10-K 1 cy16q410k.htm 10-K Document





UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 2016
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number 001-36353
image0a01a01a01a06.jpg
Perrigo Company plc
(Exact name of registrant as specified in its charter)
Ireland
 
N/A
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
Treasury Building, Lower Grand Canal Street, Dublin 2, Ireland
 
-
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: +353 1 7094000
Securities registered pursuant to Section 12(b) of the Act:
Ordinary shares, €0.001 par value
 
New York Stock Exchange
Title of each class
 
Name of each exchange on which registered
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
 
YES
[ ]
NO
[X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 of Section 15(d) of the Act.
 
YES
[ ]
NO
[X]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
 
YES
[ ]
NO
[X]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
 
YES
[ ]
NO
[X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
 
 
 
 
[ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act.
 
 
 
 
 
Large accelerated filer
[X]
 
Accelerated filer
[ ]
 
Non-accelerated filer
[ ]
 
Smaller reporting company
[ ]
Emerging growth company
[ ]
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
[ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
 
YES
[ ]
NO
[X]
The aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing sale price of our ordinary shares on July 1, 2016 as reported on the New York Stock Exchange, was $13,050,594,298. Ordinary shares held by each director or executive officer have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
As of 5/19/2017, the registrant had 143,397,295 outstanding ordinary shares.







PERRIGO COMPANY PLC
FORM 10-K
YEAR ENDED DECEMBER 31, 2016
TABLE OF CONTENTS

  
  
Page No.  
Explanatory Note
 
 
 
Part I.
 
 
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Additional Item.
 
 
 
Part II.
 
 
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
 
 
 
Part III.
 
 
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
 
 
 
Part IV.
 
 
Item 15.







CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this report are “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created thereby. These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our, or our industry's actual results, levels of activity, performance or achievements to be materially different from those expressed or implied by any forward-looking statements. In particular, statements about our expectations, beliefs, plans, objectives, assumptions, future events or future performance contained in this report, including certain statements contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” are forward-looking statements. In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “could,” “would,” “should,” “expect,” “plan,” “anticipate,” “intend,” “believe,” “estimate,” "forecast," “predict,” “potential” or the negative of those terms or other comparable terminology.

We have based these forward-looking statements on our current expectations, assumptions, estimates and projections. While we believe these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond our control, including: the timing, amount and cost of any share repurchases; future impairment charges; customer acceptance of new products; competition from other industry participants, some of whom have greater marketing resources or larger market shares in certain product categories than we do; pricing pressures from customers and consumers; potential third-party claims and litigation, including litigation relating to our restatement of previously-filed financial information; potential impacts of ongoing or future government investigations and regulatory initiatives; general economic conditions; fluctuations in currency exchange rates and interest rates; the consummation of announced acquisitions or dispositions, and our ability to realize the desired benefits thereof; and our ability to execute and achieve the desired benefits of announced cost-reduction efforts and other initiatives. In addition, we may identify and be unable to remediate one or more material weaknesses in our internal control over financial reporting, may encounter unanticipated material issues or additional adjustments that could delay the filing of required periodic reports with the United States Securities and Exchange Commission, or may be unable to regain compliance with the NYSE continued listing rules. Furthermore, we and/or our subsidiaries may incur additional tax liabilities in respect of 2016 and prior years as a result of any restatement or may be found to have breached certain provisions of Irish company legislation in respect of prior financial statements and if so may incur additional expenses and penalties. These and other important factors, including those discussed in this report under "Risk Factors" and in any subsequent filings with the Securities and Exchange Commission, may cause actual results, performance or achievements to differ materially from those expressed or implied by these forward-looking statements. The forward-looking statements in this report are made only as of the date hereof, and unless otherwise required by applicable securities laws, we disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

TRADEMARKS, TRADENAMES AND SERVICE MARKS

This report contains trademarks, trade names and service marks that are the property of Perrigo Company plc, as well as, for informational purposes, trademarks, trade names, and service marks that are the property of other organizations. Solely for convenience, certain trademarks and trade names referred to in this report appear without the ®, ™ and SM symbols, but those references are not intended to indicate that we or the applicable owner, as the case may be, will not assert, to the fullest extent under applicable law, our or their rights to such trademarks, trade names, and service marks.

NOTE REGARDING FISCAL YEAR

Our fiscal year previously consisted of a 52- or 53-week year ending on or around June 30 of each year with each quarter ending on the Saturday closest to each calendar quarter end. Beginning on January 1, 2016, we changed our fiscal year to begin on January 1 and end on December 31 of each year. As a result of our change in year end, this report on Form 10-K discloses the results of our operations for the twelve-month period from January 1, 2016 through December 31, 2016. The six months ended December 31, 2015 reflects our financial results from June 28, 2015 through December 31, 2015. The year ended June 27, 2015 reflects our financial results for the twelve-month period from June 29, 2014 to June 27, 2015, and the year ended June 28, 2014 reflects our financial results for the twelve-month period from June 30, 2013 to June 28, 2014. We cut off our quarterly accounting

1





periods on the Saturday closest to the end of the calendar quarter, with the fourth quarter ending on December 31 of each year.

EXPLANATORY NOTE

This Annual Report on Form 10-K for the year ended December 31, 2016 includes consolidated financial statements for the year ended December 31, 2016, six months ended December 31, 2015, and the years ended June 27, 2015 and June 28, 2014. The consolidated financial statements and selected financial data for the nine months ended October 1, 2016, six months ended December 31, 2015, and the years ended June 27, 2015 and June 28, 2014 are restated (the “Restated Periods”). As described below, the restatement follows a correction in accounting under U.S. generally accepted accounting principles (“U.S. GAAP”) related to the Tysabri® royalty stream.

In connection with our year-end financial statement close and preparation of our Form 10-K for 2016, misstatements were identified in certain of our previous financial statements. As a result on April 19, 2017, the Board of Directors, after recommendation from the Audit Committee and consultation with Management, concluded that such financial statements, and certain financial statements for interim periods within the Restated Periods, should no longer be relied upon and would require restatement. This determination follows a correction in accounting under U.S. GAAP related to the contingent payments from Elan's May 2013 sale of Tysabri® to Biogen (the "Tysabri® royalty stream"). It was determined that the Tysabri® royalty stream should be recorded as a financial asset, rather than an intangible asset, on the date of acquisition. We have elected to account for the Tysabri® financial asset using the fair value option model. In addition, we identified certain misstatements related to the calculation of deferred tax liabilities that existed at the time of the acquisition of Omega Pharma Invest N.V. ("Omega"). As part of this restatement we also considered other previously identified adjustments. Refer to Item 8. Note 1 for additional information on the restatement. Refer to Item 8. Note 10 for additional information on how this restatement affects our debt covenants.

Management and the Audit Committee evaluated the impact of these misstatements on our internal control over financial reporting and disclosure controls and procedures and have concluded that there were material weaknesses that contributed to the misstatements in the Restated Periods related to the Tysabri® royalty stream that was acquired in the Elan transaction, income taxes, and asset impairments. Management and our independent auditors, Ernst & Young LLP, have concluded that we did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), because the above described material weaknesses in our internal control over financial reporting existed at December 31, 2016.

We have taken, and continue to take, action to remediate the identified material weaknesses. We have identified and implemented, and continue to identify and implement, actions to improve the effectiveness of our internal control over financial reporting and disclosure controls and procedures. For more information on our material weaknesses and the status of our remediation efforts, see Item 9A - Controls and Procedures.

While this Annual Report contains consolidated financial statements and selected financial data for the Restated Periods, and we have filed amended Quarterly Reports on Form 10-Q for the quarterly periods ended April 2, 2016, July 2, 2016 and October 1, 2016, we have not amended, and do not intend to amend and refile, our Annual Reports on Form 10-K for periods ending prior to December 31, 2016 or Quarterly Reports on Form 10-Q for periods ending prior to April 2, 2016. The financial statements and related financial information contained in any of our reports filed prior to this Annual Report on Form 10-K for the year ended December 31, 2016 dating back to and including the Quarterly Report on Form 10-Q for the quarter ended December 28, 2013 should no longer be relied upon.

2

Perrigo Company plc - Item 1
Business Overview


PART I.

ITEM 1.
BUSINESS

Perrigo Company plc was incorporated under the laws of Ireland on June 28, 2013. We became the successor registrant to Perrigo Company, a Michigan corporation, on December 18, 2013 in connection with the acquisition of Elan Corporation, plc ("Elan"), which is discussed further in Item 8. Note 2. Unless the context requires otherwise, the terms "Perrigo", the "Company", "we," "our," "us," and similar pronouns used herein refer to Perrigo Company plc, its subsidiaries, and all predecessors of Perrigo Company plc and its subsidiaries.

WHO WE ARE

We are a leading global over-the-counter ("OTC") consumer goods and pharmaceutical company, offering patients and customers high quality products at affordable prices. From our beginning in 1887 as a packager of home remedies, we have grown to become the world's largest manufacturer of OTC healthcare products and supplier of infant formulas for the store brand market. We are also a leading provider of generic standard topical products such as creams, lotions, and gels, as well as inhalants and injections ("extended topical") prescription products in the U.S. We also received royalties from sales of the multiple sclerosis drug Tysabri® but divested our rights to those royalties effective beginning January 1, 2017. We provide “Quality Affordable Healthcare Products®” across a wide variety of product categories and geographies, primarily in North America, Europe, and Australia, as well as in other markets, including Israel, and China.

mapa01.jpg

MAJOR DEVELOPMENTS IN OUR BUSINESS

Restatement

In connection with our year-end financial statement close and preparation of our Form 10-K for 2016, we identified misstatements in our historical financial statements, including for the nine months ended October 1, 2016, six months ended December 31, 2015, and the years ended June 27, 2015 and June 28, 2014 (the "Restated Periods"). Accordingly, we have restated the consolidated financial statements for the Restated Periods (and certain financial statements for interim periods within the Restated Periods) to reflect the correction of the misstatements, the most significant of which are described below. The segments predominantly affected by this restatement are Specialty Sciences and CHCI. Refer to Item 8. Note 10 of the Consolidated financial statements for additional information on how this restatement affects our debt covenants.

During the 2016 year-end financial statement close process, and in anticipation of our potential sale of our royalty rights, we evaluated the potential effects of the Tysabri® royalty stream sale accounting and the accounting

3

Perrigo Company plc - Item 1
Business Overview


and disclosures associated with the pending 2018 adoption of ASC 606 “Revenues from Contracts with Customers.” After an extensive evaluation of the facts and circumstances and the judgments required to determine the appropriate classification, it was determined that under existing U.S. GAAP the contingent payments from Elan's May 2013 sale of Tysabri® to Biogen (the "Tysabri® royalty stream") should have been recorded as a financial asset, rather than an intangible asset, on the date of our acquisition of Elan.

Our Tysabri® royalty stream is now accounted for in our consolidated financial statements for 2016 and prior restated periods as a financial asset using the fair value option. We made the election to account for the Tysabri® financial asset using the fair value option as we believe this method is most appropriate for an asset that does not have a par value, a stated interest stream, or a termination date. Accounting for the Tysabri® royalty stream as a financial asset required us to adjust our financial statements for the Restated Periods to (1) remove the Tysabri® royalty stream from net sales in our Consolidated Statements of Operations, (2) remove the amortization expense (reflected in cost of goods sold) associated with recording the Tysabri® royalty stream as an intangible asset, and (3) include the quarterly changes in fair value of the Tysabri® royalty stream as a component of other non-operating income/expense. The cash payments we received from the royalty stream are included in our Consolidated Statements of Cash Flows for the Restated Periods and reflect the cash received from the Tysabri® royalty stream as cash from investing activities, rather than as cash from operating activities.

In addition, in connection with the financial closing for the year ended December 31, 2016, we identified certain tax basis intangible assets that existed at the time of the acquisition of Omega Pharma Invest N.V. (“Omega”) on March 30, 2015, which reduced the deferred tax liabilities in acquired intangible assets and increased our valuation allowance resulting in a net change to our deferred taxes of approximately $236.3 million. The resulting balance sheet reclassification required a reduction of goodwill, offset by a corresponding reduction to net deferred taxes at the date of the Omega acquisition. Further, we have evaluated the accounting effect subsequent to the acquisition date related to the remeasured deferred tax liability, including the impairments of Omega goodwill recorded in 2016 and certain adjustments to valuation allowances, which have been reflected in the Restated Periods.

In restating our financial statements to correct the misstatements discussed above, we are also making adjustments for previously identified required corrections with respect to the Restated Periods. When these financial statements were originally issued, we assessed the impact of these unrecorded adjustments and concluded that they were not material individually or in the aggregate to our consolidated financial statements. All of the financial information presented in this Item 1 has been revised to reflect the restatement more fully described in Item 8. Note 1 to the Consolidated Financial Statements.

Restructuring

On February 21, 2017, we approved a workforce reduction plan as part of a larger cost optimization strategy across the Company. We expect to reduce our global workforce by approximately 750 employees, which includes some actions already taken and 235 employees who have elected to participate in a voluntary early retirement program. This represents a reduction of approximately 14% of our global non-production workforce.  The changes to our workforce will vary by country, based on legal requirements and required consultations with works councils and other employee representatives, as appropriate.

In connection with this plan, we estimate that we will recognize total pre-tax restructuring charges of approximately $70.0 million to $80.0 million, consisting of one-time termination benefits, severance arrangements, and other termination costs. We anticipate recognizing substantially all of these charges during the year ending December 31, 2017, with the remaining balance to be recognized during the first quarter of the year ending December 31, 2018.


4

Perrigo Company plc - Item 1
Business Overview


Our cost optimization strategy is expected to yield approximately $130.0 million in savings per annum by mid-2018. This is in addition to the savings that our supply chain organization continues to generate for both our North American and International segments.

Segments

In the fourth quarter of 2016, we changed our reporting segments to better align with our new organizational structure. These organizational changes were made to optimize our structure to better serve our customers and to reflect the way in which our chief operating decision maker reviews our operating results and allocates resources. The changes in our reporting segments are as follows:

Consumer Healthcare Americas ("CHCA"), comprises our U.S., Mexico and Canada consumer healthcare business (OTC, contract, infant formula and animal health categories).
Consumer Healthcare International ("CHCI"), comprises our legacy Branded Consumer Healthcare segment and now includes our consumer focused businesses in the U.K., Australia, and Israel, which were previously reported in the legacy Consumer Healthcare segment. This segment includes our U.K. liquid licensed products business, which was previously reported in the Prescription Pharmaceuticals segment.
Prescription Pharmaceuticals ("RX"), comprises our U.S. Prescription Pharmaceuticals business.
Specialty Sciences, continued to comprise the Tysabri® Royalty Stream.

We also have an "Other" reporting segment that will continue to comprise our legacy Active Pharmaceutical Ingredients ("API") business, which does not meet the quantitative threshold required to be a separately reportable segment. On December 9, 2016, an agreement was signed to sell a portion of our India API business. See Item 8. Note 2 for additional information. Financial information related to our business segments and geographic locations can be found in Item 8. Note 19.

Omega Acquisition

On March 30, 2015, we acquired Omega, for $3.0 billion in equity and cash and assumed debt of $1.6 billion, for a total purchase price of $4.6 billion. Prior to its acquisition, Omega was one of the largest OTC companies in Europe. The Omega acquisition expanded our OTC leadership position into continental Europe, accelerated our international expansion and geographic diversification through enhanced scale and a broader footprint, and diversified our net sales and cash flow streams.

The broader European platform established through the Omega acquisition, facilitated the acquisition of a portfolio of well-established OTC brands sold primarily in Europe from GlaxoSmithKline Consumer Healthcare (“GSK”) on August 28, 2015 and Naturwohl Pharma, GmbH ("Naturwohl"), with its leading German dietary supplement brand, Yokebe®, on September 15, 2015. Additional information on the Omega, GSK, and Naturwohl acquisitions can be found in Item 8. Note 2. Subsequently, during the year ended December 31, 2016, we identified impairment indicators associated with certain intangible assets and goodwill which required us to test these assets for impairment. As a result, we recorded total impairments of $2.0 billion. Refer to Item 8. Note 3 for additional information.


5

Perrigo Company plc - Item 1
Business Overview


Elan Acquisition

On December 18, 2013, we acquired Elan in a cash and stock transaction totaling $9.5 billion. The acquisition led to the creation of our new corporate structure headquartered in Dublin, Ireland. We have utilized this structure to continue to grow in our core markets and further expand outside of the U.S. The acquisition also provided us with the Tysabri® royalty stream. Additional information on the Elan acquisition can be found in Item 8. Note 2. Subsequently, on March 27, 2017, we announced the completed divestment of the Tysabri® royalty stream to Royalty Pharma for up to $2.85 billion, which consists of $2.2 billion in cash and up to $250.0 million and $400.0 million in royalties earned if global net sales of Tysabri® meet specific thresholds in 2018 and 2020, respectively. As a result of this transaction, we will derecognize the Tysabri® financial asset in the first quarter of 2017 and we do not expect the disposition to have a material impact on our results. We initiated a strategic review of the Tysabri® royalty stream in November 2016. In that connection, we received indications of the fair value of that royalty stream, which led to a goodwill impairment recorded during the year ended December 31, 2016. Refer to Item 8. Note 3 and Note 6 for additional information on the impairment and fair value adjustments, respectively.

NEW PRODUCTS

We consider a product to be new if it was (i) reformulated, (ii) involved product line extension due to changes in characteristics such as strength, flavor, or color, (iii) involved a change in product status from "prescription only" ("Rx") to OTC, (iv) was a new generic or branded launch, (v) was provided in a new dosage form or (vi) was sold to a new geographic area with different regulatory authorities, in all cases, within 12 months prior to the end of the period for which net sales are being measured. New product sales were as follows (in millions):
Year Ended
 
Six Months Ended
 
Year Ended
December 31,
2016
 
December 31,
2015
 
December 31,
2015
 
December 27, 2014(1)
 
June 27,
2015
 
June 28, 2014(1)
$
311.1

 
$
460.9

 
$
231.1

 
$
77.3

 
$
273.8

 
$
231.4


(1) Excludes Omega activity; acquisition took place on March 30, 2015.

CONSUMER HEALTHCARE AMERICAS

Overview

The CHCA segment is focused primarily on the sale of OTC store brand products, including cough, cold, allergy and sinus, analgesic, gastrointestinal, smoking cessation, infant formula and food, animal health, and diagnostic products in the U.S., Mexico and Canada. We are a leading provider of consumer healthcare products sold to consumers via store brands and also sell consumer healthcare products under our own brands. Consumer awareness and knowledge of the quality and value that OTC store brand products represent continues to grow due to retailer efforts to promote their own label programs. During the year ended December 31, 2016, our CHCA segment represented approximately 48% of consolidated net sales.

The CHCA segment develops, manufactures, and markets products that are comparable in quality and effectiveness to national brands. Store brand products must meet the same U.S. Food and Drug Administration ("FDA") requirements as national brands within the U.S. and the requirements of comparable regulatory bodies outside the U.S. In most instances our product packaging is designed to invite and reinforce comparison to national brand products, while communicating store brand value to consumers.

The cost of store brand products to retailers is significantly lower than that of comparable nationally advertised brand-name products. Generally, retailers’ dollar profit per unit of store brand product is greater than the dollar profit per unit of the comparable national brand product. The retailer, therefore, can price a store brand product below the competing national brand product and realize a greater profit margin. The consumer benefits by receiving a high quality product at a price below the comparable national brand product. As a result, our business model results in consumers saving money on their healthcare spending.
    
We are dedicated to continuing to be the leader in developing and marketing new OTC store brand products and have a research and development ("R&D") staff that we believe is one of the most experienced in the

6

Perrigo Company plc - Item 1
CHCA


industry at developing products comparable in formulation and quality to national brand products. Our R&D team also responds to changes in existing national brand products by reformulating existing products. For example, in the OTC pharmaceutical market, certain new products are the result of changes in product status from Rx to OTC. These “Rx-to-OTC switches” require FDA approval through a process initiated by the drug innovator. The drug innovator usually begins the process by filing a New Drug Application ("NDA"), which is often followed by filing an Abbreviated New Drug Application ("ANDA"). See "Government Regulation and Pricing" below for more information on these FDA processes.

New drugs are also marketed through the FDA's OTC monograph process, which allows for the production of drugs that are generally recognized as safe and effective without pre-marketing approval. The CHCA segment also develops, manufactures, and distributes certain branded products when the strategy is synergistic with our store brand business. Branded products include the Good Sense®, Sergeant's®, Sentry®, Zephrex D®, PetArmor®, and the ScarAway® brand names.

We manufacture a significant portion of our CHCA segment's products at our plants in the U.S., Mexico, and Israel, and we source our remaining needs from third parties. We rely on both internal R&D and strategic product development agreements with outside sources to develop new products. In addition, in order to maximize both our capacity and sales of proprietary formulas, we engage in contract manufacturing, which involves producing unique ANDAs and monograph products through partnerships with major pharmaceutical and direct-to-consumer companies.

We believe the increasing age of the population will drive the need for the greater value that our store brand products provide consumers. In addition, we believe that new products and products switching from Rx to OTC (as described above) will continue to drive growth within the segment.

Recent Developments

In 2016, we experienced a reduction in pricing expectations within our CHCA segment, particularly in the cough/cold, animal health and analgesics categories due to various factors including increased focus from customers to capture supply chain productivity savings, low raw material commodity pricing, and competition in specific product categories. We expect this pricing environment to continue to impact our CHCA segment for the foreseeable future.

On August 5, 2016, we completed the sale of our U.S. Vitamin, Minerals, and Supplements ("VMS") business to International Vitamin Corporation for $61.8 million inclusive of an estimated working capital adjustment. See Item 8. Note 2 for additional discussion of the divestiture.

Products

Our CHCA segment offers products in the following categories:
Product Category
 
Description
Analgesics
 
Pain relievers and fever reducers
Cough/cold/allergy/sinus
 
Cough, cold, allergy, and sinus products
Gastrointestinal
 
Antacids, anti-diarrheal, and anti-heartburn products
Infant nutritionals
 
Infant formula and food products
Smoking cessation
 
Gums, lozenges, and other products designed to help users quit smoking
Animal health
 
Pet health and wellness products
Other
 
Feminine hygiene, diabetes care, dermatological care, diagnostic products, scar management, and other miscellaneous healthcare products

7

Perrigo Company plc - Item 1
CHCA



The chart below reflects total net sales by product category in the CHCA segment for the year ended December 31, 2016.
    cy16q410k_chart-12716.jpg

We launched a number of new CHCA products in the year ended December 31, 2016, most notably fluticasone nasal spray (store brand equivalent to Flonase®), certain products from the guaifenesin family of products (store brand equivalent to Mucinex®), several new infant formula and food products, and new animal health products. Net sales related to new CHCA products totaled (in millions):
Year Ended
 
Six Months Ended
 
Year Ended
December 31,
2016
 
December 31,
2015
 
December 31,
2015
 
December 27,
2014
 
June 27,
2015
 
June 28,
2014
$
117.4

 
$
235.2

 
$
122.9

 
$
33.2

 
$
145.5

 
$
75.5


We, on our own or in conjunction with partners, received final approval from U.S. health authorities for six new products within the CHCA segment in the year ended December 31, 2016, and as of December 31, 2016, we had six new product applications pending approval.

Sales and Marketing

Our customers include major global, national, and regional retail drug, supermarket, and mass merchandise chains such as Walmart, CVS, Walgreens Boots Alliance, Rite Aid, Kroger, Target, Dollar General, Sam’s Club, Costco, Petco, Petsmart, and major wholesalers, including McKesson, Cardinal Health, and Amerisource Bergen.

We seek to establish customer loyalty through superior customer service by providing a comprehensive assortment of high quality, value-priced products; timely processing, shipment and delivery of orders; assistance in managing customer inventories; and support in managing and building the customer’s store brand business. The CHCA segment employs its own sales force to service larger customers, and uses industry brokers for other retailers. Field sales employees, with support from marketing and customer service, are assigned to specific customers in order to work most effectively with the customer. They assist customers by developing customized brand and in-store marketing programs for customers' store brand products.

The primary objective of this store brand management approach is to enable our customers, retailers and wholesalers, to increase sales of their own store brand products by communicating store brand quality and value to the consumer and by inviting comparison to national brand products. Our sales and marketing personnel assist customers in the development and introduction of new store brand products and in the promotion of customers’

8

Perrigo Company plc - Item 1
CHCA


existing store brand products by providing market information; establishing individualized promotions and marketing programs, which may include floor displays, bonus sizes, coupons, rebates, store signs, and promotional packs; and performing consumer research.

In contrast with national brand manufacturers, which incur considerable advertising and marketing expenditures targeted directly to the end user or consumer, the CHCA segment’s primary marketing efforts are channeled through retailers and wholesalers and reach the consumer through our customers’ in-store marketing programs and our digital media programs. Because the retail profit margin for store brand products is generally higher than for national brand products, retailers and wholesalers often commit funds for additional promotions.

