

4.	Acquisitions and License Agreements

Business Acquisitions

Hemostasis Products

On February 1, 2016, the Company acquired three commercial stage topical hemostasis drugs from The Medicines Company ("the Hemostasis Acquisition") - RECOTHROM® Thrombin topical (Recombinant), PreveLeak^TM Surgical Sealant, and RAPLIXA^TM (Fibrin Sealant (Human)) - for upfront consideration of $173.5 million, inclusive of existing inventory, and contingent sales-based milestone payments that could result in up to $395.0 million of additional consideration. The fair value of the contingent consideration and acquired contingent liabilities associated with the transaction were $52.0 million and $10.6 million, respectively, at February 1, 2016. The Hemostasis Acquisition was funded through cash on hand.

Therakos, Inc.

On September 25, 2015, the Company acquired Therakos, Inc. ("Therakos") through acquisition of all outstanding common stock of TGG Medical Solutions, Inc., the parent holding company of Therakos, in a transaction valued at approximately $1.3 billion, net of cash acquired ("the Therakos Acquisition"). Consideration for the transaction consisted of approximately $1.0 billion in cash paid to TGG Medical Solutions, Inc. shareholders and the assumption of approximately $0.3 billion of Therakos third-party debt, which was repaid in conjunction with the Therakos Acquisition. The acquisition and repayment of debt was funded through the issuance of $750.0 million aggregate principal amount of senior unsecured notes, a $500.0 million borrowing under the Company's revolving credit facility and cash on hand. Therakos' primary immunotherapy products relate to the administering of extracorporeal photopheresis therapies through its UVAR XTS^®and Cellex^TM Photopheresis Systems.

Ikaria, Inc.

On April 16, 2015, the Company acquired Ikaria, Inc. ("Ikaria") through acquisition of all outstanding common stock of Compound Holdings II, Inc., the parent holding company of Ikaria, in a transaction valued at approximately $2.3 billion, net of cash acquired ("the Ikaria Acquisition"). Consideration for the transaction consisted of approximately $1.2 billion in cash paid to Compound Holdings II, Inc. shareholders and the assumption of approximately $1.1 billion of Ikaria third-party debt, which was repaid in conjunction with the Ikaria Acquisition. The acquisition and immediate repayment of debt was funded through the issuance of $1.4 billion aggregate principal amount of senior unsecured notes, a $240.0 million borrowing under the Company's revolving credit facility, and cash on hand. Ikaria's primary product is INOMAX^®(nitric oxide) gas for inhalation ("Inomax"), a vital treatment option used for neonatal critical care.

Fair Value Allocation

The following amounts represent the final allocations of the fair value of the identifiable assets acquired and liabilities assumed for the Ikaria Acquisition and the preliminary allocations of the fair value of the identifiable assets acquired and liabilities assumed from the Therakos Acquisition and the Hemostasis Acquisition. 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 respective acquisitions. The changes in the purchase price allocation and preliminary goodwill based on the final valuation may include, but are not limited to, finalization of working capital settlements, the impact of U.S. state tax rates in determining the deferred tax balances and changes in assumptions utilized in the preliminary valuation report.



	Hemostasis Products			Therakos		Ikaria
Cash and cash equivalents	$	3.3		$	41.3	$	77.3
Inventory	94.6			23.5		26.3
Intangible assets	132.7			1,170.0		1,971.0
Goodwill	0.3			430.4		795.0
Other assets, current and non-current ⁽¹⁾	7.9			42.1		174.3
Total assets acquired	238.8			1,707.3		3,043.9
Current liabilities	7.4			24.7		33.0
Other liabilities (non-current)	10.6			0.6		15.8
Deferred tax liabilities, net (non-current)	(4.7		)	318.1		620.5
Contingent consideration	52.0			—		—
Total debt	—			344.8		1,121.0
Total liabilities assumed	65.3			688.2		1,790.3
Net assets acquired	$	173.5		$	1,019.1	$	1,253.6


(1)	This amount includes zero, $22.0 million and $73.8 million, of accounts receivable for the Hemostasis Acquisition, Therakos Acquisition and the Ikaria Acquisition, respectively, which is also the gross contractual value.

The following is a reconciliation of the total consideration to net assets acquired:



	Hemostasis Products			Therakos		Ikaria
Total consideration, net of cash	$	222.2		$	977.8	$	1,176.3
Plus: cash assumed in acquisition	3.3			41.3		77.3
Total consideration	225.5			1,019.1		1,253.6
Less: contingent consideration	(52.0		)	—		—
Net assets acquired	$	173.5		$	1,019.1	$	1,253.6

Intangible assets acquired consist of the following:



Hemostasis Products	Amount		Amortization Period
Raplixa - Completed technology	$	73.0	15 years
Recothrom - Completed technology	42.7		13 years
PreveLeak - Completed technology	17.0		13 years
	$	132.7

The completed technology intangible assets relate to each of the acquired drugs. The fair value of the intangible assets were determined using the income approach, which is a valuation technique that provides an estimate of fair value of the assets based on the market participant expectations of cash flows the asset would generate. The cash flows were discounted commensurate with the level of risk associated with each asset or its projected cash flows. The completed technology intangible assets utilized a discount rate of 17.0%, 16.0% and 17.0% for Raplixa, Recothrom and PreveLeak, respectively. All assets acquired are included within the Company's Specialty Brands segment.



