Pacira BioSciences Inc Annual Report 2019

Plain-text annual report

Table of ContentsUNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-K (Mark One) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934 For the Fiscal Year Ended: December 31, 2019 OrTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGEACT OF 1934 For the transition period from to Commission File Number: 001-35060PACIRA BIOSCIENCES, INC. (Exact Name of Registrant as Specified in its Charter) Delaware51-0619477(State or Other Jurisdiction ofIncorporation or Organization)(I.R.S. Employer Identification No.) 5 Sylvan Way, Suite 300Parsippany,New Jersey07054(Address and Zip Code of Principal Executive Offices) (973) 254-3560(Registrant’s Telephone Number, Including Area Code) Securities registered pursuant to Section 12(b) of the Act:Title of each class Trading symbol Name of each exchangeon which registeredCommon Stock, par value $0.001 per share PCRX Nasdaq Global Select MarketSecurities registered pursuant to Section 12(g) of the Act: NoneIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No oIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No xIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirementsfor the past 90 days. Yes x No oIndicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 ofRegulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit suchfiles). Yes x No oIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or anemerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” inRule 12b-2 of the Exchange Act.Large accelerated filer☒Accelerated filerNon-accelerated filer☐Smaller reporting company Emerging growth companyIf an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new orrevised financial accounting standards pursuant to Section 13(a) of the Exchange Act. oIndicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No xThe aggregate market value of the registrant’s voting stock held by non-affiliates of the registrant, based upon the closing sale price of the common stock asreported on the Nasdaq Global Select Market on June 28, 2019, the last trading day of the registrant’s most recently completed second fiscal quarter, of $43.49 pershare was approximately $848.3 million. Shares of common stock held by each director and executive officer (and their respective affiliates) and by each personwho owns 10 percent or more of the outstanding common stock or who is otherwise believed by the registrant to be in a control position have been excluded. Thisdetermination of affiliate status is not necessarily a conclusive determination for other purposes.As of February 16, 2020, 42,033,039 shares of the registrant’s common stock, $0.001 par value per share, were outstanding.DOCUMENTS INCORPORATED BY REFERENCEPart III of this Annual Report on Form 10-K incorporates certain information by reference from the registrant’s proxy statement for the 2020 annualmeeting of stockholders to be filed no later than 120 days after the end of the registrant’s fiscal year ended December 31, 2019.iTable of ContentsPACIRA BIOSCIENCES, INC.ANNUAL REPORT ON FORM 10-KFOR THE YEAR ENDED DECEMBER 31, 2019TABLE OF CONTENTS Page #PART I 2Item 1.Business2Item 1A.Risk Factors27Item 1B.Unresolved Staff Comments52Item 2.Properties52Item 3.Legal Proceedings52Item 4.Mine Safety Disclosures52 PART II 53Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities53Item 6.Selected Financial Data54Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations55Item 7A.Quantitative and Qualitative Disclosures about Market Risk65Item 8.Financial Statements and Supplementary Data65Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure65Item 9A.Controls and Procedures65Item 9B.Other Information68 PART III 68Item 10.Directors, Executive Officers and Corporate Governance68Item 11.Executive Compensation68Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters68Item 13.Certain Relationships and Related Transactions, and Director Independence68Item 14.Principal Accounting Fees and Services68 PART IV 69Item 15.Exhibits, Financial Statement Schedules69Item 16.Form 10-K Summary721Table of ContentsForward-Looking StatementsThis Annual Report on Form 10-K (the “Annual Report”) and certain other communications made by us contain forward-looking statements within themeaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including statements about our growth and future operatingresults, discovery and development of products, strategic alliances and intellectual property. For this purpose, any statement that is not a statement of historical factshould be considered a forward-looking statement. We often use the words “believe,” “anticipate,” “plan,” “estimate,” “expect,” “intend,” “may,” “will,” “would,”“could,” “can” and similar expressions to help identify forward-looking statements. We cannot assure you that our estimates, assumptions and expectations willprove to have been correct. These forward-looking statements include, among others, statements about: the success of our sales and manufacturing efforts insupport of the commercialization of EXPAREL® (bupivacaine liposome injectable suspension); the rate and degree of market acceptance of EXPAREL; the sizeand growth of the potential markets for EXPAREL and our ability to serve those markets; our plans to expand the use of EXPAREL to additional indications andopportunities, and the timing and success of any related clinical trials; our ability to realize the anticipated benefits and synergies from the acquisition ofMyoScience, Inc., or MyoScience; the ability to successfully integrate iovera°® and MyoScience into the Company’s existing business; the commercial success ofiovera°; the related timing and success of United States Food and Drug Administration, or FDA, supplemental New Drug Applications, or sNDAs, and premarketnotification 510(k)s; the outcome of the U.S. Department of Justice, or DOJ, inquiry; the Company’s plans to evaluate, develop and pursue additional DepoFoam®-based product candidates; clinical trials in support of an existing or potential DepoFoam-based product; our commercialization and marketing capabilities and ourability to successfully construct an additional EXPAREL manufacturing suite in Swindon, England and assumptions associated with contingent considerationpayments. Important factors could cause our actual results to differ materially from those indicated or implied by forward-looking statements. We undertake nointention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, and readers shouldnot rely on the forward-looking statements as representing our views as of any date subsequent to the date of the filing of this Annual Report.These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity,performance or achievements to differ materially from those expressed or implied by these statements. These factors include the matters discussed and referencedin Part I-Item 1A. Risk Factors.PART IItem 1. BusinessReferencesPacira BioSciences, Inc., a Delaware corporation, changed its name from Pacira Pharmaceuticals, Inc. upon completing its acquisition of MyoScience, aprivately-held medical technology company, in April 2019 (referred to herein as the “MyoScience Acquisition”) in order to better reflect a broadening portfolio ofinnovative non-opioid pain management and regenerative health solutions. Pacira BioSciences, Inc. is the holding company for our California operating subsidiarynamed Pacira Pharmaceuticals, Inc., or Pacira California. In March 2007, we acquired Pacira California from SkyePharma Holdings, Inc. (now a subsidiary ofVectura Group plc), or Skyepharma (referred to herein as the “Skyepharma Acquisition”). Pacira California retained the name Pacira Pharmaceuticals, Inc. uponthe completion of the MyoScience Acquisition. Unless the context requires otherwise, references to “Pacira,” “we,” the “Company,” “us” and “our” in this AnnualReport refers to Pacira BioSciences, Inc., a Delaware corporation, and its subsidiaries.Corporate InformationWe were incorporated in Delaware under the name Blue Acquisition Corp. in December 2006 and changed our name to Pacira, Inc. in June 2007. In October2010, we changed our name to Pacira Pharmaceuticals, Inc. and in April 2019 changed our name to Pacira BioSciences, Inc. upon the completion of theMyoScience Acquisition. Our principal executive offices are located in Parsippany, New Jersey.Pacira®, EXPAREL®, iovera°®, DepoFoam®, DepoCyt® (United States (U.S.) registration), DepoCyte® (European Union (E.U.) registration), the Pacira logoand other trademarks or service marks of Pacira appearing in this Annual Report are the property of Pacira. In addition, references in this Annual Report toDepoCyt(e) mean DepoCyt when discussed in the context of the U.S. and Canada and DepoCyte when discussed in the context of the E.U.This Annual Report contains additional trade names, trademarks and service marks of other companies.OverviewWe are a leading provider of non-opioid pain management options to advance and improve outcomes for health care practitioners and their patients, focusedon becoming a global leader in delivering innovative non-opioid pain management and2Table of Contentsregenerative health solutions to surgeons and anesthesiologists. Our corporate mission is to provide an opioid alternative to as many appropriate patients aspossible. To that end, we are advancing a three-part growth strategy focusing on: (i) expanding the use of EXPAREL and iovera°, our non-opioid pain therapies;(ii) pursuing innovative opioid-sparing options through in-licensing and acquisition; and (iii) advancing a pipeline of non-opioid opportunities for acute andchronic pain management.In April 2019, we completed the MyoScience Acquisition and added the iovera° system to our commercial offering. The iovera° system is a non-opioidhandheld cryoanalgesia device used to alleviate pain.EXPAREL was approved by the FDA in October 2011 and was commercially launched in April 2012. EXPAREL is currently indicated for single-doseinfiltration in adults to produce postsurgical local analgesia and as an interscalene brachial plexus nerve block to produce postsurgical regional analgesia. Since itsinitial approval in 2011 for single-dose infiltration, more than six million patients have been treated with EXPAREL. EXPAREL consists of bupivacaine, anamide-type local anesthetic, encapsulated in DepoFoam, our proprietary extended release drug delivery technology, that delivers bupivacaine over time forextended analgesia. We believe that EXPAREL addresses a significant medical need for a long-acting non-opioid postsurgical analgesic and plays a significantrole in opioid minimization strategies. EXPAREL is designed for recovery with minimal opioid use by (i) delivering targeted local analgesia at the surgical site;(ii) reliably releasing bupivacaine over time for prolonged analgesia; (iii) eliminating the need for catheters and pumps that may hinder recovery and (iv) providinglong-lasting pain control while reducing the need for opioids. Our net product sales of EXPAREL in 2019 were $407.9 million. For the years ended December 31,2019, 2018 and 2017, net product sales of EXPAREL accounted for 97%, 98% and 99% of our total revenues, respectively. In addition to EXPAREL, DepoFoamis also the basis for future clinical candidates.The iovera° system is an FDA-approved medical device used to deliver precise, controlled doses of cold temperature only to targeted nerves, which has beenFDA 510(k) cleared for use in pain applications since March 2014. The iovera° system is highly complementary to EXPAREL as a non-opioid therapy thatalleviates pain by disrupting pain signals being transmitted to the brain from the site of injury or surgery. For the year ended December 31, 2019, net product salesof iovera° were $7.9 million. We began recognizing sales of iovera° after completing the MyoScience Acquisition in April 2019.3Table of ContentsOur current product portfolio and product candidate pipeline, along with anticipated milestones over the next 12 to 18 months, are summarized in the tablebelow:PROPRIETARY PIPELINEProduct / Product CandidatesStatusNext Expected Milestone EXPAREL (bupivacaine liposome injectable suspension): Surgical infiltrationApproved (U.S.) Geographic expansion Interscalene brachial plexus nerve blockApproved (U.S.) Publish results / geographic expansion C-section TAP field block 1Phase 4 Publish results in peer-reviewed journal C-section TAP field block follow-on study 1Phase 4 Publish results in peer-reviewed journal SpinePhase 4 Complete study Surgical infiltration/Nerve blockMAA (E.U.) Advance regulatory submission Surgical infiltration/Nerve blockNDS (Canada) Advance regulatory submission Surgical infiltration/Nerve blockNDA (China) Pre-submission meeting Pediatric infiltrationPhase 3 Submit sNDA Lower extremity nerve blockPhase 3 Complete study Pediatric nerve blockDefining Pathway Seek label expansion The iovera° system: Total knee arthroplasty (TKA)Approved Initiate studies Blocking of painApproved Initiate studies DepoFoam-based local anestheticPreclinical Advance preclinical activities DepoDexmedetomidinePreclinical Initiate clinical study NOCITA® (bupivacaine liposome injectable suspension): 2 Postsurgical analgesia in dogs and catsApproved (U.S.) Marketed by Aratana Therapeutics, Inc.1 TAP block is a transversus abdominis plane field block2 NOCITA® is a registered trademark of Aratana Therapeutics, Inc., a wholly owned subsidiary of Elanco Animal Health, Inc.Our StrategyWe continue to advance our goal to be a global leader in delivering innovative non-opioid pain management and regenerative health solutions. To achievethis, we are advancing a three-pronged strategy:•Expanding the use of EXPAREL and iovera° for opioid-sparing pain management: As the only opioid-free, long-acting local and regional analgesicapproved for infiltration, field blocks and interscalene brachial plexus nerve block, we believe EXPAREL is well-positioned to continue delivering strongsustainable growth from multiple sources. We are seeing increased use within the anesthesiology community through EXPAREL-based regionalapproaches that are enabling the shift of complex, painful procedures to the hospital outpatient and ambulatory settings. Our partnership with DePuySynthes Sales Inc., or DePuy Synthes, part of the Johnson & Johnson family of companies, has established the role of EXPAREL as the foundation ofopioid-sparing protocols for painful orthopedic procedures, including shoulder, hip fracture, joint reconstruction, and spine surgeries. We are expandingthe body of clinical evidence through Phase 4 studies in key surgical settings, such as C-section and spine. In addition, we are advancing clinical andregulatory activities to expand the EXPAREL label to include the pediatric and lower extremity nerve block settings. For iovera°, we are focusing oniovera° plus EXPAREL as a multimodal procedural solution for total knee arthroplasty, or TKA, as well as drug-free, opioid-free, surgery-free painmanagement for osteoarthritis of the knee.•Pursuing innovative acquisition targets that align with our strategy: We believe EXPAREL, iovera° and the DepoFoam platform offer a strongfoundation to address the opioid epidemic. Building on these company assets, we are also pursuing innovative acquisition targets ranging from devices,therapeutics, cell therapies and regenerative4Table of Contentsmedicines. Our goal is to build a portfolio of customer-focused non-opioid pain and regenerative health solutions to improve patients’ journeys along theneural pain pathway.•Advancing a pipeline of new clinical candidates: We are developing a pipeline based on our DepoFoam platform, our established safe and effectivemultivesicular liposomal drug delivery technology. DepoFoam consists of microscopic, spherical, lipid-based particles composed of a honeycomb ofnumerous, non-concentric, internal aqueous chambers containing the encapsulated drug. DepoFoam provides flexible delivery and can be designed tooffer an immediate release dose followed by sustained delivery. We are advancing a program for the intrathecal delivery of a DepoFoam-based localanesthetic as a potential alternative to the use of subarachnoid opioids delivered by pumps and catheters and DepoDexmedetomidine for end-of-life painand painful conditions in the elderly.EXPARELOpioid addiction in the U.S. has reached epidemic proportions, with the Centers for Disease Control and Prevention, or CDC, reporting more than 70,000drug overdose deaths in the U.S. in 2017, of which opioids were involved in nearly 48,000 of these overdose deaths or approximately 68% of all drug overdosedeaths. Overreliance on opioids in the postsurgical setting has caused a rapid deluge of opioid misuse, abuse and addiction. In 2018, new research showed thatpatients received nearly 100 to 200 opioid pills to help manage pain from four common procedures ranging from rotator cuff repair and hip replacement to kneereplacement and sleeve gastrectomy. Further, one-quarter of orthopedic surgery patients were prescribed a daily dose of opioids equal to 90 milligrams ofmorphine or more, which are doses so potent that the CDC says they put patients at high risk for overdose. The report shows that across the seven orthopedic andsoft tissue surgical procedures examined, patients were prescribed an average of 82 opioid pills each to help manage postsurgical pain. The research also indicatesthat close to 9% of surgical patients became newly persistent users in 2017, continuing to take these opioids at least three to six months after their procedure.Among patients having knee replacement surgery or a colectomy, newly persistent opioid users climbed as high as 15% and 17%, respectively. Further, womenwere 40% more likely to become persistent opioid users than men; and among persistent users, females were prescribed 15% more opioids than their malecounterparts. These findings come from the report, Exposing a Silent Gateway to Persistent Opioid Use—A Choices Matter Status Report, based on an analysis of2017 adjudicated medical and pharmacy claims data conducted by the IQVIA Institute for Human Data Science and a nationwide survey of surgical patients andsurgeons fielded in 2018 by Wakefield Research.EXPAREL provides continuous and extended postsurgical analgesia and reduces the consumption of opioid medications. We believe EXPAREL simplifiespostsurgical pain management, minimizes breakthrough episodes of pain and has the potential to result in improved patient care and outcomes, as well as enhancedhospital economics.Our EXPAREL growth strategy is summarized below:•Expanding the use of EXPAREL in key surgical settings. We are expanding the clinical evidence for EXPAREL through Phase 4 clinical trials acrossseveral surgical specialties. We have published positive results from a Phase 4 multicenter, randomized, controlled trial, or RCT, in TKA in the Journal ofArthroplasty. Positive findings from a multicenter RCT in C-section were presented at the most recent annual meeting of the Society for ObstetricAnesthesia and Perinatology (SOAP), and we recently reported positive topline results from a follow-on Phase 4 study in C-section procedures thatcompared an opioid-free EXPAREL arm to an opioid-based standard of care arm. EXPAREL is being incorporated into an increasing number ofEnhanced Recovery After Surgery, or ERAS, protocols from major academic centers for a wide range of procedures. In addition, we are advancingclinical and regulatory activities to support the future expansion of EXPAREL to the pediatric and lower extremity nerve block settings. Regulatoryinitiatives are also advancing in new global markets, such as Europe, Canada and China.•Expanding access to EXPAREL and driving education and awareness around the need for opioid-sparing strategies. New payer policies and benefits aresupporting this migration to realize cost savings while enhancing patient care through the use of opioid-sparing protocols. The Centers for Medicare andMedicaid Services, or CMS, is providing Medicare reimbursement for EXPAREL when administered in an Ambulatory Surgery Center, or ASC, throughthe product-specific Healthcare Common Procedure Coding System (HCPCS) code of C9290. Effective January 1, 2020, CMS removed total hiparthroplasty and six spinal procedures from its inpatient-only list, making these procedures eligible for payment by Medicare in the hospital outpatientsetting. The final CMS rule for 2020 also added TKA and several other procedures to its listing of ASC covered procedures. In addition, we continue toadvance our Choices Matter national educational campaign, aimed at empowering patients to proactively discuss postsurgical pain management,including non-opioid options, with their healthcare providers.5Table of Contents•Partnering with those who share our commitment to innovative opioid-sparing procedural solutions. We have a growing network of strategiccollaborations to expand education on the importance of non-opioid multimodal alternatives for post-surgical pain management and broaden ourcommercial reach. These include agreements with industry partners, as well as healthcare providers and hospital systems to support their implementationof opioid-sparing enhanced recovery protocols. In January 2017, we formed a partnership with DePuy Synthes to support the promotion, education andtraining of EXPAREL in orthopedics. We are collaborating on national and regional training initiatives with large anesthesia physician practices, such asMEDNAX, Inc. and Envision Physician Services. Our growing coalition of collaborators also includes Aetna, the American Association of Oral andMaxillofacial Surgeons, or AAOMS, the American College of Surgeons, the American Society for Enhanced Recovery, Cancer Treatment Centers ofAmerica, the Illinois Surgical Quality Improvement Collaborative, WellStar Health System and Shatterproof.org.EXPAREL Clinical BenefitsWe believe EXPAREL can replace the use of bupivacaine via elastomeric pumps as the foundation of a multimodal regimen for long-acting postsurgicalpain management. Based on our clinical data, EXPAREL: •provides long-lasting local or regionalanalgesia;•is a ready-to-use formulation;•expands easily with saline or lactated Ringer’s solution to reach a desiredvolume;•leverages existing interscalene brachial plexus nerve block, field block and infiltration administration techniques; and•facilitates treatment of both small and large surgicalsites.We believe EXPAREL is a key component of long-acting postsurgical pain management regimens that reduce the need for opioids. Based on the clinicaldata from our Phase 3 and Phase 4 clinical studies as well as data from retrospective health outcomes studies, EXPAREL significantly reduces opioid usage whileimproving postsurgical pain management.In our Phase 3 hemorrhoidectomy trial, EXPAREL:•delayed the median time to rescue analgesic use (opioids) to 15 hours for patients treated with EXPAREL versus one hour for patients treated withplacebo;•significantly increased the percentage of patients requiring no opioid rescue medication through 72 hours post-surgery to 28%, compared to 10%for placebo;•resulted in 45% less opioid usage through 72 hours post-surgery compared to placebo;and•increased the percentage of patients who were pain free at 24 hours post-surgery compared toplacebo.In our Phase 3 trial as an interscalene brachial plexus nerve block for upper extremity surgeries, EXPAREL:•decreased total opioid consumption by 78% (p<0.0001) from zero to 48 hours aftersurgery;•reduced pain scores by 46% versus placebo (p<0.0001);and•allowed 13% of patients who received EXPAREL to remain opioid-free for 48 hours after surgery (p<0.01) compared to zero patients in theplacebo arm.In our Phase 4 trial of EXPAREL versus bupivacaine HCl in TKA, EXPAREL:•decreased total opioid consumption by 78% (p=0.0048) from zero to 48 hours aftersurgery;•reduced pain scores by 14% (p=0.0381) from 12 to 48 hours after surgery;and6Table of Contents•allowed 10% of patients in the EXPAREL arm to remain opioid-free through 48 and 72 hours (compared to zero patients in the bupivacaine arm;p<0.01).In our Phase 4 trial of EXPAREL versus bupivacaine administered via a transversus abdominis plane block in C-section procedures:•Comparable pain control with a reduction in total opioid consumption with EXPAREL plus bupivacaine HCl versus bupivacaineHCl:◦52% reduction through 72 hours,(p=0.0117)◦49% reduction at one week(p=0.0175)◦41% reduction at two weeks (trending toward significance;p=0.0542)•More than a two-fold increase in the percentage of opioid-spared patients with EXPAREL versus bupivacaine HCl (defined as patients who tookno more than one oxycodone 10mg tablet, or equivalent, with no opioid-related side effects through 72 hours; p=0.0012)EXPAREL can improve patient satisfaction and outcomes. We believe EXPAREL:•provides effective pain control without the need for expensive and difficult-to-use delivery technologies that extend the duration of action forbupivacaine, such as elastomeric bags, or opioids administered through patient-controlled analgesia, or PCA, when used as part of a multimodalpostsurgical pain regimen;•reduces the need for patients to be constrained by elastomeric bags and PCA systems, which are barriers to earlier ambulation and may introducecatheter-related issues, including infection; and•promotes maintenance of early postsurgical pain management, which may reduce the time spent in the intensive careunit.EXPAREL Health Economic BenefitsIn addition to being efficacious and safe, we believe that EXPAREL provides health economic benefits that play an important role in formulary decision-making that are often overlooked. Several members of our management team have extensive experience applying health economic outcomes research to supportcommercial success. Our strategy is to work directly with the senior leadership of our hospital customers, integrated health networks, quality improvementorganizations, key opinion leaders, or KOLs, in the field of postsurgical pain management and leading influencer hospitals to provide them with retrospective andprospective studies to demonstrate the economic benefits of EXPAREL.In March 2019, we reported new data showing that a patient-optimizing, opioid-sparing ERAS pathway, which includes intraoperative infiltration withEXPAREL, results in high rates of early discharge and patient satisfaction among Medicare-insured patients undergoing TKA or total hip arthroplasty, or THA.Findings also demonstrate that the vast majority of patients do not require more than a seven-day opioid prescription following discharge. The research wasdetailed during a podium presentation at the American Academy of Orthopaedic Surgeons (AAOS) 2019 Annual Meeting.Retrospective chart review data were captured for 645 consecutive Medicare patients who underwent primary inpatient TKA (337 patients) or THA (308patients) between June 1, 2015, and November 16, 2017. All patients followed a procedure-specific ERAS protocol which included EXPAREL (Van Horne A,Van Horne J. Patient-optimizing enhanced recovery pathways for total knee and hip arthroplasty in Medicare patients: implication for transition to ambulatorysurgery centers. Arthroplasty Today 2019). Key findings included:•84% did not require any additional opioid prescriptions beyond the initial seven-day prescription provided at discharge (while nationally, 38% of kneereplacement patients are still taking opioids two months after surgery)•84% of patients were same-day discharged to home, following their jointreplacement•Patients reported high satisfaction with their perioperative experience (98% were highly satisfied with their painmanagement)7Table of Contents•Comparable or lower complication rates to nationally reportedratesIn June 2019, we reported new data on the use of EXPAREL following THA. The findings show that patients receiving EXPAREL had a significantreduction in opioid use, hospital length of stay, or LOS, and total hospitalization costs compared to THA patients who did not receive the product. The results werepublished in The Journal of Medical Economics.This retrospective analysis utilized data from the Premier Healthcare Database from January 2011 through April 2017 for the ten hospitals in the U.S. withthe highest number of THA procedures using EXPAREL. Patients undergoing THA who received EXPAREL were matched in a one-to-one ratio to a control groupof patients whose pain management strategy did not include the product. The study population included a total of 12,589 patients, with 7,232 Medicare patientsand 5,357 commercial insurance patients.Results showed that patients undergoing THA who received EXPAREL compared to those who did not demonstrated a significant:•Decrease in opioid consumption, expressed in oral morphine equivalent dosing (MED), among Medicare and commercial insurance patients (105mg MED and 81 mg MED reductions, respectively; p<0.0001)•Decrease in average hospital LOS by 0.7 days in both the Medicare and commercial insurance groups(p<0.0001)•Decrease in total hospitalization costs in the Medicare population (-$561; p<0.0001)•Increase in likelihood to be discharged home in both the Medicare and commercial insurance groups (1.66 and 1.57, respectively;p<0.0001)Results of this study are consistent with findings from several retrospective studies and RCTs on the use of EXPAREL for total joint replacement procedures,including additional data published in 2018 in The Journal of Medical Economics that found a decrease in opioid consumption, hospital LOS and hospitalizationcosts for patients receiving EXPAREL following TKA (Asche et al. Impact of treatment with liposomal bupivacaine on hospital costs, length of stay, anddischarge status in patients undergoing total knee arthroplasty at high-use institutions, Journal of Medical Economics, DOI: 10.1080/13696998.2018.1543190).Third Molar ProceduresIn September 2017, we announced a collaboration with Aetna, one of the nation’s leading diversified health care benefits companies, with the support ofAAOMS. This national program aims to reduce the number of opioid tablets dispensed to patients undergoing impacted third molar (wisdom tooth) extractions byat least 50 percent through the utilization of EXPAREL to provide prolonged non-opioid postsurgical pain control. Aetna now includes the cost of EXPAREL as acovered expense for impacted third molar extractions performed by surgeons who have completed training on use of the product.According to a Journal of the American Medical Association (JAMA) study, more than two-thirds of patients who underwent surgical tooth extractionsreported unused prescription opioids, with the majority also indicating that these medications are neither safely stored nor disposed of. These facts suggest thatthere is a dangerous accumulation of opioids in the home, which are available for potential diversion or misuse.In June 2019, investigators reported results from a study confirming that patients who received EXPAREL were prescribed significantly fewer opioidscompared to those who did not. In this study, researchers reviewed data from 600 patients who underwent impacted third molar extractions between 2012 and2018 in two dental clinics; one in Connecticut and one in North Carolina. Data from 300 patients who received EXPAREL were compared to data from 300patients who did not receive EXPAREL. Patients in the EXPAREL treatment group received:•Fewer total prescribed opioid tablets including refills, compared to patients in the non-EXPAREL group (6.4 tablets vs. 15.5 tablets, respectively;p<0.0001)•Fewer additional opioid prescriptions compared to the non-EXPAREL group (3.3% of patients required a refill vs. 7.7% of patients,respectively)8Table of ContentsThe research was presented at the June 2019 International Association for Dental Research meeting in Vancouver, Canada and highlighted in the Aetna Fall2019 Dental Dialog newsletter.EXPAREL Dosing, Volume Expansion and Admixing with Bupivacaine HClEXPAREL is available as a 266 mg/20 mL single-use vial and a 133 mg/10 mL single-use vial. The recommended dose of EXPAREL is based on (i) the sizeof the surgical site; (ii) the volume needed to cover the width and depth of the surgical site and (iii) patient-specific factors that could impact safety of an amide-type local anesthetic. The maximum dose should not exceed 266 mg.EXPAREL can be expanded in volume to optimize results. Physicians consider the size of the surgical site and neuroanatomy to determine dosing and volumeexpansion. The 266 mg (20 mL) EXPAREL vial can be expanded with up to 280 mL of normal (0.9%) saline or lactated Ringer’s solution for a total volume of300 mL (a 1:14 ratio). For smaller surgical sites where 20 mL is too much volume, the 133 mg (10 mL) vial should be considered.To ensure early analgesic activity, EXPAREL can be admixed with bupivacaine HCl so long as the ratio does not exceed 1:2. For example, the 266 mg/20mLvial may be administered with up to 30 mL of 0.5% bupivacaine HCl or up to 60 mL of 0.25% bupivacaine HCl. Bupivacaine HCl may be administeredimmediately before EXPAREL or admixed in the same syringe.EXPAREL Label Expansion StudiesPediatricsIn December 2019, we reported positive topline results from our Phase 3 registration study (known as “PLAY”) of EXPAREL administered as a single-doseinfiltration in pediatric patients undergoing spinal or cardiac surgeries. Overall findings were consistent with the pharmacokinetic and safety profiles for adultpatients with no safety concerns identified at a dose of 4 mg/kg. We believe the results from this study will provide the foundation for an sNDA submission in thefirst half of 2020 to the FDA seeking expansion of the EXPAREL label to include children aged six and over. We are also working with the FDA to finalize aregulatory pathway to expand the EXPAREL label to include EXPAREL administered as a nerve block in the pediatric setting.The PLAY study enrolled 98 patients to evaluate the pharmacokinetics and safety of EXPAREL for two patient groups: patients aged 12 to less than 17 yearsand patients aged 6 to less than 12 years. In agreement with the FDA, the primary and secondary objectives of the PLAY study were to evaluate thepharmacokinetics and safety of EXPAREL, respectively. The full study results will be submitted for publication in the peer-reviewed medical literature later thisyear.Nerve Block in Lower Extremity SurgeryWe have initiated a Phase 3 study for nerve block in lower extremity surgeries (known as “STRIDE”) that is comparing an EXPAREL nerve block in lowerextremity surgeries to a bupivacaine lower extremity nerve block in patients undergoing foot and ankle surgeries. We believe positive results from this study wouldsupport an sNDA submission seeking label expansion to include lower extremity nerve blocks. We believe the addition of this indication is significant asanesthesia-driven regional approaches using nerve and field blocks continue to expand as institutional protocols.Global ExpansionWe have defined a global expansion strategy for EXPAREL that we believe provides us with the opportunity to increase our revenue and leverage our fixedcost infrastructure. We have prioritized Europe, Canada and China. In Europe, we have secured a positive opinion for our Pediatric Investigation Plan (PIP) and inJune 2019 our Marketing Authorization Application, or MAA, was validated by the European Medicines Agency, or EMA. In Canada, which is a concentratedmarket driven by four provinces, Health Canada has validated our New Drug Submission. We do not intend to pursue a commercial partnership to commercializeEXPAREL in Europe or Canada. In China, we have an agreement with Nuance Biotech Co. Ltd., or Nuance, a China-based specialty pharmaceutical company, forthe development and commercialization of EXPAREL. We have received feedback from the National Medical Products Administration, or NMPA, in China andwe are preparing for a meeting with the NMPA in 2020 to finalize our regulatory path forward.9Table of Contentsiovera°The iovera° systemThe iovera° system is highly complementary to EXPAREL as a non-opioid therapy that delivers cryoanalgesia via a handheld device to alleviate pain bydisrupting pain signals being transmitted to the brain from the site of injury or surgery. Initially, we will focus on two broad patient care opportunities. The ioveraºsystem is 510(k) cleared in the U.S. for the blocking of pain, pain relief and symptoms associated with osteoarthritis of the knee as well as general surgical use.Our first priority is iovera° and EXPAREL for opioid-sparing pain management for the TKA patient, with iovera° being administered before surgery andEXPAREL administered during surgery. As many as 30 percent of presurgical patients with end-stage knee osteoarthritis use prescription opioids. With iovera°,our goal is to provide patients with several months of non-opioid pain control to allow them to prepare for surgery with an appropriate regimen. We also believethat EXPAREL for surgical pain control and EXPAREL plus iovera° for postsurgical pain control could support rapid functional recovery.The second target market is iovera° for osteoarthritis patients who have failed conservative treatments, such as non-steroidal anti-inflammatory drugs orviscosupplementation, and are seeking drug-free, opioid-free, surgery-free pain management for several months. We are targeting patients who are seeking anactive lifestyle, as well as patients who desire to delay surgery for personal reasons.Osteoarthritis of the KneeThere is a growing body of clinical data demonstrating success with the iovera° treatment for osteoarthritis of the knee. There are 14 million individuals inthe U.S. who have symptomatic knee osteoarthritis, and nearly two million are under the age of 45. Surgical intervention is typically a last resort for patientssuffering from osteoarthritis of the knee. In one study, the majority of the patients suffering from osteoarthritis of the knee experienced pain relief beyond 150days after being treated with iovera°.Preliminary findings demonstrated reductions in opioids, including:•The daily morphine equivalent was significantly lower at 72 hours (p<0.05), 6 weeks (p<0.05) and 12 weeks (p<0.05), with an overall 35 percentreduction in daily morphine equivalents across the 12-week postoperative period in the iovera° treatment group.•Patients who were administered iovera° were far less likely to take opioids six weeks after surgery. The number of patients taking opioids sixweeks after TKA in the control group was three times the number of patients taking opioids in the cryoanalgesia group (14% vs. 44%, p<0.01).•Patients in the iovera° group demonstrated a statistically significant reduction in pain scores from their baseline pain scores at 72 hours (p<0.05)and at 12 weeks (p<0.05).We believe these data validate iovera° as a clinically meaningful non-opioid alternative for patients undergoing TKA, and that iovera° offers the opportunityto provide patients with non-opioid pain control well in advance of any necessary surgical intervention through a number of key product attributes:•iovera° is safe and effective with immediate pain relief that can last for several months as the nerve regenerates overtime;•iovera° is repeatable;•The iovera° technology does not risk damage to the surroundingtissue;•iovera° is a convenient handheld device with a single-use procedure-specific smart tip;and•iovera° can be delivered precisely using ultrasound guidance or an anatomicallandmark.We believe the combination of iovera° and EXPAREL will become the preferred procedural solution that will empower patients and their healthcareproviders to take control of the patients’ osteoarthritis journey, while minimizing the need for opioids. We will be investing in key clinical studies to demonstratethe synergy of iovera° and EXPAREL to manage pain while reducing or eliminating opioids. Our initial focus will be iovera° and EXPAREL as a multimodalsolution for TKA.10Table of ContentsProduct PipelineGiven the proven safety, flexibility and customizability of our DepoFoam platform for acute, sub-acute and chronic pain applications, we have severalDepoFoam-based products in preclinical development. Following data readouts from animal and other feasibility studies for these candidates, we have prioritizedtwo programs for clinical development: (i) the intrathecal delivery of a DepoFoam-based analgesic for acute and chronic pain and (ii) DepoDexmedetomidine, asedative-analgesic for end-of-life pain and painful conditions in the elderly.We plan to invest in clinical initiatives to broaden the scope of iovera° applications and improve its functionality for current and future end users. This will beaccomplished through enhancements across the product line, which is comprised of single-use disposable units as well as non-disposable handheld devices.In parallel, our business development team continues to pursue innovative acquisition targets that align with our strategy and are complementary toEXPAREL and iovera° by thoughtfully pursuing additional opportunities that are of great interest to the surgical and anesthesia audiences we are already calling ontoday. Our goal is to build a portfolio of customer-focused non-opioid and regenerative health solutions to improve patients’ journeys along the neural painpathway.Sales and MarketingWe have built our marketing and sales organization to commercialize our products. Our primary target audiences are healthcare practitioners who influencepain management decisions including anesthesiologists, surgeons, pharmacists and nurses.Our field team, consisting of sales representatives, account managers, scientific and medical affairs personnel and reimbursement and market accessprofessionals, executes on a full range of activities to broaden the use of our non-opioid products for pain management, including:•providing publications and abstracts showing clinical efficacy and safety, health outcomes and reviewarticles;•working in tandem with hospital staff, such as anesthesiologists, surgeons, heads of quality, pharmacists, executives and registered nurses, toprovide access and resources for drug utilization or medication use evaluations and health outcomes studies, which provide retrospective andprospective analyses for our hospital customers using their own hospital data to demonstrate the true cost of opioid-based postsurgical pain control;•working with KOLs and advisory boards to address topics of best practice techniques as well as guidelines and protocols for the use of ourproducts, meeting the educational and training needs of our physician, surgeon, anesthesiologist, pharmacist and registered nurse customers;•undertaking education initiatives such as center of excellence programs; preceptorship programs; opioid-sparing and ERAS pain protocols andpredictive models for enhanced patient care; interactive discussion forums; patient education platforms leveraging public relations, advocacypartnerships and public affairs efforts where appropriate; web-based training and virtual launch programs;•collaborating with healthcare providers towards improving the knowledge and management of pain in surgical and osteoarthritis patients with afocus on opioid risk and non-opioid alternatives and engaging our field-based medical teams in system-wide partnerships to address the nationalopioid epidemic, with a goal of studying alternative postsurgical pain management options that focus on optimization and opioid alternativestrategies; and•facilitating reimbursement and the shift of procedures to hospital outpatient and ASC sites ofcare.DePuy Synthes Sales Inc.In January 2017, we entered into a co-promotion agreement with DePuy Synthes, part of the Johnson & Johnson family of companies, to market and promotethe use of EXPAREL for orthopedic procedures in the U.S. market. Through this collaboration, we believe we have accelerated EXPAREL growth by quicklyleveraging the broad reach of DePuy Synthes and their established relationships and scale within hospitals and ASCs.11Table of ContentsDePuy Synthes field representatives, specializing in joint reconstruction, spine, sports medicine, trauma and cranio-maxillofacial (CMF) procedures,collaborate with, and supplement, our field teams by expanding the reach and frequency of EXPAREL education in the hospital surgical suite and ambulatorysurgery center settings. DePuy Synthes is also including EXPAREL in their Orthopedic Episode of Care Approach for health systems and surgeons, and isincluding EXPAREL in all of their professional education programs. In addition to supporting orthopedic specialties, we are focusing on soft tissue surgeons inkey specialties and anesthesiologists and we continue to act as the overall EXPAREL account manager.We will also work with DePuy Synthes to improve procedure-specific patient care and to then rapidly communicate opportunities to utilize EXPAREL-basedmultimodal pain strategies to minimize opioids and improve patient satisfaction and hospital economics.DePuy Synthes receives commissions on sales of EXPAREL under the agreement, subject to conditions, limitations and adjustments. The initial term of theagreement began on January 24, 2017 and ends on December 31, 2021, with the option to extend the agreement in 12-month increments upon the parties’ mutualagreement, subject to certain conditions.We and DePuy Synthes have mutual termination rights under the agreement, subject to certain terms, conditions, and notice; provided that neither party mayterminate the agreement, without cause, within three years of the effective date of the agreement. We also have additional unilateral termination rights undercertain circumstances. The agreement contains customary representations, warranties, covenants and confidentiality provisions, and mutual indemnificationobligations. DePuy Synthes is also subject to certain obligations and restrictions, including required compliance with certain laws and regulations and our policies,in connection with fulfilling their obligations under the agreement.Other AgreementsMyoScience AcquisitionIn April 2019, we completed the MyoScience Acquisition. The consideration included an initial cash payment of $120.0 million, reduced by $1.0 million forpost-closing purchase price adjustments and indemnification obligations incurred to date, plus contingent milestone payments up to an aggregate of $100.0 million.Upon the completion of the MyoScience Acquisition, we renamed MyoScience to Pacira CryoTech, Inc. For more information on the MyoScience Acquisition,refer to Note 5, MyoScience Acquisition, to our consolidated financial statements included herein.TELA Bio, Inc.In October 2017, we made an investment of $15.0 million in TELA Bio, Inc., or TELA Bio, a surgical reconstruction company that markets its proprietaryOviTexTM portfolio of products for ventral hernia repair and abdominal wall reconstruction. OviTex Reinforced BioScaffolds (RBSs) are intended for use as asurgical mesh to reinforce and/or repair soft tissue where weakness exists. In 2019, we made an additional cash investment of $1.6 million in TELA Bio. Duringthe year ended December 31, 2019, we received a non-cash stock dividend from our investment in the amount of $2.5 million and recognized a loss in the amountof $5.7 million, recognized in the other, net line in our consolidated statements of operations. For more information, refer to Note 12, Financial Instruments, to ourconsolidated financial statements included herein.SkyePharma Holdings, Inc. (Now a Subsidiary of Vectura Group plc)In connection with the stock purchase agreement related to the Skyepharma Acquisition, we agreed to certain earn-out and milestone payments. Milestonepayments are based on net sales of DepoBupivacaine products collected, including EXPAREL, and certain other yet-to-be-developed products. For purposes ofmeeting future potential milestone payments, annual net sales are measured on a rolling quarterly basis. The milestones are as follows:•$10.0 million upon the first commercial sale in the U.S. (met April2012);•$4.0 million upon the first commercial sale in the United Kingdom, France, Germany, Italy orSpain;•$8.0 million when annual net sales collected reach $100.0 million (met September 2014);•$8.0 million when annual net sales collected reach $250.0 million (met June 2016); and•$32.0 million when annual net sales collected reach $500.0 million.The earn-out payments were based on a percentage of net sales of DepoBupivacaine products collected, including EXPAREL, for the term during which suchsales were covered by a valid claim in certain patent rights. The last patents during which a valid claim existed expired on September 18, 2018, and thus, the onlypotential remaining obligations to Skyepharma are the two above-referenced unmet milestone payments totaling $36.0 million.12Table of ContentsSee Note 9, Goodwill and Intangible Assets, to our consolidated financial statements included herein for further information related to the SkyepharmaAcquisition.Research Development FoundationPursuant to an agreement with the Research Development Foundation, or RDF, we are required to pay RDF a low single-digit royalty on the collection ofrevenues from our DepoFoam-based products for as long as certain patents assigned to us under the agreement remain valid. RDF has the right to terminate theagreement for an uncured material breach by us, in connection with our bankruptcy or insolvency or if we directly or indirectly oppose or dispute the validity of theassigned patent rights.DepoCyt(e)DepoCyt(e) was a sustained-release liposomal formulation of the chemotherapeutic agent cytarabine that utilized our DepoFoam technology. DepoCyt(e)was indicated for the intrathecal treatment of lymphomatous meningitis, a life-threatening complication of lymphoma, a cancer of the immune system. In June2017, we discontinued production of DepoCyt® (U.S. and Canada) and DepoCyte® (E.U.) due to persistent technical issues specific to the DepoCyt(e)manufacturing process.Aratana Therapeutics, Inc.In December 2012, we entered into an Exclusive License, Development and Commercialization Agreement and related Supply Agreement with AratanaTherapeutics, Inc., or Aratana. Under the agreements, we granted Aratana an exclusive royalty-bearing license, including the limited right to grant sublicenses, forthe development and commercialization of our bupivacaine liposome injectable suspension product for use in animals. In August 2016, the FDA’s Center forVeterinary Medicine, or CVM, approved NOCITA® (bupivacaine liposome injectable suspension) as a local post-operative analgesia for cranial cruciate ligamentsurgery in dogs. In August 2018, the FDA’s CVM expanded the NOCITA label to include its use as a peripheral nerve block to provide regional postoperativeanalgesia following onychectomy in cats. In June 2019, the FDA’s CVM approved a 10mL vial size for NOCITA. Aratana began purchasing our bupivacaineliposome injectable suspension product in 2016.In connection with its entry into the license agreement, we received a one-time payment of $1.0 million. In December 2013, we received a $0.5 millionmilestone payment under the agreement. In June 2016, we recorded $1.0 million in milestone revenue for Aratana’s filing of an FDA Administrative New AnimalDrug Application, or ANADA, and in August 2016 recorded $1.0 million related to the FDA’s approval of the ANADA. We are eligible to receive up to anadditional aggregate $40.0 million upon the achievement of commercial milestones. Aratana is required to pay us a tiered double-digit royalty on certain net salesmade 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 us a tiered double-digitroyalty 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 ajurisdiction or if Aratana must pay royalties to third parties under certain circumstances.Either party has the right to terminate the license agreement in connection with (i) an insolvency event involving the other party that is not discharged in aspecified period of time; (ii) a material breach of the agreement by the other party that remains uncured for a specified cure period or (iii) the failure to achieve aminimum annual revenue as set forth in the agreement, all on specified notice. We may terminate the agreement in connection with (i) Aratana’s failure to pay anyamounts due under the agreement; (ii) Aratana’s failure to achieve regulatory approval in a particular jurisdiction with respect to such jurisdiction or (iii) Aratana’sfailure to achieve its first commercial sale within a certain amount of time on a country by country basis after receiving regulatory approval, all on specified notice.Aratana may terminate the license agreement (i) upon the entry of a generic competitor for animal health indications on a country by country basis or (ii) at anytime on a country by country basis except with respect to the U.S. and any country in the E.U., all on specified notice. The parties may also terminate the licenseagreement by mutual consent. The license agreement will terminate automatically if we terminate the supply agreement. In the event that the license agreement isterminated, all rights to the product (on a jurisdiction by jurisdiction basis) will be terminated and returned to us.Unless terminated earlier pursuant to its terms, the license agreement is effective until July 2033, after which Aratana has the option to extend the agreementfor an additional five-year term, subject to certain requirements.NOCITA® is a registered trademark of Aratana.13Table of ContentsNuance Biotech Co. Ltd.In June 2018, the Company entered into an agreement with Nuance, a China-based specialty pharmaceutical company, to advance the development andcommercialization of EXPAREL in China. Under the terms of the agreement, the Company agreed to be the sole supplier of EXPAREL to Nuance and has grantedNuance the exclusive rights to develop and commercialize EXPAREL in China. The Company received an upfront payment of $3.0 million in July 2018 and iseligible to receive future milestone payments of up to $60.0 million that are triggered by filing for and securing regulatory approval(s) and annual sales in Chinaexceeding certain levels. The Company is also entitled to tiered royalties as a percentage of net sales.Significant CustomersWe had three wholesalers each comprising 10% or more of our total revenue for the year ended December 31, 2019: Cardinal Health, Inc., McKesson DrugCompany and AmerisourceBergen Health Corporation, which accounted for 34%, 29% and 26% of our revenues, respectively. These wholesalers process ordersfor EXPAREL under a drop-ship program. EXPAREL is delivered directly to end-users without the wholesalers ever taking physical possession of the product.Manufacturing and Research FacilitiesInternal FacilitiesWe manufacture EXPAREL at our facility in San Diego, California. This facility is designated as Building 1. We also have a research and developmentfacility, Building 2, which sits adjacent to Building 1, and a warehouse, Building 7, located within five miles of our manufacturing facilities. We refer to thesethree buildings as the Science Center Campus, and together these three buildings consist of approximately 150,000 square feet. Our manufacturing facilities areinspected regularly and approved for pharmaceutical manufacturing by the FDA and the Environmental Protection Agency (EPA). They have been inspected andapproved previously by the European Medicines Agency, or EMA, and the Medicines and Healthcare Products Regulatory Agency, or MHRA, but are no longerwith the discontinuation of DepoCyt(e). Our iovera° facility in Fremont, California, consists of approximately 20,000 square feet of mixed-use manufacturing,research and development and office space. We also have a lease for our former DepoCyt(e) production facility in San Diego which is currently idle and expires inAugust 2020.We purchase raw materials and components from third-party suppliers to manufacture EXPAREL and iovera°. In most instances, alternative sources ofsupply are available, although switching to an alternative source would, in some instances, take time and could lead to delays in manufacturing our productcandidates. While we have not