Fair value is defined as the price that would be received to sell an asset or be paid to transfer a liability in the principal or most advantageous market in an orderly transaction. To increase consistency and comparability in fair value measurements, the FASB established a three-level hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of fair value measurements are:

The carrying value of financial instruments including cash and cash equivalents, accounts receivable and accounts payable approximate their respective fair values due to the short-term nature of these items. The fair value of the Company’s convertible senior notes are calculated utilizing market quotations from an over-the-counter trading market for these notes (Level 2). The fair value of the Company’s acquisition-related contingent consideration is reported at fair value on a recurring basis (Level 3). The carrying amounts of convertible notes receivable without readily determinable fair values have not been adjusted for either an impairment or upward or downward adjustments based on observable transactions, whereas an equity investment was fully impaired during the three months ended September 30, 2022.

At September 30, 2022, the carrying values and fair values of the following financial assets and liabilities were as follows (in thousands):


	Carrying Value		Fair Value Measurements Using
			Level 1		Level 2		Level 3
Financial Assets and Financial Liabilities Measured at Fair Value on a Recurring Basis:
Financial Assets:
Equity investments	$	15,877	$	—	$	—	$	15,877
Convertible notes receivable	$	5,224	$	—	$	—	$	5,224
Financial Liabilities:
Acquisition-related contingent consideration	$	34,204	$	—	$	—	$	34,204

Financial Liabilities Measured at Amortized Cost:
Term loan facility due December 2026	$	343,719	$	—	$	343,781	$	—
0.750% convertible senior notes due 2025 (1)	$	395,510	$	—	$	399,481	$	—
3.375% convertible senior notes due 2024 (2)	$	8,641	$	—	$	8,649	$	—

(1) The closing price of the Company’s common stock as reported on the Nasdaq Global Select Market was $53.19 per share at September 30, 2022 compared to a conversion price of $71.78 per share. Therefore, at September 30, 2022, the conversion price was above the stock price. The maximum conversion premium that could have been due on the 2025 Notes is 5.6 million shares of the Company’s common stock, which assumes no increase in the conversion rate for certain corporate events.

The Company holds strategic investments in clinical and preclinical stage privately-held biotechnology companies in the form of equity and convertible note investments. The following investments have no readily determinable fair value and are recorded at cost minus impairment, if any, plus or minus observable price changes of identical or similar investments (in thousands):


	Equity Investments		Convertible Notes Receivable		Total
Balance at December 31, 2020	$	12,802	$	—	$	12,802
Purchases	12,967		4,220		17,187
Divestiture of investment	(11,642)		—		(11,642)
Foreign currency adjustments	—		(88)		(88)
Balance at December 31, 2021	$	14,127	$	4,132	$	18,259
Purchases	11,750		1,250		13,000
Impairment	(10,000)		—		(10,000)
Foreign currency adjustments	—		(158)		(158)
Balance at September 30, 2022	$	15,877	$	5,224	$	21,101

During the nine months ended September 30, 2021, the Company sold an equity investment for net cash proceeds of $9.1 million and recognized a realized loss of $2.6 million, which was recorded in other, net in the condensed consolidated statements of operations. The fair value of the divested equity investment was based on a Level 1 input.

The Company has recognized contingent consideration related to the Flexion Acquisition and the MyoScience Acquisition in the amount of $34.2 million and $57.6 million as of September 30, 2022 and December 31, 2021, respectively. The Company’s contingent consideration obligations are recorded at their estimated fair values and are revalued each reporting period if and until the related contingencies are resolved. The Company has measured the fair value of its contingent consideration using a probability-weighted discounted cash flow approach that is based on unobservable inputs and a Monte Carlo simulation. These inputs include, as applicable, estimated probabilities and the timing of achieving specified commercial and regulatory milestones, estimated forecasts of revenue and costs and the discount rates used to calculate the present value of estimated future payments. Significant changes may increase or decrease the probabilities of achieving the related commercial and regulatory events, shorten or lengthen the time required to achieve such events, or increase or decrease estimated forecasts.

