the number of eligible patients enrolled and the length of their participation in the clinical trials. Undercertain of these agreements, we may be subject to penalties in the event that we prematurely terminate these agreements. At this time, due to thevariability associated with clinical site and contract research organization agreements, we are unable to estimate with certainty the future costs we willincur. We intend to use our current financial resources to fund our obligations under these commitments. 7.Realignment of Goals and Objectives and New Development FocusFollowing the approval of SUSTOL and consistent with our transition into a commercial-stage biotechnology company, we realigned ourgoals and objectives and refocused our development efforts to the area of postoperative pain management. On September 30, 2016, the Board ofDirectors accepted the resignations of three executive officers, and these executive officers and other employees directly affected by the realignmentand refocusing were or will be provided with one-time severance payments on termination, continued benefits for a specified period of time andoutplacement assistance.The total expense for these activities was $9.4 million, $5.5 million of which is primarily for severance and $3.9 million of which is fornon-cash, stock-based compensation expense. The total expense was recognized between September 30, 2016 and December 31, 2017. As ofDecember 31, 2018, we have paid all of the cash severance charges.In March 2018, we shut down operations at our Redwood City facility and entered into a sublease agreement for the remainder of the leaseterm. The fair value of the cease-use liability was calculated using the remaining lease payments, offset by future sub-lease payments, deferred rentamortization and prepaid rent amounts. In the first quarter of 2018, we recorded expense of $0.5 million to general and administrative expense as a losson the lease.We have accounted for these expenses in accordance with ASC Topic 420, Exit or Disposal Cost Obligations. 8.Secured Notes to Related PartyConvertible NotesIn April 2011, we entered into a securities purchase agreement for a private placement of up to $4.5 million in Convertible Notes withcertain investors, including Tang Capital Partners, LP (“TCP”). TCP is controlled by Tang Capital Management, LLC (“TCM”). The manager of TCMis Kevin C. Tang, who served as a director at the time and currently serves as the Chairman of our Board of Directors. At the time of issuance, the termsof the Convertible Notes were determined by our independent directors to be no less favorable than terms that would be obtained in an arm’s lengthfinancing transaction. We received a total of $4.3 million, net of issuance costs, from the issuance of these Convertible Notes.The Convertible Notes are secured by substantially all of our assets, including placing our bank and investment accounts under a controlagreement. The Convertible Notes bear interest at 6% per annum, payable quarterly in cash or in additional principal amount of Convertible Notes, atthe election of the purchasers. The Convertible Notes mature on May 2, 2021; however, the holders of the Convertible Notes may require prepaymentof the Convertible Notes at any time, at each holder’s option. 74Table of ContentsThe Convertible Notes are convertible into shares of our common stock at a rate of 1,250 shares for every $1,000 of outstanding principaldue under the Convertible Notes. There is no right to convert the Convertible Notes to the extent that, after giving effect to such conversion, the holderwould beneficially own in excess of 9.99% of our outstanding common stock. Each holder of the Convertible Notes can increase or decrease thisbeneficial ownership conversion limit by written notice to us, which will not be effective until 61 days after delivery of the notice.As of December 31, 2018, we were in compliance with all covenants under the Convertible Notes. On the occurrence of an event of defaultunder the Convertible Notes, the holders of the Convertible Notes have the right to require us to redeem all or a portion of their Convertible Notes.In 2011, we filed a registration statement with the SEC to register for resale 3.5 million shares underlying the Convertible Notes. Theregistration statement was declared effective on July 29, 2011. The Convertible Note holders have agreed to waive their right to require us to maintainthe effectiveness of the registration statement and to register the additional shares underlying the Convertible Notes until they provide noticeotherwise.The Convertible Notes contain an embedded conversion feature that was in-the-money on the issuance dates. Based on an effective fixedconversion rate of 1,250 shares for every $1,000 of principal and accrued interest due under the Convertible Notes, the total conversion benefit atissuance exceeded the loan proceeds. Therefore, a debt discount was recorded in an amount equal to the face value of the Convertible Notes on theissuance dates, and we began amortizing the resultant debt discount over the respective 10-year term of the Convertible Notes. During the year endedDecember 31, 2018, accrued interest of $0.4 million was paid-in-kind and rolled into the Convertible Note principal balance, which resulted in anadditional debt discount of $0.4 million. For the years ended December 31, 2018, 2017 and 2016, interest expense relating to the stated rate was$0.4 million for each of the three periods. Interest expense relating to the amortization of the debt discount was $0.9 million, $0.8 million and$0.7 million, respectively.As of December 31, 2018, the carrying value of the Convertible Notes was $4.6 million, which is comprised of the $6.8 million principalamount of the Convertible Notes outstanding, less debt discount of $2.2 million. As of December 31, 2018, the Convertible Notes were convertibleinto 8.5 million shares of our common stock.Promissory NoteIn August 2016, we entered into the Subordinated Secured Promissory Note (“Promissory Note”) with TCP whereby TCP agreed to lend usup to $100.0 million. The Promissory Note had a two-year term and bore interest at a rate of 8% per annum. The first close of $50.0 million occurred onAugust 5, 2016. The second close of an additional $50.0 million was not drawn and expired prior to the draw down. There were no fees, no warrantsand no equity conversion features associated with this transaction. The Promissory Note was secured by a second-priority lien on substantially all ofour assets. TCP is controlled by TCM. The manager of TCM is Kevin C. Tang, who serves as the Chairman of our Board of Directors. The terms of thePromissory Note were determined by our independent directors to be no less favorable than terms that would be obtained in an arm’s length financingtransaction.For the year ended December 31, 2018, interest expense was $1.2 million, compared to $2.8 million for the same period in 2017. In August2018, we paid the remaining obligation under the Promissory Note, which included $25.0 million of outstanding principal and $0.2 million of accruedinterest. As of December 31, 2018, there were no remaining obligations under the Promissory Note. 9.Stockholders’ Equity2017 Common Stock OfferingsIn January 2017, we sold 14.1 million shares of our common stock at a public offering price of $12.20 per share. We received total netproceeds of $163.7 million (net of $8.8 million in issuance costs) from the sale of the common stock.In December 2017, we sold 9.7 million shares of our common stock at a public offering price of $15.50 per share. We received total netproceeds of $142.6 million (net of $7.4 million in issuance costs) from the sale of the common stock. 