Our animal health category, which has a greater emphasis on value-branded products, promotes product awareness through direct-to-consumer advertising including television commercials, online advertising, in-store display vehicles, and social media. In addition to in-store marketing programs, our infant formula category markets directly to consumers and healthcare professionals.

Competition

The markets for OTC pharmaceuticals and infant formula are highly competitive. Our primary competitors include manufacturers, such as LNK International, Inc., PL Developments, and Dr. Reddy's Labs, and brand-name pharmaceutical and consumer product companies, such as Johnson & Johnson, Pfizer, Bayer AG, GSK, Nestle S.A. (Gerber), Abbott Nutrition, Aurobindo Pharma, and Mead Johnson Nutrition Co. The competition is highly fragmented in terms of geographic market coverage and product categories, such that a competitor generally does not compete across all product lines. However, some competitors do have larger sales volumes in certain of our categories. Additionally, national brand companies tend to have more resources committed to marketing their products and could in the future manufacture store brands of their products at lower prices than their national brand products. Competition is based on a variety of factors, including price, quality, assortment of products, customer service, marketing support, and approvals for new products. See Item 1A. Risk Factors - Risks Related to Operations for additional information and risks associated with competition.

CONSUMER HEALTHCARE INTERNATIONAL

Overview

The CHCI segment is comprised primarily of branded OTC sales attributable to Omega and also includes our consumer focused businesses in the U.K., Australia, and Israel, which were previously reported in the legacy Consumer Healthcare segment. The CHCI segment develops, manufactures, markets and distributes many well-known European OTC brands in the natural health and vitamins, cough, cold and allergy, smoking cessation, personal care and derma-therapeutics, lifestyle, and anti-parasite categories. In addition, the segment leverages its broad regulatory, sales, and distribution infrastructure to in-license and sell third-party brands and generic pharmaceutical products. The CHCI segment distributes these products through an extensive network of customers including pharmacies, wholesalers, drug and grocery store retailers, and para pharmacies in 30 countries, primarily in Europe. Many CHCI products are top sellers in the markets in which they compete. During the year ended December 31, 2016, the CHCI segment represented approximately 31% of consolidated net sales.

Through continued investment in R&D partnerships and new technologies, the CHCI segment strives to offer high quality products that meet consumers' needs. The combination of internal R&D, in-licensing, acquisitions, and partnerships support the product pipeline, both in terms of brand expansion and product improvement. In the U.K., R&D focuses on oral liquid formulations for the branded Rx products for which liquid formulations are not available and development of store brand products. In the rest of Europe, most R&D is performed by external partners with oversight by our teams. The segment has seven plants dedicated to manufacturing certain of its products, but over 80% of its production is outsourced to third parties. We are transitioning some of the segment's R&D and manufacturing in-house as we continue to integrate Omega into our operations. During the year ended December 31, 2016, we brought the production of four major products in-house. We expect that by the end of 2017, approximately 36% of the products that we sell in Europe would be manufactured at our own plants.

The CHCI segment primarily focuses on building local and national brands. In many markets outside of the U.S., a brand marketing strategy can be more effective than a store brand strategy due to the absence of mass

9

Perrigo Company plc - Item 1
CHCI


merchandisers and large scale pharmacy chains. Additionally, the absence of a centralized regulatory environment within Europe adds to the complexity of obtaining approvals for products in these markets.

While the CHCI segment sells products from over 350 brands both on its own and through third parties, it focuses its resources on its "Top 20 brands", which are selected on the basis of their current sales and growth potential in the OTC market. Additional resources are allocated to these brands to build strong positions in the largest, most highly profitable categories in the OTC market, while maintaining leadership in smaller branded categories.

Recent Developments

As part of our strategic initiatives, management continues to drive improvements and evaluate the overall cost structures within our CHCI segment in the following ways:

On December 8, 2016, we announced the cancellation of the unprofitable EuroGenerics NV distribution agreement in Belgium. The cancellation, combined with the exit of certain OTC distribution agreements, is expected to reduce net sales by approximately $200.0 million in 2017.

We continue to make progress on our previously announced restructuring plans to right-size the Omega business due to the impact of market dynamics on sales volumes. In addition, we made several strategic leadership changes during the year ended December 31, 2016, including appointing new leaders for Belgium, France and Germany as well as a new Executive Vice President of the CHCI segment. Management continues to evaluate the overall cost structure relative to current and expected market dynamics. In 2016, we recognized $20.9 million of restructuring expense in the CHCI segment.

Management continues to evaluate the most effective business model for each country and has announced strategic evaluations for Russia and Argentina.

The CHCI segment has been impacted by market dynamics in key countries such as Belgium, France, Germany and Italy due to softness in certain brand categories and by unfavorable foreign currency impacts, primarily in the U.K. related to Brexit. In addition, the segment had been impacted in Belgium by a change in the forecast with a major wholesaler, as management implements improved supply chain efficiencies in this market. The CHCI segment has restructured its approach to addressing these markets including: (1) implementing a brand prioritization strategy to address these market dynamics, with an objective to balance the cost of advertising and promotional investments with expected contributions from category sales, (2) restructuring its sales force in each of these markets to more effectively serve customers, and (3) exiting certain unfavorable distribution agreements. The combination of these actions are expected to improve the segment's focus on higher value OTC products, reduce selling costs and improve operating margins in the segment. 


10

Perrigo Company plc - Item 1
CHCI


Products

Below are the categories in which the CHCI segment competes and some of the top brands in each category.
Product Category
 
Description
 
Top 20 Brands
Cough, Cold, and Allergy
 
Products that address respiratory symptoms, including traditional medications and alternative treatments such as aromatherapy solutions.
 
Bittner®/Aflubin®
Bronchodual®
Physiomer®
Phytosun®/Valda®
Prevalin®/Beconase®
Solpadeine®/Antigrippine®
Lifestyle
 
Weight management, pregnancy and fertility kits, pain relief, sleep management, smoking cessation, and eye care.
 
Paravet®/Clément-Thékan®
Niquitin®
Predictor®
Silence®/Nytol®
XLS (Medical)®

 
 
 
 
Natural Health and VMS
 
Vitamins, minerals, supplements, and various other natural remedies.
 
Biover®/Abtei®
Davitamon®/
Granufink®/Bional®
 
 
Personal Care and Derma-Therapeutics
 
Products for the face and body, including sun care, baby-specific, and feminine hygiene products, and solutions for various skin conditions and allergies such as eczema, psoriasis and rosacea.

 
ACO®
Bodysol®/Galenco®
Dermalex®
Lactacyd®
Wartner®
 
 
 
 
 
 
Anti-Parasite
 
Products focused on the elimination of parasites in both humans and pets including lice treatment and insect repellent.
 
Jungle Formula®
Paranix®


 
 

Certain brands are considered "combination brands", as they are marketed under different names depending on the market in which they are sold. For these combination brands, we select the most appropriate products from each product line for the country where they will be marketed, then adopt the brand name that best matches local consumer preference.

We launched a number of new CHCI products in the year ended December 31, 2016, most notably products within the Yokebe®, Granufink® , and XLS Max strength® brands. Net sales related to new CHCI products totaled (in millions):
Year Ended
 
Six Months Ended
 
Year Ended
December 31,
2016
 
December 31,
2015
 
December 31,
2015
 
December 27, 2014(1)
 
June 27,
2015
 
June 28, 2014(1)
$
119.0

 
$
106.8

 
$
66.8

 
$
3.7

 
$
43.8

 
$
12.2


(1) Excludes Omega activity; acquisition took place on March 30, 2015.

The CHCI segment has more than 72 strategic new products in seven product categories in development, with each of its Top 20 brands having a five-year innovation master plan.


11

Perrigo Company plc - Item 1
CHCI


Sales and Marketing

Our customers include pharmacies, drug, and grocery stores located primarily in Europe, including Boots, ASDA, Tesco, DM, Rossmann, ETOS, Kruidvat, Woolworths (Australia), and Coles (Australia). The CHCI segment sells its products primarily through an established pharmacy sales force and an extensive network of pharmacists. Our sales representatives visit pharmacists daily, ensuring strong in-store visibility of our brands and facilitating pharmacist education programs. Our sales, marketing, and regulatory teams use training/merchandising teams to work in conjunction with local sales representatives to improve our brands' presence and recognition. We seek to attract key talent from leading OTC, fast moving consumer goods ("FMCG"), and retailer companies to build strong local teams throughout the countries in which the CHCI segment operates.

While CHCI products have a higher average gross margin than products sold by the CHCA segment, selling expenses are significantly higher due to the sales force mentioned above, as well as targeted advertising and promotional spending to enhance brand equity. Key marketing communication tools for the CHCI segment include TV commercials, consumer leaflets, product websites, digital and targeted promotional campaigns.

Competition

The competitive landscape of the European OTC market is highly fragmented, as local companies often hold leadership positions in individual product segments in particular countries. As a result, the relevant competition in each of the CHCI segment's markets is both local and global. Competitors include Reckitt Benckiser, Boehringer Ingelheim, GSK, Novartis, and Johnson & Johnson as well as additional regional competitors. We believe our key advantage lies in our unique combination of best practices in sales, marketing, and product development from FMCG and OTC/Rx, while embracing the pharmacy channel to drive self-care. See Item 1A. Risk Factors - Risks Related to Operations for additional information and risks associated with competition.

PRESCRIPTION PHARMACEUTICALS

Overview

The RX segment develops, manufactures, and markets a portfolio of generic and specialty pharmaceutical prescription drugs primarily in the U.S. We define this portfolio as predominantly "extended" topical and "specialty" as it encompasses a broad array of topical dosage forms such as creams, ointments, lotions, gels, shampoos, foams, suppositories, sprays, liquids, suspensions, solutions, and powders. The portfolio also includes select controlled substances, injectables, hormones, oral solid dosage forms, and oral liquid formulations. During the year ended December 31, 2016, the RX segment represented approximately 20% of consolidated net sales.

Our current development areas include other delivery systems such as oral liquids, metered dose inhalers, injectables, and transdermal products, some of which we are developing with third parties. Our other areas of expertise include our production capabilities for controlled substances and hormonal products. R&D efforts focus on complex formulations, many of which require costly clinical endpoint trials.

We manufacture our topical, specialty, and oral products in the U.S. and Israel, and also source from various FDA-approved third parties. Rx products are manufactured, labeled, and packaged in facilities that comply with strict regulatory standards and meet customers’ stringent requirements.

In addition, the RX segment offers OTC products through the prescription channel (referred to as "ORx®", these products are marketed using the Perrigo name). ORx® products are OTC products that are available for pharmacy fulfillment and healthcare reimbursement when prescribed by a physician. We offer numerous ORx® products that are reimbursable through many health plans and the U.S. Medicaid and Medicare programs.

We actively collaborate with other pharmaceutical companies to develop, manufacture, and market certain products or groups of products. These types of agreements are common in the pharmaceutical industry. We may choose to enter into these types of agreements to, among other things, leverage our or our collaborators' scientific R&D expertise, or utilize our extensive marketing and distribution resources. See Item 8. Note 1 for more information regarding our method for recognizing revenue and expenses related to collaboration agreements, as well as Item 8. Note 17 for more information regarding our current collaboration agreements.

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Perrigo Company plc - Item 1
RX


Recent Developments

We continue to experience a significant reduction in pricing expectations from historical levels in our RX segment due to industry and competitive pressures. This softness in pricing is attributed to various factors including increased focus from customers to capture supply chain productivity savings, low raw material commodity pricing, competition in specific products, and consolidation of certain customers. We expect this softness to continue to impact the segment for the foreseeable future, and we are forecasting a 9% to 11% pricing decline in this segment for the year ended December 31, 2017 compared to the prior year.

On January 22, 2016, we acquired a portfolio of generic dosage forms and strengths of Retin-A® (tretinoin), a topical prescription acne treatment, from Matawan Pharmaceuticals, LLC, for $416.4 million in cash ("Tretinoin Products").

On March 1, 2016, we completed the acquisition of two development-stage specialty Rx products to further invest in our specialty Rx portfolio.

On August 22, 2016, we purchased the remaining 60.9% ownership rights to a generic BenzaclinTM product ("Generic BenzaclinTM"), which we developed and marketed in collaboration with Barr Laboratories. As a result of this transaction, we are now entitled to 100% of income from sales of the product.

On November 10, 2016, we announced that as part of our portfolio review process we are conducting a comprehensive internal evaluation of the RX segment's market position, growth opportunities, and interdependencies with our manufacturing and shared service operations to determine if strategic alternatives should be explored.

During the three months ended December 31, 2016, the U.S. market for our Entocort® (budesonide) capsules, including both brand and authorized generic capsules, experienced significant and unexpected increased competition, reducing our future revenue stream. This led to an impairment charge of $342.2 million related to the Entocort® intangible asset acquired in 2015. We expect our 2017 net sales to be negatively affected in an amount of approximately $72.0 million.

In December 2016, we transitioned our specialty pharmaceutical commercial activities to our partner, Exeltis, who will lead sales and marketing efforts for this portfolio of products. We do not expect this transition will have an impact on our net sales.


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Perrigo Company plc - Item 1
RX

Products

Listed below are some of the generic prescription products, including authorized generic and ORx® products, that we manufacture and/or distribute:
Generic Name (1)
 
Comparative Brand-Name Drug
Adapalene cream
 
Differin®
Bacitracin ophthalmic ointment
 
N/A
Benzoyl peroxide 5% - clindamycin 1% gel     
 
BenzaClinTM
Budesonide
 
Entocort®
Clindamycin foam
 
Evoclin®
Clindamycin phosphate and benzoyl peroxide gel
 
Duac®
Clobetasol foam, lotion and shampoo
 
Olux®, Olux-E®, Clobex®
Desonide cream, ointment
 
Desonate®, Tridesilon®
Dihydroergotamine injection
 
D.H.E. 45
Halobetasol ointment and cream
 
Ultravate®
Hydrocortisone suppositories
 
N/A
Mupirocin ointment
 
Bactroban®
Nystatin topical powder
 
Mycostatin®
Permethrin cream
 
Elimite®
Potassium chloride
 
Klor-Con®
Tacrolimus
 
Protopic®
Testosterone 1% gel
 
Androgel
Testosterone cypionate injection
 
Depo®, Testosterone
Triamcinolone acetonide nasal spray
 
Nasacort® AQ
Triamcinolone cream/ointment
 
Triderm™/Kenalog™

(1)    Contains the same active ingredients present in the same dosage form as the comparable brand-name drug

Net sales related to new products totaled (in millions):
Year Ended
 
Six Months Ended
 
Year Ended
December 31,
2016
 
December 31,
2015
 
December 31,
2015
 
December 27,
2014
 
June 27,
2015
 
June 28,
2014
$
68.0

 
$
118.6

 
$
41.2

 
$
40.4

 
$
117.8

 
$
104.1

        
During the year ended December 31, 2016, we, on our own or in collaboration with partners, received final approval from FDA health authorities for four Rx drug applications, and as of December 31, 2016, we had 27 Rx drug applications pending approval.

Sales and Marketing

Our customers include major wholesalers, including Cardinal Health, McKesson, and AmerisourceBergen; sourcing groups such as Red Oak and ClarusOne; national and regional retail drug, supermarket and mass merchandise chains, including Walgreens, Rite Aid, Walmart, CVS, Kroger, and Safeway; hospitals; and pharmacies. ORx® products are sold to the consumer through the pharmacy counter of predominantly the same retail outlets as our OTC pharmaceutical products.

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Perrigo Company plc - Item 1
RX


Competition

The market for Rx products is subject to intense competition from other generic drug manufacturers, brand-name pharmaceutical companies launching their own generic version of their branded products (known as an authorized generic), manufacturers of branded drug products that continue to produce those products after patent expirations, and manufacturers of therapeutically similar drugs. Among our generic drug manufacturer competitors are Par Pharmeceuticals, Apotex Corp., Glenmark Generics Inc., Impax Laboratories, Inc., Mylan, Prasco, LLC, Sandoz, Sun Pharmaceuticals, Taro Pharmaceuticals, Teva Pharmaceutical Industries Ltd., Triax Pharmaceuticals, LLC, and Zydus Pharmaceuticals, Inc.
 
We believe that one of our primary competitive advantages is our ability to introduce difficult to develop and/or manufacture topical and other specialty generic versions to brand-name drug products. Generally, these products are exposed to less competition due to the relatively longer and more expensive development, clinical trial, and approval processes. In addition, we believe we have a favorable competitive position due primarily to our efficient distribution systems, topical production economies of scale, customer service, and overall reputation. See Item 1A. Risk Factors - Risks Related to Operations for more information and risks associated with competition.

SPECIALTY SCIENCES

Overview

The Specialty Sciences segment is comprised of assets focused on the treatment of multiple sclerosis, specifically in connection with the drug Tysabri® (natalizumab). Although we divested these assets in March 2017, during the periods covered by this report, we continued to receive contingent payments related to the Tysabri royalty stream. These contingent payments are based on a royalty percentage on sales revenue generated by the sale, distribution or other use of the drug Tysabri®. The Specialty Sciences segment also includes the ongoing obligations under the sale agreement between Biogen and Elan for 50% of losses and expenses arising out of any Tysabri® product liability claims, required insurance coverage and related expenses. We have recorded the Tysabri® royalty stream as a financial asset and elected to account for this asset using the fair value option method, which incorporates discounted cash flows related to the expected future cash flows to be received. We use significant judgment in determining our valuation inputs, including estimates as to the probability and timing of future sales of Tysabri®, as well as estimates of the expected future cash flows. The estimated fair value of the asset is subject to variation should those cash flows vary significantly from our estimates. We have performed an evaluation at each reporting period to assess those estimates, discount rates utilized and general market conditions affecting fair value.

We were entitled to contingent payments from Biogen based on its Tysabri® sales for all indications and geographies. We received contingent payments that were based on royalties of 12% on worldwide Biogen sales of Tysabri® from December 18, 2013 through April 30, 2014. As of May 1, 2014, we received royalties of 18% on annual worldwide Biogen sales of Tysabri® up to $2.0 billion and 25% on annual sales above $2.0 billion. The cash received from Biogen for the royalty percentage on Tysabri® sales is recorded as cash flows from investing activities in our Consolidation Statements of Cash Flow.

Recent Developments

In February 2016, a competitor's pipeline product, Ocrevus®, received breakthrough therapy designation from the FDA and was approved in 2017. The product is expected to compete with Tysabri® and have a significant negative impact on the Tysabri® royalty stream. Although the product has not launched, industry analysts believe that based on released clinical study information, Ocrevus® will favorably compete against Tysabri® in the relapsing, remitting multiple sclerosis market segment due to its high efficacy and convenient dosage form.

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Perrigo Company plc - Item 7
Specialty Sciences



On November 15, 2016, Biogen received additional intellectual property protection for Tysabri® as they were granted a new patent in the U.S. with coverage to 2027.

On March 27, 2017, we announced the completed divestment of our Tysabri® royalty stream to Royalty Pharma for up to $2.85 billion, which consists of $2.2 billion in cash and up to $250.0 million and $400.0 million in milestone payments to us if the royalties on global net sales of Tysabri® that are received by Royalty Pharma meet specific thresholds in 2018 and 2020, respectively. As a result of this transaction, we will derecognize the Tysabri® financial asset in the first quarter of 2017 and we do not expect the disposition to have a material impact on our results.

Competition    

Tysabri® is a complex biological product that is administered under a strict Risk and Evaluation Mitigation Strategy ("REMS") program. The majority of its patents are protected through 2024. In the event that a patent is invalidated or is infringed upon or a biosimilar is introduced, the financial performance of our Specialty Sciences segment would be materially adversely affected. Tysabri® competes with many companies that are working to develop successful new therapies or alternative formulations of products for multiple sclerosis, including Ocrevus® as mentioned above. If any of these competing products have a similar or more attractive profile in terms of efficacy, convenience, or safety, future sales of Tysabri® could be impacted. See Item 1A. Risk Factors - Risks Related to Operations for related risks.

OTHER

Overview

We have an Other segment that is primarily comprised of sales of API products, which does not meet the quantitative threshold required to be a separate reportable segment. We develop, manufacture, and market API products, which are used worldwide by both generic and branded pharmaceutical companies. Certain of these ingredients are used in our own pharmaceutical products. The manufacturing of API occurs primarily in Israel with some production in India.

API development is focused on the synthesis of less common molecules for the U.S., European, and other global markets. We commercialize API that are critical to our pharmaceutical customers’ existing portfolios and future product launches, working closely with these customers on development processes. We are also focusing manufacturing and development activities on the synthesis of molecules for use in our own OTC and Rx pipeline products. This vertical integration may enable us to be more competitive in the pricing of our product lines.

Because our API customers depend on high quality supply and regulatory support, we focus on rigorous quality assurance, quality control, and regulatory compliance as part of our strategic positioning. Our quality system is designed to comply with the regulatory requirements of the FDA, the European Medicines Agency ("EMA"), and other regulatory agencies such as the Australian Therapeutic Goods Administration. We are regularly inspected by various regulatory authorities and customers.

Recent Developments

On April 6, 2017, we completed the divestment of our India API business to Strides Shasun Limited. As of December 31, 2016, the net assets of our India API business were classified as "held for sale" as discussed in Item 8. Note 9. The sale is not expected to have a material impact on our operations or result in a significant gain or (loss) when recorded in the second quarter of 2017.

On February 27, 2017, we announced we were exploring strategic alternatives for our Israel API operations.


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Other


Competition

Since other manufacturers of API typically do not offer all of the same product lines or serve all of the same markets as we do, the business competes on a product-by-product basis with a number of different competitors. Our API category is subject to increased price competition from other manufacturers of API located mostly in India, China, and Europe. See Item 1A. Risk Factors - Risks Related to Operations for information and risks associated with competition.

INFORMATION APPLICABLE TO ALL REPORTABLE SEGMENTS

Research and Development

R&D is a key component of our business strategy and is performed in various locations in the countries in which we operate. While we conduct a significant amount of our own R&D, we also enter into strategic alliance agreements to obtain the rights to manufacture and/or distribute new products. R&D investments were as follows (in millions):
Year Ended
 
Six Months Ended
 
Year Ended
December 31,
2016
 
December 31,
2015
 
December 31,
2015
 
December 27,
2014
 
June 27,
2015
 
June 28,
2014
$
184.0

 
$
186.3

 
$
88.2

 
$
89.8

 
$
187.8

 
$
152.5


During the years ended December 31, 2016 and June 28, 2014, we wrote off capitalized in-process research and development from previous acquisitions totaling $3.5 million and $6.0 million, respectively, due to changes in the projected development and regulatory timelines for various projects.

The year ended December 31, 2016 included R&D expense related to clinical trial expenses primarily in our CHCA and RX segments. The year ended December 31, 2015 included incremental R&D expense due to the Omega acquisition, and clinical trial expenses primarily in our CHCA and RX segments. The six months ended December 31, 2015 included incremental R&D expense due to the Omega acquisition. The six months ended December 27, 2014 included a $10.0 million payment made in connection with our entry into a collaboration arrangement. The year ended June 27, 2015 also included incremental R&D expense due to the Omega acquisition, as well as the payment made in relation to the collaboration arrangement noted above, and an R&D contractual arrangement under which we funded $18.0 million of R&D. The year ended June 28, 2014 included incremental R&D expense attributable to the Sergeant's Pet Care Products, Inc. ("Sergeant's") and Velcera Inc. ("Velcera") acquisitions that closed during the previous year, as well as R&D expense related to the ELND005 Phase 2 clinical program in collaboration with Transition Therapeutics, Inc. ("Transition"), which we acquired from Elan. We ended our collaboration with Transition during the third quarter of the year ended June 28, 2014 and are no longer responsible for ongoing development activities and costs associated with ELND005.

We anticipate that R&D expenditures will increase in dollar terms but will remain relatively flat to slightly higher as a percentage of net sales for the foreseeable future as we continue to cultivate our presence in the Rx-to-OTC switch and generic pharmaceutical markets, and develop our internal R&D capabilities. See Item 1A. Risk Factors - Risks Related to Operations for risks associated with innovation and R&D.

Trademarks and Patents

While we own certain trademarks and patents, neither our business as a whole, nor any of our segments, is materially dependent upon our ownership of any one trademark, or patent, or group of trademarks or patents.


17

Perrigo Company plc - Item 1


Materials Sourcing

Affordable high quality raw materials and packaging components are essential to all of our business units due to the nature of the products we manufacture. Raw materials and packaging components are generally available from multiple suppliers. Supplies of certain raw materials, bulk tablets, and components are limited, as they are available from one or only a few suppliers. While we have the ability to manufacture and supply certain API for our OTC and Rx products, an increasing number of components and finished goods are purchased rather than manufactured because of temporary production limitations, FDA restrictions, economic conditions, or other factors.

