

20.	Subsequent Events

Commitments and Contingencies

Putative Class Action Litigation (MSP). On October 30, 2017, a putative class action lawsuit was filed against the Company and United BioSource Corporation ("UBC") in the U.S. District Court for the Central District of California. The case is captioned MSP Recovery Claims, Series II LLC, et al. v. Mallinckrodt ARD, Inc., et al. The complaint purports to be brought on behalf of two classes: all Medicare Advantage Organizations and related entities in the U.S. who purchased or provided reimbursement for Acthar pursuant to (i) Medicare Part C contracts (Class 1) and (ii) Medicare Part D contracts (Class 2) since January 1, 2011, with certain exclusions. The complaint alleges that the Company engaged in anticompetitive, unfair, and deceptive acts to artificially raise and maintain the price of Acthar. To this end, the complaint alleges that the Company unlawfully maintained a monopoly in a purported ACTH product market by acquiring the U.S. rights to Synacthen Depot and reaching anti-competitive agreements with the other defendants by selling Acthar through an exclusive distribution network. The complaint purports to allege claims under federal and state antitrust laws and state unfair competition and unfair trade practice laws. The Company intends to vigorously defend itself in this matter.

Opioid Related Matters. The Company has been named in several lawsuits filed in federal court brought by various counties and cities, along with other opioid manufacturers and, often, distributors. In general, the lawsuits assert claims of public nuisance, negligence, civil conspiracy, fraud, violations of RICO or similar state laws, consumer fraud, deceptive trade practices, insurance fraud, unjust enrichment and other common law claims arising from defendants’ manufacturing, distribution, marketing and promotion of opioids and seek restitution, damages, injunctive and other relief and attorneys’ fees and costs. These claims have been filed or amended to include the Company in the U.S. District Court for the Southern District of Illinois (October 26, 2017 and October 27, 2017), the U.S. District Court for the Southern District of Ohio (between September 22, 2017 and November 6, 2017), the U.S. District Court for the Northern District of Alabama (October 25, 2017), the U.S. District Court for the Eastern District of Michigan (October 12, 2017), and the U.S. District Courts for the Eastern and Western Districts of Kentucky (between October 3 and October 30, 2017). The Company intends to vigorously defend itself in these matters.

Inhaled Xenon Gas Licensing Agreement

On October 2, 2017, the Company entered into a licensing agreement ("the Licensing Agreement") for development and commercialization of NeuroproteXeon Inc.'s ("NeuroproteXeon") investigational, pharmaceutical-grade xenon gas for inhalation therapy being evaluated to improve survival and functional outcomes for patients resuscitated after a cardiac arrest. If approved, xenon gas for inhalation will expand the Company's portfolio of hospital drug-device combination products providing therapies for critically ill patients. The Company paid $10.0 million upfront with cash on hand to reimburse NeuroproteXeon for certain product development costs, and gained exclusive rights to commercialize the therapy, if approved, in the U.S., Canada, Japan and Australia. The Licensing Agreement includes additional payments of up to $25.0 million dependent on developmental, regulatory and sales milestones. In addition, NeuroproteXeon will receive tiered royalties on applicable worldwide net sales and a transfer price for commercial product supply. NeuroproteXeon will continue to be responsible for the cost of development and will manage the development of the product in collaboration with the Company.

Reorganization of Legal Entity Ownership

On October 6, 2017, the Company completed a reorganization of its legal entity ownership ("the Reorganization") to align with its ongoing transformation to become an innovation-driven specialty pharmaceuticals growth company. Many factors were considered in effecting the Reorganization, including streamlining treasury functions, simplifying legal entity reporting processes, and capital allocation efficiencies.

Given this Reorganization, the Internal Revenue Code required the Company to reallocate its tax basis from an investment in shares of a wholly-owned subsidiary to assets within another legal entity with no corresponding change in accounting basis. A deferred tax liability is not recognized on the wholly-owned subsidiary as there is a means for its recovery in a tax-free manner. The reallocation of tax basis resulted in a decrease to the net deferred tax liabilities associated with the assets within the other legal entity. During the three months ending December 29, 2017, the Company expects to record the reduction in its net deferred tax liabilities of $800.0 million to $950.0 million, which will result in the recognition of a net deferred income tax benefit of an equal amount. The reduction to net deferred tax liabilities is expected to be comprised of a $650.0 million to $775.0 million reduction to interest-bearing U.S. deferred tax liabilities and a $150.0 million to $175.0 million reduction to net deferred tax liabilities associated with intangible assets.

During the three months ended September 29, 2017, the Company recognized income tax expense of $36.1 million, with an offset to deferred tax liabilities commensurate with the completion of certain aspects of the Reorganization during the third quarter of 2017.

Ocera Acquisition

On November 2, 2017, the Company entered into an agreement to acquire Ocera Therapeutics, Inc. ("Ocera") through a cash tender offer to purchase all of the outstanding shares of Ocera common stock for upfront consideration of approximately $42.0 million and contingent consideration up to $75.0 million based on the successful completion of certain development and sales milestones. Ocera is a clinical stage biopharmaceutical company focused on the development and commercialization of novel therapeutics for orphan and other serious liver diseases with a high unmet medical need. Ocera’s developmental product OCR-002, an ammonia scavenger, is being studied for treatment of hepatic encephalopathy, a neuropsychiatric syndrome associated with hyperammonemia, a complication of acute or chronic liver disease. This transaction is expected to close in the fourth quarter of 2017.

Goodwill and Other Long-Lived Assets Impairment Analysis

Goodwill is tested for impairment on an annual basis or more frequently if certain indicators are present or changes in circumstances suggest that impairment may exist. Management relies on a number of qualitative factors when considering a potential impairment such as its operating results, business plans, economic projections, anticipated future cash flows, transactions and market capitalization.

Subsequent to September 29, 2017, the Company's market capitalization has declined, which may be an indicator of impairment should this decrease be more than temporary. The Company will continue to assess the impact of its market capitalization. It is possible that if the Company's market capitalization decline is more than temporary, such decline could result in an impairment of goodwill and other long-lived assets associated with its reporting units.