

5.	Acquisitions

Sucampo Pharmaceuticals, Inc.

On February 13, 2018, the Company acquired Sucampo Pharmaceuticals, Inc. ("Sucampo") through the acquisition of all the outstanding common stock of Sucampo. Consideration for the transaction consisted of approximately $1.2 billion, including the assumption of Sucampo's third-party debt ("the Sucampo Acquisition"). The acquisition was funded through the issuance of $600.0 million aggregate principal amount of senior secured notes, a $900.0 million borrowing under the revolving credit facility, as discussed further in Note 12, and cash on hand. Sucampo's commercialized products include AMITIZA® (lubiprostone) ("Amitiza"), a leading global product in the branded constipation market, and RESCULA® (unoprostone isopropyl ophthalmic solution) 0.15%, which is indicated for ocular hypertension and open-angle glaucoma, and marketed in Japan. Through this acquisition, the Company acquired VTS-270, a Phase 3 development product for Niemann-Pick Type C, a rare, neurodegenerative, and ultimately fatal disease that can present at any age. Also acquired was a collaborative agreement with Cancer Prevention Pharmaceuticals ("CPP") associated with the development of CPP-1X/sulindac, a Phase 3 development product for Familial Adenomatous Polyposis ("FAP").

Upon completion of the Sucampo Acquisition, Sucampo’s 3.25% convertible senior notes due 2021 (“the Sucampo Notes”) became eligible to receive increased consideration in conjunction with a make-whole fundamental change, such that each $1,000 principal face amount of Sucampo Notes could be converted into $1,221 cash. Under terms of the Indenture dated December 27, 2016 (the “Sucampo Indenture”), between Sucampo and U.S. Bank National Association, the Sucampo Notes may be converted at the option of their holders or remain outstanding and earn the stated 3.25% rate of interest. As of March 30, 2018, approximately $0.3 million of the $300.0 million of issued convertible debt remains outstanding and is recorded as other accrued liabilities within the unaudited condensed consolidated balance sheet.

Fair Value Allocation

The following amounts represent the preliminary allocations of the fair value of the identifiable assets acquired and liabilities assumed for the Sucampo Acquisition, including preliminary goodwill, 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 acquisition. 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.




Cash and cash equivalents	$	149.6
Accounts receivable	35.7
Inventory	153.2
Intangible assets	919.5
Goodwill	242.8
Other assets, current and non-current	24.8
Total assets acquired	1,525.6
Current liabilities	107.9
Deferred tax liabilities, net (non-current)	170.1
Total debt	366.3
Other noncurrent liabilities	33.7
Total liabilities assumed	678.0
Net assets acquired	$	847.6

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




Total consideration, net of cash	$	698.0
Plus: cash assumed in acquisition	149.6
Total consideration/net assets acquired	$	847.6

Intangible assets acquired consist of the following:



	Amount		Amortization Period	Discount Rate
Completed technology - Amitiza	$	634.0	9 years	14.0%
Completed technology - Rescula	11.0		8 years	14.0%
In-process research and development - VTS 270	274.5		Non-Amortizable	15.0%

The fair value of the completed technology and in-process research and development ("IPR&D") 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 cash flows were discounted commensurate with the level of risk associated with each asset or its projected cash flows. 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 U.S. Food and Drug Administration ("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 loss included in the Company's results for the periods presented were as follows:



	Three Months Ended
	March 30, 2018			March 31, 2017
Net sales	$	24.2		$	—
Operating loss	(30.7		)	—

During the three months ended March 30, 2018, the Company recognized $9.1 million and $15.0 million, of expense associated with intangible asset amortization and fair value adjustments of acquired inventory, respectively. These expenses were included within cost of sales. Acquisition-related costs incurred for the acquisition of $2.7 million were recognized during the three months ended March 30, 2018.