Historically, we have been able to react effectively to situations that require alternate sourcing. Should such alternate sourcing be necessary, FDA requirements placed on products approved through the ANDA or NDA process could substantially lengthen the approval of an alternate source and adversely affect financial results. We believe we have good, cooperative working relationships with substantially all of our suppliers and have historically been able to capitalize on economies of scale in the purchase of materials and supplies due to our volume of purchases. See Item 1A. Risk Factors - Risks Related to Operations for risks associated with materials sourcing.

Manufacturing and Distribution

Our primary manufacturing facilities are in the U.S. We also have secondary manufacturing facilities in the U.K., Belgium, France, Germany, Austria, Israel, Mexico, Australia, and India, along with a joint venture in China. See Item 1A. Risk Factors - Risks Related to Operations for risks associated with our manufacturing facilities. We supplement our production capabilities with the purchase of products from outside sources. The capacity of some facilities may be fully utilized at certain times for various reasons, such as customer demand, the seasonality of the cough/cold/flu, allergy, or flea and tick seasons, and new product launches. We may utilize available capacity by performing contract manufacturing for other companies. We have logistics facilities in the U.S., Israel, Mexico, Australia, and numerous locations throughout Europe. We use contract freight and common carriers to deliver our products.

Significant Customers

Our primary customer base aligns with the concentration of large drug retailers in the current global retail drug industry marketplace. Walmart is our largest customer and accounted for the following percentage of consolidated sales:

Year Ended
 
Six Months Ended
 
Year Ended
December 31,
2016
 
December 31,
2015
 
December 31,
2015
 
December 27,
2014
 
June 27,
2015
 
June 28,
2014
13
%
 
14
%
 
13
%
 
19
%
 
16
%
 
19
%

Sales to Walmart are primarily in the CHCA segment. As a percentage of our total U.S. OTC sales, our sales to Walmart generally align with Walmart's U.S. retail market share in the products we sell to them. In addition, while no other customer individually comprises more than 10% of net sales, we do have other significant customers. We believe we generally have good relationships with all of our customers. See Item 1A. Risk Factors - Risks Related to Operations for risks associated with customers.

Environmental

We are subject to various environmental laws and regulations. We have made, and continue to make, expenditures necessary to comply with applicable environmental laws, but do not believe that the costs for complying with such laws and regulations have been or will be material to our business. We do not have any material remediation liabilities outstanding.

While we believe that climate change could present risks to our business, including increased operating costs due to additional regulatory requirements, physical risks to our facilities, water limitations, and disruptions to our supply chain, we do not believe these risks are material to our business in the near term.
    

18

Perrigo Company plc - Item 1


Corporate Social Responsibility

We are committed to doing business in an ethical manner. We have a long history of environmentally sound and efficient operations, safe and healthy working conditions, and active participation in the communities where we are located. As reflected in our Corporate Social Responsibility Commitment Statement available on our website, we remain committed to:

Helping consumers access safe, effective and affordable healthcare products;
Strong corporate governance;
Complying with regulatory and legal requirements;
Demonstrating environmental stewardship;
Continuously improving packaging sustainability;
Protecting human rights of our global employees and challenging our partners to do the same;
Diversity of thought, experience and perspective;
Providing a safe and healthy work environment for our employees; and
Establishing effective community partnerships.

Through these efforts, we strive to minimize our impact on the environment, drive responsible business practices, and ensure the welfare of our employees, their families, and the communities in which we operate now and into the future.

GOVERNMENT REGULATION AND PRICING

The manufacturing, processing, formulation, packaging, labeling, testing, storing, distributing, advertising, and sale of our products are subject to regulation by a variety of agencies in the localities in which our products are sold. In addition, we manufacture and market certain of our products in accordance with standards set by various organizations. We believe that our policies, operations, and products comply in all material respects with existing regulations to which we are subject. See Item 1A. Risk Factors - Risks Related to Operations for related risks.

United States Regulation

U.S. Food and Drug Administration

The FDA has jurisdiction over our Rx, OTC drug products, API, and Infant Formula Foods. The FDA’s jurisdiction extends to the manufacturing, testing, labeling, packaging, storage, distribution, and promotion of these products. We are committed to consistently providing our customers with high quality products that adhere to "current Good Manufacturing Practices" ("cGMP") regulations promulgated by the FDA.

OTC and Rx Pharmaceuticals

All facilities where Rx and OTC products are manufactured, tested, packaged, stored, or distributed for the U.S. market must comply with FDA cGMPs and regulations promulgated by competent authorities in the countries, states and localities where the facilities are located. All of our drug products are manufactured, tested, packaged, stored, and distributed according to cGMP regulations. The FDA performs periodic audits to ensure that our facilities remain in compliance with all appropriate regulations.

Many of our OTC products are regulated under the OTC monograph system and subject to certain FDA regulations. Under this system, selected OTC drugs are generally recognized as safe and effective and do not require the approval of an ANDA or NDA prior to marketing. Products marketed under the OTC monograph system must conform to specific quality, formula, and labeling requirements, including permitted indications, required warnings and precautions, allowable combinations of ingredients, and dosage levels. It is generally less costly to develop and bring to market a product regulated under the OTC monograph system.

            We also market generic prescription drugs and non-prescription products that have switched from prescription to OTC status. Prior to commercial marketing, these products require approval by the FDA of an ANDA or NDA that provides information on chemistry, manufacturing controls, clinical safety, efficacy and/or bioequivalence, packaging, and labeling. While the development process for these drugs generally requires less

19

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time and expense than the development process of a new drug, the size and duration of required studies can vary greatly. Prior to the onset of the Generic Drug User Fee Amendments of 2012 (“GDUFA”), the FDA approval of generic drug applications took approximately three to five times longer than approval of innovator drugs. Median ANDA approval times were reported at approximately 48 months. Pursuant to GDUFA, beginning October 1, 2016, year five of the program, the FDA pledged to complete a first cycle review on 90% of electronic generic applications within 10 months of submission. The FDA has ceased reporting median ANDA approval times, however the generic industry has observed continued progress in FDA performance towards reducing ANDA approval times.

Under the Federal Food, Drug and Cosmetic Act, as amended ("FFDCA") (the Hatch-Waxman amendments), a company submitting an NDA can obtain a three-year period of marketing exclusivity for a prescription or OTC product if it performs a clinical study that is essential to FDA approval. Longer periods of exclusivity are possible for new chemical entities, orphan drugs (those designated under section 526 of the FFDCA) and drugs under the Generating Antibiotic Incentives Now Act. During this exclusivity period, the FDA cannot approve any ANDAs for a similar or equivalent generic product, which can preclude another party from marketing a similar product during this period. A company may obtain an additional six months of exclusivity if it conducts pediatric studies requested by the FDA on the product. This exclusivity can delay both the FDA approval and sales of certain products.

A company may be entitled to a 180-day generic exclusivity period for certain products. This exclusivity period often follows a patent certification and litigation process whereby the product innovator may sue for infringement. The legal action does not ordinarily result in material damages, but it generally triggers a statutorily mandated delay in FDA approval of the ANDA for a period of up to 30 months from when the innovator was notified of the patent challenge.

The Food and Drug Administration Safety and Innovation Act ("FDASIA") was signed into law on July 9, 2012. The law established, among other things, new user fee statutes for generic drugs and biosimilars, FDA authority concerning drug shortages, changes to enhance the FDA's inspection authority of the drug supply chain, and a limited extension of the 30-month stay provision described above. The FDASIA also reduced the time required for FDA responses to generic-blocking citizen petitions. We implemented new systems and processes to comply with the new facility self-identification and user fee requirements of the FDASIA, and we monitor facility self-identification and fee payment compliance to mitigate the risk of potential supply chain interruptions or delays in regulatory approval of new applications.

The U.S. government's Federal Drug Supply Chain Security Act ("DSCSA") requires development of an electronic pedigree to track and trace each prescription drug at the salable unit level through the distribution system, which will be effective incrementally over a 10-year period. The serialization of all Rx products distributed in the U.S. needs to be completed by November 27, 2017, with the requirement for tracking the products commencing on November 27, 2023. Requirements for the tracing of products at the lot level through the pharmaceutical distribution supply chain went into effect on January 1, 2015 for manufacturers, wholesale distributors, and re-packagers, and on July 1, 2015 for dispensers.

Infant Formula and Foods

The FDA’s Center for Food Safety and Applied Nutrition is responsible for the regulation of infant formula. The Office of Nutrition, Labeling and Dietary Supplements ("ONLDS") has labeling responsibility for infant formula, while the Office of Food Additive Safety ("OFAS") has program responsibility for food ingredients and packaging. The ONLDS evaluates whether an infant formula manufacturer has met the requirements under the FFDCA and consults with the OFAS regarding the safety of ingredients in infant formula and of packaging materials for infant formula.

All manufacturers of pediatric nutrition products must begin with safe food ingredients, which are either generally recognized as safe or approved as food additives. The Infant Formula Act provides specific requirements for infant formula to ensure the safety and nutrition of infant formulas, including minimum and, in some cases, maximum levels of specified nutrients.

Before marketing a particular infant formula, the manufacturer must provide regulatory agencies assurance of the nutritional quality of that particular formulation consistent with the FDA’s labeling, nutrient content, and

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manufacturer quality control requirements. A manufacturer must notify the FDA at least 90 days before the marketing of any infant formula that differs fundamentally in processing or in composition from any previous formulation produced by the manufacturer. We actively monitor this process and make the appropriate adjustments to remain in compliance with recent FDA rules regarding cGMP, quality control procedures, quality factors, notification requirements, and reports and records for the production of infant formulas.

In addition, the FFDCA requires infant formula manufacturers to test product composition during production and shelf-life; to keep records on production, testing, and distribution of each batch of infant formula; to use cGMP and quality control procedures; and to maintain records of all complaints and adverse events, some of which may reveal the possible existence of a health hazard. The FDA conducts yearly inspections of all facilities that manufacture infant formula, inspects new facilities during early production runs, and collects and analyzes samples of infant formula.

Our infant and toddler foods are subject to the Food Safety Modernization Act ("FSMA"), which protects the safety of U.S. foods by mandating comprehensive, prevention-based controls within the food industry. Under FSMA, the FDA has mandatory recall authority for all food products and greater authority to inspect food producers and is taking steps toward product tracing to enable more efficient product source identification in the event of a safety issue.

Active Pharmaceutical Ingredients

We develop and manufacture API in Israel and India for export to the U.S. and other global markets. Before API can be commercialized in the U.S., we must submit a drug master file ("DMF") that provides the proprietary information related to the manufacturing process. The FDA inspects the manufacturing facilities to assess cGMP compliance, and the facilities and procedures must be cGMP compliant before API may be exported to the U.S.

The facilities and products are subject to regulation by the applicable regulatory bodies in the place of manufacture as well as the regulatory agency in the country from which the product is exported or imported. Our Israeli facility has been approved by the U.S. FDA, Israel Ministry of Health ("IMOH"), Federal Commission for the Protection against Sanitary Risks of Mexico, Pharmaceutical and Medical Devices Agency of Japan, and the Korean Food and Drug Administration and has received GMP certification from IMOH. Our India facility has been inspected by the U.S. FDA and has received GMP certification from the Indian FDA.

For API exported to European markets, we submit a European DMF and, where applicable, obtain a certificate of suitability from the European Directorate for the Quality of Medicines. The manufacturing facilities and production procedures for API marketed in Europe must meet EU-GMP and European Pharmacopeia standards.

U.S. Department of Agriculture

The Organic Foods Production Act enacted under Title 21 of the 1990 Farm Bill established uniform national standards for the production and handling of foods labeled as "organic." Our infant formula manufacturing sites in Vermont and Ohio adhere to the standards of the U.S. Department of Agriculture ("USDA") National Organic Program for production, handling, and processing to maintain the integrity of organic products. Our infant formula manufacturing sites in Vermont and Ohio are USDA-certified, enabling them to produce and label organic products for U.S. and Canadian markets.

U.S. Environmental Protection Agency

The U.S. Environmental Protection Agency ("EPA") is the main regulatory body in the United States for veterinary pesticides. The EPA's Office of Pesticide Programs is responsible for the regulation of pesticide products applied to animals. All manufacturers of animal health pesticides must show that their products will not cause “unreasonable adverse effects to man or the environment” as stated in the Federal Insecticide, Fungicide, and Rodenticide Act. Within the United States, pesticide products that are approved by the EPA must also be approved by individual state pesticide authorities before distribution in that state. Post-approval monitoring of products is required, with reports provided to the EPA and some state regulatory agencies.


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U.S. Drug Enforcement Administration

The U.S. Drug Enforcement Administration ("DEA") regulates certain drug products containing controlled substances, such as morphine, hydromorphone, opium, testosterone, midazolam, and List I chemicals, such as pseudoephedrine, pursuant to the federal Controlled Substances Act ("CSA"). The CSA and DEA regulations impose registration, security, record keeping, reporting, storage, manufacturing, distribution, importation and other requirements upon legitimate handlers under the oversight of the DEA. The DEA categorizes controlled substances into Schedules I, II, III, IV, or V, with varying qualifications for listing in each schedule. We are subject to the requirements regarding the controlled substances in Schedules II - V and the List I chemicals. Our facilities that manufacture, distribute, import, or export any controlled substances must register annually with the DEA.

The DEA inspects all manufacturing facilities to review security, record keeping, reporting, and handling prior to issuing a controlled substance registration, and it also periodically inspects facilities for compliance with the CSA and its regulations. Failure to maintain compliance with applicable requirements, particularly as manifested in the loss or diversion of controlled substances, can result in enforcement action, such as civil penalties, refusal to renew necessary registration, or the initiation of proceedings to revoke those registrations. In certain circumstances, violations could lead to criminal prosecution. We are also subject to state legislation regulating the manufacture and distribution of certain products.

Medicaid Drug Rebate Program and Other Drug Pricing Programs
 
U.S. law requires that a pharmaceutical manufacturer, as a condition of having federal funds being made available for the manufacturer’s drugs under Medicaid and Medicare Part B, enter into three government pricing program agreements: (i) a Medicaid rebate agreement with the Secretary of Health and Human Services (“HHS”) to pay rebates to state Medicaid programs for the manufacturer’s covered outpatient drugs that are dispensed to Medicaid beneficiaries and paid for by a state Medicaid program; (ii) a 340B program agreement with the Secretary of HHS to provide discounts to certain “covered entity” safety net health care providers; and (iii) a Master Agreement with the Department of Veterans Affairs ("VA") under which discounts are available for purchases by federal agencies. We have such agreements in effect.

The Medicaid rebate agreement requires the drug manufacturer to remit rebates to each state Medicaid agency on a quarterly basis for both fee-for-service and Medicaid managed care organization utilization. Rebate amounts are based on pricing data reported by the manufacturer to the Centers for Medicare & Medicaid Services (“CMS”), including Average Manufacturer Price ("AMP") and, in the case of innovator products, Best Price ("BP"). U.S. law also requires that a company that participates in the Medicaid rebate program report average sales price ("ASP") information to CMS for each calendar quarter for certain categories of drugs that are paid under Part B of the Medicare program. CMS uses these submissions to determine payment rates for drugs under Medicare Part B.

Under the Medicaid rebate program, the minimum rebate amounts due are as follows: (i) for noninnovator products, in general generic drugs marketed under ANDAs, the rebate amount is 13% of the AMP for the quarter; and (ii) for innovator products, in general brand-name products marketed under NDAs, the rebate amount is the greater of 23.1% of the AMP for the quarter or the difference between such AMP and the BP for that same quarter. Manufacturers also pay an “additional rebate" on innovator drugs where price increases since launch have outpaced inflation. Beginning with the first quarter of 2017, an additional rebate is due for noninnovator products, which is calculated somewhat differently from the innovator product additional rebate.

CMS issued a final regulation, generally effective April 1, 2016, to implement changes to the Medicaid rebate program under the 2010 health reform legislation (“Health Reform Law”) and otherwise to program guidance. In addition to this guidance concerning rebate program administration matters, the regulation also addressed certain related Medicaid reimbursement matters. First, under the Health Reform Law, CMS has also begun to use manufacturer AMP data to calculate reimbursement limits for pharmacies for multiple source drugs under the Medicaid program, known as the federal upper limit ("FUL"). CMS also surveys and publishes retail community pharmacy acquisition cost information to provide state Medicaid agencies with a basis for comparing their own reimbursement and pricing methodologies and rates. Second, the regulation also directs states to update their Medicaid payment methodologies to provide for payment amounts designed to reflect pharmacies’ actual acquisition costs for drugs and to provide the government with findings to support their compliance with this standard.


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Pricing and rebate calculations are governed by statutory and regulatory requirements that are complex, vary among products and programs, can change over time, and are subject to interpretation by us, governmental or regulatory agencies, and the courts. In the case of the Medicaid rebate program, if we become aware of errors in our prior price submissions, or a prior BP submission needs to be updated due to late arriving data, we must resubmit the updated data within specified time frames. Such restatements and recalculations increase our cost of compliance with the Medicaid rebate program, and corrections can result in an overage or underage of our rebate liability for past quarters, depending on the nature of the correction.

The 340B drug pricing program requires participating manufacturers to agree to charge statutorily-defined covered entities no more than the 340B “ceiling price” for the manufacturer’s covered outpatient drugs. The ceiling price is derived from the data the manufacturer reports under the Medicaid rebate program and therefore any changes to statutory or regulatory requirements applicable to the Medicaid price figures may impact the 340B ceiling price calculation as well. 340B covered entities include a variety of community health clinics and other entities that receive health services grants from the Public Health Service, as well as hospitals that serve a disproportionate share of low-income patients.

U.S. law also requires any company that participates in the Medicaid rebate program and Medicare Part B and that wants its covered drugs paid for by certain federal agencies and grantees to enter into a Master Agreement with the VA. Under the Master Agreement, the company must offer its innovator drugs for procurement under the Federal Supply Schedule (“FSS”) pricing program, and must charge certain agencies (VA, Department of Defense, Public Health Service and the Coast Guard) no more than a statutory Federal Ceiling Price (“FCP”). The FCP is calculated based on Non-Federal Average Manufacturer Price (“NFAMP”) data we submit to the VA. FSS contracts include extensive disclosure and certification requirements and standard government terms and conditions with which we must comply. Consistent with VA’s interpretation of the Master Agreement, we have also entered into an agreement to pay rebates on covered drug prescriptions dispensed to TRICARE beneficiaries by TRICARE network retail pharmacies. See Item 1A. Risk Factors - Risks Related to Operations for risks related to the above-mentioned programs.

Other U.S. Regulations and Organizations

We are subject to various other national, state, non-governmental, and local agency rules and regulations. Compliance with the laws and regulations regarding the manufacture and sale of our current products and the discovery, development, and introduction of new products requires substantial effort, expense and capital investment. Other regulatory agencies, organizations and legislation that may impact our business include, but are not limited to:

Physician Payment Sunshine Act - This act requires certain pharmaceutical manufacturers to engage in extensive tracking of payments or transfers of value to physicians and teaching hospitals, maintenance of a payment database and public reporting of the payment data.

Foreign Corrupt Practices Act of 1977 ("FCPA") - This act and other similar anti-bribery laws prohibit companies and their intermediaries from providing money or anything of value to officials of foreign governments, foreign political parties or international organizations with the intent to obtain or retain business or seek a business advantage.

Federal Trade Commission ("FTC") - This agency oversees the advertising and other promotional practices of consumer products marketers. The FTC considers whether a product’s claims are substantiated, truthful and not misleading. The FTC also reviews mergers and acquisitions of companies exceeding specified thresholds and investigates certain business practices relevant to the healthcare industry.

International Organization for Standardization ("ISO") - The ISO Standards specify requirements for a Quality Management System that demonstrates the ability to consistently provide products that meet customer and applicable regulatory standards and includes processes to ensure continuous improvement. Our infant formula manufacturing sites are ISO 9001-2008 Certified for Quality Management Systems. ISO inspections are conducted at least annually.


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United States Pharmacopeial Convention, Inc. ("USP") - The USP is a non-governmental, standard-setting organization. By reference, the FFDCA incorporates the USP quality and testing standards and monographs as the standard that must be met for the listed drugs, unless compliance with those standards is specifically disclaimed on the product’s labeling. USP standards exist for most Rx and OTC pharmaceuticals and many nutritional supplements. The FDA typically requires USP compliance as part of cGMP compliance.

Health Insurance Portability and Accountability Act ("HIPAA") - We could be subject to criminal penalties if we knowingly obtain individually identifiable health information from a covered entity in a manner that is not authorized or permitted by HIPAA or for aiding and abetting the violation of HIPAA.

Consumer Product Safety Commission ("CPSC") - The CPSC has published regulations requiring child resistant packaging on certain products including pharmaceuticals and dietary supplements. The manufacturer of any product that is subject to any CPSC rule, ban, standard or regulation must certify that, based on a reasonable testing program, the product complies with CPSC requirements.

Other State Agencies - We are subject to regulation by numerous other state health departments, insurance departments, boards of pharmacy, state controlled substance agencies, state consumer health and safety regulations, and other comparable state agencies, each of which have license requirements and fees that vary by state.

Regulation Outside the U.S.

We develop and manufacture products and market third-party manufactured products in regions outside the U.S., including Eastern and Western Europe, Israel, Mexico, Australia, countries in Asia, South America, the Middle East, and Russia, each of which has its own regulatory environment. The majority of our sales outside the U.S. are in the following categories: OTC/Rx pharmaceuticals, medical devices, dietary supplements and cosmetics.

European Union

OTC and Rx Pharmaceuticals

The European pharmaceutical industry is highly regulated and much of the legislative and regulatory framework is driven by the European Parliament and the European Commission. This has many benefits, including the potential to harmonize standards across the complex European market. However, obtaining regulatory agreement across member states presents complex challenges that can lead to delays in the regulatory process.

In the European Union (“EU”), as well as many other locations around the world, the manufacture and sale of medicinal products is regulated in a manner substantially similar to that of the U.S. requirements, which generally prohibit the handling, manufacture, marketing, and importation of any medicinal product unless it is properly registered in accordance with applicable law. The registration file relating to any particular product must contain data related to product efficacy and safety, including results of clinical testing and/or references to medical publications, as well as detailed information regarding production methods and quality control. Health ministries are authorized to cancel the registration of a product if it is found to be harmful or ineffective or if it is manufactured or marketed other than in accordance with registration conditions.

Between 1995 and 1998, the over-arching legislation that governs medicinal products was revised in an attempt to simplify and harmonize product registration. This revised legislation introduced the mutual recognition procedure (“MRP”), whereby after approval of a marketing authorization by regulatory authorities in the reference member state (“RMS”), additional marketing authorizations could be submitted to other concerned member states to obtain a product license. In November 2005, the medicinal product legislation was further revised to introduce the decentralized procedure (“DCP”) whereby marketing authorizations are submitted simultaneously to the RMS and select concerned member states. In 2005, the EMA also opened up the centralized procedure to sponsors of marketing authorizations for generic medicinal products. Unlike the MRP and DCP, the centralized procedure results in a single marketing authorization and product labeling across all member states that will allow a sponsor to file for individual country reimbursement and make the medicine available in all the EU countries listed on the application.

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Marketing authorizations and subsequent product licenses are granted to applicants only after the relevant health authority issues a positive assessment of quality, safety and efficacy of the product.

In addition to obtaining marketing authorization for each product, all member states require that a manufacturer’s facilities obtain approval from an EU Regulatory Authority. The EU has a code of GMP that each manufacturer must follow and comply with. Regulatory authorities in the EU may conduct inspections of the manufacturing facilities to review procedures, operating systems, and personnel qualifications. We believe that our policies, operations and products comply in all material respects with existing regulations to which our operations are subject.
EU Member States had to transpose the European Falsified Medicines Directive (the “Directive”) into national law by January 2, 2013. The transposition process is now complete. The provisions of the Directive are intended to reduce the risk of counterfeit medicines entering the supply chain and also to ensure the quality of API manufactured outside of the EU. The Directive required the serialization of all Rx and some OTC products, similar to the DSCSA in the U.S.
In the EU, member states regulate the pricing of prescription medicinal products, and in some cases, the formulation and dosing of products. This regulation is handled by individual member state national health services. These individual regulatory bodies can result in considerable price differences and product availability among member states. The implementation of tendering systems for the pricing of pharmaceuticals in several countries generally impacts drug pricing for generics; generally “tendering” refers to a system that requires bids to be submitted to the government by competing manufacturers to be the exclusive, or one of a few, suppliers of a product in a particular country.
Data exclusivity provisions exist in many countries, although the application is not uniform. In general, these exclusivity provisions prevent the approval and/or submission of generic drug applications to the health authorities for a fixed period of time following the first approval of the brand-name product in that country. As these exclusivity provisions operate independently of patent exclusivity, they may prevent the submission of generic drug applications for some products even after the patent protection has expired.
The requirements deriving from European pharmacovigilance legislation are constantly expanding due to increasing guidance on good vigilance practices and increased communication on inspectors’ expectations. Pharmacovigilance fee legislation became effective in late 2014 to support health authority assessment of pharmacovigilance safety evaluation reports, study protocols for post authorization safety studies and referrals. Once approved, the advertising of pharmaceuticals in the EU is governed by national regulations and guidelines. Within certain member states this is overseen by a self-certification process whereas in others national governance bodies approve material prior to release.