In November 2021, the Company completed the Flexion Acquisition, which provided for contingent consideration related to CVRs that were issued to Flexion shareholders and certain equity award holders which could aggregate up to a total of $425.5 million if certain regulatory and commercial milestones are met. The Company’s obligation to make milestone payments is limited to those milestones achieved through December 31, 2030, and are to be paid within 60 days of the end of the fiscal quarter of achievement. As part of the purchase price consideration related to the Flexion Acquisition, the Company recorded contingent consideration of $45.2 million, which represented the Company’s potential achievement of meeting the regulatory and commercial milestones. For the period from the date of the Flexion Acquisition through December 31, 2021, the Company recorded an additional $1.2 million liability. During the three and nine months ended September 30, 2022, the Company recorded gains of $0.5 million and $13.8 million, respectively, primarily due to adjustments to near-term forecasts for the earnout period of the contingent consideration. These adjustments were recorded as acquisition-related gains in the condensed consolidated statements of operations. At September 30, 2022, the weighted average discount rate was 14.4% and the probability of success for the remaining regulatory milestone was 20.0%. As of September 30, 2022 and December 31, 2021, a contingent consideration liability related to the Flexion Acquisition was recognized in the amount of $32.6 million and $46.4 million, respectively.

In April 2019, the Company completed the MyoScience Acquisition pursuant to the terms of an Agreement and Plan of Merger, which provided for contingent milestone payments of up to an aggregate of $100.0 million upon the achievement of certain regulatory and commercial milestones. The Company’s obligation to make milestone payments is limited to those milestones achieved through December 31, 2023, and are to be paid within 60 days of the end of the fiscal quarter of achievement. As of September 30, 2022, the maximum potential remaining milestone payments to be paid are $43.0 million. The Company recognized contingent consideration gains of $0.5 million and $9.6 million during the three and nine months ended September 30, 2022, respectively, due to the reduced probability of meeting the contingent consideration milestones by December 31, 2023, the expiration date for achieving the milestones. The Company recognized contingent consideration gains of $1.2 million and $2.1 million during the three and nine months ended September 30, 2021, respectively. At September 30, 2022, the weighted average discount rate was 12.8% and the probability of success for the regulatory milestone that has not yet been met was reduced to zero. As of September 30, 2022 and December 31, 2021, a contingent consideration liability related to the MyoScience Acquisition has been recognized in the amounts of $1.6 million and $11.2 million, respectively.

Short-term investments consist of asset-backed securities collateralized by credit card receivables, investment grade commercial paper and corporate, federal agency and government bonds with maturities greater than three months, but less than one year. Noncurrent investments consist of federal agency bonds with maturities greater than one year but less than three years. Net unrealized gains and losses (excluding credit losses, if any) from the Company’s short-term investments are reported in other comprehensive income (loss). At September 30, 2022 and December 31, 2021, all of the Company’s short-term and noncurrent investments are classified as available-for-sale investments and are determined to be Level 2 instruments, which are measured at fair value using standard industry models with observable inputs. The fair value of the commercial paper is measured based on a standard industry model that uses the three-month U.S. Treasury bill rate as an observable input. The fair value of the asset-backed securities and corporate bonds is principally measured or corroborated by trade data for identical issues in which related trading activity is not sufficiently frequent to be considered a Level 1 input or that of comparable securities. At the time of purchase, all short-term investments had an “A” or better rating by Standard & Poor’s.


September 30, 2022 Investments	Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value (Level 2)
Current:
Asset-backed securities	$	22,298	$	—	$	(127)	$	22,171
Commercial paper	169,736		—		(903)		168,833
Corporate bonds	2,000		—		—		2,000
U.S. federal agency bonds	24,474		—		(160)		24,314
U.S. government bonds	2,006		—		(23)		1,983
Subtotal	220,514		—		(1,213)		219,301
Noncurrent:


U.S. federal agency bonds	17,496		—		(102)		17,394


Total	$	238,010	$	—	$	(1,315)	$	236,695

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, short-term available-for-sale investments and accounts receivable. The Company maintains its cash and cash equivalents with high-credit quality financial institutions. Such amounts may exceed federally-insured limits.

As of September 30, 2022, three wholesalers each accounted for over 10% of the Company’s accounts receivable, at 33%, 18% and 18%. At December 31, 2021, four wholesalers each accounted for over 10% of the Company’s accounts receivable, at 30%, 20%, 17% and 11%. For additional information regarding the Company’s wholesalers, see Note 2, Summary of Significant Accounting Policies. EXPAREL and ZILRETTA revenues are primarily derived from major wholesalers and specialty distributors that generally have significant cash resources. The Company performs ongoing credit evaluations of its customers as warranted and generally does not require collateral. Allowances for credit losses on the