|PACIRA PHARMACEUTICALS, INC. filed this Form 10-K on 03/01/2017|
EXPAREL revenue grew 11% and 27% in the years ended December 31, 2016 and 2015, respectively, primarily due to increases in sales volume of 10% and 21% in each respective period. The demand for EXPAREL has continued as a result of new accounts and growth within existing accounts, which has been driven by continued adoption of EXPAREL use in soft tissue and orthopedic procedures. The remaining increase in EXPAREL revenue was due to 5% price increases in April 2015 and May 2014, partially offset by lower pricing on government sales from our participation in the Federal Supply Schedule beginning in the third quarter of 2015.
DepoCyt(e) and other product sales decreased 8% in 2016 primarily due to fewer DepoCyt(e) lots sold to our domestic commercial partners compared to 2015, partially offset by net sales of bupivacaine liposome injectable suspension to serve animal health indications. DepoCyt(e) product sales decreased 7% in 2015 primarily due to the decrease in the value of the Euro reflected in European sales and a decrease in domestic DepoCyt(e) sales volume.
The increase in collaborative licensing and milestone revenue of 140% in 2016 compared to 2015 was a result of $2.0 million in milestones earned under our agreement with Aratana Therapeutics, Inc., or Aratana, for the development and commercialization of bupivacaine liposome injectable suspension for animal health indications. The increase in collaborative licensing and milestone revenue of 11% in 2015 versus 2014 was primarily driven by a full versus a partial year of amortized revenue on an $8.0 million upfront payment received in May 2014 from Mundipharma International Corporation Limited, or Mundipharma. The payment, which is being recognized on a straight-line basis over the contractual term expiring in June 2033, was consideration for extending the term of the existing supply and distribution agreements and expanding the territory where Mundipharma can market and distribute DepoCyte.
Royalty revenue primarily reflects royalties earned on collections of end user sales of DepoCyt(e) by our commercial partners.
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 during the periods indicated, including our gross margin percentage (dollar amounts in thousands):
The 11 percentage point decrease in our gross margins in 2016 versus 2015 primarily reflects $20.7 million for inventory and related reserves for the cost of EXPAREL batches impacted by a routine stability test that did not meet required specifications and for replacement product and other related costs. We also had a higher EXPAREL manufacturing cost per vial due to lower planned production, partially offset by a shift to utilizing a portion of our manufacturing lines in support of new pipeline product development opportunities at our Science Center Campus in San Diego, California starting mid-year 2015. In addition, gross margins decreased due to higher costs of $3.0 million related to expansion of our manufacturing capacity in Swindon, England, in partnership with Patheon U.K. Limited, or Patheon and increases of $2.9 million for unplanned manufacturing shutdown charges in 2016 versus 2015.
Despite an increase in annual sales volume during 2015 of 21%, the 7% decrease in cost of goods sold versus 2014 was due to a lower manufacturing cost per vial, driven by increased utilization of our EXPAREL manufacturing facility located in San Diego, California, along with the absence of manufacturing line start-up costs which were incurred during 2014. In 2015, the full-year benefit of additional capacity from the 2014 introduction of two new manufacturing lines dedicated to EXPAREL and higher production contributed to the increased utilization of our facilities and lower manufacturing costs per vial, which is reflected in the improvement of our gross margin to 71% in 2015 versus 61% in 2014. The improvements in lower manufacturing costs per vial and gross margin percentage were sustained in spite of unplanned shutdown costs of $3.0 million during 2015.
Research and Development Expenses
Research and development expenses consist primarily of costs attributable to clinical trials and related outside services, stock-based compensation expenses and other research and development costs, including Phase 4 trials that are required as a