The wholesale distribution of medicinal products is an important activity in the integrated supply chain management. The quality and the integrity of medicinal products can be affected by a lack of adequate control. To this end, the EU Commission has published guidelines on Good Distribution Practice of medicinal products for human use in 2013. The present guidelines are based on Articles 84 and 85b(3) of medicinal products for human use directive.

Medical Devices

The EU has enacted into law numerous directives and adopted many harmonizing standards pertaining to a wide range of industrial products, including medical devices. Medical devices that comply with the requirements of applicable directives are entitled to bear the CE marking of conformity, which indicates that the device conforms to the applicable requirements of the directives and, accordingly, can be commercially distributed throughout Europe. The method of assessing conformity varies depending on the class of the product, but normally involves a combination of self-assessment by the manufacturer and a third-party assessment by a Notified Body, an organization accredited by a member state. Assessment by a Notified Body includes an audit of the manufacturer’s quality system and may also include specific testing of the product. This assessment is a prerequisite for a manufacturer to commercially distribute the product throughout the EU.

Dietary Supplements


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Dietary supplements are subject to several regulations that inform the selection of ingredient levels and how products can be described on packaging and in advertising. These regulations include: Food Supplements Directive 2002/46/EC, Food Information to Consumers Regulation (EU) No 1169/2011, Permitted Vitamins and Minerals Regulation (EC) 1170/2009, Food Additives Regulation (EC) 1333/2008, and Nutritional & Health Claims Regulation (EC) No 1924/2006, and starting in July 2016, the Foods Intended for Particular Nutritional Uses Directive 2009/39/EC & Regulation (EU) 609/2013.

EU rules on nutrition and health claims, which were established by Regulation EC 1924/2006, apply to any nutritional or health claim by a manufacturer. The objective of the regulation is to ensure that claims made in food labeling or advertising are clear, accurate and based on scientific evidence. The European Food Safety Authority, an advisory panel to the European Commission, performs all scientific assessments of health claims on food and supplement labels. An EU register of nutrition and health claims exists to document approved, pending, and rejected claims.

Cosmetics

Cosmetic products in the EU market must comply with Regulation EC No. 1223/2009. This regulation requires manufacturers to prepare a product safety report prior to placing a cosmetic product in the market. In addition, for each cosmetic product placed in the market, a “responsible person” must be designated to oversee compliance with the regulation’s reporting requirements. Commission Regulation EU No. 655/2013 establishes the common criteria and justification for claims to be used in the packaging and advertising of cosmetics products.

Employees

As of December 31, 2016, we had approximately 12,800 full-time and temporary employees worldwide of which a small portion of employees were covered by collective bargaining agreements. We consider our employee relations generally satisfactory.

Available Information

Our principal executive offices are located at Treasury Building, Lower Grand Canal Street, Dublin 2, Ireland and our North American base of operations is located at 515 Eastern Avenue, Allegan, Michigan 49010. Our telephone number is +353 1 7094000. Our website address is www.perrigo.com, where we make available free of charge our reports on Forms 10-K, 10-Q and 8-K, including any amendments to these reports, as soon as reasonably practicable after they are electronically filed with or furnished to the Securities and Exchange Commission ("SEC"). These filings are also available to the public at www.sec.gov and www.isa.gov.il.

ITEM 1A.
RISK FACTORS

Risks Related to Operations

We face vigorous competition from other pharmaceutical and consumer goods companies that may threaten the commercial acceptance and pricing of our products.

We operate in a highly competitive environment. Our products compete against store brand, generic, and branded pharmaceutical companies. Competition is also impacted by changes in regulations and government pricing programs that may give competitors an advantage.

As a manufacturer of generic versions of brand-name drugs through our CHCA and RX segments, we experience competition from brand-name drug companies that may try to prevent, discourage or delay the use of generic versions through various measures, including introduction of new branded products, legislative initiatives, changing dosage forms or dosing regimens, regulatory processes, filing new patents or patent extensions, lawsuits, citizens’ petitions, and negative publicity prior to introduction of a generic product. In addition, brand-name competitors may lower their prices to compete with generic products, increase advertising, or launch, either through an affiliate or licensing arrangements with another company, an authorized generic at or near the time the first generic product is launched, depriving the generic product potential market exclusivity.

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Our CHCA and RX segments also experience competition from our generic competitors, some of whom are significantly larger than we are, who may develop their products more rapidly or complete regulatory approval processes sooner, or may market their products earlier than we do. In the U.S., if we are not the first to file our ANDA, the FDA may grant 180-day exclusivity to another company, which would prevent us from selling the product during the exclusivity period. Even if we are the first to file, in certain circumstances, we may not be able to fully exploit our 180-day exclusivity period.

Our CHCA and RX segments may experience increased price competition as other generic companies produce the same product, sometimes for dramatically lower margins in order to gain market share. Other generic companies may introduce new drugs and/or drug delivery techniques that make our current products less desirable. A drug may be subject to competition from alternative therapies during the period of patent protection or regulatory exclusivity, and thereafter we may be subject to further competition from generic products or biosimilars.

The pharmaceutical industry is consolidating. This creates larger competitors and places further pressure on prices, development activities, and customer retention. Our animal health category within the CHCA segment has seen an increase in direct to consumer advertising by several branded competitors, which may increase in the future, and our nutritionals category has experienced increased competition through alternative channels such as health food stores, direct mail, and direct sales.

We develop and distribute branded products primarily through our CHCI segment. We experience competition from other brand-name drug companies, many of which are larger and have more resources to devote to advertising and marketing. These direct competitors may be able to adapt more quickly to changes in customer requirements. Our current and future competitors may develop products comparable or superior to those offered by us at more competitive prices. If we are unable to compete successfully, our business will be harmed through loss of customers or increased negative pricing pressure that would adversely affect our ability to generate revenue and adversely affect our operating results.

If we do not continue to develop, manufacture, and market innovative products that meet customer demands, we may lose market share and our net sales may be negatively impacted.

Our continued growth is due in large part to our ability to develop, manufacture, and market products that meet customer requirements for quality, safety, efficacy, and cost effectiveness. Continuous introductions of new products and product categories are critical to our business. If we do not continue to develop, manufacture, and market new products, we could lose market share, and our net sales may be negatively impacted. See Item 1. Business - Research and Development for more information.

We maintain a diversified product line to function as a primary supplier for our customers. Capital investments are driven by growth, technological advancements, cost improvement and the need for manufacturing flexibility. Our future capital expenditures could vary materially due to the uncertainty of these factors. In addition, if we fail to stay current with the latest manufacturing, information and packaging technology, we may be unable to competitively support the launch of new product introductions.

Our product margins may decline over time due to our products' aging life cycles, changes in consumer choice, changes in competition for our existing products, or the introduction of next generation innovative products; therefore, new product introductions are necessary to maintain our current financial condition. If we are unable to continue to create new products, we may lose market share or experience pricing pressure, and our net sales may be negatively impacted.

We must prove that the regulated generic drug products in our CHCA and RX segments are bioequivalent to their branded counterparts, which requires bioequivalence studies, and in the case of topical products, even more extensive clinical endpoint trials to demonstrate their efficacy. The development and commercialization process, particularly with respect to innovative products, is both time consuming and costly, and subject to a high degree of business risk. Products currently under development may require re-design to meet evolving FDA standards, may not perform as expected, may not pass required bioequivalence studies, or may be the subject of intellectual property challenges. Necessary regulatory

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approvals may not be obtained in a timely manner, if at all. Any of these events may negatively impact our net sales.

Our ability to attract and retain scientists proficient in emerging delivery forms and/or contracting with a third party in order to generate new products of this type is critical to our long-term plans. If we fail to attract and retain this talent, our long-term sales growth and profit could be adversely impacted.

Even upon the successful development of a product, our customers' failure to launch a product successfully, or delays in manufacturing, could adversely affect our operating results. In addition, the FDA or similar regulatory agency could impose higher standards and additional requirements, such as requiring more supporting data and clinical data than previously required, in order to gain regulatory clearance to launch new formulations into the market, which could negatively impact our future net sales.
 
Our CHCA and CHCI segments are impacted by changes in consumer preferences. If we are unable to adapt to these changes, we may lose market share and our net sales may be negatively impacted.

While the market for store brand products has grown in recent years, there can be no assurance that the pace of this growth will continue. Consumer preferences related to health and nutritional concerns may change, which could negatively impact demand for our CHCA and CHCI products or cause us to incur additional costs to change our products or product packaging.

The future growth and stability of U.S. store brand market share will be impacted, in part, by general economic conditions, which can influence consumers to switch to and from store brand products. Our CHCA segment sales could be negatively affected if economic conditions improve and consumers return to purchasing higher-priced brand-name products. Conversely, while store brand products present an alternative to higher-priced branded products, if economic conditions deteriorate, our CHCA segment sales could be negatively impacted if consumers forgo obtaining healthcare or reduce their healthcare spending.

Our CHCI segment's success is dependent on the continued growth in demand for its lifestyle products, which include weight-loss products and various dietary supplements. If demand for these products decreases, our CHCI segment's results of operations would be negatively impacted.

Our CHCA customers may request changes in packaging to meet consumer demands, which could cause us to incur inventory obsolescence charges and redesign costs, which in turn would negatively impact our CHCA segment's results of operations.

Our infant formula product category within our CHCA segment is subject to changing consumer preferences and health and nutrition-related concerns. Our business depends, in part, on consumer preferences and choices, including the number of mothers who choose to use infant formula products rather than breastfeed their babies. To the extent that private, public, and government sources may promote the benefits of breastfeeding over the use of infant formula, there could be a reduced demand for infant formula products. We could also be adversely impacted by an increase in the number of families that are provided with infant formula by the U.S. federal government through the Women, Infants and Children program, as we do not participate in this program.

We operate in a highly regulated industry, and any inability to timely meet current or future regulatory requirements could have a material adverse effect on our business, financial position, and operating results.

We are subject to the regulations of a variety of U.S. and non-U.S. agencies related to the manufacturing, processing, formulation, packaging, labeling, testing, storing, distribution, advertising, and sale of our products as described in detail in Item 1. Business - Government Regulation and Pricing. Government regulation in the markets in which we operate could impact our business, and our future results could be adversely affected by changes in such regulations or policies. Below are some of the ways in which government regulation could impact our business and/or financial results:


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Risk Factors

We must obtain approval from the appropriate regulatory agencies in order to manufacture and sell our products in the regions in which we operate. Obtaining this approval can be time consuming and costly. There can be no assurance that, in the event we submit an application for a marketing authorization to any global regulatory agency, we will obtain the approval to market a product and/or that we will obtain it on a timely basis. Laws unique to the U.S. regulatory framework encourage generic competition by providing eligibility for first generic marketing exclusivity if certain conditions are met. If we are granted generic exclusivity, the exclusivity may be shared with other generic companies, including authorized generics; or it is possible that we may forfeit 180-day exclusivity if we do not obtain regulatory approval or begin marketing the product within the statutory requirements. Finally, if we are not the first to file our ANDA, the FDA may grant 180-day exclusivity to another company, thereby effectively delaying the launch of our product.

Global regulatory agencies regularly inspect our manufacturing facilities and the facilities of our third-party suppliers. The failure of one of our facilities, or a facility of one of our third-party suppliers, to comply with applicable laws and regulations may lead to a breach of representations made to our customers, or to regulatory or government action against us related to the products made in that facility. Such action could include suspension of or delay in regulatory approvals. If the compliance violations are severe, agencies of the government may initiate product seizure, injunction, recall, suspension of production or distribution of our products, loss of certain licenses or other governmental penalties, or civil or criminal prosecution, thereby impacting the reputation of all of our products.

In the U.S., the DSCSA requires development of an electronic pedigree to track and trace each prescription drug at the salable unit level through the distribution system, which will be effective incrementally over a 10-year period beginning on January 1, 2015, for manufacturers, wholesale distributors, and re-packagers, and on July 1, 2015 for dispensers. Similarly, the European Commission passed legislation requiring new product packaging ‘safety features’ to prevent falsification of medicinal products primarily within the prescription medicines sector. The act was adopted February 9, 2016.  EU member states (with the exception of Belgium, Italy and Greece), and EEA members Norway, Iceland, Liechtenstein and Switzerland must be in compliance within three years, or by February 9, 2019.  Belgium, Italy, and Greece have until February 9, 2025 to comply. Marketing Authorization holders will have three years from the publication date to implement the necessary changes or risk forfeiting their product licenses. Compliance with the new U.S. and EU electronic pedigree requirements may increase our operational expenses and impose significant administrative burdens.

Global regulatory agencies highly scrutinize any product application submitted to switch a product from physician prescribed Rx to unsupervised OTC use by the general public. The expansion of Rx-to-OTC switches is critical to our future growth. Reluctance of regulatory agencies to approve Rx-to-OTC switches in new product categories could impact that growth.

Several bills have been introduced in U.S. Congress that could, if enacted, affect the manufacture and marketing of Rx and OTC drugs including labeling and packaging. For example, the FDA is proposing to change existing regulations to permit generic drug application holders to revise their labeling without prior FDA review to add new safety information that may differ from the corresponding brand drug. The FDA has delayed publication of the Final Rule until April 2017. If this proposed regulatory change is adopted without further revision, it may eliminate the preemption of certain failure-to-warn claims, with respect to generic drugs, which could have a material adverse impact on our future operating results. Regulatory bodies outside of the U.S. could enact similar legislation. We cannot predict whether further label restrictions may be required, or whether additional regulations in the U.S. or other countries in which we operate, may be passed.

Our infant formula products may be subject to barriers or sanctions imposed by countries or international organizations limiting international trade and dictating the specific content of infant formula products. Governments could enhance regulations on the industry aimed at ensuring the safety and quality of dairy products, including, but not limited to, compulsory batch-by-batch inspection and testing for additional safety and quality issues. Such inspections and testing may increase our operating costs related to infant formula products.


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Perrigo Company plc - Item 1A
Risk Factors

On June 10, 2014, the FDA published a final rule ("FR") entitled "Current Good Manufacturing Practices, Quality Control Procedures, Quality Factors, Notification Requirements, and Records and Reports, for Infant Formula." The FR includes, among other things, new or modified requirements related to infant formula manufacturing, quality controls, record-keeping, and clinical trials. Our infant formula manufacturing facilities have been inspected by the FDA after the effective date of the FR and found to be in full compliance with the new GMP regulations with no corrective actions required

Some of our pharmaceutical products are marketed through direct interactions with healthcare professionals, which is known as “detailing.” This activity is subject to extensive regulation under a variety of U.S. laws and regulations, including anti-kickback, anti-bribery, and false claims laws; the FFDCA with respect to claims and off-label promotions; and similar laws in non-U.S. jurisdictions. If our marketing activities are found to be improper, we could be subject to civil and governmental actions and penalties. These risks may increase as non-U.S. jurisdictions adopt new anti-bribery laws and regulations.

If we are unable to successfully obtain the necessary quota for controlled substances and List I chemicals, we risk having delayed product launches or failing to meet commercial supply obligations. If we are unable to comply with regulatory requirements for controlled substances and List I chemicals, the DEA, or similar regulatory agency, may take regulatory actions, resulting in temporary or permanent interruption of distribution of our products, withdrawal of our products from the market, or other penalties.

Changes to the Medical Device Directive are anticipated in 2017, based on a proposal for new European Medical Device Regulation, which has been under discussion since 2012. These changes are expected to include increased supervision by the Notified Bodies by Competent Authorities and revisions to documentation requirements. We will monitor the regulation's progress and cannot currently predict how it will impact the future production and sale of products classified as medical devices. At this time, work is ongoing to translate the final text of the Regulation in all the EU official languages and to correct technical inconsistencies. Final formal adoption is expected both on the Council and the Parliament sides during the first quarter of 2017.

Our operations extend to numerous countries outside the U.S. and are subject to the risks inherent in conducting business globally and under the laws, regulations, and customs of various jurisdictions. These risks include compliance with a variety of national and local laws of countries in which we do business, such as restrictions on the import and export of certain intermediates, drugs, and technologies. We must also comply with a variety of U.S. laws related to doing business outside of the U.S., including Office of Foreign Asset Controls, United Nations and EU sanctions; the Iran Threat Reduction and Syria Human Rights Act of 2012; and rules relating to the use of certain “conflict minerals” under Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Further changes in laws, regulations, and practices affecting the pharmaceutical industry and the healthcare system, including imports, exports, manufacturing, quality, cost, pricing, reimbursement, approval, inspection, and delivery of healthcare, may affect our business and operations.

Healthcare reform and related changes to reimbursement methods in and outside of the United States may have an adverse effect on our financial condition and results of operations.

Increasing healthcare expenditures have received considerable public attention in many of the countries in which we operate. In the U.S., government programs such as Medicare and Medicaid, as well as private insurers, have been focused on cost containment. In the EU and some other markets outside the U.S., the government provides healthcare at low direct cost to consumers and regulates pharmaceutical prices or patient reimbursement levels to control costs for the government-sponsored healthcare system. Both private and governmental entities are seeking ways to reduce or contain healthcare costs.

Our RX segment in particular could be materially adversely impacted by measures taken by governmental entities or private insurers to restrict patients' access to our products or increase pressure on drug pricing, including denial of price increases, prospective and retrospective price decreases, and increased mandatory discounts or rebates. These actions may drive us and our competitors to decrease prices or may reduce the ability of customers to pay for our products, which could materially negatively impact the RX segment's results of operations.


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Perrigo Company plc - Item 1A
Risk Factors

Significant uncertainty exists regarding the effect of the Affordable Care Act, particularly in light of the new U.S. Administration following the recent elections and campaign pledges to repeal or reform the Affordable Care Act. However, if the law is maintained in its current form, it appears likely that it would continue the downward pressure on pharmaceutical pricing, especially under the Medicare program, and may also increase our regulatory burdens and operating costs.

If we fail to comply with the reporting and payment obligations under the Medicaid rebate program or other governmental purchasing and rebate programs, we could be subject to fines or penalties, which could have an adverse effect on our financial condition and results of operations.

As described in Item 1. Business - Medicaid Drug Rebate Programs, we have a Medicaid rebate agreement and VA master agreement in effect with the U.S. government. There are inherent risks associated with participating in the Medicaid drug rebate program, and the VA FSS program, including the following:

By their nature, these programs require us to provide discounts and rebates and therefore reduce our net product revenues. Further, because the amounts of these discounts are based on our commercial sales practices, it is important that we maintain pricing practices that appropriately take into account these government pricing programs.

We are required to report pricing data to CMS, including AMP, on a monthly and quarterly basis and BP and ASP on a quarterly basis. We also are required to report quarterly and annual Non-FAMPs to the VA. If we fail to submit required information, make misrepresentations, or knowingly submit false information to the government as to AMP, ASP, or BP, we may be liable for substantial civil monetary penalties or subject to other enforcement actions, such as under the False Claims Act, and CMS may terminate our Medicaid drug rebate agreement. In that event, U.S. federal payments may not be available under Medicaid or Medicare Part B for our covered outpatient drugs.

The Health Reform Law enacted in 2010 requires the use of AMP data to calculate FULs for multiple source drugs and amends the statutory definitions of AMP and "multiple source drug" in a manner that materially affects the calculation of FULs. CMS surveys and publishes retail community pharmacy acquisition cost information to provide state Medicaid agencies with a basis for comparing their own reimbursement and pricing methodologies and rates. CMS’s final Medicaid rebate program also directs states to revise their payment methods to establish payment rates consistent with actual acquisition costs. Based on our initial evaluation, we do not believe that the changes will have a material impact on our business. However, states are continuing to evaluate their payment methods and we cannot predict how the new FUL or state payment methodologies will affect our pharmacy customers or to what extent these customers may seek additional discounts in light of reimbursement changes. We also cannot predict how the sharing of FUL data and retail survey prices may impact competition in the marketplace.

Under the 340B program, if we fail to provide required discounts to covered entities, we may be subject to refund claims or civil money penalties under that program.

If we inadvertently overcharge the government in connection with our FSS contract or TriCare Agreement, whether due to a misstated FCP or otherwise, we would be required to refund the difference. Failure to make necessary disclosures and/or to identify contract overcharges can result in False Claims Act allegations or potential violations of other laws and regulations. Unexpected refunds to the government, and responses to a government investigation or enforcement action, are expensive and time-consuming, and could have a material adverse effect on our business, financial condition, results of operations, and growth prospects.

Our reporting and payment obligations under the Medicaid rebate program and other governmental purchasing and rebate programs are complex and may involve subjective decisions. Our calculations and methodologies are subject to review by the governmental agencies, and it is possible that these reviews could result in challenges to our submissions. If we do not comply with those reporting and payment obligations, we could be subject to civil and/or criminal sanctions, including fines, penalties, and possible exclusion from U.S. federal healthcare programs (including Medicaid and Medicare).


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Perrigo Company plc - Item 1A
Risk Factors

Lack of availability, or significant increases in the cost, of raw materials used in manufacturing our products could adversely impact our profit margins and operating results.

Affordable high quality raw materials and packaging components are essential to all of our business units due to the nature of the products we manufacture. In addition, maintaining good supply relationships is essential to our ongoing operations. See Item 1. Business - Materials Sourcing for more information.

We maintain several single-source supplier relationships, either because alternative sources are not available or because the relationship is advantageous due to regulatory, performance, quality, support, or price considerations. Unavailability or delivery delays of single-source components or products could adversely affect our ability to ship the related product in a timely manner. The effect of unavailability or delivery delays would be more severe if associated with our higher-volume or more profitable products. Even where alternative sources of supply are available, qualifying the alternate suppliers and establishing reliable supplies could cost more or result in delays and a loss of net sales. Additionally, global regulatory requirements for obtaining product approvals could substantially lengthen the approval of an alternate material source. As a result, the loss of a single-source supplier could have a material adverse effect on our results of operations.

The rapid increase in cost of many raw materials from inflationary forces, such as increased energy costs, and our ability or inability to pass on these increases to our customers could have a negative material impact on our financial results.

Our infant formula products require certain key raw ingredients that are derived from raw milk, such as skim milk powder, whey protein powder, and lactose. Our supply of milk-based ingredients may be limited by the ability of individual dairy farmers and cooperatives to provide raw milk in the amount and quality we deem necessary. Raw milk production is influenced by factors beyond our control including seasonal and environmental factors, governmental agricultural and environmental policy, and global demand. We cannot guarantee that there will be sufficient supplies of these key ingredients necessary to produce infant formula.

Our products, and the raw materials used to make those products, generally have limited shelf lives. Our inventory levels are based, in part, on expectations regarding future sales. We may experience build-ups in inventory if sales slow. Any significant shortfall in sales may result in higher inventory levels of raw materials and finished products, thereby increasing the risk of inventory spoilage and corresponding inventory write-downs and write-offs. Cargo thefts and/or diversions, and economically or maliciously motivated product tampering on store shelves may occur, causing unexpected shortages, which may have a material impact on our operations.

We rely on third parties to source many of our raw materials, as well as to manufacture sterile, injectable products that we distribute. We maintain a strict program of verification and product testing throughout the ingredient sourcing and manufacturing process to identify potential counterfeit ingredients, adulterants, and toxic substances. Nevertheless, discovery of previously unknown problems with the raw materials or product manufacturing processes, or new data suggesting an unacceptable safety risk associated therewith, could result in a voluntary or mandatory withdrawal of the contaminated product from the marketplace, either temporarily or permanently. Any future recall or removal would result in additional costs and lost revenue, harm our reputation, and may give rise to product liability litigation.

Changes in regulation could impact the supply of the API and certain other raw materials used in our products. For example, the EU recently promulgated new standards requiring all API imported into the EU be certified as complying with GMP established by the EU. The regulations placed the certification requirement on the regulatory bodies of the exporting countries, which led to an API supply shortage in Europe as certain governments were not willing or able to comply with the regulation in a timely fashion, or at all. A shortage in API or other raw ingredients could cause us to have to cease manufacture of certain products, or to incur costs and delays to qualify other suppliers to substitute for those API manufacturers are unable to export. This could have a material adverse effect on our business, results of operations, financial condition, and cash flow.


32

Perrigo Company plc - Item 1A
Risk Factors

A disruption at any of our main manufacturing facilities could materially and adversely affect our business, financial position, and results of operations.

Our manufacturing operations are concentrated in a few locations. See Item 1. Business - Manufacturing and Distribution for more information on our significant operations. A significant disruption at one or more of these facilities, whether it be due to fire, natural disaster, power loss, intentional acts of vandalism, war, terrorism, insufficient quality, or pandemic could materially and adversely affect our business.

