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FINANCIAL INSTRUMENTS | 9 Months Ended
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Sep. 30, 2021
Fair Value Disclosures [Abstract] |
FINANCIAL INSTRUMENTS | FINANCIAL INSTRUMENTS Fair Value Measurements 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: •Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs. •Level 2: Observable prices that are based on inputs not quoted on active markets, but corroborated by market data. •Level 3: Unobservable inputs that are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs. 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 equity investment with a readily determinable fair value was calculated utilizing market quotations from a major American stock exchange (Level 1). 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 amount of the investments without a readily determinable fair value have not been adjusted for either an impairment or upward or downward adjustments based on observable transactions. Certain assets and liabilities are measured at fair value on a non-recurring basis, including assets and liabilities acquired in a business combination, equity instruments measured at cost and long-lived assets, which would be recognized at fair value if deemed impaired or if reclassified as assets held for sale. The fair value in these instances would be determined using Level 3 inputs. At September 30, 2021, 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: |  |  |  |  |  |  |  |
Notes receivable |  | $ | 4,164 |  |  | $ | — |  |  | $ | — |  |  | $ | 4,164 |
Financial Liabilities: |  |  |  |  |  |  |  |
Acquisition-related contingent consideration |  | $ | 16,199 |  |  | $ | — |  |  | $ | — |  |  | $ | 16,199 |
Financial Liabilities Measured at Amortized Cost: |  |  |  |  |  |  |  |
2.375% convertible senior notes due 2022 (1) |  | $ | 155,751 |  |  | $ | — |  |  | $ | 166,000 |  |  | $ | — |
0.750% convertible senior notes due 2025 (1) |  | $ | 326,146 |  |  | $ | — |  |  | $ | 437,216 |  |  | $ | — |
(1) The closing price of the Company’s common stock as reported on the Nasdaq Global Select Market was $56.00 per share on September 30, 2021, compared to a conversion price of $66.89 per share for the 2022 Notes and $71.78 per share for the 2025 Notes. The maximum conversion premium that could have been due on the 2022 Notes and 2025 Notes at September 30, 2021 was approximately 2.4 million and 5.6 million shares of the Company’s common stock, respectively. These figures assume no increases in the conversion rate for certain corporate events. Equity and Debt Investments At December 31, 2020, the Company held an equity investment in TELA Bio, Inc., or TELA Bio, in its condensed consolidated balance sheets in the amount of $11.6 million. During the nine months ended September 30, 2021, the Company sold its investment in TELA Bio for net cash proceeds of $9.1 million. During the nine months ended September 30, 2021, the Company recognized a realized loss of $2.6 million, which has been recorded in other, net in the condensed consolidated statements of operations. The fair value of TELA Bio was based on a Level 1 input. At September 30, 2021 and December 31, 2020, the Company held an equity investment of $4.1 million and $1.2 million, respectively, in GeneQuine Biotherapeutics GmbH, or GeneQuine, a privately held biopharmaceutical company headquartered in Hamburg, Germany. This investment has no readily determinable fair value and is recorded at cost minus impairment, if any, plus or minus observable price changes of identical or similar investments. During 2021, the Company purchased a convertible note from GeneQuine in the amount of $1.2 million and invested an additional $3.0 million in equity investments. During the nine months ended September 30, 2021, the valuation of the convertible note was reduced by less than $0.1 million due to changes in foreign currency exchange rates. The Company has the right to make additional investments in debt securities of $1.7 million predicated upon GeneQuine achieving certain prespecified near-term milestones. In April 2021, the Company purchased privately-held preferred shares in Coda BioTherapeutics, Inc., a preclinical stage biopharmaceutical company that is developing a gene-therapy platform to treat neurological disorders and diseases for a purchase price of $10.0 million. There were no adjustments to this investment during the three and nine months ended September 30, 2021. In April 2021, the Company purchased a convertible note in the amount of $3.0 million from Spine BioPharma, LLC, a preclinical stage biopharmaceutical company. There were no adjustments to this investment during the three and nine months ended September 30, 2021. Acquisition-related Contingent Consideration 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, 2021, the maximum potential remaining milestone payments to be paid are $48.0 million. The Company made a $7.0 million milestone payment during the nine months ended September 30, 2021 for the achievement of one regulatory milestone. Another regulatory milestone in the amount of $5.0 million was met in the three months ended September 30, 2021 and is expected to be paid in November 2021. During the nine months ended September 30, 2020, the Company made $15.0 million in cash payments for the achievement of two regulatory milestones. As of September 30, 2021 and December 31, 2020, a contingent consideration liability related to the MyoScience Acquisition has been recognized in the amounts of $16.2 million and $28.3 million, 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. For the three and nine months ended September 30, 2021, the Company recognized $1.2 million and $2.1 million gains, respectively, related to contingent consideration. For the three and nine months ended September 30, 2020, the Company recognized $0.8 million of charges and $1.6 million of gains, respectively, related to contingent consideration. These amounts have been included in acquisition-related (gains) charges in the condensed consolidated statements of operations. 