Pacira BioSciences, Inc. [PCRX] Filings

10-Q 1 pcrx-20220630.htm 10-Q - PCRX - 6.30.2022 pcrx-20220630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


(Mark One)
☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2022


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

For the transition period from to

Commission File Number: 001-35060

PACIRA BIOSCIENCES, INC.

(Exact Name of Registrant as Specified in its Charter)


Delaware						51-0619477
(State or Other Jurisdiction of Incorporation or Organization)						(I.R.S. Employer Identification No.)

5401 West Kennedy Boulevard, Suite 890

Tampa, Florida, 33609

(Address and Zip Code of Principal Executive Offices)

(813) 553-6680

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol

Name of each exchange on which registered

Common Stock, par value $0.001 per share

PCRX

Nasdaq Global Select Market

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.) ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act. ☐

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

As of August 1, 2022, 45,824,210 shares of the registrant’s common stock, $0.001 par value per share, were outstanding.

Table of Contents

PACIRA BIOSCIENCES, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2022

TABLE OF CONTENTS


		Page #
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Operations	5
	Condensed Consolidated Statements of Comprehensive Income	6
	Condensed Consolidated Statements of Stockholders’ Equity	7
	Condensed Consolidated Statements of Cash Flows	9
	Notes to Condensed Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	48
Item 4.	Controls and Procedures	49

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	50
Item 1A.	Risk Factors	50
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	50
Item 3.	Defaults Upon Senior Securities	50
Item 4.	Mine Safety Disclosures	50
Item 5.	Other Information	50
Item 6.	Exhibits	51
Signatures		52

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PART I — FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS (Unaudited)

PACIRA BIOSCIENCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(Unaudited)


	June 30, 2022		December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	122,061	$	585,578
Short-term available-for-sale investments	194,332		70,831
Accounts receivable, net	91,105		96,318
Inventories, net	100,588		98,550
Prepaid expenses and other current assets	18,124		14,771
Total current assets	526,210		866,048

Fixed assets, net	191,279		188,401
Right-of-use assets, net	72,082		76,410
Goodwill	146,132		145,175
Intangible assets, net	595,324		623,968
Deferred tax assets	167,149		153,364
Investments and other assets	35,812		21,987
Total assets	$	1,733,988	$	2,075,353

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	13,983	$	10,543
Accrued expenses	77,275		127,555
Lease liabilities	8,134		7,891
Convertible senior notes, net	—		350,466

Current portion of long-term debt, net	33,776		24,234
Income taxes payable	11		429
Total current liabilities	133,179		521,118
Convertible senior notes, net	403,534		339,267
Long-term debt, net	318,344		335,263
Lease liabilities	67,575		71,727

Contingent consideration	35,247		57,598
Other liabilities	19,473		19,972
Total liabilities	977,352		1,344,945
Commitments and contingencies (Note 16)
Stockholders’ equity:
Preferred stock, par value $0.001; 5,000,000 shares authorized; none issued and outstanding at June 30, 2022 and December 31, 2021	—		—
Common stock, par value $0.001; 250,000,000 shares authorized; 45,801,578 and 44,734,308 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively	46		45
Additional paid-in capital	895,151		942,091
Accumulated deficit	(137,956)		(211,895)
Accumulated other comprehensive (loss) income	(605)		167
Total stockholders’ equity	756,636		730,408
Total liabilities and stockholders’ equity	$	1,733,988	$	2,075,353

See accompanying notes to condensed consolidated financial statements.

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PACIRA BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Revenues:
Net product sales	$	168,581	$	134,863	$	326,003	$	253,601
Royalty revenue	830		602		1,399		891
Collaborative licensing and milestone revenue	—		125		—		125
Total revenues	169,411		135,590		327,402		254,617
Operating expenses:
Cost of goods sold	50,627		35,248		86,701		66,597
Research and development	26,282		12,573		47,887		28,453
Selling, general and administrative	65,003		50,813		129,263		99,335
Amortization of acquired intangible assets	14,322		1,967		28,644		3,933
Acquisition-related (gains) charges, product discontinuation and other	(18,058)		146		(13,721)		2,019
Total operating expenses	138,176		100,747		278,774		200,337
Income from operations	31,235		34,843		48,628		54,280
Other (expense) income:
Interest income	252		224		523		639
Interest expense	(8,833)		(7,023)		(19,079)		(13,994)

