Document
false--12-31Q320190001396814P4Y3M0DP5DP5YP0D0001.00000.05640.00000.05290.0010.001250000000250000000412227994170032041222799417003200.023753500000730000073000001000000.0010.00150000005000000000000 0001396814 2019-01-01 2019-09-30 0001396814 2019-11-03 0001396814 2019-09-30 0001396814 2018-12-31 0001396814 2018-07-01 2018-09-30 0001396814 2018-01-01 2018-09-30 0001396814 us-gaap:RoyaltyMember 2019-07-01 2019-09-30 0001396814 2019-07-01 2019-09-30 0001396814 us-gaap:ProductMember 2019-01-01 2019-09-30 0001396814 us-gaap:RoyaltyMember 2018-07-01 2018-09-30 0001396814 us-gaap:ProductMember 2019-07-01 2019-09-30 0001396814 us-gaap:RoyaltyMember 2018-01-01 2018-09-30 0001396814 us-gaap:RoyaltyMember 2019-01-01 2019-09-30 0001396814 us-gaap:ProductMember 2018-01-01 2018-09-30 0001396814 us-gaap:ProductMember 2018-07-01 2018-09-30 0001396814 us-gaap:RetainedEarningsMember 2019-06-30 0001396814 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-07-01 2019-09-30 0001396814 us-gaap:AdditionalPaidInCapitalMember 2018-06-30 0001396814 us-gaap:AdditionalPaidInCapitalMember 2019-09-30 0001396814 us-gaap:CommonStockMember 2018-06-30 0001396814 2019-06-30 0001396814 us-gaap:AdditionalPaidInCapitalMember 2019-07-01 2019-09-30 0001396814 us-gaap:RetainedEarningsMember 2018-07-01 2018-09-30 0001396814 us-gaap:CommonStockMember 2019-07-01 2019-09-30 0001396814 us-gaap:CommonStockMember 2019-06-30 0001396814 us-gaap:RetainedEarningsMember 2018-09-30 0001396814 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-06-30 0001396814 us-gaap:CommonStockMember 2019-09-30 0001396814 us-gaap:AdditionalPaidInCapitalMember 2018-07-01 2018-09-30 0001396814 us-gaap:RetainedEarningsMember 2019-07-01 2019-09-30 0001396814 us-gaap:RetainedEarningsMember 2018-06-30 0001396814 us-gaap:CommonStockMember 2018-09-30 0001396814 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-09-30 0001396814 us-gaap:AdditionalPaidInCapitalMember 2019-06-30 0001396814 2018-09-30 0001396814 us-gaap:CommonStockMember 2018-07-01 2018-09-30 0001396814 us-gaap:RetainedEarningsMember 2019-09-30 0001396814 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-06-30 0001396814 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-07-01 2018-09-30 0001396814 us-gaap:AdditionalPaidInCapitalMember 2018-09-30 0001396814 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-09-30 0001396814 2018-06-30 0001396814 us-gaap:AdditionalPaidInCapitalMember 2018-01-01 2018-09-30 0001396814 us-gaap:AccountingStandardsUpdate201409Member 2019-09-30 0001396814 us-gaap:CommonStockMember 2018-01-01 2018-09-30 0001396814 us-gaap:AdditionalPaidInCapitalMember 2017-12-31 0001396814 us-gaap:CommonStockMember 2018-12-31 0001396814 pcrx:AccountingStandardsUpdate201807Member us-gaap:RetainedEarningsMember 2017-12-31 0001396814 us-gaap:CommonStockMember 2017-12-31 0001396814 us-gaap:RetainedEarningsMember 2019-01-01 2019-09-30 0001396814 pcrx:TwoThousandNineteenSeniorConvertibleNotesMember 2019-01-01 2019-09-30 0001396814 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-01-01 2018-09-30 0001396814 us-gaap:RetainedEarningsMember 2017-12-31 0001396814 us-gaap:RetainedEarningsMember 2018-01-01 2018-09-30 0001396814 pcrx:TwoThousandNineteenSeniorConvertibleNotesMember us-gaap:AdditionalPaidInCapitalMember 2019-01-01 2019-09-30 0001396814 us-gaap:CommonStockMember 2019-01-01 2019-09-30 0001396814 us-gaap:AdditionalPaidInCapitalMember 2018-12-31 0001396814 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-12-31 0001396814 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-01-01 2019-09-30 0001396814 us-gaap:RetainedEarningsMember 2018-12-31 0001396814 us-gaap:AccountingStandardsUpdate201409Member us-gaap:RetainedEarningsMember 2019-09-30 0001396814 us-gaap:AdditionalPaidInCapitalMember 2019-01-01 2019-09-30 0001396814 2017-12-31 0001396814 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2017-12-31 0001396814 pcrx:AccountingStandardsUpdate201807Member us-gaap:AdditionalPaidInCapitalMember 2017-12-31 0001396814 us-gaap:SalesRevenueNetMember us-gaap:ProductConcentrationRiskMember 2019-01-01 2019-09-30 0001396814 pcrx:LargestCustomerMember us-gaap:SalesRevenueGoodsNetMember us-gaap:CustomerConcentrationRiskMember 2019-01-01 2019-09-30 0001396814 us-gaap:SalesRevenueGoodsNetMember us-gaap:CustomerConcentrationRiskMember 2019-07-01 2019-09-30 0001396814 pcrx:ThirdLargestCustomerMember us-gaap:SalesRevenueGoodsNetMember us-gaap:CustomerConcentrationRiskMember 2018-07-01 2018-09-30 0001396814 pcrx:SecondLargestCustomerMember us-gaap:SalesRevenueGoodsNetMember us-gaap:CustomerConcentrationRiskMember 2019-07-01 2019-09-30 0001396814 pcrx:LargestCustomerMember us-gaap:SalesRevenueGoodsNetMember us-gaap:CustomerConcentrationRiskMember 2018-01-01 2018-09-30 0001396814 pcrx:SecondLargestCustomerMember us-gaap:SalesRevenueGoodsNetMember us-gaap:CustomerConcentrationRiskMember 2018-07-01 2018-09-30 0001396814 us-gaap:SalesRevenueGoodsNetMember us-gaap:CustomerConcentrationRiskMember 2018-01-01 2018-09-30 0001396814 pcrx:ThirdLargestCustomerMember us-gaap:SalesRevenueGoodsNetMember us-gaap:CustomerConcentrationRiskMember 2019-07-01 2019-09-30 0001396814 pcrx:SecondLargestCustomerMember us-gaap:SalesRevenueGoodsNetMember us-gaap:CustomerConcentrationRiskMember 2019-01-01 2019-09-30 0001396814 pcrx:SecondLargestCustomerMember us-gaap:SalesRevenueGoodsNetMember us-gaap:CustomerConcentrationRiskMember 2018-01-01 2018-09-30 0001396814 pcrx:ThirdLargestCustomerMember us-gaap:SalesRevenueGoodsNetMember us-gaap:CustomerConcentrationRiskMember 2018-01-01 2018-09-30 0001396814 pcrx:LargestCustomerMember us-gaap:SalesRevenueGoodsNetMember us-gaap:CustomerConcentrationRiskMember 2018-07-01 2018-09-30 0001396814 us-gaap:SalesRevenueGoodsNetMember us-gaap:CustomerConcentrationRiskMember 2018-07-01 2018-09-30 0001396814 pcrx:ThirdLargestCustomerMember us-gaap:SalesRevenueGoodsNetMember us-gaap:CustomerConcentrationRiskMember 2019-01-01 2019-09-30 0001396814 pcrx:LargestCustomerMember us-gaap:SalesRevenueGoodsNetMember us-gaap:CustomerConcentrationRiskMember 2019-07-01 2019-09-30 0001396814 us-gaap:SalesRevenueGoodsNetMember us-gaap:CustomerConcentrationRiskMember 2019-01-01 2019-09-30 0001396814 us-gaap:CustomerConcentrationRiskMember 2019-01-01 2019-09-30 