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PACIRA BIOSCIENCES, INC.

(PCRX)
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PACIRA BIOSCIENCES, INC. Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-K)

02/28/2022 | 04:52pm EDT
Management's Discussion and Analysis of Financial Condition and Results of
Operations is based upon our consolidated financial statements, which have been
prepared in accordance with generally accepted accounting principles in the
United States of America, or GAAP, and in accordance with the rules and
regulations of the United States Securities and Exchange Commission, or SEC. We
operate and report our financial information in one segment. The following
discussion of our financial condition and results of operations should be read
in conjunction with the other sections of this Annual Report, including our
consolidated financial statements and the notes to those consolidated financial
statements appearing in Part IV, Item 15, of this Annual Report. This discussion
contains forward-looking statements that involve significant risks and
uncertainties. As a result of many factors, such as those set forth under "Risk
Factors" in Part I, Item 1A. of this Annual Report, our actual results may
differ materially from those anticipated in these forward-looking statements.
Certain defined terms have been brought forward from Part I of this Annual
Report.

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

Overview


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

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

Flexion Acquisition


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

The total consideration of $578.8 million included an initial payment of $428.3
million which represented $8.50 in cash per share of Flexion common stock, $20.2
million paid to settle restricted stock units and in-the-money stock options, an
              Pacira BioSciences, Inc. | 2021 Form 10-K | Page 68
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  Table of Contents  ,
$85.1 million cash payment of Flexion debt not to be assumed by us and
$45.2 million in contingent consideration representing the fair value of
contingent value rights, or CVRs, that were issued in conjunction with the
Flexion acquisition. The Merger Agreement provided for one non-tradeable CVR per
share of Flexion common stock as well as one CVR per share for certain Flexion
equity awards. Each CVR entitles Flexion shareholders to contingent milestone
payments of up to an aggregate of $8.00 in cash per share of Flexion common
stock if certain milestones are met on or prior to December 31, 2030. We
estimate that up to an additional $380.2 million in the aggregate may be payable
to holders of the CVRs if each of the applicable milestones are achieved. For
more information, see Note 5, Acquisitions, to our consolidated financial
statements included herein.

Recent Highlights


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

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

Coronavirus (COVID-19) Pandemic


Since early 2020, our revenues have been impacted by COVID-19 and
pandemic-related challenges that included the significant postponement or
suspension in the scheduling of elective surgical procedures due to public
health guidance and government directives. While the degree of impact has
diminished during the course of the pandemic due to the introduction of vaccines
and the lessening of elective surgery restrictions, certain pandemic-related
operational challenges persist. It remains unclear how long it will take the
elective surgery market to normalize or if restrictions on elective procedures
will recur due to future COVID-19 variants or otherwise. For instance, while
many restrictions have since eased with COVID-19 vaccines now widely available,
the elective surgery market faced additional pandemic-related challenges in
August and September 2021 due to regional surges in COVID-19 Delta variant
cases, staffing shortages and fatigue from care teams addressing significant
procedure backlogs, and in December 2021, the COVID-19 Omicron variant prompted
some government restrictions on elective procedures and surgical staffing
challenges which began to ease in January 2022.

We will continue to actively monitor the situation and implement measures
recommended by federal, state or local authorities, or that we determine are in
the best interests of our patients, employees, partners, suppliers, shareholders
and stakeholders. For a description of risks facing the Company that relate to
the COVID-19 pandemic or any other future pandemic, epidemic or outbreak of
contagious disease, see Item 1A. "Risk Factors" in this Annual Report.
              Pacira BioSciences, Inc. | 2021 Form 10-K | Page 69
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Results of Operations

Comparison of the Years Ended December 31, 2021 and 2020

Revenues


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

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

                                                                   Year Ended December 31,
                                                                   2021                   2020            % Increase / (Decrease)
Net product sales:
EXPAREL                                                    $     506,515              $ 413,338                     23%
ZILRETTA (1)                                                      12,683                      -                     N/A
iovera°                                                           16,162                  8,817                     83%
Bupivacaine liposome injectable suspension                         3,606                  4,459                    (19)%
Total net product sales                                          538,966                426,614                     26%
Royalty revenue                                                    2,442                  3,033                    (19)%
Collaborative licensing and milestone revenue                        125                      -                     N/A
Total revenues                                             $     541,533              $ 429,647                     26%