75Table of Contents2018 Common Stock OfferingsIn April 2018, we sold 6.9 million shares of our common stock at a public offering price of $26.00 per share. We received total net cashproceeds of $168.7 million (net of $10.7 million in issuance costs) from the sale of the common stock.In June 2018, we sold 5.1 million shares of our common stock at a public offering price of $39.50 per share. We received total net cashproceeds of $194.4 million (net of $5.6 million in issuance costs) from the sale of the common stock.Public Offering WarrantsIn June 2014, as a component of our public offering, we sold 600,000 pre-funded warrants to purchase shares of our common stock. Thepre-funded warrants have an exercise price of $0.01 per share and expire on June 30, 2021. During the year ended December 31, 2017, warrant holdersexercised 4,426 warrants under the cashless exercise provision in each such holder’s warrant, which resulted in the net issuance of 4,423 shares ofcommon stock and no net cash proceeds to us. As of December 31, 2018, 595,574 warrants from the June 2014 public offering remain outstanding.Common Stock Reserved for Future IssuanceShares of our common stock reserved for future issuance as of December 31, 2018 were as follows: Number ofShares Stock options outstanding 15,264,606 Stock options available for grant 1,354,280 Employee stock purchase plan 195,818 Warrants outstanding 640,164 Shares of common stock underlying Convertible Notes outstanding (see Note 8) 8,472,820 Total shares reserved for future issuance 25,927,688 Employee Stock Purchase PlanIn 1997, our stockholders approved our Employee Stock Purchase Plan (“ESPP”). In December 2007, May 2009, June 2011, May 2014, May2015, June 2016 and June 2017, our stockholders authorized increases in the number of shares reserved for issuance under the ESPP by 5,000, 10,000,25,000, 25,000, 100,000, 100,000 and 200,000 shares, respectively, for a total of 475,000 shares reserved at December 31, 2018. Under the terms of theESPP, employees can elect to have up to a maximum of 10% of their base earnings withheld to purchase our common stock. The purchase price of thestock is 85% of the lower of the closing prices for our common stock on: (i) the first trading day in the enrollment period, as defined in the ESPP, inwhich the purchase is made, or (ii) the purchase date. The length of the enrollment period is six months. Enrollment dates are the first business day ofMay and November. Under the ESPP, we issued 71,499, 77,283, and 54,932 shares in 2018, 2017 and 2016, respectively. The weighted-averageexercise price per share of the purchase rights exercised during 2018, 2017 and 2016 was $16.48, $12.80 and $14.03, respectively. As ofDecember 31, 2018, 279,182 shares of common stock have been issued under the ESPP and 195,818 shares of common stock are available for futureissuance. 76Table of ContentsStock Option PlansWe currently have one stock option plan from which we can grant options and restricted stock awards to employees, officers, directors andconsultants. In December 2007, the stockholders approved our 2007 Equity Incentive Plan (“2007 Plan”) at which time a maximum of 150,000 sharesof common stock were available for grant. In May 2010, June 2011, May 2014, May 2015, June 2016 and June 2017, our stockholders approvedamendments to our 2007 Plan to increase the maximum number of shares of common stock available for grant by 100,000, 4,500,000, 1,750,000,4,300,000, 3,000,000 and 5,000,000 shares of common stock, respectively, resulting in an aggregate of 18,800,000 shares of common stock authorizedfor issuance as of December 31, 2018. At December 31, 2018, there were 1,354,280 shares available for future grant under the 2007 Plan. Any sharesthat are issuable on exercise of options granted that expire, are cancelled or that we receive pursuant to a net exercise of options are available for futuregrant and issuance.In 2014, 2013 and 2012, we granted options to certain employees outside of our stockholder approved stock option plans. All options topurchase our common stock were granted with an exercise price that equals fair market value of the underlying common stock on the grant dates andexpire no later than ten years from the date of grant. The options are exercisable in accordance with vesting schedules that generally provide for themto be fully vested and exercisable four years after the date of grant, provided, however, that we have also issued stock options awards that are subject toperformance vesting requirements. All stock option grants issued outside of our stockholder approved plans have been registered on Form S-8 with theSEC.The following table summarizes the stock option activity: Outstanding Options Number ofShares Weighted- Average Exercise Price Balance at December 31, 2015 8,434,988 $13.64 Granted 4,920,661 15.98 Exercised (798,363) 8.37 Cancelled (711,910) 22.43 Balance at December 31, 2016 11,845,376 14.44 Granted 4,300,621 16.17 Exercised (1,350,605) 8.49 Cancelled (1,332,429) 20.06 Balance at December 31, 2017 13,462,963 15.03 Granted 4,052,011 26.83 Exercised (1,529,509) 11.97 Cancelled (720,859) 17.98 Balance at December 31, 2018 15,264,606 18.33 For the year ended December 31, 2018, options cancelled (included in the above table) consisted of 667,338 options forfeited with aweighted-average exercise price of $17.04 and 53,521 options expired with a weighted-average exercise price of $29.71.As of December 31, 2018, options exercisable have a weighted-average remaining contractual term of 5.3 years. The total intrinsic value ofstock option exercises, which is the difference between the exercise price and closing price of our common stock on the date of exercise, during theyears ended December 31, 2018 and 2017 was $31.4 million and $9.9 million, respectively. As of December 31, 2018 and 2017, the total intrinsicvalue of options outstanding and exercisable was $75.7 million and $35.6 million, respectively. 