Pacira BioSciences, Inc. (PCRX) FY 2021 MD&A

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America, or GAAP, and in accordance with the rules and regulations of the United States Securities and Exchange Commission, or SEC. We operate and report our financial information in one segment. The following discussion of our financial condition and results of operations should be read in conjunction with the other sections of this Annual Report, including our consolidated financial statements and the notes to those consolidated financial statements appearing in Part IV, Item 15, of this Annual Report. This discussion contains forward-looking statements that involve significant risks and uncertainties. As a result of many factors, such as those set forth under “Risk Factors” in Part I, Item 1A. of this Annual Report, our actual results may differ materially from those anticipated in these forward-looking statements. Certain defined terms have been brought forward from Part I of this Annual Report.

This section of this Annual Report discusses year-to-year comparisons between 2021 and 2020, as well as other discussions of 2021 and 2020 items. We have omitted discussion of the year ended December 31, 2019 (the earliest of the three years covered by our consolidated financial statements presented in this Annual Report) as permitted by SEC regulations. The complete Management’s Discussion and Analysis of Financial Condition and Results of Operations for year-to-year comparisons between 2020 and 2019 and other discussions of 2019 items can be found within Part II, Item 7, to our Annual Report for the year ended December 31, 2020, filed with the SEC on March 1, 2021, which is available free of charge on the SEC’s website at www.sec.gov and our corporate website at www.pacira.com.

Overview

Pacira is the industry leader in our 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. Our long-acting, local analgesic EXPAREL® (bupivacaine liposome injectable suspension) was commercially launched in April 2012. EXPAREL utilizes our unique pMVL drug delivery technology that encapsulates drugs without altering their molecular structure and releases them over a desired period of time. In the U.S., EXPAREL is the only opioid-free, long-acting local and regional analgesic approved for infiltration, field blocks and interscalene brachial plexus nerve block to produce local or regional postsurgical analgesia. EXPAREL is also approved for infiltration in pediatric patients aged six years and older in the U.S. In Europe, EXPAREL is approved as a brachial plexus block or femoral nerve block for treatment of post-operative pain in adults, and as a field block for treatment of somatic post-operative pain from small- to medium-sized surgical wounds in adults. Since its initial approval in 2011, more than ten million patients have been treated with EXPAREL. We drop-ship EXPAREL directly to the end-user based on orders placed to wholesalers or directly to us, and there is no product held by wholesalers. With the MyoScience Acquisition in April 2019, we acquired iovera°®, a handheld cryoanalgesia device used to deliver a precise, controlled application of cold temperature only to targeted nerves, which we sell directly to end users. The iovera° system is highly complementary to EXPAREL as a non-opioid therapy that alleviates pain by disrupting pain signals being transmitted to the brain from the site of injury or surgery. With the Flexion Acquisition in November 2021, we acquired ZILRETTA® (triamcinolone acetonide extended-release injectable suspension), the first and only extended-release, intra-articular therapy that can provide major relief for OA knee pain for three months and has the potential to become an alternative to hyaluronic acid, or HA, and platelet rich plasma, or PRP, injections or other early intervention treatments. We believe ZILRETTA is highly complementary to iovera°.

We expect to continue to pursue the expanded use of EXPAREL, ZILRETTA and iovera° in additional procedures; progress our earlier-stage product candidate pipeline; advance regulatory activities for EXPAREL, ZILRETTA, iovera° and other product candidates; invest in sales and marketing resources for EXPAREL, ZILRETTA and iovera°; expand and enhance our manufacturing capacity for EXPAREL, ZILRETTA and iovera°; invest in products, businesses and technologies; and support legal matters.

Flexion Acquisition

On November 19, 2021, we completed the Flexion Acquisition pursuant to the Merger Agreement, under which Flexion became our wholly owned subsidiary and added ZILRETTA, a non-opioid corticosteroid that employs a proprietary microsphere technology to provide extended pain relief, to our commercial offering. The addition of ZILRETTA to our innovative non-opioid product portfolio directly aligns with our mission to provide an opioid alternative to as many patients as possible and address medical needs along the neural pain pathway.