Other, net	(647)		(2,396)		(771)		(2,554)
Total other expense, net	(9,228)		(9,195)		(19,327)		(15,909)
Income before income taxes	22,007		25,648		29,301		38,371
Income tax expense	(2,131)		(6,567)		(2,597)		(8,921)
Net income	$	19,876	$	19,081	$	26,704	$	29,450

Net income per share:
Basic net income per common share	$	0.44	$	0.43	$	0.59	$	0.67
Diluted net income per common share	$	0.40	$	0.42	$	0.55	$	0.64
Weighted average common shares outstanding:
Basic	45,501		44,145		45,185		43,989
Diluted	52,478		45,592		52,262		45,779

See accompanying notes to condensed consolidated financial statements.

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PACIRA BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Net income	$	19,876	$	19,081	$	26,704	$	29,450
Other comprehensive (loss) income:
Net unrealized (loss) gain on investments, net of tax	(160)		12		(893)		(138)
Foreign currency translation adjustments	82		(3)		121		1
Total other comprehensive (loss) income	(78)		9		(772)		(137)
Comprehensive income	$	19,798	$	19,090	$	25,932	$	29,313

See accompanying notes to condensed consolidated financial statements.

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PACIRA BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED JUNE 30, 2022 AND 2021

(In thousands)

(Unaudited)


	Common Stock			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive (Loss) Income
	Shares	Amount								Total
Balance at March 31, 2022	45,064	$	45	$	867,890	$	(157,832)	$	(527)	$	709,576

Exercise of stock options	307	1		10,856		—		—		10,857
Vested restricted stock units	292	—		—		—		—		—
Common stock issued under employee stock purchase plan	37	—		1,821		—		—		1,821
Stock-based compensation	—	—		11,544		—		—		11,544
Issuance of common stock upon conversion of 2022 convertible senior notes (Note 9)	102	—		3,040		—		—		3,040


Other comprehensive loss (Note 11)	—	—		—		—		(78)		(78)
Net income	—	—		—		19,876		—		19,876
Balance at June 30, 2022	45,802	$	46	$	895,151	$	(137,956)	$	(605)	$	756,636


	Common Stock			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive (Loss) Income
	Shares	Amount								Total
Balance at March 31, 2021	43,958	$	44	$	894,108	$	(243,506)	$	172	$	650,818


Exercise of stock options	162	—		5,225		—		—		5,225
Vested restricted stock units	286	—		—		—		—		—
Common stock issued under employee stock purchase plan	31	—		1,574		—		—		1,574
Stock-based compensation	—	—		10,461		—		—		10,461



Other comprehensive income (Note 11)	—	—		—		—		9		9
Net income	—	—		—		19,081		—		19,081
Balance at June 30, 2021	44,437	$	44	$	911,368	$	(224,425)	$	181	$	687,168

See accompanying notes to condensed consolidated financial statements.

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PACIRA BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2022 AND 2021

(In thousands)

(Unaudited)


	Common Stock			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive (Loss) Income
	Shares	Amount								Total
Balance at December 31, 2021	44,734	$	45	$	942,091	$	(211,895)	$	167	$	730,408
Reclassification of the equity component of convertible senior notes to liabilities upon adoption of Accounting Standards Update 2020-06 (Note 2)	—	—		(96,468)		47,235		—		(49,233)

Exercise of stock options	630	1		21,934		—		—		21,935
Vested restricted stock units	299	—		—		—		—		—
Common stock issued under employee stock purchase plan	37	—		1,821		—		—		1,821
Stock-based compensation	—	—		22,733		—		—		22,733
Issuance of common stock upon conversion of 2022 convertible senior notes (Note 9)	102	—		3,040		—		—		3,040


Other comprehensive loss (Note 11)	—	—		—		—		(772)		(772)
Net income	—	—		—		26,704		—		26,704
Balance at June 30, 2022	45,802	$	46	$	895,151	$	(137,956)	$	(605)	$	756,636


	Common Stock			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive (Loss) Income
	Shares	Amount								Total
Balance at December 31, 2020	43,637	$	44	$	873,201	$	(253,875)	$	318	$	619,688


Exercise of stock options	479	—		16,022		—		—		16,022
Vested restricted stock units	290	—		—		—		—		—
Common stock issued under employee stock purchase plan	31	—		1,574		—		—		1,574
Stock-based compensation	—	—		20,571		—		—		20,571



Other comprehensive loss (Note 11)	—	—		—		—		(137)		(137)
Net income	—	—		—		29,450		—		29,450
Balance at June 30, 2021	44,437	$	44	$	911,368	$	(224,425)	$	181	$	687,168

See accompanying notes to condensed consolidated financial statements.

