UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended SeptemberJune 30, 20172021
 
OR

o☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from     to
Commission File Number: 001-35060
paciralogoa07.jpg
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PACIRA PHARMACEUTICALS,BIOSCIENCES, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware
51-0619477
Delaware
51-0619477
(State or Other Jurisdiction of

Incorporation or Organization)
(I.R.S. Employer

 Identification No.)
5 Sylvan Way, Suite 300
Parsippany, New Jersey, 07054
(Address and Zip Code of Principal Executive Offices)
(973) 254-3560
(Registrant’s Telephone Number, Including Area Code)


5 Sylvan Way, Suite 300
Parsippany, New Jersey, 07054
(Address and Zip Code of Principal Executive Offices)
(973) 254-3560
(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbolName of each exchange on which registered
Common Stock, par value $0.001 per sharePCRXNasdaq Global Select Market



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x☒ Yes  o☐ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files.) x☒ Yes  o☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,”filer”, “accelerated filer,”filer”, “smaller reporting company,”company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer☒Accelerated filer☐
Non-accelerated filer☐Smaller reporting company☐
Large accelerated filer x
Accelerated filer o
Non-accelerated filer o
Smaller reporting company o
(Do not check if a smaller reporting company)
Emerging growth companyo
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act. o☐


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o☐ Yes  x☒ No

As of November 5, 2017, 40,570,002August 1, 2021, 44,454,792 shares of the registrant’s common stock, $0.001 par value per share, were outstanding.


PACIRA PHARMACEUTICALS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2017

PACIRA BIOSCIENCES, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2021

TABLE OF CONTENTS

Page #
PART I. FINANCIAL INFORMATION
Page #
Item 1.
34
45
56
67
79
810
2228
3241
3342
PART II. OTHER INFORMATION
43
3443
Risk Factors
34
Item 2.
3443
3443
3443
3443
3544
3645


Pacira BioSciences, Inc. | Q2 2021 Form 10-Q | Page 3

PART I — FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS (Unaudited)
PACIRA BIOSCIENCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)
(Unaudited)
ASSETSJune 30,
2021		December 31,
2020
Current assets:  
     Cash and cash equivalents$105,774 $99,957 
     Short-term investments540,821 421,705 
     Accounts receivable, net68,357 53,046 
     Inventories, net65,264 64,650 
     Prepaid expenses and other current assets12,363 12,265 
          Total current assets792,579 651,623 
Long-term investments0 95,459 
Fixed assets, net153,302 136,688 
Right-of-use assets, net71,252 74,492 
Goodwill99,547 99,547 
Intangible assets, net92,588 96,521 
Deferred tax assets98,599 106,164 
Equity investments and other assets17,966 14,019 
          Total assets$1,325,833 $1,274,513 
LIABILITIES AND STOCKHOLDERS’ EQUITY  
Current liabilities:  
     Accounts payable$12,179 $10,431 
     Accrued expenses52,163 70,974 
     Lease liabilities5,644 7,425 
     Convertible senior notes153,681 149,648 
     Contingent consideration5,026 14,736 
     Income taxes payable0 114 
          Total current liabilities228,693 253,328 
Convertible senior notes321,708 313,030 
Lease liabilities68,235 71,025 
Contingent consideration12,332 13,610 
Other liabilities7,697 3,832 
          Total liabilities638,665 654,825 
Commitments and contingencies (Note 15)00
Stockholders’ equity:  
     Preferred stock, par value $0.001; 5,000,000 shares authorized; NaN issued and outstanding at
     June 30, 2021 and December 31, 2020
0 0 
     Common stock, par value $0.001; 250,000,000 shares authorized; 44,436,630 shares issued and
     outstanding at June 30, 2021; 43,636,929 shares issued and outstanding at December 31, 2020
44 44 
     Additional paid-in capital911,368 873,201 
     Accumulated deficit(224,425)(253,875)
     Accumulated other comprehensive income181 318 
          Total stockholders’ equity687,168 619,688 
          Total liabilities and stockholders’ equity$1,325,833 $1,274,513 
See accompanying condensed notes to consolidated financial statements.
Pacira BioSciences, Inc. | Q2 2021 Form 10-Q | Page 4
PACIRA PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)
(Unaudited)
 September 30,
2017		 December 31,
2016
   (Note 2)
ASSETS 
  
Current assets: 
  
     Cash and cash equivalents$26,216
 $35,944
     Short-term investments267,864
 136,653
     Accounts receivable, net27,021
 29,937
     Inventories, net39,112
 31,278
     Prepaid expenses and other current assets5,622
 9,277
          Total current assets365,835
 243,089
Long-term investments80,807
 —
Fixed assets, net105,947
 101,016
Goodwill52,956
 46,737
Other assets545
 624
          Total assets$606,090
 $391,466
    
LIABILITIES AND STOCKHOLDERS’ EQUITY 
  
Current liabilities: 
  
     Accounts payable$12,278
 $7,511
     Accrued expenses39,701
 37,261
     Convertible senior notes320
 —
     Income taxes payable38
 66
          Total current liabilities52,337
 44,838
Convertible senior notes272,721
 108,738
Other liabilities16,232
 18,914
          Total liabilities341,290
 172,490
Commitments and contingencies (Note 12)

 

Stockholders’ equity: 
  
     Preferred stock, par value $0.001; 5,000,000 shares authorized; none issued and outstanding at
September 30, 2017 and December 31, 2016		—
 —
     Common stock, par value $0.001, 250,000,000 shares authorized; 40,564,766 shares issued and
outstanding at September 30, 2017; 37,480,952 shares issued and outstanding at December 31, 2016		41
 37
     Additional paid-in capital658,557
 565,207
     Accumulated deficit(393,731) (346,238)
     Accumulated other comprehensive loss(67) (30)
          Total stockholders’ equity264,800
 218,976
          Total liabilities and stockholders’ equity$606,090
 $391,466

PACIRA BIOSCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)
(Unaudited)
Three Months Ended
June 30,		Six Months Ended
June 30,
 2021202020212020
Revenues:    
     Net product sales$134,863 $75,216 $253,601 $179,961 
     Collaborative licensing and milestone revenue125 0 125 0 
     Royalty revenue602 289 891 1,228 
          Total revenues135,590 75,505 254,617 181,189 
Operating expenses:    
     Cost of goods sold35,248 22,305 66,597 52,037 
     Research and development12,573 13,620 28,453 29,440 
     Selling, general and administrative50,813 43,342 99,335 88,122 
     Amortization of acquired intangible assets1,967 1,967 3,933 3,933 
     Acquisition-related charges (gains), product
     discontinuation and other		146 1,418 2,019 (2,290)
          Total operating expenses100,747 82,652 200,337 171,242 
Income (loss) from operations34,843 (7,147)54,280 9,947 
Other (expense) income:    
     Interest income224 1,323 639 2,911 
     Interest expense(7,023)(5,456)(13,994)(11,477)
     Other, net(2,396)3,969 (2,554)(136)
          Total other expense, net(9,195)(164)(15,909)(8,702)
Income (loss) before income taxes25,648 (7,311)38,371 1,245 
     Income tax (expense) benefit(6,567)42 (8,921)(356)
Net income (loss)$19,081 $(7,269)$29,450 $889 
Net income (loss) per share:    
     Basic net income (loss) per common share$0.43 $(0.17)$0.67 $0.02 
     Diluted net income (loss) per common share$0.42 $(0.17)$0.64 $0.02 
Weighted average common shares outstanding:  
     Basic44,145 42,221 43,989 42,126 
     Diluted45,592 42,221 45,779 42,861 
 
See accompanying condensed notes to consolidated financial statements.

Pacira BioSciences, Inc. | Q2 2021 Form 10-Q | Page 5
PACIRA PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)
(Unaudited)
 Three Months Ended 
 September 30,		 Nine Months Ended 
 September 30,
 2017 2016 2017 2016
Revenues: 
  
  
  
     Net product sales$66,951
 $66,119
 $205,515
 $198,309
     Collaborative licensing and milestone revenue26
 1,357
 361
 3,069
     Royalty revenue358
 879
 1,676
 2,091
          Total revenues67,335
 68,355
 207,552
 203,469
Operating expenses: 
  
  
  
     Cost of goods sold18,228
 43,152
 66,621
 86,483
     Research and development11,775
 9,754
 47,262
 28,609
     Selling, general and administrative40,644
 36,314
 122,316
 117,940
     Product discontinuation260
 —
 4,754
 —
          Total operating expenses70,907
 89,220
 240,953
 233,032
Loss from operations(3,572) (20,865) (33,401) (29,563)
Other (expense) income: 
  
  
  
     Interest income1,068
 346
 2,805
 923
     Interest expense(5,127) (1,601) (12,942) (5,203)
     Loss on early extinguishment of debt—
 —
 (3,732) —
     Other, net79
 (8) 169
 (8)
          Total other expense, net(3,980) (1,263) (13,700) (4,288)
Loss before income taxes(7,552) (22,128) (47,101) (33,851)
     Income tax expense(45) (36) (105) (126)
Net loss$(7,597) $(22,164) $(47,206) $(33,977)
        
Net loss per share: 
  
  
  
     Basic and diluted net loss per common share$(0.19) $(0.59) $(1.19) $(0.91)
Weighted average common shares outstanding: 
  
    
     Basic and diluted40,463
 37,312
 39,540
 37,171

PACIRA BIOSCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)
(Unaudited)
Three Months Ended
June 30,		Six Months Ended
June 30,
 2021202020212020
Net income (loss)$19,081 $(7,269)$29,450 $889 
Other comprehensive income (loss):   
Net unrealized gain (loss) on investments, net of tax12 2,536 (138)1,168 
Foreign currency translation adjustments(3)0 1 0 
Total other comprehensive income (loss)9 2,536 (137)1,168 
Comprehensive income (loss)$19,090 $(4,733)$29,313 $2,057 
 
See accompanying condensed notes to consolidated financial statements.

Pacira BioSciences, Inc. | Q2 2021 Form 10-Q | Page 6
PACIRA PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)
(Unaudited)
 Three Months Ended 
 September 30,		 Nine Months Ended 
 September 30,
 2017 2016 2017 2016
Net loss$(7,597) $(22,164) $(47,206) $(33,977)
Other comprehensive income (loss):

  
  
  
Net unrealized gain (loss) on investments(3) (166) (37) 24
Total other comprehensive income (loss)(3) (166) (37) 24
Comprehensive loss$(7,600) $(22,330) $(47,243) $(33,953)

PACIRA BIOSCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED JUNE 30, 2021 AND 2020

(In thousands)
(Unaudited)

 Common StockAdditional
Paid-In
Capital		Accumulated
Deficit		Accumulated
Other
Comprehensive
Income (Loss)		 
 SharesAmountTotal
Balance at March 31, 202143,958 $44 $894,108 $(243,506)$172 $650,818 
Exercise of stock options162 — 5,225 — — 5,225 
Vested restricted stock units286 — — — — — 
Shares issued under employee stock
purchase plan		31 — 1,574 — — 1,574 
Stock-based compensation— — 10,461 — — 10,461 
Other comprehensive income (Note 11)— — — — 9 9 
Net income— — — 19,081 — 19,081 
Balance at June 30, 202144,437 $44 $911,368 $(224,425)$181 $687,168 

 Common StockAdditional
Paid-In
Capital		Accumulated
Deficit		Accumulated
Other
Comprehensive
Income (Loss)
 SharesAmountTotal
Balance at March 31, 202042,117 $42 $766,280 $(391,240)$(1,046)$374,036 
Exercise of stock options220 1 8,201 — — 8,202 
Vested restricted stock units234 — — — — — 
Shares issued under employee stock
purchase plan		37 — 1,421 — — 1,421 
Stock-based compensation— — 9,222 — — 9,222 
Other comprehensive income (Note 11)— — — — 2,536 2,536 
Net loss— — — (7,269)— (7,269)
Balance at June 30, 202042,608 $43 $785,124 $(398,509)$1,490 $388,148 

See accompanying condensed notes to consolidated financial statements.


Pacira BioSciences, Inc. | Q2 2021 Form 10-Q | Page 7

PACIRA PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017

(In thousands)
(Unaudited)
 Common Stock Additional
Paid-In
Capital		 Accumulated
Deficit		 Accumulated
Other
Comprehensive
Loss		  
 Shares Amount    Total
Balance at December 31, 201637,481
 $37
 $565,207
 $(346,238) $(30) $218,976
Cumulative effect adjustment of the adoption
of Accounting Standards Update 2016-09
(Note 2)		—
 —
 287
 (287) —
 —
Exercise of stock options459
 1
 5,303
 —
 —
 5,304
Vested restricted stock units99
 —
 —
 —
 —
 —
Shares issued under employee stock
purchase plan		36
 —
 1,056
 —
 —
 1,056
Stock-based compensation—
 —
 23,407
 —
 —
 23,407
Issuance of common stock upon
conversion of 2019 convertible senior notes		2,490
 3
 120,957
 —
 —
 120,960
Retirement of equity component
of 2019 convertible senior notes		—
 —
 (126,328) —
 —
 (126,328)
Equity component of 2022 convertible
senior notes issued, net		—
 —
 68,668
 —
 —
 68,668
Net unrealized loss on investments—
 —
 —
 —
 (37) (37)
Net loss—
 —
 —
 (47,206) —
 (47,206)
Balance at September 30, 201740,565
 $41
 $658,557
 $(393,731) $(67) $264,800
PACIRA BIOSCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2021 AND 2020

(In thousands)
(Unaudited)

 Common StockAdditional
Paid-In
Capital		Accumulated
Deficit		Accumulated
Other
Comprehensive
Income (Loss)		 
 SharesAmountTotal
Balance at December 31, 202043,637 $44 $873,201 $(253,875)$318 $619,688 
Exercise of stock options479 — 16,022 — — 16,022 
Vested restricted stock units290 — — — — — 
Shares issued under employee stock
purchase plan		31 — 1,574 — — 1,574 
Stock-based compensation— — 20,571 — — 20,571 
Other comprehensive loss (Note 11)— — — — (137)(137)
Net income— — — 29,450 — 29,450 
Balance at June 30, 202144,437 $44 $911,368 $(224,425)$181 $687,168 

Common StockAdditional
Paid-In
Capital		Accumulated
Deficit		Accumulated
Other
Comprehensive
Income (Loss)
SharesAmountTotal
Balance at December 31, 201941,908 $42 $753,978 $(399,398)$322 $354,944 
Exercise of stock options427 1 11,655 — — 11,656 
Vested restricted stock units236 — — — — — 
Shares issued under employee stock
purchase plan		37 — 1,421 — — 1,421 
Stock-based compensation— — 18,070 — — 18,070 
Other comprehensive income (Note 11)— — — — 1,168 1,168 
Net income— — — 889 — 889 
Balance at June 30, 202042,608 $43 $785,124 $(398,509)$1,490 $388,148 

See accompanying condensed notes to consolidated financial statements.

Pacira BioSciences, Inc. | Q2 2021 Form 10-Q | Page 8
PACIRA PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 (In thousands)
(Unaudited)
 Nine Months Ended 
 September 30,
 2017 2016
   (Note 2)
Operating activities: 
  
Net loss$(47,206) $(33,977)
Adjustments to reconcile net loss to net cash provided by operating activities: 
  
     Depreciation of fixed assets and amortization of intangibles10,174
 9,659
     Amortization of unfavorable lease obligation and debt issuance costs884
 359
     Amortization of debt discount7,365
 3,066
     Loss on early extinguishment of debt3,732
 —
     Loss on disposal of fixed assets2,139
 —
     Stock-based compensation23,407
 23,516
Changes in operating assets and liabilities: 
  
     Accounts receivable, net2,916
 (910)
     Inventories, net(7,834) 24,169
     Prepaid expenses and other assets3,734
 (4,202)
     Accounts payable, accrued expenses and income taxes payable4,542
 (5,691)
     Other liabilities(2,999) 115
          Net cash provided by operating activities854
 16,104
Investing activities: 
  
     Purchases of fixed assets(14,190) (19,827)
     Purchases of investments(436,017) (158,390)
     Sales of investments223,962
 137,170
     Payment of contingent consideration(6,219) (13,790)
          Net cash used in investing activities(232,464) (54,837)
Financing activities: 
  
     Proceeds from exercise of stock options5,304
 5,200
     Proceeds from shares issued under employee stock purchase plan1,056
 995
     Proceeds from 2022 convertible senior notes345,000
 —
     Repayment of 2019 convertible senior notes(118,193) (4)
     Payment of debt issuance and financing costs(11,000) —
     Costs for conversion of convertible senior notes(285) —
          Net cash provided by financing activities221,882
 6,191
Net decrease in cash and cash equivalents(9,728) (32,542)
Cash and cash equivalents, beginning of period35,944
 56,984
Cash and cash equivalents, end of period$26,216
 $24,442
Supplemental cash flow information: 
  
     Cash paid for interest$6,896
 $3,852
     Cash paid for income taxes, net of refunds$133
 $253
Non-cash investing and financing activities:   
     Issuance of common stock from conversion of 2019 convertible senior notes$120,960
 $—
     Retirement of equity component of 2019 convertible senior notes$(126,328) $—
     Net increase (decrease) in accrued fixed assets$3,054
 $(185)

PACIRA BIOSCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended
June 30,
 20212020
Operating activities:  
Net income$29,450 $889 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:  
     Deferred taxes7,613 0 
     Depreciation of fixed assets and amortization of intangible assets9,748 9,810 
     Amortization of debt issuance costs1,310 883 
     Amortization of debt discount11,401 7,254 
     (Gain) loss on disposal and impairment of fixed assets(10)22 
     Stock-based compensation20,571 18,070 
     Changes in contingent consideration(988)(2,312)
     Loss (gain) on investment and other non-operating income, net2,601 (8)
Changes in operating assets and liabilities:  
     Accounts receivable, net(15,312)3,517 
     Inventories, net(615)(8,394)
     Prepaid expenses and other assets(944)(1,701)
     Accounts payable2,156 (3,517)
     Accrued expenses and income taxes payable(18,140)(21,468)
     Other liabilities(964)(3,052)
     Payment of contingent consideration to MyoScience, Inc. securityholders(5,662)(9,409)
          Net cash provided by (used in) operating activities42,215 (9,416)
Investing activities:  
     Purchases of fixed assets(23,624)(15,630)
     Purchases of available for sale investments(318,132)(72,263)
     Sales of available for sale investments294,288 95,450 
     Purchases of equity and debt investments(14,220)0 
     Sale of equity investment9,057 0 
          Net cash (used in) provided by investing activities(52,631)7,557 
Financing activities:  
     Proceeds from exercises of stock options15,997 6,353 
     Proceeds from shares issued under employee stock purchase plan1,574 1,421 
     Payment of contingent consideration to MyoScience, Inc. securityholders(1,338)(5,591)
          Net cash provided by financing activities16,233 2,183 
Net increase in cash and cash equivalents5,817 324 
Cash and cash equivalents, beginning of period99,957 78,228 
Cash and cash equivalents, end of period$105,774 $78,552 
Supplemental cash flow information: 
     Cash paid for interest$3,586 $4,097 
     Cash paid for income taxes, net of refunds$1,447 $80 
Non-cash investing and financing activities:  
     Fixed assets included in accounts payable and accrued liabilities$8,096 $1,903 

See accompanying condensed notes to consolidated financial statements.



Pacira BioSciences, Inc. | Q2 2021 Form 10-Q | Page 9

PACIRA PHARMACEUTICALS,BIOSCIENCES, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
NOTE 1—DESCRIPTION OF BUSINESS

Pacira Pharmaceuticals,BioSciences, Inc. and its subsidiaries (collectively, the “Company” or “Pacira”) is a specialty pharmaceutical company focused on the development, manufacture and commercialization of pharmaceutical products, based onindustry leader in its proprietary DepoFoam® extended release drug delivery technology, for use primarily in hospitals and ambulatory surgery centers. Pacira is committedcommitment to driving innovation in postsurgicalnon-opioid pain management with opioid-sparing strategies.

and regenerative health solutions to improve patients’ journeys along the neural pain pathway. The Company’s lead product,long-acting, local analgesic, EXPAREL® (bupivacaine liposome injectable suspension), which consists of bupivacaine encapsulatedwas commercially launched in DepoFoam, wasthe United States in April 2012 and approved by the United States FoodEuropean Commission in November 2020. EXPAREL utilizes DepoFoam®, a unique and Drug Administration, or FDA, on October 28, 2011proprietary delivery technology that encapsulates drugs without altering their molecular structure, and launched commercially inreleases them over a desired period of time. In April 2012. DepoFoam is also the basis for the Company’s other FDA-approved product, DepoCyt(e), which2019, the Company had manufactured foradded iovera°® to its commercial partners.offering with the acquisition of MyoScience, Inc., or MyoScience. The Company also sells its bupivacaine liposome injectable suspension productiovera° system is a handheld cryoanalgesia device used to deliver a commercial partnerprecise, controlled application of cold temperature to serve animal health indications.only targeted nerves.

Pacira is subject to risks common to companies in similar industries and stages, of development, including, but not limited to, competition from larger companies, reliance on revenue from one product,2 products, reliance on a singlelimited number of wholesalers, reliance on a limited number of manufacturing site,sites, new technological innovations, dependence on key personnel, reliance on third-party service providers and sole source suppliers, protection of proprietary technology, and compliance with government regulations.regulations and risks related to cybersecurity.

The Company is managed and operated as a single business focused on the development, manufacture, marketing, distribution and sale of non-opioid pain management and regenerative health solutions. The Company is managed by a single management team, and consistent with its organizational structure, the Chief Executive Officer and Chairman manages and allocates resources at a consolidated level. Accordingly, the Company views its business as 1 reportable segment to evaluate performance, allocate resources, set operational targets and forecast its future financial results.

Novel Coronavirus (COVID-19) Pandemic
During 2020, the Company’s net product sales were negatively impacted by the global pandemic caused by a novel strain of coronavirus (COVID-19), which mandated significant postponement or suspension in the scheduling of elective surgical procedures resulting from public health guidance and government directives. Elective surgical restrictions began to lift on a state-by-state basis in April 2020, allowing net product sales to return to year-over-year growth in June 2020. However, while many restrictions have since eased as COVID-19 vaccines become more widely available and administered to the general public, the Company still does not know how long it will take the elective surgical market to normalize, or if restrictions on elective surgical procedures will recur due to COVID-19 variant strains or otherwise. The Company’s manufacturing sites are operational and have implemented new safety protocols and guidelines as recommended by federal, state and local governments. To date, there have been no material impacts to the Company’s supply chain. The situation remains dynamic and subject to rapid and possibly material changes. Additional negative impacts may also arise from the COVID-19 pandemic that the Company is unable to foresee. The nature and extent of such impacts will depend on future developments, which are highly uncertain and cannot be predicted.

NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Basis of Presentation and Principles of Consolidation
 
These interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America, or GAAP, and in accordance with the rules and regulations of the United States Securities and Exchange Commission (SEC), for interim reporting. Pursuant to these rules and regulations, certain information and footnote disclosures normally included in complete annual financial statements have been condensed or omitted. Therefore, these interim condensed consolidated financial statements should be read in conjunction with the audited annual consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2020.

The condensed consolidated financial statements at SeptemberJune 30, 2017,2021, and for the three and ninesix month periods ended SeptemberJune 30, 20172021 and 2016,2020, are unaudited, but include all adjustments (consisting of only normal recurring adjustments) which, in the opinion of management, are necessary to present fairly the financial information set forth herein in accordance with GAAP. The condensed consolidated balance sheet at December 31, 20162020 is derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.2020. The condensed consolidated
Pacira BioSciences, Inc. | Q2 2021 Form 10-Q | Page 10

financial statements as presented reflect certain reclassifications from previously issued financial statements to conform to the current year presentation. The accounts of wholly-owned subsidiaries are included in the condensed consolidated financial statements. Intercompany accounts and transactions have been eliminated in consolidation.

The results of operations for thethese interim periods are not necessarily indicative of results that may be expected for any other interim periods or for the full year.


Concentration of Major Customers
 
The Company sells EXPAREL through a drop-ship program under which orders are processed through wholesalers (including AmerisourceBergen Health Corporation, Cardinal Health, Inc. and McKesson Drug Company), but shipments of the product are sent directly to individual accounts, such as hospitals, ambulatory surgery centers and individual doctors. The Company also sells EXPAREL directly to ambulatory surgery centers and physicians. The Company sells its bupivacaine liposome injectable suspension for veterinary use to a third-party licensee and sells iovera° directly to end users. The table below includes the percentage of sales processedrevenues comprised by the Company’s three largest wholesalers in each period presented:


Three Months Ended 
 September 30,		 Nine Months Ended 
 September 30,		Three Months Ended
June 30,		Six Months Ended
June 30,
2017 2016 2017 20162021202020212020
Largest wholesaler34% 31% 35% 32% Largest wholesaler31%32%31%31%
Second largest wholesaler30% 27% 29% 27% Second largest wholesaler29%30%29%31%
Third largest wholesaler26% 27% 26% 27% Third largest wholesaler26%24%26%25%

90% 85% 90% 86%
Total Total86%86%86%87%
Recent
Recently Adopted Accounting Pronouncements


Recently Adopted

In March 2016,December 2019, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2016-09, Compensation—Stock Compensation2019-12, Income Taxes (Topic 718): Improvements740), Simplifying the Accounting for Income Taxes, which amended the approaches and methodologies in accounting for income taxes during interim periods and makes changes to Employee Share-Based Payment Accounting. This update includes multiple provisions intendedcertain income tax classifications. The new standard now allows for certain exceptions, including an exception to simplify various aspectsthe use of the accountingincremental approach for share-based payment transactions including accountingintra-period tax allocations, when there is a loss from continuing operations and income or a gain from other items, and to the general methodology for excesscalculating income taxes in an interim period, when a year-to-date loss exceeds the anticipated loss for the year. The new standard also required franchise or similar taxes partially based on income to be reported as income tax benefits and to reflect the effects of enacted changes in tax deficiencies, classification of excess tax benefits and tax deficiencieslaws or rates in the statementannual effective tax rate computation from the date of cash flows and accounting for award forfeitures. The update also removesenactment. Lastly, in any future acquisition, the requirement to delay recognition of an excess tax benefit until it reduces current taxes payable, instead, it isCompany would be required to evaluate when the step-up in the tax basis of goodwill is part of the business combination and when it should be recognized at the time of settlement, subject to normal valuation allowance considerations. This updateconsidered a separate transaction. The standard became effective for the Company beginning January 1, 2017. The Company elected an accounting policy change2021 and there were no material impacts to record forfeitures as they occur rather than estimating forfeitures during each period and recorded a charge of $0.3 million to retained earningsthe consolidated financial statements upon adoption.
Recent Accounting Pronouncements Not Adopted as of January 1, 2017 related to the reversal of cumulative forfeiture estimates. The adoption of this standard also resulted in the recognition of $29.3 million of previously unrecognized excess tax benefits in deferred tax assets, fully offset by a valuation allowance. The changes have been applied prospectively in accordance with the update and prior periods have not been adjusted. All tax-related cash flows resulting from stock-based compensation, including the excess tax benefits related to the settlement of stock-based awards, will be classified as cash flows from operating activities in the Company’s consolidated statements of cash flows.June 30, 2021

In July 2015,August 2020, the FASB issued ASU 2015-11, Inventory (Topic 330): Simplifying2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40), which limits the Measurementnumber of Inventory. The standard requires entitiesconvertible instruments that require separate accounting to measure most inventory “at(i) those with embedded conversion features that are not clearly and closely related to the lowerdebt, that meet the definition of costa derivative, and net realizable value,” thereby simplifying the previous guidance under which an entity must measure inventory at the lower of cost or market (market in this context is defined as one of three different measures, one of which is net realizable value). The standard became effectivethat do not qualify for the Company prospectively beginning January 1, 2017.scope exception from derivative accounting and (ii) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. The adoption of ASU 2015-11 did not haveother separation models would be eliminated, including the model for convertible debt that can be settled in cash or shares. As a material impact onresult these convertible debt instruments will be accounted for as a single liability instrument. In addition, the Company’s consolidated financial statements.

Not Adopted as of September 30, 2017

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, whichnew guidance requires that an entity recognize the amount of revenue to which it expectsdiluted earnings per share calculations to be entitled forprepared using the transferif-converted method, instead of promised goods or services to its customers. In order to achieve this core principle, an entity should apply the following steps: (1) identify the contract(s) with a customer; (2) identify the performance obligationstreasury stock method. The guidance must be applied in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when (or as) the entity satisfies a performance obligation. During the fiscal third quarter of 2015, the FASB approved a one year deferral to the effective date to be adopted by all public companies for all annual periods and interim reporting periodsyears beginning after December 15, 2017. During 2016, the FASB issued additional guidance and clarification relating to identifying performance obligations, licensing, principal versus agent considerations, assessing collectability, presentation of sales taxes, noncash consideration and contract modifications and completed contracts at transition. These updates will replace existing revenue recognition guidance under GAAP when it becomes effective for the Company beginning January 1, 2018, and permits two methods of adoption: the full retrospective method, which requires the standard to be applied to each prior period presented, or the modified retrospective method, which requires the cumulative effect of adoption to be recognized as an adjustment to opening retained earnings in the period of adoption. While the Company is continuing to evaluate the impact of these updates on its consolidated financial statements, it does not expect that the implementation of ASU 2014-09 and the subsequently issued related guidance will have a material impact on its consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which addresses certain aspects of recognition, measurement, presentation and disclosure of financial instruments. ASU 2016-01 becomes effective for the Company beginning January 1,

2018. Early adoption is not permitted except for certain provisions. The Company currently does not expect that the pending adoption of ASU 2016-01 will have a material effect on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (ASC 842). This update requires lessees to recognize lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under previous authoritative guidance. The lease liability will be equal to the present value of lease payments and the right-of-use asset will be based on the lease liability, subject to adjustment for items such as initial direct costs. For income statement purposes, the new standard retains a dual model similar to Accounting Standards Codification, or ASC, 840, requiring leases to be classified as either operating or financing. For lessees, operating leases will result in straight-line expense (similar to current accounting by lessees for operating leases under ASC 840) while financing leases will result in a front-loaded expense pattern (similar to current accounting by lessees for capital leases under ASC 840). This update also introduces new disclosure requirements for leasing arrangements. The standard is effective for annual reporting periods beginning after December 15, 2018 and2021, including interim periods within those fiscal years. The Company plans to adopt the new guidance using a modified retrospective method of transition, which would be applied to transactions outstanding at the time of adoption. At June 30, 2021, the Company has recognized debt discounts of $72.7 million for its 0.750% convertible senior notes due 2025 and $5.7 million for its 2.375% convertible senior notes due 2022. Upon adoption on January 1, 2022, these debt discounts would be eliminated along with any related future amortization. Further deferred financing costs previously allocated to the conversion features will be re-allocated to the outstanding debt, slightly increasing future annual periods. Early adoption is permitted.amortization of deferred financing costs. The Company is currently evaluating the impact from the adoption of ASU 2016-022020-06 on its consolidated financial statements. Refer
Pacira BioSciences, Inc. | Q2 2021 Form 10-Q | Page 11


NOTE 3—REVENUE

Revenue from Contracts with Customers

The Company’s sources of revenue include (i) sales of EXPAREL in the United States, or U.S.; (ii) sales of iovera° in the U.S.; (iii) sales of, and royalties on, its bupivacaine liposome injectable suspension for veterinary use in the U.S. and (iv) license fees and milestone payments. To date, there has been no revenue from sales of EXPAREL or iovera° in the European Union, or E.U. The Company does not consider revenue from sources other than sales of EXPAREL to Note 12, Commitmentsbe material to its consolidated revenue, which could change in the future. As such, the following disclosure only relates to revenue associated with net EXPAREL product sales.

Net Product Sales

The Company sells EXPAREL through a drop-ship program under which orders are processed through wholesalers based on orders of the product placed by end-users, namely hospitals, ambulatory surgery centers and Contingencies,healthcare provider offices. EXPAREL is delivered directly to the end-user without the wholesaler ever taking physical possession of the product. Product revenue is recognized when control of the promised goods are transferred to the customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for further discussiontransferring those goods. EXPAREL revenue is recorded at the time the product is delivered to the end-user.

Revenues from sales of products are recorded net of returns allowances, prompt payment discounts, wholesaler service fees, volume rebates and chargebacks. These reserves are based on estimates of the amounts earned or to be claimed on the Company’s leases.

In June 2016,related sales. These amounts are treated as variable consideration, estimated and recognized as a reduction of the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326), which requires entities to measure all expected credit losses for financial assets heldtransaction price at the reporting datetime of the sale, using the most likely amount method, except for returns, which is based on the expected value method. The Company includes these estimated amounts in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized for such transaction will not occur, or when the uncertainty associated with the variable consideration is resolved. The calculation of some of these items requires management to make estimates based on sales data, historical experience, current conditionsreturn data, contracts and reasonableother related information that may become known in the future. The adequacy of these provisions is reviewed on a quarterly basis.

Accounts Receivable

The majority of accounts receivable arise from product sales and supportable forecasts. Entities will now use forward-looking informationrepresent amounts due from wholesalers, hospitals, ambulatory surgery centers and doctors. Payment terms generally range from zero to better form their credit loss estimates. This update also requires enhanced disclosures37 days from the date of the transaction, and accordingly, there is no significant financing component.

Performance Obligations

A performance obligation is a promise in a contract to help financial statement users better understand significant estimatestransfer a distinct good or service to the customer and judgments usedis the unit of account in estimating credit losses,Accounting Standards Codification, or ASC, 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as wellrevenue when, or as, the credit qualityperformance obligation is satisfied.
At contract inception, the Company assesses the goods promised in its contracts with customers and underwriting standardsidentifies a performance obligation for each promise to transfer to the customer a good that is distinct. When identifying individual performance obligations, the Company considers all goods promised in the contract regardless of whether explicitly stated in the customer contract or implied by customary business practices. The Company’s contracts with customers require it to transfer an entity’s portfolio. This ASUindividual distinct product, which represents a single performance obligation. The Company’s performance obligation with respect to its product sales is effective for annual reporting periods beginning after December 15, 2019, with early adoption permitted.satisfied at a point in time, which transfers control upon delivery of EXPAREL to its customers. The Company is currently evaluatingconsiders control to have transferred upon delivery because the impactcustomer has legal title to the asset, physical possession of ASU 2016-13 on its consolidated financial statements.the asset has been transferred, the customer has significant risks and rewards of ownership of the asset, and the Company has a present right to payment at that time.


In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which clarifies existing guidance on how companies present and classify certain cash receipts and cash paymentsDisaggregated Revenue

The following table represents disaggregated net product sales in the statementperiods presented as follows (in thousands):
Pacira BioSciences, Inc. | Q2 2021 Form 10-Q | Page 12


Other pronouncements issued by the FASB or other authoritative accounting standards groups with future effective dates are either not applicable or not significant to the consolidated financial statements of the Company.
Three Months Ended
June 30,		Six Months Ended
June 30,
2021202020212020
Net product sales:
   EXPAREL / bupivacaine liposome injectable suspension$131,050 $73,821 $246,520 $176,296 
   iovera°3,813 1,395 7,081 3,665 
      Total net product sales$134,863 $75,216 $253,601 $179,961 


NOTE 3—4—INVENTORIES
 
The components of inventories, net are as follows (in thousands):
June 30,December 31,
20212020
Raw materials$34,324 $26,886 
Work-in-process14,400 16,266 
Finished goods16,540 21,498 
     Total$65,264 $64,650 
 September 30, December 31,
 2017 2016
Raw materials$14,113
 $11,742
Work-in-process9,013
 11,621
Finished goods15,986
 7,915
     Total$39,112
 $31,278


The Company is required to perform ongoing stability testing on select lots of EXPAREL at various time intervals. In October 2016, as part of its ongoing stability testing, the Company identified that a single batch of EXPAREL, which was manufactured in early 2016, did not meet the required specification. An internal investigation tied this unexpected result to a modification in the manufacturing process that existed when this product was made, which has subsequently been corrected. The Company reserved all impacted inventory on hand as of September 30, 2016. As a result, in the third quarter of 2016, the Company recorded a $21.9 million charge to cost of goods sold related to this matter.


NOTE 4—5—FIXED ASSETS


Fixed assets, net, summarized by major category, consist of the following (in thousands):
June 30,December 31,
20212020
Machinery and equipment$77,376 $74,966 
Leasehold improvements54,553 54,434 
Computer equipment and software12,470 12,170 
Office furniture and equipment2,477 2,387 
Construction in progress90,472 71,091 
        Total237,348 215,048 
Less: accumulated depreciation(84,046)(78,360)
        Fixed assets, net$153,302 $136,688 
 September 30, December 31,
 2017 2016
Machinery and laboratory equipment$35,496
 $34,309
Leasehold improvements34,723
 33,787
Computer equipment and software6,985
 5,623
Office furniture and equipment1,603
 1,606
Construction in progress72,690
 63,201
        Total151,497
 138,526
Less: accumulated depreciation(45,550) (37,510)
        Fixed assets, net$105,947
 $101,016


For the three months ended SeptemberJune 30, 20172021 and 2016,2020, depreciation expense was $3.4$2.9 million and $3.3$3.0 million, respectively. For the three months ended SeptemberJune 30, 20172021 and 2016,2020, there was $1.1 million and $0.7 million of capitalized interest on the construction of manufacturing sites, was $0.3 million and $0.5 million, respectively.


For the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, depreciation expense was $10.2$5.8 million and $9.6$5.9 million, respectively. For the ninesix months ended SeptemberJune 30, 20172021 and 2016,2020, there was $2.1 million and $0.8 million of capitalized interest on the construction of manufacturing sites, was $0.7 million and $1.2 million, respectively.


At SeptemberJune 30, 20172021 and December 31, 2016,2020, total fixed assets, net includes leasehold improvements and manufacturing process equipment located in EnglandEurope in the amount of $57.2$68.6 million and $33.7$67.5 million, respectively.


As of both June 30, 2021 and December 31, 2020, the Company had asset retirement obligations of $2.0 million, which are included in accrued expenses and other liabilities on its condensed consolidated balance sheet, for costs associated with returning leased spaces to their original condition upon the termination of certain lease agreements.


Pacira BioSciences, Inc. | Q2 2021 Form 10-Q | Page 13

NOTE 5—GOODWILL6—LEASES


In March 2007,The Company leases all of its facilities, including its EXPAREL manufacturing facility in San Diego, California and its iovera° manufacturing facility in Fremont, California. These leases have remaining terms up to 9.2 years, some of which provide renewal options at the then-current market value. The Company acquiredalso has an embedded lease with Thermo Fisher Scientific Pharma Services for the use of their manufacturing facility in Swindon, England. A portion of the associated monthly base fees have been allocated to the lease component based on a relative fair value basis.
The operating lease costs for the facilities include lease and non-lease components, such as common area maintenance and other common operating expenses, along with executory costs such as insurance and real estate taxes. Total operating lease costs are as follows (in thousands):

Three Months EndedSix Months Ended
June 30,June 30,
2021202020212020
   Fixed lease costs$2,922 $2,422 $5,843 $3,986 
   Variable lease costs424 601 902 1,049 
      Total$3,346 $3,023 $6,745 $5,035 

Supplemental cash flow information related to operating leases is as follows (in thousands):
Six Months Ended
June 30,
20212020
Cash paid for operating lease liabilities, net of lease incentive$7,177 $8,503 
Right-of-use assets recorded in exchange for lease obligations$0 $42,101 

The Company has elected to net the amortization of the right-of-use asset and the reduction of the lease liability principal in other liabilities in the condensed consolidated statement of cash flows.
The Company has measured its operating lease liabilities at an estimated discount rate at which it could borrow on a collateralized basis over the remaining term for each operating lease. The weighted average remaining lease term and the weighted average discount rate are summarized as follows:
June 30,
20212020
Weighted average remaining lease term8.71 years9.55 years
Weighted average discount rate6.89 %6.88 %

Maturities of the Company’s operating lease liabilities are as follows (in thousands):
YearAggregate Minimum Payments Due
2021 (remaining six months)$5,350 
202210,423 
202310,697 
202410,980 
202511,271 
2026 and thereafter50,802 
   Total lease payments99,523 
   Less: imputed interest(25,644)
   Total operating lease liabilities$73,879 

The Company has entered into 1 lease agreement (not included in the table above) for which there are future obligations but the lease has not yet commenced as of June 30, 2021 (in thousands):
Pacira BioSciences, Inc. | Q2 2021 Form 10-Q | Page 14

YearAggregate Minimum Payments Due
2021 (remaining six months)$0 
2022439 
2023453 
2024466 
2025480 
2026495 
   Total future lease payments$2,333 

NOTE 7—GOODWILL AND INTANGIBLE ASSETS

Goodwill

The Company’s goodwill results from the acquisition of Pacira Pharmaceuticals, Inc. (the Company’s California operating subsidiary) from SkyePharma Holding, Inc. (now a subsidiary of Vectura Group plc) in March 2007 (the “Skyepharma Acquisition”), or Skyepharma, its California operating subsidiary, referred to herein asand the Acquisition. Theacquisition of MyoScience, Inc. (the “MyoScience Acquisition”) in April 2019.

There was 0 change in the carrying value of the Company’s goodwill aroseduring the three and six months ended June 30, 2021. The balance at both June 30, 2021 and December 31, 2020 was $99.5 million.

The Skyepharma Acquisition occurred in April 2012 from aMarch 2007, prior to the requirements to record contingent milestone payment to Skyepharma inconsideration at fair value under ASC 805-30. In connection with the Acquisition. The Acquisition was accounted for under Statement of Financial Accounting Standards 141, Accounting for Business Combinations, which was the effective GAAP standard at the Acquisition date. In connection with theSkyepharma Acquisition, the Company agreed to certain earn-out payments based on a percentage of net sales of DepoBupivacaine products collected, including EXPAREL, and certain other yet-to-be-developed products, as well as milestone payments for DepoBupivacaine products, including EXPAREL, as follows:
(i)$10.0 million upon the first commercial sale in the United States (met April 2012);
(ii)$4.0 million upon the first commercial sale in a major E.U. country (United Kingdom, France, Germany, Italy and Spain);
(iii)$8.0EXPAREL. As of June 30, 2021, the remaining milestone payments include: $4.0 million upon the first commercial sale in the United Kingdom, France, Germany, Italy or Spain; and $32.0 million when annual net sales collected reach $100.0 million (met September 2014);
(iv)$8.0 million when annual net sales collected reach $250.0 million (met June 2016); and
(v)$32.0 million when annual net sales collected reach $500.0 million.

The first milestone was met in April 2012, resulting in a $10.0 million payment to Skyepharma. The Company recorded this payment net of a $2.0 million contingent consideration liability recognized at the time of the Acquisition, resulting in $8.0 million recorded as goodwill. In September 2014, the Company recorded an $8.0 million milestone in connection with achieving $100.0 million of annual EXPAREL net sales collected and in June 2016, the Company recorded another $8.0reach $500.0 million milestone for achieving $250.0 million of annual EXPAREL net sales collected. For purposes of meeting future potential milestone payments, annual net sales are measured(measured on a rolling quarterly basis. Cumulatively through September 30, 2017, the Company has recorded an additional $29.0 million as goodwill for earn-out payments that are based on a percentage of net sales of DepoBupivacaine products collected, including EXPAREL.basis). Any remaining earn-outmilestone payments will also be treated as additional costs of the Skyepharma Acquisition and, therefore, recorded as goodwill if and when each contingency is resolved.



In connection with the MyoScience Acquisition, the Company recorded goodwill totaling $37.5 million. The Company made a tax election that allows the acquired goodwill and intangible assets associated with the MyoScience Acquisition to be tax deductible.
The change
Intangible Assets

Intangible assets, net, consist of the developed technology and customer relationships that were acquired in the carrying value of goodwill isMyoScience Acquisition and are summarized as follows (in thousands):
Estimated
Useful Life		June 30,December 31,
20212020
Developed technology14 years$110,000 $110,000 
Customer relationships10 years90 90 
     Total intangible assets110,090 110,090 
Less: accumulated amortization(17,502)(13,569)
     Intangible assets, net$92,588 $96,521 

Amortization expense on intangible assets was consistent for the three and six months periods ended June 30, 2021 and 2020. Amortization expense was $2.0 million and $3.9 million for the three and six month periods, respectively.

Assuming no changes in the gross carrying amount of these intangible assets, amortization expense will be $3.9 million for the remaining six months of 2021, $7.9 million annually through 2032 and $2.2 million in 2033.


 Carrying Value
Balance at December 31, 2016$46,737
Percentage payments on collections of net sales of DepoBupivacaine products6,219
Balance at September 30, 2017$52,956
Pacira BioSciences, Inc. | Q2 2021 Form 10-Q | Page 15

NOTE 6—8—DEBT


Convertible Senior Notes Due 20222025


On March 13, 2017,In July 2020, the Company completed a private placement of $345.0$402.5 million in aggregate principal amount of 2.375%its 0.750% convertible senior notes due 2022,2025, or 20222025 Notes, and entered into an indenture, agreement, or 20222025 Indenture, with respect to the 20222025 Notes. The 20222025 Notes accrue interest at a fixed rate of 2.375%0.750% per year, payable semiannually in arrears on AprilFebruary 1st and OctoberAugust 1st of each year. The 20222025 Notes mature on AprilAugust 1, 2022.2025.