The total consideration of $578.8 million included an initial payment of $428.3 million which represented $8.50 in cash per share of Flexion common stock, $20.2 million paid to settle restricted stock units and in-the-money stock options, an

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$85.1 million cash payment of Flexion debt not to be assumed by us and $45.2 million in contingent consideration representing the fair value of contingent value rights, or CVRs, that were issued in conjunction with the Flexion acquisition. The Merger Agreement provided for one non-tradeable CVR per share of Flexion common stock as well as one CVR per share for certain Flexion equity awards. Each CVR entitles Flexion shareholders to contingent milestone payments of up to an aggregate of $8.00 in cash per share of Flexion common stock if certain milestones are met on or prior to December 31, 2030. We estimate that up to an additional $380.2 million in the aggregate may be payable to holders of the CVRs if each of the applicable milestones are achieved. For more information, see Note 5, Acquisitions, to our consolidated financial statements included herein.

Recent Highlights

•In December 2021, we closed on the $375.0 million Term Loan. Proceeds of the Term Loan were used to replenish a portion of our funds that were used to pay the purchase price and transaction costs of the Flexion Acquisition and related transactions. For more information, see Note 11, Debt, to our consolidated financial statements included herein.

•We recently received four Notices of Allowance from the USPTO for four EXPAREL patents that have been examined and will issue. Two patents claim chemical composition of EXPAREL and two claim product-by-process. After issuance, Pacira will submit these patents for listing in the FDA Approved Drug Products with Therapeutic Equivalence Evaluations (the “Orange Book”). After listing, the Orange Book would have a total of six EXPAREL patents each with an expiration date of January 22, 2041.

Coronavirus (COVID-19) Pandemic

Since early 2020, our revenues have been impacted by COVID-19 and 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 the lessening of elective surgery restrictions, certain pandemic-related operational 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. For instance, while many restrictions have since eased with COVID-19 vaccines now widely available, the elective surgery market faced additional pandemic-related challenges in August and September 2021 due to regional surges in COVID-19 Delta variant cases, staffing shortages and fatigue from care teams addressing significant procedure backlogs, and in December 2021, the COVID-19 Omicron variant prompted some government restrictions on elective procedures and surgical staffing challenges which began to ease in January 2022.

We will continue to actively monitor the situation and implement measures recommended by federal, state or local authorities, or that we determine are in the best interests of our patients, employees, partners, suppliers, shareholders and stakeholders. For a description of risks facing the Company that relate to the COVID-19 pandemic or any other future pandemic, epidemic or outbreak of contagious disease, see Item 1A. “Risk Factors” in this Annual Report.

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Results of Operations

Comparison of the Years Ended December 31, 2021 and 2020

Revenues

Net product sales consist of (i) EXPAREL in the U.S., E.U. and U.K.; (ii) ZILRETTA in the U.S.; (iii) iovera° in the U.S. and Canada; and (iv) sales of, and royalties on, our bupivacaine liposome injectable suspension, primarily to Aratana for veterinary use.

The following table provides information regarding our revenues during the periods indicated, including percent changes (dollar amounts in thousands):

(1) ZILRETTA net product sales are attributable to the period beginning November 19, 2021, the date of the Flexion Acquisition.

EXPAREL net product sales grew 23% in 2021 compared to 2020, primarily due to increases of 21% in gross vial volume and increases of 4% in gross selling price per unit, partially offset by the sales mix of EXPAREL vial sizes. Although the demand for EXPAREL has continued to increase primarily as a result of ASCs and anesthesiologists broadening the use of long-acting EXPAREL regional approaches as a foundation of multimodal opioid-minimization strategies that enable shifting inpatient procedures to 23-hour sites of care, the elective surgery market faced additional pandemic-related challenges from August through December 2021 due to regional surges in COVID-19 Delta and Omicron variant cases, staffing shortages and fatigue from care teams addressing significant procedure backlogs. In 2020, we were also impacted by the suspension of elective surgeries due to the COVID-19 pandemic. EXPAREL utilization remains above the overall sharp decline in elective surgical procedures relative to pre-pandemic baseline levels due to increased utilization in outpatient settings and emergent procedures.

Bupivacaine liposome injectable suspension revenue and the related royalty revenue both decreased 19% in 2021 versus 2020 due to the timing of orders placed by Aratana for veterinary use.

As a result of the Flexion Acquisition, we acquired ZILRETTA in November 2021, which is an extended-release corticosteroid treatment for OA knee pain. We recognized net product sales of $12.7 million for the year ended December 31, 2021, which are attributable to the period beginning on November 19, 2021, the closing date of the Flexion Acquisition.