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PACIRA BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Six Months Ended June 30,
	2022		2021
Operating activities:
Net income	$	26,704	$	29,450
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred taxes	2,193		7,613
Depreciation of fixed assets and amortization of intangible assets	40,897		9,748
Amortization of debt issuance costs	2,053		1,310
Amortization of debt discount	1,412		11,401

Loss (gain) on disposal of fixed assets	193		(10)
Stock-based compensation	22,733		20,571
Changes in contingent consideration	(22,351)		(988)
Loss on investment	108		2,601
Changes in operating assets and liabilities:
Accounts receivable, net	5,213		(15,312)
Inventories, net	(2,038)		(615)
Prepaid expenses and other assets	(3,233)		(944)
Accounts payable	5,258		2,156
Accrued expenses and income taxes payable	(19,038)		(18,140)
Other liabilities	479		(964)
Payment of contingent consideration	—		(5,662)
Net cash provided by operating activities	60,583		42,215
Investing activities:

Purchases of fixed assets	(19,403)		(23,624)
Purchases of available-for-sale investments	(187,641)		(318,132)
Sales of available-for-sale investments	62,936		294,288
Payment of contingent consideration	(32,000)		—
Purchases of equity and debt investments	(12,750)		(14,220)
Sale of equity investment	—		9,057

Net cash used in investing activities	(188,858)		(52,631)
Financing activities:
Proceeds from exercises of stock options	21,881		15,997
Proceeds from shares issued under employee stock purchase plan	1,821		1,574


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	(9,375)		—



Payment of contingent consideration to MyoScience, Inc. securityholders	—		(1,338)
Net cash (used in) provided by financing activities	(335,242)		16,233
Net (decrease) increase in cash and cash equivalents	(463,517)		5,817
Cash and cash equivalents, beginning of period	585,578		99,957
Cash and cash equivalents, end of period	$	122,061	$	105,774





Supplemental cash flow information:
Cash paid for interest	$	14,686	$	3,586
Cash paid for income taxes, net of refunds	$	4,104	$	1,447
Non-cash investing and financing activities:
Issuance of common stock from conversion of 2022 convertible senior notes	$	3,040	$	—



Fixed assets included in accounts payable and accrued liabilities	$	2,454	$	8,096

See accompanying notes to condensed consolidated financial statements.

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PACIRA BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1—DESCRIPTION OF BUSINESS

Pacira BioSciences, Inc. and its subsidiaries (collectively, the “Company” or “Pacira”) is the industry leader in its commitment to non-opioid pain management and providing a non-opioid option to as many patients as possible to redefine the role of opioids as 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 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, 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 4, 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 only targeted nerves.

Pacira is subject to risks common to companies in similar industries and stages, including, but not limited to, competition from larger companies, reliance on revenue from 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.

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

Coronavirus (COVID-19) Pandemic and Global Economic Conditions

Since early 2020, the Company’s revenues have been impacted by COVID-19 pandemic-related challenges that included the significant postponement or suspension in the scheduling of elective surgical procedures due to public health guidance and government directives. While the degree of impact has diminished during the course of the pandemic due to the introduction of vaccines and therapeutics, as well as the lessening of elective surgery restrictions, certain pandemic-related operational and staffing challenges persist. It remains unclear how long it will take the elective surgery market to normalize or if restrictions on elective procedures will recur due to future COVID-19 variants or otherwise. Direct effects of the pandemic and global economic conditions may negatively impact the Company’s business, financial condition and results of operations. Such impacts may include the effect of prolonged periods of inflation on the Company’s customers and suppliers and longer lead-times or the inability to secure a sufficient supply of materials. The situation remains dynamic and subject to rapid and possibly material changes. Additional negative impacts may also arise that the Company is unable to foresee. The nature and extent of such impacts will depend on future developments, which are highly uncertain and cannot be predicted.

NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation

These interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America, or GAAP, and in accordance with the rules and regulations of the United States Securities and Exchange Commission (SEC), for interim reporting. Pursuant to these rules and regulations, certain information and footnote disclosures normally included in complete annual financial statements have been condensed or omitted. Therefore, these interim condensed consolidated financial statements should be read in conjunction with the audited annual consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

The condensed consolidated financial statements at June 30, 2022, and for the three and six-month periods ended June 30, 2022 and 2021, are unaudited, but include all adjustments (consisting of only normal recurring adjustments) which, in the

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opinion of management, are necessary to present fairly the financial information set forth herein in accordance with GAAP. The condensed consolidated balance sheet at December 31, 2021 is derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. The condensed consolidated financial statements as presented reflect certain reclassifications from previously issued financial statements to conform to the current year presentation. The accounts of wholly-owned subsidiaries are included in the condensed consolidated financial statements. Intercompany accounts and transactions have been eliminated in consolidation.

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

Concentration of Major Customers

The Company sells EXPAREL through a drop-ship program under which orders are processed through wholesalers (including AmerisourceBergen Health Corporation, Cardinal Health, Inc. and McKesson Drug Company), but shipments of the product are sent directly to individual accounts, such as hospitals, ambulatory surgery centers and individual doctors. The Company also sells EXPAREL directly to ambulatory surgery centers and physicians. The Company sells ZILRETTA primarily to specialty distributors and a specialty pharmacy, 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 iovera° directly to end users and its bupivacaine liposome injectable suspension for veterinary use to a third-party licensee in the U.S.

The table below includes the percentage of revenues comprised by the Company’s three largest wholesalers in each period presented:


	Three Months Ended June 30,		Six Months Ended June 30,
	2022	2021	2022	2021
Largest wholesaler	32%	31%	31%	31%
Second largest wholesaler	23%	29%	23%	29%
Third largest wholesaler	22%	26%	22%	26%
Total	77%	86%	76%	86%

The percentage of revenues from the Company’s three largest wholesalers have shifted in the current year with the addition of ZILRETTA sales.

Recently Adopted Accounting Pronouncements

In August 2020, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40), which limits the number of convertible instruments that require separate accounting to (i) those with embedded conversion features that are not clearly and closely related to the debt, that meet the definition of a derivative and that do not qualify for the scope exception from derivative accounting and (ii) convertible debt instruments issued with substantial premiums for which the premiums were recorded as paid in capital. In addition, the new guidance requires diluted earnings per share calculations be prepared using the if-converted method instead of the treasury stock method. The Company elected to adopt the new guidance using a modified retrospective method of transition, which applied to transactions outstanding at January 1, 2022. As a result, the Company does not separately present in equity an embedded conversion feature for its convertible debt. Instead, the Company accounts for its convertible debt instruments wholly as debt. In addition, effective on January 1, 2022, the Company did not record interest expense on the previously recorded discount on its convertible debt. The impact on the condensed consolidated balance sheet at January 1, 2022 increased net debt by approximately $64.9 million, reduced accumulated deficit by $47.2 million, reduced additional paid-in capital by $96.5 million and decreased deferred tax liabilities by $15.7 million.

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NOTE 3—REVENUE

Revenue from Contracts with Customers

The Company’s net product sales consist of (i) EXPAREL in the U.S., the European Union, or E.U., and the U.K.; (ii) ZILRETTA in the U.S.; (iii) iovera° in the U.S., Canada and the E.U. and (iv) sales of, and royalties on, its bupivacaine liposome injectable suspension for veterinary use. Royalty revenues are from the Company’s collaborative licensing agreements. 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 only relates to revenue associated with net EXPAREL and ZILRETTA product sales.

Net Product Sales

The Company sells EXPAREL through a drop-ship program under which orders are processed through wholesalers based on orders of the product placed by end-users, namely hospitals, ambulatory surgery centers and healthcare provider offices. EXPAREL is delivered directly to the end-user without the wholesaler ever taking physical possession of the product. The Company primarily sells ZILRETTA to specialty distributors and a specialty pharmacy, 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 transferred 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. 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.