experienced shortages of our raw materials in the past, such suppliers may not sell these raw materials to us at the times that weneed them or on commercially reasonable terms and we do not have direct control over the availability of these raw materials from our suppliers.All manufacturing of products, initial product release and stability testing are conducted by us in accordance with current Good Manufacturing Practices, orcGMP.Building 1 is an approximately 84,000 square foot structure located on a five-acre site. It was custom built as a pharmaceutical research and development andmanufacturing facility in 1995. Activities in this facility include the manufacture of EXPAREL bulk product on dedicated production lines and its fill/finish intovials, microbiological and quality control testing, product storage, development of analytical methods and manufacturing of development products. We areexpanding our EXPAREL manufacturing capacity directly and through agreements with a third-party, Thermo Fisher Scientific Pharma Services, or ThermoFisher (formerly Patheon UK Limited), as demand for EXPAREL increases, as explained below.Building 2 is an approximately 45,000 square foot research and development lab and office building located adjacent to Building 1, built in 2003. Thisbuilding houses our Science Center related general and administrative functions. The other half of the building is being used for research and developmentactivities as it includes both laboratories and the building infrastructure necessary to support the formulation, analytical testing, clinical and process developmentactivities for additional commercial product indications and new pipeline products. Our pilot plant suite for early-stage clinical product production is located in thisbuilding. Our lease for Building 2 expires in October 2020, and in April 2020, we will begin moving into new space in the adjacent Building A (which is alsoadjacent to Building 1), an approximately 90,000 square foot structure built in 2002. Building A which will eventually house all of the activities now occurring inBuilding 2 in addition to future expansion opportunities.Building 7 is an approximately 21,000 square foot building built in 1988 that serves as the main cGMP warehouse for our San Diego operations, primarilybeing used for the storage of production materials. It contains ambient as well as cold temperature cGMP warehouse storage and also features a quality controlclean room for sampling incoming materials.14Table of ContentsOur Fremont, California facility was built in 1998 and has been leased since 2015. It is dedicated to the iovera° product line and consists of approximately20,000 square feet of space for manufacturing, quality control, research and development and the warehousing of raw materials and finished goods. The entireiovera° product line of tips, cartridges and handheld systems are produced as well as developed at this site.Distribution of our DepoFoam products, including EXPAREL, requires cold-chain distribution, whereby a product must be maintained between specifiedtemperatures. We have validated processes for continuous monitoring of temperature from manufacturing through delivery to the end-user.Co-Production FacilitiesIn April 2014, we and Thermo Fisher entered into a Strategic Co-Production Agreement, Technical Transfer and Service Agreement and Manufacturing andSupply Agreement (the “Thermo Fisher Agreements”) to collaborate in the manufacture of EXPAREL. Thermo Fisher undertook certain technical transferactivities and construction services needed to prepare Thermo Fisher’s Swindon, England facility for the manufacture of EXPAREL in two dedicatedmanufacturing suites. We provided Thermo Fisher with the equipment necessary to manufacture EXPAREL and pay fees to Thermo Fisher based on ThermoFisher’s achievement of certain technical transfer and construction milestones. We also reimburse Thermo Fisher for certain nominal expenses and additionalservices. In February 2019, we announced that commercial production of EXPAREL is underway at the first Thermo Fisher suite, and that we are developing asecond dedicated suite that is expected to enable another doubling of EXPAREL manufacturing capacity and should be available to begin commercial productionin approximately one year from now.The initial term of the Manufacturing and Supply Agreement is 10 years from the date of FDA approval of the initial manufacturing suite, which wasreceived in May 2018. We pay fees to Thermo Fisher for their operation of the manufacturing suites and the amount of EXPAREL produced by Thermo Fisher. Wealso reimburse Thermo Fisher for purchases made on our behalf, certain nominal expenses and additional services. We may terminate this agreement upon onemonth’s notice if a regulatory authority causes the withdrawal of EXPAREL from the U.S. or any other market that represents 80% of our overall sales, or at anytime for convenience by providing between 18 and 36 months’ notice (depending on the number of years after the FDA approval date). Either party may terminatethe Manufacturing and Supply Agreement in the event of the breach or bankruptcy of the other party.Intellectual Property and ExclusivityWe seek to protect our products, our product candidates and our technologies through a combination of patents, trade secrets, proprietary know-how,regulatory exclusivity and contractual restrictions on disclosure. We note that the patents and applications described below are only examples intended to highlightthe variety of coverage provided by our existing and constantly developing portfolio.Patents and Patent ApplicationsWe seek to protect the proprietary position of our products and product candidates by, among other methods, filing U.S. and foreign patent applicationsrelated to our proprietary technology, inventions and improvements that are important to the development of our business. As of December 31, 2019, there are overnine families of patents and patent applications relating to various aspects of the DepoFoam delivery technology and 25 families of patents and patent applicationsrelating to various aspects of the technology used by iovera°. Patents have been issued in numerous countries, with an emphasis on the North American, Europeanand Japanese markets. These patents generally have a term of 20 years from the date of the non-provisional filing unless referring to an earlier filed application.Some of our expired U.S. patents had a term of 17 years from the grant date. Our issued patents expire at various dates in the future, as discussed below, with thelast currently issued patent for the DepoFoam delivery technology expiring in 2033 and the last currently issued patent for the iovera° technology expiring in 2037.Patents and Patent Applications for DepoFoam and DepoFoam ProductsWe received an issue notification from the United States Patent and Trademark Office, or USPTO, stating that a patent relating to product-by-process andprocess in connection with the production of multivesicular liposomes was issued on March 7, 2017. This patent is listed on the Orange Book for EXPAREL andincludes a patent term adjustment that equates to an expiration date of December 24, 2021.15Table of ContentsIssued patents for EXPAREL in the U.S. relating to methods for modifying the rate of drug release of the product candidate and the composition of theproduct candidate expired in January 2017 and September 2018, respectively. Pursuant to 35 U.S.C. § 156, an application for patent term extension was filed withthe USPTO in October 2016 in connection with the regulatory approval of Aratana’s NOCITA. That application was subsequently withdrawn after the product-by-process patent, referenced above, was issued on March 7, 2017. In the U.S., a patent relating to the composition of the product was issued in September 2014 andexpired in September 2018. A patent relating to the method of treatment using EXPAREL was issued in December 2015 and expired in September 2018. InEurope, granted patent(s) related to the composition of EXPAREL expired in September 2018. A patent relating to methods of modifying the rate of drug releaseof the product candidate expired in January 2018. In addition, a patent relating to the process for making the product candidate expired in November 2018.In April 2010, a provisional patent was filed relating to a new process to manufacture EXPAREL and other DepoFoam-based products. The process offersmany advantages to the current process, including larger scale production and lower manufacturing costs. In April 2011, we filed an international patentapplication providing the basis for several national phase patent applications, for example in Europe, China, Japan, Israel and India which, if granted, couldpotentially prevent others from using this process until at least 2031. In the U.S., we also filed a series of patent applications directed to the new manufacturingprocess. Seven of the patent applications were issued as patents as of December 2018. Patents that claim the process and apparatus will expire at the latest inNovember 2033. One of the patents claims a product made by the process and expires in April 2031. As of December 31, 2019, we have four granted patents inChina, one granted patent in Japan and one granted patent in Israel, protecting various aspects of the new process, including the methods of using the apparatus andthe apparatus itself. Furthermore, a non-exclusively licensed patent of ours relating to EXPAREL was allowed in Europe with an expiration date in October 2021and the patent term was extended in the U.S. until October 2023.Patents and Patent Applications for iovera°Issued patents in the U.S. afford us a wide range of coverage of various aspects of the iovera° technology. For example, several of our earliest filed patentscover the structural aspects of a handheld cryogenic device with single needle and needle arrays, tissue-penetrating needle probes that may be detachable, fusedsilica tubing fluid delivery paths, methods of applying cryotherapy using the cryogenic device and methods for using replaceable needle probes. These patents areset to expire between 2025 and 2032. An important patent family specifically directed to systems and methods of treating pain offers both broad and variablecoverage of cryogenic device features and methods of using the same for pain management, including single-use needle probes, particular needle sizes and shapes.Patents in this family are set to expire between 2025 and 2028. Another important patent family has broad disclosure and coverage of a variety of indications fortreatment by cryogenic devices, including joint function and stiffness, osteoarthritis, occipital neuralgia, spasticity, neuroma and other nerve entrapment indicationsand is set to expire between 2033 and 2037.Additionally, there are several patents and pending patent applications directed to other important aspects of the iovera° technology. For example, patentscovering needle cladding and the probe filtration system are set to expire in 2033 and a patent on the smart tip technology is not set to expire until 2037. Otherapplications cover methods of using needles with blunt tips and aspects of cryogenic devices coupled with a neurostimulator for locating nerves. We also havethree design patent families that cover the current handheld cryogenic device, its charging station dock and combinations thereof. To obtain coverage of ourdeveloping next-generation technology, we filed four new provisional applications in 2019, which if converted and granted, could potentially prevent others fromusing this next-generation technology until at least 2040.Trade Secrets and Proprietary InformationTrade secrets play an important role in protecting our DepoFoam-based and iovera° products and provide protection beyond patents and regulatoryexclusivity. The scale-up and commercial manufacture of DepoFoam-based and iovera° products involve processes, custom equipment and in-process and releaseanalytical techniques that we believe are unique to us. The expertise and knowledge required to understand the critical aspects of DepoFoam manufacturing stepsrequires knowledge of both traditional and non-traditional emulsion processing and traditional pharmaceutical production, overlaid with all of the challengespresented by aseptic manufacturing. The iovera° system relies on manufacturing techniques that are able to provide the precision and tight tolerances required for aself-contained handheld cryogenic device. Additionally, our device includes proprietary software for device operations during cryotherapy treatments.We seek to protect our proprietary information, including our trade secrets and proprietary know-how, by requiring our employees, consultants and otheradvisors to execute proprietary information and confidentiality agreements upon the commencement of their employment or engagement. These agreementsgenerally provide that all confidential information developed or made known during the course of the relationship with us be kept confidential and not be disclosedto third parties except in specific circumstances. In the case of our employees, the agreements also typically provide that all inventions16Table of Contentsresulting from work performed for us, utilizing our property or relating to our business and conceived or completed during employment shall be our exclusiveproperty to the extent permitted by law. Where appropriate, agreements we obtain with our consultants also typically contain similar assignment of inventionobligations. Further, we require confidentiality agreements from third parties that receive our confidential data or materials.CompetitionEXPARELThe pharmaceutical industry is intensely competitive and subject to rapid and significant technological change. Our competitors include organizations suchas major multinational pharmaceutical companies, established biotechnology companies, specialty pharmaceutical companies and generic drug companies. Manyof our competitors have greater financial and other resources than we have, such as more commercial resources, larger research and development staffs and moreextensive marketing and manufacturing organizations. As a result, these companies may obtain marketing approval more rapidly than we are able and may bemore effective in developing, selling and marketing their products. Smaller or early-stage companies may also prove to be significant competitors, particularlythrough collaborative arrangements with large, established companies.Our competitors may succeed in developing, acquiring or licensing on an exclusive basis technologies and drug products that are more effective or less costlythan EXPAREL or any other products that we are currently selling through partners or developing or that we may develop, which could render our productsobsolete and noncompetitive. We expect any products that we develop and commercialize to compete on the basis of, among other things, efficacy, safety,convenience of administration and delivery, price and the availability of reimbursement from government and other third-party payers.EXPAREL competes with well-established products with similar indications. Competing products available for postsurgical pain management includeopioids such as morphine, fentanyl, meperidine and hydromorphone, each of which is available generically from several manufacturers, and several of which areavailable as proprietary products using novel delivery systems. Ketorolac, a non-steroidal anti-inflammatory drug, or NSAID, is also available generically in theU.S. from several manufacturers, and Caldolor (ibuprofen for injection), an NSAID, has been approved by the FDA for pain management and fever in adults.EXPAREL also competes with currently-marketed non-opioid products such as bupivacaine, marcaine, ropivacaine and other anesthetics/analgesics, all of whichare also used in the treatment of postsurgical pain and are available as either oral tablets, injectable dosage forms or administered using novel delivery systems.Additional products may be developed for the treatment of acute pain, including new injectable NSAIDs, novel opioids, new formulations of currently availableopioids and NSAIDs, long-acting local anesthetics and new chemical entities as well as alternative delivery forms of various opioids and NSAIDs. CurrentlyEXPAREL also competes with elastomeric pump/catheter devices intended to provide bupivacaine over several days. Avanos Medical, Inc. markets these medicaldevices in the U.S.iovera°The medical device industry is intensely competitive and subject to rapid and significant technological change. The cryotherapy pain management field inparticular is a growing industry due to increased attention on opioid usage for pain, which has created a rapidly emerging market and has fueled an increasedinterest in opioid alternatives. Many of our competitors in our space have greater financial and other resources than we have, such as more commercial resources,larger research and development staffs and more extensive marketing and manufacturing organizations. As a result, these companies may obtain marketingapproval more rapidly than we are able and may be more effective in developing, selling and marketing their products. The rise of various small and early-stagecompanies in the cryotherapy pain management field may also prove to be significant competitors, particularly if they enter into collaborative arrangements withlarge, established companies.Our competitors are continuously engaged in trials and attempts to develop new products or approaches in hopes of capturing the pain management market.They may succeed in developing, acquiring or licensing on an exclusive basis, technologies that are more effective or less costly than the iovera° system, whichcould render the iovera° system obsolete and noncompetitive. As a result, it is critical that we continue to innovate and to increase marketing efforts in our primarymarkets. We expect any products that we develop and commercialize to compete on the basis of, among other things, efficacy, safety, convenience ofadministration and delivery, price and the availability of reimbursement from government and other third-party payers.Besides pharmaceutical products for pain management, iovera° competes with medical devices that ablate or degenerate peripheral nerves to treat indicationssuch as joint pain, neuralgia and osteoarthritis pain. Competing products include cryotherapy devices as well as other devices such as cooled radio-frequencyablation devices that block or degenerate17Table of Contentsperipheral nerves involved in conducting pain signals. Avanos Medical, Inc. markets these medical devices in the U.S. Additional non-opioid products or entirelydifferent approaches may also be developed for pain management by one or more of our competitors.Government RegulationIn the U.S., prescription drug and medical device products are subject to extensive pre- and post-market regulation by the FDA, including regulations thatgovern the research, development, testing, manufacturing, distribution, safety, efficacy, approval, labeling, storage, record keeping, reporting, advertising andpromotion of such products under the Federal Food, Drug and Cosmetic Act, or FDCA, and its implementing regulations. Outside the U.S., prescription drug andmedical device products are regulated by comparable agencies, laws and regulations. Failure to comply with applicable regulatory requirements in the U.S. orelsewhere may result in, among other things, refusal to approve pending applications, withdrawal of an approval, warning letters, clinical holds, civil or criminalpenalties, recall or seizure of products, injunction, debarment, partial or total suspension of production or withdrawal of the product from the market. Any agencyor judicial enforcement action could have a material adverse effect on the Company.United States Regulatory EnvironmentPharmaceuticalsGenerally, the FDA must approve any new drug, including a new use of a previously approved drug, before marketing of the drug occurs in the U.S. Thisprocess generally involves:•completion of preclinical laboratory and animal testing and formulation studies in compliance with the FDA’s Good Laboratory Practiceregulations (21 CFR 58);•submission to the FDA of an Investigational New Drug, or IND, application for human clinical testing, which must become effective before humanclinical trials may begin for unapproved use in the U.S.;•approval by an independent Institutional Review Board, or IRB, at each clinical trial site before each trial may beinitiated;•performance of adequate and well-controlled human clinical trials in accordance with the FDA’s Good Clinical Practices, or GCP, to establish thesafety and efficacy of the proposed drug product for each intended use;•completion of process validation, quality product release andstability;•submission of a New Drug Application, or NDA, to theFDA;•satisfactory completion of an FDA pre-approval inspection of the product’s manufacturing facility or facilities to assess compliance with cGMPrequirements and to ensure that the facilities, methods and controls are adequate to preserve the drug’s identity, quality and purity;•satisfactory completion of an FDA advisory committee review, if applicable;and•review and approval by the FDA of theNDA.The preclinical and clinical testing and approval process requires substantial time, effort and financial resources, and we cannot be certain that the FDA willgrant approvals for any of our product candidates on a timely basis, if at all. Preclinical tests include laboratory evaluation of product chemistry, formulation andstability, as well as studies to evaluate toxicity in animals. The results of preclinical tests, together with manufacturing information, analytical data and a proposedclinical trial protocol and other information, are submitted as part of an IND application to the FDA. The IND automatically becomes effective 30 days afterreceipt by the FDA, unless the FDA places the trial on a clinical hold because of, among other things, concerns about the conduct of the clinical trial or aboutexposure of human research subjects to unreasonable health risks. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before theclinical trial can begin. Thus, submission of an IND does not by itself automatically result in FDA authorization to commence a clinical trial. In addition, the FDArequires us to amend an existing IND for each successive clinical trial conducted during product development. Further, an IRB covering each site proposing toconduct the clinical trial must review and approve the plan for any clinical trial along with informed consent information for subjects before the clinical trialcommences at that center. The IRB also must monitor the clinical trial18Table of Contentsuntil it is completed. The FDA, the IRB or the sponsor may suspend a clinical trial at any time, on various grounds, including a finding that the subjects or patientsare being exposed to an unacceptable health risk. We may also suspend or terminate a clinical trial based on evolving business objectives and/or the competitiveclimate.Clinical trials involve the administration of the product candidate to healthy volunteers or patients having the disease being studied under the supervision ofqualified investigators in accordance with GCP requirements, which include the requirement that all research subjects provide their informed consent for theirparticipation in any clinical trial. Sponsors of clinical trials generally must register at the NIH-maintained website (www.clinicaltrials.gov) and report key findingsand parameters. For purposes of an NDA submission and approval, typically, the conduct of human clinical trials occurs in the following three pre-marketsequential phases, which may overlap or be combined:•Phase 1: Sponsors initially conduct clinical trials in a limited population, either patients or healthy volunteers, to test the product candidate forsafety, dose tolerance, absorption, metabolism, distribution, excretion and clinical pharmacology, and, if possible, to gain early evidence ofeffectiveness. In the cases of some products for severe or life-threatening diseases, especially when the product may be too inherently toxic toethically administer to healthy volunteers, the initial human testing often is conducted only on patients having the specific disease.•Phase 2: Sponsors conduct clinical trials generally in a limited patient population to identify possible adverse effects and safety risks, topreliminarily evaluate the efficacy of the product for specific targeted indications and to determine dose tolerance, optimal dosage and dosingschedule. Sponsors may conduct multiple Phase 2 clinical trials to obtain information prior to beginning larger and more extensive Phase 3 clinicaltrials.•Phase 3: These include expanded controlled and uncontrolled trials, including pivotal clinical trials. When Phase 2 evaluations suggest theeffectiveness of a dose range of the product and acceptability of such product’s safety profile, sponsors undertake Phase 3 clinical trials in largerpatient populations to obtain additional information needed to evaluate the overall benefit and risk balance of the drug and to provide an adequatebasis to develop labeling.Some clinical trials may be overseen by an independent group of qualified experts organized by the clinical trial sponsor, known as a data safety monitoringboard or committee. This group provides authorization for whether or not a trial may move forward at designated check points based on access to certain data fromthe trial. The process of completing clinical testing and obtaining FDA approval for a new drug is likely to take a number of years and requires the expenditure ofsubstantial resources. If an application is submitted, there can be no assurance that the FDA will review and approve the NDA. In addition, sponsors may elect toconduct, or be required by the FDA to, conduct post-approval clinical trials to further assess the drug’s safety or effectiveness after NDA approval, generate newdata and best-practice administration techniques. Such post approval trials are typically referred to as Phase 4 clinical trials.Medical DevicesIn the U.S., the Medical Device Amendments of 1976 to the FDCA and its subsequent amendments regulate the design, manufacture and marketing ofmedical devices. Medical devices that require notification submitted as a 510(k) clearance request must be reviewed and cleared by the FDA before we can beginmarketing them. To request 510(k) clearance, we must be able to demonstrate that the medical device is substantially equivalent to a previously-cleared and legallymarketed 510(k) medical device. Medical devices require extensive clinical testing which consists of safety and efficacy studies, followed by pre-market approval,or PMA, applications for specific surgical indications. The FDA’s Quality System Regulations, or QSRs, set forth standards for our product design andmanufacturing processes, require the maintenance of certain records and provide for inspections of our facilities by the FDA. There are also certain requirements ofstate, local and foreign governments that must be complied with in the manufacture and marketing of our products.U.S. Review and Approval ProcessPharmaceuticalsAssuming successful completion of all required testing in accordance with all applicable regulatory requirements, sponsors submit the results of productdevelopment, preclinical studies and clinical trials to the FDA as part of an NDA requesting approval to market the product for one or more indications. NDAsmust also contain extensive information relating to the product’s pharmacology, chemistry, manufacture, controls and proposed labeling, among other things. Inaddition, 505(b)(2) applications must contain a patent certification for each patent listed in FDA’s “Orange Book” that covers the drug19Table of Contentsreferenced in the application and upon which the third-party studies were conducted. For some drugs, the FDA may require Risk Evaluation and MitigationStrategies, or REMS, which could include medication guides, physician communication plans or restrictions on distribution and use, such as limitations on whomay prescribe the drug or where it may be dispensed or administered. Upon receipt of an NDA, the FDA has 60 days to determine whether it is sufficientlycomplete to initiate a substantive review. If the FDA identifies deficiencies that would preclude substantive review, the FDA will refuse to accept the NDA(“refuse to file”) and will inform the sponsor of the deficiencies that must be corrected prior to resubmission. The resubmitted application is also subject to reviewbefore the FDA accepts it for filing. If the FDA accepts the submission for substantive review, the FDA typically reviews the NDA in accordance with establishedtimeframes. Under the Prescription Drug User Fee Act, or PDUFA, the FDA establishes goals for NDA review time through a two-tiered classification system:Priority Review and Standard Review. A Priority Review designation is given to drugs that address an unmet medical need by offering major advances intreatment or providing a treatment where no adequate therapy currently exists. Standard Review applies to all applications that are not eligible for Priority Review.The FDA aims to complete Standard Reviews of NDAs within 12 months of submission (ten months after the Day 60 filing date) and Priority Reviews within eightmonths of submission (six months after the Day 60 filing date). Review processes may sometimes extend beyond these target completion dates due to FDArequests for additional information or clarification, difficulties scheduling an advisory committee meeting, negotiations regarding REMS or FDA workload issues,but in general under PDUFA the FDA is supposed to complete its reviews within the target timeframes despite these factors. The FDA may refer the application toan advisory committee for review, evaluation and recommendation as to the application’s approval. The recommendations of an advisory committee do not bindthe FDA, but the FDA generally follows such recommendations.Under PDUFA, NDA applicants must pay significant NDA user fees upon submission. In addition, manufacturers of approved prescription drug productsmust pay annual program fees.Before approving an NDA, the FDA will inspect the facility or facilities where the product is manufactured. The FDA will not approve an application unlessit determines that the manufacturing processes and facilities are in compliance with cGMP requirements and are adequate to ensure consistent production of theproduct within required specifications. Additionally, the FDA will typically inspect one or more clinical sites to ensure compliance with GCP before approving anNDA.After the FDA evaluates the NDA and the manufacturing facilities, it may issue an approval letter or a Complete Response Letter, or CRL, to indicate thatthe review cycle for an application is complete and that the application is not ready for approval. CRLs generally outline the deficiencies in the submission andmay require substantial additional testing or information in order for the FDA to reconsider the application. Even if such additional information is submitted, theFDA may ultimately decide that the NDA does not satisfy the criteria for approval. Data from clinical trials are not always conclusive and the FDA may interpretdata differently than we do. The FDA could also require a REMS plan which could include medication guides, physician communication plans or elements toassure safe use, such as restricted distribution methods, patient registries and other risk minimization tools. The FDA also may approve an NDA contingent on,among other things, changes to proposed labeling, a commitment to conduct one or more post-market studies or clinical trials and the correction of identifiedmanufacturing deficiencies, including the development of adequate controls and specifications. If and when the deficiencies have been addressed to the FDA’ssatisfaction, the FDA will typically issue an approval letter. An approval letter authorizes commercial marketing of the drug with specific prescribing informationfor specific indications.Medical DevicesIn the U.S., authorization to bring a medical device to market is generally obtained in one of two ways. The first pathway, a pre-market notification (the510(k) process), requires demonstration that the new device is substantially equivalent to an already legally marketed medical device. The second pathway, knownas pre-market approval, or PMA, requires an independent demonstration that a medical device is safe and effective for its intended use. In general, pre-marketapprovals require a much longer time horizon and can be much more expensive than obtaining clearance through the 510(k) process.To obtain 510(k) clearance, we must file with the FDA a pre‑market notification demonstrating that our proposed device is substantially equivalent to apreviously cleared and legally marketed 510(k) device or a device that was in commercial distribution before May 28, 1976 for which the FDA has not yet calledfor the submission of a PMA. 510(k) clearance for iovera° was first obtained in March 2009 when the focus of MyoScience was cosmetic applications (i.e. facialwrinkle reduction). The MyoScience business focus shifted to pain management in 2014, and since then there have been a number of advancements that led tothree additional 510(k) submissions and clearances to support iovera° and the subsequent growth of the iovera° product line.20Table of ContentsA PMA must be submitted to the FDA if it is determined that the device is not eligible for the 510(k) clearance process. A PMA must be supported byextensive data including, but not limited to, technical, preclinical and clinical trials, manufacturing and labeling to demonstrate reasonable evidence of the device’ssafety and efficacy to the FDA’s satisfaction.After a device receives 510(k) clearance or a PMA approval, it may be changed or modified. Any modification that could significantly affect its safety oreffectiveness, or that would constitute a significant change in its intended use, will require a new clearance or approval. Regulations provide that the manufacturerinitially determines when a specific modification requires notification to FDA. The FDA has issued draft guidance that, if finalized and implemented, will result inmanufacturers needing to seek a significant number of new clearances for changes made to legally marketed devices. The FDA reviews the manufacturer’s decisionto file a 510(k) or PMA for modifications during facility audits.Section 505(b)(2) New Drug ApplicationsFor pharmaceutical products, as an alternate path to FDA approval, particularly for modifications to drug products previously approved by the FDA, anapplicant may submit an NDA under Section 505(b)(2) of the FDCA. Section 505(b)(2) was enacted as part of the Drug Price Competition and Patent TermRestoration Act of 1984, also known as the Hatch-Waxman Act, and permits the submission of an NDA where at least some of the information required forapproval comes from preclinical and/or clinical trials not conducted by or for the applicant. The FDA interprets Section 505(b)(2) of the FDCA to permit theapplicant to rely upon the FDA’s previous findings of safety and effectiveness for an approved product. The FDA may also require companies to performadditional clinical trials or measurements to support any change from the previously approved product. The FDA may then approve the new product candidate forall or some of the label indications for which the referenced product has been approved, as well as for any new indication sought by the Section 505(b)(2)applicant.Applications under Section 505(b)(2) are subject to any non-patent exclusivity period applicable to the referenced product, which may delay approval of the505(b)(2) application even if the FDA has completed its substantive review and determined the drug should be approved. In addition, 505(b)(2) applications mustinclude patent certifications to any patents listed in the FDA’s Orange Book as covering the referenced product. If the 505(b)(2) applicant seeks to obtain approvalbefore the expiration of an applicable listed patent, the 505(b)(2) applicant must provide notice to the patent owner and NDA holder of the referenced product. Ifthe patent owner or NDA holder brings a patent infringement lawsuit within 45 days of such notice, the 505(b)(2) application cannot be approved for 30 months oruntil the 505(b)(2) applicant prevails, whichever is sooner. If the 505(b)(2) applicant loses the patent infringement suit, FDA may not approve the 505(b)(2)application until the patent expires, plus any period of pediatric exclusivity.In the NDA submissions for our product candidates, we intend to follow the development and approval pathway permitted under the FDCA that we believewill maximize the commercial opportunities for these product candidates.Post-Approval RequirementsPharmaceuticalsAfter approval, the NDA sponsor must comply with comprehensive requirements governing, among other things, drug listing, recordkeeping, manufacturing,marketing activities, product sampling and distribution, annual reporting and adverse event reporting.If new safety issues are identified following approval, the FDA can require the NDA sponsor to revise the approved labeling to reflect the new safetyinformation; conduct post-market studies or clinical trials to assess the new safety information and implement a REMS program to mitigate newly-identified risks.The FDA may also require post-approval testing, including Phase 4 trials, and surveillance programs to monitor the effect of approved products which have beencommercialized, and the FDA has the authority to prevent or limit further marketing of a product based on the results of these post-marketing programs. Drugsmay be marketed only for approved indications and in accordance with the provisions of the FDA-approved label. Further, if we modify a drug, including anychanges in indications, labeling or manufacturing processes or facilities, the FDA may require us to submit and obtain FDA approval of a new or supplementalNDA, which may require us to develop additional data or conduct additional preclinical studies and clinical trials.In addition, drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishmentswith the FDA and state agencies and are subject to periodic unannounced inspections by the FDA and these state agencies for compliance with cGMPrequirements. Changes to the manufacturing process are strictly regulated and often require prior FDA approval before being implemented. FDA regulations alsorequire investigation21Table of Contentsand correction of any deviations from cGMP and impose reporting and documentation requirements upon us and any third-party manufacturers that we may decideto use.If after approval the FDA determines that the product does not meet applicable regulatory requirements or poses unacceptable safety risks, the FDA may takeother regulatory actions, including initiating suspension or withdrawal of the NDA approval. Later discovery of previously unknown problems with a product,including adverse events of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result in,among other things:•restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or productrecalls;•fines, warning letters or holds on post-approval clinical trials;•refusal of the FDA to approve pending applications or supplements to approved applications, or suspension or revocation of product licenseapprovals;•product seizure or detention, or refusal to permit the import or export of products;or•injunctions or the imposition of civil or criminalpenalties.The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. These regulations include standards andrestrictions for direct-to-consumer advertising, industry-sponsored scientific and educational activities, promotional activities involving the internet and off-labelpromotion. While physicians may prescribe for off-label uses, manufacturers may only promote for the approved indications and in accordance with the provisionsof the approved label. The FDA has very broad enforcement authority under the FDCA, and failure to abide by these regulations can result in penalties, includingthe issuance of a warning letter directing entities to correct deviations from FDA standards, a requirement that future advertising and promotional materials be pre-cleared by the FDA, and state and federal civil and criminal investigations and prosecutions.In addition, the distribution of prescription pharmaceutical products is subject to the Prescription Drug Marketing Act, or PDMA, which regulates thedistribution of drugs and drug samples at the federal level and sets minimum standards for the registration and regulation of drug distributors by the states. Both thePDMA and state laws limit the distribution of prescription pharmaceutical product samples and impose requirements to ensure accountability in distribution,including a drug pedigree which tracks the distribution of prescription drugs.In December 2015, we announced that we achieved an amicable resolution with the U.S. in our lawsuit filed in September 2015 against the FDA and othergovernmental defendants. The resolution confirmed that EXPAREL is, and has been since its approval in 2011, broadly indicated for single-dose infiltration intothe surgical site to produce postsurgical analgesia. In April 2018, the FDA approved an expansion of the label for EXPAREL to include interscalene brachialplexus nerve block. The new indication statement in the label for EXPAREL now reads: “EXPAREL is indicated for single-dose infiltration in adults to producepostsurgical local analgesia and as an interscalene brachial plexus nerve block to produce postsurgical regional analgesia. Safety and efficacy has not beenestablished in other nerve blocks.”Medical DevicesThe FDA has broad post‑market and regulatory obligations that we must adhere to. We are subject to unannounced inspections by the FDA to determine ourcompliance with QSRs and other rules and regulations.After a medical device is placed on the market, numerous regulatory requirements apply. These include, but are not limited to:•QSRs, which require manufacturers, including third‑party manufacturers, to follow stringent design, testing, documentation and other qualityassurance procedures during product design and throughout the manufacturing process;•Labeling regulations and FDA prohibitions against the promotion of products for uncleared, unapproved or off‑label uses;and22Table of Contents•Medical device reporting regulations, which require that manufacturers report to the FDA if their device may have caused or contributed to a deathor serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if the malfunction were to recur.Failure to comply with regulatory requirements can result in enforcement action by the FDA, which may include any of the following sanctions:•restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the market or productrecalls;•fines, warning letters or holds on post-approval clinical trials;•the potential withdrawal of 510(k) clearance or other approvals that were previouslygranted;•refusal of the FDA to approve pending applications or supplements to approved applications, or suspension or revocation of product licenseapprovals;•product seizure or detention, or refusal to permit the import or export ofproducts;•injunctions or the imposition of civil or criminal penalties;or•requiring us to repair, replace and/or refund the cost of any medical device we have manufactured ordistributed.If any of these events were to occur, they could have a material adverse effect on our business.International RegulationIn addition to regulations in the U.S., we are subject to a variety of foreign regulations governing clinical trials and the commercial sales and distribution ofour products. Whether or not we obtain FDA approval for a product, we must obtain approval by the comparable regulatory authorities of foreign countries beforewe can commence clinical trials or marketing of the product in those countries. The approval process varies from country to country, and the time may be longer orshorter than that required for FDA approval.For example, in Europe, there are several tracks for marketing approval for pharmaceuticals, for product approval and post-approval regulatory processes,depending on the type of product for which approval is sought. Under the centralized procedure, a company submits a single application to the EMA. Themarketing application is similar to the NDA in the U.S. and is evaluated by the Committee for Medicinal Products for Human Use, or CHMP, the expert scientificcommittee of the EMA. If the CHMP determines that the marketing application fulfills the requirements for quality, safety and efficacy, it will submit a favorableopinion to the European Commission, or EC. The CHMP opinion is not binding, but is typically adopted by the EC. A marketing application approved by the EC isvalid in all member states. The centralized procedure is required for all biological products, orphan medicinal products and new treatments for neurodegenerativedisorders, and it is available for certain other products, including those which constitute a significant therapeutic, scientific or technical innovation.As with FDA approval, we may not be able to secure regulatory approvals in Europe in a timely manner, if at all. Additionally, as in the U.S., post-approvalregulatory requirements, such as those regarding product manufacture, marketing or distribution would apply to any product that is approved in Europe, and failureto comply with such obligations could have a material adverse effect on our ability to successfully commercialize any product.In addition to regulations in Europe and the U.S., we will be subject to regulations governing clinical trials, product approvals, and commercial distribution inCanada, China and any other jurisdictions in which EXPAREL, iovera° or any other future product is approved.Third-Party Payer Coverage and ReimbursementThe commercial success of our products and product candidates will depend, in part, upon the availability of coverage and reimbursement from third-partypayers at the federal, state and private levels. Government payer programs, including Medicare and Medicaid, private health care insurance companies andmanaged care plans may deny coverage or reimbursement for a product or therapy in whole or in part if they determine that the product or therapy is not medicallyappropriate or necessary. Also, third-party payers have attempted to control costs by limiting coverage and the amount of reimbursement for particular23Table of Contentsprocedures, medical devices or drug treatments. The United States Congress and state legislatures from time to time propose and adopt initiatives aimed at costcontainment that could impact our ability to sell our products at a price level high enough to realize an appropriate return on our investment, which wouldmaterially impact our results of operations.In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act, as amended by the Health Care and EducationAffordability Reconciliation Act (collectively, the “Affordable Care Act”), a sweeping law intended to broaden access to health insurance, reduce or constrain thegrowth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for healthcare and health insurance industries,impose new taxes and fees on the health industry and impose additional health policy reforms. The Affordable Care Act revised the definition of “averagemanufacturer price” for reporting purposes, which could increase the amount of Medicaid drug rebates owed to states by pharmaceutical manufacturers for coveredoutpatient drugs. The Affordable Care Act also established a new Medicare Part D coverage gap discount program, in which drug manufacturers must agree tooffer 50% point-of-sale discounts off negotiated prices of applicable brand name drugs to eligible beneficiaries during their coverage gap period as a condition forthe manufacturer’s outpatient drugs to be covered under Medicare Part D. Substantial new provisions affecting compliance have also been enacted, which mayrequire us to modify our business practices with healthcare practitioners. There have been proposed in Congress a number of legislative initiatives regardinghealthcare, including possible repeal of the Affordable Care Act. At this time, it remains unclear whether there will be any changes made to the Affordable CareAct. The full impact that the Affordable Care and other new laws will have on our business is uncertain. However, such laws appear likely to continue the pressureon pharmaceutical pricing, especially under the Medicare program, and may also increase our regulatory burdens and operating costs. Moreover, in the comingyears, additional changes could be made to governmental healthcare programs that could significantly impact the success of our products.The marketability of our products may suffer if the government and third-party payers fail to provide adequate coverage and reimbursement. In addition,emphasis on managed care in the U.S. has increased, and we expect will continue to increase, the pressure on pharmaceutical and medical device pricing. Somethird-party payers require pre-approval of coverage for new or innovative devices or drug therapies before they will reimburse healthcare providers that use suchtherapies, or place limits on the amount of reimbursement. Coverage policies and third-party payer reimbursement rates may change at any time. Even if favorablecoverage and reimbursement status is attained for our products, less favorable coverage policies and reimbursement rates may be implemented in the future.In international markets, reimbursement and healthcare payment systems vary significantly by country, and many countries have instituted price ceilings onspecific products and therapies. There can be no assurance that our products will be considered medically reasonable and necessary for a specific indication, thatour products will be considered cost-effective by third-party payers or that an adequate level of reimbursement will be available so that the third-party payers’reimbursement policies will not adversely affect our ability to sell our products profitably.Marketing/Data ExclusivityThe FDA may grant three or five years of marketing exclusivity in the U.S. for the approval of new or supplemental NDAs, including Section 505(b)(2)NDAs, for, among other things, new indications, dosages or dosage forms of an existing drug, if new clinical investigations that were conducted or sponsored bythe applicant are essential to the approval of the application. Additionally, six months of marketing exclusivity in the U.S. is available under Section 505A of theFDCA if, in response to a written request from the FDA, a sponsor submits and the agency accepts requested information relating to the use of the approved drugin the pediatric population. This six-month pediatric exclusivity period is not a standalone exclusivity period, but rather is added to any existing patent or non-patent exclusivity period for which the drug product is eligible. In the past, based on our clinical trial program for EXPAREL, the FDA granted three years ofmarketing exclusivity to EXPAREL, which expired in October 2014.Manufacturing RequirementsWe must comply with the FDA’s cGMP requirements and comparable regulations in other countries. The cGMP provisions include requirements relating tothe organization of personnel, buildings and facilities, equipment, control of components and drug product containers and closures, production and processcontrols, packaging and labeling controls, holding and distribution, laboratory controls, records and reports and returned or salvaged products. The manufacturingfacilities for our products must meet cGMP requirements to the satisfaction of the FDA and other authorities pursuant to a pre-approval inspection before we canuse them to manufacture our products. We and any third-party manufacturers we engage or with which we partner are also subject to periodic inspections offacilities by the FDA and other authorities, including procedures and operations used in the testing and manufacture of our products to assess our compliance withapplicable regulations. Failure to comply with these and other statutory and regulatory requirements subjects a manufacturer to possible24Table of Contentslegal or regulatory action, including warning letters, the seizure or recall of products, injunctions, consent decrees placing significant restrictions on or suspendingmanufacturing operations and civil and criminal penalties. Adverse experiences with the product or product complaints must be reported and could result in theimposition of market restrictions through labeling changes or in product removal. Product approvals may be withdrawn if compliance with regulatory requirementsis not maintained or if problems concerning safety or efficacy of the product occur following approval.Regulations Pertaining to Sales and MarketingWe are subject to various federal and state laws pertaining to health care “fraud and abuse,” including anti-kickback laws and false claims laws. Anti-kickback laws generally prohibit a prescription drug manufacturer from soliciting, offering, receiving, or paying any remuneration to generate business, includingthe purchase or prescription of a particular drug or medical device. Although the specific provisions of these laws vary, their scope is generally broad and theremay be no regulations, guidance or court decisions that clarify how the laws apply to particular industry practices. There is therefore a possibility that our practicesmight be challenged under the anti-kickback or similar laws. False claims laws prohibit anyone from knowingly and willingly presenting, or causing to bepresented for payment to third-party payers (including Medicare and Medicaid) claims for reimbursed drugs, procedures or services that are false or fraudulent,claims for items or services not provided as claimed, or claims for medically unnecessary items or services. Our activities relating to the sale and marketing of ourproducts may be subject to scrutiny under these laws. Violations of fraud and abuse laws may be punishable by criminal or civil sanctions, including fines andcivil monetary penalties and exclusion from federal health care programs (including Medicare and Medicaid). In the U.S., federal and state authorities are payingincreased attention to enforcement of these laws within the pharmaceutical and medical device industries and private individuals have been active in allegingviolations of the laws and bringing suits on behalf of the government under the federal civil False Claims Act. If we were subject to allegations concerning, or wereconvicted of violating, these laws, our business could be harmed.Laws and regulations have been enacted by the federal government and various states to regulate the sales and marketing practices of pharmaceutical andmedical device manufacturers. The laws and regulations generally limit financial interactions between manufacturers and health care providers or requiredisclosure to the government and public of such interactions. The laws include the federal Physician Payment Sunshine Act, or “sunshine” provisions, enacted in2010 as part of the Affordable Care Act. The sunshine provisions apply to pharmaceutical and medical device manufacturers with products reimbursed undercertain government programs and require those manufacturers to disclose annually to the federal government (for re-disclosure to the public) certain paymentsmade to physicians and certain other healthcare practitioners or to teaching hospitals. State laws may also require disclosure of pharmaceutical and medical devicepricing information and marketing expenditures. Many of these laws and regulations contain ambiguous requirements. Given the lack of clarity in laws and theirimplementation, our reporting actions could be subject to the penalty provisions of the pertinent federal and state laws and