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Item 7. Management’s Discussion and Analysis

2021-03-01 compared with 2020-02-21 · 217 added, 136 removed, 163 unchanged (68% of the section changed)

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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.

As a result of many factors, such as those set forth under “Risk Factors” in Part I, Item 1A.

of this Annual Report, our actual results may differ materially from those anticipated in these forward-looking statements.

Certain defined terms have been brought forward from Part I of this Annual Report.

This section of this Annual Report discusses year-to-year comparisons between 2020 and 2019, as well as other discussions of 2020 and 2019 items.

We have omitted discussion of the year ended December 31, 2017 (the earliest of the three years covered by our consolidated financial statements presented in this report) as permitted by the SEC’s recent amendments to Regulation S-K.

We have omitted discussion of the year ended December 31, 2018 (the earliest of the three years covered by our consolidated financial statements presented in this Annual Report) as permitted by SEC regulations.

The complete Management’s Discussion and Analysis of Financial Condition and Results of Operations for year-to-year comparisons between 2019 and 2018 and other discussions of 2018 items can be found within Part II, Item 7, to our Annual Report filed with the SEC on February 20, 2020 .

Pacira is a leading provider of non-opioid pain management options to advance and improve outcomes for health care practitioners and their patients.

Pacira is the industry leader in our commitment to non-opioid pain management and regenerative health solutions to improve patients’ journeys along the neural pain pathway.

Our long-acting, local analgesic EXPAREL® (bupivacaine liposome injectable suspension) was commercially launched in April 2012.

EXPAREL utilizes DepoFoam®, a unique and proprietary delivery technology that encapsulates drugs without altering their molecular structure and releases them over a desired period of time.

EXPAREL is currently indicated for single-dose infiltration in adults to produce postsurgical local analgesia and as an interscalene brachial plexus nerve block to produce postsurgical regional analgesia.

Since its initial approval in 2011 for single-dose infiltration, more than six million patients have been treated with EXPAREL.

as a brachial plexus block or femoral nerve block for treatment of post-operative pain in adults, and as a field block for treatment of somatic post-operative pain from small- to medium-sized surgical wounds in adults.

Since its initial approval in 2011 for single-dose infiltration, more than eight million patients have been treated with EXPAREL.

We drop-ship EXPAREL directly to the end-user based on orders placed to wholesalers or directly to us, and there is no product held by wholesalers.

In April 2019, we acquired iovera° ® , a handheld cryoanalgesia device used to deliver a precise, controlled application of cold temperature only to targeted nerves,

which we sell directly to end users.

In April 2019, we acquired iovera° ® , a handheld cryoanalgesia device used to deliver a precise, controlled application of cold temperature only to targeted nerves, which we sell directly to end users.

The iovera° system is highly complementary to EXPAREL as a non-opioid therapy that alleviates pain by disrupting pain signals being transmitted to the brain from the site of injury or surgery.

We expect to continue to incur significant expenses as we pursue the expanded use of EXPAREL and iovera° in additional procedures;

We expect to continue to pursue the expanded use of EXPAREL and iovera° in additional procedures;

progress our earlier-stage product candidate pipeline;

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expand and enhance our manufacturing capacity for EXPAREL and iovera°;

invest in products, businesses and technologies and support legal matters.

invest in products, businesses and technologies;

and support legal matters.

Recent Highlights

In December 2019, we announced positive results from our Phase 3 PLAY study of EXPAREL administered as a single-dose infiltration in pediatric patients undergoing spinal or cardiac surgeries.

Overall findings were consistent with the pharmacokinetic and safety profiles for adult patients with no safety concerns identified at a dose of 4 mg/kg.

These results will provide the foundation for our sNDA submission in the first half of 2020 to the FDA seeking expansion of the EXPAREL label to include children aged six and over.

In January 2020, we announced a collaboration with Envision Physician Services to train anesthesiology clinicians on ultrasound-guided regional anesthesia techniques utilizing long-acting local anesthetics like EXPAREL via a series of interactive workshops held across the country.

The program supports ongoing efforts by both organizations to advance the delivery of high-quality, patient-centered care.

In January 2020, we announced positive results from our Phase 4 opioid-free CHOICE study of EXPAREL in patients undergoing C-section.

The study achieved its primary endpoint with a statistically significant reduction in total postsurgical opioid consumption while maintaining pain scores through 72 hours (p≤0.001).

EXPAREL demonstrated statistical significance for the key secondary endpoint of a reduction in the incidence and severity of itching for 72 hours after surgery (p≤0.05).

Full study results will be submitted for publication in the peer-reviewed medical literature later this year.

• In November 2020, the European Commission, or EC, granted marketing authorization for EXPAREL as a brachial plexus block or femoral nerve block for treatment of post-operative pain in adults, and as a field block for treatment of somatic post-operative pain from small- to medium-sized surgical wounds in adults.

The EC decision is applicable to all 27 European Union member states plus the United Kingdom, Iceland, Norway and Liechtenstein.

Commercial planning is underway, with an anticipated E.U.

launch in the second half of 2021.

For more information, see the subsection titled “Global Expansion” in Part 1—Item 1 above.

• In December 2020, we made a $1.2 million (€1.0 million) initial investment in GeneQuine Biotherapeutics GmbH, or GeneQuine, a privately held biopharmaceutical company headquartered in Hamburg, Germany.

GeneQuine is advancing a gene therapy platform for the treatment of osteoarthritis and other musculoskeletal disorders.

GeneQuine’s product candidates are next-generation gene transfer vehicles.

These gene therapy vectors are highly efficient in entering joint cells to confer multi-year gene expression.

Safety of this platform has been demonstrated in several species and is currently being evaluated in an ongoing Phase 1 study.

In January 2021, we made a $1.2 million (€1.0 million) investment in the form of a convertible note.

We will make an additional $4.9 million (€4.0 million) investment upon GeneQuine achieving certain prespecified near-term milestones related to its lead gene therapy product candidate, GQ-303.

