Pacira BioSciences, Inc. [PCRX] Filings

10-Q 1 pcrx-20240630.htm 10-Q pcrx-20240630

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, 2024


☐			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 July 26, 2024, 46,126,946 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, 2024

TABLE OF CONTENTS


		Page #
PART I. FINANCIAL INFORMATION		4

Item 1.	Financial Statements (Unaudited)	4
	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	11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	49
Item 4.	Controls and Procedures	49

PART II. OTHER INFORMATION		50

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	51
Item 4.	Mine Safety Disclosures	51
Item 5.	Other Information	51
Item 6.	Exhibits	51
Signatures		53

Pacira BioSciences, Inc. | Q2 2024 Form 10-Q | Page 3

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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, 2024		December 31, 2023
ASSETS
Current assets:
Cash and cash equivalents	$	247,053	$	153,298
Short-term available-for-sale investments	157,173		125,283
Accounts receivable, net	104,779		105,556
Inventories, net	103,438		104,353
Prepaid expenses and other current assets	19,771		21,504
Total current assets	632,214		509,994
Noncurrent available-for-sale investments	—		2,410
Fixed assets, net	168,850		173,927
Right-of-use assets, net	56,264		61,020
Goodwill	163,243		163,243
Intangible assets, net	454,614		483,258
Deferred tax assets	135,136		144,485
Investments and other assets	36,499		36,049
Total assets	$	1,646,820	$	1,574,386

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	18,730	$	15,698
Accrued expenses	64,811		64,243
Lease liabilities	9,149		8,801
Current portion of convertible senior notes, net	—		8,641



Total current liabilities	92,690		97,383
Convertible senior notes, net	479,549		398,594
Long-term debt, net	109,751		115,202
Lease liabilities	50,146		54,806

Contingent consideration	22,401		24,698

Other liabilities	13,005		13,573
Total liabilities	767,542		704,256
Commitments and contingencies (Note 15)
Stockholders’ equity:
Preferred stock, par value $0.001; 5,000,000 shares authorized; none issued and outstanding at June 30, 2024 and December 31, 2023	—		—
Common stock, par value $0.001; 250,000,000 shares authorized; 46,954,599 shares issued and 46,117,359 shares outstanding at June 30, 2024 and 46,481,174 shares issued and outstanding at December 31, 2023	47		46
Treasury stock, at cost, 837,240 and zero shares at June 30, 2024 and December 31, 2023, respectively, inclusive of excise tax	(25,121)		—
Additional paid-in capital	983,178		976,633
Accumulated deficit	(78,931)		(106,796)
Accumulated other comprehensive income	105		247
Total stockholders’ equity	879,278		870,130
Total liabilities and stockholders’ equity	$	1,646,820	$	1,574,386

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,
	2024		2023		2024		2023
Revenues:
Net product sales	$	176,387	$	169,467	$	342,211	$	328,898
Royalty revenue	1,636		—		2,929		910

Total revenues	178,023		169,467		345,140		329,808
Operating expenses:
Cost of goods sold	44,262		48,207		91,678		97,227
Research and development	20,338		18,824		38,576		35,964
Selling, general and administrative	68,126		64,850		140,152		135,693
Amortization of acquired intangible assets	14,322		14,322		28,644		28,644
Contingent consideration charges (gains), restructuring charges and other	2,735		(16,613)		4,638		(4,506)
Total operating expenses	149,783		129,590		303,688		293,022
Income from operations	28,240		39,877		41,452		36,786
Other income (expense):
Interest income	4,749		2,111		8,652		5,253
Interest expense	(3,884)		(3,865)		(7,200)		(13,454)
Gain (loss) on early extinguishment of debt	7,518		—		7,518		(16,926)
Other, net	(39)		(269)		(198)		(279)
Total other income (expense), net	8,344		(2,023)		8,772		(25,406)
Income before income taxes	36,584		37,854		50,224		11,380
Income tax expense	(17,698)		(12,091)		(22,359)		(5,153)
Net income	$	18,886	$	25,763	$	27,865	$	6,227

Net income per share:
Basic net income per common share	$	0.41	$	0.56	$	0.60	$	0.14
Diluted net income per common share	$	0.39	$	0.51	$	0.58	$	0.13
Weighted average common shares outstanding:
Basic	46,174		46,088		46,337		46,019
Diluted	50,539		52,054		51,366		46,285

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,
	2024		2023		2024		2023
Net income	$	18,886	$	25,763	$	27,865	$	6,227
Other comprehensive (loss) income:
Net unrealized (loss) gain on investments, net of tax	(52)		(35)		(160)		216
Foreign currency translation adjustments	5		(1)		18		(9)
Total other comprehensive (loss) income	(47)		(36)		(142)		207
Comprehensive income	$	18,839	$	25,727	$	27,723	$	6,434

See accompanying notes to condensed consolidated financial statements.