Accounts Receivable

The majority of accounts receivable arise from product sales and represent amounts due from wholesalers, hospitals, ambulatory surgery centers, specialty distributors, specialty pharmacy, GPOs and doctors. Payment terms generally range from zero to 97 days from the date of the transaction, and accordingly, there is no significant financing component.

Performance Obligations

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in 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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Disaggregated Revenue

The following table represents disaggregated net product sales in the periods presented as follows (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Net product sales:
EXPAREL	$	137,007	$	130,058	$	266,212	$	244,736
ZILRETTA	27,417		—		51,052		—
iovera°	3,201		3,813		6,227		7,081
Bupivacaine liposome injectable suspension	956		992		2,512		1,784
Total net product sales	$	168,581	$	134,863	$	326,003	$	253,601

NOTE 4—FLEXION ACQUISITION

On November 19, 2021, the Company acquired Flexion (the “Flexion Acquisition”), a biopharmaceutical company focused on the discovery, development, and commercialization of novel, local therapies for the treatment of patients with musculoskeletal conditions, beginning with osteoarthritis, the most common form of arthritis. Upon consummation of the Flexion Acquisition, Flexion became a wholly-owned subsidiary of the Company and was renamed Pacira Therapeutics, Inc.

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 to repay Flexion debt that was not assumed by the Company and (iii) $45.2 million of estimated contingent consideration 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. 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. No contingent consideration milestones were achieved in the six months ended June 30, 2022. See Note 10, Financial Instruments, for information regarding the methodology and key assumptions used in the fair value measurements of contingent consideration and for more information regarding the changes in fair value.

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The Company is finalizing its valuation of liabilities and tax analyses, and anticipates finalizing the purchase price allocation as the information necessary to complete the analysis is obtained, but no later than one year after the acquisition date. The following table sets forth the preliminary allocation of the Flexion Acquisition purchase price to the estimated fair value of the net assets acquired at the acquisition date (in thousands):


	Amounts Recognized at the Acquisition Date (as previously reported) (a)		Measurement Period Adjustments (b)		Amounts Recognized at the Acquisition Date (as adjusted)
ASSETS ACQUIRED
Cash and cash equivalents	$	113,562	$	—	$	113,562
Short-term available-for-sale investments	11,153		—		11,153
Accounts receivable	32,838		—		32,838
Inventories	29,667		—		29,667
Prepaid expenses and other assets	4,852		—		4,852
Fixed assets	23,307		—		23,307
Deferred tax assets	58,015		—		58,015
Right-of-use assets	6,585		—		6,585
Identifiable intangible assets	480,000		—		480,000
In-process research and development (IPR&D)	61,000		—		61,000
Total assets	$	820,979	$	—	$	820,979
LIABILITIES ASSUMED
Accounts payable	$	9,794	$	—	$	9,794
Accrued expenses	22,746		957		23,703
Deferred revenue	10,000		—		10,000
Lease liabilities	6,585		—		6,585
Other liabilities	1,187		—		1,187
Long-term debt	201,450		—		201,450
Total liabilities	251,762		957		252,719
Total identifiable net assets acquired	569,217		(957)		568,260
Goodwill	9,628		957		10,585
Total consideration transferred	$	578,845	$	—	$	578,845

(a) As previously reported in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

(b) Represents pre-acquisition expenses that were paid by the Company in 2022, partially offset by the release of estimated reserves.

Unaudited Pro Forma Summary of Operations

The following table shows the unaudited pro forma summary of operations for the three and six-month periods ended June 30, 2021, as if the Flexion Acquisition had occurred on January 1, 2020. This pro forma information does not purport to represent what the Company’s actual results would have been if the Flexion Acquisition had occurred as of January 1, 2020, and is not indicative of what such results would be expected for any future period (in thousands, except per share amounts):


	Three Months Ended June 30, 2021		Six Months Ended June 30, 2021
Total revenues	$	163,765	$	307,381
Net loss	$	(3,367)	$	(20,487)
Pro forma basic and diluted net loss per share	$	(0.08)	$	(0.47)

