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. On November 19, 2021, we acquired Flexion (now Pacira Therapeutics, Inc., or Pacira Therapeutics). As such, the scope of our assessment of the effectiveness of our disclosure controls and procedures did not include the internal controls over Pacira BioSciences, Inc. | 2021 Form 10-K | Page 80 Table of Contents , financial reporting of Pacira Therapeutics. These exclusions are consistent with the SEC Staff’s guidance that an assessment of a recently acquired business may be omitted from the scope of our assessment of the effectiveness of disclosure controls and procedures that are also part of internal controls over financial reporting in the 12 months following the acquisition. Pacira Therapeutics (excluding goodwill and intangible assets, which are included within the scope of the assessment) accounted for 13% of our total assets and 2% of our total revenue as of and for the year ended December 31, 2021. Based on their evaluation as of December 31, 2021, our Chief Executive Officer and Chairman and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2021. 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, 2021, 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, 2021. The effectiveness of our internal control over financial reporting as of December 31, 2021 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, 2021. Changes in Internal Control over Financial Reporting As a result of the Flexion Acquisition, we have commenced a project to evaluate the processes and procedures of Pacira Therapeutics’ internal control over financial reporting into our internal control over financial reporting framework. Except for the activities described above, there have been no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Pacira BioSciences, Inc. | 2021 Form 10-K | Page 81 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, 2021, 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, 2021, 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, 2021and 2020, 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, 2021, and the related notes (collectively, the consolidated financial statements), and our report dated February 28, 2022 expressed an unqualified opinion on those consolidated financial statements. The Company acquired Flexion Therapeutics, Inc. during 2021, and management excluded from its assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021, Flexion Therapeutics, Inc.’s internal control over financial reporting associated with total assets of 13% (excluding goodwill and intangible assets, which are included in the scope of the assessment) and total revenues of 2% included in the consolidated financial statements of the Company as of and for the year ended December 31, 2021. Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of Flexion Therapeutics, Inc. 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 28, 2022 Pacira BioSciences, Inc. | 2021 Form 10-K | Page 82 Table of Contents , Item 9B. Other Information None. Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 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 2022 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 2022 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 Securities Authorized For Issuance Under Equity Compensation Plans The following table sets forth certain information, as of December 31, 2021, concerning shares of our common stock authorized for issuance under our equity compensation plans. We have two equity compensation plans under which shares are currently authorized for issuance, our Amended and Restated 2011 Stock Incentive Plan (the “2011 Plan”) and our 2014 Employee Stock Purchase Plan (the “2014 ESPP”). The 2011 Plan and the 2014 ESPP were approved by stockholders. In April 2014, our board of directors adopted (without stockholder approval) the 2014 Inducement Plan, which authorized 175,000 shares of common stock to be granted as equity awards to new employees. (a) (b) (c) Number of Securities to be Issued Upon Exercise of Outstanding Options and Rights (1) (2) Weighted Average Exercise Price of Outstanding Options and Rights Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) (1) Equity compensation plans approved by stockholders (3) 6,020,510 $ 49.25 2,006,246 Equity compensation plans not approved by stockholders (3) 30,030 $ 64.21 138,924 Total equity compensation plans 6,050,540 $ 49.32 2,145,170 (1) Awards issuable under our 2011 Plan include common stock, stock options, restricted stock, restricted stock units and other incentive awards. (2) Does not include 955,277 unvested shares outstanding as of December 31, 2021 in the form of restricted stock units under our 2011 Plan, which do not require the payment of any consideration by the recipients. (3) See Note 14, Stock Plans , to our consolidated financial statements included herein for further descriptions of our equity compensation plans. Other information required by this item will be included in the proxy statement for our 2022 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 2022 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 2022 annual stockholders’ meeting and is incorporated by reference into this report. Pacira BioSciences, Inc. | 2021 Form 10-K | Page 83 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 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 The report of our independent registered accounting firm, KPMG LLP, with respect to the above-referenced financial statements and their report on internal control over financial reporting are included in this Form 10-K. Their consent appears as Ex hibit 23.1 of this Form 10-K. Report of Registered Independent Accounting Firm on the Consolidated Financial Statements Report of Registered Independent Accounting Firm on Internal Control over Financial Reporting (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. | 2021 Form 10-K | Page 84 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 2.2 Agreement and Plan of Merger, dated as of October 11, 2021, by and among Flexion Therapeutics, Inc., Pacira BioSciences, Inc. and Oyster Acquisition Company Inc. 8-K 2.1 10/12/2021 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 Indenture (including form of 3.375% Convertible Senior Notes due 2024), dated as of May 2, 2017, by and between Flexion Therapeutics, Inc. and Wells Fargo Bank, National Association, as trustee .* 4.5 First Supplemental Indenture, dated as of November 19, 2021, by and between Flexion Therapeutics, Inc. and Wells Fargo Bank, National Association, as trustee. * 4.6 Description of Securities. 10-K 4.3 2/21/2020 10.1 Amended and Restated 2011 Stock Incentive Plan.*** 8-K 10.1 6/11/2021 10.2 Form of Nonstatutory Stock Option Agreement under the Amended and Restated 2011 Stock Incentive Plan for grants made prior to February 1, 2022.*** 8-K 10.3 6/4/2014 10.3 Form of Nonstatutory Stock Option Agreement (Employees) under the Amended and Restated 2011 Stock Incentive Plan for grants made on or after February 1, 2022.* *** 10.4 Form of Nonstatutory Stock Option Agreement (Non-Employee Directors) under the Amended and Restated 2011 Stock Incentive Plan for grants made on or after February 1, 2022.* *** 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 Pacira BioSciences, Inc. | 2021 Form 10-K | Page 85 Table of Contents , Incorporation By Reference From Exhibit Number Description Form Exhibit Date Filed 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 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 Executive Employment Agreement, dated May 29, 2017, between the Registrant and Dennis McLoughlin.*** 10-Q 10.1 5/2/2019 10.34 Contingent Value Right Agreement, dated as of November 19, 2021, by and between Pacira BioSciences, Inc. and American Stock Transfer & Trust Company, LLC. 8-K 10.1 11/19/2021 10.35 Credit Agreement, dated as of December 7, 2021, by and among Pacira BioSciences, Inc., the lenders from time to time party thereto and JPMorgan Chase Bank, N.A., as administrative agent.## 8-K 10.1 12/9/2021 10.36 Manufacturing and Supply Agreement dated July 31, 2015, between Flexion Therapeutics, Inc. and Patheon UK Limited, as amended to date.†† 10.37 Technical Transfer and Service Agreement dated July 31, 2015, between Flexion Therapeutics, Inc. and Patheon UK Limited, as amended to date.†† 10.38 Side Letter to the Manufacturing and Supply Agreement between Flexion Therapeutics, Inc. and Patheon UK Limited, dated as of April 8, 2020.†† Pacira BioSciences, Inc. | 2021 Form 10-K | Page 86 Table of Contents , Incorporation By Reference From Exhibit Number Description Form Exhibit Date Filed 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). * 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. ## Schedules and exhibits have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company hereby undertakes to supplementally furnish copies of any omitted schedules and exhibits to the Securities and Exchange Commission upon request. Item 16. Form 10-K Summary None. Pacira BioSciences, Inc. | 2021 Form 10-K | Page 87 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 28, 2022 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 28, 2022 David Stack /s/ CHARLES A. REINHART, III Chief Financial Officer (Principal Financial Officer) February 28, 2022 Charles A. Reinhart, III /s/ LAUREN RIKER Senior Vice President, Finance (Principal Accounting Officer) February 28, 2022 Lauren Riker /s/ LAURA BREGE Director February 28, 2022 Laura Brege /s/ CHRISTOPHER J. CHRISTIE Director February 28, 2022 Christopher J. Christie /s/ MARK FROIMSON Director February 28, 2022 Mark Froimson /s/ YVONNE GREENSTREET Director February 28, 2022 Yvonne Greenstreet /s/ MARK KRONENFELD Director February 28, 2022 Mark Kronenfeld /s/ JOHN LONGENECKER Director February 28, 2022 John Longenecker /s/ GARY PACE Director February 28, 2022 Gary Pace /s/ ANDREAS WICKI Director February 28, 2022 Andreas Wicki /s/ PAUL HASTINGS Lead Director February 28, 2022 Paul Hastings Pacira BioSciences, Inc. | 2021 Form 10-K | Page 88 Table of Contents , PACIRA BIOSCIENCES, INC. ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2021 INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS Page # Report of Independent Registered Public Accounting Firm F-2 Auditor Name: KPMG LLP Auditor Location: Short Hills, NJ Auditor Firm ID: 185 Consolidated Balance Sheets as of December 31, 2021 and 2020 F-4 Consolidated Statements of Operations for the years ended December 31, 2021, 2020 and 2019 F-5 Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2021, 2020 and 2019 F-6 Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2021, 2020 and 2019 F-7 Consolidated Statements of Cash Flows for the years ended December 31, 2021, 2020 and 2019 F-8 Notes to Consolidated Financial Statements F-10 Pacira BioSciences, Inc. | 2021 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, 2021 and 2020, 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, 2021, 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, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2021, 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, 2021, 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 28, 2022 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. 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 Matters The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate 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 critical audit matters 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 matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Initial fair value measurement of intangible assets acquired in connection with the acquisition of Flexion Therapeutics, Inc. As discussed in Notes 5 and 9 to the consolidated financial statements, the Company acquired Flexion Therapeutics, Inc. (Flexion) on November 19, 2021 for consideration of approximately $578.8 million. The Company measured the assets acquired and the liabilities assumed at fair value, which resulted in the recognition of $541.0 million of intangible assets, comprised of $480.0 million of developed technology and $61.0 million of in-process research and development. We identified the evaluation of the initial fair value measurement of the developed technology and in-process research and development intangible assets acquired in connection with the acquisition of Flexion as a critical audit matter. Evaluating the initial fair value measurement of those intangible assets was complex and required significant auditor judgment due to the high degree of subjectivity in evaluating certain assumptions used to estimate fair value. In particular, the fair value measurement was sensitive to management’s forecasts of revenue and the discount rate. In Pacira BioSciences, Inc. | 2021 Form 10-K | Page F-2 Table of Contents , addition, the audit effort associated with the evaluation of the Company’s discount rate involved the use of valuation professionals with specialized skills and knowledge. 