

4.	Acquisitions and License Agreements

Business Acquisitions

Questcor Pharmaceuticals

On August 14, 2014, the Company acquired all of the outstanding common stock of Questcor, a biopharmaceutical company, for total consideration of approximately $5.9 billion, comprised of cash consideration of $30.00 per share, 0.897 ordinary shares of the Company for each share of Questcor common stock owned and the portion of outstanding equity awards deemed to have been earned as of August 14, 2014 ("the Questcor Acquisition"). The acquisition was funded through an issuance of approximately 57 million ordinary shares, proceeds from the issuance of $900.0 million aggregate principle of senior unsecured notes, proceeds from the issuance of $700.0 million senior secured term loan facility, $150.0 million of cash from a receivable securitization program, as further discussed in Note 11, and cash on hand. H.P. Acthar® Gel (repository corticotropin injection) ("Acthar"), Questcor's primary product, is focused on the treatment of patients with serious, difficult-to-treat autoimmune and rare diseases. Acthar is an injectable drug that is approved by the U.S. Food and Drug Administration ("FDA") for use in 19 indications, including the currently marketed areas of neurology, rheumatology, nephrology and pulmonology. As part of the acquisition, the Company also acquired BioVectra, Inc. ("BioVectra"), a specialty contract manufacturer that provides services to the global pharmaceuticals and biotechnology industry.

Cadence Pharmaceuticals

On March 19, 2014, the Company acquired all of the outstanding common stock of Cadence Pharmaceuticals, Inc. ("Cadence"), a biopharmaceutical company focused on commercializing products principally for use in the hospital setting, for total consideration of $14.00 per share in cash, or approximately $1.3 billion ("the Cadence Acquisition"). The acquisition was primarily funded through a $1.3 billion senior secured term loan credit facility, as further discussed in Note 11. Cadence's sole product, OFIRMEV® (acetaminophen) injection ("Ofirmev"), is a proprietary intravenous formulation of acetaminophen for the management of mild to moderate pain, the management of moderate to severe pain with adjunctive opioid analgesics and the reduction of fever. The Cadence Acquisition added a growth product to the Specialty Brands segment and provides the Company an opportunity to expand its reach into the adjacent hospital market, in which Cadence had established a presence.

Fair Value Allocation

The following amounts represent the preliminary allocation of the fair value of the identifiable assets acquired and liabilities assumed for the Questcor Acquisition, including preliminary goodwill and intangible assets, and the related deferred tax balances. The Company expects to complete its valuation analysis and finalize deferred tax balances as of the acquisition date no later than twelve months from the date of the Questcor Acquisition. The changes in the purchase price allocation and preliminary goodwill based on the final valuation may include, but are not limited to, the impact of state tax rates in determining the deferred tax balances. During the three months ended December 26, 2014, there were adjustments to the purchase price allocation primarily related to the ongoing evaluation of U.S. state tax balances. The following also presents the final allocation of the fair value of the identifiable assets acquired and liabilities assumed for the Cadence Acquisition. There were no measurement period adjustments recognized during the three months ended December 26, 2014 that would amend the previously disclosed preliminary purchase price allocation for the Cadence Acquisition.



	Questcor		Cadence
Cash and cash equivalents	$	445.1	$	43.2
Inventory	67.9		21.0
Intangible assets	5,601.1		1,300.0
Goodwill	1,783.3		318.1
Other assets, current and non-current ⁽¹⁾	274.3		18.0
Total assets acquired	8,171.7		1,700.3
Current liabilities ⁽²⁾	157.1		60.1
Unpaid purchase consideration (current)	128.8		—
Other liabilities (non-current) ⁽²⁾	184.8		18.7
Deferred tax liabilities, net (non-current)	1,914.5		292.3
Total liabilities assumed	2,385.2		371.1
Net assets acquired	$	5,786.5	$	1,329.2


(1)	This amount includes $87.3 million and $14.7 million of accounts receivable for the Questcor Acquisition and the Cadence Acquisition, respectively, which is also the gross contractual value.


(2)	These amounts include $30.0 million of pre-existing Cadence debt, which the Company repaid upon completion of the Cadence Acquisition.