77Table of Contents Years Ended December 31, 2018 2017 2016 Options Weighted- Average Exercise Price Options Weighted- Average Exercise Price Options Weighted- Average Exercise Price Exercisable at end of year 6,523,093 $ 14.83 5,446,586 $ 13.25 4,356,665 $ 11.66 Options vested or expected to vest 14,449,017 $18.11 12,854,571 $14.98 11,234,529 $14.32 Exercise prices and weighted-average remaining contractual lives for the options outstanding as of December 31, 2018 were: Options Outstanding Range of Exercise Prices Weighted- Average Remaining Contractual Life (inyears) Weighted- Average Exercise Price Options Exercisable Weighted- Average Exercise Price of Options Exercisable2,635,453 $5.20 – $9.05 3.03 $ 7.99 2,260,453 $ 8.122,531,622 $9.33 – $14.20 6.29 12.89 1,406,228 12.664,195,066 $14.25 – $17.00 7.78 16.60 1,512,260 16.54845,157 $17.05 – $23.90 7.56 20.52 478,721 20.642,860,911 $24.97 – $24.97 8.94 24.97 — —2,196,397 $25.06 – $39.25 7.42 30.85 865,431 29.7115,264,606 $5.20 – $39.25 6.87 18.33 6,523,093 14.83On December 31, 2018, we had reserved 15,264,606 shares of common stock for future issuance on exercise of outstanding options grantedunder the 2007 Plan, as well as the non-plan grants.Valuation and Expense InformationThe following table summarizes stock-based compensation expense related to stock-based payment awards granted pursuant to all of ourequity compensation arrangements (in thousands): December 31, 2018 2017 2016 Research and development $ 13,689 $ 11,312 $ 11,316 General and administrative 9,630 9,469 7,402 Sales and marketing 10,048 9,757 7,238 Total stock-based compensation expense $33,367 $30,538 $25,956 As of December 31, 2018, there was $117.5 million of total unrecognized compensation cost related to non-vested, stock-based paymentawards granted under all of our equity compensation plans and all non-plan option grants. Total unrecognized compensation cost will be adjusted forfuture changes in estimated forfeitures. We expect to recognize this compensation cost over a weighted-average period of 2.8 years.We estimated the fair value of each option grant and ESPP purchase right on the date of grant using the Black-Scholes option pricing modelwith the following weighted-average assumptions: 78Table of ContentsOptions: December 31, 2018 2017 2016 Risk-free interest rate 2.8% 2.1% 1.7% Dividend yield —% —% —% Volatility 70.4% 74.0% 89.1% Expected life (years) 6 6 6 ESPP: December 31, 2018 2017 2016 Risk-free interest rate 2.4% 1.2% 0.4% Dividend yield —% —% —% Volatility 59.7% 50.0% 68.3% Expected life (months) 6 6 6 The weighted-average fair value of options granted was $17.24, $10.61 and $11.82 for the years ended December 31, 2018, 2017 and 2016,respectively.The weighted-average fair value of shares purchased through the ESPP was $9.95, $4.51 and $6.10 for the years ended December 31, 2018,2017 and 2016, respectively.The risk-free interest rate assumption is based on observed interest rates on U.S. Treasury debt securities with maturities close to the expectedterm of our employee and director stock options and ESPP purchases.The dividend yield assumption is based on our history and expectation of dividend payouts. We have never paid dividends on our commonstock, and we do not anticipate paying dividends in the foreseeable future.We used our historical stock price to estimate volatility.The expected life of employee and director stock options represents the average of the contractual term of the options and the weighted-average vesting period, as permitted under the simplified method. We have elected to use the simplified method, as we do not have enough historicalexercise experience to provide a reasonable basis on which to estimate the expected term. The expected life for the ESPP purchase rights is six months,which represents the length of each purchase period. 79Table of Contents10.Income TaxesFor the years ended December 31, 2018, 2017 and 2016, we did not record a provision for income taxes due to a full valuation allowanceagainst our deferred tax assets.The difference between the provision for income taxes and income taxes computed using the effective U.S. federal statutory rate is as follows(in thousands): December 31, 2018 2017 2016 Tax at statutory federal rate $(37,557) $(67,145) $(58,868) State tax, net of federal benefit (6,527) (6,203) 2,013 Research and development credits (4,775) (5,962) (4,206) Stock-based compensation expense (2,059) 3,151 2,694 Non-deductible compensation 901 — 1,864 Change in valuation allowance 50,834 3,241 55,173 Impact of the 2017 Tax Act — 74,361 — Other (817) (1,443) 1,330 Provision for income taxes $— $— $— Deferred income tax assets and liabilities arising from differences between accounting for financial statement purposes and tax purposes, lessvaluation allowance at year-end are as follows (in thousands): December 31, 2018 2017 Deferred tax assets: Net operating loss carryforward $172,113 $134,659 Research and development credits 35,670 25,919 Stock-based compensation 11,905 8,633 Other 3,171 2,920 Total gross deferred tax assets 222,859 172,131 Valuation allowance (222,859) (172,131) Net deferred tax assets $— $— We have established a valuation allowance to offset net deferred tax assets as of December 31, 2018 and 2017 due to the uncertainty ofrealizing future tax benefits from such assets.As of December 31, 2018, we had federal, California and other state net operating loss (“NOL”) carryforwards of $715.3 million,$122.3 million and $824.9 million, respectively. The federal NOL carryforwards consist of $549.7 million generated before January 1, 2018, which willbegin to expire in 2021 and $165.6 million that will carryforward indefinitely but are subject to the 80% taxable income limitation. The state NOLcarryforwards will begin to expire in 2028.As of December 31, 2018, we had federal and California state research and development credit carryforwards of $27.2 million and$13.3 million, respectively. The federal research and development credit carryforwards will begin to expire in 2022. The California state credits can becarried forward indefinitely. 