0001396814 us-gaap:AccountingStandardsUpdate201602Member 2019-01-01 0001396814 us-gaap:AccountingStandardsUpdate201602Member 2019-01-01 2019-01-01 0001396814 srt:MaximumMember 2019-01-01 2019-09-30 0001396814 pcrx:EXPARELbupivacaineliposomeinjectablesuspensionMember 2019-01-01 2019-09-30 0001396814 pcrx:IoveraMember 2019-01-01 2019-09-30 0001396814 pcrx:EXPARELbupivacaineliposomeinjectablesuspensionMember 2018-01-01 2018-09-30 0001396814 pcrx:EXPARELbupivacaineliposomeinjectablesuspensionMember 2018-07-01 2018-09-30 0001396814 pcrx:EXPARELbupivacaineliposomeinjectablesuspensionMember 2019-07-01 2019-09-30 0001396814 pcrx:IoveraMember 2018-07-01 2018-09-30 0001396814 pcrx:IoveraMember 2018-01-01 2018-09-30 0001396814 pcrx:IoveraMember 2019-07-01 2019-09-30 0001396814 srt:MinimumMember 2019-01-01 2019-09-30 0001396814 pcrx:MyoscienceAcquisitionMember 2019-04-10 2019-06-30 0001396814 pcrx:MyoscienceAcquisitionMember 2019-07-01 2019-09-30 0001396814 pcrx:MyoscienceAcquisitionMember 2019-04-09 2019-04-09 0001396814 pcrx:AchievementofRegulatoryMilestoneDomain 2019-09-30 0001396814 pcrx:MyoscienceAcquisitionMember 2019-04-09 0001396814 pcrx:AchievementofRegulatoryMilestoneMember us-gaap:ScenarioForecastMember 2019-09-30 0001396814 pcrx:MyoscienceAcquisitionMember 2018-01-01 2018-09-30 0001396814 pcrx:MyoscienceAcquisitionMember 2018-07-01 2018-09-30 0001396814 pcrx:MyoscienceAcquisitionMember 2019-01-01 2019-09-30 0001396814 srt:MaximumMember 2019-09-30 0001396814 us-gaap:LeaseholdImprovementsMember 2018-12-31 0001396814 us-gaap:LeaseholdImprovementsMember 2019-09-30 0001396814 us-gaap:ConstructionInProgressMember 2018-12-31 0001396814 us-gaap:FurnitureAndFixturesMember 2019-09-30 0001396814 pcrx:ComputerEquipmentAndSoftwareMember 2019-09-30 0001396814 pcrx:ComputerEquipmentAndSoftwareMember 2018-12-31 0001396814 us-gaap:MachineryAndEquipmentMember 2019-09-30 0001396814 us-gaap:FurnitureAndFixturesMember 2018-12-31 0001396814 us-gaap:MachineryAndEquipmentMember 2018-12-31 0001396814 us-gaap:ConstructionInProgressMember 2019-09-30 0001396814 us-gaap:ConstructionInProgressMember 2019-01-01 2019-09-30 0001396814 us-gaap:ConstructionInProgressMember 2019-07-01 2019-09-30 0001396814 pcrx:FremontCaliforniaMember us-gaap:BuildingMember 2019-01-01 2019-09-30 0001396814 srt:MinimumMember 2019-09-30 0001396814 us-gaap:DevelopedTechnologyRightsMember 2019-09-30 0001396814 us-gaap:DevelopedTechnologyRightsMember 2019-01-01 2019-09-30 0001396814 us-gaap:CustomerRelationshipsMember 2019-09-30 0001396814 us-gaap:CustomerRelationshipsMember 2019-01-01 2019-09-30 0001396814 pcrx:UponAnnualNetSalesReachingDollar100.0MillionThresholdMember 2019-09-30 0001396814 pcrx:UponFirstCommercialSaleInMajorEUCountryMember 2019-09-30 0001396814 pcrx:UponAnnualNetSalesReachingDollar250.0MillionThresholdMember 2019-09-30 0001396814 pcrx:SkyePharmaHoldingIncMember 2018-12-31 0001396814 pcrx:UponAnnualNetSalesReachingDollar500.0MillionThresholdMember 2019-09-30 0001396814 pcrx:UponFirstCommercialSaleInUnitedStatesMember 2019-09-30 0001396814 pcrx:TwoThousandNineteenSeniorConvertibleNotesMember 2018-07-01 2018-09-30 0001396814 pcrx:TwoThousandNineteenSeniorConvertibleNotesMember 2018-01-01 2018-09-30 0001396814 pcrx:TwoThousandNineteenSeniorConvertibleNotesMember 2019-07-01 2019-09-30 0001396814 pcrx:ConvertibleSeniorNotesDue2022Member us-gaap:UnsecuredDebtMember 2018-12-31 0001396814 pcrx:ConvertibleSeniorNotesDue2022Member us-gaap:UnsecuredDebtMember 2019-09-30 0001396814 pcrx:ConvertibleSeniorNotesDue2022Member us-gaap:UnsecuredDebtMember 2017-03-13 2017-03-13 0001396814 pcrx:TwoThousandNineteenSeniorConvertibleNotesMember 2019-02-01 0001396814 pcrx:DebtConversionTermsBusinessDayImmediatelyPrecedingOctober12021Member pcrx:ConvertibleSeniorNotesDue2022Member 2017-03-13 2017-03-13 0001396814 pcrx:ConvertibleSeniorNotesDue2022Member 2017-03-07 0001396814 pcrx:DebtConversionTermsBusinessDayImmediatelyPrecedingOctober12021Member pcrx:ConvertibleSeniorNotesDue2022Member 2019-09-30 0001396814 2019-02-01 2019-02-01 0001396814 pcrx:DebtRedemptionTermsonorafterApril12020Member pcrx:ConvertibleSeniorNotesDue2022Member 2017-03-13 2017-03-13 0001396814 pcrx:ConvertibleSeniorNotesDue2022Member 2017-03-13 0001396814 pcrx:ConvertibleSeniorNotesDue2022Member us-gaap:UnsecuredDebtMember 2017-03-13 0001396814 pcrx:TwoThousandNineteenSeniorConvertibleNotesMember 2019-09-30 0001396814 pcrx:ConvertibleSeniorNotesDue2022Member 2017-03-13 2017-03-13 0001396814 us-gaap:FairValueInputsLevel2Member us-gaap:ShortTermInvestmentsMember 2019-09-30 0001396814 us-gaap:FairValueInputsLevel2Member 2019-09-30 0001396814 us-gaap:ShortTermInvestmentsMember us-gaap:FairValueInputsLevel2Member us-gaap:CorporateBondSecuritiesMember 2019-09-30 0001396814 us-gaap:FairValueInputsLevel2Member pcrx:LongTermInvestmentsMember 2019-09-30 0001396814 us-gaap:ShortTermInvestmentsMember us-gaap:FairValueInputsLevel2Member us-gaap:AssetBackedSecuritiesMember 2019-09-30 0001396814 pcrx:LongTermInvestmentsMember us-gaap:FairValueInputsLevel2Member us-gaap:AssetBackedSecuritiesMember 2019-09-30 0001396814 us-gaap:ShortTermInvestmentsMember us-gaap:FairValueInputsLevel2Member us-gaap:CommercialPaperMember 2019-09-30 0001396814 pcrx:LongTermInvestmentsMember us-gaap:FairValueInputsLevel2Member us-gaap:CorporateBondSecuritiesMember 2019-09-30 0001396814 us-gaap:ShortTermInvestmentsMember us-gaap:FairValueInputsLevel2Member us-gaap:AssetBackedSecuritiesMember 2018-12-31 0001396814 us-gaap:ShortTermInvestmentsMember us-gaap:FairValueInputsLevel2Member us-gaap:CommercialPaperMember 2018-12-31 0001396814 us-gaap:ShortTermInvestmentsMember us-gaap:FairValueInputsLevel2Member us-gaap:CorporateBondSecuritiesMember 2018-12-31 0001396814 pcrx:LongTermInvestmentsMember us-gaap:FairValueInputsLevel2Member us-gaap:CorporateBondSecuritiesMember 2018-12-31 0001396814 us-gaap:FairValueInputsLevel2Member us-gaap:ShortTermInvestmentsMember 2018-12-31 0001396814 pcrx:LongTermInvestmentsMember us-gaap:FairValueInputsLevel2Member us-gaap:AssetBackedSecuritiesMember 2018-12-31 0001396814 us-gaap:FairValueInputsLevel2Member 2018-12-31 0001396814 us-gaap:FairValueInputsLevel2Member pcrx:LongTermInvestmentsMember 2018-12-31 0001396814 pcrx:ConvertibleSeniorNotesDue2022Member