Net product sales of iovera° increased 83% in 2021 versus 2020 primarily due to an increased iovera° sales force, new customers and the impact that the COVID-19 pandemic had in 2020. We have seen the greatest iovera° demand as a pain relief for patients in advance of TKA procedures and in chronic pain management, particularly for people with mild to severe OA of the knee.

The collaborative licensing and milestone revenue recognized in 2021 was the result of a portion of an upfront payment recognized under our distribution agreement with Eurofarma for the development and commercialization of EXPAREL in Latin America. For more information, see Note 19, Commercial Partners, to our consolidated financial statements included herein.

Any renewed government suspension of, or reluctance of patients to have, elective procedures would impact our future sales of EXPAREL, ZILRETTA and iovera° during the ongoing COVID-19 pandemic.

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Cost of Goods Sold

Cost of goods sold primarily relates to the costs to produce, package and deliver our products to customers. These expenses include labor, raw materials, manufacturing overhead and occupancy costs, depreciation of facilities, royalty payments, quality control and engineering.

The following table provides information regarding cost of goods sold and gross margin during the periods indicated, including percent changes (dollar amounts in thousands):

Gross margin increased one percentage point in 2021 versus 2020 primarily due to downtime that occurred in 2020, including planned time to prepare our manufacturing suite for a new EXPAREL capacity expansion project at our Science Center Campus in San Diego, California and to a lesser extent an EXPAREL price increase.

Research and Development Expenses

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

The following table provides a breakout of our research and development expenses during the periods indicated, including percent changes (dollar amounts in thousands):

Total research and development expense decreased 7% in 2021 versus 2020.

Clinical and preclinical development expense increased 4% due to increased activities in our iovera° and EXPAREL TKA (“PREPARE”) trial, activities related to two EXPAREL lower extremity nerve block trials in bunionectomy and TKA and ongoing trials for products acquired from the Flexion Acquisition in November 2021.

Product development and manufacturing capacity expansion expense decreased 18% in 2021 versus 2020 mainly attributable to the completion of the significant scale-up of our manufacturing capacity at the Thermo Fisher site in Swindon, England.

Regulatory and other expenses decreased 13% in 2021 versus 2020. Regulatory expenses decreased due to the completion of our regulatory review and approval of our MAA in the E.U. Other research and development expenses decreased with lower spend for EXPAREL and iovera° publications.

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Stock-based compensation increased 5% in 2021 versus 2020 primarily due to an increase in the number of equity awards granted to research and development personnel.

We expect that research and development will increase in 2022 due to the addition of ZILRETTA, PCRX-201 and PCRX-301 to our product portfolio and pipeline. We believe ZILRETTA’s extended-release profile may provide effective treatment for OA pain of the shoulder, and we intend to initiate a Phase 3 trial investigating ZILRETTA in shoulder OA in 2022. In addition, we are planning a comparative safety study of ZILRETTA in patients with Type 2 diabetes and are evaluating a repeat dosing study.

Selling, General and Administrative Expenses

Sales and marketing expenses primarily consist of compensation and benefits for our sales force and personnel that support our sales, marketing, medical and scientific affairs operations, payments to our marketing partners for the promotion and sale of our products, expenses related to communicating the health outcome benefits of our products, investments in provider-level market access and patient reimbursement support and educational programs for our customers. General and administrative expenses consist of compensation and benefits for legal, finance, regulatory activities related to approved products and indications, compliance, information technology, human resources, business development, executive management and other supporting personnel. It also includes professional fees for legal, audit, tax and consulting services. Stock-based compensation expense relates to the costs of stock option grants, RSU awards and our ESPP.

The following table provides information regarding selling, general and administrative expenses during the periods indicated, including percent changes (dollar amounts in thousands):

Total selling, general and administrative expenses increased 3% in 2021 versus 2020.

Sales and marketing decreased 6% in 2021 versus 2020 driven by the termination of our co-promotion agreement with DePuy Synthes Sales, Inc. effective January 2021. This was partially offset by compensation expenses due to an expanded sales force for EXPAREL and iovera°, the addition of a sales force to support ZILRETTA and set-up costs for our new contracted sales force in Europe. We are continuing our marketing investment in EXPAREL and iovera°, which includes educational initiatives and programs related to the impact of opioids and postsurgical pain management and our national advocacy campaign designed to educate patients about non-opioid treatment options. Additionally, we continue our investment in clinician training in the use of EXPAREL and iovera° at our PITT training facility in Tampa, Florida. We also incurred launch expenses for EXPAREL in connection with our label expansion for use in pediatric populations as young as age six. We expect that the addition of ZILRETTA to our commercial portfolio will increase our sales and marketing spend in 2022 as we increase the size of our ZILRETTA and iovera° sales force which is providing clinicians with two unique OA treatment options to individualize patient care and patient reimbursement support for ZILRETTA.