Therakos	Amount		Amortization Period
Completed technology	$	1,170.0	15 years

The completed technology intangible asset relates to extracorporeal photopheresis treatment therapies. The fair value of the intangible asset was determined using the income approach. The cash flows were discounted commensurate with the level of risk associated with the asset or its projected cash flows. The completed technology intangible asset utilized a discount rate of 17.0%. 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, future product and device development, 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.



Ikaria	Amount		Amortization Period
Completed technology	$	1,820.0	15 years
Trademark	70.0		22 years
In-process research and development - terlipressin	81.0		Non-Amortizable
	$	1,971.0

The completed technology and trademark intangible assets relate to Inomax. The fair values of the intangible assets were determined using the income approach. 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, trademark and in-process research and development ("IPR&D") terlipressin intangibles utilized discount rates of 14.5%, 14.5%, and 17.0%, respectively. The IPR&D discount rate, for terlipressin, 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. The excess of purchase price over net tangible and intangible assets acquired resulted in goodwill, which represents the assembled workforce, future product and device development, 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 periods presented were as follows:



	Three Months Ended				Nine Months Ended
	June 24, 2016		June 26, 2015		June 24, 2016		June 26, 2015
Net sales
Therakos	$	52.5	$	—	$	153.1	$	—
Ikaria	126.8		84.8		361.1		84.8
	$	179.3	$	84.8	$	514.2	$	84.8
Operating income
Therakos	$	11.0	$	—	$	4.1	$	—
Ikaria	56.7		13.7		148.1		13.7
	$	67.7	$	13.7	$	152.2	$	13.7

The Hemostasis Acquisition was not material to the Company's consolidated results of operations for the periods presented and therefore disclosures for this acquisition have not been provided in the above table.

The amount of amortization on acquired intangible assets included within operating income for the periods presented was as follows:



	Three Months Ended				Nine Months Ended
	June 24, 2016		June 26, 2015		June 24, 2016		June 26, 2015
Intangible asset amortization
Therakos	$	19.5	$	—	$	58.5	$	—
Ikaria	31.1		25.9		93.4		25.9
	$	50.6	$	25.9	$	151.9	$	25.9

The amount of acquisition-related costs included within operating income for the periods presented was as follows:



	Three Months Ended				Nine Months Ended
	June 24, 2016		June 26, 2015		June 24, 2016		June 26, 2015
Acquisition-related costs
Hemostasis products	$	0.1	$	—	$	2.6	$	—
Therakos	—		—		0.3		—
Ikaria	—		23.5		0.2		30.6
	$	0.1	$	23.5	$	3.1	$	30.6

During the three months ended June 24, 2016 and June 26, 2015, the Company recognized $2.6 million and $4.0 million, respectively, of expense primarily associated with fair value adjustments of acquired inventory. During the nine months ended June 24, 2016 and June 26, 2015, the Company recognized $20.9 million and $39.2 million, respectively, of expense primarily associated with fair value adjustments of acquired inventory.

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 acquisition of Questcor Pharmaceuticals, Inc. ("Questcor") had been completed as of September 29, 2012 and the Ikaria Acquisition and Therakos Acquisition as of September 28, 2013. The Hemostasis Acquisition was not material to the Company's consolidated financial statements and thus the effect of this acquisition is not included in the pro forma financial information presented below.

The pro forma financial information is based on the historical financial information for the Company, Questcor, Ikaria and Therakos, along with certain pro forma adjustments. These pro forma adjustments consist primarily of:


•	non-recurring costs related to the step-up in fair value of acquired inventory and transaction costs related to the acquisitions;


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

•

increased interest expense to reflect the fixed-rate notes entered into in connection with the Therakos Acquisition (utilizing the interest rate of 5.625%), the fixed-rate notes entered into in connection with the Ikaria Acquisition (utilizing the interest rates of 4.875% and 5.50%) and the borrowings under the variable-rate revolving credit facility (utilizing the interest in effect at the acquisition date of 2.58%), 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 dates, 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 net sales growth that may be anticipated.



	Three Months Ended				Nine Months Ended
	June 24, 2016		June 26, 2015		June 24, 2016		June 26, 2015
Net sales	$	970.6	$	940.4	$	2,803.4	$	2,827.3
Income from continuing operations	195.7		76.2		442.2		256.9

Basic earnings per share from continuing operations	$	1.80	$	0.66	$	3.96	$	2.22
Diluted earnings per share from continuing operations	1.79		0.65		3.93		2.19