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 the other sections of this Annual Report, including 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 2023 and 2022, as well as other discussions of 2023 and 2022 items. We have omitted discussion of the year ended December 31, 2021 (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 2022 and 2021 and other discussions of 2021 items can be found within Part II, Item 7, to our Annual Report for the year ended December 31, 2022, filed with the SEC on February 28, 2023, which is available on the SEC’s website at www.sec.gov and our corporate website at www.pacira.com. The foregoing reference to our corporate website is not intended to, nor shall it be deemed to, incorporate information on our corporate website into this Annual Report by reference, and the inclusion of our website address in this Annual Report is an inactive textual reference only and is not intended to be an active link to our corporate website.
Overview
As the therapeutic area leader in non-opioid pain management, our stated corporate mission is providing non-opioid pain management options to as many patients as possible and redefining the role of opioids for rescue therapy only. We are also developing innovative interventions to address debilitating conditions involving the sympathetic nervous system, such as cardiac electrical storm, chronic pain and spasticity. Our long-acting, local analgesic EXPAREL® (bupivacaine liposome injectable suspension) utilizes our unique pMVL drug delivery technology that encapsulates drugs without altering their molecular structure and releases them over a desired period of time. In the U.S., EXPAREL is a long-acting, non-opioid option proven to manage postsurgical pain. EXPAREL is the only product indicated for local analgesia via infiltration in patients aged six years and older and regional analgesia via interscalene brachial plexus nerve block, sciatic nerve block in the popliteal fossa and adductor canal block in adults. In Europe, EXPAREL is approved 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 and children aged six years and older. Since its initial approval in 2011, more than 14 million patients have been treated with EXPAREL. We drop-ship EXPAREL directly to end-users based on orders placed to wholesalers or directly to us, and there is no product held by wholesalers. With the acquisition of Flexion Therapeutics, Inc. in November 2021 (the “Flexion Acquisition”), we acquired ZILRETTA® (triamcinolone acetonide extended-release injectable suspension), the first and only extended-release, intra-articular therapy that can provide major relief for OA knee pain for three months and has the potential to become an alternative to hyaluronic acid, or HA, and platelet rich plasma, or PRP, injections or other early intervention treatments. With the acquisition of MyoScience, Inc. in April 2019 (the “MyoScience Acquisition”), we acquired iovera°®, a handheld cryoanalgesia device used to deliver a precise, controlled application of cold temperature to targeted nerves, which we sell directly to end users. EXPAREL, ZILRETTA and the iovera° system are highly complementary products as long-acting, non-opioid therapies that alleviate pain.
We expect to continue to pursue the expanded use of EXPAREL, ZILRETTA and iovera° in additional procedures; progress our earlier-stage product candidate pipeline; advance regulatory activities for EXPAREL, ZILRETTA, iovera° and our other product candidates; invest in sales and marketing resources for EXPAREL, ZILRETTA and iovera°; expand and enhance our manufacturing capacity for EXPAREL, ZILRETTA and iovera°; invest in products, businesses and technologies; and support legal matters.
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Recent Highlights
•In December 2023, our Board of Directors appointed Frank D. Lee as Chief Executive Officer and a member of the Board. Mr. Lee brings more than three decades of global experience and a strong track record of product development and commercial leadership success across a wide range of therapeutic areas within the biotech and pharmaceutical industry. Most recently he served as Chief Executive Officer and member of the board of directors of Forma Therapeutics, Inc., or Forma, from March 2019 through its acquisition by Novo Nordisk A/S in October 2022. During his tenure at Forma, Mr. Lee transformed the company from an early-stage drug discovery company into one focused on the clinical development of lead assets in rare hematologic disorders and cancer. Prior to Forma, Mr. Lee spent 13 years at Genentech, Inc.—a member of the F. Hoffmann-La Roche AG—in a series of leadership positions of increasing scope and responsibility for delivering transformative medicines to patients.
•In November 2023, the FDA approved our sNDA to expand the EXPAREL label to include administration in adults as an adductor canal block and a sciatic nerve block in the popliteal fossa. The approval is supported by two successful randomized, double-blind, active-controlled, multicenter Phase 3 studies designed to evaluate the efficacy, safety, and pharmacokinetics of EXPAREL versus bupivacaine HCl.
One study evaluated EXPAREL as a single-dose adductor canal block and the second study evaluated EXPAREL as a single-dose sciatic nerve block in the popliteal fossa. Both studies met their primary endpoints by demonstrating a statistically significant reduction in cumulative pain scores from 0 to 96 hours compared with bupivacaine HCl (p<0.01). Additionally, EXPAREL achieved statistical significance for the studies’ secondary endpoint of reduced postsurgical opioid consumption (p<0.01). EXPAREL as a sciatic nerve block in the popliteal fossa also achieved statistical significance for the percentage of opioid-free subjects (p<0.01). In both studies, EXPAREL maintained a safety profile consistent with bupivacaine HCl. The data from the Phase 3 study supporting the indication for a single-dose sciatic nerve block in the popliteal fossa was published in the Journal of Clinical Anesthesia in February 2024.
•In November 2023, the USPTO issued Patent Nos. 11,819,574 and 11,819,575, claiming composition of EXPAREL prepared by an enhanced manufacturing process and composition of matter for EXPAREL, respectively. Each of these EXPAREL patents are listed in the FDA’s “Approved Drug Products with Therapeutic Equivalence Evaluations” (the “Orange Book”). These two patents are among the ten Orange Book listed patents that are now listed for EXPAREL, all with an expiration date of January 22, 2041.
•In February 2024, the FDA approved our sNDA for a 200-liter EXPAREL manufacturing suite at our Science Center Campus in San Diego, California. We expect to start selling commercial product manufactured in this 200-liter suite later this year, which will help drive a more favorable mix of commercial product sold and benefit EXPAREL gross margins over time.
•In February 2024, we announced that we were awarded a national group purchasing agreement for Brand Pharmaceuticals with Premier. Effective January 1, 2024, the new agreement allows Premier members, at their discretion, to take advantage of special pricing and terms pre-negotiated by Premier for EXPAREL. This collaboration is aimed at improving patient care and optimizing cost savings to healthcare organizations and will allow Premier members to access EXPAREL.
Global Economic Conditions and Inflation
Direct and indirect effects of global economic conditions have in the past, and may continue to, negatively impact our business, financial condition and results of operations. Such impacts may include the effect of prolonged periods of inflation which could, among other things, result in higher costs for labor, raw materials and services; cause our patients to defer or cancel medical procedures, thereby adversely impacting our revenues; and negatively impact our suppliers which could cause longer lead-times or the inability to secure a sufficient supply of materials. The current macroeconomic environment remains dynamic and subject to rapid and possibly material changes. Additional negative impacts may also arise 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.
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Results of Operations
Comparison of the Years Ended December 31, 2023 and 2022
Revenues
Net product sales consist of sales of (i) EXPAREL in the U.S., E.U. and U.K.; (ii) ZILRETTA in the U.S.; (iii) iovera° in the U.S., Canada and Europe and (iv) sales of, and royalties on, our bupivacaine liposome injectable suspension for veterinary use.
The following table provides information regarding our revenues during the years indicated, including percent changes (dollar amounts in thousands):
Year Ended December 31, % Increase / (Decrease)
Net product sales:
Bupivacaine liposome injectable suspension 3,342 6,476 (48)%
EXPAREL revenue remained flat in 2023 compared to 2022, primarily due to an increase in gross vial volume of 4% versus 2022 and reduced by 1% due to a shift in sales mix. EXPAREL revenue was also impacted by a decrease of 3% in net selling price per unit related to enrolling EXPAREL in the 340B drug pricing program and expanding other contracting activities, partially offset by a January 2023 price increase.