General and administrative expenses increased 26% in 2021 versus 2020 due to increased legal costs, which includes an insurance recovery of $2.1 million in 2020 for legal expenditures related to a since-resolved Department of Justice inquiry and additional administrative and integration costs related to the Flexion Acquisition.

Stock-based compensation increased 6% in 2021 versus 2020, primarily due to an increase in the number of grants outstanding to selling, general and administrative personnel.

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Amortization of Acquired Intangible Assets

The following table provides a summary of the amortization of acquired intangible assets during the periods indicated, including percent changes (dollar amounts in thousands):

Amortization of acquired intangible assets increased 72% in 2021 versus 2020 due to the acquisition of Flexion in November 2021. As part of the acquisition, we acquired a developed technology intangible asset for ZILRETTA for OA knee pain, which is being amortized over a useful life of approximately ten years. For more information, see Note 5, Acquisitions, to our consolidated financial statements included herein.

Acquisition-Related Charges, Product Discontinuation and Other

The following table provides a summary of the costs related to the Flexion Acquisition, MyoScience Acquisition, our DepoCyt(e) discontinuation and other activities during the periods indicated, including percent changes (dollar amounts in thousands):

In 2021, we recognized acquisition-related charges of $39.9 million. These charges are primarily driven by severance and other employee related costs, investment banking, legal and other professional fees, third-party services and other one-time charges associated with the Flexion Acquisition and were partially offset by a gain from changes in fair value associated with the contingent consideration related to the MyoScience Acquisition. In 2020, we recognized charges related to the MyoScience Acquisition primarily due to changes in the fair value of contingent consideration. For more information, see Note 18, Acquisition-Related Charges, Product Discontinuation and Other, to our consolidated financial statements included herein.

In 2021, we agreed to a mutual termination of our agreement with Nuance to advance the development and commercialization of EXPAREL in China due to the lack of a viable regulatory pathway that adequately safeguards our intellectual property against the risk of a generic product. Dissolution costs of $3.0 million were included in other operating expenses in the consolidated statements of operations for the year ended December 31, 2021.

In 2020, we recorded a product discontinuation gain of $0.2 million related to the final settlement of the lease agreement for the site of the former DepoCyt(e) manufacturing activities. The foregoing references to DepoCyt(e) mean DepoCyt® when discussed in the context of the U.S. and Canada and DepoCyte® when discussed in the context of the E.U.

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Other Expense, Net

The following table provides information regarding other expense, net during the periods indicated, including percent changes (dollar amounts in thousands):

Total other expense, net increased 28% in 2021 versus 2020.

The 24% increase in interest expense was due to the increase in outstanding debt from the entry into the $375.0 million Term Loan in December 2021, the issuance of $402.5 million aggregate principal amount of our 2025 Notes in July 2020 and the assumed $201.3 million principal amount of the Flexion 2024 Notes in connection with the Flexion Acquisition. This increase was partially offset by a decrease of interest expense associated with our 2022 Notes as a result of the $185.0 million repurchase of principal in July 2020.

In conjunction with the issuance of the 2025 Notes, in July 2020, we incurred an $8.1 million loss on early extinguishment of debt recognized due to the retirement of $185.0 million aggregate principal of our existing 2022 Notes.

Interest income decreased 81% in 2021 versus 2020 primarily due to lower interest rates and to a lesser extent the sale of available-for-sale investments in 2021 used to fund the cash portion of the purchase price consideration associated with the Flexion Acquisition.

Other, net expense for 2021 included a realized loss on the sale of our equity investment in TELA Bio, Inc., or TELA Bio, in the amount of $2.6 million. In 2020, Other, net income included $1.1 million of U.K. research and development tax credits and a $1.6 million unrealized gain on our equity investment in TELA Bio.