Up to $3.1 million (€2.5 million) of our total investment will be in the form of a convertible note, which includes the investment made in January 2021.

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Novel Coronavirus (COVID-19) Pandemic

Our 2020 net product sales were negatively impacted by the COVID-19 pandemic, which mandated significant postponement or suspension in the scheduling of elective surgical procedures resulting from public health guidance and government directives.

Elective surgery restrictions began to lift on a state-by-state basis in April 2020;

however, we do not know how long it will take the surgical community to return to normal operations, or if restrictions on elective surgeries will recur.

Our manufacturing sites are operational and have implemented new safety protocols and guidelines as recommended by federal, state and local governments.

To date, there have been no material impacts to our supply chain.

With the reopening of many states, the ability of our sales representatives to renew their in-person engagement efforts, in conjunction with remote efforts, has occurred across all sites of care, with more focus on physician offices and ambulatory surgical centers.

Our offices have re-opened on a voluntary basis with strict safety and hygiene guidelines implemented, and we continue to support remote working as appropriate.

The situation remains dynamic and is subject to rapid and possibly material changes.

It is not clear what the potential effects may be to our business going forward, including the impact on our revenues, results of operations or financial condition, particularly if these pandemic conditions persist or exacerbate over an extended period of time, including if states return to placing restrictions on elective surgical procedures.

Additional negative impacts may also arise from the COVID-19 pandemic that we are unable to foresee.

The nature and extent of such impacts will depend on future developments, which are highly uncertain and cannot be predicted, including the timing of effective vaccines becoming widely available and accepted by the public.

We have also taken advantage of some of the provisions of the Coronavirus Aid, Relief and Economic Security (CARES) Act, mainly by deferring the payment of certain employer payroll taxes.

For more information, see “Liquidity and Capital Resources” below.

We will continue to actively monitor the situation and implement measures recommended by federal, state or local authorities, or that we determine are in the best interests of our patients, employees, partners, suppliers, shareholders and stakeholders.

For a description of risks facing the Company that relate to the COVID-19 pandemic or any other future pandemic, epidemic or outbreak of contagious disease, see Item 1A.

“Risk Factors” in this Annual Report.

Results of Operations

Comparison of the Years Ended December 31, 2020 and 2019

Net product sales consist of sales of EXPAREL in the U.S., our bupivacaine liposome injectable suspension to Aratana Therapeutics, Inc., or Aratana, for veterinary use in the U.S., and sales of iovera° in the U.S.

Licensing, milestone and royalty revenues are from our collaborative licensing agreements.

Net product sales consist of sales of EXPAREL in the U.S., our bupivacaine liposome injectable suspension to Aratana for veterinary use in the U.S., and sales of iovera° in the U.S.

Royalty revenues are from our collaborative licensing agreements.

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

Year Ended December 31,

% Increase / (Decrease)

Year Ended December 31, % Increase / (Decrease)

Net product sales:

EXPAREL $ 413,338 $ 407,877 1 %

Bupivacaine liposome injectable suspension 4,459 3,153 41 %

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net product sales 417,797 411,030 2 %

iovera° 8,817 7,896 12 %

Total net product sales 426,614 418,926 2 %

Collaborative licensing and milestone revenue

Royalty revenue 3,033 2,100 44 %

Total revenues $ 429,647 $ 421,026 2 %

EXPAREL revenue grew 23% in 2019 compared to 2018, primarily due to an increase in net product sales of EXPAREL units of 27% and a 3% increase in gross selling price per unit, partially offset by the mix of EXPAREL product sizes.

The demand for EXPAREL has continued to increase as a result of a number of key growth initiatives, such as the expansion of the EXPAREL label in April 2018 to include interscalene brachial plexus nerve block which has resulted in rapid adoption among anesthesiologists, the success of our co-promotion agreement with DePuy Synthes Sales, Inc., or DePuy Synthes, and the

continued implementation of EXPAREL-based Enhanced Recovery After Surgery (ERAS) protocols across a wide range of surgical procedures.

All of these factors are driving growth in new and existing accounts due to the continued adoption of EXPAREL as a critical component of multimodal pain management strategies for soft tissue and orthopedic procedures.

In 2019, there was also an increase in sales of our bupivacaine liposome injectable suspension to Aratana for veterinary use.

As part of the MyoScience Acquisition, we acquired iovera°.

Net product sales of iovera° were $7.9 million for the year ended December 31, 2019 (attributable to the post-closing period of April 10, 2019 to December 31, 2019).

EXPAREL revenue grew 1% in 2020 compared to 2019, primarily due to an increase in sales volume of 1% and a 4% increase in gross selling price per unit, partially offset by the sales mix of EXPAREL vial sizes.

EXPAREL revenue was impacted by the significant postponement or suspension of elective surgical procedures resulting from public health guidance and government directives due to the COVID-19 pandemic, beginning in mid-March 2020.

The demand for EXPAREL has generally continued to increase as a result of ambulatory surgical centers and anesthesiologists broadening the use of long-

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acting EXPAREL regional approaches as a foundation of multimodal opioid-minimization strategies that enable shifting inpatient procedures to 23-hour sites of care.

As part of the acquisition of MyoScience (the “MyoScience Acquisition”), we acquired the iovera° system and began recognizing net product sales in April 2019.

Net product sales increased 12% in 2020 versus 2019.

The increase in revenue largely reflects the timing of the MyoScience Acquisition in 2019 offset in part by the impact of the COVID-19 pandemic.

Thus far, we have seen the greatest iovera° demand as pain relief for patients in advance of TKA procedures and in chronic pain management, particularly for people with mild to severe osteoarthritis of the knee.

Collaborative licensing and milestone revenue decreased 100% in 2019 versus 2018 due to a $3.0 million upfront payment earned in June 2018 under a license agreement with Nuance Biotech Co.

for the development and commercialization of EXPAREL in China.

In both 2019 and 2018, royalty revenue reflected royalties earned on sales to Aratana.