us-gaap:FairValueInputsLevel3Member 2019-09-30 0001396814 pcrx:MyoscienceAcquisitionMember us-gaap:CarryingReportedAmountFairValueDisclosureMember 2019-09-30 0001396814 pcrx:ConvertibleSeniorNotesDue2022Member us-gaap:CarryingReportedAmountFairValueDisclosureMember 2019-09-30 0001396814 pcrx:MyoscienceAcquisitionMember us-gaap:FairValueInputsLevel3Member 2019-09-30 0001396814 pcrx:ConvertibleSeniorNotesDue2022Member us-gaap:FairValueInputsLevel1Member 2019-09-30 0001396814 pcrx:ConvertibleSeniorNotesDue2022Member us-gaap:FairValueInputsLevel2Member 2019-09-30 0001396814 pcrx:MyoscienceAcquisitionMember us-gaap:FairValueInputsLevel2Member 2019-09-30 0001396814 pcrx:MyoscienceAcquisitionMember us-gaap:FairValueInputsLevel1Member 2019-09-30 0001396814 2019-06-01 2019-06-30 0001396814 pcrx:MajorCustomerThreeMember us-gaap:AccountsReceivableMember us-gaap:CreditConcentrationRiskMember 2019-01-01 2019-09-30 0001396814 pcrx:MajorCustomerTwoMember us-gaap:AccountsReceivableMember us-gaap:CreditConcentrationRiskMember 2017-01-01 2017-12-31 0001396814 2017-01-01 2017-12-31 0001396814 pcrx:MajorCustomerThreeMember us-gaap:AccountsReceivableMember us-gaap:CreditConcentrationRiskMember 2017-01-01 2017-12-31 0001396814 pcrx:MajorCustomerOneMember us-gaap:AccountsReceivableMember us-gaap:CreditConcentrationRiskMember 2017-01-01 2017-12-31 0001396814 pcrx:MajorCustomerOneMember us-gaap:AccountsReceivableMember us-gaap:CreditConcentrationRiskMember 2019-01-01 2019-09-30 0001396814 pcrx:MajorCustomerTwoMember us-gaap:AccountsReceivableMember us-gaap:CreditConcentrationRiskMember 2019-01-01 2019-09-30 0001396814 srt:MaximumMember pcrx:ConvertibleSeniorNotesDue2022Member 2017-03-13 2017-03-13 0001396814 pcrx:MyoscienceAcquisitionMember 2019-09-30 0001396814 pcrx:ContingentConsiderationMember 2019-01-01 2019-09-30 0001396814 pcrx:ContingentConsiderationMember 2018-12-31 0001396814 pcrx:ContingentConsiderationMember 2019-09-30 0001396814 srt:MaximumMember pcrx:MyoscienceAcquisitionMember us-gaap:FairValueInputsLevel3Member pcrx:ContingentConsiderationMember pcrx:MeasurementInputExpectedMilestonePaymentMember 2019-09-30 0001396814 srt:MinimumMember pcrx:MyoscienceAcquisitionMember us-gaap:FairValueInputsLevel3Member pcrx:ContingentConsiderationMember us-gaap:MeasurementInputDiscountRateMember 2019-09-30 0001396814 srt:MinimumMember pcrx:MyoscienceAcquisitionMember us-gaap:FairValueInputsLevel3Member pcrx:ContingentConsiderationMember pcrx:MeasurementInputExpectedMilestonePaymentMember 2019-09-30 0001396814 srt:MaximumMember pcrx:MyoscienceAcquisitionMember us-gaap:FairValueInputsLevel3Member pcrx:ContingentConsiderationMember us-gaap:MeasurementInputDiscountRateMember 2019-09-30 0001396814 us-gaap:RestrictedStockUnitsRSUMember 2019-01-01 2019-09-30 0001396814 us-gaap:RestrictedStockUnitsRSUMember 2019-09-30 0001396814 us-gaap:RestrictedStockUnitsRSUMember 2018-12-31 0001396814 us-gaap:EmployeeStockOptionMember 2019-01-01 2019-09-30 0001396814 us-gaap:EmployeeStockOptionMember 2019-09-30 0001396814 2019-10-01 2019-12-31 0001396814 us-gaap:EmployeeStockOptionMember 2018-12-31 0001396814 us-gaap:SellingGeneralAndAdministrativeExpensesMember 2019-01-01 2019-09-30 0001396814 us-gaap:CostOfSalesMember 2019-01-01 2019-09-30 0001396814 us-gaap:SellingGeneralAndAdministrativeExpensesMember 2018-07-01 2018-09-30 0001396814 us-gaap:CostOfSalesMember 2018-01-01 2018-09-30 0001396814 us-gaap:CostOfSalesMember 2019-07-01 2019-09-30 0001396814 us-gaap:SellingGeneralAndAdministrativeExpensesMember 2019-07-01 2019-09-30 0001396814 us-gaap:CostOfSalesMember 2018-07-01 2018-09-30 0001396814 us-gaap:SellingGeneralAndAdministrativeExpensesMember 2018-01-01 2018-09-30 0001396814 us-gaap:ResearchAndDevelopmentExpenseMember 2019-01-01 2019-09-30 0001396814 us-gaap:ResearchAndDevelopmentExpenseMember 2018-07-01 2018-09-30 0001396814 us-gaap:ResearchAndDevelopmentExpenseMember 2018-01-01 2018-09-30 0001396814 us-gaap:ResearchAndDevelopmentExpenseMember 2019-07-01 2019-09-30 0001396814 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2018-12-31 0001396814 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2018-01-01 2018-09-30 0001396814 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2019-01-01 2019-09-30 0001396814 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2017-12-31 0001396814 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2019-09-30 0001396814 us-gaap:AccumulatedNetUnrealizedInvestmentGainLossMember 2018-09-30 0001396814 us-gaap:RestrictedStockUnitsRSUMember 2019-01-01 2019-09-30 0001396814 us-gaap:RestrictedStockUnitsRSUMember 2018-07-01 2018-09-30 0001396814 us-gaap:EmployeeStockMember 2018-07-01 2018-09-30 0001396814 us-gaap:EmployeeStockMember 2019-01-01 2019-09-30 0001396814 us-gaap:EmployeeStockMember 2018-01-01 2018-09-30 0001396814 us-gaap:EmployeeStockOptionMember 2019-01-01 2019-09-30 0001396814 us-gaap:RestrictedStockUnitsRSUMember 2019-07-01 2019-09-30 0001396814 us-gaap:EmployeeStockMember 2019-07-01 2019-09-30 0001396814 us-gaap:EmployeeStockOptionMember 2018-07-01 2018-09-30 0001396814 us-gaap:EmployeeStockOptionMember 2018-01-01 2018-09-30 0001396814 us-gaap:RestrictedStockUnitsRSUMember 2018-01-01 2018-09-30 0001396814 us-gaap:EmployeeStockOptionMember 2019-07-01 2019-09-30 0001396814 pcrx:MyoscienceAcquisitionMember pcrx:SeparationCostsAssetWritedownsAndOtherRestructuringChargesMember 2019-07-01 2019-09-30 0001396814 pcrx:ContingentConsiderationMember 2019-07-01 2019-09-30 0001396814 pcrx:MyoscienceAcquisitionMember pcrx:SeparationCostsAssetWritedownsAndOtherRestructuringChargesMember 2019-01-01 2019-09-30 0001396814 pcrx:MyoscienceAcquisitionMember pcrx:AdvisoryCostsMember 2019-07-01 2019-09-30 0001396814 pcrx:MyoscienceAcquisitionMember pcrx:AdvisoryCostsMember 2019-01-01 2019-09-30 0001396814 pcrx:DepoCyteMember 2019-01-01 2019-09-30 0001396814 pcrx:AchievementOfDevelopmentAndCommercialMilestonesMember us-gaap:ScenarioForecastMember us-gaap:SubsequentEventMember 2019-12-31 0001396814 pcrx:ContingentConsiderationMember us-gaap:SubsequentEventMember 2019-10-01 2019-12-31 iso4217:USD xbrli:shares iso4217:USD xbrli:shares pcrx:contract utreg:sqft xbrli:pure pcrx:customer pcrx:product pcrx:segment
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 
FORM 10-Q
 

