Pacira BioSciences, Inc. 10-K

Item 9A. Controls and Procedures Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, which are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chairman and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based on their evaluation as of December 31, 2020, our Chief Executive Officer and Chairman and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2020. Management’s Report on Internal Control over Financial Reporting Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chairman and Chief Financial Officer, management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2020, based on the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based upon the results of the evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2020. The effectiveness of our internal control over financial reporting as of December 31, 2020 was audited by KPMG LLP, our independent registered public accounting firm, as stated in their report appearing below, which expressed an unqualified opinion on the effectiveness of our internal control over financial reporting as of December 31, 2020. Changes in Internal Control over Financial Reporting During the quarter ended December 31, 2020, our management has integrated internal controls for the acquired MyoScience acquisition into our existing controls. Other than integrating the MyoScience acquisition, there have been no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Pacira BioSciences, Inc. | 2020 Form 10-K | Page 73 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors Pacira BioSciences, Inc.: Opinion on Internal Control Over Financial Reporting We have audited Pacira BioSciences, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes (collectively, the consolidated financial statements), and our report dated February 26, 2021 expressed an unqualified opinion on those consolidated financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ KPMG LLP Short Hills, New Jersey February 26, 2021 Pacira BioSciences, Inc. | 2020 Form 10-K | Page 74 Table of Contents Item 9B. Other Information None. PART III Item 10. Directors, Executive Officers and Corporate Governance Information required by this item will be included in the proxy statement for our 2021 annual stockholders’ meeting and is incorporated by reference into this report. Item 11. Executive Compensation Information required by this item will be included in the proxy statement for our 2021 annual stockholders’ meeting and is incorporated by reference into this report. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters Information required by this item will be included in the proxy statement for our 2021 annual stockholders’ meeting and is incorporated by reference into this report. Item 13. Certain Relationships and Related Transactions, and Director Independence Information required by this item will be included in the proxy statement for our 2021 annual stockholders’ meeting and is incorporated by reference into this report. Item 14. Principal Accountant Fees and Services Information required by this item will be included in the proxy statement for our 2021 annual stockholders’ meeting and is incorporated by reference into this report. Pacira BioSciences, Inc. | 2020 Form 10-K | Page 75 Table of Contents PART IV Item 15. Exhibits, Financial Statement Schedules (a) Documents filed as part of this Annual Report on Form 10-K: (1) Financial Statements Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Comprehensive Income (Loss) Consolidated Statements of Stockholders’ Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements (2) Schedules All financial statement schedules have been omitted because they are not required, are not applicable or the information is included in the consolidated financial statements or related notes thereto. (3) Exhibits The following exhibits are filed with, or incorporated by reference in this Form 10-K. Pacira BioSciences, Inc. | 2020 Form 10-K | Page 76 Table of Contents EXHIBIT INDEX Incorporation By Reference From Exhibit Number Description Form Exhibit Date Filed 2.1 Agreement and Plan of Merger, dated March 4, 2019, by and among Pacira Pharmaceuticals, Inc., PS Merger, Inc., MyoScience, Inc., and Fortis Advisors LLC, as the securityholders’ representative. # † 8-K 2.1 3/5/2019 3.1 Amended and Restated Certificate of Incorporation. 8-K 3.1 2/11/2011 3.2 Certificate of Amendment to the Amended and Restated Certificate of Incorporation, dated April 9, 2019. 8-K 3.1 4/9/2019 3.3 Second Amended and Restated Bylaws. 8-K 3.2 4/9/2019 4.1 Specimen Certificate Evidencing Shares of Common Stock. 10-Q 4.1 5/2/2019 4.2 Indenture (including form of 0.750% Convertible Senior Notes due 2025), dated July 10, 2020, between the Registrant and Wells Fargo Bank, National Association, as trustee. 8-K 4.1 7/10/2020 4.3 Indenture (including form of 2.375% Convertible Senior Notes due 2022), dated March 13, 2017, between the Registrant and Wells Fargo Bank, National Association, as trustee. 8-K 4.1 3/13/2017 4.4 Description of Securities. 10-K 4.3 2/21/2020 10.1 Amended and Restated 2011 Stock Incentive Plan.*** 10-Q 10.1 8/8/2019 10.2 Form of Nonstatutory Stock Option Agreement under the Amended and Restated 2011 Stock Incentive Plan.*** 8-K 10.3 6/4/2014 10.3 Form of Restricted Stock Unit Award Agreement (Employees) under the Amended and Restated 2011 Stock Incentive Plan.*** 10-Q 10.6 7/30/2015 10.4 Form of Restricted Stock Unit Award Agreement (Non-Employee Directors) under the Amended and Restated 2011 Stock Incentive Plan.*** 10-Q 10.7 7/30/2015 10.5 2014 Inducement Plan.*** 10-Q 10.1 5/1/2014 10.6 2014 Employee Stock Purchase Plan.*** 8-K 10.2 6/4/2014 10.7 Assignment Agreement, dated February 9, 1994, amended April 15, 2004, between the Registrant and Research Development Foundation. S-1/A 10.4 12/3/2010 10.8 Stock Purchase Agreement, dated January 8, 2007, between SkyePharma, Inc. and the Registrant. S-1/A 10.5 12/3/2010 10. 9 Employment Agreement between the Registrant and David Stack.*** S-1/A 10.21 12/3/2010 10. 10 Amendment No. 1 to Executive Employment Agreement, dated March 13, 2013, between the Registrant and David Stack.*** 8-K 99.3 3/18/2013 10. 11 Amendment No. 2 to Executive Employment Agreement, dated June 30, 2015, between the Registrant and David Stack.*** 10-Q 10.2 7/30/2015 10. 12 Employment Agreement, dated November 29, 2012, between the Registrant and Kristen Williams.*** 10-Q 10.2 4/30/2015 10. 13 Amendment No. 1 to Employment Agreement, dated March 13, 2013, between the Registrant and Kristen Williams.*** 10-Q 10.3 4/30/2015 10. 14 Amendment No. 2 to Employment Agreement, dated June 30, 2015, between the Registrant and Kristen Williams.*** 10-Q 10.5 7/30/2015 10. 15 Executive Employment Agreement, dated May 2, 2016, between the Registrant and Charles A. Reinhart, III.*** 10-Q 10.1 8/4/2016 10. 16 Executive Employment Agreement, dated June 19, 2019, between the Registrant and Max Reinhardt.*** 10-Q 10.1 5/7/2020 10. 17 Executive Employment Agreement, dated April 24, 2017, between the Registrant and Roy Winston.*** 10-Q 10.2 5/7/2020 10. 18 Form of Indemnification Agreement between the Registrant and its directors and officers.*** S-1/A 10.32 1/13/2011 10. 19 Commercial Outsourcing Services Agreement entered into as of August 25, 2011 by the Registrant and Integrated Commercialization Solutions, Inc.† 10-Q 10.1 8/25/2011 10.20 First Amendment to Commercial Outsourcing Services Agreement, dated August 1, 2013, between the Registrant and Integrated Commercialization Solutions, Inc.† 10-Q 10.1 10/31/2013 Pacira BioSciences, Inc. | 2020 Form 10-K | Page 77 Table of Contents Incorporation By Reference From Exhibit Number Description Form Exhibit Date Filed 10. 21 Second Amendment to Commercial Outsourcing Services Agreement, dated August 25, 2014, between the Registrant and Integrated Commercialization Solutions, Inc.† 10-Q 10.1 10/30/2014 10. 22 Third Amendment to Commercial Outsourcing Services Agreement, dated April 29, 2015, between the Registrant and Integrated Commercialization Solutions, Inc.† 10-Q 10.1 7/30/2015 10. 23 Fourth through Eleventh Amendments to Commercial Outsourcing Services Agreement, between the Registrant and Integrated Commercialization Solutions, Inc.†† 10-Q 10.3 5/7/2020 10. 24 Pacira BioSciences, Inc. Deferred Compensation Plan.*** 8-K 10.1 6/11/2020 10. 25 Pacira BioSciences, Inc. Long-Term Incentive Plan.*** 8-K 10.1 12/7/2020 10. 26 Strategic Co-Production Agreement dated April 4, 2014, by and between the Registrant and Patheon UK Limited.† 10-Q 10.1 7/31/2014 10. 27 Manufacturing and Supply Agreement dated April 4, 2014, by and between the Registrant and Patheon UK Limited.† 10-Q 10.2 7/31/2014 10. 28 Technical Transfer and Service Agreement dated April 4, 2014, by and between the Registrant and Patheon UK Limited.† 10-Q 10.3 7/31/2014 10. 29 Amended and Restated Consulting Agreement, dated April 3, 2012, between the Registrant and Gary Pace.*** 10-Q 10.1 5/9/2012 10. 30 Second Amended and Restated Consulting Agreement, dated August 17, 2012, between the Registrant and Gary Pace.*** 10-Q 10.1 11/1/2012 10. 31 Third Amendment to Consulting Agreement, dated September 11, 2013, between the Registrant and Gary Pace.*** 10-Q 10.3 10/31/2013 10. 32 Fourth Amendment to Consulting Agreement, dated November 25, 2015, between the Registrant and Gary Pace.*** 10-K 10.57 2/25/2016 10. 33 Co-Promotion Agreement, dated January 24, 2017, between the Registrant and DePuy Synthes Sales, Inc.† 10-Q 10.1 5/4/2017 10. 34 First Amendment to Co-Promotion Agreement, dated April 19, 2018, between the Registrant and DePuy Synthes Sales, Inc. 10-Q 10.1 5/3/2018 10. 35 Second Amendment to Co-Promotion Agreement, dated December 21, 2018, between the Registrant and DePuy Synthes Sales, Inc.† 10-K 10.41 2/28/2019 10. 36 Executive Employment Agreement, dated May 29, 2017, between the Registrant and Dennis McLoughlin.*** 10-Q 10.1 5/2/2019 21.1 Subsidiaries of the Registrant.* 23.1 Consent of KPMG LLP.* 31.1 Certification of Chief Executive Officer and Chairman pursuant to Exchange Act Rule 13a-14(a).* 31.2 Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a).* 32.1 Certification of Chief Executive Officer and Chairman and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.** 101.INS* Inline XBRL Instance Document.* 101.SCH* Inline XBRL Taxonomy Schema Document.* 101.CAL* Inline XBRL Taxonomy Calculation Linkbase Document.* 101.LAB* Inline XBRL Taxonomy Label Linkbase Document.* 101.PRE* Inline XBRL Taxonomy Presentation Linkbase Document.* 101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document.* 104* Cover Page Interactive Data File (Formatted as Inline XBRL and contained in Exhibit 101). Pacira BioSciences, Inc. | 2020 Form 10-K | Page 78 Table of Contents * Filed herewith. ** Furnished herewith. *** Denotes management contract or compensatory plan or arrangement. † Confidential treatment has been requested or granted as to certain portions, which portions were omitted and filed separately with the Securities and Exchange Commission pursuant to a Confidential Treatment Request. †† Certain portions of the exhibit have been omitted pursuant to Rule 601(b)(10) of Regulation S-K. The omitted information is (i) not material and (ii) would likely cause competitive harm to the Company if publicly disclosed. # Certain schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K under the Securities Exchange Act of 1934, as amended. The Company hereby undertakes to supplementally furnish copies of any omitted schedules to the Securities and Exchange Commission upon request. Item 16. Form 10-K Summary None. Pacira BioSciences, Inc. | 2020 Form 10-K | Page 79 Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PACIRA BIOSCIENCES, INC. /s/ DAVID STACK Date: February 26, 2021 By: David Stack Chief Executive Officer and Chairman Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ DAVID STACK Director, Chief Executive Officer and Chairman (Principal Executive Officer) February 26, 2021 David Stack /s/ CHARLES A. REINHART, III Chief Financial Officer (Principal Financial Officer) February 26, 2021 Charles A. Reinhart, III /s/ LAUREN RIKER Vice President, Finance (Principal Accounting Officer) February 26, 2021 Lauren Riker /s/ LAURA BREGE Director February 26, 2021 Laura Brege /s/ CHRISTOPHER J. CHRISTIE Director February 26, 2021 Christopher J. Christie /s/ MARK FROIMSON Director February 26, 2021 Mark Froimson /s/ YVONNE GREENSTREET Director February 26, 2021 Yvonne Greenstreet /s/ MARK KRONENFELD Director February 26, 2021 Mark Kronenfeld /s/ JOHN LONGENECKER Director February 26, 2021 John Longenecker /s/ GARY PACE Director February 26, 2021 Gary Pace /s/ ANDREAS WICKI Director February 26, 2021 Andreas Wicki /s/ PAUL HASTINGS Lead Director February 26, 2021 Paul Hastings Pacira BioSciences, Inc. | 2020 Form 10-K | Page 80 Table of Contents PACIRA BIOSCIENCES, INC. ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2020 INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS Page # Report of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets as of December 31, 20 20 and 201 9 F-4 Consolidated Statements of Operations for the years ended December 31, 20 20 , 201 9 and 201 8 F-5 Consolidated Statements of Comprehensive Income ( Loss ) for the years ended December 31, 20 20 , 201 9 and 201 8 F-6 Consolidated Statements of Stockholders’ Equity for the years ended December 31, 20 20 , 201 9 and 201 8 F-7 Consolidated Statements of Cash Flows for the years ended December 31, 20 20 , 201 9 and 201 8 F-8 Notes to Consolidated Financial Statements F-10 Pacira BioSciences, Inc. | 2020 Form 10-K | Page F-1 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors Pacira BioSciences, Inc.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Pacira BioSciences, Inc. and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the three‑year period ended December 31, 2020, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 26, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. Change in Accounting Principle As discussed in Note 3 to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2019 due to the adoption of Accounting Standards Update 2016-02, Leases (Topic 842). Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Fair value measurement of the contingent consideration liabilities associated with the acquisition of MyoScience, Inc. As discussed in Notes 5 and 12 to the consolidated financial statements, the fair value of the contingent consideration liabilities related to the acquisition of MyoScience, Inc. was $28.3 million as of December 31, 2020. The contingent consideration liabilities are re-measured each reporting period, with a maximum remaining payout as of December 31, 2020 of $58.0 million. The determination of the fair value of the contingent consideration liabilities related to achieving commercial and regulatory milestones requires the Company to make significant estimates and assumptions. These estimates and assumptions include forecasts of revenues, estimated probabilities and timing of achieving specified commercial and regulatory milestones, volatility and discount rates. We identified the evaluation of the ongoing fair value measurement of the contingent consideration liabilities related to achieving commercial and regulatory milestones associated with the acquisition of MyoScience, Inc. as a critical audit Pacira BioSciences, Inc. | 2020 Form 10-K | Page F-2 Table of Contents matter. Testing the simulation and milestone based models, including non-observable inputs, such as the forecasted revenue, estimated probability and timing of achieving specific commercial and regulatory milestones, the volatility and the discount rates involved a high degree of subjectivity. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s ongoing fair value process for contingent consideration liabilities related to achieving commercial and regulatory milestones. This included controls related to the forecasted revenues, estimated probabilities and timing of achieving specified milestones, the volatility and the discount rates. We evaluated the forecasted revenue and commercial and regulatory milestone assumptions used in the Company’s models by comparing them to industry benchmarks and other relevant and reliable third-party market data, as well as evaluated the relevance and reliability of third-party market data points used to develop the future revenue growth and commercial and regulatory milestones. We involved valuation professionals with specialized skills and knowledge, who assisted in evaluating the Company’s volatility and discount rates, by comparing the Company’s inputs to the volatility and the discount rates, to publicly available market data for the comparable entities used by the Company and assessing the resulting volatility and discount rates. They also assisted in testing the estimate of the ongoing fair value of the contingent consideration liabilities using the Company’s forecasted revenues, volatility and the discount rates, and comparing the results to the Company’s fair value estimates. /s/ KPMG LLP We have served as the Company’s auditor since 2015. Short Hills, New Jersey February 26, 2021 Pacira BioSciences, Inc. | 2020 Form 10-K | Page F-3 Table of Contents PACIRA BIOSCIENCES, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts) December 31, 2020 2019 ASSETS Current assets: Cash and cash equivalents $ 99,957 $ 78,228 Short-term investments 421,705 213,722 Accounts receivable, net 53,046 47,530 Inventories, net 64,650 58,296 Prepaid expenses and other current assets 12,265 10,781 Total current assets 651,623 408,557 Long-term investments 95,459 64,798 Fixed assets, net 136,688 104,681 Right-of-use assets, net 74,492 38,124 Goodwill 99,547 99,547 Intangible assets, net 96,521 104,387 Deferred tax assets 106,164 — Equity investments and other assets 14,019 10,971 Total assets $ 1,274,513 $ 831,065 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 10,431 $ 12,799 Accrued expenses 70,974 70,427 Lease liabilities 7,425 4,935 Convertible senior notes 149,648 — Contingent consideration 14,736 18,179 Income taxes payable 114 1,333 Total current liabilities 253,328 107,673 Convertible senior notes 313,030 306,045 Lease liabilities 71,025 40,938 Contingent consideration 13,610 19,963 Other liabilities 3,832 1,502 Total liabilities 654,825 476,121 Commitments and contingencies (Note 21) Stockholders’ equity: Preferred stock, par value $ 0.001 ; 5,000,000 shares authorized; none issued and outstanding at December 31, 2020 and 2019 — — Common stock, par value $ 0.001 ; 250,000,000 shares authorized; 43,636,929 shares issued and outstanding at December 31, 2020; 41,908,148 shares issued and outstanding at December 31, 2019 44 42 Additional paid-in capital 873,201 753,978 Accumulated deficit ( 253,875 ) ( 399,398 ) Accumulated other comprehensive income 318 322 Total stockholders’ equity 619,688 354,944 Total liabilities and stockholders’ equity $ 1,274,513 $ 831,065 See accompanying notes to consolidated financial statements. Pacira BioSciences, Inc. | 2020 Form 10-K | Page F-4 Table of Contents PACIRA BIOSCIENCES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) Year Ended December 31, 2020 2019 2018 Revenues: Net product sales $ 426,614 $ 418,926 $ 332,427 Collaborative licensing and milestone revenue — — 3,000 Royalty revenue 3,033 2,100 1,850 Total revenues 429,647 421,026 337,277 Operating expenses: Cost of goods sold 117,328 106,712 86,845 Research and development 59,421 72,119 55,688 Selling, general and administrative 193,516 200,782 177,265 Amortization of acquired intangible assets 7,866 5,703 — Acquisition-related charges, product discontinuation and other 5,166 25,230 1,564 Total operating expenses 383,297 410,546 321,362 Income from operations 46,350 10,480 15,915 Other (expense) income: Interest income 4,629 7,376 6,497 Interest expense ( 25,671 ) ( 23,628 ) ( 21,949 ) Loss on early extinguishment of debt ( 8,071 ) — — Other, net 2,852 ( 4,976 ) ( 888 ) Total other expense, net ( 26,261 ) ( 21,228 ) ( 16,340 ) Income (loss) before income taxes 20,089 ( 10,748 ) ( 425 ) Income tax benefit (expense) 125,434 ( 268 ) ( 46 ) Net income (loss) $ 145,523 $ ( 11,016 ) $ ( 471 ) Net income (loss) per share: Basic net income (loss) per common share $ 3.41 $ ( 0.27 ) $ ( 0.01 ) Diluted net income (loss) per common share $ 3.33 $ ( 0.27 ) $ ( 0.01 ) Weighted average common shares outstanding: Basic 42,671 41,513 40,911 Diluted 43,682 41,513 40,911 See accompanying notes to consolidated financial statements. Pacira BioSciences, Inc. | 2020 Form 10-K | Page F-5 Table of Contents PACIRA BIOSCIENCES, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (In thousands) Year Ended December 31, 2020 2019 2018 Net income (loss) $ 145,523 $ ( 11,016 ) $ ( 471 ) Other comprehensive income (loss): Net unrealized gain (loss) on investments, net of tax ( 3 ) 602 174 Foreign currency translation adjustments ( 1 ) — — Total other comprehensive income (loss) ( 4 ) 602 174 Comprehensive income (loss) $ 145,519 $ ( 10,414 ) $ ( 297 ) See accompanying notes to consolidated financial statements Pacira BioSciences, Inc. | 2020 Form 10-K | Page F-6 Table of Contents PACIRA BIOSCIENCES, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2020, 2019 AND 2018 (In thousands) Common Stock Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Total Shares Amount Balance at December 31, 2017 40,669 $ 41 $ 669,032 $ ( 389,136 ) $ ( 454 ) $ 279,483 Cumulative effect adjustment of the adoption of Accounting Standards Update 2014-09 (Note 3) — — — 1,361 — 1,361 Cumulative effect adjustment of the adoption of Accounting Standards Update 2018-07 (Note 3) — — ( 20 ) 20 — — Exercise of stock options 333 — 7,170 — — 7,170 Vested restricted stock units 156 — — — — — Shares issued under employee stock purchase plan 65 — 1,784 — — 1,784 Stock-based compensation — — 31,725 — — 31,725 Other comprehensive income (Note 13) — — — — 174 174 Net loss — — — ( 471 ) — ( 471 ) Balance at December 31, 2018 41,223 41 709,691 ( 388,226 ) ( 280 ) 321,226 Cumulative effect adjustment of the adoption of Accounting Standards Update 2016-02 (Note 3) — — — ( 156 ) — ( 156 ) Exercise of stock options 425 1 8,468 — — 8,469 Vested restricted stock units 193 — — — — — Shares issued under employee stock purchase plan 67 — 2,402 — — 2,402 Stock-based compensation — — 33,650 — — 33,650 Retirement of equity component of 2019 convertible senior notes (Note 11) — — ( 233 ) — — ( 233 ) Other comprehensive income (Note 13) — — — — 602 602 Net loss — — — ( 11,016 ) — ( 11,016 ) Balance at December 31, 2019 41,908 42 753,978 ( 399,398 ) 322 354,944 Exercise of stock options 1,428 2 45,227 — — 45,229 Vested restricted stock units 239 — — — — — Shares issued under employee stock purchase plan 62 — 2,546 — — 2,546 Stock-based compensation — — 39,920 — — 39,920 Retirement of equity component of 2022 convertible senior notes (Note 11) — — ( 33,089 ) — — ( 33,089 ) Equity component of 2025 convertible senior notes issued, net of deferred taxes of $ 20,450 (Note 11) — — 64,619 — — 64,619 Other comprehensive loss (Note 13) — — — — ( 4 ) ( 4 ) Net income — — — 145,523 — 145,523 Balance at December 31, 2020 43,637 $ 44 $ 873,201 $ ( 253,875 ) $ 318 $ 619,688 See accompanying notes to consolidated financial statements. Pacira BioSciences, Inc. | 2020 Form 10-K | Page F-7 Table of Contents PACIRA BIOSCIENCES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Year Ended December 31, 2020 2019 2018 Operating activities: Net income (loss) $ 145,523 $ ( 11,016 ) $ ( 471 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Deferred taxes ( 126,613 ) ( 1,828 ) — Depreciation of fixed assets and amortization of intangible assets 19,908 19,576 13,165 Amortization of unfavorable lease obligation and debt issuance costs 2,156 1,707 1,590 Amortization of debt discount 18,254 13,746 12,799 Loss on disposal and impairment of fixed assets 22 1,010 65 Loss on early extinguishment of debt 8,071 — — Stock-based compensation 39,920 33,650 31,725 Changes in contingent consideration (after MyoScience, Inc. acquisition) 5,204 16,672 — (Gain) loss on investment (net of stock dividend) and other non-operating income, net ( 1,618 ) 4,315 854 Changes in operating assets and liabilities (net of MyoScience, Inc. acquisition): Accounts receivable, net ( 5,516 ) ( 8,524 ) ( 5,999 ) Inventories, net ( 6,353 ) ( 8,026 ) ( 7,157 ) Prepaid expenses and other assets ( 739 ) ( 3,885 ) ( 3,228 ) Accounts payable ( 3,312 ) ( 1,822 ) ( 573 ) Accrued expenses and income taxes payable ( 5,999 ) 22,041 5,203 Other liabilities ( 2,467 ) ( 6,726 ) 897 Payment of contingent consideration to MyoScience, Inc. securityholders ( 9,409 ) ( 370 ) — Net cash provided by operating activities 77,032 70,520 48,870 Investing activities: Acquisition of MyoScience, Inc. (net of cash acquired) — ( 117,691 ) — Purchases of fixed assets ( 37,801 ) ( 10,159 ) ( 14,514 ) Purchases of investments ( 546,516 ) ( 318,484 ) ( 363,255 ) Sales of investments 307,870 319,468 405,188 Payment of contingent consideration — — ( 6,843 ) Equity investment ( 1,160 ) ( 1,622 ) — Net cash (used in) provided by investing activities ( 277,607 ) ( 128,488 ) 20,576 Financing activities: Proceeds from exercises of stock options 45,218 8,469 7,170 Proceeds from shares issued under employee stock purchase plan 2,546 2,402 1,784 Proceeds from debt component of the 2025 convertible senior notes 314,708 — — Proceeds from equity component of the 2025 convertible senior notes 87,792 — — Repayment of 2019 convertible senior notes — ( 338 ) — Repayment of 2022 convertible senior notes ( 176,793 ) — — Retirement of equity component of the 2022 convertible senior notes ( 33,089 ) — — Conversion premium on 2019 convertible senior notes — ( 233 ) — Payment of debt issuance and financing costs ( 12,487 ) — — Payment of contingent consideration to MyoScience, Inc. securityholders ( 5,591 ) ( 6,630 ) — Net cash provided by financing activities 222,304 3,670 8,954 Net increase (decrease) in cash and cash equivalents 21,729 ( 54,298 ) 78,400 Cash and cash equivalents, beginning of year 78,228 132,526 54,126 Cash and cash equivalents, end of year $ 99,957 $ 78,228 $ 132,526 See accompanying notes to consolidated financial statements. Pacira BioSciences, Inc. | 2020 Form 10-K | Page F-8 Table of Contents CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (In thousands) Year Ended December 31, 2020 2019 2018 Supplemental cash flow information: Cash paid for interest $ 7,205 $ 8,199 $ 8,205 Cash paid for income taxes, net of refunds $ 2,417 $ 863 $ 128 Non-cash investing and financing activities: Fixed assets included in accounts payable and accrued liabilities $ 9,288 $ 3,019 $ 2,894 Net increase in contingent consideration liabilities $ — $ 28,470 $ — See accompanying notes to consolidated financial statements. Pacira BioSciences, Inc. | 2020 Form 10-K | Page F-9 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1— DESCRIPTION OF BUSINESS Pacira BioSciences, Inc. and its subsidiaries (collectively, the “Company” or “Pacira”) is the industry leader in its commitment to non-opioid pain management and regenerative health solutions to improve patients’ journeys along the neural pain pathway. The Company’s long-acting, local analgesic, EXPAREL ® (bupivacaine liposome injectable suspension), was commercially launched in the United States in April 2012 and approved by the European Commission in November 2020. 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. In April 2019, the Company added iovera° ® to its commercial offering with the acquisition of MyoScience, Inc., or MyoScience. The iovera° system is a handheld cryoanalgesia device used to deliver a precise, controlled application of cold temperature to only targeted nerves. Pacira is subject to risks common to companies in similar industries and stages, including, but not limited to, competition from larger companies, reliance on revenue from two products, reliance on a limited number of manufacturing sites, new technological innovations, dependence on key personnel, reliance on third-party service providers and sole source suppliers, protection of proprietary technology, compliance with government regulations and risks related to cybersecurity. Novel Coronavirus (COVID-19) Pandemic During 2020, the Company’s net product sales were negatively impacted by the global pandemic caused by a novel strain of coronavirus (COVID-19), which mandated significant postponement or suspension in the scheduling of elective surgical procedures resulting from public health guidance and government directives. Elective surgical restrictions began to lift on a state-by-state basis in April 2020; however, the Company does not know how long it will take the surgical community to return to normal operations or if states will return to placing restrictions on elective surgical procedures. The Company’s 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 the Company’s supply chain. The situation remains dynamic and subject to rapid and possibly material changes. Additional negative impacts may also arise from the COVID-19 pandemic that the Company is unable to foresee. The nature and extent of such impacts will depend on future developments, which are highly uncertain and cannot be predicted. NOTE 2— SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation and Principles of Consolidation These consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America, or GAAP, and in accordance with the rules and regulations of the United States Securities and Exchange Commission, or SEC. The accounts of wholly owned subsidiaries are included in these consolidated financial statements. All intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications were made to conform to the current presentation. Use of Estimates The preparation of financial statements in conformity with GAAP requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, including disclosure of contingent assets and contingent liabilities, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Estimates are used for, among other things, revenue recognition, stock-based compensation, inventory costs, impairments of equity investments, long-lived assets, goodwill, liabilities and accruals, including contingent consideration, convertible senior notes, and the valuation of deferred tax assets. The Company’s critical accounting policies are those that are both most important to the Company’s consolidated financial condition and results of operations and require the most difficult, subjective or complex judgments on the part of management in their application, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. Because of the uncertainty of factors surrounding the estimates or judgments used in the preparation of the consolidated financial statements, actual results could differ from these estimates. Revenue From Contracts With Customers The Company’s sources of revenue include (i) sales of EXPAREL in the United States, or U.S.; (ii) sales of iovera° in the U.S.; (iii) sales of, and royalties on, its bupivacaine liposome injectable suspension for veterinary use in the U.S. and (iv) license fees and milestone payments. To date, there has been no revenue from sales of EXPAREL or iovera° in the European Union, or E.U. See Note 4, Revenue , for further information on the Company’s accounting policies related to revenue from contracts with customers. Pacira BioSciences, Inc. | 2020 Form 10-K | Page F-10 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Collaborative Licensing and Milestone Revenue The Company’s collaboration agreements generally involve a license to the Company’s products. In determining how and when to recognize the revenue under a collaboration agreement, the Company must assess whether the license is distinct, which depends upon whether the customer can benefit from the license and whether the license is separate from other performance obligations in the agreement. If the license is distinct, the Company must further assess whether the customer has a right to access or a right to use the license depending on whether the functionality of the license is expected to substantively change over time. If the license is not expected to substantively change, the revenue is recognized at the point in time when the license is provided. If the license is expected to substantively change, the revenue is recognized over the license period. Revenue recognition from milestone payments is dependent upon the facts and circumstances surrounding the milestone payments. Milestone payments based on a non-sales metric such as a development-based milestone (e.g. obtaining regulatory approval) represent variable consideration and would be included in the transaction price subject to any constraints. If the milestone payments relate to future development, the timing of recognition depends upon historical experience and the significance a third-party has on the outcome. For milestone payments to be received upon the achievement of a sales threshold, the revenue from the milestone payments is recognized at the later of when the actual sales are incurred or the performance obligation to which the sales relate has been satisfied. Royalty Revenue Royalties are estimated and recognized as revenue when sales to the Company’s commercial partners occur, unless some constraint exists, as the royalties predominately relate to a supply agreement. Royalties are based on sales of the Company’s bupivacaine liposome injectable suspension product for veterinary use. Concentration of Major Customers The Company sells EXPAREL through a drop-ship program under which orders are processed through wholesalers (including AmerisourceBergen Health Corporation, Cardinal Health, Inc. and McKesson Drug Company), but shipments of the product are sent directly to individual accounts, such as hospitals, ambulatory surgery centers and individual doctors. The Company also sells EXPAREL directly to ambulatory surgery centers and physicians. The Company sells its bupivacaine liposome injectable suspension for veterinary use to a third-party licensee and sells iovera° directly to end users. The table below includes the percentage of revenues comprised by the Company’s three largest wholesalers in each period presented: Year Ended December 31, 2020 2019 2018 Largest wholesaler 31 % 34 % 34 % Second largest wholesaler 31 % 29 % 30 % Third largest wholesaler 25 % 26 % 26 % Total 87 % 89 % 90 % The Company had no revenue from outside the U.S. during the years ended December 31, 2020 and 2019. Revenue from outside the U.S. accounted f or less than 1 % of the Company’s total revenue for the year ended December 31, 2018. Research and Development Expenses Research and development expenditures are expensed as incurred. These include both internal and external costs, of which a significant portion of development activities are outsourced to third parties, including contract research organizations. Clinical trial costs are accrued over the service periods specified in contracts and adjusted as necessary based on an ongoing review of the level of effort and actual costs incurred. Research and development costs are presented net of reimbursements from commercial partners. Income Taxes The Company uses the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to