Royalty revenue increased 14% in 2019 versus 2018.

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

Royalty revenue reflects the royalties earned on net product sales of bupivacaine liposome injectable suspension to Aratana for veterinary use, both of which increased over 40% in 2020 versus 2019 as a result of the timing of orders placed by Aratana.

Cost of Goods Sold

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

Year Ended December 31,

% Increase / (Decrease)

Year Ended December 31, % Increase / (Decrease)

Cost of goods sold $ 117,328 $ 106,712 10 %

Gross Margin increased by one percentage point in 2019 versus 2018.

In 2019, EXPAREL gross margins increased as a result of completing our capacity expansion project for the commercial production of EXPAREL at our custom manufacturing suite in Swindon, England (under our partnership with Thermo Fisher Scientific Pharma Services, or Thermo Fisher).

This increase was partially offset as a result of the lower gross margin of iovera°.

Gross margin 73 % 75 %

Gross margin decreased two percentage points in 2020 versus 2019.

One percentage point was due to unplanned downtime at our custom manufacturing suite in Swindon, England (under our partnership with Thermo Fisher), and one percentage point was due to a planned shutdown at our Science Center Campus in San Diego, California in order to prepare our manufacturing suite for a new EXPAREL capacity expansion project.

Despite shelter-in-place and other restrictive orders to combat the COVID-19 pandemic in California and England, there were no interruptions to our EXPAREL operations at either the Science Center Campus or Swindon manufacturing sites as a result of the COVID-19 pandemic as the production of EXPAREL is considered essential.

Our Fremont, California facility, where we manufacture iovera°, was closed for three weeks in March 2020 to implement safety protocols and guidelines related to the COVID-19 pandemic.

The Fremont facility resumed normal operations in April 2020.

Research and Development Expenses

Research and development expenses primarily consist of costs related to clinical trials and related outside services, product development and other research and development costs, including Phase 4 trials that we are conducting to generate new data for EXPAREL and 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.

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

Year Ended December 31,

% Increase / (Decrease)

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Year Ended December 31, % Increase / (Decrease)

Clinical and preclinical development $ 23,126 $ 30,265 (24) %

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% of total revenue 14 % 17 %

Total research and development expense increased 30% in 2019 versus 2018.

The 67% increase in clinical and preclinical development expense in 2019 versus 2018 was primarily related to completed enrollment in our Phase 3 Pediatric (“PLAY”) clinical trial and our Phase 4 Opioid Free C-Section (“CHOICE”) clinical trial and initial enrollment in our Phase 4 Spine (“FUSION”) clinical trial.

There was also increased investment in investigator-initiated studies, toxicology studies, as well as increased costs related to our global expansion activities for EXPAREL.

Product development and manufacturing capacity expansion expense increased 4% in 2019 versus 2018 due to increased spend in EXPAREL support for in vitro release testing, a significant scale-up of our manufacturing capacity for EXPAREL in Swindon, England in partnership with Thermo Fisher and iovera° development costs to improve the functionality of the device and enhance the iovera° product line.

Regulatory and other expense increased 33% in 2019 versus 2018 due to activities related to our European Marketing Authorization Application (MAA) and Health Canada submissions for EXPAREL and the dissemination and publication of EXPAREL data in response to medical information queries.

Stock-based compensation increased 30% in 2019 versus 2018 primarily due to an increase in personnel as well as the number of awards granted during 2019 and the fourth quarter of 2018.

Total research and development expense decreased 18% in 2020 versus 2019.

Clinical and preclinical development expense decreased 24% due to the completion of our Phase 3 pediatric (“PLAY”) clinical trial, our Phase 4 C-Section (“CHOICE”) trial and both our nerve block and pediatric pharmacokinetic studies.

In addition, we made the strategic decision to conclude enrollment in the spine (“FUSION”) study early due to protocol feasibility given the rapid evolution of medical practice for spinal procedures.

The data from approximately 65 FUSION study subjects will be analyzed with the intent to inform future studies in this patient population.

These decreases were partially offset by startup activities related to our iovera° and EXPAREL (“PREPARE”) trial, our lower extremity nerve block (“STRIDE”) clinical trial, as well as the completion of our clinical trial for pectoral field block in breast augmentation.

In addition, these increases included a Phase 1 intrathecal clinical trial to evaluate the safety, pharmacokinetics and sensory selective efficacy of EXPAREL.

Certain clinical trials were slower than normal during 2020 as a result of the COVID-19 pandemic.

Product development and manufacturing capacity expansion expense decreased 21% in 2020 versus 2019 due to our progress in constructing the significant scale-up of our manufacturing capacity at the Thermo Fisher site in Swindon, England as the project advances from the development phase to the registration phase.

Regulatory and other expenses increased 8% in 2020 versus 2019 due to increases in the publication of clinical manuscripts and abstracts, as well as startup activities related to the iovera° clinical database registry.

Stock-based compensation increased 2% in 2020 versus 2019 primarily due to an increase in the number of equity awards granted.

Selling, General and Administrative Expenses

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

Year Ended December 31,

% Increase / (Decrease)

Year Ended December 31, % Increase / (Decrease)

Sales and marketing $ 118,682 $ 129,663 (8) %

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% of total revenue 45 % 48 %

Total selling, general and administrative expenses increased 13% in 2019 versus 2018.

Sales and marketing expenses increased 21% in 2019 versus 2018.

In 2019, the increases were driven by additional selling and promotional activities to support the growth of EXPAREL, including growing a team in the field consisting of account managers focused on the outpatient market, initiatives and commissions related to our co-promotion agreement with

DePuy Synthes and additional marketing spend for the launch of ambulatory and dental reimbursement codes, which became effective on January 1, 2019.

We are continuing our marketing investment in EXPAREL—including educational initiatives and programs related to the impact of opioids and postsurgical pain management, our national advocacy campaign designed to educate patients about non-opioid treatment options and initiatives surrounding women ’ s health, especially related to C-section.