(Mark One)
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 

For the Quarterly Period Ended September 30, 2019
 
OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from     to
 
Commission File Number: 001-35060
 

https://cdn.kscope.io/cbd6714b79fc557fa6eb04ca78035b83-pacirabiosciencesa05.jpg

PACIRA BIOSCIENCES, INC.
(Exact Name of Registrant as Specified in its Charter)
 
 
Delaware
 
51-0619477
(State or Other Jurisdiction of
Incorporation or Organization)
 
(I.R.S. Employer
 Identification No.)
5 Sylvan Way, Suite 300
Parsippany, New Jersey, 07054
(Address and Zip Code of Principal Executive Offices)
 
(973) 254-3560
(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Trading symbol
 
Name of each exchange on which registered
Common Stock, par value $0.001 per share
 
PCRX
 
Nasdaq Global Select Market







Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.)  Yes   No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
 
Accelerated filer
 
 
Non-accelerated filer
 
Smaller reporting company
 
 
 
 
 
Emerging growth company
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes   No

As of November 3, 2019, 41,730,807 shares of the registrant’s common stock, $0.001 par value per share, were outstanding.


Table of Contents

PACIRA BIOSCIENCES, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2019

TABLE OF CONTENTS

 
 
Page #
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2

Table of Contents

PART I — FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS (Unaudited)
PACIRA BIOSCIENCES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)
(Unaudited)
ASSETS
September 30,
2019
 
December 31,
2018
Current assets:
 

 
 

     Cash and cash equivalents
$
85,139

 
$
132,526

     Short-term investments
180,505

 
250,928

     Accounts receivable, net
42,573

 
38,000

     Inventories, net
60,238

 
48,569

     Prepaid expenses and other current assets
10,392

 
7,946

          Total current assets
378,847

 
477,969

Long-term investments
70,577

 
25,871

Fixed assets, net
104,856

 
108,670

Right-of-use assets, net
35,756

 

Goodwill
99,547

 
62,040

Intangible assets, net
106,354

 

Equity investment and other assets
11,552

 
14,803

          Total assets
$
807,489

 
$
689,353

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 

 
 

Current liabilities:
 

 
 

     Accounts payable
$
16,064

 
$
14,368

     Accrued expenses
61,002

 
45,865

     Lease liabilities
5,043

 

     Convertible senior notes

 
338

     Contingent consideration
13,591

 

     Income taxes payable
138

 
90

          Total current liabilities
95,838

 
60,661

Convertible senior notes
302,081

 
290,592

Lease liabilities
38,882

 

Contingent consideration
22,206

 

Other liabilities
2,320

 
16,874

          Total liabilities
461,327

 
368,127

Commitments and contingencies (Note 16)


 


Stockholders’ equity:
 

 
 

     Preferred stock, par value $0.001; 5,000,000 shares authorized; none issued and outstanding at
September 30, 2019 and December 31, 2018

 

     Common stock, par value $0.001; 250,000,000 shares authorized; 41,700,320 shares issued and
outstanding at September 30, 2019; 41,222,799 shares issued and outstanding at December 31, 2018
42

 
41

     Additional paid-in capital
740,183

 
709,691

     Accumulated deficit
(394,510
)
 
(388,226
)
     Accumulated other comprehensive income (loss)
447

 
(280
)
          Total stockholders’ equity
346,162

 
321,226

          Total liabilities and stockholders’ equity
$
807,489

 
$
689,353


See accompanying condensed notes to consolidated financial statements.

3

Table of Contents

PACIRA BIOSCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)
(Unaudited)
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2019
 
2018
 
2019
 
2018
Revenues:
 

 
 

 
 

 
 

     Net product sales
$
104,350

 
$
82,708

 
$
297,080

 
$
237,713

     Collaborative licensing and milestone revenue

 

 

 
3,000

     Royalty revenue
335

 
740

 
1,522

 
1,450

          Total revenues
104,685

 
83,448

 
298,602

 
242,163

Operating expenses:
 

 
 

 
 

 
 

     Cost of goods sold
22,304

 
19,065

 
74,809

 
62,866

     Research and development
20,255

 
14,897

 
52,466

 
41,514

     Selling, general and administrative
50,128

 
44,179

 
146,559

 
132,619

     Amortization of acquired intangible assets
1,967

 

 
3,736

 

     Acquisition-related charges and
product discontinuation, net
7,618

 
1,259

 
12,266

 
1,511

          Total operating expenses
102,272

 
79,400

 
289,836

 
238,510

Income from operations
2,413

 
4,048

 
8,766

 
3,653

Other (expense) income:
 

 
 

 
 

 
 

     Interest income
1,736

 
1,586

 
5,709

 
4,493

     Interest expense
(5,940
)
 
(5,642
)
 
(17,631
)
 
(16,195
)
     Other, net
(4,025
)
 
(694
)
 
(4,051
)
 
(699
)
          Total other expense, net
(8,229
)
 
(4,750
)
 
(15,973
)
 
(12,401
)
Loss before income taxes
(5,816
)
 
(702
)
 
(7,207
)
 
(8,748
)
     Income tax (expense) benefit
(271
)
 
62

 
1,079

 
(8
)
Net loss
$
(6,087
)
 
$
(640
)
 
$
(6,128
)
 
$
(8,756
)
 
 
 
 
 
 
 
 
Net loss per share:
 

 
 

 
 

 
 

     Basic and diluted net loss per common share
$
(0.15
)
 
$
(0.02
)
 
$
(0.15
)
 
$
(0.21
)
Weighted average common shares outstanding:
 

 
 

 
 
 
 
     Basic and diluted
41,645

 
40,995

 
41,423

 
40,833

 
See accompanying condensed notes to consolidated financial statements.

4

Table of Contents

PACIRA BIOSCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)
(Unaudited)
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2019
 
2018
 
2019
 
2018
Net loss
$
(6,087
)
 
$
(640
)
 
$
(6,128
)
 
$
(8,756
)
Other comprehensive income (loss):


 
 

 
 

 
 

Net unrealized gain (loss) on investments
(53
)
 
304

 
727

 
213

Total other comprehensive income (loss)
(53
)
 
304

 
727

 
213

Comprehensive loss
$
(6,140
)
 
$
(336
)
 
$
(5,401
)
 
$
(8,543
)
 
See accompanying condensed notes to consolidated financial statements.

5

Table of Contents

PACIRA BIOSCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(In thousands)
(Unaudited)
 
Common Stock
 
Additional
Paid-In
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Income (Loss)
 
 
 
Shares
 
Amount
 
 
 
 
Total
Balance at June 30, 2019
41,606

 
$
42

 
$
729,531

 
$
(388,423
)
 
$
500

 
$
341,650

Exercise of stock options
92

 

 
1,408

 

 

 
1,408

Vested restricted stock units
2

 

 

 

 

 

Stock-based compensation

 

 
9,244

 

 

 
9,244

Net unrealized loss on investments

 

 

 

 
(53
)
 
(53
)
Net loss

 

 

 
(6,087
)
 

 
(6,087
)
Balance at September 30, 2019
41,700

 
$
42

 
$
740,183

 
$
(394,510
)
 
$
447

 
$
346,162

 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
Additional
Paid-In
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Income (Loss)
 
 
 
Shares
 
Amount
 
 
 
 
Total
Balance at June 30, 2018
40,955

 
$
41

 
$
686,888

 
$
(395,871
)
 
$
(545
)
 
$
290,513

Exercise of stock options
104

 

 
2,981

 

 

 
2,981

Vested restricted stock units
2

 

 

 

 

 

Stock-based compensation

 

 
8,108

 

 

 
8,108

Net unrealized gain on investments

 

 

 

 
304

 
304

Net loss

 

 

 
(640
)
 

 
(640
)
Balance at September 30, 2018
41,061

 
$
41

 
$
697,977

 
$
(396,511
)
 
$
(241
)
 
$
301,266


See accompanying condensed notes to consolidated financial statements.

6

Table of Contents

PACIRA BIOSCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018

(In thousands)
(Unaudited)
 
Common Stock
 
Additional
Paid-In
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Income (Loss)
 
 
 
Shares
 
Amount
 
 
 
 
Total
Balance at December 31, 2018
41,223

 
$
41

 
$
709,691

 
$
(388,226
)
 
$
(280
)
 
$
321,226

Cumulative effect adjustment of the adoption
of Accounting Standards Update 2016-02 (Note 2)

 

 

 
(156
)
 

 
(156
)
Exercise of stock options
251

 
1

 
4,994

 

 

 
4,995

Vested restricted stock units
190

 

 

 

 

 

Shares issued under employee stock
purchase plan
36

 

 
1,270

 

 

 
1,270

Stock-based compensation

 

 
24,461

 

 

 
24,461

Retirement of equity component
of 2019 convertible senior notes

 

 
(233
)
 

 

 
(233
)
Net unrealized gain on investments

 

 

 

 
727

 
727

Net loss

 

 

 
(6,128
)
 

 
(6,128
)
Balance at September 30, 2019
41,700

 
$
42

 
$
740,183

 
$
(394,510
)
 
$
447

 
$
346,162

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
Additional
Paid-In
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Income (Loss)
 
 
 
Shares
 
Amount
 
 
 
 
Total
Balance at December 31, 2017
40,669

 
$
41

 
$
669,032

 
$
(389,136
)
 
$
(454
)
 
$
279,483

Cumulative effect adjustment of the adoption
of Accounting Standards Update 2014-09

 

 

 
1,361

 

 
1,361

Cumulative effect adjustment of the adoption
of Accounting Standards Update 2018-07

 

 
(20
)
 
20

 

 

Exercise of stock options
207

 

 
4,474

 

 

 
4,474

Vested restricted stock units
150

 

 

 

 

 

Shares issued under employee stock
purchase plan
35

 

 
952

 

 

 
952

Stock-based compensation

 

 
23,539

 

 

 
23,539

Net unrealized gain on investments

 

 

 

 
213

 
213

Net loss

 

 

 
(8,756
)
 

 
(8,756
)
Balance at September 30, 2018
41,061

 
$
41

 
$
697,977

 
$
(396,511
)
 
$
(241
)
 
$
301,266

 
See accompanying condensed notes to consolidated financial statements.