Additionally, regulatory authorities routinely inspect all of our manufacturing facilities for cGMP compliance. While our manufacturing sites are cGMP compliant, if a regulatory authority were to identify serious adverse findings not corrected upon follow up inspections, we may be required to issue product recalls, shutdown manufacturing facilities, and take other remedial actions. If any manufacturing facility were forced to cease or limit production, our business could be adversely affected.

Any breach or disruption of our information systems or cyber security efforts could have a material adverse effect on our business.

Our systems, information, and operations, as well as our independent vendor relationships (where they support information technology and manufacturing infrastructure), are highly complex and vulnerable to disruption or damage from security breaches, hacking, data theft, denial of service attacks, human error, sabotage, industrial espionage, and computer viruses. Such events may be difficult to detect; and, once detected, their impact may be difficult to assess. While we continue to employ resources to monitor our systems and protect our infrastructure, these measures may prove insufficient depending upon the attack or threat posed. These risks include:

Breaches or disruptions could impair our ability to develop, meet regulatory approval efforts for, produce, and/or ship products, take and fulfill orders, and/or collect and make payments on a timely basis;
Any system issue, whether as a result of an intentional breach or a natural disaster, could damage our reputation and cause us to lose customers, experience lower sales volume, and incur significant liabilities; and
We could incur significant expense in addressing a disruption and related data security and privacy concerns.

Because our business depends upon certain customers for a significant portion of our sales, our business would be adversely affected by a disruption of our relationship with these customers or any material adverse change in these customers' businesses.

Sales to our largest customer, Walmart, comprised approximately 13% of our total sales for the year ended December 31, 2016. While no other customer individually comprised more than 10% of net sales, we do have other significant customers. If our relationship with Walmart or any of our other significant customers, including the terms of doing business with the customers, changes significantly, it could have a material adverse impact on us. See Item 1. Business - Significant Customers for more information.

Many of our customers, which include chain drug stores, wholesalers, distributors, hospital systems, and group purchasing organizations, continue to merge or consolidate. Such consolidation has provided, and may continue to provide, customers with additional purchasing leverage, and consequently may increase the pricing pressures we face. The emergence of large buying groups representing independent retail pharmacies enable those groups to extract price discounts on our products. In addition, a number of our customers have instituted sourcing programs limiting the number of suppliers of generic pharmaceutical products carried by that customer. These developments have resulted in heightened pricing pressure on our products, as well as competition among generic drug producers for business from a smaller and more selective customer base.

Additionally, if we are unable to maintain adequately high levels of customer service over time, customers may choose to assess penalties, obtain alternate sources for products, and/or end their relationships with us.

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Perrigo Company plc - Item 1A
Risk Factors


Although we have divested our rights to the Tysabri® royalty stream, we are entitled to additional milestone payments if certain specified thresholds are met, and any negative developments related to Tysabri® could have a material adverse effect on our receipt of those payments.

We occasionally enter into arrangements that entitle us to potential royalties from third parties. Our most significant royalty has been the Tysabri® royalty stream received quarterly from Biogen, which generated $353.7 million of cash received during the year ended December 31, 2016. See Item 1. Business - Significant Customers for more information on our Tysabri® royalty arrangement. On March 27, 2017, we divested our rights to the Tysabri® royalty stream to Royalty Pharma for $2.2 billion in cash at closing and up to $250.0 million and $400.0 million in milestone payments if global net sales of Tysabri® meet specific thresholds in 2018 and 2020, respectively. Our receipt of these milestone payments may be negatively impacted if the royalty streams decrease and are insufficient to meet the specified thresholds. Factors that may have an adverse effect on the Tysabri® royalty stream include:

Companies working to develop new therapies or alternative formulations of products for multiple sclerosis that, if successfully developed, would compete with, or could gain greater acceptance than, Tysabri® and damage Tysabri®’s market share. In February 2016, a competitor's pipeline product, Ocrevus®, received breakthrough therapy designation from the FDA, and was approved in 2017. The product is expected to compete with Tysabri® and have a significant negative impact on the Tysabri® royalty stream;

Biogen is the owner of the patents on Tysabri®. The loss of protection of these patents, such as a patent invalidation, could adversely affect the royalty stream from Tysabri®. In addition, once the Tysabri® patents expire, other generic companies may introduce products similar to Tysabri® that could adversely affect the royalty stream;

Foreign currency movement, which could have a negative impact on Biogen's Tysabri® sales, thereby reducing the royalties;

Any negative developments relating to Tysabri®, such as safety, efficacy, or reimbursement issues, could reduce demand for Tysabri®; and

Adverse regulatory or legislative developments could limit or prohibit the sale of Tysabri®, such as restrictions on the use of Tysabri® or safety-related label changes, including enhanced risk management programs, which may significantly reduce expected royalty revenue and require significant expense and management time to address the associated legal and regulatory issues.

Additionally, Tysabri® sales growth cannot be assured given the significant restrictions on its use and the significant safety warnings on the label, including the risk of developing Progressive Multifocal Leukoencephalopathy ("PML"), a serious brain infection. The risk of developing PML may increase with prior immunosuppressant use, longer treatment duration, or the presence of certain antibodies. Increased incidence of PML could limit sales growth, prompt regulatory review, require significant changes to the label, or result in market withdrawal. In addition, the result of ongoing or future clinical trials involving Tysabri® or other adverse events reported in association with the use of Tysabri® may have an adverse impact on prescribing behavior and reduce sales of Tysabri®.

Furthermore, there can be no assurance that Royalty Pharma will pay either or both of the milestone payments even if the specified thresholds are met.

We are dependent on the services of certain key members of management. Recently, we replaced our chief financial officer, chief executive officer and the general managers of both our CHCI and RX segments. Our inability to successfully manage the transition with respect to these key executives, or the failure to attract and retain other key members of management, may have a material adverse impact on our results of operations.

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Perrigo Company plc - Item 1A
Risk Factors


We are dependent on the services of certain key employees, and our future success will depend in large part upon our ability to attract and retain highly skilled employees. Key functions for us include executive managers, operational managers, R&D scientists, information technology specialists, financial and legal specialists, regulatory professionals, quality compliance specialists, and sales/marketing personnel. If we are unable to attract or retain key qualified employees, our future operating results may be adversely impacted.

In April 2016, we announced that our former Chairman and Chief Executive Officer, Joseph C. Papa, resigned from the Company and that John T. Hendrickson, formerly our President, was appointed to serve as our new Chief Executive Officer. Mr. Hendrickson was later appointed to serve as a member of our Board of Directors.

In April 2016, we announced that the former Executive Vice President and General Manager of our CHCI segment, Marc Coucke, resigned from the Company and that our current Executive Vice President and General Manager, International, Sharon Kochan, would undertake expanded responsibilities that include providing leadership and strategic direction to our CHCI segment.

On November 8, 2016, we appointed John Wesolowski the General Manager, President RX. Mr. Wesolowski served as Acting General Manager, RX following the resignation of Doug Boothe on July 20, 2016.

On February 27, 2017, we announced that our Executive Vice President, Business Operations and Chief Financial Officer, Judy L. Brown resigned from the Company and Ron Winowiecki, formerly our Senior Vice President, Business Finance, was appointed acting Chief Financial Officer of the Company.

On February 27, 2017, we announced the appointment of Svend Andersen to the position of Executive Vice President and President, Consumer Healthcare International.

If these management transitions are not successful, or if we are unable to attract or retain other key qualified employees, our future operating results may be adversely impacted.

Unfavorable publicity or consumer perception of the safety, quality, and efficacy of our products could have a material adverse impact on our business.

We are dependent upon consumers' perception of the safety, quality, and efficacy of our products, and may be affected by changing consumer preferences. Negative consumer perception may arise from media reports, product liability claims, regulatory investigations, or recalls, regardless of whether they involve us or our products. The mere publication of information asserting defects in products or ingredients, or concerns about our products or the materials used in our products, could discourage consumers from buying our products, regardless of whether such information is scientifically supported.

Our products involve risks such as product contamination, spoilage, mislabeling, and tampering that could require us to recall one or more of our products. Serious product quality concerns could also result in governmental actions against us that, among other things, could result in the suspension of production or distribution of our products, product seizures, loss of certain licenses, delays in the issuance of governmental approvals for new products, or other governmental penalties, all of which could be detrimental to our reputation and reduce demand for our products.

We cannot guarantee that counterfeiting, imitation or other tampering with our products will not occur or that we will be able to detect and resolve it. Any counterfeiting or contamination of any products could negatively impact our reputation and sales, particularly if counterfeit or imitation products cause death or injury to consumers.

Many of the brands we acquired from Omega have European recognition. This recognition is the result of the large investments Omega has made in its products over many years. The quality and safety of the products are critical to our business. If we are unable to effectively manage real or perceived issues,

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Perrigo Company plc - Item 1A
Risk Factors

including concerns about safety, quality, efficacy, or similar matters, sentiments toward us and our products could be negatively impacted.

Our CHCI segment's financial success is dependent on the success of its brands, and the success of these brands can suffer if marketing plans or product initiatives do not have the desired impact on a brand’s image or its ability to attract consumers and the performance of the segment may be negatively impacted if spending on such plans and initiatives does not generate the returns we anticipate. In addition, given the association of individual products within the commercial network of our CHCI segment, an issue with one of our products could negatively affect the reputation of other products, thereby potentially hurting our financial results.

Powdered infant formula products are not sterile. All of our infant formula products must be prepared and maintained according to label instruction to retain their flavor and nutritional value and avoid contamination or deterioration. Depending on the product, a risk of contamination or deterioration may exist at each stage of the production cycle, including the purchase and delivery of raw materials, the processing and packaging of food products, and the use and handling by consumers, hospital personnel, and healthcare professionals. In the event that certain of our infant formula products are found or alleged to have suffered contamination or deterioration, whether or not under our control, our reputation and our infant formula product category sales could be materially adversely affected.

Increasing use of social media could give rise to liability, breaches of data security, or reputation damage.

The Company and our employees increasingly utilize social media as a means of internal and external communication.

To the extent that we seek to use social media tools as a means to communicate about our products and/or business, there are uncertainties as to the rules that apply to such communications, or as to the interpretations that authorities will apply to the rules that exist. As a result, despite our efforts to monitor evolving social media communication guidelines and comply with applicable rules, there is risk that our use of social media for such purposes may cause us to be found in violation of them. A violation of such guidelines may damage our reputation as well as cause potential lawsuits and adversely affect our operating activities.

Our employees may knowingly or inadvertently make use of social media tools in ways that may not be aligned with our social media strategy, may give rise to liability, or could lead to the loss of trade secrets or other intellectual property, or public exposure of personal information (including sensitive personal information) of our employees, clinical trial patients, customers, and others.

Negative posts or comments about us, store brands or generic pharmaceuticals, or our products in social media could seriously damage our reputation and could adversely affect the price of our securities. In addition, negative posts or comments about our products could result in increased pharmacovigilance reporting requirements, which may give rise to liability if we fail to fully comply with such requirements.

Our quarterly results are impacted by a number of factors, some of which are beyond the control of our management, that may result in significant quarter-to-quarter fluctuations in operating results.

Some of the factors that may impact our quarterly results include the severity, length and timing of the cough/cold/flu and allergy seasons, the flea and tick season, the timing of new product approvals and introductions by us and our competitors, price competition, changes in the regulatory environment, changes in accounting pronouncements, changes in the levels of inventories maintained by our customers, and the timing of retailer promotional programs. These and other factors may result in significant variations in our operating results from quarter to quarter.

We may not be able to improve operating results in our business segments.
    

36

Perrigo Company plc - Item 1A
Risk Factors

We have experienced a reduction in pricing expectations during 2016 in comparison to historical patterns in our U.S. businesses, in particular in our RX segment, due to industry and competitive pressures in the sector. The reduced pricing is attributable to a variety of factors including increased focus from customers to capture supply chain productivity savings, low raw material commodity pricing, competition in specific product categories, the loss of exclusivity on certain products, the recent increase in the speed and number of approvals from the FDA, and consolidation of certain customers in the RX segment. We have seen year-over-year pricing erosion in the second half of 2016 moderate from the levels experienced in the first half of 2016. We expect this pricing environment to continue to impact the Company for the foreseeable future.

The CHCI segment has been impacted by market dynamics in key countries such as Belgium, France, Germany and Italy due to softness in certain brand categories and by unfavorable foreign currency impacts, primarily in the U.K. related to Brexit. In addition, the segment had been impacted in Belgium by a change in the forecast with a major wholesaler, as management implements improved supply chain efficiencies in this market. The CHCI segment has restructured its approach to addressing these markets including: (1) implementing a brand prioritization strategy to address these market dynamics, with an objective to balance the cost of advertising and promotional investments with expected contributions from category sales, (2) restructuring its sales force in each of these markets to more effectively serve customers, and (3) exiting certain unfavorable distribution agreements. The combination of these actions are expected to improve the segment's focus on higher value OTC products, reduce selling costs and improve operating margins in the segment.

There can be no assurance that we will not continue to experience challenges related to our segments, and these challenges could have a material impact on our business, cash flows, and results of operations or result in impairment charges, and the market value of our ordinary shares and/or debt securities may decline.

We may not realize the benefits of business acquisitions and divestitures we enter into, which could have a material adverse effect on our operating results.

In the normal course of business we engage in discussions relating to possible acquisitions and divestitures. These transactions are accompanied by a number of risks. Many of these risks are beyond our control, and any one of them could result in increased cost, decreased Net sales and diversion of management’s time and energy, any or all of which could materially impact our business, financial condition, and results of operations.

Acquisitions

One of our strategies is inorganic growth through the acquisition of products and companies that we expect will benefit the Company. This strategy comes with a number of financial, managerial, and operational risks. We may not realize the benefits of an acquisition because of integration and other challenges, including, but not limited to the following:

Difficulty involved with managing the expanded operations of the respective parties, as well as identifying the extent of all weaknesses, risks, and contingent and other liabilities;

Uncertainties involved in assessing the value, strengths, and potential profitability of the respective parties, as well as identifying the extent of all weaknesses, risks, and contingent and other liabilities of acquisition targets;

Unanticipated changes in the business, industry, market or general economic conditions different from the assumptions underlying our rationale for pursuing the transaction;

Difficulties due to a lack of, or limited experience in, any new product or geographic markets we enter;

Inability to achieve identified operating and financial synergies, or return on investment, from an acquisition in the amounts or on the time frame anticipated;

Substantial demands on our management, operational resources, technology, and financial and internal control systems, which could lead to dissatisfaction and potential loss of key customers, management, or

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Perrigo Company plc - Item 1A
Risk Factors

employees;

Integration activities that may detract attention from our day-to-day business, and substantial costs associated with the transaction process or other material adverse effects as a result of these integration efforts; and

Difficulties, restrictions or increased costs associated with raising future capital in connection with an acquisition may impact our liquidity, credit ratings and financial position, thereby making it more difficult, restrictive or expensive to raise future capital. In addition, the issuance of equity to pay a portion of the purchase price for an acquisition would dilute our existing shareholders.
    
As described in Item 1. Business - Major Recent Developments, in March 2015 we closed on the Omega acquisition. In addition to the risks mentioned above, Omega presents the following risks:

Our success in the European markets in which Omega operates will depend on a number of factors, such as:
Our ability to commercialize new products;
Our ability to adapt to changes in economic and political conditions;
Fluctuations in the value of foreign currencies and interest rates;
Compliance with differing regulatory and legal requirements, including tax laws, trade laws, labor, safety, local content, consumer protection regulation, and import or export licensing requirements; and
Consistency and transparency of foreign tax systems, transfer pricing stability across jurisdictions, and our ability to reinvest earnings and cash as appropriate.

While Omega has not historically been subject to U.S. laws and regulations, such as the FCPA, it has been subject to a wide range of European laws and regulations, including the U.K. Bribery Act of 2010. The comparable U.S. laws and regulations to which Omega is now subject may differ from those to which Omega was historically subject. Therefore, it is possible that certain Omega sales or other activities that were permitted while Omega was an independent company may no longer be permitted. While we are continuing to put into place compliance processes and controls intended to ensure compliance with U.S. and global laws that now apply to Omega, if Omega’s operations fail to comply with such laws and regulations, we could be subject to governmental investigations, legal or regulatory proceedings, substantial fines, and/or other legal or equitable penalties.
        
Divestitures

We may evaluate potential divestiture opportunities with respect to portions of our business (including specific assets or categories of assets) from time to time, and may proceed with a divestiture opportunity if and when we believe it is consistent with our business strategy and initiatives. Any future divestitures could expose us to significant risk, including without limitation:

    Our ability to effectively transfer liabilities, contracts, facilities and personnel to any purchaser;

    Fees for legal and transaction-related services;

    Diversion of management resources; and

    Loss of key personnel and reduction in revenue.

If we do not realize the expected strategic, economic or other benefits of any divestiture transaction, it could adversely affect our financial condition and results of operations.


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Perrigo Company plc - Item 1A
Risk Factors

We have acquired significant assets that could become impaired or subject us to losses and may result in an adverse impact on our results of operations.

We have recorded significant intangible assets and goodwill on our balance sheet as a result of previous acquisitions, which could become impaired and lead to material charges in the future.

As of the year ended December 31, 2016, we recorded the following impairments:

Goodwill impairment charges of $1.1 billion related to our Specialty Sciences, BCH-Rest of World ("ROW"), BCH-Belgium, and Animal Health Reporting Units.

Indefinite-lived and definite-lived intangible asset impairment charges of $1.5 billion related to: trademarks, trade names and brands; developed product technology/formulation and product rights; distribution and license agreements; and supply agreements.

We perform an impairment analysis on intangible assets subject to amortization when there is an indication that the carrying amount of any individual asset may not be recoverable. Any significant change in market conditions, estimates or judgments used to determine expected future cash flows that indicates a reduction in carrying value may give rise to impairment in the period that the change becomes known. As of December 31, 2016, the net book value of our intangible assets and goodwill were $3.5 billion and $4.0 billion, respectively. See Item 8. Note 3 for more information on the above impairment charges.

There can be no assurance that our strategic initiatives will achieve their intended effects.
We are in the process of implementing certain initiatives designed to increase operational efficiency and improve our return on invested capital by globalizing our supply chain through global shared service arrangements, streamlining our organizational structure, making key executive employee changes, performing a strategic portfolio review, and disposing of certain assets. We believe these initiatives will enhance our net sales, operating margins, and earnings; however, there can be no assurance that these initiatives will produce the anticipated benefits. Any delay or failure to achieve the anticipated benefits could have a material adverse effect on our projected results.

On November 10, 2016, as part of our ongoing strategic portfolio review, we announced the following strategic actions: (1) exploring strategic alternatives for the potential sale our Tysabri® royalty asset, which is reported in our Specialty Sciences segment; (2) conducting a comprehensive internal evaluation of our businesses, including the Rx market position, growth opportunities and interdependencies with our other manufacturing and shared service operations to determine if strategic alternatives should be explored; and (3) conducting a review of segment and corporate cost structures to align with existing and future expected market dynamics. If we determine that we will pursue a strategic divestiture as a result of this portfolio review, our future business, prospects, financial condition, liquidity and operating results could be significantly different than those in historical periods or projected by our management, which may in turn have a material adverse effect on the market value of our ordinary shares or credit ratings. We cannot provide any commitment regarding if or when any such divestiture would occur.

In furtherance of these strategic actions, on March 27, 2017, we completed the divestment of our Tysabri® royalty stream to Royalty Pharma for up to $2.85 billion, which consists of $2.2 billion in cash and up to $250.0 million and $400.0 million in royalties earned if global net sales of Tysabri® meet specific thresholds in 2018 and 2020, respectively. There can be no assurance these thresholds can be achieved.

In addition, on February 21, 2017, we approved a workforce reduction plan as part of a larger cost optimization strategy across the Company. We expect to reduce our global workforce by approximately 750 employees which includes some actions already taken and 235 employees who have elected to participate in a voluntary early retirement program. This represents a reduction of approximately 14% of our global non-production workforce. The changes to our workforce will vary by country, based on legal requirements and required consultations with works councils and other employee representatives, as appropriate. We have announced that we expect to yield approximately $130.0 million in savings from these actions. There can be no assurance these benefits will be recognized. Further, these actions could lead to a disruption in production or loss in net sales.


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Perrigo Company plc - Item 1A
Risk Factors

In connection with this plan, we estimate that we will recognize total pre-tax restructuring charges of approximately $70.0 million to $80.0 million, consisting of one-time termination benefits, severance arrangements, and other termination costs. We anticipate recognizing substantially all of these charges by the year ended 2017, with the remaining balance to be recognized during the first quarter of the year ended 2018.

The filing of this Annual Report on Form 10-K will not make us “current” in our Exchange Act filing obligations, which means we retain certain potential liability and are not eligible to use certain forms or rely on certain SEC rules.

Although this is a “comprehensive” Form 10-K for the fiscal years ended December 31, 2016, June 27, 2015 and June 28, 2014, the transition period from June 28, 2015 to December 31, 2015, and the quarterly periods included within the fiscal years ended December 31, 2016 and June 27, 2015 and the transition period from June 28, 2015 to December 31, 2015, filing this report does not make us current in our filing obligations under the Exchange Act. Our failure to file all required Exchange Act reports, on a timely basis, means we remain potentially liable under the Exchange Act for those delinquencies, and the filing of this report does not preclude the enforcement staff of the SEC from taking action as a result of those filing delinquencies. Further, without the missing filings, investors may not be able to review certain financial and other disclosures that would be contained in those filings. In addition, we have not filed our Form 10-Q for the quarterly period ended April 1, 2017. We also were unable to include the required pro forma financial information in our Form 8-K filed on March 29, 2017 reporting the sale of our Tysabri® royalty stream. As a result, we will not be “current” for purposes of Rule 144, Regulation S, and our Form S-8 registrations statements until we file that Form 10-Q and amend the Form 8-K to include the proforma financial information.


We have incurred significant additional costs to complete the restatements of previously issued financials and to remediate our material weaknesses and failure to timely file our periodic reports, which may result in reduced operating results in future periods.

As part of this Annual Report on Form 10-K, we have restated previously filed financial statements, and we are in the process of remediating our previously existing material weaknesses and evaluating if further remedial action is appropriate. These efforts and actions related to the restatements of our financial statements have been time consuming and expensive and could expose us to a number of additional risks, which could materially adversely affect our financial position, results of operations, and cash flows.

In particular, we have incurred and will likely continue to incur significant expense, including significant audit, legal, consulting, and other professional fees in connection with the restatements of our previously issued financial statements and the ongoing remediation of material weaknesses in our internal control over financial reporting. We have taken a number of steps, including adding significant internal resources and implementing a number of additional procedures, in order to strengthen our accounting and tax functions and attempt to reduce the risk of additional misstatements in our financial statements. To the extent these steps are not successful, we could be forced to incur additional time and expense.

We identified material weaknesses in our internal controls over financial reporting; failure to remediate the material weakness could negatively impact our business and the price of our ordinary shares.

In connection with our review of certain material misstatements related to the characterization of the Tysabri® royalty stream acquired in the Elan transaction, as well as material misstatements related to the calculation of deferred tax liabilities that existed at the time of the acquisition of Omega, and the evaluation of long-lived assets in our Animal Health Reporting Unit for impairment testing, in each case contained in certain of our historical financial statements, we have concluded that there were material weaknesses in our internal control over financial reporting that contributed to those misstatements. As a result of the material weaknesses, which existed at December 31, 2016, we have concluded that we did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). The failure to maintain effective control over financial reporting in turn resulted in material deficiencies in our disclosure controls and procedures.


40

Perrigo Company plc - Item 1A
Risk Factors

We have identified and begun the implementation of actions, and continue to identify and implement, actions to improve the effectiveness of our internal control over financial reporting and disclosure controls and procedures, but there can be no assurance that such remediation efforts will be successful. We have also incurred and will continue to incur substantial accounting, legal, consulting, and other costs in connection with identifying and remediating the material weaknesses. Failure to remediate the material weaknesses could have a negative impact on our business and the market for our ordinary shares. For more information on our material weaknesses and the status of our remediation efforts. See Item 9A - Controls and Procedures, which includes Management's Report on Internal Control over Financial Reporting.

Global Risks

Our business, financial condition, and results of operations are subject to risks arising from the international scope of our operations.

We manufacture, source raw materials, and sell our products in a number of countries. The percentage of our business outside the U.S. has been increasing particularly as a result of the Omega acquisition. We are subject to risks associated with international manufacturing and sales, including:

Unexpected changes in regulatory requirements;
Problems related to markets with different cultural biases or political systems;
Possible difficulties in enforcing agreements;
Longer payment cycles and shipping lead-times;
Difficulties obtaining export or import licenses;
Changes to U.S. and foreign trade policies, including the enactment of tariffs on goods imported into the U.S., including but not limited to, goods imported from Mexico; and
Imposition of withholding or other taxes.

Additionally, we are subject to periodic reviews and audits by governmental authorities responsible for administering import/export regulations. To the extent that we are unable to successfully defend against an audit or review, we may be required to pay assessments, penalties, and increased duties.

