COMMITMENTS AND CONTINGENCIES

Leases

The Company leases its EXPAREL manufacturing, research and development, warehouse and DepoCyt(e) facilities in San Diego, California, and its corporate headquarters in Parsippany, New Jersey. Many of these leases provide renewal options at the then-current market value. In addition, the Company has a lease for the use of Thermo Fisher’s facility in Swindon, England embedded in the Thermo Fisher agreements and a portion of the monthly base fee has been allocated to the lease component based on a relative fair value basis.

As of December 31, 2018, aggregate annual minimum payments due under the Company’s lease obligations are as follows (in thousands):



Year	Aggregate Minimum Payments Due
2019	$	8,140
2020	7,621
2021	5,295
2022	5,417
2023	5,543
2024 through 2028	14,329
Total	$	46,345

Total rent expense, net of amortization of unfavorable lease obligations and tenant improvements, under all operating leases for the years ended December 31, 2018, 2017 and 2016 was $7.2 million, $7.5 million and $6.0 million, respectively. Deferred rent was $6.9 million at December 31, 2018 and $6.8 million at December 31, 2017.

Litigation

From time to time, the Company has been and may again become involved in legal proceedings arising in the ordinary course of its business, including those related to patents, product liability and government investigations. Except as described below, the Company is not presently a party to any legal proceedings which it believes to be material, and is not aware of any pending or threatened litigation against the Company which it believes could have a material adverse effect on its business, operating results, financial condition or cash flows.

In April 2015, the Company received a subpoena from the U.S. Department of Justice, U.S. Attorney’s Office for the District of New Jersey, requiring the production of a broad range of documents pertaining to marketing and promotional practices related to EXPAREL. The Company is cooperating with the government’s inquiry. The Company can make no assurances as to the time or resources that will need to be devoted to this inquiry or the impact, if any, of this inquiry or any proceedings on its business, financial condition, results of operations and cash flows.

Purchase Obligations

The Company has approximately $24.5 million of minimum, non-cancelable contractual commitments for contract manufacturing services as of December 31, 2018.

Other Commitments and Contingencies

The FDA, as a condition of EXPAREL approval, has required the Company to study EXPAREL in pediatric patients. The Company was granted a deferral for the required pediatric trials in all age groups for EXPAREL in the setting of wound infiltration and plans to conduct these pediatric trials as a post-marketing requirement, which was stated in the New Drug Application (NDA) approval letter for EXPAREL. The Company recently began activating a study site for an extended pharmacokinetic and safety study for local analgesia in children aged 6 to 17 undergoing cardiovascular or spine surgeries and is working with the FDA to define a program to study the administration of EXPAREL as a nerve block in the pediatric setting.

In addition to the initial $19.6 million purchase price for the Skyepharma Acquisition, the Company entered into an earn-out agreement with Skyepharma based on the Company reaching certain revenue milestones following the Skyepharma Acquisition. Pursuant to this agreement, the Company is required to pay Skyepharma milestone payments up to an aggregate of $62.0 million, of which $36.0 million are for milestones not yet met. The Company also 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. Refer to Note 7, Goodwill, for further discussion.

Pursuant to an agreement with the Research Development Foundation, or RDF, the Company is required to pay RDF a low single-digit royalty on the collection of revenues from its DepoFoam-based products, for as long as certain patents assigned to the Company under the agreement remain valid. RDF has the right to terminate the agreement for an uncured material breach by the Company, in connection with its bankruptcy or insolvency or if it directly or indirectly opposes or disputes the validity of the assigned patent rights.