Pacira BioSciences, Inc. | Q2 2024 Form 10-Q | Page 6

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PACIRA BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED JUNE 30, 2024 AND 2023

(In thousands)

(Unaudited)


	Number of Shares Outstanding						Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Income
	Common Shares	Treasury Shares	Common Stock		Treasury Stock								Total
Balance at March 31, 2024	46,517	—	$	47	$	—	$	989,780	$	(97,817)	$	152	$	892,162



Vested restricted stock units	381	—	—		—		—		—		—		—
Common stock withheld for employee withholding tax liabilities on vested restricted stock units	—	—	—		—		(378)		—		—		(378)
Common stock issued under employee stock purchase plan	56	—	—		—		1,364		—		—		1,364
Stock-based compensation	—	—	—		—		12,524		—		—		12,524
Purchase of treasury stock, inclusive of excise tax	—	(837)	—		(25,121)		—		—		—		(25,121)
Purchase of capped call transaction, net of tax	—	—	—		—		(20,112)		—		—		(20,112)


Other comprehensive loss (Note 10)	—	—	—		—		—		—		(47)		(47)
Net income	—	—	—		—		—		18,886		—		18,886
Balance at June 30, 2024	46,954	(837)	$	47	$	(25,121)	$	983,178	$	(78,931)	$	105	$	879,278


	Common Stock			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss
	Shares	Amount								Total
Balance at March 31, 2023	45,970	$	46	$	936,419	$	(168,287)	$	(137)	$	768,041


Exercise of stock options	50	—		1,580		—		—		1,580
Vested restricted stock units	339	—		—		—		—		—
Common stock issued under employee stock purchase plan	50	—		1,672		—		—		1,672
Stock-based compensation	—	—		10,955		—		—		10,955



Other comprehensive loss (Note 10)	—	—		—		—		(36)		(36)
Net income	—	—		—		25,763		—		25,763
Balance at June 30, 2023	46,409	$	46	$	950,626	$	(142,524)	$	(173)	$	807,975

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, 2024 AND 2023

(In thousands)

(Unaudited)


	Number of Shares Outstanding						Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Income
	Common Shares	Treasury Shares	Common Stock		Treasury Stock								Total
Balance at December 31, 2023	46,481	—	$	46	$	—	$	976,633	$	(106,796)	$	247	$	870,130



Vested restricted stock units	417	—	1		—		—		—		—		1
Common stock withheld for employee withholding tax liabilities on vested restricted stock units	—	—	—		—		(382)		—		—		(382)
Common stock issued under employee stock purchase plan	56	—	—		—		1,364		—		—		1,364
Stock-based compensation	—	—	—		—		25,675		—		—		25,675
Purchase of treasury stock, inclusive of excise tax	—	(837)	—		(25,121)		—		—		—		(25,121)
Purchase of capped call transaction, net of tax	—	—	—		—		(20,112)		—		—		(20,112)


Other comprehensive loss (Note 10)	—	—	—		—		—		—		(142)		(142)
Net income	—	—	—		—		—		27,865		—		27,865
Balance at June 30, 2024	46,954	(837)	$	47	$	(25,121)	$	983,178	$	(78,931)	$	105	$	879,278


	Common Stock			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss
	Shares	Amount								Total
Balance at December 31, 2022	45,928	$	46	$	924,095	$	(148,751)	$	(380)	$	775,010



Exercise of stock options	62	—		1,914		—		—		1,914
Vested restricted stock units	369	—		—		—		—		—

Common stock issued under employee stock purchase plan	50	—		1,672		—		—		1,672
Stock-based compensation	—	—		22,945		—		—		22,945


Other comprehensive income (Note 10)	—	—		—		—		207		207
Net income	—	—		—		6,227		—		6,227
Balance at June 30, 2023	46,409	$	46	$	950,626	$	(142,524)	$	(173)	$	807,975

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,
	2024		2023
Operating activities:
Net income	$	27,865	$	6,227
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred taxes	15,998		4,100
Depreciation of fixed assets and amortization of intangible assets	37,289		38,656
Amortization of debt issuance costs	1,444		1,628
Amortization of debt discount	47		703
(Gain) loss on early extinguishment of debt	(7,518)		16,926

Stock-based compensation	25,675		22,945
Changes in contingent consideration	(2,297)		(6,640)

Other net losses	109		11
Changes in operating assets and liabilities:
Accounts receivable, net	776		(683)
Inventories, net	915		3,933
Prepaid expenses and other assets	(1,309)		(4,369)
Accounts payable	2,772		9,683
Accrued expenses and income taxes payable	1,361		(30,771)
Other liabilities	(790)		278

Net cash provided by operating activities	102,337		62,627
Investing activities:

Purchases of fixed assets	(4,426)		(9,969)
Purchases of available-for-sale investments	(105,781)		(69,509)
Sales of available-for-sale investments	79,462		159,745

Purchases of debt investments	—		(6,758)


Net cash (used in) provided by investing activities	(30,745)		73,509
Financing activities:
Proceeds from exercises of stock options	—		1,913
Proceeds from shares issued under employee stock purchase plan	1,364		1,673


Payment of employee withholding taxes on restricted stock unit vests	(382)		—
Purchase of treasury stock	(25,000)		—
Proceeds from 2029 convertible senior notes	287,500		—
Proceeds from Term loan A facility	—		149,550

Repayment of 2024 convertible senior notes	(8,641)		—
Repayment of 2025 convertible senior notes	(190,994)		—
Repayment of Term loan B facility	—		(296,875)
Repayment of Term loan A facility	(5,625)		(2,813)


Purchase of capped call transactions	(26,709)		—
Debt extinguishment costs	—		(5,750)
Payment of debt issuance and financing costs	(9,350)		(1,163)

Net cash provided by (used in) financing activities	22,163		(153,465)
Net increase (decrease) in cash and cash equivalents	93,755		(17,329)
Cash and cash equivalents, beginning of period	153,298		104,139
Cash and cash equivalents, end of period	$	247,053	$	86,810
See accompanying condensed notes to consolidated financial statements.