Certain of our facilities operate in a special purpose sub-zone established by the U.S. Department of Commerce Foreign Trade Zone Board, which allows us certain tax advantages on products and raw materials shipped through these facilities. If the Foreign Trade Zone Board were to revoke the sub-zone designation or limit our use, we could be subject to increased duties.

Although we believe that we conduct our business in compliance with applicable anti-corruption, anti-bribery and economic sanctions or other anti-corruption laws, if we are found to not be in compliance with such laws or other anti-corruption laws, we could be subject to governmental investigations, legal or regulatory proceedings, substantial fines, and/or other legal or equitable penalties. This risk increases in locations outside of the U.S., particularly in locations that have not previously had to comply with the FCPA, U.K. Bribery Act, and similar laws.

Current and changing global economic conditions may adversely affect our business.

A number of non-U.S. jurisdictions in which we do business have been negatively impacted by slowing growth rates or recessionary conditions, political disruptions, exchange rate and market volatility.

Several emerging market economies are particularly vulnerable to the impact of rising interest rates, inflationary pressures, weaker oil and other commodity prices, and large external deficits. While some of these jurisdictions are showing signs of stabilization or recovery, others, such as Ukraine, Russia and Greece, continue to experience levels of stress and volatility. Risks in one country can limit our opportunities for portfolio growth and negatively affect our operations in another country or countries. As a result, any such unfavorable conditions or developments could have an adverse impact on our operations.

While the challenging global economic environment has not had a material impact on our liquidity or capital resources, there can be no assurance that possible future changes in global financial markets and global

41

Perrigo Company plc - Item 1A
Risk Factors

economic conditions will not affect our liquidity or capital resources, impact our ability to obtain financing, or decrease the value of our assets.

The challenging economic conditions have also impacted the movements in exchange rates, which have experienced significant recent volatility, including the unfavorable foreign currency impact on the British pound due to Brexit. Uncertainty regarding the future growth rates between countries, the influence of central bank actions, and the changing political environment globally may contribute to continued high levels of exchange rate volatility, which could have an adverse impact on our results.

Our customers could be adversely impacted if economic conditions worsen. Our CHCA segment does not advertise its products like national brand companies and thus is largely dependent on retailer promotional activities to drive sales volume and increase market share. If our customers do not have the ability to invest in store brand promotional activities, our sales may suffer. Additionally, while we actively review the credit worthiness of our customers and suppliers, we cannot fully predict to what extent they may be negatively impacted by slowing economic growth.

The international scope of our business exposes us to risks associated with foreign exchange rates.

We report our financial results in U.S. dollars. However, a significant portion of our net sales, assets, indebtedness and other liabilities, and costs are denominated in foreign currencies. These currencies include among others the euro, Indian rupee, British pound, Canadian dollar, Israeli shekel, Australian dollar, and Mexican peso. The addition of Omega, a euro-denominated business, that represents a significant portion of our net sales and earnings, and a substantial portion of our net assets, has significantly increased our exposure to changes in the euro/U.S. dollar exchange rate. In addition, approximately 29% of Omega’s sales are in other foreign currencies, with the majority of the product costs for these markets denominated in euros. Movements in exchange rates have experienced significant recent volatility due in part to the challenging economic conditions noted above. In 2016, the exchange rate between the U.S. dollar and British pound and the euro and British pound in particular experienced significant volatility due to Brexit and adversely impacted our results of operations. Our results of operations and, in some cases, cash flows, have in the past been, and may in the future, be adversely affected by movements in exchange rates. In addition, we may also be exposed to credit risks in some of those markets. We may implement currency hedges or take other actions intended to reduce our exposure to changes in foreign currency exchange rates. If we are not successful in mitigating the effects of changes in exchange rates on our business, any such changes could materially impact our results.

We operate in jurisdictions that could be affected by economic and political instability, which could have a material adverse effect on our business.

Our operations could be affected by economic or political instability, embargoes, military hostilities, unstable governments and legal systems, and inter-governmental disputes. We have significant operations in Israel, which has experienced varying degrees of hostility in recent years. Doing business in Israel and certain other regions including Mexico and Eastern Europe involves the following risks:

Certain countries and international organizations have refused to do business with companies with Israeli operations. We are also precluded from marketing our products to certain countries due to U.S. and Israeli regulatory restrictions. International economic sanctions and boycotts of our products could negatively impact our sales and ability to export our products.

Our facilities in Israel are within a conflict zone. If terrorist acts or military actions were to result in substantial damage to our facilities, our business activities would be disrupted since, with respect to most products, we would need to obtain prior regulatory agency approval for a change in manufacturing site. In addition, our insurance may not adequately compensate us for losses that may occur, and any losses or damages incurred by us could have a material adverse effect on our business.

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Perrigo Company plc - Item 1A
Risk Factors

The U.S. Department of State and other governments have at times issued advisories regarding travel to certain countries in which we do business. As a result, regulatory agencies have at various times curtailed or prohibited their inspectors from traveling to inspect facilities. If these inspectors are unable to inspect our facilities, the regulatory agencies could withhold approval for new products intended to be produced at those facilities.

Our international operations may be subject to interruption due to travel restrictions, war, terrorist acts, and other armed conflicts. For example, Belgium, France, Turkey, and Eastern Europe may be exposed to further acts of terrorism, which could give rise to travel and increased security restrictions. Also, further threats of armed hostilities in Mexico could limit or disrupt markets and our operations, including disruptions resulting from the cancellation of contracts or the loss of assets. These events could have a material adverse effect on our international business operations.

The UK held a referendum on June 23, 2016 on its membership in the EU. A majority of UK voters voted to exit the EU (“Brexit”), and negotiations will commence to determine the future terms of the UK’s relationship with the EU, subject to a negotiation period that could last up to two years after the UK government formally initiates the withdraw process, including the terms of trade between the UK and the EU. Brexit has created significant instability and volatility in the global financial markets, has led to significant weakening of the British pound compared to the U.S. dollar and other currencies, and could adversely affect European or worldwide economic or market conditions. Although it is unknown what those terms will be, they may impair the ability of our operations in the EU to transact business in the future in the UK, and similarly the ability of our UK operations to transact business in the future in the EU. Specifically, it is possible that there will be greater restrictions on imports and exports between the UK and EU countries and increased regulatory complexities. These changes may adversely affect our operations and financial results. In addition, Brexit could lead to legal uncertainty and potentially divergent national laws and regulations as the UK determines which EU laws to replace or replicate. Further, among other things, Brexit could reduce consumer spending in the UK and the EU, which could result in decreased demand for our products. Any of these effects of Brexit, and others we cannot anticipate, could adversely affect our business, business opportunities, results of operations, financial condition and cash flows.

Risks Related to Litigation and Insurance

We are or may become involved in lawsuits and may experience unfavorable outcomes of such proceedings.

We may become involved in lawsuits arising from a wide variety of commercial, manufacturing, development, marketing, sales and other business-related matters, including, but not limited to, competitive issues, pricing, contract issues, intellectual property matters, false advertising, unfair competition, taxation matters, workers' compensation, product quality/recall, environmental remediation, securities law, disclosure, and regulatory issues. Litigation is unpredictable and can be costly. We intend to vigorously defend against any lawsuits, however, we cannot predict how the cases will be resolved. Adverse results in the cases could result in substantial monetary judgments. No assurance can be made that litigation will not have a material adverse effect on our financial position or results of operations in the future. See Item 8. Note 16 for more information.

We may be subject to liability if our products violate applicable laws or regulations in the jurisdictions where our products are distributed. The successful assertion of product liability or other product-related claims against us could result in potentially significant monetary damages, and we could incur substantial legal expenses. Even if a product liability or consumer fraud claim is unsuccessful, not merited, or not fully pursued, we may still incur substantial legal expenses defending against such a claim, and our reputation may suffer.

We are a defendant in product liability lawsuits arising out of serious adverse events, including deaths, which occurred in patients taking Tysabri®. We expect additional product liability lawsuits related to Tysabri® usage to be filed. Tysabri®'s distributor, Biogen, and Perrigo will each be responsible for 50% of losses and expenses arising out of any Tysabri® product liability claims. Along with Biogen, we intend to vigorously defend these lawsuits, however, we cannot predict how these cases will be resolved. Adverse results in one or more of these cases could result in substantial monetary judgments not covered by insurance.

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Perrigo Company plc - Item 1A
Risk Factors


We may face environmental exposures including, for example, those relating to discharges from and materials handled as part of our operations, the remediation of soil and groundwater contaminated by hazardous substances or wastes, and the health and safety of our employees. While we do not have any material remediation liabilities currently outstanding, we may in the future face liability for the costs of investigation, removal or remediation of certain hazardous substances or petroleum products on, under or in our currently or formerly owned property, or from a third-party disposal facility that we may have used, without regard to whether we knew of, or caused, the presence of the contaminants. The actual or alleged presence of these substances, or the failure to remediate them, could have adverse effects, including, for example, substantial investigative or remedial obligations and limitations on our ability to sell or rent affected property or to borrow funds using affected property as collateral. There can be no assurance that environmental liabilities and costs will not have a material adverse effect on us. See Item 1. Business - Information Applicable to All Reportable Segments - Environmental for more information.
 
Our CHCI segment regularly makes advertising claims regarding the effectiveness of its products, which we are responsible for defending. An unsuccessful defense of product-related claims could result in potentially significant monetary damages and substantial legal expenses. Even if a claim is unsuccessful, not merited, or not fully pursued, we may still incur substantial legal expenses defending against such a claim, and our reputation could suffer.

We are a defendant in a securities class action lawsuit filed in the US District Court for the District of New Jersey in which the complaint alleges violations of Securities Exchange Act sections 10(b) (and Rule 10b‑5) and 14(e) against both Perrigo and our former Chief Executive Officer, Joseph C. Papa, and 20(a) control person liability against Mr. Papa. In general, the allegations concern the actions taken by the Company and the former executive to defend against the hostile takeover bid by Mylan in the period April 21, 2015 through November 13, 2015. The plaintiff also alleges that we provided inadequate disclosure concerning alleged integration problems as a result of the Omega acquisition in the period April 21, 2015 through May 11, 2016. Another securities class action case was also filed in the same court making essentially the same claims on behalf of a class of persons who sold put options in Perrigo shares during the same class period. In December 2016, the court consolidated the two actions. In February 2017, the court selected the lead plaintiffs and the lead counsel to the putative class. In March 2017, the court entered a scheduling order that sets a deadline for the lead plaintiffs to file an amended complaint. That deadline has not yet passed.  

We along with certain of our current and former executive officers and board members are also defendants in a securities class action suit where the plaintiff alleges violations of Israeli law in the District Court of Tel Aviv-Jaffa. On June 15, 2016, we filed a motion to stay the case pending the outcome of the U.S. securities class actions. The plaintiffs did not oppose the motion. The Israeli court granted the motion on the same day, and the action is stayed.

We are a defendant in a securities claims which the complaint commenced an action in the District Court of Tel Aviv-Jaffa asserting securities claims against Perrigo and our auditor Ernst & Young LLP ("EY"). The case is styled Keinan v. Perrigo Company plc, et al. The action seeks certification of a class of purchasers of Perrigo shares on the Israeli exchange beginning February 6, 2014. The proposed closing date for the class is not clear. In general, the plaintiff asserts that Perrigo improperly accounted for its stream of royalty income from two drugs: Tysabri® and Prialt. The court filings contend that the alleged improper accounting caused the audited financial results for Perrigo to be incorrect for the year ended December 31, 2016, six months ended December 31, 2015, and the years ended June 27, 2015 and June 28, 2014 and the other financial data released by the Company over those years to also be inaccurate. The plaintiff maintains that the defendants are liable under Israeli securities law or, in the alternative, under U.S. securities law principles. The plaintiff indicates an initial, preliminary class damages estimate of 686.0 million NIS (approximately $187.0 million). The response from Perrigo and EY is not yet due.  Perrigo is consulting Israeli counsel about its response to these allegations. 

Increased scrutiny on pricing practices and competition in the pharmaceutical industry, including antitrust enforcement activity by government agencies and class action litigation, may have an adverse impact on our business and results of operations.


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Perrigo Company plc - Item 1A
Risk Factors

                There has been increased scrutiny regarding sales, marketing, and pricing practices in the pharmaceutical industry from both government agencies and the media, including allegations of “price gouging” and/or collusion. This includes recent U.S. Congressional inquiries and hearings in connection with the investigation of specific price increases by several pharmaceutical companies, proposed legislation seeking greater transparency in drug pricing, and criminal investigations regarding drug pricing. U.S. federal and state prosecutors have issued subpoenas to a number of pharmaceutical companies seeking information about their drug pricing practices, and several class action lawsuits have been filed that allege price-fixing with respect to various pharmaceutical products. In December 2016, the Antitrust Division of the U.S. Department of Justice (the “Antitrust Division”) filed criminal charges against two former executives from a competitor of the Company for their roles in conspiracies to fix prices, rig bids and allocate customers for certain generic drugs.

On May 2, 2017, we disclosed that search warrants were executed at a number of Perrigo facilities and other locations in connection with the Antitrust Division’s ongoing investigation related to drug pricing in the pharmaceutical industry. Although no charges have been brought to date against Perrigo or any of our current employees (or, to the best of our knowledge, former employees), we take the investigation very seriously.

If criminal antitrust charges are filed involving Perrigo, we would incur substantial litigation and other costs, and could face substantial monetary penalties, injunctive relief, negative publicity and damage to our reputation. Regardless of the ultimate outcome, responding to those charges would divert management’s time and attention and could impair our operations . Further, we cannot predict whether legislative or regulatory changes may result from the ongoing public scrutiny of our industry, what the nature of any such changes might be, or what impact they may have on Perrigo. Any of these developments could have a material adverse impact on our business, results of operations, and reputation.

We are cooperating fully with the government’s investigation and are committed to operating its business in compliance with all applicable laws and regulations and the highest standards of ethical conduct. We do not condone, and will not countenance, any violation of these standards by our employees, agents, and business partners.

Publishing earnings guidance subjects us to risks, including increased stock volatility that could lead to potential lawsuits by investors.

Because we publish earnings guidance, we are subject to a number of risks. Actual results may vary from the guidance we provide investors from time to time, such that our stock price may decline following, among other things, any earnings release or guidance that does not meet market expectations. 

It has become increasingly commonplace for investors to file lawsuits against companies following a rapid decrease in market capitalization. We have been in the past, and may be in the future, named in these types of lawsuits. These types of lawsuits can be costly and divert management attention and other resources away from our business, regardless of their merits, and could result in adverse settlements or judgments.

Third-party patents and other intellectual property rights may limit our ability to bring new products to market and may subject us to potential legal liability, causing us to incur significant costs.

The manufacture, use and sale of new products that are the subject of conflicting patent rights have been the subject of substantial litigation in the pharmaceutical industry.

As a manufacturer of generic pharmaceutical products, the ability of our CHCA and RX segments to bring new products to market is often limited by third-party patents or proprietary rights and regulatory exclusivity periods awarded on products. Launching new products prior to resolution of intellectual property issues may result in us incurring legal liability if the related litigation is later resolved against us. The cost and time for us to develop prescription and Rx-to-OTC switch products is significantly greater than the rest of the new products that we introduce. Any failure to bring new products to market in a timely manner could cause us to lose market share, and our operating results could suffer.

We could have to defend against charges that we violated patents or proprietary rights of third parties. This could require us to incur substantial expense and could divert significant effort of our technical and

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Perrigo Company plc - Item 1A
Risk Factors

management personnel. If we are found to have infringed on the rights of others, we could lose our right to develop or manufacture some products or could be required to pay monetary damages or royalties to license proprietary rights from third parties. Additionally, if we choose to settle a dispute through licensing or similar arrangements, the costs associated with these arrangements may be substantial and could include ongoing royalties. An adverse determination in a judicial or administrative proceeding or failure to obtain necessary licenses could prevent us from manufacturing and selling a number of our products.
At times, our CHCA or RX segments may seek approval to market drug products before the expiration of patents for those products, based upon our belief that such patents are invalid, unenforceable or would not be infringed by our products. In these cases we may face significant patent litigation. Depending upon a complex analysis of a variety of legal and commercial factors, we may, in certain circumstances, elect to market a generic pharmaceutical product while litigation is pending, before any court decision, or while an appeal of a lower court decision is pending, known as an "at risk" launch. The risk involved in an "at risk" launch can be substantial because, if a patent holder ultimately prevails, the remedies available to the patent holder may include, among other things, damages measured by the profits lost by the holder, which are often significantly higher than the profits we make from selling the generic version of the product. By electing to proceed in this manner, we could face substantial damages if we receive an adverse final court decision. In the case where a patent holder is able to prove that our infringement was "willful" or "exceptional," under applicable law, the patent holder may be awarded up to three times the amount of its actual damages or we may be required to pay attorneys’ fees.
The success of certain of our products depends on the effectiveness of measures we take to protect our intellectual property rights and patents.
    
If we fail to adequately protect our intellectual property, competitors may manufacture and market similar products.

We have been issued patents covering certain of our products, and we have filed, and expect to continue to file, patent applications seeking to protect newly developed technologies and products in various countries. Any existing or future patents issued to or licensed by us may not provide us with any significant competitive advantages for our products or may even be challenged, invalidated, or circumvented by competitors. In addition, patent rights may not prevent our competitors from developing, using, or commercializing non-infringing products that are similar or functionally equivalent to our products.

We also rely on trade secrets, unpatented proprietary know-how, and continuing technological innovation that we seek to protect, in part by confidentiality agreements with licensees, suppliers, employees, and consultants. If these agreements are breached, we may not have adequate remedies for any such breach. Disputes may arise concerning the ownership of intellectual property or the applicability of confidentiality agreements. Furthermore, trade secrets and proprietary technology may otherwise become known or be independently developed by competitors or, if patents are not issued with respect to products arising from research, we may not be able to maintain the value of such intellectual property rights.

Significant increases in the cost or decreases in the availability of the insurance we maintain could adversely impact our financial condition.
To protect the Company against various potential liabilities, we maintain a variety of insurance programs, including property, general and product, and directors' and officers' liability. We may reevaluate and change the types and levels of insurance coverage that we purchase. We are self-insured when insurance is not available or not available at reasonable premiums. Risks associated with insurance plans include:
Insurance costs could increase significantly, or the availability of insurance may decrease, either of which could adversely impact our financial condition;
Deductible or retention amounts could increase or our coverage could be reduced in the future and to the extent losses occur, there could be an adverse effect on our financial results depending on the nature of the loss and the level of insurance coverage we maintained;

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Perrigo Company plc - Item 1A
Risk Factors

Product liability insurance may not be available to us at an economically reasonable cost (or at all for certain specific products) or our insurance may not adequately cover our liability in connection with product liability claims (see Item 8. Note 16 for further information related to legal proceedings); and
As our business inherently exposes us to claims for injuries allegedly resulting from the use of our products, we may become subject to claims for which we are not adequately insured. Unanticipated payment of a large claim may have a material adverse effect on our business.
Tax Related Risks

The U.S. Internal Revenue Service ("IRS") may not agree with the conclusion that we are treated as a foreign corporation for U.S. federal tax purposes.

Although we are incorporated in Ireland, the IRS may assert that we should be treated as a U.S. corporation (and, therefore, a U.S. tax resident) for U.S. federal tax purposes pursuant to section 7874 of the U.S. Internal Revenue Code of 1986, as amended ("Code"). For U.S. federal tax purposes, a corporation generally is considered a tax resident in the jurisdiction of its organization or incorporation. Because we are an Irish incorporated entity, we would generally be classified as a foreign corporation (and, therefore, a non-U.S. tax resident) under these rules. Section 7874 of the Code provides an exception under which a foreign incorporated entity may, in certain circumstances, be treated as a U.S. corporation for U.S. federal tax purposes.

For Perrigo Company plc to be treated as a foreign corporation for U.S. federal tax purposes under section 7874 of the Code, either (i) the former stockholders of Perrigo Company must own (within the meaning of section 7874 of the Code) less than 80% (by both vote and value) of our stock by reason of holding shares in Perrigo Company (the "ownership test") as of the closing of the Elan acquisition or (ii) we must have substantial business activities in Ireland after the Elan acquisition (taking into account the activities of our expanded affiliated group).

Upon our acquisition of Elan, Perrigo Company stockholders held 71% (by both vote and value) of our shares. As a result, we believe that under current law, we should be treated as a foreign corporation for U.S. federal tax purposes. However, we cannot assure that the IRS will agree with our position that the ownership test is satisfied. There is limited guidance regarding the section 7874 provisions, including the application of the ownership test.

Based on the limited guidance available, we currently expect that Section 7874 of the Code likely will limit our and our U.S. affiliates’ ability to use their U.S. tax attributes such as net operating losses to offset certain U.S. taxable income, if any, generated by the Elan acquisition or certain specified transactions for a period of time following the Elan acquisition.

Changes to tax laws could have a material adverse effect on our results of operations and the ability to utilize cash in a tax efficient manner.

We believe that under current law, we should be treated as a foreign corporation for U.S. federal tax purposes. However, any of the following could adversely affect our status as a foreign corporation for U.S. federal tax purposes:

Changes to the inversion rules in section 7874 of the Code, the IRS Treasury regulations promulgated thereunder, or other IRS guidance; and
Legislative proposals aimed at expanding the scope of U.S. corporate tax residence.


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Perrigo Company plc - Item 1A
Risk Factors

On April 4, 2016, the United States Treasury ("Treasury") and the IRS issued a package of temporary regulations that incorporate the guidance promised in the 2014 and 2015 notices and provide other rules. These temporary regulations are generally effective for certain inversion transactions completed on or after November 19, 2015 or, in certain cases, to certain specified post-inversion transactions occurring after that date provided that an inversion transaction had occurred on or after September 22, 2014. We do not believe that those regulations would apply to our transaction, which occurred prior to those effective dates. Treasury and the IRS also issued final regulations on June 3, 2015, which address the “substantial business activities” test of Section 7874 of the Code. We believe that those regulations, which have an effective date of June 4, 2015, also do not impact the treatment of our status as a foreign corporation under Section 7874, as our transaction also occurred prior to the effective date of those final regulations.

On October 16, 2016, Treasury released final regulations regarding corporate tax inversions and related earnings stripping. These final regulations include provisions that may be interpreted to impact otherwise common tax structures including intercompany financing and obligations. Although we continue to evaluate the impacts of the new regulations to our cross-border treasury management practices and intercompany financing structures, we have no assurance that these regulations will not impact our ability to utilize existing or similar structures in the future.

The Organization for Economic Co-operation and Development, which represents a coalition of member countries, has recommended changes to numerous long-standing tax principles relating to Base Erosion and Profit Shifting ("BEPS"). These changes are being adopted and implemented by many of the countries in which we do business and may increase our taxes in these countries. In addition, the European Commission has launched several initiatives to implement BEPS actions including an anti-tax avoidance directive and having a common (consolidated) corporate tax base. It is unclear at present if all or any of these initiatives will be implemented by the EU countries. Comprehensive U.S. tax reform has been stated to be a priority by the new U.S. Administration and the U.S. Congress. Changes in U.S. tax laws or their interpretation, if adopted, could significantly increase our consolidated effective tax rate and adversely affect our financial results particularly if the proposed border tax denying corporate tax relief on imports is introduced.

Any of these changes could have a prospective or retroactive application to us, our shareholders, and affiliates, and could adversely affect us by limiting our ability to utilize cash in a tax efficient manner.

Our effective tax rate may change in the future, which could adversely impact our future results from operations.

A number of factors may adversely impact our future effective tax rates, which may impact our future results from operations. These factors include, but are not limited to:

Income tax rate changes by governments;

The jurisdictions in which our profits are determined to be earned and taxed;

Changes in the valuation of our deferred tax assets and liabilities;

Adjustments to estimated taxes upon finalization of various tax returns;

Adjustments to our interpretation of transfer pricing standards, changes in available tax credits, grants and other incentives;

Changes in stock-based compensation expense; changes in tax laws or the interpretation of such tax laws (such as proposals for fundamental U.S. international tax reform);

Changes in U.S. generally accepted accounting principles;

Expiration or the inability to renew tax rulings or tax holiday incentives;

Divestitures of current operations; and

48

Perrigo Company plc - Item 1A
Risk Factors


Repatriation of non-U.S. earnings with respect to which we have not previously provided for U.S. taxes.

The resolution of uncertain tax positions could be unfavorable, which could have an adverse effect on our business.

Although we believe that our tax estimates are reasonable and that our tax filings are prepared in accordance with all applicable tax laws, the final determination with respect to any tax audit, and any related litigation, could be materially different from our estimates or from our historical income tax provisions and accruals. The results of an audit or litigation could have a material effect on operating results or cash flows in the periods for which that determination is made. In addition, future period earnings may be adversely impacted by litigation costs, settlements, penalties or interest assessments.