Income Tax Expense (Benefit)

The following table provides information regarding our income tax expense (benefit) during the periods indicated, including percent changes (dollar amounts in thousands):

We recorded income tax expense of $14.4 million for the year ended December 31, 2021 and an income tax benefit of $125.4 million for the year ended December 31, 2020. The effective tax rate of 26% for the year ended December 31, 2021 differed from the U.S. statutory tax rate of 21% due to non-deductible expenses and valuation allowances recorded against capital loss carryforwards, partially offset by stock-based compensation deductions and tax credits.

The income tax benefit for the year ended December 31, 2020 represented the full release of a $126.6 million valuation allowance on net domestic deferred assets as we determined that there was sufficient positive evidence to conclude that it was more likely than not that domestic deferred taxes were realizable.

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Liquidity and Capital Resources

Since our inception in 2006, we have devoted most of our cash resources to manufacturing, research and development and selling, general and administrative activities related to the development and commercialization of EXPAREL. In addition, we acquired ZILRETTA as part of the Flexion Acquisition in November 2021 and iovera° as part of the MyoScience Acquisition in April 2019. We are primarily dependent on the commercial success of EXPAREL and ZILRETTA. We have financed our operations primarily with the proceeds from the sale of convertible senior notes and other debt, common stock, product sales and collaborative licensing and milestone revenue. As of December 31, 2021, we had an accumulated deficit of $211.9 million, cash and cash equivalents and short-term available-for-sale investments of $656.4 million and working capital of $344.9 million. The net cash proceeds from the Term Loan was $359.2 million after deducting fees and financing costs. For more information, see Note 11, Debt, to our consolidated financial statements included herein.

The COVID-19 pandemic could continue to result in a reduction of certain commercial and clinical expenditures which could offset a portion of the potential revenue declines caused by the COVID-19 pandemic. We currently expect that our cash, short-term and long-term investments on hand will be adequate to cover any potential short-term liquidity needs, and that we would be able to access other sources of financing should the need arise.

In March 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law in response to the COVID-19 pandemic. The CARES Act, among other things, allows for certain measures to increase liquidity for businesses such as the deferral of employer payroll taxes, a tax credit for retaining employees and other provisions. We benefited from the provision to defer the payment of certain employer payroll taxes in the amount of $2.8 million for the year ended December 31, 2020 and remitted $1.4 million in December 2021. The remaining $1.4 million is due by December 31, 2022.

Summary of Cash Flows

The following table summarizes our cash flows from operating, investing and financing activities for the years ended December 31, 2021 and 2020 (in thousands):

Operating Activities

In 2021, net cash provided by operating activities was $125.7 million compared to $77.0 million in 2020. The increase of $48.7 million was primarily attributable to a 26% increase in total revenues, which was partially offset by expenditures related to the Flexion Acquisition including severance, legal fees and third-party services. For more information, see Note 18, Acquisition-Related Charges, Product Discontinuation and Other, to our consolidated financial statements. In addition, in 2021 there were contingent consideration payments to MyoScience securityholders of $12.0 million, of which $6.8 million has been classified as an operating cash outflow and $5.2 million as a financing cash outflow.

Investing Activities

In 2021, net cash used in investing activities was $20.8 million, which was primarily driven by the $420.0 million cash portion of the purchase price consideration, net of cash received, associated with the Flexion Acquisition and $45.9 million of capital expenditures, largely for equipment for our new 200-liter EXPAREL capacity expansion project at our Science Center Campus in San Diego, California. These uses of cash were partially offset by the net sale of available-for-sale investments of $457.2 million to fund the cash portion of the purchase price consideration associated with the Flexion Acquisition.

In 2020, net cash used in investing activities was $277.6 million, which reflected $238.6 million of short-term and long-term investment purchases (net of maturities) and purchases of fixed assets of $37.8 million. Major fixed asset purchases included equipment for the new 200-liter EXPAREL capacity expansion project at our Science Center Campus and expenditures for expanding our EXPAREL manufacturing capacity in Swindon, England. In addition, we made a $1.2 million equity investment.

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Financing Activities

In 2021, net cash provided by financing activities was $380.7 million, which consisted of net proceeds from the Term Loan of $359.2 million, the exercise of stock options of $23.8 million and $2.8 million from the issuance of shares through our ESPP. We also made contingent consideration payments to MyoScience securityholders, of which $5.2 million was classified as financing activities based on the recognition at the time of the MyoScience Acquisition.

