FLEXION ACQUISITION

12 Months Ended

Dec. 31, 2022

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 OA, the most common form of arthritis, pursuant to an Agreement and Plan of Merger (the “Flexion 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 Flexion 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 assumed by the Company and (iii) $45.2 million of estimated contingent consideration at the time of the acquisition 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. At the time of the acquisition, the Company estimated that up to an additional $380.2 million in the aggregate may be payable to holders of the CVRs if each of the applicable milestones are achieved by December 31, 2030, 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, 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, an investigational product candidate. In September 2022, based on the results of a completed phase 1 study, the Company decided to discontinue further development of PCRX-301.

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 stock options	20,153


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

Fair value of CVRs	45,241
Total purchase consideration	$	578,845

The Company 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 final allocation of the consideration transferred to the assets acquired and the liabilities assumed has been completed. The following tables set forth the 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 (as previously reported) (a)		Measurement Period Adjustments (b)		Amounts Recognized at the Acquisition Date (as adjusted)
ASSETS ACQUIRED
Cash and cash equivalents	$	113,562	$	—	$	113,562
Short-term available-for-sale investments	11,153		—		11,153
Accounts receivable	32,838		—		32,838
Inventories	29,667		—		29,667
Prepaid expenses and other assets	4,852		—		4,852
Fixed assets	23,307		—		23,307
Deferred tax assets	58,015		(16,906)		41,109
Right-of-use assets	6,585		—		6,585
Identifiable intangible assets	480,000		—		480,000
IPR&D	61,000		—		61,000
Total assets	$	820,979	$	(16,906)	$	804,073
LIABILITIES ASSUMED
Accounts payable	$	9,794	$	—	$	9,794
Accrued expenses	22,746		1,162		23,908
Deferred revenue	10,000		—		10,000
Lease liabilities	6,585		—		6,585
Other liabilities	1,187		—		1,187
Long-term debt	201,450		—		201,450
Total liabilities	251,762		1,162		252,924
Total identifiable net assets acquired	569,217		(18,068)		551,149
Goodwill	9,628		18,068		27,696
Total consideration transferred	$	578,845	$	—	$	578,845

(a) As previously reported in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

(b) Represents the finalization of a tax study and pre-acquisition expenses that were paid by the Company in 2022, partially offset by the release of estimated reserves.

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 not deductible for tax purposes.

Refer to Note 9, Goodwill and Intangible Assets, and Note 18, Acquisition-related Charges (Gains), Impairment and Other, for further information 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;

•Recognition of the income tax benefit resulting from decreasing Flexion’s existing valuation allowance on deferred tax assets for the year ended December 31, 2021;

•Removal of Flexion’s interest expense and associated deferred financing cost amortization related to the $85.1 million of debt not assumed;

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

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

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

•Additional depreciation of Flexion’s fixed assets; and

•Additional lease expense on Flexion’s ROU assets.

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