In the United States, the Internal Revenue Service ("IRS") audit of our fiscal years ended June 27, 2009 and June 26, 2010 had previously concluded with the issuance of a statutory notice of deficiency on August 27, 2014. While we had previously agreed on certain adjustments and made associated payments of $8.0 million (inclusive of interest) in November 2014, the statutory notice of deficiency asserted various additional adjustments, including transfer pricing adjustments. The statutory notice of deficiency's adjustments for fiscal years 2009 and 2010 asserted an incremental tax obligation of approximately $68.9 million, inclusive of interest and penalties. We disagree with the IRS’s positions asserted in the statutory notice of deficiency. To contest the IRS's adjustments, in January 2015 we paid the incremental tax obligation (a prerequisite to contesting the proposed adjustments in U.S. district court), and in June 2015, we filed an administrative request for a refund with the IRS. The IRS subsequently denied our request for a refund. We anticipate filing a complaint in U.S. district court claiming a refund of the paid amounts prior to August 2017. An unfavorable resolution of this matter could have a material impact on our consolidated financial statements in future periods.

The IRS issued a statutory notice of deficiency on April 20, 2017 for the IRS audits of our fiscal years ended June 25, 2011 and June 30, 2012. While we agreed to certain adjustments in October 2016 and made minimal associated payments, the statutory notice of deficiency asserted various additional adjustments, including transfer pricing adjustments. The statutory notice of deficiency for fiscal years 2011 and 2012 asserted an incremental tax obligation of approximately $74.2 million, inclusive of interest and penalties. We disagree with the IRS's positions asserted in this notice. In anticipation of contesting the IRS's adjustments, in May 2017 we paid the incremental tax obligation (a prerequisite to contesting the proposed adjustments in U.S. district court) and expect to file an administrative request for refund.

We received notices of proposed adjustments on December 22, 2016 for the IRS audit of Athena Neurosciences, Inc., a subsidiary of Elan Corporation plc, which Perrigo acquired in December 2013,
for the years ending December 31, 2011 and December 31, 2012. We disagree with the IRS’s positions asserted in the notices of proposed adjustments and intend to contest them. Additionally, examination of transfer pricing positions is ongoing.

There are numerous other income tax jurisdictions for which tax returns are not yet settled, none of which are individually significant. At this time, we cannot predict the outcome of any audit or related litigation.      Unfavorable resolutions of the audit matters discussed above could have a material impact on our consolidated financial statements in future periods.

Risks Related to Capital and Liquidity

Our historical failure to timely file our periodic reports with the SEC may limit our options in accessing the public markets to raise debt or equity capital, which in turn may limit our ability to pursue future transactions or strategies.

We did not timely file our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 or our Quarterly Report on Form 10-Q for the quarter ended April 1, 2017. Any failure by us to timely file one or more of our periodic reports or otherwise remain current in our SEC reporting requirements may inhibit our ability to access the public markets to raise capital. For example, we are not eligible to use Form S-3 until we are current in our SEC

49

Perrigo Company plc - Item 1A
Risk Factors

reporting requirements and we establish the required history of making timely filings for 12 full calendar months. The ability to use Form S-3 to register public offerings in the United States offers certain benefits, such as relatively lower costs and shorter timeframes to prepare a registration statement and cause it to become effective, which may enhance our ability to take advantage of positive market conditions as they develop. The limited availability of access to the public markets could increase the time and costs related to raising capital or prevent us from pursuing transactions or implementing future business strategies.

As described in our Current Report on Form 8-K filed on March 16, 2017, we entered into amendments the 2014 Revolver and the 2014 Term Loan providing for additional time to deliver certain financial statements, as well as the modification of certain financial and other covenants. Also, as described in our Current Report on Form 8-K filed on April 25, 2017, we entered into additional amendments to the 2014 Revolver and the 2014 Term Loan to modify provisions of such agreements necessary as a result of the correction in accounting related to the Tysabri® royalty stream, as well as waivers of any default or event of default that may arise from any restatement of or deficiencies in our financial statements for the periods specified in such amendments and waivers. No default or event of default existed prior to entering into these amendments and waivers under the 2013 Notes, 2014 Notes, or 2016 Notes. We are in compliance with all covenants under those Notes as of the date of this Annual Report on Form 10-K.

As a result of the filing of this Annual Report on Form 10-K, as of the filing date, we are in compliance with all covenants, including the financial statement delivery obligations, under the 2013 Indenture and 2014 Indenture. However, if we do not file the Quarterly Report on Form 10-Q for the quarterly period ended April 1, 2017 within 15 calendar days after the due date of such report, we would not be in compliance with the financial statement delivery obligations under such indentures. See Item 8. Note 10 for more information on all of the above debt facilities and transactions.

Our indebtedness could adversely affect our ability to implement our strategic initiatives.

We anticipate that cash, cash equivalents, cash flows from operations, and borrowings available under our credit facilities will substantially fund working capital and capital expenditures. Our business requires continuous capital investments, and there can be no assurance that financial capital will always be available on favorable terms or at all. Additionally, our leverage and debt service obligations could adversely affect the business. At December 31, 2016, our total indebtedness outstanding was $5.8 billion.

Our senior credit facilities, the agreements governing our senior notes, and agreements governing our other indebtedness contain a number of restrictions and covenants that limit our ability to make distributions or other payments to our investors and creditors unless certain financial tests or other criteria are satisfied.
We also must comply with certain specified financial ratios and tests. These restrictions could affect our ability to operate our business and may limit our ability to take advantage of potential business opportunities, such as acquisitions. If we do not comply with the covenants and restrictions contained in our senior credit facilities, agreements governing our senior notes, and agreements governing our other indebtedness, we could be in default under those agreements, and the debt, together with accrued interest, could then be declared immediately due and payable.

While we have announced our intention, consistent with our investment grade philosophy, to pay down a portion of our outstanding indebtedness during 2017 using the proceeds from our sale of the Tysabri® royalty stream and residual free cash flow, we cannot provide assurance that our debt pay down strategy will occur on the proposed time line, or at all, or that we will maintain our investment grade rating. Further, if our debt pay down strategy is delayed, we may be required to obtain further amendments or waivers of our financial covenants under our 2014 Revolver and 2014 Term Loan.

Any default under our senior credit facilities or agreements governing our senior notes or other indebtedness could lead to an acceleration of debt under other debt instruments that contain cross-acceleration or cross-default provisions. If our indebtedness is accelerated, there can be no assurance that we would be able to repay or refinance our debt or obtain sufficient new financing.


50

Perrigo Company plc - Item 1A
Risk Factors

Downgrades to our credit ratings may limit our access to capital and materially increase borrowing costs on current or future financing, including via trade payables with vendors. Customers' inclination to purchase goods from us may also be affected by the publicity associated with deterioration of our credit ratings.

There are various maturity dates associated with our credit facilities, senior notes, and other debt facilities. There is no assurance that cash, future borrowings or equity financing will be available for the payment or refinancing of our indebtedness. Further, there is no assurance that future refinancing or renegotiation of our senior credit facilities, senior notes or other debt facilities, or additional agreements will not have materially different or more stringent terms. See Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

We cannot guarantee that we will buy back our ordinary shares pursuant to our announced share repurchase plan or that our share repurchase plan will enhance long-term shareholder value.
On October 22, 2015, our Board of Directors authorized a $2.0 billion share repurchase plan. During the three months ended December 31, 2015, we repurchased shares through the plan totaling $500.0 million. During 2016, we did not purchase any shares in the open market. The remaining $1.5 billion in authorized repurchases may extend through the year ended December 31, 2018. The specific timing and amount of buybacks, if any, will depend upon several factors, including market and business conditions, the trading price of our ordinary shares, and the nature of other investment opportunities. Buybacks of our ordinary shares pursuant to our share repurchase plan could affect the market price of our ordinary shares or increase their volatility. Additionally, our share repurchase plan could diminish our cash reserves, which may impact our ability to finance future growth and to pursue possible future strategic opportunities and acquisitions. Although our share repurchase plan is intended to enhance long-term shareholder value, there is no assurance that it will do so, and short-term share price fluctuations could reduce the plan’s effectiveness.
Any additional shares we may issue could dilute your ownership in the Company.

Under Irish law, our authorized share capital can be increased by an ordinary resolution of our shareholders, and the directors may issue new ordinary or preferred shares up to a maximum amount equal to the authorized but unissued share capital, without shareholder approval, once authorized to do so by the articles of association or by an ordinary resolution of our shareholders.

Subject to specified exceptions, Irish law grants statutory preemption rights to existing shareholders to subscribe for new issuances of shares for cash, but allows shareholders to authorize the waiver of the statutory preemption rights by way of special resolution with respect to any particular allotment of shares.

Our articles of association contain, as permitted by Irish company law, a provision authorizing the board to issue new shares for cash without offering preemption rights. The authorization of the directors to issue shares and the authorization of the waiver of the statutory preemption rights must both be renewed by the shareholders at least every five years, and we cannot provide any assurance that these authorizations will always be approved, which could limit our ability to issue equity and thereby adversely affect the holders of our securities.

We are incorporated in Ireland; Irish law differs from the laws in effect in the United States and may afford less protection to, or otherwise adversely affect, our shareholders.
        
As an Irish company, we are governed by the Irish Companies Act 2014 (the "Act"). The Act differs in some material respects from laws generally applicable to U.S. corporations and shareholders, including the provisions relating to interested directors, mergers, amalgamations and acquisitions, takeovers, shareholder lawsuits, and indemnification of directors.

Under Irish law, the duties of directors and officers of a company are generally owed to the company only. As a result, shareholders of Irish companies do not have the right to bring an action against the directors or officers of a company, except in limited circumstances.


51

Perrigo Company plc - Item 1A
Risk Factors

Depending on the circumstances, shareholders may be subject to different or additional tax consequences under Irish law as a result of the acquisition, ownership and/or disposition of ordinary shares, including, but not limited to, Irish stamp duty, dividend withholding tax, and capital acquisitions tax.

There is no treaty between Ireland and the U.S. providing for the reciprocal enforcement of foreign judgments. Before a foreign judgment would be deemed enforceable in Ireland, the judgment must be provided by a court of competent jurisdiction and be for a final and conclusive sum. An Irish court may exercise its right to refuse to recognize and enforce a foreign judgment if the foreign judgment was obtained by fraud, if it violated Irish public policy, if it is in breach of natural justice, or if it is irreconcilable with an earlier judgment.

An Irish court may stay proceedings if concurrent proceedings are being brought elsewhere. Judgments of U.S. courts of liabilities predicated upon U.S. federal securities laws may not be enforced by Irish courts if deemed to be contrary to public policy in Ireland.

We are subject to Irish takeover rules under which our Board of Directors is not permitted to take any action without Irish Takeover Panel approval that might frustrate an offer for our ordinary shares once we have received an approach that may lead to an offer, or have reason to believe an offer is imminent. Further, it could be more difficult for us to obtain shareholder approval for a merger or negotiated transaction than if we were a U.S. company because the shareholder approval requirements for certain types of transactions differ, and in some cases are greater, under Irish law.

We may be limited in our ability to pay dividends in the future.

A number of factors may limit our ability to pay dividends in the future, including:

The availability of distributable reserves, as approved by our shareholders and the Irish High Court;

Our ability to receive cash dividends and distributions from our subsidiaries;

Compliance with applicable laws and debt covenants; and

Our financial condition, results of operations, capital requirements, general business conditions, and other factors that our Board of Directors may deem relevant.

ITEM 1B.
UNRESOLVED STAFF COMMENTS

Not applicable.


52

Perrigo Company plc - Item 2


ITEM 2.
PROPERTIES
Our world headquarters is located in Dublin, Ireland, and our North American base of operations is located in Allegan, Michigan. We manufacture products at 30 worldwide locations and have R&D, logistics, and office support facilities in many of the regions in which we operate. We own approximately 75% of our facilities and lease the remainder. Our primary facilities by geographic area were as follows at December 31, 2016:
Country
 
Number of Facilities
 
Segment(s) Supported
 
Ireland
 
1
 
CHCA, CHCI, RX, Specialty Sciences
United States
 
46
 
CHCA, RX, Other
Mexico
 
12
 
CHCA
United Kingdom
 
7
 
CHCI
India
 
7
 
Other
France
 
6
 
CHCI
Belgium
 
5
 
CHCI
Australia
 
4
 
CHCI
Israel
 
3
 
CHCA, CHCI, RX, Other
Austria
 
3
 
CHCI
Germany
 
2
 
CHCI
Switzerland
 
2
 
CHCI
Italy
 
2
 
CHCI
Portugal
 
1
 
CHCI
Russia
 
1
 
CHCI

We believe that our production facilities are adequate to support the business, and our property and equipment are well maintained. Our manufacturing plants are suitable for their intended purposes and have capacities for current and projected needs of our existing products.

ITEM 3.
LEGAL PROCEEDINGS

Additional information regarding our current legal proceedings is presented in Item 8. Note 16.

ITEM 4.
MINE SAFETY DISCLOSURES

Not applicable.


53

Perrigo Company plc - Additional Item
Executive Officers


ADDITIONAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT

Our executive officers and their ages and positions as of May 19, 2017 were: 

 
 
Title and Business Experience
 
Age
Svend Andersen
 
Mr. Andersen was named Executive Vice President and President, Consumer Healthcare International in February 2017. Prior to joining Perrigo, Mr. Andersen served as Executive Vice President – Europe for LEO-Pharma. Prior to that, he led Hospira, Inc.’s Europe, Middle East and Africa (“EMEA”) business, was responsible for the Western European division’s pharmaceuticals, generics, OTC and hospital products businesses at Actavis, and also led Alpharma’s EMEA businesses prior to its acquisition by Actavis.
 
55
Thomas M. Farrington
 
Mr. Farrington was named Executive Vice President and Chief Information Officer in November 2015. He formerly served as Senior Vice President and Chief Information Officer from October 2006 to November 2015.
 
59
John T. Hendrickson
 
Mr. Hendrickson was appointed Chief Executive Officer in April 2016 and to the Board of Directors in June 2016. He served as President from October 2015 until April 2016. He was formerly Executive Vice President, Global Operations & Supply Chain of Perrigo Company from March 2007 to October 2015; Executive Vice President and General Manager of Perrigo Consumer Healthcare from 2003 to 2007; Executive Vice President – Operations from 1999 to 2003; Vice President of Manufacturing from 1996 to 1999; Vice President of Customer Service from 1995 to 1996; Director of Engineering from 1993 to 1995; and Process Engineering Manager from 1989 to 1993.
 
54
Ronald Janish
 
Mr. Janish was named Executive Vice President of Global Operations and Supply Chain in October 2015. He served as Senior Vice President of International and Rx Operations from 2012 until 2015 and as Managing Director of Perrigo’s Australian operations from 2010 to 2012. Previously, he held Senior Vice President roles for Perrigo in International Market Development, China Business Development and Global Procurement.
 
51
Todd W. Kingma
 
Mr. Kingma was named Executive Vice President, General Counsel and Secretary in May 2006. He served as Vice President, General Counsel and Secretary from August 2003 to May 2006.
 
57
Sharon Kochan
 
Mr. Kochan was named Executive Vice President and General Manager, Consumer Healthcare International in August 2012. He served as Executive Vice President, General Manager of Prescription Pharmaceuticals from March 2007 to July 2012 and as Senior Vice President of Business Development and Strategy from March 2005 to March 2007. Mr. Kochan was Vice President, Business Development of Agis Industries (1983) Ltd. from July 2001 until the acquisition of Agis by the Company in March 2005.
 
48
James R. Michaud
 
Mr. Michaud was named Executive Vice President, Chief Human Resources Officer in August 2016. Immediately prior to joining Perrigo, Mr. Michaud was President of Human Resources Strategies, a consulting company focused on providing business based human resource strategies to a wide variety of companies in multiple industries. His corporate career spanned senior human resource roles in Alcoa, Arcelor Mittal Steel, and most recently, Cliffs Natural Resources, where he served as Executive Vice President, Chief Human Resources Officer from 2010 to 2014.
 
61
Jeffrey R. Needham
 
Mr. Needham was named Executive Vice President, General Manager of Consumer Healthcare Americas in October 2009. He served as Senior Vice President of Commercial Business Development for Consumer Healthcare from March 2005 through October 2009. Previously, he served as Senior Vice President of International from November 2004 to March 2005. He served as Managing Director of Perrigo’s U.K. operations from May 2002 to November 2004 and as Vice President of Marketing from 1993 to 2002.
 
60
Grainne Quinn
 
Ms. Quinn was named Executive Vice President in July 2016 and has served as Chief Medical Officer since November 2015. Prior to that she served as Vice President and Head of Global Patient Safety from January 2014 until November 2015.  Dr. Quinn was Vice President and Head of Global Pharmacovigilance and Risk Management for Elan from April 2009 until December 2013 when the Company acquired Elan.
 
47
Paul Weninger
 
Mr. Weninger was named Executive Vice President of Global Quality Operations in December 2015. He served as Senior Vice President, U.S. Quality Operations from 2013 to 2015; Vice President, Consumer Healthcare and Rx Quality Operations, U.S. and Asia Pacific from 2010 to 2013; Vice President, Global CHC Quality Operations from 2007 to 2010.
 
53
John Wesolowski
 
Mr. Wesolowski was named Executive Vice President, President RX in November 2016. He previously was named as Acting General Manager, RX, in July 2016 and served in that capacity until November 2016. Previously, he served as Senior Vice President of RX Commercial Operations, from 2013 until July 2016. Mr. Wesolowski joined Perrigo in February 2004 as the Vice President, RX Sales and Marketing and was subsequently promoted to the Senior Vice President of RX Sales and Marketing in 2012.
 
49
Ronald L. Winowiecki
 
Mr. Winowiecki was appointed Acting CFO in February 2017. He served as Senior Vice President of Business Finance at Perrigo since January 2014. Before serving as SVP, Mr. Winowiecki was Perrigo’s Vice President for Treasury and Accounting Shared Services from September 2011 to December 2013 and the company’s Corporate Vice President Treasurer from October 2008 to August 2011.
 
50

54

Perrigo Company plc - Item 5


PART II.
 
ITEM 5.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

On and prior to December 18, 2013, our common stock consisted of shares of Perrigo Company, a Michigan Corporation, and since December 19, 2013, our common equity consists of ordinary shares of Perrigo Company plc, incorporated under the laws of Ireland.
    
Prior to June 6, 2013, our common equity traded on the NASDAQ Global Select Market ("NASDAQ") under the symbol PRGO. Since June 6, 2013, our common equity has traded on the New York Stock Exchange ("NYSE") under the symbol PRGO. In association with the acquisition of Agis Industries (1983) Ltd., our common equity has been trading on the Tel Aviv Stock Exchange ("TASE") since March 16, 2005. As of May 19, 2017, there were 2,162 record holders of our ordinary shares.

Set forth below are the high and low sale prices for our ordinary shares by the NYSE for the periods indicated:
 
Year Ended
 
Six Months Ended
 
Year Ended
 
December 31, 2016
 
December 31, 2015
 
June 27, 2015
 
High
 
Low
 
High
 
Low
 
High
 
Low
First quarter
$
152.36

 
$
122.62

 
$
198.42

 
$
158.35

 
$
160.65

 
$
135.00

Second quarter
$
133.53

 
$
84.85

 
$
167.92

 
$
140.40

 
$
171.57

 
$
142.38

Third quarter
$
99.14

 
$
82.50

 
N/A

 
N/A

 
$
174.65

 
$
147.21

Fourth quarter
$
97.17

 
$
79.72

 
N/A

 
N/A

 
$
205.72

 
$
161.86


The graph below shows a comparison of our cumulative total return with the cumulative total returns for the S&P 500 Index and the S&P Pharmaceuticals Index. The graph assumes an investment of $100 at the beginning of the period and the reinvestment of any dividends. Information in the graph is presented for the years ended December 31, 2011 through December 31, 2016.

55

Perrigo Company plc - Item 5



 COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG PERRIGO COMPANY PLC**, THE S&P 500 INDEX, AND THE S&P PHARMACEUTICALS INDEX
cy16q410k_chart-12961.jpg
 
12/31/2011
12/31/2012
12/31/2013
12/31/2014
12/31/2015
12/31/2016
Perrigo Company plc
$100.00
$107.25
$158.67
$173.32
$150.48
$87.07
S&P 500
$100.00
$116.00
$153.58
$174.60
$177.01
$198.18
S&P Pharmaceuticals
$100.00
$114.43
$154.74
$189.12
$200.06
$196.93

*
$100 invested on December 31, 2011 in stock or index - including reinvestment of dividends. Indexes calculated on month-end basis.
**
Perrigo Company prior to December 18, 2013. Perrigo Company plc beginning December 18, 2013.

In January 2003, the Board of Directors adopted a policy of paying quarterly dividends. The declaration and payment of dividends and the amount paid, if any, are subject to the discretion of the Board of Directors and depend on our earnings, financial condition, capital and surplus requirements and other factors the Board of Directors may consider relevant. See Item 8. Note 11 for additional information on dividends paid.

On October 22, 2015, the Board of Directors approved a share repurchase plan of up to $2.0 billion. During the six months ended December 31, 2015, we repurchased 3.3 million ordinary shares at an average repurchase price of $151.59 per share, for a total of $500.0 million. We did not repurchase any shares under the share repurchase plan during the year ended December 31, 2016.



56

Perrigo Company plc - Item 6


ITEM 6.
SELECTED FINANCIAL DATA

The Consolidated Statements of Operations data set forth below with respect to the fiscal year ended December 31, 2016, the six months ended December 31, 2015, and the years ended June 27, 2015 and June 28, 2014, and the Consolidated Balance Sheet data at December 31, 2016, December 31, 2015 and June 27, 2015 set forth below, are derived from and are qualified by reference to the audited consolidated financial statements included in Item 8 of this Annual Report on Form 10-K and should be read in conjunction with those financial statements and notes. The Consolidated Statements of Operations data set forth below with respect to the six months ended December 31, 2015 and December 27, 2014, and the years ended June 27, 2015 and June 28, 2014, and the Consolidated Balance Sheet data at December 31, 2015, December 27, 2014, June 27, 2015 and June 28, 2014 have been restated as set forth in this Annual Report on Form 10-K for the year ended December 31, 2016. The Consolidated Statement of Operations set forth below with respect to the six months ended December 27, 2014 and the fiscal years ended June 29, 2013 and June 30, 2012, and the Consolidated Balance Sheet data at December 27, 2014, June 28, 2014, June 29, 2013 and June 30, 2012 are derived from audited consolidated financial statements not included in this Annual Report on Form 10-K. The information set forth below is not necessarily indicative of results of future operations, and should be read in conjunction with Item 7 and Item 8 to fully understand factors that may affect the comparability of the information presented below. For additional information on the restatement, refer to Item 8. Note 1.
 
Year Ended
 
Six Months Ended
 
Year Ended
 
December 31, 2016(1)
 
December 31, 2015(2)
 
December 27, 2014(3)
 
June 27, 2015(4)
 
June 28, 2014(5)
 
June 29, 2013(6)
 
June 30, 2012(7)
(in millions, except per share amounts)
 
Restated
 
Restated
 
Restated
 
Restated
 
 
Statements of Operations Data
 
 
 
 
 
 
 
 
 
 
 
 
 
Net sales
$
5,280.6

 
$
2,632.2

 
$
1,844.7

 
$
4,227.1

 
$
3,914.1

 
$
3,539.8

 
$
3,173.2

Cost of sales
3,228.8

 
1,553.3

 
1,170.9

 
2,582.9

 
2,462.0

 
2,259.8

 
2,077.7

Gross profit
2,051.8

 
1,078.9

 
673.8

 
1,644.2

 
1,452.1

 
1,280.0

 
1,095.6

Operating expenses
4,051.5

 
1,011.3

 
384.1

 
971.7

 
880.7

 
600.9

 
526.4

Operating income (loss)
$
(1,999.7
)
 
$
67.6

 
$
289.7

 
$
672.5

 
$
571.4

 
$
679.1

 
$
569.2

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
$
(4,012.8
)
 
$
42.5

 
$
180.6

 
$
136.1

 
$
232.8

 
$
441.9

 
$
401.6

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Diluted income from continuing operations per share
$
(28.01
)
 
$
0.29

 
$
1.34

 
$
0.97

 
$
2.01

 
$
4.68

 
$
4.18

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Dividends declared per share
$
0.58

 
$
0.25

 
$
0.21

 
$
0.46

 
$
0.39

 
$
0.35

 
$
0.31


(1) 
Includes the results of operations for assets acquired from Barr Laboratories, Inc. and assets acquired from Matawan Pharmaceuticals, LLC for the five months and eleven months and one week ended December 31, 2016, respectively.
(2) 
Includes the results of operations of Naturwohl and the GSK, ScarAway®, and Entocort® asset acquisitions for the two and a half months, three months, three months, and two weeks ended December 31, 2015, respectively.
(3) 
Includes the results of operations for assets acquired from Lumara Health, Inc. for the two months ended December 27, 2014.
(4) 
Includes the results of operations for assets acquired from Lumara Health, Inc. and the results of operations of Omega Pharma Invest N.V. and Gelcaps Exportadora de Mexico, S.A. de C.V. for the eight, three, and two months ended June 27, 2015, respectively.
(5) 
Includes the results of operations for Elan Corporation, plc and results of operations for assets acquired from Fera Pharmaceuticals, LLC (Methazolomide) and Aspen Global Inc. for the six, five and four months ended June 28, 2014, respectively.
(6) 
Includes the results of operations for assets acquired from Fera Pharmaceuticals, LLC, and results of operations for Velcera, Inc., Rosemont Pharmaceuticals Ltd., Cobrek Pharmaceuticals, Inc., and Sergeant's Pet Care Products, Inc. for the two weeks, and three, five, six and nine months ended June 29, 2013, respectively.
(7) 
Includes the results of operations for Paddock Laboratories,Inc. and CanAm Care, LLC for the eleven and six months ended June 30, 2012, respectively.