In 2020, net cash provided by financing activities was $222.3 million, which consisted of gross proceeds from the issuance of the 2025 Notes of $402.5 million, the exercise of stock options of $45.2 million and $2.5 million from the issuance of shares through our ESPP. In conjunction with the issuance of the 2025 Notes, we paid $211.1 million of cash (including $1.2 million of accrued interest classified as an operating outflow) to retire $185.0 million of our 2022 Notes in privately negotiated transactions and $12.5 million in financing costs. We also made contingent consideration payments to MyoScience securityholders, of which $5.6 million was classified as financing activities based on their recognition at the time of the MyoScience Acquisition.

Equity Financings

From our inception through December 31, 2021, we have raised $344.5 million of net proceeds from the sale of common stock and other equity securities via public offerings.

Debt

2026 Term Loan B Facility

In December 2021, we entered into the $375.0 million Term Loan which is secured by substantially all of the Company’s and any subsidiary guarantor’s assets and is scheduled to mature on December 7, 2026, subject to certain exceptions set forth in the Credit Agreement. The Company may elect to borrow either alternate base rate borrowings or term benchmark borrowings. Each term loan borrowing which is an alternate base rate borrowing bears interest at a variable rate per annum equal to the Alternate Base Rate (as defined in the Credit Agreement) subject to a 1.75% floor, plus 6.00%. Each term loan borrowing which is a term benchmark borrowing bears interest at a variable rate per annum equal to (i) the Adjusted Term SOFR Rate (as defined in the Credit Agreement) subject to a 0.75% floor plus (ii) 7.00%.

The Credit Agreement requires us to, among other things, maintain (i) a first lien net leverage ratio, determined as of the last day of any fiscal quarter, of no greater than 1.75 to 1.00 and (ii) liquidity, at any time, of at least $150.0 million. The Credit Agreement also contains customary affirmative and negative covenants, financial covenants, representations and warranties, events of default and other provisions. As of December 31, 2021, the Company was in compliance with all financial covenants under the Credit Agreement.

At December 31, 2021, we had $375.0 million in outstanding borrowings under the Term Loan. As a result of our entry into the Term Loan, we expect our interest to increase in 2022. See Note 11, Debt, to our consolidated financial statements included herein for further discussion of the Term Loan.

2025 Convertible Senior Notes

In July 2020, we completed a private placement of $402.5 million in aggregate principal amount of our 2025 Notes and entered into an indenture with respect to the 2025 Notes. The 2025 Notes accrue interest at a fixed rate of 0.750% per annum, payable semiannually in arrears on February 1 and August 1 of each year. The 2025 Notes mature on August 1, 2025. At December 31, 2021, the outstanding principal on the 2025 Notes was $402.5 million. See Note 11, Debt, to our consolidated financial statements included herein for further discussion of the 2025 Notes, including information on convertibility factors, redemption, timeframes and balance sheet classification.

2024 Convertible Senior Notes

In November 2021, as part of the Flexion Acquisition, we assumed $201.3 million in aggregate principal amount of the Flexion 2024 Notes. The Flexion 2024 Notes have a maturity date of May 1, 2024, are unsecured, and accrue interest at a rate of 3.375% per annum, payable semi-annually on May 1 and November 1 of each year. At December 31, 2021, the outstanding principal on the Flexion 2024 Notes was $201.3 million. In January 2022, we repurchased $192.6 million aggregate principal amount of the Flexion 2024 Notes. See Note 11, Debt, to our consolidated financial statements included herein for further discussion of the Flexion 2024 Notes.

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2022 Convertible Senior Notes

In March 2017, we completed a private placement of $345.0 million in aggregate principal amount of our 2022 Notes and entered into an indenture with respect to the 2022 Notes. The 2022 Notes accrue interest at a fixed rate of 2.375% per annum, payable semiannually in arrears on April 1 and October 1 of each year. The 2022 Notes mature on April 1, 2022, and since October 1, 2020, holders may convert their 2022 Notes at any time. In July 2020, we used part of the net proceeds from the issuance of the 2025 Notes discussed above to repurchase $185.0 million aggregate principal of the 2022 Notes in privately negotiated transactions for an aggregate of approximately $211.1 million in cash, including accrued interest. At December 31, 2021, the outstanding principal on the 2022 Notes was $160.0 million and we intend to repay the principal with cash on hand upon maturity on April 1, 2022. See Note 11, Debt, to our consolidated financial statements included herein for further discussion of the 2022 Notes, including information on convertibility factors, redemption, timeframes and balance sheet classification.