ZILRETTA revenue increased 5% in 2023 compared to 2022, primarily due to an increase of 3% in kit volume and 2% in selling price per unit, net of customer discounting due to expanded contracting efforts.
Net product sales of iovera° increased 29% in 2023 versus 2022 primarily due to a 33% increase in Smart Tip volume and a 1% increase in selling price per Smart Tip.
Bupivacaine liposome injectable suspension revenue decreased 48% in 2023 versus 2022, and its related royalties increased 2%, primarily due to the sales mix of vial sizes and the timing of orders placed for veterinary use.
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 years indicated, including percent changes (dollar amounts in thousands):
Year Ended December 31, % Increase / (Decrease)
Gross margin increased three percentage points in 2023 as compared to 2022 mainly due to lower inventory reserves, accelerated depreciation recorded in 2022 for certain machinery and equipment and lower royalty expense as discussed below, partially offset by a lower net selling price for EXPAREL largely as a result of enrolling in the 340B drug pricing program.
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On August 8, 2023, the U.S. District Court, District of Nevada, concluded we were no longer obligated to pay royalties to the Research and Development Foundation for EXPAREL made under the 45-liter manufacturing process. For more information, see Note 20, Commitments and Contingencies, to our consolidated financial statements included herein.
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 trials that we are conducting to generate new data for EXPAREL, ZILRETTA 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, research 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, registry 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 years indicated, including percent changes (dollar amounts in thousands):
Year Ended December 31, % Increase / (Decrease)
Product development and manufacturing capacity expansion 33,365 24,635 35%
Total research and development expense $ 76,257 $ 84,797 (10)%
% of total revenue 11% 13%
Total research and development expense decreased 10% in 2023 as compared to 2022.
Clinical and preclinical development expense decreased 46% in 2023 versus 2022 due to the completion of two EXPAREL lower extremity nerve block trials in bunionectomy and TKA in the third quarter of 2022 and toxicology studies that are near completion for product candidates, partially offset by start-up costs for the EXPAREL intrathecal, ZILRETTA shoulder and iovera° spasticity trials.
Product development and manufacturing capacity expansion expense increased 35% in 2023 versus 2022, primarily attributable to new product development costs related to PCRX-201 and the continued significant scale-up activities of our EXPAREL manufacturing capacity at our Science Center Campus in San Diego, California, for which an sNDA for a 200-liter EXPAREL manufacturing suite was approved by the FDA in February 2024.
Regulatory and other research and development expenses increased 22% in 2023 versus 2022 due to increased enrollment and additional sites related to an observational registry study designed to assess clinical and patient reported outcomes in patients with pain associated with OA and TKA and increased medical information publications.
Stock-based compensation increased 32% in 2023 versus 2022 primarily due to the acceleration of stock compensation awards related to a terminated executive in 2023.
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, expenses related to communicating the health outcome benefits of our products, investments in provider-level market access and patient reimbursement support 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,
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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 years indicated, including percent changes (dollar amounts in thousands):
Year Ended December 31, % Increase / (Decrease)
Total selling, general and administrative expenses $ 269,441 $ 254,516 6%
% of total revenue 40% 38%
Total selling, general and administrative expenses increased 6% in 2023 as compared to 2022.
Sales and marketing expense increased 6% in 2023 compared to 2022, driven by an increase in marketing investments in our products, including marketing EXPAREL’s newly approved indication for use as a lower extremity nerve block, 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. In 2023, we invested in strategic partnerships with sports organizations, such as the Ladies Professional Golf Association (LPGA) and National Football League Alumni Association (NFLA), to increase awareness of the availability and benefits of non-opioid options to manage acute and chronic pain for athletes, including postsurgical pain and knee OA. We expanded our investment in clinician training in the use of EXPAREL and iovera° at our training facility in Tampa, as well as the opening of our second training facility in Houston, Texas in January 2023. We also committed to a grant to the American Society of Anesthesiologists’ Charitable Foundation to advance the medical specialty of anesthesiology and pain medicine, facilitate best in-class clinician education and improve patient care.
In 2024, we expect to make further investments in our marketing strategy, particularly in preparation for the commencement of the NOPAIN Act, which will take effect beginning on January 1, 2025. These investments include programs to drive awareness and education for our customers and enhance our marketing, market access and reimbursement teams.
General and administrative expense increased 12% in 2023 versus 2022 primarily driven by legal fees attributable to ongoing litigation—for more information, see Note 20, Commitments and Contingencies, to our consolidated financial statements included herein.
Stock-based compensation decreased 5% in 2023 versus 2022 primarily due to the acceleration of stock compensation awards related to terminated executives in the prior year.
Amortization of Acquired Intangible Assets
The following table provides a summary of the amortization of acquired intangible assets during the years indicated, including percent changes (dollar amounts in thousands):
Year Ended December 31, % Increase / (Decrease)
Amortization of acquired intangible assets $ 57,288 $ 57,288 —%
As part of the Flexion Acquisition and the MyoScience Acquisition, we acquired intangible assets consisting of developed technology intangible assets and customer relationships, with estimated useful lives between 9 and 14 years. For more information, see Note 5, FlexionAcquisition, and Note 9, Goodwill and Intangible Assets, to our consolidated financial statements included herein.
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Contingent Consideration (Gains) Charges, Acquisition-related Charges and Other
The following table provides a summary of the costs related to contingent consideration, restructuring charges, acquisition-related charges and other activities during the years indicated, including percent changes (dollar amounts in thousands):
Year Ended December 31, % Increase / (Decrease)
Contingent consideration gains $ (3,424) $ (29,476) (88)%
Impairment of acquired in-process research & development — 26,134 (100)%
In 2023, we recognized contingent consideration gains of $3.4 million due to a decrease in the fair value of the Flexion contingent consideration. The decrease was primarily due to adjustments in the assumption for the long-term forecasts which reduced the probability of meeting the sales-based contingent consideration milestones by December 31, 2030, the expiration date for achieving the milestones. The impact of this assumption on the fair value was partially offset by a decrease to the assumed discount rate based on a significant improvement in our incremental borrowing rate resulting from the TLA Credit Agreement entered into in March 2023. In 2022, we recognized contingent consideration gains of $29.5 million primarily due to adjustments to near-term forecasts for the earnout period of the Flexion contingent consideration and a gain due to the reduced probability of meeting the MyoScience contingent consideration milestones by December 31, 2023—the expiration date for achieving those milestones. For more information, see Note 12, Financial Instruments and Note 18, Contingent Consideration (Gains) Charges, Acquisition-related Charges and Other, to our consolidated financial statements included herein.
In 2023, we recognized acquisition-related charges of $2.0 million related to vacant and underutilized leases assumed as part of the Flexion Acquisition. In 2022, we recognized acquisition-related charges of $11.2 million related to severance and other employee related costs, legal and other professional fees, third-party services and other one-time charges associated with the Flexion Acquisition.
In 2022, we recognized an impairment of $26.1 million for an acquired in-process research and development intangible asset related to ZILRETTA for the treatment of OA pain of the shoulder based on the amount its previous carrying value exceeded its fair value. See Note 9, Goodwill and Intangible Assets, for more information.
In 2023, we recognized other operating expenses of $1.1 million that included a restructuring plan in an effort to improve our operational efficiencies and recognized one-time employee termination benefits through a reduction of headcount. In 2022, we recognized other operating expense of $3.0 million related to the termination of a license agreement. See Note 20, Commitments and Contingencies, to our consolidated financial statements included herein for more information.
For more information, see Note 18, Contingent Consideration (Gains) Charges, Acquisition-related Charges and Other, to our consolidated financial statements included herein.
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Other Expense, Net
The following table provides information regarding other expense, net during the years indicated, including percent changes (dollar amounts in thousands):
Year Ended December 31, % Increase / (Decrease)
Loss on early extinguishment of debt (16,926) — N/A
Total other expense, net decreased 44% in 2023 versus 2022.