basis differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Pacira BioSciences, Inc. | 2020 Form 10-K | Page F-11 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The Company accrues interest and penalties, if any, on underpayment of income taxes related to unrecognized tax benefits as a component of income tax expense in its consolidated statements of operations. Stock-Based Compensation The Company’s stock-based compensation consists of grants of stock options and restricted stock units, or RSUs, to employees, consultants and non-employee directors, in addition to the opportunity for employees to participate in an employee stock purchase plan. The expense associated with these programs is recognized in the Company’s consolidated statements of operations based on their fair values as they are earned under the applicable vesting terms or the length of an offering period. In calculating the estimated fair value of stock options granted, the Company uses the Black-Scholes option valuation model, or Black-Scholes model, which requires the consideration of the following variables for purposes of estimating fair value in addition to the closing price of the Company’s common stock on the date of grant: • Expected term of the option • Expected volatility • Expected dividends • Risk-free interest rate The Company utilizes its historical volatility data to determine expected volatility over the expected option term. The Company uses an expected term based on its historical data from stock option activity. The risk-free interest rate is based on the implied yield on U.S. Department of the Treasury zero-coupon bonds for periods commensurate with the expected term of the options. The dividend yield on the Company’s common stock is estimated to be zero as the Company has not declared or paid any dividends since inception, nor does it have any intention to do so in the foreseeable future. The Company records forfeitures as they occur rather than estimating forfeitures during each period. Cash and Cash Equivalents All highly-liquid investments with maturities of 90 days or less when purchased are considered cash equivalents. Cash equivalents include corporate debt securities, asset backed securities and money market funds. As of December 31, 2020, the carrying value of money market funds was $ 51.8 million and commercial paper was $ 6.5 million and as of December 31, 2019, the carrying value of money market funds was $ 28.5 million, all of which are included in cash and cash equivalents. The carrying values approximate fair value as of December 31, 2020 and 2019. Short-Term and Long-Term Investments Short-term investments consist of asset-backed securities collateralized by credit card receivables, investment grade commercial paper, corporate and government bonds, and other bonds issued in the U.S. (and denominated in the U.S. dollar) by foreign entities, all with maturities of greater than three months, but less than one year. Long-term investments consist of corporate and government agency bonds with maturities greater than one year. The Company evaluates the classification of its investments at the time of purchase and re-evaluates such determination at each balance sheet date, which includes an assessment of the intent to hold the available-for-sale securities. The Company’s investment policy sets minimum credit quality criteria and maximum maturity limits on its investments to provide for preservation of capital, liquidity and a reasonable rate of return. The Company classifies its investments as available-for-sale. Available-for-sale securities are recorded at fair value, based on current market valuations. Unrealized holding gains and losses on available-for-sale securities (except for credit losses) are excluded from net income (loss) and are reported as a separate component of accumulated other comprehensive income (loss) until realized. Realized gains and losses are included in interest income in the consolidated statements of operations and are derived using the specific identification method for determining the cost of the securities sold. The Company evaluates whether a credit loss exists, and in the event a credit loss does exist, the credit loss is recognized in the consolidated statements of operations, based on the amount that the fair value is less than the amortized cost. Inventories Inventories consist of finished goods held for sale and distribution, raw materials and work in process. Inventories are stated at the lower of cost, which includes amounts related to material, labor and overhead, or net realizable value, and is determined using the first-in, first-out (“FIFO”) method. The Company periodically reviews its inventory to identify obsolete, slow-moving, or otherwise unsalable inventories, and establishes allowances for situations in which the cost of the inventory is not expected to be recovered. Pacira BioSciences, Inc. | 2020 Form 10-K | Page F-12 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Fixed Assets Fixed assets are recorded at cost, net of accumulated depreciation and amortization. The Company reviews its property, plant and equipment assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Depreciation of fixed assets is provided over their estimated useful lives on a straight-line basis. Leasehold improvements are amortized on a straight-line basis over the shorter of their estimated useful lives or the related remaining lease terms. Useful lives by asset category are as follows: Asset Category Useful Life Computer equipment and software 1 to 3 years Office furniture and equipment 5 years Manufacturing and laboratory equipment 5 to 10 years Asset Retirement Obligations The Company has contractual obligations stemming from certain of its lease agreements to return leased space to its original condition upon termination of such lease agreements. The Company records its asset retirement obligations, or ARO, along with a corresponding capital asset in an amount equal to the estimated fair value of the ARO, based on the present value of expected future cash flows. In subsequent periods, the Company records expense to accrete the ARO to its full value. Each ARO capital asset is depreciated over the depreciable term of the associated asset. Leases The Company recognizes right-of-use, or ROU, assets and lease liabilities at the commencement of its lease agreements. The leases are evaluated at commencement to determine whether they should be classified as operating or financing leases. Lease costs associated with operating leases are recognized on a straight-line basis, while lease costs for financing leases are recognized over the lease term using the effective interest method. The Company does not have any financing leases. The amount of ROU assets and lease liabilities to be recognized is impacted by the type of lease payments, the lease term and the incremental borrowing rate. Variable lease payments are not included at commencement and are recognized in the period in which they are incurred. The lease term is based on the contractual term and is adjusted for any renewal options or termination rights that are reasonably certain to be exercised. The incremental borrowing rate is based on the rate the Company estimates it would pay on a collateralized basis over a similar term in a similar economic environment. Acquisitions In a business combination, the acquisition method of accounting requires that the assets acquired and liabilities assumed be recorded as of the date of the acquisition at their respective fair values, with some exceptions. Assets acquired and liabilities assumed in a business combination that arise from contingencies are generally recognized at fair value. If fair value can be determined, the asset or liability is recognized; if fair value is not determinable, then no asset or liability is recognized. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Any excess of the purchase price (consideration transferred) over the estimated fair values of net assets acquired is recorded as goodwill. Transaction costs and costs to restructure the acquired company are expensed as incurred. The operating results of the acquired business are reflected in the Company’s consolidated financial statements after the date of the acquisition. Contingent Consideration Subsequent to an acquisition, the Company measures contingent consideration arrangements at fair value 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 passage of time towards achievement of the milestones, and are accreted to the period in which payments are expected to be made. Pacira BioSciences, Inc. | 2020 Form 10-K | Page F-13 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Goodwill Goodwill represents the excess of the purchase price over the estimated fair value of the net assets acquired in a business combination and is not amortized, but is subject to impairment testing at least annually or when a triggering event occurs that could indicate a potential impairment. Intangible Assets Intangible assets with definite useful lives are amortized on a straight-line basis over their estimated useful lives and are recorded at cost, net of accumulated amortization. Equity Investments The Company holds two separate investments in equity securities, one with a readily determined fair value and one without a readily determinable fair value. In the fourth quarter of 2019, the equity investment then held became publicly traded and thereafter, has been recognized at its fair value at each reporting period with any unrealized holding gains (losses) included in other income (expense). The equity method investment without a readily determinable fair value is recognized at its cost less any impairment, plus or minus any changes resulting from observable price changes in orderly transactions for a similar investment. Impairment of Long-Lived Assets Management reviews long-lived assets, including fixed assets and intangible assets, for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets. Convertible Debt Transactions The Company separately accounts for the liability and equity components of convertible debt instruments by allocating the proceeds from the issuance between the liability component and the embedded conversion option, or equity component. The value of the equity component is calculated by first measuring the fair value of the liability component, using the interest rate of a similar liability that does not have a conversion feature, as of the issuance date. The difference between the initial proceeds from the convertible debt issuance and the fair value of the liability component is recorded as the carrying amount of the equity component. The Company recognizes the amortization of the resulting discount as part of interest expense in its consolidated statements of operations. Upon settlement of the convertible debt, the liability component is measured at fair value. The Company allocates a portion of the fair value of the total settlement consideration transferred to the extinguishment of the liability component equal to the fair value of that component immediately prior to the settlement. Any difference between the consideration attributed to the liability component and the net carrying amount of the liability component, including any unamortized debt issuance costs and debt discount, is recognized as a gain or loss in the consolidated statements of operations. Any remaining consideration is allocated to the retirement of the equity component and is recognized as a reduction of additional paid-in capital. Per Share Data Basic net income (loss) per common share is computed by dividing net income (loss) available (attributable) to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted net income (loss) per common share is calculated by dividing net income (loss) available (attributable) to common stockholders as adjusted for the effect of dilutive securities, if any, by the weighted average number of shares of common stock and dilutive common stock outstanding during the period. Potential common shares include the shares of common stock issuable upon the exercise of outstanding stock options, the RSUs expected to vest, the shares to be purchased under the Company’s employee stock purchase plan (using the treasury stock method), and the excess conversion value on the Company’s convertible senior notes. Foreign Currency Translation The balance sheet accounts of foreign subsidiaries with functional currencies other than the U.S. Dollar are translated using the exchange rate at each respective balance sheet date. Revenues and expenses are translated using average exchange Pacira BioSciences, Inc. | 2020 Form 10-K | Page F-14 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) rates for each calendar month during the year. Translation adjustments are recorded as a component of accumulated other comprehensive income (loss) in the consolidated financial statements. Segment Reporting The Company is managed and operated as a single business focused on the development, manufacture, marketing, distribution and sale of non-opioid pain management and regenerative health solutions. The Company is managed by a single management team, and, consistent with its organizational structure, the Chief Executive Officer manages and allocates resources at a consolidated level. Accordingly, the Company views its business as one reportable operating segment to evaluate performance, allocate resources, set operational targets and forecast its future financial results. NOTE 3— RECENT ACCOUNTING PRONOUNCEMENTS Recently Adopted Accounting Pronouncements In June 2016, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments , which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. The Company now includes forward-looking information to better form its credit loss estimates. This update also required enhanced disclosures to help financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio. This standard became effective for the Company beginning January 1, 2020 and there were no credit losses recognized upon adoption. In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework . The update added the following disclosures: (i) changes in unrealized gains and losses for the period included in other comprehensive income (loss) for recurring Level 3 fair value measurements held at the end of the reporting period and (ii) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The standard became effective for the Company beginning January 1, 2020 and the Company has applied these new disclosure requirements in its consolidated financial statements for the year ended December 31, 2020. In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract , which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The update provides guidance to determine which implementation costs to capitalize as they relate to the service contract and which costs to expense. Any expense related to the capitalized implementation costs should be recorded in the same financial statement line item in the consolidated statements of operations as the fees associated with the hosting element of the arrangement, and the payments for capitalized implementation costs should be classified in the same manner as payments made for fees associated with the hosting element in the consolidated statements of cash flows. This standard became effective for the Company beginning January 1, 2020. The amendments have been applied prospectively to implementation costs incurred after the date of adoption. The Company did not incur implementation costs in a hosting arrangement that were required to be capitalized during the year ended December 31, 2020. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) , which was adopted by the Company on January 1, 2019 using the effective date method. There were practical expedients available to the Company that it elected to apply upon adoption. The Company did not re-assess (i) whether its contracts contained a lease under the new definition of a lease and (ii) the classification of those leases. There were no initial direct costs previously capitalized on the consolidated balance sheet. In addition, the Company applied hindsight in the determination of the lease terms, in the assessment of the likelihood that a lease renewal, termination or purchase option will be exercised, and in the assessment of any potential impairments that existed on the ROU assets recognized at adoption. The Company also elected not to recognize a ROU asset and lease liability for those leases with a remaining lease term of 12 months or less. At adoption, the Company recorded $ 36.5 million of lease liabilities and $ 27.6 million of ROU assets as of January 1, 2019, the difference representing previously recorded lease-related assets and liabilities. There was a cumulative-effect adjustment to accumulated deficit of $ 0.2 million upon adoption. Pacira BioSciences, Inc. | 2020 Form 10-K | Page F-15 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) In May 2014, the FASB, issued ASU 2014-09, Revenue from Contracts with Customers . The Company adopted this standard on January 1, 2018 using the modified retrospective method and recorded a cumulative effect adjustment of $ 1.4 million to accumulated deficit upon adoption—the impact related to the acceleration of $ 1.0 million of deferred revenue and $ 0.4 million of royalties. The implementation of Accounting Standards Codification, or ASC, 606 did not have a material impact on the Company’s consolidated statements of operations because the timing of revenue recognition for EXPAREL product sales did not change. Refer to Note 4, Revenue , for further information on the Company’s revenue. In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting , which aligned accounting for share-based payments issued to nonemployees to that of employees under the existing guidance of Topic 718, with certain exceptions. The Company adopted ASU 2018-07 in June 2018 and recorded a cumulative effect adjustment of less than $0.1 million to accumulated deficit upon adoption. Recent Accounting Pronouncements Not Adopted as of December 31, 2020 In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes , which amends the approaches and methodologies in accounting for income taxes during interim periods and makes changes to certain income tax classifications. The new standard allows certain exceptions, including an exception to the use of the incremental approach for intra-period tax allocations, when there is a loss from continuing operations and income or a gain from other items, and to the general methodology for calculating income taxes in an interim period, when a year-to-date loss exceeds the anticipated loss for the year. The standard also requires franchise or similar taxes partially based on income to be reported as income tax and to reflect the effects of enacted changes in tax laws or rates in the annual effective tax rate computation from the date of enactment. Lastly, in any future acquisition, the Company would be required to evaluate when the step-up in the tax basis of goodwill is part of the business combination and when it should be considered a separate transaction. The standard became effective for the Company January 1, 2021 and the Company does not anticipate any material impact to its consolidated financial statements. In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40), which limits the number of convertible instruments that require separate accounting to (i) those with embedded conversion features that are not clearly and closely related to the debt, that meet the definition of a derivative, and that do not qualify for the scope exception from derivative accounting and (ii) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid in capital. In addition, the new guidance requires diluted earnings per share calculations to be prepared using the if-converted method, instead of the treasury stock method. The guidance must be applied in fiscal years beginning after December 15, 2021, including interim periods within those fiscal years, with early adoption permitted no earlier than for fiscal years beginning after December 15, 2020. The Company has the option to adopt the new guidance using a modified retrospective method of transition, which would then be applied to transactions outstanding at the time of adoption, or the full retrospective method. The Company is evaluating the impact from the adoption of ASU 2020-06 on its consolidated financial statements. NOTE 4— REVENUE Revenue from Contracts with Customers The Company’s sources of revenue include (i) sales of EXPAREL in the U.S.; (ii) sales of iovera° in the U.S.; (iii) sales of, and royalties on, its bupivacaine liposome injectable suspension for veterinary use in the U.S. 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. The Company does not consider revenue from sources other than sales of EXPAREL to be material sources of its consolidated revenue. As such, the following disclosure only relates to revenue associated with net EXPAREL product sales. Net Product Sales The Company sells EXPAREL through a drop-ship program under which orders are processed through wholesalers based on orders of the product placed by end-users, namely hospitals, ambulatory surgery centers and healthcare provider offices. EXPAREL is delivered directly to the end-user without the wholesaler ever taking physical possession of the product. Product revenue is recognized when control of the promised goods are transferred to the customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for transferring those goods. EXPAREL revenue is recorded at the time the product is delivered to the end-user. Pacira BioSciences, Inc. | 2020 Form 10-K | Page F-16 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Revenues from sales of products are recorded net of returns allowances, prompt payment discounts, wholesaler service fees, 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 and other related information that may become known in the future. The adequacy of these provisions is reviewed on a quarterly basis. The following table provides a summary of activity with respect to the Company’s sales related allowances and accruals related to EXPAREL for the years ended December 31, 2020, 2019 and 2018 (in thousands): Returns Allowances Prompt Payment Discounts Wholesaler Service Fees Volume Rebates and Chargebacks Total Balance at December 31, 2017 $ 821 $ 657 $ 839 $ 696 $ 3,013 Provision 680 6,802 5,194 6,645 19,321 Payments/Adjustments ( 1,157 ) ( 6,680 ) ( 4,866 ) ( 6,331 ) ( 19,034 ) Balance at December 31, 2018 344 779 1,167 1,010 3,300 Provision 783 8,426 6,267 11,475 26,951 Payments/Adjustments ( 587 ) ( 8,243 ) ( 5,948 ) ( 10,669 ) ( 25,447 ) Balance at December 31, 2019 540 962 1,486 1,816 4,804 Provision 794 8,541 6,437 12,345 28,117 Payments/Adjustments ( 311 ) ( 8,496 ) ( 6,755 ) ( 12,561 ) ( 28,123 ) Balance at December 31, 2020 $ 1,023 $ 1,007 $ 1,168 $ 1,600 $ 4,798 Accounts Receivable The majority of accounts receivable arise from product sales and represent amounts due from wholesalers, hospitals, ambulatory surgery centers and doctors. Payment terms generally range from zero to 37 days from the date of the transaction, and accordingly, there is no significant financing component. Performance Obligations A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in ASC 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. At contract inception, the Company assesses the goods promised in its contracts with customers and identifies a performance obligation for each promise to transfer to the customer a good that is distinct. When identifying individual performance obligations, the Company considers all goods promised in the contract regardless of whether explicitly stated in the customer contract or implied by customary business practices. The Company’s contracts with customers require it to transfer an individual distinct product, which represents a single performance obligation. The Company’s performance obligation with respect to its product sales is satisfied at a point in time, which transfers control upon delivery of EXPAREL to its customers. The Company considers control to have transferred upon delivery because the customer has legal title to the asset, physical possession of the asset has been transferred, the customer has significant risks and rewards of ownership of the asset and the Company has a present right to payment at that time. Disaggregated Revenue The following table represents disaggregated net product sales in the periods presented as follows (in thousands): Pacira BioSciences, Inc. | 2020 Form 10-K | Page F-17 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Year Ended December 31, 2020 2019 2018 Net product sales: EXPAREL / bupivacaine liposome injectable suspension $ 417,797 $ 411,030 $ 332,427 iovera° 8,817 7,896 — Total net product sales $ 426,614 $ 418,926 $ 332,427 NOTE 5— MYOSCIENCE ACQUISITION On April 9, 2019, the Company acquired MyoScience (the “MyoScience Acquisition”), a privately-held medical device company, in which MyoScience became a wholly-owned subsidiary of the Company and was renamed Pacira CryoTech, Inc. The total consideration was $ 147.5 million, which included a cash payment of $ 119.0 million and the fair value of contingent consideration in the amount of $ 28.5 million. The contingent consideration consisted of contingent milestone payments up to an aggregate of $ 100.0 million upon the achievement of certain regulatory and commercial milestones, of which $ 58.0 million are available as of December 31, 2020. The Company’s obligation to make milestone payments is limited to those milestones achieved through December 31, 2023, and are to be paid within 60 days of the end of the fiscal quarter of achievement. During the years ended December 31, 2020 and 2019, the Company made $ 15.0 million and $ 7.0 million of cash payments for the achievement of certain milestones, respectively. In 2020, the Company recorded an additional charge of $ 9.7 million relating to the achievement of a $ 10.0 million regulatory milestone. The milestone is payable in the second quarter of 2021. See Note 12, Financial Instruments , for information on the measurement and amounts recognized in the Company’s consolidated financial statements for contingent consideration. See Note 21, Commitments and Contingencies , for information on a dispute regarding the achievement of certain milestone payments. Unaudited Pro Forma Summary of Operations The following table shows the unaudited pro forma summary of operations for the year ended December 31, 2019 and 2018, as if the MyoScience Acquisition had occurred on January 1, 2018. This pro forma information does not purport to represent what the Company’s actual results would have been and is not indicative of what such results would be expected for any future period (in thousands, except per share amounts): Year Ended December 31, 2019 2018 Total revenues $ 423,475 $ 342,735 Net loss $ ( 16,200 ) $ ( 25,696 ) Pro forma basic and diluted net loss per share $ ( 0.39 ) $ ( 0.63 ) The unaudited pro forma financial information was prepared using the acquisition method of accounting and was based on the historical financial information of the Company and MyoScience. The summary pro forma financial information primarily reflects the following pro forma adjustments: • Removal of the acquisition-related transaction fees and costs, including certain stock-based compensation and other compensation expenses related to the acquisition; • Removal of the income tax benefit resulting from the Company decreasing its existing valuation allowance on deferred tax assets and the income tax expense resulting from a 338(g) election recognized in the year ended December 31, 2019; • Removal of MyoScience’s loss on extinguishment of debt and warrant expense in the year ended December 31, 2019; • Removal of MyoScience’s interest expense; • Adjustments to the Company’s interest income for the cash used to acquire MyoScience; and • The addition of amortization expense on the acquired developed technology and customer relationship intangible assets. Pacira BioSciences, Inc. | 2020 Form 10-K | Page F-18 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 6— INVENTORIES The components of inventories, net are as follows (in thousands): December 31, 2020 2019 Raw materials $ 26,886 $ 20,019 Work-in-process 16,266 14,407 Finished goods 21,498 23,870 Total $ 64,650 $ 58,296 In December 2019, the Company’s contract manufacturer experienced a media fill failure, as part of its routine aseptic manufacturing requalification program, and an investigation was completed in April 2020. Based on the results of the investigation, the Company determined that no inventory reserves were required related to the media fill failure, and that all inventory in question had been determined to be sellable. The Company resumed production on this manufacturing line in May 2020. NOTE 7— FIXED ASSETS Fixed assets, net, summarized by major category, consist of the following (in thousands): December 31, 2020 2019 Machinery and equipment $ 74,966 $ 70,078 Leasehold improvements 54,434 60,441 Computer equipment and software 12,170 8,942 Office furniture and equipment 2,387 1,882 Construction in progress 71,091 38,778 Total 215,048 180,121 Less: accumulated depreciation ( 78,360 ) ( 75,440 ) Fixed assets, net $ 136,688 $ 104,681 For information on useful lives by asset category, refer to Note 2, Summary of Significant Accounting Policies . Depreciation expense for the years ended December 31, 2020, 2019 and 2018 was $ 12.0 million, $ 14.0 million and $ 13.2 million, respectively. During the years ended December 31, 2020, 2019 and 2018, the Company capitalized interest of $ 2.4 million, less than $0.1 million and $ 0.7 million, respectively. As of December 31, 2020 and 2019, total fixed assets, net, includes leasehold improvements and manufacturing process equipment located in Europe in the amount of $ 67.5 million and $ 64.8 million, respectively. As of December 31, 2020 and 2019, the Company had AROs of $ 2.0 million and $ 2.5 million, respectively, included in accrued expenses and other liabilities on its consolidated balance sheet, for costs associated with returning leased space to its original condition upon the termination of certain lease agreements. The decrease of $ 0.5 million for the year ended December 31, 2020 was primarily due to exiting two facilities at the Company’s Science Center Campus in San Diego, California. Accretion expense was less than $ 0.1 million and $ 0.2 million for the years ended December 31, 2020 and 2019, respectively. NOTE 8— LEASES The Company leases all of its facilities, including its EXPAREL manufacturing facility in San Diego, California and its iovera° manufacturing facility in Fremont, California. These leases have remaining terms up to 9.7 years, some of which provide renewal options at the then-current market value. The Company also has an embedded lease with Thermo Fisher Scientific Pharma Services, or Thermo Fisher (formerly Patheon UK Limited), for the use of their manufacturing facility in Swindon, England. A portion of the associated monthly base fees has been allocated to the lease component based on a relative fair value basis. Pacira BioSciences, Inc. | 2020 Form 10-K | Page F-19 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The operating lease costs for the facilities include lease and non-lease components, such as common area maintenance and other common operating expenses, along with executory costs such as insurance and real estate taxes. Total operating lease costs are as follows (in thousands): Year Ended December 31, Operating Lease Costs 2020 2019 2018 Fixed lease costs $ 10,055 $ 6,225 $ 7,236 Variable lease costs 2,096 1,651 1,761 Total $ 12,151 $ 7,876 $ 8,997 Supplemental cash flow information related to operating leases is as follows (in thousands): Year Ended December 31, 2020 2019 Cash paid for operating lease liabilities, net of lease incentive $ 14,347 $ 7,346 Right-of-use assets recorded in exchange for lease obligations $ 42,191 $ 41,605 The Company has elected to net the amortization of the ROU asset and the reduction of the lease liability principal in other liabilities in the consolidated statement of cash flows. The Company has measured its operating lease liabilities at an estimated discount rate at which it could borrow on a collateralized basis over the remaining term for each operating lease. The weighted average remaining lease term and the weighted average discount rate are summarized as follows: December 31, 2020 2019 Weighted average remaining lease term 9.18 years 9.38 years Weighted average discount rate 6.87 % 7.55 % As of December 31, 2020, m aturities of the Company’s operating lease liabilities are as follows (in thousands): Year Aggregate Payments Due 2021 $ 12,527 2022 10,423 2023 10,697 2024 10,980 2025 11,271 2026 through 2030 50,801 Total lease payments 106,699 Less: imputed interest ( 28,249 ) Total operating lease liabilities $ 78,450 Pacira BioSciences, Inc. | 2020 Form 10-K | Page F-20 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 9— GOODWILL AND INTANGIBLE ASSETS Goodwill The Company’s goodwill results from the acquisition of Pacira Pharmaceuticals, Inc. from SkyePharma Holding, Inc. (now a subsidiary of Vectura Group plc), or Skyepharma in 2007 (the “Skyepharma Acquisition”), and the MyoScience Acquisition in 2019. The change in the carrying value of the Company’s goodwill is summarized as follows (in thousands): Carrying Value Balance at December 31, 2018 $ 62,040 Goodwill arising from the MyoScience Acquisition 37,507 Balance at December 31, 2019 99,547 2020 accumulated adjustments — Balance at December 31, 2020 $ 99,547 The Skyepharma Acquisition was accounted for under Statement of Financial Accounting Standards 141, Accounting for Business Combinations , which was the effective GAAP standard at the date of acquisition. In connection with the Skyepharma Acquisition, the Company agreed to certain milestone payments for DepoBupivacaine products, including EXPAREL. As of December 31, 2020, the remaining milestone payments include: $ 4.0 million upon the first commercial sale in the United Kingdom, France, Germany, Italy or Spain; and $ 32.0 million when annual net sales collected reach $ 500.0 million (measured on a rolling quarterly basis). Any remaining milestone payments will be treated as additional costs of the Skyepharma Acquisition and, therefore, recorded as goodwill if and when each contingency is resolved. As part of the Skyepharma Acquisition, the Company agreed to pay certain earn-out payments based on a percentage of net sales of DepoBupivacaine products collected, including EXPAREL, for the term during which such sales were covered by a valid claim in certain patent rights related to EXPAREL and other biologics products. The last patents for which a valid claim existed had expired on September 18, 2018. The Company made a tax election that allows the acquired goodwill and intangible assets associated with the MyoScience Acquisition to be tax deductible. Intangible Assets Intangible assets, net, consist of the developed technology and customer relationships that were acquired in the MyoScience