Additionally, in 2019 we invested in marketing initiatives and customer outreach for iovera° as a result of the MyoScience Acquisition.

General and administrative expenses increased 1% in 2019 versus 2018.

The increase was primarily due to additional CryoTech expenditures after the MyoScience acquisition in April 2019, partially offset by a decrease in legal expenditures.

Stock-based compensation increased 2% in 2019 versus 2018, primarily due to an increase in personnel and the number of equity awards granted.

Total selling, general and administrative expenses decreased 4% in 2020 versus 2019.

Sales and marketing expenses decreased 8% in 2020 versus 2019.

The decrease was primarily driven by a decline in sales commissions, reduced marketing spend due to the cancellations of in person meetings, medical conferences, travel and increased utilization of lower cost virtual meetings due to the COVID-19 pandemic.

These were partially offset by a termination fee to DePuy Synthes of up to $9.0 million, and higher sales and marketing compensation due to an expanded sales force.

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are continui ng our marketing investment in EXPAREL, which includes educational initiatives and programs related to the impact of opioids and postsurgical pain management and our national advocacy campaign designed to educate patients about non-opioid treatment options.

We recently launched the Pacira Innovation and Training center at Tampa (the “PITT”) in Tampa, Florida.

This approximately 10,000 square-foot facility will support a full range of educational events to advance clinician understanding of the latest local, regional and field block approaches for managing pain and reducing or eliminating exposure to opioids.

Additionally, we have continued investing in marketing initiatives and customer outreach for iovera°.

In the near-term, we expect that sales and marketing expenditures will continue to be impacted by the COVID-19 pandemic and its resultant effects on elective surgeries, sales commissions, cancellations of in-person industry conferences and the suspension of non-essential employee travel.

General and administrative expenses decreased 3% in 2020 versus 2019.

The decrease was primarily due to lower legal expenditures related to our U.S.

Department of Justice subpoena received in April 2015, which was resolved in July 2020 and was partially offset by expenditures to support the expansion of the business following the MyoScience Acquisition.

Stock-based compensation increased 22% in 2020 versus 2019, primarily due to an increase in personnel and the number of equity grants awarded.

Amortization of Acquired Intangible Assets

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

Year Ended December 31,

% Increase / (Decrease)

Year Ended December 31, % Increase / (Decrease)

Amortization of acquired intangible assets $ 7,866 $ 5,703 38 %

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

Year Ended December 31,

% Increase / (Decrease)

Year Ended December 31, % Increase / (Decrease)

Acquisition-related charges $ 5,354 $ 21,571 (75) %

Product discontinuation

Product discontinuation (188) 159 N/A

Other — 3,500 (100) %

Total acquisition-related charges, product discontinuation and other $ 5,166 $ 25,230 (80) %

In 2019, we recognized charges of $21.6 million related to the MyoScience Acquisition.

Of this total, $16.7 million represents increases in the fair value of contingent consideration resulting from the achievement of regulatory milestones and revised commercial forecasts (which are tied to potential future milestone payments) and $4.2 million represents advisory costs, including legal, financial, accounting and tax services.

The remaining $0.7 million represents separation costs, asset write-downs and other restructuring charges.

We did not incur any acquisition-related charges in 2018.

In 2019 and 2018, we recorded charges of $0.2 million and $1.6 million, respectively, related to the discontinuation of our DepoCyt(e) manufacturing activities for lease costs, asset retirement obligations and other estimated exit costs.

The charges incurred in 2018 primarily represented additional lease and facility costs due to the fact that we were not able to sub-lease the property where DepoCyt(e) was manufactured considering the short period of time remaining on our existing lease.

In 2019, we recorded a charge of $3.5 million related to reaching an agreement in principle with the U.S.

Department of Justice on a proposal for a global civil settlement, related to an April 2015 inquiry.

In 2020, we recognized charges of $5.4 million related to the MyoScience Acquisition primarily due to changes in the fair value of contingent consideration.

In 2019, we recognized charges of $21.6 million, which represents $16.7 million for the changes in fair value of contingent consideration and $4.2 million for advisory costs, including legal, financial, accounting and tax services and $0.7 million for separation costs, asset write-downs and other restructuring activities related to the MyoScience Acquisition.

For more information, see Note 18, Acquisition-Related Charges and Product Discontinuance, Net , to our consolidated financial statements included herein.

In 2020, we recorded a gain of $0.2 million related to the final settlement of the lease agreement for the site of the former DepoCyt(e) manufacturing activities.

In 2019, we recorded a charge of $0.2 million primarily for the accretion of the related lease liability.

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In 2019, we recorded a charge of $3.5 million related to the U.S.

Department of Justice settlement.

The settlement was paid in July 2020.

For more information, see Note 21, Commitments and Contingencies , to our consolidated financial statements included herein.

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

Year Ended December 31,

% Increase / (Decrease)

Year Ended December 31, % Increase / (Decrease)

Interest income $ 4,629 $ 7,376 (37) %

Interest expense (25,671) (23,628) 9 %

Loss on early extinguishment of debt (8,071) — N/A

Other, net 2,852 (4,976) N/A

Total other expense, net $ (26,261) $ (21,228) 24 %

Total other expense, net increased 30% in 2019 versus 2018, primarily due to a $5.7 million impairment of our equity investment in TELA Bio, Inc., or TELA Bio, (net of the receipt of a non-cash stock dividend) due to its decreased market value.

2018 included a $0.9 million loss on an unexercised purchase option related to the investment (see Note 12, Financial Instruments , to our consolidated financial statements for further discussion).

There was also more amortization of the discount on our 2.375% convertible senior notes due 2022, or 2022 Notes, and the absence of capitalized interest related to the completion of our first manufacturing suite in Swindon, England in 2018.

The increase in other expense, net was partially offset by an increase in interest income due to higher overall returns on our investments and other non-operating income in 2019.