The total debt composition of the 20222025 Notes is as follows (in thousands):
June 30,December 31,
20212020
0.750% convertible senior notes due 2025$402,500 $402,500 
Deferred financing costs(8,058)(8,940)
Discount on debt(72,734)(80,530)
     Total debt, net of debt discount and deferred financing costs$321,708 $313,030 
 September 30, December 31,
 2017 2016
2.375% convertible senior notes due 2022$345,000
 $—
Deferred financing costs(7,880) —
Discount on debt(64,399) —
     Total debt, net of debt discount and deferred financing costs$272,721
 $—


The net proceeds from the issuance of the 20222025 Notes were $334.0approximately $390.0 million, after deducting commissions and the offering expenses paid by the Company. A portion of the net proceeds from the 20222025 Notes werewas used by the Company to repurchase the majority$185.0 million in aggregate principal amount of its then-outstandingoutstanding 2.375% convertible senior notes due 20192022 in privately-negotiated transactions.transactions for a total of $211.1 million of cash (including accrued interest).


Holders may convert the 20222025 Notes at any time prior to the close of business on the business day immediately preceding October 1, 2021,February 3, 2025, only under the following circumstances:

(i) during any calendar quarter commencing after the calendar quarter ended June 30, 2017 (and only during such calendar quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;

(ii) during the five business-daybusiness day period immediately after any five consecutive trading-daytrading day period (the ‘‘measurement period’’“measurement period”) in which the trading price (as defined in the 20222025 Indenture) per $1,000 principal amount of the 2022 Notesnotes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day;

(iii) upon the occurrence of specified corporate events, including a merger or a sale of all or substantially all of the Company’s assets; or

(iv) if the Company calls the 20222025 Notes for redemption, until the close of business on the business day immediately preceding the redemption date.


During the quarter ended June 30, 2021, none of these conditions for conversion were met.

On or after February 3, 2025, until the close of business on the second scheduled trading day immediately preceding August 1, 2025, holders may convert their 2025 Notes at any time.

Upon conversion, holders will receive the principal amount of their 2025 Notes and any excess conversion value, calculated based on the per share volume-weighted average price for each of the 40 consecutive trading days during the observation period (as more fully described in the 2025 Indenture). For both the principal and excess conversion value, holders may receive cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s option. The initial conversion rate for the 2025 Notes is 13.9324 shares of common stock per $1,000 principal amount, which is equivalent to an initial conversion price of $71.78 per share of the Company’s common stock. The conversion rate will be subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. The initial conversion price of the 2025 Notes represents a premium of approximately 32.5% to the closing sale price of $54.17 per share of the Company’s common stock on the Nasdaq Global Select Market on July 7, 2020, the date that the Company priced the private offering of the 2025 Notes.

Pacira BioSciences, Inc. | Q2 2021 Form 10-Q | Page 16

As of June 30, 2021, the 2025 Notes had a market price of $1,100 per $1,000 principal amount. In the event of conversion, holders would forgo all future interest payments, any unpaid accrued interest and the possibility of further stock price appreciation. Upon the receipt of conversion requests, the settlement of the 2025 Notes will be paid pursuant to the terms of the 2025 Indenture. In the event that all of the 2025 Notes are converted, the Company would be required to repay the $402.5 million in principal value and any conversion premium in any combination of cash and shares of its common stock (at the Company’s option).

Prior to August 1, 2023, the Company may not redeem the 2025 Notes. On or after August 1, 2023 (but, in the case of a redemption of less than all of the outstanding 2025 Notes, no later than the 40th scheduled trading day immediately before the maturity date), the Company may redeem for cash all or part of the 2025 Notes if the last reported sale price (as defined in the 2025 Indenture) of the Company’s common stock has been at least 130% of the conversion price then in effect for (i) each of at least 20 trading days (whether or not consecutive) during any 30 consecutive trading days ending on, and including, the trading day immediately before the date the Company sends the related notice of redemption and (ii) the trading day immediately before the date the Company sends such notice. The redemption price will equal the sum of (i) 100% of the principal amount of the 2025 Notes being redeemed, plus (ii) accrued and unpaid interest, including additional interest, if any, to, but excluding, the redemption date. In addition, calling the 2025 Notes for redemption will constitute a “make-whole fundamental change” (as defined in the 2025 Indenture) and will, in certain circumstances, increase the conversion rate applicable to the conversion of such notes if it is converted in connection with the redemption. No sinking fund is provided for the 2025 Notes.

If the Company undergoes a fundamental change, as defined in the 2025 Indenture, subject to certain conditions, holders of the 2025 Notes may require the Company to repurchase for cash all or part of their 2025 Notes at a repurchase price equal to 100% of the principal amount of the 2025 Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. In addition, if a “make-whole fundamental change” (as defined in the 2025 Indenture) occurs prior to August 1, 2025, the Company will, in certain circumstances, increase the conversion rate for a holder who elects to convert its notes in connection with the make-whole fundamental change.

The 2025 Notes are the Company’s general unsecured obligations that rank senior in right of payment to all of its indebtedness that is expressly subordinated in right of payment to the 2025 Notes, and equal in right of payment to the Company’s unsecured indebtedness. The 2025 Notes are also effectively junior in right of payment to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness, and are structurally subordinated to any debt or other liabilities (including trade payables) of the Company’s subsidiaries.

While the 2025 Notes are currently classified on the Company’s consolidated balance sheet at June 30, 2021 as long-term debt, the future convertibility and resulting balance sheet classification of this liability is monitored at each quarterly reporting date and is analyzed dependent upon market prices of the Company’s common stock during the prescribed measurement periods. In the event that the holders of the 2025 Notes have the election to convert the 2025 Notes at any time during the prescribed measurement period, the 2025 Notes would then be considered a current obligation and classified as such.

Under ASC 470-20, Debt with Conversion and Other Options, an entity must separately account for the liability and equity components of convertible debt instruments (such as the 2025 Notes) that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer’s economic interest cost. The liability component of the instrument is valued in a manner that reflects the market interest rate for a similar nonconvertible instrument at the date of issuance. The initial carrying value of the liability component of $314.7 million was calculated using a 5.78% assumed borrowing rate. The equity component of $87.8 million, representing the conversion option, was determined by deducting the fair value of the liability component from the par value of the 2025 Notes and is recorded in additional paid-in capital on the consolidated balance sheet at the issuance date. The equity component is treated as a discount on the liability component of the 2025 Notes, which is amortized over the five-year term of the 2025 Notes using the effective interest rate method. The equity component is not re-measured as long as it continues to meet the conditions for equity classification. A deferred tax liability was recognized in the amount of $20.5 million, with the offsetting amount recorded in additional paid-in capital.

The Company allocated the total transaction costs of approximately $12.5 million related to the issuance of the 2025 Notes to the liability and equity components of the 2025 Notes based on their relative values. Transaction costs attributable to the liability component are amortized to interest expense over the five-year term of the 2025 Notes, and transaction costs attributable to the equity component totaling $2.7 million are netted with the equity component in stockholders’ equity.

The 2025 Notes do not contain any financial or operating covenants or any restrictions on the payment of dividends, the issuance of other indebtedness or the issuance or repurchase of securities by the Company. The 2025 Indenture contains customary events of default with respect to the 2025 Notes, including that upon certain events of default, 100% of the principal and accrued and unpaid interest on the 2025 Notes will automatically become due and payable.
Pacira BioSciences, Inc. | Q2 2021 Form 10-Q | Page 17

Convertible Senior Notes Due 2022

In March 2017, the Company completed a private placement of $345.0 million in aggregate principal amount of 2.375% convertible senior notes due 2022, or 2022 Notes, and entered into an indenture, or 2022 Indenture, with respect to the 2022 Notes. The 2022 Notes accrue interest at a fixed rate of 2.375% per year, payable semiannually in arrears on April 1st and October 1st of each year. The 2022 Notes mature on April 1, 2022. As discussed above, in July 2020, the Company used part of the net proceeds from the issuance of the 2025 Notes to repurchase $185.0 million aggregate principal amount of the 2022 Notes in privately-negotiated transactions for an aggregate of $211.1 million in cash (including accrued interest). The partial repurchase of the 2022 Notes resulted in an $8.1 million loss on early extinguishment of debt.

The total debt composition of the 2022 Notes is as follows (in thousands):
June 30,December 31,
20212020
2.375% convertible senior notes due 2022$160,000 $160,000 
Deferred financing costs(661)(1,089)
Discount on debt(5,658)(9,263)
     Total debt, net of debt discount and deferred financing costs$153,681 $149,648 

Holders may convert their 2022 Notes prior to October 1, 2021 only if certain circumstances are met, including if during the previous calendar quarter, the last reported sales price of the Company’s common stock was greater than or equal to 130% of the conversion price then applicable for at least 20 out of the last 30 consecutive trading days of the quarter. During the quarter ended June 30, 2021, this condition for conversion was not met.

On or after October 1, 2021, until the close of business on the second scheduled trading day immediately preceding April 1, 2022, holders may convert their 2022 Notes at any time.


Upon conversion, holders will receive the principal amount of their 2022 Notes and any excess conversion value, calculated based on the per share volume-weighted average price for each of the 40 consecutive trading days during the observation period (as more fully described in the 2022 Indenture). For both the principal and excess conversion value, holders may receive cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s option. The initial conversion rate for the 2022 Notes is 14.9491 shares of common stock per $1,000 principal amount, which is equivalent to an initial conversion price of $66.89 per share of the Company’s common stock. The

conversion rate will be subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. The initial conversion price of the 2022 Notes represents a premium of approximately 37.5% to the closing sale price of $48.65 per share of the Company’s common stock on the NASDAQNasdaq Global Select Market on March 7, 2017, the date that the Company priced the private offering of the 2022 Notes.


As of SeptemberJune 30, 2017,2021, the 2022 Notes had a market price of $973 per$1,099 per $1,000 principal amount. In the event of conversion, holders would forgo all future interest payments, any unpaid accrued interest and the possibility of stock price appreciation. Upon the receipt of conversion requests, the settlement of the 2022 Notes will be paid pursuant to the terms of the 2022 Indenture. In the event that all of the 2022 Notes are converted,settled, the Company would be required to repay the $345.0remaining $160.0 million in principal value andand any conversion premium in any combination of cash and shares of its common stock (at the Company’s option).


Prior to April 1, 2020, the Company may not redeem the 2022 Notes. On or afterAs of April 1, 2020, the Company may redeem for cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s option, all or part of the 2022 Notes if the last reported sale price (as defined in the 2022 Indenture) of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading-day period ending within five trading days prior to the date on which the Company provides notice of redemption. This condition was not met during the quarter ended June 30, 2021. The redemption price will equal the sum of (i) 100% of the principal amount of the 2022 Notes being redeemed, plus (ii) accrued and unpaid interest, including additional interest, if any, to, but excluding, the redemption date. In addition, calling the 2022 Notes for redemption will constitute a “make whole“make-whole fundamental change ”change” (as defined in the 2022 Indenture) and will, in certain circumstances, increase the conversion rate applicable to the conversion of such notes if it is converted in connection with the redemption. No sinking fund is provided for the 2022 Notes.
If the Company undergoes a fundamental change, as defined in the 2022 Indenture, subject to certain conditions, holders of the 2022 Notes may require the Company to repurchase for cash all or part of their 2022 Notes at a repurchase price equal to 100% of the principal amount of the 2022 Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. In addition, if a ‘‘make-whole fundamental change’’ (as defined in the 2022 Indenture) occurs prior to April 1, 2022, the Company will, in certain circumstances, increase the conversion rate for a holder who elects to convert its notes in connection with the make-whole fundamental change.

The 2022 Notes are the Company’s general unsecured obligations that rank senior in right of payment to all of its indebtedness that is expressly subordinated in right of payment to the 2022 Notes, and equal in right of payment to the Company’s unsecured indebtedness. The 2022 Notes are also effectively junior in right of payment to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness, and are structurally subordinated to any debt or other liabilities (including trade payables) of the Company’s subsidiaries.

While the 2022 Notes are currently classified on the Company’s consolidated balance sheet at September 30, 2017 as long-term debt, the future convertibility and resulting balance sheet classification of this liability will be monitored at each quarterly reporting date and will be analyzed dependent upon market prices of the Company’s common stock during the prescribed measurement periods. In the event that the holders of the 2022 Notes have the election to convert the 2022 Notes at any time during the prescribed measurement period, the 2022 Notes would then be considered a current obligation and classified as such.

Under Accounting Standards Codification 470-20, Debt with Conversion and Other Options, an entity must separately account for the liability and equity components of convertible debt instruments (such as the 2022 Notes) that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer’s economic interest cost. The liability component of the instrument is valued in a manner that reflects the market interest rate for a similar nonconvertible instrument at the date of issuance. The initial carrying value of the liability component of $274.1 million was calculated using a 7.45% assumed borrowing rate. The equity component of $70.9 million, representing the conversion option, was determined by deducting the fair value of the liability component from the par value of the 2022 Notes and is recorded in additional paid-in capital on the consolidated balance sheet at the issuance date. That equity component is treated as a discount on the liability component of the 2022 Notes, which is amortized over the five year term of the 2022 Notes using the effective interest rate method. The equity component is not re-measured as long as it continues to meet the conditions for equity classification.
The Company allocated the total transaction costs of $11.0 million related to the issuance of the 2022 Notes to the liability and equity components of the 2022 Notes based on their relative values. Transaction costs attributable to the liability component are amortized to interest expense over the five-year term of the 2022 Notes, and transaction costs attributable to the equity component are netted with the equity component in stockholders’ equity.


The 2022 Notes do not contain any financial or operating covenants or any restrictions on the payment of dividends, the issuance of other indebtedness or the issuance or repurchase of securities by the Company. The 2022 Indenture contains customary events of default with respect to the 2022 Notes, including that upon certain events of default, 100% of the principal and accrued and unpaid interest on the 2022 Notes will automatically become due and payable.

Convertible Senior Notes Due 2019
On January 23, 2013, the Company completed a private placement of $120.0 million in aggregate principal amount of 3.25% convertible senior notes due 2019, or 2019 Notes, and entered into an indenture agreement, or 2019 Indenture, with respect to the 2019 Notes. The 2019 Notes accrue interest at a fixed rate of 3.25% per year, payable semiannually in arrears on February 1 and August 1 of each year. The 2019 Notes mature on February 1, 2019.

The total debt composition of the 2019 Notes is as follows (in thousands):
Pacira BioSciences, Inc. | Q2 2021 Form 10-Q | Page 18
 September 30, December 31,
 2017 2016
3.25% convertible senior notes due 2019$338
 $118,531
Deferred financing costs(2) (1,276)
Discount on debt(16) (8,517)
     Total debt, net of debt discount and deferred financing costs$320
 $108,738


In March 2017, the Company used part of the net proceeds from the issuance of the 2022 Notes discussed above to repurchase $117.7 million aggregate principal of the 2019 Notes in privately-negotiated transactions for an aggregate of approximately $118.2 million in cash and the issuance of an aggregate of approximately 2.5 million shares of common stock. The partial repurchase of the 2019 Notes resulted in a $3.7 million loss on early debt extinguishment. In May 2017, the Company repurchased $0.5 million aggregate principal of the 2019 Notes in a privately-negotiated transaction for an aggregate of approximately $0.5 million in cash and the issuance of an aggregate of approximately 10 thousand shares of common stock. At September 30, 2017, approximately $0.3 million of principal remains outstanding on the 2019 Notes.

On or after August 1, 2018, until the close of business on the second scheduled trading day immediately preceding February 1, 2019, holders may convert their 2019 Notes at any time. Upon conversion, holders will receive cash up to the principal amount of the 2019 Notes and, with respect to any excess conversion value, may receive cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s option. The initial conversion rate for the 2019 Notes was 40.2945 shares of common stock per $1,000 principal amount, which is equivalent to an initial conversion price of $24.82 per share of the Company’s common stock. The conversion rate will be subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest.

Holders may convert their 2019 Notes prior to August 1, 2018 only if certain circumstances are met, including if during the previous calendar quarter, the sales price of the Company’s common stock was greater than 130% of the conversion price then applicable for at least 20 out of the last 30 consecutive trading days of the quarter. During the quarter ended September 30, 2017, this condition for conversion was met. As a result, the 2019 Notes are classified as a current obligation and will be convertible until December 31, 2017. As of September 30, 2017, the 2019 Notes had a market price of $1,505 per $1,000 principal amount, compared to an estimated conversion value of $1,513 per $1,000 principal amount. In the event that the remaining 2019 Notes are converted, the Company would be required to repay the $0.3 million of principal value in cash and settle approximately $0.2 million of the conversion premium in cash, common stock or a combination of cash and shares of its common stock at the Company’s option as of September 30, 2017.

As of February 1, 2017, the Company may redeem for cash all or part of the 2019 Notes if the last reported sale price (as defined in the Indenture) of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading-day period, ending within five trading days prior to the date on which the Company provides notice of redemption. If the 2019 Notes are called for redemption, the holder has the right to submit these notes for conversion at any time prior to the redemption date, and the Company will, in addition to paying the principal and conversion premium, pay a make-whole premium equal to the sum of the present value of the remaining scheduled payments of interest that would have been made on the Notes to be converted had such notes remained outstanding from the applicable conversion date to the maturity date.


Interest Expense


The following table sets forth the total interest expense recognized in the periods presented (in(dollar amounts in thousands):

Three Months Ended 
 September 30,		 Nine Months Ended 
 September 30,		Three Months Ended
June 30,		Six Months Ended
June 30,
2017 2016 2017 20162021202020212020
Contractual interest expense$2,051
 $963
 $5,293
 $2,890
Contractual interest expense$1,713 $2,048 $3,418 $4,097 
Amortization of debt issuance costs393
 153
 984
 459
Amortization of debt issuance costs659 444 1,310 883 
Amortization of debt discount3,003
 1,022
 7,365
 3,066
Amortization of debt discount5,744 3,660 11,401 7,254 
Capitalized interest and other (Note 4)(320) (537) (700) (1,212)
Capitalized interest and other (Note 5)Capitalized interest and other (Note 5)(1,093)(696)(2,135)(757)
Total$5,127
 $1,601
 $12,942
 $5,203
 Total$7,023 $5,456 $13,994 $11,477 
       
Effective interest rate on convertible senior notes7.81% 7.22% 7.75% 7.22%Effective interest rate on convertible senior notes6.70 %7.81 %6.70 %7.81 %


ASU 2020-06 will require the Company to eliminate debt discounts along with any related future amortization. Further deferred financing costs previously allocated to the conversion features will be re-allocated to the outstanding debt, slightly increasing future annual amortization of deferred financing costs. This new accounting pronouncement has not been adopted as of June 30, 2021. For additional information regarding ASU 2020-06, see Note 2, Summary of Significant Accounting Policies.

NOTE 7—9—FINANCIAL INSTRUMENTS
 
Fair Value Measurements
 
Fair value is defined as the price that would be received to sell an asset or be paid to transfer a liability in the principal or most advantageous market in an orderly transaction. To increase consistency and comparability in fair value measurements, the FASB established a three-level hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of fair value measurements are:
 
•Level 1—1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.


•Level 2—2:Observable prices that are based on inputs not quoted on active markets, but corroborated by market data.


•Level 3—3:Unobservable inputs that are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.


The carrying value of financial instruments including cash and cash equivalents, accounts receivable and accounts payable approximate their respective fair values due to the short-term nature of these items. The fair value of the Company’s equity investment with a readily determinable fair value was calculated utilizing market quotations from a major American stock exchange (Level 1). The fair value of the Company’s convertible senior notes at September 30, 2017 are calculated utilizing market quotations from an over-the-counter trading market for these instrumentsnotes (Level 2). The carrying amount and fair value of the 2019 NotesCompany’s acquisition-related contingent consideration is reported at fair value on a recurring basis (Level 3). The carrying amount of the investments without a readily determinable fair value have not been adjusted for either an impairment or upward or downward adjustments based on observable transactions. Certain assets and 2022 Notesliabilities are measured at fair value on a non-recurring basis, including assets and liabilities acquired in a business combination, equity instruments measured at cost and long-lived assets, which would be recognized at fair value if deemed impaired or if reclassified as assets held for sale. The fair value in these instances would be determined using Level 3 inputs.

Pacira BioSciences, Inc. | Q2 2021 Form 10-Q | Page 19

At June 30, 2021, the carrying values and fair values of the following financial assets and liabilities were as follows (in thousands):
Carrying ValueFair Value Measurements Using
Level 1Level 2Level 3
Financial Assets and Financial Liabilities Measured at Fair Value on a Recurring Basis:
Financial Assets:
   Notes receivable$4,204 $0 $0 $4,204 
Financial Liabilities:
   Acquisition-related contingent consideration$17,358 $— $— $17,358 
Financial Liabilities Measured at Amortized Cost:
   2.375% convertible senior notes due 2022 (1)
$153,681 $0 $175,800 $0 
   0.750% convertible senior notes due 2025 (1)
$321,708 $0 $442,750 $0 
Financial Liabilities Carried at Historical Cost Carrying Value Fair Value Measurements Using
September 30, 2017  Level 1 Level 2 Level 3
2.375% convertible senior notes due 2022 (1)
 $272,721
 $—
 $335,513
 $—
3.25% convertible senior notes due 2019 (2)
 $320
 $—
 $509
 $—

(1) The closing price of the Company’s common stock as reported on the Nasdaq Global Select Market was $37.55$60.68 per share at Septemberon June 30, 20172021, compared to a conversion price of $66.89 per share. Currently,share for the conversion price is above2022 Notes and $71.78 per share for the stock price.2025 Notes. The maximum conversion premium that can becould have been due on the 2022 Notes isand 2025 Notes at June 30, 2021 was approximately 5.22.4 million and 5.6 million shares of the Company’s common stock, which assumesrespectively. These figures assume no increases in the conversion rate for certain corporate events.


(2)Equity and Debt Investments

At December 31, 2020, the Company held an equity investment in TELA Bio, Inc., or TELA Bio, in its condensed consolidated balance sheets in the amount of $11.6 million. During the six months ended June 30, 2021, the Company sold its investment in TELA Bio for net cash proceeds of $9.1 million. During the six months ended June 30, 2021, the Company recognized a net realized loss of $2.6 million, which has been recorded in other, net in the condensed consolidated statements of operations. The closingfair value of TELA Bio at December 31, 2020 was based on a Level 1 input.

At June 30, 2021 and December 31, 2020, the Company held an equity investment of $1.2 million in GeneQuine Biotherapeutics GmbH, or GeneQuine, a privately held biopharmaceutical company headquartered in Hamburg, Germany. This investment has no readily determinable fair value and is recorded at cost minus impairment, if any, plus or minus observable price changes of identical or similar investments. In January 2021, the Company purchased a convertible note from GeneQuine in the amount of $1.2 million. There were no adjustments recognized in the GeneQuine investments during the six months ended June 30, 2021. The Company has the right to make additional investments in both equity and debt securities of $4.7 million predicated upon GeneQuine achieving certain prespecified near-term milestones. Certain milestones have been met and the Company expects to make a payment of $2.9 million in the quarter ending September 30, 2021.