80Table of ContentsInternal Revenue Code (“IRC”) Section 382 and 383 places a limitation on the amount of taxable income that can be offset by NOL andcredit carryforwards after a change in control (generally greater than 50% change in ownership within a three-year period) of a loss corporation.California has similar rules. Generally, after a change in control, a loss corporation cannot deduct NOL and credit carryforwards in excess of the IRCSection 382 and 383 limitation. We have performed an IRC Section 382 and 383 analysis and determined there were ownership changes in 2007, 2011,and 2013. We are currently in the process of completing the IRC Section 382 and 383 analysis for 2018. The limitation in the federal and statecarryforwards associated with the NOL and credit carryforwards reduce the deferred tax assets, which are further offset by a full valuation allowance.The limitation can result in the expiration of the NOLs and credit carryforwards available as of December 31, 2018.We file U.S. and state income tax returns with varying statutes of limitations. The tax years from 1999 to 2018 remain open to examinationdue to the carryover of unused NOL carryforwards and tax credits.The Tax Cuts and Jobs Act (“2017 Tax Act”) was enacted in December 2017. The 2017 Tax Act, among other things, reduces the U.S. federalcorporate tax rate from 35% to 21%, effective January 1, 2018, requires companies to pay a one-time transition tax on earnings of certain foreignsubsidiaries that were previously tax deferred and creates new taxes on certain foreign earnings. We revalued our deferred tax assets as of December 31,2017 based on a U.S. federal tax rate of 21%, which resulted in a reduction to our deferred tax assets of $74.3 million fully offset by a reduction to thevaluation allowance. We were not required to pay a one-time transition tax on earnings of our foreign subsidiary as the foreign subsidiary has anaccumulated deficit. In addition, the Global Intangible Low-taxed Income provision is not applicable given the Company’s controlled foreigncorporations incurred losses for the year ended December 31, 2018.In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance for the tax effects of the2017 Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act’s enactment date for companies tocomplete the accounting under ASC 740. In accordance with SAB 118, we must reflect the income tax effects of those aspects of the Tax Act for whichthe accounting under ASC 740 is complete. To the extent that our accounting for certain income tax effects of the Tax Act is incomplete, but we areable to determine a reasonable estimate, we must record a provisional estimate in our financial statements. If we cannot determine a provisionalestimate to be included in our financial statements, we should continue to apply ASC 740 on the basis of the provisions of the tax laws that were ineffect immediately before the enactment of the Tax Act. We have completed our analysis of the Tax Act’s income tax effects. In accordance with SAB118, the Tax Act-related income tax effects that we initially reported as provisional estimates were refined as additional analysis was performed. Ouranalysis was complete in the fourth quarter of 2018 and there was no material impact to our consolidated balance sheets or statements of operations andcomprehensive loss.A reconciliation of our unrecognized tax benefits is as follows (in thousands): Year Ended December 31, 2018 2017 2016 Balance at beginning of year $ 120 $ 120 $ 120 Additions for tax positions of prior years — — — Additions based on tax positions related to current year 2,265 — — Balance at end of year $2,385 $120 $120 Due to our valuation allowance, the $2.4 million of unrecognized tax benefits would not affect the effective tax rate, if recognized. It is theCompany’s practice to recognize interest and penalties related to income tax matters in income tax expense. As of December 31, 2018, we had noaccrued interest and penalties related to uncertain tax positions. We do not expect any material changes to the estimated amount of liability associatedwith our uncertain tax positions within the next 12 months.11. Other Income (Expense), NetIn 2018, we recorded $1.9 million in income to other income (expense), net resulting from the disgorgement of short-swing profits arisingfrom the sales of our common stock by a beneficial owner pursuant to Section 16(b) of the Securities and Exchange Act of 1934. 81Table of Contents12.Employee Benefit PlanWe have a defined contribution 401(k) plan (“Plan”) covering substantially all of our employees. In the past three calendar years, we madematching cash contributions equal to 50% of each participant’s contribution during the Plan year up to a maximum amount equal to the lesser of 3% ofeach participant’s annual compensation or $8,250, $8,100 and $7,950 for the years ended December 31, 2018, 2017 and 2016, respectively. Suchamounts were recorded as expense in the corresponding years. We may also contribute additional discretionary amounts to the Plan as we determine.For the years ended December 31, 2018, 2017 and 2016, we contributed $0.7 million, $0.6 million and $0.6 million, respectively, to the Plan. Nodiscretionary contributions have been made to the Plan since its inception. 13.Summary of Quarterly Consolidated Financial Data (Unaudited)The following is a summary of the unaudited quarterly results of operations for the years ended December 31, 2018 and 2017: 2018 FirstQuarter SecondQuarter ThirdQuarter FourthQuarter (In thousands, except per share amounts) Revenues: Net product sales $11,567 $17,277 $19,786 $28,844 Cost of product sales (3,133) (5,231) (7,576) (11,572) Gross Profit 8,434 12,046 12,210 17,272 Operating expenses: Research and development 39,561 30,159 30,421 39,891 General and administrative 7,028 6,209 7,288 8,738 Sales and marketing 13,835 14,531 16,281 19,957 Loss from operations (51,990) (38,853) (41,780) (51,314) Other income (expense), net (275) 183 3,434 1,755 Net loss $(52,265) $ (38,670) $ (38,346) $ (49,559) Basic and diluted net loss per share $(0.81) $(0.54) $(0.49) $(0.63) 2017 FirstQuarter SecondQuarter ThirdQuarter FourthQuarter (In thousands, except per share amounts) Revenues: Net product sales $3,632 $8,510 $8,572 $10,053 Cost of product sales (1,186) (1,013) (1,051) (1,338) Gross Profit 2,446 7,497 7,521 8,715 Operating expenses: Research and development 33,384 28,597 28,844 47,757 General and administrative 6,742 6,185 6,462 6,165 Sales and marketing 11,619 14,770 13,529 16,683 Loss from operations (49,299) (42,055) (41,314) (61,890) Other expense, net (1,030) (744) (552) (600) Net loss $ (50,329) $ (42,799) $ (41,866) $ (62,490) Basic and diluted net loss per share $(1.00) $(0.80) $(0.77) $(1.09) 82Table of ContentsITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.None. ITEM 9A.CONTROLS AND PROCEDURES. (a)Disclosure Controls and Procedures; Changes in Internal Control Over Financial ReportingOur management, with the participation of our principal executive and principal financial and accounting officers, has evaluated theeffectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934(“Exchange Act”)) as of December 31, 2018. Based on this evaluation, our principal executive and principal financial and accounting officersconcluded that our disclosure controls and procedures were effective as of December 31, 2018.During the first quarter of 2018, we implemented certain internal controls in connection with our adoption of Topic 606. In doing so, wehave modified and enhanced our internal control over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f)) during the periodcovered by this Annual Report on Form 10-K as a result of the implementation of these new processes