Income Tax Expense

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

Year Ended December 31,

% Increase / (Decrease)

Income tax expense

Total other expense, net increased 24% in 2020 versus 2019, primarily due to an $8.1 million loss on early extinguishment of debt incurred in conjunction with the retirement of $185.0 million aggregate principal of our 2022 Notes in July 2020.

In addition, there was a reduction in interest income primarily due to a decline in interest rates and an increase in interest expense due to the issuance of $402.5 million of aggregate principal 2025 Notes in July 2020.

Other, net included $1.1 million of United Kingdom research and development tax credits and a $1.6 million unrealized gain on our equity investment in TELA Bio in 2020 versus an unrealized loss on the equity investment of $5.7 million in 2019.

Income Tax (Benefit) Expense

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

Year Ended December 31, % Increase / (Decrease)

Income tax (benefit) expense $ (125,434) $ 268 N/A

Effective tax rate (100)% + (2) %

We recorded a tax provision of $0.3 million for the year ended December 31, 2019 and less than $0.1 million for the year ended December 31, 2018.

The tax provision for the year ended December 31, 2019 consists primarily of $1.1 million of state income taxes in jurisdictions where the availability of carryforward losses are either limited or fully utilized as well as $1.0 million of state taxes on the one-time gain from the deemed sale of assets resulting from a tax election pursuant to Internal Revenue Code (IRC) section 338(g) made by us related to the MyoScience Acquisition.

We recorded an income tax benefit of $125.4 million for the year ended December 31, 2020 and income tax expense of $0.3 million for the year ended December 31, 2019.

A full valuation allowance had been recorded against our net deferred tax balance as of December 31, 2019 as it had been more likely than not that our net deferred tax assets would not be realizable.

At each reporting date, we consider new evidence, both positive and negative, that could affect our view of the future realization of deferred tax assets.

During the year ended December 31, 2020, in part because in the current year we achieved three years of cumulative pretax income in the U.S.

federal and state tax jurisdictions and based on our most recent forecasts, we determined that there is sufficient positive evidence to conclude that it is more likely than not that additional deferred taxes of $126.6 million are realizable and, therefore, we reduced the valuation allowance accordingly.

For more information, see Note 16, Income Taxes , to our consolidated financial statements included herein.

The income tax expense for the year ended December 31, 2019 consisted primarily of $1.1 million of state income taxes in jurisdictions where the availability of carryforward losses are either limited or fully utilized as well as $1.0 million of state taxes on the one-time gain from the deemed sale of assets resulting from a tax election pursuant to Internal Revenue Code (IRC) Section 338(g) made by us related to the MyoScience Acquisition.

This was partially offset by a $1.8 million reduction in our valuation allowance on our deferred tax assets due to the MyoScience Acquisition.

No federal taxes resulted from the tax election given there were sufficient net operating loss, or NOL, carryforwards.

The tax provision for the year ended December 31, 2018 consists principally of minimum state taxes.

No federal current tax expense was recorded for 2019 or 2018 due to NOLs carried forward and the repeal of the corporate minimum tax.

The utilization of our NOLs has not resulted in any federal deferred tax expense because of a full valuation allowance recorded against the NOLs.

No federal taxes resulted from the tax election given there were sufficient NOL carryforwards.

Liquidity and Capital Resources

Since our inception in 2006, we have devoted most of our cash resources to manufacturing, research and development and selling, general and administrative activities related to the development and commercialization of EXPAREL.

In addition, we acquired iovera° as part of the MyoScience Acquisition in April 2019.

We are highly dependent on the commercial success of EXPAREL.

We have financed our operations primarily with the proceeds from the sale of convertible senior notes, convertible preferred stock, common stock, secured and unsecured notes, borrowings under debt facilities, product sales and collaborative licensing and milestone revenue.

As of December 31, 2019 , we had an accumulated deficit of $399.4 million , cash and cash equivalents, short-term and long-term investments of $356.7 million and working capital of $300.9 million .

We have financed our operations primarily with the proceeds from the sale of convertible senior notes, common stock, product sales and collaborative licensing and milestone revenue.

As of December 31, 2020, we had an accumulated

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deficit of $253.9 million, cash and cash equivalents, short-term and long-term investments of $617.1 million and working capital of $398.3 million.

The net cash proceeds from the July 2020 issuance of $402.5 million aggregate principal of the 2025 Notes was $178.9 million, after deducting fees and offering expenses of $12.5 million and using $211.1 million to retire $185.0 million in aggregate principal (including accrued interest) of our existing 2022 Notes.

For more information, see Note 11, Debt , to our consolidated financial statements included herein.

As discussed above, we anticipate that the COVID-19 pandemic will continue to result in a reduction of certain commercial and clinical expenditures which would offset some of the revenue declines caused by the COVID-19 pandemic.

We currently expect that our cash, short-term and long-term investments on hand will be adequate to cover any potential short-term liquidity needs, and that we would be able to access other sources of financing should the need arise.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law in response to the COVID-19 pandemic.

The CARES Act, among other things, allows for certain measures to increase liquidity for businesses such as the deferral of employer payroll taxes, a tax credit for retaining employees and other provisions.

We benefited from the provision to defer the payment of certain employer payroll taxes in the amount of $2.8 million for the year ended December 31, 2020.

One-half of these deferrals are due at each of December 31, 2021 and December 31, 2022.

Summary of Cash Flows

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Year Ended December 31,

Consolidated Statement of Cash Flows Data:

Consolidated Statements of Cash Flows Data:

Net cash provided by (used in):

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Financing activities 222,304 3,670

Net (decrease) increase in cash and cash equivalents

Net increase (decrease) in cash and cash equivalents $ 21,729 $ (54,298)

Operating Activities

In 2020, net cash provided by operating activities was $77.0 million compared to $70.5 million in 2019.

The increase of $21.7 million was primarily attributable to a 23% increase in net product sales of EXPAREL.