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 acquisition-date valuation process, including controls related to the development of assumptions for forecasted revenues and discount rate. We performed sensitivity analyses over the forecasted revenues to assess the impact of changes in that assumption on the Company’s determination of the fair value of the developed technology and in-process intangible assets. We evaluated the future revenue growth rates used by the Company to determine forecasted revenues, by comparing them to industry data that was assessed to be relevant and reliable. We involved valuation professionals with specialized skills and knowledge, who assisted in evaluating the Company's discount rate assumption, by comparing the inputs to that assumption to publicly available market data, and assessing the resulting discount rate. Fair value measurement of the contingent consideration liabilities associated with the acquisitions of Flexion Therapeutics, Inc. and MyoScience, Inc. As discussed in Notes 5 and 12 to the consolidated financial statements, the Company recognized contingent consideration liabilities at their estimated fair value on the acquisition date, in connection with applying the acquisition method of accounting for business combinations. Subsequent changes to the fair value of the contingent consideration liabilities were recorded in the consolidated statement of operations in the period of change. The initial fair value of the contingent consideration liability related to the acquisition of Flexion was $45.2 million. The fair value of the Flexion and MyoScience, Inc. (MyoScience) contingent consideration as of December 31, 2021 was $46.4 million and $11.2 million, respectively. We identified the evaluation of the fair value measurement of the contingent consideration liabilities related to achieving commercial and regulatory milestones associated with the acquisitions of Flexion and MyoScience as a critical audit matter. Evaluating the fair value measurement of the contingent consideration liabilities required significant auditor judgment, due to the high degree of subjectivity inherent in certain assumptions with unobservable inputs that were used in the simulation model. In particular, the fair value measurement was sensitive to management’s forecasts of revenues, estimated probabilities and timing related to the achievement of certain commercial and regulatory milestones, volatility, and discount rates. In addition, the audit effort associated with the evaluation of the Company’s volatility and discount rates involved the use of valuation professionals with specialized skills and knowledge. 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 initial and ongoing fair value measurement process for contingent consideration liabilities related to achieving commercial and regulatory milestones. This included controls related to the development of the assumptions for forecasted revenues, estimated probabilities and timing related to the achievement of certain milestones, volatility, and discount rates. We evaluated the forecasted revenue and certain commercial and regulatory milestone assumptions used in the Company’s models by comparing them to industry benchmarks and other third-party market data that were assessed to be relevant and reliable. We involved valuation professionals with specialized skills and knowledge, who assisted in evaluating the Company’s volatility and discount rates, by comparing the inputs to those assumptions to publicly available market data for the comparable entities used by the Company, and assessing the resulting volatility and discount rates. /s/ KPMG LLP We have served as the Company’s auditor since 2015. Short Hills, New Jersey February 28, 2022 Pacira BioSciences, Inc. | 2021 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, 2021 2020 ASSETS Current assets: Cash and cash equivalents $ 585,578 $ 99,957 Short-term available-for-sale investments 70,831 421,705 Accounts receivable, net 96,318 53,046 Inventories, net 98,550 64,650 Prepaid expenses and other current assets 14,771 12,265 Total current assets 866,048 651,623 Long-term available-for-sale investments — 95,459 Fixed assets, net 188,401 136,688 Right-of-use assets, net 76,410 74,492 Goodwill 145,175 99,547 Intangible assets, net 623,968 96,521 Deferred tax assets 153,364 106,164 Investments and other assets 21,987 14,019 Total assets $ 2,075,353 $ 1,274,513 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 10,543 $ 10,431 Accrued expenses 127,555 70,974 Lease liabilities 7,891 7,425 Convertible senior notes, net 350,466 149,648 Contingent consideration — 14,736 Current portion of long-term debt, net 24,234 — Income taxes payable 429 114 Total current liabilities 521,118 253,328 Convertible senior notes, net 339,267 313,030 Lease liabilities 71,727 71,025 Deferred revenue 10,125 — Long-term debt, net 335,263 — Contingent consideration 57,598 13,610 Other liabilities 9,847 3,832 Total liabilities 1,344,945 654,825 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, 2021 and 2020 — — Common stock, par value $ 0.001 ; 250,000,000 shares authorized; 44,734,308 and 43,636,929 shares issued and outstanding at December 31, 2021 and 2020, respectively 45 44 Additional paid-in capital 942,091 873,201 Accumulated deficit ( 211,895 ) ( 253,875 ) Accumulated other comprehensive income 167 318 Total stockholders’ equity 730,408 619,688 Total liabilities and stockholders’ equity $ 2,075,353 $ 1,274,513 See accompanying notes to consolidated financial statements. Pacira BioSciences, Inc. | 2021 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, 2021 2020 2019 Revenues: Net product sales $ 538,966 $ 426,614 $ 418,926 Royalty revenue 2,442 3,033 2,100 Collaborative licensing and milestone revenue 125 — — Total revenues 541,533 429,647 421,026 Operating expenses: Cost of goods sold 140,255 117,328 106,712 Research and development 55,545 59,421 72,119 Selling, general and administrative 199,345 193,516 200,782 Amortization of acquired intangible assets 13,553 7,866 5,703 Acquisition-related charges, product discontinuation and other 42,911 5,166 25,230 Total operating expenses 451,609 383,297 410,546 Income from operations 89,924 46,350 10,480 Other (expense) income: Interest income 896 4,629 7,376 Interest expense ( 31,750 ) ( 25,671 ) ( 23,628 ) Loss on early extinguishment of debt — ( 8,071 ) — Other, net ( 2,666 ) 2,852 ( 4,976 ) Total other expense, net ( 33,520 ) ( 26,261 ) ( 21,228 ) Income (loss) before income taxes 56,404 20,089 ( 10,748 ) Income tax (expense) benefit ( 14,424 ) 125,434 ( 268 ) Net income (loss) $ 41,980 $ 145,523 $ ( 11,016 ) Net income (loss) per share: Basic net income (loss) per common share $ 0.95 $ 3.41 $ ( 0.27 ) Diluted net income (loss) per common share $ 0.92 $ 3.33 $ ( 0.27 ) Weighted average common shares outstanding: Basic 44,262 42,671 41,513 Diluted 45,630 43,682 41,513 See accompanying notes to consolidated financial statements. Pacira BioSciences, Inc. | 2021 Form 10-K | Page F-5 Table of Contents , PACIRA BIOSCIENCES, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (In thousands) Year Ended December 31, 2021 2020 2019 Net income (loss) $ 41,980 $ 145,523 $ ( 11,016 ) Other comprehensive income (loss): Net unrealized gain (loss) on investments, net of tax ( 180 ) ( 3 ) 602 Foreign currency translation adjustments 29 ( 1 ) — Total other comprehensive income (loss) ( 151 ) ( 4 ) 602 Comprehensive income (loss) $ 41,829 $ 145,519 $ ( 10,414 ) See accompanying notes to consolidated financial statements Pacira BioSciences, Inc. | 2021 Form 10-K | Page F-6 Table of Contents , PACIRA BIOSCIENCES, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2021, 2020 AND 2019 (In thousands) Common Stock Additional Paid-In Capital Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Total Shares Amount 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 — — — — — Common stock 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 — — — — — Common stock 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 Exercise of stock options 732 1 23,833 — — 23,834 Vested restricted stock units 310 — — — — — Common stock issued under employee stock purchase plan 55 — 2,811 — — 2,811 Stock-based compensation — — 42,246 — — 42,246 Other comprehensive loss (Note 13) — — — — ( 151 ) ( 151 ) Net income — — — 41,980 — 41,980 Balance at December 31, 2021 44,734 $ 45 $ 942,091 $ ( 211,895 ) $ 167 $ 730,408 See accompanying notes to consolidated financial statements. Pacira BioSciences, Inc. | 2021 Form 10-K | Page F-7 Table of Contents , PACIRA BIOSCIENCES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Year Ended December 31, 2021 2020 2019 Operating activities: Net income (loss) $ 41,980 $ 145,523 $ ( 11,016 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Deferred taxes 10,872 ( 126,613 ) ( 1,828 ) Depreciation of fixed assets and amortization of intangible assets 28,548 19,908 19,576 Amortization of debt issuance costs 2,754 2,156 1,707 Amortization of debt discount 23,152 18,254 13,746 (Gain) loss on disposal and impairment of fixed assets ( 10 ) 22 1,010 Loss on early extinguishment of debt — 8,071 — Stock-based compensation 42,246 39,920 33,650 Changes in contingent consideration (after an acquisition) ( 989 ) 5,204 16,672 (Gain) loss on investment (net of stock dividend) and other non-operating income, net 2,673 ( 1,618 ) 4,315 Changes in operating assets and liabilities (net of acquisitions): Accounts receivable, net ( 10,434 ) ( 5,516 ) ( 8,524 ) Inventories, net ( 4,467 ) ( 6,353 ) ( 8,026 ) Prepaid expenses and other assets 1,142 ( 739 ) ( 3,885 ) Accounts payable ( 10,262 ) ( 3,312 ) ( 1,822 ) Accrued expenses and income taxes payable 5,451 ( 5,999 ) 22,041 Other liabilities ( 229 ) ( 2,467 ) ( 6,726 ) Payment of contingent consideration ( 6,835 ) ( 9,409 ) ( 370 ) Deferred revenue 125 — — Net cash provided by operating activities 125,717 77,032 70,520 Investing activities: Acquisition of Flexion Therapeutics, Inc. (net of cash acquired) ( 420,042 ) — — Acquisition of MyoScience, Inc. (net of cash acquired) — — ( 117,691 ) Purchases of fixed assets ( 45,866 ) ( 37,801 ) ( 10,159 ) Purchases of available-for-sale investments ( 611,488 ) ( 546,516 ) ( 318,484 ) Sales of available-for-sale investments 1,068,736 307,870 319,468 Payment of contingent consideration ( 4,000 ) — — Sale of equity investment 9,057 — — Purchases of equity and debt investments ( 17,187 ) ( 1,160 ) ( 1,622 ) Net cash used in investing activities ( 20,790 ) ( 277,607 ) ( 128,488 ) Financing activities: Proceeds from exercises of stock options 23,844 45,218 8,469 Proceeds from common stock issued under employee stock purchase plan 2,811 2,546 2,402 Proceeds from term loan B credit facility 363,750 — — 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 ( 4,546 ) ( 12,487 ) — Payment of contingent consideration ( 5,165 ) ( 5,591 ) ( 6,630 ) Net cash provided by financing activities 380,694 222,304 3,670 Net increase (decrease) in cash and cash equivalents 485,621 21,729 ( 54,298 ) Cash and cash equivalents, beginning of year 99,957 78,228 132,526 Cash and cash equivalents, end of year $ 585,578 $ 99,957 $ 78,228 See accompanying notes to consolidated financial statements. Pacira BioSciences, Inc. | 2021 Form 10-K | Page F-8 Table of Contents , PACIRA BIOSCIENCES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (In thousands) Year Ended December 31, 2021 2020 2019 Supplemental cash flow information: Cash paid for interest $ 6,996 $ 7,205 $ 8,199 Cash paid for income taxes, net of refunds $ 3,221 $ 2,417 $ 863 Non-cash investing and financing activities: Fixed assets included in accounts payable and accrued liabilities $ 6,828 $ 9,288 $ 3,019 Net increase in contingent consideration liabilities $ 45,241 $ — $ 28,470 See accompanying notes to consolidated financial statements. Pacira BioSciences, Inc. | 2021 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 providing a non-opioid option to as many patients as possible to redefine the role of opioids as rescue therapy only. The Company’s long-acting, local analgesic, EXPAREL ® (bupivacaine liposome injectable suspension), was commercially launched in the United States, or U.S., in April 2012 and approved in select European countries and the United Kingdom in November 2021. EXPAREL utilizes the Company’s proprietary multivesicular liposome, or pMVL, drug delivery technology that encapsulates drugs without altering their molecular structure, and releases them over a desired period of time. In 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. On November 19, 2021, the Company acquired Flexion Therapeutics, Inc., or Flexion, and added ZILRETTA ® (triamcinolone acetonide extended-release injectable suspension) to its product portfolio. ZILRETTA is the first and only extended-release, intra-articular (meaning in the joint) injection indicated for the management of osteoarthritis, or OA, knee pain. For more information, see Note 5, Acquisitions . Pacira is subject to risks common to companies in similar industries and stages, including, but not limited to, competition from larger companies, reliance on revenue from three products, reliance on a limited number of wholesalers, reliance on a limited number of manufacturing sites, new technological innovations, dependence on key personnel, reliance on third-party service providers and sole source suppliers, protection of proprietary technology, compliance with government regulations and risks related to cybersecurity. Coronavirus (COVID-19) Pandemic Since early 2020, the Company’s revenues have been impacted by the global pandemic caused by a novel strain of coronavirus (COVID-19) and pandemic-related challenges that included the significant postponement or suspension in the scheduling of elective surgical procedures due to public health guidance and government directives. While the degree of impact has diminished during the course of the pandemic due to the introduction of vaccines and the lessening of elective surgery restrictions, certain pandemic-related operational challenges persist. It remains unclear how long it will take the elective surgery market to normalize or if restrictions on elective procedures will recur due to future COVID-19 variants or otherwise. For instance, while many restrictions have since eased with COVID-19 vaccines now widely available, the elective surgery market faced additional pandemic-related challenges in August and September 2021 due to regional surges in COVID-19 Delta variant cases, staffing shortages and fatigue from care teams addressing significant procedure backlogs, and in December 2021, the COVID-19 Omicron variant prompted some government restrictions on elective procedures and surgical staffing challenges which began to ease in January 2022. The Company’s manufacturing sites are operational and have 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 the Company’s 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, purchase price allocation, stock-based compensation, inventory costs, impairments of equity investments, long-lived assets, goodwill, liabilities and accruals, including contingent consideration, Pacira BioSciences, Inc. | 2021 Form 10-K | Page F-10 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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 U.S., European Union, or E.U. and the United Kingdom, or U.K.; (ii) sales of ZILRETTA in the U.S.; (iii) sales of iovera° in the U.S., and Canada; (iv) sales of, and royalties on, its bupivacaine liposome injectable suspension, including for veterinary use and (v) license fees and milestone payments. See Note 4, Revenue , for further information on the Company’s accounting policies related to revenue from contracts with customers. 