The following reconciles the total consideration to net assets acquired:



	Questcor			Cadence
Total consideration, net of cash	$	5,470.2		$	1,286.0
Plus: cash assumed in acquisition	445.1			43.2
Total consideration	5,915.3			1,329.2
Less: unpaid purchase consideration	(128.8		)	—
Net assets acquired	$	5,786.5		$	1,329.2

Intangible assets acquired consist of the following:



Questcor	Amount		Amortization Period
Completed technology	$	5,343.3	18 years
Trademark	5.2		13 years
Customer relationships	34.3		12 years
In-process research and development	218.3		Non-Amortizable
	$	5,601.1

The completed technology intangible asset relates to Acthar. The trademark and customer relationship intangible assets relate to BioVectra. The in-process research and development ("IPR&D") relates to the development of Synacthen®, a synthetic pharmaceutical product. The fair values of the intangible assets were determined using the income approach, which is a valuation technique that provides an estimate of the fair value of the asset based on market participant expectations of the cash flows an asset would generate. The cash flows were discounted at various discount rates commensurate with the level of risk associated with each asset or their projected cash flows. Completed technology, customer relationships, trademark and IPR&D intangibles utilized discount rates of 14.5%, 10.0%, 10.0% and 16.0%, respectively. The IPR&D discount rate was developed after assigning a probability of success to achieving the projected cash flows based on the current stage of development, inherent uncertainty in the FDA approval process and risks associated with commercialization of a new product. Based on the Company's preliminary estimate, the excess of purchase price over net tangible and intangible assets acquired resulted in goodwill, which represents the assembled workforce, anticipated synergies and the tax status of the transaction. The goodwill is not deductible for U.S. income tax purposes. The majority of the assets acquired are included within the Company's Specialty Brands segment.



Cadence	Amount		Amortization Period
Completed technology	$	1,300.0	8 years

The completed technology intangible asset relates to Ofirmev, the rights to which have been in-licensed from Bristol-Myers Squibb Company ("BMS"). The fair value of the intangible asset was determined using the income approach and the cash flows were discounted at a 13.0% rate. For more information on the BMS license agreement, refer to "License Agreement" below. The excess of purchase price over net tangible and intangible assets acquired resulted in goodwill, which represents the assembled workforce, anticipated synergies and the tax status of the transaction. The goodwill is not deductible for U.S. income tax purposes. All assets acquired are included within the Company's Specialty Brands segment.

Financial Results

The amount of net sales and earnings included in the Company's results for the three months ended December 26, 2014 were as follows:



Net sales
Questcor	$	287.8
Cadence	71.4
	$	359.2
Operating income (loss)
Questcor	$	81.2
Cadence	(9.3		)
	$	71.9

The amount of amortization on acquired intangible assets included within operating income (loss) for the three months ended December 26, 2014 was as follows:



Intangible asset amortization
Questcor	$	75.4
Cadence	40.6
	$	116.0

During the three months ended December 26, 2014, the Company recognized $30.8 million of expense, included in cost of sales, primarily associated with fair value adjustments of acquired inventory. Acquisition-related costs recognized during the three months ended December 26, 2014 were immaterial.

Unaudited Pro Forma Financial Information

The following unaudited pro forma financial information presents a summary of the combined results of operations for the periods indicated as if the Questcor Acquisition and the Cadence Acquisition had been completed as of September 29, 2012. The pro forma financial information is based on the historical financial information for the Company, Questcor and Cadence, along with certain pro forma adjustments. These pro forma adjustments consist primarily of:


•	increased amortization expense related to the intangible assets acquired in the acquisitions;

•

increased interest expense to reflect the fixed-rate senior unsecured notes and variable-rate term loan entered into in connection with the Questcor Acquisition (utilizing the interest rate in effect at the acquisition date of 3.50%) and the variable-rate term loan and revolving credit facility entered into in connection with the Cadence Acquisition (utilizing the interest rate in effect at the acquisition date of 3.50%), including interest and amortization of deferred financing costs and original issue discount; and


•	the related income tax effects.

The following unaudited pro forma financial information has been prepared for comparative purposes only and is not necessarily indicative of the results of operations as they would have been had the acquisitions occurred on the assumed date, nor is it necessarily an indication of future operating results. In addition, the unaudited pro forma financial information does not reflect the cost of any integration activities, benefits from any synergies that may be derived from the acquisitions or revenue growth that may be anticipated.



	Three Months Ended December 27, 2013
Net sales	$	818.4
Net income	61.2

Basic earnings per share	$	0.54
Diluted earnings per share	0.53

License Agreement

Bristol-Myers Squibb

As part of the Cadence Acquisition, the Company acquired the exclusive development and commercialization rights to Ofirmev in the U.S. and Canada, as well as the rights to the patents and technology, which were originally in-licensed by Cadence from BMS in March 2006. BMS sublicensed these rights to Cadence under a license agreement with SCR Pharmatop S.A. ("Pharmatop"), and the Company has the right to grant sublicenses to third parties. Under this license agreement, the Company may be obligated to make future milestone payments of up to $25.0 million upon the achievement of certain levels of net sales, of which $10.0 million was accrued within accounts payable as of December 26, 2014. In addition, the Company is obligated to pay royalties on sales of the product. During the three months ended December 26, 2014, the Company paid royalties of $10.1 million.