and systems. Other than the above-mentionedchanges, there have been no significant changes in our internal control over financial reporting that occurred during the period covered by this AnnualReport on Form 10-K that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. (b)Management Report on Internal Control Over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control overfinancial reporting is defined in Rule 13a-15(f) and Rule 15d-15(f) promulgated under the Exchange Act as a process designed by, or under thesupervision of, our principal executive and principal financial officers and effected by our board of directors, management and other personnel, toprovide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes inaccordance with accounting principles generally accepted in the U.S. and includes those policies and procedures that: • pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of ourassets; • provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordancewith accounting principles generally accepted in the U.S., and that receipts and expenditures are being made only in accordance withauthorizations of our management and directors; and • provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assetsthat could have a material effect on our financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of anyevaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that thedegree of compliance with the policies or procedures may deteriorate.Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2018. In making thisassessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in InternalControl-Integrated Framework (2013).Based on our assessment, management concluded that, as of December 31, 2018, our internal control over financial reporting was effectivebased on those criteria.The independent registered public accounting firm that audited the consolidated financial statements that are included in this AnnualReport on Form 10-K has issued an audit report on our internal control over financial reporting. The report appears below. 83Table of Contents(c) Report of Independent Registered Public Accounting Firm on Internal Control Over Financial ReportingShareholders and Board of DirectorsHeron Therapeutics, Inc.San Diego, CaliforniaOpinion on Internal Control over Financial ReportingWe have audited Heron Therapeutics, Inc.’s (the “Company’s”) internal control over financial reporting as of December 31, 2018, based oncriteria established in – (2013) Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of theTreadway Commission (the “COSO criteria”). In our opinion, the Company maintained, in all material respects, effective internal control over financialreporting as of December 31, 2018, based on the COSO criteria.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), theconsolidated balance sheets of the Company as of December 31, 2018 and 2017, the related consolidated statements of operations and comprehensiveloss, stockholders’ equity (deficit), and cash flows for each of the three years in the period ended December 31, 2018, and the related notes and ourreport dated February 22, 2019 expressed an unqualified opinion thereon.Basis for OpinionThe Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of theeffectiveness of internal control over financial reporting, included in the accompanying Item 9A.(b), Management Report on Internal Control overFinancial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We area public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federalsecurities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained inall material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a materialweakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit alsoincluded performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis forour opinion.Definition and Limitations of Internal Control over Financial ReportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Acompany’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, inreasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance thattransactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, andthat receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assetsthat could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections ofany evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or thatthe degree of compliance with the policies or procedures may deteriorate./s/ OUM & CO. LLPSan Francisco, CaliforniaFebruary 22, 2019 84Table of ContentsITEM 9B.OTHER INFORMATION.None.PART III ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.Information required by this item will be contained in our Definitive Proxy Statement for our 2019 Annual Meeting of Stockholders, to befiled pursuant to Regulation 14A with the SEC within 120 days of December 31, 2018. Such information is incorporated herein by reference.We have adopted a Code of Ethics that applies to our Principal Executive Officer, Principal Financial and Accounting Officer, and to all ofour other officers, directors and employees. The Code of Ethics is available in the Corporate Governance section of the Investor Resources page on ourwebsite at www.herontx.com. We intend to disclose future waivers or material amendments to certain provisions of our Code of Ethics on the above-referenced website within four business days following the date of such waiver or amendment. ITEM 11.EXECUTIVE COMPENSATION.Information required by this item will be contained in our Definitive Proxy Statement for our 2019 Annual Meeting of Stockholders, to befiled pursuant to Regulation 14A with the SEC within 120 days of December 31, 2018. Such information is incorporated herein by reference. ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERS.Information required by this item will be contained in our Definitive Proxy Statement for our 2019 Annual Meeting of Stockholders, to befiled pursuant to Regulation 14A with the SEC within 120 days of December 31, 2018. Such information is incorporated herein by reference. ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.Information required by this item will be contained in our Definitive Proxy Statement for our 2019 Annual Meeting of Stockholders, to befiled pursuant to Regulation 14A with the SEC within 120 days of December 31, 2018. Such information is incorporated herein by reference. ITEM 14.PRINCIPAL ACCOUNTANT FEES AND SERVICES.Information required by this item will be contained in our Definitive Proxy Statement for our 2019 Annual Meeting of Stockholders, to befiled pursuant to Regulation 14A with the SEC within 120 days of December 31, 2018. Such information is incorporated herein by reference. 85Table of ContentsPART IV ITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES. 1.Consolidated Financial Statements.The consolidated financial statements and supplementary data set forth in Part II of the Annual Report on Form 10-K are includedherein. 