Acquisition and are summarized as follows (in thousands): Estimated Useful Life December 31, 2020 2019 Developed technology 14 years $ 110,000 $ 110,000 Customer relationships 10 years 90 90 Total intangible assets 110,090 110,090 Less: accumulated amortization ( 13,569 ) ( 5,703 ) Intangible assets, net $ 96,521 $ 104,387 Amortization expense on intangible assets for the years ended December 31, 2020 and 2019 were $ 7.9 million and $ 5.7 million, respectively. Assuming no changes in the gross carrying amount of these intangible assets, the future amortization expense on these intangible assets will be $ 7.9 million annually through 2032 and $ 2.2 million in 2033. Pacira BioSciences, Inc. | 2020 Form 10-K | Page F-21 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 10— ACCRUED EXPENSES Accrued expenses consist of the following (in thousands): December 31, 2020 2019 Accrued selling, general and administrative expenses $ 23,288 $ 21,695 Accrued research and development expenses 6,682 6,562 Other accrued operating expenses 11,196 12,955 Compensation and benefits 22,202 22,258 Accrued royalties 3,040 2,883 Accrued interest 2,376 2,048 Product returns and wholesaler service fees 2,190 2,026 Total $ 70,974 $ 70,427 NOTE 11— DEBT Convertible Senior Notes Due 2025 On July 10, 2020, the Company completed a private placement of $ 402.5 million in aggregate principal amount of its 0.750 % convertible senior notes due 2025, or 2025 Notes, and entered into an indenture, or 2025 Indenture, with respect to the 2025 Notes. The 2025 Notes accrue interest at a fixed rate of 0.750 % per year, payable semiannually in arrears on February 1 st and August 1 st of each year, beginning on February 1, 2021. The 2025 Notes mature on August 1, 2025. The total debt composition of the 2025 Notes is as follows (in thousands): December 31, 2020 0.750 % convertible senior notes due 2025 $ 402,500 Deferred financing costs ( 8,940 ) Discount on debt ( 80,530 ) Total debt, net of debt discount and deferred financing costs $ 313,030 The net proceeds from the issuance of the 2025 Notes was approximately $ 390.0 million, after deducting commissions and the offering expenses paid by the Company. A portion of the net proceeds from the 2025 Notes was used by the Company to repurchase $ 185.0 million in aggregate principal amount of its outstanding 2.375 % convertible senior notes due 2022 in privately-negotiated transactions for a total of $ 211.1 million of cash (including accrued interest). Holders may convert the 2025 Notes at any time prior to the close of business on the business day immediately preceding February 3, 2025, only under the following circumstances: (i) during any calendar quarter (and only during such calendar quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130 % of the conversion price on each applicable trading day; (ii) during the five business day period immediately after any five consecutive trading day period (the ‘‘measurement period’’) in which the trading price (as defined in the 2025 Indenture) per $1,000 principal amount of notes for each trading day of the measurement period was less than 98 % of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day; (iii) upon the occurrence of specified corporate events, including a merger or a sale of all or substantially all of the Company’s assets; or Pacira BioSciences, Inc. | 2020 Form 10-K | Page F-22 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (iv) if the Company calls the 2025 Notes for redemption, until the close of business on the business day immediately preceding the redemption date. 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. None of these conditions for conversion were met during the quarter ended December 31, 2020. Upon conversion, holders will receive the principal amount of their 2025 Notes and any excess conversion value, calculated based on the per share volume-weighted average price for each of the 40 consecutive trading days during the observation period (as more fully described in the 2025 Indenture). For both the principal and excess conversion value, holders may receive cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s option. The initial conversion rate for the 2025 Notes is 13.9324 shares of common stock per $1,000 principal amount, which is equivalent to an initial conversion price of $ 71.78 per share of the Company’s common stock. The conversion rate will be subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. The initial conversion price of the 2025 Notes represents a premium of approximately 32.5 % to the closing sale price of $ 54.17 per share of the Company’s common stock on the Nasdaq Global Select Market on July 7, 2020, the date that the Company priced the private offering of the 2025 Notes. As of December 31, 2020, the 2025 Notes had a market price of $1,116 per $1,000 principal amount. In the event of conversion, holders would forgo all future interest payments, any unpaid accrued interest and the possibility of further stock price appreciation. Upon the receipt of conversion requests, the settlement of the 2025 Notes will be paid pursuant to the terms of the 2025 Indenture. In the event that all of the 2025 Notes are converted, the Company would be required to repay the $ 402.5 million in principal value and any conversion premium in any combination of cash and shares of its common stock (at the Company’s option). Prior to August 1, 2023, the Company may not redeem the 2025 Notes. On or after August 1, 2023 (but, in the case of a redemption of less than all of the outstanding 2025 Notes, no later than the 40 th scheduled trading day immediately before the maturity date), the Company may redeem for cash all or part of the 2025 Notes if the last reported sale price (as defined in the 2025 Indenture) of the Company’s common stock has been at least 130 % of the conversion price then in effect for (i) each of at least 20 trading days (whether or not consecutive) during any 30 consecutive trading days ending on, and including, the trading day immediately before the date the Company sends the related notice of redemption and (ii) the trading day immediately before the date the Company sends such notice. The redemption price will equal the sum of (i) 100 % of the principal amount of the 2025 Notes being redeemed, plus (ii) accrued and unpaid interest, including additional interest, if any, to, but excluding, the redemption date. In addition, calling the 2025 Notes for redemption will constitute a “make-whole fundamental change” (as defined in the 2025 Indenture) and will, in certain circumstances, increase the conversion rate applicable to the conversion of such notes if it is converted in connection with the redemption. No sinking fund is provided for the 2025 Notes. If the Company undergoes a fundamental change, as defined in the 2025 Indenture, subject to certain conditions, holders of the 2025 Notes may require the Company to repurchase for cash all or part of their 2025 Notes at a repurchase price equal to 100 % of the principal amount of the 2025 Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. In addition, if a “make-whole fundamental change” (as defined in the 2025 Indenture) occurs prior to August 1, 2025, the Company will, in certain circumstances, increase the conversion rate for a holder who elects to convert its notes in connection with the make-whole fundamental change. The 2025 Notes are the Company’s general unsecured obligations that rank senior in right of payment to all of its indebtedness that is expressly subordinated in right of payment to the 2025 Notes, and equal in right of payment to the Company’s unsecured indebtedness. The 2025 Notes are also effectively junior in right of payment to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness, and are structurally subordinated to any debt or other liabilities (including trade payables) of the Company’s subsidiaries. While the 2025 Notes are currently classified on the Company’s consolidated balance sheet at December 31, 2020 as long-term debt, the future convertibility and resulting balance sheet classification of this liability is monitored at each quarterly reporting date and is analyzed dependent upon market prices of the Company’s common stock during the prescribed measurement periods. In the event that the holders of the 2025 Notes have the election to convert the 2025 Notes at any time during the prescribed measurement period, the 2025 Notes would then be considered a current obligation and classified as such. Pacira BioSciences, Inc. | 2020 Form 10-K | Page F-23 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Under ASC 470-20, Debt with Conversion and Other Options , an entity must separately account for the liability and equity components of convertible debt instruments (such as the 2025 Notes) that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer’s economic interest cost. The liability component of the instrument is valued in a manner that reflects the market interest rate for a similar nonconvertible instrument at the date of issuance. The initial carrying value of the liability component of $ 314.7 million was calculated using a 5.78 % assumed borrowing rate. The equity component of $ 87.8 million, representing the conversion option, was determined by deducting the fair value of the liability component from the par value of the 2025 Notes and is recorded in additional paid-in capital on the consolidated balance sheet at the issuance date. The equity component is treated as a discount on the liability component of the 2025 Notes, which is amortized over the five-year term of the 2025 Notes using the effective interest rate method. The equity component is not re-measured as long as it continues to meet the conditions for equity classification. A deferred tax liability was recognized in the amount of $ 20.5 million, with the offsetting amount recorded in additional paid-in capital. See Note 16, Income Taxes , for information regarding the Company’s deferred taxes. The Company allocated the total transaction costs of approximately $ 12.5 million related to the issuance of the 2025 Notes to the liability and equity components of the 2025 Notes based on their relative values. Transaction costs attributable to the liability component are amortized to interest expense over the five-year term of the 2025 Notes, and transaction costs attributable to the equity component totaling $ 2.7 million are netted with the equity component in stockholders’ equity. The 2025 Notes do not contain any financial or operating covenants or any restrictions on the payment of dividends, the issuance of other indebtedness or the issuance or repurchase of securities by the Company. The 2025 Indenture contains customary events of default with respect to the 2025 Notes, including that upon certain events of default, 100% of the principal and accrued and unpaid interest on the 2025 Notes will automatically become due and payable. Convertible Senior Notes Due 2022 On March 13, 2017, the Company completed a private placement of $ 345.0 million in aggregate principal amount of 2.375 % convertible senior notes due 2022, or 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 year, payable semiannually in arrears on April 1 st and October 1 st of each year. The 2022 Notes mature on April 1, 2022. As discussed above, in July 2020, the Company used part of the net proceeds from the issuance of the 2025 Notes to repurchase $ 185.0 million aggregate principal amount of the 2022 Notes in privately-negotiated transactions for an aggregate of $ 211.1 million in cash (including accrued interest). The partial repurchase of the 2022 Notes resulted in an $ 8.1 million loss on early extinguishment of debt. The total debt composition of the 2022 Notes is as follows (in thousands): December 31, 2020 2019 2.375 % convertible senior notes due 2022 $ 160,000 $ 345,000 Deferred financing costs ( 1,089 ) ( 4,143 ) Discount on debt ( 9,263 ) ( 34,812 ) Total debt, net of debt discount and deferred financing costs $ 149,648 $ 306,045 Holders may convert their 2022 Notes prior to October 1, 2021, only if certain circumstances are met, including if during the previous calendar quarter, the last reported sales price of the Company’s common stock was greater than or equal to 130 % of the conversion price than applicable for at least 20 out of the last 30 consecutive trading days of the quarter. During the year ended December 31, 2020, this condition for conversion was not met. 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 2022 Notes and any excess conversion value, calculated based on the per share volume-weighted average price for each of the 40 consecutive trading days during the observation period (as more fully described in the 2022 Indenture). For both the principal and excess conversion value, holders may receive cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s option. The initial conversion rate for the 2022 Notes is 14.9491 shares of common stock per $1,000 principal amount, which is equivalent to an initial conversion price of $ 66.89 per share of the Company’s common stock. The Pacira BioSciences, Inc. | 2020 Form 10-K | Page F-24 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) conversion rate will be subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. The initial conversion price of the 2022 Notes represents a premium of approximately 37.5 % to the closing sale price of $ 48.65 per share of the Company’s common stock on the Nasdaq Global Select Market on March 7, 2017, the date that the Company priced the private offering of the 2022 Notes. As of December 31, 2020, the 2022 Notes had a market price of $1,144 per $1,000 principal amount. In the event of conversion, holders would forgo all future interest payments, any unpaid accrued interest and the possibility of stock price appreciation. Upon the receipt of conversion requests, the settlement of the 2022 Notes will be paid pursuant to the terms of the 2022 Indenture. In the event that all of the 2022 Notes are settled, the Company would be required to repay the remaining $ 160.0 million in principal value and any conversion premium in any combination of cash and shares of its common stock (at the Company’s option). As of April 1, 2020, the Company may redeem for cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s option, all or part of the 2022 Notes if the last reported sale price (as defined in the 2022 Indenture) of the Company’s 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 the Company provides notice of redemption. This condition was not met during the quarter ended December 31, 2020. The redemption price will equal the sum of (i) 100 % of the principal amount of the 2022 Notes being redeemed, plus (ii) accrued and unpaid interest, including additional interest, if any, to, but excluding, the redemption date. In addition, calling the 2022 Notes for redemption will constitute a “make-whole fundamental change” (as defined in the 2022 Indenture) and will, in certain circumstances, increase the conversion rate applicable to the conversion of such notes if it is converted in connection with the redemption. No sinking fund is provided for the 2022 Notes. If the Company undergoes a fundamental change, as defined in the 2022 Indenture, subject to certain conditions, holders of the 2022 Notes may require the Company to repurchase for cash all or part of their 2022 Notes at a repurchase price equal to 100 % of the principal amount of the 2022 Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. In addition, if a “make-whole fundamental change” (as defined in the 2022 Indenture) occurs prior to April 1, 2022, the Company will, in certain circumstances, increase the conversion rate for a holder who elects to convert its notes in connection with the make-whole fundamental change. The 2022 Notes are the Company’s general unsecured obligations that rank senior in right of payment to all of its indebtedness that is expressly subordinated in right of payment to the 2022 Notes, and equal in right of payment to the Company’s unsecured indebtedness. The 2022 Notes are also effectively junior in right of payment to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness, and are structurally subordinated to any debt or other liabilities (trade payables) of the Company’s subsidiaries. The 2022 Notes are currently classified on the Company’s consolidated balance sheet at December 31, 2020 as short-term debt. The future convertibility of this liability is monitored at each quarterly reporting date and is analyzed dependent upon market prices of the Company’s common stock during the prescribed measurement periods. The holders of the 2022 Notes have the right to convert the 2022 Notes at any time on or after October 1, 2021, until the close of business on the second scheduled trading day immediately preceding April 1, 2022. Therefore, the 2022 Notes are considered a current obligation to the Company. Under ASC 470-20, Debt with Conversion and Other Options , an entity must separately account for the liability and equity components of convertible debt instruments (such as the 2022 Notes) that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer’s economic interest cost. The liability component of the instrument is valued in a manner that reflects the market interest rate for a similar nonconvertible instrument at the date of issuance. The initial carrying value of the liability component of $ 274.1 million was calculated using a 7.45 % assumed borrowing rate. The equity component of $ 70.9 million, representing the conversion option, was determined by deducting the fair value of the liability component from the