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


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

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


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

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

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

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

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Cost of Goods Sold

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

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

                           Year Ended December 31,
                             2021               2020         % Increase / (Decrease)
Cost of goods sold   $     140,255           $ 117,328                 20%
Gross margin                 74%                 73%



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

Research and Development Expenses


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

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

                                                                 Year Ended December 31,
                                                                 2021                 2020            % Increase / (Decrease)
Clinical and preclinical development                       $      24,139          $  23,126                      4%

Product development and manufacturing capacity expansion 19,352

         23,516                    (18)%
Regulatory and other                                               6,590              7,568                    (13)%
Stock-based compensation                                           5,464              5,211                      5%
Total research and development expense                     $      55,545          $  59,421                     (7)%
% of total revenue                                               10%                  14%


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


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

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

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

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


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

Selling, General and Administrative Expenses


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

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

                                                                    Year Ended December 31,
                                                                    2021                   2020            % Increase / (Decrease)
Sales and marketing                                         $     111,022              $ 118,682                     (6)%
General and administrative                                         57,433                 45,714                     26%
Stock-based compensation                                           30,890                 29,120                      6%

Total selling, general and administrative expenses $ 199,345

           $ 193,516                      3%
% of total revenue                                                  37%                    45%


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


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

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

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

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Amortization of Acquired Intangible Assets

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


                                                           Year Ended 

December 31,

                                                           2021                 2020            % Increase / (Decrease)
Amortization of acquired intangible assets           $      13,553          $   7,866                     72%



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

Acquisition-Related Charges, Product Discontinuation and Other

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


                                                                 Year Ended December 31,
                                                                 2021                 2020            % Increase / (Decrease)
Acquisition-related charges                                $      39,911          $   5,354                    100% +
Product discontinuation                                                -               (188)                    N/A
Other                                                              3,000                  -                     N/A

Total acquisition-related charges, product discontinuation and other

                                                  $      42,911          $   5,166                    100% +


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

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

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

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

                                                                    Year Ended December 31,
                                                                    2021                   2020            % Increase / (Decrease)
Interest income                                             $         896              $   4,629                    (81)%
Interest expense                                                  (31,750)               (25,671)                    24%
Loss on early extinguishment of debt                                    -                 (8,071)                    N/A
Other, net                                                         (2,666)                 2,852                     N/A
Total other expense, net                                    $     (33,520)             $ (26,261)                    28%


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


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

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

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


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

Income Tax Expense (Benefit)


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

                                    Year Ended December 31,
                                      2021               2020         % Increase / (Decrease)
Income tax expense (benefit)   $    14,424           $ (125,434)                N/A
Effective tax rate                    26%              (100)% +



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

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

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

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

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

Summary of Cash Flows

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


                                                       Year Ended December 

31,

Consolidated Statements of Cash Flows Data:              2021               

2020

Net cash provided by (used in):

  Operating activities                           $     125,717            $  77,032
  Investing activities                                 (20,790)            (277,607)
  Financing activities                                 380,694              222,304
  Net increase in cash and cash equivalents      $     485,621            $  21,729


Operating Activities

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

Investing Activities

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

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

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Financing Activities

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

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

Equity Financings

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

Debt

2026 Term Loan B Facility


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

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

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

2025 Convertible Senior Notes


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

2024 Convertible Senior Notes


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

              Pacira BioSciences, Inc. | 2021 Form 10-K | Page 76
--------------------------------------------------------------------------------
  Table of Contents  ,
2022 Convertible Senior Notes

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

Future Capital Requirements


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

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


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

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

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

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


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

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

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

•costs related to legal and regulatory issues;


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

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


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

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


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


              Pacira BioSciences, Inc. | 2021 Form 10-K | Page 77
--------------------------------------------------------------------------------
  Table of Contents  ,
Contractual Obligations

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

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

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

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


Critical Accounting Policies and Use of Estimates


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

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

Revenue Recognition


Revenues from sales of products are recorded net of returns allowances, prompt
payment discounts, service fees, government rebates, volume rebates and
chargebacks. These reserves are based on estimates of the amounts earned or to
be claimed on the related sales. These amounts are treated as variable
consideration, estimated and recognized as a reduction of the transaction price
at the time of the sale, using the most likely amount method, except for
returns, which is based on the expected value method. The Company includes these
estimated amounts in the transaction price to the extent it is probable that a
significant reversal of cumulative revenue recognized for such transaction will
not occur, or when the uncertainty associated with the variable consideration is
resolved. The calculation of some of these items requires management to make
estimates based on sales data, historical return data, contracts, statutory
requirements and other related information that may become known in the future.
The adequacy of these provisions is reviewed on a quarterly basis. If our
assessments, experiences or judgments are not accurate estimates of future
results, our results could be affected. The sensitivity of our estimates varies
by program. Estimates associated with chargebacks and government programs have
the greatest risk of being subject to adjustment because of the time delay
between recording the accrual and the final settlement. Historically,
adjustments to these estimates to reflect actual results or updated expectations
have not been material.