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 ZILRETTA primarily to specialty distributors and a specialty pharmacy, who then subsequently resell ZILRETTA to physicians, clinics and certain medical centers or hospitals. The Company also contracts directly with healthcare providers and intermediaries such as Group Purchasing Organizations, or GPOs. The Company sells its bupivacaine liposome injectable suspension for veterinary use to a third-party licensee in the U.S. 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, 2021 2020 2019 Largest wholesaler 31 % 31 % 34 % Second largest wholesaler 28 % 31 % 29 % Third largest wholesaler 26 % 25 % 26 % Total 85 % 87 % 89 % Pacira BioSciences, Inc. | 2021 Form 10-K | Page F-11 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Revenue from outside the U.S. accounted for less than 1 % of the Company’s total revenue for the year ended December 31, 2021. The Company began selling EXPAREL in the E.U. and U.K. and iovera° in Canada in the fourth quarter of 2021. The Company had no revenue from outside the U.S. during the years ended December 31, 2020 and 2019. 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. 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. Additionally, the Company’s ability to declare and pay a dividend in the future could be limited per the agreements governing its indebtedness. The Company records forfeitures as they occur rather than estimating forfeitures during each reporting 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, 2021, the carrying value of money market funds was $ 223.0 million, commercial paper was $ 19.0 million and asset backed securities was $ 2.6 million. As of December 31, 2020, the carrying value of money market funds was $ 51.8 million and commercial paper was $ 6.5 million. The carrying values approximate fair value as of December 31, 2021 and 2020. Pacira BioSciences, Inc. | 2021 Form 10-K | Page F-12 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Short-Term and Long-Term Available-For-Sale Investments Short-term available-for-sale 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 available-for-sale 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. 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. Pacira BioSciences, Inc. | 2021 Form 10-K | Page F-13 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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. Acquired in-process research and development, or IPR&D, is recognized at fair value and initially characterized as an indefinite-lived intangible asset, irrespective of whether the acquired IPR&D has an alternative future use. If the acquired net assets do not constitute a business under the acquisition method of accounting, the transaction is accounted for as an asset acquisition and no goodwill is recognized. In an asset acquisition, the amount allocated to acquired IPR&D with no alternative future use is recorded as an expense at the acquisition 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. 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 investments in equity securities without a readily determinable fair value. In the fourth quarter of 2019, the equity investment then held became publicly traded and thereafter, was recognized at its fair value at each reporting period with any unrealized holding gains (losses) included in other income (expense). The equity method investments without a readily determinable fair value are recognized at cost less any impairments, 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 Pacira BioSciences, Inc. | 2021 Form 10-K | Page F-14 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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. See Note 3, Recent Accounting Pronouncements , for the expected impact of Accounting Standards Update 2020-06 on accounting for convertible debt, which is effective January 1, 2022. 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. See Note 3, Recent Accounting Pronouncements , for the expected impact of Accounting Standards Update 2020-06 on the calculation of dilutive shares for convertible debt, which is effective January 1, 2022. Foreign Currencies The balance sheet accounts of the Company’s 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 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. Gains or losses from foreign currency exchanges are recorded in other, net in the consolidated statements of operations. 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 October 2021, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2021-08, Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which amends Accounting Standards Codification, or ASC, 805 to add contract assets and contract liabilities to the list of exceptions to the recognition and measurement principles that apply to business combinations and to require that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC Topic 606. As a result of the amendments made by the ASU, it is expected that an acquirer will generally recognize and measure acquired contract assets and contract liabilities in a manner consistent with how the acquiree recognized and measured them in its pre-acquisition financial statements. The ASU’s amendments are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The amendments should be applied prospectively to business combinations occurring on or after the effective date of the amendments. Early adoption of the amendments is permitted, including adoption in an interim period. An entity that early adopts in an interim period should apply the amendments (i) retrospectively to all business combinations for which the acquisition date occurs on or after the beginning of the fiscal year that includes the interim period of early application and (ii) prospectively to all business combinations that occur Pacira BioSciences, Inc. | 2021 Form 10-K | Page F-15 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) on or after the date of initial application. The Company has decided to early adopt this standard and will apply it to the valuation of a Flexion deferred revenue contract. In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes , which amended the approaches and methodologies in accounting for income taxes during interim periods and makes changes to certain income tax classifications. The standard allows for certain exceptions, including the 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 required 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 future acquisitions, the Company will 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 beginning January 1, 2021, and there were no material impacts to the consolidated financial statements upon adoption. Recent Accounting Pronouncements Not Adopted as of December 31, 2021 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 elected to adopt the new guidance using a modified retrospective method of transition, which would be applied to transactions outstanding at January 1, 2022. As a result, after adopting the ASU’s guidance, the Company will not separately present in equity an embedded conversion feature for its convertible debt. Instead, the Company will account for a convertible debt instrument wholly as debt. In addition, the Company will not record interest expense on the previously recorded discount on convertible debt. The impact on the balance sheet at January 1, 2022 increased net debt by approximately $ 64.9 million, reduced accumulated deficit by $ 47.2 million, reduced additional paid-in capital by $ 96.5 million and decreased deferred tax liabilities by $ 15.7 million. The impact on the consolidated statement of operations will reduce interest expense by approximately $ 18.0 million in 2022, with a resultant impact on basic and diluted income (loss) per share. NOTE 4— REVENUE The Company’s net product sales consist of (i) EXPAREL in the U.S., the E.U., and the U.K.; (ii) ZILRETTA in the U.S.; (iii) iovera° in the U.S. and Canada and (iv) sales of, and royalties on, its bupivacaine liposome injectable suspension for veterinary use. Royalty revenues are from the Company’s collaborative licensing agreements. The Company does not consider revenue from sources other than sales of EXPAREL and ZILRETTA to be material sources of its consolidated revenue. As such, the following disclosure only relates to revenue associated with net EXPAREL and ZILRETTA product sales. Net Product Sales The Company sells EXPAREL through a drop-ship program under which orders are processed through wholesalers based on orders of the product placed by end-users, namely hospitals, ambulatory surgery centers and healthcare provider offices. EXPAREL is delivered directly to the end-user without the wholesaler ever taking physical possession of the product. The Company primarily sells ZILRETTA to specialty distributors and a specialty pharmacy, who then subsequently resell ZILRETTA to physicians, clinics and certain medical centers or hospitals. The Company also contracts directly with healthcare providers and intermediaries such as GPOs. Product revenue is recognized when control of the promised goods are transferred to the customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for transferring those goods. EXPAREL and ZILRETTA revenue is recorded at the time the product is delivered to the customer. Revenues from sales of products are recorded net of returns allowances, prompt payment discounts, service fees, government rebates, volume rebates and chargebacks. These reserves are based on estimates of the amounts earned or to be claimed on the related sales. These amounts are treated as variable consideration, estimated and recognized as a reduction of the transaction price at the time of the sale, using the most likely amount method, except for returns, which is based on the expected value method. The Company includes these estimated amounts in the transaction price to the extent it is probable that a Pacira BioSciences, Inc. | 2021 Form 10-K | Page F-16 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) significant reversal of cumulative revenue recognized for such transaction will not occur, or when the uncertainty associated with the variable consideration is resolved. The calculation of some of these items requires management to make estimates based on sales data, historical return data, contracts, statutory requirements and other related information that may become known in the future. The adequacy of these provisions is reviewed on a quarterly basis. 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, 2021, 2020 and 2019, as well as ZILRETTA for the year ended December 31, 2021 (in thousands): Returns Allowances Prompt Payment Discounts Service Fees Volume Rebates and Chargebacks Government Rebates Total 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 Provision 3,095 10,388 10,112 17,101 1,139 41,835 Payments/Adjustments ( 757 ) ( 10,217 ) ( 7,644 ) ( 15,207 ) ( 378 ) ( 34,203 ) Balance at December 31, 2021 $ 3,361 $ 1,178 $ 3,636 $ 3,494 $ 761 $ 12,430 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 are 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. Accounts Receivable The majority of accounts receivable arise from product sales and represent amounts due from wholesalers, hospitals, ambulatory surgery centers, specialty distributors, specialty pharmacy, GPOs and doctors. Payment terms generally range from zero to 97 days from the date of the transaction, and accordingly, there is no significant financing component. Performance Obligations A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in 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. Pacira BioSciences, Inc. | 2021 Form 10-K | Page F-17 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) At contract inception, the Company assesses the goods promised in its contracts with customers and identifies a performance obligation for each promise to transfer to the customer a good that is distinct. When identifying individual performance obligations, the Company considers all goods promised in the contract regardless of whether explicitly stated in the customer contract or implied by customary business practices. The Company’s contracts with customers require it to transfer an individual distinct product, which represents a single performance obligation. The Company’s performance obligation with respect to its product sales is satisfied at a point in time, which transfers control upon delivery of EXPAREL and ZILRETTA to its customers. The Company considers control to have transferred upon delivery because the customer has legal title to the asset, physical possession of the asset has been transferred, the customer has significant risks and rewards of ownership of the asset and the Company has a present right to payment at that time. Disaggregated Revenue The following table represents disaggregated net product sales in the periods presented as follows (in thousands): Year Ended December 31, 2021 2020 2019 Net product sales: EXPAREL $ 506,515 $ 413,338 $ 407,877 ZILRETTA 12,683 — — iovera° 16,162 8,817 7,896 Bupivacaine liposome injectable suspension 3,606 4,459 3,153 Total net product sales $ 538,966 $ 426,614 $ 418,926 The Company began recognizing revenue from net