Item 7. 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 consolidated financial statements, which 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, or SEC. We operate and report our financial information in one segment. The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes to those consolidated financial statements appearing in Part IV, Item 15, of this Annual Report. This discussion contains forward-looking statements that involve significant risks and uncertainties. As a result of many factors, such as those set forth under “Risk Factors” in Part I, Item 1A. of this Annual Report, our actual results may differ materially from those anticipated in these forward-looking statements. Certain defined terms have been brought forward from Part I of this Annual Report.
This section of this Annual Report discusses year-to-year comparisons between 2020 and 2019, as well as other discussions of 2020 and 2019 items. We have omitted discussion of the year ended December 31, 2018 (the earliest of the three years covered by our consolidated financial statements presented in this Annual Report) as permitted by SEC regulations. The complete Management’s Discussion and Analysis of Financial Condition and Results of Operations for year-to-year comparisons between 2019 and 2018 and other discussions of 2018 items can be found within Part II, Item 7, to our Annual Report filed with the SEC on February 20, 2020.
Overview
Pacira is the industry leader in our commitment to non-opioid pain management and regenerative health solutions to improve patients’ journeys along the neural pain pathway. Our long-acting, local analgesic EXPAREL® (bupivacaine liposome injectable suspension) was commercially launched in April 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 currently indicated for single-dose infiltration in adults to produce postsurgical local analgesia and as an interscalene brachial plexus nerve block to produce postsurgical regional analgesia in the U.S., and in the E.U. as a brachial plexus block or 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. Since its initial approval in 2011 for single-dose infiltration, more than eight 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 there is no product held by wholesalers. 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.
We expect to continue to pursue the expanded use of EXPAREL and iovera° in additional procedures; progress our earlier-stage product candidate pipeline; advance regulatory activities for EXPAREL, iovera° and other product candidates; invest in sales and marketing resources for EXPAREL and iovera°; expand and enhance our manufacturing capacity for EXPAREL and iovera°; invest in products, businesses and technologies; and support legal matters.
Recent Highlights
•In November 2020, the European Commission, or EC, granted marketing authorization for EXPAREL as a brachial plexus block or 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. The EC decision is applicable to all 27 European Union member states plus the United Kingdom, Iceland, Norway and Liechtenstein. Commercial planning is underway, with an anticipated E.U. launch in the second half of 2021. For more information, see the subsection titled “Global Expansion” in Part 1—Item 1 above.
•In December 2020, we made a $1.2 million (€1.0 million) initial investment in GeneQuine Biotherapeutics GmbH, or GeneQuine, a privately held biopharmaceutical company headquartered in Hamburg, Germany. GeneQuine is advancing a gene therapy platform for the treatment of osteoarthritis and other musculoskeletal disorders. GeneQuine’s product candidates are next-generation gene transfer vehicles. These gene therapy vectors are highly efficient in entering joint cells to confer multi-year gene expression. Safety of this platform has been demonstrated in several species and is currently being evaluated in an ongoing Phase 1 study. In January 2021, we made a $1.2 million (€1.0 million) investment in the form of a convertible note. We will make an additional $4.9 million (€4.0 million) investment upon GeneQuine achieving certain prespecified near-term milestones related to its lead gene therapy product candidate, GQ-303. Up to $3.1 million (€2.5 million) of our total investment will be in the form of a convertible note, which includes the investment made in January 2021.
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Novel Coronavirus (COVID-19) Pandemic
Our 2020 net product sales were negatively impacted by the COVID-19 pandemic, which mandated 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; however, we do not know how long it will take the surgical community to return to normal operations, or if restrictions on elective surgeries will recur. 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 many 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 surgical centers. Our offices have re-opened on a voluntary basis with strict safety and hygiene guidelines implemented, and we continue to support remote working as appropriate.
The situation remains dynamic and is subject to rapid and possibly material changes. 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 these pandemic conditions persist or exacerbate over an extended period of time, including if states return to placing restrictions on elective surgical procedures. 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 timing of effective vaccines becoming widely available and accepted by the public. We have also taken advantage of some of the provisions of the Coronavirus Aid, Relief and Economic Security (CARES) Act, mainly by deferring the payment of certain employer payroll taxes. For more information, see “Liquidity and Capital Resources” below.
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 Item 1A. “Risk Factors” in this Annual Report.
Results of Operations
Comparison of the Years Ended December 31, 2020 and 2019
Revenues
Net product sales consist of sales of EXPAREL in the U.S., our bupivacaine liposome injectable suspension to Aratana for veterinary use in the U.S., and sales of iovera° in the U.S. Royalty revenues are from our collaborative licensing agreements.
The following table provides information regarding our revenues during the periods indicated, including percent changes (dollar amounts in thousands):
Year Ended December 31, % Increase / (Decrease)
Net product sales:
Bupivacaine liposome injectable suspension 4,459 3,153 41 %
EXPAREL revenue grew 1% in 2020 compared to 2019, primarily due to an increase in sales volume of 1% and a 4% increase in gross selling price per unit, partially offset by the sales mix of EXPAREL vial sizes. EXPAREL revenue was impacted by the significant postponement or suspension of elective surgical procedures resulting from public health guidance and government directives due to the COVID-19 pandemic, beginning in mid-March 2020. The demand for EXPAREL has generally continued to increase as a result of ambulatory surgical centers and anesthesiologists broadening the use of long-
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acting EXPAREL regional approaches as a foundation of multimodal opioid-minimization strategies that enable shifting inpatient procedures to 23-hour sites of care.
As part of the acquisition of MyoScience (the “MyoScience Acquisition”), we acquired the iovera° system and began recognizing net product sales in April 2019. Net product sales increased 12% in 2020 versus 2019. The increase in revenue largely reflects the timing of the MyoScience Acquisition in 2019 offset in part by the impact of the COVID-19 pandemic. Thus far, we have seen the greatest iovera° demand as pain relief for patients in advance of TKA procedures and in chronic pain management, particularly for people with mild to severe osteoarthritis of the knee.
Any renewed government suspension of, or reluctance of patients to have, elective surgeries would impact our future sales of EXPAREL and iovera° during the ongoing COVID-19 pandemic.
Royalty revenue reflects the royalties earned on net product sales of bupivacaine liposome injectable suspension to Aratana for veterinary use, both of which increased over 40% in 2020 versus 2019 as a result of the timing of orders placed by Aratana.
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 cost of goods sold and gross margin during the periods indicated, including percent changes (dollar amounts in thousands):
Year Ended December 31, % Increase / (Decrease)
Gross margin 73 % 75 %
Gross margin decreased two percentage points in 2020 versus 2019. One percentage point was due to unplanned downtime at our custom manufacturing suite in Swindon, England (under our partnership with Thermo Fisher), and one percentage point was due to a planned shutdown at our Science Center Campus in San Diego, California in order to prepare our manufacturing suite for a new EXPAREL capacity expansion project.
Despite shelter-in-place and other restrictive orders to combat the COVID-19 pandemic in California and England, there were no interruptions to our EXPAREL operations at either the Science Center Campus or Swindon manufacturing sites as a result of the COVID-19 pandemic as the production of EXPAREL is considered essential. Our Fremont, California facility, where we manufacture iovera°, was closed for three weeks in March 2020 to implement safety protocols and guidelines related to the COVID-19 pandemic. The Fremont facility resumed normal operations in April 2020.
Research and Development Expenses
Research and development expenses primarily consist 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 expense. Clinical and preclinical development expenses include costs for clinical personnel, clinical trials performed by third-parties, toxicology studies, materials and supplies, database management and other third-party fees. Product development and manufacturing capacity expansion expenses include development costs for our products, which include personnel, equipment, materials and contractor costs for process development and product candidates, development costs related to significant scale-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, awards of restricted stock units, or RSUs, and our employee stock purchase plan, or ESPP.