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PACIRA BIOSCIENCES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (In thousands) (Unaudited)
	Six Months Ended June 30,
	2024		2023
Supplemental cash flow information:
Cash paid for interest	$	6,988	$	20,802
Net cash paid for income taxes	$	4,667	$	795
Non-cash investing and financing activities:




Fixed assets included in accounts payable and accrued liabilities	$	604	$	2,388

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 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’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. 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.

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. Effective January 2, 2024, the Company appointed a new Chief Executive Officer. Consistent with the Company’s predecessor chief operating decision maker, 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 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 (the “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, 2023 (the “2023 Annual Report”).

The condensed consolidated financial statements at June 30, 2024, and for the three and six-month periods ended June 30, 2024 and 2023, are unaudited, but include all adjustments (consisting of only normal recurring adjustments) which, in the opinion of management, are necessary to present fairly the financial information set forth herein in accordance with GAAP. The condensed consolidated balance sheet at December 31, 2023 is derived from the audited consolidated financial statements included in the Company’s 2023 Annual Report. 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.

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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 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,
	2024	2023	2024	2023
Largest wholesaler	34%	33%	35%	32%
Second largest wholesaler	22%	24%	23%	24%
Third largest wholesaler	19%	20%	19%	21%
Total	75%	77%	77%	77%

Recent Accounting Pronouncements Not Adopted as of June 30, 2024

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 amendment 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.

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 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 its bupivacaine liposome injectable suspension for veterinary use. 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 group purchasing organizations, or GPOs. Product revenue is recognized when control of the promised goods are transferred to the customer, 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 products are 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

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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 represent the estimated obligations resulting from contractual commitments to sell products to Department of Veteran Affairs hospitals, participating GPO members, 340B qualified entities and other contracted customers at prices lower than the list price. 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 claim the difference between the amount invoiced and the discounted selling price through a chargeback issued by a wholesaler. 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 determined at the time of sale and the Company generally issues credits for such amounts within weeks of receiving notification from a wholesaler. Reserves for chargebacks consist of anticipated credits the Company expects to issue based on expected units sold and chargebacks that customers have claimed for which credits have not yet been issued.

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.

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.

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,
	2024		2023		2024		2023
Net product sales:
EXPAREL	$	136,852	$	135,127	$	269,282	$	265,535
ZILRETTA	30,707		29,261		56,546		53,595
iovera°	5,674		4,384		10,704		8,385
Bupivacaine liposome injectable suspension	3,154		695		5,679		1,383
Total net product sales	$	176,387	$	169,467	$	342,211	$	328,898

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NOTE 4—INVENTORIES

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


	June 30,		December 31,
	2024		2023
Raw materials	$	52,340	$	54,099
Work-in-process	23,649		31,215
Finished goods	27,449		19,039
Total	$	103,438	$	104,353

NOTE 5—FIXED ASSETS

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


	June 30,		December 31,
	2024		2023
Machinery and equipment (1)	$	106,877	$	121,773
Leasehold improvements	58,835		61,826
Computer equipment and software	16,490		17,186
Office furniture and equipment	2,446		2,543
Construction in progress (2)	107,997		105,905
Total	292,645		309,233
Less: accumulated depreciation (1)	(123,795)		(135,306)
Fixed assets, net	$	168,850	$	173,927

(1) During the six months ended June 30, 2024, the Company disposed of $19.0 million of fully depreciated machinery and equipment associated with its 45-liter EXPAREL manufacturing process at its contract manufacturing facility located in Swindon, England. The Company continues to operate its 200-liter EXPAREL manufacturing process at the same facility.

(2) In July 2024, a new 200-liter EXPAREL manufacturing suite at the Company’s Science Center Campus in San Diego, California was placed into service, for which approximately $76.1 million will be reclassified from construction in progress to machinery and equipment and, to a lesser extent, leasehold improvements in the third quarter of 2024.

For the three months ended June 30, 2024 and 2023, depreciation expense was $4.5 million and $4.7 million, respectively. For the three months ended June 30, 2024 and 2023, there was $0.7 million and $0.7 million of capitalized interest on the construction of manufacturing sites, respectively.

For the six months ended June 30, 2024 and 2023, depreciation expense was $8.6 million and $10.0 million, respectively. For the six months ended June 30, 2024 and 2023, there was $1.4 million and $2.1 million of capitalized interest on the construction of manufacturing sites, respectively.

At June 30, 2024 and December 31, 2023, total fixed assets, net, includes manufacturing process equipment and leasehold improvements located in Europe in the amount of $32.5 million and $36.8 million, respectively.

As of June 30, 2024 and December 31, 2023, the Company had asset retirement obligations of $4.0 million and $4.3 million, respectively, included in accrued expenses and other liabilities on its condensed consolidated balance sheets, for costs associated with returning leased spaces to their original condition upon the termination of certain of its lease agreements.

NOTE 6—LEASES

The Company leases all of its facilities, including its EXPAREL and iovera° handpiece manufacturing facility at its Science Center Campus in San Diego, California. 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.

Since July 2022 and February 2023, the Company has been recognizing sublease income for laboratory space leased in Woburn, Massachusetts and a portion of office space leased in Burlington, Massachusetts, respectively, from leases that were

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assumed as part of the Flexion Acquisition. In February 2024, the lease and sublease term concluded for the laboratory space in Woburn, Massachusetts.