The 49% decrease in interest expense was primarily driven by entering into the TLA Term Loan (as defined below) in March 2023 in order to retire our term loan B facility and related credit agreement (the “TLB Term Loan”), and, to a lesser extent, the absence of our 2.375% convertible senior notes that matured in April 2022. For more information, See Note 11, Debt, to our consolidated financial statements herein.
Interest income significantly increased in 2023 versus 2022 due to higher interest rates and overall investment balances.
In conjunction with the entry into the TLA Credit Agreement (as defined below), we incurred a $16.9 million loss on early extinguishment of debt recognized as a result of the retirement of $287.5 million aggregate principal of our TLB Term Loan in 2023. For more information, See Note 11, Debt, to our consolidated financial statements herein.
Other, net expense for 2022 included a $10.0 million impairment of an equity investment.
Income Tax Expense (Benefit)
The following table provides information regarding our income tax expense (benefit) during the years indicated, including percent changes (dollar amounts in thousands):
Year Ended December 31, % Increase / (Decrease)
Income tax expense (benefit) $ 19,746 $ (2,607) N/A
Effective tax rate 32% (20)%
We recorded income tax expense of $19.7 million for the year ended December 31, 2023 and an income tax benefit of $2.6 million for the year ended December 31, 2022. The effective tax rate of 32% for the year ended December 31, 2023 differed from the U.S. statutory tax rate of 21% primarily due to non-deductible stock-based and executive compensation and non-U.S. valuation allowances, partially offset by tax credits. The effective tax rate of (20)% for the year ended December 31, 2022 differed from the U.S. statutory tax rate of 21% due to non-taxable contingent consideration fair value gains, tax deductible interest for a Skyepharma milestone payment and tax credits, partially offset by valuation allowances recorded against capital loss carryforwards and non-deductible executive compensation.
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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 ZILRETTA as part of the Flexion Acquisition in November 2021 and iovera° as part of the MyoScience Acquisition in April 2019. We are primarily dependent on the commercial success of EXPAREL and ZILRETTA. We have financed our operations primarily with the proceeds from the sale of convertible senior notes and other debt, common stock, product sales and collaborative licensing revenue. As of December 31, 2023, we had an accumulated deficit of $106.8 million, cash and cash equivalents and available-for-sale investments of $281.0 million and working capital of $412.6 million.
We expect that our cash and cash equivalents and available-for-sale investments on hand will be adequate to cover our short-term liquidity needs, and that we would be able to access other sources of financing should the need arise.
Summary of Cash Flows
The following table summarizes our cash flows from operating, investing and financing activities for the years ended December 31, 2023 and 2022 (in thousands):
Year Ended December 31,
Consolidated Statements of Cash Flows Data: 2023 2022
Net cash provided by (used in):
Net increase (decrease) in cash and cash equivalents $ 49,159 $ (481,439)
Operating Activities
In 2023, net cash provided by operating activities was $154.6 million compared to $145.3 million in 2022. The increase of $9.4 million was attributable to an improved gross margin, increased interest income and reduced interest expense, partially offset by a $13.0 million termination fee relating to a licensing agreement and a negative impact on the changes in working capital.
Investing Activities
In 2023, net cash provided by investing activities was $77.5 million, which reflected $99.5 million of available-for-sale investment maturities (net of purchases), purchases of fixed assets of $15.2 million for fill lines for our products and equipment for an EXPAREL capacity expansion project at our Science Center Campus in San Diego, California and purchases of debt investments of $6.8 million in external complementary development stage product candidates.
In 2022, net cash used in investing activities was $225.2 million, which reflected $150.1 million of available-for-sale investment purchases (net of maturities), a $32.0 million contingent consideration milestone payment that had been achieved in the fourth quarter of 2021 associated with our 2007 acquisition of Pacira Pharmaceuticals, Inc. from Skyepharma, purchases of fixed assets of $30.1 million for fill lines for our products and equipment for an EXPAREL capacity expansion project at our Science Center Campus in San Diego, California and purchases of equity and debt investments of $13.0 million in external complementary development stage product candidates.
Financing Activities
In 2023, net cash used in financing activities was $183.0 million, which consisted of a $296.9 million repayment of TLB Term Loan principal as well as a $5.8 million prepayment penalty in connection with the retirement of the TLB Term Loan facility and $33.4 million repayments of TLA Term Loan principal, partially offset by the net proceeds from the TLA Term Loan of $149.6 million, $2.8 million from the issuance of common stock through our ESPP and proceeds from the exercise of stock options of $1.9 million.
In 2022, net cash used in financing activities was $401.5 million, which consisted of a $192.6 million principal repayment of the Flexion 2024 Notes as part of a repurchase offer to the holders of the Flexion 2024 Notes that was triggered by the Flexion Acquisition, $157.0 million to settle our 2.375% convertible senior notes that matured on April 1, 2022 and $78.1 million of payments of TLB Term Loan principal that included a principal prepayment of $50.0 million, partially offset by $24.4 million of proceeds from the exercise of stock options and $3.0 million from the issuance of common stock through our ESPP.
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Equity Financings
From our inception in December 2006 through December 31, 2023, we have raised $344.5 million of net proceeds from the sale of common stock and other equity securities via public offerings.
Debt
2028 Term Loan A Facility
On March 31, 2023, we entered into a credit agreement (the “TLA Credit Agreement”) to refinance the indebtedness outstanding under our TLB Credit Agreement (as defined and discussed below). The term loan issued under the TLA Credit Agreement (the “TLA Term Loan”) was issued at a 0.30% discount and provides for a single-advance term loan A facility in the principal amount of $150.0 million, which is secured by substantially all of our and any subsidiary guarantor’s assets and matures on March 31, 2028. We may elect to borrow either (i) alternate base rate borrowings or (ii) term benchmark borrowings or daily simple SOFR (as defined in the TLA Credit Agreement) borrowings. Each term loan borrowing which is an alternate base rate borrowing bears interest at a rate per annum equal to (i) the Alternate Base Rate (as defined in the TLA Credit Agreement), plus (ii) a spread based on our Senior Secured Net Leverage Ratio ranging from 2.00% to 2.75%. Each term loan borrowing which is a term benchmark borrowing or daily simple SOFR borrowing bears interest at a rate per annum equal to (i) the Adjusted Term SOFR Rate or Adjusted Daily Simple SOFR (as each is defined in the TLA Credit Agreement), plus (ii) a spread based on our Senior Secured Net Leverage Ratio ranging from 3.00% to 3.75%. During the year ended December 31, 2023, we made a scheduled principal payment of $2.8 million as well as $30.6 million of voluntary principal prepayments. Due to the voluntary principal prepayments made during the year ended December 31, 2023, we are not required to make further principal payments for the year ended December 31, 2024, although we retain the option to do so. As of December 31, 2023, borrowings under the TLA Term Loan consisted entirely of term benchmark borrowings at a rate of 8.46%. At December 31, 2023, the outstanding principal on the TLA Term Loan was $116.6 million.
The TLA Credit Agreement requires us to, among other things, maintain (i) a Senior Secured Net Leverage Ratio (as defined in the TLA Credit Agreement), determined as of the last day of each fiscal quarter, of no greater than 3.00 to 1.00 and (ii) a Fixed Charge Coverage Ratio (as defined in the TLA Credit Agreement), determined as of the last day of each fiscal quarter, of no less than 1.50 to 1.00. The TLA Credit Agreement requires the Company to maintain an unrestricted cash and cash equivalents balance of at least $500.0 million less any prepayments of the 2025 Notes at any time from 91 days prior to the maturity date through the earlier of (i) the latest maturity date of the 2025 Notes and (ii) the date on which there is no outstanding principal amount of the 2025 Notes. The TLA Credit Agreement also contains customary affirmative and negative covenants, financial covenants, representations and warranties, events of default and other provisions. As of December 31, 2023, we were in compliance with all financial covenants under the TLA Credit Agreement. See Note 11, Debt, to our consolidated financial statements included herein for further discussion.