In April 2021, the Company purchased privately-held preferred shares in Coda BioTherapeutics, Inc., a preclinical stage biopharmaceutical company that is developing a gene-therapy platform to treat neurological disorders and diseases for a purchase price of $10.0 million. There were no adjustments to this investment during the three months ended June 30, 2021.

In April 2021, the Company purchased a convertible note in the amount of $3.0 million from Spine BioPharma, LLC, a preclinical stage biopharmaceutical company. There were no adjustments to this investment during the three months ended June 30, 2021.

Acquisition-related Contingent Consideration

In April 2019, the Company completed the MyoScience Acquisition pursuant to the terms of an Agreement and Plan of Merger, which provided for contingent milestone payments of up to an aggregate of $100.0 million upon the achievement of certain regulatory and commercial milestones. The Company’s obligation to make milestone payments is limited to those milestones achieved through December 31, 2023, and are to be paid within 60 days of the end of the fiscal quarter of achievement. As of June 30, 2021, the maximum potential remaining milestone payments are $48.0 million. The Company made a $7.0 million milestone payment during the six months ended June 30, 2021 for the achievement of one regulatory milestone. In the six months ended June 30, 2020, the Company made $15.0 million in cash payments for the achievement of two regulatory milestones. As of June 30, 2021 and December 31, 2020, the Company recognized contingent consideration related to the MyoScience Acquisition in the amounts of $17.4 million and $28.3 million, respectively.

Pacira BioSciences, Inc. | Q2 2021 Form 10-Q | Page 20

The Company’s contingent consideration obligations are recorded at their estimated fair values and are revalued each reporting period if and until the related contingencies are resolved. For the three and six months ended June 30, 2021, the Company recognized a $0.1 million charge and a $1.0 million gain, respectively, related to contingent consideration. For the three and six months ended June 30, 2020, the Company recognized $1.6 million of charges and $2.3 million of gains, respectively, related to contingent consideration. These amounts have been included in acquisition-related charges (gains) in the condensed consolidated statements of operations. The Company has measured the fair value of its contingent consideration using a probability-weighted discounted cash flow approach that is based on unobservable inputs and a Monte Carlo simulation. These inputs include, as applicable, estimated probabilities and the timing of achieving specified commercial and regulatory milestones, estimated forecasts of revenue and costs and the discount rate used to calculate the present value of estimated future payments. Significant changes may increase or decrease the probabilities of achieving the related commercial and regulatory events, shorten or lengthen the time required to achieve such events, or increase or decrease estimated forecasts. At June 30, 2021, the weighted average discount rate was 3.46% and the weighted average probability of success for regulatory milestones that have not yet been met was 34.7%.

The following table includes the key assumptions used in the valuation of the Company’s common stock was $37.55 per share at September 30, 2017 compared to a conversion price of $24.82 per share which, if converted, would resultcontingent consideration:
AssumptionRanges Utilized as of June 30, 2021
Discount rates3.29% to 3.63%
Probabilities of payment for regulatory milestones2% to 100%
Projected years of payment for regulatory and commercial milestones2021 to 2023

The change in a conversion premium of less than ten thousand shares of the Company’s common stock or $0.2 million of cash. The maximum conversion premium that can be due on the 2019 Notescontingent consideration recorded at fair value using Level 3 measurements is approximately ten thousand shares of the Company’s common stock, which assumes no increases in the conversion rate for certain corporate events.as follows (in thousands):
Contingent Consideration
Fair Value
Balance at December 31, 2020$28,346 
   Fair value adjustments and accretion(988)
   Payments made(7,000)
   Offset indemnification claims(3,000)
Balance at June 30, 2021$17,358 


Investments
Short-term investments consist of asset-backed securities collateralized by credit card receivables, investment grade commercial paper and corporate and government bonds with maturities greater than three months, but less than one year. Long-term investments consist of asset-backed securities collateralized by credit card receivables and corporategovernment bonds with maturities greater than one year. The netyear but less than three years. Net unrealized gains and losses (excluding credit losses, if any) from the Company’s short-term and long-term investments are reported in other comprehensive income (loss). At SeptemberJune 30, 2017,2021 and December 31, 2020, all of the Company’s short-term and long-term investments are classified as available for saleavailable-for-sale investments and are determined to be Level 2 instruments, which are measured at fair value using standard industry models with observable inputs. The fair value of the commercial paper is measured based on a standard industry model that uses the

three-month U.S. Treasury bill rate as an observable input. The fair value of the asset-backed securities and corporate bonds is principally measured or corroborated by trade data for identical issues in which related trading activity is not sufficiently frequent to be considered a Level 1 input or that of comparable securities. At September 30, 2017, the Company’stime of purchase, all short-term and long-term investments were rated Ahad an “A” or better rating by Standard & Poor’s.
 
The following summarizes the Company’s investments at SeptemberJune 30, 20172021 and December 31, 20162020 (in thousands):
Pacira BioSciences, Inc. | Q2 2021 Form 10-Q | Page 21

September 30, 2017 Debt Securities Cost Gross
Unrealized
Gains		 Gross
Unrealized
Losses		 Fair Value
(Level 2)
June 30, 2021 InvestmentsJune 30, 2021 InvestmentsCostGross
Unrealized
Gains		Gross
Unrealized
Losses		Fair Value
(Level 2)
Short-term:        Short-term:
Asset-backed securities $35,281
 $—
 $(4) $35,277
 Asset-backed securities$13,644 $4 $(1)$13,647 
Commercial paper 34,350
 5
 (1) 34,354
 Commercial paper375,175 81 0 375,256 
Corporate bonds 198,222
 35
 (24) 198,233
 Corporate bonds56,453 15 (3)56,465 
Subtotal 267,853
 40
 (29) 267,864
Long-term:        
Asset-backed securities 24,192
 —
 (16) 24,176
Corporate bonds 56,693
 —
 (62) 56,631
Subtotal 80,885
 —
 (78) 80,807
U.S. Government bonds U.S. Government bonds95,416 37 0 95,453 
Total $348,738
 $40
 $(107) $348,671
 Total$540,688 $137 $(4)$540,821 

December 31, 2016 Debt Securities Cost Gross
Unrealized
Gains		 Gross
Unrealized
Losses		 Fair Value
(Level 2)
December 31, 2020 InvestmentsDecember 31, 2020 InvestmentsCostGross
Unrealized
Gains		Gross
Unrealized
Losses		Fair Value
(Level 2)
Short-term:        Short-term:
Asset-backed securities $9,012
 $—
 $(2) $9,010
 Asset-backed securities$34,918 $98 $0 $35,016 
Commercial paper 39,530
 8
 (15) 39,523
 Commercial paper221,494 36 (18)221,512 
Corporate bonds 88,141
 11
 (32) 88,120
 Corporate bonds120,375 179 (11)120,543 
U.S. Government bonds U.S. Government bonds44,629 7 (2)44,634 
Subtotal Subtotal421,416 320 (31)421,705 
Long-term:Long-term:
U.S. Government bonds U.S. Government bonds95,429 30 0 95,459 
Subtotal Subtotal95,429 30 0 95,459 
Total $136,683
 $19
 $(49) $136,653
 Total$516,845 $350 $(31)$517,164 

Certain assets and liabilities are measured at fair value on a nonrecurring basis, including assets and liabilities acquired in a business combination and long-lived assets, which would be recognized at fair value if deemed to be impaired or if reclassified as assets heldAt June 30, 2021, there were no investments available for sale. The fair value in these instances would be determined using Level 3 inputs. At September 30, 2017, the Company had no financial instrumentssale that were measured using Level 3 inputs.materially less than their amortized cost.


The Company elects to recognize its interest receivable separate from its available-for-sale investments. At June 30, 2021 and December 31, 2020, the interest receivable recognized in prepaid expenses and other current assets was $0.9 million and $1.6 million, respectively.

Credit Risk
 
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, short-term investments,and long-term investments and accounts receivable. The Company maintains its cash and cash equivalents with high-credit quality financial institutions. Such amounts may exceed federally-insured limits.

As of SeptemberJune 30, 2017,2021, three wholesalers each accounted for over 10% of the Company’s accounts receivable, at 33%43%, 31%25% and 28%, respectively.21%. At December 31, 2016,2020, three wholesalers each accounted for over 10% of the Company’s accounts receivable, at 36%, 29%28% and 25%, respectively (for23%. For additional information regarding the Company’s wholesalers, see Note 2, Summary of Significant Accounting Policies). RevenuesEXPAREL revenues are primarily derived from major wholesalers and pharmaceutical companies that generally have significant cash resources. The Company performs ongoing credit evaluations of its customers as warranted and generally does not require collateral. Allowances for doubtfulcredit losses on the Company’s accounts receivable are maintained based on historical payment patterns, current and estimated future economic conditions, aging of accounts receivable and the Company’s actualits write-off history. As of SeptemberJune 30, 20172021 and December 31, 2016, no2020, the Company did 0t deem any allowances for doubtful accounts were deemed necessary by the Companycredit losses on its accounts receivable.receivable necessary.









NOTE 8—10—STOCK PLANS

Stock Incentive Plans

In June 2021, the Company’s stockholders approved the Amended and Restated 2011 Stock Incentive Plan, or 2011 Plan. The 2011 Plan was amended to increase the number of shares of common stock authorized for issuance as equity awards under the plan by 1,500,000 shares.


Pacira BioSciences, Inc. | Q2 2021 Form 10-Q | Page 22

Stock-Based Compensation

The Company recognized stock-based compensation expense in the periods presented as follows (in thousands):
Three Months Ended
June 30,		Six Months Ended
June 30,
2021202020212020
Cost of goods sold$1,465 $1,284 $2,917 $2,503 
Research and development1,329 1,357 2,435 2,544 
Selling, general and administrative7,667 6,581 15,219 13,023 
        Total$10,461 $9,222 $20,571 $18,070 
Stock-based compensation from:
    Stock options$6,552 $6,388 $13,048 $12,614 
    Restricted stock units3,646 2,636 7,038 5,037 
    Employee stock purchase plan263 198 485 419 
        Total$10,461 $9,222 $20,571 $18,070 

Equity Awards

The following tables contain information about the Company’s stock option and restricted stock unit, or RSU, activity for the six months ended June 30, 2021:
Stock Options Number of Options Weighted Average Exercise Price (Per Share)
 Outstanding at December 31, 20206,235,118 $45.98 
     Granted692,352 61.42 
     Exercised(479,367)33.42 
     Forfeited(194,183)45.59 
     Expired(22,116)76.75 
 Outstanding at June 30, 20216,231,804 48.56 
Restricted Stock Units Number of Units Weighted Average Grant Date Fair Value (Per Share)
Unvested at December 31, 2020957,453 $46.34 
     Granted373,045 61.70 
     Vested(289,104)44.46 
     Forfeited(77,081)47.47 
Unvested at June 30, 2021964,313 52.76 

The weighted average fair value of stock options granted during the six months ended June 30, 2021 was $27.49per share. The fair values of stock options granted were estimated using the Black-Scholes option valuation model with the following weighted average assumptions:
Black-Scholes Weighted Average AssumptionSix Months Ended June 30, 2021
Expected dividend yieldNaN
Risk-free interest rate0.83%
Expected volatility49.36%
Expected term of options5.44 years
Pacira BioSciences, Inc. | Q2 2021 Form 10-Q | Page 23
  Three Months Ended 
 September 30,		 Nine Months Ended 
 September 30,
  2017 2016 2017 2016
Cost of goods sold $1,502
 $1,627
 $4,272
 $4,786
Research and development 824
 690
 2,128
 2,598
Selling, general and administrative 6,337
 5,044
 17,007
 16,132
        Total $8,663
 $7,361
 $23,407
 $23,516
         
Stock-based compensation from:        
    Stock options (employee awards) $6,310
 $5,684
 $17,968
 $18,318
    Stock options (consultant awards) 36
 150
 118
 872
    Restricted stock units (employee awards) 2,161
 1,425
 4,772
 3,650
    Employee stock purchase plan 156
 102
 549
 676
        Total $8,663
 $7,361
 $23,407
 $23,516


Employee Stock Purchase Plan


The Company’s 2014 Employee Stock Purchase Plan, or ESPP, features two2 six-month offering periods per year, running from January 1to June 30 and July 1 to December 31. Under the ESPP, employees may elect to contribute after-tax earnings to purchase shares at 85% of the closing fair market value of the Company’s common stock on either the offering date or the purchase date, whichever is less. During the ninesix months ended SeptemberJune 30, 2017, 35,7452021, 31,230 shares were purchased and issued underthrough the ESPP.


Equity Awards

The following tables contain information about the Company’s stock option and restricted stock unit, or RSU, activity for the nine months ended September 30, 2017:
Stock Options  Number of Options  Weighted Average Exercise Price
 Outstanding at December 31, 2016 5,207,743
 $42.16
     Granted 1,009,650
 44.29
     Exercised (458,535) 11.57
     Forfeited (389,720) 49.76
     Expired (198,038) 75.49
 Outstanding at September 30, 2017 5,171,100
 43.43
Restricted Stock Units  Number of Units  Weighted Average Grant Date Fair Value
Unvested at December 31, 2016 364,403
 $52.85
     Granted 338,583
 44.22
     Vested (99,504) 54.15
     Forfeited (63,731) 51.17
Unvested at September 30, 2017 539,751
 47.38


The weighted average fair value of stock options granted during the nine months ended September 30, 2017 was $20.89 per share. The fair values of stock options granted were estimated using the Black-Scholes option valuation model with the following weighted average assumptions:
Nine Months Ended September 30, 2017
Expected dividend yieldNone
Risk free interest rate1.80%
Expected volatility51.4%
Expected term of options5.32 years

NOTE 9—11—STOCKHOLDERS’ EQUITY


Accumulated Other Comprehensive Income (Loss)
 
The following table illustrates the changes in the balances of the Company’s accumulated other comprehensive income (loss) for the periods presented (in thousands):
Six Months Ended
June 30,
20212020
Balance at beginning of period$318 $322 
     Net unrealized (loss) gain on investments, net of tax (1)
(138)1,168 
     Foreign currency translation adjustments1 0 
     Amounts reclassified from accumulated other comprehensive income (loss)0 0 
Balance at end of period$181 $1,490 
  Nine Months Ended 
 September 30,
Net unrealized gains (losses) from available for sale investments: 2017 2016
Balance at beginning of period $(30) $(52)
Other comprehensive income (loss) before reclassifications (37) 24
Amounts reclassified from accumulated other comprehensive income (loss) —
 —
Balance at end of period $(67) $(28)
(1) Net of a $49 thousand tax benefit for the six months ended June 30, 2021. There was 0 tax benefit for the six months ended June 30, 2020.


NOTE 10—12—NET INCOME (LOSS) PER SHARE


Basic net income (loss) per share is calculated by dividing the net income (loss) attributable to common shares by the weighted average number of common shares outstanding during the period. Diluted net income (loss) per common share is calculated by dividing the net income (loss) attributable to common shares by the weighted average number of common shares outstanding plus dilutive potential common shares outstanding during the period.
Potential common shares include the shares of common stock issuable upon the exercise of outstanding stock options, and warrants, the vesting of RSUs, and the purchase of shares from the ESPP (using the treasury stock method) as well asand the conversion of the excess conversion value on the 20192022 Notes and 20222025 Notes. As discussed in Note 6, 8, Debt, the Company has either the obligation or the option to pay cash for the aggregate principal amount due upon the conversion of its convertible senior notes.2022 Notes and 2025 Notes. Since it is the Company’s intent to settle the principal amount of its convertible senior notes2022 Notes and 2025 Notes in cash, the potentially dilutive effect of such notes on net income (loss) per share is computed under the treasury stock method. ASU 2020-06 will require the Company to use the if-converted method upon adoption; this new accounting pronouncement has not been adopted as of June 30, 2021. For additional information regarding ASU 2020-06, see Note 2, Summary of Significant Accounting Policies.
Potential common shares are excluded from the diluted net lossincome (loss) per share computation to the extent they would be antidilutive. Because the Company reported a net loss for the three and nine months ended SeptemberJune 30, 2017 and 2016,2020, no potentially dilutive securities have been included in the computation of diluted net loss per share for those periods.that period.
The following table sets forth the computation of basic and diluted net income (loss) per common share for the three and nine monthssix months ended SeptemberJune 30, 20172021 and 20162020 (in thousands, except per share amounts):
Pacira BioSciences, Inc. | Q2 2021 Form 10-Q | Page 24

 Three Months Ended 
 September 30,		 Nine Months Ended 
 September 30,
2017 2016 2017 2016
Numerator:       
   Net loss$(7,597) $(22,164) $(47,206) $(33,977)
Denominator:       
   Weighted average common shares outstanding40,463
 37,312
 39,540
 37,171
Net loss per share:       
   Basic and diluted net loss per common share$(0.19) $(0.59) $(1.19) $(0.91)
Three Months Ended
June 30,		Six Months Ended
June 30,
2021202020212020
Numerator:
   Net income (loss)$19,081 $(7,269)$29,450 $889 
Denominator:
   Weighted average common shares outstanding—basic44,145 42,221 43,989 42,126 
Computation of diluted securities:
   Dilutive effect of stock options1,062 0 1,284 567 
   Dilutive effect of RSUs381 0 426 168 
   Dilutive effect of conversion premium on the 2022 Notes0 0 76 0 
   Dilutive effect of ESPP purchase options4 0 4 0 
   Weighted average common shares outstanding—diluted45,592 42,221 45,779 42,861 
Net income (loss) per share:
   Basic net income (loss) per common share$0.43 $(0.17)$0.67 $0.02 
   Diluted net income (loss) per common share$0.42 $(0.17)$0.64 $0.02 

The following outstanding stock options, RSUs conversion premiums on the Company’s convertible senior notes, warrants and ESPP purchase options are antidilutive in the periods presented (in thousands):
Three Months Ended
June 30,		Six Months Ended
June 30,
2021202020212020
Weighted average number of stock options2,088 6,804 1,489 5,327 
Weighted average number of RSUs26 681 14 186 
Weighted average ESPP purchase options0 37 0 20 
      Total2,114 7,522 1,503 5,533 

 Three Months Ended 
 September 30,		 Nine Months Ended 
 September 30,
 2017 2016 2017 2016
Weighted average number of stock options5,405
 4,632
 5,203
 4,403
Weighted average number of RSUs549
 372
 426
 265
Conversion premium on the 2019 Notes5
 1,750
 546
 2,288
Weighted average number of warrants—
 —
 —
 1
Weighted average ESPP purchase options22
 20
 32
 22
      Total5,981
 6,774
 6,207
 6,979

NOTE 11—13—INCOME TAXES


Income (loss) before income taxes is as follows (in thousands):
Three Months Ended
June 30,		Six Months Ended
June 30,
2021202020212020
Income (loss) before income taxes:
   Domestic$25,863 $(6,645)$41,795 $6,400 
   Foreign(215)(666)(3,424)(5,155)
      Total income (loss) before income taxes$25,648 $(7,311)$38,371 $1,245 
 Three Months Ended 
 September 30,		 Nine Months Ended 
 September 30,
 2017 2016 2017 2016
Loss before income taxes:       
   Domestic$(6,867) $(21,780) $(45,136) $(32,806)
   Foreign(685) (348) (1,965) (1,045)
      Total loss before income taxes$(7,552) $(22,128) $(47,101) $(33,851)


TheFor the three months ended June 30, 2021 and 2020, the Company had income tax expense of $6.6 million and an income tax benefit of less than $0.1 million, respectively. For the six months ended June 30, 2021 and 2020, the Company recorded income tax expense of less$8.9 million and $0.4 million, respectively. The income tax expense for the three and six months ended June 30, 2021 represents the estimated annual effective tax rate applied to the year-to-date domestic operating results adjusted for certain discrete tax items including a benefit related to equity compensation, partially offset by a cost related to non-deductible capital losses. The income tax expense for the three and six months ended June 30, 2020 consisted primarily of state income tax.

During the year ended December 31, 2020, the Company determined that there was sufficient positive evidence to conclude that it was more likely than $0.1 million innot that domestic deferred taxes were realizable and, therefore, released the valuation allowance. In the three months ended SeptemberJune 30, 2017 and 2016. The2021, the Company recorded income tax expense of $0.1 million in the nine months ended September 30, 2017 and 2016. The tax provisions reflect current state income taxes. Due to net losses in both periods presented, no current federal income tax expense was recorded. Due to the fact that the Company’s deferred tax assets are fully offset by a valuation allowance against U.S. capital loss carryforwards since it is more likely than not the tax provisions dobenefit related to the losses are not reflect deferred tax expenses.

During the nine months ended September 30, 2017, therealizable. The Company established a deferred tax liability of $26.5 million with an offsetcontinues to additional paid-in capital resulting from the conversion feature of the 2022 Notes. The initial difference between the book value of convertible debt issued with a beneficial conversion feature and its tax basis is a temporary difference. The net effect of the deferred tax liability recorded to additional paid-in capital was zero because the Company hasmaintain a full valuation allowance againston its foreign net deferred tax assets.balances.

Pacira BioSciences, Inc. | Q2 2021 Form 10-Q | Page 25


NOTE 12—14—COMMERCIAL PARTNERS

Eurofarma Laboratories S.A.

In June 2021, the Company entered into a distribution agreement with Eurofarma Laboratories S.A., or Eurofarma, for the development and commercialization of EXPAREL in Latin America. Under the terms of the agreement, Eurofarma obtained the exclusive right to market and distribute EXPAREL in 19 countries in Latin America, including Argentina, Brazil, Colombia, and Mexico. In addition, Eurofarma is responsible for regulatory filings for EXPAREL in these countries. The Company is entitled to a $0.3 million upfront payment that is partially refundable upon certain circumstances and will receive royalties based on Eurofarma’s future commercialization of the product and is also eligible to receive milestone payments that are triggered by the achievement of certain regulatory and commercial events. The Company recognized $0.1 million of collaborative licensing and milestone revenue in its condensed consolidated statements of operations during the three and six months ended June 30, 2021.

Nuance Biotech Co. Ltd.

In June 2018, the Company entered an agreement with Nuance Biotech Co. Ltd., or Nuance, a China-based specialty pharmaceutical company, to advance the development and commercialization of EXPAREL in China. Under the terms of the agreement, the Company had granted Nuance the exclusive rights to develop and commercialize EXPAREL. In April 2021, the Company and Nuance agreed to a mutual termination of the agreement due to the lack of a viable regulatory pathway that adequately safeguards the Company’s intellectual property against the risk of a generic product. Dissolution costs of $3.0 million were included in other operating expenses in the condensed consolidated statements of operations for the six months ended June 30, 2021.

Verve Medical Products, Inc.