regulations. Outside the U.S., othercountries have implemented requirements for disclosure of financial interactions with healthcare providers and additional countries may consider or implementsuch laws.In April 2015, we received a subpoena from the U.S. Department of Justice, U.S. Attorney’s Office for the District of New Jersey, requiring the productionof a broad range of documents pertaining to marketing and promotional practices related to EXPAREL. We are cooperating with the government’s inquiry. Referto Item 3, Legal Proceedings, for an update related to this matter.Healthcare Privacy and Security LawsWe may be subject to, or our marketing activities may be limited by the Health Insurance Portability and Accountability Act, or HIPAA and itsimplementing regulations, which established uniform standards for certain “covered entities” (healthcare providers, health plans and healthcare clearinghouses)governing the conduct of certain electronic healthcare transactions and protecting the security and privacy of protected health information. The American Recoveryand Reinvestment Act of 2009, commonly referred to as the economic stimulus package, included sweeping expansion of HIPAA’s privacy and security standardscalled the Health Information Technology for Economic and Clinical Health Act, or HITECH, which became effective on February 17, 2010. Among other things,the new law makes HIPAA’s privacy and security standards directly applicable to “business associates”—independent contractors or agents of covered entities thatreceive or obtain protected health information in connection with providing a service on behalf of a covered entity. HITECH also increased the civil and criminalpenalties that may be imposed against covered entities, business associates and possibly other persons, and gave state attorneys general new authority to file civilactions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorney’s fees and costs associated with pursuing federal civilactions.25Table of ContentsEnvironmental MattersOur research and development processes and our manufacturing processes involve the controlled use of hazardous materials and chemicals and producewaste products. We are subject to federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of hazardousmaterials and waste products. We do not expect the cost of complying with these laws and regulations to be material. While we believe we are in compliance withapplicable environmental regulations, the failure to fully comply with any such regulations could result in the imposition of penalties, fines and/or sanctions whichcould have a material adverse effect on our business.EmployeesAs of December 31, 2019, we had 606 employees. All of our employees are located in the U.S. except for nine located in England and one located in theNetherlands. None of our employees are represented by a labor union, and we consider our current employee relations to be good.Available InformationOur corporate website is located at www.pacira.com. We file reports and other information with the United States Securities and Exchange Commission, orSEC, as required by the Exchange Act, which are accessible on the SEC’s website at www.sec.gov. We also make available free of charge through our website ourAnnual Report, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements and any amendments to those reports filed or furnished pursuant toSections 13(a) and 15(d) of the Exchange Act. We make these reports available through our website as soon as reasonably practicable after we electronically filesuch reports with, or furnish such reports to, the SEC. In addition, we regularly use our corporate website to post information regarding our business, productdevelopment programs and governance, and we encourage investors to use our website, particularly the information in the sections entitled “Investors” and“News,” as a source of information about us. The foregoing references to our corporate website are not intended to, nor shall they be deemed to, incorporateinformation on our website into this Annual Report by reference.26Table of ContentsItem 1A. Risk FactorsIn addition to the other information in this Annual Report, any of the factors set forth below could significantly and negatively affect our business, financialcondition, results of operations or prospects. The trading price of our common stock may decline due to these risks. This section contains forward-lookingstatements. You should refer to the explanation of the qualifications and limitations on forward-looking statements beginning on page 1.Risks Related to the Development and Commercialization of our Products and Product CandidatesOur success depends primarily on our ability to successfully commercialize EXPAREL.We have invested a significant portion of our efforts and financial resources in the development and commercialization of our lead product, EXPAREL,which was approved by the FDA on October 28, 2011 and commercially launched in April 2012. During 2019, sales of EXPAREL constituted substantially all ofour total revenue, and we expect it will do so for the foreseeable future. Our success depends on our ability to continue to effectively commercialize EXPAREL.Our ability to effectively generate revenues from EXPAREL will depend on our ability to, among other things:•create market demand for EXPAREL through our marketing and sales activities and other arrangements established for the promotion ofEXPAREL;•train, deploy and support a qualified salesforce;•secure formulary approvals for EXPAREL at a substantial number of targeted hospitals andASCs;•manufacture EXPAREL in sufficient quantities in compliance with requirements of the FDA and similar foreign regulatory agencies and atacceptable quality and pricing levels in order to meet commercial demand;•implement and maintain agreements with wholesalers and distributors on commercially reasonableterms;•receive adequate levels of coverage and reimbursement for EXPAREL from commercial health plans and governmental healthprograms;•maintain compliance with regulatoryrequirements;•obtain regulatory approvals for additional indications for the use ofEXPAREL;•ensure that our entire supply chain efficiently and consistently delivers EXPAREL to our customers;and•maintain and defend our patent protection and regulatory exclusivity forEXPAREL.Any disruption in our ability to generate revenues from the sale of EXPAREL will have a material and adverse impact on our results of operations.Our efforts to successfully commercialize EXPAREL are subject to many internal and external challenges and if we cannot overcome these challenges in atimely manner, our future revenues and profits could be materially and adversely impacted.EXPAREL has been a commercialized drug since 2012. We continue to expend significant time and resources to train our sales force to be credible andpersuasive in convincing physicians, hospitals and ASCs to use EXPAREL. In addition, we also must train our sales force to ensure that a consistent andappropriate message about EXPAREL is delivered to our potential customers. If we are unable to effectively train our sales force and equip them with effectivematerials, including medical and sales literature to help them inform and educate potential customers about the benefits and risks of EXPAREL and its properadministration, our efforts to successfully commercialize EXPAREL could be put in jeopardy, which could have a material adverse effect on our future revenuesand profits.In addition to our extensive internal efforts, the successful commercialization of EXPAREL will require many third parties, over whom we have no control,to choose to utilize EXPAREL. These third parties include physicians and hospital pharmacy and therapeutics committees, which we refer to as P&T committees.Generally, before we can attempt to sell EXPAREL in a hospital, EXPAREL must be approved for addition to that hospital’s list of approved drugs, or formularylist, by the hospital’s P&T committee. A hospital’s P&T committee typically governs all matters pertaining to the use of medications within the institution,including the review of medication formulary data and recommendations for the appropriate use of drugs within the institution to the medical staff. The frequencyof P&T committee meetings at hospitals varies considerably, and P&T committees often require additional information to aid in their decision-making process.Therefore, we may experience substantial delays in obtaining formulary approvals. Additionally, hospital pharmacists may be concerned that the cost of27Table of Contentsacquiring EXPAREL for use in their institutions will adversely impact their overall pharmacy budgets, which could cause pharmacists to resist efforts to addEXPAREL to the formulary, or to implement restrictions on the usage of EXPAREL or to encourage use of a lower cost dose than a surgeon or anesthesiologistwould otherwise choose in order to control costs. We cannot guarantee that we will be successful in obtaining the approvals we need from enough P&Tcommittees quickly enough to optimize hospital sales of EXPAREL. Even if we obtain hospital formulary approval for EXPAREL, physicians must still prescribeEXPAREL for its commercialization to be successful.If EXPAREL does not achieve broad market acceptance, the revenues that we generate from its sales will be limited. The degree of market acceptance ofEXPAREL also depends on a number of other factors, including:•changes in the standard of care for the targeted indications for EXPAREL, which could reduce the marketing impact of any claims that we canmake; •the relative efficacy, convenience and ease of administration ofEXPAREL; •the prevalence and severity of adverse events associated withEXPAREL; •cost of treatment versus economic and clinical benefit, both in absolute terms and in relation to alternativetreatments; •the availability of adequate coverage or reimbursement by third parties, such as insurance companies and other healthcare payers, and by governmenthealthcare programs, including Medicare and Medicaid;•the extent and strength of our marketing and distribution ofEXPAREL;•the safety, efficacy and other potential advantages over, and availability of, alternative treatments, including, in the case of EXPAREL, a number ofproducts already used to treat pain in the hospital setting; and•distribution and use restrictions imposed by the FDA or to which we agree as part of a mandatory risk evaluation and mitigation strategy or voluntaryrisk management plan.Our ability to effectively promote and sell EXPAREL and any product candidates that we may develop, license or acquire in the hospital or ASC marketplacewill also depend on pricing and cost effectiveness, including our ability to produce a product at a competitive price and therefore achieve acceptance of the productonto hospital formularies, and our ability to obtain sufficient third-party coverage or reimbursement. We will also need to demonstrate acceptable evidence ofsafety and efficacy, as well as relative convenience and ease of administration. Market acceptance could be further limited depending on the prevalence andseverity of any expected or unexpected adverse side effects associated with our product candidates.In addition, the labeling approved by the FDA does not contain claims that EXPAREL is safer or more effective than competitive products and does notpermit us to promote EXPAREL as being superior to competing products. Further, the availability of inexpensive generic forms of postsurgical pain managementproducts may also limit acceptance of EXPAREL among physicians, patients and third-party payers. If EXPAREL does not achieve an adequate level ofacceptance among physicians, patients and third-party payers, we may not generate meaningful revenues from EXPAREL, and we may not return to profitability.We face significant competition from other pharmaceutical and biotechnology companies. Our operating results will suffer if we fail to compete effectively.The pharmaceutical and biotechnology industries are intensely competitive and subject to rapid and significant technological change. Our major competitorsinclude organizations such as major multinational pharmaceutical companies, established biotechnology companies and specialty pharmaceutical and generic drugcompanies. Many of our competitors have greater financial and other resources than we have, such as larger research and development staff, more extensivemarketing, distribution, sales and manufacturing organizations and experience, more extensive clinical trial and regulatory experience, expertise in prosecution ofintellectual property rights and access to development resources like personnel and technology. As a result, these companies may obtain regulatory approval morerapidly than we are able to and may be more effective in selling and marketing their products. Smaller or early-stage companies may also prove to be significantcompetitors, particularly through collaborative arrangements with large, established companies. Our competitors may succeed in developing, acquiring or licensingon an exclusive basis technologies, drug products and medical devices that are more effective or less costly than EXPAREL, iovera° or any product candidate thatwe are currently developing or that we may develop, which could render our products obsolete and noncompetitive or significantly harm the commercialopportunity for EXPAREL, iovera° or our product candidates.28Table of ContentsAs a result of these factors, our competitors may obtain patent protection or other intellectual property rights that may limit our ability to develop otherindications for, or commercialize, EXPAREL, iovera° or our product candidates. Our competitors may also develop drugs or medical devices that are safer, moreeffective, useful or less costly than ours and may be more successful than us in manufacturing and marketing their products.EXPAREL competes with well-established products with similar indications. Competing products available for postsurgical pain management includeopioids such as morphine, fentanyl, meperidine and hydromorphone, each of which is available generically from several manufacturers, and several of which areavailable as proprietary products using novel delivery systems. Ketorolac, an NSAID is also available generically in the U.S. from several manufacturers, andCaldolor (ibuprofen for injection), an NSAID, has been approved by the FDA for pain management and fever in adults. In addition, EXPAREL competes withnon-opioid products such as bupivacaine, marcaine, ropivacaine and other anesthetics/analgesics, all of which are also used in the treatment of postsurgical painand are available as either oral tablets, injectable dosage forms or administered using novel delivery systems. Additional products may be developed for thetreatment of acute pain, including new injectable NSAIDs, novel opioids, new formulations of currently available opioids and NSAIDs, long-acting localanesthetics and new chemical entities as well as alternative delivery forms of various opioids and NSAIDs. EXPAREL also competes with elastomericbag/catheter devices intended to provide bupivacaine over several days.Regulatory approval for any approved product is limited by the FDA to those specific indications and conditions for which clinical safety and efficacy havebeen demonstrated, and allegations of our failure to comply with such approved indications could limit our sales efforts and have a material adverse effect onour business.The FDA strictly regulates marketing, labeling, advertising and promotion of prescription drugs and medical devices. These regulations include standards andrestrictions for direct-to-consumer advertising, industry-sponsored scientific and educational activities, promotional activities involving the internet and off-labelpromotion. Any regulatory approval that the FDA grants is limited to those specific diseases and indications for which a product is deemed to be safe and effectiveby the FDA. For example, the FDA-approved label for EXPAREL does not include an indication in obstetrical paracervical block anesthesia. In addition to theFDA approval required for new formulations, any new indication for an approved product also requires FDA approval. If we are not able to obtain FDA approvalfor any desired future indications for our products and product candidates, our ability to effectively market and sell our products may be reduced and our businessmay be adversely affected.While physicians in the U.S. may choose, and are generally permitted to prescribe drugs or treatments for uses that are not described in the product’s labelingand for uses that differ from those tested in clinical trials and approved by the regulatory authorities, our ability to promote the products is narrowly limited tothose indications that are specifically approved by the FDA. These “off-label” uses are common across medical specialties and may constitute an appropriatetreatment for some patients in varied circumstances. Regulatory authorities in the U.S. generally do not regulate the behavior of physicians in their choice oftreatments. Regulatory authorities do, however, restrict communications by pharmaceutical and medical device companies on the subject of off-label use. Althoughrecent court decisions suggest that certain off-label promotional activities may be protected under the First Amendment of the U.S. Constitution, the scope of anysuch protection is unclear. If our promotional activities fail to comply with the FDA’s regulations or guidelines, we may be subject to warnings from, orenforcement action by, these authorities. In addition, our failure to follow FDA rules and guidelines relating to promotion and advertising may cause the FDA toissue warning letters or untitled letters, bring an enforcement action against us, suspend or withdraw an approved product from the market, require a recall orinstitute fines or civil fines, or could result in disgorgement of money, operating restrictions, injunctions or criminal prosecution, any of which could harm ourreputation and our business.If we are unable to establish and maintain effective marketing and sales capabilities or enter into agreements with third parties to market and sell EXPAREL,we may be unable to generate product revenues.We are continuing to build our commercial infrastructure for the marketing, sale and distribution of pharmaceutical products. In order to continuecommercializing EXPAREL effectively, we must continue to build our marketing, sales and distribution capabilities. The establishment, development and trainingof our sales force and related compliance plans to market EXPAREL is expensive and time consuming. In the event we are not successful in developing ourmarketing and sales infrastructure, we may not be able to successfully commercialize EXPAREL, which would limit our ability to generate product revenues.In addition to our internal marketing and sales efforts, we have entered into agreements with third-party distributors to promote and sell EXPAREL in certainterritories. For example, in January 2017, we entered into a co-promotion agreement with DePuy Synthes to market and promote the use of EXPAREL fororthopedic procedures in the U.S. market, and in June 2018, we entered into an agreement with Nuance to advance the development and commercialization ofEXPAREL in China. There can be no assurance that such distributors and promoters will be successful in marketing and promoting EXPAREL.29Table of ContentsWe may seek additional distribution arrangements in the future, including arrangements with third-party distributors to commercialize and sell EXPAREL incertain foreign countries. The use of distributors involves certain risks, including risks that such distributors will:•not effectively distribute or support ourproducts;•not provide us with accurate or timely information regarding their inventories, the number of accounts using our products or complaints about ourproducts;•fail to comply with their obligations to us;•fail to comply with laws and regulations to which they are subject, whether in the U.S. or in foreignjurisdictions;•reduce or discontinue their efforts to sell or promote our products;or•ceaseoperations.Any such failure may result in decreased sales, which would have an adverse effect on our business.We rely on third parties to perform many essential services for EXPAREL and iovera° and will rely on third parties for any other products that wecommercialize. If these third parties fail to perform as expected or to comply with legal and regulatory requirements, our ability to commercialize EXPARELand iovera° will be significantly impacted and we may be subject to regulatory sanctions.We have entered into agreements with third-party service providers to perform a variety of functions related to the sale and distribution of EXPAREL andiovera°, key aspects of which are out of our direct control. These service providers provide key services related to customer service support, warehousing andinventory program services, distribution services, contract administration and chargeback processing services, accounts receivable management and cashapplication services, financial management and information technology services. In addition, our inventory is stored at two warehouses maintained by two serviceproviders. We substantially rely on these providers as well as other third-party providers that perform services for us, including entrusting our inventories ofproducts to their care and handling. If these third-party service providers fail to comply with applicable laws and regulations, fail to meet expected deadlines orotherwise do not carry out their contractual duties to us, or encounter physical or natural damage at their facilities, our ability to deliver product to meetcommercial demand would be significantly impaired. In addition, we may engage third parties to perform various other services for us relating to adverse eventreporting, safety database management, fulfillment of requests for medical information regarding our product candidates and related services. If the quality oraccuracy of the data maintained by these service providers is insufficient, we could be subject to regulatory sanctions.Distribution of our DepoFoam-based products, including EXPAREL, requires cold-chain distribution provided by third parties, whereby the product must bemaintained between specified temperatures. If a problem occurs in our cold-chain distribution processes, whether through our failure to maintain our products orproduct candidates between specified temperatures or because of a failure of one of our distributors or partners to maintain the temperature of the products orproduct candidates, the product or product candidate could be adulterated and rendered unusable. We have obtained limited inventory and cargo insurancecoverage for our products. However, our insurance coverage may not reimburse us or may not be sufficient to reimburse us for any expenses or losses we maysuffer. This could have a material adverse effect on our business, financial condition, results of operations and reputation.We may need to increase the size of our organization and effectively manage our sales force, and we may experience difficulties in managing growth.As of December 31, 2019, we had 606 employees. We may need to expand our personnel resources in order to manage our operations and sales ofEXPAREL and iovera°. Our management, personnel, systems and facilities currently in place may not be adequate to support this future growth. In addition, wemay not be able to recruit and retain qualified personnel in the future, particularly marketing positions, due to competition for personnel among pharmaceutical andmedical device businesses, and the failure to do so could have a significant negative impact on our future product revenues and business results. Our need toeffectively manage our operations, growth and various projects requires that we:•continue the hiring and training of an effective commercial organization for the commercialization of EXPAREL and iovera°, and establishappropriate systems, policies and infrastructure to support that organization;•continue to establish and maintain effective relationships with distributors and commercial partners for the promotion and sale of ourproducts;30Table of Contents•ensure that our distributors, partners, suppliers, consultants and other service providers successfully carry out their contractual obligations, providehigh quality results and meet expected deadlines;•manage our development efforts and clinical trialseffectively;•expand our manufacturing capabilities and effectively manage our co-production arrangement with ThermoFisher;•continue to carry out our own contractual obligations to our licensors and other third parties;and•continue to improve our operational, financial and management controls, reporting systems andprocedures.We may be unable to successfully implement these tasks on a larger scale and, accordingly, may not achieve our development and commercialization goals.Additionally, these tasks may impose a strain on our administrative and operational infrastructure. If we are unable to effectively manage our growth, our productsales and resulting revenues will be negatively impacted.We may not be able to manage our business effectively if we are unable to attract and retain key personnel.We may not be able to attract or retain qualified management and commercial, scientific and clinical personnel due to the intense competition for qualifiedpersonnel among biotechnology, pharmaceutical, medical device and other businesses, as well as universities, non-profit research organizations and governmententities, particularly in San Diego, California, the San Francisco Bay Area and northern New Jersey. If we are not able to attract and retain necessary personnel toaccomplish our business objectives, we may experience constraints that will significantly impede the achievement of our development objectives, our ability toraise additional capital and our ability to implement our business strategy.Our industry has experienced a high rate of turnover of management personnel in recent years. We are highly dependent on the development andmanufacturing expertise for our DepoFoam delivery technology and the commercialization expertise of certain members of our senior management. In particular,we are highly dependent on the skills and leadership of our senior management team. If we lose one or more of these key employees, our ability to successfullyimplement our business strategy could be seriously harmed. Replacing key employees may be difficult and may take an extended period of time because of thelimited number of individuals in our industry with the breadth of skills and experience required to develop, gain regulatory approval of and commercializeproducts successfully. Competition to hire from this limited pool is intense, and we may be unable to hire, train, retain or motivate additional key personnel.We face potential product liability exposure, and if successful claims are brought against us, we may incur substantial liability for EXPAREL, iovera°,DepoCyt(e) or product candidates that we may develop and may have to limit their commercialization.The use of EXPAREL, iovera°, DepoCyt(e) and any product candidates that we may develop, license or acquire in clinical trials and the sale of any productsfor which we obtain regulatory approval expose us to the risk of product liability claims. Product liability claims might be brought against us by consumers, healthcare providers or others using, administering or selling our products. We have been a party of these suits in the past and may be again in the future. If we cannotsuccessfully defend ourselves against these claims, we will incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in:•loss of revenue from decreased demand for our products and/or productcandidates;•impairment of our business reputation or financialstability;•costs of relatedlitigation;•substantial monetary awards to patients or otherclaimants;•diversion of managementattention;•loss of revenues;•withdrawal of clinical trial participants and potential termination of clinical trial sites or entire clinical programs;and31Table of Contents•the inability to commercialize our products and/or productcandidates.We have obtained limited product liability insurance coverage for our products and our clinical trials with a $10.0 million annual aggregate coverage limit.However, our insurance coverage may not reimburse us, or may not be sufficient to reimburse us, for any expenses or losses we may suffer, including ourindemnification obligations to other parties. Moreover, insurance coverage is becoming increasingly expensive, and, in the future, we may not be able to maintaininsurance coverage on acceptable terms, at a reasonable cost or in sufficient amounts to protect us against losses due to liability. We intend to expand our insurancecoverage to include the sale of additional commercial products upon FDA approval for our product candidates in development, but we may be unable to obtaincommercially reasonable product liability insurance for any products approved for marketing, or at all. On occasion, large judgments have been awarded in classaction lawsuits based on drugs or medical devices that had unanticipated side effects. A successful product liability claim or series of claims brought against uscould cause our stock price to fall and, if judgments exceed our insurance coverage, could decrease our cash and adversely affect our business.If we fail to manufacture our products in sufficient quantities and at acceptable quality and pricing levels, or to fully comply with cGMP regulations, we mayface delays in the commercialization of these products or be unable to meet market demand, and may lose potential revenues.The manufacture of EXPAREL requires significant expertise and capital investment, including the development of advanced manufacturing techniques,process controls and the use of specialized processing equipment. We must comply with federal, state and foreign regulations, including the FDA’s regulationsgoverning cGMP, enforced by the FDA through its facilities inspection program and by similar regulatory authorities in other jurisdictions where we do business.These requirements include, among other things, quality control, quality assurance and the maintenance of records and documentation. The FDA or similar foreignregulatory authorities at any time may implement new standards or change their interpretation and enforcement of existing standards for manufacture, packaging ortesting of our products. Any failure by us or our manufacturing partner to comply with applicable regulations may result in fines and civil penalties, suspension ofproduction, product seizure or recall, operating restrictions, imposition of a consent decree, modification or withdrawal of product approval or criminal prosecutionand would limit the availability of our product. Any manufacturing defect or error discovered after products have been produced and distributed also could resultin significant consequences, including costly recall procedures, re-stocking costs, damage to our reputation and potential for product liability claims.The FDA requires manufacturers of medical devices to adhere to certain regulations, including the FDA’s QSRs, which requires periodic audits, designcontrols, quality control testing and documentation procedures, as well as complaint evaluations and investigations. Regulations regarding the development,manufacture and sale of medical products are evolving and are subject to change in the future.If we are unable to produce the required commercial quantities of our products to meet market demand those products on a timely basis or at all, or if we failto comply with applicable laws for the manufacturing of our products, we will suffer damage to our reputation and commercial prospects, we will lose potentialrevenues and we may be required to expend significant resources to resolve any such issues.We will need to expand our manufacturing operations or outsource such operations to third parties.To successfully meet future customer demand for EXPAREL and iovera°, we will need to expand our existing commercial manufacturing facilities orestablish large-scale commercial manufacturing capabilities. In addition, as our drug development pipeline increases and matures, we will have a greater need forclinical trial and commercial manufacturing capacity. As a result, we must continue to improve our manufacturing processes to allow us to reduce our productioncosts. We may not be able to manufacture our drugs and/or medical devices at a cost or in quantities necessary to be commercially successful.The build-up or other expansion of our internal manufacturing capabilities for EXPAREL production in San Diego, California and co-production capabilitiesat Thermo Fisher’s Swindon, England site, exposes us to significant up-front fixed costs. If market demand for EXPAREL does not align with our expandedmanufacturing capacity, we may be unable to offset these costs and to achieve economies of scale, and our operating results may be adversely affected as a resultof high operating expenses. Alternatively, if we experience demand for EXPAREL in excess of our estimates, our facilities may be insufficient to support higherproduction volumes, which could harm our customer relationships and overall reputation. Our ability to meet such excess demand could also depend on our abilityto raise additional capital and effectively scale our manufacturing operations.In addition, the procurement time for the equipment that we use to manufacture EXPAREL requires long lead times. Therefore, we may experience delays,additional or unexpected costs and other adverse events in connection with our capacity expansion projects, including those associated with potential delays in theprocurement of manufacturing equipment required to manufacture EXPAREL.32Table of ContentsIn addition to expanding our internal manufacturing facilities, we may enter into arrangements with third parties to supply, manufacture, package, test and/orstore EXPAREL, iovera° or our other products, such as our manufacturing arrangement with Thermo Fisher. Entering into such arrangements requires testing andcompliance inspections, FDA approvals and development of the processes and facilities necessary for the production of our products. Such arrangements alsoinvolve additional risks, many of which would be outside of our control. Such risks include disruptions or delays in production, manufactured products that do notmeet our required specifications, the failure of such third-party manufacturers to comply with cGMP regulations or other regulatory requirements, protection of ourintellectual property and manufacturing process, loss of control of our complex manufacturing process, inabilities to fulfill our commercial needs and financialrisks in connection with our investment in setting up a third-party manufacturing process, such as the substantial capital outlays that were required by us to assist insetting up our manufacturing process at Thermo Fisher’s facility.If we are unable to timely achieve and maintain satisfactory production yields and quality, whether through our internal manufacturing capabilities orarrangements with contract manufacturers, our relationships with potential customers and overall reputation may be harmed and our revenues could decrease.Our inability to continue manufacturing adequate supplies of the product could result in a disruption in the supply to our customers and partners, which couldhave a material adverse impact on our business and results of operations.EXPAREL is currently manufactured at our facilities in San Diego, California and at the Thermo Fisher facility in Swindon, England, and iovera° iscurrently manufactured at our facility in Fremont, California. These facilities are the only currently-FDA approved sites for manufacturing EXPAREL and iovera°in the world. We may experience temporary or prolonged suspensions in production of our products due to issues in our manufacturing process that must beremediated or in response to inspections conducted by the FDA or similar foreign regulatory authorities, which could have a material adverse effect on ourbusiness, financial position and results of operations. For example, in June 2017, we discontinued production of DepoCyt(e) due to persistent technical issuesspecific to the DepoCyt(e) manufacturing process.Our San Diego and Fremont facilities in California and the Thermo Fisher facility in Swindon, England are also subject to the risks of a natural or man-madedisaster, including earthquakes, floods and fires, or other business disruptions. In addition, we have obtained limited property and business interruption insurancecoverage for our manufacturing sites in San Diego, Fremont and England. However, our insurance coverage may not reimburse us, or may not be sufficient toreimburse us, for any expenses or losses we may suffer. There can be no assurance that we would be able to meet our requirements for EXPAREL or iovera° ifthere were a catastrophic event or failure of our current manufacturing systems. If we are required to change or add a new manufacturer or supplier, the processwould likely require prior FDA and/or equivalent foreign regulatory authority approval and would be very time consuming. An inability to continue manufacturingadequate supplies of EXPAREL at our facilities in San Diego, California or at the Thermo Fisher facility in Swindon, England or iovera° at our facility inFremont, California could result in a disruption in the supply of EXPAREL or iovera° to our customers and partners and a breach of our contractual obligations tosuch counterparties.Our co-production and other agreements with Thermo Fisher may involve unanticipated expenses and delays, including the need for the Thermo Fisherfacilities to receive regulatory approvals required for manufacturing to commence at the Thermo Fisher suites.We and Thermo Fisher have entered into a Co-Production Agreement, Technical Transfer and Service Agreement and Manufacturing and Supply Agreement.Under these agreements, Thermo Fisher undertook certain technical transfer activities and construction services to prepare Thermo Fisher’s Swindon, Englandfacility for the manufacture of EXPAREL in two dedicated manufacturing suites, of which one suite received FDA approval in May 2018 and began commercialproduction in February 2019. We agreed with Thermo Fisher, among other things, to provide them with the process equipment necessary to manufactureEXPAREL in these suites. We have anticipated and budgeted for capital expenditures associated with the two Thermo Fisher suites, including the equipmentpurchase and construction of the suites as well as payments to be made to Thermo Fisher.The Thermo Fisher facilities require FDA approval prior to any production and manufacturing of EXPAREL. If the construction of the second Thermo Fishersuite is delayed, if Thermo Fisher experiences unanticipated cost overruns, or if the additional Thermo Fisher suite does not receive or maintain regulatoryapprovals in the timeframe anticipated (if at all), this could have a material adverse effect on our business, financial position and results of operations.Further, the production under these agreements involve additional risks, many of which would be outside of our control, such as disruptions or delays inproduction, manufactured products that do not meet our required specifications, the failure of Thermo Fisher to comply with cGMP regulations or other regulatoryrequirements, protection of our intellectual property and manufacturing process, loss of control of our complex manufacturing process and inabilities to fulfill ourcommercial needs. 33Table of ContentsWe rely on third parties for the timely supply of specified raw materials and equipment for the manufacture of EXPAREL and iovera°. Although we activelymanage these third-party relationships to provide continuity and quality, some events which are beyond our control could result in the complete or partialfailure of these goods and services. Any such failure could have a material adverse effect on our financial condition and operations.We purchase certain raw materials and equipment from various suppliers in order to manufacture our products. The acquisition of certain of these materialsmay require considerable lead times, and our ability to source such materials is also dependent on logistics providers. If we are unable to source the required rawmaterials and equipment from our suppliers on a timely basis and in accordance with our specifications, we may experience delays in manufacturing and may notbe able to meet our customers’ or partners’ demands for our products. In addition, we and our third-party suppliers must comply with federal, state and foreignregulations, including cGMP regulations, and any failure to comply with applicable regulations, or failure of government agencies to provide necessaryauthorizations, may harm our ability to manufacture and commercialize our products on a timely and competitive basis, which could result in decreased productsales and lower revenues.Our future growth depends on our ability to identify, develop, acquire or in-license products and if we do not successfully identify, develop, acquire or in-license related product candidates or integrate them into our operations, we may have limited growth opportunities.An important part of our business strategy is to continue to develop a pipeline of product candidates by developing, acquiring or in-licensing products,businesses or technologies that we believe are a strategic fit with our focus on the hospital marketplace. However, these business activities may entail numerousoperational and financial risks, including:•significant capital expenditures;•difficulty or inability to secure financing to fund development activities for such development, acquisition or in-licensed products ortechnologies;•incurrence of substantial debt or dilutive issuances of securities to pay for development, acquisition or in-licensing of newproducts;•the successful integration of acquired products, businesses or technologies into our operations, and achieving the expected benefits and synergiesfrom such acquisitions;•disruption of our business and diversion of our management’s time andattention;•higher than expected development, acquisition or in-license and integrationcosts;•exposure to unknownliabilities;•difficulty and cost in combining the operations and personnel of any acquired businesses with our operations andpersonnel;•inability to retain key employees of any acquiredbusinesses;•difficulty entering markets in which we have limited or no direct experience;•difficulty in managing multiple product development programs;and•inability to successfully develop new products or clinicalfailure.We have limited resources to identify and execute the development, acquisition or in-licensing of products, businesses and technologies and integrate theminto our current infrastructure. We may compete with larger pharmaceutical and medical device companies and other competitors, including public and privateresearch organizations, academic institutions and government agencies, in our efforts to establish new collaborations and in-licensing opportunities. Thesecompetitors may have access to greater financial resources, research and development staffs and facilities than us and may have greater expertise in identifying andevaluating new opportunities. We may not be successful in locating and acquiring or in-licensing additional desirable product candidates on acceptable terms or atall. We may also not be successful in developing or commercializing our current product candidates. Such efforts may require the dedication of significantfinancial and personnel resources, and any diversion of resources may also disrupt our management from expanding on EXPAREL or iovera° sales. Moreover, wemay devote resources to potential development, acquisitions or in-licensing opportunities that are never completed, or we may fail to realize the anticipatedbenefits of such efforts.34Table of ContentsOur business involves the use of hazardous materials and we must comply with environmental laws and regulations, which can be expensive and restrict howwe do business.Our manufacturing activities involve the controlled storage, use and disposal of hazardous materials, including the components of our products, productcandidates and other hazardous compounds. We are subject to federal, state and local laws and regulations governing the use, manufacture, storage, handling,release and disposal of, and exposure to, these hazardous materials. Violation of these laws and regulations could lead to substantial fines and penalties. Althoughwe believe that our safety procedures for handling and disposing of these materials comply with the standards prescribed by these laws and regulations, we cannoteliminate the risk of accidental contamination or injury from these materials or unintended failure to comply with these laws and regulations. In the event of anaccident or failure to comply with these laws and regulations, state or federal authorities may curtail our use of these materials and interrupt our businessoperations. In addition, we could become subject to potentially material liabilities relating to the investigation and cleanup of any contamination, whether currentlyunknown or caused by future releases.Our business and operations would suffer in the event of system failures.Despite the implementation of security measures, our internal computer systems are vulnerable to damage from computer viruses, human error, unauthorizedaccess, natural disasters, intentional acts of vandalism, terrorism, war and telecommunication and electrical failures. Any system failure, accident or security breachthat causes interruptions in our operations could result in a material disruption of our product development programs. For example, the loss of clinical trial datafrom completed clinical trials for EXPAREL could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproducethe data. To the extent that any disruption or security breach results in a loss or damage to our data or applications, or inappropriate disclosure of confidential orproprietary information, we may incur liability, reputation damage and harm to our business operations.Any collaboration arrangements that we may enter into in the future may not be successful, which could adversely affect our ability to develop andcommercialize our product candidates.Our business model is to commercialize our products in the U.S. and abroad, occasionally seeking collaboration arrangements with pharmaceutical orbiotechnology companies for the development or commercialization of our products in other countries. Accordingly, we may enter into collaboration arrangementsin the future on a selective basis. Any future collaboration arrangements that we enter into may not be successful. The success of our collaboration arrangementswill depend heavily on the efforts and activities of our collaborators. Collaborators generally have significant discretion in determining the efforts and resourcesthat they will apply to these collaboration arrangements.Disagreements between parties to a collaboration arrangement regarding clinical development and commercialization matters can lead to delays in thedevelopment process or commercializing the applicable product candidate and, in some cases, termination of the collaboration arrangement. These disagreementscan be difficult to resolve if neither of the parties has final decision-making authority.Collaborations with pharmaceutical and/or medical device companies and other third parties often are terminated or allowed to expire by the other party. Anysuch termination or expiration would adversely affect us financially and could harm our business reputation.Clinical trials may fail to demonstrate the safety and efficacy of our drug products or medical devices, which could prevent or significantly delay obtainingregulatory approval.Prior to receiving approval to commercialize any of our drug products or medical devices, we must demonstrate with scientifically appropriate andstatistically sound evidence from well-controlled clinical trials, and to the satisfaction of the FDA, other regulatory authorities in the U.S., and other countries, thateach of the products is both safe and effective. For each drug product, we will need to demonstrate its efficacy and monitor its safety throughout the process. Ifsuch development is unsuccessful, our business and reputation would be harmed and our stock price would be adversely affected.All of our drug and medical device products are prone to the risks of failure inherent in development. Clinical trials of new drug and medical device productssufficient to obtain regulatory marketing approval are expensive and take years to complete. We may not be able to successfully complete clinical testing withinthe time frame we have planned, or at all. We may experience numerous unforeseen events during, or as a result of, the clinical trial process which could delay orprevent us from receiving regulatory approval or commercializing our products. In addition, the results of pre-clinical studies and early-stage clinical trials of ourproducts do not necessarily predict the results of later-stage clinical trials. Later-stage clinical trials may fail to demonstrate that a product is safe and effectivedespite having progressed through initial clinical testing. Even if we believe the data collected from clinical trials of our products is promising, such data may notbe sufficient to support approval by the FDA or any other U.S. or foreign regulatory approval authority. Pre-clinical and clinical data can be interpreted in differentways.35Table of ContentsAccordingly, the FDA or other regulatory authorities could interpret such data in different ways than we or our partners do, which could delay, limit orprevent regulatory approval. The FDA, other regulatory authorities, our institutional review boards, our contract research organizations or we ourselves maysuspend or terminate our clinical trials for our drug products and medical devices. Any failure or significant delay in completing clinical trials for our drug productsor medical devices, or in receiving regulatory approval for the sale of any drugs or medical devices resulting from our products, may severely harm our businessand reputation. Even if we receive FDA and other regulatory approvals, our drug and medical device products may later exhibit adverse effects that may limit orprevent their widespread use, may cause the FDA to revoke, suspend or limit their approval, or may force us to withdraw products derived from those drug ormedical device products from the market.Our dependence on contract research organizations could result in delays in and additional costs for our drug development efforts.We may rely on contract research organizations, or CROs, to perform preclinical testing and clinical trials for drug candidates that we choose to developwithout a collaborator. If the CROs that we hire to perform our preclinical testing and clinical trials or our collaborators or licensees do not meet deadlines, do notfollow proper procedures or a conflict arises between us and our CROs, our preclinical testing and clinical trials may take longer than expected, may be delayed ormay be terminated. If we were forced to find a replacement CRO to perform any of our preclinical testing or clinical trials, we may not be able to find a suitablereplacement on favorable terms, if at all. Even if we were able to find another CRO to perform a preclinical test or clinical trial, any material delay in a test orclinical trial may result in significant additional expenditures that could adversely affect our operating results. Events such as these may also delay regulatoryapproval for our drug candidates or our ability to commercialize our products.We depend on clinical investigators and clinical sites to enroll patients in our clinical trials and sometimes other third parties to manage the trials and toperform related data collection and analysis, and, as a result, we may face costs and delays outside of our control.We rely on clinical investigators and clinical sites to enroll patients and sometimes third parties to manage our trials and to perform related data collectionand analysis. However, we may be unable to control the amount and timing of resources that the clinical sites which conduct the clinical testing may devote to ourclinical trials. Our clinical trials may be delayed or terminated due to the inability of our clinical investigators to enroll enough patients. Patient enrollment depends onmany factors, including the size of the patient population, the nature of the trial protocol, the proximity of patients to clinical sites and the eligibility criteria for thetrial. If our clinical investigators and clinical sites fail to enroll a sufficient number of patients in our clinical trials or fail to enroll them on our planned schedule,we may face increased costs, delays or termination of the trials, which could delay or prevent us from obtaining regulatory approvals for our product candidates. Our agreements with clinical investigators and clinical sites for clinical testing and for trial management services place substantial responsibilities on theseparties, which could result in delays in, or termination of, our clinical trials if these parties fail to perform as expected. For example, if any of our clinical trial sitesfail to comply with FDA-approved GCPs, we may be unable to use the data gathered at those sites. If these clinical investigators, clinical sites or other third partiesdo not carry out their contractual duties or obligations or fail to meet expected deadlines, or if the quality or accuracy of the clinical data they obtain iscompromised due to their failure to adhere to our clinical protocols or for other reasons, our clinical trials may be extended, delayed or terminated, and we may beunable to obtain regulatory approval for, or successfully commercialize, our product candidates.We are subject to periodic litigation, which could result in losses or unexpected expense of time and resources.From time to time, we are called upon to defend ourselves against lawsuits relating to our business. Due to the inherent uncertainties of litigation, we cannotaccurately predict the ultimate outcome of any such proceedings. See Item 3 Legal Proceedings in Part I of this Annual Report. An unfavorable outcome in theseor other proceedings could have an adverse impact on our business, financial condition and results of operations. In addition, any significant litigation in thefuture, regardless of its merits, could divert management’s attention from our operations and result in substantial legal fees. In addition, if our stock price isvolatile, we may become involved in additional securities class action lawsuits in the future. Any litigation could result in substantial costs and a diversion ofmanagement’s attention and resources that are needed to successfully run our business.36Table of ContentsRegulatory RisksWe have reached an agreement in principle regarding our inquiry by the United States Department of Justice for roughly $3.5 million. If the agreement is notfinalized, an ongoing investigation could result in significant liability and have a material adverse effect on our sales, financial condition, results of operationsand cash flows.In April 2015, we received a subpoena from the U.S. Department of Justice, U.S. Attorney’s Office for the District of New Jersey, requiring the productionof a broad range of documents pertaining to marketing and promotional practices related to EXPAREL. We are cooperating with the government’s inquiry. We canmake no assurances as to the time or resources that will need to be devoted to this inquiry or its final outcome, or the impact, if any, of this inquiry or anyproceedings on our business, financial condition, results of operations and cash flows.In December 2019, we