par value of the 2022 Notes and was recorded in additional paid-in capital on the consolidated balance sheet at the issuance date. That equity component is treated as a discount on the liability component of the 2022 Notes, which is amortized over the five-year term of the 2022 Notes using the effective interest rate method. The equity component is not re-measured as long as it continues to meet the conditions for equity classification. The Company allocated the total transaction costs of $ 11.0 million related to the issuance of the 2022 Notes to the liability and equity components of the 2022 Notes based on their relative values. Transaction costs attributable to the liability Pacira BioSciences, Inc. | 2020 Form 10-K | Page F-25 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) component are amortized to interest expense over the five-year term of the 2022 Notes, and transaction costs attributable to the equity component are netted with the equity component in stockholders’ equity. The 2022 Notes do not contain any financial or operating covenants or any restrictions on the payment of dividends, the issuance of other indebtedness or the issuance or repurchase of securities by the Company. The 2022 Indenture contains customary events of default with respect to the 2022 Notes, including that upon certain events of default, 100 % of the principal and accrued and unpaid interest on the 2022 Notes will automatically become due and payable. Interest Expense The following table sets forth the total interest expense recognized in the periods presented (dollar amounts in thousands): Year Ended December 31, 2020 2019 2018 Contractual and other interest expense $ 7,650 $ 8,195 $ 8,205 Amortization of debt issuance costs 2,156 1,707 1,634 Amortization of debt discount 18,254 13,746 12,799 Capitalized interest (Note 7) ( 2,389 ) ( 20 ) ( 689 ) Total $ 25,671 $ 23,628 $ 21,949 Effective interest rate on convertible senior notes 7.15 % 7.81 % 7.81 % NOTE 12— FINANCIAL INSTRUMENTS Fair Value Measurements Fair value is defined as the price that would be received to sell an asset or be paid to transfer a liability in the principal or most advantageous market in an orderly transaction. To increase consistency and comparability in fair value measurements, the FASB established a three-level hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of fair value measurements are: • Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs. • Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data. • Level 3: Unobservable inputs that are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs. The carrying value of financial instruments including cash and cash equivalents, accounts receivable and accounts payable approximate their respective fair values due to the short-term nature of these items. The fair value of the Company’s equity investment with a readily determinable fair value is calculated utilizing market quotations from a major American stock exchange (Level 1). The fair value of the Company’s convertible senior notes are calculated utilizing market quotations from an over-the-counter trading market for these notes (Level 2). The fair value of the Company’s acquisition-related contingent consideration is reported at fair value on a recurring basis (Level 3). The carrying amount of the investment without a readily determinable fair value has not been adjusted for either an impairment or upward or downward adjustments based on observable transactions. The carrying values and fair values of the Company’s financial assets and liabilities at December 31, 2020 are as follows (in thousands): Pacira BioSciences, Inc. | 2020 Form 10-K | Page F-26 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Carrying Value Fair Value Measurements Using Level 1 Level 2 Level 3 Financial Assets and Financial Liabilities Measured at Fair Value on a Recurring Basis: Financial Asset: Equity investment with readily determinable fair value $ 11,642 $ 11,642 $ — $ — Financial Liabilities: Acquisition-related contingent consideration $ 28,346 $ — $ — $ 28,346 Financial Liabilities Measured at Amortized Cost: 2.375 % convertible senior notes due 2022 (1) $ 149,648 $ — $ 183,000 $ — 0.750 % convertible senior notes due 2025 (1) $ 313,030 $ — $ 449,039 $ — (1) The closing price of the Company’s common stock as reported on the Nasdaq Global Select Market was $ 59.84 per share at December 31, 2020 compared to a conversion price of $ 66.89 per share for the 2022 Notes and a conversion price of $ 71.78 for the 2025 Notes. Therefore, at December 31, 2020, the conversion prices were above the stock price. The maximum conversion premium that could have been due on the 2022 Notes and 2025 Notes at December 31, 2020 was approximately 2.4 million and 5.6 million shares of the Company’s common stock, respectively. These figures assume no increases in the conversion rate for certain corporate events. Certain assets and liabilities are measured at fair value on a non-recurring basis, including assets and liabilities acquired in a business combination and long-lived assets, which would be recognized at fair value if deemed impaired or if reclassified as assets held for sale. The fair value in these instances would be determined using Level 3 inputs. Financial Liabilities Measured at Fair Value on a Recurring Basis The Company has recognized contingent consideration related to the MyoScience Acquisition in the amount of $ 28.3 million and $ 38.1 million as of December 31, 2020 and 2019, respectively. Refer to Note 5, MyoScience Acquisition and Note 18, Acquisition-Related Charges and Product Discontinuation, Net, for more information. The Company’s contingent consideration obligations are recorded at their estimated fair values and are revalued each reporting period if and until the related contingencies are resolved. For the years ended December 31, 2020 and 2019, the Company recognized $ 5.2 million and $ 16.7 million of charges, respectively, as a result of revisions to the probabilities of regulatory milestones being met and revisions to future projections, which have been included in acquisition-related charges in the consolidated statements of operations. The Company has measured the fair value of its contingent consideration using a probability-weighted discounted cash flow approach that is based on unobservable inputs and a Monte Carlo simulation. These inputs include, as applicable, estimated probabilities and the timing of achieving specified commercial and regulatory milestones, estimated forecasts of revenue and costs and the discount rate used to calculate the present value of estimated future payments. Significant changes may increase or decrease the probabilities of achieving the related commercial and regulatory events, shorten or lengthen the time required to achieve such events, or increase or decrease estimated forecasts. At December 31, 2020, the weighted average discount rate was 4.2 % and the weighted average probability of success for regulatory milestones was 60.8 %. The following table includes the key assumptions used in the valuation of the Company’s contingent consideration: Assumption Ranges Utilized as of December 31, 2020 Discount rates 4.12 % to 4.22 % Probabilities of payment for regulatory milestones 2.00 % to 100.00 % Projected years of payment for regulatory and commercial milestones 2021 to 2023 The maximum remaining potential payments related to the contingent consideration from the MyoScience Acquisition are $ 58.0 million as of December 31, 2020. The change in the Company’s contingent consideration recorded at fair value using Level 3 measurements is as follows (in thousands): Pacira BioSciences, Inc. | 2020 Form 10-K | Page F-27 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Contingent Consideration Fair Value Balance at December 31, 2019 $ 38,142 Fair value adjustments and accretion 5,204 Payments made ( 15,000 ) Balance at December 31, 2020 $ 28,346 Investments Short-term investments consist of asset-backed securities collateralized by credit card receivables, investment grade commercial paper and corporate and government bonds with maturities greater than three months, but less than one year. Long-term investments consist of asset-backed securities collateralized by credit card receivables and corporate and government bonds with maturities greater than one year but less than three years. Net unrealized gains and losses (excluding credit losses, if any) from the Company’s short-term and long-term investments are reported in other comprehensive income (loss). At December 31, 2020, all of the Company’s short-term and long-term investments are classified as available-for-sale investments and are determined to be Level 2 instruments, which are measured at fair value using standard industry models with observable inputs. The fair value of the commercial paper is measured based on a standard industry model that uses the three-month U.S. Treasury bill rate as an observable input. The fair value of the asset-backed securities and corporate bonds is principally measured or corroborated by trade data for identical issues in which related trading activity is not sufficiently frequent to be considered a Level 1 input or that of comparable securities. At the time of purchase, all short-term and long-term investments had an “A” or better rating by Standard & Poor’s. The following summarizes the Company’s investments at December 31, 2020 and 2019 (in thousands): December 31, 2020 Investments: Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value (Level 2) Short-term: Asset-backed securities $ 34,918 $ 98 $ — $ 35,016 Commercial paper 221,494 36 ( 18 ) 221,512 Corporate bonds 120,375 179 ( 11 ) 120,543 U.S. Government bonds 44,629 7 ( 2 ) 44,634 Subtotal 421,416 320 ( 31 ) 421,705 Long-term: U.S. Government bonds 95,429 30 — 95,459 Subtotal 95,429 30 — 95,459 Total $ 516,845 $ 350 $ ( 31 ) $ 517,164 December 31, 2019 Investments: Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value (Level 2) Short-term: Asset-backed securities $ 43,166 $ 54 $ — $ 43,220 Commercial paper 32,250 20 — 32,270 Corporate bonds 138,012 225 ( 5 ) 138,232 Subtotal 213,428 299 ( 5 ) 213,722 Long-term: Asset-backed securities 28,064 10 ( 15 ) 28,059 Corporate bonds 36,706 37 ( 4 ) 36,739 Subtotal 64,770 47 ( 19 ) 64,798 Total $ 278,198 $ 346 $ ( 24 ) $ 278,520 At December 31, 2020, there were no investments available for sale that were materially less than their amortized cost. Pacira BioSciences, Inc. | 2020 Form 10-K | Page F-28 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The Company elects to recognize its interest receivable separate from its available-for-sale investments. At December 31, 2020 and December 31, 2019, the interest receivable recognized in prepaid expenses and other current assets was $ 1.6 million and $ 1.4 million, respectively. Equity Investments At December 31, 2020 and 2019, the Company held an equity investment in TELA Bio, Inc., or TELA Bio, in its consolidated balance sheets in the amounts of $ 11.6 million and $ 10.0 million, respectively. During the year ended December 31, 2020, the fair value of this publicly traded investment increased by $ 1.6 million which is recorded in other, net in the consolidated statement of operations. During the year ended December 31, 2019, the Company made an additional cash investment of $ 1.6 million in TELA Bio and received a non-cash stock dividend in the amount of $ 2.5 million. During 2019, the Company also recognized an impairment loss of $ 5.7 million in other, net related to its investment in TELA Bio. The fair values of TELA Bio at December 31, 2020 and 2019 were based on Level 1 inputs. In 2020, the Company invested $ 1.2 million in GeneQuine Biotherapeutics GmbH, or GeneQuine, a privately held biopharmaceutical company headquartered in Hamburg, Germany. This investment has no readily determinable fair value and is recorded at cost minus impairment, if any, plus or minus observable price changes of identical or similar investments. In January 2021, the Company invested an additional $ 1.2 million in GeneQuine as a convertible note. The Company has the right to make an additional $ 4.9 million investment predicated upon GeneQuine achieving certain prespecified near-term milestones. Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, short-term and long-term investments and accounts receivable. The Company maintains its cash and cash equivalents with high-credit quality financial institutions. Such amounts may exceed federally-insured limits. As of December 31, 2020, three wholesalers each accounted for over 10% of the Company’s accounts receivable at 36 %, 28 % and 23 %. At December 31, 2019, three wholesalers each accounted for over 10% of the Company’s accounts receivable at 37 %, 29 % and 26 %. For additional information regarding the Company’s wholesalers, see Note 2 , Summary of Significant Accounting Policies . EXPAREL revenues are primarily derived from major wholesalers that generally have significant cash resources. The Company performs ongoing credit evaluations of its customers as warranted and generally does not require collateral. Allowances for credit losses on the Company’s accounts receivable are maintained based on historical payment patterns, current and estimated future economic conditions, aging of accounts receivable and its write-off history. As of December 31, 2020 and 2019, the Company did not deem any allowances for credit losses on its accounts receivable necessary. NOTE 13— STOCKHOLDERS’ EQUITY Common Stock The Company is authorized to issue up to 250,000,000 shares of common stock, of which 43,636,929 and 41,908,148 were issued and outstanding at December 31, 2020 and 2019, respectively. Preferred Stock The Company is authorized to issue up to 5,000,000 shares of preferred stock. No preferred stock was issued or outstanding at either December 31, 2020 or 2019. Pacira BioSciences, Inc. | 2020 Form 10-K | Page F-29 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Accumulated Other Comprehensive Income (Loss) The following table illustrates the changes in the balances of the Company’s accumulated other comprehensive income (loss) for the periods presented (in thousands): Net Unrealized Gains (Losses) Balance at December 31, 2017 $ ( 454 ) Net unrealized gain on investments net of tax 174 Amounts reclassified from accumulated other comprehensive income (loss) — Balance at December 31, 2018 ( 280 ) Net unrealized gain on investments net of tax 602 Amounts reclassified from accumulated other comprehensive income (loss) — Balance at December 31, 2019 322 Net unrealized loss on investments net of tax ( 3 ) Foreign currency translation adjustments ( 1 ) Amounts reclassified from accumulated other comprehensive income (loss) — Balance at December 31, 2020 $ 318 NOTE 14— STOCK PLANS Stock Incentive Plans The Company’s amended and restated 2011 stock incentive plan, or 2011 Plan, was originally adopted by its board of directors and approved by its stockholders in June 2011 and was amended in June 2014, June 2016 and June 2019. The June 2019 amendment and approval by the Company’s stockholders increased the number of shares of common stock authorized for issuance as equity awards under the plan by 3,000,000 shares. The 2011 Plan allows the granting of incentive stock options, non-statutory stock options, restricted stock awards and other stock-based awards. In April 2014, the Company’s board of directors also adopted the 2014 Inducement Plan. All of the Company’s stock option grants have an exercise price equal to the closing price of the Company’s common stock on the date of grant, generally have a 10-year contractual term and vest in increments (typically over four years from the date of grant, although the Company may occasionally grant options with different vesting terms, including grants made to its non-employee directors). The Company also grants RSUs to employees and non-employee directors generally vesting in increments over four years from the date of grant except for such grants made to non-employee directors. The Company uses authorized and unissued shares of its common stock to satisfy its obligations under these plans. 