GOODWILL AND INTANGIBLE ASSETS

In March 2007, the Company acquired from SkyePharma Holding, Inc., or Skyepharma, its California operating subsidiary (Pacira California), referred to herein as the Acquisition. The Company’s goodwill arose in April 2012 from a contingent milestone payment to Skyepharma in connection with the Acquisition. The Acquisition was accounted for under Statement of Financial Accounting Standards 141, Accounting for Business Combinations, which was the effective GAAP standard at the Acquisition date. In connection with the Acquisition, the Company agreed to certain earn-out payments based on a percentage of net sales of DepoBupivacaine products collected, including EXPAREL and certain other yet-to-be-developed products, as well as milestone payments for DepoBupivacaine products, including EXPAREL, as follows:


(i)	$10.0 million upon the first commercial sale in the U.S. (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.

The first milestone was met in April 2012 resulting in a $10.0 million payment to Skyepharma. The Company recorded this payment net of a $2.0 million contingent consideration liability recognized at the time of the Acquisition, resulting in $8.0 million recorded as goodwill. In September 2014, the Company recorded an $8.0 million milestone in connection with achieving $100.0 million of annual EXPAREL net sales collected, and in June 2016, the Company recorded another $8.0 million milestone for achieving $250.0 million of annual EXPAREL net sales collected. For purposes of meeting future potential milestone payments, with certain exceptions, annual net sales are measured on a rolling quarterly basis. Cumulatively through December 31, 2017, the Company has recorded an additional $31.2 million as goodwill for earn-out payments which are based on a percentage of net sales of DepoBupivacaine products collected, including EXPAREL. Any remaining earn-out payments will also be treated as additional costs of the Acquisition and, therefore, recorded as goodwill if and when each contingency is resolved.

The Acquisition was treated as a stock acquisition for tax purposes and, therefore, the acquired intangibles for book purposes are not deductible for income tax purposes. The Company also recorded goodwill related to contingent payments due under the Acquisition during the years ended December 31, 2017 and 2016, which are not deductible for income tax purposes.

The change in the carrying value of goodwill is summarized as follows (in thousands):



	Carrying Value
Balance at December 31, 2015	$	30,880
Percentage payments on collections of net sales of DepoBupivacaine products	7,857
Milestone payment triggered by collections of net sales of DepoBupivacaine products	8,000
Balance at December 31, 2016	46,737
Percentage payments on collections of net sales of DepoBupivacaine products	8,460
Balance at December 31, 2017	$	55,197

Intangible assets acquired in the Acquisition consisted of core technology, developed technology, trademarks and trade names. There was no amortization expense for intangibles for the year ended December 31, 2017. For the years ended December 31, 2016 and 2015, amortization expense for intangibles was $0.1 million and $0.3 million, respectively.