

6.	Acquisitions and License Agreements

Business Acquisitions

Ocera Therapeutics, Inc.

On December 11, 2017, the Company acquired Ocera Therapeutics, Inc. ("Ocera") for upfront consideration of approximately $42.4 million, of which $1.9 million of the consideration was paid subsequent to December 29, 2017, and contingent consideration up to $75.0 million based on the successful completion of certain development and sales milestones ("the Ocera Acquisition"). 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 MNK-6105 (previously 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. The Ocera Acquisition was funded with cash on hand.

InfaCare Pharmaceutical Corporation

On September 25, 2017, the Company acquired InfaCare Pharmaceutical Corporation ("InfaCare") in a transaction valued at approximately $80.4 million, with additional payments of up to $345.0 million dependent on regulatory and sales milestones ("the InfaCare Acquisition"). Consideration for the transaction consisted of approximately $37.2 million in cash paid to the prior shareholders of InfaCare and the assumption of approximately $43.2 million of debt and other liabilities, which was repaid in conjunction with the InfaCare Acquisition. InfaCare is focused on development and commercialization of proprietary pharmaceuticals for neonatal and pediatric patient populations. InfaCare's developmental product stannsoporfin, a heme oxygenase inhibitor, is under investigation for its potential to reduce the production of bilirubin, the elevation of which can contribute to serious consequences in infants. The InfaCare Acquisition was funded with cash on hand.

Stratatech Corporation

On August 31, 2016, the Company acquired a developmental program from Stratatech Corporation - which includes StrataGraft®, a regenerative skin tissue and a technology platform for genetically enhanced skin tissues - for upfront consideration of $76.0 million, and contingent milestone payments, which are primarily regulatory, and royalty obligations that could result in up to $121.0 million of additional consideration ("the Stratatech Acquisition"). Stratatech is a regenerative medicine company focused on the development of unique, proprietary skin substitute products. Developmental products include StrataGraft® regenerative skin tissue ("StrataGraft") and a technology platform for genetically enhanced skin tissues. The Stratatech Acquisition was funded through cash on hand.

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) ("Recothrom"), PreveLeak^TM Surgical Sealant ("PreveLeak"), and RAPLIXA^TM (Fibrin Sealant (Human)) ("Raplixa") - 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 Hemostasis Acquisition was funded through cash on hand. As the Company shifts its focus to the critical care, autoimmune and rare disease spaces, it has entered into a transaction to sell the Recothrom and PreveLeak assets and is currently evaluating strategic options for Raplixa. See further discussion in Notes 12, 20 and 24 to the consolidated financial statements.

Therakos, Inc.

On September 25, 2015, the Company acquired Therakos, Inc. ("Therakos") through the acquisition of all the 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 a 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 the acquisition of all the 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 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 Revolver, which was repaid subsequent to the transaction, and cash on hand. Ikaria's primary product is INOMAX®(nitric oxide) for inhalation ("Inomax"), a vital treatment option in neonatal critical care.

Fair Value Allocation

The following amounts represent the allocation of the fair value of the identifiable assets acquired and liabilities assumed for the respective acquisitions:



	Ocera ⁽²⁾		InfaCare ⁽²⁾		Stratatech		Hemostasis⁽¹⁾		Therakos		Ikaria
Acquisition Date	December 2017		September 2017		August 2016		February 2016		September 2015		April 2015
Cash	$	1.0	$	1.3	$	0.2	$	3.3	$	41.3	$	77.3
Accounts receivable	—		—		1.3		—		22.0		73.8
Inventory	—		—		—		94.6		23.5		26.3
Intangible assets	64.5		113.5		99.8		132.7		1,170.0		1,971.0
Goodwill (non-tax deductible)	25.1		11.4		55.1		3.3		429.9		795.0
Other assets, current and non-current	0.4		0.1		1.9		7.9		18.2		100.5
Total assets acquired	91.0		126.3		158.3		241.8		1,704.9		3,043.9
Current liabilities	14.5		14.5		4.3		3.6		24.7		33.0
Other liabilities (non-current)	—		—		—		10.6		0.6		15.8
Deferred tax liabilities, net (non-current)	23.2		8.7		22.1		2.1		315.7		620.5
Contingent consideration (non-current)	12.8		35.0		54.9		52.0		—		—
Total debt	—		30.0		1.0		—		344.8		1,121.0
Total liabilities assumed	50.5		88.2		82.3		68.3		685.8		1,790.3
Net assets acquired	$	40.5	$	38.1	$	76.0	$	173.5	$	1,019.1	$	1,253.6