7

Table of Contents

PACIRA BIOSCIENCES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
 (In thousands)
(Unaudited)
 
Nine Months Ended 
 September 30,
 
2019
 
2018
Operating activities:
 

 
 

Net loss
$
(6,128
)
 
$
(8,756
)
Adjustments to reconcile net loss to net cash provided by operating activities:
 

 
 

     Depreciation of fixed assets and amortization of intangible assets
14,486

 
9,114

     Amortization of unfavorable lease obligation and debt issuance costs
1,273

 
1,186

     Amortization of debt discount
10,216

 
9,512

     Loss on disposal and impairment of fixed assets
998

 
10

     Stock-based compensation
24,461

 
23,539

     Changes in contingent consideration (after MyoScience, Inc. acquisition)
7,327

 

     Loss on investment and other non-operating income, net
3,957

 
854

Changes in operating assets and liabilities (net of MyoScience, Inc. acquisition):
 

 
 

     Accounts receivable, net
(3,567
)
 
(2,265
)
     Inventories, net
(9,967
)
 
(3,473
)
     Prepaid expenses and other assets
(2,451
)
 
(1,412
)
     Accounts payable
829

 
(1,400
)
     Accrued expenses and income taxes payable
4,004

 
(71
)
     Other liabilities
(822
)
 
812

          Net cash provided by operating activities
44,616

 
27,650

Investing activities:
 

 
 

     Acquisition of MyoScience, Inc. (net of cash acquired)
(118,683
)
 

     Purchases of fixed assets
(5,662
)
 
(12,271
)
     Purchases of investments
(220,091
)
 
(182,750
)
     Sales of investments
248,365

 
345,602

     Payment of contingent consideration

 
(6,842
)
     Equity Investment
(1,622
)
 

          Net cash (used in) provided by investing activities
(97,693
)
 
143,739

Financing activities:
 

 
 

     Proceeds from exercises of stock options
4,991

 
4,474

     Proceeds from shares issued under employee stock purchase plan
1,270

 
952

     Repayment of 2019 convertible senior notes
(338
)
 

     Conversion premium on 2019 convertible senior notes
(233
)
 

          Net cash provided by financing activities
5,690

 
5,426

Net (decrease) increase in cash and cash equivalents
(47,387
)
 
176,815

Cash and cash equivalents, beginning of period
132,526

 
54,126

Cash and cash equivalents, end of period
$
85,139

 
$
230,941

Supplemental cash flow information:
 

 
 

     Cash paid for interest
$
4,102

 
$
4,108

     Cash paid for income taxes, net of refunds
$
702

 
$
146

Non-cash investing and financing activities:
 
 
 
     Net increase in contingent consideration liabilities
$
28,470

 
$

     Net increase (decrease) in accrued fixed assets
$
1,663

 
$
(130
)

See accompanying condensed notes to consolidated financial statements.

8

Table of Contents

PACIRA BIOSCIENCES, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
NOTE 1—DESCRIPTION OF BUSINESS
 
Pacira BioSciences, Inc. and its subsidiaries (collectively, the “Company” or “Pacira”) is a leading provider of non-opioid pain management options to advance and improve outcomes for health care practitioners and their patients. The Company’s long-acting, local analgesic, EXPAREL® (bupivacaine liposome injectable suspension), was commercially launched in the United States in April 2012. EXPAREL utilizes DepoFoam®, a unique and proprietary delivery technology that encapsulates drugs without altering their molecular structure, and releases them over a desired period of time. In April 2019, the Company added iovera°® to its commercial offering with its acquisition of MyoScience, Inc., or MyoScience. The iovera° system is a handheld cryoanalgesia device used to deliver a precise, controlled application of cold temperature to only targeted nerves.

The Company changed its name from Pacira Pharmaceuticals, Inc. to Pacira BioSciences, Inc. upon completing the acquisition of MyoScience in order to better reflect a broadening portfolio of innovative non-opioid pain management and regenerative health solutions. See Note 4, MyoScience Acquisition, for more information.
Pacira is subject to risks common to companies in similar industries and stages, including, but not limited to, competition from larger companies, reliance on revenue from two products, reliance on a limited number of manufacturing sites, new technological innovations, dependence on key personnel, reliance on third-party service providers and sole source suppliers, protection of proprietary technology, compliance with government regulations and risks related to cybersecurity.
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Basis of Presentation and Principles of Consolidation
 
These interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America, or GAAP, and in accordance with the rules and regulations of the United States Securities and Exchange Commission, or SEC, for interim reporting. Pursuant to these rules and regulations, certain information and footnote disclosures normally included in complete annual financial statements have been condensed or omitted. Therefore, these interim condensed consolidated financial statements should be read in conjunction with the audited annual consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.
 
The condensed consolidated financial statements at September 30, 2019, and for the three and nine month periods ended September 30, 2019 and 2018, are unaudited, but include all adjustments (consisting of only normal recurring adjustments) which, in the opinion of management, are necessary to present fairly the financial information set forth herein in accordance with GAAP. The condensed consolidated balance sheet at December 31, 2018 is derived from the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018. The condensed consolidated financial statements as presented reflect certain reclassifications from previously issued financial statements to conform to the current year presentation. The accounts of wholly-owned subsidiaries are included in the condensed consolidated financial statements. Intercompany accounts and transactions have been eliminated in consolidation.
 
The results of operations for these interim periods are not necessarily indicative of results that may be expected for any other interim periods or for the full year.

Concentration of Major Customers
 
The Company sells EXPAREL through a drop-ship program under which orders are processed through wholesalers (including AmerisourceBergen Health Corporation, Cardinal Health, Inc. and McKesson Drug Company), but shipments of the product are sent directly to individual accounts, such as hospitals, ambulatory surgery centers and individual doctors. The Company also sells EXPAREL directly to ambulatory surgery centers and physicians. The Company sells its bupivacaine liposome injectable suspension for use in animals to a third party licensee and sells iovera° directly to end users. The table below includes the percentage of revenue comprised by the Company’s three largest wholesalers in each period presented:

9

Table of Contents

 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2019
 
2018
 
2019
 
2018
 Largest wholesaler
34%
 
34%
 
34%
 
34%
 Second largest wholesaler
29%
 
30%
 
29%
 
30%
 Third largest wholesaler
27%
 
26%
 
26%
 
26%
     Total
90%
 
90%
 
89%
 
90%
 
Recently Adopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, 2016-02, Leases (Topic 842), and subsequently issued clarifications and corrections to the update by issuing ASU 2018-10 in July 2018. This update required lessees to recognize lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under previous authoritative guidance. For income statement purposes, the new standard retained a dual model similar to Accounting Standards Codification, or ASC, 840, requiring leases to be classified as either operating or financing. Operating leases continue to result in straight-line expense while financing leases result in a front-loaded expense pattern (similar to previous accounting guidance by lessees for operating and capital leases, respectively, under ASC 840).
The Company adopted ASU 2016-02 on January 1, 2019 using the effective date method. There were practical expedients available to the Company at transition that it elected to apply upon adoption. The Company did not re-assess (i) whether its contracts contained a lease under the new definition of a lease and (ii) the classification of those leases. There were no initial direct costs previously capitalized on the consolidated balance sheet. In addition, the Company applied hindsight in the determination of the lease terms, in the assessment of the likelihood that a lease renewal, termination or purchase option will be exercised, and in the assessment of any potential impairments that existed on the right-of-use, or ROU, assets recognized at adoption. The Company also elected not to recognize a ROU asset and lease liability for those leases with a remaining lease term of 12 months or less.
At adoption on January 1, 2019, the lease liability was equal to the present value of future lease payments and a ROU asset was recorded based on the lease liability, adjusted for items such as prepaid and accrued lease payments. The Company recorded $36.5 million of lease liabilities and $27.6 million of ROU assets as of January 1, 2019, the difference representing previously recorded lease-related assets and liabilities. There was a cumulative-effect adjustment to retained earnings of $0.2 million upon adoption. Refer to Note 7, Leases, for further information on the Company’s existing leases.
The lease liability recognized upon adoption was based upon the present value of the sum of the remaining minimum lease payments (as previously identified under ASC 840), determined using the discount rate as of the date of adoption. The discount rate was based on the Company’s incremental borrowing rate on a collateralized basis over a similar remaining term and in a similar economic environment.
Recent Accounting Pronouncements Not Adopted as of September 30, 2019

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. Entities will now use forward-looking information to better form their credit loss estimates. This update also requires enhanced disclosures to help financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an entity’s portfolio. This standard will become effective for the Company beginning January 1, 2020, with early adoption permitted. The Company does not expect there to be a significant impact from the adoption of ASU 2016-13 on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework. The purpose of the update is to improve the effectiveness of the fair value measurement disclosures that allows for clear communication of information that is most important to the users of financial statements. There were certain required disclosures that have been removed or modified. In addition, the update added the following disclosures: (i) changes in unrealized gains and losses for the period included in other comprehensive income (loss) for recurring Level 3 fair value measurements held at the end of the reporting period and (ii) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The standard will become effective for the Company beginning January 1, 2020. The Company does not expect there to be a significant impact from the adoption of ASU 2018-13 on its consolidated financial statements.