In July 2021, the Company entered into a licensing agreement with Verve Medical Products, Inc. for the distribution of iovera° in Canada.

NOTE 15—COMMITMENTS AND CONTINGENCIES
Leases
The Company’s leases for its research and development, manufacturing and warehouse facilities in San Diego, California expire in August 2020 and its lease for its corporate headquarters in Parsippany, New Jersey expires in March 2028.

As of September 30, 2017, aggregate annual minimum payments due under the Company’s lease obligations are as follows (in thousands): 

Year Aggregate Minimum Payments
2017 (remaining three months) $2,004
2018 8,063
2019 8,272
2020 6,389
2021 1,207
2022 through 2028 7,545
    Total $33,480

Litigation


From time to time, the Company has been and may again become involved in legal proceedings arising in the ordinary course of its business, including those related to patents, product liability and government investigations. Except as described below, the Company is not presently a party to any litigation whichlegal proceedings that it believes to be material, and is not aware of any pending or threatened litigation against the Company which it believes could have a material adverse effect on its business, operating results, financial condition or cash flows.


MyoScience Milestone Litigation

In April 2015,August 2020, the Company receivedand its subsidiary, Pacira CryoTech, Inc. (“Pacira CryoTech”), filed a subpoena fromlawsuit in the U.S. DepartmentCourt of Justice, U.S. Attorney’s OfficeChancery of the State of Delaware against Fortis Advisors LLC (“Fortis”), solely in its capacity as representative for the Districtformer securityholders of New Jersey, requiringMyoScience, and certain other defendants, seeking declaratory judgment with respect to certain terms of the production of a broad range of documents pertaining to marketing and promotional practicesmerger agreement for the MyoScience Acquisition (the “Merger Agreement”), specifically related to EXPAREL.the achievement of certain milestone payments under the Merger Agreement. In addition, the Company and Pacira CryoTech sought general, special and compensatory damages against the other defendants related to breach of fiduciary duties in connection with the purported achievement of milestone payments under the Merger Agreement, and breach of the Merger Agreement and certain other agreements with the defendants. In October 2020, Fortis filed an answer and counterclaim against the Company and Pacira CryoTech seeking to recover certain milestone payments under the Merger Agreement. The total remaining value of these milestones is $30.0 million, plus attorneys’ fees. The Company believes that the counterclaim from Fortis is without merit and intends to vigorously defend against all claims. The Company is cooperatingunable to predict the outcome of this action at this time.

Other Commitments and Contingencies

The United States Food and Drug Administration, or FDA, as a condition of EXPAREL approval, has required the Company to study EXPAREL in pediatric patients. The Company was granted a deferral for the required pediatric trials in all age groups for EXPAREL in the setting of wound infiltration and is conducting these pediatric trials as post-marketing requirements, as stated in the New Drug Application (NDA) approval letter for EXPAREL. Similarly, in Europe, the Company agreed with the government’s inquiry.European Medicines Agency, or EMA, on a Pediatric Investigation Plan, or PIP, as a prerequisite for submitting
Pacira BioSciences, Inc. | Q2 2021 Form 10-Q | Page 26

a Marketing Authorization Application (MAA) in the E.U. Despite the United Kingdom’s withdrawal from the E.U., the PIP will be applicable in the United Kingdom as well. The Company can make no assurances asis working with both the FDA and EMA to align its pediatric clinical studies wherever possible between the timetwo regions.

In December 2019, the Company announced positive results for its extended pharmacokinetic and safety study for local analgesia in children aged 6 to 17 undergoing cardiovascular or resourcesspine surgeries. Those positive results provided the foundation for a supplemental New Drug Application, or sNDA, and in March 2021, the Company announced that will need to be devoted to this inquiry or its final outcome, or the impact, if any, of this inquiry or any proceedings on its business, financial condition, results of operations and cash flows.

NOTE 13—COMMERCIAL PARTNERS AND OTHER AGREEMENTS

DepoCyt(e) Discontinuation

In June 2017,FDA approved the Company’s board of directors approved a decision to discontinue all future production of DepoCyt® (U.S. and Canada) and DepoCyte® (European Union) due to persistent technical issues specific to the DepoCyt(e) manufacturing process. DepoCyt(e) accounted for 2.6%submission of the Company’s 2016 total full-year revenues of $276.4 million. As of June 30, 2017, the Company had ceased all production of DepoCyt(e).

In the three months ended September 30, 2017, the Company recorded a non-recurring charge of $0.3 million related to the discontinuation of its DepoCyt(e) manufacturing activities, including $0.1 million for DepoCyt(e) related inventory, which is recorded in cost of goods sold, and $0.2 million for asset retirement obligations and other estimated exit costs.

In the nine months ended September 30, 2017, the Company recorded a non-recurring charge of $5.3 million related to the discontinuation of its DepoCyt(e) manufacturing activities, including $0.6 million for DepoCyt(e) related inventory, which is recorded in cost of goods sold, and $4.7 million for the remaining lease costs less an estimate of potential sublease income for the facility where DepoCyt(e) was manufactured, the write-off of property, plant and equipment, employee severance, asset retirement obligations and other estimated exit costs.

As of September 30, 2017, a summarysNDA seeking expansion of the Company’s costsEXPAREL label to include use in patients 6 years of age and reserves relatedolder for single-dose infiltration to produce postsurgical local analgesia. The Company is working with the DepoCyt(e) discontinuation areFDA to finalize a regulatory pathway to expand the EXPAREL label for patients less than 6 years of age, as follows (in thousands):well as the administration of EXPAREL as a nerve block in the pediatric setting.

 Severance and Related Costs Lease Costs Write-Off of Property, Plant & Equipment and Inventory Asset Retirement Obligations and Other Discontinuation Costs Total
Balance at December 31, 2016$—
 $—
 $—
 $—
 $—
Charges incurred309
 1,902
 2,470
 653
 5,334
Cash payments made(178) (437) —
 (330) (945)
Disposal of property, plant &
equipment and inventory		—
 —
 (2,470) —
 (2,470)
Adjustments—
 —
 —
 —
 —
Balance at September 30, 2017$131
 $1,465
 $—
 $323
 $1,919


The Company may be requiredhas communicated to make additional payments or incur additional costs relatinga select number of employees a commitment to the DepoCyt(e) discontinuation which could be material to the Company’s results of operations and/or cash flows in a given period.
DePuy Synthes Sales, Inc.
In January 2017, the Company announced the initiation of a Co-Promotion Agreement, or the Agreement, with DePuy Synthes Sales, Inc., or DePuy Synthes, part of the Johnson & Johnson family of companies, to market and promote the use of EXPAREL for orthopedic proceduresprovide one-time termination benefits in the United States. DePuy Synthes field representatives, specializing in joint reconstruction, spine, sports medicine and trauma, will collaborate with, and supplement, the Company’s field teams by expanding the reach and frequency of EXPAREL education in the hospital surgical suite and ambulatory surgery center settings.
Under the five-year arrangement, DePuy Synthes will be the exclusive third-party distributor during the term of the Agreement to promote and sell EXPAREL for operating room use for orthopedic and spine surgeries (including knee, hip, shoulder, sports and trauma surgeries) in the United States. DePuy Synthes is entitled toevent that a tiered commission ranging from low single-digits to double-digits on sales of EXPAREL under the Agreement, subject to conditions, limitations and adjustments. The initial term of the Agreement commenced on January 24, 2017 and ends on December 31, 2021, with the option to extend the Agreement in additional 12 month increments upon mutual agreement of the parties, subject to certain conditions.
facility closure occurs. The Company and DePuy Synthes have mutual termination rights underwill recognize these expenses ratably over the Agreement, subject to certain terms, conditions and advance notice requirements, provided that the Company or DePuy Synthes generally may not terminate the Agreement, without cause, within three years of the effective date of the Agreement.remaining service period required. The Company also has additional unilateral termination rights under certain circumstances. The Agreement contains customary representations, warranties, covenants and confidentiality provisions, and also contains mutual indemnification obligations. DePuy Synthes is also subjectcurrently estimates the cost of these one-time benefits to certain obligations and restrictions, including required compliance with certain laws and regulations and the Company’s policies, in connection with fulfilling their obligations under the Agreement.be approximately $1.1 million.

Pacira BioSciences, Inc. | Q2 2021 Form 10-Q | Page 27
CrossLink BioScience, LLC

In October 2013, the Company and CrossLink BioScience, LLC, or CrossLink, commenced a five-year arrangement for the promotion and sale of EXPAREL, pursuant to the terms of a Master Distributor Agreement (as amended, the “CrossLink Agreement”). On June 30, 2016, the Company provided notice to CrossLink electing to terminate the CrossLink Agreement effective as of September 30, 2016. In connection with the termination of the CrossLink Agreement, a termination fee based on a percentage of earned performance-based fees is due to CrossLink. This fee of $7.1 million is payable to CrossLink quarterly over two years beginning in the fourth quarter of 2016, and was recorded in selling, general and administrative expense in the condensed consolidated statements of operations for the three and nine month periods ended September 30, 2016. At September 30, 2017, $2.4 million is classified in accrued expenses.

NOTE 14—SUBSEQUENT EVENTS

TELA Bio

In October 2017, the Company made an initial cash investment of $15 million in TELA Bio, Inc., or TELA Bio, a privately-held surgical reconstruction company that markets its proprietary OviTexTM portfolio of products for ventral hernia repair and abdominal wall reconstruction. The Company may be required to invest up to an additional $10 million in TELA Bio under certain performance scenarios or upon its own election.

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America (GAAP) and in accordance with the rules and regulations of the United States Securities and Exchange Commission, or SEC.
This Quarterly Report on Form 10-Q and certain other communications made by us contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, including statements about our growth and future operating results discovery and trends, development of products, strategic alliances and intellectual property. For this purpose, any statement that is not a statement of historical fact should be considered a forward-looking statement. We often use the words “believe,” “anticipate,” “plan,” “estimate,” “expect,” “intend,” “may,” “will,” “would,” “could,” “can” and similar expressions to help identify forward-looking statements. We cannot assure you that our estimates, assumptions and expectations will prove to have been correct. These forward-looking statements include, among others, statements about: the impact of the COVID-19 pandemic on elective surgeries, our manufacturing and supply chain, global and U.S. economic conditions, and our business, including our revenues, financial condition and results of operations; the success of our sales and manufacturing efforts in support of the commercialization of EXPAREL®(bupivacaine liposome injectable suspension) and our other products;iovera°®; the rate and degree of market acceptance of EXPAREL;EXPAREL and iovera°; the size and growth of the potential markets for EXPAREL and iovera° and our ability to serve those markets; our plans to expand the use of EXPAREL and iovera° to additional indications and opportunities, and the timing and success of any related clinical trials;trials for EXPAREL and iovera°; the related timing and success of United States Food and Drug Administration, or FDA, supplemental New Drug Applications, or sNDA; the outcome of the U.S. Department of Justice, or DOJ, inquiry; the Company’ssNDAs; our plans to evaluate, develop and pursue additional DepoFoam®-based product candidates; the approval of the commercialization of our products in other jurisdictions; clinical trials in support of an existing or potential DepoFoam-based product; our commercialization and marketing capabilities and our ability to successfully construct additional EXPAREL manufacturing suites in San Diego, California; the outcome of any litigation; the ability of the Company and Patheon UK Limited, or Patheon, to successfully integrate any future acquisitions into our existing business; the recoverability of our deferred tax assets and timely construct dedicated EXPAREL manufacturing suites.assumptions associated with contingent consideration payments. Important factors could cause our actual results to differ materially from those indicated or implied by forward-looking statements. We undertake no intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, and readers should not rely on the forward-looking statements as representing our views as of any date subsequent to the date of the filing of this Quarterly Report on Form 10-Q.
These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from those expressed or implied by these statements. These factors include items mentioned herein and the matters discussed and referenced in Part I-Item 1A. “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 20162020 and in other reports as filed with the Securities and Exchange Commission, or SEC.
Unless the context requires otherwise, references to “Pacira,” “we,” the “Company,” “us” and “our” in this Quarterly Report on Form 10-Q refer to Pacira Pharmaceuticals,BioSciences, Inc. and its subsidiaries. In addition, references

Overview
Pacira is the industry leader in this Quarterly Report on Form 10-Qour commitment to DepoCyt(e) mean DepoCyt® when discussednon-opioid pain management and regenerative health solutions to improve patients’ journeys along the neural pain pathway. EXPAREL, our long-acting, local analgesic was commercially launched in the contextApril 2012. EXPAREL utilizes DepoFoam, a unique and proprietary delivery technology that encapsulates drugs without altering their molecular structure and releases them over a desired period of time. EXPAREL is indicated in patients 6 years of age and older for single-dose infiltration to produce postsurgical local analgesia, and in adults as an interscalene brachial plexus nerve block to produce postsurgical regional analgesia in the United States, or U.S., and Canada and DepoCyte® when discussed in the context of the European Union, or E.U.

Overview
We are, as a specialty pharmaceutical company committedbrachial plexus block and femoral nerve block for treatment of post-operative pain in adults, and as a field block for treatment of somatic post-operative pain from small- to driving innovationmedium-sized surgical wounds in postsurgical pain management with opioid-sparing strategies. Our product pipeline is based on our proprietary DepoFoam extended release drug delivery technology, for use primarilyadults. Since its initial approval in hospitals and ambulatory surgery centers. We are currently commercializing EXPAREL, an amide-type local anesthetic indicated2011 for single-dose administration into the surgical site to produce postsurgical analgesia. EXPAREL was approved by the FDA in October 2011 and commercially launched in April 2012.infiltration, nearly nine million patients have been treated with EXPAREL. We drop-ship EXPAREL directly to the end-user based on orders placed to wholesalers or directly to us, and we havethere is no product held by wholesalers. Our earlier-stage pipeline includes two DepoFoam-based product candidates, DepoTranexamic Acid and DepoMeloxicam.In April 2019, we acquired iovera°, a handheld cryoanalgesia device used to deliver a precise, controlled application of cold temperature only to targeted nerves, which we sell directly to end users. The iovera° system is highly complementary to EXPAREL as a non-opioid therapy that alleviates pain by disrupting pain signals being transmitted to the brain from the site of injury or surgery.

Pacira BioSciences, Inc. | Q2 2021 Form 10-Q | Page 28

We expect to continue to incur significant expenses as we pursue the expanded use of EXPAREL and iovera° in additional indications and opportunities; advanceprocedures; progress our earlier-stage product candidate pipeline; seek FDA approvalsadvance regulatory activities for ourEXPAREL, iovera° and other product candidates; develop ourinvest in sales and marketing capabilities to prepareresources for their commercial launch;EXPAREL and iovera°; expand and enhance our manufacturing capacity for EXPAREL and iovera°; and invest in products, businesses and technologies.

Novel Coronavirus (COVID-19) Pandemic

Our net product sales were negatively impacted by the COVID-19 pandemic in 2020 due to the significant postponement or suspension in the scheduling of elective surgical procedures resulting from public health guidance and government directives. Elective surgery restrictions began to lift on a state-by-state basis in April 2020, allowing our net product sales to return to year-over-year growth in June 2020. However, while many restrictions have since eased and COVID-19 vaccines become more widely available and administered to the general public, we still do not know how long it will take the elective surgery market to normalize, or if restrictions on elective procedures will recur due to COVID-19 variant strains or otherwise. Our manufacturing sites are operational and have implemented new safety protocols and guidelines as recommended by federal, state and local governments. To date, there have been no material impacts to our supply chain. With the reopening of all 50 states, the ability of our sales representatives to renew their in-person engagement efforts, in conjunction with remote efforts, has occurred across all sites of care, with more focus on physician offices and ambulatory surgery centers. Our offices have re-opened with strict safety and hygiene guidelines implemented, and we continue to support regulatoryremote working as appropriate.

The COVID-19 situation remains dynamic and legal matters.is subject to rapid and possibly material changes due to variant strains or otherwise. It is not clear what the potential effects may be to our business going forward, including the impact on our revenues, results of operations or financial condition, particularly if pandemic conditions exacerbate over an extended period of time, including if states return to placing restrictions on elective surgical procedures or if patients are still reluctant to schedule an elective surgical procedure regardless of whether or not they have received a COVID-19 vaccine. Additional negative impacts may also arise from the COVID-19 pandemic that we are unable to foresee. The nature and extent of such impacts will depend on future developments, which are highly uncertain and cannot be predicted, including the availability and efficacy of COVID-19 vaccines, the willingness of the general public to get vaccinated and the impact of variant strains, such as the Delta variant, on the elective surgery market.

We will continue to actively monitor the situation and implement measures recommended by federal, state or local authorities, or that we determine are in the best interests of our patients, employees, partners, suppliers, shareholders and stakeholders. For a description of risks facing the Company that relate to the COVID-19 pandemic or any other future pandemic, epidemic or outbreak of contagious disease, see our Annual Report on Form 10-K for the year ended December 31, 2020.

Recent Highlights

• In April 2021, we purchased privately-held preferred shares in Coda BioTherapeutics, Inc., or Coda, a preclinical stage biopharmaceutical company that is developing a gene-therapy platform to treat neurological disorders and Developmentsdiseases, for a purchase price of $10.0 million.
•
In October 2017, we made an initial cash investment of $15 million in TELA Bio, Inc., or TELA Bio, a privately-held surgical reconstruction company that markets its proprietary OviTexTM portfolio of products for ventral hernia repair and abdominal wall reconstruction. OviTex Reinforced BioScaffolds (RBSs) are intended for use as a surgical mesh to reinforce and/or repair soft tissue where weakness exists. We may be required to invest up to an additional $10 million in TELA Bio under certain performance scenarios or at our own election.

•In October 2017,April 2021, we made a cash investment of $3.0 million in a convertible note agreement with Spine BioPharma, LLC, or Spine BioPharma, a preclinical stage biopharmaceutical company developing a non-opioid solution to relieve pain and restore functionality. The investment will support the advancement of Spine BioPharma’s lead candidate, Remedisc™, a first-in-class therapeutic for the treatment of degenerative disc disease. We will make an additional $7.0 million investment if and when Spine BioPharma achieves certain prespecified milestones.

• In June 2021, the United States Patent and Trademark Office (USPTO) issued U.S. Patent No. 11,033,495 related to EXPAREL. The patent, “Manufacturing of Bupivacaine Multivesicular Liposomes,” claims composition of EXPAREL prepared by an improved manufacturing process and will have an expiration date of January 22, 2041. In July 2021, we submitted this patent for listing in the FDA’s “Approved Drug Products with Therapeutic Equivalence Evaluations” (the Orange Book) after the FDA approved this enhanced manufacturing process for EXPAREL, which is housed at a custom facility in Swindon, England under a partnership with Thermo Fisher Scientific Pharma Services, or Thermo Fisher. We expect to start selling commercial product manufactured in this 200-liter suite later this year.

• In June 2021, we entered into a distribution agreement with Eurofarma Laboratories S.A., or Eurofarma, for the development and commercialization of EXPAREL in Latin America. Under the terms of the agreement, Eurofarma obtained the exclusive right to market and distribute EXPAREL in 19 countries in Latin America, including Argentina,
Pacira BioSciences, Inc. | Q2 2021 Form 10-Q | Page 29

Brazil, Colombia, and Mexico. In addition, Eurofarma will be responsible for regulatory filings for EXPAREL in these countries.

• In July 2021, we announced new data on the ability of the iovera° system to reduce pain, opioid consumption and length of stay, or LOS, following total knee arthroplasty, or TKA. The findings show that patients receiving preoperative iovera° as part of a multimodal pain management protocol reduced both opioid intake and in-hospital pain while optimizing outcomes during the 6-week recovery period after TKA. The results of the study, A Multimodal Pain Management Protocol Including Preoperative Cryoneurolysis for Total Knee Arthroplasty to Reduce Pain, Opioid Consumption, and Length of Stay, were published in Arthroplasty Today. See below for more details.

EXPAREL

In the U.S., EXPAREL is currently indicated in patients 6 years of age and older for single-dose infiltration to produce postsurgical local analgesia, and in adults as an interscalene brachial plexus nerve block to produce postsurgical regional analgesia. Safety and efficacy have not been established in other nerve blocks. In the E.U., EXPAREL is indicated as a brachial plexus block and femoral nerve block for treatment of post-operative pain in adults, and as a field block for treatment of somatic post-operative pain from small- to medium-sized surgical wounds in adults.

Label Expansion

Pediatrics

In March 2021, the FDA accepted the resubmission ofapproved our sNDA seeking expansion ofto expand the EXPAREL label to include administration via nerve blockuse in patients 6 years of age and older for prolonged regionalsingle-dose infiltration to produce postsurgical local analgesia. The expected action

date byWith this approval, EXPAREL is the first and only FDA underapproved long-acting local analgesic for the Prescription Drug User Fee Act, or PDUFA, is April 6, 2018.pediatric population as young as age six. The sNDA iswas based on the positive data from athe Phase 3 PLAY study of EXPAREL infiltration in femoral nerve blockpediatric patients undergoing spinal or cardiac surgeries. Overall findings were consistent with the pharmacokinetic and safety profiles for total knee arthroplasty, or TKA, (lower extremity)adult patients with no safety concerns identified at a dose of 4 mg/kg. The PLAY study enrolled 98 patients to evaluate safety and a Phase 3 studythe pharmacokinetics of EXPAREL in brachial plexus block for shoulder surgeries (upper extremity). It also includes safetytwo patient groups: patients aged 12 to less than 17 years and pharmacokinetic data through 120 hours.
In September 2017, we announced a collaboration with Aetna, onepatients aged 6 to less than 12 years. Per FDA guidance, the primary objectives of the nation’s leading diversified health care benefits companies,PLAY study were to evaluate the pharmacokinetics and safety of EXPAREL.