(1)	During fiscal 2017, the Company recorded a non-restructuring impairment charge relating to one of its intangible assets and reduced the associated contingent consideration. Refer to Note 12 and 20, respectively, for further information.


(2)	The fair value allocations for these acquisitions are preliminary and subject to measurement period adjustments.

The following reconciles the total consideration to net assets acquired:



	Ocera			InfaCare			Stratatech			Hemostasis			Therakos		Ikaria
Total consideration, net of cash	$	63.4		$	71.8		$	130.7		$	222.2		$	977.8	$	1,176.3
Plus: cash assumed in acquisition	1.0			1.3			0.2			3.3			41.3		77.3
Total consideration	64.4			73.1			130.9			225.5			1,019.1		1,253.6
Less: unpaid purchase consideration	(1.9		)	—			—			—			—		—
Less: non-cash contingent consideration	(22.0		)	(35.0		)	(54.9		)	(52.0		)	—		—
Net assets acquired	$	40.5		$	38.1		$	76.0		$	173.5		$	1,019.1	$	1,253.6

Intangible assets acquired consist of the following:



Acquisition	Intangible Asset Acquired	Amount		Amortization Period	Discount Rate
Ocera	In-process research and development - MNK-6105	$	64.5	Non-Amortizable	15.5	%
InfaCare	In-process research and development - stannsoporfin	113.5		Non-Amortizable	13.5	%
Stratatech	In-process research and development - StrataGraft	99.8		Non-Amortizable	16.5	%
Hemostasis	Completed technology - Raplixa⁽¹⁾	73.0		15 years	17.0	%
Hemostasis	Completed technology - Recothrom	42.7		13 years	16.0	%
Hemostasis	Completed technology - PreveLeak	17.0		13 years	17.0	%
Therakos	Completed technology - Extracorporeal photopheresis treatment therapies	1,170.0		15 years	17.0	%
Ikaria	Completed technology	1,820.0		15 years	14.5	%
Ikaria	Trademark	70.0		22 years	14.5	%
Ikaria	In-process research and development - Terlipressin	81.0		Non-Amortizable	17.0	%


(1)	During fiscal 2017, the Company recorded a non-restructuring impairment charge relating to the Raplixa intangible asset. Refer to Note 12 for further information.

The fair value of the intangible assets were determined using the income approach. The fair value of the IPR&D, completed technology and trademark was 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 discount rates were 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 future product development, the assembled workforce, 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:



	Fiscal Year Ended							Three Months Ended
Net sales	December 29, 2017			September 30, 2016		September 25, 2015		December 30, 2016
Ocera	$	—		$	—	$	—	$	—
InfaCare	—			—		—		—
Therakos	214.9			207.6		—		47.4
Ikaria	515.1			491.5		191.9		121.4
Total	$	730.0		$	699.1	$	191.9	$	168.8
Operating income
Ocera	$	(0.4	)	$	—	$	—	$	—
InfaCare	(5.4		)	—		—		—
Therakos	27.0			12.5		—		9.2
Ikaria	202.8			201.1		47.1		51.0
Total	$	224.0		$	213.6	$	47.1	$	60.2

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



	Fiscal Year Ended						Three Months Ended
Intangible asset amortization	December 29, 2017		September 30, 2016		September 25, 2015		December 30, 2016
Ocera	$	—	$	—	$	—	$	—
InfaCare	—		—		—		—
Therakos	61.7		78.0		—		19.5
Ikaria	124.5		124.5		57.1		31.1
Total	$	186.2	$	202.5	$	57.1	$	50.6

During fiscal 2017, 2016 and 2015 and the three months ended December 30, 2016, the Company recognized $10.1 million, $24.3 million, $44.1 million and $3.6 million, respectively, of expense associated with fair value adjustments of acquired inventory. This expense was included within cost of sales.