10

Table of Contents


In August 2018, the FASB issued ASU 2018-15, Intangibles—Goodwill and Other Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The update provides guidance to determine which implementation costs to capitalize as they relate to the service contract and which costs to expense. In addition, the update further defines the term of the hosting arrangement to include the non-cancelable period of the arrangement plus periods covered by (i) an option to extend the arrangement if the customer is reasonably certain to exercise that option; (ii) an option to terminate the arrangement if the customer is reasonably certain not to exercise the termination option and (iii) an option to extend (or not to terminate) the arrangement in which exercise of the option is in the control of the vendor. Any expense related to the capitalized implementation costs should be recorded in the same financial statement line item in the consolidated statements of operations as the fees associated with the hosting element of the arrangement, and the payments for capitalized implementation costs should be classified in the same manner as payments made for fees associated with the hosting element in the consolidated statements of cash flows. This standard will become effective for the Company beginning January 1, 2020. The amendments may be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company expects to apply ASU 2018-15 on a prospective basis. The Company will apply this standard to future implementation costs incurred. The impact of ASU 2018-15 will be dependent upon future projects entered into by the Company subsequent to the date of adoption.
In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, which provides amendments to the recognition and measurement of certain financial assets and financial liabilities. One of those amendments requires that equity securities without readily determinable fair values accounted for under the measurement alternative be re-measured when an orderly transaction is identified for an identical or similar investment of the same issuer. This standard will become effective for the Company beginning January 1, 2020. The Company does not expect there to be a significant impact from the adoption of ASU 2019-04 on its consolidated financial statements.
Other pronouncements issued by the FASB or other authoritative accounting standards groups with future effective dates are either not applicable or not significant to the consolidated financial statements of the Company.
Significant Accounting Policies
Leases

Effective January 1, 2019, the Company recognizes ROU assets and lease liabilities at the commencement of its lease agreements. The leases are evaluated at commencement to determine whether they should be classified as operating or financing leases. Lease costs associated with operating leases are recognized on a straight-line basis, while lease costs for financing leases are recognized over the lease term using the effective interest method. To date, the Company does not have any financing leases. The amount of ROU assets and lease liabilities to be recognized is impacted by the type of lease payments, the lease term and the incremental borrowing rate. Variable lease payments are not included at commencement and are recognized in the period in which they are incurred. The lease term is based on the contractual term and is adjusted for any renewal options or termination rights that are reasonably certain to be exercised. The incremental borrowing rate is based on the rate the Company estimates it would pay on a collateralized basis over a similar term in a similar economic environment.

Acquisitions

In a business combination, the acquisition method of accounting requires that the assets acquired and liabilities assumed be recorded as of the date of the acquisition at their respective fair values with some exceptions. Assets acquired and liabilities assumed in a business combination that arise from contingencies are generally recognized at fair value. If fair value cannot be determined, the asset or liability is recognized if probable and reasonably estimable; if these criteria are not met, no asset or liability is recognized. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Accordingly, the Company may be required to value assets at fair value measures that do not reflect the Company’s intended use of those assets. Any excess of the purchase price (consideration transferred) over the estimated fair values of net assets acquired is recorded as goodwill. Transaction costs and costs to restructure the acquired company are expensed as incurred. The operating results of the acquired business are reflected in the Company’s condensed consolidated financial statements after the date of the acquisition. If the Company determines the assets acquired do not meet the definition of a business under the acquisition method of accounting, the transaction will be accounted for as an acquisition of assets rather than as a business combination and, therefore, no goodwill would be recorded.


11

Table of Contents

Contingent Consideration

Subsequent to an acquisition, the Company measures 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 passage of time towards achievement of the milestones, and are accrued based on an accretion schedule.

Intangible Assets

Intangible assets with definite useful lives are amortized on a straight-line basis over their estimated useful lives and are reviewed for impairment if certain events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Intangible assets are recorded at cost, net of accumulated amortization. The Company evaluates the recoverability of intangible assets periodically and takes into account events and circumstances which may indicate that an impairment exists.

Segment Reporting

The Company is managed and operated as a single business focused on the discovery, development, manufacture, marketing, distribution and sale of non-opioid pain management options. The Company is managed by a single management team, and, consistent with its organizational structure, the Chief Executive Officer and Chairman manages and allocates resources at a consolidated level. Accordingly, the Company views its business as one reportable operating segment to evaluate performance, allocate resources, set operational targets and forecast its future period financial results.

NOTE 3—REVENUE

Revenue from Contracts with Customers

The Company’s sources of revenue include (i) sales of EXPAREL/bupivacaine liposome injectable suspension in the United States, or U.S.; (ii) sales of iovera° in the U.S.; (iii) royalties based on sales of its bupivacaine liposome injectable suspension product for use in animals and (iv) license fees and milestone payments. The majority of the Company’s revenue is derived from net product sales of EXPAREL. As such, the following disclosure only relates to revenue associated with net EXPAREL product sales.

Net Product Sales

The Company sells EXPAREL through a drop-ship program under which orders are processed through wholesalers based on orders of the product placed by end-users which include hospitals, ambulatory surgery centers and doctors. EXPAREL is delivered directly to the end-user without the wholesaler ever taking physical possession of the product. Product revenue is recognized when control of the promised goods are transferred to the customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for transferring those goods. EXPAREL revenue is recorded at the time the product is delivered to the end-user.

Revenues from sales of products are recorded net of returns allowances, prompt payment discounts, wholesaler service fees, 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 for the gross to net adjustments, 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 and other related information that may become known in the future. The adequacy of these provisions is reviewed on a quarterly basis.

Accounts Receivable

The majority of accounts receivable arise from product sales and represent amounts due from wholesalers, hospitals, ambulatory surgery centers and doctors. Payment terms generally range from zero to 37 days from the date of the transaction, and accordingly, there is no significant financing component.



12

Table of Contents

Performance Obligations

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in ASC 606. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.
 
At contract inception, the Company assesses the goods promised in its contracts with customers and identifies a performance obligation for each promise to transfer to the customer a good that is distinct. When identifying individual performance obligations, the Company considers all goods promised in the contract regardless of whether explicitly stated in the customer contract or implied by customary business practices. The Company’s contracts with customers require it to transfer an individual distinct product, which represents a single performance obligation. The Company’s performance obligation with respect to its product sales is satisfied at a point in time, which transfers control upon delivery of EXPAREL to its customers. The Company considers control to have transferred upon delivery because the customer has legal title to the asset, physical possession of the asset has been transferred, the customer has significant risks and rewards of ownership of the asset and the Company has a present right to payment at that time.

Disaggregated Revenue

The following table represents disaggregated net product sales in the periods presented as follows (in thousands):
 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
Net Product Sales
 
2019
 
2018
 
2019
 
2018
EXPAREL / bupivacaine liposome injectable suspension
 
$
101,711

 
$
82,708

 
$
292,406

 
$
237,713

iovera°
 
2,639

 

 
4,674

 

   Total net product sales
 
$
104,350

 
$
82,708

 
$
297,080

 
$
237,713



NOTE 4—MYOSCIENCE ACQUISITION

On April 9, 2019, the Company acquired MyoScience (the “MyoScience Acquisition”), a privately-held medical device company, pursuant to the terms of an Agreement and Plan of Merger (the “Merger Agreement”), under which MyoScience became a wholly-owned subsidiary of the Company and was renamed Pacira CryoTech, Inc., or CryoTech. The MyoScience Acquisition added iovera° to the Company’s commercial offering. The iovera° system is a novel, United States Food and Drug Administration, or FDA, approved, non-opioid treatment that immediately alleviates pain for up to 90 days by applying intense cold to only targeted nerves in a process called cryoanalgesia.

The consideration included an initial cash payment of $120.0 million, reduced by $1.0 million for post-closing purchase price adjustments and indemnification obligations incurred to date, and the fair value of contingent consideration in the amount of $28.5 million. The contingent consideration consists of contingent milestone payments up to an aggregate of $100.0 million upon the achievement of certain regulatory and commercial milestones, of which up to $25.0 million may be payable in shares of the Company’s common stock if achieved in 2020. Per the terms of the Merger Agreement, the Company’s obligation to make milestone payments is limited to those milestones achieved between January 1, 2019 and December 31, 2023, and are to be paid within 60 days of the end of the fiscal quarter of achievement. In the third quarter of 2019, the Company met a regulatory milestone which was previously accrued and will result in a $7.0 million payment to be made in the fourth quarter of 2019. The Company also expects to meet another regulatory milestone which was previously accrued that would result in a $5.0 million payment to be made in 2020. For more information regarding contingent milestone payments subsequent to September 30, 2019, refer to Note 17, Subsequent Events.

The Company has accounted for the MyoScience Acquisition using the acquisition method of accounting and, accordingly, has included the assets acquired, liabilities assumed and results of operations in the condensed consolidated financial statements from April 10, 2019 onward, the day following the acquisition date. The excess of the purchase price over the fair value of identifiable net assets acquired represents goodwill. This goodwill is primarily attributable to the value of combining iovera° and EXPAREL as a safe and effective non-opioid multimodal regimen for pain management, as well as the synergies of merging operations. The primary assets and liabilities of the business acquired include developed technology and customer relationship intangible assets, equipment, inventory, receivables, payables and accrued expenses. Inventory has been recorded at its estimated selling price less costs of distribution and a reasonable profit, and the intangible assets acquired (including developed technology and customer relationships) have been recorded at fair value as determined by the Company’s management with the assistance of a third-party valuation specialist. The acquired goodwill and intangible assets are currently

13

Table of Contents

not deductible for tax purposes. However, the Company is considering certain tax elections that would allow for the future deduction of acquired goodwill and intangible assets. See Note 8, Goodwill and Intangible Assets, for more information.