The following table provides a breakout of our research and development expenses during the periods indicated, including percent changes (dollar amounts in thousands):
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Year Ended December 31, % Increase / (Decrease)
Clinical and preclinical development $ 23,126 $ 30,265 (24) %
Product development and manufacturing capacity expansion 23,516 29,724 (21) %
Total research and development expense $ 59,421 $ 72,119 (18) %
% of total revenue 14 % 17 %
Total research and development expense decreased 18% in 2020 versus 2019. Clinical and preclinical development expense decreased 24% due to the completion of our Phase 3 pediatric (“PLAY”) clinical trial, our Phase 4 C-Section (“CHOICE”) trial and both our nerve block and pediatric pharmacokinetic studies. In addition, we made the strategic decision to conclude enrollment in the spine (“FUSION”) study early due to protocol feasibility given the rapid evolution of medical practice for spinal procedures. The data from approximately 65 FUSION study subjects will be analyzed with the intent to inform future studies in this patient population. These decreases were partially offset by startup activities related to our iovera° and EXPAREL (“PREPARE”) trial, our lower extremity nerve block (“STRIDE”) clinical trial, as well as the completion of our clinical trial for pectoral field block in breast augmentation. In addition, these increases included a Phase 1 intrathecal clinical trial to evaluate the safety, pharmacokinetics and sensory selective efficacy of EXPAREL. Certain clinical trials were slower than normal during 2020 as a result of the COVID-19 pandemic.
Product development and manufacturing capacity expansion expense decreased 21% in 2020 versus 2019 due to our progress in constructing the significant scale-up of our manufacturing capacity at the Thermo Fisher site in Swindon, England as the project advances from the development phase to the registration phase.
Regulatory and other expenses increased 8% in 2020 versus 2019 due to increases in the publication of clinical manuscripts and abstracts, as well as startup activities related to the iovera° clinical database registry.
Stock-based compensation increased 2% in 2020 versus 2019 primarily due to an increase in the number of equity awards granted.
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, medical and scientific affairs operations, commission payments to our marketing partners for the promotion and sale of EXPAREL and iovera°, 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, 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 selling, general and administrative expenses during the periods indicated, including percent changes (dollar amounts in thousands):
Year Ended December 31, % Increase / (Decrease)
Total selling, general and administrative expenses $ 193,516 $ 200,782 (4) %
% of total revenue 45 % 48 %
Total selling, general and administrative expenses decreased 4% in 2020 versus 2019.
Sales and marketing expenses decreased 8% in 2020 versus 2019. The decrease was primarily driven by a decline in sales commissions, reduced marketing spend due to the cancellations of in person meetings, medical conferences, travel and increased utilization of lower cost virtual meetings due to the COVID-19 pandemic. These were partially offset by a termination fee to DePuy Synthes of up to $9.0 million, and higher sales and marketing compensation due to an expanded sales force. We
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are continuing our marketing investment in EXPAREL, which includes educational initiatives and programs related to the impact of opioids and postsurgical pain management and our national advocacy campaign designed to educate patients about non-opioid treatment options. We recently launched the Pacira Innovation and Training center at Tampa (the “PITT”) in Tampa, Florida. This approximately 10,000 square-foot facility will support 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. Additionally, we have continued investing in marketing initiatives and customer outreach for iovera°.
In the near-term, we expect that sales and marketing expenditures will continue to be impacted by the COVID-19 pandemic and its resultant effects on elective surgeries, sales commissions, cancellations of in-person industry conferences and the suspension of non-essential employee travel.
General and administrative expenses decreased 3% in 2020 versus 2019. The decrease was primarily due to lower legal expenditures related to our U.S. Department of Justice subpoena received in April 2015, which was resolved in July 2020 and was partially offset by expenditures to support the expansion of the business following the MyoScience Acquisition.
Stock-based compensation increased 22% in 2020 versus 2019, primarily due to an increase in personnel and the number of equity grants awarded.
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):
Year Ended December 31, % Increase / (Decrease)
Amortization of acquired intangible assets $ 7,866 $ 5,703 38 %
As part of the MyoScience Acquisition we acquired intangible assets consisting of developed technology and customer relationships, with estimated useful lives of 14 and 10 years, respectively. Beginning in the second quarter of 2019, these are being amortized on a straight-line basis. For more information, see Note 9, Goodwill and Intangible Assets, to our consolidated financial statements included herein.
Acquisition-Related Charges, Product Discontinuation and Other
The following table provides a summary of the costs related to the MyoScience Acquisition, our DepoCyt(e) discontinuation and other activities during the periods indicated, including percent changes (dollar amounts in thousands):
Year Ended December 31, % Increase / (Decrease)
Product discontinuation (188) 159 N/A
In 2020, we recognized charges of $5.4 million related to the MyoScience Acquisition primarily due to changes in the fair value of contingent consideration. In 2019, we recognized charges of $21.6 million, which represents $16.7 million for the changes in fair value of contingent consideration and $4.2 million for advisory costs, including legal, financial, accounting and tax services and $0.7 million for separation costs, asset write-downs and other restructuring activities related to the MyoScience Acquisition. For more information, see Note 18, Acquisition-Related Charges and Product Discontinuance, Net, to our consolidated financial statements included herein.
In 2020, we recorded a gain of $0.2 million related to the final settlement of the lease agreement for the site of the former DepoCyt(e) manufacturing activities. In 2019, we recorded a charge of $0.2 million primarily for the accretion of the related lease liability.
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In 2019, we recorded a charge of $3.5 million related to the U.S. Department of Justice settlement. The settlement was paid in July 2020. For more information, see Note 21, Commitments and Contingencies, to our consolidated financial statements included herein.
Other (Expense) Income
The following table provides information regarding other (expense) income during the periods indicated, including percent changes (dollar amounts in thousands):
Year Ended December 31, % Increase / (Decrease)
Loss on early extinguishment of debt (8,071) — N/A
Total other expense, net increased 24% in 2020 versus 2019, primarily due to an $8.1 million loss on early extinguishment of debt incurred in conjunction with the retirement of $185.0 million aggregate principal of our 2022 Notes in July 2020. In addition, there was a reduction in interest income primarily due to a decline in interest rates and an increase in interest expense due to the issuance of $402.5 million of aggregate principal 2025 Notes in July 2020. Other, net included $1.1 million of United Kingdom research and development tax credits and a $1.6 million unrealized gain on our equity investment in TELA Bio in 2020 versus an unrealized loss on the equity investment of $5.7 million in 2019.
Income Tax (Benefit) Expense
The following table provides information regarding our income tax (benefit) expense during the periods indicated, including percent changes (dollar amounts in thousands):
Year Ended December 31, % Increase / (Decrease)
Income tax (benefit) expense $ (125,434) $ 268 N/A
Effective tax rate (100)% + (2) %
We recorded an income tax benefit of $125.4 million for the year ended December 31, 2020 and income tax expense of $0.3 million for the year ended December 31, 2019. A full valuation allowance had been recorded against our net deferred tax balance as of December 31, 2019 as it had been more likely than not that our net deferred tax assets would not be realizable. At each reporting date, we consider new evidence, both positive and negative, that could affect our view of the future realization of deferred tax assets. During the year ended December 31, 2020, in part because in the current year we achieved three years of cumulative pretax income in the U.S. federal and state tax jurisdictions and based on our most recent forecasts, we determined that there is sufficient positive evidence to conclude that it is more likely than not that additional deferred taxes of $126.6 million are realizable and, therefore, we reduced the valuation allowance accordingly. For more information, see Note 16, Income Taxes, to our consolidated financial statements included herein.
The income tax expense for the year ended December 31, 2019 consisted primarily of $1.1 million of state income taxes in jurisdictions where the availability of carryforward losses are either limited or fully utilized as well as $1.0 million of state taxes on the one-time gain from the deemed sale of assets resulting from a tax election pursuant to Internal Revenue Code (IRC) Section 338(g) made by us related to the MyoScience Acquisition. This was partially offset by a $1.8 million reduction in our valuation allowance on our deferred tax assets due to the MyoScience Acquisition. No federal taxes resulted from the tax election given there were sufficient NOL carryforwards.