Future Capital Requirements

We believe that our existing cash and cash equivalents, available-for-sale investments and cash received from product sales will be sufficient to enable us to fund our operating expenses, capital expenditure requirements and payment of the interest and principal on our Term Loan and our Notes, and any conversions of our Notes through the next 12 months. Our future use of operating cash and capital requirements will depend on many forward-looking factors, including, but not limited to, the following:

•the costs of successfully integrating Flexion into our existing business and expanding the commercialization of ZILRETTA;

•the cost and timing of the potential Flexion milestone payments under the CVR Agreement, which could be up to an aggregate of $425.5 million if certain regulatory and commercial milestones are met (See Note 5, Acquisitions, to our consolidated financial statements included herein for more information);

•the impact of the COVID-19 pandemic, including the amounts and delays of suspended elective surgical procedures, clinical trials and general economic conditions;

•the timing of and extent to which the holders of our Notes elect to convert their Notes and the timing of principal and interest payments on our Term Loan;

•the costs and our ability to successfully continue to expand the commercialization of EXPAREL, ZILRETTA and iovera°, including outside of the U.S.;

•the cost and timing of expanding and maintaining our manufacturing facilities, including the current EXPAREL capacity expansion project at our Science Center Campus in San Diego, California;

•the cost and timing of potential remaining milestone payments to MyoScience security holders, which could be up to an aggregate of $43.0 million if certain regulatory and commercial milestones are met (See Note 5, Acquisitions, to our condensed consolidated financial statements included herein for more information);

•the cost and timing of additional strategic investments, including additional investments under existing agreements;

•costs related to legal and regulatory issues;

•the costs of performing additional clinical trials for our products, including the additional pediatric trials required by the FDA and EMA as a condition of approval of EXPAREL;

•the costs for the development and commercialization of other product candidates;

•the costs and timing of future payments under our employee benefit plans, including but not limited to our cash long-term incentive plan and non-qualified deferred compensation plan; and

•the extent to which we acquire or invest in products, businesses and technologies.

We may require additional debt or equity financing to meet our future operating and capital requirements. We have no committed external sources of funds, and additional equity or debt financing may not be available on acceptable terms, if at all. Capital market disruptions or negative economic conditions, especially in light of the COVID-19 pandemic, may hinder our access to capital.

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Contractual Obligations

We had three convertible senior notes outstanding as of December 31, 2021. $160.0 million in aggregate principal amount is due on our 2022 Notes in April 2022, $8.7 million in aggregate principal amount is due on the Flexion 2024 Notes in May 2024, and $402.5 million in aggregate principal amount is due on our 2025 Notes in August 2025. There was $201.5 million in aggregate principal amount of Flexion 2024 Notes outstanding as of December 31, 2021 of which $192.6 million in aggregate principal amount was repurchased on January 7, 2022 following an offer to purchase the Flexion 2024 Notes. The remaining interest payments on our Notes is $17.9 million, of which an estimated $5.3 million is due in 2022. We also have a $375.0 million Term Loan with contractually obligated principal payments of $28.1 million in 2022, $37.5 million in each of 2023 and 2024, $42.2 million in 2025 and $229.7 million in 2026. The remaining interest payments on the our Term Loan is approximately $115.9 million, based on the current interest rate.

In the normal course of business, we enter into various lease agreements for manufacturing, research and development and corporate activities, which are typically classified as operating leases under the provisions of Financial Accounting Standards Board Accounting Standards Codification Topic 842, Leases. As of December 31, 2021, we had net minimum commitments of $104.2 million, of which $13.2 million is due in 2022.

In addition, we have approximately $50.3 million of minimum, non-cancelable contractual commitments for contract manufacturing services as of December 31, 2021, of which $18.5 million is due within one year, and the remaining $31.8 million is due within one to three years. We have approximately $9.2 million of minimum, non-cancelable contractual commitments for the purchase of certain raw materials as of December 31, 2021, of which $4.7 million is due within one year, and the remaining $4.5 million is due within one to three years.

As part of the MyoScience Acquisition, upon the achievement of certain regulatory and commercial milestones, there are up to $43.0 million in potential milestone payments available as of December 31, 2021. As part of the Flexion Acquisition there are up to $425.5 million in potential payments if all the regulatory and commercial milestones are met. For more information, see Note 5, Acquisitions, to our consolidated financial statements included herein.