reached an agreement in principle with the Department of Justice and more than one state Attorney General’s office (the “Plaintiffs”)on a proposal for a global civil settlement in the amount of $3.5 million, subject to accrual of interest on the settlement amount from the date of the agreement inprinciple, negotiation of a definitive settlement agreement and other contingencies. As part of the settlement, Pacira will admit no wrongdoing and will explicitlydeny the Plaintiffs’ allegations. Pacira has been given assurances that, if the parties can agree to negotiation of the settlement, this will conclude the investigationthat originated from the U.S. Department of Justice subpoena in April 2015.If a final settlement cannot be reached, and as a result of this inquiry that started with the April 2015 subpoena, proceedings are initiated and we are found tohave violated one or more applicable laws, we may be subject to significant liability, including without limitation, civil fines, criminal fines and penalties, civildamages and exclusion from federal funded healthcare programs such as Medicare and Medicaid, as well as potential liability under the federal False Claims Actand state false claims acts, and/or be required to enter into a corporate integrity or other settlement with the government, any of which could materially affect ourreputation, business, financial condition, results of operations and cash flows. Conduct giving rise to such liability could also form the basis for private civillitigation by third-party payors or other persons allegedly harmed by such conduct. In addition, if some of our existing business practices are challenged asunlawful, we may have to change those practices, including changes and impacts on the practices of our sales force, which could also have a material adverseeffect on our business, financial condition, results of operations and cash flows.Our business could be materially adversely affected if the FDA determines that we are promoting or have in the past promoted the “Off-label” use of ourproducts.The FDA strictly regulates marketing, labeling, advertising and promotion of prescription drugs and medical devices. These regulations include standards andrestrictions for direct-to-consumer advertising, industry-sponsored scientific and educational activities, promotional activities involving the internet and off-labelpromotion. According to these regulations, companies may not promote drugs or medical devices for “Off-label” uses—that is, uses that are not consistent with theproduct’s labeling and that differ from those that were approved by the FDA. For example, the FDA-approved label for EXPAREL does not include an indicationin obstetrical paracervical block anesthesia. In addition to the FDA approval required for new formulations or device enhancements, any new indication for anapproved product also requires FDA approval. If we are not able to obtain FDA approval for any desired future indications for our products and product candidates,our ability to effectively market and sell our products may be reduced and our business may be adversely affected.While physicians in the U.S. may choose, and are generally permitted to prescribe drugs and/or medical devices for uses that are not described in theproduct’s labeling and for uses that differ from those tested in clinical trials and approved by the regulatory authorities, under the FDA’s regulations our ability topromote the products is narrowly limited to those indications that are approved by the FDA. “Off-label” uses are common across medical specialties and mayconstitute an appropriate treatment for some patients in varied circumstances. Regulatory authorities in the U.S. generally do not regulate the behavior ofphysicians in their choice of treatments. Regulatory authorities do, however, restrict communications by pharmaceutical and medical device companies on thesubject of off-label use. Although recent court decisions suggest that certain off-label promotional activities may be protected under the First Amendment of theU.S. Constitution, the scope of such protection is unclear. Moreover, while we promote our products consistent with what we believe to be the approved indicationfor our drugs and medical devices, the FDA may disagree. If the FDA determines that our promotional activities fail to comply with the FDA’s regulations orguidelines, we may be subject to warnings from, or enforcement action by, these authorities. In addition, our failure to follow FDA rules and guidelines relating topromotion and advertising may cause the FDA to issue warning letters or untitled letters, bring an enforcement action against us, suspend or withdraw an approvedproduct from the market, require a recall or institute fines or civil fines, or could result in disgorgement of money, operating restrictions, injunctions or criminalprosecution, any of which could harm our reputation and our business.37Table of ContentsIn September 2014, we received a warning letter from the OPDP pertaining to certain promotional aspects of EXPAREL. We took actions to immediatelyaddress the FDA’s concerns and minimize further disruption to our business. Ultimately, however, in September 2015, we, along with two independent physicians,filed a lawsuit in federal court against the FDA and other governmental defendants seeking to exercise our lawful rights to communicate truthful and non-misleading information about EXPAREL. The complaint outlined our belief that the FDA’s warning letter received in September 2014 and regulations restrictingour truthful and non-misleading speech about EXPAREL violated the Administrative Procedure Act and the First and Fifth Amendments of the U.S. Constitution.The lawsuit sought a declaration and injunctive relief to permit us to promote EXPAREL consistent with its approved indication and pivotal trials that supportedFDA approval. On December 15, 2015, we announced that the FDA had formally withdrawn the September 2014 Warning Letter via a “Rescission Letter,” andthat the FDA and Pacira had reached an amicable resolution of the lawsuit. As part of the resolution of this matter, the FDA confirmed that EXPAREL was broadlyapproved for “administration into the surgical site to produce postsurgical analgesia” in a variety of surgeries not limited to those studied in its pivotal trials. TheFDA also approved a labeling supplement for EXPAREL that further clarified that EXPAREL was not limited to any specific surgery type or site, that the properdosage and administration of EXPAREL is based on various patient and procedure-specific factors, that there was a significant treatment effect for EXPARELcompared to placebo over the first 72 hours in the pivotal hemorrhoidectomy trial and that EXPAREL may be admixed with bupivacaine, provided certainmedication ratios are observed. The Warning Letter and labeling supplement only applied to the infiltration indication that was approved at that time, and does notapply to the interscalene brachial plexus nerve block indication approved in April 2018. We and the FDA agreed that, in future interactions, the parties will dealwith each other in an open, forthright and fair manner.We are unable to predict whether any future regulatory actions will have an effect on our product sales, and even if such actions are ultimately resolvedfavorably, our sales may suffer due to reputational or other concerns. We can make no assurances that we will not receive FDA warning letters in the future or besubject to other regulatory action. As noted above, any regulatory violation or allegations of a violation may have a material adverse effect on our reputation andbusiness.We may not receive regulatory approval for any of our product candidates, or the approval may be delayed for various reasons, including successfulchallenges to the FDA’s interpretation of Section 505(b)(2), which would have a material adverse effect on our business and financial condition.We may experience delays in our efforts to obtain regulatory approval from the FDA for any of our product candidates, and there can be no assurance thatsuch approval will not be delayed, or that the FDA will ultimately approve these product candidates. Although the FDA’s longstanding position has been that theAgency may rely upon prior findings of safety or effectiveness to support approval of a 505(b)(2) application, this policy has been controversial and subject tochallenge in the past. If the FDA’s policy is successfully challenged administratively or in court, we may be required to seek approval of our products via fullNDAs that contain a complete data package demonstrating the safety and effectiveness of our product candidates, which would be time-consuming, expensive andwould have a material adverse effect on our business and financial condition.The FDA, as a condition of the EXPAREL NDA approval on October 28, 2011, has required us to study EXPAREL in pediatric patients as a post-marketingrequirement. We have agreed to a trial timeline where we will study successive pediatric patient subpopulations. In December 2019, we announced positive resultsfor our extended pharmacokinetic and safety study for local analgesia in children aged 6 to 17 undergoing cardiovascular or spine surgeries. Those positive resultswill provide the foundation for an sNDA. We are also working with the FDA to define a program to study the administration of EXPAREL as a nerve block in thepediatric setting. These trials will be expensive and time consuming and we are required to meet the timelines for submission of protocols and data and forcompletion as agreed with the FDA, and we may be delayed in meeting such timelines. We are required to conduct these trials even if we believe that the costs andpotential benefits of conducting the trials are not warranted from a scientific or financial perspective. The failure to conduct these pediatric trials or to meetapplicable deadlines could result in the imposition of sanctions, including, among other things, issuance of warnings letters or imposition of seizures or injunctions.For iovera° and any other potential medical device, we must obtain clearance or approval from the FDA or other regulatory authorities prior to introducing anew product or a modification to an existing product. The regulatory clearance process may result in substantial delays, unexpected or additional costs andother unforeseen factors and limitations on the types and uses of products we would be able to commercialize, any of which could have a material adverseeffect on our business and financial condition.In the U.S., before we are able to market a new medical device, or a new use, claim for or significant modification to an existing medical device, we generallymust first receive clearance or approval from the FDA and certain other regulatory authorities. Many foreign jurisdictions outside the U.S. also require clearance,approval or compliance with certain standards before a medical device or other product can be marketed. The process of obtaining regulatory clearances andapprovals to market a medical device can be costly, time consuming, involve rigorous pre-clinical and clinical testing, require changes in products or result inlimitations on the indicated uses of products. There can be no assurance that these clearances and38Table of Contentsapprovals will be granted on a timely basis, if at all. In addition, once a medical device has been cleared or approved, a new clearance or approval may be requiredbefore the medical device may be modified, its labeling changed or marketed for a different use. Medical devices are cleared or approved for one or more specificintended uses and promoting a device for an off-label use could result in government enforcement action. Furthermore, a product approval or clearance can bewithdrawn or limited due to unforeseen problems with the medical device or issues relating to its application. The regulatory clearance and approval process mayresult in, among other things, delayed, if at all, realization of product net sales, substantial additional costs and limitations on the types of products we may bring tomarket or their indicated uses, any one of which could have a material adverse effect on our business, results of operations, financial condition and cash flows.The FDA may determine that our products or any of our product candidates have undesirable side effects.If concerns are raised regarding the safety of a new product candidate as a result of undesirable side effects identified during clinical testing, the FDA maydecline to approve the drug or medical device or issue a letter requesting additional data or information prior to making a final decision regarding whether or not toapprove the product. The number of such requests for additional data or information issued by the FDA in recent years has increased, and resulted in substantialdelays in the approval of several new drugs and medical devices. Undesirable side effects caused by our products or any product candidate could also result in theinclusion of unfavorable information in our product labeling, imposition of distribution or use restrictions, a requirement to conduct post-market studies or toimplement a risk evaluation and mitigation strategy, denial, suspension or withdrawal of regulatory approval by the FDA or other regulatory authorities for any orall targeted indications, and in turn prevent us from commercializing and generating revenues from the sale of EXPAREL, iovera° or any product candidate.For example, the side effects observed in the EXPAREL clinical trials completed to date include nausea and vomiting. In addition, the class of drugs thatEXPAREL belongs to has been associated with nervous system and cardiovascular toxicities at high doses. We cannot be certain that these side effects and otherswill not be observed in the future, or that the FDA will not require additional trials or impose more severe labeling restrictions due to these side effects or otherconcerns. The active component of EXPAREL is bupivacaine and bupivacaine infusions have been associated with the destruction of articular cartilage, orchondrolysis. Chondrolysis has not been observed in clinical trials of EXPAREL, but we cannot be certain that this side effect will not be observed in the future.Following approval of EXPAREL, iovera° or any of our product candidates, if we or others later identify previously unknown undesirable side effects causedby such products, if known side effects are more frequent or severe than in the past, or if we or others detect unexpected safety signals for such products or anyproducts perceived to be similar to such products:•regulatory authorities may require the addition of unfavorable labeling statements, specific warnings or contraindications (including boxedwarnings);•regulatory authorities may suspend or withdraw their approval of the product, or require it to be removed from themarket;•regulatory authorities may impose restrictions on the distribution or use of theproduct;•we may be required to change the way the product is administered, conduct additional clinical trials, reformulate the product, change the labeling ofthe product or change or obtain re-approvals of manufacturing facilities;•sales of the product may be significantly decreased from projectedsales;•we may be subject to government investigations, product liability claims and litigation;and•our reputation maysuffer.Any of these events could prevent us from achieving or maintaining market acceptance of our products or any of our product candidates and couldsubstantially increase our commercialization costs and expenses, which in turn could delay or prevent us from generating significant revenues from its sale.Regulatory approval for any approved product is limited by the FDA to those specific indications and conditions for which clinical safety and efficacy havebeen demonstrated.Any regulatory approval is limited to those specific diseases and indications for which a product is deemed to be safe and effective by the FDA. For example,the FDA-approved label for EXPAREL does not include an indication in obstetrical paracervical block anesthesia. In addition to the FDA approval required fornew products or product enhancements, any new indication for an approved product also requires FDA approval. If we are not able to obtain FDA approval for anydesired39Table of Contentsfuture indications for our products and product candidates, our ability to effectively market and sell our products may be reduced and our business may beadversely affected.While physicians may choose to prescribe drugs and medical devices for uses that are not described in the product’s labeling and for uses that differ fromthose tested in clinical trials and approved by the regulatory authorities, our ability to promote the products is limited to those indications that are specificallyapproved by the FDA.If we do not comply with federal, state and foreign laws and regulations relating to the health care business, we could face substantial penalties.We and our customers are subject to extensive regulation by the federal government, and the governments of the states and foreign countries in which wemay conduct our business. In the U.S., the laws that directly or indirectly affect our ability to operate our business include the following:•the Federal Anti-Kickback Law, which prohibits persons from knowingly and willfully soliciting, offering, receiving or providing remuneration,directly or indirectly, in cash or in kind, to induce either the referral of an individual or furnishing or arranging for a good or service for whichpayment may be made under federal health care programs such as Medicare and Medicaid;•other Medicare laws and regulations that prescribe the requirements for coverage and payment for services performed by our customers, including theamount of such payment;•the Federal False Claims Act, which imposes civil and criminal liability on individuals and entities who submit, or cause to be submitted, false orfraudulent claims for payment to the government;•the Federal False Statements Act, which prohibits knowingly and willfully falsifying, concealing or covering up a material fact or making anymaterially false statement in connection with delivery of or payment for health care benefits, items or services; and•various state laws that impose similar requirements and liability with respect to state healthcare reimbursement and otherprograms.If our operations are found to be in violation of any of the laws and regulations described above or any other law or governmental regulation to which we orour customers are or will be subject, we may be subject to civil and criminal penalties, damages, fines, exclusion from the Medicare and Medicaid programs andthe curtailment or restructuring of our operations. Similarly, if our customers are found to be non-compliant with applicable laws, they may be subject tosanctions, which could also have a negative impact on us. Any penalties, damages, fines, curtailment or restructuring of our operations would adversely affect ourability to operate our business and our financial results. Any action against us for violation of these laws, even if we successfully defend against it, could cause usto incur significant legal expenses, divert our management’s attention from the operation of our business and damage our reputation.The design, development, manufacture, supply and distribution of EXPAREL are highly regulated and technically complex.The design, development, manufacture, supply and distribution of EXPAREL are all highly regulated. We, along with our third-party providers, must complywith all applicable regulatory requirements of the FDA and foreign authorities. In addition, the facilities used to manufacture, store and distribute EXPAREL aresubject to inspection by regulatory authorities at any time to determine compliance with applicable regulations.The manufacturing techniques and facilities used for the manufacture and supply of our products must be operated in conformity with cGMP and other FDAand MHRA regulations, including potentially prior regulatory approval. In addition, any expansion of our existing manufacturing facilities or the introduction ofany new manufacturing facilities, including the manufacturing suites at Thermo Fisher’s facility, also require conformity with cGMP and other FDA and MHRAregulations. In complying with these requirements, we, along with our co-production partners and suppliers, must continually expend time, money and effort inproduction, record keeping and quality assurance and control to ensure that our products meet applicable specifications and other requirements for safety, efficacyand quality. In addition, we, along with our co-production partners and suppliers, are subject to unannounced inspections by the FDA, MHRA and other regulatoryauthorities.Any failure to comply with regulatory and other legal requirements applicable to the manufacture, supply and distribution of our products could lead toremedial action (such as recalls), civil and criminal penalties and delays in manufacture, supply and distribution of our products.40Table of ContentsThe design, development, manufacture, supply and distribution of EXPAREL are all highly complex. If we are unable to manufacture EXPAREL incompliance with our highly complex specifications in the future, we may be subject to product exchanges, significant costs and charges, supply constraints or othercorrective measures.If we fail to comply with the extensive regulatory requirements to which we and our products are subject, such products could be subject to restrictions orwithdrawal from the market and we could be subject to penalties.The testing, manufacturing, quality control, labeling, safety, effectiveness, advertising, promotion, storage, sales, distribution, import, export and marketing,among other things, of EXPAREL, iovera° and our product candidates are subject to extensive regulation by governmental authorities in the U.S. and elsewherethroughout the world. Quality control and manufacturing procedures regarding EXPAREL and our product candidates must conform to cGMP. Regulatoryauthorities, including the FDA and the MHRA, periodically inspect manufacturing facilities to assess compliance with cGMP. Our failure, or the failure of anycontract manufacturers with whom we may work in the future, to comply with the laws administered by the FDA, the MHRA or other governmental authoritiescould result in, among other things, any of the following:•product recall orseizure;•suspension or withdrawal of an approved product from themarket;•interruption of production;•reputational concerns of our customers or the medicalcommunity;•operatingrestrictions;•warningletters;•injunctions;•refusal to permit import or export of an approvedproduct;•refusal to approve pending applications or supplements to approved applications that wesubmit;•denial of permission to file an application or supplement in ajurisdiction;•consent decrees;•suspension or termination of ongoing clinical trials;•fines and other monetary penalties;•criminal prosecutions;and•unanticipated expenditures.If the government or third-party payers fail to provide adequate coverage and payment rates for EXPAREL, iovera° or any future products, or if hospitals orASCs choose to use therapies that are less expensive, our revenue and prospects for profitability will be limited.In both domestic and foreign markets, sales of our existing products and any future products will depend in part upon the availability of coverage andreimbursement from third-party payers. Such third-party payers include government health programs such as Medicare and Medicaid, managed care providers,private health insurers and other organizations. Coverage decisions may depend upon clinical and economic standards that disfavor new drug products when moreestablished or lower cost therapeutic alternatives are already available or subsequently become available. Assuming coverage is approved, the resultingreimbursement payment rates might not be adequate. In particular, many U.S. hospitals and ASCs receive a fixed reimbursement amount per procedure for certainsurgeries and other treatment therapies they perform. Because this amount may not be based on the actual expenses the hospital or ASC incurs, these sites maychoose to use therapies which are less expensive when compared to our product candidates. Although hospitals and ASCs may receive separate reimbursement forEXPAREL, iovera° or any product candidates that we may develop, in-license or acquire, if approved, will face competition from other therapies and drugs forthese limited hospital and ASC financial resources. We may need to conduct post-marketing studies in order to demonstrate the cost-effectiveness of any futureproducts to the satisfaction of hospitals, ASCs, other target41Table of Contentscustomers and their third-party payers. Such studies might require us to commit a significant amount of management time, financial and other resources. Ourfuture products might not ultimately be considered cost-effective. Adequate third-party coverage and reimbursement might not be available to enable us tomaintain price levels sufficient to realize an appropriate return on investment in product development.Third-party payers, whether foreign or domestic, or governmental or commercial, are developing increasingly sophisticated methods of controlling healthcarecosts. For example, third-party payers may limit the indications for which our products will be reimbursed to a smaller set of indications than we believe isappropriate or limit the circumstances under which our products will be reimbursed to a smaller set of circumstances than we believe is appropriate. In addition, inthe U.S., no uniform policy of coverage and reimbursement for drug or medical device products exists among third-party payers. Therefore, coverage andreimbursement for drug products can differ significantly from payer to payer.Further, we believe that future coverage and reimbursement will likely be subject to increased restrictions both in the U.S. and in international markets, asfederal, state and foreign governments continue to propose and pass new legislation designed to reduce or contain the cost of healthcare. Third-party coverage andreimbursement for our products or product candidates for which we receive regulatory approval may not be available or adequate in either the U.S. or internationalmarkets, which could have a negative effect on our business, results of operations, financial condition and prospects.Public concern regarding the safety of drug products such as EXPAREL and medical device products such as iovera° could result in the inclusion ofunfavorable information in our labeling, or require us to undertake other activities that may entail additional costs.In light of widely publicized events concerning the safety risk of certain drug products, the FDA, members of Congress, the Government AccountabilityOffice, medical professionals and the general public have raised concerns about potential drug and medical device safety issues. These events have resulted in thewithdrawal of drug and medical device products, revisions to labeling that further limits use of the drug and medical device products and the establishment of riskmanagement programs that may, for example, restrict distribution of drug or medical device products after approval. The Food and Drug AdministrationAmendments Act of 2007, or FDAAA, grants significant expanded authority to the FDA, much of which is aimed at improving the safety of drug and medicaldevice products before and after approval. In particular, the FDAAA authorizes the FDA to, among other things, require post-approval studies and clinical trials,mandate changes to product labeling to reflect new safety information and require risk evaluation and mitigation strategies for certain drugs and medical devices,including certain currently approved drugs and medical devices. The FDAAA also significantly expands the federal government’s clinical trial registry and resultsdatabank, which we expect will result in significantly increased government oversight of clinical trials. Under the FDAAA, companies that violate these and otherprovisions of the new law are subject to substantial civil monetary penalties, among other regulatory, civil and criminal penalties. The increased attention to drugsafety issues may result in a more cautious approach by the FDA in its review of data from our clinical trials. Data from clinical trials may receive greater scrutiny,particularly with respect to safety, which may make the FDA or other regulatory authorities more likely to require additional preclinical studies or clinical trials. Ifthe FDA requires us to provide additional clinical or preclinical data for EXPAREL or iovera°, the indications for which these products were approved may belimited or there may be specific warnings or limitations on dosing, and our efforts to commercialize EXPAREL or iovera° may be otherwise adversely impacted.Risks Related to Intellectual PropertyThe patents and the patent applications that we have covering our products are limited to specific injectable formulations, processes and uses of drugsencapsulated in our DepoFoam drug delivery technology and our market opportunity for our product candidates may be limited by the lack of patentprotection for the active ingredient itself and other formulations and delivery technology and systems that may be developed by competitors.The active ingredient in EXPAREL is bupivacaine. Patent protection for the bupivacaine molecules themselves has expired and generic immediate-releaseproducts are available. As a result, competitors who obtain the requisite regulatory approval can offer products with the same active ingredient as EXPAREL solong as the competitors do not infringe any process, use or formulation patents that we have developed for drugs encapsulated in our DepoFoam drug deliverytechnology.For example, we are aware of at least one long-acting injectable bupivacaine product in development which utilizes an alternative delivery system toEXPAREL. Such a product is similar to EXPAREL in that it also extends the duration of effect of bupivacaine, but achieves this clinical outcome using acompletely different drug delivery system as compared to our DepoFoam drug delivery technology.The number of patents and patent applications covering products in the same field as EXPAREL indicates that competitors have sought to develop and mayseek to market competing formulations that may not be covered by our patents and patent applications. The commercial opportunity for EXPAREL could besignificantly harmed if competitors are able to develop and commercialize alternative formulations of bupivacaine that are long-acting but outside the scope of ourpatents.42Table of ContentsBecause EXPAREL has been approved by the FDA, one or more third parties may challenge the patents covering this product, which could result in theinvalidation or unenforceability of some or all of the relevant patent claims. For example, if a third-party files an Abbreviated New Drug Application, or ANDA,for a generic drug product containing bupivacaine and relies in whole or in part on studies conducted by or for us, the third-party will be required to certify to theFDA that either: (i) there is no patent information listed in the FDA’s Orange Book with respect to our NDA for EXPAREL; (ii) the patents listed in the OrangeBook have expired; (iii) the listed patents have not expired, but will expire on a particular date and approval is sought after patent expiration; or (iv) the listedpatents are invalid or will not be infringed by the manufacture, use or sale of the third-party’s generic drug product. A certification that the new product will notinfringe the Orange Book-listed patents for EXPAREL, or that such patents are invalid, is called a paragraph IV certification. If the third-party submits aparagraph IV certification to the FDA, a notice of the paragraph IV certification must also be sent to us once the third-party’s ANDA is accepted for filing by theFDA. We may then initiate a lawsuit to defend the patents identified in the notice. The filing of a patent infringement lawsuit within 45 days of receipt of the noticeautomatically prevents the FDA from approving the third-party’s ANDA until the earliest of 30 months or the date on which the patent expires, the lawsuit issettled or the court reaches a decision in the infringement lawsuit in favor of the third-party. If we do not file a patent infringement lawsuit within the required 45-day period, the third-party’s ANDA will not be subject to the 30-month stay. Litigation or other proceedings to enforce or defend intellectual property rights areoften very complex in nature, may be very expensive and time-consuming, may divert our management’s attention from our core business and may result inunfavorable results that could adversely impact our ability to prevent third parties from competing with our products.The patents and the patent applications that we have covering our iovera° products are primarily limited to specific handheld cryogenic needle devices that arecooled by a cryogen and methods for applying cryotherapy to nerve tissue using the cryogenic devices. Our market opportunity for our product candidates maybe limited by gaps in patent coverage for the cryogenic devices, methods of use and other cryotherapy technology and systems that may be developed bycompetitors.The iovera° cryogenic device is a compact, self-contained handheld device with a replaceable cryogen cartridge that delivers a cryogen through internalsupply tubes to needle lumens of a replaceable needle probe, so as to cool the needle probe and thereby cool a surrounding target nerve tissue. We also havesecured patents covering particular cryotherapy methods and pain treatments that provide what we deem to be optimal treatment using the iovera° cryogenicdevice.Although we have patents that are broad enough to cover various alternative designs and methods, much of our patent coverage is tailored to cover theiovera° device and methods of use. It is thus possible that competitors may attempt to design around many of our patents. For example, we are aware ofcompetitors developing cryogenic systems that are not self-contained handheld devices, or cryogenic systems that deliver cryotherapy through differentmechanisms. It is also possible that competitors may attempt to develop and market cryotherapy devices and methods not covered by our patents, for example,basic cryotherapy treatment systems that are off-patent or cryoanalgesia for other nerve entrapment treatments.The commercial opportunity for iovera° could be significantly harmed if competitors are able to develop and commercialize alternative designs and methodsoutside the scope of our patents.Furthermore, our earliest patent family is scheduled to expire in 2025, thereby opening the door for competitors to copy some of our early technology. Thisearly patent family is primarily focused on treating cosmetic defects that are no longer the focus of iovera°, but the underlying technology is nonetheless relevantenough for there to be appreciable overlap.Finally, one or more third parties may challenge the patents covering the iovera° product, which could result in the invalidation or unenforceability of someor all of the relevant patent claims. Litigation or other proceedings to defend or enforce intellectual property rights are often very complex in nature, may be veryexpensive and time-consuming, may divert our management’s attention from our core business and may result in unfavorable results that could adversely impactour ability to prevent third parties from competing with our products.Because it is difficult and costly to protect our proprietary rights, we may not be able to ensure their protection and all patents will eventually expire.Our commercial success will depend in part on obtaining and maintaining patent protection and trade secret protection for EXPAREL, iovera°, DepoFoamand for any product candidates that we may develop, license or acquire and the methods we use to manufacture them, as well as successfully defending thesepatents and trade secrets against third-party challenges. We will only be able to protect our technologies from unauthorized use by third parties to the extent thatvalid and enforceable patents or trade secrets cover them.The patent positions of pharmaceutical, medical device and biotechnology companies can be highly uncertain and involve complex legal and factualquestions for which important legal principles remain unresolved. No consistent policy regarding the breadth of claims allowed in pharmaceutical, medical deviceor biotechnology patents has emerged to date in the U.S. Patent positions and policies outside the U.S. are even more uncertain. Changes in either the patent lawsor in interpretations of patent43Table of Contentslaws in the U.S. and other countries may diminish the value of our intellectual property. Accordingly, we cannot predict the breadth of claims that may be allowedor enforced in our patents or in third-party patents.The degree of future protection for our proprietary rights is uncertain because legal means afford only limited protection and may not adequately protect ourrights or permit us to gain or keep our competitive advantage. For example:•we may not have been the first to make the inventions covered by each of our pending patent applications and issuedpatents;•we may not have been the first to file patent applications for theseinventions;•others may independently develop similar or alternative technologies or duplicate any of our product candidates ortechnologies;•it is possible that none of the pending patent applications will result in issuedpatents;•the issued patents covering our product candidates may not provide a basis for commercially viable active products, may not provide us with anycompetitive advantages, may not have sufficient scope or strength to protect the technologies they were intended to protect or may be challenged bythird parties;•others may design around our patent claims to produce competitive products that fall outside the scope of ourpatents;•we may not develop or in-license additional proprietary technologies that arepatentable;•patents of others may have an adverse effect on our business;or•competitors may infringe our patents and we may not have adequate resources to enforce ourpatents.Patent applications in the U.S. are maintained in confidence for at least 18 months after their earliest effective filing date. Consequently, we cannot be certainwe were the first to invent or the first to file patent applications on EXPAREL, iovera°, our DepoFoam drug delivery technology or any product candidates that wemay develop, license or acquire. In the event that a third-party has also filed a U.S. patent application relating to our product candidates or a similar invention, wemay have to participate in interference proceedings declared by the USPTO to determine priority of invention in the U.S. The costs of these proceedings could besubstantial and it is possible that our efforts would be unsuccessful, resulting in a material adverse effect on our U.S. patent position. Furthermore, we may nothave identified all U.S. and foreign patents or published applications that affect our business either by blocking our ability to commercialize our drugs or medicaldevices or by covering similar technologies that affect our drug or medical device markets.In addition, some countries, including many in Europe, do not grant patent claims directed to methods of treating humans, and in these countries patentprotection may not be available at all to protect our product candidates. Even if patents are issued, we cannot guarantee that the claims of those patents will bevalid and enforceable or provide us with any significant protection against competitive products, or otherwise be commercially valuable to us. Furthermore, whilewe generally apply for patents in those countries where we intend to make, have made, use or sell patented products, we may not accurately predict all of thecountries where patent protection will ultimately be desirable. If we fail to timely file a patent application in any such country, we may be precluded from doing soat a later date. We also cannot assure you that the patents issuing as a result of our foreign patent applications will have the same scope of coverage as our U.S.patents.Some of our older patents have already expired. In the case of EXPAREL, the European and U.S. patents protecting the formulation of EXPAREL expired in2018. An existing formulation patent for EXPAREL expired in November 2013. An existing formulation patent for EXPAREL expired in the U.S. in 2013 and itsequivalents in Canada, Germany, France, Spain, Italy and the United Kingdom expired in 2014. Our earliest patent family for iovera° is scheduled to expire in2025. Once our patents covering EXPAREL and iovera° have expired, we will be more reliant on trade secrets to protect against generic competition.We also rely on trade secrets to protect our technology, particularly where we do not believe patent protection is appropriate or obtainable. However, tradesecrets are difficult to protect. While we use reasonable efforts to protect our trade secrets through confidentiality and non-disclosure agreements, our licensors,employees, consultants, contractors, outside scientific collaborators and other advisors may unintentionally or willfully disclose our information to competitors.Policing unauthorized use of our trade secrets or enforcing a claim that a third-party illegally obtained and is using our trade secrets is expensive and timeconsuming, and the outcome is unpredictable. In addition, trade secret laws in other countries may not be as44Table of Contentsprotective as they are in the U.S. Thus, courts outside the U.S. are sometimes less willing to protect trade secrets. Moreover, our competitors may independentlydevelop equivalent knowledge, methods and know-how.In order to protect the goodwill associated with our company and product names, we rely on trademark protection for our marks. We have registered the“Pacira”, “EXPAREL”, “iovera°”, “DepoCyt”, and “DepoCyte” marks with the USPTO. A third-party may assert a claim that one of our marks is confusinglysimilar to its mark, and such claims or the failure to timely register a mark or objections by the FDA could force us to select a new name for one of our productcandidates, which could cause us to incur additional expense or delay the commercialization of such product.If we fail to obtain or maintain patent protection or trade secret protection for EXPAREL, iovera°, DepoFoam or any product candidate that we may develop,license or acquire, third parties could use our proprietary information, which could impair our ability to compete in the market and adversely affect our ability togenerate revenues and achieve profitability.If we are sued for infringing intellectual property rights of third parties, it will be costly and time consuming, and an unfavorable outcome in any litigationwould harm our business.Our ability to develop, manufacture, market and sell EXPAREL, iovera°, our DepoFoam drug delivery technology or any product candidates that we maydevelop, license or acquire depends upon our ability to avoid infringing the proprietary rights of third parties. Numerous U.S. and foreign issued patents andpending patent applications, which are owned by third parties, exist in the general fields of pain management and cancer treatment and cover the use of numerouscompounds, formulations and medical devices in our targeted markets. Because of the uncertainty inherent in any patent or other litigation involving proprietaryrights, we and our licensors may not be successful in defending intellectual property claims by third parties, which could have a material adverse effect on ourresults of operations. Regardless of the outcome of any litigation, defending the litigation may be expensive, time-consuming and distracting to management. Inaddition, because patent applications can take many years to issue, there may be currently pending applications, unknown to us, which may later result in issuedpatents that EXPAREL or iovera° may infringe. There could also be existing patents of which we are not aware that EXPAREL or iovera° may inadvertentlyinfringe.There is a substantial amount of litigation involving patent and other intellectual property rights in the biotechnology and biopharmaceutical industries ingeneral. If a third-party claims that we infringe on their products or technology, we could face a number of issues, including:•infringement and other intellectual property claims which, with or without merit, can be expensive and time consuming to litigate and can divertmanagement’s attention from our core business;•substantial damages for past infringement which we may have to pay if a court decides that our product infringes on a competitor’spatent;•a court prohibiting us from selling or licensing our product unless the patent holder licenses the patent to us, which it would not be required todo;•if a license is available from a patent holder, we may have to pay substantial royalties or grant cross licenses to our patents;and•redesigning our processes so they do not infringe, which may not be possible or could require substantial funds andtime.We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.As is common in the biotechnology, pharmaceutical and medical device industries, we employ individuals who were previously employed at otherbiotechnology, pharmaceutical and medical device companies, including our competitors or potential competitors. Although no claims against us are currentlypending, we may be subject to claims that these employees or we have inadvertently or otherwise used or disclosed trade secrets or other proprietary informationof their former employers. Litigation may be necessary to defend against these claims. Even if we are successful in defending against these claims, litigation couldresult in substantial costs and be a distraction to management.45Table of ContentsRisks Related to CybersecurityIf we do not maintain the privacy and security of personal and business information, we could damage our reputation with customers and employees, incursubstantial additional costs and become subject to litigation.We receive, retain and transmit personal information about our customers and employees and entrust that information to third-party suppliers, including cloudservice-providers that perform activities for us. Our business depends upon the secure transmission of encrypted confidential information over public networks,including information permitting payments. A compromise of our security systems or defects within our hardware or software, or those of our suppliers, thatresults in our customers’ or employees’ information being obtained by unauthorized persons, could adversely affect our reputation with our customers and others,as well as our operations, results of operations, financial condition and liquidity, and could result in litigation, government actions, or the imposition of penalties.In addition, a breach could require that we expend significant additional resources related to the security of information systems and could disrupt our operations.The use of data by our business is regulated at the national and state or local level in all of our operating countries. Privacy and information-security laws andregulations change, and compliance with them may result in cost increases due to, among other things, systems changes and the development of new processes. Ifwe or those with whom we share information fail to comply with these laws and regulations, our reputation could be damaged, possibly resulting in lost futurebusiness, and we could be subjected to additional legal risk as a result of non-compliance.We have security measures and controls to protect personal and business information and continue to make investments to secure access to our informationtechnology network. These measures may be undermined, however, due to the actions of outside parties, employee error, internal or external malfeasance, orotherwise, and, as a result, an unauthorized party may obtain access to our data systems and misappropriate business and personal information. Because thetechniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and may not immediately produce signs ofintrusion, we may be unable to anticipate these techniques, timely discover or counter them, or implement adequate preventative measures. Any such breach orunauthorized access could result in significant legal and financial exposure, damage to our reputation, and potentially have an adverse effect on our business andresults of operations.Changes in data privacy and protection laws and regulations, particularly in Europe, or any failure to comply with such laws and regulations, could adverselyaffect our business and financial results.We are subject to a variety of continuously evolving and developing laws and regulations globally regarding privacy, data protection and data security,including those related to the collection, storage, handling, use, disclosure, transfer and security of personal data. Significant uncertainty exists as privacy and dataprotection laws may be interpreted and applied differently from country to country and may create inconsistent or conflicting requirements. These laws apply totransfers of information among our affiliates, as well as to transactions we enter into with third-party vendors. For example, the E.U. adopted a comprehensiveGeneral Data Privacy Regulation, or GDPR, in May 2016 that replaced the then-current E.U. Data Protection Directive and related country-specific legislation inMay 2018. GDPR requires companies to satisfy new requirements regarding the handling of personal and sensitive data, including its use, protection and theability of persons whose data is stored to correct or delete such data about themselves. Failure to comply with GDPR requirements could result in penalties of up to4% of worldwide revenue. Complying with the enhanced obligations imposed by the GDPR may result in significant costs to our business and require us to revisecertain of our business practices. In addition, legislators and regulators in the U.S. are proposing new and more robust cybersecurity rules in light of the recentbroad-based cyberattacks at a number of companies. These and similar initiatives around the world could increase the cost of developing, implementing or securingour servers and require us to allocate more resources to improved technologies, adding to our information technology and compliance costs. In addition,enforcement actions and investigations by regulatory authorities related to data security incidents and privacy violations continue to increase. The enactment ofmore restrictive laws, rules, regulations, or future enforcement actions or investigations could impact us through increased costs or restrictions on our business, andnoncompliance could result in regulatory penalties and significant legal liability.Risks Related to our Financial Condition and Capital RequirementsCumulatively, we have incurred significant losses since our inception and may incur additional losses in the future.To date, we have focused primarily on developing and commercializing EXPAREL. We incurred net losses of $11.0 million, $0.5 million and $42.6 millionfor the years ended December 31, 2019, 2018 and 2017, respectively. As of December 31, 2019, we had an accumulated deficit of $399.4 million. Our losses,among other things, have had, and will continue to have, an adverse effect on our stockholders’ equity and working capital. We incurred significant pre-commercialization expenses as we prepared for the commercial launch of EXPAREL, and we incur significant sales, marketing and manufacturing expenses, aswell as continued development expenses related to the commercialization of EXPAREL and46Table of Contentsiovera°. As a result, we had not been profitable prior to 2015 and have not been since. Because of the numerous risks and uncertainties associated with developingpharmaceutical products and medical devices, we are unable to predict the extent of any future losses.We may not return to profitability.Our ability to return to profitability depends upon our ability to generate revenue from EXPAREL and iovera°. Our ability to generate revenue depends on anumber of factors, including, but not limited to, our ability to:•manufacture commercial quantities of EXPAREL and iovera° at acceptable cost levels;and•continue to develop a commercial organization and the supporting infrastructure required to successfully market and sell both EXPAREL andiovera°.We anticipate incurring significant additional costs associated with the commercialization of both EXPAREL and iovera° and are unsure as to whether we willbe able to return to profitability. If we are unable to generate additional revenues, we will not be able to do so and may be unable to continue operations withoutcontinued funding.We may need additional funding and may be unable to raise capital when needed, which would force us to delay, reduce or eliminate our product developmentprograms or commercialization efforts.Developing and commercializing products for use in the hospital or ASC settings, conducting clinical trials, establishing outsourced manufacturingrelationships and successfully manufacturing and marketing drugs and medical devices that we may develop is expensive. We may need to raise additional capitalto:•continue to fund ouroperations;•continue our efforts to hire additional personnel and build a commercial infrastructure to commercialize EXPAREL andiovera°;•qualify, outsource or build additional commercial-scale manufacturing of our products undercGMP;•in-license and develop additional product candidates;and•refinance our 2.375% convertible senior notes, due April2022.We may not have sufficient financial resources to continue our operations or meet all of our objectives, which could require us to postpone, scale back oreliminate some, or all, of these objectives. Our future funding requirements will depend on many factors, including, but not limited to:•the costs of maintaining a commercial organization to sell, market and distribute EXPAREL andiovera°;•the success of the commercialization of EXPAREL andiovera°;•the cost and timing of manufacturing sufficient supplies of EXPAREL and iovera° to meet customer demand, including the cost of expanding ourmanufacturing facilities to produce EXPAREL and iovera°;•the rate of progress and costs of our efforts to prepare for the submission of an NDA, sNDA or 510(k) pre-market notification for any productcandidates that we may in-license or acquire in the future, and the potential that we may need to conduct additional clinical trials to supportapplications for regulatory approval;•the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights associated with our productcandidates, including any such costs we may be required to expend if our licensors are unwilling or unable to do so;•the effect of competing technological and market developments;•the terms and timing of any collaborative, licensing, co-promotion or other arrangements that we may establish;and•the potential that we may be required to file a lawsuit to defend our patent rights or regulatory exclusivities from challenges by companies seeking tomarket generic versions of extended-release liposome injection of bupivacaine or a cryoanalgesic device that infringes on the various patentscovering iovera°.47Table of ContentsFuture capital requirements will also depend on the extent to which we acquire or invest in additional complementary businesses, products and technologies.Until we can generate a sufficient amount of product revenue, if ever, we expect to finance or supplement future cash needs through public or private equityofferings, debt financings, royalties, collaboration and licensing arrangements, as well as through interest income earned on cash and investment balances. Wecannot be certain that additional funding will be available on