Liquidity and Capital Resources
Since our inception in 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. We have financed our operations primarily with the proceeds from the sale of convertible senior notes, common stock, product sales and collaborative licensing and milestone revenue. As of December 31, 2020, we had an accumulated
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deficit of $253.9 million, cash and cash equivalents, short-term and long-term investments of $617.1 million and working capital of $398.3 million. The net cash proceeds from the July 2020 issuance of $402.5 million aggregate principal of the 2025 Notes was $178.9 million, after deducting fees and offering expenses of $12.5 million and using $211.1 million to retire $185.0 million in aggregate principal (including accrued interest) of our existing 2022 Notes. For more information, see Note 11, Debt, to our consolidated financial statements included herein.
As discussed above, we anticipate that the COVID-19 pandemic will continue to result in a reduction of certain commercial and clinical expenditures which would offset some of the revenue declines caused by the COVID-19 pandemic. 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.
On March 27, 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, allows 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 years ended December 31, 2020 and 2019 (in thousands):
Year Ended December 31,
Consolidated Statements of Cash Flows Data: 2020 2019
Net cash provided by (used in):
Net increase (decrease) in cash and cash equivalents $ 21,729 $ (54,298)
Operating Activities
In 2020, net cash provided by operating activities was $77.0 million compared to $70.5 million in 2019. The increase of $6.5 million was primarily attributable to the increase in income from operations driven by the increase in revenue and reductions in research and development and selling, general and administrative expenses—reflecting reduced spending due to the COVID-19 pandemic and a decline in sales commissions. These increases were partially offset by an increase in overall working capital requirements, and contingent consideration payments made to MyoScience securityholders, $9.4 million of which were classified as operating.
Investing Activities
In 2020, net cash used in investing activities was $277.6 million, which reflected $238.6 million of short-term and long-term investment purchases (net of maturities) and purchases of fixed assets of $37.8 million. Major fixed asset purchases included equipment for a new EXPAREL capacity expansion project at our Science Center Campus in San Diego, California and continuing expenditures for expanding our EXPAREL manufacturing capacity in Swindon, England. In addition, we made a $1.2 million equity investment in GeneQuine.
In 2019, net cash used in investing activities was $128.5 million, which reflected cash used to fund the MyoScience Acquisition of $117.7 million (net of $1.3 million of cash acquired), purchases of fixed assets of $10.2 million and an additional $1.6 million investment in TELA Bio, partially offset by $1.0 million of short-term and long-term investment maturities (net of purchases). Major fixed asset purchases included continuing expenditures for expanding our EXPAREL manufacturing capacity in England and facility upgrades at our Science Center Campus.
Financing Activities
In 2020, net cash provided by financing activities was $222.3 million, which consisted of gross proceeds from the issuance of the 2025 Notes of $402.5 million, the exercise of stock options of $45.2 million and $2.5 million from the issuance of shares through our ESPP. In conjunction with the issuance of the 2025 Notes, we paid $211.1 million of cash (including $1.2 million of accrued interest classified as an operating outflow) to retire $185.0 million of our 2022 Notes in privately-negotiated transactions and $12.5 million in financing costs. We also made contingent consideration payments to MyoScience
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securityholders, of which $5.6 million was classified as financing activities based on their recognition at the time of the MyoScience Acquisition.
In 2019, net cash provided by financing activities was $3.7 million, which consisted of proceeds from the exercise of stock options of $8.5 million and $2.4 million from the issuance of shares through our ESPP. We also made a $6.6 million contingent consideration payment to MyoScience securityholders and a $0.6 million payment to retire our 3.25% convertible senior notes due 2019.
Equity Financings
From our inception through December 31, 2020, we have raised $344.5 million of net proceeds from the sale of common stock and other equity securities via public offerings.
Debt
2025 Convertible Senior Notes
On July 10, 2020, we completed a private placement of $402.5 million in aggregate principal amount of our 2025 Notes and entered into the 2025 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, beginning on February 1, 2021. The 2025 Notes mature on August 1, 2025. At December 31, 2020, the outstanding principal amount of the 2025 Notes was $402.5 million.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. 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 2025 Notes is 13.9324 shares of common stock per $1,000 principal amount, which is equivalent to an initial conversion price of approximately $71.78 per share of our common stock. The conversion rate will be subject to adjustment for certain events but will not be adjusted for any accrued and unpaid interest.
Prior to the close of business on the business day immediately preceding February 3, 2025, holders may convert the 2025 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. None of these conditions for conversion were met during the quarter ended December 31, 2020.
While the 2025 Notes are currently classified on our consolidated balance sheet at December 31, 2020 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 2025 Notes have the right 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.
On or after August 1, 2023, we may redeem for cash, shares of our common stock or a combination of cash and shares of our common stock, at our option, all or part of the 2025 Notes if the last reported sale price (as defined in the 2025 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 11, Debt, to our consolidated financial statements included herein for further discussion of the 2025 Notes.
2022 Convertible Senior Notes
On March 13, 2017, we completed a private placement of $345.0 million in aggregate principal amount of our 2022 Notes, and entered into the 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 December 31, 2020, the outstanding principal amount of the 2022 Notes was $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
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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 for certain 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.
As of April 1, 2020, we may redeem for cash, shares of our common stock or a combination of cash and shares of our common stock, at our option, 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. This condition was not met during the quarter ended December 31, 2020.
See Note 11, Debt, to our consolidated financial statements included herein for further discussion of the 2022 Notes.
Future Capital Requirements
We believe that our existing cash and cash equivalents, short-term and long-term investments and cash received from product sales will be sufficient to enable us to fund our operating expenses, capital expenditure requirements, payment of the remaining principal on any conversions of the 2022 Notes and 2025 Notes and to service our indebtedness through at least February 26, 2022. 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 surgical procedures, clinical trials and general economic conditions;
•our ability to successfully continue to expand the commercialization of EXPAREL, including outside of the U.S.;
•the costs of expanding the commercialization of iovera°, including outside of the U.S.;
•the cost and timing of expanding our manufacturing facilities for EXPAREL and other product candidates, including the construction of an additional manufacturing suite at Thermo Fisher’s facility in Swindon, England 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 $58.0 million if certain regulatory and commercial milestones are met, which includes one milestone payment of up to $10.0 million to be paid in the first half of 2021;
•the cost and timing of potential milestone payments to Skyepharma, 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, 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 cost and timing of an early termination payment to DePuy Synthes, which we currently estimate to be up to $9.0 million;
•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 pediatric trials required by the FDA 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.
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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.
Contractual Obligations
The table below presents a summary of our contractual obligations as of December 31, 2020 (in thousands):
Payments Due by Period
(1) This table does not include potential future milestone payments to Skyepharma 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, including $32.0 million when annual net sales of DepoBupivacaine products collected, including EXPAREL, reach $500.0 million (measured on a rolling quarterly basis) and $4.0 million upon the first commercial sale in the United Kingdom, France, Germany, Italy or Spain. This contingency is described further in Note 9, Goodwill and Intangible Assets, to our consolidated financial statements included herein. This table also does not include potential future milestone payments to MyoScience shareholders which could be up to an aggregate of $48.0 million if certain regulatory and commercial milestones are met. However, the table above includes one achieved milestone payment totaling $10.0 million scheduled to be paid in the first half of 2021. The table also does not include potential investments of $4.9 million to be made under an investment agreement and convertible loan agreement if certain milestones are met by GeneQuine. Further, this table does not include various agreements that we have entered into for services with third-party vendors, including agreements to conduct clinical trials, and for consulting and other contracted services due to the cancellable nature of the services.
(2) The amounts represent the April 2022 maturity of our 2022 Notes and the August 2025 maturity of our 2025 Notes. See Note 11, Debt, to our consolidated financial statements included herein for further discussion. Additionally, it excludes any conversion premium on the 2022 Notes and 2025 Notes, which may be settled in cash or stock at our discretion. Neither the 2022 Notes nor the 2025 Notes were convertible as of December 31, 2020.