product sales of ZILRETTA on November 19, 2021, the date of the Flexion Acquisition. NOTE 5— ACQUISITIONS Flexion Therapeutics, Inc. On November 19, 2021, the Company acquired Flexion (the “Flexion Acquisition”), a biopharmaceutical company focused on the discovery, development, and commercialization of novel, local therapies for the treatment of patients with musculoskeletal conditions, beginning with osteoarthritis, the most common form of arthritis, pursuant to an Agreement and Plan of Merger (the “Merger Agreement”), dated as of October 11, 2021, by and among the Company, Oyster Acquisition Company Inc., a Delaware corporation and wholly owned subsidiary of the Company (“Purchaser”), and Flexion. Following the completion of a successful tender offer for the shares of Flexion’s common stock, and pursuant to the terms of the Merger Agreement and in accordance with Section 251(h) of the General Corporation Law of the State of Delaware, Purchaser merged with and into Flexion with Flexion surviving as a wholly owned subsidiary of the Company. The Company changed the name of Flexion to Pacira Therapeutics, Inc. after completing the merger. The total consideration for the Flexion Acquisition was approximately $ 578.8 million consisting of: (i) $ 448.5 million of cash paid to former Flexion stockholders and to settle restricted stock units and in-the-money stock options; (ii) an $ 85.1 million cash payment of Flexion debt not to be assumed by the Company and (iii) $ 45.2 million of estimated contingent consideration related to contingent value rights, or CVRs, that were issued to Flexion shareholders and certain equity award holders in conjunction with the Flexion Acquisition. The consideration is subject to adjustments based on the achievement of certain potential milestone payments. The Company estimates that up to an additional $ 380.2 million in the aggregate may be payable to holders of the CVRs if each of the applicable milestones are achieved, as follows: (i) $ 1.00 per CVR the first time that net sales of ZILRETTA in any calendar year equal or exceed $ 250.0 million; (ii) $ 2.00 per CVR, the first time that net sales of ZILRETTA in any calendar year equal or exceed $ 375.0 million; (iii) $ 3.00 per CVR, the first time that net sales of ZILRETTA in any calendar year equal or exceed $ 500.0 million; (iv) $ 1.00 per CVR upon approval by the U.S. Food and Drug Administration, or FDA, of a Biologics License Application (BLA) for PCRX-201 (formerly FX-201), a clinical stage gene therapy product candidate; and Pacira BioSciences, Inc. | 2021 Form 10-K | Page F-18 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (v) $ 1.00 per CVR upon approval by the FDA of a new drug application, or NDA, for PCRX-301 (formerly FX-301), an investigational product candidate. The total consideration for the Flexion Acquisition was $ 578.8 million, which consisted of the following (in thousands, except per share amounts): Fair Value of Purchase Price Consideration Amount Fair value of purchase consideration paid at closing: Cash consideration for all outstanding shares of Flexion’s common stock (50,392 shares of common stock acquired at $8.50 per share) $ 428,333 Cash consideration paid to settle RSUs and in-the-money options 20,153 Cash paid to settle Flexion debt 85,118 533,604 Fair value of contingent value rights (CVRs) 45,241 Total purchase consideration $ 578,845 The Company has accounted for the Flexion Acquisition using the acquisition method of accounting and, accordingly, has included the assets acquired, liabilities assumed and results of operations in its consolidated financial statements from the acquisition date of November 19, 2021. The preliminary purchase price allocation is based on estimates, assumptions, valuations and other studies which have not yet been finalized. Prior to the finalization of the purchase price allocation, if information becomes available that would indicate it is probable that unknown events had occurred and the amounts can be reasonably estimated, such items will be included in the final purchase price allocation and may change the carrying value of goodwill. The Company is finalizing its valuation of intangible assets, tangible assets, liabilities and tax analyses, and anticipates finalizing the purchase price allocation as the information necessary to complete the analysis is obtained, but no later than one year after the acquisition date. Pacira BioSciences, Inc. | 2021 Form 10-K | Page F-19 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The following tables set forth the preliminary allocation of the Flexion Acquisition purchase price to the estimated fair value of the net assets acquired at the acquisition date (in thousands): Amounts Recognized at the Acquisition Date ASSETS ACQUIRED Cash and cash equivalents $ 113,562 Short-term available-for-sale investments 11,153 Accounts receivable 32,838 Inventories 29,667 Prepaid expenses and other assets 4,852 Fixed assets 23,307 Deferred tax assets 58,015 Right-of-use assets 6,585 Identifiable intangible assets 480,000 In-process research and development (IPR&D) 61,000 Total assets $ 820,979 LIABILITIES ASSUMED Accounts payable $ 9,794 Accrued expenses 22,746 Deferred revenue 10,000 Lease liabilities 6,585 Other liabilities 1,187 Long-term debt 201,450 Total liabilities 251,762 Total identifiable net assets acquired 569,217 Goodwill 9,628 Total consideration transferred $ 578,845 The acquired identifiable intangible assets and IPR&D assets were valued from a market participants’ perspective using a multi-period excess earnings methodology (income approach). The identifiable finite-lived intangible asset, ZILRETTA, is a developed technology for OA knee pain with a value of $ 480.0 million and a useful life of 9.7 years. A discount rate of 17.5 % was used in calculating the fair value of this technology. The IPR&D asset relates to the use of ZILRETTA for the treatment of OA pain of the shoulder and was valued at $ 60.0 million. The projected cash flows for this asset were adjusted for the probability of successful development and commercialization, and were discounted at 18.0 %. The excess of the purchase price over the fair value of identifiable net assets acquired represents goodwill. This goodwill is primarily attributable to the value of combining ZILRETTA with iovera° and EXPAREL as a safe and effective non-opioid multimodal regimen for pain management, as well as the synergies of merging operations. The acquired goodwill and intangible assets are currently not deductible for tax purposes. However, the Company is considering certain tax elections that would allow for the future deduction of acquired goodwill and intangible assets. Flexion results from the acquisition date of November 19, 2021 through December 31, 2021, which are included in the consolidated statements of operations, are as follows (in thousands): Classification in Consolidated Statements of Operations Acquisition Date Through December 31, 2021 Total revenues $ 12,683 Net loss $ ( 25,010 ) Refer to Note 18, Acquisition-Related Charges Product Discontinuation and Other, for further information on costs incurred related to the Flexion Acquisition. Pacira BioSciences, Inc. | 2021 Form 10-K | Page F-20 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Unaudited Pro Forma Summary of Operations The following table shows the unaudited pro forma summary of operations for the years ended December 31, 2021 and 2020, as if the Flexion Acquisition had occurred on January 1, 2020. This pro forma information does not purport to represent what the Company’s actual results would have been if the acquisition had occurred as of January 1, 2020, and is not indicative of what such results would be expected for any future period (in thousands, except per share amounts): Year Ended December 31, 2021 2020 Total revenues $ 630,942 $ 515,199 Net loss ( 67,264 ) ( 19,711 ) Pro forma basic and diluted net loss per share $ ( 1.52 ) $ ( 0.46 ) The unaudited pro forma financial information was prepared using the acquisition method of accounting and was based on the historical financial information of the Company and Flexion. The summary pro forma financial information primarily reflects the following pro forma adjustments: • Removal of the acquisition-related transaction fees and costs, including certain stock-based compensation and other compensation expenses related to the acquisition, from the years ended December 31, 2021 and 2020; • Removal of the income tax benefit resulting from the Company decreasing its existing valuation allowance on deferred tax assets from the years ended December 31, 2021 and 2020; • Removal of Flexion’s interest expense and associated deferred financing cost amortization; • Adjustments to the Company’s interest income for the cash used to acquire Flexion; • Additional cost of goods sold related to the step-up value in inventory; • Additional amortization expense from the acquired developed technology intangible assets; • Additional depreciation of fixed assets; and • Additional lease expense on the ROU assets. In addition, all of the above adjustments were adjusted for the applicable tax impact. MyoScience, Inc. 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 $ 43.0 million are available as of December 31, 2021. The Company’s obligation to make milestone payments is limited to those milestones achieved through December 31, 2023, with any such milestones payable within 60 days of the end of the fiscal quarter of achievement. During the years ended December 31, 2021, 2020 and 2019, the Company made $ 12.0 million, $ 15.0 million and $ 7.0 million of cash payments for the achievement of certain milestones, respectively. 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. Pacira BioSciences, Inc. | 2021 Form 10-K | Page F-21 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, 2021 2020 Raw materials $ 36,337 $ 26,886 Work-in-process 35,182 16,266 Finished goods 27,031 21,498 Total $ 98,550 $ 64,650 NOTE 7— FIXED ASSETS Fixed assets, net, summarized by major category, consist of the following (in thousands): December 31, 2021 2020 Machinery and equipment $ 117,264 $ 74,966 Leasehold improvements 59,740 54,434 Computer equipment and software 13,197 12,170 Office furniture and equipment 2,883 2,387 Construction in progress 80,557 71,091 Total 273,641 215,048 Less: accumulated depreciation ( 85,240 ) ( 78,360 ) Fixed assets, net $ 188,401 $ 136,688 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, 2021, 2020 and 2019 was $ 15.0 million, $ 12.0 million and $ 14.0 million, respectively. During the years ended December 31, 2021, 2020 and 2019, the Company capitalized interest of $ 3.9 million, $ 2.4 million and less than $0.1 million, respectively. As of December 31, 2021 and 2020, total fixed assets, net, includes leasehold improvements and manufacturing process equipment located outside of the U.S. in the amount of $ 65.4 million and $ 67.5 million, respectively. As of December 31, 2021 and 2020, the Company had AROs of $ 2.4 million and $ 2.0 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. 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 8.7 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 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. As a result of the Flexion Acquisition, the Company recorded new operating lease liabilities of $ 6.6 million arising from obtaining ROU lease assets for three locations. Pacira BioSciences, Inc. | 2021 Form 10-K | Page F-22 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 2021 2020 2019 Fixed lease costs $ 11,976 $ 10,055 $ 6,225 Variable lease costs 1,722 2,096 1,651 Total $ 13,698 $ 12,151 $ 7,876 Supplemental cash flow information related to operating leases is as follows (in thousands): Year Ended December 31, 2021 2020 2019 Cash paid for operating lease liabilities, net of lease incentive $ 12,709 $ 14,347 $ 7,346 Right-of-use assets recorded in exchange for lease obligations $ 8,692 $ 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, 2021 2020 Weighted average remaining lease term 7.77 years 9.18 years Weighted average discount rate 6.96 % 6.87 % As of December 31, 2021, maturities of the Company’s operating lease liabilities are as follows (in thousands): Year Aggregate Payments Due 2022 $ 13,171 2023 13,292 2024 13,422 2025 12,561 2026 12,296 2027 and thereafter 39,423 Total lease payments 104,165 Less: imputed interest ( 24,547 ) Total operating lease liabilities $ 79,618 Pacira BioSciences, Inc. | 2021 Form 10-K | Page F-23 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”), the MyoScience Acquisition in 2019 and the Flexion Acquisition in 2021. The change in the carrying value of the Company’s goodwill is summarized as follows (in thousands): Carrying Value Balance at December 31, 2019 $ 99,547 2020 accumulated adjustments — Balance at December 31, 2020 99,547 Goodwill arising from milestones achieved under the Skyepharma Acquisition 36,000 Goodwill arising from the Flexion Acquisition 9,628 Balance at December 31, 2021 $ 145,175 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. In the fourth quarter of 2021, the Company met both of its two remaining milestones due to Skyepharma: $ 4.0 million upon the first commercial sale in the U.K., France, Germany, Italy or Spain which was paid in the fourth quarter of 2021; and $ 32.0 million when annual net sales collected reached $ 500.0 million, which was paid in the first quarter of 2022. These milestone payments were treated as additions to the Skyepharma Acquisition and, therefore, recorded as goodwill. The Company made a tax election that allows the acquired goodwill and intangible assets associated with the MyoScience Acquisition to be tax deductible. In connection with the Flexion Acquisition, the Company recorded goodwill totaling $ 9.6 million. The acquired goodwill and intangible assets are currently not deductible for tax purposes. However, the Company is considering certain tax elections that would allow for the