2026 Term Loan B Facility
In December 2021, we entered into the $375.0 million TLB Term Loan which was secured by substantially all of the Company’s and any subsidiary guarantor’s assets and was scheduled to mature on December 7, 2026, subject to certain exceptions set forth in the TLB Credit Agreement.
On March 31, 2023, we used the $149.6 million of net borrowings under the TLA Credit Agreement and cash on hand to repay the indebtedness outstanding under the TLB Credit Agreement and concurrently terminated the TLB Credit Agreement. We incurred a prepayment fee of 2.00% of the outstanding principal balance of the TLB Term Loan in connection with the termination. During the year ended December 31, 2023, we made a scheduled principal payment of $9.4 million and repaid the outstanding $287.5 million principal on the TLB Term Loan, which resulted in a $16.9 million loss on early extinguishment of debt. See Note 11, Debt, to our consolidated financial statements included herein for further discussion of the TLB Term Loan.
2025 Convertible Senior Notes
In July 2020, we completed a private placement of $402.5 million in aggregate principal amount of our 2025 Notes, and entered into an indenture with respect to the 2025 Notes. The 2025 Notes accrue interest at a fixed rate of 0.750% per annum, payable semiannually in arrears on February 1 and August 1 of each year. The 2025 Notes mature on August 1, 2025. At December 31, 2023, the outstanding principal on the 2025 Notes was $402.5 million. See Note 11, Debt, to our consolidated financial statements included herein for further discussion.
2024 Convertible Senior Notes
In November 2021, as part of the Flexion Acquisition, we assumed $201.3 million in aggregate principal amount of the Flexion 2024 Notes. The Flexion 2024 Notes have a maturity date of May 1, 2024, are unsecured, and accrue interest at a rate
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of 3.375% per annum, payable semi-annually on May 1 and November 1 of each year. In January 2022, we repurchased $192.6 million aggregate principal amount of the Flexion 2024 Notes. At December 31, 2023, the outstanding principal on the Flexion 2024 Notes was $8.6 million. See Note 11, Debt, to our consolidated financial statements included herein for further discussion.
Future Capital Requirements
We believe that our existing cash and cash equivalents, available-for-sale investments and cash received from product sales will be sufficient to enable us to fund our operating expenses, capital expenditure requirements and payment of the interest and principal on our TLA Term Loan, Flexion 2024 Notes and 2025 Notes (collectively, the “Notes”) through the next 12 months. Our future use of operating cash and capital requirements will depend on many forward-looking factors, including, but not limited to:
•the cost and timing of the potential milestone payments to former Flexion stockholders, which could be up to an aggregate of $372.3 million if certain regulatory and commercial milestones are met. See Note 5, Flexion Acquisition, and Note 12, Financial Instruments, to our consolidated financial statements included herein for more information;
•the impact of global economic conditions—including the impact of inflation—on our product, material and labor costs, supply chain, longer lead-times, an inability to secure a sufficient supply of materials, our operating expenses and our business strategy;
•the timing of and extent to which the holders of our Notes elect to convert their Notes, the timing of principal and interest payments on our TLA Term Loan and the timing and impact of increases to the variable interest rate on our TLA Term Loan borrowings in accordance with the terms of the TLA Credit Agreement;
•the costs and our ability to successfully continue to expand the commercialization of EXPAREL, ZILRETTA and iovera°, including markets outside of the U.S.;
•the cost and timing of expanding and maintaining our manufacturing facilities;
•the cost and timing of additional strategic investments, including additional investments under existing agreements;
•the costs related to legal and regulatory matters;
•the costs of performing additional clinical trials for our products, including the additional pediatric trials required by the FDA and EMA as a condition of the approval of EXPAREL;
•the costs for the development and commercialization of other product candidates;
•the costs and timing of future payments under our employee benefit plans, including but not limited to our cash long-term incentive plan and non-qualified deferred compensation plan; and
•the extent to which we acquire or invest in products, businesses and technologies.
We may require additional debt or equity financing to meet our future operating and capital requirements. We have no committed external sources of funds, and additional equity or debt financing may not be available on acceptable terms, if at all. In particular, capital market disruptions or negative economic conditions may hinder our access to capital.
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Contractual Obligations
We had two convertible senior notes outstanding as of December 31, 2023, for which $8.6 million in aggregate principal amount is due on the Flexion 2024 Notes in May 2024 and $402.5 million in aggregate principal amount is due on our 2025 Notes in August 2025. The remaining interest payments on our Notes is $6.1 million, of which an estimated $3.1 million is due in 2024. We also have the TLA Term Loan with $116.6 million in outstanding principal. Due to voluntary principal prepayments of $30.6 million made during the year ended December 31, 2023, we are not contractually obligated to make principal payments in 2024. As of December 31, 2023, there are contractually obligated principal payments of $1.3 million in 2025, $15.0 million in both 2026 and 2027 and $85.3 million in 2028. The remaining interest payments of the TLA Term Loan are approximately $39.6 million based on the current interest rate.
In the normal course of business, we enter into various lease agreements for manufacturing, research and development and corporate activities, which are typically classified as operating leases under the provisions of Financial Accounting Standards Board Accounting Standards Codification Topic 842, Leases. As of December 31, 2023, we had net minimum commitments of $78.6 million, of which $13.0 million is due in 2024. For more information, refer to Note 8, Leases, to our consolidated financial statements included herein.
In addition, we have approximately $71.4 million of minimum, non-cancelable contractual commitments for contract manufacturing services as of December 31, 2023, of which $21.1 million is due within one year, and the remaining $50.3 million is due in one to five years. We have approximately $14.2 million of minimum, non-cancelable contractual commitments for the purchase of certain raw materials as of December 31, 2023, of which $7.7 million is due within one year, and the remaining $6.5 million is due in one to two years. As of December 31, 2023, we had $4.9 million of other minimum, non-cancelable contractual commitments.
As part of the Flexion Acquisition, there are up to $372.3 million in potential payments if all regulatory and commercial milestones are met. The aggregate amount was previously $425.5 million prior to our September 2022 decision to formally discontinue further development of PCRX-301, an investigational product candidate. For more information, see Note 5, Flexion Acquisition, to our consolidated financial statements included herein.
Critical Accounting 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, impairment of intangible assets, 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.
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
Revenues from sales of products are recorded net of returns allowances, prompt payment discounts, service fees, government rebates, 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. We include 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, statutory requirements and other related information that may become known in the future. The adequacy of these provisions is reviewed on a quarterly basis. If our assessments, experiences or judgments are not accurate estimates of future results, our results of operations could be affected. The sensitivity of our estimates varies by program. Estimates associated with chargebacks and government programs have the greatest risk of being subject to adjustment because of the time delay between recording the accrual and the final settlement. Historically, adjustments to these estimates to reflect actual results or updated expectations have not been material.
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The summary of activity with respect to our sales related allowances and accruals for the years ended December 31, 2023, 2022 and 2021 appears in Note 4, Revenue, to our consolidated financial statements included herein.
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 contingent consideration (gains) charges, acquisition-related charges and other. Changes in contingent consideration can result from changes in the assumed achievement and timing of estimated sales and regulatory approvals. In the absence of new information, changes in fair value reflect the impact of the passage of time towards the potential achievement of the milestones.