57

Perrigo Company plc - Item 6


 
December 31, 2016
 
December 31, 2015
 
December 27, 2014
 
June 27,
2015
 
June 28, 2014(1)
 
June 29, 2013(1)
 
June 30, 2012(1)
(in millions)
 
Restated
 
Restated
 
Restated
 
Restated
 
 
Balance Sheet Data
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
622.3

 
$
417.8

 
$
3,596.1

 
$
785.6

 
$
799.5

 
$
779.9

 
$
602.5

Total assets
13,870.1

 
19,349.6

 
16,508.4

 
19,591.9

 
13,879.1

 
5,336.9

 
4,013.6

Long-term debt, less current portion
5,224.5

 
4,971.6

 
4,439.4

 
5,246.9

 
3,063.1

 
1,927.8

 
1,329.2

(1) 
Financial data has been retrospectively adjusted for the change in accounting policy to reclassify deferred financing fees from Other non-current assets to Long-term debt.


58

Perrigo Company plc - Item 7
Executive Overview


ITEM 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management's Discussion and Analysis ("MD&A") is intended to provide readers with an understanding of our financial condition, results of operations, and cash flows by focusing on changes in certain key measures from year to year. This MD&A is provided as a supplement to, and should be read in conjunction with, our Consolidated Financial Statements and accompanying Notes found in Item 8 of this report. See also "Cautionary Note Regarding Forward-Looking Statements."

EXECUTIVE OVERVIEW

Perrigo Company plc was incorporated under the laws of Ireland on June 28, 2013. We became the successor registrant to Perrigo Company, a Michigan corporation, on December 18, 2013 in connection with the acquisition of Elan Corporation, plc ("Elan"), which is discussed further in Item 8. Note 2. Unless the context requires otherwise, the terms "Perrigo", the "Company", "we," "our," "us," and similar pronouns used herein refer to Perrigo Company plc, its subsidiaries, and all predecessors of Perrigo Company plc and its subsidiaries.

We are a leading global over-the-counter ("OTC") consumer goods and pharmaceutical company, offering patients and customers high quality products at affordable prices. From our beginning in 1887 as a packager of home remedies, we have grown to become the world's largest manufacturer of OTC healthcare products and supplier of infant formulas for the store brand market. We are also a leading provider of generic standard topical products such as creams, lotions, and gels, as well as inhalants and injections ("extended topical") prescription products in the U.S. We also received royalties from sales of the multiple sclerosis drug Tysabri® but divested our rights to those royalties in March 2017. We provide “Quality Affordable Healthcare Products®” across a wide variety of product categories and geographies, primarily in North America, Europe, and Australia, as well as in other markets, including Israel, and China.

Our fiscal year previously consisted of a 52- or 53-week year ending on or around June 30 of each year with each quarter ending on the Saturday closest to each calendar quarter end. Beginning on January 1, 2016, we changed our fiscal year to begin on January 1 and end on December 31 of each year. As a result of our change in year end, this Annual Report on Form 10-K discloses the results of our operations for the twelve-month period from January 1, 2016 through December 31, 2016. The six months ended December 31, 2015 reflects our financial results from June 28, 2015 through December 31, 2015, and the six months ended December 27, 2014 reflects our financial results from June 29, 2014 through December 27, 2014. The year ended June 27, 2015 reflects our financial results for the twelve-month period from June 29, 2014 to June 27, 2015, and the year ended June 28, 2014 reflects our financial results for the twelve-month period from June 30, 2013 to June 28, 2014. Calendar-year data for 2015 was derived from our audited results for the six-month period ended December 31, 2015 and unaudited results for the fiscal quarters ended March 28, 2015 and June 27, 2015. We cut off our quarterly accounting periods on the Saturday closest to the end of the calendar quarter, with the fourth quarter ending on December 31 of each year.

Our Segments

In the fourth quarter of 2016, we changed our reporting segments to better align with our new organizational structure. These organizational changes were made to optimize our structure to better serve our customers and to reflect the way in which our chief operating decision maker reviews our operating results and allocates resources. The changes in our reporting segments are as follows:

Consumer Healthcare Americas ("CHCA"), comprises our U.S., Mexico and Canada consumer healthcare business (OTC, contract, infant formula and animal health categories).
Consumer Healthcare International ("CHCI"), comprises our legacy Branded Consumer Healthcare segment and now includes our consumer focused businesses in the U.K., Australia, and Israel, which were previously reported in the legacy Consumer Healthcare segment. This segment includes our U.K. liquid licensed products business, which was previously reported in the Prescription Pharmaceuticals segment.
Prescription Pharmaceuticals ("RX"), comprises our U.S. Prescription Pharmaceuticals business.
Specialty Sciences, continued to comprise the Tysabri® Royalty Stream.

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Perrigo Company plc - Item 7
Executive Overview



We also have an "Other" reporting segment that will continue to comprise our legacy Active Pharmaceutical Ingredients ("API") business, which does not meet the quantitative threshold required to be a separately reportable segment. Financial information related to our business segments and geographic locations can be found in Item 8. Note 19.

      For information on each segment, refer to Item 1. Business - Our Segments. For results by segment see below "Segment Results" and Item 8. Note 19. See Item 1. Business for information on our business environment and competitive landscape.

Restatement

In connection with our year-end financial statement close and preparation of our Form 10-K for 2016, we identified misstatements in our historical financial statements, including for the nine months ended October 1, 2016, six months ended December 31, 2015, and the years ended June 27, 2015 and June 28, 2014 (the "Restated Periods"). Accordingly, we have restated the consolidated financial statements for the Restated Periods (and certain financial statements for interim periods within the Restated Periods) to reflect the correction of the misstatements, the most significant of which are described below. The segments predominantly affected by this restatement are Specialty Sciences and CHCI. Refer to Item 8. Note 10 of the Consolidated financial statements for additional information on how this restatement affects our debt covenants.

During the 2016 year-end financial statement close process, and in anticipation of our potential sale of our royalty rights, we evaluated the potential effects of the Tysabri® royalty stream sale accounting and the accounting and disclosures associated with the pending 2018 adoption of ASC 606 “Revenues from Contracts with Customers.” After an extensive evaluation of the facts and circumstances and the judgments required to determine the appropriate classification, it was determined that under existing U.S. GAAP the contingent payments from Elan's May 2013 sale of Tysabri® to Biogen (the "Tysabri® royalty stream") should have been recorded as a financial asset, rather than an intangible asset, on the date of our acquisition of Elan.

Our Tysabri® royalty stream is now accounted for in our consolidated financial statements for 2016 and prior restated periods as a financial asset using the fair value option. We made the election to account for the Tysabri® financial asset using the fair value option as we believe this method is most appropriate for an asset that does not have a par value, a stated interest stream, or a termination date. Accounting for the Tysabri® royalty stream as a financial asset required us to adjust our financial statements for the Restated Periods to (1) remove the Tysabri® royalty stream from net sales in our Consolidated Statements of Operations, (2) remove the amortization expense (reflected in cost of goods sold) associated with recording the Tysabri® royalty stream as an intangible asset, and (3) include the quarterly changes in fair value of the Tysabri® royalty stream as a component of other non-operating income/expense. The cash payments we received from the royalty stream are included in our Consolidated Statements of Cash Flows for the Restated Periods and reflect the cash received from the Tysabri® royalty stream as cash from investing activities, rather than as cash from operating activities.

In addition, in connection with the financial closing for the year ended December 31, 2016, we identified certain tax basis intangible assets that existed at the time of the acquisition of Omega Pharma Invest N.V. (“Omega”) on March 30, 2015, which reduced the deferred tax liabilities in acquired intangible assets and increased our valuation allowance resulting in a net change to our deferred taxes of approximately $236.3 million. The resulting balance sheet reclassification required a reduction of goodwill, offset by a corresponding reduction to net deferred taxes at the date of the Omega acquisition. Further, we have evaluated the accounting effect subsequent to the acquisition date related to the remeasured deferred tax liability, including the impairments of Omega goodwill recorded in 2016 and certain adjustments to valuation allowances, which have been reflected in the Restated Periods.

In restating our financial statements to correct the misstatements discussed above, we are also making adjustments for previously identified required corrections with respect to the Restated Periods. When these financial statements were originally issued, we assessed the impact of these unrecorded adjustments and concluded that they were not material individually or in the aggregate to our consolidated financial statements. The Consolidated Statement of Shareholders' Equity was corrected for a $36.9 million increase in net income, $8.1 million increase in net income, and $27.5 million increase in net income for the six months ended December 31, 2015 and for the

60

Perrigo Company plc - Item 7
Executive Overview


years ended June 27, 2015 and June 28, 2014, respectively. There was no effect on the beginning balance of Shareholders' Equity at June 29, 2013 as a result of this restatement.

All of the financial information presented in this Item 7 has been revised to reflect the restatement more fully described in Item 8. Note 1 to the Consolidated Financial Statements.

Strategy

Our strategy is to deliver Quality Affordable Healthcare Products® by leveraging our global infrastructure to expand our product offerings, thereby providing new innovative products and product line extensions to existing consumers and servicing new healthcare consumers through entry into adjacent or new markets. We accomplish this strategy by investing in and continually improving all aspects of our five strategic pillars:

High quality;
Superior customer service;
Leading innovation;
Best cost; and
Empowered people.

We utilize shared services and Research and Development ("R&D") centers of excellence in order to help ensure consistency in our processes around the world, and to maintain focus on our five strategic pillars.
    
We have grown rapidly in recent years through a combination of organic growth and targeted acquisitions. We continually reinvest in our R&D pipeline and work with partners as necessary to strive to be first-to-market with new products. Our organic growth has been and will continue to be driven by successful new product launches in the CHCA, CHCI, and RX segments. Over time, we expect to continue to grow inorganically through expansion into adjacent products, product categories, and channels, as well as potentially through entry into new geographic markets. We evaluate potential acquisition targets using a return on invested capital ("ROIC") metric.

Competitive Advantage

We believe our consumer facing business model is best-in-class in that it combines the required competencies of a fast-moving consumer goods company and a pharmaceutical manufacturing company, with the supply chain breadth necessary to support customers in the markets we serve. The durable business model competencies align with our five strategic pillars and provide us a competitive advantage in the marketplace. We fully integrate quality in our operational systems across all products. Our ability to manage our supply chain complexity across multiple dosage forms, formulations, and stock-keeping units, as well as acquisitions, integration, and hundreds of global partners provides value to our customers. Product development and life cycle management are at the core of our operational investments. Globally we have 30 plants that are all in good regulatory compliance standing and have systems and structures in place to guide our continued success. Our leadership team is fully engaged in aligning all our metrics and objectives around sustainable compliance with industry associations and regulatory agencies.

Among other things, we believe the following give us a competitive advantage and provide value to our customers:

Leadership in first-to-market product development and product life cycle management;
Turn-key regulatory, and promotional capabilities;
Management of supply chain complexity and utilizing economies of scale;
Quality and cost effectiveness throughout the supply chain creating a sustainable, low-cost network; and
Expansive pan-European commercial infrastructure, brand-building capabilities, and diverse product portfolio.


61

Perrigo Company plc - Item 7
Executive Overview


Highlights

Year Ended December 31, 2016

Consistent with previously announced actions, we added a number of positions and processes to our Dublin headquarters across a range of corporate functions, including supply chain/global operations, procurement, enterprise risk management, and corporate finance, leveraging the strength of our global platform.

We repaid $500.0 million outstanding under our 1.300% Senior Notes due 2016 ("1.300% 2016 Notes") on September 29, 2016.

We completed the sale of our U.S. Vitamins, Minerals, and Supplements ("VMS") business to International Vitamins Corporation ("IVC") on August 5, 2016.

Six Months Ended December 31, 2015

On November 13, 2015, our shareholders rejected an unsolicited tender offer from Mylan N.V. ("Mylan"). During the six months ended December 31, 2015, the total cost to effectively defend against Mylan was $86.9 million, which was recorded in Administration expense.

We expanded our product offerings through targeted acquisitions including:

The announced acquisition of a portfolio of generic dosage forms and strengths of Retin-A® (tretinoin), a topical prescription acne treatment, from Matawan Pharmaceuticals, LLC, which closed in January 2016 and will expand our "prescription only" ("Rx") portfolio.

The acquisition of Crohn's disease treatment Entocort® (budesonide) capsules and its authorized generic (for sale within the U.S.), from AstraZeneca plc, which expanded our Rx portfolio.

The acquisition of Naturwohl Pharma GmbH ("Naturwohl"), a nutritional business known for its leading German dietary supplement brand, Yokebe®, and the acquisition of a portfolio of well-established OTC brands, such as Niquitin® and Coldrex®, from GlaxoSmithKline Consumer Healthcare (“GSK”). Both of these acquisitions built upon the global platform we established through the Omega Pharma Invest N.V. ("Omega") acquisition, leveraging our European market share and expanding our product offerings.

The ScarAway® brand portfolio acquisition, which served as our entry into the branded OTC business in the U.S.

We launched a number of new products across our segments with sales totaling $231.1 million for the six months ended December 31, 2015.

We repurchased $500.0 million shares as part of our authorized share repurchase plan.

We executed initiatives designed to increase operational efficiency and improve our return on invested capital by globalizing our supply chain through global shared service arrangements, streamlining our organizational structure, and disposing of certain assets. During the six months ended December 31, 2015, restructuring charges totaled $26.9 million.

Year Ended June 27, 2015

We realized growth in the following areas:

Total net sales of $4.2 billion due primarily to current year acquisitions and new products;
Gross profit percentage of 38.9%; and
Operating cash flows of $855.2 million.


62

Perrigo Company plc - Item 7
Executive Overview


We significantly expanded our geographic footprint and product portfolio through the acquisition of Omega, one of Europe's largest healthcare companies, which closed on March 30, 2015.

The Omega acquisition provided us with a significantly larger product portfolio, broadened our global reach through access to 34 new countries, and enhanced our scale.

We expanded our product offerings through targeted acquisitions including:

The Lumara Health Inc. ("Lumara") product acquisition, which expanded our women's health offerings within our RX segment; and

Patheon Inc.'s Mexican operations, Gelcaps Exportadora de Mexico, S.A. de C.V., ("Gelcaps"), which provided us with gelcap manufacturing capabilities and expanded our presence in the Mexican OTC market.

Year Ended June 28, 2014

We established a differentiated platform for international expansion through the Elan acquisition.

The Elan acquisition led to the creation of our new parent company, Perrigo Company plc, incorporated under the laws of Ireland. Our new corporate structure has allowed us to continue to grow in core markets and further expand outside of the U.S. with the parent company serving as a global business hub and providing the scale and resources to drive our strategic initiatives and investments.

The acquisition also provided us with our Tysabri® royalty stream, enhancing our cash flows. See Item 1. Business - Specialty Sciences for more information on Tysabri®.

We increased our presence in the Australian market through the acquisition of a basket of OTC products from Aspen Global Inc. ("Aspen").

We further developed our ophthalmic capabilities with the acquisition of Methazolomide from Fera Pharmaceuticals, LLC ("Fera").

See Item 8. Note 2 for more information on all of the above-mentioned acquisitions.

Leadership Changes

On April 24, 2016, we named Laurie Brlas as Chairman of the Board of Directors, promoted John T. Hendrickson from President to Chief Executive Officer, and accepted the resignation of Joseph C. Papa as Chairman and Chief Executive Officer.

On April 27, 2016, Sharon Kochan's role as Executive Vice President and General Manager, International, was expanded to lead the CHCI segment following the resignation of Marc Coucke as Executive Vice President and General Manager of the CHCI segment.

On August 29, 2016, Jim Michaud joined the Company as Executive Vice President, Chief Human Resources Officer.

On November 8, 2016, we appointed John Wesolowski the Executive Vice President, President, RX. Mr. Wesolowski served as Acting General Manager, RX following the resignation of Doug Boothe on July 20, 2016.

On November 10, 2016, we announced the appointment of Geoffrey M. Parker and Theodore R. Samuels to our Board of Directors. Geoffrey M. Parker's joined the board on November 7, 2016, and Mr. Samuels joined the Board on January 4, 2017.


63

Perrigo Company plc - Item 7
Executive Overview


On February 7, 2017, Jeffrey Smith, Jeff Kindler, and Bradley Alford joined our Board of Directors, and Herman Morris, Shlomo Yanai, Michael Jandernoa, and Gary Kunkle, resigned from the Board.

On February 21, 2017, Judy L. Brown resigned as Executive Vice President, Business Operations and Chief Financial Officer and Ron Winowiecki was appointed acting Chief Financial Officer of the Company, effective February 27, 2017.

On February 27, 2017, we announced the appointment of Svend Andersen to the position of Executive Vice President and President, Consumer Healthcare International.

On May 8, 2017, Rolf Classon and Adriana Karaboutis joined our Board of Directors, and effective May 2, 2017, Ellen Hoffing resigned from our Board of Directors.

RESULTS OF OPERATIONS

CONSOLIDATED

Recent Trends and Developments

We continue to experience a significant reduction in pricing expectations from historical levels in our RX segment due to industry and competitive pressures. This softness in pricing is attributed to various factors including increased focus from customers to capture supply chain productivity savings, low raw material commodity pricing, competition in specific products, and consolidation of certain customers. We expect this softness to continue to impact the segment for the foreseeable future, and we are forecasting a 9% to 11% pricing decline in this segment for the year ended December 31, 2017 compared to the prior year.

The CHCI segment has been impacted by market dynamics in key countries such as Belgium, France, Germany and Italy due to softness in certain brand categories and by unfavorable foreign currency impacts, primarily in the U.K. related to Brexit. In addition, the segment has been impacted in Belgium by a change in the forecast with a major wholesaler, as management implements improved supply chain efficiencies in this market. The CHCI segment has restructured its approach to addressing these market dynamics including: (1) implementing a brand prioritization strategy, with an objective to balance the cost of advertising and promotional investments with expected contributions from category sales, (2) restructuring its sales force in each of these markets to more effectively serve customers, and (3) exiting certain unfavorable distribution agreements. The combination of these actions are expected to improve the segment's focus on higher value OTC products, reduce selling costs and improve operating margins in the segment. 

On December 9, 2016, we announced that we had entered into a definitive agreement to sell our India API business to Strides Shasun Limited. As of December 31, 2016, the net assets of our India API business were classified as "held for sale" as discussed in Item 8. Note 9. The sale closed on April 6, 2017 and is not expected to have a material impact on our operations or result in a significant gain or loss when recorded in the second quarter of 2017.

During the three months ended December 31, 2016, the U.S. market for our Entocort® (budesonide) capsules, including both brand and authorized generic capsules, experienced significant and unexpected increased competition, reducing our future revenue stream. This led to an impairment charge of $342.2 million related to the Entocort® intangible asset acquired in 2015. We expect our 2017 net sales to be negatively affected in an amount of approximately $72.0 million.


64

Perrigo Company plc - Item 7
Consolidated


On February 27, 2017, we announced we were exploring strategic alternatives for our Israel API operations.

On March 27, 2017, we announced the completed divestment of our Tysabri® royalty stream to Royalty Pharma for up to $2.85 billion, which consists of $2.2 billion in cash and up to $250.0 million and $400.0 million in milestone payments to us if the royalties on global net sales of Tysabri® that are received by Royalty Pharma meet specific thresholds in 2018 and 2020, respectively. As a result of this transaction, we will derecognize the Tysabri® financial asset in the first quarter of 2017 and we do not expect the disposition to have a material impact on our results.

On April 6, 2017, we completed the divestment of our India API business to Strides Shasun Limited. As of December 31, 2016, the net assets of our India API business were classified as "held for sale" as discussed in Item 8. Note 9. The sale is not expected to have a material impact on our operations or result in a significant gain or (loss) when recorded in the second quarter of 2017.

Restructuring

On February 21, 2017, we approved a workforce reduction plan as part of a larger cost optimization strategy across the Company. We expect to reduce our global workforce by approximately 750 employees, which includes some actions already taken and 235 employees who have elected to participate in a voluntary early retirement program. This represents a reduction of approximately 14% of our global non-production workforce.  The changes to our workforce will vary by country, based on legal requirements and required consultations with works councils and other employee representatives, as appropriate.

In connection with this plan, we estimate that we will recognize total pre-tax restructuring charges of approximately $70.0 million to $80.0 million, consisting of one-time termination benefits, severance arrangements, and other termination costs. We anticipate recognizing substantially all of these charges during the year ending December 31, 2017, with the remaining balance to be recognized during the first quarter of the year ending December 31, 2018.

Our cost optimization strategy is expected to yield approximately $130.0 million in savings per annum by mid-2018. This is in addition to the savings that our supply chain organization continues to generate for both our North American and International segments.

Impairments

Throughout the year ended December 31, 2016, we identified impairment indicators for various assets across our different segments, and therefore, we performed impairment testing. Below is a summary of current year impairment charges by segment (in millions):
 
 
Year Ended
 
 
December 31, 2016
 
 
Goodwill
 
Indefinite-Lived Intangible Assets
 
Definite-Lived Intangible Assets
 
Held For Sale
 
IPR&D
 
Fixed Assets
 
Total
CHCA(1)
 
$
24.5

 
$
0.4

 
$

 
$
9.9

 
$

 
$
3.5

 
$
38.3

CHCI(2)
 
868.4

 
849.1

 
321.4

 

 
3.5

 

 
2,042.4

RX(3)
 

 

 
342.2

 

 

 
0.2

 
342.4

Specialty Sciences(4)
 
199.6

 

 

 

 

 

 
199.6

Other(5)
 

 

 
2.0

 
6.3

 

 

 
8.3

 
 
$
1,092.5

 
$
849.5

 
$
665.6

 
$
16.2

 
$
3.5

 
$
3.7

 
$
2,631.0


(1) Relates primarily to goodwill acquired through the acquisition of Sergeant’s Pet Care Products, Inc. and Velcera Inc. as well as U.S. VMS assets held for sale, which were subsequently sold on August 5, 2016.
(2) Relates to certain intangible assets and goodwill acquired in conjunction with the Omega acquisition as well as trademarks originally acquired through the acquisition of Aspen Global Inc.
(3) Relates primarily to our intangible assets acquired in conjunction with the Entocort® acquisition.
(4) Relates to goodwill from our Elan acquisition.

65

Perrigo Company plc - Item 7
Consolidated


(5) Relates primarily to our India API assets held for sale, which were sold April 6, 2017.

See Item 8. Note 3 and Note 6, and Critical Accounting Estimates for more information.
Consolidated Results
 
Year Ended
Six Months Ended
Year Ended
 
June 28,
2014
 
June 27,
2015
 
December 27,
2014
 
December 31,
2015
 
December 31,
2015
 
December 31,
2016
($ in millions)
Restated
 
Restated
 
Restated
 
Restated
 
Restated
 
Net sales
$
3,914.1

 
$
4,227.1

 
$
1,844.7

 
$
2,632.2

 
$
5,014.7

 
$
5,280.6

Gross profit
$
1,452.1

 
$
1,644.2

 
$
673.8

 
$
1,078.9

 
$
2,049.4

 
$
2,051.8

Gross profit %
37.1
%
 
38.9
%
 
36.5
%
 
41.0
%
 
40.9
%
 
38.9
 %
Operating expenses
$
880.7

 
$
971.7

 
$
384.1

 
$
1,011.3

 
$
1,599.0

 
$
4,051.5

Operating expenses %
22.5
%
 
23.0
%
 
20.8
%
 
38.4
%
 
31.9
%
 
76.7
 %
Operating income (loss)
$
571.4

 
$
672.5

 
$
289.7

 
$
67.6

 
$
450.4

 
$
(1,999.7
)
Operating income (loss) %
14.6
%
 
15.9
%
 
15.7
%
 
2.6
%
 
9.0
%
 
(37.9
)%
Interest and other, net
$
267.8

 
$
412.2

 
$
79.7

 
$
58.7

 
$
391.2

 
$
2,848.6

Income tax expense (benefit)
$
70.8