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

--------------------------------------------------------------------------------

Table of Contents ,

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

Contingent Consideration


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

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

                                                               Flexion Ranges              MyoScience Ranges
                                                               Utilized as of               Utilized as of
Assumption                                                    December 31, 2021            December 31, 2021
Discount rates                                                11.39% to 12.92%             11.42% to 12.13%
Probability of achieving regulatory milestones                10.00% to 15.00%                   1.00%
Projected year of achieving regulatory milestones               2026 to 2028                     2023



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

Purchase Price Accounting


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

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

                                                                               Flexion Acquisition
                                                                              Ranges Utilized as of
Assumption                                                                      December 31, 2021

Range of discount rates                                                           17.5% - 18.0%
Forecasted annual sales growth rate                                         

0.0% - 50.0%

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

Recent Accounting Pronouncements

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

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

--------------------------------------------------------------------------------

  Table of Contents  ,
Item 7A.  Quantitative and Qualitative Disclosures about Market Risk

The primary objective of our cash equivalents and investment activities is to
preserve principal while at the same time maximizing the income that we receive
from our investments without significantly increasing risk. We invest in
corporate bonds, commercial paper, asset-backed securities and U.S. Treasury and
other government agency notes, which are reported at fair value. These
securities are subject to interest rate risk and credit risk. This means that a
change in prevailing interest rates may cause the principal amount of the
investment to fluctuate. 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 the fair 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-sale securities at December 31, 2021 by
approximately $0.6 million.

The fair values of our 2022 Notes and 2025 Notes are impacted by both the fair
value of our common stock and interest rate fluctuations. As of December 31,
2021, the estimated fair value of the 2025 Notes was $1,113 per $1,000 principal
amount and the estimated fair value of the 2022 Notes was $1,039 per $1,000
principal amount. See Note 11, Debt, to our consolidated financial statements
included herein for further discussion of our 2022 Notes and 2025 Notes, which
bear interest at fixed rates. At December 31, 2021, all $402.5 million of
principal remains outstanding on the 2025 Notes, and $160.0 million of principal
remains outstanding on the 2022 Notes.

The Term Loan provided for a single-advance term loan in the principal amount of
$375.0 million and is scheduled to mature on December 7, 2026. Each term loan
borrowing which is an alternate base rate borrowing bears interest at a variable
rate per annum equal to the Alternate Base Rate (as defined in the Credit
Agreement) subject to a 1.75% floor, plus 6.00%. Each term loan borrowing which
is a term benchmark borrowing bears interest at a variable rate per annum equal
to (i) the Adjusted Term SOFR rate (as defined in the Credit Agreement) subject
to a 0.75% floor plus (ii) 7.00%. At December 31, 2021, we had $375.0 million in
outstanding borrowings under the Term Loan. A hypothetical 100 basis point
increase in interest rates would have increased interest expense during the year
ended December 31, 2021 by approximately $0.3 million, which considers that the
Term Loan was outstanding for less than one month during 2021. The impact of a
hypothetical 100 basis point increase in interest rates would increase interest
expense by $3.0 million in 2022.

As a result of the Flexion Acquisition and as discussed in more detail in Note
11, Debt, to our consolidated financial statements included herein, any future
conversion rights for the Flexion 2024 Notes are subject to the occurrence of
any future events giving rise to such conversion rights under the indenture
governing the Flexion 2024 Notes.

We have agreements with certain vendors and partners that operate in foreign
jurisdictions. The more significant transactions are primarily denominated in
the U.S. Dollar, subject to an annual adjustment based on changes in currency
exchange rates.

Additionally, our accounts receivable are primarily concentrated with four large
wholesalers of pharmaceutical products. In the event of non-performance or
non-payment, there may be a material adverse impact on our financial condition,
results of operations or net cash flow.

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