(3) The amounts consist of operating leases for our corporate headquarters in Parsippany, New Jersey, manufacturing, research and development and warehouse space in San Diego, California and Fremont, California and office space in Tampa, Florida. In addition, the lease component for the use of the Thermo Fisher facility in Swindon, England under the Thermo Fisher Agreements has also been included.
(4) The amounts consist of minimum, non-cancelable contractual commitments for contract manufacturing services and raw materials.
In April 2014, we and Thermo Fisher entered into a Strategic Co-Production Agreement, a Technical Transfer and Service Agreement and a Manufacturing and Supply Agreement to collaborate in the manufacture of EXPAREL. Under the terms of the Technical Transfer and Service Agreement, Thermo Fisher 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. Under these agreements, we are required to make monthly base fee payments to Thermo Fisher. Under the terms of the Manufacturing and Supply Agreement, following FDA approval of the first suite (which occurred in May 2018), we agreed to purchase EXPAREL product from Thermo Fisher. Unless earlier terminated by giving notice of up to three years (other than termination by us in the event of a material breach by Thermo Fisher), this agreement will expire in May 2028.
Critical Accounting Policies and Use of Estimates
We have based our management’s discussion and analysis of our financial condition and results of operations on our financial statements that have been prepared in accordance with GAAP in the U.S. The preparation of these financial statements requires us to make estimates that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported revenues and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, contingent consideration, inventory costs, liabilities and accruals, clinical trial expenses, stock-based compensation and the valuation of deferred tax assets. We base our estimates on historical experience, contract terms and on other factors we believe to be appropriate under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.
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Our significant accounting policies are more fully discussed in Note 2, Summary of Significant Accounting Policies, to our consolidated financial statements included herein. The following accounting policies, which may include significant judgments and estimates, were used in the preparation of our consolidated financial statements.
Revenue Recognition
Our sources of revenue include (i) sales of EXPAREL in the U.S.; (ii) sales of iovera° in the U.S.; (iii) sales of, and royalties on, sales of our bupivacaine liposome injectable suspension product for veterinary use in the U.S. and (iv) license fees and milestone payments. To date, there has been no revenue from the sales of EXPAREL or iovera° in the E.U. We do not consider revenue from sources other than sales of EXPAREL to be material sources of our consolidated revenue.
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, namely hospitals, ambulatory surgery centers and 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 we expect to be entitled to in exchange for transferring those goods. EXPAREL revenue is recorded at the time the product is delivered to the end-user.
Collaborative Licensing and Milestone Revenue
Our collaboration agreements generally involve licenses to our products. In determining how and when to recognize the revenue under a collaboration agreement, we must assess whether the license is distinct, which depends upon whether the customer can benefit from the license and whether the license is separate from other performance obligations in the agreement. If the license is distinct, we must further assess whether the customer has a right to access or a right to use the license depending on whether the functionality of the license is expected to substantively change over time. If the license is not expected to substantively change, the revenue is recognized at the point in time when the license is provided. If the license is expected to substantively change, the revenue is recognized over the license period.
Revenue recognition from milestone payments is dependent upon the facts and circumstances surrounding the milestone payments. Milestone payments based on a non-sales metric such as a development-based milestone (e.g. obtaining regulatory approval) represent variable consideration and are included in the transaction price subject to any constraints. If the milestone payments relate to future development, the timing of recognition depends upon historical experience and the significance a third-party has on the outcome. For milestone payments to be received upon the achievement of a sales threshold, the revenue from the milestone payments is recognized at the later of when the actual sales are incurred or the performance obligation to which the sales relate to has been satisfied.
Contingent Consideration
Subsequent to an acquisition, we measure contingent consideration arrangements at fair value for each period with changes in fair value recognized in the consolidated statements of operations as acquisition-related charges. Changes in contingent consideration can result from changes in the assumed achievement and timing of estimated sales, costs of goods sold and regulatory approvals. In the absence of new information, changes in fair value reflect the passage of time towards achievement of the milestones, and are accrued based on an accretion schedule.
Recent Accounting Pronouncements
See Note 3, Recent Accounting Pronouncements, to our consolidated financial statements for further discussion of recent accounting pronouncements.
Off-Balance Sheet Arrangements
We do not have any material off-balance sheet arrangements as of December 31, 2020, 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.
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Item 7A. Quantitative and Qualitative Disclosures about Market Risk
The primary objective of our cash equivalents 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, 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 December 31, 2020 by approximately $2.6 million.
We have an equity investment in the common stock of TELA Bio, which is publicly traded on the Nasdaq Global Select Market. TELA Bio is measured at fair value on a recurring basis. Changes in the price of its common stock will affect the value of our investment, and we could incur realized or unrealized losses on all or a part of the value of this investment. At December 31, 2020, the value of TELA Bio was $11.6 million, and a hypothetical 10% decrease in the market price would have caused a decrease in our carrying amount by $1.2 million. See Note 12, Financial Instruments, to our consolidated financial statements included herein for additional information on our equity investments.
In July 2020, we issued $402.5 million in aggregate principal amount of our 2025 Notes, which mature in August 2025. Holders may convert their 2025 Notes prior to maturity under certain circumstances. Upon conversion, holders will receive the principal amount of the 2025 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 2025 Notes is impacted by both the fair value of our common stock and interest rate fluctuations. As of December 31, 2020, the estimated fair value of the 2025 Notes was $1,116 per $1,000 principal amount. See Note 11, Debt, to our consolidated financial statements included herein for further discussion of the 2025 Notes. The 2025 Notes bear interest at a fixed rate. At December 31, 2020, all $402.5 million of principal remains outstanding on the 2025 Notes.
In March 2017, we issued $345.0 million in aggregate principal amount of our 2022 Notes, which mature in April 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. Holders may convert their 2022 Notes prior to maturity under certain circumstances. Upon conversion, holders will receive the principal amount of the 2022 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. The 2022 Notes bear interest at a fixed rate. As of December 31, 2020, the estimated fair value of the 2022 Notes was $1,144 per $1,000 principal amount. See Note 11, Debt, to our consolidated financial statements included herein for additional information on the 2022 Notes. At December 31, 2020, $160.0 million of principal remains outstanding on the 2022 Notes.
We have agreements with certain vendors and partners that operate in foreign jurisdictions. The transactions under these agreements are primarily denominated in the U.S. Dollar, subject to periodic adjustment based on changes in currency exchange rates.
Additionally, our accounts receivable are primarily concentrated with three large 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 flow.
Item 8. Financial Statements and Supplementary Data
Our consolidated financial statements required by this item, together with the report of our independent registered public accounting firm, appear on pages F-1 through F-41 of this Annual Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
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Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, which are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chairman and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Based on their evaluation as of December 31, 2020, our Chief Executive Officer and Chairman and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2020.
Management’s Report on Internal Control over Financial Reporting
Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chairman and Chief Financial Officer, management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2020, based on the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based upon the results of the evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2020.
The effectiveness of our internal control over financial reporting as of December 31, 2020 was audited by KPMG LLP, our independent registered public accounting firm, as stated in their report appearing below, which expressed an unqualified opinion on the effectiveness of our internal control over financial reporting as of December 31, 2020.
Changes in Internal Control over Financial Reporting
During the quarter ended December 31, 2020, our management has integrated internal controls for the acquired MyoScience acquisition into our existing controls. Other than integrating the MyoScience acquisition, there have been no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
Pacira BioSciences, Inc.:
Opinion on Internal Control Over Financial Reporting
We have audited Pacira BioSciences, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes (collectively, the consolidated financial statements), and our report dated February 26, 2021 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’sReport on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
Short Hills, New Jersey
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Item 9B. Other Information
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Information required by this item will be included in the proxy statement for our 2021 annual stockholders’ meeting and is incorporated by reference into this report.
Item 11. Executive Compensation
Information required by this item will be included in the proxy statement for our 2021 annual stockholders’ meeting and is incorporated by reference into this report.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters
Information required by this item will be included in the proxy statement for our 2021 annual stockholders’ meeting and is incorporated by reference into this report.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information required by this item will be included in the proxy statement for our 2021 annual stockholders’ meeting and is incorporated by reference into this report.