This increase was partially offset by increased sales commissions related to our co-promotion agreement with DePuy Synthes, costs to grow our sales and marketing teams focused on the outpatient market, the launch of ambulatory and dental reimbursement codes for EXPAREL effective January 1, 2019, an increase in marketing initiatives related to women ’ s health , transaction and other costs related to the MyoScience Acquisition and investments in marketing initiatives to grow the reach of iovera°.

We also made a $5.3 million payment to Mundipharma International Corporation Limited and Mundipharma Medical Company to settle claims stemming from the June 2017 discontinuation of DepoCyt(e).

The increase of $6.5 million was primarily attributable to the increase in income from operations driven by the increase in revenue and reductions in research and development and selling, general and administrative expenses—reflecting reduced spending due to the COVID-19 pandemic and a decline in sales commissions.

These increases were partially offset by an increase in overall working capital requirements, and contingent consideration payments made to MyoScience securityholders, $9.4 million of which were classified as operating.

Investing Activities

In 2020, net cash used in investing activities was $277.6 million, which reflected $238.6 million of short-term and long-term investment purchases (net of maturities) and purchases of fixed assets of $37.8 million.

Major fixed asset purchases included equipment for a new EXPAREL capacity expansion project at our Science Center Campus in San Diego, California and continuing expenditures for expanding our EXPAREL manufacturing capacity in Swindon, England.

In addition, we made a $1.2 million equity investment in GeneQuine.

In 2019, net cash used in investing activities was $128.5 million, which reflected cash used to fund the MyoScience Acquisition of $117.7 million (net of $1.3 million of cash acquired), purchases of fixed assets of $10.2 million and an additional $1.6 million investment in TELA Bio, partially offset by $1.0 million of short-term and long-term investment maturities (net of purchases).

Major fixed asset purchases included continuing expenditures for expanding our EXPAREL manufacturing capacity in Swindon, England in partnership with Thermo Fisher, and facility upgrades at our Science Center Campus in San Diego, California.

In 2018, net cash provided by investing activities was $20.6 million, which reflected $41.9 million of short-term and long-term investment maturities (net of purchases).

These proceeds were partially offset by purchases of fixed assets of $14.5 million and contingent consideration payments on collections of net sales of DepoBupivacaine products, including EXPAREL, of $6.8 million related to the March 2007 acquisition of the California operating subsidiary of SkyePharma Holding, Inc.

(now a subsidiary of Vectura Group plc), or Skyepharma.

Major fixed asset purchases included continuing expenditures for expanding our EXPAREL manufacturing capacity in Swindon, England and facility upgrades at our Science Center Campus in San Diego, California.

Major fixed asset purchases included continuing expenditures for expanding our EXPAREL manufacturing capacity in England and facility upgrades at our Science Center Campus.

Financing Activities

In 2019, net cash provided by financing activities was $3.7 million , which consisted of proceeds from the exercise of stock options of $8.5 million and $2.4 million from the issuance of shares through our ESPP, partially offset by $6.6 million of contingent consideration payments made to MyoScience securityholders and $0.6 million of payments made to retire our 3.25% convertible senior notes due 2019.

In 2018, net cash provided by financing activities was $9.0 million, which consisted of proceeds from the exercise of stock options of $7.2 million and $1.8 million from the issuance of shares under our ESPP.

In 2020, net cash provided by financing activities was $222.3 million, which consisted of gross proceeds from the issuance of the 2025 Notes of $402.5 million, the exercise of stock options of $45.2 million and $2.5 million from the issuance of shares through our ESPP.

In conjunction with the issuance of the 2025 Notes, we paid $211.1 million of cash (including $1.2 million of accrued interest classified as an operating outflow) to retire $185.0 million of our 2022 Notes in privately-negotiated transactions and $12.5 million in financing costs.

We also made contingent consideration payments to MyoScience

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securityholders, of which $5.6 million was classified as financing activities based on their recognition at the time of the MyoScience Acquisition.

We also made a $6.6 million contingent consideration payment to MyoScience securityholders and a $0.6 million payment to retire our 3.25% convertible senior notes due 2019.

Equity Financings

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2025 Convertible Senior Notes

On March 13, 2017, we completed a private placement of $345.0 million in aggregate principal amount of our 2022 Notes, and entered into an indenture, or 2022 Indenture, with respect to the 2022 Notes.

The 2022 Notes accrue interest at a fixed rate of 2.375% per annum, payable semiannually in arrears on April 1 and October 1 of each year.

The 2022 Notes mature on April 1, 2022.

At December 31, 2019 , the outstanding principal on the 2022 Notes was $345.0 million.

On or after October 1, 2021, until the close of business on the second scheduled trading day immediately preceding April 1, 2022, holders may convert their 2022 Notes at any time.

On July 10, 2020, we completed a private placement of $402.5 million in aggregate principal amount of our 2025 Notes and entered into the 2025 Indenture with respect to the 2025 Notes.

The 2025 Notes accrue interest at a fixed rate of 0.750% per annum, payable in arrears on February 1 and August 1 of each year, beginning on February 1, 2021.

The 2025 Notes mature on August 1, 2025.

At December 31, 2020, the outstanding principal amount of the 2025 Notes was $402.5 million.On or after February 3, 2025, until the close of business on the second scheduled trading day immediately preceding August 1, 2025, holders may convert their 2025 Notes at any time.

Upon conversion, holders will receive the principal amount of their 2025 Notes and any excess conversion value.

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The initial conversion rate for the 2025 Notes is 13.9324 shares of common stock per $1,000 principal amount, which is equivalent to an initial conversion price of approximately $71.78 per share of our common stock.

The conversion rate will be subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest.

Prior to the close of business on the business day immediately preceding October 1, 2021, holders may convert the 2022 Notes under certain circumstances—including, but not limited to—if during any given calendar quarter, our stock price closes at or above 130% of the conversion price then applicable during a period of at least 20 out of the last 30 consecutive trading days of the previous quarter.

The conversion rate will be subject to adjustment for certain events but will not be adjusted for any accrued and unpaid interest.