The following table includes the key assumptions used in the valuation of our contingent consideration milestones:
Assumption Flexion RangesUtilized as of December 31, 2023
Discount rates 7.9% to 9.7%
Probability of payment for achievement of regulatory milestones 0% to 12.5%
Projected year of achieving or expiration of regulatory milestones 2030
The maximum remaining potential payments related to contingent consideration from the Flexion Acquisition is $372.3 million as of December 31, 2023. Changes to assumptions may result in a material impact to the calculated amounts. Additionally, the forecasted revenue annual growth rates are key assumptions in the contingent consideration valuations associated with our commercial milestones. The impact of a hypothetical 10 percent increase in the forecasted annual growth rates would have increased the value of our contingent consideration liability associated with the Flexion Acquisition as of December 31, 2023 by $5.7 million. The impact of a hypothetical 100 basis point increase in the discount rate would have reduced the value of our contingent consideration liability associated with the Flexion Acquisition as of December 31, 2023 by $1.2 million.
Recent Accounting Pronouncements
See Note 3, Recent Accounting Pronouncements, to our consolidated financial statements included herein for further discussion of recent accounting pronouncements.
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 for purposes other than trading 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, 2023 by approximately $0.5 million.
The fair value of our Notes is impacted by both the fair value of our common stock and interest rate fluctuations. As of December 31, 2023, the estimated fair value of the 2025 Notes was $924 per $1,000 principal amount. See Note 11, Debt, to our consolidated financial statements included herein for further discussion of our 2025 Notes, which bears interest at a fixed rate. At December 31, 2023, all $402.5 million of principal remains outstanding on the 2025 Notes and $8.6 million of principal remains outstanding on the Flexion 2024 Notes. As a result of the Flexion Acquisition and as discussed in more detail in Note 11, Debt, to our consolidated financial statements included herein, any future conversion rights for the Flexion 2024 Notes are subject to the occurrence of any future events giving rise to such conversion rights under the indenture governing the Flexion 2024 Notes.
The TLA Term Loan provides for a single-advance term loan in the principal amount of $150.0 million and is scheduled to mature on March 31, 2028. Each term loan borrowing that is a term benchmark borrowing or daily simple SOFR borrowing bears interest at a rate per annum equal to (i) the Adjusted Term SOFR Rate or Adjusted Daily Simple SOFR (as each is defined in the TLA Credit Agreement), plus (ii) a spread based on our Senior Secured Net Leverage Ratio ranging from 3.00% to 3.75%. At December 31, 2023, the outstanding principal on the TLA Term Loan was $116.6 million. As of December 31, 2023, borrowings under the TLA Term Loan consisted entirely of term benchmark borrowings at a rate of 8.46%. A
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hypothetical 100 basis point increase in interest rates would increase interest expense over the next 12 months by approximately $1.2 million, based on the balances outstanding for these borrowings as of December 31, 2023.
We have agreements with certain vendors and partners that operate in foreign jurisdictions. The more significant transactions are primarily denominated in the U.S. Dollar, subject to an annual 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, begin on page F-1 of this Annual Report.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
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 Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Based on their evaluation as of December 31, 2023, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2023.
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 Chief Financial Officer, management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2023, 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, 2023.
The effectiveness of our internal control over financial reporting as of December 31, 2023 was audited by KPMG LLP, our independent registered public accounting firm, which expressed an unqualified opinion on the effectiveness of our internal control over financial reporting as of December 31, 2023.
Changes in Internal Control over Financial Reporting
During the quarter ended December 31, 2023, there have been no changes in our internal control over financial reporting that occurred that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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Item 9B. Other Information
(a) On February 26, 2024 (the “Effective Date”), the Company’s operating subsidiary, Pacira Pharmaceuticals, Inc. (“PPI”), and Integrated Commercialization Solutions, LLC (“ICS”) entered into a Commercial Outsourcing Services Agreement (the “Agreement”) with respect to the warehousing, distribution, order management, data management and certain other services for EXPAREL, ZILRETTA and iovera°. The Agreement replaces and supersedes all existing commercial outsourcing service agreements between the parties relating to the aforementioned services.
Pursuant to the Agreement, PPI appointed ICS as the exclusive provider of third-party logistics services for EXPAREL, ZILRETTA and iovera° and as a provider of certain additional services, in each case, in the United States, Guam, Puerto Rico and the United States Territories during the Term (as defined below). The third-party logistics services include warehousing and inventory services as well as distribution services. The additional services include, but are not limited to, invoicing and accounts receivable management, customer service and contract administration.
The Agreement became effective as of the Effective Date and will continue for an initial three-year term (the “Term”). The Agreement may be extended upon written mutual agreement of the parties, with any such extension(s) to be negotiated in good faith within six-months prior to the expiration of the Term, subject to certain conditions set forth in the Agreement. PPI and ICS each has mutual termination rights under the Agreement, subject to certain terms, conditions and notice requirements set forth in the Agreement. Each party also has additional unilateral termination rights in the event of a breach or under certain circumstances. PPI is also required to pay ICS certain compensation per month, commencing on the giving of a notice of termination by ICS to PPI, for the then-remaining months of the then-current Term (including any extension).
The Agreement contains customary representations, warranties, covenants and confidentiality provisions, and also contains mutual indemnification obligations.
The above summary does not purport to be a complete summary of the Agreement and is qualified in its entirety by reference to the Agreement, a copy of which is filed as Exhibit 10.23 to this Annual Report and is incorporated by reference herein.
(b) The following table shows the “Rule 10b5-1 trading arrangements” and “non-Rule 10b5-1 trading arrangements” (as each term is defined in Item 408(a) of Regulation S-K) terminated by our directors and executive officers during the quarter ended December 31, 2023. No trading arrangements were adopted or modified by our directors and executive officers during the quarter ended December 31, 2023.
Trading Arrangement
* Intended to satisfy the affirmative defense of Rule 10b5-1(c).
** Not intended to satisfy the affirmative defense of Rule 10b5-1(c).
(1) Dr. Winston resigned on October 11, 2023 and sold 31,000 shares of common stock on November 13, 2023, effectively terminating his previously adopted Rule 10b5-1 trading arrangement.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
None.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance
Information required by this item will be included in the proxy statement for our 2024 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 2024 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
Securities Authorized For Issuance Under Equity Compensation Plans
The following table sets forth certain information, as of December 31, 2023, concerning shares of our common stock authorized for issuance under our equity compensation plans. We have two equity compensation plans under which shares are currently authorized for issuance—our Amended and Restated 2011 Stock Incentive Plan (the “2011 Plan”) and our Amended and Restated 2014 Employee Stock Purchase Plan (the “2014 ESPP”). The 2011 Plan and the 2014 ESPP were approved by stockholders. In April 2014, our board of directors adopted (without stockholder approval), pursuant to Rule 5635(c)(4) of the Nasdaq Listing Rules, our 2014 Inducement Plan, pursuant to which awards for up to 175,000 shares of common stock could be made as a material inducement to such persons entering into employment with us (the “2014 Inducement Plan”). In December 2023, our board of directors adopted (without stockholder approval), pursuant to Rule 5635(c)(4) of the Nasdaq Listing Rules, our Amended and Restated 2014 Inducement Plan (the “Inducement Plan”). Pursuant to the Inducement Plan, awards for up to 817,093 shares of common stock can be made as a material inducement to such persons entering into employment with us.
(a) (b) (c)
(1) Awards issuable under our 2011 Plan, 2014 Inducement Plan and Inducement Plan include common stock, stock options, restricted stock, restricted stock units and other incentive awards.
(2) Does not include 1,364,618 unvested shares outstanding as of December 31, 2023 in the form of restricted stock units under our 2011 Plan, which do not require the payment of any consideration by the recipients.
(3) See Note 14, Stock Plans, to our consolidated financial statements included herein for further descriptions of our 2011 Plan, 2014 ESPP, 2014 Inducement Plan and Inducement Plan.