Item 14. Principal Accountant Fees and Services
Information required by this item will be included in the proxy statement for our 2021 annual stockholders’ meeting and is incorporated by reference into this report.
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PART IV
Item 15. Exhibits, Financial Statement Schedules
(a)Documents filed as part of this Annual Report on Form 10-K:
(1)Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income (Loss)
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(2)Schedules
All financial statement schedules have been omitted because they are not required, are not applicable or the information is included in the consolidated financial statements or related notes thereto.
(3)Exhibits
The following exhibits are filed with, or incorporated by reference in this Form 10-K.
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EXHIBIT INDEX
Incorporation By Reference From
ExhibitNumber Description Form Exhibit DateFiled
3.1 Amended and Restated Certificate of Incorporation. 8-K 3.1 2/11/2011
3.3 Second Amended and Restated Bylaws. 8-K 3.2 4/9/2019
4.1 Specimen Certificate Evidencing Shares of Common Stock. 10-Q 4.1 5/2/2019
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Incorporation By Reference From
ExhibitNumber Description Form Exhibit DateFiled
10.24 Pacira BioSciences, Inc. Deferred Compensation Plan.*** 8-K 10.1 6/11/2020
10.25 Pacira BioSciences, Inc. Long-Term Incentive Plan.*** 8-K 10.1 12/7/2020
21.1 Subsidiaries of the Registrant.*
23.1 Consent of KPMG LLP.*
101.INS* Inline XBRL Instance Document.*
101.SCH* Inline XBRL Taxonomy Schema Document.*
101.CAL* Inline XBRL Taxonomy Calculation Linkbase Document.*
101.LAB* Inline XBRL Taxonomy Label Linkbase Document.*
101.PRE* Inline XBRL Taxonomy Presentation Linkbase Document.*
101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document.*
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* Filed herewith.
** Furnished herewith.
*** Denotes management contract or compensatory plan or arrangement.
† Confidential treatment has been requested or granted as to certain portions, which portions were omitted and filed separately with the Securities and Exchange Commission pursuant to a Confidential Treatment Request.
†† Certain portions of the exhibit have been omitted pursuant to Rule 601(b)(10) of Regulation S-K. The omitted information is (i) not material and (ii) would likely cause competitive harm to the Company if publicly disclosed.
# Certain schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K under the Securities Exchange Act of 1934, as amended. The Company hereby undertakes to supplementally furnish copies of any omitted schedules to the Securities and Exchange Commission upon request.
Item 16. Form 10-K Summary
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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./s/ DAVID STACK
Date: February 26, 2021 By: David StackChief Executive Officer and Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date
David Stack
Charles A. Reinhart, III
Lauren Riker
/s/ LAURA BREGE Director February 26, 2021
Laura Brege
/s/ CHRISTOPHER J. CHRISTIE Director February 26, 2021
Christopher J. Christie
/s/ MARK FROIMSON Director February 26, 2021
Mark Froimson
/s/ YVONNE GREENSTREET Director February 26, 2021
Yvonne Greenstreet
/s/ MARK KRONENFELD Director February 26, 2021
Mark Kronenfeld
/s/ JOHN LONGENECKER Director February 26, 2021
John Longenecker
/s/ GARY PACE Director February 26, 2021
Gary Pace
/s/ ANDREAS WICKI Director February 26, 2021
Andreas Wicki
/s/ PAUL HASTINGS Lead Director February 26, 2021
Paul Hastings
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PACIRA BIOSCIENCES, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2020
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
Page #
Report of Independent Registered Public Accounting Firm F-2
Consolidated Balance Sheets as of December 31, 2020 and 2019 F-4
Notes to Consolidated Financial Statements F-10
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
Pacira BioSciences, Inc.:
Opinion on the ConsolidatedFinancial Statements
We have audited the accompanying consolidated balance sheets of Pacira BioSciences, Inc. and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the three‐year period ended December 31, 2020, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three‐year period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 26, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 3 to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2019 due to the adoption of Accounting Standards Update 2016-02, Leases (Topic 842).
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidatedfinancial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidatedfinancial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidatedfinancial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Fair value measurement of the contingent consideration liabilities associated with the acquisition of MyoScience, Inc.
As discussed in Notes 5 and 12 to the consolidated financial statements, the fair value of the contingent consideration liabilities related to the acquisition of MyoScience, Inc. was $28.3 million as of December 31, 2020. The contingent consideration liabilities are re-measured each reporting period, with a maximum remaining payout as of December 31, 2020 of $58.0 million. The determination of the fair value of the contingent consideration liabilities related to achieving commercial and regulatory milestonesrequires the Company to make significant estimates and assumptions. These estimates and assumptions include forecasts of revenues, estimated probabilities and timing of achieving specified commercial and regulatory milestones, volatility and discount rates.
We identified the evaluation of the ongoing fair value measurement of the contingent consideration liabilities related to achieving commercial and regulatory milestones associated with the acquisition of MyoScience, Inc. as a critical audit
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matter. Testing the simulation and milestone based models, including non-observable inputs, such as the forecasted revenue, estimated probability and timing of achieving specific commercial and regulatory milestones, the volatility and the discount rates involved a high degree of subjectivity.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s ongoing fair value process for contingent consideration liabilities related to achieving commercial and regulatory milestones. This included controls related to the forecasted revenues, estimated probabilities and timing of achieving specified milestones, the volatility and the discount rates. We evaluated the forecasted revenue and commercial and regulatory milestone assumptions used in the Company’s models by comparing them to industry benchmarks and other relevant and reliable third-party market data, as well as evaluated the relevance and reliability of third-party market data points used to develop the future revenue growth and commercial and regulatory milestones. We involved valuation professionals with specialized skills and knowledge, who assisted in evaluating the Company’s volatility and discount rates, by comparing the Company’s inputs to the volatility and the discount rates, to publicly available market data for the comparable entities used by the Company and assessing the resulting volatility and discount rates. They also assisted in testing the estimate of the ongoing fair value of the contingent consideration liabilities using the Company’s forecasted revenues, volatility and the discount rates, and comparing the results to the Company’s fair value estimates.
/s/ KPMG LLP
We have served as the Company’s auditor since 2015.
Short Hills, New Jersey
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PACIRA BIOSCIENCES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
December 31,
ASSETS
Current assets:
Prepaid expenses and other current assets 12,265 10,781
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Convertible senior notes 149,648 —
Commitments and contingencies (Note 21)
Stockholders’ equity:
Accumulated other comprehensive income 318 322
See accompanying notes to consolidated financial statements.
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PACIRA BIOSCIENCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Year Ended December 31,
Revenues:
Collaborative licensing and milestone revenue — — 3,000
Operating expenses:
Amortization of acquired intangible assets 7,866 5,703 —
Other (expense) income:
Loss on early extinguishment of debt (8,071) — —
Net income (loss) per share:
Basic net income (loss) per common share $ 3.41 $ (0.27) $ (0.01)
Diluted net income (loss) per common share $ 3.33 $ (0.27) $ (0.01)
Weighted average common shares outstanding:
See accompanying notes to consolidated financial statements.
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PACIRA BIOSCIENCES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
Year Ended December 31,
Other comprehensive income (loss):
Net unrealized gain (loss) on investments, net of tax (3) 602 174
Foreign currency translation adjustments (1) — —
Total other comprehensive income (loss) (4) 602 174
See accompanying notes to consolidated financial statements
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PACIRA BIOSCIENCES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018
(In thousands)
Shares Amount
Vested restricted stock units 156 — — — — —
Shares issued under employee stock purchase plan 65 — 1,784 — — 1,784
Other comprehensive income (Note 13) — — — — 174 174
Vested restricted stock units 193 — — — — —
Shares issued under employee stock purchase plan 67 — 2,402 — — 2,402
Other comprehensive income (Note 13) — — — — 602 602
Vested restricted stock units 239 — — — — —
Shares issued under employee stock purchase plan 62 — 2,546 — — 2,546
Other comprehensive loss (Note 13) — — — — (4) (4)
See accompanying notes to consolidated financial statements.