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 expense, net is as follows (in thousands):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2024		2023		2024		2023
Fixed lease costs	$	3,460	$	3,631	$	6,957	$	7,259
Variable lease costs	289		378		783		945
Sublease income	(61)		(169)		(192)		(322)
Total	$	3,688	$	3,840	$	7,548	$	7,882

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


	Six Months Ended
	June 30,
	2024		2023
Cash paid for operating lease liabilities, net of lease incentives	$	6,429	$	7,325

The Company has elected to net the amortization of the right-of-use asset and the reduction of the lease liability principal in other liabilities in the condensed consolidated statements 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 terms and the weighted average discount rates are summarized as follows:


	June 30,
	2024		2023
Weighted average remaining lease term	5.58 years		6.39 years
Weighted average discount rate	7.00	%	7.03	%

Maturities of the Company’s operating lease liabilities are as follows (in thousands):


Year	Aggregate Minimum Payments Due
2024 (remaining six months)	$	6,516
2025	12,788
2026	12,823
2027	12,587
2028	10,924
Thereafter	16,426
Total future lease payments	72,064
Less: imputed interest	(12,769)
Total operating lease liabilities	$	59,295

NOTE 7—GOODWILL AND INTANGIBLE ASSETS

Goodwill

The Company’s goodwill results from the acquisition of Pacira Pharmaceuticals, Inc. (the Company’s California operating subsidiary) from SkyePharma Holding, Inc. (now Vectura Group Limited, a subsidiary of Philip Morris International, Inc.) in 2007, the MyoScience Acquisition in 2019 and the Flexion Acquisition in 2021. The goodwill balance at each of June 30, 2024 and December 31, 2023 was $163.2 million.

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Intangible Assets

Intangible assets, net, consists of the in-process research and development, or IPR&D, and developed technology from the Flexion Acquisition and developed technology and customer relationships from the MyoScience Acquisition and are summarized as follows (dollar amounts in thousands):


June 30, 2024	Gross Carrying Value		Accumulated Amortization		Intangible Assets, Net		Weighted-Average Useful Lives
Developed technologies	$	590,000	$	(170,295)	$	419,705	10 years, 5 months
Customer relationships	90		(47)		43		10 years
Total finite-lived intangible assets, net	590,090		(170,342)		419,748
Acquired IPR&D	34,866		—		34,866
Total intangible assets, net	$	624,956	$	(170,342)	$	454,614

December 31, 2023	Gross Carrying Value		Accumulated Amortization		Intangible Assets, Net		Weighted-Average Useful Lives
Developed technologies	$	590,000	$	(141,655)	$	448,345	10 years, 5 months
Customer relationships	90		(43)		47		10 years
Total finite-lived intangible assets, net	590,090		(141,698)		448,392
Acquired IPR&D	34,866		—		34,866
Total intangible assets, net	$	624,956	$	(141,698)	$	483,258

Amortization expense on intangible assets was $14.3 million for both the three months ended June 30, 2024 and 2023. Amortization expense on intangible assets was $28.6 million for both the six months ended June 30, 2024 and 2023.

Assuming no changes in the gross carrying amount of these intangible assets, the future estimated amortization expense on the finite-lived intangible assets will be $28.6 million for the remaining six months of 2024, $57.3 million each year from 2025 to 2030, $37.4 million in 2031, $7.9 million in 2032 and $2.2 million in 2033.

NOTE 8—DEBT

The carrying value of the Company’s outstanding debt is summarized as follows (in thousands):


	June 30,		December 31,
	2024		2023
Term loan A facility maturing March 2028	$	109,751	$	115,202
2.125% Convertible senior notes due May 2029	278,394		—
0.750% Convertible senior notes due August 2025	201,155		398,594
3.375% Convertible senior notes due May 2024 (1)	—		8,641
Total	$	589,300	$	522,437

(1) The 3.375% convertible senior notes due May 2024 matured and were repaid on May 1, 2024.

2028 Term Loan A Facility

On March 31, 2023, the Company entered into a credit agreement (as amended to date, the “TLA Credit Agreement”) with JPMorgan Chase Bank, N.A., as administrative agent, and certain lenders, to refinance the indebtedness outstanding under the Company’s then-existing 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 the Company’s and any subsidiary guarantor’s assets. Subject to certain conditions, the Company may, at any time, on one or more occasion, add one or more new classes of term facilities and/or increase the principal amount of the loans of any existing class by requesting one or more incremental term facilities. The net proceeds of the TLA Term Loan were approximately $149.6 million after deducting an original issue discount of $0.4 million.

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On May 8, 2024, the Company, JPMorgan Chase Bank, N.A., as administrative agent, and certain lenders entered into a first amendment (the “First TLA Amendment”) to the TLA Credit Agreement. The First TLA Amendment, among other things, (i) permits the Company’s $150.0 million share repurchase program and (ii) this offering, including the Capped Call Transactions as described below.

The total debt composition of the TLA Term Loan is as follows (in thousands):


	June 30,		December 31,
	2024		2023
Term loan A facility maturing March 2028	$	110,938	$	116,563
Deferred financing costs	(861)		(988)
Discount on debt	(326)		(373)
Total debt, net of debt discount and deferred financing costs	$	109,751	$	115,202

The TLA Term Loan matures on March 31, 2028 and the TLA Credit Agreement requires quarterly repayments of principal in the amount of $2.8 million which commenced on June 30, 2023, increasing to $3.8 million commencing March 31, 2025, with a remaining balloon payment of approximately $85.3 million due at maturity. Due to voluntary principal prepayments made, the Company is not required to make further principal payments until June 2026, although the Company retains the option to do so.