We are also working with the support of the American Association of Oral and Maxillofacial Surgeons, onFDA to finalize a national program aimed at reducing the number of opioid tablets dispensedregulatory pathway to patients undergoing impacted third molar (wisdom tooth) extractions by at least 50 percent through the utilization of EXPAREL to provide prolonged non-opioid postsurgical pain control. Aetna will reimburse oral surgeons enrolled in the program for their use of EXPAREL in impacted third molar extraction cases performed once the surgeons have completed training on use of the product.
EXPAREL
Expanded Indication

The FDA is currently reviewing our sNDA seeking an expansion ofexpand the EXPAREL label to includefor patients less than 6 years of age, as well as the administration viaof EXPAREL as a nerve block for prolonged regional analgesia. We believe that this new indication would a) present an alternative long-term method of pain controlin the pediatric setting, and are working with a single injection, replacing the costly and cumbersome standard of care requiring a perineural catheter, drug reservoir and pump needed to continuously deliver bupivacaine and b) allow us to further leverage our manufacturing and commercial infrastructure. The expected action date byboth the FDA is April 6, 2018.and the European Medicines Agency, or EMA, to align our pediatric clinical studies wherever possible between the two regions.
The sNDA is based on the positive data from a Phase 3 study of EXPAREL
Nerve Block in femoral nerve block for TKA (lower extremity) and a Phase 3 study of EXPAREL in brachial plexus block for shoulder surgeries (upper extremity). It also includes safety and pharmacokinetic data through 120 hours. Eight Pacira-sponsored studies support this expanded indication. In total, 570 subjects received a dose of EXPAREL ranging from 2 mg to 310 mg. In addition, the sNDA includes data from two investigator-initiated studies that provide additional experience in smaller, peripheral nerve block settings.Lower Extremity Surgery
Phase 4 Trials


We are investing in a series of blinded, randomized Phase 4 trials in key surgical procedures with EXPAREL as the foundation of a multimodal analgesic regimen. Our Phase 4 trials are also designed to support clinician education on procedure-specific best-practice care.
In July 2017,recently announced topline results from our Phase 43 study for nerve block in lower extremity surgeries (known as “STRIDE”) that compared an EXPAREL nerve block in lower extremity surgeries to a bupivacaine lower extremity nerve block in patients undergoing foot and ankle surgeries. EXPAREL administered as combined sciatic (in popliteal fossa) and saphenous (in adductor canal) nerve blocks did not demonstrate statistical significance for the study’s primary endpoint of reduction in cumulative pain scores from 0 to 96 hours as measured by the area under the curve versus bupivacaine HCl. EXPAREL did achieve statistical significance versus bupivacaine HCl for secondary endpoints of reducing cumulative pain scores from 24 to 96 hours post-surgery (p<0.001) and total opioid consumption from 24 to 96 hours post-surgery (p<0.01). EXPAREL also achieved statistical significance versus bupivacaine HCl for area under the curve cumulative pain scores from 12 to 96 hours (p<0.02). The EXPAREL group achieved and maintained mild pain at 36 hours (Least Square Mean NRS 3.0) while bupivacaine HCl was in the moderate range (Least Square Mean NRS 4.7).

There were no clinically relevant safety issues observed in STRIDE, specifically no reports of falls and no serious adverse events observed in the study. The results from STRIDE gave us clarity on the follow-up studies to conduct for an eventual sNDA filing. We expect to initiate those studies before the end of this year.

EXPAREL Global Expansion

We have defined a global expansion strategy for EXPAREL that we believe provides us with the opportunity to increase our revenue and leverage our fixed cost infrastructure. In the E.U., EXPAREL was granted marketing authorization in November 2020. We are planning to launch EXPAREL together with iovera° in targeted European countries during the fourth quarter of 2021. We do not intend to pursue a partnership to commercialize EXPAREL in Europe.
Pacira BioSciences, Inc. | Q2 2021 Form 10-Q | Page 30


The European Commission decision is applicable to all 27 E.U. member states plus the United Kingdom, Iceland, Norway and Liechtenstein. Despite the United Kingdom’s withdrawal from the E.U., this approval is recognized by the United Kingdom Medicines and Healthcare products Regulatory Agency.

In June 2021, we entered into a distribution agreement with Eurofarma for the development and commercialization of EXPAREL in Latin America. Under the terms of the agreement, Eurofarma obtained the exclusive right to market and distribute EXPAREL in 19 countries in Latin America, including Argentina, Brazil, Colombia, and Mexico. In addition, Eurofarma will be responsible for regulatory filings for EXPAREL in these countries. We will receive royalties based on Eurofarma’s future commercialization of the product and are also eligible to receive milestone payments that are triggered by the achievement of certain regulatory and commercial events.

In China, we had an agreement with Nuance Biotech Co. Ltd., or Nuance, a China-based specialty pharmaceutical company, for the development and commercialization of EXPAREL. In April 2021, we and Nuance agreed to a mutual termination of the agreement due to the lack of a viable regulatory pathway that adequately safeguarded our intellectual property against the risk of a generic product. For more information, refer to Note 14, Commercial Partners, to our condensed consolidated financial statements included herein.

We are currently not pursuing regulatory approval for EXPAREL in Canada based on our labeling discussions with Health Canada.

iovera°

The iovera° System

The iovera° system is highly complementary to EXPAREL as a novel cold technology that administers a non-pharmacological nerve block to safely and immediately deliver long-term, non-opioid pain control. The iovera° handheld device is 510(k) cleared in the U.S., has a CE mark in the E.U. and is cleared for marketing in Canada for the blocking of pain. It is also indicated for the relief of pain and symptoms associated with arthritis of the knee for up to 90 days.

Our commercial strategy for iovera° focuses on two broad market segments. First, iovera° and EXPAREL for opioid-sparing pain management for the TKA patient, with iovera° being administered before surgery and EXPAREL administered during surgery. We are enrolling patients undergoing totalinto our PREPARE study that will evaluate iovera° and EXPAREL for TKA. As many as 30% of patients with presurgical osteoarthritis of the knee replacementuse prescription opioids. With iovera°, our goal is to provide patients with several months of non-opioid pain control to allow them to prepare for surgery with an appropriate regimen. We also believe that EXPAREL plus iovera° for postsurgical pain control could support rapid functional recovery. In parallel, we are launching an Innovation in Genicular Outcomes Registry (“IGOR”) to capture real-world evidence for use in TKA procedures with leading academic and orthopedic centers of excellence.

The second target market is iovera° for osteoarthritis patients who have failed conservative treatments, such as non-steroidal anti-inflammatory drugs or viscosupplementation, and are seeking drug-free, opioid-free, surgery-free pain management for several months. We are targeting patients who are seeking an active lifestyle, as well as patients who desire to delay surgery for personal or medical reasons.

We are also encouraged by usage of iovera° in other areas. Key opinion leaders in orthopedics, spine and anesthesia are interested in replacing heat-based radiofrequency ablation with iovera° cold therapy. There is interest across a wide range of treatment opportunities such as low back pain, spine, spasticity and rib fracture. We intend to use investigator-initiated studies and grants to develop data across these areas.

Total Knee Arthroplasty

In July 2021, we announced new data on the ability of the iovera° system to reduce pain, opioid consumption and LOS following TKA. The findings show that patients receiving preoperative iovera° as part of a multimodal pain management protocol reduced both opioid intake and in-hospital pain while optimizing outcomes during the 6-week recovery period after TKA. The results of the study, A Multimodal Pain Management Protocol Including Preoperative Cryoneurolysis for Total Knee Arthroplasty to Reduce Pain, Opioid Consumption, and Length of Stay, were published in Arthroplasty Today.

This retrospective analysis utilized data from patients who underwent TKA by a single surgeon at one center. Patients who received iovera° before TKA were compared with a historical control group including patients who underwent TKA
Pacira BioSciences, Inc. | Q2 2021 Form 10-Q | Page 31

without iovera°. Both groups received a similar perioperative multimodal pain management protocol. The Journalprimary outcome was opioid intake at various time points from hospital stay to 6 weeks after discharge. Additional outcomes included pain, LOS, and range of Arthroplasty.motion. The study population included a total of 267 patients, with 169 patients in the iovera° group and 98 patients in the control group.

Results showed that patients undergoing TKA who received iovera° compared EXPAREL admixedto those who did not demonstrated a significant:

•Decrease in daily opioid consumption, as the iovera° group had 51% lower daily morphine milligram equivalents (MMEs) than the control group (47 vs 97 MMEs; ratio estimate, 0.49 [95% confidence interval (CI), 0.43-0.56]; P<.0001)

•Decrease in mean and maximum pain scores (P<.0001)

•Decrease in average hospital LOS (P<0.0001), with bupivacaine HCl versus bupivacaine HCl alone. EXPAREL achieved statistical significance17% of patients having an overall LOS of 2 or more days, compared with 99% of patients in the control group (P<.0001)

•Greater range of motion, as indicated by greater flexion degree at discharge (P<.0001)

Results of this study are consistent with findings from clinical trial and retrospective data that indicate a multimodal pain management protocol with preoperative iovera° treatment of the superficial genicular nerves reduced opioid consumption without increasing pain for its co-primary endpointsup to 12 weeks after TKA compared with a standard multimodal pain management protocol.

Osteoarthritis of opioidthe Knee

There is a growing body of clinical data demonstrating success with the iovera° treatment for osteoarthritis of the knee. There are 14 million individuals in the U.S. who have symptomatic knee osteoarthritis, and nearly two million are under the age of 45. Surgical intervention is typically a last resort for patients suffering from osteoarthritis of the knee. In one study, the majority of the patients suffering from osteoarthritis of the knee experienced pain relief beyond 150 days after being treated with iovera°.

Preliminary findings demonstrated reductions in opioids, including:

•The daily morphine equivalent was significantly lower at 72 hours (p<0.05), 6 weeks (p<0.05) and 12 weeks (p<0.05), with an overall 35 percent reduction and postsurgical pain.in daily morphine equivalents across the 12-week postoperative period in the iovera° treatment group.

•Patients who were administered iovera° were far less likely to take opioids six weeks after surgery. The EXPARELnumber of patients taking opioids six weeks after TKA in the control group was three times the number of patients taking opioids in the cryoanalgesia group (14% vs. 44%, p<0.01).

•Patients in the iovera° group demonstrated a 78 percent reduction in opioid consumption from zero to 48 hours after surgery and astatistically significant reduction in pain scores from 12 to 48 hours after surgery. EXPAREL also achieved statistical significance for the study’s key secondary endpoints related to opioid reduction. Patients in the EXPAREL arm required 77.6 percent fewer opioids throughtheir baseline pain scores at 72 hours than those(p<0.05) and at 12 weeks (p<0.05).

We believe these data validate iovera° as a clinically meaningful non-opioid alternative for patients undergoing TKA, and that iovera° offers the opportunity to provide patients with non-opioid pain control well in the bupivacaine arm with 10 percent remaining opioid-freeadvance of any necessary surgical intervention through 48 and 72 hours (compared to zero patients in the bupivacaine arm; P<0.01). Time to first opioid rescue was analyzed using logistic regression and Kaplan-Meier methods, with a significant difference between the EXPAREL group versus the bupivacaine group; P=0.0230.
Product Pipeline

DepoFoam is used to extend the release of active drug substances. With this technology, we are currently developing two new DepoFoam-based product candidates—DepoTranexamic Acid, or DepoTXA, an antifibrinolytic, and DepoMeloxicam, or DepoMLX, a non-steroidal anti-inflammatory drug, or NSAID. Completion of clinical trials may take several years or more. The length of time generally varies according to the type, complexity, novelty and intended use of a product candidate. We are also evaluating other potential DepoFoam compounds and formulation work is underway for a number of pipeline candidates.key product attributes:


DepoTranexamic Acid•iovera° is safe and effective with immediate pain relief that can last for months as the nerve regenerates over time;


Tranexamic Acid,•iovera° is repeatable;

•iovera° does not risk damage to the surrounding tissue;

•iovera° is a convenient handheld device with a single-use procedure-specific smart tip; and

•iovera° can be delivered precisely using ultrasound guidance or TXA, is currently used off-label as a systemic injection or as a topical application, and is used to treat or prevent excessive blood loss during surgery by preventing the breakdownan anatomical landmark.

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We believe DepoTXA, a long-acting local antifibrinolytic agent combining immediatethe combination of iovera° and extended release TXA, could addressEXPAREL will become the unmet, increasing need for rapid ambulationpreferred procedural solution that will empower patients and discharge intheir healthcare providers to take control of the ambulatory surgery environment for joint

surgery (primarily orthopedic surgery, including spine and trauma procedures and cardiothoracic surgery). Designed for single-dose local administration into the surgical site, DepoTXA could provide enhanced hemostabilization and improved safety and tolerability for patients over the systemic use of TXA by reducing bleeding,patients’ osteoarthritis journey, while minimizing the need for blood transfusions, swelling, soft tissue hematomasopioids. We will be investing in key clinical studies to demonstrate the synergy of iovera° and EXPAREL to manage pain while reducing or eliminating opioids.

iovera° Global Expansion

In July 2021, we entered into a licensing agreement with Verve Medical Products, Inc. for the needdistribution of iovera° in Canada.

Product Portfolio and Product Candidate Pipeline

Our current product portfolio and product candidate pipeline, along with anticipated milestones over the next 12 to 18 months, are summarized in the table below:

pcrx-20210630_g2.jpg
* Study designs have not been finalized for post-operative drains, thereby increasing vigorinfiltration in pediatric patients while decreasing overall costsaged 0 to 6 years old or for nerve block in pediatric patients.
- TAP block is a transversus abdominis plane field block
- NOCITA® is a registered trademark of Aratana Therapeutics, Inc., a wholly owned subsidiary of Elanco Animal Health, Inc.

Pacira Innovation and Training Center of Tampa

In October 2020, we announced the grand opening of the Pacira Innovation and Training center of Tampa (the “PITT”). We designed this facility to help advance clinician understanding of the latest local, regional and field block approaches for managing pain. The PITT provides an unparalleled training environment for healthcare providers working to reduce or eliminate patient exposure to opioids. The PITT supports a full range of educational events to advance clinician understanding of the latest local, regional, and field block approaches for managing pain and reducing or eliminating exposure to opioids.
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The PITT consists of approximately 10,000 square-feet of fully adaptable space and is equipped with state-of-the-art technology and audio/visual capabilities and features several distinct training spaces including a simulation lab equipped with seven ultrasound scanning stations; a lecture hall featuring a 4½-foot tall by 24-foot wide liquid crystal display video wall to support live, virtual and even global presentations; and a green-screen broadcast studio designed to livestream content with single or multiple hosts.

In addition to our EXPAREL programs, we are hosting ongoing workshops to train new users on best practice techniques for iovera° administration at the PITT. Led by healthcare professionals, these labs include didactic lectures and hands-on trainings including live model nerve scanning and identification using ultrasound and peripheral nerve stimulation.

At no fee to the hospital system.organization, the PITT also serves as a venue for national anesthesia provider organizations to host their own workshops and training sessions to educate healthcare providers.


DepoTXA is currently in Phase 2 clinical development.

DepoMeloxicam

Our preclinical product candidate, DepoMLX, is a long-acting NSAID, designed to treat moderate to severe acute postsurgical pain as part of a non-opioid multimodal regimen. A product designed for single-dose local administration such as DepoMLX could provide a longer duration of pain relief at a significantly lower concentration of systemic NSAIDs, which are known to cause dose-dependent gastrointestinal side effects. Meloxicam, which is currently available as an oral formulation, is a commonly used NSAID on the market today. We expect our customer audience for this drug to be similar to the target for EXPAREL infiltration.
We expect to submit an Investigational New Drug application for DepoMLX in 2017 and subsequently initiate a Phase 1 clinical trial.
Results of Operations
 
Comparison of the Three and NineSix Months Ended SeptemberJune 30, 20172021 and 20162020
 
Revenues


Our netNet product sales includeconsist of sales of EXPAREL in the United States and DepoCyt(e) in the United States and Europe through June 2017. We also earn royalties on sales by commercial partners ofU.S., our bupivacaine liposome injectable suspension productto Aratana Therapeutics, Inc., or Aratana, for veterinary use in animal health indicationsthe U.S. and DepoCyt(e)sales of iovera° in the U.S. Licensing, milestone and license fees and milestone paymentsroyalty revenues are from third parties.our collaborative licensing agreements.
 
The following table provides information regarding our revenues during the periods indicated, including percent changes (dollars(dollar amounts in thousands):
 Three Months Ended 
 September 30,		   % Increase / (Decrease) Nine Months Ended 
 September 30,		   % Increase / (Decrease)
    
 2017 2016  2017 2016 
 Net product sales:           
      EXPAREL$66,780
 $64,869
 3% $204,254
 $194,374
 5%
      DepoCyt(e) and other product sales171
 1,250
 (86)% 1,261
 3,935
 (68)%
 Total net product sales66,951
 66,119
 1% 205,515
 198,309
 4%
 Collaborative licensing and milestone revenue26
 1,357
 (98)% 361
 3,069
 (88)%
 Royalty revenue358
 879
 (59)% 1,676
 2,091
 (20)%
      Total revenues$67,335
 $68,355
 (1)% $207,552
 $203,469
 2%
Three Months Ended
June 30,		% Increase / (Decrease)Six Months Ended
June 30,		% Increase / (Decrease)
2021202020212020
 Net product sales:
      EXPAREL$130,059 $73,046 78%$244,736 $174,315 40%
      Bupivacaine liposome injectable suspension991 775 28%1,784 1,981 (10)%
      Total EXPAREL / bupivacaine liposome
      injectable suspension net product sales		131,050 73,821 78%246,520 176,296 40%
      iovera°3,813 1,395 100%+7,081 3,665 93%
 Total net product sales134,863 75,216 79%253,601 179,961 41%
 Collaborative licensing and milestone revenue125 — N/A125 — N/A
 Royalty revenue602 289 100%+891 1,228 (27)%
      Total revenues$135,590 $75,505 80%$254,617 $181,189 41%
 
EXPAREL revenue grew 3%78% and 5%40% in the three and ninesix months ended SeptemberJune 30, 2017,2021 versus 2020, respectively, compared to the same periods in 2016, primarily due to respective increased sales volumesincreases of 4%76% and 6%,39% in gross vial volume and increases of 3% in gross selling price per unit in both periods, partially offset by an increase in volume rebates and chargebacksthe sales mix of 1%.EXPAREL vial sizes. The demand for EXPAREL has generally continued to increase as a result of new accountsambulatory surgery centers and growth within existing accountsanesthesiologists broadening the use of long-acting EXPAREL regional approaches as a foundation of multimodal opioid-minimization strategies that enable shifting inpatient procedures to 23-hour sites of care. The three and six months ended June 30, 2020 were adversely impacted by the suspension of elective surgeries due to the COVID-19 pandemic. EXPAREL utilization remained above the overall sharp decline in elective surgical procedures relative to pre-pandemic baseline levels, due to increased use in the outpatient setting. EXPAREL utilization in emergency procedures also continued adoptionto grow.

Bupivacaine liposome injectable suspension revenue and related royalties increased in the three months and decreased in the six months ended June 30, 2021 versus 2020 as a result of EXPAREL in soft tissue and orthopedic procedures.the timing of orders placed by Aratana for veterinary use.    


DepoCyt(e) and otherNet product sales decreased 86%of iovera° increased more than 100% and 68%93% in the three and ninesix months ended SeptemberJune 30, 2017, respectively, compared to the same periods in 2016. The decrease in both periods was2021 versus 2020, respectively. These increases were primarily due to fewer DepoCyt(e) lots sold to our commercial partnersan increased iovera° sales force and the impact that the COVID-19 pandemic had on the first half of 2020. Thus far, we have seen the greatest iovera° demand as a resultpain relief for patients in
Pacira BioSciences, Inc. | Q2 2021 Form 10-Q | Page 34

advance of TKA procedures and in chronic pain management, particularly for people with mild to severe osteoarthritis of the DepoCyt(e) manufacturing processknee.

Any renewed government suspension of, or reluctance of patients to have, elective surgeries would impact our future sales of EXPAREL and iovera° during the discontinuation of our DepoCyt(e) manufacturing activitiesongoing COVID-19 pandemic.

The increase in June 2017.

Collaborativecollaborative licensing and milestone revenue decreased 98% and 88% in the three and ninesix months ended SeptemberJune 30, 2017, respectively, compared to2021 was the same periods in 2016, primarily due to milestones earned in 2016result of a portion of an upfront payment recognized under our distribution agreement with Aratana Therapeutics, Inc.Eurofarma, S.A. for the development and commercialization of EXPAREL in Latin America. For more information, see Note 14, Commercial Partners, to our products in animal health indications incondensed consolidated financial statements included herein.

The following tables provide a summary of activity with respect to our sales related allowances and accruals related to EXPAREL for the three and ninesix months ended SeptemberJune 30, 2016.2021 and 2020 (in thousands):


Royalty revenue primarily reflects royalties earned on collections
June 30, 2021Returns AllowancesPrompt Payment DiscountsWholesaler Service FeesVolume
Rebates and
Chargebacks		Total
Balance at December 31, 2020$1,023 $1,007 $1,168 $1,600 $4,798 
Provision498 5,050 3,806 6,238 15,592 
Payments / Adjustments(261)(4,631)(3,846)(5,814)(14,552)
Balance at June 30, 2021$1,260 $1,426 $1,128 $2,024 $5,838 
June 30, 2020Returns AllowancesPrompt Payment DiscountsWholesaler Service FeesVolume
Rebates and
Chargebacks		Total
Balance at December 31, 2019$540 $962 $1,486 $1,816 $4,804 
Provision334 3,609 2,759 4,640 11,342 
Payments / Adjustments(142)(3,704)(3,398)(4,868)(12,112)
Balance at June 30, 2020$732 $867 $847 $1,588 $4,034 
Total reductions to gross product sales from sales-related allowances and accruals were $15.6 million and $11.3 million, or 5.8% and 5.9% of end-usergross product sales, of DepoCyt(e) by our commercial partners. Royalty revenue decreased 59% and 20% infor the three and ninesix months ended SeptemberJune 30, 2017, respectively, compared2021 and 2020, respectively. The overall decrease in sales-related allowances and accruals as a percentage of gross product sales was directly related to the same periodsa slight decrease in 2016, due to the discontinuation of our DepoCyt(e) manufacturing activities in June 2017.discounting.


Cost of Goods Sold


Cost of goods sold primarily relates to the costs to produce, package and deliver our products to customers. These expenses include labor, raw materials, manufacturing overhead and occupancy costs, depreciation of facilities, royalty payments, quality control and engineering.
 
The following table provides information regarding our cost of goods sold and gross margin during the periods indicated, including percent changes (dollar amounts in thousands):
Three Months Ended
June 30,		% Increase / (Decrease)Six Months Ended
June 30,		% Increase / (Decrease)
2021202020212020
 Cost of goods sold$35,248 $22,305 58%$66,597 $52,037 28%
 Gross margin74 %70 %74 %71 %
 Three Months Ended 
 September 30,		   % Increase / (Decrease) Nine Months Ended 
 September 30,		   % Increase / (Decrease)
    
 2017 2016  2017 2016 
 Cost of goods sold$18,228
 $43,152
 (58)% $66,621
 $86,483
 (23)%
 Gross margin73% 37%   68% 57%  


The decreases in cost of goods soldGross margin increased four and the corresponding 36 and 11 percentage-point improvements in gross margins for the three and nine months ended September 30, 2017 versus 2016, respectively, were largely due to a $21.9 million charge for inventory and related reserves in the third quarter of 2016 related to a single stability batch for EXPAREL which had fallen out of specification for one of 21 acceptance criteria. The manufacturing issue that existed when this batch was made was subsequently corrected. Gross margins improved by 32 and 11 percentage-points for the three and nine months ended September 30, 2017, respectively, as a result of this 2016 event. In addition, gross margins increased by 2 and 3 percentage-points as a result of lower unplanned manufacturing shutdown and other chargespercentage points in the three and ninesix months ended SeptemberJune 30, 2017,2021 versus 2020, respectively. There were no scrapped lotsImprovements in gross margin realized during both periods resulted from reductions in inventory reserves, lower unit costs resulting from manufacturing efficiencies, reductions in unplanned downtime and the impact of price increases, partially offset by ongoing capacity expansion costs primarily related to DepoCyt(e) in the three months ended September 30, 2017, improving gross margins by 2 percentage points versus the same period in 2016. The nine months ended September 30, 2017 versus 2016 included scrapped lots for DepoCyt(e) in the first halfcreation of 2017 before the manufacturea 200-liter batch manufacturing unit at our San Diego, California facility.