(4) On December 20, 2023, in connection with Frank D. Lee’s appointment as Chief Executive Officer, the board of directors approved the grant of inducement awards to Mr. Lee pursuant to the Inducement Plan. Mr. Lee’s inducement awards included stock options to purchase an aggregate of 692,512 shares of common stock with an exercise price per share equal to $32.07, the closing price of our common stock as reported on the Nasdaq Global Select Market on January 3, 2024, and, subject to continued service with us as of each vesting date, such option will vest and become exercisable as to 25% of the option shares on January 3, 2025, and vest as to the remaining shares in successive equal quarterly installments over the subsequent three years; and (ii) a restricted stock unit award for 99,520 shares of common stock, subject to continued service with us as of each vesting date, to vest in four equal annual installments beginning on January 2, 2025, in each case, pursuant to the terms and provisions of the Inducement Plan. Because these awards were granted subsequent to December 31, 2023, they are not reflected in the table above.
Other information required by this item will be included in the proxy statement for our 2024 annual stockholders’ meeting and is incorporated by reference into this report.
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Item 13. Certain Relationships and Related Transactions, and Director Independence
Information required by this item will be included in the proxy statement for our 2024 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 2024 annual stockholders’ meeting and is incorporated by reference into this report.
PART IV
Item 15. Exhibits, Financial Statement Schedules
(a)Documents filed as part of this Annual Report on Form 10-K:
(1) Financial Statements
Index to the Consolidated Financial Statements Page #
Consolidated Balance Sheets F-4
Consolidated Statements of Operations F-5
Consolidated Statements of Comprehensive Income F-6
Consolidated Statements of Stockholders’ Equity F-7
Consolidated Statements of Cash Flows F-8
Notes to Consolidated Financial Statements F-10
The report of our independent registered accounting firm, KPMG LLP, with respect to the above-referenced financial statements and on internal control over financial reporting, is included in this Annual Report on Form 10-K. Their consent appears as Exhibit 23.1 of this Annual Report on Form 10-K.
Report of Independent Registered Public Accounting Firm
(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 Annual Report on 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.*
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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
10.26 Pacira BioSciences, Inc. Long-Term Incentive Plan.*** 8-K 10.1 12/7/2020
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Incorporation By Reference From
ExhibitNumber Description Form Exhibit DateFiled
21.1 Subsidiaries of the Registrant.*
23.1 Consent of KPMG LLP.*
97 Incentive Compensation Recovery Policy.*** *
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.*
* 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 (i) is not material and (ii) is the type that the Registrant treats as private or confidential.
# 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.
## Schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company hereby undertakes to supplementally furnish copies of any omitted schedules and exhibits to the Securities and Exchange Commission upon request.
Item 16. Form 10-K Summary
None.
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SIGNATURES
PACIRA BIOSCIENCES, INC./s/ FRANK D. LEE
Date: February 29, 2024 By: Frank D. LeeChief Executive Officer and Director
Principal Executive Officer Directors
/s/ FRANK D. LEE /s/ MARCELO BIGAL /s/ GARY PACE
Frank D. Lee Marcelo Bigal Gary Pace
Chief Executive Officer and Director
/s/ LAURA BREGE /s/ ANDREAS WICKI
Principal Financial Officer Laura Brege Andreas Wicki
/s/ CHARLES A. REINHART, III /s/ ABRAHAM CEESAY /s/ MICHAEL YANG
Charles A. Reinhart, III Abraham Ceesay Michael Yang
Chief Financial Officer
/s/ CHRISTOPHER J. CHRISTIE /s/ ALETHIA YOUNG
Principal Accounting Officer Christopher J. Christie Alethia Young
/s/ LAUREN RIKER /s/ MARK FROIMSON /s/ PAUL HASTINGS
Lauren Riker Mark Froimson Paul Hastings
Senior Vice President, Finance (Chair of the Board)
/s/ MARK KRONENFELD
Mark Kronenfeld
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PACIRA BIOSCIENCES, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2023
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
Page #
Report of Independent Registered Public Accounting Firm F-2
Auditor Name: KPMG LLP
Auditor Location: Short Hills, NJ
Auditor Firm ID: 185
Consolidated Balance Sheets as of December 31, 2023 and 2022 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.:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of Pacira BioSciences, Inc. and subsidiaries (the Company) as of December 31, 2023 and 2022, the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2023, and the related notes (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2023, 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2023, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023 based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, 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's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (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 audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements 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. 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 audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
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.
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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.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial 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 consolidated financial 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 liability associated with the acquisition of Flexion
As discussed in Notes 5 and 12 to the consolidated financial statements, the Company recognized a contingent consideration liability at its estimated fair value on the acquisition date, in connection with the acquisition of Flexion Therapeutics, Inc. (Flexion). Subsequent changes to the fair value of the contingent consideration liability are recorded in the consolidated statement of operations in the period of change. The Company estimates the fair value using a probability-weighted discounted cash flow approach that is based on unobservable inputs and a Monte Carlo simulation. The fair value of the Flexion contingent consideration as of December 31, 2023 was $24.7 million.
We identified the evaluation of the fair value measurement of the contingent consideration liability related to achieving commercial and regulatory milestones associated with the acquisition of Flexion as a critical audit matter. Evaluating the fair value measurement of the contingent consideration liability required significant auditor judgment, due to the high degree of subjectivity inherent in certain assumptions with unobservable inputs that were used in the model. In particular, the fair value measurement was sensitive to management’s forecasts of revenues, estimated probabilities and timing related to the achievement of certain commercial and regulatory milestones, volatility, and discount rates. In addition, the audit effort associated with the evaluation of the Company’s volatility and discount rates involved the use of valuation professionals with specialized skills and knowledge.
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 fair value measurement process for the contingent consideration liability related to achieving commercial and regulatory milestones. This included controls related to the development of the assumptions for forecasted revenues, estimated probabilities and timing related to the achievement of certain milestones, volatility, and discount rates. We evaluated the forecasted revenues and certain commercial and regulatory milestone assumptions used in the Company’s models by comparing them to historical data, industry benchmarks and other third-party market data that were assessed to be relevant and reliable. We involved valuation professionals with specialized skills and knowledge, who assisted in developing an independent estimate of the discount rates and volatility assumptions using inputs from publicly available market data and comparing the results to the Company’s discount rates and volatility assumptions.
/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 21,504 15,223
Noncurrent available-for-sale investments 2,410 37,209
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of convertible senior notes, net 8,641 —
Current portion of long-term debt, net — 33,648
Commitments and contingencies (Note 20)
Stockholders’ equity:
Accumulated other comprehensive income (loss) 247 (380)
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 — — 125
Operating expenses:
Other (expense) income:
Loss on early extinguishment of debt (16,926) — —
Net income per share:
Basic net income per common share $ 0.91 $ 0.35 $ 0.95
Diluted net income per common share $ 0.89 $ 0.34 $ 0.92
Weighted average common shares outstanding:
See accompanying notes to consolidated financial statements.
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PACIRA BIOSCIENCES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Year Ended December 31,
Other comprehensive income (loss):
Net unrealized gain (loss) on investments, net of tax 647 (662) (180)
Foreign currency translation adjustments (20) 115 29
Total other comprehensive income (loss) 627 (547) (151)
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, 2023, 2022 AND 2021
(In thousands)
Shares Amount
Vested restricted stock units 310 — — — — —
Common stock issued under employee stock purchase plan 55 — 2,811 — — 2,811
Other comprehensive loss (Note 13) — — — — (151) (151)
Vested restricted stock units 331 — — — — —
Common stock issued under employee stock purchase plan 71 — 2,954 — — 2,954
Other comprehensive loss (Note 13) — — — — (547) (547)
Vested restricted stock units 404 — (1) — — (1)
Common stock issued under employee stock purchase plan 90 — 2,811 — — 2,811
Other comprehensive income (Note 13) — — — — 627 627
(1) Effective January 1, 2022, the Company adopted Accounting Standards Update 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) on a modified retrospective method of transition. As a result, the Company no longer separately presents in equity an embedded conversion feature for its convertible debt.