The TLA Credit Agreement requires the Company 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 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 $300.0 million ($500.0 million less a $200.0 million prepayment in the six months ended June 30, 2024) less any additional prepayments of the 2025 Notes (as defined below) 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 June 30, 2024, the Company was in compliance with all financial covenants under the TLA Credit Agreement.

The Company 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 that 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 the Company’s Senior Secured Net Leverage Ratio ranging from 2.00% to 2.75%. 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 Credit Agreement), plus (ii) a spread based on the Company’s Senior Secured Net Leverage Ratio ranging from 3.00% to 3.75%. During the six months ended June 30, 2024, the Company made $5.6 million voluntary principal prepayments. During the year ended December 31, 2023, the Company made a scheduled principal payment of $2.8 million as well as $30.6 million of voluntary principal prepayments. As of June 30, 2024, borrowings under the TLA Term Loan consisted entirely of term benchmark borrowings at a rate of 8.43%.

2026 Term Loan B Facility

In December 2021, the Company entered into a term loan credit agreement (the “TLB Credit Agreement”) with JPMorgan Chase Bank, N.A., as administrative agent and the initial lender. The term loan issued under the TLB Credit Agreement (the “TLB Term Loan”) was issued at a 3.00% discount and allowed for a single-advance term loan B facility in the principal amount of $375.0 million, which was secured by substantially all of the Company’s and each subsidiary guarantor’s assets. The net proceeds of the TLB Term Loan were approximately $363.8 million after deducting an original issue discount of $11.2 million.

On March 31, 2023, the Company used the $149.6 million of net borrowings under the TLA Credit Agreement and cash on hand to repay the $296.9 million then-outstanding principal under the TLB Credit Agreement and concurrently terminated the TLB Credit Agreement, which resulted in a $16.9 million loss on early extinguishment of debt. The Company incurred a prepayment fee of 2.00% of the outstanding principal balance of the TLB Term Loan in connection with the termination.

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Convertible Senior Notes Due 2029

In May 2024, the Company completed a private placement of $287.5 million in aggregate principal amount of its 2.125% convertible senior notes due 2029, or 2029 Notes, and entered into an indenture with Computershare Corporate Trust, N.A., or 2029 Indenture, with respect to the 2029 Notes. The 2029 Notes accrue interest at a fixed rate of 2.125% per year, payable semiannually in arrears on May 15th and November 15th of each year. The 2029 Notes mature on May 15, 2029.

The total debt composition of the 2029 Notes is as follows (in thousands):


	June 30,
	2024
2.125% convertible senior notes due May 2029	$	287,500
Deferred financing costs	(9,106)

Total debt, net of deferred financing costs	$	278,394

Holders may convert the 2029 Notes prior to the close of business on the business day immediately preceding November 15, 2028, only if certain circumstances are met, including, but not limited to, if during the previous calendar quarter, the last reported sales price of the Company’s common stock was greater than 130% of the conversion price then applicable for at least 20 out of the last 30 consecutive trading days of the quarter. During the quarter ended June 30, 2024, the conditions for conversion were not met.

On or after November 15, 2028, until the close of business on the second scheduled trading day immediately preceding May 15, 2029, holders may convert their 2029 Notes at any time.

Upon conversion, holders will receive the principal amount of their 2029 Notes and any excess conversion value, calculated based on the per share volume-weighted average price for each of the 50 consecutive trading days during the observation period (as more fully described in the 2029 Indenture). For the principal, the Company will settle in cash per the terms of the 2029 Notes. For any excess conversion value, holders may receive cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s option. The initial conversion rate for the 2029 Notes is 25.2752 shares of common stock per $1,000 principal amount, which is equivalent to an initial conversion price of $39.56 per share of the Company’s common stock. The conversion rate will be subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. The initial conversion price of the 2029 Notes represents a premium of approximately 32.5% to the closing sale price of $29.86 per share of the Company’s common stock on the Nasdaq Global Select Market on May 9, 2024, the date that the Company priced the private offering of the 2029 Notes.

As of June 30, 2024, the 2029 Notes had a market price of $996 per $1,000 principal amount. In the event of conversion, holders would forgo all future interest payments, any unpaid accrued interest and the possibility of further stock price appreciation. Upon the receipt of conversion requests, the settlement of the 2029 Notes will be paid pursuant to the terms of the 2029 Indenture. In the event that all of the 2029 Notes are converted, the Company would be required to repay the $287.5 million in principal value in cash, whereas any conversion premium would be required to be repaid in any combination of cash and shares of its common stock (at the Company’s option).

Prior to the close of business on the business day immediately preceding November 15, 2028, the 2029 Notes are convertible only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on June 30, 2024 (and only during such calendar quarter), if the last reported sale price of the Common Stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is equal to or greater than 130% of the conversion price on each applicable trading day; (2) during the five business-day period after any five consecutive trading-day period (the “measurement period”) in which the trading price per $1,000 principal amount of the 2029 Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day; (3) upon the occurrence of specified corporate events; or (4) upon a Company redemption. On or after November 15, 2028, until the close of business on the second scheduled trading day immediately preceding May 15, 2029, holders of the 2029 Notes may convert all or a portion of their 2029 Notes, at any time. Upon conversion, the 2029 Notes will be settled by paying or delivering, as applicable, cash or a combination of cash and shares of the Company’s common stock, based on the applicable conversion rate. No sinking fund is provided for the 2029 Notes.