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PACIRA BIOSCIENCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
Operating activities:
Loss on disposal and impairment of fixed assets 22 1,010 65
Loss on early extinguishment of debt 8,071 — —
Investing activities:
Acquisition of MyoScience, Inc. (net of cash acquired) — (117,691) —
Payment of contingent consideration — — (6,843)
Financing activities:
Proceeds from shares issued under employee stock purchase plan 2,546 2,402 1,784
Proceeds from debt component of the 2025 convertible senior notes 314,708 — —
Proceeds from equity component of the 2025 convertible senior notes 87,792 — —
Repayment of 2019 convertible senior notes — (338) —
Repayment of 2022 convertible senior notes (176,793) — —
Retirement of equity component of the 2022 convertible senior notes (33,089) — —
Conversion premium on 2019 convertible senior notes — (233) —
Payment of debt issuance and financing costs (12,487) — —
See accompanying notes to consolidated financial statements.
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CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)(In thousands)
Year Ended December 31,
Supplemental cash flow information:
Cash paid for income taxes, net of refunds $ 2,417 $ 863 $ 128
Non-cash investing and financing activities:
Net increase in contingent consideration liabilities $ — $ 28,470 $ —
See accompanying notes to consolidated financial statements.
Pacira BioSciences, Inc. | 2020 Form 10-K | Page F-9
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PACIRA BIOSCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1—DESCRIPTION OF BUSINESS
Pacira BioSciences, Inc. and its subsidiaries (collectively, the “Company” or “Pacira”) is the industry leader in its commitment to non-opioid pain management and regenerative health solutions to improve patients’ journeys along the neural pain pathway. The Company’s long-acting, local analgesic, EXPAREL® (bupivacaine liposome injectable suspension), was commercially launched in the United States in April 2012 and approved by the European Commission in November 2020. 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. In April 2019, the Company added iovera°® to its commercial offering with the acquisition of MyoScience, Inc., or MyoScience. The iovera° system is a handheld cryoanalgesia device used to deliver a precise, controlled application of cold temperature to only targeted nerves.
Pacira is subject to risks common to companies in similar industries and stages, including, but not limited to, competition from larger companies, reliance on revenue from two products, reliance on a limited number of manufacturing sites, new technological innovations, dependence on key personnel, reliance on third-party service providers and sole source suppliers, protection of proprietary technology, compliance with government regulations and risks related to cybersecurity.
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; however, the Company does not know how long it will take the surgical community to return to normal operations or if states will return to placing restrictions on elective surgical procedures. 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 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, or SEC. The accounts of wholly owned subsidiaries are included in these consolidated financial statements. All intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications were made to conform to the current presentation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, including disclosure of contingent assets and contingent liabilities, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates are used for, among other things, revenue recognition, stock-based compensation, inventory costs, impairments of equity investments, long-lived assets, goodwill, liabilities and accruals, including contingent consideration, convertible senior notes, and the valuation of deferred tax assets. The Company’s critical accounting policies are those that are both most important to the Company’s consolidated financial condition and results of operations and require the most difficult, subjective or complex judgments on the part of management in their application, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Because of the uncertainty of factors surrounding the estimates or judgments used in the preparation of the consolidated financial statements, actual results could differ from these estimates.
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. See Note 4, Revenue, for further information on the Company’s accounting policies related to revenue from contracts with customers.
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PACIRA BIOSCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Collaborative Licensing and Milestone Revenue
The Company’s collaboration agreements generally involve a license to the Company’s products. In determining how and when to recognize the revenue under a collaboration agreement, the Company must assess whether the license is distinct, which depends upon whether the customer can benefit from the license and whether the license is separate from other performance obligations in the agreement. If the license is distinct, the Company must further assess whether the customer has a right to access or a right to use the license depending on whether the functionality of the license is expected to substantively change over time. If the license is not expected to substantively change, the revenue is recognized at the point in time when the license is provided. If the license is expected to substantively change, the revenue is recognized over the license period.
Revenue recognition from milestone payments is dependent upon the facts and circumstances surrounding the milestone payments. Milestone payments based on a non-sales metric such as a development-based milestone (e.g. obtaining regulatory approval) represent variable consideration and would be included in the transaction price subject to any constraints. If the milestone payments relate to future development, the timing of recognition depends upon historical experience and the significance a third-party has on the outcome. For milestone payments to be received upon the achievement of a sales threshold, the revenue from the milestone payments is recognized at the later of when the actual sales are incurred or the performance obligation to which the sales relate has been satisfied.
Royalty Revenue
Royalties are estimated and recognized as revenue when sales to the Company’s commercial partners occur, unless some constraint exists, as the royalties predominately relate to a supply agreement. Royalties are based on sales of the Company’s bupivacaine liposome injectable suspension product for veterinary use.
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 revenues comprised by the Company’s three largest wholesalers in each period presented:
Year Ended December 31,
Largest wholesaler 31 % 34 % 34 %
Second largest wholesaler 31 % 29 % 30 %
Third largest wholesaler 25 % 26 % 26 %
The Company had no revenue from outside the U.S. during the years ended December 31, 2020 and 2019. Revenue from outside the U.S. accounted for less than1% of the Company’s total revenue for the year ended December 31, 2018.
Research and Development Expenses
Research and development expenditures are expensed as incurred. These include both internal and external costs, of which a significant portion of development activities are outsourced to third parties, including contract research organizations. Clinical trial costs are accrued over the service periods specified in contracts and adjusted as necessary based on an ongoing review of the level of effort and actual costs incurred. Research and development costs are presented net of reimbursements from commercial partners.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to basis differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
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PACIRA BIOSCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company accrues interest and penalties, if any, on underpayment of income taxes related to unrecognized tax benefits as a component of income tax expense in its consolidated statements of operations.
Stock-Based Compensation
The Company’s stock-based compensation consists of grants of stock options and restricted stock units, or RSUs, to employees, consultants and non-employee directors, in addition to the opportunity for employees to participate in an employee stock purchase plan. The expense associated with these programs is recognized in the Company’s consolidated statements of operations based on their fair values as they are earned under the applicable vesting terms or the length of an offering period.
In calculating the estimated fair value of stock options granted, the Company uses the Black-Scholes option valuation model, or Black-Scholes model, which requires the consideration of the following variables for purposes of estimating fair value in addition to the closing price of the Company’s common stock on the date of grant:
•Expected term of the option
•Expected volatility
•Expected dividends
•Risk-free interest rate
The Company utilizes its historical volatility data to determine expected volatility over the expected option term. The Company uses an expected term based on its historical data from stock option activity. The risk-free interest rate is based on the implied yield on U.S. Department of the Treasury zero-coupon bonds for periods commensurate with the expected term of the options. The dividend yield on the Company’s common stock is estimated to be zero as the Company has not declared or paid any dividends since inception, nor does it have any intention to do so in the foreseeable future. The Company records forfeitures as they occur rather than estimating forfeitures during each period.
Cash and Cash Equivalents
All highly-liquid investments with maturities of 90 days or less when purchased are considered cash equivalents. Cash equivalents include corporate debt securities, asset backed securities and money market funds. As of December 31, 2020, the carrying value of money market funds was $51.8 million and commercial paper was $6.5 million and as of December 31, 2019, the carrying value of money market funds was $28.5 million, all of which are included in cash and cash equivalents. The carrying values approximate fair value as of December 31, 2020 and 2019.