The total consideration for the MyoScience Acquisition was $147.5 million, which consisted of the following (in thousands):
Purchase Price
 
Amount
Cash paid, adjusted for working capital items
 
$
119,038

Fair value of contingent consideration
 
28,470

   Total
 
$
147,508



The preliminary purchase price allocation is based on estimates, assumptions, valuations and other studies which have not yet been finalized. Prior to the finalization of the purchase price allocation, if information becomes available that would indicate it is probable that unknown events had occurred and the amounts can be reasonably estimated, such items will be included in the final purchase price allocation and may change the carrying value of goodwill. The Company is finalizing its valuation of the intangible assets and tax analyses, and anticipates finalizing the purchase price allocation as the information necessary to complete the analysis is obtained, but no later than one year after the acquisition date. The following tables set forth the preliminary allocation of the MyoScience Acquisition purchase price to the estimated fair value of the net assets acquired at the acquisition date (in thousands):
 
Amounts Recognized at the Acquisition Date (Unaudited)
ASSETS ACQUIRED
Current assets
$
5,275

Non-current assets (other than intangible assets)
1,044

Intangible assets (excluding goodwill)
110,090

   Total assets acquired (excluding goodwill)
$
116,409

 
 
LIABILITIES ASSUMED
Current liabilities
$
4,436

Deferred tax liabilities, net
1,828

Other non-current liabilities
144

   Total liabilities assumed
6,408

   Total identifiable net assets acquired
110,001

Goodwill
37,507

   Total consideration transferred
$
147,508



CryoTech results from the acquisition date of April 10, 2019 through September 30, 2019, which are included in the condensed consolidated statements of operations, are as follows (in thousands):
Classification in Condensed Consolidated Statements of Operations
 
Acquisition Date Through September 30, 2019
Total revenues
 
$
4,674

Net loss
 
$
(5,555
)


Unaudited Pro Forma Summary of Operations

The following table shows the unaudited pro forma summary of operations for the three months ended September 30, 2018 and the nine months ended September 30, 2019 and 2018, as if the MyoScience Acquisition had occurred on January 1, 2018. This pro forma information does not purport to represent what the Company’s actual results would have been if the acquisition had occurred as of January 1, 2018, and is not indicative of what such results would be expected for any future period (in thousands, except per share amounts):

14

Table of Contents

 
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
 
2018
 
2019
 
2018
Total revenues
 
$
84,916

 
$
301,051

 
$
245,721

Net loss
 
$
(6,944
)
 
$
(10,633
)
 
$
(27,663
)
Pro forma basic and diluted net loss per share
 
$
(0.17
)
 
$
(0.26
)
 
$
(0.68
)


The unaudited pro forma financial information was prepared using the acquisition method of accounting and was based on the historical financial information of the Company and MyoScience. The summary pro forma financial information primarily reflects the following pro forma adjustments:

Removal of the acquisition-related transaction fees and costs, including certain stock-based compensation and other compensation expenses related to the acquisition, from the nine months ended September 30, 2019;

Removal of the income tax benefit resulting from the Company decreasing its existing valuation allowance on deferred tax assets from the nine months ended September 30, 2019;

Removal of MyoScience’s loss on extinguishment of debt and warrant expense in the nine months ended September 30, 2019;

Removal of MyoScience’s interest expense;

Adjustments to the Company’s interest income for the cash used to acquire MyoScience; and

The addition of amortization expense on the acquired developed technology and customer relationship intangible assets.

NOTE 5—INVENTORIES
 
The components of inventories, net are as follows (in thousands):
 
September 30,
 
December 31,
 
2019
 
2018
Raw materials
$
18,798

 
$
19,193

Work-in-process
17,472

 
9,711

Finished goods
23,968

 
19,665

     Total
$
60,238

 
$
48,569



The Company is required to perform stability testing on select lots of EXPAREL. In October 2019, a single validation lot of EXPAREL manufactured at the Company’s contract manufacturing site located in the United Kingdom did not meet its required stability specification. The Company has temporarily halted production on the line while it investigates the root cause of the failure. Inventory from this line totals approximately $10.5 million. Depending on the outcome of the investigation and discussions with the FDA, it may be determined that some or all of this inventory may be unsellable. At this stage, no determination of an amount is possible.


15

Table of Contents

NOTE 6—FIXED ASSETS

Fixed assets, net, summarized by major category, consist of the following (in thousands):
 
September 30,
 
December 31,
 
2019
 
2018
Machinery and equipment
$
68,342

 
$
67,431

Leasehold improvements
60,355

 
57,955

Computer equipment and software
8,381

 
8,131

Office furniture and equipment
1,625

 
1,548

Construction in progress
38,421

 
35,163

        Total
177,124

 
170,228

Less: accumulated depreciation
(72,268
)
 
(61,558
)
        Fixed assets, net
$
104,856

 
$
108,670



For the three months ended September 30, 2019 and 2018, depreciation expense was $3.6 million and $3.5 million, respectively, and for the three months ended both September 30, 2019 and 2018, there was less than $0.1 million of capitalized interest on the construction of manufacturing sites.

For the nine months ended September 30, 2019 and 2018, depreciation expense was $10.7 million and $9.1 million, respectively. For the nine months ended September 30, 2019 there was less than $0.1 million of capitalized interest on the construction of manufacturing sites, and for the nine months ended September 30, 2018, capitalized interest was $0.7 million.
 
At September 30, 2019 and December 31, 2018, total fixed assets, net, includes leasehold improvements and manufacturing process equipment located in Europe in the amount of $65.1 million and $64.6 million, respectively.

During the nine months ended September 30, 2019, the Company recorded increases to its asset retirement obligations, or AROs, of $0.3 million due to a revision in estimated future cash flows related to the AROs (including those resulting from the MyoScience Acquisition). Accretion expense was $0.1 million and $0.2 million in the three and nine months ended September 30, 2019, respectively.

NOTE 7—LEASES

The Company leases its EXPAREL manufacturing, research and development, warehouse and former DepoCyt(e) manufacturing facilities in San Diego, California, its iovera° manufacturing, research and development and warehouse facility in Fremont, California and its corporate headquarters in Parsippany, New Jersey. These leases have remaining terms between one year and eleven years, some of which provide renewal options at the then-current market value, along with one that contains the right to terminate the lease after four years. The Company also has a lease with Thermo Fisher Scientific Pharma Services (“Thermo Fisher”) (formerly Patheon UK Limited), for the use of their facility in Swindon, England, which is embedded in agreements the Company has with Thermo Fisher. A portion of the associated monthly base fees has been allocated to the lease component based on a relative fair value basis.
The Company’s facility in Fremont, California, is dedicated to the iovera° product line and consists of approximately 20,000 square feet of mixed use manufacturing, research and development and office space. For a description of the Company’s other material properties, refer to its Annual Report on Form 10-K for the year ended December 31, 2018.
The operating lease costs for the facilities include lease and non-lease components, such as common area maintenance and other common operating expenses, along with executory costs such as insurance and real estate taxes. Total operating lease costs are as follows (in thousands):
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 30,
 
September 30,
Operating Lease Costs
 
2019
 
2018
 
2019
 
2018
   Fixed lease costs
 
$
1,585

 
$
2,659

 
4,544

 
5,750

   Variable lease costs
 
403

 
495

 
1,233

 
1,305

      Total
 
$
1,988

 
$
3,154

 
$
5,777

 
$
7,055


16

Table of Contents

Supplemental cash flow information related to operating leases is as follows (in thousands):
 
 
Nine Months Ended
 
 
September 30, 2019
Cash paid for operating lease liabilities, net of lease incentive
 
$
5,247

Right-of-use assets recorded in exchange for lease obligations
 
$
38,419


The Company has elected to net the amortization of the ROU asset and the reduction of the lease liability principal in accrued expenses in the condensed consolidated statement of cash flows.
The Company has measured its operating lease liabilities at an estimated discount rate in which it could borrow on a collateralized basis over the remaining term for each operating lease. The weighted average remaining lease term and the weighted average discount rate are summarized as follows:
 
 
September 30, 2019
Weighted average remaining lease term
 
9.66 years
Weighted average discount rate
 
7.62%

Maturities of the Company’s operating lease liabilities are as follows (in thousands):
Year
 
Aggregate Minimum Payments Due
2019 (remaining three months)
 
$
2,039

2020
 
7,662

2021
 
5,359

2022
 
5,486

2023
 
5,616

2024 through 2030
 
37,208

   Total lease payments
 
63,370

 
 