2.Consolidated Financial Statement Schedules.These schedules are omitted because they are not required, or are not applicable, or the required information is shown in theconsolidated financial statements or notes thereto. 3.Exhibits.The exhibits listed in the accompanying Exhibit Index are incorporated by reference herein or filed as part of this Annual Report onForm 10-K. 86Table of Contents EXHIBIT INDEXExhibit Document Description 3.1 Certificate of Incorporation, as amended through July 29, 2009 (incorporated by reference to our Quarterly Report on Form 10-Q for thequarter ended June 30, 2009, as Exhibit 3.1, filed on August 4, 2009) 3.2 Amended and Restated Bylaws (incorporated by reference to our Current Report on Form 8-K, as Exhibit 3.1, filed on February 8, 2019) 3.3 Certificate of Amendment of Certificate of Incorporation (incorporated by reference to our Current Report on Form 8-K, as Exhibit 3.1,filed on June 30, 2011) 3.4 Certificate of Amendment to the Certificate of Incorporation (incorporated by reference to our Current Report on Form 8-K, as Exhibit3.1, filed on January 13, 2014) 3.5 Certificate of Amendment to the Certificate of Incorporation (incorporated by reference to our Company’s Post-Effective Amendment toits Registration Statement on Form 8-A/A, filed on July 6, 2017) 3.6 Certificate of Amendment of Certificate of Incorporation 4.1 Common Stock Certificate (incorporated by reference to our Registration on Form S-3 (Registration No. 333-162968), as Exhibit 4.1,filed on November 6, 2009) 4.2 Form of Warrant to Purchase Shares of Common Stock (incorporated by reference to our Current Report on Form 8-K, as Exhibit 4.1,filed on June 27, 2014) 4.3 Form of Warrant to Purchase Shares of Common Stock (incorporated by reference to our Current Report on Form 8-K, as Exhibit 10.3,filed on October 22, 2009) 4.4 Amended and Restated Certificate of Designation, Preferences, and Rights of Series A Preferred Stock (incorporated by reference to ourCurrent Report on Form 8-K, as Exhibit 3.C, filed on December 19, 2006) 10.1* 1997 Employee Stock Purchase Plan, as amended to date (incorporated by reference to our Definitive Proxy Statement on Schedule14A, as Exhibit B, filed on April 26, 2017) 10.2 Lease Agreement between the Company and Metropolitan Life Insurance Company for lease of the Company’s offices in Redwood Citydated as of November 7, 1997 (incorporated by reference to our Annual Report on Form 10-K for the year ended December 31, 1997, asExhibit 10-E, filed on March 30, 1998) 10.3* Amended and Restated 2007 Equity Incentive Plan (incorporated by reference to our Definitive Proxy Statement on Schedule 14A, asExhibit A, filed on April 26, 2017) 10.4* Form of 2007 Equity Incentive Plan Stock Option Agreement (incorporated by reference to our Registration on Form S-8 (RegistrationNo. 333-148660), as Exhibit 4.3, filed on January 14, 2008) 10.5* Form of 2007 Equity Incentive Plan Restricted Stock Unit Agreement (incorporated by reference to our Registration on Form S-8(Registration No. 333-148660), as Exhibit 4.4, filed on January 14, 2008) 10.6* Form of 2007 Equity Incentive Plan Restricted Stock Award Agreement (incorporated by reference to our Annual Report on Form 10-Kfor the year ended December 31, 2007, as Exhibit 10-O, filed on March 31, 2008) 10.7* Form of Indemnification Agreement (incorporated by reference to our Annual Report on Form 10-K for the year ended December 31,2007, as Exhibit 10-S, filed on March 31, 2008) 10.8 Registration Rights Agreement, dated as of October 22, 2009, by and among the Company and the purchasers listed therein(incorporated by reference to our Current Report on Form 8-K, as Exhibit 10.2, filed on October 22, 2009) 10.9 Securities Purchase Agreement, dated as of April 24, 2011, by and among the Company and the purchasers listed therein (incorporatedby reference to our Current Report on Form 8-K, as Exhibit 10.1, filed on April 28, 2011) 10.10 Form of Senior Secured Convertible Note due 2021 (incorporated by reference to our Current Report on Form 8-K, as Exhibit 10.2, filedon April 28, 2011) 10.11 Securities Agreement, dated as of April 24, 2011, by and between the Company and Tang Capital Partners, LP, as Agent for thePurchasers (incorporated by reference to our Current Report on Form 8-K, as Exhibit 10.3, filed on April 28, 2011) 10.12 Second Amendment to Lease, dated as of April 1, 2011, by and between the Company and Metropolitan Life Insurance Company(incorporated by reference to our Current Report on Form 8-K, as Exhibit 10.4, filed on April 28, 2011) 10.13 Securities Purchase Agreement, dated June 29, 2011, by and between the Company and the purchasers listed on Schedule I thereto(incorporated by reference to our Current Report on Form 8-K, as Exhibit 10.1, filed on June 30, 2011) 10.14 Amendment to Senior Secured Convertible Note Due 2021, dated June 29, 2011, by and between the Company and the purchasersnamed in the Securities Purchase Agreement, dated April 24, 2011, (incorporated by reference to our Current Report on Form 8-K, asExhibit 10.2, filed on June 30, 2011) 87Table of Contents 10.15 Third Amendment to Lease, dated as of July 28, 2011, by and between the Company and Metropolitan Life Insurance Company(incorporated by reference to our Current Report on Form 8-K, as Exhibit 10.1, filed on August 3, 2011) 10.16 Registration Rights Agreement, dated July 25, 2012, by and between the Company and the purchasers named therein (incorporated byreference to our Current Report on Form 8-K, as Exhibit 10.2, filed on July 25, 2012) 10.17* Executive Employment Agreement, dated May 1, 2013, by and between the Company and Barry D. Quart, Pharm.D. (incorporated byreference to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, as Exhibit 10-AI, filed on May 10, 2013) 10.18* Executive Employment Agreement, dated May 1, 2013, by and between the Company and Robert H. Rosen (incorporated by referenceto our Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, as Exhibit 10-AJ filed on May 10, 2013) 10.19 Form of Non-Qualified Stock Option Agreement (incorporated by reference to our Quarterly Report on Form 10-Q for the quarter endedJune 30, 2013, as Exhibit 10-AL, filed on August 8, 2013) 10.20* Amendment to Executive Employment Agreement, dated May 1, 2013, as amended on April 22, 2015, by and between the Companyand Dr. Barry Quart (incorporated by reference to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, as Exhibit10.1, filed on May 8, 2015) 10.21* Amendment to Executive Employment Agreement, dated May 1, 2013, as amended on April 22, 2015, by and between the Companyand Robert Rosen (incorporated by reference to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, as Exhibit10.2, filed on May 8, 2015) 10.22+ SUSTOL® (granisetron, extended release) Injection Commercial Manufacturing