The unaudited pro forma financial information was prepared using the acquisition method of accounting and was based on the historical financial information of the Company and Flexion. The summary pro forma financial information primarily reflects the following pro forma adjustments:

•Recognition of the income tax benefit resulting from decreasing Flexion’s existing valuation allowance on deferred tax assets for the three and six months ended June 30, 2021;

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•Removal of Flexion’s interest expense and associated deferred financing cost amortization related to the $85.1 million of debt not assumed;

•Adjustments to the Company’s interest income for the cash used to acquire Flexion;

•Additional cost of goods sold related to a step-up value in inventory;

•Additional amortization expense from the acquired developed technology intangible assets;

•Additional depreciation of Flexion’s fixed assets; and

•Additional lease expense on Flexion’s right-of-use, or ROU, assets.

In addition, all of the above adjustments were adjusted for the applicable tax impact.

NOTE 5—INVENTORIES

The components of inventories, net are as follows (in thousands):


	June 30,		December 31,
	2022		2021
Raw materials	$	36,301	$	36,337
Work-in-process	39,407		35,182
Finished goods	24,880		27,031
Total	$	100,588	$	98,550

NOTE 6—FIXED ASSETS

Fixed assets, net, summarized by major category, consist of the following (in thousands):


	June 30,		December 31,
	2022		2021
Machinery and equipment	$	116,364	$	117,264
Leasehold improvements	60,155		59,740
Computer equipment and software	13,598		13,197
Office furniture and equipment	2,303		2,883
Construction in progress	94,332		80,557
Total	286,752		273,641
Less: accumulated depreciation	(95,473)		(85,240)
Fixed assets, net	$	191,279	$	188,401

For the three months ended June 30, 2022 and 2021, depreciation expense was $6.5 million and $2.9 million, respectively. For the three months ended June 30, 2022 and 2021, there was $1.0 million and $1.1 million of capitalized interest on the construction of manufacturing sites, respectively.

For the six months ended June 30, 2022 and 2021, depreciation expense was $12.2 million and $5.8 million, respectively. For the six months ended June 30, 2022 and 2021, there was $1.8 million and $2.1 million of capitalized interest on the construction of manufacturing sites, respectively.

At June 30, 2022 and December 31, 2021, total fixed assets, net includes leasehold improvements and manufacturing process equipment located in Europe in the amount of $60.0 million and $65.4 million, respectively.

As of June 30, 2022 and December 31, 2021, the Company had asset retirement obligations of $3.1 million and $2.4 million, respectively, included in accrued expenses and other liabilities on its condensed consolidated balance sheet, for costs associated with returning leased spaces to their original condition upon the termination of certain lease agreements.

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NOTE 7—LEASES

The Company leases all of its facilities, including its EXPAREL and iovera° manufacturing facility in San Diego, California. These leases have remaining terms up to 8.2 years, some of which provide renewal options at the then-current market value. The Company also has two embedded leases with Thermo Fisher Scientific Pharma Services for the use of their manufacturing facility in Swindon, England for the production of EXPAREL and ZILRETTA. A portion of the associated monthly base fees has been allocated to the lease components based on a relative fair value basis.

The operating lease costs for the facilities include lease and non-lease components, such as common area maintenance and other common operating expenses, along with executory costs such as insurance and real estate taxes. Total operating lease costs are as follows (in thousands):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2022		2021		2022		2021
Fixed lease costs	$	3,542	$	2,922	$	7,069	$	5,843
Variable lease costs	508		424		980		902
Total	$	4,050	$	3,346	$	8,049	$	6,745

Supplemental cash flow information related to operating leases is as follows (in thousands):


	Six Months Ended
	June 30,
	2022		2021
Cash paid for operating lease liabilities, net of lease incentive	$	6,637	$	7,177
ROU assets recorded in exchange for lease obligations	$	—	$	—

The Company has elected to net the amortization of the ROU asset and the reduction of the lease liability principal in other liabilities in the condensed consolidated statement of cash flows.

The Company has measured its operating lease liabilities at an estimated discount rate at which it could borrow on a collateralized basis over the remaining term for each operating lease. The weighted average remaining lease term and the weighted average discount rate are summarized as follows:


	June 30,
	2022	2021
Weighted average remaining lease term	7.33 years