future deduction of acquired goodwill and intangible assets. Intangible Assets Intangible assets, net, consist of the IPR&D and developed technology from the Flexion Acquisition and developed technology and customer relationships from the MyoScience Acquisition and are summarized as follows (dollar amounts in thousands): December 31, 2021 Gross Carrying Value Accumulated Amortization Intangible Assets, Net Weighted-Average Useful Lives Developed technologies $ 590,000 $ ( 27,097 ) $ 562,903 10 years, 5 months Customer relationships 90 ( 25 ) 65 10 years Total finite-lived intangible assets, net 590,090 ( 27,122 ) 562,968 Acquired IPR&D 61,000 — 61,000 Total intangible assets, net $ 651,090 $ ( 27,122 ) $ 623,968 December 31, 2020 Gross Carrying Value Accumulated Amortization Intangible Assets, Net Weighted-Average Useful Lives Developed technology $ 110,000 $ ( 13,553 ) $ 96,447 14 years Customer relationships 90 ( 16 ) 74 10 years Total intangible assets, net $ 110,090 $ ( 13,569 ) $ 96,521 Amortization expense on intangible assets for the years ended December 31, 2021 and 2020 was $ 13.6 million and $ 7.9 million, respectively. Assuming no changes in the gross carrying amount of these intangible assets, the future estimated Pacira BioSciences, Inc. | 2021 Form 10-K | Page F-24 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) amortization expense on the finite-lived intangible assets will be $ 57.4 million through 2028, $ 57.3 million in 2029 and 2030, $ 36.9 million in 2031, $ 7.9 million in 2032 and $ 2.2 million in 2033. NOTE 10— ACCRUED EXPENSES Accrued expenses consist of the following (in thousands): December 31, 2021 2020 Accrued selling, general and administrative expenses $ 12,063 $ 23,288 Accrued research and development expenses 5,480 6,682 Other accrued operating expenses 14,912 11,196 Compensation and benefits 45,491 22,202 Accrued royalties (1) 35,298 3,040 Accrued interest 5,358 2,376 Product returns and wholesaler service fees 8,953 2,190 Total $ 127,555 $ 70,974 (1) At December 31, 2021, accrued royalties included a $ 32.0 million milestone payment to Skyepharma that was met in the fourth quarter of 2021 for achieving annual net sales collected of $ 500.0 million on the Company’s DepoBupivacaine products, including EXPAREL. This milestone was subsequently paid in the first quarter of 2022. See Note 9, Goodwill and Intangible Assets , for more information. NOTE 11— DEBT The carrying value of the Company’s outstanding debt is summarized as follows (amounts in thousands): December 31, 2021 2020 Term loan B facility maturing December 2026 $ 359,497 $ — 0.750 % Convertible senior notes due August 2025 330,627 313,030 3.375 % Convertible senior notes due May 2024 201,249 — 2.375 % Convertible senior notes due April 2022 157,857 149,648 Total $ 1,049,230 $ 462,678 Term Loan B Facility On December 7, 2021, the Company entered into a term loan credit agreement (the “Credit Agreement”) with JP Morgan Chase Bank, N.A., as administrative agent and the initial lender. The term loan issued under the Credit Agreement (the “Term Loan”), which was issued at a 3 % discount and allows for a single-advance term loan B facility in the principal amount of $ 375.0 million, which is secured by substantially all of the Company’s and each subsidiary guarantor’s assets. Subject to certain conditions, the Company may, at any time, on one or more occasions, add one or more new classes of term facilities and/or increase the principal amount of the loans of any existing class by requesting one or more incremental term facilities. The net proceeds of the Term Loan were approximately $ 363.8 million after deducting an original issue discount of $ 11.2 million. The total debt composition of the Term Loan is as follows (in thousands): December 31, 2021 Term Loan maturing December 2026 $ 375,000 Deferred financing costs ( 4,443 ) Discount on debt ( 11,060 ) Total debt, net of debt discount and deferred financing costs $ 359,497 The Term Loan matures on December 7, 2026 and requires quarterly repayments of principal in the amount of $ 9.4 million. commencing June 30, 2022, and increasing to $ 14.1 million commencing December 31, 2025, with a remaining balloon payment of approximately $ 188.0 million due at maturity. During 2022, the Company will be required to make three Pacira BioSciences, Inc. | 2021 Form 10-K | Page F-25 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) quarterly payments totaling $ 28.1 million. The Company is also required to make mandatory prepayments of principal from (i) commencing with the fiscal year ending December 31, 2022, the Company’s excess cash flow (as defined in the Credit Agreement) existing in any fiscal year and if the Senior Secured Leverage Ratio (as defined in the Credit Agreement) for such fiscal year exceeds certain predetermined limits (ii) net proceeds (as defined in the Credit Agreement) of non-ordinary course assets sales and casualty events and (iii) debt issuance proceeds (other than permitted debt under the Credit Agreement). No mandatory prepayments are due for 2021. Prepayment penalties for the Term Loan are 3 % in loan year 1, 2 % in loan year 2, 1 % in loan year 3 and no prepayment penalties thereafter. Prepayment penalties generally do not apply to mandatory prepayment obligations under the Credit Agreement, such as prepayments due in connection with excess cash flow. The Term Loan requires the Company to, among other things, maintain (i) a first lien net leverage ratio, determined as of the last day of any fiscal quarter, of no greater than 1.75 to 1.00 and (ii) liquidity, at any time, of at least $ 150.0 million. The Term Loan also contains customary affirmative and negative covenants, financial covenants, representations and warranties, events of default and other provisions. As of December 31, 2021, the Company was in compliance with all financial covenants under the Credit Agreement. The Company may elect to borrow either term benchmark borrowings or alternate base rate borrowings. Term benchmark borrowings bear interest at a variable rate per annum equal to the Adjusted Term SOFR Rate (as defined in the Credit Agreement) (subject to a 75 basis points floor) plus an applicable margin of 700 basis points. Alternate base rate borrowings bear interest at a variable rate per annum determined using a base rate (subject to a 175 basis points floor) equal to the greatest of (i) Prime Rate (as defined in the Credit Agreement) in effect on such day, (ii) NYFRB Rate (as defined in the Credit Agreement) plus 50 basis points or (iii) the Adjusted Term SOFR Rate (as defined in the Credit Agreement) plus 100 basis points, subject to certain exceptions, plus an applicable margin of 600 basis points. As of December 31, 2021, borrowings under the Term Loan consisted entirely of term benchmark borrowings at a rate of 7.75 %. Convertible Senior Notes Due 2025 In July 2020, the Company completed a private placement of $ 402.5 million in aggregate principal amount of its 0.750 % convertible senior notes due 2025, or 2025 Notes, and entered into an indenture, 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, 2021 2020 0.750 % Convertible senior notes due August 2025 $ 402,500 $ 402,500 Deferred financing costs ( 7,155 ) ( 8,940 ) Discount on debt ( 64,718 ) ( 80,530 ) Total debt, net of debt discount and deferred financing costs $ 330,627 $ 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 Pacira BioSciences, Inc. | 2021 Form 10-K | Page F-26 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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 (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, 2021. 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, 2021, the 2025 Notes had a market price of $1,113 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 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. Pacira BioSciences, Inc. | 2021 Form 10-K | Page F-27 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) While the 2025 Notes are currently classified on the Company’s consolidated balance sheet at December 31, 2021 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. 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 2024 Assumed from the Flexion Acquisition Prior to the Flexion Acquisition, on May 2, 2017, Flexion issued an aggregate of $ 201.3 million principal amount of 3.375 % convertible senior notes due 2024 (the “Flexion 2024 Notes”), pursuant to the indenture, dated as of May 2, 2017 (the “Original Flexion Indenture”), between Flexion and Wells Fargo Bank, National Association, as trustee (the “Flexion Trustee”), as supplemented by the First Supplemental Indenture, dated as of November 19, 2021, between Flexion and the Flexion Trustee (the “First Supplemental Flexion Indenture” and, together with the Original Flexion Indenture, the “Flexion Indenture”). The Flexion 2024 Notes have a maturity date of May 1, 2024, are unsecured, and accrue interest at a rate of 3.375 % per annum, payable semi-annually on May 1 and November 1 of each year. Upon the Flexion Acquisition, the principal was assumed and recorded at fair value by the Company. Upon conversion of the Flexion 2024 Notes, at the election of each holder thereof, each Flexion 2024 Note was convertible into cash, shares of Flexion’s common stock, or a combination thereof, at Flexion’s election, at a conversion rate of approximately 37.3413 shares of Flexion common stock per $1,000 principal amount of the Flexion 2024 Notes, which corresponded to an initial conversion price of approximately $ 26.78 per share of Flexion’s common stock. As a result of the Flexion Acquisition, and in connection with the Notice (as defined below), holders of the Flexion 2024 Notes became entitled to certain Flexion Acquisition-related conversion and repurchase rights, as discussed below. In addition, as a result of the Flexion Acquisition and as discussed in more detail below, any future conversion rights are subject to the occurrence of any future events giving rise to such conversion rights under the Flexion Indenture. On December 6, 2021, as a result of the Flexion Acquisition and in accordance with the Flexion Indenture, Flexion provided a Fundamental Change Company Notice and Offer to Purchase (the “Notice”) to the holders of the Flexion 2024 Notes and offered to repurchase for cash all of the outstanding Flexion 2024 Notes, at a repurchase price in cash equal to 100 % of the principal amount of the Flexion 2024 Notes being repurchased, plus accrued and unpaid interest thereon to, but excluding, January 7, 2022, subject to the terms and conditions set forth therein. The offer to purchase expired at 5:00 p.m., New York City time, on January 6, 2022, as scheduled. Pacira BioSciences, Inc. | 2021 Form 10-K | Page F-28 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Any holder that did not exercise its repurchase right in accordance with the terms of the Notice retained the conversion rights associated with such holder’s Flexion 2024 Notes under the Flexion Indenture. For conversion of Flexion 2024 Notes in connection with the Fundamental Change and the Make-Whole Fundamental Change (each as defined in the Flexion Indenture) resulting from the Flexion Acquisition, each $1,000 principal amount of the Flexion 2024 Notes was convertible into (i) $317.40 in cash and (ii) 37.3413 CVRs, based on the conversion rate of 37.3413, prior to 5:00 p.m., New York City time, on January 7, 2022. Alternatively, holders could retain their Flexion 2024 Notes and such Flexion 2024 Notes would remain outstanding subject to their existing terms, including with respect to a holder’s right to receive interest payments on the Flexion 2024 Notes and exercise any future conversion rights that may arise under the Flexion Indenture. On January 7, 2022, following the expiration of the offer to purchase, the Company accepted the $ 192.6 million aggregate principal amount of Flexion 2024 Notes that were validly tendered (and not validly withdrawn). No Flexion 2024 Notes were converted in connection with the Notice. The remaining principal outstanding is $ 8.6 million as of the date of this report. Convertible Senior Notes Due 2022 In March 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 during the year ended December 31, 2020. The total debt composition of the 2022 Notes is as follows (in thousands): December 31, 2021 2020 2.375 % Convertible senior notes due April 2022 $ 160,000 $ 160,000 Deferred financing costs ( 223 ) ( 1,089 ) Discount on debt ( 1,920 ) ( 9,263 ) Total debt, net of debt discount and deferred financing costs $ 157,857 $ 149,648 Holders may convert their 2022 Notes at any time through the close of business on the second scheduled trading day immediately preceding April 1, 2022. 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 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, 2021, the 2022 Notes had a market price of $1,039 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 Pacira BioSciences, Inc. | 2021 Form 10-K | Page F-29 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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, 2021. 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 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. 