Pacira BioSciences, Inc. | Q2 2021 Form 10-Q | Page 35

Research and Development Expenses
 
Research and development expenses primarily consist primarily of costs related to clinical trials and related outside services, product development and other research and development costs, including Phase 4 trials that we are conducting to generate new data for EXPAREL and iovera° and stock-based compensation expenses.expense. Clinical and preclinical development expenses include costs for clinical personnel, clinical trials performed by third-party contract research organizations,third-parties, toxicology studies, materials and supplies, database management and other third-party fees. Product development and other research and developmentmanufacturing capacity expansion expenses include development costs for our products, and medical information expenses, which include personnel, equipment, materials and contractor costs for process development and product candidates, toxicology studies, expensesdevelopment costs related to a significant scale-upscale-ups of our manufacturing capacity and facility costs for our research space. Regulatory and other expenses include regulatory activities related to unapproved products and indications, medical information expenses and related personnel. Stock-based compensation expense relates to the costs of stock option grants, to employees and non-employees, awards of restricted stock units, or RSUs, and our employee stock purchase plan, or ESPP.


The following table provides information regardinga breakout of our research and development expenses during the periods indicated, including percent changes (dollar amounts in thousands):
 Three Months Ended 
 September 30,		   % Increase / (Decrease) Nine Months Ended 
 September 30,		   % Increase / (Decrease)
    
 2017 2016  2017 2016 
Clinical development$6,301
 $5,665
 11% $29,738
 $14,576
 104%
Product development and other4,650
 3,399
 37% 15,396
 11,435
 35%
Stock-based compensation824
 690
 19% 2,128
 2,598
 (18)%
     Total research and development expense$11,775
 $9,754
 21% $47,262
 $28,609
 65%
 % of total revenues17% 14%   23% 14%  
Three Months Ended
June 30,		% Increase / (Decrease)Six Months Ended
June 30,		% Increase / (Decrease)
2021202020212020
Clinical and preclinical development$5,111 $4,363 17%$13,131 $10,648 23%
Product development and manufacturing
capacity expansion		4,607 6,084 (24)%9,309 12,688 (27)%
Regulatory and other1,526 1,816 (16)%3,578 3,560 1%
Stock-based compensation1,329 1,357 (2)%2,435 2,544 (4)%
    Total research and development expense$12,573 $13,620 (8)%$28,453 $29,440 (3)%
 % of total revenues9 %18 %11 %16 %
 

ResearchTotal research and development expense increased 21%decreased 8% and 65%3% in the three and ninesix months ended SeptemberJune 30, 2017, respectively, compared to the same periods in 2016.2021 versus 2020, respectively.


The increase in clinicalClinical and preclinical development expense increased 17% and 23% in the three and six months ended SeptemberJune 30, 2017 reflects costs for2021 versus 2020, respectively, due to our ongoing Phase 4iovera° and EXPAREL infiltration trials and increased research grants. These increases were partially offset by the completion of our two Phase 3 trials evaluating EXPAREL as a single-dose nerve block for prolonged regional analgesia. Enrollment in these studies began in the second quarter of 2016 and concluded in June 2017.

In the nine months ended September 30, 2017, the increase in clinical development expense includes costs for our two Phase 3 EXPAREL nerve block trials which concluded in June 2017,TKA (“PREPARE”) trial as well as our ongoing Phase 4 EXPAREL infiltration trials and increased research grants.completed lower extremity nerve block (“STRIDE”) clinical trial. These increases were partially offset by the completion of our Phase 3 pediatric (“PLAY”) clinical trial, our Phase 4 EXPAREL infiltrationC-Section (“CHOICE”) trial, as well as the completion of our clinical trial for pectoral field block in TKA, which concludedbreast augmentation. In addition, we made the strategic decision to conclude enrollment in January 2017.the spine (“FUSION”) study due to protocol feasibility given the rapid evolution of medical practice for spinal procedures. The data from approximately 65 FUSION study subjects will be used to inform future studies for this patient population.


Product development and other expenses increasedmanufacturing capacity expansion expense decreased 24% and 27% in both the three and ninesix months ended SeptemberJune 30, 20172021 versus 2016, respectively, primarily2020, respectively. These decreases were mainly due to expenses related to aour progress in constructing the significant scale-up of our manufacturing capacity at the Thermo Fisher site in Swindon, England in partnership with Patheon, running test batches for DepoMLXas the project advances from the development phase to the registration phase.

Regulatory and developing a new EXPAREL DepoFoam spray manufacturing process. These increases were partially offset by a reduction in spend for preclinical DepoFoam toxicology trials.

In the nine months ended September 30, 2017 versus 2016, stock-based compensationother expense decreased 18% as expenses from new awards were more than offset by the decreased expense on mark-to-market non-employee awards that became fully vested in mid-2016. The 19% increase16% in the three months ended SeptemberJune 30, 20172021 versus 2016 is2020 due to newprior year regulatory activities in support of our Marketing Authorization Application (MAA) to the EMA, partially offset by increased activities related to an iovera° clinical data registry. Regulatory and other expense remained relatively flat in the six months ended June 30, 2021 versus 2020.

Stock-based compensation decreased by 2% and 4% in the three and six months ended June 30, 2021 versus 2020, respectively, primarily due to fewer equity awards grantedoutstanding for research and development personnel, partially offset by an increase in mid- to-late 2016 and 2017.the average cost of equity grants.


Selling, General and Administrative Expenses


Sales and marketing expenses primarily consist of compensation and benefits for our sales force and personnel that support our sales, marketing, and medical and scientific affairs operations, commission payments to our commercialmarketing partners for the promotion and sale of EXPAREL, expenses related to communicating the health outcome benefits of EXPAREL and educational programs for our customers. General and administrative expenses consist of compensation and benefits for legal,
Pacira BioSciences, Inc. | Q2 2021 Form 10-Q | Page 36

finance, regulatory activities related to approved products and indications, compliance, information technology, human resources, business development, executive management and other supporting personnel. It also includes professional fees for legal, audit, tax and consulting services. Stock-based compensation expense relates to the costs of stock option grants, RSU awards and our ESPP.
 
The following table provides information regarding our selling, general and administrative expenses during the periods indicated, including percent changes (dollar amounts in thousands):
Three Months Ended
June 30,		% Increase / (Decrease)Six Months Ended
June 30,		% Increase / (Decrease)
2021202020212020
 Sales and marketing$28,259 $25,356 11%$55,361 $53,268 4%
 General and administrative14,887 11,405 31%28,755 21,831 32%
 Stock-based compensation7,667 6,581 17%15,219 13,023 17%
    Total selling, general and administrative expense$50,813 $43,342 17%$99,335 $88,122 13%
 % of total revenues37 %57 %39 %49 %
 Three Months Ended 
 September 30,		   % Increase / (Decrease) Nine Months Ended 
 September 30,		   % Increase / (Decrease)
    
 2017 2016  2017 2016 
 Sales and marketing$24,557
 $21,490
 14% $72,344
 $69,437
 4%
 General and administrative9,750
 9,780
 0% 32,965
 32,371
 2%
 Stock-based compensation6,337
 5,044
 26% 17,007
 16,132
 5%
    Total selling, general and administrative
expenses		$40,644
 $36,314
 12% $122,316
 $117,940
 4%
 % of total revenues60% 53%   59% 58%  
Selling,Total selling, general and administrative expenses increased 12% for17% and 13% in the three and six months ended SeptemberJune 30, 2017 and 4% for the nine months ended September 30, 2017, compared to the same periods in 2016.2021 versus 2020, respectively.


Sales and marketing expenses increased by 14% for the three months ended September 30, 201711% and 4% in the ninethree and six months ended SeptemberJune 30, 20172021 versus the same periods in 2016. Increases in these respective periods were2020, respectively. The increase was driven by higher costs for salaries, benefitscompensation due to an expanded sales force and other personnel related costs resulting from an increase inpediatric launch expenses as a result of the numberMarch 2021 FDA approval of field-based medical and sales professionals to better support and educate our customers. We spent more money on marketingthe sNDA for EXPAREL in both the threeinfiltration for pediatric patients aged 6 and nine month periods ended September 30, 2017 versus 2016 onup. We are continuing our marketing investment in EXPAREL, which includes educational initiatives and programs to create product awareness within key surgical markets. This spending increase also included other selling and promotional activities to the support the growth of EXPAREL, including initiatives related to our co-promotion agreement with DePuy Synthes Sales, Inc.,

or DePuy Synthes. We also supported multiple educational programs related to the impact of opioids and postsurgical pain management along withand our “Choices Matter”national advocacy campaign which educatesdesigned to educate patients onabout non-opioid treatment options. Additionally, we continue our investment in clinician training in the use of EXPAREL and iovera° at our PITT training facility in Tampa, Florida. We also continue to invest in marketing initiatives and customer outreach for iovera°. Partially offsetting the increase was the termination of our co-promotion agreement with DePuy Synthes Sales, Inc. in January 2021.


General and administrative expenses remained consistentincreased 31% and 32% in the three and six months ended June 30, 2021 versus 2020, respectively. The increase in the three months and increased 2% in the nine months ended SeptemberJune 30, 2017, respectively, versus the same periods in 2016. In the three months ended September 2017 versus 2016, legal expenditures increased, offset by a decrease in compliance related activities. In the nine months ended September 30, 2017 versus 2016, there was2021 is primarily due to an increase in regulatory expenses in preparation for a European Medicines Agency Marketing Authorization Application for EXPAREL commercializationlegal expenditures. The increase in the E.U. We also increased spendingsix months ended June 30, 2021 is primarily due to support our investor relations and information technology functions. These increases were partially offset by loweran insurance recovery of $2.1 million received in early 2020 for legal and compliance expenses, primarilyexpenditures related to a DOJ subpoena receivedsince-resolved Department of Justice inquiry and an increase in April 2015.legal expenditures in support of other matters.


Stock-based compensation increased $1.3 million17% in both the three month periodand six months ended SeptemberJune 30, 2017, compared to the same period in 2016,2021 and 2020, primarily due to new awards granted in mid-to-late 2016 and 2017 and accelerated stock-based compensation expense. In the nine months ended September 30, 2017 versus 2016, there was a $0.9 millionan increase in stock-based compensation primarily duethe average cost of equity grants, partially offset by fewer awards outstanding.
Amortization of Acquired Intangible Assets
The following table provides a summary of the amortization of acquired intangible assets during the periods indicated, including percent changes (dollar amounts in thousands):
Three Months Ended
June 30,		% Increase / (Decrease)Six Months Ended
June 30,		% Increase / (Decrease)
2021202020212020
 Amortization of acquired intangible assets$1,967 $1,967 —%$3,933 $3,933 —%
As part of the April 2019 acquisition of MyoScience, Inc., or MyoScience, (the “MyoScience Acquisition”), we acquired intangible assets consisting of developed technology and customer relationships, with estimated useful lives of 14 and 10 years, respectively. These amounts are amortized on a straight line basis. For more information, see Note 7, Goodwill and Intangible Assets, to new awards granted in mid-to-late 2016 and 2017.our condensed consolidated financial statements included herein.

Acquisition-Related Charges (Gains), Product Discontinuation Expensesand Other

In June 2017, we discontinued all future production of DepoCyt(e) due to persistent technical issues specific to the DepoCyt(e) manufacturing process. In the three months ended September 30, 2017, we recorded a charge of $0.3 million related to the discontinuation of our DepoCyt(e) manufacturing activities, including $0.1 million for related inventory which was recorded in cost of goods sold. The remaining $0.2 million related to asset retirement obligations and other estimated exit costs.
In the nine months ended September 30, 2017, the total charge was $5.3 million, of which $0.6 million was for related inventory recorded in cost of goods sold, $1.9 million for lease costs less an estimate of potential sub-lease income, $1.9 million for the write-off of fixed assets and $0.9 million relating to employee severance, asset retirement obligations and other product discontinuation costs.
Other Income (Expense)
The following table provides a summary of the components of other income (expense)costs related to the MyoScience Acquisition, product discontinuation activities and termination costs for our agreement with Nuance during the periods indicated, including percent changes (dollar amounts in thousands):
Pacira BioSciences, Inc. | Q2 2021 Form 10-Q | Page 37

 Three Months Ended 
 September 30,		   % Increase / (Decrease) Nine Months Ended 
 September 30,		   % Increase / (Decrease)
    
 2017 2016  2017 2016 
 Interest income$1,068
 $346
 209% $2,805
 $923
 204%
 Interest expense(5,127) (1,601) 220% (12,942) (5,203) 149%
 Loss on early extinguishment of debt—
 —
 N/A (3,732) —
 N/A
 Other, net79
 (8) N/A 169
 (8) N/A
      Total other expense, net$(3,980) $(1,263) 215% $(13,700) $(4,288) 219%
Three Months Ended
June 30,		% Increase / (Decrease)Six Months Ended
June 30,		% Increase / (Decrease)
2021202020212020
Acquisition-related charges (gains)$146 $1,577 (91)%$(981)$(2,162)(55)%
Product discontinuation— (159)(100)%— (128)(100)%
Other— — N/A3,000 — N/A
   Total acquisition-related charges (gains),
   product discontinuation and other		$146 $1,418 (90)%$2,019 $(2,290)N/A


As part of the MyoScience Acquisition, we recognized acquisition-related charges of $0.1 million and gains of $1.0 million in the three and six months ended June 30, 2021, respectively, primarily related to changes in the fair value of contingent consideration. In the three and six months ended June 30, 2020, we recognized acquisition-related charges in the amount of $1.6 million and acquisition-related gains of $2.2 million, respectively, also related to contingent consideration. See Note 9, Financial Instruments, to our condensed consolidated financial statements included herein, for information regarding the methods and key assumptions used in the fair value measurements of contingent consideration.

In June 2018, we entered into an agreement with Nuance to advance the development and commercialization of EXPAREL in China. In 2021, we agreed to a mutual termination of the agreement due to the lack of a viable regulatory pathway that adequately safeguards our intellectual property against the risk of a generic product. Dissolution costs of $3.0 million were included in other operating expenses in the condensed consolidated statements of operations for the six months ended June 30, 2021.

Other Income (Expense)

The following table provides information regarding other expense, net during the periods indicated, including percent changes (dollar amounts in thousands):
Three Months Ended
June 30,		% Increase / (Decrease)Six Months Ended
June 30,		% Increase / (Decrease)
2021202020212020
 Interest income$224 $1,323 (83)%$639 $2,911 (78)%
 Interest expense(7,023)(5,456)29%(13,994)(11,477)22%
 Other, net(2,396)3,969 N/A(2,554)(136)100%+
      Total other expense, net$(9,195)$(164)100%+$(15,909)$(8,702)83%
Total other expense, net increased by 215%more than 100% and 219%83% in the three and ninesix months ended SeptemberJune 30, 2017, respectively, compared to2021 versus 2020, respectively. Other, net included a realized loss on the same periods in 2016, almost entirely due to the March 2017 issuance of $345.0 million of 2.375% convertible senior notes due 2022, or 2022 Notes, and the repurchase of $118.2 millionsale of our 3.25% convertible senior notes due 2019,equity investment in TELA Bio, Inc., or 2019 Notes, which resultedTELA Bio, in a $3.7 million loss on early extinguishmentthe amounts of debt and an increase in interest expense of $3.5$2.5 million and $7.7$2.6 million during the three and six months ended June 30, 2021, respectively. This contrasted with an unrealized gain of $4.0 million and no change in the three and ninesix months ended SeptemberJune 30, 2017 versus 2016,2020, respectively. There was also an increase in interest income of $0.7 million and $1.9 millionexpense in the same respective periods as a result of additional investmentsthree and six months ended June 30, 2021 due to the increase in outstanding debt resulting from the net proceedsissuance of $402.5 million aggregate principal of our 0.750% convertible senior notes due 2025, or 2025 Notes, in July 2020. Further, our interest income decreased in the 2022 Notes.

three and six months ended June 30, 2021 versus 2020 due to lower short-term interest rates.
Income Tax Expense (Benefit)

The following table provides information regarding our income tax expense during the periods indicated, including percent changes (dollar amounts in thousands):
Three Months Ended
June 30,		% Increase / (Decrease)Six Months Ended
June 30,		% Increase / (Decrease)
2021202020212020
 Income tax expense (benefit)$6,567 $(42)N/A$8,921 $356 100% +
 Effective tax rate26 %(1)%23 %29 %


 Three Months Ended 
 September 30,		   % Increase / (Decrease) Nine Months Ended 
 September 30,		   % Increase / (Decrease)
    
 2017 2016  2017 2016 
 Income tax expense$45
 $36
 25% $105
 $126
 (17)%
 Effective tax rate0% 0%   0% 0%  

IncomeFor the three months ended June 30, 2021 and 2020, we recorded income tax expense wasof $6.6 million and an income tax benefit of less than $0.1 million, inrespectively. For the six months ended June 30, 2021 and 2020, we recorded income tax
Pacira BioSciences, Inc. | Q2 2021 Form 10-Q | Page 38

expense of $8.9 million and $0.4 million, respectively. The increased income tax expense for both the three and six month periods was driven by the release of a full valuation allowance against domestic net deferred tax assets during the year ended December 31, 2020. The income tax expense for the three and six months ended SeptemberJune 30, 20172021 represents the estimated annual effective tax rate applied to the year-to-date domestic operating results adjusted for certain discrete tax items including a benefit related to equity compensation, partially offset by a cost related to non-deductible capital losses. The income tax benefit and 2016. Income tax expense was $0.1 million infor the ninethree and six months ended SeptemberJune 30, 2017 and 2016. The tax expense reflects2020, respectively, consisted primarily of current state income taxes. Due to net losses in both periods, no current federal income tax expense was recorded. Since our deferred tax assets are fully offset by a valuation allowance, income tax expense does not reflect deferred tax expenses.


Liquidity and Capital Resources
 
Since our inception in December 2006, we have devoted most of our cash resources to manufacturing, research and development and selling, general and administrative activities related to the development and commercialization of EXPAREL. In addition, we acquired iovera° as part of the MyoScience Acquisition in April 2019. We are highly dependent on the commercial success of EXPAREL, which we launched in April 2012. We have financed our operations primarily with cash generated from product sales, the proceeds from the sale of equity and debt securities, borrowings under debt facilitiesconvertible senior notes, common stock, product sales and collaborative licensing and milestone revenue. As of SeptemberJune 30, 2017,2021, we had an accumulated deficit of $393.7$224.4 million, cash and cash equivalents, short-term investments and long-term investments of $374.9$646.6 million and working capital of $313.5$563.9 million. We currently expect that our cash, short-term and long-term investments on hand will be adequate to cover any potential short-term liquidity needs, and that we would be able to access other sources of financing should the need arise.


In March 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law in response to the COVID-19 pandemic. The CARES Act, among other things, allowed for certain measures to increase liquidity for businesses such as the deferral of employer payroll taxes, a tax credit for retaining employees and other provisions. We benefited from the provision to defer the payment of certain employer payroll taxes in the amount of $2.8 million for the year ended December 31, 2020. One-half of these deferrals are due at each of December 31, 2021 and December 31, 2022.

Summary of Cash Flows
 
The following table summarizes our cash flows from operating, investing and financing activities for the periods indicated (in thousands):
Six Months Ended
June 30,
Condensed Consolidated Statements of Cash Flows Data:20212020
 Net cash provided by (used in):
 Operating activities$42,215 $(9,416)
 Investing activities(52,631)7,557 
 Financing activities16,233 2,183 
    Net increase in cash and cash equivalents$5,817 $324 
  Nine Months Ended 
 September 30,
Condensed Consolidated Statement of Cash Flows Data: 2017 2016
 Net cash provided by (used in):    
 Operating activities $854
 $16,104
 Investing activities (232,464) (54,837)
 Financing activities 221,882
 6,191
    Net decrease in cash and cash equivalents $(9,728) $(32,542)
Operating Activities
 
During the ninesix months ended SeptemberJune 30, 2017, our2021, net cash provided by operating activities was $0.9$42.2 million, compared to $16.1$9.4 million used in operating activities during the ninesix months ended SeptemberJune 30, 2016.2020. The decreaseincrease of $15.3$51.6 million was driven byprimarily attributable to an increase in our net loss, primarily from higher clinical trial expenses related to our two Phase 3 EXPAREL nerve block trials, our Phase 4 EXPAREL infiltration trials, payments related togross margin on a termination fee related to a master distribution agreement with CrossLink BioScience, LLC and additional investments40% increase in inventory, partially offset by higher collections from EXPAREL net product sales.sales, which were adversely impacted in the six months ended June 30, 2020 by a suspension of elective surgeries caused by the COVID-19 pandemic. There was also a contingent consideration payment to MyoScience securityholders of $7.0 million, of which $5.7 million has been classified as an operating cash outflow and $1.3 million as a financing cash outflow.


Investing Activities
 
During the ninesix months ended SeptemberJune 30, 2017, our2021, net cash used in investing activities was $232.5$52.6 million, which reflected $212.1$23.8 million of short-term and long-term investment purchases (net of maturities) primarily from the net proceeds of the 2022 Notes,and purchases of fixed assets of $14.2 million and contingent consideration payments of $6.2 million related to the March 2007 acquisition of Skyepharma Holding, Inc., or Skyepharma.$23.6 million. Major fixed asset purchases included equipment for a new 200-liter EXPAREL capacity expansion project at our Science Center Campus in San Diego, California, and continuing expenditures for our expanding EXPAREL manufacturing capacity in Swindon, England. In addition, we made a $10.0 million equity investment in Coda and also purchased a total of $4.2 million in convertible notes from GeneQuine and Spine BioPharma. We also sold our investment in TELA Bio for net cash proceeds of $9.1 million.

Pacira BioSciences, Inc. | Q2 2021 Form 10-Q | Page 39

During the six months ended June 30, 2020, net cash provided by investing activities was $7.6 million, which reflected $23.2 million of short-term and long-term investment maturities (net of purchases) and purchases of fixed assets of $15.6 million. Major fixed asset purchases included equipment for a new EXPAREL capacity expansion project at our Science Center Campus and continuing expenditures for expanding our EXPAREL manufacturing capacity in Swindon, England in partnership with Patheon and facility upgrades at our Science Center Campus in San Diego, California.Thermo Fisher.
During the nine months ended September 30, 2016, our net cash used in investing activities was $54.8 million, which reflected $21.2 million of short-term investment purchases (net of maturities), purchases of fixed assets of $19.8 million and contingent consideration payments of $13.8 million related to the March 2007 acquisition of Skyepharma, including an $8.0 million milestone payment in connection with achieving $250.0 million of EXPAREL net sales collected on an annual basis.