Prior to the close of business on the business day immediately preceding February 3, 2025, holders may convert the 2025 Notes under certain circumstances, including if during any given calendar quarter, our stock price closes at or above 130% of the conversion price then applicable during a period of at least 20 out of the last 30 consecutive trading days of the previous quarter.

None of these conditions for conversion were met during the quarter ended December 31, 2020.

While the 2025 Notes are currently classified on our consolidated balance sheet at December 31, 2020 as long-term debt, the future convertibility and resulting balance sheet classification of this liability will be monitored at each quarterly reporting date and will be analyzed dependent upon market prices of our common stock during the prescribed measurement periods.

In the event that the holders of the 2025 Notes have the right to convert the 2025 Notes at any time during the prescribed measurement period, the 2025 Notes would then be considered a current obligation and classified as such.

Prior to April 1, 2020, we may not redeem the 2022 Notes.

On or after April 1, 2020, we may redeem for cash, shares of our common stock or a combination of cash and shares of our common stock, at our option, all or part of the 2022 Notes if the last reported sale price (as defined in the 2022 Indenture) of our common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading-day period ending within five trading days prior to the date on which we provide notice of redemption.

On or after August 1, 2023, we may redeem for cash, shares of our common stock or a combination of cash and shares of our common stock, at our option, all or part of the 2025 Notes if the last reported sale price (as defined in the 2025 Indenture) of our common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading-day period ending within five trading days prior to the date on which we provide notice of redemption.

See Note 11, Debt , to our consolidated financial statements included herein for further discussion of the 2025 Notes.

2022 Convertible Senior Notes

On March 13, 2017, we completed a private placement of $345.0 million in aggregate principal amount of our 2022 Notes, and entered into the 2022 Indenture with respect to the 2022 Notes.

The 2022 Notes accrue interest at a fixed rate of 2.375% per annum, payable semiannually in arrears on April 1 and October 1 of each year.

The 2022 Notes mature on April 1, 2022.

In July 2020, we used part of the net proceeds from the issuance of the 2025 Notes discussed above to repurchase $185.0 million aggregate principal of the 2022 Notes in privately-negotiated transactions for an aggregate of approximately $211.1 million in cash, including accrued interest.

At December 31, 2020, the outstanding principal amount of the 2022 Notes was $160.0 million.

On or after October 1, 2021, until the close of business on the second scheduled trading day immediately preceding April 1, 2022, holders may convert their 2022 Notes at any time.

Upon conversion, holders will receive the principal amount of their

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2022 Notes and any excess conversion value.

For both the principal and excess conversion value, holders may receive cash, shares of our common stock or a combination of cash and shares of our common stock, at our option.

The initial conversion rate for the 2022 Notes is 14.9491 shares of common stock per $1,000 principal amount, which is equivalent to an initial conversion price of approximately $66.89 per share of our common stock.

The conversion rate will be subject to adjustment for certain events but will not be adjusted for any accrued and unpaid interest.

Prior to the close of business on the business day immediately preceding October 1, 2021, holders may convert the 2022 Notes under certain circumstances, including if during any given calendar quarter, our stock price closes at or above 130% of the conversion price then applicable during a period of at least 20 out of the last 30 consecutive trading days of the previous quarter.

As of April 1, 2020, we may redeem for cash, shares of our common stock or a combination of cash and shares of our common stock, at our option, all or part of the 2022 Notes if the last reported sale price (as defined in the 2022 Indenture) of our common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading-day period ending within five trading days prior to the date on which we provide notice of redemption.

This condition was not met during the quarter ended December 31, 2020.

See Note 11, Debt , to our consolidated financial statements included herein for further discussion of the 2022 Notes.

Future Capital Requirements

We believe that our existing cash and cash equivalents, short-term and long-term investments and cash received from product sales will be sufficient to enable us to fund our operating expenses, capital expenditure requirements, payment of the principal on any conversions of the 2022 Notes and to service our indebtedness through at least February 20, 2021 .

We believe that our existing cash and cash equivalents, short-term and long-term investments and cash received from product sales will be sufficient to enable us to fund our operating expenses, capital expenditure requirements, payment of the remaining principal on any conversions of the 2022 Notes and 2025 Notes and to service our indebtedness through at least February 26, 2022.

Our future use of operating cash and capital requirements will depend on many forward-looking factors, including, but not limited to, the following:

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

• our ability to successfully continue to expand the commercialization of EXPAREL, including outside of the U.S.;

the costs of successfully integrating MyoScience (now known as Pacira CryoTech) into our existing business and expanding the commercialization of iovera°;

the cost and timing of expanding our manufacturing facilities for EXPAREL and other product candidates, including the construction of an additional manufacturing suite at Thermo Fisher’s facility in Swindon, England;

the cost and timing of potential milestone payments to MyoScience security holders, which could be up to an aggregate of $73.0 million if certain regulatory and commercial milestones are met, which includes two milestone payments totaling $15.0 million to be paid in the first half of 2020;

• the costs of expanding the commercialization of iovera°, including outside of the U.S.;

• the cost and timing of expanding our manufacturing facilities for EXPAREL and other product candidates, including the construction of an additional manufacturing suite at Thermo Fisher’s facility in Swindon, England and an EXPAREL capacity expansion project at our Science Center Campus in San Diego, California;

• the cost and timing of potential remaining milestone payments to MyoScience security holders, which could be up to an aggregate of $58.0 million if certain regulatory and commercial milestones are met, which includes one milestone payment of up to $10.0 million to be paid in the first half of 2021;

• the cost and timing of potential milestone payments to Skyepharma, which could be up to an aggregate of $36.0 million if certain milestones pertaining to net sales of DepoBupivacaine products, including EXPAREL, are met, or upon the first commercial sale in the United Kingdom, France, Germany, Italy or Spain;

the timing of and extent to which the holders of our 2022 Notes elect to convert their notes;

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

• the cost and timing of an early termination payment to DePuy Synthes, which we currently estimate to be up to $9.0 million;

• the timing of and extent to which the holders of our 2022 Notes and 2025 Notes elect to convert their notes;

• costs related to legal and regulatory issues;

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

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We may require additional debt or equity financing to meet our future operating and capital requirements.