Short-Term and Long-Term Investments
Short-term investments consist of asset-backed securities collateralized by credit card receivables, investment grade commercial paper, corporate and government bonds, and other bonds issued in the U.S. (and denominated in the U.S. dollar) by foreign entities, all with maturities of greater than three months, but less than one year. Long-term investments consist of corporate and government agency bonds with maturities greater than one year. The Company evaluates the classification of its investments at the time of purchase and re-evaluates such determination at each balance sheet date, which includes an assessment of the intent to hold the available-for-sale securities. The Company’s investment policy sets minimum credit quality criteria and maximum maturity limits on its investments to provide for preservation of capital, liquidity and a reasonable rate of return. The Company classifies its investments as available-for-sale. Available-for-sale securities are recorded at fair value, based on current market valuations. Unrealized holding gains and losses on available-for-sale securities (except for credit losses) are excluded from net income (loss) and are reported as a separate component of accumulated other comprehensive income (loss) until realized. Realized gains and losses are included in interest income in the consolidated statements of operations and are derived using the specific identification method for determining the cost of the securities sold. The Company evaluates whether a credit loss exists, and in the event a credit loss does exist, the credit loss is recognized in the consolidated statements of operations, based on the amount that the fair value is less than the amortized cost.
Inventories
Inventories consist of finished goods held for sale and distribution, raw materials and work in process. Inventories are stated at the lower of cost, which includes amounts related to material, labor and overhead, or net realizable value, and is determined using the first-in, first-out (“FIFO”) method. The Company periodically reviews its inventory to identify obsolete, slow-moving, or otherwise unsalable inventories, and establishes allowances for situations in which the cost of the inventory is not expected to be recovered.
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PACIRA BIOSCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fixed Assets
Fixed assets are recorded at cost, net of accumulated depreciation and amortization. The Company reviews its property, plant and equipment assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Depreciation of fixed assets is provided over their estimated useful lives on a straight-line basis. Leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or the related remaining lease terms. Useful lives by asset category are as follows:
Asset Category Useful Life
Computer equipment and software 1 to 3 years
Office furniture and equipment 5 years
Manufacturing and laboratory equipment 5 to 10 years
Asset Retirement Obligations
The Company has contractual obligations stemming from certain of its lease agreements to return leased space to its original condition upon termination of such lease agreements. The Company records its asset retirement obligations, or ARO, along with a corresponding capital asset in an amount equal to the estimated fair value of the ARO, based on the present value of expected future cash flows. In subsequent periods, the Company records expense to accrete the ARO to its full value. Each ARO capital asset is depreciated over the depreciable term of the associated asset.
Leases
The Company recognizes right-of-use, or ROU, assets and lease liabilities at the commencement of its lease agreements. The leases are evaluated at commencement to determine whether they should be classified as operating or financing leases. Lease costs associated with operating leases are recognized on a straight-line basis, while lease costs for financing leases are recognized over the lease term using the effective interest method. The Company does not have any financing leases. The amount of ROU assets and lease liabilities to be recognized is impacted by the type of lease payments, the lease term and the incremental borrowing rate. Variable lease payments are not included at commencement and are recognized in the period in which they are incurred. The lease term is based on the contractual term and is adjusted for any renewal options or termination rights that are reasonably certain to be exercised. The incremental borrowing rate is based on the rate the Company estimates it would pay on a collateralized basis over a similar term in a similar economic environment.
Acquisitions
In a business combination, the acquisition method of accounting requires that the assets acquired and liabilities assumed be recorded as of the date of the acquisition at their respective fair values, with some exceptions. Assets acquired and liabilities assumed in a business combination that arise from contingencies are generally recognized at fair value. If fair value can be determined, the asset or liability is recognized; if fair value is not determinable, then no asset or liability is recognized. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Any excess of the purchase price (consideration transferred) over the estimated fair values of net assets acquired is recorded as goodwill. Transaction costs and costs to restructure the acquired company are expensed as incurred. The operating results of the acquired business are reflected in the Company’s consolidated financial statements after the date of the acquisition.
Contingent Consideration
Subsequent to an acquisition, the Company measures contingent consideration arrangements at fair value each period, with changes in fair value recognized in the consolidated statements of operations as acquisition-related charges. Changes in contingent consideration can result from changes in the assumed achievement and timing of estimated sales, costs of goods sold and regulatory approvals. In the absence of new information, changes in fair value reflect the passage of time towards achievement of the milestones, and are accreted to the period in which payments are expected to be made.
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PACIRA BIOSCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Goodwill
Goodwill represents the excess of the purchase price over the estimated fair value of the net assets acquired in a business combination and is not amortized, but is subject to impairment testing at least annually or when a triggering event occurs that could indicate a potential impairment.
Intangible Assets
Intangible assets with definite useful lives are amortized on a straight-line basis over their estimated useful lives and are recorded at cost, net of accumulated amortization.
Equity Investments
The Company holds two separate investments in equity securities, one with a readily determined fair value and one without a readily determinable fair value. In the fourth quarter of 2019, the equity investment then held became publicly traded and thereafter, has been recognized at its fair value at each reporting period with any unrealized holding gains (losses) included in other income (expense). The equity method investment without a readily determinable fair value is recognized at its cost less any impairment, plus or minus any changes resulting from observable price changes in orderly transactions for a similar investment.
Impairment of Long-Lived Assets
Management reviews long-lived assets, including fixed assets and intangible assets, for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets.
Convertible Debt Transactions
The Company separately accounts for the liability and equity components of convertible debt instruments by allocating the proceeds from the issuance between the liability component and the embedded conversion option, or equity component. The value of the equity component is calculated by first measuring the fair value of the liability component, using the interest rate of a similar liability that does not have a conversion feature, as of the issuance date. The difference between the initial proceeds from the convertible debt issuance and the fair value of the liability component is recorded as the carrying amount of the equity component. The Company recognizes the amortization of the resulting discount as part of interest expense in its consolidated statements of operations.
Upon settlement of the convertible debt, the liability component is measured at fair value. The Company allocates a portion of the fair value of the total settlement consideration transferred to the extinguishment of the liability component equal to the fair value of that component immediately prior to the settlement. Any difference between the consideration attributed to the liability component and the net carrying amount of the liability component, including any unamortized debt issuance costs and debt discount, is recognized as a gain or loss in the consolidated statements of operations. Any remaining consideration is allocated to the retirement of the equity component and is recognized as a reduction of additional paid-in capital.
Per Share Data
Basic net income (loss) per common share is computed by dividing net income (loss) available (attributable) to common stockholders by the weighted average number of shares of common stock outstanding during the period.
Diluted net income (loss) per common share is calculated by dividing net income (loss) available (attributable) to common stockholders as adjusted for the effect of dilutive securities, if any, by the weighted average number of shares of common stock and dilutive common stock outstanding during the period. Potential common shares include the shares of common stock issuable upon the exercise of outstanding stock options, the RSUs expected to vest, the shares to be purchased under the Company’s employee stock purchase plan (using the treasury stock method), and the excess conversion value on the Company’s convertible senior notes.
Foreign Currency Translation
The balance sheet accounts of foreign subsidiaries with functional currencies other than the U.S. Dollar are translated using the exchange rate at each respective balance sheet date. Revenues and expenses are translated using average exchange
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PACIRA BIOSCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
rates for each calendar month during the year. Translation adjustments are recorded as a component of accumulated other comprehensive income (loss) in the consolidated financial statements.
Segment Reporting
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 manages and allocates resources at a consolidated level. Accordingly, the Company views its business as one reportable operating segment to evaluate performance, allocate resources, set operational targets and forecast its future financial results.
NOTE 3—RECENT ACCOUNTING PRONOUNCEMENTS
Recently Adopted Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. The Company now includes forward-looking information to better form its credit loss estimates. This update also required enhanced disclosures to help financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio. This standard became effective for the Company beginning January 1, 2020 and there were no credit losses recognized upon adoption.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework. The update added the following disclosures: (i) changes in unrealized gains and losses for the period included in other comprehensive income (loss) for recurring Level 3 fair value measurements held at the end of the reporting period and (ii) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The standard became effective for the Company beginning January 1, 2020 and the Company has applied these new disclosure requirements in its consolidated financial statements for the year ended December 31, 2020.