Critical Accounting Policies and Use of Estimates

We have based our management’s discussion and analysis of our financial condition and results of operations on our financial statements that have been prepared in accordance with GAAP in the U.S. The preparation of these financial statements requires us to make estimates that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported revenues and expenses during the reporting periods. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, contingent consideration, purchase price adjustments, inventory costs, liabilities and accruals, clinical trial expenses, stock-based compensation and the valuation of deferred tax assets. We base our estimates on historical experience, contract terms and on other factors we believe to be appropriate under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

Our significant accounting policies are more fully discussed in Note 2, Summary of Significant Accounting Policies, to our consolidated financial statements included herein. The following accounting policies, which may include significant judgments and estimates, were used in the preparation of our consolidated financial statements.

Revenue Recognition

Revenues from sales of products are recorded net of returns allowances, prompt payment discounts, service fees, government rebates, volume rebates and chargebacks. These reserves are based on estimates of the amounts earned or to be claimed on the related sales. These amounts are treated as variable consideration, estimated and recognized as a reduction of the transaction price at the time of the sale, using the most likely amount method, except for returns, which is based on the expected value method. 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. The adequacy of these provisions is reviewed on a quarterly basis. If our assessments, experiences or judgments are not accurate estimates of future results, our results could be affected. The sensitivity of our estimates varies by program. Estimates associated with chargebacks and government programs have the greatest risk of being subject to adjustment because of the time delay between recording the accrual and the final settlement. Historically, adjustments to these estimates to reflect actual results or updated expectations have not been material.

Pacira BioSciences, Inc. | 2021 Form 10-K | Page 78

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The summary of activity with respect to our sales related allowances and accruals for the years ended December 31, 2021, 2020 and 2019 appears in Note 4, Revenue, to our consolidated financial statements included herein.

Contingent Consideration

Subsequent to an acquisition, we measure contingent consideration arrangements at fair value for each period with changes in fair value recognized in the consolidated statements of operations as acquisition-related charges. Changes in contingent consideration can result from changes in the assumed achievement and timing of estimated sales, costs of goods sold and regulatory approvals. In the absence of new information, changes in fair value reflect the impact of the passage of time towards the potential achievement of the milestones.

The following table includes the key assumptions used in the valuation of our contingent consideration milestones:

The maximum remaining potential payments related to contingent consideration from the Flexion Acquisition and MyoScience Acquisition are $425.5 million and $43.0 million, respectively, as of December 31, 2021. Small changes to these assumptions may result in a material impact to the calculated amounts. Additionally, the forecasted revenue annual growth rates are key assumptions in the contingent consideration valuations associated with our commercial milestones. The impact of a hypothetical 10 percent increase in the forecasted annual growth rates would have increased the value of our contingent consideration liability as of December 31, 2021 by $10.1 million.

Purchase Price Accounting

Upon an acquisition, we determine the fair value of the assets acquired and liabilities assumed on the date of acquisition, which may include a significant amount of intangible assets, as well as goodwill. When determining the fair values of the acquired intangible assets, we consider, among other factors, analyses of historical financial performance and an estimate of the future performance of the acquired business. The fair values of the acquired intangible assets are primarily calculated using an income approach that relies on discounted cash flows. This method is computed utilizing a forecast of the expected future net cash flows for the asset adjusted to present value by applying a discount rate that reflects the risk factors associated with the net cash flows. We consider this approach to be the most appropriate valuation technique because the inherent value of an acquired intangible asset is its ability to generate future income. In a typical acquisition, we engage a third-party valuation expert to assist us with the fair value analyses for acquired intangible assets.

Determining the fair values of acquired intangible assets requires us to exercise significant judgment. We select reasonable estimates and assumptions based on evaluating a number of factors, including, but not limited to, marketplace participants, consumer awareness and brand history. Additionally, there are significant judgments inherent in discounted cash flows such as estimating the amount and timing of projected future cash flows and the discount rates. Regarding the Flexion Acquisition, the following assumptions were utilized to determine the fair value of our ZILRETTA product:

Small changes to these assumptions may result in a material impact to the calculated amounts.

Recent Accounting Pronouncements

See Note 3, Recent Accounting Pronouncements, to our consolidated financial statements for further discussion of recent accounting pronouncements.

Pacira BioSciences, Inc. | 2021 Form 10-K | Page 79

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