Acquisition-Related Costs - Acquisition-related costs incurred for each of the acquisitions discussed above were as follows:



	Fiscal Year Ended						Three Months Ended
Acquisition-related costs	December 29, 2017		September 30, 2016		September 25, 2015		December 30, 2016
Ocera	$	0.9	$	—	$	—	$	—
Xenon Licensing Agreement	0.1		—		—		—
InfaCare	1.2		—		—		—
Stratatech	—		3.7		—		—
Hemostasis Products	—		2.7		—		0.1
Therakos	—		0.3		22.5		—
Ikaria	—		0.2		30.9		—
Total acquisition-related costs	$	2.2	$	6.9	$	53.4	$	0.1

License Agreements

Xenon Gas for Inhalation

On October 2, 2017, the Company entered into a licensing agreement for development and commercialization of NeuroproteXeon Inc.'s ("NeuroproteXeon" and "the Xenon Licensing Agreement") 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. The initial $10.0 million upfront cash payment was recorded within R&D expense during the year ended December 29, 2017. Of the $25.0 million additional payments, certain payments may be expensed as R&D, cost of sales, or capitalized as an intangible asset dependent upon the successful completion of certain milestone events.

Mesoblast

In January 2017, $21.5 million of consideration was remitted to Mesoblast Limited ("Mesoblast") in exchange for equity shares and rights to a nine month exclusivity period related to any potential commercial and development agreements the Company may enter into for Mesoblast's therapy products used to treat acute graft versus host disease and/or chronic lower back pain. As a result of this transaction the Company recorded an available for sale investment of $19.7 million included within prepaid and other current assets and an intangible asset of $1.8 million in the consolidated balance sheet. This intangible asset was fully amortized as of December 29, 2017 as the nine month exclusivity period had ended.

Ofirmev

As part of the acquisition of Cadence Pharmaceuticals, Inc. ("Cadence" or "Cadence Acquisition") in March 2014, 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 paid during fiscal 2015. In addition, the Company is obligated to pay royalties on sales of the product. During fiscal 2017, 2016, 2015 and the three months ended December 30, 2016, the Company paid royalties of $53.9 million, $46.3 million, $43.9 million and $14.7 million, respectively, which were recorded within cost of sales on the consolidated statements of income.

Exalgo

In 2009, the Company's Specialty Brands segment acquired the rights to market and distribute the pain management drug EXALGO® (hydromorphone HCl) extended-release tablets (CII) ("Exalgo") in the U.S. Under the license agreement, the Company is obligated to make additional payments of up to $73.0 million based on the successful completion of specified development and regulatory milestones. Through fiscal 2017, $65.0 million of additional payments had been made, with $55.0 million being capitalized as an intangible asset. The Company is also required to pay royalties on sales of the product. During fiscal 2017, 2016, 2015 and the three months ended December 30, 2016, the Company paid royalties of $0.2 million, $0.9 million, $3.2 million and $0.2 million, respectively, which were recorded within cost of sales on the consolidated statements of income.

Depomed

In 2009, the Company's Specialty Brands segment licensed worldwide rights to utilize Depomed, Inc.'s ("Depomed") Acuform gastric retentive drug delivery technology for the exclusive development of four products. Under this license agreement, the Company may be obligated to pay up to $64.0 million in development milestone payments. Through fiscal 2017, approximately $22.0 million of these payments have been made by the Company. During fiscal 2014, upon approval by the FDA for XARTEMIS™ XR (oxycodone HCl and acetaminophen) extended release tablets CII ("Xartemis XR"), the Company made a milestone payment of $10.0 million, which was capitalized as an intangible asset. During the three months ended December 30, 2016, the Company elected to discontinue this product and recorded a $7.3 million non-restructuring impairment charge associated with the Xartemis intangible asset.