On or after May 17, 2027 and on or before the 50th scheduled trading day immediately before the maturity date, the Company may redeem for cash all or part of the 2029 Notes if (i) the 2029 Notes are “freely tradable” (as defined in the 2029 Indenture) and any accrued and unpaid additional interest has been paid as of the date the Company sends the related notice of the redemption and (ii) the last reported sales price of the Company’s common stock exceeds 130% of the conversion price then

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in effect for (1) each of at least 20 trading days (whether or not consecutive) during any 30 consecutive trading days ending on, and including, the trading day immediately before the date the Company sends the related notice of the redemption; and (2) the trading day immediately before the date the Company sends such notice. The redemption price of each 2029 Note to be redeemed will be the principal amount of such 2029 Note, plus accrued and unpaid interest, if any. In addition, calling any 2029 Notes for redemption will constitute a make-whole fundamental change, in which case the conversion rate applicable to those 2029 Notes, if converted in connection with the redemption, will be increased in certain circumstances. Upon the occurrence of a “make-whole fundamental change” (as defined in the 2029 Indenture), subject to a limited exception for certain cash mergers, holders may require the Company to repurchase all or a portion of their 2029 Notes for cash at a price equal to 100% of the principal amount of the 2029 Notes to be repurchased plus any accrued and unpaid interest.

While the 2029 Notes are currently classified on the Company’s condensed consolidated balance sheet at June 30, 2024 as long-term debt, the future convertibility and resulting balance sheet classification of this liability is monitored at each quarterly reporting date and is analyzed dependent upon market prices of the Company’s common stock during the prescribed measurement periods. In the event that the holders of the 2029 Notes have the election to convert the 2029 Notes at any time during the prescribed measurement period, the 2029 Notes would then be considered a current obligation and classified as such.

On May 9, 2024, in connection with the pricing of the 2029 Notes, and on May 10, 2024, in connection with the exercise in full by the initial purchasers of the 2029 Notes (the “Initial Purchasers”) of their option to purchase additional 2029 Notes, the Company entered into privately negotiated capped call transactions (the “Capped Call Transactions”) with certain of the Initial Purchasers of the 2029 Notes and/or their respective affiliates and/or other financial institutions (the “Option Counterparties”). The Capped Call Transactions are expected to cover, subject to anti-dilution adjustments substantially similar to those applicable to the 2029 Notes, the number of shares of the Company’s common stock underlying the 2029 Notes.

The Capped Call Transactions are expected to reduce the potential dilution to the Company’s common stock upon any conversion of the 2029 Notes and/or offset any potential cash payments the Company is required to make in excess of the principal amount of converted 2029 Notes, as the case may be, upon any conversion of the 2029 Notes, with such reduction and/or offset subject to a cap. The cap price of the Capped Call Transactions will initially be approximately $53.75 per share, representing a premium of approximately 80% over the closing price of $29.86 per share of the Company’s common stock on May 9, 2024, and is subject to certain adjustments under the terms of the Capped Call Transactions. The capped call was recorded as a reduction to additional paid-in capital at its cost of $26.7 million.

The Capped Call Transactions are separate transactions entered into by the Company with the Option Counterparties, are not part of the terms of the 2029 Notes and will not affect any holder’s rights under the 2029 Notes. Holders of the 2029 Notes will not have any rights with respect to the Capped Call Transactions.

Convertible Senior Notes Due 2025

In July 2020, the Company completed a private placement of $402.5 million in aggregate principal amount of its 0.750% convertible senior notes due 2025, or 2025 Notes, and entered into an indenture with Computershare Corporate Trust, N.A. (formerly Wells Fargo Bank, N.A.), or 2025 Indenture, with respect to the 2025 Notes. The 2025 Notes accrue interest at a fixed rate of 0.750% per year, payable semiannually in arrears on February 1st and August 1st of each year. The 2025 Notes mature on August 1, 2025.

In May 2024, the Company used part of the net proceeds from the issuance of the 2029 Notes to repurchase $200.0 million aggregate principal amount of the 2025 Notes in privately negotiated transactions at a discount for $191.4 million in cash (including accrued interest). The partial repurchase of the 2025 Notes resulted in a $7.5 million gain on early extinguishment of debt.

The total debt composition of the 2025 Notes is as follows (in thousands):


	June 30,		December 31,
	2024		2023
0.750% convertible senior notes due August 2025	$	202,500	$	402,500
Deferred financing costs	(1,345)		(3,906)

Total debt, net of deferred financing costs	$	201,155	$	398,594

Holders may convert the 2025 Notes at any time prior to the close of business on the business day immediately preceding February 3, 2025, only if certain circumstances are met, including, but not limited to, if during the previous calendar quarter, the last reported sales price of the Company’s common stock was greater than 130% of the conversion price then applicable for at least 20 out of the last 30 consecutive trading days of the quarter. During the quarter ended June 30, 2024, the conditions for conversion were not met.

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

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

As of June 30, 2024, the 2025 Notes had a market price of $938 per $1,000 principal amount. In the event of conversion, holders would forgo all future interest payments, any unpaid accrued interest and the possibility of further stock price appreciation. Upon the receipt of conversion requests, the settlement of the 2025 Notes will be paid pursuant to the terms of the 2025 Indenture. In the event that all of the 2025 Notes are converted, the Company would be required to repay the remaining $202.5 million in principal value and any conversion premium in any combination of cash and shares of its common stock (at the Company’s option).