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 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, 2021 2020 2019 Contractual and other interest expense $ 9,759 $ 7,650 $ 8,195 Amortization of debt issuance costs 2,754 2,156 1,707 Amortization of debt discount 23,152 18,254 13,746 Capitalized interest (Note 7) ( 3,915 ) ( 2,389 ) ( 20 ) Total $ 31,750 $ 25,671 $ 23,628 Effective interest rate on total debt 6.66 % 7.15 % 7.81 % Pacira BioSciences, Inc. | 2021 Form 10-K | Page F-30 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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 was 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 amounts of equity investments and convertible notes receivable without readily determinable fair values have not been adjusted for either impairments 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, 2021 are as follows (in thousands): Carrying Value Fair Value Measurements Using Level 1 Level 2 Level 3 Financial Assets and Financial Liabilities Measured at Fair Value on a Recurring Basis: Financial Asset: Equity investments $ 14,127 $ — $ — $ 14,127 Convertible notes receivable $ 4,132 $ — $ — $ 4,132 Financial Liabilities: Acquisition-related contingent consideration $ 57,598 $ — $ — $ 57,598 Financial Liabilities Measured at Amortized Cost: Term loan facility due December 2026 $ 359,497 $ — $ 371,250 $ — 2.375% convertible senior notes due 2022 (1) $ 157,857 $ — $ 166,200 $ — 0.750% convertible senior notes due 2025 (1) $ 330,627 $ — $ 447,781 $ — 3.375% convertible senior notes due 2024 (2) $ 201,249 $ — $ 201,552 $ — (1) The closing price of the Company’s common stock as reported on the Nasdaq Global Select Market was $ 60.17 per share at December 31, 2021 compared to a conversion price of $ 66.89 per share for the 2022 Notes and a conversion price of $ 71.78 per share for the 2025 Notes. Therefore, at December 31, 2021, 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, 2021 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. (2) Relates to the Flexion 2024 Notes. For more information, See Note 11, Debt . 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. Pacira BioSciences, Inc. | 2021 Form 10-K | Page F-31 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Financial Liabilities Measured at Fair Value on a Recurring Basis The Company has recognized contingent consideration related to the Flexion Acquisition and the MyoScience Acquisition in the amount of $ 57.6 million and $ 28.3 million as of December 31, 2021 and 2020, respectively. Refer to Note 5, Acquisitions and Note 18, Acquisition-Related Charges, Product Discontinuation and Other, 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. 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. On November 19, 2021, as part of the purchase price consideration related to the Flexion Acquisition, the Company recorded contingent consideration of $ 45.2 million, which represents the Company’s achievement of meeting regulatory and sales-based milestones. For the period of acquisition through December 31, 2021, the Company recorded an additional $ 1.2 million liability due to an estimated $ 0.02 increase to contingent consideration per CVR fair value, which was included in acquisition-related charges in the consolidated statements of operations. At December 31, 2021, the weighted average discount rate was 12.2% and the weighted average probability of success for regulatory milestones was 12.7 %. For the year ended December 31, 2021 , the Company recognized an acquisition-related gain of $ 2.2 million and for the years ended December 31, 2020 and 2019, the Company recognized acquisition-related charges of $ 5.2 million and $ 16.7 million, respectively, related to the MyoScience Acquisition, as a result of revisions to the probabilities of regulatory milestones being met and future projections, which have been included in acquisition-related charges in the consolidated statements of operations. At December 31, 2021, the weighted average discount rate was 11.8 % and the weighted average probability of success for regulatory milestones was 1 %. The following table includes the key assumptions used in the valuation of the Company’s contingent consideration: Assumption Flexion Ranges Utilized as of December 31, 2021 MyoScience Ranges Utilized as of December 31, 2021 Discount rates 11.39 % to 12.92 % 11.42 % to 12.13 % Probability of achieving regulatory milestones 10.00 % to 15.00 % 1.00 % Projected year of achieving regulatory milestones 2026 to 2028 2023 The maximum remaining potential payments related to the contingent consideration from the Flexion Acquisition and MyoScience Acquisition are $ 425.5 million and $ 43.0 million, respectively, as of December 31, 2021. The change in the Company’s contingent consideration recorded at fair value using Level 3 measurements is as follows (in thousands): Contingent Consideration Fair Value Balance at December 31, 2020 $ 28,346 Contingent consideration related to the Flexion Acquisition 45,241 Fair value adjustments and accretion ( 989 ) Payments made or offset against amounts due ( 15,000 ) Balance at December 31, 2021 $ 57,598 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 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, 2021, all of the Company’s short-term investments are classified as Pacira BioSciences, Inc. | 2021 Form 10-K | Page F-32 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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, 2021 and 2020 (in thousands): December 31, 2021 Investments: Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value (Level 2) Short-term: Asset-backed securities $ 3,182 $ — $ — $ 3,182 Commercial paper 57,533 80 ( 2 ) 57,611 Corporate bonds 9,936 102 — 10,038 Total $ 70,651 $ 182 $ ( 2 ) $ 70,831 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 At December 31, 2021, there were no investments available for sale that were materially less than their amortized cost. The Company elects to recognize its interest receivable separate from its available-for-sale investments. At December 31, 2021 and December 31, 2020, the interest receivable recognized in prepaid expenses and other current assets was $ 0.1 million and $ 1.6 million, respectively. Equity and Convertible Note Investments At December 31, 2021 and 2020, the Company held an equity investment of $ 4.1 million and $ 1.2 million, respectively, 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. During 2021, the Company purchased a convertible note from GeneQuine in the amount of $ 1.2 million and invested an additional $ 3.0 million in equity investments. During the year ended December 31, 2021, the valuation of the convertible note was reduced by less than $ 0.1 million due to changes in foreign currency exchange rates. The Company has the right to make additional investments in debt securities of $ 1.7 million predicated upon GeneQuine achieving certain prespecified near-term milestones. In April 2021, the Company purchased preferred shares in Coda BioTherapeutics, Inc., a privately held preclinical stage biopharmaceutical company that is developing a gene-therapy platform to treat neurological disorders and diseases for a purchase price of $ 10.0 million. There were no adjustments to this investment during the year ended December 31, 2021. In April 2021, the Company purchased a convertible note in the amount of $ 3.0 million from Spine BioPharma, LLC, a preclinical stage biopharmaceutical company. There were no adjustments to this investment during the year ended December 31, 2021. Pacira BioSciences, Inc. | 2021 Form 10-K | Page F-33 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) At December 31, 2020, the Company held an equity investment in TELA Bio, Inc., or TELA Bio, in its consolidated balance sheets in the amount of $ 11.6 million. During the year ended December 31, 2021, the Company sold its investment in TELA Bio for net cash proceeds of $ 9.1 million and recognized a realized loss of $ 2.6 million, which was recorded in other, net in the consolidated statements of operations. In 2020, the fair value of TELA Bio increased by $ 1.6 million, which was recorded in other, net in the consolidated statement of operations and in 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. Subsequent to December 31, 2021, in January 2022, the Company purchased preferred shares in the privately-held Genascence Corporation, a preclinical stage biopharmaceutical company, for $ 7.5 million, recorded as an equity investment. 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, 2021, four wholesalers each accounted for over 10% of the Company’s accounts receivable at 30 %, 20 %, 17 % and 11 %. At December 31, 2020, three wholesalers each accounted for over 10% of the Company’s accounts receivable at 36 %, 28 % and 23 %. 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, 2021 and 2020, 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 44,734,308 and 43,636,929 were issued and outstanding at December 31, 2021 and 2020, 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, 2021 or 2020. 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) From Available For Sale Investments Unrealized Foreign Currency Translation Accumulated Other Comprehensive Income (Loss) Balance at December 31, 2018 $ ( 280 ) $ — $ ( 280 ) Net unrealized gain on investments, net of tax 602 — 602 Balance at December 31, 2019 322 — 322 Net unrealized loss on investments, net of tax ( 3 ) — ( 3 ) Foreign currency translation adjustments — ( 1 ) ( 1 ) Balance at December 31, 2020 319 ( 1 ) 318 Net unrealized loss on investments, net of tax ( 180 ) — ( 180 ) Foreign currency translation adjustments — 29 29 Balance at December 31, 2021 $ 139 $ 28 $ 167 Pacira BioSciences, Inc. | 2021 Form 10-K | Page F-34 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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, June 2019 and June 2021. The June 2021 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 1,500,000 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. 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 but 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, 2021, 55,483 shares were purchased and issued through the ESPP. The following tables contain information about the Company’s stock incentive plans at December 31, 2021: Stock Incentive Plan Awards Reserved For Issuance Awards Issued Awards Available For Grant 2011 Plan 14,431,701 12,425,455 2,006,246 2014 Inducement Plan 175,000 36,076 138,924 Total 14,606,701 12,461,531 2,145,170 Employee Stock Purchase Plan Shares Reserved For Purchase Shares Purchased Shares Available For Purchase 2014 ESPP 500,000 409,049 90,951 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. Pacira BioSciences, Inc. | 2021 Form 10-K | Page F-35 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The Company recognized stock-based compensation expense in its consolidated statements of operations for the years ended December 31, 2021, 2020 and 2019 as follows (in thousands): Year Ended December 31, 2021 2020 2019 Cost of goods sold $ 5,891 $ 5,589 $ 4,665 Research and development 5,465 5,211 5,114 Selling, general and administrative 30,890 29,120 23,871 Total $ 42,246 $ 39,920 $ 33,650 Stock-based compensation from: Stock options $ 25,980 $ 26,749 $ 23,360 RSUs 15,335 12,266 9,511 ESPP 931 905 779 Total $ 42,246 $ 39,920 $ 33,650 Related income tax benefit $ 8,989 $ 8,578 $ — The following table summarizes the Company’s stock option activity and related information for the period from December 31, 2018 to December 31, 2021: Number of Options Weighted Average Exercise Price (Per Share) Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value (in Thousands) 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 Granted 890,277 60.27 Exercised ( 732,117 ) 32.56 $ 23,967 Forfeited ( 278,233 ) 46.46 Expired ( 64,505 ) 80.31 Outstanding at December 31, 2021 6,050,540 $ 49.32 6.59 $ 81,407 Exercisable at December 31, 2021 3,826,646 $ 48.38 5.49 $ 59,972 Vested and expected to vest at December 31, 2021 6,050,540 $ 49.32 6.59 $ 81,407 As of December 31, 2021, $ 47.3 million of total unrecognized compensation cost related to unvested stock options is expected to be recognized over a weighted average period of 2.6 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, 2021, 2020 and 2019 was $ 26.74 , $ 22.40 and $ 20.92 per share, respectively. The fair values of stock options granted were estimated using the Black-Scholes model with the following weighted average assumptions: Pacira BioSciences, Inc. | 2021 Form 10-K | Page F-36 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Year Ended December 31, Black-Scholes Weighted Average Assumption 2021 2020 2019 Expected dividend yield None None None Risk-free interest rate 0.43 % - 1.21 % 0.22 % - 1.60 % 1.33 % - 2.54 % Expected volatility 49.1 % 53.5 % 53.9 % Expected term of options 5.36 years 5.36 years 5.22 years The following table summarizes the Company’s RSU activity and related information for the period from December 31, 2018 to December 31, 2021: Number of Units Weighted Average Grant Date Fair Value (Per Share) Aggregate Intrinsic Value (in Thousands) 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 at December 31, 2020 957,453 46.34 $ 57,294 Granted 446,450 60.81 Vested ( 309,779 ) 45.16 Forfeited ( 138,847 ) 50.67 Unvested and expected to vest at December 31, 2021 955,277 $ 52.85 $ 57,479 As of December 31, 2021, $ 41.0 million of total unrecognized compensation cost related to unvested RSUs is expected to be recognized over a weighted average period of 2.9 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 2021 2020 2019 ESPP share option fair value $ 15.16 - $ 15.23 $ 11.02 - $ 17.54 $ 11.13 - $ 11.36 Expected dividend yield None None None Risk-free interest rate 0.50 % - 0.90 % 0.14 % - 1.57 % 2.10 % - 2.56 % Expected volatility 37.0 % 44.9 % 40.2 % Expected term of ESPP share options 6 months 6 months 6 months Pacira BioSciences, Inc. | 2021 Form 10-K | Page F-37 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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 year ended December 31, 2019, no potentially dilutive securities were included in the computation of diluted net loss per share for that period. 