acceptable terms, or at all. If adequate funds are not available, we may be required to delay, reducethe scope of, or eliminate one or more of our development programs or our commercialization efforts.Our quarterly operating results may fluctuate significantly.We expect our operating results to be subject to quarterly fluctuations. Our operating results will be affected by numerous factors, including:•the level of underlying hospital and ASC demand for EXPAREL and iovera° and end-user buyingpatterns;•maintaining our existing manufacturing facilities for EXPAREL and iovera°, expanding our manufacturing capacity and constructing a second suitefor the manufacture of EXPAREL with our co-production partner, Thermo Fisher, including installing specialized processing equipment for themanufacturing of EXPAREL;•our execution of other collaborative, licensing, distribution, manufacturing or similar arrangements and the timing of payments we may make orreceive under these arrangements;•variations in the level of expenses related to our future developmentprograms;•any product liability or intellectual property infringement lawsuit in which we may become involved;and•regulatory developments, lawsuits and investigations affecting EXPAREL, iovera° or the product candidates of ourcompetitors;If our quarterly or annual operating results fall below the expectations of our investors or securities analysts, the price of our common stock could declinesubstantially. Furthermore, any quarterly or annual fluctuations in our operating results may, in turn, cause the price of our stock to fluctuate substantially. Webelieve that quarterly comparisons of our financial results are not necessarily meaningful and should not be relied upon as an indication of our future performance.We may be unable to successfully integrate the businesses and personnel of acquired companies and businesses, and may not realize the anticipated synergiesand benefits of such acquisitions.From time to time, we may complete acquisitions of companies and certain businesses of companies, and we may not realize the expected benefits from suchacquisitions because of integration difficulties or other challenges. For example, on April 9, 2019, we completed the MyoScience Acquisition.The success of any acquisitions will depend, in part, on our ability to realize all or some of the anticipated synergies and other benefits from integrating theacquired businesses with our existing businesses. The integration process may be complex, costly and time-consuming. The potential difficulties we may face inintegrating the operations of our acquisitions include, among others:•failure to implement our business plans for the combined businesses and consolidation or expansion of production capacity as planned and whereapplicable;•unexpected losses of key employees, customers or suppliers of our acquired companies andbusinesses;•unanticipated issues in conforming our acquired companies’ and businesses’ standards, processes, procedures and controls with ouroperations;•coordinating new product and process development;•increasing the scope, geographic diversity and complexity of ouroperations;•diversion of management’s attention from other businessconcerns;•adverse effects on our or our acquired companies’ and businesses’ existing businessrelationships;•unanticipated changes in applicable laws andregulations;48Table of Contents•operating risks inherent in our acquired companies’ and businesses’ business andoperations;•unanticipated expenses and liabilities;•potential unfamiliarity with our acquired companies and businesses technology, products and markets, which may place us at a competitivedisadvantage; and•other difficulties in the assimilation of our acquired companies and businesses operations, technologies, products andsystems.If MyoScience or any other acquired companies and businesses may have unanticipated or larger than anticipated liabilities for patent and trademarkinfringement claims, violations of laws, commercial disputes, taxes and other known and unknown types of liabilities, there may be liabilities that weunderestimated or did not discover in the course of performing our due diligence investigation of our acquired companies and businesses. We may have norecourse or limited recourse under the applicable acquisition-related agreement to recover damages relating to the liabilities of our acquired companies andbusinesses.We may not be able to maintain or increase the levels of revenue, earnings or operating efficiency that each of the acquired companies and businesses and ushad historically achieved or might achieve separately. In addition, we may not accomplish the integration of any acquired companies and businesses smoothly,successfully or within the anticipated costs or timeframe. If we experience difficulties with the integration process or if the business of any acquired companies orbusinesses deteriorates, the anticipated cost savings, growth opportunities and other synergies of any acquired companies and businesses may not be realized fullyor at all, or may take longer to realize than expected. If any of the above risks occur, our business, financial condition, results of operations and cash flows may bematerially and adversely impacted, we may fail to meet the expectations of investors or analysts, and our stock price may decline as a result.Raising additional funds by issuing securities may cause dilution to existing stockholders and raising funds through lending and licensing arrangements mayrestrict our operations or require us to relinquish proprietary rights.To the extent that we raise additional capital by issuing equity securities, our existing stockholders’ ownership would be diluted. If we raise additional fundsthrough licensing arrangements, it may be necessary to relinquish potentially valuable rights to our potential products or proprietary technologies, or grant licenseson terms that are not favorable to us. Any debt financing we enter into may involve covenants that restrict our operations. These restrictive covenants may includelimitations on additional borrowing and specific restrictions on the use of our assets as well as prohibitions on our ability to create liens, pay dividends, redeem ourstock or make investments.The use of our net operating loss carryforwards and research tax credits will be limited.We have significant federal and state net operating loss, or NOL, carryforwards and federal and state research and development tax credit carryforwards. OurNOL carryforwards and research and development tax credits may expire and not be used. Our NOL carryforwards will begin expiring in 2026 for federal purposesand in 2024 for state purposes if we have not used them prior to that time. For any federal NOLs generated after December 31, 2017, the NOLs will have anindefinite life and utilization will be subject to a limitation of 80% of taxable income. The non-U.S. NOLs do not expire. Additionally, our ability to use certainNOLs and credit carryforwards to offset taxable income or tax, respectively, in the future will be limited under Internal Revenue Code Sections 382 and 383because we experienced cumulative changes in ownership of more than 50% within a three-year period. Such ownership changes were triggered by the cumulativeownership changes arising as a result of the initial acquisition of the Company’s stock in 2007 and the completion of our initial public offering and our otherfinancing transactions. Because of the ownership changes, we will be limited regarding the amount of NOL carryforwards and research tax credits that we canutilize annually in the future to offset taxable income or tax, respectively. Such an annual limitation will significantly reduce the utilization of the NOLs andresearch tax credits before they expire. In addition, California and certain states have suspended use of NOL carryforwards for certain taxable years, and otherstates are considering similar measures. As a result, we may incur higher state income tax expense in the future. Depending on our future tax position, continuedsuspension of our ability to use NOL carryforwards in states in which we are subject to income tax could have an adverse impact on our results of operations andfinancial condition.Risks Related to our Indebtedness and our Common StockOur common stock price may be subject to significant fluctuations and volatility.Our stock price is volatile, and from February 3, 2011, the first day of trading of our common stock, to February 19, 2020, the trading prices of our stockhave ranged from $6.16 to $121.95 per share.Our stock could be subject to wide fluctuations in price in response to various factors, including the following:49Table of Contents•the commercial success of EXPAREL andiovera°;•results of clinical trials of our products, product candidates or those of ourcompetitors;•changes or developments in laws or regulations applicable to our products or productcandidates;•introduction of competitive products ortechnologies;•failure to meet or exceed financial projections we provide to thepublic;•actual or anticipated variations in quarterly operating results;•failure to meet or exceed the estimates and projections of the investmentcommunity;•the perception of the pharmaceutical and medical device industry by the public, legislatures, regulators and the investmentcommunity;•regulatory concerns or government actions•general economic and market conditions and overall fluctuations in U.S. equitymarkets;•developments concerning our sources of manufacturingsupply;•disputes or other developments relating to patents or other proprietary rights;•additions or departures of key scientific or managementpersonnel;•the extent to which we acquire or invest in products, businesses andtechnologies;•issuances of debt, equity or convertiblesecurities;•changes in the market valuations of similar companies;and•the other factors described in this “Risk Factors”section.In addition, the stock market in general, and the market for small pharmaceutical and biotechnology companies in particular, have experienced extreme priceand volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry factorsmay negatively affect the market price of our common stock, regardless of our actual operating performance. Fluctuations in our stock price could, among otherthings, adversely impact the trading price of our shares.Servicing our indebtedness requires a significant amount of cash, and we may not have sufficient cash flow from our business to pay our substantialindebtedness.Our ability to make payments of the principal of, to pay interest on or to refinance our indebtedness, including the 2.375% convertible senior notes due 2022,or 2022 Notes, issued in our private offering completed on March 13, 2017, as described below, or to make cash payments in connection with any conversion of the2022 Notes depends on our future performance, which is subject to economic, financial, competitive and other factors beyond our control. Our business may notgenerate cash flow from operations in the future sufficient to service our indebtedness and make necessary capital expenditures. If we are unable to generate suchcash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring indebtedness or obtaining additional equity capital on termsthat may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. Wemay not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations.On March 13, 2017, we completed a private placement of $345.0 million in aggregate principal amount ofour 2022 Notes, and entered into an indenture agreement, or 2022 Indenture, with respect to the 2022 Notes. The 2022 Notes accrue interest at a fixed rate of2.375% per year, payable semiannually in arrears on April 1 and October 1 of each year. The 2022 Notes mature on April 1, 2022. As of December 31, 2019, ourtotal consolidated gross indebtedness was $345.0 million, all of which was the principal outstanding on the 2022 Notes and all of which was unsecuredindebtedness. Additionally, our subsidiaries had no indebtedness (excluding trade payables, intercompany liabilities and income tax-related liabilities).50Table of ContentsWe may not have the ability to raise the funds necessary to settle conversions of the 2022 Notes in cash to the extent elected or to repurchase the 2022 Notesupon a fundamental change, and our future indebtedness may contain limitations on our ability to pay cash upon conversion of the 2022 Notes or limitationson our ability to repurchase the 2022 Notes.Holders of the 2022 Notes will have the right to require us to repurchase their 2022 Notes upon the occurrence of a fundamental change at a repurchase priceequal to 100% of their principal amount, plus accrued and unpaid interest, if any. In addition, upon conversion of the 2022 Notes (if we choose to settle theprincipal amount in cash at our option), we will be required to make cash payments for each $1,000 in principal amount of 2022 Notes converted of at least thelesser of $1,000 and the sum of the daily conversion values. However, we may not have enough available cash or be able to obtain financing at the time we arerequired to make repurchases of 2022 Notes surrendered therefor or 2022 Notes being converted. Any credit facility or other agreement that we may enter into maylimit our ability to make cash payments at the time of a fundamental change or upon conversion of the 2022 Notes. Further, our ability to repurchase the 2022Notes or to pay cash upon conversions of the 2022 Notes may be limited by law, by regulatory authority or by agreements governing our future indebtedness. Ourfailure to repurchase 2022 Notes at a time when the repurchase is required by the indenture or to pay any cash payable on future conversions of the 2022 Notes asrequired by the 2022 Indenture would constitute a default under the 2022 Indenture. A default under the indenture or the fundamental change itself could also leadto a default under agreements governing our future indebtedness. If the repayment of the related indebtedness were to be accelerated after any applicable notice orgrace periods, we may not have sufficient funds to repay the indebtedness and repurchase the 2022 Notes or make cash payments upon conversions thereof.Future sales in the public market or issuances of our common stock could lower the market price for our common stock.In the future, we may sell additional shares of our common stock to raise capital. Except under limited circumstances, we are not restricted from issuingadditional common stock, including securities that are convertible into or exchangeable for, or that represent the right to receive, common stock. The issuance ofadditional shares of our common stock or convertible securities, including upon exercise of our outstanding options, vesting of our restricted stock units orotherwise, will dilute the ownership interest of our common stockholders. In addition, our greater than 5% stockholders may sell a substantial number of theirshares in the public market, which could also affect the market price for our common stock. We cannot predict the size of future sales or issuances of our commonstock or the effect, if any, that they may have on the market price for our common stock. The issuance and/or sale of substantial amounts of common stock, or theperception that such issuances and/or sales may occur, could adversely affect the market price of our common stock and impair our ability to raise capital throughthe sale of additional equity or debt securities.Some provisions of our charter documents and Delaware law may have anti-takeover effects that could discourage an acquisition of us by others, even if anacquisition would be beneficial to our stockholders, and may prevent attempts by our stockholders to replace or remove our current management.Provisions in our restated certificate of incorporation and our bylaws, as well as provisions of the Delaware General Corporation Law, or DGCL, could makeit more difficult for a third-party to acquire us or increase the cost of acquiring us, even if doing so would benefit our stockholders, including transactions in whichstockholders might otherwise receive a premium for their shares. These provisions include:•authorizing the issuance of “blank check” preferred stock, the terms of which may be established and shares of which may be issued withoutstockholder approval;•prohibiting stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of ourstockholders;•eliminating the ability of stockholders to call a special meeting of stockholders;and•establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted upon atstockholder meetings.These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult forstockholders to replace members of our board of directors, which is responsible for appointing the members of our management. In addition, we are subject toSection 203 of the DGCL, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with an interestedstockholder for a period of three years following the date on which the stockholder became an interested stockholder, unless such transactions are approved by ourboard of directors. This provision could have the effect of delaying or preventing a change of control, whether or not it is desired by or beneficial to ourstockholders.51Table of ContentsWe do not intend to pay dividends on our common stock for the foreseeable future.We have never declared or paid dividends on our common stock. We currently intend to retain our future earnings, if any, to finance the further developmentand expansion of our business and do not intend to pay dividends in the foreseeable future. Any future determination to declare or pay dividends will be at thediscretion of our board of directors and will depend upon our financial condition, results of operations, capital requirements, restrictions contained in futurefinancing instruments, provisions of applicable law and any other factors our board of directors deems relevant.Item 1B. Unresolved Staff CommentsNone.Item 2. PropertiesWe occupy three facilities totaling approximately 150,000 square feet at our Science Center Campus in San Diego, California. We use these facilities forresearch and development, manufacturing, general and administrative purposes and the storage of inventory and raw materials. Our research and developmentproperty lease expires in October 2020, our EXPAREL manufacturing facility lease expires in June 2030 and our warehouse lease expires in August 2030. Ouriovera° facility in Fremont, California, consists of approximately 20,000 square feet of mixed-use manufacturing, research and development and office space, andits lease expires in December 2021. In addition, we maintain our executive offices and our commercial and business development facility in Parsippany, NewJersey, where we occupy approximately 53,000 square feet under a lease expiring in March 2028 and occupy approximately 4,000 square feet of office space inTampa, Florida under a lease expiring in September 2021. Additionally, we have a lease beginning April 2020 for a new research and development andmanufacturing facility consisting of approximately 90,000 square feet at our Science Center Campus in San Diego, California, which will replace our existingapproximately 45,000 square foot research and development facility in San Diego whose lease expires in October 2020. We also have a lease for our formerDepoCyt(e) production facility in San Diego which is currently idle and expires in August 2020.We believe that our research and development and manufacturing facilities at our Science Center Campus, Thermo Fisher and Fremont sites (as discussed inItem 1—Business above) will be sufficient for our commercial and pipeline development needs. We also may add new facilities or expand existing facilities as weadd employees, expand our geographic markets and if demand for EXPAREL and iovera° increases and we believe that suitable additional or substitute space willbe available as needed to accommodate any such expansion of our operations.Item 3. Legal ProceedingsFrom time to time, we have been and may again become involved in legal proceedings arising in the ordinary course of our business. Except as describedbelow, we are not presently a party to any litigation that we believe to be material and we are not aware of any pending or threatened litigation against us that webelieve could have a material adverse effect on our business, operating results, financial condition or cash flows.In April 2015, we received a subpoena from the U.S. Department of Justice, U.S. Attorney’s Office for the District of New Jersey, requiring the productionof a broad range of documents pertaining to marketing and promotional practices related to EXPAREL. We are cooperating with the government’s inquiry. We canmake no assurances as to the time or resources that will need to be devoted to this inquiry or its final outcome, or the impact, if any, of this inquiry or anyproceedings on our business, financial condition, results of operations and cash flows.In December 2019, we reached an agreement in principle with the Department of Justice and more than one state Attorney General’s office (the “Plaintiffs”)on a proposal for a global civil settlement in the amount of $3.5 million, subject to accrual of interest on the settlement amount from the date of the agreement inprinciple, negotiation of a definitive settlement agreement and other contingencies. As part of the settlement, Pacira will admit no wrongdoing and will explicitlydeny the Plaintiffs’ allegations. Pacira has been given assurances that, if the parties can agree to negotiation of the settlement, this will conclude the investigationthat originated from the U.S. Department of Justice subpoena in April 2015.Item 4. Mine Safety DisclosuresNot applicable.52Table of ContentsPART IIItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity SecuritiesOur common stock is listed and traded under the ticker symbol “PCRX” on the Nasdaq Global Select Market. As of February 16, 2020, we hadapproximately 12 holders of record of our common stock.Performance GraphThe following graph shows the value of an investment of $100.00 made on December 31, 2014, in each of Pacira BioSciences, Inc. (PCRX), the NasdaqComposite Index (^IXIC) and the Nasdaq Biotechnology Index (^NBI). The two Nasdaq indices are included for comparative purposes only and do not necessarilyreflect management’s opinion that such indices are an appropriate measure of the relative performance of our common stock. All results assume the reinvestmentof dividends, if any, and are calculated as of December 31st of each year. The historical stock price performance of our common stock and the indices shown in thisperformance graph is not necessarily indicative of future stock price performance.Comparison of Five-Year Cumulative Total ReturnsAmong Pacira BioSciences, Inc., the Nasdaq Composite Index and the Nasdaq Biotechnology Index Cumulative Total Return as of December 31, 2014 2015 2016 2017 2018 2019Pacira BioSciences, Inc. (PCRX)$100.00 $86.61 $36.43 $51.49 $48.52 $51.09Nasdaq Composite Index (^IXIC)$100.00 $105.73 $113.66 $145.76 $140.10 $189.45Nasdaq Biotechnology Index (^NBI)$100.00 $111.42 $87.26 $105.64 $95.79 $119.17Dividend PolicyWe have never declared or paid any dividends on our capital stock. We currently intend to retain our future earnings, if any, to finance the futuredevelopment and expansion of our business, and as such we do not expect to pay any cash dividends on our common stock in the foreseeable future. The paymentof future dividends, if any, will be at the discretion of our board of directors and will depend on our financial condition, results of operations, capital requirements,restrictions contained in future financing instruments, provisions of applicable law and any other factors our board of directors deems relevant.53Table of ContentsItem 6. Selected Financial DataThe following tables provide selected historical consolidated financial data. We have prepared this information using our audited consolidated financialstatements as of and for the years ended December 31, 2019, 2018, 2017, 2016 and 2015. The following consolidated financial data should be read in conjunctionwith our consolidated financial statements and related notes and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results ofOperations” included in this report. Year Ended December 31, 2019 A 2018 2017 2016 2015Consolidated Statements of Operations Data(In thousands, except per share data)Revenues: Net product sales$418,926 $332,427 $284,342 $270,073 $244,487 Collaborative licensing and milestone revenue— 3,000 387 3,426 1,426 Royalty revenue2,100 1,850 1,901 2,872 3,084 Total revenues421,026 337,277 286,630 276,371 248,997Operating expenses: Cost of goods sold106,712 86,845 87,915 110,104E 71,837 Research and development72,119 55,688 57,290 45,678 28,662 Selling, general and administrative200,782 177,265 161,494 152,613F 139,043 Amortization of acquired intangible assets5,703 — — — — Acquisition-related charges, productdiscontinuation and other25,230B 1,564C 4,868D — — Total operating expenses410,546 321,362 311,567 308,395 239,542Income (loss) from operations10,480 15,915 (24,937) (32,024) 9,455Other (expense) income: Interest income7,376 6,497 4,078 1,323 678 Interest expense(23,628) (21,949) (18,047) (7,061) (7,725) Loss on early extinguishment of debt— — (3,732) — (52) Royalty interest obligation— — — — (71) Other, net(4,976) (888) 167 (82) (165) Total other expense, net(21,228) (16,340) (17,534) (5,820) (7,335)Income (loss) before income taxes(10,748) (425) (42,471) (37,844) 2,120 Income tax expense(268) (46) (140) (105) (264)Net income (loss)$(11,016) $(471) $(42,611) $(37,949) $1,856 Net income (loss) per share: Basic net income (loss) per common share$(0.27) $(0.01) $(1.07) $(1.02) $0.05 Diluted net income (loss) per common share$(0.27) $(0.01) $(1.07) $(1.02) $0.04Weighted average common shares outstanding: Basic41,513 40,911 39,806 37,236 36,540 Diluted41,513 40,911 39,806 37,236 41,301A - We completed the MyoScience, Acquisition on April 9, 2019. The acquisition was accounted for using the acquisition method of accounting and, accordingly, the assets acquired, liabilitiesassumed and results of operations of the acquired business are included in our consolidated financial statements from the date of acquisition through December 31, 2019.B - Includes charges of $21.6 million related to the MyoScience Acquisition. Of this total, $16.7 million represents increases in the fair value of contingent consideration resulting from theachievement of regulatory milestones and revised commercial forecasts (which are tied to potential future milestone payments), $4.2 million represents advisory costs, including legal, financial,accounting and tax services. The remaining $0.7 million represents separation costs, asset write-downs and other restructuring charges. Charges of $0.2 million were recorded related to thediscontinuation of our DepoCyt(e) manufacturing activities for lease costs, asset retirement obligations and other estimated exit costs. Additionally, this includes a charge of $3.5 million relatedto an agreement in principle with the U.S. Department of Justice on a proposal for a global civil settlement related to an April 2015 inquiry. For further discussion of these charges, see Note 5,MyoScience Acquisition, Note 18, Acquisition-Related Charges and Product Discontinuation, Net and Note 21, Commitments and Contingencies, to our consolidated financial statementsincluded herein.54Table of ContentsC - Represents non-recurring charges of $1.6 million related to the discontinuation of our DepoCyt(e) manufacturing activities for lease costs, asset retirement obligations and other estimatedexit costs. The charges incurred in 2018 primarily represent additional lease and facility costs due to the fact that we were not able to sub-lease the property where DepoCyt(e) wasmanufactured considering the short period of time remaining on our existing lease. For further discussion of these charges, see Note 18, Acquisition-Related Charges and ProductDiscontinuation, Net, to our consolidated financial statements included herein.D - Represents non-recurring charges of $5.4 million related to the discontinuation of our DepoCyt(e) manufacturing activities, including $0.5 million for DepoCyt(e) related inventory, whichis recorded in cost of goods sold, and $4.9 million for the remaining lease costs less an estimate of potential sublease income for the facility where DepoCyt(e) was manufactured, the write-offof property, plant and equipment, employee severance, asset retirement obligations and other estimated exit costs. For further discussion of these charges, see Note 18, Acquisition-RelatedCharges and Product Discontinuation, Net, to our consolidated financial statements included herein.E - Includes a $20.7 million charge for inventory and related reserves for the cost of EXPAREL batches impacted by a routine stability test that did not meet required specifications.F - Includes a $7.1 million contract termination charge due to CrossLink Bioscience, LLC. December 31, 2019 A 2018 2017 2016 2015Consolidated Balance Sheet Data(In thousands)Cash and cash equivalents,short-term and long-term investments$356,748 $409,325 $371,394 $172,597 $172,427Working capital300,884 417,308 334,893 198,251 102,794Total assets831,065 689,353 628,371 391,466 387,735Long-term liabilities368,448 307,466 292,671 127,652 19,555Accumulated deficit(399,398) (388,226) (389,136) (346,238) (308,289)Total stockholders’ equity354,944 321,226 279,483 218,976 218,392A - We completed the MyoScience Acquisition on April 9, 2019. The acquisition was accounted for using the acquisition method of accounting and, accordingly, the assets acquired, liabilitiesassumed and results of operations of the acquired business are included in our consolidated financial statements from the date of acquisition through December 31, 2019.Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsManagement’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our consolidated financial statements, which havebeen prepared in accordance with generally accepted accounting principles in the United States of America, or GAAP, and in accordance with the rules andregulations of the United States Securities and Exchange Commission, or SEC. We operate and report our financial information in one segment. The followingdiscussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the notes to thoseconsolidated financial statements appearing in Part IV, Item 15, of this Annual Report. This discussion contains forward-looking statements that involvesignificant risks and uncertainties. As a result of many factors, such as those set forth under “Risk Factors” in Part I, Item 1A of this Annual Report, our actualresults may differ materially from those anticipated in these forward-looking statements.This section of this Annual Report discusses year-to-year comparisons between 2019 and 2018, as well as other discussions of 2019 and 2018 items. Wehave omitted discussion of the year ended December 31, 2017 (the earliest of the three years covered by our consolidated financial statements presented in thisreport) as permitted by the SEC’s recent amendments to Regulation S-K. The complete Management’s Discussion and Analysis of Financial Condition and Resultsof Operations for year-to-year comparisons between 2018 and 2017 and other discussions of 2017 items can be found within Part II, Item 7, to our Annual Reportfiled with the SEC on February 28, 2019.OverviewPacira is a leading provider of non-opioid pain management options to advance and improve outcomes for health care practitioners and their patients. Ourlong-acting, local analgesic EXPAREL® (bupivacaine liposome injectable suspension) was commercially launched in April 2012. EXPAREL utilizesDepoFoam®, a unique and proprietary delivery technology that encapsulates drugs without altering their molecular structure and releases them over a desiredperiod of time. EXPAREL is currently indicated for single-dose infiltration in adults to produce postsurgical local analgesia and as an interscalene brachial plexusnerve block to produce postsurgical regional analgesia. Since its initial approval in 2011 for single-dose infiltration, more than six million patients have beentreated with EXPAREL. We drop-ship EXPAREL directly to the end-user based on orders placed to wholesalers or directly to us, and there is no product held bywholesalers. In April 2019, we acquired iovera°®, a handheld cryoanalgesia device used to deliver a precise, controlled application of cold temperature only totargeted nerves,55Table of Contentswhich we sell directly to end users. The iovera° system is highly complementary to EXPAREL as a non-opioid therapy that alleviates pain by disrupting painsignals being transmitted to the brain from the site of injury or surgery.We expect to continue to incur significant expenses as we pursue the expanded use of EXPAREL and iovera° in additional procedures; progress our earlier-stage product candidate pipeline; advance regulatory activities for EXPAREL, iovera° and other product candidates; invest in sales and marketing resources forEXPAREL and iovera°; expand and enhance our manufacturing capacity for EXPAREL and iovera°; invest in products, businesses and technologies and supportlegal matters.Recent Highlights•In December 2019, we announced positive results from our Phase 3 PLAY study of EXPAREL administered as a single-dose infiltration in pediatricpatients undergoing spinal or cardiac surgeries. Overall findings were consistent with the pharmacokinetic and safety profiles for adult patients with nosafety concerns identified at a dose of 4 mg/kg. These results will provide the foundation for our sNDA submission in the first half of 2020 to the FDAseeking expansion of the EXPAREL label to include children aged six and over.•In January 2020, we announced a collaboration with Envision Physician Services to train anesthesiology clinicians on ultrasound-guided regionalanesthesia techniques utilizing long-acting local anesthetics like EXPAREL via a series of interactive workshops held across the country. The programsupports ongoing efforts by both organizations to advance the delivery of high-quality, patient-centered care.•In January 2020, we announced positive results from our Phase 4 opioid-free CHOICE study of EXPAREL in patients undergoing C-section. The studyachieved its primary endpoint with a statistically significant reduction in total postsurgical opioid consumption while maintaining pain scores through 72hours (p≤0.001). EXPAREL demonstrated statistical significance for the key secondary endpoint of a reduction in the incidence and severity of itching for72 hours after surgery (p≤0.05). Full study results will be submitted for publication in the peer-reviewed medical literature later this year.Results of OperationsComparison of the Years Ended December 31, 2019 and 2018RevenuesNet product sales consist of sales of EXPAREL in the U.S., our bupivacaine liposome injectable suspension to Aratana Therapeutics, Inc., or Aratana, forveterinary use in the U.S., and sales of iovera° in the U.S. Licensing, milestone and royalty revenues are from our collaborative licensing agreements.The following table provides information regarding our revenues during the periods indicated, including percent changes (dollar amounts in thousands): Year Ended December 31, % Increase /(Decrease) 2019 2018 Net product sales: EXPAREL$407,877 $331,112 23 %Bupivacaine liposome injectable suspension3,153 1,315 100% +Total EXPAREL / bupivacaine liposome injectable suspensionnet product sales411,030 332,427 24 %iovera°7,896 — N/ATotal net product sales418,926 332,427 26 %Collaborative licensing and milestone revenue— 3,000 (100)%Royalty revenue2,100 1,850 14 %Total revenues$421,026 $337,277 25 %EXPAREL revenue grew 23% in 2019 compared to 2018, primarily due to an increase in net product sales of EXPAREL units of 27% and a 3% increase ingross selling price per unit, partially offset by the mix of EXPAREL product sizes. The demand for EXPAREL has continued to increase as a result of a number ofkey growth initiatives, such as the expansion of the EXPAREL label in April 2018 to include interscalene brachial plexus nerve block which has resulted in rapidadoption among anesthesiologists, the success of our co-promotion agreement with DePuy Synthes Sales, Inc., or DePuy Synthes, and the56Table of Contentscontinued implementation of EXPAREL-based Enhanced Recovery After Surgery (ERAS) protocols across a wide range of surgical procedures. All of thesefactors are driving growth in new and existing accounts due to the continued adoption of EXPAREL as a critical component of multimodal pain managementstrategies for soft tissue and orthopedic procedures. In 2019, there was also an increase in sales of our bupivacaine liposome injectable suspension to Aratana forveterinary use.As part of the MyoScience Acquisition, we acquired iovera°. Net product sales of iovera° were $7.9 million for the year ended December 31, 2019(attributable to the post-closing period of April 10, 2019 to December 31, 2019). Thus far, we have seen the greatest iovera° demand as pain relief for patients inadvance of TKA procedures and in chronic pain management, particularly for people with mild to severe osteoarthritis of the knee.Collaborative licensing and milestone revenue decreased 100% in 2019 versus 2018 due to a $3.0 million upfront payment earned in June 2018 under alicense agreement with Nuance Biotech Co. Ltd. for the development and commercialization of EXPAREL in China.In both 2019 and 2018, royalty revenue reflected royalties earned on sales to Aratana. Royalty revenue increased 14% in 2019 versus 2018.Cost of Goods SoldCost of goods sold primarily relates to the costs to produce, package and deliver our products to customers. These expenses include labor, raw materials,manufacturing overhead and occupancy costs, depreciation of facilities, royalty payments, quality control and engineering.The following table provides information regarding cost of goods sold and gross margin during the periods indicated, including percent changes (dollaramounts in thousands): Year Ended December 31, % Increase / (Decrease) 2019 2018 Cost of goods sold$106,712 $86,845 23%Gross margin75% 74% Gross Margin increased by one percentage point in 2019 versus 2018. In 2019, EXPAREL gross margins increased as a result of completing our capacityexpansion project for the commercial production of EXPAREL at our custom manufacturing suite in Swindon, England (under our partnership with ThermoFisher Scientific Pharma Services, or Thermo Fisher). This increase was partially offset as a result of the lower gross margin of iovera°.Research and Development ExpensesResearch and development expenses primarily consist of costs related to clinical trials and related outside services, product development and other researchand development costs, including Phase 4 trials that we are conducting to generate new data for EXPAREL and stock-based compensation expense. Clinical andpreclinical development expenses include costs for clinical personnel, clinical trials performed by third-parties, toxicology studies, materials and supplies, databasemanagement and other third-party fees. Product development and manufacturing capacity expansion expenses include development costs for our products, whichinclude personnel, equipment, materials and contractor costs for process development and product candidates, development costs related to significant scale-ups ofour manufacturing capacity and facility costs for our research space. Regulatory and other expenses include regulatory activities related to unapproved productsand indications, medical information expenses and related personnel. Stock-based compensation expense relates to the costs of stock option grants, awards ofrestricted stock units, or RSUs, and our employee stock purchase plan, or ESPP.57Table of ContentsThe following table provides a breakout of our research and development expenses during the periods indicated, including percent changes (dollar amountsin thousands): Year Ended December 31, % Increase / (Decrease) 2019 2018 Clinical and preclinical development$31,055 $18,630 67%Product development and manufacturing capacity expansion29,724 28,454 4%Regulatory and other6,226 4,670 33%Stock-based compensation5,114 3,934 30%Total research and development expense$72,119 $55,688 30%% of total revenue17% 17% Total research and development expense increased 30% in 2019 versus 2018. The 67% increase in clinical and preclinical development expense in 2019versus 2018 was primarily related to completed enrollment in our Phase 3 Pediatric (“PLAY”) clinical trial and our Phase 4 Opioid Free C-Section (“CHOICE”)clinical trial and initial enrollment in our Phase 4 Spine (“FUSION”) clinical trial. There was also increased investment in investigator-initiated studies, toxicologystudies, as well as increased costs related to our global expansion activities for EXPAREL.Product development and manufacturing capacity expansion expense increased 4% in 2019 versus 2018 due to increased spend in EXPAREL support for invitro release testing, a significant scale-up of our manufacturing capacity for EXPAREL in Swindon, England in partnership with Thermo Fisher and iovera°development costs to improve the functionality of the device and enhance the iovera° product line.Regulatory and other expense increased 33% in 2019 versus 2018 due to activities related to our European Marketing Authorization Application (MAA) andHealth Canada submissions for EXPAREL and the dissemination and publication of EXPAREL data in response to medical information queries.Stock-based compensation increased 30% in 2019 versus 2018 primarily due to an increase in personnel as well as the number of awards granted during 2019and the fourth quarter of 2018.Selling, General and Administrative ExpensesSales and marketing expenses primarily consist of compensation and benefits for our sales force and personnel that support our sales, marketing, medical andscientific affairs operations, commission payments to our marketing partners for the promotion and sale of EXPAREL and iovera°, expenses related tocommunicating the health outcome benefits of EXPAREL and educational programs for our customers. General and administrative expenses consist ofcompensation and benefits for legal, finance, regulatory activities related to approved products and indications, compliance, information technology, humanresources, business development, executive management and other supporting personnel. It also includes professional fees for legal, audit, tax and consultingservices. Stock-based compensation expense relates to the costs of stock option grants, RSU awards and our ESPP.The following table provides information regarding selling, general and administrative expenses during the periods indicated, including percent changes(dollar amounts in thousands): Year Ended December 31, % Increase / (Decrease) 2019 2018 Sales and marketing$129,663 $107,106 21%General and administrative47,248 46,846 1%Stock-based compensation23,871 23,313 2%Total selling, general and administrative expenses$200,782 $177,265 13%% of total revenue48% 53% Total selling, general and administrative expenses increased 13% in 2019 versus 2018.Sales and marketing expenses increased 21% in 2019 versus 2018. In 2019, the increases were driven by additional selling and promotional activities tosupport the growth of EXPAREL, including growing a team in the field consisting of account managers focused on the outpatient market, initiatives andcommissions related to our co-promotion agreement with58Table of ContentsDePuy Synthes and additional marketing spend for the launch of ambulatory and dental reimbursement codes, which became effective on January 1, 2019. We arecontinuing our marketing investment in EXPAREL—including educational initiatives and programs related to the impact of opioids and postsurgical painmanagement, our national advocacy campaign designed to educate patients about non-opioid treatment options and initiatives surrounding women’s health,especially related to C-section. Additionally, in 2019 we invested in marketing initiatives and customer outreach for iovera° as a result of the MyoScienceAcquisition.General and administrative expenses increased 1% in 2019 versus 2018. The increase was primarily due to additional CryoTech expenditures after theMyoScience acquisition in April 2019, partially offset by a decrease in legal expenditures.Stock-based compensation increased 2% in 2019 versus 2018, primarily due to an increase in personnel and the number of equity awards granted.Amortization of Acquired Intangible AssetsThe following table provides a summary of the amortization of acquired intangible assets during the periods indicated, including percent changes (dollaramounts in thousands): Year Ended December 31, % Increase /(Decrease) 2019 2018 Amortization of acquired intangible assets$5,703 $— N/AAs part of the MyoScience Acquisition we acquired intangible assets consisting of developed technology and customer relationships, with estimated usefullives of 14 and 10 years, respectively. Beginning in the second quarter of 2019, these are being amortized on a straight-line basis. For more information, see Note9, Goodwill and Intangible Assets, to our consolidated financial statements included herein.Acquisition-Related Charges, Product Discontinuation and OtherThe following table provides a summary of the costs related to the MyoScience Acquisition, our DepoCyt(e) discontinuation and other activities during theperiods indicated, including percent changes (dollar amounts in thousands): Year Ended December 31, % Increase /(Decrease) 2019 2018 Acquisition-related charges$21,571 $— N/AProduct discontinuation159 1,564 (90)%Other3,500 — N/ATotal acquisition-related charges, product discontinuation and other$25,230 $1,564 100% +In 2019, we recognized charges of $21.6 million related to the MyoScience Acquisition. Of this total, $16.7 million represents increases in the fair value ofcontingent consideration resulting from the achievement of regulatory milestones and revised commercial forecasts (which are tied to potential future milestonepayments) and $4.2 million represents advisory costs, including legal, financial, accounting and tax services. The remaining $0.7 million represents separationcosts, asset write-downs and other restructuring charges. We did not incur any acquisition-related charges in 2018.In 2019 and 2018, we recorded charges of $0.2 million and $1.6 million, respectively, related to the discontinuation of our DepoCyt(e) manufacturingactivities for lease costs, asset retirement obligations and other estimated exit costs. The charges incurred in 2018 primarily represented additional lease and facilitycosts due to the fact that we were not able to sub-lease the property where DepoCyt(e) was manufactured considering the short period of time remaining on ourexisting lease.In 2019, we recorded a charge of $3.5 million related to reaching an agreement in principle with the U.S. Department of Justice on a proposal for a globalcivil settlement, related to an April 2015 inquiry. For more information, see Note 21, Commitments and Contingencies, to our consolidated financial statementsincluded herein.59Table of ContentsOther (Expense) IncomeThe following table provides information regarding other (expense) income during the periods indicated, including percent changes (dollar amounts inthousands): Year Ended December 31, % Increase /(Decrease) 2019 2018 Interest income$7,376 $6,497 14%Interest expense(23,628) (21,949) 8%Other, net(4,976) (888) 100% +Total other expense, net$(21,228) $(16,340) 30%Total other expense, net increased 30% in 2019 versus 2018, primarily due to a $5.7 million impairment of our equity investment in TELA Bio, Inc., orTELA Bio, (net of the receipt of a non-cash stock dividend) due to its decreased market value. 2018 included a $0.9 million loss on an unexercised purchase optionrelated to the investment (see Note 12, Financial Instruments, to our consolidated financial statements for further discussion). There was also more amortization ofthe discount on our 2.375% convertible senior notes due 2022, or 2022 Notes, and the absence of capitalized interest related to the completion of our firstmanufacturing suite in Swindon, England in 2018. The increase in other expense, net was partially offset by an increase in interest income due to higher overallreturns on our investments and other non-operating income in 2019.Income Tax ExpenseThe following table provides information regarding our income tax expense during the periods indicated, including percent changes (in thousands): Year Ended December 31, % Increase /(Decrease) 2019 2018 Income tax expense$268 $46 100% +Effective tax rate(2)% (11)% We recorded a tax provision of $0.3 million for the year ended December 31, 2019 and less than $0.1 million for the year ended December 31, 2018. The taxprovision for the year ended December 31, 2019 consists primarily of $1.1 million of state income taxes in jurisdictions where the availability of carryforwardlosses are either limited or fully utilized as well as $1.0 million of state taxes on the one-time gain from the deemed sale of assets resulting from a tax electionpursuant to Internal Revenue Code (IRC) section 338(g) made by us related to the MyoScience Acquisition. This was partially offset by a $1.8 million reduction inour valuation allowance on our deferred tax assets due to the MyoScience Acquisition. No federal taxes resulted from the tax election given there were sufficientnet operating loss, or NOL, carryforwards. The tax provision for the year ended December 31, 2018 consists principally of minimum state taxes. No federal currenttax expense was recorded for 2019 or 2018 due to NOLs carried forward and the repeal of the corporate minimum tax. The utilization of our NOLs has not resultedin any federal deferred tax expense because of a full valuation allowance recorded against the NOLs.Liquidity and Capital ResourcesSince our inception in 2006, we have devoted most of our cash resources to manufacturing, research and development and selling, general and administrativeactivities related to the development and commercialization of EXPAREL. We are highly dependent on the commercial success of EXPAREL. We have financedour operations primarily with the proceeds from the sale of convertible senior notes, convertible preferred stock, common stock, secured and unsecured notes,borrowings under debt facilities, product sales and collaborative licensing and milestone revenue. As of December 31, 2019, we had an accumulated deficit of$399.4 million, cash and cash equivalents, short-term and long-term investments of $356.7 million and working capital of $300.9 million.Summary of Cash FlowsThe following table summarizes our cash flows from operating, investing and financing activities for the years ended December 31, 2019 and 2018 (inthousands):60Table of Contents Year Ended December 31,Consolidated Statement of Cash Flows Data: 2019 2018Net cash provided by (used in): Operating activities $70,520 $48,870 Investing activities (128,488) 20,576 Financing activities 3,670 8,954 Net (decrease) increase in cash and cash equivalents $(54,298) $78,400Operating ActivitiesIn 2019, net cash provided by operating activities was $70.5 million compared to $48.9 million in 2018. The increase of $21.7 million was primarilyattributable to a 23% increase in net product sales of EXPAREL. This increase was partially offset by increased sales commissions related to our co-promotionagreement with DePuy Synthes, costs to grow our sales and marketing teams focused on the outpatient market, the launch of ambulatory and dental reimbursementcodes for EXPAREL effective January 1, 2019, an increase in marketing initiatives related to women’s health, transaction and other costs related to theMyoScience Acquisition and investments in marketing initiatives to grow the reach of iovera°. We also made a $5.3 million payment to Mundipharma InternationalCorporation Limited and Mundipharma Medical Company to settle claims stemming from the June 2017 discontinuation of DepoCyt(e).Investing ActivitiesIn 2019, net cash used in investing activities was $128.5 million, which reflected cash used to fund the MyoScience Acquisition of $117.7 million (net of$1.3 million of cash acquired), purchases of fixed assets of $10.2 million and an additional $1.6 million investment in TELA Bio, partially offset by $1.0million of short-term and long-term investment maturities (net of purchases). Major fixed asset purchases included continuing expenditures for expanding ourEXPAREL manufacturing capacity in Swindon, England in partnership with Thermo Fisher, and facility upgrades at our Science Center Campus in San Diego,California.In 2018, net cash provided by investing activities was $20.6 million, which reflected $41.9 million of short-term and long-term investment maturities (net ofpurchases). These proceeds were partially offset by purchases of fixed assets of $14.5 million and contingent consideration payments on collections of net sales ofDepoBupivacaine products, including EXPAREL, of $6.8 million related to the March 2007 acquisition of the California operating subsidiary of SkyePharmaHolding, Inc. (now a subsidiary of Vectura Group plc), or Skyepharma. Major fixed asset purchases included continuing expenditures for expanding ourEXPAREL manufacturing capacity in Swindon, England and facility upgrades at our Science Center Campus in San Diego, California.Financing ActivitiesIn 2019, net cash provided by financing activities was $3.7 million, which consisted of proceeds from the exercise of stock options of $8.5 million and $2.4million from the issuance of shares through our ESPP, partially offset by $6.6 million of contingent consideration payments made to MyoScience securityholdersand $0.6 million of payments made to retire our 3.25% convertible senior notes due 2019.In 2018, net cash provided by financing activities was $9.0 million, which consisted of proceeds from the exercise of stock options of $7.2 million and $1.8million from the issuance of shares under our ESPP.Equity FinancingsFrom our inception through December 31, 2019, we have raised $344.5 million of net proceeds from the sale of common stock and other equity securitiesvia public offerings.Debt2022 Convertible Senior NotesOn March 13, 2017, we completed a private placement of $345.0 million in aggregate principal amount of our 2022 Notes, and entered into an indenture, or2022 Indenture, with respect to the 2022 Notes. The 2022 Notes accrue interest at a fixed rate of 2.375% per annum, payable semiannually in arrears on April 1and October 1 of each year. The 2022 Notes mature on April 1, 2022. At December 31, 2019, the outstanding principal on the 2022 Notes was $345.0 million.61Table of ContentsOn or after October 1, 2021, until the close of business on the second scheduled trading day immediately preceding April 1, 2022, holders may convert their2022 Notes at any time. Upon conversion, holders will receive the principal amount of their 2022 Notes and any excess conversion value. For both the principaland excess conversion value, holders may receive cash, shares of our common stock or a combination of cash and shares of our common stock, at our option. Theinitial 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 ofapproximately $66.89 per share of our common stock. The conversion rate will be subject to adjustment in some events but will not be adjusted for any accruedand unpaid interest.Prior to the close of business on the business day immediately preceding October 1, 2021, holders may convert the 2022 Notes under certain circumstances—including, but not limited to—if during any given calendar quarter, our stock price closes at or above 130% of the conversion price then applicable during a periodof at least 20 out of the last 30 consecutive trading days of the previous quarter.While the 2022 Notes are currently classified on our consolidated balance sheet at December 31, 2019 as long-term debt, the future convertibility andresulting balance sheet classification of this liability will be monitored at each quarterly reporting date and will be analyzed dependent upon market prices of ourcommon stock during the prescribed measurement periods. In the event that the holders of the 2022 Notes have the right to convert the 2022 Notes at any timeduring the prescribed measurement period, the 2022 Notes would then be considered a current obligation and classified as such.Prior to April 1, 2020, we may not redeem the 2022 Notes. On or after April 1, 2020, we may redeem for cash, shares of our common stock or a combinationof cash and shares of our common stock, at our option, all or part of the 2022 Notes if the last reported sale price (as defined in the 2022 Indenture) of our commonstock 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-dayperiod ending within five trading days prior to the date on which we provide notice of redemption.See Note 11, Debt, to our consolidated financial statements included herein for further discussion of the 2022 Notes.Future Capital RequirementsWe believe that our existing cash and cash equivalents, short-term and long-term investments and cash received from product sales will be sufficient toenable us to fund our operating expenses, capital expenditure requirements, payment of the principal on any conversions of the 2022 Notes and to service ourindebtedness through at least February 20, 2021. Our future use of operating cash and capital requirements will depend on many forward-looking factors,including, but not limited to, the following:•our ability to successfully continue to expand the commercialization of EXPAREL, including outside of theU.S.;•the costs of successfully integrating MyoScience (now known as Pacira CryoTech) into our existing business and expanding the commercialization ofiovera°;•the cost and timing of expanding our manufacturing facilities for EXPAREL and other product candidates, including the construction of an additionalmanufacturing suite at Thermo Fisher’s facility in Swindon, England;•the cost and timing of potential milestone payments to MyoScience security holders, which could be up to an aggregate of $73.0 million if certainregulatory and commercial milestones are met, which includes two milestone payments totaling $15.0 million to be paid in the first half of 2020;•the cost and timing of potential milestone payments to Skyepharma, which could be up to an aggregate of $36.0 million if certain milestones pertainingto net sales of DepoBupivacaine products, including EXPAREL, are met, or upon the first commercial sale in the United Kingdom, France,Germany, Italy or Spain;•the timing of and extent to which the holders of our 2022 Notes elect to convert theirnotes;•costs related to legal and regulatoryissues;•the costs of performing additional clinical trials for EXPAREL, including the pediatric trials required by the FDA as a condition ofapproval;•the costs of performing additional clinical trials foriovera°;•the costs for the development and commercialization of other product candidates;and•the extent to which we acquire or invest in products, businesses and technologies.62Table of ContentsWe may require additional debt or equity financing to meet our future operating and capital requirements. We have no committed external sources of funds,and additional equity or debt financing may not be available on acceptable terms, if at all.Contractual ObligationsThe table below presents a summary of our contractual obligations as of December 31, 2019 (in thousands): Payments Due by PeriodContractual Obligations (1) Total Less Than OneYear 1-3 Years 3-5 Years More Than5 YearsConvertible senior notes - principal (2) $345,000 $— $345,000 $— $—Convertible senior notes - interest 20,484 8,194 12,290 — —Lease obligations (3) 115,208 10,382 21,076 21,677 62,073Purchase obligations (4) 25,795 8,692 17,103 — —Achieved milestone payments (1) 15,000 15,000 — — — Total $521,487 $42,268 $395,469 $21,677 $62,073(1) This table does not include potential future milestone payments to Skyepharma which could be up to an aggregate of $36.0 million if certain milestones pertaining to net sales ofDepoBupivacaine products, including EXPAREL are met, including $32.0 million when annual net sales of DepoBupivacaine products collected, including EXPAREL, reach $500.0 million(measured on a rolling quarterly basis) and $4.0 million upon the first commercial sale in the United Kingdom, France, Germany, Italy or Spain. This contingency is described further in Note 9,Goodwill and Intangible Assets, to our consolidated financial statements included herein. This table also does not include potential future milestone payments to MyoScience shareholders whichcould be up to an aggregate of $58.0 million if certain regulatory and commercial milestones are met. However, the table above includes two achieved milestone payments totaling $15.0 millionto be paid in the first half of 2020. This contingency is described further in Note 5, MyoScience Acquisition, to our consolidated financial statements included herein. In addition, this table doesnot include various agreements that we have entered into for services with third-party vendors, including agreements to conduct clinical trials, and for consulting and other contracted servicesdue to the cancelable nature of the services.