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 rate 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. At September 30, 2021, the weighted average discount rate was 3.65% and the weighted average probability of success for the regulatory milestone that has not yet been met was 2.0%. The following table includes the key assumptions used in the valuation of the Company’s contingent consideration:
Assumption |  | Ranges Utilized as of September 30, 2021
Discount rates |  | 3.49% to 3.81%
Probabilities of payment for regulatory milestones |  | 2% to 100%
Projected years of payment for regulatory and commercial milestones |  | 2021 to 2023
The change in the Company’s contingent consideration recorded at fair value using Level 3 measurements is as follows (in thousands):
|  | Contingent Consideration Fair Value
Balance at December 31, 2020 |  | $ | 28,346 |
Fair value adjustments and accretion |  | (2,147) |
Payments made |  | (7,000) |
Offset indemnification claims |  | (3,000)
Balance at September 30, 2021 |  | $ | 16,199 |
Available-for-Sale Investments Short-term investments consist of asset-backed securities collateralized by credit card receivables, investment grade commercial paper and corporate and government bonds with maturities greater than three months, but less than one year. Long-term investments consist of government 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 and long-term investments are reported in other comprehensive income (loss). At September 30, 2021 and December 31, 2020, all of the Company’s short-term and long-term 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 and long-term investments had an “A” or better rating by Standard & Poor’s. The following summarizes the Company’s investments at September 30, 2021 and December 31, 2020 (in thousands):
September 30, 2021 Investments |  | Cost |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Fair Value (Level 2)
Short-term: |  |  |  |  |  |  |  |
Asset-backed securities |  | $ | 17,615 |  |  | $ | 3 |  |  | $ | (2) |  |  | $ | 17,616 |
Commercial paper |  | 423,302 |  |  | 82 |  |  | — |  |  | 423,384 |
Corporate bonds |  | 32,612 |  |  | — |  |  | (7) |  |  | 32,605 |
U.S. Government bonds |  | 86,194 |  |  | 24 |  |  | (1) |  |  | 86,217 |
Total |  | $ | 559,723 |  |  | $ | 109 |  |  | $ | (10) |  |  | $ | 559,822 |
December 31, 2020 Investments |  | Cost |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Fair Value (Level 2)
Short-term: |  |  |  |  |  |  |  |
Asset-backed securities |  | $ | 34,918 |  |  | $ | 98 |  |  | $ | — |  |  | $ | 35,016 |
Commercial paper |  | 221,494 |  |  | 36 |  |  | (18) |  |  | 221,512 |
Corporate bonds |  | 120,375 |  |  | 179 |  |  | (11) |  |  | 120,543 |
U.S. Government bonds |  | 44,629 |  |  | 7 |  |  | (2) |  |  | 44,634 |
Subtotal |  | 421,416 |  |  | 320 |  |  | (31) |  |  | 421,705 |
Long-term: |  |  |  |  |  |  |  |
U.S. Government bonds |  | 95,429 |  |  | 30 |  |  | — |  |  | 95,459 |
Subtotal |  | 95,429 |  |  | 30 |  |  | — |  |  | 95,459 |
Total |  | $ | 516,845 |  |  | $ | 350 |  |  | $ | (31) |  |  | $ | 517,164 |
At September 30, 2021, there were no investments available for sale that were materially less than their amortized cost. The Company elects to recognize its interest receivable separate from its available-for-sale investments. At September 30, 2021 and December 31, 2020, the interest receivable recognized in prepaid expenses and other current assets was $0.4 million and $1.6 million, respectively. Credit Risk Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, short-term and long-term 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, 2021, three wholesalers each accounted for over 10% of the Company’s accounts receivable, at 31%, 27% and 26%. At December 31, 2020, three wholesalers each accounted for over 10% of the Company’s accounts receivable, at 36%, 28% and 23%. For additional information regarding the Company’s wholesalers, see Note 2, Summary of Significant Accounting Policies. EXPAREL revenues are primarily derived from major wholesalers 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 Company’s accounts receivable are maintained based on historical payment patterns, current and estimated future economic conditions, aging of accounts receivable and its write-off history. As of September 30, 2021 and December 31, 2020, the Company did not deem any allowances for credit losses on its accounts receivable necessary.

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- Definition The entire disclosure for financial instruments. This disclosure includes, but is not limited to, fair value measurements of short and long term marketable securities, international currencies forward contracts, and auction rate securities. Financial instruments may include hedging and non-hedging currency exchange instruments, derivatives, securitizations and securities available for sale at fair value. Also included are investment results, realized and unrealized gains and losses as well as impairments and risk management disclosures. + References No definition available. + Details
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