2014 Employee Stock Purchase Plan The Company’s 2014 Employee Stock Purchase Plan, or ESPP, was adopted by its board of directors in April 2014 and approved by the Company’s stockholders in June 2014. The purpose of the ESPP is to provide a vehicle for eligible employees to purchase shares of the Company’s common stock at a discounted price and to help retain and motivate current employees as well as attract new talent. Under the ESPP, up to 500,000 shares of common stock may be sold. The plan expires in June 2024. The ESPP is intended to qualify as an “employee stock purchase plan” within the meaning of Section 423 of the Internal Revenue Code, or IRC. The maximum fair market value of stock which can be purchased by a participant in a calendar year is $ 25,000 . Six-month offering periods begin on January 1 and July 1 of each year. During an offering period, eligible employees have the opportunity to elect to purchase shares of the Company’s common stock on the purchase dates of June 30 and December 31 (or the last trading day of an offering period). The per share purchase price will be equal to the lesser of 85 % of the fair market value of the Company’s common stock on either the offering date or the purchase date. During the year ended December 31, 2020, 61,585 shares were purchased and issued through the ESPP. The following tables contain information about the Company’s stock incentive plans at December 31, 2020: Pacira BioSciences, Inc. | 2020 Form 10-K | Page F-30 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Stock Incentive Plan Awards Reserved For Issuance Awards Issued Awards Available For Grant 2011 Plan 12,931,701 11,569,813 1,361,888 2014 Inducement Plan 175,000 36,576 138,424 Total 13,106,701 11,606,389 1,500,312 Employee Stock Purchase Plan Shares Reserved For Purchase Shares Purchased Shares Available For Purchase 2014 ESPP 500,000 353,566 146,434 Stock-Based Compensation Compensation expense for stock options and RSUs is based on the estimated grant date fair value of an award recognized over the requisite service period on a straight-line expense attribution method. Compensation expense for ESPP share options is based on the estimated grant date fair value of the ESPP shares and the grant date number of shares that can be purchased, which is recognized as expense over the length of an offering period. The Company recognized stock-based compensation expense in its consolidated statements of operations for the years ended December 31, 2020, 2019 and 2018 as follows (in thousands): Year Ended December 31, 2020 2019 2018 Cost of goods sold $ 5,589 $ 4,665 $ 4,478 Research and development 5,211 5,114 3,934 Selling, general and administrative 29,120 23,871 23,313 Total $ 39,920 $ 33,650 $ 31,725 Stock-based compensation from: Stock options $ 26,749 $ 23,360 $ 22,643 RSUs 12,266 9,511 8,371 ESPP 905 779 711 Total $ 39,920 $ 33,650 $ 31,725 Related income tax benefit $ 8,578 $ — $ — The following table summarizes the Company’s stock option activity and related information for the period from December 31, 2017 to December 31, 2020: Pacira BioSciences, Inc. | 2020 Form 10-K | Page F-31 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Number of Options Weighted Average Exercise Price (Per Share) Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value (in Thousands) Outstanding at December 31, 2017 4,951,493 $ 43.51 6.91 $ 57,021 Granted 1,994,332 39.35 Exercised ( 332,732 ) 21.55 $ 7,418 Forfeited ( 481,126 ) 42.30 Expired ( 409,149 ) 68.01 Outstanding at December 31, 2018 5,722,818 41.69 7.07 $ 49,166 Granted 1,872,758 42.75 Exercised ( 425,495 ) 19.90 $ 9,441 Forfeited ( 286,779 ) 39.22 Expired ( 176,924 ) 63.33 Outstanding at December 31, 2019 6,706,378 42.80 7.05 $ 50,652 Granted 1,502,803 47.50 Exercised ( 1,428,111 ) 31.67 $ 34,227 Forfeited ( 426,925 ) 42.08 Expired ( 119,027 ) 71.71 Outstanding at December 31, 2020 6,235,118 $ 45.98 6.97 $ 102,955 Exercisable at December 31, 2020 3,315,863 $ 47.24 5.45 $ 58,308 Vested and expected to vest at December 31, 2020 6,235,118 $ 45.98 6.97 $ 102,955 As of December 31, 2020, $ 55.6 million of total unrecognized compensation cost related to non-vested stock options is expected to be recognized over a weighted average period of 2.7 years. The Company’s stock options have a maximum expiration date of ten years from the date of grant. The weighted average fair value of stock options granted for the years ended December 31, 2020, 2019 and 2018 was $ 22.40 , $ 20.92 and $ 19.34 per share, respectively. The fair values of stock options granted were estimated using the Black-Scholes model with the following weighted average assumptions: Year Ended December 31, Black-Scholes Weighted Average Assumption 2020 2019 2018 Expected dividend yield None None None Risk-free interest rate 0.22 % - 1.60 % 1.33 % - 2.54 % 2.26 % - 3.05 % Expected volatility 53.5 % 53.9 % 53.3 % Expected term of options 5.36 years 5.22 years 5.14 years Pacira BioSciences, Inc. | 2020 Form 10-K | Page F-32 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The following table summarizes the Company’s RSU activity and related information for the period from December 31, 2017 to December 31, 2020: Number of Units Weighted Average Grant Date Fair Value (Per Share) Aggregate Intrinsic Value (in Thousands) Unvested at December 31, 2017 499,546 $ 47.32 $ 22,804 Granted 331,129 38.36 Vested ( 156,450 ) 49.59 Forfeited ( 96,261 ) 43.92 Unvested at December 31, 2018 577,964 42.14 $ 24,864 Granted 305,418 43.56 Vested ( 192,760 ) 45.55 Forfeited ( 59,481 ) 41.22 Unvested at December 31, 2019 631,141 41.87 $ 28,591 Granted 665,476 48.70 Vested ( 239,085 ) 41.91 Forfeited ( 100,079 ) 44.43 Unvested and expected to vest at December 31, 2020 957,453 $ 46.34 $ 57,294 As of December 31, 2020, $ 36.2 million of total unrecognized compensation cost related to non-vested RSUs is expected to be recognized over a weighted average period of 3.1 years. The Company’s RSUs have a maximum vest date of four years from the date of grant. The fair values of RSUs awarded are equal to the closing price of the Company’s common stock on the date of grant. The fair values of the ESPP share options granted were estimated using the Black-Scholes model with the following weighted average assumptions: Year Ended December 31, Black-Scholes Weighted Average Assumption 2020 2019 2018 ESPP share option fair value $ 11.02 - $ 17.54 $ 11.13 - $ 11.36 $ 10.40 - $ 13.15 Expected dividend yield None None None Risk-free interest rate 0.14 % - 1.57 % 2.10 % - 2.56 % 1.53 % - 2.14 % Expected volatility 44.9 % 40.2 % 52.2 % Expected term of ESPP share options 6 months 6 months 6 months NOTE 15— NET INCOME (LOSS) PER SHARE Potential common shares are excluded from the diluted net income (loss) per share computation to the extent that they would be antidilutive. Because the Company reported a net loss for the years ended December 31, 2019 and 2018, no potentially dilutive securities have been included in the computation of diluted net loss per share for those periods. As discussed in Note 11, Debt , the Company has the option to pay cash for the aggregate principal amount due upon the conversion of its 2022 Notes and 2025 Notes. Since it is the Company’s intent to settle the principal amount of its 2022 Notes and 2025 Notes in cash, the potentially dilutive effect of such notes on net income (loss) per share is computed under the treasury stock method. ASU 2020-06 will require the Company to use the if-converted method upon adoption; this new accounting pronouncement has not been adopted as of December 31, 2020. The following table sets forth the computation of basic and diluted net income (loss) per share for the years ended December 31, 2020, 2019 and 2018 (in thousands, except per share amounts): Pacira BioSciences, Inc. | 2020 Form 10-K | Page F-33 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Year Ended December 31, 2020 2019 2018 Numerator: Net income (loss) $ 145,523 $ ( 11,016 ) $ ( 471 ) Denominator: Weighted average shares of common stock outstanding—basic 42,671 41,513 40,911 Computation of diluted securities: Dilutive effect of stock options 783 — — Dilutive effect of RSUs 227 — — Dilutive effect of ESPP purchase options 1 — — Weighted average shares of common stock outstanding—diluted 43,682 41,513 40,911 Net income (loss) per share: Basic net income (loss) per common share $ 3.41 $ ( 0.27 ) $ ( 0.01 ) Diluted net income (loss) per common share $ 3.33 $ ( 0.27 ) $ ( 0.01 ) The following outstanding stock options, RSUs, and ESPP purchase options are antidilutive in the periods presented (in thousands): Year Ended December 31, 2020 2019 2018 Weighted average number of stock options 4,237 6,404 5,492 Weighted average number of RSUs 99 606 542 Weighted average ESPP purchase options 16 34 31 Total 4,352 7,044 6,065 NOTE 16— INCOME TAXES Income (loss) before income taxes and the related tax (benefit) expense is as follows (in thousands): Year Ended December 31, 2020 2019 2018 Income (loss) before income taxes: Domestic $ 17,000 $ ( 7,026 ) $ 5,169 Foreign 3,089 ( 3,722 ) ( 5,594 ) Total income (loss) before income taxes $ 20,089 $ ( 10,748 ) $ ( 425 ) Current taxes: Federal $ ( 6 ) $ — $ ( 96 ) State 1,185 2,096 142 Total current taxes $ 1,179 $ 2,096 $ 46 Deferred taxes: Federal $ ( 99,164 ) $ ( 1,828 ) $ — State ( 27,449 ) — — Total deferred taxes $ ( 126,613 ) $ ( 1,828 ) $ — Total income tax (benefit) expense $ ( 125,434 ) $ 268 $ 46 For the year ended December 31, 2020, the Company had an income tax benefit of $ 125.4 million primarily related to the release of a valuation allowance on its domestic net deferred assets. The income tax expense for the year ended December 31, Pacira BioSciences, Inc. | 2020 Form 10-K | Page F-34 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2019 consists primarily of state income taxes in jurisdictions where the availability of carryforward losses are either limited or fully utilized as well as state taxes on the one-time gain from the deemed sale of assets resulting from an IRC section 338(g) tax election made by the Company related to the MyoScience Acquisition. This was partially offset by a reduction in the Company’s valuation allowance on its deferred tax assets due to the MyoScience Acquisition. Income tax expense for the year ended December 31, 2018 is principally the result of minimum state taxes. A reconciliation of income taxes at the U.S. federal statutory rate to the provision for income taxes is as follows: Year Ended December 31, 2020 2019 2018 U.S. federal statutory rate 21.00 % 21.00 % 21.00 % State taxes 3.15 % ( 7.33 ) % ( 24.84 ) % Foreign taxes 3.18 % ( 3.95 ) % ( 92.04 ) % Change in valuation allowance ( 647.87 ) % 19.76 % 369.27 % Stock-based compensation ( 1.08 ) % ( 10.53 ) % ( 874.29 ) % Tax credits ( 7.92 ) % 19.93 % 700.35 % Interest expense — % — % 218.47 % Effect of rate changes — % ( 0.42 ) % 13.44 % Convertible senior notes refinancing ( 5.22 ) % — % — % Nondeductible expenses 4.55 % ( 13.58 ) % ( 132.96 ) % Reserves 7.66 % ( 15.41 ) % ( 202.98 ) % 338(g) tax election — % ( 9.61 ) % — % Other ( 1.84 ) % ( 2.35 ) % ( 6.15 ) % Effective tax rate ( 624.39 ) % ( 2.49 ) % ( 10.73 ) % The Company’s effective tax rates of ( 624.39 )%, ( 2.49 )% and ( 10.73 )% for the years ended December 31, 2020, 2019 and 2018, respectively, differed from the expected U.S. statutory tax rate of 21.0 %. This difference for the year ended December 31, 2020 was primarily due to the release of the domestic valuation allowance of $ 126.6 million as discussed below. The difference for the years ended December 31, 2019 and 2018 was primarily driven by pretax losses for which the Company concluded that a majority of its tax benefits are not more-likely-than-not to be realized, resulting in the recording of a full valuation allowance. Deferred taxes reflect the tax effects of the differences between the amounts recorded as assets and liabilities for financial reporting purposes and the comparable amounts recorded for income tax purposes. A full valuation allowance had been recorded against the Company’s net deferred tax balance as of December 31, 2019 because at that time it was more likely than not that its net deferred tax assets would not be realizable. At each reporting date, the Company considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. During the year ended December 31, 2020, in part because in the current year the Company achieved three years of cumulative pretax income in the U.S. federal and state tax jurisdictions, and based on its most recent forecasts, the Company determined that there is sufficient positive evidence to conclude that it is more likely than not that additional domestic deferred taxes of $ 126.6 million are realizable and, therefore, reduced the valuation allowance accordingly. During the year ended December 31, 2020, the Company established a deferred tax liability of $ 20.5 million with an offset to additional paid-in capital resulting from the conversion feature of the 2025 Notes. The initial difference between the book value of convertible debt issued with a beneficial conversion feature and its tax basis is a temporary difference. Pacira BioSciences, Inc. | 2020 Form 10-K | Page F-35 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Significant components of the Company’s deferred tax assets and liabilities at December 31, 2020 and 2019 are as follows (in thousands): December 31, 2020 2019 Deferred tax assets: Net operating loss carryforwards $ 66,123 $ 68,921 Federal and state credits 17,335 16,895 Depreciation and amortization 13,473 15,778 Accruals and reserves 7,254 8,767 Stock based compensation 21,862 23,187 Inventory 1,345 1,646 Other 2,138 2,022 Total deferred tax assets 129,530 137,216 Deferred tax liabilities: Discount on convertible senior notes ( 20,851 ) ( 8,125 ) Deferred tax assets, net of deferred tax liabilities 108,679 129,091 Less: valuation allowance ( 2,515 ) ( 129,091 ) Net deferred tax assets $ 106,164 $ — As of December 31, 2020, the Company’s federal net operating losses, or NOLs, and federal tax credit carryforwards totaled $ 243.5 million and $ 12.4 million, respectively. The Company also had state NOLs and state tax credit carryforwards of $ 165.8 million and $ 6.3 million, respectively, which are subject to change on an annual basis due to variations in the Company’s annual state apportionment factors. The Company had non-U.S. tax NOLs of $ 18.7 million at December 31, 2020. The existing federal and state NOLs will begin expiring in 2024, if the Company has not used them prior to that time. The non-U.S. NOLs do not expire. Since the Company had cumulative changes in ownership of more than 50 % within a three-year period, under IRC sections 382 and 383, the Company’s ability to use certain net operating loss and credit carryforwards to offset taxable income or tax will be limited. Such ownership changes were triggered by the initial acquisition of the Company’s stock in 2007 as well as cumulative ownership changes arising as a result of the completion of the Company’s initial public offering and other financing transactions. As a result of these ownership changes, the Company estimates that approximately $ 88.4 million of federal net operating losses are subject to annual limitations. At December 31, 2020, $ 61.5 million of these federal net operating losses were available. The Company estimates that an additional $ 10.3 million will come available in each of 2021 and 2022, $ 3.5 million in 2023 and $ 1.4 million in each of 2024 and 2025. In addition, California and certain states have previously suspended or limited the use of NOL carryforwards for certain taxable years, and certain states are considering similar future measures. As a result, the Company may incur higher state income tax expense in the future. In accordance with ASC Topic 740, the Company establishes a valuation allowance for deferred tax assets that, in its judgment, are not more-likely-than-not realizable. These judgments are based on projections of future income, including tax-planning strategies, by individual tax jurisdictions. In each reporting period, the Company assesses the likelihood that its deferred tax assets will be realized and determines if adjustments to its valuation allowance are appropriate. The Company had a net decrease in its valuation allowance of $ 126.6 million and an increase of $ 7.0 million for the years ended December 31, 2020 and December 31, 2019, respectively. During the year ended December 31, 2020, the Company determined that there is sufficient positive evidence to conclude that it is more likely than not that additional domestic deferred taxes of $ 126.6 million are realizable and, therefore, reduced the valuation allowance accordingly. The net increase in the Company’s valuation allowance for the year ended December 31, 2019 included a reduction of $ 1.8 million as a result of the MyoScience Acquisition. In 2020, the Company recorded a reserve of $ 1.5 million related to unrecognized tax benefits, or UTBs, which relate to tax positions taken during the year. The Company’s UTB liability at December 31, 2020 was $ 6.1 million. The change in the Company’s UTBs in 2020 is summarized as follows (in thousands): Pacira BioSciences, Inc. | 2020 Form 10-K | Page F-36 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Unrecognized Tax Benefit Balance at December 31, 2019 $ 4,537 Additions for current year positions 1,539 Balance at December 31, 2020 $ 6,076 The Company regularly assesses the likelihood of additional tax assessments by jurisdiction and, if necessary, adjusts its reserve for UTBs based on new information or developments. Due to the Company’s tax credit carryforwards, the reserve was recorded as a reduction of the Company’s deferred tax assets, and any potential deficiency would not result in a tax liability. Therefore, no interest or penalties were recognized in income tax expense for the years ended December 31, 2020, 2019 and 2018. The Company is currently subject to audit by the U.S. Internal Revenue Service, or IRS, for the years 2017 through 2020, and state tax jurisdictions for the years 2016 through 2020. However, the IRS or states may still examine and adjust an NOL arising from a closed year to the extent it is utilized in a year that remains subject to audit. The Company’s previously filed income tax returns are not presently under audit by the IRS or state tax authorities. NOTE 17— EMPLOYEE BENEFIT PLANS 401(k) Plan The Company’s 401(k) plan is a deferred salary arrangement under section 401(k) of the IRC. Under the 401(k) plan, participating U.S. employees may defer a portion of their pre-tax earnings which are eligible for a discretionary percentage match as defined in the 401(k) plan and determined by the Company’s board of directors (up to the maximum amount permitted by the IRC). The Company recognized $ 2.9 million, $ 2.6 million and $ 1.6 million of related compensation expense for its 401(k) discretionary match for the years ended December 31, 2020, 2019 and 2018, respectively. Deferred Compensation Plan In June 2020, the Company’s board of directors adopted