ACQUISITIONS

12 Months Ended

Dec. 31, 2021

Business Combination and Asset Acquisition [Abstract]

Flexion Therapeutics, Inc.

On November 19, 2021, the Company acquired Flexion (the “Flexion Acquisition”), a biopharmaceutical company focused on the discovery, development, and commercialization of novel, local therapies for the treatment of patients with musculoskeletal conditions, beginning with osteoarthritis, the most common form of arthritis, pursuant to an Agreement and Plan of Merger (the “Merger Agreement”), dated as of October 11, 2021, by and among the Company, Oyster Acquisition Company Inc., a Delaware corporation and wholly owned subsidiary of the Company (“Purchaser”), and Flexion. Following the completion of a successful tender offer for the shares of Flexion’s common stock, and pursuant to the terms of the Merger Agreement and in accordance with Section 251(h) of the General Corporation Law of the State of Delaware, Purchaser merged with and into Flexion with Flexion surviving as a wholly owned subsidiary of the Company. The Company changed the name of Flexion to Pacira Therapeutics, Inc. after completing the merger.

The total consideration for the Flexion Acquisition was approximately $578.8 million consisting of: (i) $448.5 million of cash paid to former Flexion stockholders and to settle restricted stock units and in-the-money stock options; (ii) an $85.1 million cash payment of Flexion debt not to be assumed by the Company and (iii) $45.2 million of estimated contingent consideration related to contingent value rights, or CVRs, that were issued to Flexion shareholders and certain equity award holders in conjunction with the Flexion Acquisition. The consideration is subject to adjustments based on the achievement of certain potential milestone payments. The Company estimates 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, as follows:

(i) $1.00 per CVR the first time that net sales of ZILRETTA in any calendar year equal or exceed $250.0 million;

(ii) $2.00 per CVR, the first time that net sales of ZILRETTA in any calendar year equal or exceed $375.0 million;

(iii) $3.00 per CVR, the first time that net sales of ZILRETTA in any calendar year equal or exceed $500.0 million;

(iv) $1.00 per CVR upon approval by the U.S. Food and Drug Administration, or FDA, of a Biologics License Application (BLA) for PCRX-201 (formerly FX-201), a clinical stage gene therapy product candidate; and

(v) $1.00 per CVR upon approval by the FDA of a new drug application, or NDA, for PCRX-301 (formerly FX-301), an investigational product candidate.

The total consideration for the Flexion Acquisition was $578.8 million, which consisted of the following (in thousands, except per share amounts):


Fair Value of Purchase Price Consideration	Amount
Fair value of purchase consideration paid at closing:
Cash consideration for all outstanding shares of Flexion’s common stock (50,392 shares of common stock acquired at $8.50 per share)	$	428,333
Cash consideration paid to settle RSUs and in-the-money options	20,153


Cash paid to settle Flexion debt	85,118
	533,604

Fair value of contingent value rights (CVRs)	45,241
Total purchase consideration	$	578,845

The Company has accounted for the Flexion Acquisition using the acquisition method of accounting and, accordingly, has included the assets acquired, liabilities assumed and results of operations in its consolidated financial statements from the acquisition date of November 19, 2021.

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 intangible assets, tangible assets, liabilities 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 Flexion 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
ASSETS ACQUIRED
Cash and cash equivalents	$	113,562
Short-term available-for-sale investments	11,153
Accounts receivable	32,838
Inventories	29,667
Prepaid expenses and other assets	4,852
Fixed assets	23,307
Deferred tax assets	58,015
Right-of-use assets	6,585
Identifiable intangible assets	480,000
In-process research and development (IPR&D)	61,000
Total assets	$	820,979
LIABILITIES ASSUMED
Accounts payable	$	9,794
Accrued expenses	22,746
Deferred revenue	10,000
Lease liabilities	6,585
Other liabilities	1,187
Long-term debt	201,450
Total liabilities	251,762
Total identifiable net assets acquired	569,217
Goodwill	9,628
Total consideration transferred	$	578,845

The acquired identifiable intangible assets and IPR&D assets were valued from a market participants’ perspective using a multi-period excess earnings methodology (income approach). The identifiable finite-lived intangible asset, ZILRETTA, is a developed technology for OA knee pain with a value of $480.0 million and a useful life of 9.7 years. A discount rate of 17.5% was used in calculating the fair value of this technology. The IPR&D asset relates to the use of ZILRETTA for the treatment of OA pain of the shoulder and was valued at $60.0 million. The projected cash flows for this asset were adjusted for the probability of successful development and commercialization, and were discounted at 18.0%.

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 ZILRETTA with iovera° and EXPAREL as a safe and effective non-opioid multimodal regimen for pain management, as well as the synergies of merging operations. The acquired goodwill and 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 acquired goodwill and intangible assets.

Flexion results from the acquisition date of November 19, 2021 through December 31, 2021, which are included in the consolidated statements of operations, are as follows (in thousands):


Classification in Consolidated Statements of Operations	Acquisition Date Through December 31, 2021
Total revenues	$	12,683
Net loss	$	(25,010)

Refer to Note 18, Acquisition-Related Charges Product Discontinuation and Other, for further information on costs incurred related to the Flexion Acquisition.

Unaudited Pro Forma Summary of Operations

The following table shows the unaudited pro forma summary of operations for the years ended December 31, 2021 and 2020, as if the Flexion Acquisition had occurred on January 1, 2020. 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, 2020, and is not indicative of what such results would be expected for any future period (in thousands, except per share amounts):


	Year Ended December 31,
	2021		2020
Total revenues	$	630,942	$	515,199
Net loss	(67,264)		(19,711)
Pro forma basic and diluted net loss per share	$	(1.52)	$	(0.46)

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 Flexion. 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 years ended December 31, 2021 and 2020;

•Removal of the income tax benefit resulting from the Company decreasing its existing valuation allowance on deferred tax assets from the years ended December 31, 2021 and 2020;

•Removal of Flexion’s interest expense and associated deferred financing cost amortization;

•Adjustments to the Company’s interest income for the cash used to acquire Flexion;

•Additional cost of goods sold related to the step-up value in inventory;

•Additional amortization expense from the acquired developed technology intangible assets;

•Additional depreciation of fixed assets; and

•Additional lease expense on the ROU assets.

In addition, all of the above adjustments were adjusted for the applicable tax impact.

MyoScience, Inc.

On April 9, 2019, the Company acquired MyoScience (the “MyoScience Acquisition”), a privately held medical device company, in which MyoScience became a wholly owned subsidiary of the Company and was renamed Pacira CryoTech, Inc. The total consideration was $147.5 million, which included a cash payment of $119.0 million and the fair value of contingent consideration in the amount of $28.5 million. The contingent consideration consisted of contingent milestone payments up to an aggregate of $100.0 million upon the achievement of certain regulatory and commercial milestones, of which $43.0 million are available as of December 31, 2021. The Company’s obligation to make milestone payments is limited to those milestones achieved through December 31, 2023, with any such milestones payable within 60 days of the end of the fiscal quarter of achievement. During the years ended December 31, 2021, 2020 and 2019, the Company made $12.0 million, $15.0 million and $7.0 million of cash payments for the achievement of certain milestones, respectively. See Note 12, Financial Instruments, for information on the measurement and amounts recognized in the Company’s consolidated financial statements for contingent consideration. See Note 21, Commitments and Contingencies, for information on a dispute regarding the achievement of certain milestone payments.