Services Agreement – Finished Final Drug Product,dated May 27, 2015, by and between the Company and Lifecore Biomedical, LLC) (incorporated by reference to our Current Report onForm 8-K, as Exhibit 10.1, filed on May 29, 2015) 10.23+ Commercial Supply Agreement, dated December 8, 2015, by and between the Company and SAFC, Inc. (incorporated by reference toour Annual Report on Form 10-K/A Amendment No. 1 for the year ended December 31, 2015, as Exhibit 10.36, filed on December 23,2016) 10.24 Fourth Amendment to Lease, dated as of April 11, 2016, by and between the Company and Metropolitan Life Insurance Company(incorporated by reference to our Current Report on Form 8-K, as Exhibit 10.1, filed on April 15, 2016) 10.25* Executive Employment Agreement, dated January 28, 2016, by and between the Company and Kimberly Manhard (incorporated byreference to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2016, as Exhibit 10.1, filed on May 5, 2016) 10.26 Security Agreement, dated as of August 5, 2016, by and among the Company, Tang Capital Partners, LP and TC Management Services,LLC (incorporated by reference to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2016, as Exhibit 10.1, filedon November 8, 2016) 10.27 Subordinated Secured Promissory Note, dated August 5, 2016, by and between the Company and Tang Capital Partners, LP(incorporated by reference to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2016, as Exhibit 10.2, filed onNovember 8, 2016) 10.28 Lease Agreement, dated October 18, 2016, by and between the Company and AP3-SD1 Campus Point LLC (incorporated by referenceto our Quarterly Report on Form 10-Q for the quarter ended September 30, 2016, as Exhibit 10.3, filed on November 8, 2016) 10.29 Waiver, dated January 18, 2017, between the Company and Tang Capital Partners, LP (incorporated by reference to our Current Reporton Form 8-K, as Exhibit 10.1, filed on January 24, 2017) 10.30 First Amendment to Lease, dated March 15, 2017, by and between the Company and AP3-SD1 Campus Point LLC (incorporated byreference to our Current Report on Form 8-K, as Exhibit 10.1, filed on March 17, 2017) 10.31* Executive Employment Agreement, dated April 24, 2017, by and between the Company and Robert E. Hoffman (incorporated byreference to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, as Exhibit 10.1, filed on August 9, 2017) 10.32 Second Amendment to Lease, dated May 8, 2018, by and between Heron Therapeutics, Inc. and AP3-SD1 Campus Point LLC(incorporated by reference to our Quarterly Report on Form 10-Q for the quarter ended March 31, 2018, as Exhibit 10.1, filed on May10,2018) 10.33 Waiver, dated March 28, 2018, between the Company and Tang Capital Partners, LP (incorporated by reference to our Current Reporton Form 8-K, as Exhibit 10.1, filed on April 3, 2018) 23.1 Consent of Independent Registered Public Accounting Firm (OUM & Co. LLP) 24.1 Power of Attorney (included on the signature page hereto) 31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 88Table of Contents 101. INS XBRL Instance Document 101. SCH XBRL Taxonomy Extension Schema Document 101. CAL XBRL Taxonomy Extension Calculation Linkbase Document 101. DEF XBRL Taxonomy Extension Definition Linkbase Document 101. LAB XBRL Taxonomy Extension Label Linkbase Document 101. PRE XBRL Taxonomy Extension Presentation Linkbase Document * Management contract or compensatory plan, contract or arrangement.+ Confidential treatment has been requested with respect to certain portions of the exhibit, which portions have been omitted and filed separatelywith the U.S. Securities and Exchange Commission. ITEM 16. FORM 10-K SUMMARY.None. 89Table of ContentsSIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to besigned on its behalf by the undersigned, thereunto duly authorized.HERON THERAPEUTICS, INC. BY: /s/ BARRY D. QUART Barry D. Quart, Pharm.D. President and Chief Executive OfficerPOWER OF ATTORNEYKNOW ALL PERSONS BY THESE PRESENTS that each individual whose signature appears below constitutes and appoints Barry Quartand Robert Hoffman as his true and lawful attorney-in-fact and agent, with full power of substitution, for him and in his name, place and stead, in anyand all capacities, with respect to this annual report and any and all amendments thereto, and to file the same, with all exhibits thereto, and otherdocuments in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent, full power andauthority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents andpurposes as he might or could do in person, hereby ratifying and confirming all the said attorney-in-fact and agent or his or her substitute or substitutes,may lawfully do or cause to be done by virtue hereof.Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf ofthe Registrant in the capacities and on the dates indicated. Signature Title Date/s/ BARRY D. QUART President, Chief Executive Officer and Director (PrincipalExecutive Officer) February 22, 2019Barry D. Quart, Pharm. D./s/ ROBERT E. HOFFMAN Chief Financial Officer and Senior Vice President, Finance(Principal Financial and Accounting Officer) February 22, 2019Robert E. Hoffman/s/ KEVIN C. TANG Chairman of the Board of Directors February 22, 2019Kevin C. Tang/s/ CRAIG A. JOHNSON Director February 22, 2019Craig A. Johnson/s/ JOHN W. POYHONEN Director February 22, 2019John W. Poyhonen/s/ CHRISTIAN WAAGE Director February 22, 2019Christian Waage 90Exhibit 3.6CERTIFICATE OF AMENDMENTTO THE CERTIFICATE OF INCORPORATION OFHERON THERAPEUTICS, INC.Heron Therapeutics, Inc., a corporation duly organized and existing under the General Corporation Law of the State of Delaware (the“Corporation”), does hereby certify:FIRST: That, upon the Effective Time, Section A of Article IV of the Certificate of Incorporation of the Corporation shall be amended andrestated in its entirety as follows:“A. Authorized Capital. The corporation is authorized to issue two classes of shares of stock to be designated, respectively, “preferred” and“common.” The total number of shares that the corporation is authorized to issue is One Hundred Fifty-Two Million Five Hundred Thousand(152,500,000). The number of shares of common stock authorized to be issued is One Hundred Fifty Million (150,000,000), each such shareto have a par value of $0.01 (“Common Stock”), and the number of preferred shares authorized to be issued is Two Million Five HundredThousand (2,500,000), each such share to have a par value of $0.01 (“Preferred Stock”).”SECOND: The amendment to the Certificate of Incorporation of the Corporation herein was duly adopted by this Corporation’s Board ofDirectors in accordance with the applicable provisions of Section 242 of the General Corporation Law of the State of Delaware (the “DGCL”). Anannual meeting of the stockholders was duly called upon notice in accordance with Section 222 of the DGCL and held on June 18, 2018, at whichmeeting