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. As discussed in Note 3, Recent Accounting Pronouncements , ASU 2020-06 will require the Company to use the if-converted method upon adoption; this new accounting pronouncement was not adopted as of December 31, 2021. The following table sets forth the computation of basic and diluted net income (loss) per common share for the years ended December 31, 2021, 2020 and 2019 (in thousands, except per share amounts): Year Ended December 31, 2021 2020 2019 Numerator: Net income (loss) $ 41,980 $ 145,523 $ ( 11,016 ) Denominator: Weighted average shares of common stock outstanding—basic 44,262 42,671 41,513 Computation of diluted securities: Dilutive effect of stock options 1,030 783 — Dilutive effect of RSUs 298 227 — Dilutive effect of conversion premium on the 2022 Notes 38 — — Dilutive effect of ESPP purchase options 2 1 — Weighted average shares of common stock outstanding—diluted 45,630 43,682 41,513 Net income (loss) per share: Basic net income (loss) per common share $ 0.95 $ 3.41 $ ( 0.27 ) Diluted net income (loss) per common share $ 0.92 $ 3.33 $ ( 0.27 ) The following table summarizes the outstanding stock options, RSUs and ESPP purchase options that were excluded from the diluted net income (loss) per common share calculation because the effect of including these potential shares were antidilutive in the periods presented (in thousands): Year Ended December 31, 2021 2020 2019 Weighted average number of stock options 2,141 4,237 6,404 Weighted average number of RSUs 116 99 606 Weighted average ESPP purchase options 13 16 34 Total 2,270 4,352 7,044 Pacira BioSciences, Inc. | 2021 Form 10-K | Page F-38 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE 16— INCOME TAXES Income (loss) before income taxes and the related tax expense (benefit) is as follows (in thousands): Year Ended December 31, 2021 2020 2019 Income (loss) before income taxes: Domestic $ 64,751 $ 17,000 $ ( 7,026 ) Foreign ( 8,348 ) 3,089 ( 3,722 ) Total income (loss) before income taxes $ 56,403 $ 20,089 $ ( 10,748 ) Current taxes: Federal $ — $ ( 6 ) $ — State 3,533 1,185 2,096 Foreign 19 — — Total current taxes $ 3,552 $ 1,179 $ 2,096 Deferred taxes: Federal $ 12,554 $ ( 99,164 ) $ ( 1,828 ) State ( 1,682 ) ( 27,449 ) — Total deferred taxes $ 10,872 $ ( 126,613 ) $ ( 1,828 ) Total income tax expense (benefit) $ 14,424 $ ( 125,434 ) $ 268 The income tax expense of $ 14.4 million for the year ended December 31, 2021 represents the effective tax rate applied to domestic operating results adjusted for certain discrete tax items including deductible stock-based compensation, non-deductible capital losses and tax credits. 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, 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. Pacira BioSciences, Inc. | 2021 Form 10-K | Page F-39 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 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, 2021 2020 2019 U.S. federal statutory rate 21.00 % 21.00 % 21.00 % State taxes 3.82 % 3.15 % ( 7.33 ) % Foreign taxes ( 1.15 ) % 3.18 % ( 3.95 ) % Change in valuation allowance 6.55 % ( 647.87 ) % 19.76 % Stock-based compensation ( 3.80 ) % ( 1.08 ) % ( 10.53 ) % Tax credits ( 3.00 ) % ( 7.92 ) % 19.93 % Effect of rate changes — % — % ( 0.42 ) % Convertible senior notes refinancing — % ( 5.22 ) % — % Nondeductible expenses 5.13 % 4.55 % ( 13.58 ) % Reserves ( 1.31 ) % 7.66 % ( 15.41 ) % 338(g) tax election — % — % ( 9.61 ) % Other ( 1.67 ) % ( 1.84 ) % ( 2.35 ) % Effective tax rate 25.57 % ( 624.39 ) % ( 2.49 ) % The Company’s effective tax rates of 25.57 %, ( 624.39 )% and ( 2.49 )% for the years ended December 31, 2021, 2020 and 2019, respectively, differed from the expected U.S. statutory tax rate of 21.0 %. The difference in tax rates for the year ended December 31, 2021 was primarily driven by non-deductible expenses and valuation allowances recorded against capital loss carryforwards, partially offset by stock-based compensation deductions and tax credits. The difference in tax rates for the year ended December 31, 2020 was primarily due to the release of a domestic valuation allowance of $ 126.6 million as discussed below. The difference for the year ended December 31, 2019 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. 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, the Company determined there was sufficient positive evidence to conclude that it was more-likely-than-not the domestic deferred taxes of $ 126.6 million were realizable and, therefore, the domestic valuation allowance was released. The Company maintains a full valuation allowance on its foreign net deferred tax balances as it is more-likely-than-not the tax benefits are not realizable. Pacira BioSciences, Inc. | 2021 Form 10-K | Page F-40 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, 2021 and 2020 are as follows (in thousands): December 31, 2021 2020 Deferred tax assets: Net operating loss carryforwards $ 174,203 $ 66,123 Federal and state credits 35,414 17,335 Accruals and reserves 80,237 7,254 Stock based compensation 24,545 21,862 Deferred revenue 2,430 — Inventory 572 1,345 Other 2,441 2,138 Total deferred tax assets 319,842 116,057 Deferred tax liabilities: Depreciation and amortization ( 131,964 ) 13,473 Discount on convertible senior notes ( 15,521 ) ( 20,851 ) Total deferred tax liabilities ( 147,485 ) ( 7,378 ) Deferred tax assets, net of deferred tax liabilities 172,357 108,679 Less: valuation allowance ( 18,993 ) ( 2,515 ) Net deferred tax assets $ 153,364 $ 106,164 As of December 31, 2021, the Company’s federal net operating losses, or NOLs, and federal tax credit carryforwards totaled $ 662.6 million and $ 25.9 million, respectively. The Company also had state NOLs and state tax credit carryforwards of $ 171.6 million and $ 9.5 million, respectively, which are subject to change on an annual basis due to variations in the Company’s annual state apportionment factors. The Company’s federal and state NOLs carryforwards include $ 538.6 million and $ 28.6 million, respectively, attributed to the Flexion Acquisition. Additionally, the Company’s federal and state tax credits include $ 11.0 million and $ 3.6 million, respectively, as a result of the Flexion Acquisition. The federal and state NOLs will begin to expire in 2032 and 2028, respectively. The Company had non-U.S. tax NOLs of $ 10.3 million at December 31, 2021. 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 losses, tax attributes 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. Additionally, on November 19, 2021, the Company completed the Flexion Acquisition which also triggered an ownership change. As a result of these ownership changes, the Company estimates $ 531.7 million of federal net operating losses and $ 21.2 million of other tax attributes are subject to annual limitations. At December 31, 2021, all of these federal net operating losses and other tax attributes were available. The Company estimates that an additional $ 35.4 million will come available in each of 2022 to 2025, $ 30.8 million in 2026 and $ 6.9 million in 2027 and thereafter. 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 increase in its valuation allowance of $ 16.5 million and a net reduction in its valuation allowance of $ 126.6 million for the years ended December 31, 2021 and December 31, 2020, respectively. The current year net increase in The Company’s valuation allowance includes $ 12.5 million as a result of the Flexion Acquisition, $ 2.2 million against U.S. capital loss carryforwards and $ 1.8 million against foreign net deferred tax assets. The Company continues to maintain a full valuation allowance against foreign net deferred tax assets since it is more-likely-than-not the tax benefit related to the foreign losses are not realizable. During the year ended December 31, 2020, the Company determined that there was 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. Pacira BioSciences, Inc. | 2021 Form 10-K | Page F-41 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) In 2021 , the Company recorded a reserve of $ 2.9 million related to unrecognized tax benefits, or UTBs of which $ 4.3 million related to tax credit positions taken during the year, offset by a $ 1.4 million reduction for prior year tax credit positions. The Company’s UTB liability at December 31, 2021 was $ 9.0 million. The change in the Company’s UTBs for the year ended December 31, 2021 is summarized as follows (in thousands): Unrecognized Tax Benefit Balance at December 31, 2020 $ 6,076 Additions for current year positions 4,300 Reduction for prior year positions ( 1,355 ) Balance at December 31, 2021 $ 9,021 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, 2021, 2020 and 2019. The Company is currently subject to audit by the U.S. Internal Revenue Service, or IRS, for the years 2018 through 2021, and state tax jurisdictions for the years 2017 through 2021. 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 $ 2.8 million, $ 2.9 million and $ 2.6 million of related compensation expense for its 401(k) discretionary match for the years ended December 31, 2021, 2020 and 2019, 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 each of the years ended December 31, 2021 and 2020. Cash Long-Term Incentive Plan In December 2020, the Company’s board of directors adopted a cash long-term incentive plan, or LTIP, commencing in 2021, focused on pre-determined, objective performance goals. The LTIP provides cash awards to participants based on the achievement of certain performance goals during each applicable performance period from January 1 through December 31 of each calendar year. Award amounts ranging from 0 % to 225 % of the target cash award are earned based on achievement of two equally weighted financial metrics: net revenue and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA), with a relative total shareholder return modifier based on the Company’s stock price performance relative to the companies comprising the S&P Pharmaceuticals Select Industry Index. The performance period for these metrics is one year , with an additional three years of time-vesting following the performance period. The first performance period began on January Pacira BioSciences, Inc. | 2021 Form 10-K | Page F-42 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 1, 2021, and for the year ended December 31, 2021, the Company recognized $ 1.1 million of related compensation expense under the LTIP, which is payable to participants in January 2025 after the three-year vesting period concludes. NOTE 18— ACQUISITION–RELATED CHARGES, PRODUCT DISCONTINUATION AND OTHER Acquisition-related charges, product discontinuation and other for the years ended December 31, 2021, 2020 and 2019 are summarized below (in thousands): Year Ended December 31, 2021 2020 2019 Severance-related expenses $ 26,371 $ — $ 494 Acquisition-related fees 10,963 — 4,211 Other acquisition expenses 3,566 150 194 Total acquisition-related charges 40,900 150 4,899 Flexion contingent consideration 1,174 — — MyoScience contingent consideration ( 2,163 ) 5,204 16,672 Termination of Nuance agreement 3,000 — — Discontinuation of DepoCyt(e) — ( 188 ) 159 Department of Justice settlement — — 3,500 Total acquisition-related charges, product discontinuation and other $ 42,911 $ 5,166 $ 25,230 Flexion Acquisition The Company recognized acquisition-related costs of $ 40.2 million, primarily severance, legal fees, third-party services and other one-time charges during the year ended December 31, 2021 related to the Flexion Acquisition. See Note 5 , Acquisitions , for more information. On November 19, 2021, as part of the purchase price consideration related to the Flexion Acquisition, the Company recorded a contingent consideration of $ 45.2 million, which represents the Company’s achievement of meeting regulatory and sales-based milestones. From the date of the acquisition through December 31, 2021, the Company recorded an additional $ 1.2 million charge due to an estimated $ 0.02 per CVR increase to the fair value of contingent consideration, which was included in acquisition-related charges in the consolidated statements of operations. See Note 12, Financial Instruments , for information regarding the method and key assumptions used in the fair value measurements of contingent consideration. In conjunction with the Flexion Acquisition, the Company initiated a restructuring through a headcount reduction in the sales and administrative functions. MyoScience Acquisition The Company recognized acquisition-related and other charges of $ 0.7 million, $ 0.2 million and $ 4.9 million during the years ended December 31, 2021, 2020 and 2019, respectively, related to the MyoScience Acquisition. The 2021 charges relate to one-time termination benefits in the event of a facility closure. For more information see Note 21, Commitments and Contingencies . The 2020 charges relate to acquisition-related accounting services. The 2019 charges include $ 4.2 million for advisory costs, including legal, financial, accounting and tax services and $ 0.7 million for separation costs, asset write-downs and other restructuring charges. In addition, the Company recognized a contingent consideration credit of $ 2.2 million in 2021 and contingent consideration charges of $ 5.2 million and $ 16.7 million in 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 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. | 2021 Form 10-K | Page F-43 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Nuance Biotech Co. Ltd. In June 2018, the Company entered 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 had granted Nuance the exclusive rights to develop and commercialize EXPAREL. In April 2021, the Company and Nuance agreed to a mutual termination of the agreement due to the lack of a viable regulatory pathway that adequately safeguards the Company’s intellectual property against the risk of a generic product. Dissolution costs of $ 3.0 million were included in acquisition-related charges, product discontinuation and other in the consolidated statements of operations during the year ended December 31, 2021. DepoCyt(e) Discontinuation 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. The Company recorded a gain of $ 0.2 million during the year ended December 31, 2020, and a charge of $ 0.2 million in the year ended December 31, 2019, 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. No costs related to the Company’s DepoCyt(e) discontinuation were recognized in the year ended December 31, 2021 as the lease of the idle DepoCyt(e) manufacturing facility expired in August 2020. Department of Justice Inquiry Settlement During the year ended December 31, 2019, the Company recorded a charge of $ 3.5 million for the settlement of a U.S. Department of Justice inquiry. Refer to Note 21, Commitments and Contingencies , for further information surrounding our legal proceedings. 