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

While the 2025 Notes are currently classified on the Company’s condensed consolidated balance sheet at June 30, 2024 as long-term debt, the future convertibility and resulting balance sheet classification of this liability is monitored at each quarterly reporting date and is analyzed dependent upon market prices of the Company’s common stock during the prescribed measurement periods. In the event that the holders of the 2025 Notes have the election to convert the 2025 Notes at any time during the prescribed measurement period, the 2025 Notes would then be considered a current obligation and classified as such.

Convertible Senior Notes Due 2024 Assumed from the Flexion Acquisition

Prior to the Flexion Acquisition, in May 2017, Flexion issued an aggregate of $201.3 million principal amount of 3.375% convertible senior notes due 2024 (the “Flexion 2024 Notes”), pursuant to the indenture, dated as of May 2, 2017 (the “Original Flexion Indenture”), between Flexion and Computershare Corporate Trust, N.A. (formerly Wells Fargo Bank, N.A.), as trustee (the “Flexion Trustee”), as supplemented by the First Supplemental Indenture, dated as of November 19, 2021, between Flexion and the Flexion Trustee (the “First Supplemental Flexion Indenture” and, together with the Original Flexion Indenture, the “Flexion Indenture”). The Flexion 2024 Notes had a maturity date of May 1, 2024, were unsecured, and accrued interest at a rate of 3.375% per annum, payable semi-annually on May 1st and November 1st of each year. Upon the Flexion Acquisition, the principal was assumed and recorded at fair value by the Company.

On January 7, 2022, following the expiration of the offer to purchase, the Company accepted the $192.6 million aggregate principal amount of Flexion 2024 Notes that were validly tendered (and not validly withdrawn). No Flexion 2024 Notes were converted in connection with the Notice. The remaining principal of $8.6 million was repaid at maturity on May 1, 2024.

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Interest Expense

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


	Three Months Ended June 30,						Six Months Ended June 30,
	2024			2023			2024			2023
Contractual interest expense	$	3,797		$	3,849		$	7,108		$	13,199
Amortization of debt issuance costs	763			691			1,444			1,628
Amortization of debt discount	23			28			47			703
Capitalized interest (Note 5)	(699)			(703)			(1,399)			(2,076)
Total	$	3,884		$	3,865		$	7,200		$	13,454

Effective interest rate on total debt	2.99		%	3.16		%	2.98		%	4.38		%

NOTE 9—FINANCIAL INSTRUMENTS

Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or be paid to transfer a liability in the principal or most advantageous market in an orderly transaction. To increase consistency and comparability in fair value measurements, the FASB established a three-level hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of fair value measurements are:

•Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.

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

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

The carrying value of financial instruments including cash and cash equivalents, accounts receivable and accounts payable approximate their respective fair values due to the short-term nature of these items. The fair value of the Company’s convertible senior notes and its TLA Term Loan are calculated utilizing market quotations from an over-the-counter trading market for these notes (Level 2). The fair value of the Company’s acquisition-related contingent consideration is reported at fair value on a recurring basis (Level 3). The carrying amounts of equity investments and convertible notes receivable without readily determinable fair values have not been adjusted for either an impairment or upward or downward adjustments based on observable transactions.

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At June 30, 2024, the carrying values and fair values of the following financial assets and liabilities were as follows (in thousands):


	Carrying Value		Fair Value Measurements Using
			Level 1		Level 2		Level 3
Financial Assets and Financial Liabilities Measured at Fair Value on a Recurring Basis:
Financial Assets:
Equity investments	$	15,877	$	—	$	—	$	15,877
Convertible notes receivable	$	11,995	$	—	$	—	$	11,995
Financial Liabilities:
Acquisition-related contingent consideration	$	22,401	$	—	$	—	$	22,401

Financial Liabilities Measured at Amortized Cost:
Term loan A facility due March 2028	$	109,751	$	—	$	110,383	$	—
2.125% convertible senior notes due 2029 (1)	$	278,394	$	—	$	286,422	$	—
0.750% convertible senior notes due 2025 (2)	$	201,155	$	—	$	189,971	$	—

(1) The closing price of the Company’s common stock as reported on the Nasdaq Global Select Market was $28.61 per share on June 28, 2024, the last trading day of the quarter ended June 30, 2024, compared to a conversion price of $39.56 per share. At June 30, 2024, as the conversion price was above the stock price, the requirements for conversion have not been met.

(2) The closing price of the Company’s common stock as reported on the Nasdaq Global Select Market was $28.61 per share on June 28, 2024, the last trading day of the quarter ended June 30, 2024, compared to a conversion price of $71.78 per share. At June 30, 2024, as the conversion price was above the stock price, the requirements for conversion have not been met. The maximum conversion on the principal that could have been due on the 2025 Notes is 2.8 million shares of the Company’s common stock, which assumes no increase in the conversion rate for certain corporate events.