(2) The amounts represent the April 2022 maturity of our 2022 Notes. See Note 11, Debt, to our consolidated financial statements included herein for further discussion. Additionally, itexcludes any conversion premium on the 2022 Notes, which may be settled in cash or stock at our discretion. The 2022 Notes were not convertible as of December 31, 2019.(3) The amounts consist of operating leases for our corporate headquarters in Parsippany, New Jersey, manufacturing, research and development and warehouse space in San Diego, Californiaand Fremont, California and office space in Tampa, Florida. In addition, the lease component for the use of the Thermo Fisher facility in Swindon, England under the Thermo FisherAgreements has also been included.(4) The amounts consist of minimum, non-cancelable contractual commitments for contract manufacturing services and raw materials.In April 2014, we and Thermo Fisher entered into a Strategic Co-Production Agreement, a Technical Transfer and Service Agreement and a Manufacturingand Supply Agreement to collaborate in the manufacture of EXPAREL. Under the terms of the Technical Transfer and Service Agreement, Thermo Fisher hasagreed to undertake certain technical transfer activities and construction services needed to prepare its Swindon, England facility for the manufacture of EXPARELin two dedicated manufacturing suites. Under these agreements, we are required to make monthly base fee payments to Thermo Fisher. Under the terms of theManufacturing and Supply Agreement, following FDA approval of the suites (which occurred in May 2018), we agreed to purchase EXPAREL product fromThermo Fisher. Unless earlier terminated by giving notice of up to three years (other than termination by us in the event of a material breach by Thermo Fisher),this agreement will expire in May 2028.Critical Accounting Policies and Use of EstimatesWe have based our management’s discussion and analysis of our financial condition and results of operations on our financial statements that have beenprepared in accordance with GAAP in the U.S. The preparation of these financial statements requires us to make estimates that affect the reported amounts ofassets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported revenues and expensesduring the reporting periods. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, contingentconsideration, inventory costs, liabilities and accruals, clinical trial expenses, stock-based compensation and the valuation of deferred tax assets. We base ourestimates on historical experience, contract terms and on other factors we believe to be appropriate under the circumstances. Actual results may differ from theseestimates under different assumptions or conditions.Our significant accounting policies are more fully discussed in Note 2, Summary of Significant Accounting Policies, to our audited consolidated financialstatements included in this filing. The following accounting policies, which may include significant judgments and estimates, were used in the preparation of ourconsolidated financial statements.63Table of ContentsRevenue RecognitionOur sources of revenue include (i) sales of EXPAREL in the U.S.; (ii) sales of iovera° in the U.S.; (iii) sales of and royalties on sales of our bupivacaineliposome injectable suspension product for veterinary use in the U.S. and (iv) license fees and milestone payments. We do not consider revenue from sources otherthan sales of EXPAREL to be material sources of our consolidated revenue.Net Product SalesWe sell EXPAREL through a drop-ship program under which orders are processed through wholesalers based on orders of the product placed by end-userswhich include hospitals, ambulatory surgery centers and doctors. EXPAREL is delivered directly to the end-user without the wholesaler ever taking physicalpossession of the product. Product revenue is recognized when control of the promised goods are transferred to the customers, in an amount that reflects theconsideration we expect to be entitled to in exchange for transferring those goods. EXPAREL revenue is recorded at the time the product is delivered to the end-user.Collaborative Licensing and Milestone RevenueOur collaboration agreements generally involve licenses to our products. In determining how and when to recognize the revenue under a collaborationagreement, we must assess whether the license is distinct, which depends upon whether the customer can benefit from the license and whether the license isseparate from other performance obligations in the agreement. If the license is distinct, we must further assess whether the customer has a right to access or a rightto 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 substantivelychange, 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 overthe license period.Revenue recognition from milestone payments is dependent upon the facts and circumstances surrounding the milestone payments. Milestone paymentsbased on a non-sales metric such as a development-based milestone (e.g. obtaining regulatory approval) represent variable consideration and are included in thetransaction price subject to any constraints. If the milestone payments relate to future development, the timing of recognition depends upon historical experienceand 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 themilestone payments is recognized at the later of when the actual sales are incurred or the performance obligation to which the sales relate to has been satisfied.AcquisitionsIn a business combination, the acquisition method of accounting requires that the assets acquired and liabilities assumed be recorded as of the date of theacquisition at their respective fair values with some exceptions. Assets acquired and liabilities assumed in a business combination that arise from contingencies aregenerally recognized at fair value. If fair value cannot be determined, the asset or liability is recognized if probable and reasonably estimable; if these criteria arenot met, no asset or liability is recognized. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exitprice) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Anyexcess of the purchase price (consideration transferred) over the estimated fair values of net assets acquired is recorded as goodwill. Transaction costs and costs torestructure the acquired company are expensed as incurred. The operating results of the acquired business are reflected in our consolidated financial statementsafter the date of the acquisition.Contingent ConsiderationSubsequent to an acquisition, we measure contingent consideration arrangements at fair value for each period with changes in fair value recognized in theconsolidated statements of operations as acquisition-related charges. Changes in contingent consideration can result from changes in the assumed achievement andtiming 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 towardsachievement of the milestones, and are accrued based on an accretion schedule.64Table of ContentsRecent Accounting PronouncementsSee Note 3, Recent Accounting Pronouncements, to our consolidated financial statements for further discussion of recent accounting pronouncements.Off-Balance Sheet ArrangementsOther than one lease agreement for which there are future obligations but the lease has not yet commenced, we do not have any material off-balance sheetarrangements as of December 31, 2019, nor do we have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to asstructured finance or special purpose entities.Item 7A. Quantitative and Qualitative Disclosures about Market RiskThe primary objective of our cash equivalents and investment activities is to preserve principal while at the same time maximizing the income that we receivefrom our investments without significantly increasing risk. We invest in corporate bonds, commercial paper and asset-backed securities, which are reported at fairvalue. These securities are subject to interest rate risk. This means that a change in prevailing interest rates may cause the principal amount of the investment tofluctuate. For example, if we hold a security that was issued with a fixed interest rate at the then-prevailing rate and the interest rate later rises, we expect that thefair value of our investment will decline. A hypothetical 100 basis point increase in interest rates would have reduced the fair value of our available-for-salesecurities at December 31, 2019 by $1.8 million.We have an equity investment in the common stock of TELA Bio (traded on the Nasdaq Global Select Market under the ticker symbol “TELA”). Changes inthe stock price of TELA Bio will affect the value of our investment, and we could incur impairment losses or realized losses on all or a part of the value of thisinvestment. At December 31, 2019, the value of our investment in TELA Bio was $10.0 million. A hypothetical 10% decrease in the market price of TELA Biostock would have caused a decrease in our carrying amount by $1.0 million. See Note 12, Financial Instruments, to our consolidated financial statements foradditional information on our investment in TELA Bio.In March 2017, we issued $345.0 million in aggregate principal amount of 2.375% convertible senior notes, which mature in April 2022. Holders mayconvert their 2022 Notes prior to maturity under certain circumstances. Upon conversion, holders will receive the principal amount of the 2022 Notes and anyexcess conversion value in cash, shares of our common stock or a combination of cash and shares, at our option. The fair value of the 2022 Notes is impacted byboth the fair value of our common stock and interest rate fluctuations. As of December 31, 2019, the estimated fair value of the 2022 Notes was $1,044 per $1,000principal amount. See Note 11, Debt, to our consolidated financial statements for additional information on the 2022 Notes. At December 31, 2019, all $345.0million of principal remains outstanding on the 2022 Notes.We have agreements with certain vendors and partners that operate in foreign jurisdictions. The transactions under these agreements are primarilydenominated in the U.S. Dollar, subject to periodic adjustment based on changes in currency exchange rates.Additionally, our accounts receivable are primarily concentrated with three large wholesalers of pharmaceutical products. In the event of non-performance ornon-payment, there may be a material adverse impact on our financial condition, results of operations or net cash flow.Item 8. Financial Statements and Supplementary DataOur consolidated financial statements required by this item, together with the report of our independent registered public accounting firm, appear onpages F-1 through F-41 of this Annual Report.Item 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureNone.Item 9A. Controls and ProceduresEvaluation of Disclosure Controls and ProceduresWe 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 toensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reportedwithin the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our ChiefExecutive Officer and Chairman and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.65Table of ContentsOn April 9, 2019, we acquired MyoScience (now Pacira CryoTech, Inc., or CryoTech). As such, the scope of our assessment of the effectiveness of ourdisclosure controls and procedures did not include the internal control over financial reporting of CryoTech. These exclusions are consistent with the SEC Staff’sguidance that an assessment of a recently acquired business may be omitted from the scope of our assessment of the effectiveness of disclosure controls andprocedures that are also part of internal control over financial reporting in the 12 months following the acquisition. CryoTech accounted for 1% of our total assetsand 2% of our total revenue as of and for the year ended December 31, 2019.Based on their evaluation as of December 31, 2019, our Chief Executive Officer and Chairman and Chief Financial Officer concluded that our disclosurecontrols and procedures were effective as of December 31, 2019.Management’s Report on Internal Control over Financial ReportingOur internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with GAAP. Our management is responsible for establishing and maintaining adequateinternal 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 participationof our management, including our Chief Executive Officer and Chairman and Chief Financial Officer, management conducted an evaluation of the effectiveness ofour internal control over financial reporting as of December 31, 2019, based on the criteria established in Internal Control—Integrated Framework (2013) issuedby the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based upon the results of the evaluation, our management concluded thatour internal control over financial reporting was effective as of December 31, 2019.The effectiveness of our internal control over financial reporting as of December 31, 2019 was audited by KPMG LLP, our independent registered publicaccounting firm, as stated in their report appearing below, which expressed an unqualified opinion on the effectiveness of our internal control over financialreporting as of December 31, 2019.Changes in Internal Control over Financial ReportingAs a result of the MyoScience Acquisition, we have commenced a project to evaluate the processes and procedures of CryoTech’s internal control overfinancial reporting and incorporate CryoTech’s internal control over financial reporting into our internal control over financial reporting framework. In addition, asa result of the MyoScience Acquisition, we have implemented new processes and controls over accounting for an acquisition, including determining the fair valueof the assets acquired, liabilities assumed and adjustments to the fair value of contingent consideration. Except for the activities described above, there have beenno changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2019 that have materially affected, or arereasonably likely to materially affect, our internal control over financial reporting.66Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Stockholders and Board of DirectorsPacira BioSciences, Inc.:Opinion on Internal Control Over Financial ReportingWe have audited Pacira BioSciences, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2019, based on criteriaestablished in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In ouropinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria establishedin 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 balancesheets of the Company as of December 31, 2019 and 2018, and the related consolidated statements of operations, comprehensive loss, stockholders’ equity, andcash flows for each of the years in the three-year period ended December 31, 2019, and related notes (collectively, the consolidated financial statements), and ourreport dated February 20, 2020 expressed an unqualified opinion on those consolidated financial statements.The Company acquired MyoScience, Inc. (now Pacira CryoTech, Inc.) during 2019, and management excluded from its assessment of the effectiveness of theCompany’s internal control over financial reporting as of December 31, 2019, Pacira CryoTech Inc.’s internal control over financial reporting associated with 1%of total assets and 2% of total revenues included in the consolidated financial statements of the Company as of and for the year ended December 31, 2019. Ouraudit of internal control over financial reporting of the Company also excluded an evaluation of the internal control over financial reporting of Pacira CryoTech,Inc.Basis for OpinionThe Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internalcontrol over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to expressan 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 arerequired to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of theSecurities 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 reasonableassurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financialreporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing andevaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as weconsidered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.Definition and Limitations of Internal Control Over Financial ReportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financialreporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect thetransactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation offinancial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only inaccordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection ofunauthorized 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 ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance withthe policies or procedures may deteriorate./s/ KPMG LLP Short Hills, NJ February 20, 2020 67Table of ContentsItem 9B. Other InformationNone.PART IIIItem 10. Directors, Executive Officers and Corporate GovernanceInformation required by this item will be included in the proxy statement for our 2020 annual stockholders’ meeting and is incorporated by reference intothis report.Item 11. Executive CompensationInformation required by this item will be included in the proxy statement for our 2020 annual stockholders’ meeting and is incorporated by reference intothis report.Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholders MattersSecurities Authorized For Issuance Under Equity Compensation PlansThe following table sets forth certain information, as of December 31, 2019, concerning shares of our common stock authorized for issuance under ourequity compensation plans. We have two equity compensation plans under which shares are currently authorized for issuance, our Amended and Restated 2011Stock Incentive Plan (the “2011 Plan”) and our 2014 Employee Stock Purchase Plan (the “2014 ESPP”). We also maintain our 2007 Stock Incentive Plan (“2007Plan”), however, no additional awards may be issued under the 2007 Plan. The 2007 Plan, the 2011 Plan and the 2014 ESPP were approved by stockholders. InApril 2014, our board of directors adopted (without stockholder approval) the 2014 Inducement Plan, which authorized 175,000 shares of common stock to begranted as equity awards to new employees. (a) (b) (c) Number of Securities to be IssuedUpon Exercise of OutstandingOptions and Rights (1) (2) Weighted Average Exercise Priceof OutstandingOptions and Rights Number of Securities RemainingAvailable for Future IssuanceUnder Equity CompensationPlans (Excluding SecuritiesReflected in Column (a)) (1)Equity compensation plans approved by stockholders(3)6,675,848 $42.70 2,884,136Equity compensation plans not approved bystockholders (3)30,530 $64.21 138,424Total equity compensation plans6,706,378 $42.80 3,022,560(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 631,141 unvested shares outstanding as of December 31, 2019 in the form of restricted stock units under our 2011 Plan, which do not require the payment of anyconsideration 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 2020 annual stockholders’ meeting and is incorporated by referenceinto this report.Item 13. Certain Relationships and Related Transactions, and Director IndependenceInformation required by this item will be included in the proxy statement for our 2020 annual stockholders’ meeting and is incorporated by reference intothis report.Item 14. Principal Accounting Fees and ServicesInformation required by this item will be included in the proxy statement for our 2020 annual stockholders’ meeting and is incorporated by reference intothis report.68Table of ContentsPART IVItem 15. Exhibits, Financial Statement Schedules(a)Documents filed as part of this Annual Report on Form 10-K:(1)Financial Statements Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Comprehensive Loss Consolidated Statements of Stockholders’ Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements(2)SchedulesAll financial statement schedules have been omitted because they are not required, are not applicable or the information is included in the consolidatedfinancial statements or related notes thereto.(3)ExhibitsThe following exhibits are filed with, or incorporated by reference in this Form 10-K.69Table of ContentsEXHIBIT INDEX Incorporation By Reference FromExhibitNumber Description Form Exhibit DateFiled2.1† Agreement and Plan of Merger, dated March 4, 2019, by and among Pacira Pharmaceuticals, Inc., PSMerger, Inc., MyoScience, Inc., and Fortis Advisors LLC, as the securityholders’ representative. # 8-K 2.1 3/5/20193.1 Amended and Restated Certificate of Incorporation. 8-K 3.1 2/11/20113.2 Certificate of Amendment to the Amended and Restated Certificate of Incorporation, dated April 9,2019. 8-K 3.1 4/9/20193.3 Second Amended and Restated Bylaws. 8-K 3.2 4/9/20194.1 Specimen Certificate Evidencing Shares of Common Stock. 10-Q 4.1 5/2/20194.2 Indenture (including form of 2022 Notes), dated March 13, 2017, between the Registrant and WellsFargo Bank, National Association, as trustee. 8-K 4.1 3/13/20174.3 Description of Securities* 10.1 Second Amended and Restated 2007 Stock Option/Stock Issuance Plan.*** S-1 10.1 11/1/201010.2 Form of Stock Option Agreement under the Second Amended and Restated 2007 Stock Option/StockIssuance Plan.*** S-1 10.1 11/1/201010.3 Assignment Agreement, dated February 9, 1994, amended April 15, 2004, between the Registrant andResearch Development Foundation. S-1/A 10.4 12/3/201010.4 Stock Purchase Agreement, dated January 8, 2007, between SkyePharma, Inc. and the Registrant. S-1/A 10.5 12/3/201010.5 Employment Agreement between the Registrant and David Stack.*** S-1/A 10.21 12/3/201010.6 Amendment No. 1 to Executive Employment Agreement, dated March 13, 2013, between theRegistrant and David Stack.*** 8-K 99.3 3/18/201310.7 Amendment No. 2 to Executive Employment Agreement, dated June 30, 2015, between the Registrantand David Stack.*** 10-Q 10.2 7/30/201510.8 Employment Agreement, dated November 29, 2012, between the Registrant and Kristen Williams.*** 10-Q 10.2 4/30/201510.9 Amendment No. 1 to Employment Agreement, dated March 13, 2013, between the Registrant andKristen Williams.*** 10-Q 10.3 4/30/201510.10 Amendment No. 2 to Employment Agreement, dated June 30, 2015, between the Registrant and KristenWilliams.*** 10-Q 10.5 7/30/201510.11 Executive Employment Agreement, dated May 2, 2016, between the Registrant and Charles A.Reinhart, III.*** 10-Q 10.1 8/4/201610.12 Executive Employment Agreement, dated March 13, 2013, between the Registrant and RichardScranton, M.D.*** 10-Q 10.1 8/2/201810.13 Amendment No. 1 to Executive Employment Agreement, dated June 30, 2015, between the Registrantand Richard Scranton, M.D.*** 10-Q 10.2 8/2/201810.14 Form of Indemnification Agreement between the Registrant and its directors and officers.*** S-1/A 10.32 1/13/201110.15† Commercial Outsourcing Services Agreement entered into as of August 25, 2011 by the Registrant andIntegrated Commercialization Solutions, Inc. 10-Q 10.1 8/25/201110.16† First Amendment to Commercial Outsourcing Services Agreement, dated August 1, 2013, between theRegistrant and Integrated Commercialization Solutions, Inc. 10-Q 10.1 10/31/201310.17† Second Amendment to Commercial Outsourcing Services Agreement, dated August 25, 2014, betweenthe Registrant and Integrated Commercialization Solutions, Inc. 10-Q 10.1 10/30/201410.18† Third Amendment to Commercial Outsourcing Services Agreement, dated April 29, 2015, between theRegistrant and Integrated Commercialization Solutions, Inc. 10-Q 10.1 7/30/201510.19 Amended and Restated 2011 Stock Incentive Plan.*** 10-Q 10.1 8/8/201910.20 Form of Nonstatutory Stock Option Agreement under the Amended and Restated 2011 Stock IncentivePlan.*** 8-K 10.3 6/4/201470Table of Contents Incorporation By Reference FromExhibitNumber Description Form Exhibit DateFiled10.21 Form of Restricted Stock Unit Award Agreement (Employees) under the Amended and Restated 2011Stock Incentive Plan.*** 10-Q 10.6 7/30/201510.22 Form of Restricted Stock Unit Award Agreement (Non-Employee Directors) under the Amended andRestated 2011 Stock Incentive Plan.*** 10-Q 10.7 7/30/201510.23 License, Development and Commercialization Agreement, dated December 5, 2012 between theRegistrant and Aratana Therapeutics, Inc. 10-K 10.47 3/7/201310.24 Supply Agreement, dated December 5, 2012 between the Registrant and Aratana Therapeutics, Inc. 10-K 10.48 3/7/201310.25 2014 Inducement Plan.*** 10-Q 10.1 5/1/201410.26 2014 Employee Stock Purchase Plan.*** 8-K 10.2 6/4/201410.27† Strategic Co-Production Agreement dated April 4, 2014, by and between the Registrant and PatheonUK Limited. 10-Q 10.1 7/31/201410.28† Manufacturing and Supply Agreement dated April 4, 2014, by and between the Registrant and PatheonUK Limited. 10-Q 10.2 7/31/201410.29† Technical Transfer and Service Agreement dated April 4, 2014, by and between the Registrant andPatheon UK Limited. 10-Q 10.3 7/31/201410.30 Amended and Restated Consulting Agreement, dated April 3, 2012, between the Registrant and GaryPace.*** 10-Q 10.1 5/9/201210.31 Second Amended and Restated Consulting Agreement, dated August 17, 2012, between the Registrantand Gary Pace.*** 10-Q 10.1 11/1/201210.32 Third Amendment to Consulting Agreement, dated September 11, 2013, between the Registrant andGary Pace.*** 10-Q 10.3 10/31/201310.33 Fourth Amendment to Consulting Agreement, dated November 25, 2015, between the Registrant andGary Pace.*** 10-K 10.57 2/25/201610.34† Co-Promotion Agreement, dated January 24, 2017, between the Registrant and DePuy Synthes Sales,Inc. 10-Q 10.1 5/4/201710.35 First Amendment to Co-Promotion Agreement, dated April 19, 2018, between the Registrant andDePuy Synthes Sales, Inc. 10-Q 10.1 5/3/201810.36† Second Amendment to Co-Promotion Agreement, dated December 21, 2018, between the Registrantand DePuy Synthes Sales, Inc. 10-K 10.41 2/28/201910.37 Executive Employment Agreement, dated May 29, 2017, between the Registrant and DennisMcLoughlin.*** 10-Q 10.1 5/2/2019 21.1 Subsidiaries of the Registrant.* 23.1 Consent of KPMG LLP.* 31.1 Certification of Chief Executive Officer and Chairman pursuant to Exchange Act Rule 13a-14(a).* 31.2 Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a).* 32.1 Certification of Chief Executive Officer and Chairman and Chief Financial Officer pursuant to 18U.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). 71Table of Contents*Filed herewith.**Furnished herewith.***Denotes management contract or compensatory plan orarrangement.†Confidential treatment has been requested or granted as to certain portions, which portions were omitted and filed separately with the Securities andExchange Commission pursuant to a Confidential Treatment Request.#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 Companyhereby undertakes to supplementally furnish copies of any omitted schedules to the Securities and Exchange Commission upon request.Item 16. Form 10-K SummaryNone.72Table of ContentsSIGNATURESPursuant 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 itsbehalf by the undersigned, thereunto duly authorized. PACIRA BIOSCIENCES, INC./s/ DAVID STACKDate:February 20, 2020By: David StackChief Executive Officer and ChairmanPursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrantand in the capacities and on the dates indicated.Signature Title Date/s/ DAVID STACK Director, Chief Executive Officer and Chairman(Principal Executive Officer) February 20, 2020David Stack /s/ CHARLES A. REINHART, III Chief Financial Officer(Principal Financial Officer) February 20, 2020Charles A. Reinhart, III /s/ LAUREN RIKER Vice President, Finance(Principal Accounting Officer) February 20, 2020Lauren Riker /s/ LAURA BREGE Director February 20, 2020Laura Brege /s/ CHRISTOPHER J. CHRISTIE Director February 20, 2020Christopher J. Christie /s/ MARK FROIMSON Director February 20, 2020Mark Froimson /s/ YVONNE GREENSTREET Director February 20, 2020Yvonne Greenstreet /s/ MARK KRONENFELD Director February 20, 2020Mark Kronenfeld /s/ JOHN LONGENECKER Director February 20, 2020John Longenecker /s/ GARY PACE Director February 20, 2020Gary Pace /s/ ANDREAS WICKI Director February 20, 2020Andreas Wicki /s/ PAUL HASTINGS Lead Director February 20, 2020Paul Hastings 73Table of ContentsPACIRA BIOSCIENCES, INC.ANNUAL REPORT ON FORM 10-KFOR THE YEAR ENDED DECEMBER 31, 2019INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS Page #Report of Independent Registered Public Accounting FirmF-2Consolidated Balance Sheets as of December 31, 2019 and 2018F-4Consolidated Statements of Operations for the years ended December 31, 2019, 2018 and 2017F-5Consolidated Statements of Comprehensive Loss for the years ended December 31, 2019, 2018 and 2017F-6Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2019, 2018 and 2017F-7Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017F-8Notes to Consolidated Financial StatementsF-10F-1Table of ContentsREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Stockholders and Board of DirectorsPacira BioSciences, Inc.:Opinion on the Consolidated Financial StatementsWe have audited the accompanying consolidated balance sheets of Pacira BioSciences, Inc. and subsidiaries (the Company) as of December 31, 2019 and 2018,the related consolidated statements of operations, comprehensive loss, stockholders’ equity, and cash flows for each of the years in the three‑year period endedDecember 31, 2019, 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, 2019 and 2018, and the results of its operations and its cash flows for each of theyears in the three‑year period ended December 31, 2019, 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 internalcontrol over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by theCommittee of Sponsoring Organizations of the Treadway Commission, and our report dated February 20, 2020 expressed an unqualified opinion on theeffectiveness of the Company’s internal control over financial reporting.Change in Accounting PrincipleAs discussed in Note 3 to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2019 due to theadoption of Accounting Standards Update 2016-02, Leases (Topic 842).Basis for OpinionThese consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidatedfinancial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to theCompany 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 reasonableassurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performingprocedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures thatrespond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financialstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overallpresentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.Critical Audit MattersThe critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated orrequired 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 onthe consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on thecritical audit matters or on the accounts or disclosures to which they relate.Evaluation of the initial fair value measurement of the developed technology intangible asset acquired in connection with the acquisition of MyoScience, Inc.As discussed in Notes 5 and 9 to the consolidated financial statements, the acquisition of MyoScience, Inc. resulted in the recording of the developedtechnology intangible asset of $110.0 million. The determination of the acquisition date fair value of the developed technology intangible asset required theCompany to make significant estimates and assumptions regarding forecasted revenues and the discount rate.We identified the evaluation of the initial fair value measurement of the developed technology intangible asset acquired in connection with the acquisition ofMyoScience, Inc. as a critical audit matter. Testing the assumptions regarding forecasted revenues and the discount rate, which were used to estimate the fairvalue, involved a high degree of judgment. In addition, the fair value of the developed technology intangible asset was challenging to test due to thesensitivity of the fair value determination to changes in these assumptions.The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over the Company’sacquisition-date valuation process, including controls over the development of the forecasted revenues and the discount rate. We performed sensitivityanalyses over the forecasted revenues to assess the impact of changesF-2Table of Contentsin those assumptions on the Company’s determination of the fair value of the developed technology intangible asset. We evaluated the future revenue growthused by the Company to determine forecasted revenues, by comparing them to industry data, as well as evaluated the relevance and reliability of third-partymarket data points used to develop the future revenue growth. We involved valuation professionals with specialized skills and knowledge, who assisted inevaluating the Company’s discount rate by comparing the Company’s inputs to the discount rate, to publicly available market data for the comparable entitiesused by the Company and assessing the resulting discount rate. They also assisted in testing the fair value estimate of the developed technology intangibleasset acquired using the Company’s cash flow assumptions and the Company’s discount rate, and comparing the results to the Company’s fair value estimate.Evaluation of the fair value measurement of the contingent consideration liabilities associated with the acquisition of MyoScience, Inc.As discussed in Notes 5 and 12 to the consolidated financial statements, the initial fair value of the contingent consideration liability related to the acquisitionof MyoScience, Inc. was $28.5 million. The contingent consideration liabilities are re-measured each reporting period, with a maximum remaining payout asof December 31, 2019 of $73.0 million. The determination of the fair value of the contingent consideration liabilities related to achieving commercial andregulatory milestones, requires the Company to make significant estimates and assumptions. These estimates and assumptions include forecasts of revenues,estimated probabilities and timing of achieving specified commercial and regulatory milestones, volatility and the risk adjusted discount rate.We identified the evaluation of the initial and ongoing fair value measurement of the contingent consideration liabilities related to achieving commercial andregulatory milestones associated with the acquisition of MyoScience, Inc. as a critical audit matter. Testing the simulation and milestone based models,including non-observable inputs, such as the forecasted revenue, estimated probability and timing of achieving specific commercial and regulatorymilestones, the volatility and the risk adjusted discount rate involved a high degree of subjectivity.The primary procedures we performed to address this critical audit matter included the following. We tested certain internal controls over the Company’sinitial and ongoing fair value process for contingent consideration liabilities related to achieving commercial and regulatory milestones, including controlsover the forecasted revenues, estimated probabilities and timing of achieving specified milestones, the volatility and the risk adjusted discount rate. Weevaluated the forecasted revenue and commercial and regulatory milestone assumptions used in the Company’s models by comparing them to industrybenchmarks and other relevant and reliable third-party market data, as well as evaluated the relevance and reliability of third-party market data points used todevelop the future revenue growth and commercial and regulatory milestones. We involved valuation professionals with specialized skills and knowledge,who assisted in evaluating the Company’s volatility and risk adjusted discount rate, by comparing the Company’s inputs to the volatility and risk adjusteddiscount rate, to publicly available market data for the comparable entities used by the Company and assessing the resulting volatility and the risk adjusteddiscount rate. They also assisted in testing the estimate of the initial and ongoing fair value of the contingent consideration liabilities using the Company’sforecasted revenues, volatility and the risk adjusted discount rate, and comparing the results to the Company’s fair value estimates. /s/ KPMG LLP We have served as the Company’s auditor since 2015. Short Hills, NJ February 20, 2020 F-3Table of ContentsPACIRA BIOSCIENCES, INC.CONSOLIDATED BALANCE SHEETS(In thousands, except share and per share amounts) December 31, 2019 2018ASSETS Current assets: Cash and cash equivalents$78,228 $132,526Short-term investments213,722 250,928Accounts receivable, net47,530 38,000Inventories, net58,296 48,569Prepaid expenses and other current assets10,781 7,946Total current assets408,557 477,969Long-term investments64,798 25,871Fixed assets, net104,681 108,670Right-of-use assets, net38,124 —Goodwill99,547 62,040Intangible assets, net104,387 —Equity investment and other assets10,971 14,803Total assets$831,065 $689,353 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable$12,799 $14,368Accrued expenses70,427 45,865Lease liabilities4,935 —Convertible senior notes— 338Contingent consideration18,179 —Income taxes payable1,333 90Total current liabilities107,673 60,661Convertible senior notes306,045 290,592Lease liabilities40,938 —Contingent consideration19,963 —Other liabilities1,502 16,874Total liabilities476,121 368,127Commitments and contingencies (Note 21) Stockholders’ equity: Preferred stock, par value $0.001; 5,000,000 shares authorized; none issued and outstanding at December 31, 2019and 2018— —Common stock, par value $0.001; 250,000,000 shares authorized; 41,908,148 shares issued and outstanding atDecember 31, 2019; 41,222,799 shares issued and outstanding at December 31, 201842 41Additional paid-in capital753,978 709,691Accumulated deficit(399,398) (388,226)Accumulated other comprehensive income (loss)322 (280)Total stockholders’ equity354,944 321,226Total liabilities and stockholders’ equity$831,065 $689,353See accompanying notes to consolidated financial statements.F-4Table of ContentsPACIRA BIOSCIENCES, INC.CONSOLIDATED STATEMENTS OF OPERATIONS(In thousands, except per share amounts) Year Ended December 31, 2019 2018 2017Revenues: Net product sales$418,926 $332,427 $284,342Collaborative licensing and milestone revenue— 3,000 387Royalty revenue2,100 1,850 1,901Total revenues421,026 337,277 286,630Operating expenses: Cost of goods sold106,712 86,845 87,915Research and development72,119 55,688 57,290Selling, general and administrative200,782 177,265 161,494Amortization of acquired intangible assets5,703 — —Acquisition-related charges, product discontinuation and other25,230 1,564 4,868Total operating expenses410,546 321,362 311,567Income (loss) from operations10,480 15,915 (24,937)Other (expense) income: Interest income7,376 6,497 4,078Interest expense(23,628) (21,949) (18,047)Loss on early extinguishment of debt— — (3,732)Other, net(4,976) (888) 167Total other expense, net(21,228) (16,340) (17,534)Loss before income taxes(10,748) (425) (42,471)Income tax expense(268) (46) (140)Net loss$(11,016) $(471) $(42,611) Net loss per share: Basic and diluted net loss per common share$(0.27) $(0.01) $(1.07)Weighted average common shares outstanding: Basic and diluted41,513 40,911 39,806See accompanying notes to consolidated financial statements.F-5Table of ContentsPACIRA BIOSCIENCES, INC.CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS(In thousands) Year Ended December 31, 2019 2018 2017Net loss$(11,016) $(471) $(42,611)Other comprehensive income (loss): Net unrealized gain (loss) on investments602 174 (424) Total other comprehensive income (loss)602 174 (424)Comprehensive loss$(10,414) $(297) $(43,035)See accompanying notes to consolidated financial statements.F-6Table of ContentsPACIRA BIOSCIENCES, INC.CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITYFOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017(In thousands) Common Stock AdditionalPaid-InCapital AccumulatedDeficit AccumulatedOtherComprehensiveIncome (Loss) Total Shares Amount Balance at December 31, 201637,481 $37 $565,207 $(346,238) $(30) $218,976 Cumulative effect adjustment of the adoptionof Accounting Standards Update 2016-09— — 287 (287) — — Exercise of stock options540 1 6,777 — — 6,778 Vested restricted stock units101 — — — — — Shares issued under employee stockpurchase plan57 — 1,862 — — 1,862 Stock-based compensation— — 31,601 — — 31,601 Issuance of common stock uponconversion of 2019 convertible senior notes2,490 3 120,957 — — 120,960 Retirement of equity componentof 2019 convertible senior notes— — (126,328) — — (126,328) Equity component of 2022 convertiblesenior notes issued, net— — 68,669 — — 68,669 Net unrealized loss on investments— — — — (424) (424) Net loss— — — (42,611) — (42,611)Balance at December 31, 201740,669 41 669,032 (389,136) (454) 279,483 Cumulative effect adjustment of the adoptionof Accounting Standards Update 2014-09(Note 3)— — — 1,361 — 1,361 Cumulative effect adjustment of the adoptionof Accounting Standards Update 2018-07(Note 3)— — (20) 20 — — Exercise of stock options333 — 7,170 — — 7,170 Vested restricted stock units156 — — — — — Shares issued under employee stockpurchase plan65 — 1,784 — — 1,784 Stock-based compensation— — 31,725 — — 31,725 Net unrealized gain on investments— — — — 174 174 Net loss— — — (471) — (471)Balance at December 31, 201841,223 41 709,691 (388,226) (280) 321,226 Cumulative effect adjustment of the adoptionof Accounting Standards Update 2016-02(Note 3)— — — (156) — (156) Exercise of stock options425 1 8,468 — — 8,469 Vested restricted stock units193 — — — — — Shares issued under employee stockpurchase plan67 — 2,402 — — 2,402 Stock-based compensation— — 33,650 — — 33,650 Retirement of equity componentof 2019 convertible senior notes— — (233) — — (233) Net unrealized gain on investments— — — — 602 602 Net loss— — — (11,016) — (11,016)Balance at December 31, 201941,908 $42 $753,978 $(399,398) $322 $354,944See accompanying notes to consolidated financial statements.F-7Table of ContentsPACIRA BIOSCIENCES, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands) Year Ended December 31, 2019 2018 2017Operating activities: Net loss$(11,016) $(471) $(42,611)Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation of fixed assets and amortization of intangible assets19,576 13,165 13,833Amortization of unfavorable lease obligation and debt issuance costs1,707 1,590 1,248Amortization of debt discount13,746 12,799 10,423Loss on disposal and impairment of fixed assets1,010 65 2,133Loss on early extinguishment of debt— — 3,732Stock-based compensation33,650 31,725 31,601Changes in contingent consideration (after MyoScience, Inc. acquisition)16,672 — —Loss on investment (net of stock dividend) and other non-operating income, net4,315 854 —Changes in operating assets and liabilities (net of MyoScience, Inc. acquisition): Accounts receivable, net(8,524) (5,999) (1,721)Inventories, net(8,026) (7,157) (10,133)Prepaid expenses and other assets(3,885) (3,228) 3,476Accounts payable(1,822) (573) 5,712Accrued expenses and income taxes payable20,213 5,203 3,647Other liabilities(6,726) 897 (3,555)Payment of contingent consideration to MyoScience, Inc. securityholders(370) — —Net cash provided by operating activities70,520 48,870 17,785Investing activities: Acquisition of MyoScience, Inc. (net of cash acquired)(117,691) — —Purchases of fixed assets(10,159) (14,514) (19,266)Purchases of investments(318,484) (363,255) (502,752)Sales of investments319,468 405,188 321,713Payment of contingent consideration— (6,843) (8,460)Equity investment(1,622) — (15,000)Net cash (used in) provided by investing activities(128,488) 20,576 (223,765)Financing activities: Proceeds from exercises of stock options8,469 7,170 6,778Proceeds from shares issued under employee stock purchase plan2,402 1,784 1,862Proceeds from issuance of 2022 convertible senior notes— — 345,000Repayment of 2019 convertible senior notes(338) — (118,193)Conversion premium on 2019 convertible senior notes(233) — —Payment of contingent consideration to MyoScience, Inc. securityholders(6,630) — —Payment of debt issuance and financing costs— — (11,000)Costs for conversions of convertible senior notes— — (285)Net cash provided by financing activities3,670 8,954 224,162Net (decrease) increase in cash and cash equivalents(54,298) 78,400 18,182Cash and cash equivalents, beginning of year132,526 54,126 35,944Cash and cash equivalents, end of year$78,228 $132,526 $54,126 See accompanying notes to consolidated financial statements. F-8Table of ContentsPACIRA BIOSCIENCES, INC.CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)(In thousands) Year Ended December 31, 2019 2018 2017Supplemental cash flow information: Cash paid for interest$8,199 $8,205 $6,896Cash paid for income taxes, net of refunds$863 $128 $129Non-cash investing and financing activities: Issuance of common stock from conversion of 2019 convertible senior notes$— $— $120,960Retirement of equity component of 2019 convertible senior notes$— $— $(126,328)Net increase (decrease) in accrued fixed assets$125 $(98) $2,189Net increase in contingent consideration liabilities$28,470 $— $—See accompanying notes to consolidated financial statements.F-9Table of ContentsPACIRA BIOSCIENCES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 1—DESCRIPTION OF BUSINESSPacira BioSciences, Inc. and its subsidiaries (collectively, the “Company” or “Pacira”) is a leading provider of non-opioid pain management andregenerative health solutions to advance and improve outcomes for health care practitioners and their patients. The Company’s long-acting, local analgesic,EXPAREL® (bupivacaine liposome injectable suspension), was commercially launched in the United States in April 2012. EXPAREL utilizes DepoFoam®, aunique and proprietary delivery technology that encapsulates drugs without altering their molecular structure, and releases them over a desired period of time. InApril 2019, the Company added iovera°® to its commercial offering with its acquisition of MyoScience, Inc., or MyoScience. The iovera° system is a handheldcryoanalgesia device used to deliver a precise, controlled application of cold temperature to only targeted nerves.The Company changed its name from Pacira Pharmaceuticals, Inc. to Pacira BioSciences, Inc. upon completing the acquisition of MyoScience in order tobetter reflect a broadening portfolio of innovative non-opioid pain management and regenerative health solutions. See Note 5, MyoScience Acquisition, for moreinformation.Pacira is subject to risks common to companies in similar industries and stages, including, but not limited to, competition from larger companies, reliance onrevenue from two products, reliance on a limited number of manufacturing sites, new technological innovations, dependence on key personnel, reliance on third-party service providers and sole source suppliers, protection of proprietary technology, compliance with government regulations and risks related to cybersecurity.NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESBasis of Presentation and Principles of ConsolidationThese consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America, orGAAP, and in accordance with the rules and regulations of the United States Securities and Exchange Commission, or SEC. The accounts of wholly ownedsubsidiaries are included in these consolidated financial statements. All intercompany balances and transactions have been eliminated in consolidation. Certainreclassifications were made to conform to the current presentation.Use of EstimatesThe preparation of financial statements in conformity with GAAP requires the use of estimates and assumptions that affect the reported amounts of assetsand liabilities, including disclosure of contingent assets and contingent liabilities, at the date of the financial statements and the reported amounts of revenues andexpenses during the reporting period. Estimates are used for, among other things, revenue recognition, inventory costs, impairments of equity investments, long-lived assets, goodwill, liabilities and accruals, including contingent consideration, and the valuation of deferred tax assets. The Company’s critical accountingpolicies are those that are both most important to the Company’s consolidated financial condition and results of operations and require the most difficult, subjectiveor 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 inherentlyuncertain. Because of the uncertainty of factors surrounding the estimates or judgments used in the preparation of the consolidated financial statements, actualresults could differ from these estimates.Revenue From Contracts With CustomersThe Company’s sources of revenue include (i) sales of EXPAREL in the United States, or U.S.; (ii) sales of iovera° in the U.S.; (iii) sales of and royalties onits bupivacaine liposome injectable suspension for veterinary use in the U.S. and (iv) license fees and milestone payments. See Note 4, Revenue, for furtherinformation on the Company’s accounting policies related to revenue from contracts with customers.Collaborative Licensing and Milestone RevenueThe Company’s collaboration agreements generally involve a license to the Company’s products. In determining how and when to recognize the revenueunder a collaboration agreement, the Company must assess whether the license is distinct, which depends upon whether the customer can benefit from the licenseand whether the license is separate from other performance obligations in the agreement. If the license is distinct, the Company must further assess whether thecustomer has a right to access or a right to use the license depending on whether the functionality of the license is expected to substantively changeF-10Table of ContentsPACIRA BIOSCIENCES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)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 isexpected 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 paymentsbased on a non-sales metric such as a development-based milestone (e.g. obtaining regulatory approval) represent variable consideration and are included in thetransaction price subject to any constraints. If the milestone payments relate to future development, the timing of recognition depends upon historical experienceand 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 themilestone 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 RevenueRoyalties are estimated and recognized as revenue when sales to the Company’s commercial partners occur, unless some constraint exists, as the royaltiespredominately 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 CustomersThe Company sells EXPAREL through a drop-ship program under which orders are processed through wholesalers (including AmerisourceBergen HealthCorporation, 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 sellsits bupivacaine liposome injectable suspension for veterinary use to a third-party licensee and sells iovera° directly to end users. The table below includes thepercentage of net product sales comprised by the Company’s three largest wholesalers in each period presented: Year Ended December 31, 2019 2018 2017Largest wholesaler34% 34% 35%Second largest wholesaler29% 30% 30%Third largest wholesaler26% 26% 26% Total89% 90% 91%The Company had no revenue from outside the U.S. during the year ended December 31, 2019. Revenue from outside the U.S. accounted for less than 1% ofthe Company’s total revenue for the year ended 2018 and 1% of the Company’s total revenue for the year ended December 31, 2017.Research and Development ExpensesResearch and development expenditures are expensed as incurred. These include both internal and external costs, of which a significant portion ofdevelopment activities are outsourced to third parties, including contract research organizations. Clinical trial costs are accrued over the service periods specified incontracts and adjusted as necessary based on an ongoing review of the level of effort and actual costs incurred. Research and development costs are presented netof reimbursements from commercial partners.Income TaxesThe Company uses the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized for the estimated futuretax 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 areexpected to be recovered or settled. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. As ofDecember 31, 2019 and 2018, the Company’s net deferred tax assets were fully offset by a valuation allowance because there is significant doubt regarding theCompany’s ability to utilize such net deferred tax assets.The Company accrues interest and penalties, if any, on underpayment of income taxes related to unrecognized tax benefits as a component of income taxexpense in its consolidated statements of operations.F-11Table of ContentsPACIRA BIOSCIENCES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Stock-Based CompensationThe Company’s stock-based compensation includes grants of stock options and restricted stock units, or RSUs, to employees, consultants and non-employeedirectors, in addition to the opportunity for employees to participate in an employee stock purchase plan. The expense associated with these programs is recognizedin 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 offeringperiod.In calculating the estimated fair value of stock options granted, the Company uses the Black-Scholes option valuation model, or Black-Scholes model, whichrequires the consideration of the following variables for purposes of estimating fair value:•Expected term of the option•Expected volatility•Expected dividends•Risk-free interestrateThe Company utilizes its historical volatility data to determine expected volatility over the expected option term. The Company uses an expected term basedon 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 forperiods 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 notdeclared or paid any dividends since inception, nor does it have any intention to do so in the foreseeable future. The Company records forfeitures as they occurrather than estimating forfeitures during each period.Cash and Cash EquivalentsAll highly-liquid investments with maturities of 90 days or less when purchased are considered cash equivalents. Cash equivalents include corporate debtsecurities, asset backed securities and money market funds. As of December 31, 2019, the carrying value of money market funds was $28.5 million, which isincluded in cash and cash equivalents. As of December 31, 2018, the carrying value of money market funds was $40.6 million, corporate debt securities was $21.4million and asset backed securities was $4.9 million, all of which were included in cash and cash equivalents. The carrying values approximate fair value as ofDecember 31, 2019 and 2018.Short-Term and Long-Term InvestmentsShort-term investments consist of asset-backed securities collateralized by credit card receivables, investment grade commercial paper and corporate bondswith maturities of greater than three months, but less than one year. Long-term investments consist of asset-backed securities collateralized by credit cardreceivables and corporate bonds with maturities greater than one year. The Company determines the appropriate classification of its investments at the time ofpurchase and reevaluates such determination at each balance sheet date. The Company’s investment policy sets minimum credit quality criteria and maximummaturity limits on its investments to provide for preservation of capital, liquidity and a reasonable rate of return. The Company classifies its investments asavailable-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 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 fordetermining the cost of the securities sold.InventoriesInventories consist of finished goods held for sale and distribution, raw materials and work in process. Inventories are stated at the lower of cost, whichincludes amounts related to material, labor and overhead, or net realizable value and is determined using the first-in, first-out (“FIFO”) method. The Companyperiodically reviews its inventory to identify obsolete, slow-moving, or otherwise unsalable inventories, and establishes allowances for situations in which the costof the inventory is not expected to be recovered.Fixed AssetsFixed assets are recorded at cost, net of accumulated depreciation and amortization. The Company reviews its property, plant and equipment assets forimpairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.F-12Table of ContentsPACIRA BIOSCIENCES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Depreciation of fixed assets is provided over their estimated useful lives on a straight-line basis. Leasehold improvements are amortized on a straight-linebasis 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 LifeComputer equipment and software 1 to 3 yearsOffice furniture and equipment 5 yearsManufacturing and laboratory equipment 5 to 10 yearsAsset Retirement ObligationsThe Company has contractual obligations stemming from certain of its lease agreements to return leased space to its original condition upon termination ofthe lease agreement. The Company records an asset retirement obligation, or ARO, along with a corresponding capital asset in an amount equal to the estimatedfair value of the ARO, based on the present value of expected future cash flows. In subsequent periods, the Company records interest expense to accrete the ARO toits full value. Each ARO capital asset is depreciated over the depreciable term of the associated asset.LeasesEffective January 1, 2019, the Company recognizes right-of-use, or ROU, assets and lease liabilities at the commencement of its lease agreements. Theleases are evaluated at commencement to determine whether they should be classified as operating or financing leases. Lease costs associated with operating leasesare recognized on a straight-line basis, while lease costs for financing leases are recognized over the lease term using the effective interest method. To date, theCompany 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 leaseterm 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. Theincremental borrowing rate is based on the rate the Company estimates it would pay on a collateralized basis over a similar term in a similar economicenvironment.AcquisitionsIn a business combination, the acquisition method of accounting requires that the assets acquired and liabilities assumed be recorded as of the date of theacquisition at their respective fair values, with some exceptions. Assets acquired and liabilities assumed in a business combination that arise from contingenciesare generally recognized at fair value. If fair value cannot be determined, the asset or liability is recognized if probable and reasonably estimable; if these criteriaare not met, no asset or liability is recognized. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exitprice) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Anyexcess of the purchase price (consideration transferred) over the estimated fair values of net assets acquired is recorded as goodwill. Transaction costs and costs torestructure the acquired company are expensed as incurred. The operating results of the acquired business are reflected in the Company’s consolidated financialstatements after the date of the acquisition.Contingent ConsiderationSubsequent to an acquisition, the Company measures contingent consideration arrangements at fair value for each period with changes in fair valuerecognized in the consolidated statements of operations as acquisition-related charges. Changes in contingent consideration can result from changes in the assumedachievement and timing of estimated sales, costs of goods sold and regulatory approvals. In the absence of new information, changes in fair value reflect thepassage of time towards achievement of the milestones, and are accrued based on an accretion schedule.GoodwillGoodwill 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 at least annually or when a triggering event occurs that could indicate a potential impairment.F-13Table of ContentsPACIRA BIOSCIENCES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Intangible AssetsIntangible assets with definite useful lives are amortized on a straight-line basis over their estimated useful lives and are reviewed for impairment if certainevents or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Intangible assets are recorded at cost, net of accumulatedamortization.Equity InvestmentsThe Company historically accounted for its equity investment in a minority interest of a company over which it did not exercise significant influence usingthe cost method. The equity investment did not have a readily determinable fair value. Effective January 1, 2018, the Company elected to account for its equityinvestment at its cost less impairment, if any, plus or minus any changes resulting from observable price changes in orderly transactions for a similar investment.As of the fourth quarter of 2019, the equity investment held by the Company is now publicly traded and has a readily determinable fair value. The equityinvestment is now measured at fair value with changes in the fair value recognized in other income (expense).Impairment of Long-Lived AssetsManagement reviews long-lived assets, including fixed assets and intangible assets, for impairment whenever events or changes in circumstances indicatethe 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 anasset 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 recognizedis measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets.Convertible Debt TransactionsThe Company separately accounts for the liability and equity components of convertible debt instruments by allocating the proceeds from the issuancebetween the liability component and the embedded conversion option, or equity component. This is done in accordance with accounting for convertible debtinstruments that may be settled in cash (including partial cash settlement) upon conversion. The value of the equity component is calculated by first measuring thefair 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 differencebetween the initial proceeds from the convertible debt issuance and the fair value of the liability component is recorded as the carrying amount of the equitycomponent. The Company recognizes the amortization of the resulting discount as part of interest expense in its consolidated statements of operations.Upon settlement of the convertible senior notes, the liability component is measured at fair value. The Company allocates a portion of the fair value of thetotal settlement consideration transferred to the extinguishment of the liability component equal to the fair value of that component immediately prior to thesettlement. Any difference between the consideration attributed to the liability component and the net carrying amount of the liability component, including anyunamortized debt issuance costs and debt discount, is recognized as a gain or loss in the consolidated statements of operations. Any remaining consideration isallocated to the reacquisition of the equity component and is recognized as a reduction of additional paid-in capital.Per Share DataBasic net income (loss) per common share is computed by dividing net income (loss) available (attributable) to common stockholders by the weightedaverage 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 theeffect of dilutive securities, if any, by the weighted average number of shares of common stock and dilutive common stock outstanding during the period. Potentialcommon shares include the shares of common stock issuable upon the exercise of outstanding stock options, the RSUs expected to vest, the shares to be purchasedunder the Company’s employee stock purchase plan (using the treasury stock method), the excess conversion value on the Company’s convertible senior notes andthe shares of common stock that could be issued as consideration for contingent milestone payments.Foreign Currency TranslationThe balance sheet accounts of foreign subsidiaries with functional currencies other than United States Dollar are translated using the exchange rate at therespective balance sheet dates. Revenues and expenses are translated using average exchange rates for each calendar month during theyear. Translation adjustments are recorded as a component of accumulatedF-14Table of ContentsPACIRA BIOSCIENCES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)other comprehensive income (loss) in the consolidated financial statements. To date, foreign currency translation has been de minimis.Segment ReportingThe Company is managed and operated as a single business focused on the discovery, 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 organizationalstructure, the Chief Executive Officer and Chairman manages and allocates resources at a consolidated level. Accordingly, the Company views its business as onereportable operating segment to evaluate performance, allocate resources, set operational targets and forecast its future period financial results.NOTE 3—RECENT ACCOUNTING PRONOUNCEMENTSRecently Adopted Accounting PronouncementsIn February 2016, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2016-02, Leases (Topic 842), andsubsequently issued clarifications and corrections to the update by issuing ASU 2018-10 in July 2018. This update required lessees to recognize lease assets andlease liabilities on the balance sheet for those leases classified as operating leases under previous authoritative guidance. For income statement purposes, the newstandard retained a dual model similar to Accounting Standards Codification, or ASC, 840, requiring leases to be classified as either operating or financing.Operating leases continue to result in straight-line expense while financing leases result in a front-loaded expense pattern (similar to previous accounting guidanceby lessees for operating and capital leases, respectively, under ASC 840).The Company adopted ASU 2016-02 on January 1, 2019 using the effective date method. There were practical expedients available to the Company attransition that it elected to apply upon adoption. The Company did not re-assess (i) whether its contracts contained a lease under the new definition of a lease and(ii) the classification of those leases. There were no initial direct costs previously capitalized on the consolidated balance sheet. In addition, the Company appliedhindsight in the determination of the lease terms, in the assessment of the likelihood that a lease renewal, termination or purchase option will be exercised, and inthe assessment of any potential impairments that existed on the ROU assets recognized at adoption. The Company also elected not to recognize a ROU asset andlease liability for those leases with a remaining lease term of 12 months or less.At adoption on January 1, 2019, the lease liability was equal to the present value of future lease payments and a ROU asset was recorded based on the leaseliability, adjusted for items such as prepaid and accrued lease payments. The Company recorded $36.5 million of lease liabilities and $27.6 million of ROU assetsas of January 1, 2019, the difference representing previously recorded lease-related assets and liabilities. There was a cumulative-effect adjustment to accumulateddeficit of $0.2 million upon adoption.The lease liability recognized upon adoption was based upon the present value of the sum of the remaining minimum lease payments (as previously identifiedunder ASC 840), determined using the discount rate as of the date of adoption. The discount rate was based on the Company’s incremental borrowing rate on acollateralized basis over a similar remaining term and in a similar economic environment. Refer to Note 8, Leases, for further information on the Company’sexisting leases.In May 2014, the FASB, issued Accounting Standards Update, or ASU, 2014-09, Revenue from Contracts with Customers. The Company adopted thisstandard on January 1, 2018 using the modified retrospective method and recorded a cumulative effect adjustment of $1.4 million to accumulated deficit uponadoption—the impact related to the acceleration of $1.0 million of deferred revenue and $0.4 million of royalties. Under the modified retrospective method ofadoption, the comparative information in the consolidated financial statements was not revised and has been reported under ASC 605. The implementation of ASC606 did not have a material impact on the Company’s consolidated statements of operations because the timing of revenue recognition for EXPAREL product salesdid not change. Refer to Note 4, Revenue, for further information on the Company’s revenue.In January 2016, the FASB issued ASU 2016-01, Financial Instruments- Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets andFinancial Liabilities. Under this standard, entities have the option to measure equity investments without readily determinable fair values either at fair value or atcost minus impairment, if any, plus or minus changes resulting from observable price changes for identical or similar investments of the same issuer. ASU 2016-01became effective for the Company beginning January 1, 2018. The Company elected to measure its equity investment without a readilyF-15Table of ContentsPACIRA BIOSCIENCES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)determinable fair value (TELA Bio, Inc.) at cost minus impairment. Refer to Note 2, Summary of Significant Accounting Policies, for further information.In June 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based PaymentAccounting, which aligned accounting for share-based payments issued to nonemployees to that of employees under the existing guidance of Topic 718, withcertain exceptions. The Company chose to early adopt ASU 2018-07 in June 2018 and recorded a cumulative effect adjustment of less than $0.1 million toaccumulated deficit upon adoption.Recent Accounting Pronouncements Not Adopted as of December 31, 2019In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,which required entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions andreasonable and supportable forecasts. The Company now includes forward-looking information to better form its credit loss estimates. This update also requiredenhanced disclosures to help financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the creditquality and underwriting standards of an entity’s portfolio. This standard is effective for the Company beginning January 1, 2020. The Company does not believethe adoption of this standard will have a material impact on its consolidated statements of operations, stockholders’ equity or cash flows.In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework. The update added the following disclosures:(i) changes in unrealized gains and losses for the period included in other comprehensive income (loss) for recurring Level 3 fair value measurements held at theend of the reporting period and (ii) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. Thestandard will become effective for the Company beginning January 1, 2020. The Company will apply these new disclosure requirements in its consolidatedfinancial statements beginning with the three-month period ending March 31, 2020. In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other Internal-Use Software (Subtopic 350-40): Customer’s Accounting forImplementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, which aligns the requirements for capitalizing implementationcosts incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The update provides guidance to determine which implementation costs to capitalize as they relate to the service contract and which costs to expense.In addition, the update further defines the term of the hosting arrangement to include the non-cancelable period of the arrangement plus periods covered by (i) anoption to extend the arrangement if the customer is reasonably certain to exercise that option; (ii) an option to terminate the arrangement if the customer isreasonably certain not to exercise the termination option and (iii) an option to extend (or not to terminate) the arrangement in which exercise of the option is in thecontrol of the vendor. Any expense related to the capitalized implementation costs should be recorded in the same financial statement line item in the consolidatedstatements of operations as the fees associated with the hosting element of the arrangement, and the payments for capitalized implementation costs should beclassified in the same manner as payments made for fees associated with the hosting element in the consolidated statements of cash flows. This standard is effectivefor the Company beginning January 1, 2020. The amendments could be applied either retrospectively or prospectively to all implementation costs incurred afterthe date of adoption. The Company has applied this standard prospectively to its implementation costs incurred beginning in 2020. Any new implementation costsincurred are classified in other assets and the amortization classified in operating expenses, separate from depreciation expense, over the term of the hostingarrangement.In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes, which amends the approachesand methodologies in accounting for income taxes during interim periods and makes changes to certain income tax classifications. The new standard allowsexceptions to the use of the incremental approach for intra-period tax allocation, when there is a loss from continuing operations and income or a gain from otheritems, 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. Thestandard also requires franchise or similar taxes partially based on income to be reported as income tax and the effects of enacted changes in tax laws or rates to beincluded in the annual effective tax rate computation from the date of enactment. Lastly, in any future acquisition, the Company would be required to evaluatewhen 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 will beeffective for the Company beginning January 1, 2021, with early adoption of the amendments permitted. The Company is currently evaluating the impact from theadoption of ASU 2019-12 on its consolidated financial statements.F-16Table of ContentsPACIRA BIOSCIENCES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)NOTE 4—REVENUERevenue from Contracts with CustomersThe Company’s sources of revenue include (i) sales of EXPAREL in the U.S.; (ii) sales of iovera° in the U.S.; (iii) sales of and royalties on its bupivacaineliposome injectable suspension for veterinary use in the U.S. and (iv) license fees and milestone payments. Previously, the Company sold DepoCyt(e) to third-party licensees in the U.S. and Europe prior to its discontinuation in June 2017. The Company does not consider revenue from sources other than sales ofEXPAREL to be material sources of its consolidated revenue. As such, the following disclosure only relates to revenue associated with net EXPAREL productsales.Net Product SalesThe Company sells EXPAREL through a drop-ship program under which orders are processed through wholesalers based on orders of the product placed byend-users which include hospitals, ambulatory surgery centers and doctors. EXPAREL is delivered directly to the end-user without the wholesaler ever takingphysical possession of the product. Product revenue is recognized when control of the promised goods are transferred to the customers, in an amount that reflectsthe consideration the Company expects to be entitled to in exchange for transferring those goods. EXPAREL revenue is recorded at the time the product isdelivered to the end-user.Revenues from sales of products are recorded net of returns allowances, prompt payment discounts, wholesaler service fees, volume rebates andchargebacks. These reserves are based on estimates of the amounts earned or to be claimed on the related sales. These amounts are treated as variableconsideration, estimated and recognized as a reduction of the transaction price at the time of the sale, using the most likely amount method for the gross to netadjustments, except for returns, which is based on the expected value method. The Company includes these estimated amounts in the transaction price to the extentit is probable that a significant reversal of cumulative revenue recognized for such transaction will not occur, or when the uncertainty associated with the variableconsideration is resolved. The calculation of some of these items requires management to make estimates based on sales data, historical return data, contracts andother 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 yearsended December 31, 2019, 2018 and 2017 (in thousands): ReturnsAllowances Prompt PaymentDiscounts Wholesaler ServiceFees Volume Rebatesand Chargebacks TotalBalance at December 31, 2016$1,346 $595 $735 $1,124 $3,800 Provision716 5,806 4,403 4,656 15,581 Payments/Adjustments(1,241) (5,744) (4,299) (5,084) (16,368)Balance at December 31, 2017821 657 839 696 3,013 Provision680 6,802 5,194 6,645 19,321 Payments/Adjustments(1,157) (6,680) (4,866) (6,331) (19,034)Balance at December 31, 2018344 779 1,167 1,010 3,300 Provision783 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 $4,804Accounts ReceivableThe majority of accounts receivable arise from product sales and represent amounts due from wholesalers, hospitals, ambulatory surgery centers and doctors.Payment terms generally range from zero to 37 days from the date of the transaction, and accordingly, there is no significant financing component.F-17Table of ContentsPACIRA BIOSCIENCES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Performance ObligationsA 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’stransaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. At contract inception, the Company assesses the goods promised in its contracts with customers and identifies a performance obligation for each promise totransfer to the customer a good that is distinct. When identifying individual performance obligations, the Company considers all goods promised in the contractregardless of whether explicitly stated in the customer contract or implied by customary business practices. The Company’s contracts with customers require it totransfer an individual distinct product, which represents a single performance obligation. The Company’s performance obligation with respect to its product salesis satisfied at a point in time, which transfers control upon delivery of EXPAREL to its customers. The Company considers control to have transferred upondelivery because the customer has legal title to the asset, physical possession of the asset has been transferred, the customer has significant risks and rewards ofownership of the asset and the Company has a present right to payment at that time.Disaggregated RevenueThe following table represents disaggregated net product sales in the periods presented as follows (in thousands): Year Ended December 31, 2019 2018 2017 Net product sales: EXPAREL / bupivacaine liposome injectable suspension$411,030 $332,427 $283,252 iovera°7,896 — — DepoCyt(e)— — 1,090 Total net product sales$418,926 $332,427 $284,342NOTE 5—MYOSCIENCE ACQUISITIONOn April 9, 2019, the Company acquired MyoScience (the “MyoScience Acquisition”), a privately-held medical device company, pursuant to the terms of anAgreement and Plan of Merger (the “Merger Agreement”), under which MyoScience became a wholly-owned subsidiary of the Company and was renamed PaciraCryoTech, Inc., or CryoTech. The MyoScience Acquisition added iovera° to the Company’s commercial offering. The iovera° system is a novel, United StatesFood and Drug Administration, or FDA, approved, non-opioid treatment that immediately alleviates pain for up to 90 days by applying intense cold to onlytargeted nerves in a process called cryoanalgesia.The consideration included an initial cash payment of $120.0 million, reduced by $1.0 million for post-closing purchase price adjustments andindemnification obligations incurred to date, and the initial fair value of contingent consideration in the amount of $28.5 million. The contingent considerationconsists of contingent milestone payments up to an aggregate of $100.0 million upon the achievement of certain regulatory and commercial milestones, of whichup to $25.0 million may be payable in shares of the Company’s common stock if achieved in 2020. Per the terms of the Merger Agreement, the Company’sobligation to make milestone payments is limited to those milestones achieved between January 1, 2019 and December 31, 2023, and are to be paid within 60 daysof the end of the fiscal quarter of achievement.In the third quarter of 2019, the Company met a regulatory milestone which was previously accrued that resulted in a $7.0 million cash payment in the fourthquarter of 2019. In the fourth quarter of 2019, the Company met another regulatory milestone which was previously accrued and will result in a $5.0 million cashpayment to be made in the first quarter of 2020. Additionally, in the fourth quarter of 2019, the Company recognized a third regulatory milestone in the amount of$10.0 million that will require payment in the second quarter of 2020. The Company recorded $8.9 million in acquisition-related charges in its consolidatedstatements of operations in 2019 related to this milestone. This milestone payment can be made in either cash or shares of the Company’s common stock (or acombination thereof), at the election of the former MyoScience shareholders. The total potential remaining milestone payments available as of December 31, 2019are $73.0 million, which includes the milestone payments to be made in 2020.F-18Table of ContentsPACIRA BIOSCIENCES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)The Company has accounted for the MyoScience Acquisition using the acquisition method of accounting and, accordingly, has included the assets acquired,liabilities assumed and results of operations in the condensed consolidated financial statements from April 10, 2019 onward, the day following the acquisition date.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 ofcombining iovera° and EXPAREL as a safe and effective non-opioid multimodal regimen for pain management, as well as the synergies of merging operations.The primary assets and liabilities of the business acquired include developed technology and customer relationship intangible assets, equipment, inventory,receivables, payables and accrued expenses. Inventory has been recorded at its estimated selling price less costs of distribution and a reasonable profit, and theintangible assets acquired (including developed technology and customer relationships) have been recorded at fair value as determined by the Company’smanagement with the assistance of a third-party valuation specialist. The Company subsequently made a tax election that allows the acquired goodwill andintangible assets to be tax deductible. See Note 16, Income Taxes, for more information.The total consideration for the MyoScience Acquisition was $147.5 million, which consisted of the following (in thousands): AmountCash paid, adjusted for working capital items $119,038Fair value of contingent consideration 28,470 Total $147,508The following table sets forth the allocation of the MyoScience Acquisition purchase price to the estimated fair value of the net assets acquired at theacquisition date (in thousands): Amounts Recognized at theAcquisition DateASSETS ACQUIREDCurrent assets $5,275Non-current assets (other than intangible assets) 1,044Intangible assets (excluding goodwill) 110,090 Total assets acquired (excluding goodwill) $116,409 LIABILITIES ASSUMEDCurrent liabilities $4,436Deferred tax liabilities, net 1,828Other non-current liabilities 144 Total liabilities assumed 6,408 Total identifiable net assets acquired 110,001Goodwill 37,507 Total consideration transferred $147,508CryoTech results from the acquisition date of April 10, 2019 through December 31, 2019, which are included in the condensed consolidated statements ofoperations, are as follows (in thousands):Classification in Condensed Consolidated Statements of Operations Acquisition Date ThroughDecember 31, 2019Total revenues $7,896Net loss $(10,478)Unaudited Pro Forma Summary of OperationsThe following table shows the unaudited pro forma summary of operations for the year ended December 31, 2019 and 2018, as if the MyoScienceAcquisition had occurred on January 1, 2018. This pro forma information does not purport toF-19Table of ContentsPACIRA BIOSCIENCES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)represent what the Company’s actual results would have been if the acquisition had occurred as of January 1, 2018, and is not indicative of what such resultswould be expected for any future period (in thousands, except per share amounts): Year Ended December 31, 2019 2018Total revenues $423,475 $342,735Net loss $(16,200) $(25,696)Pro forma basic and diluted net loss per share $(0.39) $(0.63)The unaudited pro forma financial information was prepared using the acquisition method of accounting and was based on the historical financialinformation of the Company and MyoScience. The summary pro forma financial information primarily reflects the following pro forma adjustments:•Removal of the acquisition-related transaction fees and costs, including certain stock-based compensation and other compensation expenses related to theacquisition, from the year ended December 31, 2019;•Removal of the income tax benefit resulting from the Company decreasing its existing valuation allowance on deferred tax assets and the income taxexpense resulting from a 338(g) election recognized in the year ended December 31, 2019;•Removal of MyoScience’s loss on extinguishment of debt and warrant expense in the year ended December 31,2019;•Removal of MyoScience’s interestexpense;•Adjustments to the Company’s interest income for the cash used to acquire MyoScience;and•The addition of amortization expense on the acquired developed technology and customer relationship intangibleassets.NOTE 6—INVENTORIESThe components of inventories, net are as follows (in thousands): December 31, 2019 2018Raw materials$20,019 $19,193Work-in-process14,407 9,711Finished goods23,870 19,665 Total$58,296 $48,569The Company is required to perform stability testing on select lots of EXPAREL. In October 2019, a single validation lot of EXPAREL manufactured at theCompany’s contract manufacturing site did not meet its required stability specification. At December 31, 2019, $1.3 million was reserved due to this stabilityinvestigation. In December 2019, the Company’s contract manufacturer experienced a media fill failure, which is part of the routine aseptic manufacturingrequalification program, and an investigation is underway. Based on the results of its investigation to date, the Company believes no additional inventory reservesare required related to the media fill failure. However, depending on the outcome of this investigation, it may be determined that up to $4.4 million of inventorymay be unsellable. None of the EXPAREL lots that could be impacted by this media fill failure have been distributed for sale. The Company has temporarilyhalted production on the manufacturing line while it investigates the root cause of these failures.F-20Table of ContentsPACIRA BIOSCIENCES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)NOTE 7—FIXED ASSETSFixed assets, net, summarized by major category, consist of the following (in thousands): December 31, 2019 2018Machinery and equipment$70,078 $67,431Leasehold improvements60,441 57,955Computer equipment and software8,942 8,131Office furniture and equipment1,882 1,548Construction in progress38,778 35,163 Total180,121 170,228Less: accumulated depreciation(75,440) (61,558)Fixed assets, net$104,681 $108,670For information on useful lives by asset category, refer to Note 2, Summary of Significant Accounting Policies.Depreciation expense for the years ended December 31, 2019, 2018 and 2017 was $14.0 million, $13.2 million and $13.8 million, respectively. During theyears ended December 31, 2019, 2018 and 2017, the Company capitalized interest of less than $0.1 million, $0.7 million and $1.1 million, respectively.As of December 31, 2019 and 2018, total fixed assets, net, includes leasehold improvements and manufacturing process equipment located in Europe in theamount of $64.8 million and $64.6 million, respectively.As of December 31, 2019 and 2018, the Company had AROs of $2.5 million and $2.2 million, respectively, included in accrued expenses and otherliabilities on its consolidated balance sheet, for costs associated with returning leased space to its original condition upon the termination of certain leaseagreements. The increase of $0.3 million for the year ended December 31, 2019 was due to a revision in estimated future cash flows related to the AROs (includingthose resulting from the MyoScience Acquisition), including $0.2 million of accretion expense. Accretion expense was $0.1 million for the year ended December31, 2018.NOTE 8—LEASESThe Company leases all of its facilities, including its EXPAREL manufacturing facility in San Diego, California and its iovera° manufacturing facility inFremont, California. These leases have remaining terms between 0.7 years and 10.7 years, some of which provide renewal options at the then-current marketvalue. The Company also has a lease with Thermo Fisher Scientific Pharma Services, or Thermo Fisher (formerly Patheon UK Limited), for the use of their facilityin Swindon, England, which is embedded in agreements the Company has with Thermo Fisher. A portion of the associated monthly base fees has been allocated tothe lease component based on a relative fair value basis.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 2019 2018 Fixed lease costs $6,225 $7,236 Variable lease costs 1,651 1,761 Total $7,876 $8,997Supplemental cash flow information related to operating leases is as follows (in thousands): Year Ended December 31, 2019Cash paid for operating lease liabilities, net of lease incentive $7,346Right-of-use assets recorded in exchange for lease obligations $41,605F-21Table of ContentsPACIRA BIOSCIENCES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)The Company has elected to net the amortization of the ROU asset and the reduction of the lease liability principal in accrued expenses in the condensedconsolidated statement of cash flows.The Company has measured its operating lease liabilities at an estimated discount rate in which it could borrow on a collateralized basis over the remainingterm for each operating lease. The weighted average remaining lease term and the weighted average discount rate are summarized as follows: December 31, 2019Weighted average remaining lease term 9.38 yearsWeighted average discount rate 7.55%Maturities of the Company’s operating lease liabilities are as follows (in thousands):Year Aggregate Payments Due2020 $8,2232021 6,2392022 5,8752023 6,0132024 6,1552025 through 2030 32,830 Total lease payments 65,335 Less: imputed interest (19,462) Total operating lease liabilities $45,873The Company has entered into one lease agreement (not included in the table above) for which there are future obligations but the lease has not yetcommenced as of December 31, 2019 (in thousands):Year Aggregate Payments Due2020 $2,1592021 4,4152022 4,5482023 4,6842024 4,8252025 through 2030 29,242 Total future lease payments $49,873As of December 31, 2018, aggregate annual minimum payments due under the Company’s lease obligations were as follows (in thousands):Year Aggregate Minimum Payments Due2019 $8,1402020 7,6212021 5,2952022 5,4172023 5,5432024 through 2030 14,329Total $46,345F-22Table of ContentsPACIRA BIOSCIENCES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)NOTE 9—GOODWILL AND INTANGIBLE ASSETSGoodwillIn March 2007, the Company acquired from SkyePharma Holding, Inc. (now a subsidiary of Vectura Group plc), or Skyepharma, its California operatingsubsidiary named Pacira Pharmaceuticals, Inc. (the “Skyepharma Acquisition”). The Company’s goodwill arose in April 2012 from a contingent milestonepayment to Skyepharma in connection with the Skyepharma Acquisition. The Skyepharma Acquisition was accounted for under Statement of Financial AccountingStandards 141, Accounting for Business Combinations, which was the effective GAAP standard at the Skyepharma Acquisition date. In connection with theSkyepharma Acquisition, the Company agreed to milestone payments for DepoBupivacaine products, including EXPAREL, as follows:(i)$10.0 million upon the first commercial sale in the U.S. (met April2012);(ii)$4.0 million upon the first commercial sale in the United Kingdom, France, Germany, Italy orSpain;(iii)$8.0 million when annual net sales collected reach $100.0 million (met September 2014);(iv)$8.0 million when annual net sales collected reach $250.0 million (met June 2016); and(v)$32.0 million when annual net sales collected reach $500.0 million.For purposes of meeting future potential milestone payments, annual net sales are measured on a rolling quarterly basis.As part of the Skyepharma Acquisition, the Company agreed to pay certain earn-out payments based on a percentage of net sales of DepoBupivacaineproducts collected, including EXPAREL, for the term during which such sales were covered by a valid claim in certain patent rights related to EXPAREL and otherbiologics products. The last patents for which a valid claim existed expired on September 18, 2018 and thus, the only remaining obligations to Skyepharma are thetwo unmet potential milestone payments totaling $36.0 million. Any remaining milestone payments will be treated as additional costs of the SkyepharmaAcquisition and, therefore, recorded as goodwill if and when each contingency is resolved.There was no change in the carrying value of goodwill related to the Skyepharma Acquisition during the year ended December 31, 2019. The Companyrecorded goodwill related to contingent payments due under the Skyepharma Acquisition during the year ended December 31, 2018, which is not deductible forincome tax purposes.The change in the carrying value of the Company’s goodwill is summarized as follows (in thousands): Carrying ValueBalance at December 31, 2017 $55,197 Percentage payments on collections of net sales of DepoBupivacaine products, including EXPAREL 6,843Balance at December 31, 2018 62,040 Goodwill arising from the MyoScience Acquisition 37,507Balance at December 31, 2019 $99,547MyoScience AcquisitionIn connection with the MyoScience Acquisition, the Company recorded goodwill totaling $37.5 million. The Company subsequently made a tax election thatallows the acquired goodwill and intangible assets to be tax deductible.Intangible AssetsIntangible assets, net, consist of the developed technology and customer relationships that were acquired in the MyoScience Acquisition and are summarizedas follows (in thousands):December 31, 2019 Gross CarryingValue AccumulatedAmortization IntangibleAssets, Net EstimatedUseful LifeDeveloped technology $110,000 $(5,696) $104,304 14 YearsCustomer relationships 90 (7) 83 10 Years Total intangible assets $110,090 $(5,703) $104,387 F-23Table of ContentsPACIRA BIOSCIENCES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)There were no intangible assets, net, at December 31, 2018. Amortization expense on intangible assets for the year ended December 31, 2019 was $5.7million. There was no amortization expense on intangible assets for the years ended December 31, 2018 and 2017.Assuming no changes in the gross carrying amount of these intangible assets, the future amortization expense on these intangible assets will be $7.9 millionannually through 2032 and $2.2 million in 2033.NOTE 10—ACCRUED EXPENSESAccrued expenses consist of the following (in thousands): December 31, 2019 2018Accrued selling, general and administrative expenses$21,695 $14,419Accrued research and development expenses6,562 2,432Other accrued operating expenses12,955 4,281Compensation and benefits22,258 18,861Accrued royalties2,883 2,286Accrued interest2,048 2,053Product returns, wholesaler service fees and other2,026 1,533Total$70,427 $45,865NOTE 11—DEBTConvertible Senior Notes Due 2022On March 13, 2017, the Company completed a private placement of $345.0 million in aggregate principal amount of 2.375% convertible senior notes due2022, 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% peryear, payable semiannually in arrears on April 1st and October 1st of each year. The 2022 Notes mature on April 1, 2022.The total debt composition of the 2022 Notes is as follows (in thousands): December 31, 2019 20182.375% convertible senior notes due 2022$345,000 $345,000Deferred financing costs(4,143) (5,850)Discount on debt(34,812) (48,558)Total debt, net of debt discount and deferred financing costs$306,045 $290,592Holders may convert the 2022 Notes at any time prior to the close of business on the business day immediately preceding October 1, 2021, only under thefollowing circumstances:(i) during any calendar quarter commencing after June 30, 2017 (and only during such calendar quarter), if the last reported sale price of the Company’scommon 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 theimmediately preceding calendar quarter is greater than 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 (asdefined in the 2022 Indenture) per $1,000 principal amount of the 2022 Notes for each trading day of the measurement period was less than 98% of the product ofthe 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; orF-24Table of ContentsPACIRA BIOSCIENCES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)(iv) if the Company calls the 2022 Notes for redemption, until the close of business on the business day immediately preceding the redemption date.On or after October 1, 2021, until the close of business on the second scheduled trading day immediately preceding April 1, 2022, holders may convert their2022 Notes at any time.Upon conversion, holders will receive the principal amount of their 2022 Notes and any excess conversion value, calculated based on the per share volume-weighted average price for each of the 40 consecutive trading days during the observation period (as more fully described in the 2022 Indenture). For both theprincipal 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’scommon 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 isequivalent 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 butwill 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 theclosing 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 pricedthe private offering of the 2022 Notes.As of December 31, 2019, the 2022 Notes had a market price of $1,044 per $1,000 principal amount. In the event of conversion, holders would forgo allfuture interest payments, any unpaid accrued interest and the possibility of stock price appreciation. Upon the receipt of conversion requests, the settlement of the2022 Notes will be paid pursuant to the terms of the 2022 Indenture. In the event that all of the 2022 Notes are converted, the Company would be required to repaythe $345.0 million in principal value and any conversion premium in any combination of cash and shares of its common stock (at the Company’s option).Prior to April 1, 2020, the Company may not redeem the 2022 Notes. On or after April 1, 2020, the Company may redeem for cash, shares of the Company’scommon 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 saleprice (as defined in the 2022 Indenture) of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days(whether or not consecutive) during any 30 consecutive trading-day period ending within five trading days prior to the date on which the Company provides noticeof redemption. The redemption price will equal the sum of (i) 100% of the principal amount of the 2022 Notes being redeemed, plus (ii) accrued and unpaidinterest, including additional interest, if any, to, but excluding, the redemption date. In addition, calling the 2022 Notes for redemption will constitute a “makewhole fundamental change” (as defined in the 2022 Indenture) and will, in certain circumstances, increase the conversion rate applicable to the conversion of suchnotes 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 theCompany to repurchase for cash all or part of their 2022 Notes at a repurchase price equal to 100% of the principal amount of the 2022 Notes to be repurchased,plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date. In addition, if a ‘‘make-whole fundamental change’’ (as defined in the2022 Indenture) occurs prior to April 1, 2022, the Company will, in certain circumstances, increase the conversion rate for a holder who elects to convert its notesin 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 subordinatedin 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 rightof 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 toany debt or other liabilities (including trade payables) of the Company’s subsidiaries.While the 2022 Notes are currently classified on the Company’s consolidated balance sheet at December 31, 2019 as long-term debt, the future convertibilityand resulting balance sheet classification of this liability will be monitored at each quarterly reporting date and will be analyzed dependent upon market prices ofthe Company’s common stock during the prescribed measurement periods. In the event that the holders of the 2022 Notes have the right to convert the 2022 Notesat any time during the prescribed measurement period, the 2022 Notes would then be considered a current obligation and classified as such.F-25Table of ContentsPACIRA BIOSCIENCES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Under ASC 470-20, Debt with Conversion and Other Options, an entity must separately account for the liability and equity components of convertible debtinstruments (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 $70.9million, representing the conversion option, was determined by deducting the fair value of the liability component from the par value of the 2022 Notes and wasrecorded in additional paid-in capital on the consolidated balance sheet at the issuance date. That equity component is treated as a discount on the liabilitycomponent 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 notre-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 the2022 Notes based on their relative values. Transaction costs attributable to the liability component are amortized to interest expense over the five-year term of the2022 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 theissuance or repurchase of securities by the Company. The 2022 Indenture contains customary events of default with respect to the 2022 Notes, including that uponcertain events of default, 100% of the principal and accrued and unpaid interest on the 2022 Notes will automatically become due and payable.Convertible Senior Notes Due 2019On February 1, 2019, the Company’s 3.25% convertible senior notes due 2019, or 2019 Notes, matured, and the Company paid the remaining $0.3 million ofprincipal in full, plus a $0.2 million conversion premium in cash. The 2019 Notes accrued interest at a fixed rate of 3.25% per year and were payable semiannuallyin arrears on February 1st and August 1st of each year.Interest ExpenseThe following table sets forth the total interest expense recognized in the periods presented (dollar amounts in thousands): Year Ended December 31, 2019 2018 2017Contractual interest expense$8,195 $8,205 $7,344Amortization of debt issuance costs1,707 1,634 1,381Amortization of debt discount13,746 12,799 10,423Capitalized interest and other (Note 7)(20) (689) (1,101) Total$23,628 $21,949 $18,047 Effective interest rate on convertible senior notes7.81% 7.81% 7.77%NOTE 12—FINANCIAL INSTRUMENTSFair Value MeasurementsFair 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 anorderly transaction. To increase consistency and comparability in fair value measurements, the FASB established a three-level hierarchy which requires an entityto 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 hierarchygives the highest priority to Level 1 inputs.•Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by marketdata.F-26Table of ContentsPACIRA BIOSCIENCES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)•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 3inputs.The carrying value of financial instruments including cash and cash equivalents, accounts receivable and accounts payable approximate their respective fairvalues due to the short-term nature of these items. The fair value of the Company’s equity investment is calculated utilizing market quotations from a majorAmerican stock exchange (Level 1). The fair value of the Company’s convertible senior notes are calculated utilizing market quotations from an over-the-countertrading 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 values and fair values of the Company’s financial assets and liabilities at December 31, 2019 are as follows (in thousands): CarryingValue Fair Value Measurements Using Level 1 Level 2 Level 3Financial Assets: Equity investment $10,024 $10,024 $— $—Financial Liabilities: 2.375% convertible senior notes due 2022 (1) (2) $306,045 $— $360,094 $— Acquisition-related contingent consideration (3) $38,142 $— $— $38,142(1) The closing price of the Company’s common stock was $45.30 per share at December 31, 2019 compared to a conversion price of $66.89 per share. Therefore, at December 31, 2019, theconversion price was above the stock price. The maximum conversion premium that can be due on the 2022 Notes is approximately 5.2 million shares of the Company’s common stock, whichassumes no increases in the conversion rate for certain corporate events.(2) Reported at historical cost.