Subsequent Events

6 Months Ended

Jun. 28, 2019



18.	Subsequent Events

Specialty Generics Separation Update

On August 6, 2019, the Company announced that based on current market conditions and developments, including increasing uncertainties created by the opioid litigation, the Company is suspending for now its previously announced plans to spin off the Specialty Generics company.

Tax Matters

On August 5, 2019, the Internal Revenue Service ("IRS") proposed an adjustment to the taxable income of Mallinckrodt Hospital Products Inc. (“MHP”) as a result of its findings in the audit of MHP’s tax year ended September 26, 2014. MHP, then known as Cadence Pharmaceuticals, Inc. (“Cadence”), was acquired by the Company as a U.S. subsidiary on March 19, 2014. Following the acquisition of Cadence, the Company transferred certain rights and risks in Ofirmev intellectual property (“Transferred IP”) to a wholly owned non-U.S. subsidiary of the Company. The transfer occurred at a price (“Transfer Price”) determined in conjunction with the Company’s external advisors, in accordance with applicable Treasury Regulations and with reference to the $1,329.0 million taxable consideration paid by the Company to the shareholders of Cadence. The IRS asserts the value of the Transferred IP exceeds the value of the acquired Cadence shares and, further, partially disallows the Company’s control premium subtraction. The proposed adjustment to taxable income of $871.0 million, excluding potential associated interest and penalties, is proposed as a multi-year adjustment and may result in a non-cash reduction of the Company’s U.S. Federal net operating loss carryforward of $815.4 million. The Company strongly disagrees with the proposed increase to the Transfer Price and intends to contest it through all available administrative and judicial remedies, which may take a number of years to conclude. The final outcome cannot be reasonably quantified at this time, however, the adjustment may be material. The Company believes its allowance for income tax contingencies is adequate.

License Agreement

On July 18, 2019, the Company entered into a license and collaboration agreement with Silence Therapeutics plc ("Silence") that will allow the companies to develop and commercialize ribonucleic acid interference ("RNAi") drug targets designed to inhibit the complement cascade, a group of proteins that are involved in the immune system and that play a role in the development of inflammation. These proteins are known to contribute to the pathogenesis of many diseases, including autoimmune disease. Under the terms of the agreement, the Company will obtain an exclusive worldwide license to Silence's C3 complement asset, SLN500, with options to license up to two additional complement-targeted assets in Silence's preclinical complement-directed RNAi development program. Silence will be responsible for preclinical activities, and for executing the development program of each asset until the end of Phase 1, after which the Company will assume clinical development and responsibility for global commercialization.

During the three months ending September 27, 2019, the Company will provide Silence with an upfront payment of $20.0 million. Silence is also eligible to receive up to $10.0 million in research milestones for SLN500 and for each optioned asset, in addition to funding for Phase 1 clinical development including good manufacturing practices (GMP) manufacturing. Silence will fund all other preclinical activities. The collaboration provides for potential added clinical and regulatory milestone payments of up to $100.0 million for SLN500, as well as commercial milestone payments of up to $563.0 million for SLN500. Should the Company opt to license one or two additional assets, Silence could receive up to $703.0 million in similar clinical, regulatory, and commercial milestone payments per asset. Silence would also receive tiered, low double-digit to high-teen royalties on net sales for SLN500 and each optioned asset.

In addition to the aforementioned agreement, on July 24, 2019, the Company acquired an equity investment of $5.0 million in Silence Therapeutics.

Financing Activities

On July 11, 2019, the Company borrowed an additional $400.0 million on its revolving credit facility, bringing total outstanding borrowings to $805.0 million for this instrument as of the date of this report.

On July 19, 2019, the Company repaid $200.0 million of its outstanding obligations under its variable-rate receivable securitization, thus automatically terminating this facility, which was classified as long-term on the unaudited condensed consolidated balance sheet as of June 28, 2019.

Subsequent to June 28, 2019 and up through the date of this filing, the Company repurchased fixed-rate debt that aggregated to a principal amount of $70.9 million, which resulted in a gain on repurchase of $18.0 million.

Commitments and Contingencies

Certain litigation matters occurred during the six months ended June 28, 2019 or prior, but had subsequent updates through the issuance of this report. See further discussion in Note 14.