the Company’s Deferred Compensation Plan, or DCP. The Company intends that the DCP constitute, and be construed and administered as, an unfunded plan of deferred compensation within the meaning of the Employee Retirement Income Security Act of 1974, as amended, and the IRC of 1986, as amended, under which eligible participants may elect to defer the receipt of current compensation. Eligible participants include select management and highly compensated employees of the Company, including the Company’s named executive officers. Pursuant to the DCP, subject to any minimum and maximum deferral requirements that the administrator of the DCP may establish, participants may elect to defer their base salary and annual incentive awards. In addition to elective deferrals, the DCP permits the Company to make matching and certain other discretionary contributions to the participants. The Company recognized $ 0.2 million of related compensation expense for its DCP discretionary match for the year ended December 31, 2020. NOTE 18— ACQUISITION–RELATED CHARGES AND PRODUCT DISCONTINUATION, NET MyoScience Acquisition The Company recognized acquisition-related charges of $ 5.4 million and $ 21.6 million during the years ended December 31, 2020 and 2019, respectively, related to the MyoScience Acquisition. The acquisition-related charges reflect increases in the fair value of contingent consideration in the amount of $ 5.2 million and $ 16.7 million during the years ended December 31, 2020 and 2019, respectively. See Note 12, Financial Instruments , for information regarding the method and key assumptions used in the fair value measurements of contingent consideration. In addition, $ 0.2 million and $ 4.2 million of other acquisition-related charges for the years ended December 31, 2020 and 2019, which included advisory costs, including legal, financial, accounting and tax services, were incurred during the year ended December 31, 2019. During the year ended December 31, 2019, the Company incurred $ 0.7 million of separation costs, asset write-downs and other restructuring charges. The Company did not incur any acquisition-related charges in 2018. See Note 5, MyoScience Acquisition , for more information. In conjunction with the MyoScience Acquisition, the Company initiated a restructuring through a headcount reduction in the sales and administrative functions. In addition, the Company terminated a number of existing distributor agreements that were maintained by MyoScience. Pacira BioSciences, Inc. | 2020 Form 10-K | Page F-37 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DepoCyt(e) Discontinuation The Company recorded a gain of $ 0.2 million during the year ended December 31, 2020, and charges of $ 0.2 million and $ 1.6 million in the years ended December 31, 2019 and 2018, respectively, related to the discontinuation of its DepoCyt(e) manufacturing activities in June 2017 due to persistent technical issues specific to the DepoCyt(e) manufacturing process. The lease of the idle DepoCyt(e) manufacturing facility expired in August 2020. In April 2018, the Company received formal notice of the termination of a Supply Agreement and a Distribution Agreement (and all related agreements as subsequently amended) from Mundipharma International Corporation Limited and Mundipharma Medical Company, respectively (collectively, “Mundipharma”). In November 2019, the Company reached a settlement with Mundipharma and made a $ 5.3 million payment related to the DepoCyt(e) discontinuation which had previously been accrued. Summary of Acquisition-Related Restructuring Activities and DepoCyt(e) Discontinuation Costs The Company’s acquisition-related restructuring activities and DepoCyt(e) discontinuation costs as of December 31, 2020 are summarized below (in thousands): Severance and Related Costs Lease Costs Write-off of Property, Plant & Equipment and Inventory AROs, Other Restructuring and Discontinuation Costs Total Balance at December 31, 2017 $ — $ 1,768 $ — $ 309 $ 2,077 Charges incurred — 1,513 — 51 1,564 Cash payments made — ( 1,311 ) — ( 91 ) ( 1,402 ) Balance sheet reclassifications — — — 13 13 Balance at December 31, 2018 — 1,970 — 282 2,252 Charges incurred 429 — 193 225 847 Cash payments made ( 348 ) — — ( 404 ) ( 752 ) Other, including non-cash activity — — ( 193 ) — ( 193 ) Balance sheet reclassifications — ( 1,970 ) — 455 ( 1,515 ) Balance at December 31, 2019 81 — — 558 639 Charges and other adjustments — — — ( 38 ) ( 38 ) Cash payments made ( 81 ) — — ( 501 ) ( 582 ) Balance at December 31, 2020 $ — $ — $ — $ 19 $ 19 NOTE 19— COMMERCIAL PARTNERS AND OTHER AGREEMENTS Thermo Fisher Scientific Pharma Services In April 2014, the Company and Thermo Fisher entered into a Strategic Co-Production Agreement, a Technical Transfer and Service Agreement and a Manufacturing and Supply Agreement to collaborate in the manufacture of EXPAREL. Under the terms of the Technical Transfer and Service Agreement, Thermo Fisher agreed to undertake certain technical transfer activities and construction services needed to prepare its Swindon, England facility for the manufacture of EXPAREL in two dedicated manufacturing suites. The Company contracted to purchase EXPAREL from Thermo Fisher, beginning with FDA approval of the first suite, which occurred in May 2018. Commercial production began in February 2019. Under these agreements, the Company makes monthly base fee payments to Thermo Fisher. Unless earlier terminated by giving notice of up to three years (other than termination by the Company in the event of a material breach by Thermo Fisher), this agreement will expire in May 2028. Pacira BioSciences, Inc. | 2020 Form 10-K | Page F-38 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DePuy Synthes Sales, Inc. In January 2017, the Company announced a Co-Promotion Agreement with DePuy Synthes Sales, Inc., or DePuy Synthes, part of the Johnson & Johnson family of companies, to market and promote the use of EXPAREL for orthopedic procedures in the U.S. DePuy Synthes field representatives, specializing in joint reconstruction, spine, sports medicine, trauma and cranio-maxillofacial (CMF) procedures, collaborate with and supplement the Company’s field teams by expanding the reach and frequency of EXPAREL education in the hospital surgical suite and ambulatory surgery center settings. In July 2020, the Company notified DePuy Synthes that the Co-Promotion Agreement would terminate on January 2, 2021. The Company has estimated termination-related costs of up to $ 9.0 million which have been recorded in selling, general and administrative expense during the year ended December 31, 2020. Aratana Therapeutics, Inc. In December 2012, the Company entered into a worldwide license, development and commercialization agreement with Aratana Therapeutics, Inc., a wholly owned subsidiary of Elanco Animal Health, Inc., or Aratana. Under the agreement, the Company granted Aratana an exclusive royalty-bearing license, including the limited right to grant sublicenses, for the development and commercialization of the Company’s bupivacaine liposome injectable suspension product for veterinary use. Under the agreement, Aratana developed and obtained FDA approval for the use of the product in veterinary surgery to manage postsurgical pain. The Company is eligible to receive from Aratana up to an aggregate of $ 40.0 million upon the achievement of commercial milestones. Aratana is required to pay the Company a tiered double-digit royalty on certain net sales made in the U.S. If the product is approved by foreign regulatory agencies for sale outside of the U.S., Aratana will be required to pay the Company a tiered double-digit royalty on such net sales. Royalty rates will be reduced by a certain percentage upon the entry of a generic competitor for animal health indications into certain jurisdictions or if Aratana must pay royalties to third parties under certain circumstances. Unless terminated earlier pursuant to its terms, the license agreement is effective until July 2033, after which Aratana has the option to extend the agreement for an additional five-year term, subject to certain requirements. Aratana began purchasing bupivacaine liposome injectable suspension product in 2016, which they market under the trade name NOCITA ® (a registered trademark of Aratana) for veterinary use. Nuance Biotech Co. Ltd. In June 2018, the Company entered into an agreement with Nuance Biotech Co. Ltd., or Nuance, a China-based specialty pharmaceutical company, to advance the development and commercialization of EXPAREL in China. Under the terms of the agreement, the Company agreed to be the sole supplier of EXPAREL to Nuance and has granted Nuance the exclusive rights to develop and commercialize EXPAREL in China. In June 2018, the Company recognized an upfront payment of $ 3.0 million since collaborative licensing revenue is recognized at the point in time when the license is provided and is not expected to substantively change. This payment was received in July 2018 and the Company is eligible to receive future milestone payments of up to $ 60.0 million that are triggered by filing for and securing regulatory approval(s) and annual sales in China exceeding certain thresholds. The Company is also entitled to tiered royalties as a percentage of net sales. NOTE 20— RELATED PARTY TRANSACTIONS In April 2012, the Company entered into a consulting agreement with Dr. Gary Pace, a director of the Company. In connection with the consulting agreement, Dr. Pace received an option to purchase 20,000 shares of common stock at an exercise price of $ 11.02 per share and an option to purchase 70,000 shares of common stock at an exercise price of $ 16.67 per share. No services were provided under the consulting agreement in the years ended December 31, 2020, 2019, or 2018, and as of December 31, 2020 and 2019, there was nothing payable to Dr. Pace for consulting services. NOTE 21— COMMITMENTS AND CONTINGENCIES Legal Proceedings From time to time, the Company has been and may again become involved in legal proceedings arising in the ordinary course of its business, including those related to patents, product liability and government investigations. Except as described below, the Company is not presently a party to any legal proceedings that it believes to be material, and is not aware of any pending or threatened litigation against the Company which it believes could have a material adverse effect on its business, operating results, financial condition or cash flows. Pacira BioSciences, Inc. | 2020 Form 10-K | Page F-39 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) MyoScience Milestone Litigation In August 2020, the Company and its subsidiary, Pacira CryoTech, Inc. (“Pacira CryoTech”), filed a lawsuit in the Court of Chancery of the State of Delaware (the “Delaware Court”) against Fortis Advisors LLC (“Fortis”), solely in its capacity as representative for the former securityholders of MyoScience, and certain other defendants, seeking declaratory judgment with respect to certain terms of the merger agreement for the MyoScience Acquisition (the “Merger Agreement”), specifically related to the achievement of certain milestone payments under the Merger Agreement. In addition, the Company and Pacira CryoTech sought general, special and compensatory damages against the other defendants related to breach of fiduciary duties in connection with the purported achievement of milestone payments under the Merger Agreement, and breach of the Merger Agreement and certain other agreements with the defendants. In October 2020, Fortis filed an answer and counterclaim against the Company and Pacira CryoTech seeking to recover certain milestone payments under the Merger Agreement totaling $ 40.0 million, and attorneys’ fees. The Company believes that the counterclaim from Fortis is without merit and intends to vigorously defend against all claims. The Company is unable to predict the outcome of this action at this time. Department of Justice Inquiry Settlement In April 2015, the Company received a subpoena from the U.S. Department of Justice, U.S. Attorney’s Office for the District of New Jersey pertaining to marketing and promotional practices related to EXPAREL. In July 2020, the Company formally entered into settlement agreements that resolved all outstanding investigations and claims by the United States Department of Justice, the United States Department of Health and Human Services, various States Attorneys’ General and a private plaintiff. This agreement concluded a five-year investigation related to the sale and marketing of EXPAREL. Under the various settlement agreements, the Company paid a global settlement of $ 3.5 million, which was recorded in acquisition-related charges, product discontinuation and other in the consolidated financial statements for the year ended December 31, 2019. The Company expressly denies all allegations and contentions and has admitted no wrongdoing in connection with the settlement agreements. The Company has been given assurances that this concludes the investigation that originated from the U.S. Department of Justice subpoena in April 2015. Purchase Obligations The Company has approximately $ 24.5 million of minimum, non-cancelable contractual commitments for contract manufacturing services and $ 17.1 million of minimum, non-cancelable contractual commitments for the purchase of certain raw materials as of December 31, 2020. Other Commitments and Contingencies The FDA, as a condition of EXPAREL approval, has required the Company to study EXPAREL in pediatric patients. The Company was granted a deferral for the required pediatric trials in all age groups for EXPAREL in the setting of wound infiltration and is conducting these pediatric trials as post-marketing requirements, as stated in the New Drug Application (NDA) approval letter for EXPAREL. In December 2019, the Company announced positive results for its extended pharmacokinetic and safety study for local analgesia in children aged 6 to 17 undergoing cardiovascular or spine surgeries. Those positive results provided the foundation for a supplemental New Drug Application, or sNDA. The sNDA was accepted by the FDA in August 2020 with a Prescription Drug User Fee Act (PDUFA) action date of March 22, 2021. Additionally, the Company is in negotiations with the FDA and the European Medicines Agency (EMA) for clarity on other pediatric study obligations. In addition to the initial $ 19.6 million purchase price for the Skyepharma Acquisition, the Company entered into an earn-out agreement with Skyepharma based on the Company reaching certain revenue milestones following the Skyepharma Acquisition. Pursuant to this agreement, the Company is required to pay Skyepharma milestone payments up to an aggregate of $ 62.0 million, of which $ 36.0 million are for potential milestones not yet met. The Company also agreed to pay certain earn-out payments based on a percentage of net sales of DepoBupivacaine products collected, including EXPAREL, for the term during which such sales were covered by a valid claim in certain patent rights related to EXPAREL and other biologics products. The last patents during which a valid claim existed expired on September 18, 2018. Refer to Note 9, Goodwill and Intangible Assets , for further discussion. Pursuant to an agreement with the Research Development Foundation, or RDF, the Company is required to pay RDF a low single-digit royalty on the collection of revenues from its DepoFoam-based products, for as long as certain patents assigned to the Company under the agreement remain valid. RDF has the right to terminate the agreement for an uncured material breach by the Company, in connection with its bankruptcy or insolvency or if it directly or indirectly opposes or disputes the validity of the assigned patent rights. Pacira BioSciences, Inc. | 2020 Form 10-K | Page F-40 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Refer to Note 5, MyoScience Acquisition , for information on potential contingent milestone payments related to the MyoScience Acquisition. NOTE 22— SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED) The following tables present selected quarterly financial data for the years ended December 31, 2020 and 2019. For periods where the Company reported a net loss, no potentially dilutive securities were included in the computation of diluted net loss per share (in thousands, except per share amounts): Three Months Ended March 31, 2020 June 30, 2020 September 30, 2020 December 31, 2020 Total revenues $ 105,684 $ 75,505 $ 117,484 $ 130,974 Cost of goods sold 29,732 22,305 29,993 35,298 Total operating expenses 88,590 82,652 99,864 112,191 Net income (loss) 8,159 ( 7,269 ) 130,119 14,514 Basic net income (loss) per common share (1) $ 0.19 $ ( 0.17 ) $ 3.03 $ 0.33 Diluted net income (loss) per common share (1) $ 0.19 $ ( 0.17 ) $ 2.94 $ 0.32 Three Months Ended March 31, 2019 June 30, 2019 September 30, 2019 December 31, 2019 Total revenues $ 91,313 $ 102,604 $ 104,685 $ 122,424 Cost of goods sold 27,303 25,201 22,304 31,904 Total operating expenses 90,234 97,329 102,272 120,711 Net income (loss) ( 2,771 ) 2,730 ( 6,087 ) ( 4,888 ) Basic net income (loss) per common share (1) $ ( 0.07 ) $ 0.07 $ ( 0.15 ) $ ( 0.12 ) Diluted net income (loss) per common share (1) $ ( 0.07 ) $ 0.06 $ ( 0.15 ) $ ( 0.12 ) (1) Basic and diluted earnings per share are computed independently for each of the quarters presented. Therefore, the sum of the quarterly basic and diluted earnings per share amounts may not equal the full-year basic and diluted earnings per share computation. Pacira BioSciences, Inc. | 2020 Form 10-K | Page F-41