the necessary number of shares were voted in favor of the proposed amendment. The stockholders of the Corporation duly adopted thisCertificate of Amendment.THIRD: The amendment to the Certificate of Incorporation of the Corporation herein shall be effective June 19, 2018 at 12:01 a.m. EasternTime (the “Effective Time”).IN WITNESS WHEREOF, said Corporation has caused this Certificate of Amendment to be executed by its duly authorized officer this18th day of June, 2018. /s/ Barry D. QuartName: Barry D. Quart, Pharm.D.Title: Chief Executive OfficerExhibit 23.1CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMWe hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (Nos. 333-219172, 333-195928 and 333-212784) andForm S-8 (Nos. 333-219830, 333-35151, 333-90428, 333-118546, 333-127574, 333-137954, 333-148660, 333-162610, 333-167515, 333-176365,333-176366, 333-190549, 333-198853, 333-202588, 333-206165 and 333-214503) of Heron Therapeutics, Inc. of our reports dated February 22, 2019relating to the consolidated financial statements and the effectiveness of Heron Therapeutics, Inc.’s internal control over financial reporting, whichappear in this Annual Report on Form 10-K. /s/ OUM & CO. LLPSan Francisco, CaliforniaFebruary 22, 2019EXHIBIT 31.1SECTION 302 CERTIFICATIONI, Barry D. Quart, certify that: 1.I have reviewed this Annual Report on Form 10-K of Heron Therapeutics, Inc.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessaryto make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to theperiod covered by this report; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materialrespects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (asdefined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange ActRules 13a-15(f) and 15d-15(f)) for the registrant and have: a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed underour supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, ismade known to us by others within those entities, particularly during the period in which this report is being prepared; b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to bedesigned under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with generally accepted accounting principles; c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report ourconclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by thisreport based on such evaluation; and d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during theregistrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that hasmaterially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;and 5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financialreporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing theequivalent functions): a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reportingwhich are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financialinformation; and b)Any fraud, whether or not material, that involves management or other employees who have a significant role in theregistrant’s internal control over financial reporting. Date: February 22, 2019 /s/ Barry D. Quart Barry D. Quart, Pharm.D. President and Chief Executive Officer (As Principal Executive Officer)EXHIBIT 31.2SECTION 302 CERTIFICATIONI, Robert E. Hoffman, certify that: 1.I have reviewed this Annual Report on Form 10-K of Heron Therapeutics, Inc.; 2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessaryto make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to theperiod covered by this report; 3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all materialrespects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (asdefined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange ActRules 13a-15(f) and 15d-15(f)) for the registrant and have: a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed underour supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, ismade known to us by others within those entities, particularly during the period in which this report is being prepared; b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to bedesigned under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with generally accepted accounting principles; c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report ourconclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by thisreport based on such evaluation; and d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during theregistrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that hasmaterially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;and 5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financialreporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing theequivalent functions): a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reportingwhich are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financialinformation; and b)Any fraud, whether or not material, that involves management or other employees who have a significant role in theregistrant’s internal control over financial reporting. Date: February 22, 2019 /s/ Robert E. Hoffman Robert E. Hoffman Chief Financial Officer and SeniorVice President, Finance(As Principal Financial andAccounting Officer)EXHIBIT 32.1CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002Each of the undersigned, in his capacity as Chief Executive Officer and Chief Financial Officer, as applicable, of Heron Therapeutics, Inc. (the“Registrant”), hereby certifies, for purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to thebest of his knowledge that: • the Annual Report of the Registrant on Form 10-K for the year ended December 31, 2018 (the “Report”), which accompanies thiscertification, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and • the information contained in the Report fairly presents, in all material respects, the financial condition of the Registrant at the end ofsuch year and the results of operations of the Registrant for such year.Dated: February 22, 2019 /s/ Barry D. Quart Barry D. Quart, Pharm.D. President and Chief Executive Officer (As Principal Executive Officer) /s/ Robert E. Hoffman Robert E. Hoffman Chief Financial Officer and Senior Vice President, Finance (As Principal Financial and Accounting Officer)This certification accompanies the Report to which it relates, is not deemed to be filed with the Securities and Exchange Commission and is not to beincorporated by reference into any filing of Heron Therapeutics, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of1934, as amended (whether made before or after the date of the Report), irrespective of any general incorporation language contained in such filing.Note: A signed original of this written statement required by Section 906 has been provided to Heron Therapeutics, Inc. and will be retained by HeronTherapeutics, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

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