(3) Reported at fair value on a recurring basis.Financial Liabilities Measured at Fair Value on a Recurring Basis The Company has recognized contingent consideration related to the MyoScience Acquisition in the amount of $38.1 million as of December 31, 2019. Referto Note 5, MyoScience Acquisition, 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 relatedcontingencies are resolved. For the year ended December 31, 2019, the Company recognized $16.7 million of fair value adjustments related to contingentconsideration, which have been included in acquisition-related charges in the consolidated statements of operations. The Company has measured the fair value ofits contingent consideration using a probability-weighted discounted cash flow approach that is based on unobservable inputs and a Monte Carlo simulation. Theseinputs include, as applicable, estimated probabilities and the timing of achieving specified commercial and regulatory milestones, estimated forecasts of revenueand costs and the discount rate used to calculate the present value of estimated future payments. Significant changes may increase or decrease the probabilities ofachieving the related commercial and regulatory events, shorten or lengthen the time required to achieve such events, or increase or decrease estimated forecasts.The following table includes the key assumptions used in the valuation of the Company’s contingent consideration:Assumption Ranges Utilized as ofDecember 31, 2019Discount rates 7.57% to 7.75%Probabilities of payment for regulatory milestones 3% to 100%Projected years of payment for regulatory and commercial milestones 2020 to 2023The maximum remaining potential payments related to the contingent consideration from the MyoScience Acquisition are $73.0 million, including a $5.0million and a $10.0 million payment to be made in the first and second quarter of 2020, respectively. F-27Table of ContentsPACIRA BIOSCIENCES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)The change in the Company’s contingent consideration recorded at fair value using Level 3 measurements is as follows (in thousands): ContingentConsiderationFair ValueBalance at December 31, 2018 $— New financial liabilities entered into on date of MyoScience Acquisition (April 9, 2019) 28,470 Fair value adjustments and accretion 16,672 Payments made (7,000)Balance at December 31, 2019 $38,142InvestmentsShort-term investments consist of asset-backed securities collateralized by credit card receivables, investment grade commercial paper and corporate bondswith maturities greater than three months, but less than one year. Long-term investments consist of asset-backed securities collateralized by credit card receivablesand corporate bonds with maturities greater than one year. Net unrealized gains and losses from the Company’s short-term and long-term investments are reportedin other comprehensive income (loss). At December 31, 2019, all of the Company’s short-term and long-term investments are classified as available for saleinvestments and are determined to be Level 2 instruments, which are measured at fair value using standard industry models with observable inputs. The fair valueof 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 ofthe asset-backed securities and corporate bonds is principally measured or corroborated by trade data for identical issues in which related trading activity is notsufficiently frequent to be considered a Level 1 input or that of comparable securities. At December 31, 2019, 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, 2019 and 2018 (in thousands):December 31, 2019 Investments: Cost GrossUnrealizedGains GrossUnrealizedLosses Fair Value(Level 2) Short-term: Asset-backed securities $43,166 $54 $— $43,220 Commercial paper 32,250 20 — 32,270 Corporate bonds 138,012 225 (5) 138,232 Subtotal 213,428 299 (5) 213,722 Long-term: Asset-backed securities 28,064 10 (15) 28,059 Corporate bonds 36,706 37 (4) 36,739 Subtotal 64,770 47 (19) 64,798 Total $278,198 $346 $(24) $278,520F-28Table of ContentsPACIRA BIOSCIENCES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)December 31, 2018 Investments: Cost GrossUnrealizedGains GrossUnrealizedLosses Fair Value(Level 2) Short-term: Asset-backed securities $34,873 $— $(33) $34,840 Commercial paper 45,035 — (30) 45,005 Corporate bonds 171,289 — (206) 171,083 Subtotal 251,197 — (269) 250,928 Long-term: Asset-backed securities 9,383 5 — 9,388 Corporate bonds 16,499 — (16) 16,483 Subtotal 25,882 5 (16) 25,871 Total $277,079 $5 $(285) $276,799Certain assets and liabilities are measured at fair value on a nonrecurring basis, including assets and liabilities acquired in a business combination, and long-lived assets, which would be recognized at fair value if deemed to be impaired or if reclassified as assets held for sale. The fair value in these instances would bedetermined using Level 3 inputs.Equity InvestmentAt December 31, 2019 and 2018, the Company held an equity investment in TELA Bio, Inc., or TELA Bio, in its consolidated balance sheets in the amountof $10.0 million and $14.1 million, respectively. During the year ended December 31, 2019, the Company made an additional cash investment of $1.6 million inTELA Bio and received a non-cash stock dividend from TELA Bio in the amount of $2.5 million. During the years ended December 31, 2019 and 2018, theCompany recorded impairment losses in the amount of $5.7 million and $0.9 million, respectively, in other, net in its consolidated statements of operations. Thefair value at December 31, 2019 was based on a Level 1 input and the fair value at December 31, 2018 was based on a Level 3 input.Credit RiskFinancial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, short-terminvestments, 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, 2019, three wholesalers accounted for over 10% of the Company’s accounts receivable: 37%, 29% and 26%, respectively. AtDecember 31, 2018, three wholesalers accounted for over 10% of the Company’s accounts receivable: 32%, 32% and 29%, respectively. For additional informationregarding the Company’s wholesalers, see Note 2, Summary of Significant Accounting Policies. EXPAREL revenues are primarily derived from major wholesalersand pharmaceutical companies which generally have significant cash resources. The Company performs ongoing credit evaluations of its customers as warrantedand generally does not require collateral. Allowances for doubtful accounts receivable are maintained based on historical payment patterns, aging of accountsreceivable and actual write-off history. As of December 31, 2019 and 2018, no allowances for doubtful accounts were deemed necessary by the Company on itsaccounts receivable.NOTE 13—STOCKHOLDERS’ EQUITYCommon StockThe Company is authorized to issue up to 250,000,000 shares of common stock, of which 41,908,148 and 41,222,799 were issued and outstanding atDecember 31, 2019 and 2018, respectively.Preferred StockThe 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, 2019 or2018.F-29Table of ContentsPACIRA BIOSCIENCES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Accumulated Other Comprehensive Income (Loss)The following table illustrates the changes in the balances of the Company’s accumulated other comprehensive income (loss) for the periods presented (inthousands): Net UnrealizedGains (Losses)From AvailableFor Sale InvestmentsBalance at December 31, 2017$(454) Other comprehensive income before reclassifications174 Amounts reclassified from accumulated other comprehensive income (loss)—Balance at December 31, 2018(280) Other comprehensive income before reclassifications602 Amounts reclassified from accumulated other comprehensive income (loss)—Balance at December 31, 2019$322NOTE 14—STOCK PLANSStock Incentive PlansThe Company’s amended and restated 2011 stock incentive plan, or 2011 Plan, was originally adopted by its board of directors and approved by itsstockholders in June 2014 and amended in both June 2016 and June 2019. The June 2019 amendment and approval by the Company’s stockholders increased thenumber of shares of common stock authorized for issuance as equity awards under the plan by 3,000,000 shares.The 2011 Plan allows the granting of incentive stock options, non-statutory stock options, restricted stock awards and other stock-based awards. Since theadoption of the 2011 Plan, any remaining shares available for issuance under a 2007 stock incentive plan, or 2007 Plan, are automatically reallocated to the 2011Plan. In April 2014, the Company’s board of directors also adopted the 2014 Inducement Plan.All of the Company’s stock option grants have an exercise price equal to the closing price of the Company’s common stock on the date of grant, generallyhave a 10-year contractual term and vest in increments (generally over four years from the date of grant although the Company may occasionally grant optionswith different vesting terms). The Company also grants RSUs to employees and non-employee directors. The Company uses authorized and unissued shares tosatisfy its obligations under these plans.2014 Employee Stock Purchase PlanThe Company’s 2014 Employee Stock Purchase Plan, or ESPP, was adopted by its board of directors in April 2014 and approved by the Company’sstockholders 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 adiscounted 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 besold. 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 InternalRevenue 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 periodsbegin 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’scommon 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 thelesser 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, 2019,67,094 shares were purchased and issued through the ESPP.F-30Table of ContentsPACIRA BIOSCIENCES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)The following tables contain information about the Company’s stock incentive plans at December 31, 2019:Stock Incentive Plan Awards Reserved ForIssuance AwardsIssued Awards Available ForGrant2007 Plan 2,022,837 2,022,837 —2011 Plan 12,931,700 10,047,564 2,884,1362014 Inducement Plan 175,000 36,576 138,424 15,129,537 12,106,977 3,022,560 Employee Stock Purchase Plan Shares ReservedFor Purchase SharesPurchased Shares AvailableFor Purchase2014 ESPP 500,000 291,981 208,019Stock-Based CompensationCompensation expense for stock options and RSUs is based on the estimated grant date fair value of options recognized over the requisite service period on astraight-line expense attribution method. Compensation expense for ESPP share options is based on the estimated grant date fair value of the ESPP shares and thegrant date number of shares that can be purchased, which is recognized as expense over the length of an offering period.The Company recognized stock-based compensation expense in its consolidated statements of operations for the years ended December 31, 2019, 2018 and2017 as follows (in thousands): Year Ended December 31, 2019 2018 2017Cost of goods sold $4,665 $4,478 $5,467Research and development 5,114 3,934 3,341Selling, general and administrative 23,871 23,313 22,793Total $33,650 $31,725 $31,601 Stock-based compensation from: Stock options $23,360 $22,643 $24,223 RSUs 9,511 8,371 6,698 ESPP 779 711 680 Total $33,650 $31,725 $31,601The following table summarizes the Company’s stock option activity and related information for the period from December 31, 2016 to December 31,2019:F-31Table of ContentsPACIRA BIOSCIENCES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Number ofOptions WeightedAverageExercise Price (PerShare) Weighted AverageRemainingContractualTerm (Years) AggregateIntrinsic Value(in Thousands)Outstanding at December 31, 20165,207,743 $42.16 7.39 $37,581Granted1,072,625 43.93 Exercised(539,989) 12.55 $15,865Forfeited(555,897) 48.66 Expired(232,989) 74.65 Outstanding at December 31, 20174,951,493 43.51 6.91 $57,021Granted1,994,332 39.35 Exercised(332,732) 21.55 $7,418Forfeited(481,126) 42.30 Expired(409,149) 68.01 Outstanding at December 31, 20185,722,818 41.69 7.07 $49,166Granted1,872,758 42.75 Exercised(425,495) 19.90 $9,441Forfeited(286,779) 39.22 Expired(176,924) 63.33 Outstanding at December 31, 20196,706,378 $42.80 7.05 $50,652Exercisable at December 31, 20193,536,615 $44.02 5.45 $37,569Vested and expected to vest at December 31, 20196,706,378 $42.80 7.05 $50,652As of December 31, 2019, $57.5 million of total unrecognized compensation cost related to non-vested stock options is expected to be recognized over aweighted average period of 2.8 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, 2019, 2018 and 2017 was $20.92, $19.34 and $20.78 per share,respectively. The fair values of stock options granted were estimated using the Black-Scholes model with the following weighted average assumptions: Year Ended December 31,Black-Scholes Weighted Average Assumption 2019 2018 2017Expected dividend yield None None NoneRisk-free interest rate 1.33% - 2.54% 2.26% - 3.05% 1.68% - 2.42%Expected volatility 53.9% 53.3% 51.4%Expected term of options 5.22 years 5.14 years 5.31 yearsF-32Table of ContentsPACIRA BIOSCIENCES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)The following table summarizes the Company’s RSU activity and related information for the period from December 31, 2016 to December 31, 2019: Numberof Units WeightedAverage GrantDate Fair Value (PerShare) AggregateIntrinsic Value(in Thousands)Unvested at December 31, 2016364,403 $52.85 $11,824Granted343,583 44.23 Vested(101,379) 53.76 Forfeited(107,061) 49.98 Unvested at December 31, 2017499,546 47.32 $22,804Granted331,129 38.36 Vested(156,450) 49.59 Forfeited(96,261) 43.92 Unvested at December 31, 2018577,964 42.14 $24,864Granted305,418 43.56 Vested(192,760) 45.55 Forfeited(59,481) 41.22 Unvested and expected to vest at December 31, 2019631,141 $41.87 $28,591As of December 31, 2019, $20.5 million of total unrecognized compensation cost related to non-vested RSUs is expected to be recognized over a weightedaverage period of 2.7 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 tothe 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 2019 2018 2017ESPP share option fair value $11.13 - $11.36 $10.40 - $13.15 $10.80 - $13.85Expected dividend yield None None NoneRisk-free interest rate 2.10% - 2.56% 1.53% - 2.14% 0.62% - 1.14%Expected volatility 40.2% 52.2% 53.8%Expected term of ESPP share options 6 months 6 months 6 monthsNOTE 15—NET INCOME (LOSS) PER SHAREPotential common shares are excluded from the diluted net income (loss) per share computation to the extent that they would be antidilutive. Because theCompany reported a net loss for the years ended December 31, 2019, 2018 and 2017, no potentially dilutive securities have been included in the computation ofdiluted net loss per share for those periods. As discussed in Note 11, Debt, the Company has the option to pay cash for the aggregate principal amount due upon theconversion of its 2022 Notes. Since it is the Company’s intent to settle the principal amount of its 2022 Notes in cash, the potentially dilutive effect of such noteson net income (loss) per share is computed under the treasury stock method. In 2018 and 2019, because it was the Company’s intent to settle the conversionpremium of its 2019 Notes in cash (as it did upon maturity on February 1, 2019), there was no potentially dilutive effect on the computation of diluted securities.The following table sets forth the computation of basic and diluted net income (loss) per share for the years ended December 31, 2019, 2018 and 2017 (inthousands, except per share amounts):F-33Table of ContentsPACIRA BIOSCIENCES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Year Ended December 31, 2019 2018 2017Numerator: Net loss$(11,016) $(471) $(42,611)Denominator: Weighted average shares of common stock outstanding—basic and diluted41,513 40,911 39,806Net loss per share: Basic and diluted net loss per common share$(0.27) $(0.01) $(1.07)The following outstanding stock options, RSUs, conversion premiums on the Company’s convertible senior notes and ESPP purchase options areantidilutive in the periods presented (in thousands): Year Ended December 31, 2019 2018 2017Weighted average number of stock options6,404 5,492 5,171Weighted average number of RSUs606 542 449Conversion premium on the 2019 Notes— — 411Weighted average ESPP purchase options34 31 29 Total7,044 6,065 6,060NOTE 16—INCOME TAXESIncome (loss) before income taxes and the related tax expense (benefit) is as follows (in thousands): Year Ended December 31, 2019 2018 2017Income (loss) before income taxes: Domestic$(71) $5,169 $(39,898) Foreign(10,677) (5,594) (2,573) Total loss before income taxes$(10,748) $(425) $(42,471) Current taxes: Federal$— $(96) $— State2,096 142 140 Total current taxes$2,096 $46 $140Deferred taxes: Federal$(1,828) $— $— Total deferred taxes$(1,828) $— $— Total income tax expense$268 $46 $140Tax expense for the year ended December 31, 2019 consists primarily of state income taxes in jurisdictions where the availability of carryforward losses areeither 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 bythe Company related to the MyoScience Acquisition. This was partially offset by a reduction in the Company’s valuation allowance on its deferred tax assets dueto the MyoScience Acquisition. The tax expense for each of the years ended December 31, 2018 and 2017 are principally the result of minimum state taxes.F-34Table of ContentsPACIRA 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, 2019 2018 2017U.S. federal statutory rate21.00 % 21.00 % 35.00 %State taxes(7.33)% (24.84)% 2.26 %Foreign taxes(3.95)% (92.04)% (1.28)%Change in valuation allowance19.76 % 369.27 % 4.58 %Stock-based compensation(10.53)% (874.29)% (1.21)%Tax credits19.93 % 700.35 % 4.96 %Interest expense— % 218.47 % 2.90 %Effect of rate changes(0.42)% 13.44 % (130.88)%Convertible senior notes refinancing— % — % 6.55 %Effect of the adoption of ASU 2016-09— % — % 68.89 %Nondeductible expenses(13.58)% (132.96)% — %Reserves(15.41)% (202.98)% (2.47)%338(g) tax election(9.61)% — % — %Other(2.35)% (6.15)% 10.37 % Effective tax rate(2.49)% (10.73)% (0.33)%The Company’s effective tax rates of (2.49)%, (10.73)% and (0.33)% for the years ended December 31, 2019, 2018 and 2017, respectively, differed from theexpected U.S. statutory tax rate of 21.0% for 2019 and 2018 and from 35.0% for 2017. This difference was primarily driven by pretax losses for which theCompany 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 thecomparable amounts recorded for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities at December 31, 2019 and2018 are as follows (in thousands): December 31, 2019 2018Deferred tax assets: Net operating loss carryforwards$66,638 $79,446Federal and state credits16,895 17,730Depreciation and amortization16,541 2,851Accruals and reserves8,756 11,009Stock based compensation21,663 18,302Inventory1,542 848Other2,022 127Total deferred tax assets134,057 130,313Deferred tax liabilities: Discount on convertible senior notes(8,383) (11,655)Deferred tax assets, net of deferred tax liabilities125,674 118,658Less: valuation allowance(125,674) (118,658)Net deferred tax assets$— $—As of December 31, 2019, the Company’s federal net operating losses, or NOLs, and federal tax credit carryforwards totaled $288.6 million and $11.8million, respectively. The Company also had state NOLs and state tax credit carryforwards of $161.9 million and $6.4 million, respectively, which are subject tochange on an annual basis due to variations in the Company’s annual state apportionment factors. The Company had non-U.S. tax NOLs of $13.6 million atDecember 31, 2019.F-35Table of ContentsPACIRA BIOSCIENCES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)The existing federal NOLs will begin expiring in 2026 while the existing state NOLs begin expiring in 2024, if the Company has not used them prior to that time.The non-U.S. NOLs do not expire.Since the Company had cumulative changes in ownership of more than 50% within a three-year period, under IRC sections 382 and 383, the Company’sability to use certain net operating loss and credit carryforwards to offset taxable income or tax will be limited. Such ownership changes were triggered by theinitial 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 publicoffering and other financing transactions. As a result of these ownership changes, the Company estimates that approximately $181.0 million of federal netoperating losses are subject to annual limitations. At December 31, 2019, $108.0 million of these federal net operating losses were available. The Companyestimates that an additional $10.3 million will come available each year from 2020 through 2022, $3.5 million in 2023, $1.4 million in each of 2024 and 2025 andthat the remaining $35.8 million will expire unused. In addition, California and certain states have previously suspended or limited the use of NOL carryforwardsfor certain taxable years, and certain states are considering similar future measures. As a result, the Company may incur higher state income tax expense in thefuture.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-notrealizable. 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 is appropriate. TheCompany had a net increase in its valuation allowance of $7.0 million for the year ended December 31, 2019 and a net reduction of $1.6 million for the year endedDecember 31, 2018. The current year net increase in the Company’s valuation allowance includes a reduction of $1.8 million as a result of the MyoScienceAcquisition. There is significant doubt regarding the Company’s ability to utilize its net deferred tax assets and, therefore, the Company has recorded a fullvaluation allowance reducing its net deferred tax assets to zero at both December 31, 2019 and 2018.In December 2017, new legislation was signed into law reducing the corporate U.S. tax rate from 35% to 21% for tax years beginning after December 31,2017, fully repealing the corporate alternative minimum tax and making the NOL carryforward period indefinite for NOLs generated after 2017. In accordancewith ASC Topic 740, deferred tax assets and liabilities are required to be measured at the enacted tax rate expected to apply when temporary differences are to berealized or settled. As of December 31, 2017, the Company re-measured its deferred tax balances based upon the new 21% tax rate. This resulted in a reduction of$55.7 million in the Company’s deferred tax assets, which was offset by a change in its year-end valuation allowance.In March 2017, the Company established a deferred tax liability with an offset to additional paid-in capital resulting from the conversion feature of the 2022Notes. The initial difference between the book value of the convertible debt, issued with a beneficial conversion feature, and its tax basis was $70.9 million, atemporary difference. The net effect of the deferred tax liability recorded to additional paid-in capital was zero because the Company has a full valuation allowanceagainst its net deferred tax assets.In 2019, the Company recorded a reserve of $1.7 million related to unrecognized tax benefits, or UTBs, which relates to tax positions taken during the year.The Company’s UTB liability at December 31, 2019 was $4.5 million. The change in the Company’s UTBs in 2019 is summarized as follows (in thousands): Unrecognized Tax BenefitBalance at December 31, 2018 $2,881 Additions for current year positions 1,656Balance at December 31, 2019 $4,537The Company regularly assesses the likelihood of additional tax assessments by jurisdiction and, if necessary, adjusts its reserve for UTBs based on newinformation or developments. Due to the Company’s tax credit carryforwards, the reserve was recorded as a reduction of the Company’s deferred tax assets, andany potential deficiency would not result in a tax liability. Therefore, no interest or penalties were recognized in income tax expense for the years endedDecember 31, 2019, 2018 and 2017. Due to the Company’s full valuation allowance against deferred tax assets, none of the UTBs, if recognized, would affect theeffective income tax rate.The Company estimates that it is not reasonably possible that within the next twelve months, any of the unrecognized tax benefits will significantly increaseor decrease. The Company is currently subject to audit by the U.S. Internal Revenue Service, or IRS, for the years 2016 through 2019, and state tax jurisdictions forthe years 2015 through 2019. However, the IRS or statesF-36Table of ContentsPACIRA BIOSCIENCES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)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 filedincome tax returns are not presently under audit by the IRS or state tax authorities.NOTE 17—OTHER EMPLOYEE BENEFITSThe 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 maydefer 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’sboard of directors. The Company recognized $2.6 million, $1.6 million and $1.3 million of related compensation expense for the years ended December 31, 2019,2018 and 2017, respectively.NOTE 18—ACQUISITION–RELATED CHARGES AND PRODUCT DISCONTINUATION, NETMyoScience AcquisitionThe Company recognized acquisition-related charges of $21.6 million during the year ended December 31, 2019 related to the MyoScience Acquisition. Theacquisition-related charges reflect increases in the fair value of contingent consideration in the amount of $16.7 million during the year ended December 31, 2019.See Note 12, Financial Instruments, for information regarding the method and key assumptions used in the fair value measurements of contingent consideration. Inaddition, $4.2 million of acquisition-related charges, representing advisory costs, including legal, financial, accounting and tax services, were incurred during theyear ended December 31, 2019. The remaining $0.7 million incurred during year ended December 31, 2019 represented separation costs, asset write-downs andother restructuring charges. The Company did not incur any acquisition-related charges in 2018 or 2017. See Note 5, MyoScience Acquisition, for moreinformation.In conjunction with the MyoScience Acquisition, the Company initiated a restructuring through a headcount reduction in the sales and administrativefunctions. In addition, the Company terminated a number of existing distributor agreements that were maintained by MyoScience. These eliminations resulted inthe write-off of demonstration equipment held by former employees and distributors.DepoCyt(e) DiscontinuationThe Company recorded charges of $0.2 million, $1.6 million and $5.4 million, in the years ended December 31, 2019, 2018 and 2017, respectively, relatedto the discontinuation of its DepoCyt(e) manufacturing activities. Production at the Company’s DepoCyt(e) manufacturing facility ceased in June 2017. Cashpayments related to the lease of the idle DepoCyt(e) manufacturing facility are expected to cease once the lease term expires in August 2020.In April 2018, the Company received formal notice of the termination of a Supply Agreement and a Distribution Agreement (and all related agreements assubsequently 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 hadpreviously been accrued.Summary of Acquisition-Related Restructuring Activities and DepoCyt(e) Discontinuation CostsAt January 1, 2019, there was a balance sheet reclassification from the lease cost reserves related to the DepoCyt(e) discontinuation to lease liabilities in theamount of $1.5 million, recognized as part of the transition to the ASU 2016-02. See Note 2, Summary of Significant Accounting Policies, for more information.The Company’s acquisition-related restructuring and DepoCyt(e) discontinuation costs as of December 31, 2019 are summarized below (in thousands):F-37Table of ContentsPACIRA BIOSCIENCES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Severance andRelated Costs Lease Costs Write-off ofProperty, Plant &Equipment andInventory AROs, OtherRestructuring andDiscontinuation Costs TotalBalance at December 31, 2016 $— $— $— $— $— Charges incurred 303 2,018 2,470 656 5,447 Cash payments made (303) (744) — (420) (1,467) Disposal of property, plant &equipment and inventory — — (2,470) — (2,470) Balance sheet reclassifications — 494 — 73 567Balance at December 31, 2017 — 1,768 — 309 2,077 Charges incurred — 1,513 — 51 1,564 Cash payments made — (1,311) — (91) (1,402) Balance sheet reclassifications — — — 13 13Balance at December 31, 2018 — 1,970 — 282 2,252 Charges incurred 429 — 193 225 847 Cash payments made (348) — — (404) (752) Other, including non-cash activity — — (193) — (193) Balance sheet reclassifications — (1,970) — 455 (1,515)Balance at December 31, 2019 $81 $— $— $558 $639NOTE 19—COMMERCIAL PARTNERS AND OTHER AGREEMENTSThermo Fisher Scientific Pharma Services (Formerly Patheon UK Limited)In April 2014, the Company and Thermo Fisher entered into a Strategic Co-Production Agreement, a Technical Transfer and Service Agreement and aManufacturing and Supply Agreement to collaborate in the manufacture of EXPAREL. Under the terms of the Technical Transfer and Service Agreement, ThermoFisher agreed to undertake certain technical transfer activities and construction services needed to prepare its Swindon, England facility for the manufacture ofEXPAREL in two dedicated manufacturing suites. The Company contracted to purchase EXPAREL from Thermo Fisher, beginning with FDA approval of thesuites, which occurred in May 2018. Commercial production began in February 2019. Under these agreements, the Company makes monthly base fee payments toThermo 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 ThermoFisher), this agreement will expire in May 2028.DePuy Synthes Sales, Inc.In January 2017, the Company announced the initiation of a Co-Promotion Agreement, or the Agreement, with DePuySynthes Sales, Inc., or DePuy Synthes, part of the Johnson & Johnson family of companies, to market and promote the use ofEXPAREL for orthopedic procedures in the U.S. DePuy Synthes field representatives, specializing in joint reconstruction, spine, sports medicine, trauma andcranio-maxillofacial (CMF) procedures, collaborate with and supplement the Company’s field teams by expanding the reach and frequency of EXPARELeducation in the hospital surgical suite and ambulatory surgery center settings.Under the five-year arrangement, DePuy Synthes is the exclusive third-party distributor during the term of the Agreement to promote and sell EXPAREL foroperating room use for orthopedic and spine surgeries (including knee, hip, shoulder, sports and trauma surgeries) in the U.S. DePuy Synthes receives a tieredcommission ranging from low single-digits to double-digits on sales of EXPAREL under the Agreement, subject to conditions, limitations and adjustments. Theinitial term of the Agreement commenced on January 24, 2017 and ends on December 31, 2021, with the option to extend the Agreement in additional 12-monthincrements upon mutual agreement of the parties, subject to certain conditions.The Company and DePuy Synthes have mutual termination rights under the Agreement, subject to certain terms, conditions and advance notice requirements,provided that the Company or DePuy Synthes generally may not terminate theF-38Table of ContentsPACIRA BIOSCIENCES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)Agreement, without cause, within three years of the effective date of the Agreement. The Company also has additional unilateral termination rights under certaincircumstances. The Agreement contains customary representations, warranties, covenants and confidentiality provisions, as well as mutual indemnificationobligations. DePuy Synthes is also subject to certain obligations and restrictions, including required compliance with certain laws and regulations and theCompany’s policies, in connection with fulfilling their obligations under the Agreement.Aratana Therapeutics, Inc.On December 5, 2012, the Company entered into a worldwide license, development and commercialization agreement with Aratana Therapeutics, Inc., awholly 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 productfor veterinary use. Under the agreement, Aratana developed and obtained FDA approval for the use of the product in veterinary surgery to manage postsurgicalpain. In connection with its entry into the license agreement, the Company received a one-time payment of $1.0 million. In December 2013, the Company receiveda $0.5 million milestone payment under the agreement. In June 2016, the Company recorded $1.0 million in milestone revenue for Aratana’s filing of an FDAAdministrative New Animal Drug Application, or ANADA, and in August 2016 recorded $1.0 million related to the FDA’s approval of the ANADA. TheCompany is eligible to receive up to an additional aggregate $40.0 million upon the achievement of commercial milestones. Aratana is required to pay theCompany 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 ofa generic competitor for animal health indications into a jurisdiction or if Aratana must pay royalties to third parties under certain circumstances. Unless terminatedearlier 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 registeredtrademark of Aratana) for veterinary use.Nuance Biotech Co. Ltd.In June 2018, the Company entered into an agreement with Nuance Biotech Co. Ltd., or Nuance, a China-based specialty pharmaceutical company, toadvance the development and commercialization of EXPAREL in China. Under the terms of the agreement, the Company agreed to be the sole supplier ofEXPAREL to Nuance and has granted Nuance the exclusive rights to develop and commercialize EXPAREL in China. In June 2018, the Company recognized anupfront payment of $3.0 million since collaborative licensing revenue is recognized at the point in time when the license is provided and is not expected tosubstantively change. This payment was received in July 2018 and the Company is eligible to receive future milestone payments of up to $60.0 million that aretriggered by filing for and securing regulatory approval(s) and annual sales in China exceeding certain levels. The Company is also entitled to tiered royalties as apercentage of net sales.NOTE 20—RELATED PARTY TRANSACTIONSIn April 2012, the Company entered into a consulting agreement with Dr. Gary Pace, a director of the Company. The Company recorded no expense underthe consulting agreement in the years ended December 31, 2019, 2018, or 2017. In connection with the consulting agreement, Dr. Pace received an option topurchase 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. At December 31, 2019 and 2018, there was nothing payable to Dr. Pace for consulting services.NOTE 21—COMMITMENTS AND CONTINGENCIESLitigationFrom time to time, the Company has been and may again become involved in legal proceedings arising in the ordinary course of its business, including thoserelated to patents, product liability and government investigations. Except as described below, the Company is not presently a party to any legal proceedings whichit 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 itsbusiness, operating results, financial condition or cash flows.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, requiring theproduction of a broad range of documents pertaining to marketing and promotionalF-39Table of ContentsPACIRA BIOSCIENCES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)practices related to EXPAREL. The Company is cooperating with the government’s inquiry. The Company can make no assurances as to the time or resources thatwill need to be devoted to this inquiry or the impact, if any, of this inquiry or any proceedings on its business, financial condition, results of operations and cashflows.In December 2019, the Company reached an agreement in principle with the Department of Justice and more than one state Attorney General’s office (the“Plaintiffs”) on a proposal for a global civil settlement in the amount of $3.5 million, subject to accrual of interest on the settlement amount from the date of theagreement in principle, negotiation of a definitive settlement agreement and other contingencies. As part of the settlement, the Company will admit no wrongdoingand will explicitly deny the Plaintiffs’ allegations. The Company has been given assurances that, if the parties can agree to negotiation of the settlement, this willconclude the investigation that originated from the U.S. Department of Justice subpoena in April 2015. This settlement was recorded in acquisition-related charges,product discontinuation and other in the consolidated financial statements for the year ended December 31, 2019.Purchase ObligationsThe Company has approximately $25.5 million of minimum, non-cancelable contractual commitments for contract manufacturing services and $0.3 millionof minimum, non-cancelable contractual commitments for the purchase of certain raw materials as of December 31, 2019.Other Commitments and ContingenciesThe FDA, as a condition of EXPAREL approval, has required the Company to study EXPAREL in pediatric patients. The Company was granted a deferralfor the required pediatric trials in all age groups for EXPAREL in the setting of wound infiltration and is conducting these pediatric trials as post-marketingrequirements, as stated in the New Drug Application (NDA) approval letter for EXPAREL. In December 2019, the Company announced positive results for itsextended pharmacokinetic and safety study for local analgesia in children aged 6 to 17 undergoing cardiovascular or spine surgeries. Those positive results willprovide the foundation for a supplemental New Drug Application (sNDA).In addition to the initial $19.6 million purchase price for the Skyepharma Acquisition, the Company entered into an earn-out agreement with Skyepharmabased on the Company reaching certain revenue milestones following the Skyepharma Acquisition. Pursuant to this agreement, the Company is required to paySkyepharma milestone payments up to an aggregate of $62.0 million, of which $36.0 million are for potential milestones not yet met. The Company also agreed topay certain earn-out payments based on a percentage of net sales of DepoBupivacaine products collected, including EXPAREL, for the term during which suchsales were covered by a valid claim in certain patent rights related to EXPAREL and other biologics products. The last patents during which a valid claim existedexpired on September 18, 2018. Refer to Note 9, Goodwill and Intangible Assets, for further discussion.Pursuant to an agreement with the Research Development Foundation, or RDF, the Company is required to pay RDF a low single-digit royalty on thecollection of revenues from its DepoFoam-based products, for as long as certain patents assigned to the Company under the agreement remain valid. RDF has theright to terminate the agreement for an uncured material breach by the Company, in connection with its bankruptcy or insolvency or if it directly or indirectlyopposes or disputes the validity of the assigned patent rights.Refer to Note 5, MyoScience Acquisition, for information on potential contingent milestone payments related to the MyoScience Acquisition.F-40Table of ContentsPACIRA BIOSCIENCES, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)NOTE 22—SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)The following tables present selected quarterly financial data for the years ended December 31, 2019 and 2018. For periods where the Company reported anet loss, no potentially dilutive securities were included in the computation of diluted net loss per share. (In thousands, except per share amounts): Three Months Ended March 31,2019 June 30,2019 September 30,2019 December 31,2019Total revenues$91,313 $102,604 $104,685 $122,424Cost of goods sold27,303 25,201 22,304 31,904Total operating expenses90,234 97,329 102,272 120,711Net income (loss)(2,771) 2,730 (6,087) (4,888)Basic net income (loss) per common share (1)$(0.07) $0.07 $(0.15) $(0.12)Diluted net income (loss) per common share (1)$(0.07) $0.06 $(0.15) $(0.12) Three Months Ended March 31,2018 June 30,2018 September 30,2018 December 31,2018Total revenues$74,607 $84,107 $83,448 $95,115Cost of goods sold22,885 20,916 19,065 23,979Total operating expenses81,544 77,566 79,400 82,852Net income (loss)(10,680) 2,564 (640) 8,285Basic and diluted net income (loss) per common share (1)$(0.26) $0.06 $(0.02) $0.20(1) Basic and diluted earnings per share are computed independently for each of the quarters presented. Therefore, the sum of the quarterly basic and diluted earnings per share amounts may notequal the full-year basic and diluted earnings per share computation.F-41Exhibit 4.3 DESCRIPTION OF THE REGISTRANT’S SECURITIES REGISTEREDPURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934Pacira BioSciences, Inc. (“we,” “our,” or “us”) has one class of securities registered under Section 12 of the Securities Exchange Act of 1934, as amended:our common stock, par value $0.001 per share.GeneralThe following description of our capital stock is intended as a summary only. This description is based upon our amended and restated certificate ofincorporation, as amended to date, which we refer to as our certificate of incorporation, our second amended and restated bylaws, which we refer to as ourbylaws, and applicable provisions of Delaware General Corporation Law, which we refer to as the DGCL. This summary is not complete, and is qualified byreference to our certificate of incorporation (including the certificate of amendment thereto) and bylaws, each of which are incorporated by reference as exhibitsto this Annual Report on Form 10-K. We encourage you to read our certificate of incorporation, our bylaws and the applicable provisions of the DGCL foradditional information.Authorized Capital StockOur authorized capital stock consists of 250,000,000 shares of common stock, par value $0.001 per share and 5,000,000 shares of preferred stock, par value$0.001 per share.Common StockVoting Rights. Each holder of common stock is entitled to one vote per share on all matters properly submitted to a vote of the stockholders, including theelection of directors. Our certificate of incorporation and bylaws do not provide for cumulative voting rights. Because of this, the holders of a majority of the sharesof common stock entitled to vote in any election of directors can elect all of the directors standing for election, if they should so choose. An election of directors byour stockholders is determined by a plurality of the votes cast by stockholders entitled to vote on the election.Dividends. Subject to preferences that may be applicable to any then outstanding preferred stock, the holders of our outstanding shares of common stockare entitled to receive dividends, if any, as may be declared from time to time by our board of directors out of legally available funds.Liquidation and Dissolution. In the event of our liquidation, dissolution or winding up, holders of common stock will be entitled to share ratably in the netassets legally available for distribution to stockholders after the payment of all of our debts and other liabilities, subject to the satisfaction of any liquidationpreference granted to the holders of any outstanding shares of preferred stock.Rights and Preferences. Holders of our common stock have no preemptive, conversion or subscription rights, and there are no redemption or sinking fundprovisions applicable to our common stock. The rights, preferences and privileges of holders of common stock are subject to, and may be adversely affected by,the rights of the holders of shares of any series of preferred stock that we may designate and issue in the future.Preferred StockWe are authorized to issue “blank check” preferred stock, which may be issued in one or more series upon authorization of our board of directors. Our boardof directors is authorized to fix the designation of the series, the number of authorized shares of the series, dividend rights and terms, conversion rights and terms,voting rights, redemption rights and terms, liquidation preferences, sinking fund terms and any other rights, powers, preferences and limitations applicable to eachseries of preferred stock, which may be greater than the rights of the holders of the common stock. The authorized shares of our preferred stock are available forissuance without further action by our stockholders, unless such action is required by applicable law or the rules of any stock exchange on which our securitiesmay be listed. If the approval of our stockholders is not required for the issuance of shares of our preferred stock, our board may determine not to seek stockholderapproval.The purpose of authorizing our Board to issue preferred stock and determine its rights and preferences is to eliminate delays associated with a stockholdervote on specific issuances. A series of our preferred stock could, depending on the terms of such series, impede the completion of a merger, tender offer or othertakeover attempt. Our board of directors will make any determinationto issue such shares based upon its judgment as to the best interests of our stockholders. Our directors, in so acting, could issue preferred stock having terms thatcould discourage an acquisition attempt through which an acquirer may be able to change the composition of our board of directors, including a tender offer orother transaction that some, or a majority, of our stockholders might believe to be in their best interests or in which stockholders might receive a premium for theirstock over the then-current market price of the stock. Additionally, the issuance of preferred stock may adversely affect the holders of our common stock byrestricting dividends on our common stock, diluting the voting power of our common stock or subordinating the liquidation rights of our common stock. As aresult of these or other factors, the issuance of preferred stock could have an adverse impact on the market price of our common stockProvisions of Our Certificate of Incorporation and Bylaws and Delaware Law That May Have Anti-Takeover EffectsOur certificate of incorporation, bylaws and the DGCL contain certain provisions that are intended to enhance the likelihood of continuity and stability in thecomposition of our board of directors. These provisions are intended to avoid costly takeover battles, reduce our vulnerability to a hostile change of control andenhance the ability of our board of directors to maximize stockholder value in connection with any unsolicited offer to acquire us. However, these provisions mayhave an anti-takeover effect and may delay, deter or prevent a merger or acquisition of us by means of a tender offer, a proxy contest or other takeover attempt thata stockholder might consider in its best interest, including those attempts that might result in a premium over the prevailing market price for the shares of commonstock held by stockholders.Authorized but Unissued Capital Stock. The authorized but unissued shares of common stock and preferred stock are available for future issuance withoutshareholder approval, subject to any limitations imposed by the rules of any stock exchange on which our securities may be listed. These additional shares may beused for a variety of corporate finance transactions, acquisitions and employee benefit plans. The existence of authorized but unissued and unreserved commonstock and preferred stock could make more difficult or discourage an attempt to obtain control of us by means of a proxy contest, tender offer, merger or otherwise.Board of Directors. Our certificate of incorporation and bylaws provide for a board of directors divided as nearly equally as possible into three classes.Each class is elected to a term expiring at the annual meeting of stockholders held in the third year following the year of such election.Removal of Directors by Stockholders. Our certificate of incorporation and bylaws provide that members of our board of directors may only be removedfor cause by the affirmative vote of the holders of at least 75% of the outstanding shares entitled to vote on the election of the directors.Stockholder Nomination of Directors. Our bylaws provide that a stockholder must notify us in writing of any stockholder nomination of a director in thecase of an election of directors at an annual meeting of stockholders, not less than 90 days nor more than 120 days prior to the first anniversary of the precedingyear's annual meeting; provided, however, that in the event that the date of the annual meeting in any other year is advanced by more than 20 days, or delayed bymore than 60 days, from the first anniversary of the preceding year's annual meeting, a stockholder's notice must be so received not earlier than the 120th day priorto such annual meeting and not later than the close of business on the later of (A) the 90th day prior to such annual meeting and (B) the tenth day following the dayon which notice of the date of such annual meeting was mailed or public disclosure of the date of such annual meeting was made, whichever first occurs. In thecase of an election of directors at a special meeting of stockholders, a stockholder must, subject to certain other requirements as set forth in the bylaws, notify us inwriting of any stockholder nomination of a director not earlier than the 120th day prior to such special meeting and not later than the close of business on the laterof the 90th day prior to such special meeting and the tenth day following the day on which notice of the date of such special meeting was mailed or publicdisclosure of the date of such special meeting was made, whichever first occurs.No Cumulative Voting. Under Delaware law, the right to vote cumulatively does not exist unless the certificate of incorporation specifically authorizescumulative voting. Our certificate of incorporation does not provide for cumulative voting. Accordingly, a holder or group of holders of a majority of the shares ofour common stock are able to elect all of the directors.No Action by Written Consent. Our certificate of incorporation and bylaws provide that our stockholders may not act by written consent and may only act atduly called meetings of stockholders.Delaware Business Combination Statute. Section 203 of the DGCL is applicable to us. Section 203 of the DGCL restricts some types of transactions andbusiness combinations between a corporation and a 15% stockholder. A 15% stockholder is generally considered by Section 203 to be a person owning 15% ormore of the corporation's outstanding voting stock. Section 203 refers to a 15% stockholder as an “interested stockholder.” Section 203 restricts these transactionsfor a period of three years from the date the stockholder acquires 15% or more of our outstanding voting stock. With some exceptions, unless the transaction isapprovedby the board of directors and the holders of at least two-thirds of the outstanding voting stock of the corporation, Section 203 prohibits significant businesstransactions such as:•a merger with, disposition of significant assets to or receipt of disproportionate financial benefits by the interested stockholder,and•any other transaction that would increase the interested stockholder’s proportionate ownership of any class or series of our capitalstock.The shares held by the interested stockholder are not counted as outstanding when calculating the two-thirds of the outstanding voting stock needed forapproval.The prohibition against these transactions does not apply if:•prior to the time that any stockholder became an interested stockholder, the board of directors approved either the business combination orthe transaction in which such stockholder acquired 15% or more of our outstanding voting stock, or•the interested stockholder owns at least 85% of our outstanding voting stock as a result of a transaction in which such stockholder acquired15% or more of our outstanding voting stock. Shares held by persons who are both directors and officers or by some types of employeestock plans are not counted as outstanding when making this calculation.Transfer Agent and RegistrarComputershare Trust Company, N.A. is the transfer agent and registrar for our common stock.Exchange ListingOur common stock is traded on the Nasdaq Global Select Market under the symbol “PCRX.”Exhibit 21.1 SUBSIDIARIES OF THE REGISTRANTThe following is a listing of the subsidiaries of Pacira BioSciences, Inc., a Delaware corporation: Jurisdiction ofIncorporationPacira Pharmaceuticals, Inc. CaliforniaPacira CryoTech, Inc. DelawarePacira Pharmaceuticals International, Inc. DelawarePacira Limited United KingdomPacira Canada, Inc. CanadaPacira Ireland Limited IrelandExhibit 23.1Consent of Independent Registered Public Accounting FirmThe Board of DirectorsPacira BioSciences, Inc.:We consent to the incorporation by reference in the registration statements (Nos. 333-175101, 333-181986, 333-196542, 333-212098 and 333-233141) on Form S-8 of Pacira BioSciences, Inc. of our reports dated February 20, 2020, with respect to the consolidated balance sheets of Pacira BioSciences, Inc. as of December31, 2019 and 2018, the related consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2019, and the related notes, and the effectiveness of internal control over financial reporting as of December 31, 2019, whichreports appear in the December 31, 2019 annual report on Form 10-K of Pacira BioSciences, Inc.Our report refers to a change in the method of accounting for leases as of January 1, 2019 due to the adoption of Accounting Standards Update 2016-02, Leases(Topic 842).Our report includes an explanatory paragraph indicating that management excluded from its assessment of the effectiveness of the Company’s internal control overfinancial reporting as of December 31, 2019, internal control over financial reporting associated with the acquisition of MyoScience, Inc. (now Pacira CryoTech,Inc.) during 2019, associated with 1% of total assets and 2% of total revenues included in the consolidated financial statements of the Company as of and for theyear ended December 31, 2019. Our audit of internal control over financial reporting of the Company also excluded an evaluation of the internal control overfinancial reporting of Pacira CryoTech, Inc./s/ KPMG LLPShort Hills, NJFebruary 20, 2020 Exhibit 31.1CERTIFICATIONI, David Stack, certify that:1. I have reviewed this annual report on Form 10-K of Pacira BioSciences, Inc. (the “Registrant”);2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for theRegistrant and have:(a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure thatmaterial information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularlyduring the period in which this report is being prepared;(b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, toprovide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles;(c)evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness ofthe disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscalquarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, theRegistrant’s internal control over financial reporting; and5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theRegistrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):(a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the Registrant’s ability to record, process, summarize and report financial information; and(b)any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control overfinancial reporting.Date:February 20, 2020/s/ DAVID STACK David StackChief Executive Officer and Chairman(Principal Executive Officer)Exhibit 31.2CERTIFICATIONI, Charles A. Reinhart, III, certify that:1. I have reviewed this annual report on Form 10-K of Pacira BioSciences, Inc. (the “Registrant”);2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report;4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for theRegistrant and have:(a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure thatmaterial information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularlyduring the period in which this report is being prepared;(b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, toprovide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles;(c)evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness ofthe disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and(d)disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscalquarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, theRegistrant’s internal control over financial reporting; and5. The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theRegistrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):(a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely toadversely affect the Registrant’s ability to record, process, summarize and report financial information; and(b)any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control overfinancial reporting.Date:February 20, 2020/s/ CHARLES A. REINHART, III Charles A. Reinhart, IIIChief Financial Officer(Principal Financial Officer)Exhibit 32.1STATEMENT PURSUANT TO 18 U.S.C. §1350Pursuant to 18 U.S.C. §1350, the undersigned certifies that this Annual Report on Form 10-K of Pacira BioSciences, Inc. for the year ended December 31,2019, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in this report fairlypresents, in all material respects, the financial condition and results of operations of Pacira BioSciences, Inc.Date:February 20, 2020/s/ DAVID STACK David StackChief Executive Officer and Chairman(Principal Executive Officer)Date:February 20, 2020/s/ CHARLES A. REINHART, III Charles A. Reinhart, IIIChief Financial Officer(Principal Financial Officer)

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