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 (the “EXPAREL Technical Transfer and Service Agreement”) and a Manufacturing and Supply Agreement to collaborate in the manufacture of EXPAREL. Under the terms of the EXPAREL 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. Prior to the Flexion Acquisition, in July 2015, Flexion and Thermo Fisher entered into a Manufacturing and Supply Agreement (the “ZILRETTA Manufacturing and Supply Agreement”) and a Technical Transfer and Service Agreement related to the manufacture of ZILRETTA at the same Thermo Fisher site in Swindon, England where the Company’s EXPAREL suites are located. Thermo Fisher agreed to undertake certain transfer activities and construction services needed to prepare its facility for the commercial manufacture of ZILRETTA in dedicated manufacturing suites. Flexion provided Thermo Fisher with certain equipment and materials necessary to manufacture ZILRETTA. The Company makes monthly payments to Thermo Fisher for such activities and reimburses Thermo Fisher for certain material, equipment and miscellaneous expenses and additional services. The initial term of the ZILRETTA Manufacturing and Supply Agreement that the Company assumed as part of the Flexion Acquisition expires in October 2027. The Company pays a monthly base fee to Thermo Fisher for the operation of the manufacturing suites and a per product fee for each vial of ZILRETTA based upon a forecast of commercial demand. The Company also reimburses Thermo Fisher for purchases of materials and equipment made on its behalf, certain nominal expenses and additional services. The ZILRETTA Manufacturing and Supply Agreement will remain in full effect unless and Pacira BioSciences, Inc. | 2021 Form 10-K | Page F-44 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) until it expires or is terminated. Upon termination of the ZILRETTA Manufacturing and Supply Agreement (other than termination by the Company in the event that Thermo Fisher does not meet the construction and manufacturing milestones or for a breach by Thermo Fisher), the Company will be obligated to pay for the costs incurred by Thermo Fisher associated with the removal of its manufacturing equipment and for Thermo Fisher’s termination costs up to a specified capped amount. Eurofarma Laboratories S.A. In June 2021, the Company entered into a distribution agreement with Eurofarma Laboratories S.A., or Eurofarma, for the development and commercialization of EXPAREL in Latin America. Under the terms of the agreement, Eurofarma obtained the exclusive right to market and distribute EXPAREL in 19 countries in Latin America, including Argentina, Brazil, Colombia and Mexico. In addition, Eurofarma is responsible for regulatory filings for EXPAREL in these countries. The Company received a $ 0.3 million upfront payment that is partially refundable upon certain circumstances and will receive royalties based on Eurofarma’s future commercialization of the product and is also eligible to receive milestone payments that are triggered by the achievement of certain regulatory and commercial events. The Company recognized $ 0.1 million of collaborative licensing and milestone revenue in its consolidated statements of operations during the year ended December 31, 2021. Verve Medical Products, Inc. In July 2021, the Company entered into a licensing agreement with Verve Medical Products, Inc. for the distribution of iovera° in Canada. The Company began selling iovera° in Canada in the fourth quarter of 2021. 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, collaborated with and supplemented 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 recorded termination-related costs of $ 8.8 million which were 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. Pacira BioSciences, Inc. | 2021 Form 10-K | Page F-45 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Hong Kong Pharma Tainuo Ltd. Prior to the Flexion Acquisition, in March 2020, Flexion entered into an exclusive license agreement with Hong Kong Tainuo Pharma Ltd., or HK Tainuo, and Jiangsu Tainuo Pharmaceutical Co. Ltd., or Jiangsu Tainuo, a subsidiary of China Shijiazhuang Pharmaceutical Co, Ltd., for the development and commercialization of ZILRETTA in Greater China (consisting of mainland China, Hong Kong, Macau and Taiwan). Under the terms of the agreement, HK Tainuo paid Flexion an upfront payment of $ 10.0 million during the year ended December 31, 2020 which was recorded as deferred revenue as of December 31, 2021. The Company is also eligible to receive up to $ 32.5 million in aggregate development, regulatory and commercial sales milestone payments. HK Tainuo is responsible for the clinical development, product registration and commercialization of ZILRETTA in Greater China. The Company is solely responsible for the manufacture and supply of ZILRETTA to HK Tainuo for all clinical and commercial activities. The terms related to product manufacturing and supply, including pricing and minimum purchase requirements agreed to in the license agreement, will be covered by a separate supply agreement, which has not yet been finalized. Unless terminated earlier in accordance with its terms, the license agreement continues in effect in perpetuity or as long as HK Tainuo or Jiangsu Tainuo continue to sell ZILRETTA in Greater China. The proceeds associated with the upfront payment have been recorded in long-term deferred revenue on the consolidated balance sheet, as there is uncertainty around the timing of when the revenue will be recognized. 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, the latter of which were fully exercised in 2020. No services were provided under the consulting agreement in the years ended December 31, 2021, 2020, or 2019, and as of December 31, 2021 and 2020, 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. 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 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. The total remaining value of these milestones is $ 30.0 million, plus 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. eVenus Pharmaceutical Laboratories Litigations In October 2021, the Company received a Notice Letter advising that eVenus Pharmaceutical Laboratories, Inc., or eVenus, of Princeton, New Jersey, submitted to the FDA an Abbreviated New Drug Application (ANDA) with a Paragraph IV certification seeking authorization for the manufacturing and marketing of a generic version of EXPAREL (266 mg/20 mL) in the U.S. prior to the expiration of U.S. Patent No. 11,033,495 (the ’495 patent). Pacira BioSciences, Inc. | 2021 Form 10-K | Page F-46 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) In November 2021, the Company filed a patent infringement suit against eVenus and its parent company in the U.S. District Court for the District of New Jersey (21-cv-19829) asserting infringement of the ’495 patent. This triggered an automatic 30-month stay of final approval of the eVenus ANDA. On January 6, 2022, eVenus filed an Answer with counterclaims to the Complaint, alleging the ’495 patent is invalid and/or not infringed through the manufacture, sale, or offer for sale of the product described in product described in eVenus’s ANDA submission. In December 2021, the Company received a second Notice Letter advising that eVenus submitted to the FDA an amendment to its ANDA with a Paragraph IV Certification seeking authorization for the manufacturing and marketing of a generic version of EXPAREL (133 mg/10 mL) in the U.S. prior to the expiration of the ’495 patent. In the Notice Letter, eVenus also advised that it submitted a Paragraph IV Certification to the FDA seeking authorization for the manufacturing and marketing of a generic version of EXPAREL (266 mg/20 mL and 133 mg/10 mL) in the U.S. prior to the expiration of U.S. Patent No. 11,179,336 (the ’336 patent). eVenus further alleges in the Notice Letter that both the ’495 patent and the ’366 patent are invalid and/or not infringed. In February 2022, the Company filed a second patent infringement suit against eVenus and its parent company in the U.S. District Court for the District of New Jersey (22-cv-00718) asserting that the 133 mg/10 mL ANDA product will infringe the ’495 and ’336 patents and that the 266 mg/20 mL ANDA product will infringe the ’336 patent. This filing triggered a second automatic 30-month stay of final approval for the 133 mg/10 mL ANDA product. These litigations are in their infancy, and the Company is unable to predict the outcome of this action at this time. Research Development Foundation Pursuant to an agreement with the Research Development Foundation, or RDF, the Company was required to pay RDF a low single-digit royalty on the collection of revenues from certain 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. The Company’s U.S. Patent No. 11,033,495 issued on June 15, 2021. Thereafter, RDF asserted that the issuance of that patent extends the Company’s royalty obligations under the agreement until 2041. The Company believes that the royalty period under the agreement was set to end on December 24, 2021 with the expiration of its U.S. Patent No. 9,585,838. Because of the disagreement over the interpretation of the agreement, in December 2021, the Company filed a declaratory judgment lawsuit in the U.S. District Court for the District of Nevada (21-cv-02241). The lawsuit seeks a declaration from the court that the Company owes no royalties to RDF with respect to its EXPAREL product after December 24, 2021. During the pendency of the lawsuit, the Company will continue to pay royalties to RDF under protest, however, 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 concluded the investigation that originated from the U.S. Department of Justice subpoena in April 2015. Purchase Obligations The Company has approximately $ 50.3 million of minimum, non-cancelable contractual commitments for contract manufacturing services and $ 9.2 million of minimum, non-cancelable contractual commitments for the purchase of certain raw materials as of December 31, 2021. Pacira BioSciences, Inc. | 2021 Form 10-K | Page F-47 Table of Contents PACIRA BIOSCIENCES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Other Commitments and Contingencies Pediatric Trial Commitments The FDA, as a condition of EXPAREL approval, has required the Company to study EXPAREL in pediatric patients, as well as the administration of EXPAREL as a nerve block in the pediatric setting. The Company was granted a deferral for the required pediatric trials until after the indications were approved in adults. Similarly, in Europe, the Company agreed with the European Medicines Agency, or EMA, on a Pediatric Investigation Plan as a prerequisite for submitting a Marketing Authorization Application (MAA) in the E.U. Despite the U.K.’s withdrawal from the E.U., the agreed pediatric plan is applicable in the U.K. In December 2019, the Company announced positive results for its extended pharmacokinetic and safety study (“PLAY”) for local analgesia in children aged six to 17 undergoing cardiovascular or spine surgeries. Those positive results were the basis for the submission of a supplemental New Drug Application, or sNDA, in the U.S. and Type II variations in the E.U. and U.K. to expand the EXPAREL label to include use in patients six years of age and older for single-dose infiltration to produce postsurgical local analgesia. In March 2021, the Company announced that the FDA approved the submission of the sNDA in the U.S. The EMA and the Medicines and Healthcare Products Regulatory Agency, or MHRA, are still reviewing the Type II variations. The Company is working with the FDA, MAA and MHRA to finalize the regulatory pathway for its remaining pediatric commitments. Contingent Milestone Payments Refer to Note 5, Acquisitions , for information on potential contingent milestone payments related to the MyoScience and Flexion acquisitions. PCRX-201 and PCRX-301 PCRX-201 (formerly FX-201) and PCRX-301 (formerly FX-301) were added to the Company’s portfolio as part of the Flexion Acquisition. Prior to the Flexion Acquisition, in February 2017, Flexion entered into an agreement with GeneQuine to acquire the global rights to PCRX-201, a gene therapy product candidate. As part of the agreement, up to an aggregate of $ 56.0 million of payments could become due upon the achievement of certain development and regulatory milestones. Prior to the Flexion Acquisition, in September 2019, Flexion entered into a definitive agreement with Xenon Pharmaceuticals, Inc. to acquire the global rights to PCRX-301, a locally administered Na V 1.7 inhibitor. As part of the agreement, up to an aggregate of $ 45.8 million of payments could become due upon the achievement of certain development and regulatory milestones and up to $ 75.0 million of payments could become due for sales-related milestones. One-Time Termination Benefits The Company has communicated to a select number of employees a commitment to provide one-time termination benefits in the event that a facility closure occurs. The Company is recognizing these expenses ratably over the remaining service period required. The Company currently estimates the total cost of these one-time benefits to be approximately $ 1.1 million. During the year ended December 31, 2021, the Company recognized $ 0.7 million in one-time termination charges, which are included in acquisition-related (gains) charges, product discontinuation and other in the consolidated statements of operations. Pacira BioSciences, Inc. | 2021 Form 10-K | Page F-48