GOODWILL

In March 2007, the Company acquired from SkyePharma Holding, Inc. (now a subsidiary of Vectura Group plc), or Skyepharma, its California operating subsidiary (Pacira California), referred to herein as 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 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.

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 during 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.

The Company recorded goodwill related to contingent payments due under the Skyepharma Acquisition during the years ended December 31, 2018 and 2017, 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, 2016	$	46,737
Percentage payments on collections of net sales of DepoBupivacaine products, including EXPAREL	8,460
Balance at December 31, 2017	55,197
Percentage payments on collections of net sales of DepoBupivacaine products, including EXPAREL	6,843
Balance at December 31, 2018	$	62,040