Financial Assets and Liabilities Measured at Fair Value on a Recurring Basis

Equity and Convertible Note Investments

The Company holds strategic investments in clinical and preclinical stage privately-held biotechnology companies in the form of equity and convertible note investments. The following investments have no readily determinable fair value and are recorded at cost minus impairment, if any, plus or minus observable price changes of identical or similar investments (in thousands):


	Equity Investments		Convertible Notes Receivable		Total
Balance at December 31, 2022	$	15,877	$	5,315	$	21,192
Purchases	—		6,758		6,758

Foreign currency adjustments	—		61		61
Balance at December 31, 2023	15,877		12,134		28,011


Foreign currency adjustments	—		(139)		(139)
Balance at June 30, 2024	$	15,877	$	11,995	$	27,872

Acquisition-Related Contingent Consideration

The Company has recognized contingent consideration related to the Flexion Acquisition in the amount of $22.4 million and $24.7 million as of June 30, 2024 and December 31, 2023, respectively. The Company’s contingent consideration obligations are recorded at their estimated fair values and are revalued each reporting period if and until the related contingencies are resolved. The Company has measured the fair value of its contingent consideration using a probability-weighted discounted cash flow approach that is based on unobservable inputs and a Monte Carlo simulation. These inputs include, as applicable, estimated probabilities and the timing of achieving specified commercial and regulatory milestones, estimated forecasts of revenue and costs and the discount rates used to calculate the present value of estimated future payments. Significant changes may increase or decrease the probabilities of achieving the related commercial and regulatory events, shorten or lengthen the time required to achieve such events, or increase or decrease estimated forecasts.

Pacira BioSciences, Inc. | Q2 2024 Form 10-Q | Page 22

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In November 2021, the Company completed the Flexion Acquisition, which provided for contingent consideration related to contingent value rights that were issued to Flexion shareholders and certain equity award holders which could aggregate up to a total of $372.3 million if certain regulatory and commercial milestones are met. The aggregate amount was initially $425.5 million prior to the Company’s September 2022 decision to formally discontinue further development of Flexion’s product candidate, PCRX-301. The Company’s obligation to make milestone payments is limited to those milestones achieved through December 31, 2030, and are to be paid within 60 days of the end of the fiscal quarter of achievement. During the three months ended June 30, 2024, the Company recognized a contingent consideration charge of $1.5 million primarily due to revisions to the latest discount rates. During the six months ended June 30, 2024, the Company recognized a contingent consideration gain of $2.3 million primarily due to an adjustment reflecting the probability of achieving the remaining Flexion regulatory milestone by the milestone expiration date. During the three and six months ended June 30, 2023, the Company recognized gains of $18.3 million and $6.6 million, respectively, due to adjustments to 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 gains recognized during the six months ended June 30, 2023 were partially offset by a decrease in the assumed discount rate that is utilized in calculating the liability’s present value, based on a significant improvement in the Company’s incremental borrowing rate resulting from the TLA Credit Agreement entered into in March 2023. These adjustments were recorded within contingent consideration charges (gains), restructuring charges and other in the condensed consolidated statements of operations. At June 30, 2024, the weighted average discount rate was 8.5%.

The following table includes the key assumptions used in the valuation of the Company’s contingent consideration:


Assumption						Ranges Utilized as of June 30, 2024
Discount rates						7.8% to 9.1%
Probability of payment for remaining regulatory milestone						0%

The change in the Company’s contingent consideration recorded at fair value using Level 3 measurements is as follows (in thousands):


	Contingent Consideration Fair Value
Balance at December 31, 2022	$	28,122
Fair value adjustments and accretion	(3,424)
Balance at December 31, 2023	24,698
Fair value adjustments and accretion	(2,297)

Balance at June 30, 2024	$	22,401

Available-for-Sale Investments

Short-term investments consist of asset-backed securities collateralized by credit card receivables, investment grade commercial paper and corporate, federal agency and government bonds with maturities greater than three months, but less than one year. Noncurrent investments consist of asset-backed securities collateralized by credit card receivables and contain maturities greater than one year but less than three years. Net unrealized gains and losses (excluding credit losses, if any) from the Company’s short-term investments are reported in other comprehensive income. At June 30, 2024 and December 31, 2023, all of the Company’s short-term and noncurrent investments are classified as available-for-sale investments and are determined to be Level 2 instruments, with the exception of U.S. government bonds, which are measured at fair value using standard industry models with observable inputs. The fair value of the commercial paper is measured based on a standard industry model that uses the three-month U.S. Treasury bill rate as an observable input. The fair value of the asset-backed securities and corporate bonds is principally measured or corroborated by trade data for identical issues in which related trading activity is not sufficiently frequent to be considered a Level 1 input or that of comparable securities. The fair value of U.S. government bonds is based on level 1 trading activity. At the time of purchase, all available-for-sale investments had an “A” or better rating by Standard & Poor’s.

Pacira BioSciences, Inc. | Q2 2024 Form 10-Q | Page 23

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The following summarizes the Company’s short-term and noncurrent available-for-sale investments at June 30, 2024 and December 31, 2023 (in thousands):


June 30, 2024 Investments	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value (Level 2)
Current:
Asset-backed securities	$	37,080	$	—	$	(43)	$	37,037
Commercial paper	95,898		9		(91)		95,816
Corporate bonds	18,362		—		(17)		18,345
U.S. federal agency bonds	5,983		—		(8)		5,975








Total	$	157,323	$	9	$	(159)	$	157,173


December 31, 2023 Investments	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value (Level 1)		Fair Value (Level 2)
Current:
Asset-backed securities	$	9,539	$	1	$	—	$	—	$	9,540
Commercial paper	77,941		103		—		—		78,044

U.S. federal agency bonds	22,849		—		(29)		—		22,820
U.S. government bonds	14,899		—		(20)		14,879		—
Subtotal	125,228