Major fixed asset purchases included continuing expenditures for expanding our manufacturing capacity in Swindon, England in partnership with Patheon.


Financing Activities
 
During the ninesix months ended SeptemberJune 30, 2017, our2021, net cash provided by financing activities was $221.9$16.2 million, which consisted of proceeds from the issuance of the 2022 Notes of $345.0 million, partially offset by $11.0 million of debt issuance and financing costs. In addition, a portion of the net proceeds from the 2022 Notes was used to retire $118.2 million in principal of the 2019 Notes and for $0.3 million in related costs. Proceeds from the exercise of stock options were $5.3 million and proceeds from the issuance of shares under our ESPP were $1.1 million.

In the nine months ended September 30, 2016, net cash provided by financing activities consisted of proceeds from the exercise of stock options of $5.2$16.0 million and $1.0$1.6 million from the issuance of shares underthrough our ESPP.ESPP, partially offset by the $1.3 million financing component of the $7.0 million contingent consideration payment made to MyoScience securityholders.


During the six months ended June 30, 2020, net cash provided by financing activities was $2.2 million, which consisted of proceeds from the exercise of stock options of $6.4 million and $1.4 million from the issuance of shares through our ESPP, partially offset by $5.6 million of contingent consideration payments made to MyoScience securityholders.

2025 Convertible Senior Notes

In July 2020, we completed a private placement of $402.5 million in aggregate principal amount of our 2025 Notes and entered into an indenture with respect to the 2025 Notes. The 2025 Notes accrue interest at a fixed rate of 0.750% per annum, payable in arrears on February 1 and August 1 of each year. The 2025 Notes mature on August 1, 2025. At June 30, 2021, the outstanding principal on the 2025 Notes was $402.5 million.

See Note 8, Debt, to our condensed consolidated financial statements included herein for further discussion of the 2025 Notes, including information on convertibility factors, redemption, timeframes and balance sheet classification.

2022 Convertible Senior Notes


OnIn March 13, 2017, we completed a private placement of $345.0 million in aggregate principal amount of our 2.375% convertible senior notes due 2022, or 2022 Notes, and entered into an indenture agreement, or 2022 Indenture, with respect to the 2022 Notes. The 2022 Notes accrue interest at a fixed rate of 2.375% per annum, payable semiannually in arrears on April 1 and October 1 of each year. The 2022 Notes mature on April 1, 2022. In July 2020, we used part of the net proceeds from the issuance of the 2025 Notes discussed above to repurchase $185.0 million aggregate principal of the 2022 Notes in privately-negotiated transactions for an aggregate of approximately $211.1 million in cash, including accrued interest. At SeptemberJune 30, 2017,2021, the outstanding principal on the 2022 Notes was $345.0$160.0 million.


On or after October 1, 2021, until the close of business on the second scheduled trading day immediately preceding April 1, 2022, holders may convert their 2022 Notes at any time. Upon conversion, holders will receive the principal amount of their 2022 Notes and any excess conversion value. For both the principal and excess conversion value, holders may receive cash, shares of our common stock or a combination of cash and shares of our common stock, at our option. The initial conversion rate for the 2022 Notes is 14.9491 shares of common stock per $1,000 principal amount, which is equivalent to an initial conversion price of approximately $66.89 per share of our common stock. The conversion rate will be subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest.

Prior to the close of business on the business day immediately preceding October 1, 2021, holders may convert the 2022 Notes under certain circumstances, including if during any given calendar quarter, our stock price closes at or above 130% of the conversion price then applicable during a period of at least 20 out of the last 30 consecutive trading days of the previous quarter.

While the 2022 Notes are currently classified on our consolidated balance sheet at September 30, 2017 as long-term debt, the future convertibility and resulting balance sheet classification of this liability will be monitored at each quarterly reporting date and will be analyzed dependent upon market prices of our common stock during the prescribed measurement periods. In the event that the holders of the 2022 Notes have the election to convert the 2022 Notes at any time during the prescribed measurement period, the 2022 Notes would then be considered a current obligation and classified as such.

Prior to April 1, 2020, we may not redeem the 2022 Notes. On or after April 1, 2020, we may redeem for cash all or part of the 2022 Notes if the last reported sale price (as defined in the 2022 Indenture) of our common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading-day period ending within five trading days prior to the date on which we provide notice of redemption.

See Note 6, 8, Debt, to our condensed consolidated financial statements included herein for further discussion of the 2022 Notes.Notes, including information on convertibility factors, redemption, timeframes and balance sheet classification.

2019 Convertible Senior Notes

On January 23, 2013, we completed a private offering of $120.0 million in aggregate principal of 3.25% convertible senior notes due 2019, or 2019 Notes, and entered into an indenture agreement, or 2019 Indenture, with respect to the 2019 Notes. The 2019 Notes accrue interest at a rate of 3.25% per annum, payable semiannually in arrears on February 1 and August 1 of each year, and mature on February 1, 2019. As of September 30, 2017, the outstanding principal on the 2019 Notes was approximately $0.3 million.

See Note 6, Debt, to our condensed consolidated financial statements included herein for further discussion of the 2019 Notes.



Future Capital Requirements
We believe that our existing cash and cash equivalents, short-term investments,and long-term investments and cash received from product sales will be sufficient to enable us to fund our operating expenses, capital expenditure requirements and payment of the interest and principal on any conversions of our outstanding convertible senior notes2022 Notes and to service our indebtedness2025 Notes through at least November 8, 2018.the next 12 months. Our future use of operating cash and capital requirements will depend on many forward-looking factors, including, but not limited to, the following:
•the impact of the COVID-19 pandemic, including the amounts and delays of suspended elective surgical procedures, clinical trials and general economic conditions;
•the costs and our ability to successfully continue to expand the commercialization of EXPAREL;EXPAREL and iovera°, including outside of the U.S.;
•the cost and timing of expanding our manufacturing facilities for EXPAREL and our other product candidates, including costs associated with certain technical transfer activities and the construction of an additional manufacturing suitessuite at Patheon’sThermo Fisher’s facility in Swindon, England facility;and an EXPAREL capacity expansion project at our Science Center Campus in San Diego, California;
•the cost and timing of potential remaining milestone payments to MyoScience security holders, which could be up to an aggregate of $48.0 million if certain regulatory and extent to which the holderscommercial milestones are met;
Pacira BioSciences, Inc. | Q2 2021 Form 10-Q | Page 40

•the cost and timing of potential milestone payments to Skyepharma,SkyePharma Holding, Inc., which could be up to an aggregate of $36.0 million if certain milestones pertaining to net sales of DepoBupivacaine products, including EXPAREL, are met;met, or upon the first commercial sale in the United Kingdom, France, Germany, Italy or Spain;
•the cost and timing of additional strategic investments, including additional investments under existing agreements;
•the timing of and extent to which the holders of our 2022 Notes and 2025 Notes elect to convert their notes;
•costs related to legal and regulatory issues;
•the costs of performing additional clinical trials for EXPAREL, including the additional pediatric trials required by the FDA and EMA as a condition of approval;
•the costs of performing additional clinical trials for iovera°;
•the costs for the development and commercialization of other product candidates; and
•the extent to which we acquire or invest in products, businesses and technologies.
We may require additional debt or equity financing to meet our future operating and capital requirements. We have no committed external sources of funds, and additional equity or debt financing may not be available on acceptable terms, if at all. In particular, capital market disruptions or negative economic conditions, especially in light of the COVID-19 pandemic, may hinder our access to capital.

Off-Balance Sheet Arrangements
We do not have any material off-balance sheet arrangements as of SeptemberJune 30, 2017, except for operating leases,2021, nor do we have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities. None of our operating leases have, or are reasonably likely to have, a current or future material effect on our financial condition or changes in financial condition.

Critical Accounting Policies and Use of Estimates
See Note 2, Summary of Significant Accounting Policies, to our condensed consolidated financial statements included herein for a discussion of recently issued accounting pronouncements and their impact or future potential impact on our financial results, if determinable. For a description of critical accounting policies that affect our significant judgments and estimates used in the preparation of our consolidated financial statements, refer to our most recent Annual Report on Form 10-K for the year ended December 31, 2016.2020.
Revenue Recognition
Our principal sources of revenue include (i) sales of EXPAREL in the United States, (ii) sales of DepoCyt(e) to our commercial partners within the United States and Europe and sales of our bupivacaine liposome injectable suspension product for use in animal health indications in the United States, (iii) royalties based on sales by commercial partners of DepoCyt(e) and sales of our bupivacaine liposome injectable suspension product for use in animal health indications and (iv) license fees and milestone payments. We recognize revenue when there is persuasive evidence that an arrangement exists, title has passed, collection is reasonably assured and the price is fixed or determinable.
Net Product Sales
We sell EXPAREL through a drop-ship program under which orders are processed through wholesalers based on orders of the product placed by end-users which include hospitals, ambulatory surgery centers and doctors. EXPAREL is delivered directly to the end-user without the wholesaler ever taking physical possession of the product. We record revenue at the time the product is delivered to the end-user. We also recognize revenue from products manufactured and supplied to commercial partners, such as DepoCyt(e), upon shipment. Prior to the shipment of manufactured products, we conduct initial product release and stability testing in accordance with the FDA’s current Good Manufacturing Practices.

Revenues from sales of products are recorded net of returns allowances, prompt payment discounts, wholesaler service fees and volume rebates and chargebacks. The calculation of some of these items requires management to make estimates based on sales data, contracts, inventory data and other related information that may become known in the future. We review the adequacy of our provisions on a quarterly basis.
Returns Allowances
We allow customers to return product that is damaged or received in error. In addition, we allow EXPAREL to be returned beginning six months prior to, and twelve months following, product expiration. We estimate our sales returns reserve based on our historical return rates, which we believe is the best estimate of the anticipated product to be returned. The returns reserve is recorded at the time of sale as a reduction to gross product sales and an increase in accrued expenses.

Our commercial partners can return DepoCyt(e) within contractually specified timeframes if the product does not meet the applicable inspection tests. We estimate our returns reserves based on our experience with historical return rates. Historically, our DepoCyt(e) returns have not been material.
Prompt Payment Discounts
The prompt payment reserve is based upon discounts offered to wholesalers as an incentive to meet certain payment terms. We accrue discounts to wholesalers based on contractual terms of agreements and historical experience. We account for these discounts at the time of sale as a reduction to gross product sales and a reduction to accounts receivable.
Wholesaler Service Fees
Our customers include major and regional wholesalers with whom we have contracted a fee for service based on a percentage of gross product sales. This fee for service is recorded as a reduction to gross product sales and an increase to accrued expenses at the time of sale, and is recorded based on the contracted percentage.
Volume Rebates and Chargebacks
Volume rebates and chargeback reserves are based upon contracted discounts and promotional offers we provide to certain end-users such as members of group purchasing organizations, hospitals and hospital systems. Volume rebates are recorded at the time of sale as a reduction to gross product sales and an increase in accrued expenses. Chargeback reserves are recorded at the time of sale as a reduction to gross product sales and a reduction to accounts receivable.
The following tables provide a summary of activity with respect to our sales related allowances and accruals for the nine months ended September 30, 2017 and 2016 (in thousands):
September 30, 2017 Returns Allowances Prompt Payment Discounts Wholesaler Service Fees Volume
Rebates and
Chargebacks		 Total
Balance at December 31, 2016 $1,346
 $595
 $735
 $1,124
 $3,800
Provision 536
 4,200
 3,182
 3,015
 10,933
Payments/Credits (923) (4,229) (3,314) (3,265) (11,731)
Balance at September 30, 2017 $959
 $566
 $603
 $874
 $3,002
September 30, 2016 Returns Allowances Prompt Payment Discounts Wholesaler Service Fees Volume
Rebates and
Chargebacks		 Total
Balance at December 31, 2015 $1,733
 $625
 $745
 $797
 $3,900
Provision 506
 3,978
 3,016
 1,587
 9,087
Payments/Credits (1,022) (4,073) (3,202) (1,657) (9,954)
Balance at September 30, 2016 $1,217
 $530
 $559
 $727
 $3,033
Total reductions of gross product sales from sales-related allowances and accruals were $10.9 million and $9.1 million, or 5.1% and 4.4% of gross product sales for the nine months ended September 30, 2017 and 2016, respectively. The overall increase in sales-related allowances and accruals as a percentage of gross product sales was directly related to the increase in EXPAREL sales and an increase in volume related rebates and chargebacks.



Contractual Obligations
In April 2014, we and Patheon entered into a Strategic Co-Production Agreement and Technical Transfer and Service Agreement to collaborate in the manufacture of EXPAREL. Under the terms of the Technical Transfer and Service Agreement, Patheon has agreed to undertake certain technical transfer activities and construction services needed to prepare its Swindon, England facility for the manufacture of EXPAREL in two dedicated manufacturing suites. Upon an early termination of this agreement (other than termination by us in the event that Patheon does not meet the construction and manufacturing milestones orExcept for a breach by Patheon), we will pay for the make good costs occasioned by the removal of our manufacturing equipment and for Patheon’s termination costs.
In January 2017, we announced the initiation of a Co-Promotion Agreement with DePuy Synthes to market and promote the use of EXPAREL for orthopedic procedures in the United States. Under the five-year arrangement, DePuy Synthes will be the exclusive third-party distributor to promote and sell EXPAREL for operating room use for orthopedic and spine surgeries (including knee, hip, shoulder, sports and trauma surgeries) in the United States. DePuy Synthes is entitled to a tiered commission ranging from low single-digits to double-digits on sales of EXPAREL, subject to conditions, limitations and adjustments. The initial term of the agreement ends on December 31, 2021, with the option to extend the agreement an additional 12 month increments upon mutual agreement of the parties, subject to certain conditions. We and DePuy Synthes have mutual termination rights under the agreement, subject to certain terms, conditions and advance notice requirements; provided that we or DePuy Synthes generally may not terminate the agreement, without cause, within three years of the effective date of the agreement. We also have additional unilateral termination rights under certain circumstances.
Potential future milestone payments to Skyepharma could be up to an aggregate of $36.0 million if certain milestones pertaining to net sales of DepoBupivacaine products collected, including EXPAREL, are met, including $32.0 million when annual net sales collected reach $500.0 million (measured on a rolling quarterly basis) and $4.0 million upon the first commercial sale in a major E.U. country. This contingency isnew lease described further in Note 5, Goodwill6, Leases, to our condensed consolidated financial statements included herein.herein, there have been no material changes in our contractual obligations relating to our indebtedness, lease obligations and purchase obligations from those reported in our Annual Report on Form 10-K for the year ended December 31, 2020. For more information on our contractual obligations and commercial commitments, see Part II, Item 7 in our Annual Report on Form 10-K for the year ended December 31, 2020.


In October 2017, we made an initial cash investment of $15 million in TELA Bio, a privately-held surgical reconstruction company that markets its proprietary OviTexTM portfolio of products for ventral hernia repair and abdominal wall reconstruction. We may be required to invest up to an additional $10 million in TELA Bio under certain performance scenarios or upon our own election.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
The primary objective of our cash cash equivalentequivalents and investment activities is to preserve principal while at the same time maximizing the income that we receive from our investments without significantly increasing risk. We invest in corporate bonds, commercial paper, and asset-backed securities and U.S. Treasury and other government agency notes, which are reported at fair value. These securities are subject to interest rate risk and credit risk. This means that a change in prevailing interest rates may cause the principal amount of the investment to fluctuate. For example, if we hold a security that was issued with a fixed interest rate at the then-prevailing rate and the interest rate later rises, we expect that the fair value of our investment will decline. A hypothetical 100 basis point increase in interest rates would have reduced the fair value of our available-for-sale securities at SeptemberJune 30, 20172021 by approximately $1.9$2.3 million.


In January 2013, we issued $120.0 million in aggregate principal amountThe fair values of 3.25%our convertible senior notes which mature in February 2019. Holders may convert their 2019 Notes prior to maturity under certain circumstances. Upon conversion, holders will receive cash up to the principal amount of the 2019 Notes and, with respect to any excess conversion value, cash, shares of our common stock or a combination of cash and shares, at our option. The fair value of the 2019 Notes isare impacted by both the fair value of our common stock and interest rate fluctuations. As of SeptemberJune 30, 2017,2021, the estimated fair value of the 20192025 Notes was $1,505$1,100 per $1,000 principal amount and the estimated fair value of the 2022 Notes was $1,099 per $1,000 principal amount. See Note 6, 8, Debt, to our condensed consolidated financial statements included herein for further discussion of the 2019 Notes.our convertible senior notes, which bear interest at a
Pacira BioSciences, Inc. | Q2 2021 Form 10-Q | Page 41

fixed rate. At SeptemberJune 30, 2017, approximately $0.32021, all $402.5 million of principal remains outstanding on the 2019 Notes.

In March 2017, we issued $345.0 million in aggregate principal amount of 2.375% convertible senior notes, which mature in April 2022. Holders may convert their 2022 Notes prior to maturity under certain circumstances. Upon conversion, holders will receive the principal amount of the 20222025 Notes, and any excess conversion value in cash, shares of our common stock or a combination of cash and shares, at our option. The fair value of the 2022 Notes is impacted by both the fair value of our common stock and interest rate fluctuations. As of September 30, 2017, the estimated fair value of the 2022 Notes was $973 per $1,000 principal amount. See Note 6, Debt, to our condensed consolidated financial statements included herein for further discussion of the 2022 Notes. At September 30, 2017, $345.0$160.0 million of principal remains outstanding on the 2022 Notes.Notes..


Most of our transactions are conducted in United States dollars. We do have certain agreements with commercialcertain vendors and partners located outside the United States which havethat operate in foreign jurisdictions. The transactions conducted in Euros. As of September 30, 2017, we did not have any receivables from customersunder these agreements are primarily denominated in Euros. A hypothetical 10% decreasethe U.S. Dollar, subject to periodic adjustment based on changes in the value of the Euro relative to the United States dollar would have decreased our revenue by approximately $10 thousand for the quarter ended September 30, 2017.currency exchange rates.


Additionally, our accounts receivable are primarily concentrated with three large regional wholesalers of pharmaceutical products. In the event of non-performance or non-payment, there may be a material adverse impact on our financial condition, results of operations or net cash flows.flow.


Item 4. CONTROLS AND PROCEDURES


Evaluation of Disclosure Controls and Procedures


As required by Rule 13a-15(b) under the Exchange Act, our management, including our Chief Executive Officer and Chairman and our Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. As defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, disclosure controls and procedures are controls and other procedures which are designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chairman and our Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.


Based on that evaluation, our Chief Executive Officer and Chairman and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of SeptemberJune 30, 2017.2021.

Changes in Internal Control Overover Financial Reporting
There has been no change in our internal control over financial reporting that occurred during the quarter ended SeptemberJune 30, 20172021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Effectiveness of Controls


Our management, including the Chief Executive Officer and Chairman and our Chief Financial Officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

Pacira BioSciences, Inc. | Q2 2021 Form 10-Q | Page 42



PART II — OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS


From time to time, we have been and may again become involved in legal proceedings arising in the ordinary course of our business. Except as described below, we are not presently a party to any litigation or legal proceedings that we believe to be material and we are not aware of any pending or threatened litigation against us that we believe could have a material adverse effect on our business, operating results, financial condition or cash flows.
In April 2015, we received a subpoena from the U.S. Department of Justice, U.S. Attorney’s Office for the District of New Jersey, requiring the production of a broad range of documents pertaining to marketing and promotional practicesFor information related to EXPAREL. We are cooperating with the government’s inquiry. We can make no assurances asItem 1. Legal Proceedings, refer to the time or resources that will needNote 15, Commitments and Contingencies, to be devoted to this inquiry or its final outcome, or the impact, if any, of this inquiry or any proceedings on our business,
condensed consolidated financial condition, results of operations and cash flows.statements included herein.


Item 1A. RISK FACTORS


You should carefully consider the factors discussed in Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016,2020, which could materially affect our business, financial condition, cash flows or future results.results, including those related to the ongoing COVID-19 pandemic. There have been no material changes in our risk factors included in our Annual Report on Form 10-K for the year ended December 31, 2016.2020. The risks described in our Annual Report on Form 10-K for the year ended December 31, 20162020 are not the only risks facing our company.Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.


Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS


None.


Item 3. DEFAULTS UPON SENIOR SECURITIES


None.


Item 4. MINE SAFETY DISCLOSURES


 Not applicable.


Item 5. OTHER INFORMATION


Not applicable.

Pacira BioSciences, Inc. | Q2 2021 Form 10-Q | Page 43

Item 6. EXHIBITS

The exhibits listed below are filed or furnished as part of this report.

Exhibit NumberDescription
10.1
Amended and Restated 2011 Stock Incentive Plan.(1)†
Exhibit No.
31.1
Description
31.1
Certification of Chief Executive Officer and Chairman pursuant to Rule 13a-14(a) and 15d-14(a), as amended.*
31.2
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a), as amended.*
32.1
Certification of Chief Executive Officer and Chairman pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
32.2
Certification ofand Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
101The following materials from the Quarterly Report on Form 10-Q of Pacira Pharmaceuticals,BioSciences, Inc. for the quarter ended SeptemberJune 30, 2017,2021, formatted in XBRL (eXtensibleiXBRL (Inline eXtensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets; (ii) the Condensed Consolidated Statements of Operations; (iii) the Condensed Consolidated Statements of Comprehensive Loss;Income (Loss); (iv) the Condensed Consolidated StatementStatements of Stockholders’ Equity; (v) the Condensed Consolidated Statements of Cash Flows; and (vi) the Condensed Notes to Consolidated Financial Statements.*
104Cover Page Interactive Data File (Formatted as Inline XBRL and contained in Exhibit 101).


*Filed herewith.
*Filed herewith.
**Furnished herewith.
†Denotes management contract or compensatory plan or arrangement.
(1)Incorporated by reference to the Registrant’s Current Report on Form 8-K, filed on June 11, 2021.

Pacira BioSciences, Inc. | Q2 2021 Form 10-Q | Page 44
**Furnished herewith.


SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

PACIRA BIOSCIENCES, INC.
(REGISTRANT)
Dated:August 3, 2021
PACIRA PHARMACEUTICALS, INC.
(REGISTRANT)
Dated:November 8, 2017/s/ DAVID STACK
David Stack
Chief Executive Officer and Chairman
(Principal Executive Officer)
Dated:November 8, 2017August 3, 2021/s/ CHARLES A. REINHART, III
Charles A. Reinhart, III
Chief Financial Officer
(Principal Financial Officer)



36
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