We have no committed external sources of funds, and additional equity or debt financing may not be available on acceptable terms, if at all.

In particular, capital market disruptions or negative economic conditions, especially in light of the COVID-19 pandemic, may hinder our access to capital.

Contractual Obligations

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Contractual Obligations (1)

Less Than One Year

Total Less Than One Year 1-3 Years 3-5 Years More Than

Convertible senior notes - principal (2)

$ 562,500 $ — $ 160,000 $ 402,500 —

Convertible senior notes - interest 20,962 6,986 7,938 6,038 —

Lease obligations (3)

106,699 12,527 21,120 22,251 50,801

Purchase obligations (4)

41,547 25,166 16,381 — —

Achieved milestone payments (1)

10,000 10,000 — — —

Total $ 741,708 $ 54,679 $ 205,439 $ 430,789 50,801

(1) This table does not include potential future milestone payments to Skyepharma which could be up to an aggregate of $36.0 million if certain milestones pertaining to net sales of DepoBupivacaine products, including EXPAREL are met, including $32.0 million when annual net sales of DepoBupivacaine products collected, including EXPAREL, reach $500.0 million (measured on a rolling quarterly basis) and $4.0 million upon the first commercial sale in the United Kingdom, France, Germany, Italy or Spain.

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This table also does not include potential future milestone payments to MyoScience shareholders which could be up to an aggregate of $48.0 million if certain regulatory and commercial milestones are met.

However, the table above includes two achieved milestone payments totaling $15.0 million to be paid in the first half of 2020.

This contingency is described further in Note 5, MyoScience Acquisition , to our consolidated financial statements included herein.

In addition, this table does not include various agreements that we have entered into for services with third-party vendors, including agreements to conduct clinical trials, and for consulting and other contracted services due to the cancelable nature of the services.

(2) The amounts represent the April 2022 maturity of our 2022 Notes.

However, the table above includes one achieved milestone payment totaling $10.0 million scheduled to be paid in the first half of 2021.

The table also does not include potential investments of $4.9 million to be made under an investment agreement and convertible loan agreement if certain milestones are met by GeneQuine.

Further, this table does not include various agreements that we have entered into for services with third-party vendors, including agreements to conduct clinical trials, and for consulting and other contracted services due to the cancellable nature of the services.

(2) The amounts represent the April 2022 maturity of our 2022 Notes and the August 2025 maturity of our 2025 Notes.

See Note 11 , Debt , to our consolidated financial statements included herein for further discussion.

Additionally, it excludes any conversion premium on the 2022 Notes, which may be settled in cash or stock at our discretion.

The 2022 Notes were not convertible as of December 31, 2019 .

Additionally, it excludes any conversion premium on the 2022 Notes and 2025 Notes, which may be settled in cash or stock at our discretion.

Neither the 2022 Notes nor the 2025 Notes were convertible as of December 31, 2020.

(3) The amounts consist of operating leases for our corporate headquarters in Parsippany, New Jersey, manufacturing, research and development and warehouse space in San Diego, California and Fremont, California and office space in Tampa, Florida.

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Under these agreements, we are required to make monthly base fee payments to Thermo Fisher.

Under the terms of the Manufacturing and Supply Agreement, following FDA approval of the suites (which occurred in May 2018), we agreed to purchase EXPAREL product from Thermo Fisher.

Under the terms of the Manufacturing and Supply Agreement, following FDA approval of the first suite (which occurred in May 2018), we agreed to purchase EXPAREL product from Thermo Fisher.

Unless earlier terminated by giving notice of up to three years (other than termination by us in the event of a material breach by Thermo Fisher), this agreement will expire in May 2028.

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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 audited consolidated financial statements included in this filing.

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Our significant accounting policies are more fully discussed in Note 2, Summary of Significant Accounting Policies , to our consolidated financial statements included herein.

The following accounting policies, which may include significant judgments and estimates, were used in the preparation of our consolidated financial statements.

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and (iv) license fees and milestone payments.

To date, there has been no revenue from the sales of EXPAREL or iovera° in the E.U.

We do not consider revenue from sources other than sales of EXPAREL to be material sources of our consolidated revenue.

Net Product Sales

We sell EXPAREL through a drop-ship program under which orders are processed through wholesalers based on orders of the product placed by end-users which include hospitals, ambulatory surgery centers and doctors.

We sell EXPAREL through a drop-ship program under which orders are processed through wholesalers based on orders of the product placed by end-users, namely hospitals, ambulatory surgery centers and healthcare provider offices.

EXPAREL is delivered directly to the end-user without the wholesaler ever taking physical possession of the product.

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For milestone payments to be received upon the achievement of a sales threshold, the revenue from the milestone payments is recognized at the later of when the actual sales are incurred or the performance obligation to which the sales relate to has been satisfied.

In a business combination, the acquisition method of accounting requires that the assets acquired and liabilities assumed be recorded as of the date of the acquisition at their respective fair values with some exceptions.

Assets acquired and liabilities assumed in a business combination that arise from contingencies are generally recognized at fair value.

If fair value cannot be determined, the asset or liability is recognized if probable and reasonably estimable;

if these criteria are not met, no asset or liability is recognized.

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

Any excess of the purchase price (consideration transferred) over the estimated fair values of net assets acquired is recorded as goodwill.

Transaction costs and costs to restructure the acquired company are expensed as incurred.

The operating results of the acquired business are reflected in our consolidated financial statements after the date of the acquisition.

Contingent Consideration

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Off-Balance Sheet Arrangements

Other than one lease agreement for which there are future obligations but the lease has not yet commenced, we do not have any material off-balance sheet arrangements as of December 31, 2019 , nor do we have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities.

We do not have any material off-balance sheet arrangements as of December 31, 2020, nor do we have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis