Pacira BioSciences, Inc. (PCRX)

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 2024 and 2023, as well as other discussions of 2024 and 2023 items. We have omitted discussion of the year ended December 31, 2022 (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 2023 and 2022 and other discussions of 2022 items can be found within Part II, Item 7, to our Annual Report for the year ended December 31, 2023, filed with the SEC on February 29, 2024, which is available on the SEC’s website at www.sec.gov and our corporate website at www.pacira.com. The foregoing reference to our corporate website is not intended to, nor shall it be deemed to, incorporate information on our corporate website into this Annual Report by reference, and the inclusion of our corporate website address in this Annual Report is an inactive textual reference only and is not intended to be an active link to our corporate website.

Overview

Our stated corporate mission is to deliver innovative, non-opioid pain therapies to transform the lives of patients. We are also developing innovative interventions to address debilitating conditions involving the sympathetic nervous system, such as cardiac electrical storm, chronic pain and spasticity. Our long-acting, local analgesic EXPAREL® (bupivacaine liposome injectable suspension) 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 a long-acting, non-opioid option proven to manage postsurgical pain. EXPAREL is the only product indicated for local analgesia via infiltration in patients aged six years and older and regional analgesia via interscalene brachial plexus nerve block, sciatic nerve block in the popliteal fossa and adductor canal block in adults. 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 and children aged six years and older. We drop-ship EXPAREL directly to end-users based on orders placed to wholesalers or directly to us, and there is no product held by wholesalers. With the acquisition of Flexion Therapeutics, Inc. in November 2021 (the “Flexion Acquisition”), we acquired ZILRETTA® (triamcinolone acetonide extended-release injectable suspension), the first and only extended-release, intra-articular injectable 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. With the acquisition of MyoScience, Inc. in April 2019 (the “MyoScience Acquisition”), we acquired iovera®°, a handheld cryoanalgesia device used to deliver a precise, controlled application of cold temperature to targeted nerves, which we sell directly to end users. EXPAREL, ZILRETTA and the iovera° system are highly complementary products as long-acting, non-opioid therapies that alleviate pain. We are also advancing the development of PCRX-201 (enekinragene inzadenovec), a novel gene therapy vector platform enabling local administration of genetic medicines with the potential to treat large prevalent diseases like OA. In February 2025, we acquired

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GQ Bio Therapeutics GmbH, a privately-held biopharmaceutical company (the “GQ Bio Acquisition”). PCRX-201 is the lead program from this platform.

We expect to continue to pursue the expanded use of EXPAREL, ZILRETTA and iovera° in additional procedures; progress our product candidate pipeline, including the development of PCRX-201; advance regulatory activities for EXPAREL, ZILRETTA, iovera° and our 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.

Recent Highlights

•In November 2024, we presented two-year safety and efficacy data at the American College of Rheumatology’s annual ACR Convergence meeting in Washington, DC. The new data is derived from an open-label, Phase 1 trial investigating the safety and efficacy of PCRX-201 administered via ultrasound-guided intraarticular injection in 72 patients with moderate to severe osteoarthritis of the knee (OAK) graded at 2, 3, or 4 on the Kellgren-Lawrence scale, a semiquantitative method for evaluating the severity of OA on a scale of 0-4. Participants were broken into two cohorts. The first cohort received one of three doses of PCRX-201. The second cohort received concurrent pretreatment with an IA corticosteroid (methylprednisolone 40 mg), a technique common in gene therapy dosing to improve tolerability and gene transfer. Pain and function benefits were observed at all doses and across both cohorts over the full two years studied, with patients in the second cohort achieving greater pain reduction and fewer AEs. Given these highly encouraging Phase 1 data, we opened enrollment in a randomized, double-blind Phase 2 clinical study in knee OA in February 2025.

•In December 2024, we announced the receipt of U.S. Patent No. 12,156,940 (the ‘940 patent) from the USPTO. The ‘940 patent—entitled “Manufacturing of Bupivacaine Multivesicular Liposomes”—protects the chemical composition of EXPAREL. This patent is the first patent from a new family of patents related to EXPAREL produced by our enhanced larger-scale manufacturing process in San Diego, California, which received approval from the FDA in February 2024. We expect the ‘940 patent to provide protection into July 2044. Additionally, the ‘940 patent is listed in the FDA’s “Approved Drug Products with Therapeutic Equivalence Evaluations” (the “Orange Book”). Patents that are eligible for Orange Book listing are those that have claims covering the active ingredient, the drug product (formulation and composition) or the approved method of use. Additionally, the USPTO recently issued U.S. Patent Nos. 12,151,024 (the ‘024 patent) and 12,144,890 (the ‘890 patent). The ‘024 and ‘890 patents belong to the ‘574 and ‘495 family of patents, respectively, and are listed in the Orange Book with an expiration date of January 21, 2041. We continue to prosecute patent applications and anticipate that additional patents are forthcoming.

•In January 2025, we announced the receipt of clearance from the FDA to market a new Smart Tip designed to access the medial branch nerves to manage chronic low back pain. This new, 25-gauge 180 mm Smart Tip allows for the treatment of deeper nerves, such as the medial branch nerve, and is specifically designed so that it can relieve chronic low back pain associated with facet mediated pain. This longer-needle Smart Tip is uniquely designed for use through a cannula or introducer, providing the ability for ice ball formation at deeper peripheral nerves. This FDA-cleared innovation offers a compelling alternative to conventional treatments such as RFA, which has substantial limitations. With RFA, patients may not get the effects of pain relief until one-to-two weeks after treatment. Further the intense heat can damage surrounding tissue and blood vessels, and tissue damage may lead to painful neuritis (inflammation in the nerves).

•In January 2025, Laura Brege was appointed Chair of the Board, following the retirement of former Chair, Paul J. Hastings, and Andreas Wicki, PhD. These changes align with our ongoing commitment to board refreshment. With these changes, the board is composed of nine directors, eight of whom are independent and five of whom have joined since October 2023. Each director brings expertise in areas important to our business to support our 5x30 growth-oriented plan including executive leadership, mergers and acquisitions, research and development, operations, commercialization, manufacturing and supply chain.

•In February 2025, we announced a definitive purchase agreement to acquire all outstanding equity interests of GQ Bio not already owned by us for approximately $32 million, net of working capital and other transaction adjustments to equity holders other than us. The net purchase price includes $18 million of cash paid at closing, $8 million to be paid over three years pursuant to a key employee holdback agreement and a post-closing indemnity holdback of $6 million. This acquisition adds a novel locally administered gene therapy vector platform and pipeline of preclinical assets with disease-modifying potential for prevalent musculoskeletal diseases and will advance our 5x30 growth strategy to transition into an innovative biopharmaceutical organization. PCRX-201 is the lead program from this platform. It

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provides financial benefits with the elimination of future development and sales-based milestones including a $4.5 million milestone payment due upon initiation of the Phase 2 clinical trial of PCRX-201 that opened enrollment in February 2025. For more information on the GQ Bio Acquisition, see Note 21, Subsequent Events, to our consolidated financial statements included herein.

Global Economic Conditions, Inflation and Tariffs

Direct and indirect effects of global economic conditions have in the past, and may continue to, negatively impact our business, financial condition and results of operations. Such impacts may include the effect of prolonged periods of inflation or the imposition of tariffs, which could, among other things, result in higher costs for labor, raw materials, equipment and other goods and services; cause our patients to defer or cancel medical procedures, thereby adversely impacting our revenues; and negatively impact our suppliers which could cause longer lead-times or the inability to secure a sufficient supply of materials. The current macroeconomic environment remains dynamic and subject to rapid and possibly material changes. Additional negative impacts may also arise that we are unable to foresee. The nature and extent of such impacts will depend on future developments, which are highly uncertain and cannot be predicted.

Results of Operations

Comparison of the Years Ended December 31, 2024 and 2023

Revenues

Net product sales consist of sales of (i) EXPAREL in the U.S., E.U., and U.K.; (ii) ZILRETTA in the U.S.; (iii) iovera° in the U.S., Canada and the E.U. and (iv) sales of our bupivacaine liposome injectable suspension product for veterinary use. Royalty revenues are related to a collaborative licensing agreement from the sale of our bupivacaine liposome injectable suspension for veterinary use.

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

EXPAREL revenue increased 2% in 2024 versus 2023. A 4% increase in gross vial volume was partially offset by a shift in vial mix. EXPAREL revenue was also impacted by a 1% increase in selling price per unit related to a price increase, net of increases in sales related allowances as a result of group purchasing organization contracting.

ZILRETTA revenue increased 6% in 2024 versus 2023, primarily due to a 4% increase in net selling price per unit and a 2% increase in kit volume. The increase in net selling price per unit is related to two price increases and favorable sales related allowances.

Net product sales of iovera° increased 16% in 2024 versus 2023 primarily due to a 20% increase in Smart Tip volume, partially offset by increased sales related allowances and accruals.

Bupivacaine liposome injectable suspension revenue increased more than 100% in 2024 versus 2023, and the related royalties increased 38%, primarily due to the sales mix of vial sizes and the timing of orders placed for veterinary use.

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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 years indicated, including percent changes (dollar amounts in thousands):

Gross margin increased three percentage points in 2024 versus 2023 primarily due to lower EXPAREL product costs as a result of higher production volumes and the absence of a step-up of ZILRETTA fixed assets and inventory to fair value in accordance with purchase accounting that existed in the prior period, partially offset by higher EXPAREL and ZILRETTA inventory reserves.

Research and Development Expense

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°, clinical trials for PCRX-201 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, research 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 and scientific communication expenses, expenses related to our iGOR registry study 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 years indicated, including percent changes (dollar amounts in thousands):

Total research and development expense increased 7% in 2024 versus 2023.

Clinical and preclinical development expense increased 38% in 2024 versus 2023 due to site start-up and ongoing enrollment in a ZILRETTA shoulder trial, an iovera° spasticity trial and an EXPAREL pediatric trial, as well as start-up expenses related to the PCRX-201 Phase 2 trial for knee OA. These increases were partially offset by the winding down of a PCRX-201 Phase 1 trial for knee OA as two-year follow-up visits of subjects were completed in November 2023. This Phase 1 trial remains on track for completion by November 2026, the last year of the follow-up period for the last patient dosed. In addition, toxicology studies for product candidates were completed in 2023.

Product development and manufacturing capacity expansion expense decreased 8% in 2024 versus 2023, primarily attributable to the completion of pre-commercial scale-up activities of our larger-scale EXPAREL manufacturing capacity at

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our Science Center Campus in San Diego, California, which the FDA approved in February 2024 and was subsequently placed into service in July 2024. The decrease was partially offset by ongoing product development costs related to PCRX-201 and development costs for the iovera° medial branch Smart Tip which received FDA clearance in January 2025.

Regulatory and other research and development expenses remained flat in 2024 versus 2023. Increased enrollment and additional sites related to our iGOR registry study were offset by the reduction of international regulatory activities and headcount vacancies.

Stock-based compensation decreased 15% in 2024 versus 2023 primarily due to fewer equity awards granted to research and development personnel and headcount vacancies as well as the acceleration of stock-based compensation awards related to a terminated executive in 2023.

Selling, General and Administrative Expense

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, 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 expense during the years indicated, including percent changes (dollar amounts in thousands):

Total selling, general and administrative expense increased 9% in 2024 versus 2023.

Sales and marketing expense increased 12% in 2024 versus 2023, driven by investments in programs to drive awareness and education for our customers and enhance our marketing, market access and reimbursement teams and value creation for the implementation of separate Medicare reimbursement for EXPAREL at average sales price plus 6 percent in HOPD settings and iovera° at up to an additional $255.85 when providers administer iovera° in ASC and HOPD settings beginning in January 2025 as part of the NOPAIN Act. Investments in these programs continued through the end of 2024 as we launched our national campaign—Make the NOPAIN Pact—which targets hospital pharmacists, administrators, clinicians and revenue management teams and is focused on ensuring these audiences are ready for the commencement of the NOPAIN Act which took effect on January 1, 2025. We also expanded the size of our sales force in the second half of 2024 in order to better extend our reach on each of our commercial products. These increases were partially offset by the impact of a February 2024 restructuring plan designed to ensure we are well positioned for long-term growth (for more information, see Note 17, Contingent Consideration Gains, Restructuring Charges and Other, to our consolidated financial statements included herein).

General and administrative expense increased 5% in 2024 versus 2023 primarily driven by third-party management consulting to assess strategic opportunities and market assessments for our products and compensatory costs associated with the transition to our new Chief Executive Officer effective January 2, 2024, which included compensation related to the current Chief Executive Officer and to the former Chief Executive Officer who remains an advisor to the Company in a consulting capacity.

Stock-based compensation increased 4% in 2024 versus 2023 primarily due to greater equity awards granted to personnel, including the initial stock option and restricted stock unit grants to our new Chief Executive Officer, Frank D. Lee, in January 2024 and our new Chief Financial Officer, Shawn M. Cross, in November 2024.

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Amortization of Acquired Intangible Assets

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

As part of the Flexion Acquisition and the MyoScience Acquisition, we acquired intangible assets consisting of developed technology intangible assets and customer relationships, with estimated useful lives between 9 and 14 years. For more information, see Note 8, Goodwill and Intangible Assets, to our consolidated financial statements included herein.

Goodwill Impairment

The following table provides a summary of goodwill impairments during the periods indicated, including percent changes (dollar amounts in thousands):

During the three months ended September 30, 2024, the FDA approved a generic competitor to EXPAREL and a U.S. District Court ruled that one of our patents was not valid (for more information, see Note 19, Commitments and Contingencies, to our consolidated financial statements included herein). Due to these events and a subsequent decrease in our common stock price, it was determined these qualitative factors indicated it was more likely than not that the fair value of goodwill may be less than its carrying value. Accordingly, we performed a quantitative assessment through a discounted cash flow model (or income approach), which resulted in the carrying value of the Company exceeding its fair value by more than the goodwill balance. As a result, the goodwill balance of $163.2 million was recorded as fully impaired during the three months ended September 30, 2024.

Contingent Consideration Gains, Restructuring Charges and Other

The following table provides a summary of the costs (gains) related to contingent consideration, restructuring charges, acquisition-related charges and other activities during the years indicated, including percent changes (dollar amounts in thousands):

In 2024, we recognized contingent consideration gains of $4.5 million due to adjustments reflecting the probability of achieving the remaining Flexion regulatory milestone by December 31, 2030—the milestone expiration date, partially offset by revisions to our weighted average cost of capital and the latest discount rates. In 2023, we recognized contingent consideration gains of $3.4 million due to a decrease in the fair value of the Flexion contingent consideration. The decrease was primarily due to adjustments in the assumption for the long-term forecasts which reduced the probability of meeting the sales-based contingent consideration milestones by December 31, 2030—the expiration date for achieving the milestones. The impact of this assumption on the fair value was partially offset by a decrease to the assumed discount rate based on a significant improvement in our incremental borrowing rate resulting from the TLA Credit Agreement entered into in March 2023. For more information, see Note 11, Financial Instruments, to our consolidated financial statements included herein.

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In 2024 and 2023, we recognized acquisition-related charges of $1.5 million and $2.0 million, respectively, primarily related to vacant and underutilized Flexion leases that were assumed from the Flexion Acquisition.

In 2024, we initiated a restructuring plan designed to ensure that we are well positioned for long-term growth. The restructuring plan included, among other things: (i) reshaping the Company’s executive team; (ii) reallocating efforts and resources from our ex-U.S. and certain early-stage development programs to our commercial portfolio in the U.S. market and (iii) reprioritizing investments to focus on other commercial initiatives. As a result, in 2024, we recognized restructuring charges of $8.5 million related to employee termination benefits, such as the acceleration of share-based compensation, severance, and, to a lesser extent, other employment-related termination costs, as well as contract termination costs. In 2023, we recognized restructuring charges of $1.1 million that included a restructuring plan in an effort to improve our operational efficiencies and recognized one-time employee termination benefits through a reduction of headcount.

For more information, see Note 17, Contingent Consideration Gains, Restructuring Charges and Other, to our consolidated financial statements included herein.

In 2024, we recognized a loss of $2.2 million associated with exiting a lease to a training center located in Houston, Texas. See Note 7, Leases, to our consolidated financial statements included herein.

Other Income (Expense), Net

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

Total other income, net was $10.3 million in 2024 versus total other expense, net of $26.0 million in 2023.

Interest income increased 72% in 2024 versus 2023 due to higher overall investment balances.

The 18% decrease in interest expense was primarily driven by the lower outstanding principal associated with the TLA Term Loan (as defined below) that was entered into in March 2023 which replaced our then-outstanding TLB Term Loan that had a higher principal balance and interest rate, partially offset by issuing the 2029 Notes (as defined below) in May 2024.

In 2024, we recognized a $7.5 million gain on early extinguishment of debt in conjunction with the repurchase of $200.0 million aggregate principal of our 2025 Notes (as defined below). The partial repurchase of the 2025 Notes was completed with our net proceeds from the issuance of the 2029 Notes (as defined below). In 2023, in conjunction with the entry into the TLA Credit Agreement (as defined below), we incurred a $16.9 million loss on early extinguishment of debt recognized as a result of the retirement of $287.5 million aggregate principal of our TLB Term Loan.

For more information, See Note 10, Debt, to our consolidated financial statements herein.

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Income Tax Expense

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

We recorded income tax expense of $36.5 million and $19.7 million for the years ended December 31, 2024 and 2023, respectively. The effective tax rate of (58)% for the year ended December 31, 2024 differed from the U.S. statutory tax rate of 21% primarily due to non-deductible goodwill impairment charges during the three months ended September 30, 2024 and costs related to non-deductible executive compensation and stock-based compensation, mainly related to expired stock options. The effective tax rate of 32% for the year ended December 31, 2023 differed from the U.S. statutory tax rate of 21% primarily due to non-deductible stock-based and executive compensation and non-U.S. valuation allowances, partially offset by tax credits.

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, 2024, we had an accumulated deficit of $206.4 million, cash and cash equivalents and available-for-sale investments of $484.6 million and working capital of $435.2 million.

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

Summary of Cash Flows

The following table summarizes our cash flows from operating, investing and financing activities for the years ended December 31, 2024 and 2023 (in thousands):

Operating Activities

In 2024, net cash provided by operating activities was $189.4 million compared to $154.6 million in 2023. The increase of $34.7 million was primarily attributable to increased revenue with favorable gross margins, lower interest paid and the impact of a $13.0 million payment made in the prior year for a termination fee relating to a licensing agreement, partially offset by an increased investment in inventory levels.

Investing Activities

In 2024, net cash used in investing activities was $83.3 million, which reflected $72.6 million of available-for-sale investment purchases (net of sales) and $10.6 million of capital expenditures for manufacturing product fill lines and our EXPAREL capacity expansion project at our Science Center Campus in San Diego, California, partially offset by an increased investment in inventory levels.

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In 2023, net cash provided by investing activities was $77.5 million, which reflected $99.5 million of available-for-sale investment maturities (net of purchases), purchases of fixed assets of $15.2 million for manufacturing product fill lines for our products and equipment for our EXPAREL capacity expansion project at our Science Center Campus in San Diego, California and purchases of debt investments of $6.8 million in external complementary development stage product candidates.

Financing Activities

In 2024, net cash provided by financing activities was $17.4 million, which primarily consisted of $287.5 million in proceeds from the issuance of the 2029 Notes. We used the majority of the proceeds from the 2029 Notes to make a partial repurchase of the 2025 Notes in the amount of $191.0 million, enter into a capped call transaction for $26.7 million, repurchase $25.0 million of treasury stock, and pay debt issuance and financing costs of $9.4 million. Additionally, we made $11.3 million of voluntary prepayments associated with the TLA Term Loan and paid the remaining $8.6 million of 3.375% convertible senior notes due 2024 assumed from the Flexion Acquisition (the “Flexion 2024 Notes”) upon their maturity. See Note 10, Debt, to our condensed consolidated financial statements included herein for further discussion on the Flexion 2024 Notes, 2025 Notes, 2029 Notes, the capped call transaction and the TLA Term Loan. There was also $2.3 million of proceeds from the issuance of common stock through our ESPP.

In 2023, net cash used in financing activities was $183.0 million, which consisted of a $296.9 million repayment of TLB Term Loan principal as well as a $5.8 million prepayment penalty in connection with the retirement of the TLB Term Loan facility and $33.4 million repayments of TLA Term Loan principal, partially offset by the net proceeds from the TLA Term Loan of $149.6 million, $2.8 million from the issuance of common stock through our ESPP and proceeds from the exercise of stock options of $1.9 million.

Equity Financings

From our inception in December 2006 through December 31, 2024, we have raised $344.5 million of net proceeds from the sale of common stock and other equity securities via public offerings.

Stock Repurchase Program

In May 2024, we announced that our board of directors approved a share repurchase program which was effective immediately and authorizes us to repurchase up to an aggregate of $150.0 million of our outstanding common stock. Repurchases under this program may be made at management’s discretion on the open market or through privately negotiated transactions. The share repurchase program may be suspended or discontinued at any time by us and has an expiration date of December 31, 2026.

During the year ended December 31, 2024, concurrently with the pricing of the offering of the 2029 Notes, we entered into separate privately negotiated agreements with certain of the initial purchasers of the 2029 Notes or their respective affiliates and/or certain other financial institutions to repurchase 837,240 shares of our common stock for a total cost of $25.1 million, inclusive of $0.1 million of accrued excise tax. During the year ended December 31, 2023, we did not repurchase any shares of our common stock.

As of December 31, 2024, we had remaining authorization to repurchase approximately $125.0 million of our common stock, subject to restrictions under the TLA Credit Agreement and the Indentures.

Debt

2028 Term Loan A Facility

On March 31, 2023, we entered into a credit agreement (as amended, the “TLA Credit Agreement”) to refinance the indebtedness outstanding under our TLB Credit Agreement. The term loan issued under the TLA Credit Agreement (the “TLA Term Loan”) was issued at a 0.30% discount and provides for a single-advance term loan A facility in the principal amount of $150.0 million, which is secured by substantially all of our and any subsidiary guarantor’s assets and matures on March 31, 2028. We may elect to borrow either (i) alternate base rate borrowings or (ii) term benchmark borrowings or daily simple SOFR (as defined in the TLA Credit Agreement) borrowings. Each term loan borrowing which is an alternate base rate borrowing bears interest at a rate per annum equal to (i) the Alternate Base Rate (as defined in the TLA Credit Agreement), plus (ii) a spread based on our Senior Secured Net Leverage Ratio ranging from 2.00% to 2.75%. Each term loan borrowing which is a term benchmark borrowing or daily simple SOFR borrowing bears interest at a rate per annum equal to (i) the Adjusted Term SOFR Rate or Adjusted Daily Simple SOFR (as each is defined in the TLA Credit Agreement), plus (ii) a spread based on our Senior Secured Net Leverage Ratio ranging from 3.00% to 3.75%. During the year ended December 31, 2024, we made $11.3 million of voluntary principal prepayments. During the year ended December 31, 2023, we made a scheduled principal payment of $2.8 million as well as $30.6 million of voluntary principal prepayments. As of December 31, 2024, borrowings

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under the TLA Term Loan consisted entirely of term benchmark borrowings at a rate of 7.43%. At December 31, 2024, the outstanding principal on the TLA Term Loan was $105.3 million.

The TLA Credit Agreement requires us to, among other things, maintain (i) a Senior Secured Net Leverage Ratio (as defined in the TLA Credit Agreement), determined as of the last day of each fiscal quarter, of no greater than 3.00 to 1.00 and (ii) a Fixed Charge Coverage Ratio (as defined in the TLA Credit Agreement), determined as of the last day of each fiscal quarter, of no less than 1.50 to 1.00. The TLA Credit Agreement requires us to maintain an unrestricted cash and cash equivalents balance of at least $500.0 million less any prepayments of the 2025 Notes at any time from 91 days prior to the maturity date through the earlier of (i) the latest maturity date of the 2025 Notes and (ii) the date on which there is no outstanding principal amount of the 2025 Notes. The TLA Credit Agreement also contains customary affirmative and negative covenants, financial covenants, representations and warranties, events of default and other provisions. As of December 31, 2024, we were in compliance with all financial covenants under the TLA Credit Agreement. See Note 10, Debt, to our consolidated financial statements included herein for further discussion.

2029 Convertible Senior Notes

In May 2024, we completed a private placement of $287.5 million in aggregate principal amount of our 2.125% convertible senior notes due 2029, or 2029 Notes, and entered into an indenture with respect to the 2029 Notes. The 2029 Notes accrue interest at a fixed rate of 2.125% per annum, payable semiannually in arrears on May 15th and November 15th of each year, and mature on May 15, 2029.

In May 2024, we used part of the net proceeds from the issuance of the 2029 Notes to repurchase $200.0 million aggregate principal amount of the 2025 Notes in privately negotiated transactions at a discount for $191.4 million in cash (including accrued interest). The partial repurchase of the 2025 Notes resulted in a $7.5 million gain on early extinguishment of debt.

At December 31, 2024, all $287.5 million of principal was outstanding on the 2029 Notes. See Note 10, Debt, to our consolidated financial statements included herein for further discussion.

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 1st and August 1st of each year, and mature on August 1, 2025. At December 31, 2024, the outstanding principal on the 2025 Notes was $202.5 million. See Note 10, Debt, to our consolidated financial statements included herein for further discussion.

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 TLA Term Loan, 2025 Notes and 2029 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 cost and timing of the potential milestone payments to former Flexion stockholders, which could be up to an aggregate of $372.3 million if certain regulatory and commercial milestones are met. See Note 11, Financial Instruments, to our consolidated financial statements included herein for more information;

•the impact of global economic conditions—including the impact of inflation and tariffs—on our product, material and labor costs, supply chain, longer lead-times, an inability to secure a sufficient supply of materials, our operating expenses and our business strategy;

•the timing of and extent to which the holders of our 2025 Notes and 2029 Notes elect to convert their 2025 Notes and 2029 Notes, the timing of principal and interest payments on our TLA Term Loan and the timing and impact of increases to the variable interest rate on our TLA Term Loan borrowings in accordance with the terms of the TLA Credit Agreement;

•the costs and our ability to successfully continue to expand the commercialization of EXPAREL, ZILRETTA and iovera°;

•the cost and timing of expanding and maintaining our manufacturing facilities;

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

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•the costs related to legal and regulatory matters, including those to develop and defend our intellectual property;

•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 the 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;

•the timing and the number of shares of our common stock repurchased through our share repurchase program; 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. In particular, capital market disruptions or negative economic conditions may hinder our access to capital.

Contractual Obligations

We had two convertible senior notes outstanding as of December 31, 2024, for which $202.5 million in aggregate principal amount is due on our 2025 Notes in August 2025 and $287.5 million in aggregate principal amount is due on our 2029 Notes in May 2029. The remaining interest payments on our 2025 Notes is $1.5 million, all of which is due in 2025. The remaining interest payments on our 2029 Notes is $27.3 million, of which $6.1 million is due in 2025. We also have the TLA Term Loan with $105.3 million in outstanding principal. Due to voluntary principal prepayments of $30.6 million made during the year ended December 31, 2023 and $11.3 million made during December 31, 2024, we are not contractually obligated to make principal payments in 2025, although we retain the option to do so. As of December 31, 2024, there are contractually obligated principal payments of $4.1 million in 2026, $15.0 million in 2027 and $86.3 million in 2028. The remaining interest payments of the TLA Term Loan are approximately $25.0 million based on the current interest rate, of which $7.9 million is due in 2025.

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, 2024, we had net minimum commitments of $64.0 million, of which $12.3 million are due in 2025. For more information, refer to Note 7, Leases, to our consolidated financial statements included herein.

In addition, we have approximately $59.9 million of minimum, non-cancelable contractual commitments for contract manufacturing services as of December 31, 2024, of which $20.3 million is due in each of 2025 and 2026, $17.9 million is due in 2027 and the remaining $1.4 million is due in 2028. We have approximately $6.5 million of minimum, non-cancelable contractual commitments for the purchase of certain raw materials as of December 31, 2024, all of which are due in 2025. We had $1.8 million of other minimum, non-cancelable contractual commitments as of December 31, 2024, of which $1.4 million is due in 2025, and the remaining $0.4 million is due thereafter.

As part of the Flexion Acquisition, there are up to $372.3 million in potential payments if all regulatory and commercial milestones are met. For more information, see Note 11, Financial Instruments, to our consolidated financial statements included herein.

In February 2025, we completed the GQ Bio Acquisition. The net purchase price includes approximately $8 million to be paid over three years pursuant to a key employee holdback agreement as well as a post-closing indemnity holdback of approximately $6 million. For more information on the GQ Bio Acquisition, see Note 21, Subsequent Events, to our consolidated financial statements included herein.

Critical Accounting 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, impairment of intangible assets and goodwill, 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

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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. We include 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 of operations 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.

The summary of activity with respect to our sales related allowances and accruals for the years ended December 31, 2024, 2023 and 2022 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 contingent consideration gains, restructuring charges and other. Changes in contingent consideration can result from changes in the assumed achievement and timing of estimated sales 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:

The maximum remaining potential payments related to contingent consideration from the Flexion Acquisition is $372.3 million as of December 31, 2024. Changes to 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 associated with the Flexion Acquisition as of December 31, 2024 by $6.3 million. The impact of a hypothetical 100 basis point increase in the discount rate would have reduced the value of our contingent consideration liability associated with the Flexion Acquisition as of December 31, 2024 by $0.9 million.

Goodwill

Goodwill represents the excess of the purchase price over the estimated fair value of the net assets acquired in a business combination and is subject to impairment testing at least annually or upon the occurrence of a triggering event that could indicate a potential impairment. We have historically tested goodwill for impairment by performing a qualitative assessment in order to determine whether facts and circumstances support a determination that reporting unit fair values are greater than their carrying values. This has historically been performed using readily available market data and company-specific factors.

If we determine that it is more likely than not that the fair value of the Company is less than its carrying value, a quantitative test is required. This is performed by comparing the fair value of the Company with its carrying value. If the

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estimated fair value of the reporting unit is less than the carrying amount of the reporting unit, impairment is indicated, requiring recognition of a goodwill impairment charge up to the carrying value of goodwill. The fair value of the Company would be calculated through an income approach. Under the income approach, we calculate the fair value based on the present value of estimated future cash flows. Considerable management judgment is necessary to evaluate the impact of operating and macroeconomic changes and to estimate the future cash flows used to assume fair value. Our estimates of future cash flows consider past performance, current and anticipated market conditions and internal projections and operating plans which incorporate estimates for sales growth and future margins. Additional assumptions would include estimated discount rates and the probability of success for our product pipeline candidate products. We believe such assumptions would reflect current and anticipated market conditions and are consistent with those that would be used by other marketplace participants for similar valuation purposes. Such assumptions are subject to change due to changing economic and competitive conditions.

In July 2024, the FDA approved a generic competitor to EXPAREL and in August 2024, a U.S. District Court ruled that one of our EXPAREL patents was not valid. We determined that these events, combined with a subsequent decrease in our common stock price, indicated that it was more likely than not that the fair value of goodwill may be less than its carrying value, which required us to perform a quantitative impairment test. This quantitative impairment test resulted in our carrying value exceeding the fair value of the Company by more than the goodwill balance. As a result, the goodwill balance of $163.2 million was fully impaired during the three months ended September 30, 2024. For more information, see Note 8, Goodwill and Intangible Assets, to our consolidated financial statements included herein.

Recent Accounting Pronouncements

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

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 2023 and 2022, as well as other discussions of 2023 and 2022 items. We have omitted discussion of the year ended December 31, 2021 (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 2022 and 2021 and other discussions of 2021 items can be found within Part II, Item 7, to our Annual Report for the year ended December 31, 2022, filed with the SEC on February 28, 2023, which is available on the SEC’s website at www.sec.gov and our corporate website at www.pacira.com. The foregoing reference to our corporate website is not intended to, nor shall it be deemed to, incorporate information on our corporate website into this Annual Report by reference, and the inclusion of our website address in this Annual Report is an inactive textual reference only and is not intended to be an active link to our corporate website.

Overview

As the therapeutic area leader in non-opioid pain management, our stated corporate mission is providing non-opioid pain management options to as many patients as possible and redefining the role of opioids for rescue therapy only. We are also developing innovative interventions to address debilitating conditions involving the sympathetic nervous system, such as cardiac electrical storm, chronic pain and spasticity. Our long-acting, local analgesic EXPAREL® (bupivacaine liposome injectable suspension) 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 a long-acting, non-opioid option proven to manage postsurgical pain. EXPAREL is the only product indicated for local analgesia via infiltration in patients aged six years and older and regional analgesia via interscalene brachial plexus nerve block, sciatic nerve block in the popliteal fossa and adductor canal block in adults. 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 and children aged six years and older. Since its initial approval in 2011, more than 14 million patients have been treated with EXPAREL. We drop-ship EXPAREL directly to end-users based on orders placed to wholesalers or directly to us, and there is no product held by wholesalers. With the acquisition of Flexion Therapeutics, Inc. in November 2021 (the “Flexion Acquisition”), 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. With the acquisition of MyoScience, Inc. in April 2019 (the “MyoScience Acquisition”), we acquired iovera°®, a handheld cryoanalgesia device used to deliver a precise, controlled application of cold temperature to targeted nerves, which we sell directly to end users. EXPAREL, ZILRETTA and the iovera° system are highly complementary products as long-acting, non-opioid therapies that alleviate pain.

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 our 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.

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Recent Highlights

•In December 2023, our Board of Directors appointed Frank D. Lee as Chief Executive Officer and a member of the Board. Mr. Lee brings more than three decades of global experience and a strong track record of product development and commercial leadership success across a wide range of therapeutic areas within the biotech and pharmaceutical industry. Most recently he served as Chief Executive Officer and member of the board of directors of Forma Therapeutics, Inc., or Forma, from March 2019 through its acquisition by Novo Nordisk A/S in October 2022. During his tenure at Forma, Mr. Lee transformed the company from an early-stage drug discovery company into one focused on the clinical development of lead assets in rare hematologic disorders and cancer. Prior to Forma, Mr. Lee spent 13 years at Genentech, Inc.—a member of the F. Hoffmann-La Roche AG—in a series of leadership positions of increasing scope and responsibility for delivering transformative medicines to patients.

•In November 2023, the FDA approved our sNDA to expand the EXPAREL label to include administration in adults as an adductor canal block and a sciatic nerve block in the popliteal fossa. The approval is supported by two successful randomized, double-blind, active-controlled, multicenter Phase 3 studies designed to evaluate the efficacy, safety, and pharmacokinetics of EXPAREL versus bupivacaine HCl.

One study evaluated EXPAREL as a single-dose adductor canal block and the second study evaluated EXPAREL as a single-dose sciatic nerve block in the popliteal fossa. Both studies met their primary endpoints by demonstrating a statistically significant reduction in cumulative pain scores from 0 to 96 hours compared with bupivacaine HCl (p0.01). Additionally, EXPAREL achieved statistical significance for the studies’ secondary endpoint of reduced postsurgical opioid consumption (p0.01). EXPAREL as a sciatic nerve block in the popliteal fossa also achieved statistical significance for the percentage of opioid-free subjects (p0.01). In both studies, EXPAREL maintained a safety profile consistent with bupivacaine HCl. The data from the Phase 3 study supporting the indication for a single-dose sciatic nerve block in the popliteal fossa was published in the Journal of Clinical Anesthesia in February 2024.

•In November 2023, the USPTO issued Patent Nos. 11,819,574 and 11,819,575, claiming composition of EXPAREL prepared by an enhanced manufacturing process and composition of matter for EXPAREL, respectively. Each of these EXPAREL patents are listed in the FDA’s “Approved Drug Products with Therapeutic Equivalence Evaluations” (the “Orange Book”). These two patents are among the ten Orange Book listed patents that are now listed for EXPAREL, all with an expiration date of January 22, 2041.

•In February 2024, the FDA approved our sNDA for a 200-liter EXPAREL manufacturing suite at our Science Center Campus in San Diego, California. We expect to start selling commercial product manufactured in this 200-liter suite later this year, which will help drive a more favorable mix of commercial product sold and benefit EXPAREL gross margins over time.

•In February 2024, we announced that we were awarded a national group purchasing agreement for Brand Pharmaceuticals with Premier. Effective January 1, 2024, the new agreement allows Premier members, at their discretion, to take advantage of special pricing and terms pre-negotiated by Premier for EXPAREL. This collaboration is aimed at improving patient care and optimizing cost savings to healthcare organizations and will allow Premier members to access EXPAREL.

Global Economic Conditions and Inflation

Direct and indirect effects of global economic conditions have in the past, and may continue to, negatively impact our business, financial condition and results of operations. Such impacts may include the effect of prolonged periods of inflation which could, among other things, result in higher costs for labor, raw materials and services; cause our patients to defer or cancel medical procedures, thereby adversely impacting our revenues; and negatively impact our suppliers which could cause longer lead-times or the inability to secure a sufficient supply of materials. The current macroeconomic environment remains dynamic and subject to rapid and possibly material changes. Additional negative impacts may also arise that we are unable to foresee. The nature and extent of such impacts will depend on future developments, which are highly uncertain and cannot be predicted.

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Results of Operations

Comparison of the Years Ended December 31, 2023 and 2022

Revenues

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

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

EXPAREL revenue remained flat in 2023 compared to 2022, primarily due to an increase in gross vial volume of 4% versus 2022 and reduced by 1% due to a shift in sales mix. EXPAREL revenue was also impacted by a decrease of 3% in net selling price per unit related to enrolling EXPAREL in the 340B drug pricing program and expanding other contracting activities, partially offset by a January 2023 price increase.

ZILRETTA revenue increased 5% in 2023 compared to 2022, primarily due to an increase of 3% in kit volume and 2% in selling price per unit, net of customer discounting due to expanded contracting efforts.

Net product sales of iovera° increased 29% in 2023 versus 2022 primarily due to a 33% increase in Smart Tip volume and a 1% increase in selling price per Smart Tip.

Bupivacaine liposome injectable suspension revenue decreased 48% in 2023 versus 2022, and its related royalties increased 2%, primarily due to the sales mix of vial sizes and the timing of orders placed for veterinary use.

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 years indicated, including percent changes (dollar amounts in thousands):

Gross margin increased three percentage points in 2023 as compared to 2022 mainly due to lower inventory reserves, accelerated depreciation recorded in 2022 for certain machinery and equipment and lower royalty expense as discussed below, partially offset by a lower net selling price for EXPAREL largely as a result of enrolling in the 340B drug pricing program.

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On August 8, 2023, the U.S. District Court, District of Nevada, concluded we were no longer obligated to pay royalties to the Research and Development Foundation for EXPAREL made under the 45-liter manufacturing process. For more information, see Note 20, Commitments and Contingencies, to our consolidated financial statements included herein.

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, research 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, registry 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 years indicated, including percent changes (dollar amounts in thousands):

Total research and development expense decreased 10% in 2023 as compared to 2022.

Clinical and preclinical development expense decreased 46% in 2023 versus 2022 due to the completion of two EXPAREL lower extremity nerve block trials in bunionectomy and TKA in the third quarter of 2022 and toxicology studies that are near completion for product candidates, partially offset by start-up costs for the EXPAREL intrathecal, ZILRETTA shoulder and iovera° spasticity trials.

Product development and manufacturing capacity expansion expense increased 35% in 2023 versus 2022, primarily attributable to new product development costs related to PCRX-201 and the continued significant scale-up activities of our EXPAREL manufacturing capacity at our Science Center Campus in San Diego, California, for which an sNDA for a 200-liter EXPAREL manufacturing suite was approved by the FDA in February 2024.

Regulatory and other research and development expenses increased 22% in 2023 versus 2022 due to increased enrollment and additional sites related to an observational registry study designed to assess clinical and patient reported outcomes in patients with pain associated with OA and TKA and increased medical information publications.

Stock-based compensation increased 32% in 2023 versus 2022 primarily due to the acceleration of stock compensation awards related to a terminated executive in 2023.

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, 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,

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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 years indicated, including percent changes (dollar amounts in thousands):

Total selling, general and administrative expenses increased 6% in 2023 as compared to 2022.

Sales and marketing expense increased 6% in 2023 compared to 2022, driven by an increase in marketing investments in our products, including marketing EXPAREL’s newly approved indication for use as a lower extremity nerve block, 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. In 2023, we invested in strategic partnerships with sports organizations, such as the Ladies Professional Golf Association (LPGA) and National Football League Alumni Association (NFLA), to increase awareness of the availability and benefits of non-opioid options to manage acute and chronic pain for athletes, including postsurgical pain and knee OA. We expanded our investment in clinician training in the use of EXPAREL and iovera° at our training facility in Tampa, as well as the opening of our second training facility in Houston, Texas in January 2023. We also committed to a grant to the American Society of Anesthesiologists’ Charitable Foundation to advance the medical specialty of anesthesiology and pain medicine, facilitate best in-class clinician education and improve patient care.

In 2024, we expect to make further investments in our marketing strategy, particularly in preparation for the commencement of the NOPAIN Act, which will take effect beginning on January 1, 2025. These investments include programs to drive awareness and education for our customers and enhance our marketing, market access and reimbursement teams.

General and administrative expense increased 12% in 2023 versus 2022 primarily driven by legal fees attributable to ongoing litigation—for more information, see Note 20, Commitments and Contingencies, to our consolidated financial statements included herein.

Stock-based compensation decreased 5% in 2023 versus 2022 primarily due to the acceleration of stock compensation awards related to terminated executives in the prior year.

Amortization of Acquired Intangible Assets

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

As part of the Flexion Acquisition and the MyoScience Acquisition, we acquired intangible assets consisting of developed technology intangible assets and customer relationships, with estimated useful lives between 9 and 14 years. For more information, see Note 5, Flexion Acquisition, and Note 9, Goodwill and Intangible Assets, to our consolidated financial statements included herein.

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Contingent Consideration (Gains) Charges, Acquisition-related Charges and Other

The following table provides a summary of the costs related to contingent consideration, restructuring charges, acquisition-related charges and other activities during the years indicated, including percent changes (dollar amounts in thousands):

In 2023, we recognized contingent consideration gains of $3.4 million due to a decrease in the fair value of the Flexion contingent consideration. The decrease was primarily due to adjustments in the assumption for the long-term forecasts which reduced the probability of meeting the sales-based contingent consideration milestones by December 31, 2030, the expiration date for achieving the milestones. The impact of this assumption on the fair value was partially offset by a decrease to the assumed discount rate based on a significant improvement in our incremental borrowing rate resulting from the TLA Credit Agreement entered into in March 2023. In 2022, we recognized contingent consideration gains of $29.5 million primarily due to adjustments to near-term forecasts for the earnout period of the Flexion contingent consideration and a gain due to the reduced probability of meeting the MyoScience contingent consideration milestones by December 31, 2023—the expiration date for achieving those milestones. For more information, see Note 12, Financial Instruments and Note 18, Contingent Consideration (Gains) Charges, Acquisition-related Charges and Other, to our consolidated financial statements included herein.

In 2023, we recognized acquisition-related charges of $2.0 million related to vacant and underutilized leases assumed as part of the Flexion Acquisition. In 2022, we recognized acquisition-related charges of $11.2 million related to severance and other employee related costs, legal and other professional fees, third-party services and other one-time charges associated with the Flexion Acquisition.

In 2022, we recognized an impairment of $26.1 million for an acquired in-process research and development intangible asset related to ZILRETTA for the treatment of OA pain of the shoulder based on the amount its previous carrying value exceeded its fair value. See Note 9, Goodwill and Intangible Assets, for more information.

In 2023, we recognized other operating expenses of $1.1 million that included a restructuring plan in an effort to improve our operational efficiencies and recognized one-time employee termination benefits through a reduction of headcount. In 2022, we recognized other operating expense of $3.0 million related to the termination of a license agreement. See Note 20, Commitments and Contingencies, to our consolidated financial statements included herein for more information.

For more information, see Note 18, Contingent Consideration (Gains) Charges, Acquisition-related Charges and Other, to our consolidated financial statements included herein.

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Other Expense, Net

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

Total other expense, net decreased 44% in 2023 versus 2022.

The 49% decrease in interest expense was primarily driven by entering into the TLA Term Loan (as defined below) in March 2023 in order to retire our term loan B facility and related credit agreement (the “TLB Term Loan”), and, to a lesser extent, the absence of our 2.375% convertible senior notes that matured in April 2022. For more information, See Note 11, Debt, to our consolidated financial statements herein.

Interest income significantly increased in 2023 versus 2022 due to higher interest rates and overall investment balances.

In conjunction with the entry into the TLA Credit Agreement (as defined below), we incurred a $16.9 million loss on early extinguishment of debt recognized as a result of the retirement of $287.5 million aggregate principal of our TLB Term Loan in 2023. For more information, See Note 11, Debt, to our consolidated financial statements herein.

Other, net expense for 2022 included a $10.0 million impairment of an equity investment.

Income Tax Expense (Benefit)

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

We recorded income tax expense of $19.7 million for the year ended December 31, 2023 and an income tax benefit of $2.6 million for the year ended December 31, 2022. The effective tax rate of 32% for the year ended December 31, 2023 differed from the U.S. statutory tax rate of 21% primarily due to non-deductible stock-based and executive compensation and non-U.S. valuation allowances, partially offset by tax credits. The effective tax rate of (20)% for the year ended December 31, 2022 differed from the U.S. statutory tax rate of 21% due to non-taxable contingent consideration fair value gains, tax deductible interest for a Skyepharma milestone payment and tax credits, partially offset by valuation allowances recorded against capital loss carryforwards and non-deductible executive compensation.

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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 revenue. As of December 31, 2023, we had an accumulated deficit of $106.8 million, cash and cash equivalents and available-for-sale investments of $281.0 million and working capital of $412.6 million.

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

Summary of Cash Flows

The following table summarizes our cash flows from operating, investing and financing activities for the years ended December 31, 2023 and 2022 (in thousands):

Operating Activities

In 2023, net cash provided by operating activities was $154.6 million compared to $145.3 million in 2022. The increase of $9.4 million was attributable to an improved gross margin, increased interest income and reduced interest expense, partially offset by a $13.0 million termination fee relating to a licensing agreement and a negative impact on the changes in working capital.

Investing Activities

In 2023, net cash provided by investing activities was $77.5 million, which reflected $99.5 million of available-for-sale investment maturities (net of purchases), purchases of fixed assets of $15.2 million for fill lines for our products and equipment for an EXPAREL capacity expansion project at our Science Center Campus in San Diego, California and purchases of debt investments of $6.8 million in external complementary development stage product candidates.

In 2022, net cash used in investing activities was $225.2 million, which reflected $150.1 million of available-for-sale investment purchases (net of maturities), a $32.0 million contingent consideration milestone payment that had been achieved in the fourth quarter of 2021 associated with our 2007 acquisition of Pacira Pharmaceuticals, Inc. from Skyepharma, purchases of fixed assets of $30.1 million for fill lines for our products and equipment for an EXPAREL capacity expansion project at our Science Center Campus in San Diego, California and purchases of equity and debt investments of $13.0 million in external complementary development stage product candidates.

Financing Activities

In 2023, net cash used in financing activities was $183.0 million, which consisted of a $296.9 million repayment of TLB Term Loan principal as well as a $5.8 million prepayment penalty in connection with the retirement of the TLB Term Loan facility and $33.4 million repayments of TLA Term Loan principal, partially offset by the net proceeds from the TLA Term Loan of $149.6 million, $2.8 million from the issuance of common stock through our ESPP and proceeds from the exercise of stock options of $1.9 million.

In 2022, net cash used in financing activities was $401.5 million, which consisted of a $192.6 million principal repayment of the Flexion 2024 Notes as part of a repurchase offer to the holders of the Flexion 2024 Notes that was triggered by the Flexion Acquisition, $157.0 million to settle our 2.375% convertible senior notes that matured on April 1, 2022 and $78.1 million of payments of TLB Term Loan principal that included a principal prepayment of $50.0 million, partially offset by $24.4 million of proceeds from the exercise of stock options and $3.0 million from the issuance of common stock through our ESPP.

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Equity Financings

From our inception in December 2006 through December 31, 2023, we have raised $344.5 million of net proceeds from the sale of common stock and other equity securities via public offerings.

Debt

2028 Term Loan A Facility

On March 31, 2023, we entered into a credit agreement (the “TLA Credit Agreement”) to refinance the indebtedness outstanding under our TLB Credit Agreement (as defined and discussed below). The term loan issued under the TLA Credit Agreement (the “TLA Term Loan”) was issued at a 0.30% discount and provides for a single-advance term loan A facility in the principal amount of $150.0 million, which is secured by substantially all of our and any subsidiary guarantor’s assets and matures on March 31, 2028. We may elect to borrow either (i) alternate base rate borrowings or (ii) term benchmark borrowings or daily simple SOFR (as defined in the TLA Credit Agreement) borrowings. Each term loan borrowing which is an alternate base rate borrowing bears interest at a rate per annum equal to (i) the Alternate Base Rate (as defined in the TLA Credit Agreement), plus (ii) a spread based on our Senior Secured Net Leverage Ratio ranging from 2.00% to 2.75%. Each term loan borrowing which is a term benchmark borrowing or daily simple SOFR borrowing bears interest at a rate per annum equal to (i) the Adjusted Term SOFR Rate or Adjusted Daily Simple SOFR (as each is defined in the TLA Credit Agreement), plus (ii) a spread based on our Senior Secured Net Leverage Ratio ranging from 3.00% to 3.75%. During the year ended December 31, 2023, we made a scheduled principal payment of $2.8 million as well as $30.6 million of voluntary principal prepayments. Due to the voluntary principal prepayments made during the year ended December 31, 2023, we are not required to make further principal payments for the year ended December 31, 2024, although we retain the option to do so. As of December 31, 2023, borrowings under the TLA Term Loan consisted entirely of term benchmark borrowings at a rate of 8.46%. At December 31, 2023, the outstanding principal on the TLA Term Loan was $116.6 million.

The TLA Credit Agreement requires us to, among other things, maintain (i) a Senior Secured Net Leverage Ratio (as defined in the TLA Credit Agreement), determined as of the last day of each fiscal quarter, of no greater than 3.00 to 1.00 and (ii) a Fixed Charge Coverage Ratio (as defined in the TLA Credit Agreement), determined as of the last day of each fiscal quarter, of no less than 1.50 to 1.00. The TLA Credit Agreement requires the Company to maintain an unrestricted cash and cash equivalents balance of at least $500.0 million less any prepayments of the 2025 Notes at any time from 91 days prior to the maturity date through the earlier of (i) the latest maturity date of the 2025 Notes and (ii) the date on which there is no outstanding principal amount of the 2025 Notes. The TLA Credit Agreement also contains customary affirmative and negative covenants, financial covenants, representations and warranties, events of default and other provisions. As of December 31, 2023, we were in compliance with all financial covenants under the TLA Credit Agreement. See Note 11, Debt, to our consolidated financial statements included herein for further discussion.

2026 Term Loan B Facility

In December 2021, we entered into the $375.0 million TLB Term Loan which was secured by substantially all of the Company’s and any subsidiary guarantor’s assets and was scheduled to mature on December 7, 2026, subject to certain exceptions set forth in the TLB Credit Agreement.

On March 31, 2023, we used the $149.6 million of net borrowings under the TLA Credit Agreement and cash on hand to repay the indebtedness outstanding under the TLB Credit Agreement and concurrently terminated the TLB Credit Agreement. We incurred a prepayment fee of 2.00% of the outstanding principal balance of the TLB Term Loan in connection with the termination. During the year ended December 31, 2023, we made a scheduled principal payment of $9.4 million and repaid the outstanding $287.5 million principal on the TLB Term Loan, which resulted in a $16.9 million loss on early extinguishment of debt. See Note 11, Debt, to our consolidated financial statements included herein for further discussion of the TLB 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, 2023, 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.

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

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of 3.375% per annum, payable semi-annually on May 1 and November 1 of each year. In January 2022, we repurchased $192.6 million aggregate principal amount of the Flexion 2024 Notes. At December 31, 2023, the outstanding principal on the Flexion 2024 Notes was $8.6 million. See Note 11, Debt, to our consolidated financial statements included herein for further discussion.

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 TLA Term Loan, Flexion 2024 Notes and 2025 Notes (collectively, the “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 cost and timing of the potential milestone payments to former Flexion stockholders, which could be up to an aggregate of $372.3 million if certain regulatory and commercial milestones are met. See Note 5, Flexion Acquisition, and Note 12, Financial Instruments, to our consolidated financial statements included herein for more information;

•the impact of global economic conditions—including the impact of inflation—on our product, material and labor costs, supply chain, longer lead-times, an inability to secure a sufficient supply of materials, our operating expenses and our business strategy;

•the timing of and extent to which the holders of our Notes elect to convert their Notes, the timing of principal and interest payments on our TLA Term Loan and the timing and impact of increases to the variable interest rate on our TLA Term Loan borrowings in accordance with the terms of the TLA Credit Agreement;

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

•the cost and timing of expanding and maintaining our manufacturing facilities;

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

•the costs related to legal and regulatory matters;

•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 the 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. In particular, capital market disruptions or negative economic conditions may hinder our access to capital.

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Contractual Obligations

We had two convertible senior notes outstanding as of December 31, 2023, for which $8.6 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. The remaining interest payments on our Notes is $6.1 million, of which an estimated $3.1 million is due in 2024. We also have the TLA Term Loan with $116.6 million in outstanding principal. Due to voluntary principal prepayments of $30.6 million made during the year ended December 31, 2023, we are not contractually obligated to make principal payments in 2024. As of December 31, 2023, there are contractually obligated principal payments of $1.3 million in 2025, $15.0 million in both 2026 and 2027 and $85.3 million in 2028. The remaining interest payments of the TLA Term Loan are approximately $39.6 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, 2023, we had net minimum commitments of $78.6 million, of which $13.0 million is due in 2024. For more information, refer to Note 8, Leases, to our consolidated financial statements included herein.

In addition, we have approximately $71.4 million of minimum, non-cancelable contractual commitments for contract manufacturing services as of December 31, 2023, of which $21.1 million is due within one year, and the remaining $50.3 million is due in one to five years. We have approximately $14.2 million of minimum, non-cancelable contractual commitments for the purchase of certain raw materials as of December 31, 2023, of which $7.7 million is due within one year, and the remaining $6.5 million is due in one to two years. As of December 31, 2023, we had $4.9 million of other minimum, non-cancelable contractual commitments.

As part of the Flexion Acquisition, there are up to $372.3 million in potential payments if all regulatory and commercial milestones are met. The aggregate amount was previously $425.5 million prior to our September 2022 decision to formally discontinue further development of PCRX-301, an investigational product candidate. For more information, see Note 5, Flexion Acquisition, to our consolidated financial statements included herein.

Critical Accounting 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, impairment of intangible assets, 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. We include 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 of operations 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.

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The summary of activity with respect to our sales related allowances and accruals for the years ended December 31, 2023, 2022 and 2021 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 contingent consideration (gains) charges, acquisition-related charges and other. Changes in contingent consideration can result from changes in the assumed achievement and timing of estimated sales 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:

The maximum remaining potential payments related to contingent consideration from the Flexion Acquisition is $372.3 million as of December 31, 2023. Changes to 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 associated with the Flexion Acquisition as of December 31, 2023 by $5.7 million. The impact of a hypothetical 100 basis point increase in the discount rate would have reduced the value of our contingent consideration liability associated with the Flexion Acquisition as of December 31, 2023 by $1.2 million.

Recent Accounting Pronouncements

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

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

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 2022 and 2021, as well as other discussions of 2022 and 2021 items. We have omitted discussion of the year ended December 31, 2020 (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 2021 and 2020 and other discussions of 2020 items can be found within Part II, Item 7, to our Annual Report for the year ended December 31, 2021, filed with the SEC on February 28, 2022, which is available on the SEC’s website at www.sec.gov and our corporate website at www.pacira.com. The foregoing reference to our corporate website is not intended to, nor shall it be deemed to, incorporate information on our corporate website into this Annual Report by reference, and the inclusion of our website address in this Annual Report is an inactive textual reference only and is not intended to be an active link to our corporate website.

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. We are also developing innovative interventions to address debilitating conditions involving the sympathetic nervous system, such as cardiac electrical storm, chronic pain and spasticity. 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 and children aged six years and older. Since its initial approval in 2011, more than 12 million patients have been treated with EXPAREL. We drop-ship EXPAREL directly to end-users based on orders placed to wholesalers or directly to us, and there is no product held by wholesalers. With the acquisition of Flexion Therapeutics, Inc. (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. With the acquisition of MyoScience, Inc. (the “MyoScience Acquisition”) in April 2019, we acquired iovera°®, a handheld cryoanalgesia device used to deliver a precise, controlled application of cold temperature to targeted nerves, which we sell directly to end users. EXPAREL, ZILRETTA and the iovera° system are highly complementary products as long-acting, non-opioid therapies that alleviate pain.

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 our 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.

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Flexion Acquisition

In November 2021, we completed the Flexion Acquisition pursuant to the Flexion 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 $85.1 million cash payment of Flexion debt not 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 Flexion 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. At the date of the Flexion Acquisition, we estimated 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. The fair value of the contingent consideration related to the Flexion Acquisition is revalued each reporting period if and until the related contingencies are resolved. For more information, see Note 5, Flexion Acquisition, to our consolidated financial statements included herein.

Recent Highlights

•In January 2023, we submitted our sNDA to the FDA seeking expansion of the EXPAREL label to include sciatic nerve blocks in the popliteal fossa and femoral nerve blocks in the adductor canal, with an anticipated FDA action date under the Prescription Drug User Fee Act in the second half of 2023. The sNDA is supported by two successful Phase 3 studies in which EXPAREL achieved statistically significant reductions in postsurgical pain control and opioid consumption through 96 hours compared with bupivacaine HCl.

•In January 2023, we opened our second Innovation and Training Center in Houston. This state-of-the-art facility features a 125-seat adaptive lecture hall, broadcast studio and both wet and dry lab space for cadaver and other interactive workshops, as well as advanced ultrasound machines equipped with artificial intelligence training software. This training center is core to developing physician thought leaders and community-based clinicians wanting to stay at the forefront of opioid-sparing pain management.

•In November 2022, both the EMA’s CHMP and the MHRA approved marketing authorization for an expanded indication of EXPAREL to include use in children aged 6 years and older as a field block for the treatment of somatic post-operative pain from small- to medium-sized surgical wounds. The approval was based on the results of our Phase 3 PLAY study of EXPAREL infiltration in pediatric patients undergoing spinal or cardiac surgeries. Overall findings were consistent with the pharmacokinetic and safety profiles for adult patients with no safety concerns identified at a dose of 4 mg/kg. The EMA’s approval is applicable to all 27 E.U. member states plus Iceland, Norway and Liechtenstein, and the MHRA’s approval is applicable in the U.K. EXPAREL was initially approved by the EC and in the U.K. in November 2020 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.

•In October 2022, the USPTO issued patent number 11,452,691. This patent is a chemical composition patent, with an expiration date of January 22, 2041. This patent is now listed in the FDA’s Orange Book and is the eighth listed patent. The company also received a Notice of Allowance from the USPTO for a U.S. Patent Application that is a product by process patent for EXPAREL. After issuance, Pacira will submit this patent for listing in the Orange Book.

Coronavirus (COVID-19) Pandemic and Global Economic Conditions

Since early 2020, our revenues and supply chain have been impacted by COVID-19 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 therapeutics, as well as the lessening of elective surgery restrictions, certain pandemic-related operational and staffing 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. Direct and indirect effects of the pandemic and global economic conditions have and may continue to negatively impact our business, financial condition and results of operations. Such impacts may include the effect of prolonged periods of inflation and rising interest rates on our

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customers and suppliers and longer lead-times or the inability to secure a sufficient supply of materials. The situation remains dynamic and subject to rapid and possibly material changes. Additional negative impacts may also arise that we are unable to foresee. The nature and extent of such impacts will depend on future developments, which are highly uncertain and cannot be predicted.

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

Results of Operations

Comparison of the Years Ended December 31, 2022 and 2021

Revenues

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

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

(1) ZILRETTA net product sales for the year ended December 31, 2021 were attributable to the period beginning November 19, 2021, the date of the Flexion Acquisition.

EXPAREL net product sales increased 6% in 2022 compared to 2021, primarily due to increases of 5.5% in gross vial volume and increases of 3.6% in gross selling price per unit, partially offset by the sales mix of EXPAREL vial sizes and higher gross to net adjustments primarily due to our participation in 340B drug pricing and other strategic partnerships. 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 has faced post-pandemic-related challenges due to regional surges in COVID-19 variant cases, staffing shortages and fatigue from care teams and economic and inflationary pressures on consumer confidence. 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.

As a result of the Flexion Acquisition in November 2021, we acquired ZILRETTA. We recognized net product sales of $105.5 million and $12.7 million for the years ended December 31, 2022 and 2021, respectively. Net product sales during the year ended December 31, 2021 were attributable to the period beginning on November 19, 2021, the closing date of the Flexion Acquisition.

Net product sales of iovera° decreased 6% in 2022 versus 2021 primarily due to a delay in the transition from generation 1 to generation 2 iovera° products and short-term variations in reimbursement policies in certain territories. 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.

Bupivacaine liposome injectable suspension revenue increased 80% in 2022 versus 2021, and its related royalties increased 9%, primarily due to the sales mix of vial sizes of orders placed for veterinary use.

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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 lingering effects and uncertainty surrounding the ongoing COVID-19 pandemic and the impact of economic conditions including inflation on consumers' healthcare choices.

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 years indicated, including percent changes (dollar amounts in thousands):

Gross margin decreased four percentage points in 2022 as compared to 2021 due to higher inventory reserves, accelerated depreciation for certain machinery and equipment for which no future economic benefit was identified and the ZILRETTA step-up of fixed assets and inventory to fair value in accordance with purchase accounting, partially offset by unplanned downtime in the prior period.

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 years indicated, including percent changes (dollar amounts in thousands):

Total research and development expense increased 53% in 2022 as compared to 2021.

Clinical and preclinical development expense increased 89% in 2022 versus 2021 due to ongoing expenses and completion of two EXPAREL lower extremity nerve block trials in bunionectomy and TKA, ongoing trials for the product candidates acquired as part of the Flexion Acquisition and toxicology studies for product development candidates. The prior year was affected by clinical trial delays related to the COVID-19 pandemic, whereas the current year included an expanded product candidate pipeline internally and as a result of the Flexion Acquisition, including ongoing expenses for PCRX-201, an IA gene therapy candidate for OA.

Product development and manufacturing capacity expansion expense increased 27% in 2022 versus 2021 mainly attributable to the significant scale-up of our EXPAREL manufacturing capacity at our Science Center Campus in San Diego, California.

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Regulatory and other expenses increased 21% in 2022 versus 2021 in support of the E.U. EXPAREL pediatric submission and in the U.S., the sNDA for lower extremity nerve block, which we submitted to the FDA in January 2023 seeking expansion of the EXPAREL label to include femoral nerve block in the adductor canal and sciatic nerve block in the popliteal fossa.

Stock-based compensation increased 21% in 2022 versus 2021 primarily due to an increase in the amount of equity awards outstanding for research and development personnel.

We expect that research and development costs for 2023 will be modestly lower than 2022, with a focus on ZILRETTA, iovera°, PCRX-201 and PCRX-401. We believe ZILRETTA’s extended-release profile may provide effective treatment for OA pain of the shoulder and intend to initiate a Phase 3 trial investigating ZILRETTA in shoulder OA. We also intend to initiate an OA Knee safety study of ZILRETTA in patients with Type 2 diabetes and a Phase 3 trial investigating iovera° in patients with spasticity, as well as plan to submit an IND application for PCRX-401 to initiate a Phase 1 trial for low back pain.

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, 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 years indicated, including percent changes (dollar amounts in thousands):

Total selling, general and administrative expenses increased 28% in 2022 as compared 2021.

Sales and marketing expense increased 31% in 2022 versus 2021, driven by a sales force expansion supporting both ZILRETTA and iovera° following the completion of the Flexion Acquisition in November 2021 and fully staffing a contracted sales force in Europe for EXPAREL. Increases also included expenses for patient reimbursement support for ZILRETTA. We are continuing our marketing investment in our products, 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 continued our investment in clinician training in the use of EXPAREL and iovera° at our PIT of Tampa. The addition of ZILRETTA to our commercial portfolio provides clinicians with two unique OA treatment options to individualize patient care.

General and administrative expense increased 29% in 2022 versus 2021, driven by administrative support costs as a result of the Flexion Acquisition in November 2021, including transition expenses during integration, legal costs including intellectual property protection and additional support for our expansion into European markets.

Stock-based compensation increased 15% in 2022 versus 2021, primarily due to the number of equity awards outstanding for selling, general and administrative personnel and accelerated stock-based compensation expense.

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Amortization of Acquired Intangible Assets

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

Amortization of acquired intangible assets increased substantially in 2022 versus 2021 due to 2022 being the first full year after the completion of the Flexion 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, Flexion Acquisition, to our consolidated financial statements included herein.

Acquisition-Related Charges (Gains), Impairment and Other

The following table provides a summary of the costs related to the Flexion Acquisition, MyoScience Acquisition, commercial agreements, termination costs and other activities during the years indicated, including percent changes (dollar amounts in thousands):

In 2022, we recognized acquisition-related gains of $18.2 million. These gains were primarily driven by reductions in acquisition contingent consideration liabilities due to adjustments to forecasts for the applicable period during which the Flexion contingent consideration may be achieved under the Flexion Merger Agreement and due to the reduced probability of meeting the MyoScience contingent consideration milestones by December 31, 2023—the expiration date for achieving those milestones. These gains were partially offset by severance and other employee related costs, legal and other professional fees, third-party services and other one-time charges associated with the Flexion Acquisition. For more information, see Note 12, Financial Instruments and Note 18, Acquisition-related Charges (Gains), Impairment and Other, to our consolidated financial statements included herein.

In 2021, we recognized acquisition-related charges of $39.9 million. These charges were 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. These charges were partially offset by a gain from changes in fair value associated with the contingent consideration related to the MyoScience Acquisition.

In 2022, we recognized an impairment of $26.1 million for an acquired in-process research and development intangible asset related to ZILRETTA for the treatment of an OA pain of the shoulder based on the amount its previous carrying value exceeded its fair value. See Note 9, Goodwill and Intangible Assets, for more information.

In 2022, we recognized expense of $3.0 million related to the termination of a license agreement. See Note 20, Commitments and Contingencies, to our consolidated financial statements included herein for more information. In 2021, we agreed to a mutual termination of our development and commercialization agreement with Nuance Biotech Co. Ltd. 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, that led to dissolution costs of $3.0 million.

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Other Expense, Net

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

Total other expense, net increased 39% in 2022 versus 2021.

The 26% increase in interest expense was due to the $375.0 million Term Loan entered into in December 2021. This increase was partially offset by the absence of debt discount amortization associated with our convertible notes in 2022 due to adopting Accounting Standards Update, or ASU, 2020-06 in 2022, and the maturation of our 2.375% convertible senior notes due 2022, or 2022 Notes, on April 1, 2022. For additional information regarding the adoption of ASU 2020-06, see Note 2, Summary of Significant Accounting Policies, to our consolidated financial statements herein. We made a $50.0 million principal prepayment on our Term Loan in December 2022 in addition to the quarterly required principal payments of $9.4 million and plan to make an additional prepayment in 2023. For more information, See Note 11, Debt, to our consolidated financial statements herein.

Interest income significantly increased in 2022 versus 2021 due to overall investment balances and higher interest rates.

Other, net expense for 2022 included a $10.0 million impairment of an equity investment. Other, net expense for 2021 included a realized loss on the sale of an equity investment in the amount of $2.6 million.

Income Tax (Benefit) Expense

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

We recorded an income tax benefit of $2.6 million for the year ended December 31, 2022 and income tax expense of $14.4 million for the year ended December 31, 2021. The effective tax rate of (20)% for the year ended December 31, 2022 differed from the U.S. statutory tax rate of 21% due to non-taxable contingent consideration fair value gains, tax deductible interest for a Skyepharma milestone payment and tax credits, partially offset by valuation allowances recorded against capital loss carryforwards and non-deductible executive compensation. 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.

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, 2022, we had an accumulated deficit of $148.8 million, cash and cash equivalents and available-for-sale investments of $325.9 million and working capital of $350.6 million.

We expect that our cash and available-for-sale investments on hand will be adequate to cover our 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, allowed for certain measures to increase liquidity for businesses

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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 each of December 2021 and 2022. We remitted an additional $0.6 million in December 2022 on behalf of the benefit Flexion received prior to our completion of the Flexion Acquisition.

Summary of Cash Flows

The following table summarizes our cash flows from operating, investing and financing activities for the years ended December 31, 2022 and 2021 (in thousands):

Operating Activities

In 2022, net cash provided by operating activities was $145.3 million compared to $125.7 million in 2021. The increase of $19.6 million was attributable to increased net product sales from both ZILRETTA—acquired as part of the Flexion Acquisition in November 2021—and EXPAREL, offset by increases in all operating expense lines to support the existing and newly acquired products and product candidates, a slightly lower gross margin and increased interest payments.

Investing Activities

In 2022, net cash used in investing activities was $225.2 million, which reflected $150.1 million of available-for-sale investment purchases (net of maturities), a $32.0 million contingent consideration milestone payment that had been achieved in the fourth quarter of 2021 associated with our 2007 acquisition of Pacira Pharmaceuticals, Inc. from Skyepharma, purchases of fixed assets of $30.1 million for fill lines for our products and equipment for an EXPAREL capacity expansion project at our Science Center Campus in San Diego, California and purchases of equity and debt investments of $13.0 million of investments in external complementary development stage product candidates.

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.

Financing Activities

In 2022, net cash used by financing activities was $401.5 million, which consisted of a $192.6 million principal repayment of the Flexion 2024 Notes as part of a repurchase offer to the holders of the Flexion 2024 Notes that was triggered by the Flexion Acquisition, $157.0 million to settle the 2022 Notes that matured on April 1, 2022 and $78.1 million of payments of Term Loan principal that included a principal prepayment of $50.0 million, partially offset by $24.4 million of proceeds from the exercise of stock options and $3.0 million from the issuance of common stock through our ESPP.

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 a financing activity based on the recognition at the time of the MyoScience Acquisition.

Equity Financings

From our inception in December 2006 through December 31, 2022, we have raised $344.5 million of net proceeds from the sale of common stock and other equity securities via public offerings.

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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, 2022, the Company was in compliance with all financial covenants under the Credit Agreement.

At December 31, 2022, we had $296.9 million in outstanding borrowings under the Term Loan. We made a $50.0 million principal prepayment on our Term Loan in December 2022 in addition to the quarterly required principal payments of $9.4 million and plan to make an additional prepayment in 2023. 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, 2022, 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.

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. In January 2022, we repurchased $192.6 million aggregate principal amount of the Flexion 2024 Notes. At December 31, 2022, the outstanding principal on the Flexion 2024 Notes was $8.6 million. See Note 11, Debt, to our consolidated financial statements included herein for further discussion.

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 cost and timing of the potential Flexion milestone payments in connection with the Flexion Acquisition, which could be up to an aggregate of $372.3 million if certain regulatory and commercial milestones are met. The aggregate amount was previously $425.5 million prior to our September 2022 decision to formally discontinue further development of PCRX-301. See Note 5, Flexion Acquisition, and Note 12, Financial Instruments, to our consolidated financial statements included herein for more information;

•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 12, Financial Instruments, to our consolidated financial statements included herein for more information;

•the impact of the COVID-19 pandemic and global economic conditions, including the volume and delays of suspended elective surgical procedures, clinical trials, longer lead-times, an inability to secure a sufficient supply of materials and the inflationary impact on the cost of materials;

•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;

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•the timing and impact of increases to the variable interest rate on our Term Loan borrowings in accordance with the terms of the Credit Agreement;

•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 and a ZILRETTA capital project at the Thermo Fisher site in Swindon, England;

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

•the costs related to legal and regulatory issues;

•the impact of inflation on our product costs, supply chain, operating expenses and business strategy;

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

Contractual Obligations

We had two convertible senior notes outstanding as of December 31, 2022, for which $8.6 million in aggregate principal amount is due on the 2024 Notes in May 2024 and $402.5 million in aggregate principal amount is due on our 2025 Notes in August 2025. The remaining interest payments on our Notes is $9.4 million, of which an estimated $3.3 million is due in 2023. We also have a Term Loan with $296.9 million in outstanding principal with contractually obligated principal payments of $37.5 million in each of 2023 and 2024, $42.2 million in 2025 and $179.7 million in 2026. The remaining interest payments on the Term Loan are approximately $115.4 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, 2022, we had net minimum commitments of $93.8 million, of which $14.0 million is due in 2023. For more information, refer to Note 8, Leases, to our consolidated financial statements included herein.

In addition, we have approximately $73.3 million of minimum, non-cancelable contractual commitments for contract manufacturing services as of December 31, 2022, of which $18.3 million is due within one year, and the remaining $55.0 million is due in one to three years. We have approximately $5.2 million of minimum, non-cancelable contractual commitments for the purchase of certain raw materials as of December 31, 2022, of which $2.7 million is due within one year, and the remaining $2.5 million is due in one to two years. Subsequent to December 31, 2022, we entered into an additional $2.8 million of minimum, non-cancelable contractual commitments for marketing sponsorships, of which $0.9 million is due within one year, and the remaining $1.9 million is due in one to two years.

As part of the Flexion Acquisition, there are up to $372.3 million in potential payments if all regulatory and commercial milestones are met. The aggregate amount was previously $425.5 million prior to our September 2022 decision to formally discontinue further development of PCRX-301. For more information, see Note 5, Flexion Acquisition, to our consolidated financial statements included herein. 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, 2022. The MyoScience milestone achievement period ends on December 31, 2023.

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Critical Accounting 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, impairment of intangible assets, 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 of operations 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.

The summary of activity with respect to our sales related allowances and accruals for the years ended December 31, 2022, 2021 and 2020 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 (gains), impairment and other. 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:

The maximum remaining potential payments related to contingent consideration from the Flexion Acquisition is $372.3 million as of December 31, 2022. Changes to 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 associated with the Flexion Acquisition as of December 31, 2022 by $5.8 million. The impact of a hypothetical 100 basis point increase in the discount rate would have reduced the value of our contingent consideration liability associated with the Flexion Acquisition as of December 31, 2022 by $1.4 million.

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Recent Accounting Pronouncements

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

Item 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

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

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$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.

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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):

(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):

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):

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):

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):

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):

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):

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):

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):

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.

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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.

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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.

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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:

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:

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.

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