In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The update provides guidance to determine which implementation costs to capitalize as they relate to the service contract and which costs to expense. Any expense related to the capitalized implementation costs should be recorded in the same financial statement line item in the consolidated statements of operations as the fees associated with the hosting element of the arrangement, and the payments for capitalized implementation costs should be classified in the same manner as payments made for fees associated with the hosting element in the consolidated statements of cash flows. This standard became effective for the Company beginning January 1, 2020. The amendments have been applied prospectively to implementation costs incurred after the date of adoption. The Company did not incur implementation costs in a hosting arrangement that were required to be capitalized during the year ended December 31, 2020.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which was adopted by the Company on January 1, 2019 using the effective date method. There were practical expedients available to the Company that it elected to apply upon adoption. The Company did not re-assess (i) whether its contracts contained a lease under the new definition of a lease and (ii) the classification of those leases. There were no initial direct costs previously capitalized on the consolidated balance sheet. In addition, the Company applied hindsight in the determination of the lease terms, in the assessment of the likelihood that a lease renewal, termination or purchase option will be exercised, and in the assessment of any potential impairments that existed on the ROU assets recognized at adoption. The Company also elected not to recognize a ROU asset and lease liability for those leases with a remaining lease term of 12 months or less.
At adoption, the Company recorded $36.5 million of lease liabilities and $27.6 million of ROU assets as of January 1, 2019, the difference representing previously recorded lease-related assets and liabilities. There was a cumulative-effect adjustment to accumulated deficit of $0.2 million upon adoption.
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PACIRA BIOSCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In May 2014, the FASB, issued ASU 2014-09, Revenue from Contracts with Customers. The Company adopted this standard on January 1, 2018 using the modified retrospective method and recorded a cumulative effect adjustment of $1.4 million to accumulated deficit upon adoption—the impact related to the acceleration of $1.0 million of deferred revenue and $0.4 million of royalties. The implementation of Accounting Standards Codification, or ASC, 606 did not have a material impact on the Company’s consolidated statements of operations because the timing of revenue recognition for EXPAREL product sales did not change. Refer to Note 4, Revenue, for further information on the Company’s revenue.
In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which aligned accounting for share-based payments issued to nonemployees to that of employees under the existing guidance of Topic 718, with certain exceptions. The Company adopted ASU 2018-07 in June 2018 and recorded a cumulative effect adjustment of less than $0.1 million to accumulated deficit upon adoption.
Recent Accounting Pronouncements Not Adopted as of December 31, 2020
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes, which amends the approaches and methodologies in accounting for income taxes during interim periods and makes changes to certain income tax classifications. The new standard allows certain exceptions, including an exception to the use of the incremental approach for intra-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 calculating income taxes in an interim period, when a year-to-date loss exceeds the anticipated loss for the year. The standard also requires franchise or similar taxes partially based on income to be reported as income tax and to reflect the effects of enacted changes in tax laws or rates in the annual effective tax rate computation from the date of enactment. Lastly, in any future acquisition, the Company 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 considered a separate transaction. The standard became effective for the Company January 1, 2021 and the Company does not anticipate any material impact to its consolidated financial statements.
In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40), which limits the number of convertible instruments that require separate accounting to (i) those with embedded conversion features that are not clearly and closely related to the debt, that meet the definition of a derivative, and that do not qualify for the scope exception from derivative accounting and (ii) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid in capital. In addition, the new guidance requires diluted earnings per share calculations to be prepared using the if-converted method, instead of the treasury stock method. The guidance must be applied in fiscal years beginning after December 15, 2021, including interim periods within those fiscal years, with early adoption permitted no earlier than for fiscal years beginning after December 15, 2020. The Company has the option to adopt the new guidance using a modified retrospective method of transition, which would then be applied to transactions outstanding at the time of adoption, or the full retrospective method. The Company is evaluating the impact from the adoption of ASU 2020-06 on its consolidated financial statements.
NOTE 4—REVENUE
Revenue from Contracts with Customers
The Company’s sources of revenue include (i) sales of EXPAREL in the 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 the sales of EXPAREL or iovera° in the E.U. The Company does not consider revenue from sources other than sales of EXPAREL to be material sources of its consolidated revenue. 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 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 transferring those goods. EXPAREL revenue is recorded at the time the product is delivered to the end-user.
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PACIRA BIOSCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 related sales. These amounts are treated as variable consideration, estimated and recognized as a reduction of the transaction price at the time 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 return data, contracts and other related information that may become known in the future. The adequacy of these provisions is reviewed on a quarterly basis.
The following table provides a summary of activity with respect to the Company’s sales related allowances and accruals related to EXPAREL for the years ended December 31, 2020, 2019 and 2018 (in thousands):
Accounts Receivable
The majority of accounts receivable arise from product sales and represent amounts due from wholesalers, hospitals, ambulatory surgery centers and doctors. Payment terms generally range from zero to 37 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 transfer a distinct good or service to the customer and is the unit of account in ASC 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.
At contract inception, the Company assesses the goods promised in its contracts with customers and identifies 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 individual distinct product, which represents a single performance obligation. The Company’s performance obligation with respect to its product sales is satisfied at a point in time, which transfers control upon delivery of EXPAREL to its customers. The Company considers control to have transferred upon delivery because the customer has legal title to the asset, physical possession of 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.
Disaggregated Revenue
The following table represents disaggregated net product sales in the periods presented as follows (in thousands):
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PACIRA BIOSCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Year Ended December 31,
Net product sales:
NOTE 5—MYOSCIENCE ACQUISITION
On April 9, 2019, the Company acquired MyoScience (the “MyoScience Acquisition”), a privately-held medical device company, in which MyoScience became a wholly-owned subsidiary of the Company and was renamed Pacira CryoTech, Inc. The total consideration was $147.5 million, which included a cash payment of $119.0 million and the fair value of contingent consideration in the amount of $28.5 million. The contingent consideration consisted of contingent milestone payments up to an aggregate of $100.0 million upon the achievement of certain regulatory and commercial milestones, of which $58.0 million are available as of December 31, 2020. 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. During the years ended December 31, 2020 and 2019, the Company made $15.0 million and $7.0 million of cash payments for the achievement of certain milestones, respectively. In 2020, the Company recorded an additional charge of $9.7 million relating to the achievement of a $10.0 million regulatory milestone. The milestone is payable in the second quarter of 2021. See Note 12, Financial Instruments, for information on the measurement and amounts recognized in the Company’s consolidated financial statements for contingent consideration. See Note 21, Commitments and Contingencies, for information on a dispute regarding the achievement of certain milestone payments.
Unaudited Pro Forma Summary of Operations
The following table shows the unaudited pro forma summary of operations for the year ended December 31, 2019 and 2018, as if the MyoScience Acquisition had occurred on January 1, 2018. This pro forma information does not purport to represent what the Company’s actual results would have been and is not indicative of what such results would be expected for any future period (in thousands, except per share amounts):
Year Ended December 31,
Pro forma basic and diluted net loss per share $ (0.39) $ (0.63)
The unaudited pro forma financial information was prepared using the acquisition method of accounting and was based on the historical financial information of the Company and MyoScience. The summary pro forma financial information primarily reflects the following pro forma adjustments:
•Removal of the acquisition-related transaction fees and costs, including certain stock-based compensation and other compensation expenses related to the acquisition;
•Removal of the income tax benefit resulting from the Company decreasing its existing valuation allowance on deferred tax assets and the income tax expense resulting from a 338(g) election recognized in the year ended December 31, 2019;
•Removal of MyoScience’s loss on extinguishment of debt and warrant expense in the year ended December 31, 2019;
•Removal of MyoScience’s interest expense;
•Adjustments to the Company’s interest income for the cash used to acquire MyoScience; and
•The addition of amortization expense on the acquired developed technology and customer relationship intangible assets.
Pacira BioSciences, Inc. | 2020 Form 10-K | Page F-18
Table of Contents
PACIRA BIOSCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6—INVENTORIES
The components of inventories, net are as follows (in thousands):
December 31,
In December 2019, the Company’s contract manufacturer experienced a media fill failure, as part of its routine aseptic manufacturing requalification program, and an investigation was completed in April 2020. Based on the results of the investigation, the Company determined that no inventory reserves were required related to the media fill failure, and that all inventory in question had been determined to be sellable. The Company resumed production on this manufacturing line in May 2020.