 
   Less: imputed interest
 
(19,445
)
   Total operating lease liabilities
 
$
43,925


The Company has entered into three lease agreements (not included in the table above) for which there are future obligations but the leases have not yet commenced as of September 30, 2019 (in thousands):
Year
 
Aggregate Minimum Payments Due
2019 (remaining three months)
 
$
27

2020
 
2,607

2021
 
4,878

2022
 
4,937

2023
 
5,081

2024 through 2030
 
35,848

   Total future lease payments
 
$
53,378




17

Table of Contents

As of December 31, 2018, aggregate annual minimum payments due under the Company’s lease obligations were as follows (in thousands):
Year
 
Aggregate Minimum Payments Due
2019
 
$
8,140

2020
 
7,621

2021
 
5,295

2022
 
5,417

2023
 
5,543

2024 through 2030
 
14,329

Total
 
$
46,345



NOTE 8—GOODWILL AND INTANGIBLE ASSETS

Goodwill

Skyepharma Acquisition

In March 2007, the Company acquired from SkyePharma Holding, Inc. (now a subsidiary of Vectura Group plc), or Skyepharma, its California operating subsidiary named Pacira Pharmaceuticals, Inc. (the “Skyepharma Acquisition”). The Company’s goodwill arose in April 2012 from a contingent milestone payment to Skyepharma in connection with the Skyepharma Acquisition. The Skyepharma Acquisition was accounted for under Statement of Financial Accounting Standards 141, Accounting for Business Combinations, which was the effective GAAP standard at the Skyepharma Acquisition date. In connection with the Skyepharma Acquisition, the Company agreed to milestone payments for DepoBupivacaine products, including EXPAREL, as follows:
 
(i)
$10.0 million upon the first commercial sale in the United States (met April 2012);
(ii)
$4.0 million upon the first commercial sale in a major E.U. country (United Kingdom, France, Germany, Italy and Spain);
(iii)
$8.0 million when annual net sales collected reach $100.0 million (met September 2014);
(iv)
$8.0 million when annual net sales collected reach $250.0 million (met June 2016); and
(v)
$32.0 million when annual net sales collected reach $500.0 million.
For purposes of meeting future potential milestone payments, annual net sales are measured on a rolling quarterly basis.
As part of the Skyepharma Acquisition, the Company agreed to pay certain earn-out payments based on a percentage of net sales of DepoBupivacaine products collected, including EXPAREL, for the term during which such sales were covered by a valid claim in certain patent rights related to EXPAREL and other biologics products. The last patents for which a valid claim existed expired on September 18, 2018 and thus, the only remaining obligations to Skyepharma are the two unmet milestone payments totaling $36.0 million. Any remaining milestone payments will be treated as additional costs of the Skyepharma Acquisition and, therefore, recorded as goodwill if and when each contingency is resolved.
There was no change in the carrying value of goodwill related to the Skyepharma Acquisition during the three and nine months ended September 30, 2019.

MyoScience Acquisition

In connection with the MyoScience Acquisition, the Company recorded goodwill totaling $37.5 million. The acquired goodwill is currently not deductible for tax purposes. However, the Company is considering certain tax elections that would allow for the future deduction of this acquired goodwill. See Note 4, MyoScience Acquisition, for more information.

The change in the carrying value of the Company’s goodwill is summarized as follows (in thousands):
 
Carrying Value of Goodwill
Balance at December 31, 2018
$
62,040

Goodwill arising from the MyoScience Acquisition
37,507

Balance at September 30, 2019
$
99,547




18

Table of Contents

Intangible Assets

MyoScience Acquisition

Intangible assets, net, consist of the developed technology and customer relationships that were acquired in the MyoScience Acquisition and are summarized as follows (in thousands):
September 30, 2019
 
Gross Carrying Value
 
Accumulated
Amortization
 
Intangible
Assets, Net
 
Estimated
Useful Life
Developed technology
 
$
110,000

 
$
(3,732
)
 
$
106,268

 
14 Years
Customer relationships
 
90

 
(4
)
 
86

 
10 Years
     Total intangible assets
 
$
110,090

 
$
(3,736
)
 
$
106,354

 
 

There were no intangible assets, net, at December 31, 2018. Amortization expense on intangible assets for the three and nine months ended September 30, 2019 was $2.0 million and $3.7 million, respectively. There was no amortization expense on intangible assets for the three and nine months ended September 30, 2018.

For the remaining three months of 2019, amortization expense on intangible assets will be $2.0 million. Assuming no changes in the gross carrying amount of these intangible assets, the future amortization expense on intangible assets will be $7.9 million annually through 2032 and $2.2 million in 2033. These acquired intangible assets are currently not deductible for tax purposes. However, the Company is considering certain tax elections that would allow for the future deduction of these acquired intangible assets.
NOTE 9—DEBT

Convertible Senior Notes Due 2022

On March 13, 2017, the Company completed a private placement of $345.0 million in aggregate principal amount of 2.375% convertible senior notes due 2022, or 2022 Notes, and entered into an indenture, or 2022 Indenture, with respect to the 2022 Notes. The 2022 Notes accrue interest at a fixed rate of 2.375% per year, payable semiannually in arrears on April 1st and October 1st of each year. The 2022 Notes mature on April 1, 2022.

The total debt composition of the 2022 Notes is as follows (in thousands):
 
September 30,
 
December 31,
 
2019
 
2018
2.375% convertible senior notes due 2022
$
345,000

 
$
345,000

Deferred financing costs
(4,577
)
 
(5,850
)
Discount on debt
(38,342
)
 
(48,558
)
     Total debt, net of debt discount and deferred financing costs
$
302,081

 
$
290,592


Holders may convert their 2022 Notes prior to October 1, 2021 only if certain circumstances are met, including if during the previous calendar quarter, the last reported sales price of the Company’s common stock was greater than 130% of the conversion price then applicable for at least 20 out of the last 30 consecutive trading days of the quarter. During the quarter ended September 30, 2019, this condition for conversion was not met.

On or after October 1, 2021, until the close of business on the second scheduled trading day immediately preceding April 1, 2022, holders may convert their 2022 Notes at any time.

Upon conversion, holders will receive the principal amount of their 2022 Notes and any excess conversion value, calculated based on the per share volume-weighted average price for each of the 40 consecutive trading days during the observation period (as more fully described in the 2022 Indenture). For both the principal and excess conversion value, holders may receive cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s option. The initial conversion rate for the 2022 Notes is 14.9491 shares of common stock per $1,000 principal amount, which is equivalent to an initial conversion price of $66.89 per share of the Company’s common stock. The conversion rate will be subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. The initial conversion price of the 2022 Notes represents a premium of approximately 37.5% to the closing sale price of $48.65 per

19

Table of Contents

share of the Company’s common stock on the Nasdaq Global Select Market on March 7, 2017, the date that the Company priced the private offering of the 2022 Notes.

As of September 30, 2019, the 2022 Notes had a market price of $987 per $1,000 principal amount. In the event of conversion, holders would forgo all future interest payments, any unpaid accrued interest and the possibility of stock price appreciation. Upon the receipt of conversion requests, the settlement of the 2022 Notes will be paid pursuant to the terms of the 2022 Indenture. In the event that all of the 2022 Notes are converted, the Company would be required to repay the $345.0 million in principal value and any conversion premium in any combination of cash and shares of its common stock (at the Company’s option).

Prior to April 1, 2020, the Company may not redeem the 2022 Notes. On or after April 1, 2020, the Company may redeem for cash, shares of the Company’s common stock or a combination of cash and shares of the Company’s common stock, at the Company’s option, all or part of the 2022 Notes if the last reported sale price (as defined in the 2022 Indenture) of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading-day period ending within five trading days prior to the date on which the Company provides notice of redemption. The redemption price will equal the sum of (i) 100% of the principal amount of the 2022 Notes being redeemed, plus (ii) accrued and unpaid interest, including additional interest, if any, to, but excluding, the redemption date. In addition, calling the 2022 Notes for redemption will constitute a “make whole fundamental change” (as defined in the 2022 Indenture) and will, in certain circumstances, increase the conversion rate applicable to the conversion of such notes if it is converted in connection with the redemption. No sinking fund is provided for the 2022 Notes.

While the 2022 Notes are currently classified on the Company’s consolidated balance sheet at September 30, 2019 as long-term debt, the future convertibility and resulting balance sheet classification of this liability will be monitored at each quarterly reporting date and will be analyzed dependent upon market prices of the Company’s common stock during the prescribed measurement periods. In the event that the holders of the 2022 Notes have the right to convert the 2022 Notes at any time during the prescribed measurement period, the 2022 Notes would then be considered a current obligation and classified as such.

Convertible Senior Notes Due 2019

On February 1, 2019, the Company’s 3.25% convertible senior notes due 2019, or 2019 Notes, matured, and the Company paid the remaining $0.3 million of principal in full, plus a $0.2 million conversion premium in cash. The