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 early extinguishment of debt 16,926 — —
Impairment of indefinite-lived intangible asset — 26,134 —
Impairment of investment — 10,000 —
Changes in operating assets and liabilities:
Payment of contingent consideration — — (6,835)
Investing activities:
Acquisition of Flexion Therapeutics, Inc. (net of cash acquired) — — (420,042)
Payment of contingent consideration — (32,000) (4,000)
Sale of equity investment — — 9,057
Financing activities:
Payment of employee withholding taxes on restricted stock unit vests (106) — —
Proceeds from Term loan A facility maturing March 2028 149,550 — —
Proceeds from Term loan B facility maturing December 2026 — — 363,750
Repayment of 2022 convertible senior notes — (156,960) —
Repayment of 2024 convertible senior notes — (192,609) —
Repayment of Term loan B facility maturing December 2026 (296,875) (78,125) —
Repayment of Term loan A facility maturing March 2028 (33,437) — —
Debt extinguishment costs (5,750) — —
Payment of debt issuance and financing costs (1,163) (1,175) (4,546)
Payment of contingent consideration — — (5,165)
See accompanying notes to consolidated financial statements.
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Year Ended December 31,
Supplemental cash flow information:
Cash paid for income taxes, net of refunds $ 4,366 $ 7,398 $ 3,221
Non-cash investing and financing activities:
Net additions to contingent consideration liabilities $ — $ — $ 45,241
See accompanying notes to consolidated financial statements.
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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 therapeutic area leader in non-opioid pain management with a stated corporate mission of providing non-opioid pain management options to as many patients as possible and redefining the role of opioids for rescue therapy only. The Company is also developing innovative interventions to address debilitating conditions involving the sympathetic nervous system, such as cardiac electrical storm, chronic pain and spasticity. The Company’s long-acting, local analgesic, EXPAREL® (bupivacaine liposome injectable suspension), was commercially launched in the United States, or U.S., in April 2012 and approved in select European countries and the United Kingdom, or U.K., in November 2021. EXPAREL utilizes the Company’s proprietary multivesicular liposome, or pMVL, drug delivery technology that encapsulates drugs without altering their molecular structure, and releases them over a desired period of time. In November 2021, the Company acquired Flexion Therapeutics, Inc., or Flexion (the “Flexion Acquisition”), and added ZILRETTA® (triamcinolone acetonide extended-release injectable suspension) to its product portfolio. ZILRETTA is the first and only extended-release, intra-articular (meaning in the joint) injection indicated for the management of osteoarthritis, or OA, knee pain. For more information, see Note 5, Flexion Acquisition. In April 2019, the Company added iovera°® to its commercial offering with the acquisition of MyoScience, Inc., or MyoScience (the “MyoScience Acquisition”). The iovera° system is a handheld cryoanalgesia device used to deliver a precise, controlled application of cold temperature to 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 three products, reliance on a limited number of wholesalers, 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.
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 the Company’s wholly owned subsidiaries are included in these consolidated financial statements. All intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications from previously issued financial statements have been 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, valuation of acquired assets and liabilities, stock-based compensation, inventory costs, impairments of equity investments, long-lived assets, goodwill and other intangible assets, liabilities and accruals, including contingent consideration, and the valuation of deferred tax assets. The Company’s critical accounting estimates 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 net product sales consist of (i) EXPAREL in the U.S., European Union, or E.U. and the U.K.; (ii) ZILRETTA in the U.S.; (iii) iovera° in the U.S., Canada and Europe and (iv) sales of its bupivacaine liposome injectable suspension for veterinary use. Royalty revenues are related to a collaborative licensing agreement from the sale of the Company’s bupivacaine liposome injectable suspension for veterinary use. 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 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 physicians. The Company also sells EXPAREL directly to ambulatory surgery centers and physicians. The Company sells ZILRETTA primarily to specialty distributors and specialty pharmacies, who then subsequently resell ZILRETTA to physicians, clinics and certain medical centers or hospitals. The Company also contracts directly with healthcare providers and intermediaries such as Group Purchasing Organizations, or GPOs. The Company sells its bupivacaine liposome injectable suspension for veterinary use to a third-party licensee in the U.S. 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 33 % 31 % 31 %
Second largest wholesaler 24 % 23 % 28 %
Third largest wholesaler 20 % 22 % 26 %
The year ended December 31, 2022 included the first full-year of ZILRETTA net product sales. The Company began recognizing revenue from net product sales of ZILRETTA on November 19, 2021, the date of the Flexion Acquisition.
Revenue from outside the U.S. accounted for less than 1% of the Company’s total revenue for the years ended December 31, 2023, 2022 and 2021. The Company began selling EXPAREL in the E.U. and U.K. and iovera° in Canada in the fourth quarter of 2021.
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.
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PACIRA BIOSCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
The Company accrues interest and penalties on underpayments of income taxes, including those 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 their applicable vesting terms or the length of an offering period.
In calculating the estimated fair value of stock options and employee stock purchase plan share 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 stock option activity data. 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. Additionally, the Company’s ability to declare and pay a dividend in the future could be limited per the agreements governing its indebtedness. The Company records forfeitures of grants as they occur rather than estimating forfeitures during each reporting 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 money market funds. As of December 31, 2023, the carrying value of money market funds was $26.1 million. As of December 31, 2022, the carrying value of money market funds was $42.6 million. The carrying values approximate fair value as of December 31, 2023 and 2022.
Short-Term and Noncurrent Available-For-Sale Investments
Available-for-sale investments may consist of asset-backed securities collateralized by credit card receivables, investment grade commercial paper, corporate bonds, federal agency bonds, government bonds, and other bonds issued in the U.S. (and denominated in the U.S. dollar) by foreign entities. Current available-for-sale investments are those with maturities of greater than three months, but less than one year. Noncurrent available-for-sale investments hold 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 (loss) income 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
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PACIRA BIOSCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
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. The Company periodically reviews these useful lives relative to physical factors, economic factors and industry trends. If there are changes in the planned use of property or equipment, the useful lives assigned to these assets may need to be shortened, resulting in the recognition of accelerated depreciation expense in future periods. 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 fixed 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 Company has elected to net the amortization of its ROU assets and the reduction of the lease liability principal in other liabilities in the consolidated statement of cash flows.
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.
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PACIRA BIOSCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
Acquired in-process research and development, or IPR&D, is recognized at fair value and initially characterized as an indefinite-lived intangible asset, irrespective of whether the acquired IPR&D has an alternative future use. If the acquired net assets do not constitute a business under the acquisition method of accounting, the transaction is accounted for as an asset acquisition and no goodwill is recognized. In an asset acquisition, the amount allocated to acquired IPR&D with no alternative future use is recorded as an expense at the acquisition 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 closing date of the acquisition.
Contingent Consideration
Subsequent to an acquisition, the Company measures contingent consideration arrangements at fair value at each reporting period, with changes in fair value recognized in the consolidated statements of operations. Changes in contingent consideration can result from changes in the assumed achievement and timing of estimated sales and regulatory approvals. In the absence of new information, changes in fair value reflect the passage of time towards achievement or expiration of the milestones, and are accreted to the period in which payments are expected to be made.
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 exists.
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. Indefinite-lived intangible assets are tested for impairment at least annually or when a triggering event occurs that could indicate a potential impairment exists. Impairment charges are recognized to the extent the carrying value exceeds its fair value.
Equity Investments
The Company holds investments in equity securities without a readily determinable fair value which are recognized at cost less any impairments, plus or minus any changes resulting from observable price changes in orderly transactions for a similar investment.
Impairments of Long-Lived Assets
Management reviews long-lived assets, including fixed assets and finite-lived 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.
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PACIRA BIOSCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 vesting of RSUs and the purchase of shares from the Company’s employee stock purchase plan (using the treasury stock method), if applicable. Potential common shares associated with convertible notes are treated under the if-converted method and adjustments are made to the diluted net income (loss) per common share calculation as if the Company had converted the convertible debt on the first day of each period presented. Adjustments to the numerator are made to add back the interest expense associated with the convertible senior notes on a post-tax basis. Adjustments to the denominator reflect the number of shares assumed to be convertible at the beginning of the period.
Foreign Currencies
The balance sheet accounts of the Company’s 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 the average exchange rates for each calendar month during the year. Translation adjustments are recorded as a component of accumulated other comprehensive (loss) income in the consolidated financial statements. Gains or losses from foreign currency exchanges are recorded in other, net in the consolidated statements of operations.
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—who is the Company’s chief operating decision maker—manages and allocates resources at a consolidated level. Accordingly, the Company views its business as one reportable operating segment to evaluate its performance, allocate resources, set operational targets and forecast its future financial results.
NOTE 3—RECENT ACCOUNTING PRONOUNCEMENTS
Recently Issued Accounting Pronouncements Not Adopted as of December 31, 2023
In November 2023, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2023-07, Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures. The ASU amendment improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses on an interim and annual basis. The new segment disclosure requirements apply for entities with a single reportable segment. The ASU’s amendments are effective for fiscal years beginning after December 15, 2023 and interim periods thereafter, with early adoption permitted. The ASU will require adoption on a retrospective basis. The Company is currently evaluating the impact of adopting ASU 2023-07 on its consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740), Improvements to Income Tax Disclosures. The ASU amendment addresses investor requests for more transparency about income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid information. The ASU’s amendments are effective for fiscal years beginning after December 15, 2024 and may be adopted on a prospective or retrospective basis. The Company is currently evaluating the impact of adopting ASU 2023-09 on its consolidated financial statements.
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PACIRA BIOSCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4—REVENUE
The Company’s sources of revenue are detailed in Note 2, Summary of Significant Accounting Policies. The Company does not consider revenue from sources other than sales of EXPAREL and ZILRETTA to be material sources of its consolidated revenue. As such, the following disclosure is limited to revenue associated with net product sales of EXPAREL and ZILRETTA.
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. The Company primarily sells ZILRETTA to specialty distributors and specialty pharmacies, who then subsequently resell ZILRETTA to physicians, clinics and certain medical centers or hospitals. The Company also contracts directly with healthcare providers and intermediaries such as GPOs. 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 and ZILRETTA revenue is recorded at the time the product is delivered to the customer.
Revenues from sales of products are recorded net of returns allowances, prompt payment discounts, service fees, government rebates, 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.
Chargebacks for fees and discounts to qualified government healthcare providers represent the estimated obligations resulting from contractual commitments to sell products to qualified Department of Veteran Affairs hospitals and 340B entities at prices lower than the list prices charged to other customers. The 340B Drug Discount Program is a U.S. federal government program that requires participating drug manufacturers to provide outpatient drugs to eligible health care organizations and covered entities at reduced prices. Customers charge the Company for the difference between the product payment and the statutory selling price to the qualified entity. Reserves are established in the same period that the related revenue is recognized, resulting in a reduction of product revenue and trade receivables, net. Chargeback amounts are generally determined at the time of sale to the qualified government healthcare provider by customers, and the Company generally issues credits for such amounts within weeks of the customer’s notification to the Company of the sale. Reserves for chargebacks consist of credits that the Company expects to issue for units that the Company expects will be sold to qualified healthcare providers, and chargebacks that customers have claimed, but for which the Company has not yet issued a credit.
The calculation for some of these items requires management to make estimates based on sales data, historical return data, contracts, statutory requirements and other related information that may become known in the future. The adequacy of these provisions is reviewed on a quarterly basis.
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PACIRA BIOSCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table provides a summary of activity with respect to the Company’s sales related allowances and accruals related to EXPAREL and ZILRETTA for the years ended December 31, 2023, 2022 and 2021:
The Company began recognizing revenue and the related allowances and accruals from net product sales of ZILRETTA on November 19, 2021, the date of the Flexion Acquisition.
Collaborative Licensing and Milestone Revenue
The Company’s collaborative licensing and milestone revenue recognition policy is discussed in Note 2, Summary of Significant Accounting Policies.
Accounts Receivable
The majority of accounts receivable arise from product sales and represent amounts due from wholesalers, hospitals, ambulatory surgery centers, specialty distributors, specialty pharmacies and individual physicians. Payment terms generally range from zero to four months 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 Accounting Standards Codification, or 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 and ZILRETTA 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.
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PACIRA BIOSCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Disaggregated Revenue
The following table represents disaggregated net product sales in the periods presented as follows (in thousands):
Year Ended December 31,
Net product sales:
The Company began recognizing revenue from net product sales of ZILRETTA on November 19, 2021, the date of the Flexion Acquisition.
NOTE 5—FLEXION ACQUISITION
On November 19, 2021, the Company acquired Flexion, a biopharmaceutical company focused on the discovery, development and commercialization of novel, local therapies for the treatment of patients with musculoskeletal conditions, beginning with OA, the most common form of arthritis, pursuant to an Agreement and Plan of Merger (the “Flexion Merger Agreement”), dated as of October 11, 2021, by and among the Company, Oyster Acquisition Company Inc., a Delaware corporation and wholly owned subsidiary of the Company (“Purchaser”), and Flexion. Following the completion of a successful tender offer for the shares of Flexion’s common stock, and pursuant to the terms of the Flexion Merger Agreement and in accordance with Section 251(h) of the General Corporation Law of the State of Delaware, Purchaser merged with and into Flexion with Flexion surviving as a wholly owned subsidiary of the Company. The Company changed the name of Flexion to Pacira Therapeutics, Inc. after completing the merger.
The total consideration for the Flexion Acquisition was approximately $578.8 million consisting of: (i) $448.5 million of cash paid to former Flexion stockholders and to settle restricted stock units and in-the-money stock options; (ii) an $85.1 million cash payment of Flexion debt not assumed by the Company and (iii) $45.2 million of estimated contingent consideration at the time of the acquisition related to contingent value rights, or CVRs, that were issued to Flexion shareholders and certain equity award holders in conjunction with the Flexion Acquisition. The consideration is subject to adjustments based on the achievement of certain potential milestone payments. At the time of the acquisition, the Company estimated that up to an additional $380.2 million in the aggregate may be payable to holders of the CVRs if each of the applicable milestones are achieved by December 31, 2030, as follows:
(i) $1.00 per CVR the first time that net sales of ZILRETTA in any calendar year equal or exceed $250.0 million;
(ii) $2.00 per CVR, the first time that net sales of ZILRETTA in any calendar year equal or exceed $375.0 million;
(iii) $3.00 per CVR, the first time that net sales of ZILRETTA in any calendar year equal or exceed $500.0 million;
(iv) $1.00 per CVR upon approval by the U.S. Food and Drug Administration, or FDA, of a Biologics License Application (BLA) for PCRX-201, a clinical stage gene therapy product candidate; and
(v) $1.00 per CVR upon approval by the FDA of a new drug application, or NDA, for PCRX-301, an investigational product candidate. In September 2022, based on the results of a completed phase 1 study, the Company decided to discontinue further development of PCRX-301.
Pacira BioSciences, Inc. | 2023 Form 10-K | Page F-18
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PACIRA BIOSCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The total consideration for the Flexion Acquisition was $578.8 million which consisted of the following (in thousands, except per share amounts):
Fair Value of Purchase Price Consideration Amount