UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________
FORM 10-K
____________________________________________
☒
☐
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 29, 2023
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 : 001-35803
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Mallinckrodt plc
(Exact name of registrant as specified in its charter)
__________________________________________________________________________________________________________________________________
(State or other jurisdiction of incorporation or organization)
Ireland
98-1088325
(I.R.S. Employer Identification No.)
College Business & Technology Park, Cruiserath,
Blanchardstown, Dublin 15, Ireland
(Address of principal executive offices) (Zip Code)
Telephone: +353 1 696 0000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Ordinary shares, par value $0.01 per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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 ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
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
☐
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 has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section
404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☒ No ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to
previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive
officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant as of June 30, 2023, the last business day of the Registrant's most recently completed
second fiscal quarter, was approximately $15.3 million (based upon the closing price of $1.18 per share as reported by the NYSE American LLC on that date).
The number of shares of the registrant's common stock outstanding as of March 22, 2024 was 19,696,335.
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution
of securities under a plan confirmed by a court. ☒ Yes ☐ No
Certain portions of the registrant's definitive proxy statement for its annual meeting of shareholders, to be filed with the Securities and Exchange Commission within 120 days after December 29,
2023, are incorporated by reference into Part III of this Annual Report on Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
MALLINCKRODT PLC
INDEX TO FORM 10-K
PART I
Item 1.
Item 1A.
Item 1B.
Item 1C.
Item 2.
Item 3.
Item 4.
Business.
Risk Factors.
Unresolved Staff Comments.
Cybersecurity.
Properties.
Legal Proceedings.
Mine Safety Disclosures.
Item 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
PART II
[Reserved].
Management's Discussion and Analysis of Financial Condition and Results of Operations.
Quantitative and Qualitative Disclosures About Market Risk.
Financial Statements and Supplementary Data.
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.
Controls and Procedures.
Other Information.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Directors, Executive Officers and Corporate Governance.
PART III
Executive Compensation.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Certain Relationships and Related Transactions, and Director Independence.
Principal Accounting Fees and Services.
Exhibits, Financial Statement Schedules.
Form 10-K Summary.
PART IV
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Item 16.
Signatures
Exhibit Index
6
32
61
61
63
63
63
64
64
64
82
84
151
151
153
153
153
153
153
153
153
154
155
158
156
Presentation of Information
Unless the context requires otherwise, references to "Mallinckrodt plc," "Mallinckrodt," "we," "us," "our" and "the Company" refer to Mallinckrodt plc,
an Irish public limited company, and its consolidated subsidiaries. References to "dollars" or "$" refer to United States dollars.
Trademarks and Trade Names
Mallinckrodt owns or has rights to use trademarks and trade names that it uses in conjunction with the operation of its business. One of the more
important trademarks that it owns or has rights to use that appears in this Annual Report on Form 10-K (this "Annual Report") is "Mallinckrodt," which is a
registered trademark or the subject of pending trademark applications in the United States and other jurisdictions. Solely for convenience, the Company only
uses the ™ or symbols the first time any trademark or trade name is mentioned. Such references are not intended to indicate in any way that the Company
will not assert, to the fullest extent permitted under applicable law, its rights to its trademarks and trade names. Each trademark or trade name of any other
company appearing in this Annual Report is, to the Company's knowledge, owned by such other company.
®
Forward-Looking Statements
The Company has made forward-looking statements in this Annual Report that are based on management's beliefs and assumptions and on information
currently available to management. Forward-looking statements include, but are not limited to, information concerning the effects of the Company’s
emergence from bankruptcy twice in recent years, the Company's possible or assumed future results of operations, business strategies, financing plans,
competitive position, potential growth opportunities, potential operating performance improvements, the effects of competition and the effects of future
legislation or regulations. Forward-looking statements include all statements that are not historical facts and can be identified by the use of forward-looking
terminology such as the words "believe," "expect," "plan," "intend," "project," "anticipate," "estimate," "predict," "potential," "continue," "may," "will,"
"should" or the negative of these terms or similar expressions.
Forward-looking statements involve risks, uncertainties and assumptions. Actual results may differ materially from those expressed in these forward-
looking statements. You should not place undue reliance on any forward-looking statements.
The risk factors included in Item 1A. Risk Factors of this Annual Report could cause the Company's results to differ materially from those expressed in
forward-looking statements. There may be other risks and uncertainties that the Company is unable to predict at this time or that the Company currently does
not expect to have a material adverse effect on its business.
These forward-looking statements are made as of the filing date of this Annual Report. The Company expressly disclaims any obligation to update these
forward-looking statements other than as required by law.
Summary of Selected Risk Factors
Our business is subject to numerous material and other risks and uncertainties that you should be aware of. These risks and
uncertainties are described more fully in "Item 1A. Risk Factors" in this Annual Report, and include, but are not limited to, the
following:
Risks Related to Our Emergence from Bankruptcy
•
Emerging from bankruptcy twice in recent years could adversely affect our business.
• Our actual financial results after emerging from the 2023 Bankruptcy Proceedings may not be comparable to our projections filed with the
Bankruptcy Court.
• Our historical financial statements are not comparable to the information contained in our financial statements after the application of fresh-start
accounting following emergence from the 2023 Bankruptcy Proceedings.
• Our Board of Directors has changed and may implement changes in our business strategy.
•
Exercise of the contingent value rights would result in either a cash payment to the Opioid Master Disbursement Trust II that could adversely affect
our liquidity or an issuance of ordinary shares that could result in dilution to holders of our ordinary shares.
Risks Related to Our Business
• Governmental investigations, inquiries, and regulatory actions and lawsuits with respect to our historical commercialization of opioids could
adversely affect us.
3
•
The healthcare industry has been under increasing scrutiny and non-compliance with relevant policies, laws, regulations or government guidance
may result in adverse actions.
• We have various contractual and court-ordered compliance obligations that, if violated, could result in penalties.
• We face significant competition and may not be able to compete effectively.
• We may experience pricing pressure on certain of our products, which could reduce our future revenue and profitability.
•
Sales of our products are affected by the reimbursement practices of governmental health administration authorities, private health coverage insurers
and other third-party payers. Reimbursement criteria and the use of tender systems outside the United States could reduce prices for our products.
• Our reporting and payment obligations under governmental purchasing and rebate programs are complex. Any determination of failure to comply
could have a material adverse effect on our business.
•
•
Cost-containment efforts of our customers and other parties could materially adversely affect our business.
Extensive laws and regulations govern the industry in which we operate and any failure to comply may materially adversely affect us.
• Our approved and investigational products, may cause undesirable side effects that limit their commercial profile or result in other negative
consequences.
• We may be unable to successfully develop, commercialize or launch new products or expand commercial opportunities for existing products.
• We may not be successful in our efforts to identify or discover additional products or product candidates at the rate we expect.
• We may not achieve the anticipated benefits of price increases of our pharmaceutical products.
• Our customer or product concentration may materially adversely affect our business.
• We may be unable to protect our intellectual property rights or we may be subject to claims that we infringe on the intellectual property rights of
others.
•
•
Clinical trials demonstrating the efficacy of Acthar Gel are limited, which could cause physicians not to prescribe Acthar Gel, or payers not to
reimburse the drug.
®
Clinical studies are expensive and time-consuming, and their outcome is highly uncertain. If any such studies are delayed or yield unfavorable
results, regulatory approval may be delayed or become unobtainable.
• We may incur litigation liability, including product liability losses.
•
If our business development activities or other strategic transactions are unsuccessful, it may adversely affect us.
• We may be unable to attract and retain key personnel.
• Our business depends on the continued effectiveness of our information technology infrastructure, and external attacks or any failures could harm
our operations.
•
Some of our products are regulated as controlled substances and are subject to significant regulation by the United States Drug Enforcement Agency
and other regulatory agencies.
• At times, quotas granted by the United States Drug Enforcement Agency with respect to controlled substances may be insufficient to meet our needs.
• Our business could suffer if we, or our suppliers, encounter manufacturing or supply problems.
• Our global operations expose us to risks and challenges associated with conducting business internationally.
• We have intangible assets that use our future projections of cash flows in impairment testing and unfavorable variances from these projections may
cause an increased risk of future impairment.
Risks Related to Our Indebtedness and Settlement Obligation
• Our substantial indebtedness and settlement obligation could adversely affect our financial condition and future access to capital and may prevent us
from fulfilling our obligations or make ongoing payments in respect of the 2023 plan of reorganization.
•
•
The terms of the agreements that govern our indebtedness and settlement obligation restrict our current and future operations.
Borrowing capacity under our receivables-based financing facility may decrease, may not be extended upon maturity, or the maturity date may be
accelerated.
• Our variable-rate indebtedness exposes us to interest rate risk.
• Despite current and anticipated indebtedness levels, we may still be able to incur more debt.
•
Future financings may not be available on favorable terms and may be dilutive, and the use of proceeds therefrom will be subject to restrictions from
our existing indebtedness.
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Risks Related to Tax Matters
•
•
The United States could treat Mallinckrodt plc as a U.S. taxpayer under Internal Revenue Code Section 7874.
The IRS may interpret IRC Section 382 limitation and cancellation of debt income attribution rules differently.
• A loss of a major tax dispute or a challenge to our operating structure or intercompany pricing policies could result in a higher tax rate on our
worldwide earnings, which could result in a material adverse effect on our financial condition, results of operations and cash flows.
• Our status as a foreign corporation for U.S. federal tax purposes could be affected by a change in law.
Risks Related to Our Jurisdiction of Incorporation
•
•
Irish law differs from U.S. laws and may afford less protection to holders of our securities.
Irish law imposes restrictions on certain aspects of capital management.
Risks Related to Our Ordinary Shares
• Our ordinary shares are not listed on any national securities exchange, and we could cease to be a reporting company in the future, which would
expose holders of our ordinary shares to risks of an investment in a private company.
• Our new articles of association contains provisions that are more similar to United States private companies.
• We are a "smaller reporting company" and our reduced disclosure requirements could make our ordinary shares less attractive to investors.
5
Item 1.
Business.
Overview
PART I
Mallinckrodt plc is a global business of multiple wholly owned subsidiaries (collectively, "Mallinckrodt" or "the Company") that develop, manufacture,
market and distribute specialty pharmaceutical products and therapies. Areas of focus include autoimmune and rare diseases in specialty areas like neurology,
rheumatology, hepatology, nephrology, pulmonology, ophthalmology and oncology; immunotherapy and neonatal respiratory critical care therapies;
analgesics and gastrointestinal products.
We operate our business in two reportable segments, which are further described below:
•
•
Specialty Brands includes innovative specialty pharmaceutical brands; and
Specialty Generics includes niche specialty generic drugs and active pharmaceutical ingredients ("API(s)").
We continue to pursue our ongoing transformation to become an innovation-driven biopharmaceutical company focused on improving outcomes for
underserved patients with severe and critical conditions. For further information on our products, refer to "Our Businesses and Products" within this Item 1.
Business.
Our principal executive offices are located at College Business & Technology Park, Cruiserath, Blanchardstown, Dublin 15, Ireland, where our Specialty
Brands global external manufacturing operations are also located. In addition, we have other locations in the United States ("U.S."), most notably our
corporate shared services office in Hazelwood, Missouri, our Specialty Brands commercial headquarters in Bridgewater, New Jersey, and our Specialty
Generics headquarters and technical development center in Webster Groves, Missouri.
Emergence from Voluntary Reorganization
2023 Bankruptcy Proceedings
On August 28, 2023 ("2023 Petition Date"), we voluntarily initiated Chapter 11 proceedings ("2023 Chapter 11 Cases") under chapter 11 of title 11
("Chapter 11") of the United States Code ("Bankruptcy Code") in the U.S. Bankruptcy Court for the District of Delaware ("Bankruptcy Court"). On
September 20, 2023, the directors of the Company initiated examinership proceedings with respect to Mallinckrodt plc by presenting a petition to the High
Court of Ireland pursuant to Section 510(1)(b) of the Companies Act 2014 seeking the appointment of an examiner to Mallinckrodt plc. On October 10, 2023,
the Bankruptcy Court entered an order confirming a plan of reorganization ("2023 Plan"). Subsequent to the Bankruptcy Court’s order confirming the 2023
Plan, the High Court of Ireland made an order confirming a scheme of arrangement on November 10, 2023, which is based on and consistent in all respects
with the 2023 Plan ("2023 Scheme of Arrangement"). The 2023 Plan and the 2023 Scheme of Arrangement became effective on November 14, 2023, ("2023
Effective Date "), and we emerged from the 2023 Chapter 11 Cases and the Irish examinership proceedings (together, the "2023 Bankruptcy Proceedings") on
that date. Refer to Note 2 of the Notes to the Consolidated Financial Statements included within Item 8. Financial Statements and Supplementary Data of this
Annual Report for further information on the 2023 Plan and emergence from the 2023 Bankruptcy Proceedings.
2020 Bankruptcy Proceedings
On October 12, 2020, we voluntarily initiated Chapter 11 proceedings ("2020 Chapter 11 Cases"). On March 2, 2022, the Bankruptcy Court entered an
order confirming a plan of reorganization ("2020 Plan"). Subsequent to the Bankruptcy Court’s order confirming the 2020 Chapter 11 Cases, the High Court
of Ireland made an order confirming a scheme of arrangement on April 27, 2022, which was based on and consistent in all respects with the 2020 Plan ("2020
Scheme of Arrangement"). On June 8, 2022, the Bankruptcy Court entered an order approving a minor modification to the 2020 Plan. The 2020 Plan became
effective on June 16, 2022 ("2020 Effective Date "), and we emerged from the 2020 Chapter 11 Cases and the Irish examinership proceedings (together, the
"2020 Bankruptcy Proceedings") on that date.
Adoption of Fresh-Start Accounting
Upon emergence from both the 2020 Bankruptcy Proceedings on June 16, 2022 and the 2023 Bankruptcy Proceedings on November 14, 2023, we
adopted fresh-start accounting in accordance with the provisions of Financial Accounting Standards Board Accounting Standards Codification Topic 852 -
Reorganizations ("ASC 852"), and became a new entity for financial reporting purposes as of each of the 2020 Effective Date and the 2023 Effective Date.
References to "Successor" relate to the financial position as of December 29, 2023 and results of operations of the reorganized Company subsequent to
November 14, 2023, while references to "Predecessor" relate to the financial position as of December 30, 2022 and results of operations of the Company for
the period from December 31, 2022 through November 14, 2023, the period from June 17, 2022 through December 30, 2022, and for the periods prior
6
to, and including June 16, 2022. All emergence-related transactions related to the 2020 Effective Date and the 2023 Effective Date were recorded as of June
16, 2022 and November 14, 2023, respectively. Accordingly, the consolidated financial statements for the Successor are not comparable to the consolidated
financial statements for the Predecessor periods and the consolidated financial statements for the Predecessor periods from June 17, 2022 through December
30, 2022 and December 31, 2022 through November 14, 2023 are not comparable to the consolidated financial statements for the Predecessor period prior to
and including June 16, 2022. Refer to Note 3 of the Notes to the Consolidated Financial Statements included within Item 8. Financial Statements and
Supplementary Data of this Annual Report for further information.
Fiscal Year
The Company reports its results based on a "52-53 week" year ending on the last Friday of December. The period November 15, 2023 through December
29, 2023 reflects the Successor period, while the period December 31, 2022 through, and including, November 14, 2023 reflects the Predecessor period. The
combined periods of December 31, 2022 through November 14, 2023 (Predecessor) and November 15, 2023 through December 29, 2023 (Successor) ("fiscal
2023") and the combined periods of January 1, 2022 through June 16, 2022 (Predecessor) and June 17, 2022 through December 30, 2022 (Predecessor)
("fiscal 2022") consisted of 52 weeks, while the fiscal year ended December 31, 2021 (Predecessor) ("fiscal 2021") consisted of 53 weeks.
Our Businesses and Products
We manage our business in two reportable segments: Specialty Brands and Specialty Generics. Information regarding the product portfolios and business
strategies of these segments is included in the following discussion.
Specialty Brands
Our Specialty Brands segment markets branded pharmaceutical products for autoimmune and rare diseases in the specialty areas of neurology,
rheumatology, hepatology, nephrology, pulmonology, ophthalmology and oncology; immunotherapy and neonatal respiratory critical care therapies and
gastrointestinal products. Our diversified, in-line portfolio of both marketed and development products is focused on patients with significant unmet medical
needs.
Our long-term strategy has been to:
•
•
•
increase patient access and appropriate utilization of our existing products;
develop innovative new therapies and next-generation devices for our products; and
selectively acquire or license products that are strategically aligned with our product portfolio to expand the size and profitability of our
Specialty Brands segment.
As a result of our emergence from the 2023 Bankruptcy Proceedings, we had significant changes to our Board of Directors, with the majority of our non-
employee directors being newly appointed to the Board of Directors in February 2024. As a result, our Board of Directors may determine, from time to time,
to implement changes in our business strategy. At the direction of our Board of Directors, we are engaged in a process of evaluating the assets across our
portfolio, in both our Specialty Brands and Specialty Generics segments, and pursuing divestiture opportunities, with a goal of further reducing our debt and
providing a stronger base to maximize long-term shareholder value. We have engaged Lazard to assist with this process.
We promote our branded products directly to physicians in their offices, hospitals and ambulatory surgical centers (including neurologists,
rheumatologists, hepatologists, nephrologists, pulmonologists, ophthalmologists, oncologists, neonatologists, surgeons and pharmacy directors) with our own
direct sales force of over 300 sales representatives as of December 29, 2023 (Successor). These products are purchased by independent wholesale drug
distributors, specialty pharmaceutical distributors, retail pharmacy chains and hospital procurement departments, among others, and are eventually dispensed
by prescription to patients. We also contract directly with payer organizations to ensure reimbursement for our products to patients that are prescribed our
products by their physicians.
The following is a description of select products in our product portfolio:
•
®
Acthar Gel (repository corticotropin injection) ("Acthar Gel") is a complex mixture of peptides approved by the U.S. Food and Drug
Administration ("FDA") for use in 19 indications. The product currently generates substantially all of its net sales from 11 of the on-label
indications, including adjunctive therapy for short-term administration for an acute episode or exacerbation in rheumatoid arthritis ("RA"),
including juvenile RA; monotherapy for the treatment of infantile spasms in infants and children under two years of age; treatment during
an exacerbation or as maintenance therapy in selected cases of systemic lupus erythematosus; treatment of acute exacerbations of multiple
sclerosis ("MS") in adults; including a diuresis or a remission of proteinuria in nephrotic syndrome ("NS") without uremia of the idiopathic
type or that's due to lupus; treatment during an exacerbation or as maintenance therapy in
7
selected cases of systemic dermatomyositis (polymyositis); treatment of symptomatic sarcoidosis; and treatment of severe acute and chronic
allergic and inflammatory processes involving the eye and its adnexa including keratitis and uveitis. The currently approved indications of
Acthar Gel are not subject to patent or other exclusivity.
There is significant clinical data generated to support the effectiveness of Acthar Gel. This data is the result of company-sponsored
controlled clinical trials, as well as previously completed and largely independent clinical case series and smaller trials that have expanded
the product's evidence base and strengthened its clinical profile. We continue our data generation efforts through pre-clinical studies and
additional independent research, as well as our efforts to extend the value of the product through product enhancements including the
ongoing development of the Acthar Gel self-injection device, which received FDA approval on March 1, 2024. We believe this device will
create an easier and more patient-friendly application for single unit dosage indications.
®
INOmax (nitric oxide) gas, for inhalation ("INOmax") is a vasodilator that, in conjunction with ventilatory support and other appropriate
agents, is indicated to improve oxygenation and reduce the need for extracorporeal membrane oxygenation in term and near-term (>34
weeks) neonates with hypoxic respiratory failure ("HRF") associated with clinical or echocardiographic evidence of pulmonary
hypertension. INOmax is also approved in Australia for the treatment of perioperative pulmonary hypertension in adults in conjunction with
cardiovascular surgery. Additionally, our Phase 4 registry assessing INOmax for treatment of pulmonary hypertension in premature (27 to
34 weeks) and term and near-term neonates was completed early in February 2020 due to achievement of the pre-specified primary outcome
measure of non-inferiority. The decision to end the study early was made following the second planned interim analysis at 75% enrollment.
The interim analysis assessed 54 premature and 84 term and near-term neonates and reflected that the trial achieved the significance level
for non-inferiority. Evaluation of significant improvement for each neonate is based on at least a 25% decrease in oxygenation index or
surrogate oxygenation index during the INOmax treatment period.
INOmax is marketed as part of the INOmax Total Care package, which includes the drug product, proprietary drug-delivery systems,
technical and clinical assistance, 24/7/365 customer service, emergency supply and delivery and on-site training. The development and
subsequent FDA submission of a 510(k) premarket notification application was completed in September 2022 for an investigational inhaled
nitric oxide delivery system for INOmax gas, for inhalation. This next-generation system, which was cleared by the FDA on December 7,
2023, will offer a compact, portable design that we believe will further enhance the safety of the product, as well as the simplicity and
flexibility of use in a number of settings.
®
Therakos photopheresis ("Therakos") is focused on providing innovative immunotherapy treatment platforms that enhance the ability of a
patient's immune system to fight disease. We believe Therakos is a global leader in autologous immunotherapy delivered through
extracorporeal photopheresis ("ECP") and provides the only integrated ECP system in the world. ECP involves drawing blood from the
patient, separating white blood cells from plasma and red blood cells that are returned to the patient, and treating the white blood cells with
an Ultraviolet-A ("UVA") light activated drug. The treated white blood cells are immediately re-administered back into the patient. ECP is
approved by the FDA for use in the palliative treatment of the skin manifestations of cutaneous T-cell lymphoma ("CTCL") that is
unresponsive to other forms of treatment. Outside the U.S., ECP is approved to treat several other serious diseases that arise from immune
system imbalances. The Therakos product suite, which is sold to hospitals, clinics, academic centers and blood banks, includes an installed
system, a disposable procedural kit used for each treatment and a drug, UVADEX (methoxsalen) Sterile Solution ("UVADEX"), as well as
instrument accessories and instrument maintenance and repair services.
®
®
Terlivaz (terlipressin) ("Terlivaz") is the first and only FDA-approved product indicated to improve kidney function in adults with hepatorenal
syndrome ("HRS") with rapid reduction in kidney function, an acute and life-threatening condition requiring hospitalization. The FDA granted
Terlivaz orphan drug designation. Terlivaz is one of the most studied pharmacological agents in HRS with more than 70 published manuscripts
and presented abstracts on clinical data to date. The FDA approval was based, in part, on results from the Phase 3 CONFIRM trial, the largest-
ever prospective study (n=300) conducted to assess the safety and efficacy of Terlivaz in patients with HRS-1 in the U.S. and Canada. The
CONFIRM trial met its primary endpoint of Verified HRS Reversal, defined as renal function improvement, avoidance of dialysis and short-term
survival. It has been approved outside the U.S. for more than 30 years and is available on five continents for its indications in the countries
where it is approved. Terlivaz is recommended for line use by both the American Association for the Study of Liver Diseases and the American
College of Gastroenterology guidelines.
®
Amitiza (lubiprostone) ("Amitiza") is approved by the FDA for treatment of chronic idiopathic constipation in adults, irritable bowel syndrome
with constipation in women 18 years of age and older, and opioid-induced constipation in adult patients with chronic, non-cancer pain, including
patients with chronic pain related to prior cancer or its treatment who do not require frequent opioid dosage escalation. Amitiza is a chloride
channel type-two activator that increases fluid secretion and motility of the intestine, facilitating passage of stool. We believe Amitiza is a
leading global product in the
8
•
•
•
•
branded constipation market. Of the branded products currently marketed, only Amitiza is approved for three constipation indications in the U.S.
StrataGraft
On January 4, 2024, we committed to a plan to cease commercialization and clinical development and wind down production of StrataGraft (allogenic
®
cultured keratinocytes and dermal fibroblasts in murine collagen - dsat) ("StrataGraft"), a regenerative skin tissue that is an allogeneic cellularized scaffold
product derived from keratinocytes grown on gelled collagen containing dermal fibroblasts indicated for the treatment of adults with thermal burns containing
intact dermal elements for which surgical intervention is clinically indicated (deep partial-thickness burns). We expect to complete this process by the end of
the first quarter of 2025.
The decision to discontinue StrataGraft was made following a slower-than-anticipated commercial uptake of the product and slower-than-anticipated
enrollment in clinical trials. We are evaluating our next steps with respect to StrataGraft, which could include pursuing a sale, out-license or other strategic
arrangement.
Specialty Generics
Our Specialty Generics segment is focused on providing our customers high-quality specialty generic drugs and APIs. Specialty Generics includes a
variety of product formulations such as hydrocodone-containing tablets, oxycodone-containing tablets and several other controlled substances indicated for
the treatment of pain. Other controlled substances products include medicines used to treat attention-deficit/hyperactivity disorder ("ADHD") and addiction
treatment medications. Our near-term pipeline in this segment includes the expected launch of several new products in the next few years, with additional
products in development long-term. Within this segment, we provide bulk API products, including acetaminophen, stimulants, opioids and stearates, to a wide
variety of pharmaceutical companies. In addition, we use our APIs for internal manufacturing of our finished dose products.
We are among the world's largest manufacturers of bulk acetaminophen and the only producer of acetaminophen in the North American region with
manufacturing facilities exclusively in the U.S. We manufacture controlled substances under the U.S. Drug Enforcement Administration ("DEA") quota
restrictions, and in calendar 2023, we estimated that we received approximately 39.0% of the total DEA quota provided to the U.S. market for the controlled
substances we manufacture. We believe that our market position in the API business and allocation of quota-governed controlled substance materials from the
DEA is a competitive advantage for our API business and, in turn, for our Specialty Generics segment. The strategy for our API business is based on at-scale
manufacturing of high-quality product and customized product offerings, responsive technical services and timely delivery to our customers.
We supply finished dose products principally through drug distributors, specialty pharmaceutical distributors, retail pharmacy chains, food store chains
with pharmacies, hospital buying groups, and direct contracts with the U.S. government. Our APIs and excipients are supplied directly to over 200
manufacturers in over 45 countries.
Research and Development
Specialty Brands. Our research and development ("R&D") resources are primarily devoted to our branded products. Our R&D investments center on
supporting our current late-stage product development, maximizing new product launches and accelerating additional lifecycle management opportunities,
inclusive of new product enhancements, line extensions and geo-expansions that provide value to patients, physicians and payers. Our strategy focuses on
growth, including pipeline opportunities related to late-stage development products to meet the needs of underserved patient populations, where we execute
on the development process and perform clinical trials to support regulatory approval of new products.
Data generation is an important strategic driver for our products, as they extend evidence in approved uses, label enhancements and new indications. Our
data strategy is realized through investments in both clinical and health economic activities. We are committed to supporting research that helps advance the
understanding and treatment of a variety of different disease states that will further the understanding and development of our currently marketed products,
including Acthar Gel, INOmax, Therakos, and Terlivaz.
Specialty Generics. The R&D efforts in this segment are focused on hard-to-manufacture pharmaceuticals with difficult-to-replicate pharmacokinetic
profiles and products that would benefit from our vertically integrated manufacturing capabilities. Our pipeline is focused on applying our proven capabilities
to develop difficult formulations and design around competitor patents, utilizing our expertise in both our API and drug product development opportunities
and to create our own intellectual property. We currently perform most of our finished dose development work at our Specialty Generics headquarters and
technical development center in Webster Groves, Missouri and our API development work at the nation’s largest API manufacturing facility in St. Louis,
Missouri.
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Competition
Specialty Brands. Certain of our Specialty Brands products do not face direct competition from similar products, but instead compete against alternative
forms of treatment that a prescriber may utilize. To successfully compete for business from managed care and pharmacy benefits management organizations,
we must often demonstrate that our branded products offer not only superior health outcomes but also cost and service advantages, as compared with other
forms of care. For example, while there is no therapeutically substitutable generic alternative for Acthar Gel, it faces significant competition from earlier-line
treatment alternatives including high-dose steroids, and is generally prescribed when earlier-line treatments have failed to provide positive outcomes or are
not well tolerated by the patient. Competition intensified with the commercial launch of a purified cortrophin gel product in 2022, which is a distinct product
from Acthar Gel; however, it is in a similar drug class. We experienced pressure from its launch in 2022 and we anticipate that this pressure will continue. We
continue to differentiate Acthar Gel through pre-clinical studies and through product enhancements including the ongoing development of the Acthar Gel
Single-Dose Pre-filled SelfJect™ Injector ("SelfJect"), which received FDA approval on March 1, 2024, and is designed to create an easier and more patient-
friendly application for single unit dosage indications. SelfJect is expected to launch in the U.S. in the second half of 2024.
Certain of our Specialty Brands products now have direct competition in the U.S. market. For example, there is now direct competition in the U.S. market
for INOmax. However, we believe INOmax's highly differentiated service offering and the next generation delivery system, will help to differentiate the
product and mitigate the impact of competition longer-term.
The highly competitive environment of our Specialty Brands segment requires us to continually seek out new products to treat diseases and conditions in
areas of high unmet medical need, to create technological innovations and to market our products effectively. Most new products that we introduce must
compete with other products already on the market, as well as other products that are subsequently developed by competitors. For our branded products, we
may be granted market exclusivity either through the FDA, the U.S. Patent Office or similar agencies internationally. Regulatory exclusivity is granted by the
FDA for new innovations, such as new clinical data, a new chemical entity or orphan drugs, and patents are issued for inventions, such as composition of
matter or method of use. While patents offer a longer period of exclusivity, there are more bases to challenge patent-conferred exclusivity than with regulatory
exclusivity. Generally, once market exclusivity expires on our branded products, competition will likely intensify as generic forms of the product are
launched. Products that do not benefit from regulatory or patent exclusivity must rely on other competitive advantages, such as confidentiality agreements or
product formulation trade secrets for difficult to replicate products.
Manufacturers of generic pharmaceuticals typically invest far less in R&D than research-based pharmaceutical companies, allowing generic versions to
typically be significantly less expensive than the related branded products. The generic form of a drug may also enjoy a preferred position relative to the
branded version under third-party reimbursement programs, or be routinely dispensed in substitution for the branded form by pharmacies. If competitors
introduce new products, delivery systems or processes with therapeutic or cost advantages, our products can be subject to progressive price reductions,
decreased sales volume or both. To successfully compete for business with managed care and pharmacy benefits management organizations, we must often
demonstrate that our branded products offer not only superior health outcomes but also cost advantages, as compared with other forms of care. Certain of our
Specialty Brands products are targeted for niche patient populations with unmet medical needs, for example Acthar Gel, that may not be prescribed unless a
clear benefit in efficacy or safety is demonstrated or until alternatives have failed to provide positive patient outcomes or are not well tolerated by the patient.
As it relates to our Amitiza product, many patients are currently treated for chronic idiopathic constipation ("CIC"), irritable bowel syndrome with
constipation ("IBS-C") or opioid-induced constipation ("OIC") with a variety of medications. Over-the-counter medications are available and are generally
intended to provide relief for occasional constipation. Prescription products are also available and are generally intended to provide relief for chronic
constipation. As such, the U.S. constipation market is expansive and diverse with a multitude of products intended to treat a large heterogeneous patient
population. The prescription chronic constipation market can generally be bifurcated into two categories: 1) generic laxatives and 2) branded products.
Generic laxatives make up roughly 80% to 90% of the total prescription volume while branded prescriptions have grown to represent 10% to 20% of the
prescription market. At this time, Amitiza is the only branded product with chloride channel type-two activator mechanism of action. Amitiza is also the only
branded product on the market today in three separate indications for CIC, IBS-C and OIC.
Prior to our acquisition of Amitiza in February 2018, the previous owner had entered into agreements to license certain rights to Amitiza to third parties
in exchange for royalties on net sales of the product. Historically, we received a double-digit royalty based on a percentage of the gross profits of the licensed
products sold during the term of the agreement, which was reduced to zero in fiscal 2023 for sales in the U.S. due to the entrance of two or more additional
generics.
Specialty Generics. Our Specialty Generics products compete with products manufactured by many other companies in highly competitive markets,
primarily throughout the U.S. Our competitors vary depending upon therapeutic and product categories. Major competitors of our Specialty Generics products
include Rhodes Pharmaceuticals LP, Teva Pharmaceutical Industries Ltd., Lannett Company Inc., Amneal Pharmaceutical Ltd., Noramco, Inc. and Veranova
LP, among others. We believe our secure sources of starting materials, vertically integrated manufacturing capabilities, broad offerings of API controlled
substances and acetaminophen, comprehensive generic controlled substances product line, and established relationships with national and regional distributors
of generic drugs in the U.S. enable us to compete with other generic manufacturers. In addition, we believe that our experience with the
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FDA, the DEA and Risk Evaluation and Mitigation Strategies ("REMS") provides us the knowledge to operate efficiently and effectively in this highly
regulated, competitive environment.
The Specialty Generics segment faces intense competition from other generic drug manufacturers, brand-name pharmaceutical companies marketing
authorized generics, existing branded equivalents and manufacturers of therapeutically similar drugs. The competition varies depending upon the specific
product category and dosage strength. Among the large generic controlled substance providers, we are one of the only generic manufacturers that has its own
controlled substance API manufacturing capability, and we believe that we offer more vertically integrated generic controlled substance products than any
other U.S. manufacturer. New drugs and future developments in improved or advanced drug delivery technologies or other therapeutic techniques may
provide therapeutic or cost advantages when compared to the products we sell. The maintenance of profitable operations in generic pharmaceuticals depends,
in part, on our ability to select, develop and timely launch new generic products, as well as our ability to manufacture such new products in a cost efficient,
high-quality manner and implement and drive market volume.
As a result of consolidation among wholesale distributors and rapid growth of large retail drug store chains, a small number of large wholesale
distributors and retail drug store chains control a significant share of the market, and the number of independent drug stores and small drug store chains has
decreased. This has resulted in customers gaining more purchasing power. Consequently, there is heightened competition among generic drug producers for
the business of this smaller and more selective customer base.
In our API business, we believe that our competitive advantages include our product offerings in acetaminophen that enable our customers to use high-
speed, high-volume tableting, to gain efficiencies. Our scale in controlled substance API manufacturing and flexibility within our St. Louis site enable our
customers to have better access to cost-competitive, quality products to meet this market need. Additionally, we believe we offer customers reliability of
supply and broad-based technical customer service.
The competitive landscape in the acquisition and in-licensing of pharmaceutical products has intensified in recent years, reflecting an increase in the
number of companies and the collective resources bidding on available assets. The ability to effectively compete in business development, acquisitions and in-
licensing is important to our long-term growth strategy. In addition, other competitive factors in the pharmaceutical industry include product efficacy, safety,
ease of use, price, demonstrated cost-effectiveness, third-party reimbursement, marketing effectiveness, customer service, reliability of supply, reputation and
technical capabilities.
Intellectual Property
We own or license a number of patents in the U.S. and other countries covering certain products and have also developed brand names and trademarks for
those and other products. Generally, our Specialty Brands business relies upon patent protection to protect our products, related inventions, and product
innovations that are important to our business.
In a broad sense, patents provide the innovator companies with the right to exclude others from practicing an invention related to a product. Protection for
individual products extends for varying periods in accordance with the expiration dates of patents in the various countries. The protection afforded, which
may also vary from country to country, depends upon the type of patent, its scope of coverage, and the availability of meaningful legal remedies in the
country.
The patents and patent applications that relate to our major marketed products include:
•
•
•
•
•
Acthar Gel. We have one Orange Book-listed patent that relates to Acthar Gel. This patent is set to expire in 2041. Acthar Gel is also
significantly protected by trade secrets. We continue our efforts to pursue product enhancements, including the ongoing development of the
Acthar Gel self-injection device which received FDA approval on March 1, 2024, for which we have additional pending patent applications in
the U.S.
INOmax. We have a portfolio of U.S. and non-U.S. patents and patent applications for INOmax and related technologies. These include over 100
U.S. issued patents, expiring between 2024 and 2039, and numerous pending patent applications in the U.S. In addition, we have over 800 issued
patents, expiring between 2024 and 2037, and numerous pending patent applications in other countries.
Therakos. We currently have over 20 issued patents and pending patent applications relating to Therakos in the U.S. These issued patents expire
between 2024 and 2037. We also have over 150 issued patents, expiring between 2024 and 2036, relating to Therakos in other countries. We
have filed additional patent applications for this product.
Terlivaz. We currently have one issued patent, expiring in 2037, and a number of pending patent applications in the U.S. that relate to Terlivaz.
Amitiza. We have four patents listed in the Orange Book that will expire between 2025 and 2027. We also obtained patent protection in Japan
that will expire between 2024 and 2028.
In the U.S. branded pharmaceutical industry, an innovator product’s market exclusivity is generally determined by two forms of intellectual property: (i)
patent rights held by the innovator company and listed in the FDA’s publication: Approved Drug Products with Therapeutic Equivalence Evaluations
("Orange Book") and (ii) any regulatory forms of exclusivity to which the innovator is
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entitled. In addition, commercial durability may also partially depend upon product-related trade secrets, confidentiality agreements and trademark and
copyright laws. These additional items may not prevent competitors from independently developing similar technology or a bioequivalent product.
Many developed countries provide certain non-patent incentives for the development of pharmaceuticals. Regulatory exclusivity is independent of any
patent rights and can be particularly important when a drug lacks broad patent protection. However, many regulatory forms of exclusivity do not prevent a
competitor from gaining regulatory approval prior to the expiration of regulatory exclusivity on the basis of the competitor's own safety and efficacy data on
its drug, even when that drug is identical to that marketed by the innovator.
In addition to our patent estate and trade secret protections, we have rights to a number of trademarks and service marks, and pending trademark and
service mark applications, in the U.S. and elsewhere in the world to further protect the proprietary position of our products.
We estimate the likely market exclusivity period for each of our branded products on a case-by-case basis. It is not possible to predict with certainty the
length of market exclusivity for any of our branded products because of the complex interaction between patent and regulatory forms of exclusivity, the
relative success or lack thereof by potential competitors' experience in product development and inherent uncertainties concerning patent litigation. There can
be no assurance that a particular product will enjoy market exclusivity for the full period of time that we currently estimate or that the exclusivity will be
limited to the estimate.
We consider the overall protection of our patents, trademarks and license rights to be of material value and act to protect these rights from infringement.
For a discussion of the challenges we face in obtaining or maintaining patent and/or trade secret protection, see the risk factor captioned "We may be unable to
protect our intellectual property rights, intellectual property rights may be limited or we may be subject to claims that we infringe on the intellectual property
rights of others" included within Item 1A. Risk Factors of this Annual Report.
Regulatory Matters
Quality Assurance and Current Good Manufacturing Practice Requirements
The FDA enforces regulations to ensure that the methods used in, and the facilities and controls used for, the manufacture, processing, packaging and
holding of drugs, biologics, and medical devices conform to current good manufacturing practice ("cGMP"). The cGMP regulations that the FDA enforces are
comprehensive and cover all aspects of manufacturing operations, from receipt of raw materials to finished product distribution, and are designed to ensure
that the finished products meet all the required identity, strength, quality and purity characteristics. Compliance with cGMP includes adhering to requirements
relating to organization and training of personnel, buildings and facilities, equipment, control of components and drug product containers and closures,
production and process controls, quality control and quality assurance, packaging and labeling controls, holding and distribution, laboratory controls, and
records and reports. The cGMP regulations for devices, called the Quality System Regulations, are also comprehensive and cover all aspects of device
manufacture, from pre-production design validation to installation and servicing, insofar as they bear upon the safe and effective use of the device and
whether the device otherwise meets the requirements of the U.S. Federal Food, Drug and Cosmetic Act ("FFDCA"). Failure to comply with applicable cGMP
requirements or the conditions of the product’s approval may lead the FDA to take enforcement actions, such as issuing a warning letter, or to seek sanctions,
including fines, civil penalties, injunctions, suspension of manufacturing operations, imposition of operating restrictions, withdrawal of FDA approval, seizure
or recall of products, and criminal prosecution. Although we periodically monitor FDA compliance of the third parties on which we rely for manufacturing of
certain Specialty Brand products, we cannot be certain that our present or future third-party manufacturers will consistently comply with cGMP or other
applicable FDA regulatory requirements. Other regulatory authorities have their own cGMP rules. Ensuring compliance requires a continuous commitment of
time, money and effort in all operational areas.
United States
In general, drug and device manufacturers operate in a highly regulated environment. In the U.S., we must comply with laws, regulations, guidance
documents and standards promulgated by the FDA, the Department of Health and Human Services ("HHS"), the DEA, the Environmental Protection Agency
("EPA"), the Customs Service and state boards of pharmacy.
The FFDCA provides several distinct pathways for the approval of new drugs. A new drug application ("NDA") under Section 505(b)(1) of the FFDCA
is a comprehensive application to support approval of a product candidate that includes, among other things, data and information to demonstrate that the
proposed drug is safe and effective for its proposed uses, that production methods are adequate to ensure the identity, strength, quality, and purity of the drug,
and that proposed labeling is appropriate and contains all necessary information. A 505(b)(1) NDA generally contains results of the full set of pre-clinical
studies and clinical trials conducted by or on behalf of the applicant to characterize and evaluate the product candidate. Section 505(b)(2) of the FFDCA
provides an alternate regulatory pathway to obtain FDA approval; it permits the filing of an NDA where at least some of the information required
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for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference. The applicant may
rely to some extent upon the FDA’s findings of safety and effectiveness for an approved product that acts as the reference drug, and submit its own product-
specific data - which may include data from pre-clinical studies or clinical trials conducted by or on behalf of the applicant - to address differences between
the product candidate and the reference drug. Drug manufacturers may also submit an ANDA under section 505(j) of the FFDCA to market a generic version
of an approved branded drug product. The ANDA must show that the generic version is "therapeutically equivalent," or expected to have the same clinical
effect and safety profile as the branded drug product when administered to patients under the conditions specified in the labeling.
The FDA typically uses different approval pathways for medical devices. To market and sell a new medical device in the U.S., the manufacturer generally
must follow one of two paths. First, a manufacturer could follow what is known as pre-market notification or the 510(k) process. This process requires the
manufacturer to demonstrate that the medical device is substantially equivalent to a legally marketed medical device. The second process, pre-market
approval, is a more stringent time-consuming process. This requires that the medical device is independently proven to be safe and effective for its intended
use.
For all pharmaceuticals sold in the U.S., the FDA and other federal regulatory agencies also closely regulate the marketing and promotion of
pharmaceutical products through, among other things, standards and regulations for direct-to-consumer advertising, communications regarding unapproved
uses, industry-sponsored scientific and educational activities, and promotional activities involving the Internet. A pharmaceutical product cannot be
commercially promoted before it is approved. After approval, product promotion can include only those claims relating to safety and effectiveness that are
consistent with the labeling approved by the FDA. Healthcare providers are permitted to prescribe drugs for "off-label" uses—that is, uses not approved by the
FDA and therefore not described in the drug’s labeling—because the FDA does not regulate the practice of medicine. However, FDA regulations impose
stringent restrictions on manufacturers’ communications regarding off-label uses. In general, a manufacturer may not promote a drug for off-label use, but
may engage in non-promotional, balanced communication regarding off-label use under specified conditions. Failure to comply with applicable FDA
requirements and restrictions in this area may subject a company to adverse publicity and enforcement action by the FDA, the United States Department of
Justice ("DOJ") or the Office of the Inspector General ("OIG") of the HHS, as well as state authorities. Enforcement action could subject a company to a
range of penalties that could have a significant commercial impact, including civil and criminal penalties and agreements that materially restrict the manner in
which a company promotes or distributes drug products.
In addition, the manufacture, marketing and selling of certain drug products that are controlled substances may be limited by quota grants and other
requirements or restrictions enforced by the DEA. Refer to "Drug Enforcement Administration" within this Item 1. Business for further information.
The path leading to FDA approval of a marketing application for a new pharmaceutical product begins when the product is merely a chemical
formulation in the laboratory. In general, the process involves the following steps:
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•
Completion of formulation and laboratory testing that fully characterizes the drug product from a pre-clinical perspective and provides
preliminary evidence that the drug product is safe to test in human beings, conducted in accordance with good laboratory practices and
applicable requirements for the humane use of laboratory animals or other applicable regulations;
Filing an investigational new drug ("IND") application with the FDA, which must become effective before the conduct of clinical trials (testing
in human beings under adequate and well-controlled conditions);
• Approval by an independent institutional review board ("IRB") or ethics committee representing each clinical trial site before each trial may be
initiated;
• Designing and conducting adequate and well-controlled human clinical trials to show the safety and efficacy of the product candidate for the
proposed indication in accordance with the applicable IND and other clinical trial-related regulations, sometimes collectively referred to as good
clinical practice ("GCP");
•
Submitting the marketing application for FDA review, which provides a complete characterization of the product;
• Determination by the FDA within 60 days of its receipt of a marketing application to accept and file the application for review;
•
•
•
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Satisfactory completion of potential FDA pre-approval inspections of the designated facility or facilities where the product is produced to assess
compliance with cGMP requirements;
Potential FDA audit of the non-clinical and/or clinical trial sites that generated the data in support of the marketing application;
Payment of applicable user fees;
If applicable, satisfactory completion of an FDA Advisory Committee meeting in which the FDA requests views from outside experts in
evaluating the application;
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•
•
FDA approval of the application, including prescribing information, labeling and packaging of the drug product; and
Implementation of a REMS program, if applicable, and conduct of any required Phase 4 studies, and compliance with post-approval
requirements, including ongoing monitoring and reporting of adverse events related to the product.
Clinical Trials. Clinical trials are typically conducted in four sequential phases, although they may overlap. The four phases are as follows:
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•
•
•
Phase 1. Phase 1 includes the initial introduction of an investigational product candidate into humans. Phase 1 trials generally are conducted in
healthy volunteers but in some cases are conducted in patients with the target disease or condition. These trials are designed to evaluate the
safety, metabolism, pharmacokinetic properties and pharmacologic actions of the investigational product candidate in humans, the side effects
associated with increasing doses, and if possible, to gain early evidence on effectiveness. During Phase 1 trials, sufficient information about the
investigational product candidate’s pharmacokinetic properties and pharmacological effects may be obtained to permit the design of Phase 2
trials. The total number of participants included in Phase 1 trials varies, but is generally in the range of 20 to 80.
Phase 2. Phase 2 includes the controlled clinical trials conducted in patients with the target disease or condition, to determine dosage tolerance
and optimal dosage, to identify possible adverse side effects and safety risks associated with the product candidate, and to obtain initial evidence
of the effectiveness of the investigational product candidate for a particular indication. Phase 2 trials are typically well-controlled, closely
monitored, and conducted in a limited subject population, usually involving no more than several hundred participants.
Phase 3. Phase 3 trials are controlled clinical trials conducted in an expanded subject population at geographically dispersed clinical trial sites.
They are performed after preliminary evidence suggesting effectiveness of the investigational product candidate has been obtained, and are
intended to further evaluate dosage, clinical effectiveness and safety, to establish the overall benefit-risk relationship of the product candidate,
and to provide an adequate basis for drug approval. Phase 3 trials usually involve several hundred to several thousand participants. In most
cases, the FDA requires two adequate and well controlled Phase 3 trials to demonstrate the efficacy and safety of the drug; however, the FDA
may find a single Phase 2 or Phase 3 trial with other confirmatory evidence to be sufficient in rare instances, particularly in an area of significant
unmet medical need and if the trial design provides a well-controlled and reliable assessment of clinical benefit.
Phase 4. In some cases, the FDA may condition approval of an NDA for a product candidate on the sponsor’s agreement to conduct additional
clinical trials after approval. In other cases, a sponsor may voluntarily conduct additional clinical trials after approval to gain more information
about the product. Such post-approval trials are typically referred to as Phase 4 clinical trials.
Clinical trials may not be completed successfully within a specified period of time, if at all. The decision to terminate development of an investigational
product candidate may be made by a health authority (such as the FDA), an IRB/ethics committee, or by a company for various reasons. At any time, the FDA
may order the temporary or permanent discontinuation of a clinical trial, which is referred to as a clinical hold, or impose other sanctions, if the agency
believes the clinical trial is not being conducted in accordance with FDA requirements or presents an unacceptable risk to the clinical trial patients. The
suspension or termination of development can occur during any phase of clinical trials if it is determined that the participants or subjects are being exposed to
an unacceptable health risk. In addition, there are requirements for the registration of ongoing clinical trials of product candidates on public registries and the
disclosure of certain clinical trial results and other trial information after completion.
Assuming successful completion of all required testing in accordance with all applicable regulatory requirements, detailed investigational product
candidate information is submitted to the FDA in the form of a marketing application to request market approval for the product in specified indications.
New Drug Applications. In order to obtain approval to market a drug in the United States, a marketing application must be submitted to the FDA that
provides data establishing the safety and effectiveness of the product candidate for the proposed indication. The application includes all relevant data available
from pertinent preclinical studies and clinical trials, including negative or ambiguous results as well as positive findings, together with detailed information
relating to the product’s chemistry, manufacturing, controls and proposed labeling, among other things. Data can come from company-sponsored clinical trials
intended to test the safety and effectiveness of a product, or from a number of alternative sources, including studies initiated by investigators. To support
marketing approval, the data submitted must be sufficient in quality and quantity to establish the safety and effectiveness of the investigational product
candidate to the satisfaction of the FDA.
Under the Prescription Drug User Fee Act ("PDUFA"), the FDA has the authority to collect fees from drug manufacturers who submit pharmaceutical
marketing applications for review and approval, although there may be some instances in which the user fee is waived. These user fees help the FDA fund the
drug approval process. For the federal fiscal year 2024, the user fee rate has been set at $4,048,695 for a marketing application requiring clinical data (which
could be a 505(b)(1) or 505(b)(2) NDA), and $2,024,348 for an application not requiring a clinical data. No user fees are assessed on NDAs for products
designated as orphan drugs, unless the product also includes a non-orphan-designated indication. We expense these fees as they are incurred.
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The FDA will initially review the pharmaceutical marketing application (NDA) for completeness before it accepts the application for filing. The FDA has
60 days from its receipt of an application to determine whether the application will be accepted for filing based on the agency’s threshold determination that it
is sufficiently complete to permit substantive review. After the application submission is accepted for filing, the FDA begins an in-depth review. The FDA has
agreed to certain performance goals in the review of applications. Applications for standard review product candidates are to be reviewed within ten months
of FDA’s acceptance for filing. An accelerated six-month review can be given to applications that meet certain criteria. The FDA can extend the review period
by three months, or potentially longer, to consider certain late-submitted information or information intended to clarify information provided in the initial
submission. The FDA reviews the application to determine, among other things, whether the proposed product is safe and effective for its intended use, and
whether the product is being manufactured in accordance with cGMP. FDA Advisory Committee meetings are often held for New Chemical Entities, novel
indications, or for applications that otherwise present scientific, technical, or policy questions on which the agency believes it would benefit from the
perspectives of outside experts. An advisory committee meeting includes a panel of independent experts, including clinicians and other scientific experts, who
review, evaluate and make a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the
recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.
Before approving an application, the FDA often will inspect the facilities at which the product is manufactured for cGMP compliance, and may inspect
one or more clinical sites to assure compliance with GCP. After it evaluates the application and the results of inspections, the FDA issues either an approval
letter or a complete response letter. A complete response letter generally outlines the deficiencies in the submission and may require substantial additional
testing or information in order for the FDA to reconsider the application. If those deficiencies are addressed to the FDA’s satisfaction in a resubmission of the
NDA, the FDA will issue an approval letter. The FDA has set a target of reviewing 90% of resubmissions within two or six months depending on the type of
information included. Notwithstanding the submission of any requested additional information, the FDA ultimately may decide that the application does not
satisfy the regulatory criteria for approval.
An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. As a condition of NDA
approval, the FDA may require a REMS to help ensure that the benefits of the drug outweigh the potential risks. REMS can include medication guides,
communication plans for healthcare professionals, and elements to assure safe use ("ETASU"). ETASU can include, but are not limited to, special training or
certification for prescribing or dispensing, dispensing only under certain circumstances, special monitoring, and the use of patient registries. The requirement
for a REMS can materially affect the potential market and profitability of the drug. Moreover, product approval may require substantial post-approval testing
and surveillance to monitor the drug’s safety or efficacy. Once granted, product approvals may be withdrawn if compliance with regulatory requirements is
not maintained or problems are identified following initial marketing.
Changes to some of the conditions established in an approved application, including changes in indications, labeling, or manufacturing processes or
facilities, may require submission and prior FDA approval of a supplemental application (or in some cases a new application) before the change can be
implemented. A supplemental application for a new indication typically requires clinical data similar to that in the original application, and the FDA uses the
same procedures and actions in reviewing supplements as it does in reviewing original marketing applications.
Expedited Programs. The FDA maintains certain expedited programs to facilitate the development and review processes for certain qualifying
pharmaceutical product candidates, including fast track designation, breakthrough therapy designation, priority review, accelerated approval, and regenerative
medicine advanced therapy ("RMAT") designation. A pharmaceutical product candidate may be granted fast track designation if it is intended for the
treatment of a serious or life-threatening condition and demonstrates the potential to address unmet medical needs for such condition. With fast track
designation, the sponsor may be eligible for more frequent opportunities to obtain the FDA’s feedback, and the FDA may initiate review of sections of an
application before the application is complete. This rolling review is available if the applicant provides and the FDA approves a schedule for the remaining
information. Even if a product receives fast track designation, the designation can be rescinded and provides no assurance that a product will be reviewed or
approved more expeditiously than would otherwise have been the case, or that the product will be approved at all.
The FDA may designate a product candidate as a breakthrough therapy if it finds that the product candidate is intended, alone or in combination with one
or more other product candidates or approved products, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates
that the product candidate may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints. For product
candidates designated as breakthrough therapies, more frequent interaction and communication between the FDA and the sponsor can help to identify the
most efficient path for clinical development. Product candidates designated as breakthrough therapies by the FDA may also be eligible for priority review.
Even if a product receives Breakthrough Therapy designation, the designation can be rescinded and provides no assurance that a product will be reviewed or
approved more expeditiously than would otherwise have been the case, or that the product will be approved at all.
Accelerated approval under FDA regulations allows a product designed to treat a serious or life-threatening disease or condition that provides a
meaningful therapeutic advantage over available therapies to be approved on the basis of either an intermediate clinical endpoint or a surrogate endpoint that
is reasonably likely to predict clinical benefit. Approvals of this kind typically include
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requirements for confirmatory clinical trials to be conducted with due diligence to validate the surrogate endpoint or otherwise confirm clinical benefit and for
all promotional materials to be submitted to the FDA for review prior to dissemination.
The FDA may also grant priority review designation to a product candidate, which sets the target date for FDA action on the application at six months
from FDA filing, or eight months from the sponsor’s submission. Priority review may be granted where a product is intended to treat a serious or life-
threatening disease or condition and, if approved, has the potential to provide a safe and effective therapy where no satisfactory alternative therapy exists or a
significant improvement in safety or efficacy compared to available therapy. If criteria are not met for priority review, the standard FDA review period is ten
months from FDA filing or 12 months from sponsor submission. Priority review designation does not change the scientific/medical standard for approval or
the quality of evidence necessary to support approval.
Orphan Drug Designation. Under the Orphan Drug Act, the FDA may grant orphan designation to a drug product intended to treat a "rare disease or
condition," which is generally a disease or condition that affects fewer than 200,000 individuals in the U.S., or more than 200,000 individuals in the U.S., but
for which there is no reasonable expectation that the cost of developing and making a drug product available in the U.S. for this type of disease or condition
will be recovered from sales of the product. If orphan product designation is sought, it must be requested before submitting an NDA for the drug for the
proposed rare disease or condition. If the FDA grants orphan drug designation, the common name of the therapeutic agent and its designated orphan use are
disclosed publicly by the FDA. Orphan product designation does not, by itself, convey any advantage in or shorten the duration of the regulatory review and
approval process.
If a product that has orphan designation subsequently receives the first FDA approval for the disease or condition for which it has such designation, the
product is entitled to orphan product exclusivity, which the FDA has interpreted to preclude approving for seven years any other sponsor’s application to
market the same drug for the same use for which the drug has been granted orphan drug designation, except in limited circumstances, such as a showing of
clinical superiority to the product with orphan exclusivity. Orphan exclusivity operates independently from other regulatory exclusivities and other protection
against generic competition, including patents that we hold for our products, and applies even if the competing product is supported by its own data. A
sponsor of a product application that has received an orphan drug designation generally is exempt from the $4,048,695 application fee and may qualify for tax
incentives for clinical research undertaken to support the application.
Orphan drug exclusivity does not block approval of competing products intended for the orphan-protected indication but containing a different active
moiety, or containing the same moiety but intended for a different use. Orphan product exclusivity that could block a competitor to one of our products also
could block the approval of one of our products for seven years if a competitor obtains approval of a product containing the same moiety for the same orphan
disease or condition.
Marketing Exclusivity. Upon NDA approval of a new chemical entity, which is a drug substance that contains no active moiety that has previously been
approved by the FDA in any other NDA, that drug receives five years of marketing exclusivity during which the FDA cannot accept for review any ANDA or
505(b)(2) NDA for which the new chemical entity is a reference product. (An application that contains a challenge to a patent associated with the reference
product may be submitted at four years after reference product approval.) There are provisions that operate to preclude approval of the application for an
additional period of time after submission. Certain changes to an approved drug, such as the approval of a new indication, may qualify for a three-year period
of exclusivity during which the FDA cannot approve an ANDA or 505(b)(2) NDA for a similar drug that includes the change.
Patent Term Restoration. A portion of the patent term lost during product development and FDA review of an application is restored if approval of the
application is the first permitted commercial marketing of a drug containing the active ingredient. The patent term restoration period is generally one-half the
time between the effective date of the IND or the date of patent grant (whichever is later) and the date of submission of the application, plus the time between
the date of submission of the application and the date of FDA approval of the product. The maximum period of restoration is five years, and the patent cannot
be extended to more than 14 years from the date of FDA approval of the product. Only one patent claiming an approved product or a method of using or
manufacturing it is eligible for restoration and the patent holder must apply to the U.S. Patent and Trademark Office ("USPTO") for restoration within 60 days
of FDA approval. The USPTO, in consultation with the FDA, reviews and approves the application for patent term restoration.
Post-Approval Regulation. After regulatory approval of a drug is obtained, a sponsor is required to comply with a number of post-approval requirements.
For example, as a condition of approval of an application, the FDA may require post-marketing testing, including Phase 4 clinical trials, and surveillance to
further assess and monitor the product’s safety and effectiveness after commercialization. In addition, as a holder of an approved NDA, a sponsor is required
to report adverse reactions and production problems to the FDA, provide updated safety and efficacy information, submit annual reports and comply with
advertising and promotional labeling requirements. Manufacturing must continue to conform to cGMP after approval, and the FDA periodically inspects
manufacturing facilities to assess compliance with cGMP, as discussed in Quality Assurance and Current Good Manufacturing Practice Requirements above.
Newly discovered or developed safety or effectiveness data may require changes to a product’s approved labeling, including the addition of new
warnings, contraindications, or limitations of use, and also may require the implementation of other risk management
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measures. Also, new government requirements, including those resulting from new legislation, may be established, or the FDA’s policies may change, which
could delay or prevent regulatory approval of our products under development.
ANDA Process. The path leading to FDA approval of generic drug product under an ANDA is different from that of an NDA, a BLA or even a biosimilar.
Generally, a generic drug product is one that is the same as an approved "brand" or "innovator" drug product (the reference listed drug or "RLD") in active
ingredient, dosage form, strength, and route of administration, bioequivalent to the RLD, and labeled the same as the RLD. Generic drug applications are
termed "abbreviated" because they are not required to include data to establish safety and effectiveness, instead relying on demonstrating the sameness to the
RLD, which FDA has already found to be safe and effective.
The FDA has the authority to collect, user fees from generic drug manufacturers who submit ANDAs for review and approval, and the fees collected help
the FDA fund the drug approval process. The federal fiscal year 2024 user fee rate is set at $252,453 for an ANDA. These fees are expensed as incurred. The
FDA has set a target of approving 90% of standard ANDA submissions within ten months of submission for submissions made in 2023, and 90% of priority
ANDA submissions within eight months of submission.
Medical Devices. There are two primary pathways to receive authorization to distribute a new device in the U.S. The first pathway is premarket
notification or the 510(k) process. Under this pathway, the applicant must demonstrate to the FDA that the new device is as safe and effective or substantially
equivalent to a legally marketed device. The applicant can demonstrate this by submitting data. This data may be from human clinical trials. The FDA will
make a determination as to whether the new device is substantially equivalent before commercial distribution occurs. Changes that do not significantly affect
the safety or efficacy of a legally marketed device may generally be made without additional 510(k) premarket notifications.
The second primary pathway is a premarket approval application ("PMA"). This pathway is generally more complex, time-consuming and expensive than
the 510(k) process. Under the PMA pathway, the applicant must demonstrate that the device is safe and effective for its intended use. This generally requires
data from clinical trials to show the safety and efficacy of the device. These trials must be performed in accordance with the applicable Investigational Device
Exemption regulations. The FDA will approve the application if it finds that the evidence is scientifically valid to demonstrate that the device is safe and
effective for its intended use.
Patent Period. A sponsor of an NDA is required to identify in its application any patent that claims the drug or a use of the drug subject to the
application. Upon NDA approval, the FDA lists these patents in the Orange Book. Any person that files a Section 505(b)(2) NDA, the type of NDA that relies
upon the data in the application for which the patents are listed, or an ANDA to secure approval of a generic version of a previous drug, must make a
certification in respect to listed patents. The FDA may not approve such an application for the drug until expiration of the listed patents unless the generic
applicant certifies that the listed patents are invalid, unenforceable or not infringed by the proposed generic drug and gives notice to the holder of the NDA for
the RLD of the bases upon which the patents are challenged, and the holder of the RLD does not sue the later applicant for patent infringement within 45 days
of receipt of notice. If an infringement suit is filed, the FDA may not approve the later application until the earliest of: (a) 30 months after receipt of the notice
by the holder of the NDA for the RLD; (b) entry of an appellate court judgment holding the patent invalid, unenforceable or not infringed; (c) such time as the
court may order; or (d) the expiration of the patent.
One of the key motivators for challenging patents is the 180-day market exclusivity period ("generic exclusivity") granted to the developer of a generic
version of a product that is the first to file an ANDA containing a Paragraph IV certification and that prevails in litigation with the manufacturer of the
branded product over the applicable patent(s) or is not sued or enters into a settlement agreement with the manufacturer of the branded product. For a variety
of reasons, there are situations in which a company may not be able to take advantage of an award of generic exclusivity. The determination of when generic
exclusivity begins and ends is very complicated as it depends on several different factors.
Risk Evaluation and Mitigation Strategies. The FDA has the authority to require a pharmaceutical manufacturer to provide a REMS that is intended to
ensure that the benefits of a drug or class of products outweigh the risks of harm. The goal of these programs is to mitigate the risk of abuse, misuse, overdose
and accidental exposure as well as educating prescribers, pharmacists, healthcare providers and patients about the safe use of the drug product or class of drug
products and the treatment and monitoring of patients. The FDA has the authority to impose civil penalties on or take other enforcement action against any
drug manufacturer who fails to properly implement an approved REMS program. We participate in the Opioid Analgesic REMS, Buprenorphine
Transmucosal Products for Opioid Dependence REMS, Vigabatrin REMS and other such REMS programs.
Drug Enforcement Administration. The DEA is the U.S. federal agency responsible for domestic enforcement of the federal Controlled Substances Act of
1970 ("CSA"). Compounds that have a potential for dependence and abuse are scheduled as controlled substances under the CSA and similar state and foreign
laws. Drugs that are scheduled as controlled substances are subject to stringent regulatory requirements, including requirements for registering manufacturing
and distribution facilities, security controls and employee screening, recordkeeping, reporting, product labeling and packaging, import and export. There are
five federal schedules for controlled substances, known as Schedule I, II, III, IV and V. The CSA classifies drugs and other substances based on identified
potential for abuse. The regulatory requirements that apply to a drug vary depending on the particular controlled substance schedule into which a drug is
placed, based on consideration of a number of factors, including its potential for dependence and abuse. Schedules I and II contain the most stringent
restrictions and requirements, and Schedule V the least. Schedule I controlled substances, such as heroin and LSD, have a high abuse potential and have no
currently accepted medical use; thus, they cannot be lawfully marketed or
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sold. Opioids, such as oxycodone, oxymorphone, morphine and hydrocodone, are Schedule II controlled substances. Consequently, the manufacture, storage,
distribution and sale of these substances are highly regulated. For all controlled substances, there are potential criminal and civil penalties that apply for the
failure to meet applicable legal requirements, and healthcare professionals must have a DEA license in order to handle, prescribe, or dispense controlled
substances.
The DEA regulates the availability of substances that are classified as Schedule II controlled substances by setting annual aggregate production quotas
("APQs"). Every year, we must apply to the DEA for manufacturing quota to manufacture API and procurement quota to manufacture finished dose products
for our products that are classified as Schedule II controlled substances. Given that the DEA has discretion to grant or deny our manufacturing and
procurement quota requests, the quota the DEA grants may be insufficient to meet our commercial and R&D needs. In calendar year 2023, manufacturing and
procurement quotas granted by the DEA were sufficient to meet our sales and inventory requirements for most of our products. In December 2023, the DEA
continued to further reduce, as it has done over the past several years, the APQs for the top misused Schedule II opioids that may be manufactured in the U.S.
in calendar year 2024. This includes oxycodone, hydrocodone, oxymorphone and hydromorphone. The DEA has complete discretion to adjust or leave
unchanged these quotas from time to time during the calendar year and to allocate manufacturing and procurement quota to manufacturers.
DEA regulations include certain restrictions for a manufacturer in the U.S. to import finished dosage forms of controlled substances manufactured outside
the U.S. These rules reflect a broader enforcement approach by the DEA to regulate the manufacture, distribution and dispensing of legally produced
controlled substances. Accordingly, drug manufacturers who market and sell finished dosage forms of controlled substances in the U.S. typically manufacture
or have them manufactured in the U.S.
The DEA also requires drug manufacturers to design and implement a system that identifies suspicious orders of controlled substances, such as those of
unusual size, those that deviate substantially from a normal pattern and those of unusual frequency, prior to distribution of the controlled substance order. A
compliant suspicious order monitoring ("SOM") system includes well-defined due diligence, "know your customer" efforts and order monitoring. One of our
Specialty Generics subsidiaries utilizes all available transaction information to identify suspicious orders of any Mallinckrodt controlled substance product
and reports such suspicious orders to the DEA when it concludes that chargeback data or other information indicates that a downstream registrant poses a risk
of diversion.
To meet its responsibilities, the DEA conducts periodic inspections of registered establishments that handle controlled substances. Annual registration is
required for any facility that manufactures, tests, distributes, dispenses, imports or exports any controlled substance. The facilities must have the security,
control and accounting mechanisms required by the DEA to prevent loss and diversion.
Individual states also regulate controlled substances, and we, as well as our third-party API suppliers and manufacturers, are subject to such regulation by
several states with respect to the manufacture and distribution of these products.
We and, to our knowledge, our third-party API suppliers, dosage form manufacturers, distributors and researchers have all necessary registrations, and we
believe all registrants operate in conformity with applicable registration requirements, under controlled substance laws.
Government Benefit Programs. Statutory and regulatory requirements for Medicaid, Medicare, Tricare and other government healthcare programs govern
provider reimbursement levels, as well as require that each pharmaceutical manufacturer that participates in the Medicaid Drug Rebate Program pay rebates to
individual states based on a percentage of their net sales arising from Medicaid program-reimbursed products. The federal and state governments may
continue to enact measures in the future aimed at containing or reducing payment levels for, or increasing rebates on, prescription pharmaceuticals paid for in
whole or in part with government funds. We cannot predict the nature of such measures, which could have material adverse consequences for the
pharmaceutical industry as a whole and, consequently, also for us. However, we believe we have provided for our best estimate of potential refunds based on
current information available.
From time to time, legislative changes are made to government healthcare programs that impact our business. For example, the Medicare Prescription
Drug Improvement and Modernization Act of 2003 created a prescription drug coverage program for people with Medicare through a system of government-
regulated private market drug benefit plans. This law provides a prescription drug benefit to seniors and individuals with disabilities in the Medicare program
("Medicare Part D"). Congress continues to examine various Medicare policy proposals that may result in pressure on the prices of prescription drugs in the
Medicare program.
The Centers for Medicare & Medicaid Services ("CMS"), the agency that administers the Medicare and Medicaid programs, may implement or revise
reimbursement or coverage restrictions under those programs, and a state may do likewise under the Medicaid program. Any reduction in reimbursement or
restriction of coverage under Medicare, Medicaid or other government programs may result in a similar reduction in payments or restriction of coverage by
private payors. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain
profitability, or commercialize our products.
In addition, the Patient Protection and Affordable Care Act of 2010, as amended ("Affordable Care Act") provided for major changes to the U.S.
healthcare system, which impacted the delivery and payment for healthcare services in the U.S. Our business has
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been impacted by, among other things, changes to the rebates under the Medicaid Fee-For-Service Program and new rebates on Medicaid Managed Care
utilization and the imposition of an annual fee on branded prescription pharmaceutical manufacturers. Medicaid provisions reduced net sales by $15.8 million,
$110.6 million, $70.7 million and $65.2 million for the period November 15, 2023 through December 29, 2023 (Successor), the period December 31, 2022
through November 14, 2023 (Predecessor), the period June 17, 2022 through December 30, 2022 (Predecessor), and the period January 1, 2022 through June
16, 2022 (Predecessor), respectively. Our business was also impacted by the annual fee on branded prescription pharmaceutical manufacturers, which is
reflected within selling, general and administrative expenses ("SG&A"). During the period November 15, 2023 through December 29, 2023 (Successor), the
period December 31, 2022 through November 14, 2023 (Predecessor), the period June 17, 2022 through December 30, 2022 (Predecessor), and the period
January 1, 2022 through June 16, 2022 (Predecessor), we recorded an expense of $0.4 million, $3.5 million, $2.0 million and $3.8 million, respectively.
The Affordable Care Act also established a Medicare Part D coverage gap discount program, under which manufacturers must agree to offer point-of-sale
discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during the coverage gap period, as a condition for the manufacturer’s
outpatient drugs to be covered under Medicare Part D. These discounts were increased to 70% of negotiated costs pursuant to the Bipartisan Budget Act of
2018, which was effective beginning in 2019. This coverage gap program will be replaced by a new manufacturer discount program beginning in 2025.
On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022 ("Inflation Reduction Act") which, among other things,
establishes Medicare Part B and Part D inflation rebate scheme, under which, generally speaking, manufacturers will owe rebates if the average sales price of
a Part B drug or the average manufacture price of a Part D drug increases faster than the pace of inflation. Failure to timely pay an inflation rebate is subject to
a civil monetary penalty. The Inflation Reduction Act also creates a drug price negotiation program under which the prices for Medicare units of certain high
Medicare spend drugs and biologics without generic or biosimilar competition will be capped by reference to, among other things, a specified non-federal
average manufacturer price, starting in 2026. Failure to comply with requirements under the drug price negotiation program is subject to an excise tax and/or
a civil monetary penalty. The Inflation Reduction Act further makes changes to the Medicare Part D benefit, including sunsetting the existing coverage gap
discount program and replacing it with a new manufacturer discount program in 2025. Failure to offer discounts under this program could be subject to civil
monetary penalties. Under the Inflation Reduction Act, certain drug products may be eligible for a small biotech exemption based on specified thresholds
around Medicare program spending. Products with this designation are exempt from the drug price negotiation program in 2026, 2027, and 2028; and will be
phased into the manufacturer liability for Medicare Part D benefit redesign over a number of years. Congress continues to examine various policy proposals
that may result in pressure on the prices of prescription drugs in the government health benefit programs. The Inflation Reduction Act or other legislative
changes could impact the market conditions for our product candidates.
Pharmaceutical Pricing and Reimbursement. Certain of our affiliates that are manufacturers participate in the Medicaid Drug Rebate Program and other
governmental programs. Each manufacturer that participates in the Medicaid Drug Rebate Program is required to pay a rebate to each state Medicaid program
for its covered outpatient drugs that are dispensed to Medicaid beneficiaries and paid for by a state Medicaid program, as a condition of having federal funds
available for that manufacturer’s drugs under Medicaid and Medicare Part B. Those rebates are based on pricing data the manufacturer reports on a monthly
and quarterly basis to CMS, the federal agency that administers the Medicare and Medicaid programs. These data include the average manufacturer price and,
in the case of innovator products, the best price for each drug, which best price, in general, represents the lowest price available from the manufacturer to any
wholesaler, retailer, provider, health maintenance organization, nonprofit entity, or governmental entity in the U.S. in any pricing structure, calculated to
include all sales and associated rebates, discounts, and other price concessions. Where the average manufacturer price of a drug increases faster than the pace
of inflation, the drug may be subject to an additional rebate paid by its manufacturer in the amount that the average manufacturer price has exceeded the pace
of inflation. The Medicaid rebate is no longer subject to a cap effective January 1, 2024, and our rebate liability could increase significantly for certain
products. On December 31, 2020, CMS issued a final regulation that modified prior Medicaid Drug Rebate Program regulations to permit reporting multiple
best price figures with regard to value‑based purchasing arrangements (beginning in 2022); and provide definitions for "line extension," "new formulation,"
and related terms, with the practical effect of expanding the scope of drugs considered to be line extensions that are subject to an alternative rebate formula
(beginning in 2022). A manufacturer’s failure to comply with these price reporting and rebate payment requirements, as well as forthcoming statutory changes
to such requirements, could negatively impact its financial results.
Federal law requires that each manufacturer that participates in the Medicaid Drug Rebate Program also participate in the 340B drug pricing program in
order for federal funds to be available for the manufacturer’s drugs under Medicaid and Medicare Part B. The 340B program, which is administered by the
Health Resources and Services Administration ("HRSA"), 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. These 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,
certain free-standing cancer hospitals, critical access hospitals, rural referral centers and sole community hospitals. The Affordable Care Act exempts "orphan
drugs" from the ceiling price requirements for certain hospital covered entities. The 340B ceiling price is calculated using a statutory formula, which is based
on the average manufacturer price and rebate amount for the covered outpatient drug as calculated under the Medicaid Drug Rebate Program, and, in general,
products subject to Medicaid price reporting and rebate
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liability are also subject to the 340B ceiling price calculation and discount requirement. Where a drug is subject to an additional rebate, as noted previously, or
a low best price, the 340B ceiling price may calculate as low as, but not lower than, $0.01 per unit. Changes to the Medicaid Drug Rebate amount also could
affect a manufacturer’s 340B ceiling price calculations and negatively impact results of operations.
HRSA issued a final regulation regarding the calculation of the 340B ceiling price and the imposition of civil monetary penalties on manufacturers that
are found to have knowingly and intentionally overcharged covered entities, which became effective on January 1, 2019. It is unclear how the government
will apply its enforcement authority under the regulation. Manufacturers also are required to report 340B ceiling prices to HRSA on a quarterly basis, and
HRSA then publishes them to covered entities. Moreover, under a final regulation effective January 13, 2021, HRSA newly established an administrative
dispute resolution ("ADR"), process for claims by covered entities that a manufacturer has engaged in overcharging, and by manufacturers that a covered
entity violated the prohibitions against diversion or duplicate discounts. Such claims are to be resolved through an ADR panel of government officials
rendering a decision that could be appealed only in federal court. An ADR proceeding could subject a manufacturer to onerous procedural requirements and
result in additional liability.
For calendar quarters beginning January 1, 2022, manufacturers are required to report the average sales price for certain Medicare Part B-covered
products under the Medicare program, whereas they previously were only required to do so if they participated in the Medicaid Drug Rebate Program.
Manufacturers calculate the average sales price based on a statutorily defined formula as well as regulations and interpretations of the statute by CMS. CMS
may use these submissions to determine payment rates for drugs under Medicare Part B. Since 2023, manufacturers must pay refunds to Medicare for single
source drugs or biologics, or biosimilar biological products, reimbursed under Medicare Part B and packaged in single-dose containers or single-use packages,
for units of discarded drug reimbursed by Medicare Part B in excess of ten percent of total allowed charges under Medicare Part B for that drug.
Manufacturers that fail to pay refunds could be subject to civil monetary penalties of 125 percent of the refund amount. In addition, as noted previously, a
manufacturer may be liable for Part B inflation rebates for utilization in quarters starting with the first quarter of 2023. Manufacturers may be liable for civil
monetary penalties for violations of this program.
Statutory or regulatory changes or CMS guidance could affect the average sales price calculations for approved products and the resulting Medicare
payment rate, and could negatively impact results of operations. Also, the Medicare Part B drug payment methodology is subject to change based on
legislation enacted by Congress.
Congress also could enact additional changes that affect overall rebate liability and the information manufacturers report to the government as part of
price reporting calculations, which could impact the market conditions for our products. We further expect continued scrutiny on government price reporting
and pricing more generally from Congress, agencies, and other bodies, and are seeing an increase in state interest in price reporting, transparency, and other
policies to address drug pricing concerns. For additional information about the risk associated with these programs, please see "Our reporting and payment
obligations under the Medicare and Medicaid rebate programs, and other governmental purchasing and rebate programs, are complex. Any determination of
failure to comply with these obligations or those relating to healthcare fraud and abuse laws could have a material adverse effect on our business" included
within Item 1A. Risk Factors of this Annual Report.
In order to be eligible to have our products paid for with federal funds under the Medicaid and Medicare Part B programs and purchased by the
Department of Veterans Affairs ("VA"), Department of Defense ("DoD"), Public Health Service, and Coast Guard (collectively, the Big Four agencies) and
certain federal grantees, we are required to participate in the VA Federal Supply Schedule ("FSS") pricing program, established under Section 603 of the
Veterans Health Care Act of 1992. Under this program, we are obligated to make our "covered" drugs (i.e., innovator drugs and biologics) available for
procurement on an FSS contract and charge a price to the Big Four agencies that is no higher than the Federal Ceiling Price ("FCP"), which is a price
calculated pursuant to a statutory formula. The FSS program also allows us (but does not require us) to list certain non-covered drugs on an FSS contract at
negotiated pricing, not capped at the FCP. The FCP is derived from a calculated price point called the "non-federal average manufacturer price" ("non-
FAMP"), which we are required to calculate and report to the VA on a quarterly and annual basis. Pursuant to applicable law, knowing provision of false
information in connection with a non-FAMP filing can subject a manufacturer to significant civil monetary penalties for each item of false information. The
FSS contract also contains extensive disclosure and certification requirements. In addition, Section 703 of the National Defense Authorization Act for FY
2008, requires us to pay quarterly rebates to DoD on utilization of covered drugs that are dispensed through DoD’s Tricare network pharmacies to Tricare
beneficiaries. The rebates are calculated as the difference between the annual non-FAMP and FCP for the calendar year that the product was dispensed. If we
overcharge the government in connection with the FSS contract or Tricare Retail Pharmacy Rebate Program, whether due to a misstated FCP or otherwise, we
will be required to refund the difference to the government. Failure to make necessary disclosures and/or to identify contract overcharges can result in
allegations against us under the False Claims Act ("FCA") and other laws and regulations. Unexpected refunds to the government, and any response to
government investigation or enforcement action, would be expensive and time-consuming, and could have a material adverse effect on our business, financial
condition, results of operations and growth prospects.
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Healthcare Fraud and Abuse Laws
We are subject to various laws targeting fraud and abuse in the healthcare industry. For example, in the U.S., there are federal and state anti-kickback,
false claims, and other related laws that apply to healthcare products and services that are ultimately paid for by government health care programs. These laws
include the following:
•
•
•
The U.S. Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving anything of
value to induce (or in return for) the referral of business, including the purchase, recommendation or prescription of a particular drug
reimbursable under Medicare, Medicaid or other federally financed healthcare programs. The statute has been interpreted to apply to
arrangements between pharmaceutical companies on one hand and patients, prescribers, purchasers and formulary managers on the other.
Although there are a number of statutory exemptions and regulatory safe harbors protecting certain common manufacturer business
arrangements and activities from prosecution and administrative sanction, the exemptions and safe harbors are drawn narrowly and are subject to
regulatory revision or changes in interpretation by the DOJ and OIG. Practices or arrangements that involve remuneration may be subject to
scrutiny if they do not qualify for an exemption or safe harbor. Violations of the federal Anti-Kickback Statute may be established without
proving specific intent to violate the statute.
The federal civil FCA prohibits, among other things, any person from knowingly presenting, or causing to be presented, a false or fraudulent
claim for payment of federal funds, or knowingly making, or causing to be made, a false statement material to a false claim. A claim resulting
from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim. The FCA also permits a private individual acting as
a "whistleblower" to bring actions on behalf of the federal government alleging violations of the statute and to share in any monetary recovery.
The healthcare fraud provisions under the Health Insurance Portability and Accountability Act of 1996 ("HIPAA"), which extend to non-
government health benefit programs and which impose criminal liability for, among other things, knowingly and willfully executing, or
attempting to execute, a scheme to defraud any health care benefit program, including private third party payors, or falsifying or covering up a
material fact or making any materially false or fraudulent statement in connection with the delivery of or payment for health care benefits, items
or services.
Violations of these laws can lead to civil and criminal penalties, fines (including mandatory penalties on a per claim or statement basis for violations of
the FCA), damages, imprisonment and exclusion from participation in federal healthcare programs. These laws apply to hospitals, physicians and other
potential purchasers of our products and are applicable to us as both a manufacturer and a supplier of products reimbursed by federal healthcare programs. In
addition, some states in the U.S. have enacted compliance and reporting requirements aimed at drug manufacturers. Many states also have statutes or
regulations similar to the federal anti-kickback law and the FCA and which apply to items and services reimbursed under Medicaid and other state programs,
or, in several states, apply regardless of the payor. Other states restrict whether and when pharmaceutical companies may provide meals to health care
professionals or engage in other marketing-related activities, and certain states and cities require identification or licensing of sales representatives.
We are also subject to the Foreign Corrupt Practices Act of 1977 ("FCPA") and similar worldwide anti-bribery laws in non-U.S. jurisdictions, such as the
United Kingdom ("U.K.") Bribery Act of 2010, which generally prohibit companies and their intermediaries from making improper payments to non-U.S.
officials for the purpose of obtaining or retaining business. Because of the predominance of government-sponsored healthcare systems around the world, most
of our customer relationships outside of the U.S. are with governmental entities and are therefore subject to such anti-bribery laws. Our policies mandate
compliance with these anti-bribery laws; however, we operate in many parts of the world that have experienced governmental corruption to some degree and,
in certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices. Despite our training and compliance
programs, our internal control policies and procedures may not protect us from reckless or criminal acts committed by our employees or agents.
Sunshine Act and Transparency Laws
The U.S. Physician Payment Sunshine Act ("Sunshine Act") requires tracking of payments and transfers of value to physicians and teaching hospitals and
ownership interests held by physicians and their families, and reporting to the federal government and public disclosure of these data. Since 2022,
manufacturers must also report transfers of value made to physician assistants, nurse practitioners, clinical nurse specialists, certified nurse anesthetists, and
certified nurse-midwives. Certain states also require pharmaceutical companies to report expenses relating to the marketing and promotion of pharmaceutical
products and to report transfers of value made to healthcare providers in the applicable state.
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Data Protection and Privacy
We are also subject to laws and regulations governing the privacy and security of health related and other personal data we collect and maintain (e.g.,
European Union’s ("E.U.") General Data Protection Regulation ("GDPR"), Section 5 of the Federal Trade Commission Act ("FTC Act"), HIPAA, the
California Consumer Privacy Act ("CCPA"), as amended by the California Privacy Rights Act ("CPRA"), and other state comprehensive privacy laws.
In Europe, the GDPR governs the collection, use, disclosure, transfer or other processing of personal data of individuals within the European Economic
Area. Among other things, the GDPR imposes requirements regarding the security of personal data and notification of data breaches to the competent national
data processing authorities, requires having lawful bases on which personal data can be processed. The GDPR imposes substantial fines for breaches and
violations (up to the greater of €20 million or 4% of our annual global turnover for the most serious breaches) and confers the right for data subjects to lodge
complaints with supervisory authorities, seek judicial remedies and obtain compensation for damages resulting from violations of the GDPR.
The Federal Trade Commission ("FTC") sets expectations for failing to take appropriate steps to keep consumers’ personal information secure, or failing
to provide a level of security commensurate to promises made to individual about the security of their personal information (such as in a privacy notice) may
constitute unfair or deceptive acts or practices in violation of Section 5(a) of the FTC Act. The FTC expects a company’s data security measures to be
reasonable and appropriate in light of the sensitivity and volume of consumer information it holds, the size and complexity of its business, and the cost of
available tools to improve security and reduce vulnerabilities. Individually identifiable health information is considered sensitive data that merits stronger
safeguards. With respect to privacy, the FTC also sets expectations that companies honor the privacy promises made to individuals about how the company
handles consumers’ personal information; any failure to honor promises, such as the statements made in a privacy policy or on a website, may also constitute
unfair or deceptive acts or practices in violation of the FTC Act. While we do not intend to engage in unfair or deceptive acts or practices, the FTC has the
power to enforce promises as it interprets them, and events that we cannot fully control, such as data breaches, may be result in FTC enforcement.
Enforcement by the FTC under the FTC Act can result in civil penalties or enforcement actions.
HIPAA imposes privacy and security obligations on covered entity health care providers, health plans, and health care clearinghouses, as well as their
"business associates" – certain persons or covered entities that create, receive, maintain, or transmit protected health information in connection with providing
a specified service or performing a function on behalf of a covered entity. We could potentially be subject to criminal penalties if we, our affiliates, or our
agents knowingly receive individually identifiable health information maintained by a HIPAA-covered entity in a manner that is not authorized or permitted
by HIPAA.
In California, the CCPA establishes certain requirements for data use and sharing transparency and creates new data privacy rights for California
residents. The CCPA and its implementing regulations have already been amended multiple times since their enactment, including by the CPRA. The CPRA
introduced significant amendments to the CCPA and established and funded a dedicated California privacy regulator, the California Privacy Protection
Agency ("CPPA"). The amendments introduced by the CPRA went into effect on January 1, 2023, and new implementing regulations continue to be
introduced by the CPPA. Failure to comply with the CCPA may result in, among other things, significant civil penalties and injunctive relief, or statutory or
actual damages. In addition, California residents have the right to bring a private right of action in connection with certain types of incidents. These claims
may result in significant liability and damages. Other states, including Virginia, Colorado, Utah, Indiana, Iowa, Tennessee, Montana, Texas, and Connecticut
have enacted similar privacy laws that impose new obligations or limitations in areas affecting our business and we continue to assess the impact of these state
legislation, on our business as additional information and guidance becomes available. These laws and regulations are evolving and subject to interpretation,
and may impose limitations on our activities or otherwise adversely affect our business.
Compliance with these laws and regulations may require significant additional cost expenditures or changes in products or our business that increase
competition or reduce revenue. Noncompliance could result in the imposition of fines, penalties, or orders to stop noncompliant activities, or withdrawal of
non-compliant products from a market.
Compliance Programs
In order to systematically and comprehensively mitigate the risks of non-compliance with legal and regulatory requirements described within this Item 1.
Business, we have developed what we believe to be robust compliance programs based on the April 2003 OIG Compliance Program Guidance for
Pharmaceutical Manufacturers, the U.S. DOJ Guidance on the Evaluation of Corporate Compliance Programs, the U.S. Federal Sentencing Guidelines, the
Pharmaceutical Research and Manufacturers of America Code on Interactions with Healthcare Professionals, the Code of Ethics of the Advanced Medical
Technology Association, the U.K. Anti-Bribery guidance, FCPA guidance and other relevant guidance from government and national or regional industry
codes of behavior. As further described below, we also operate under a corporate integrity agreement ("CIA") and an Operating Injunction (as defined below).
We conduct ongoing compliance training programs for all employees and maintain a 24-hour integrity and compliance reporting hotline with a strict policy of
non-retaliation. Our compliance programs are implemented and facilitated by our Chief
22
Compliance Officer ("CCO"), who reports to the Chief Executive Officer ("CEO") and the Governance and Compliance Committee of our Board of Directors.
The Compliance function is independent of the manufacturing and commercial operations functions.
As part of our compliance program, we have implemented internal cross-functional processes to review and approve product-specific promotional
materials, presentations and external communications to address the risk of misbranding, mislabeling or making false or misleading claims about our products
through our promotional efforts. In addition, we monitor business activities through our compliance monitoring program including: sales representative
expenses, promotional speaker activities and a "ride along" program for compliance to observe field sales and medical representatives interacting with
healthcare professionals and organizations. We have also implemented a comprehensive controlled substances compliance program, including SOM and anti-
diversion efforts and we regularly assist federal, state and local law enforcement and prosecutors in the U.S. by providing information and testimony on our
products and placebos for use by the DEA and other law enforcement agencies in investigations and at trial. As part of this program, we also work with some
of our customers to help develop and implement what we believe are best practices for SOM and other anti-diversion activities.
We believe our compliance program's design addresses our FDA, healthcare anti-kickback, anti-fraud, and anti-bribery-related risks. We believe we have
complied with reporting obligations of the Sunshine Act and relevant state disclosure laws and have implemented a program across the Company to track and
report data per CMS guidance and state disclosure requirements.
Corporate Integrity Agreement
In concert with the 2020 Plan, the Company entered into a CIA with the OIG within the HHS in March 2022. The CIA has a five-year term and requires,
among other things, enhancements to our compliance program, fulfillment of self-reporting, monitoring and training obligations, management certifications
and resolutions from the Mallinckrodt Board of Directors. In addition, we were required to retain an independent review organization to conduct annual
reviews of certain Company systems and transactions related to Specialty Brands government pricing and patient assistance activities. We continue to comply
with our CIA obligations.
Operating Injunction
In connection with the 2020 Bankruptcy Proceedings, we implemented steps to comply with an operating injunction ("Operating Injunction") enjoining
certain Mallinckrodt entities from engaging in certain conduct related to the manner in which they operate their opioid business. We reaffirmed these
obligations in connection with the 2023 Bankruptcy Proceedings. The Operating Injunction prohibits, among other things, certain promotional activities
related to opioid products and pain treatment, financial and in-kind support for third parties involved with opioids or pain treatment, and certain lobbying
activities and communications related to opioids and pain treatment. The Operating Injunction also contains requirements for controlled substances SOM and
reporting. The Operating Injunction further requires Mallinckrodt to make available certain clinical data through a third-party data archive and publicly
disclose certain produced documents related to the opioid litigation. We implemented an Opioid Product Operating Injunction compliance program as a result
of the Operating Injunction. The Operating Injunction provides that Mallinckrodt must retain an independent monitor to evaluate and audit compliance with
the Operating Injunction for a term of five to seven years. On February 8, 2021, the Bankruptcy Court entered an order appointing R. Gil Kerlikowske to
serve as monitor.
The monitor has issued nine compliance reports describing his work and making certain recommendations regarding potential enhancements to the
Company's processes that the Company has worked to implement. The Company has, among other actions, retained a consulting firm with expertise in data
analytics to consult regarding the Company's SOM program; enhanced the Company's internal system for customer inquiries and concerns to encourage
further collaboration across business units; and implemented a plan to audit state and federal lobbying activity to monitor compliance with the Operating
Injunction.
Outside the United States
Outside the U.S., we must comply with laws, guidelines and standards promulgated by other regulatory authorities that regulate the development, testing,
manufacturing, distribution, marketing and selling of medicinal products and medical devices, including, but not limited to, Health Canada, the Medicines and
Healthcare Products Regulatory Agency ("MHRA") in the U.K., the European Medicines Agency ("EMA"), the European Commission and member states of
the E.U. and their competent authorities such as the Irish Medicines Board, the Therapeutic Goods Administration in Australia, the Ministry of Health and
Welfare in Japan, the European Pharmacopoeia of the Council of Europe and the International Conference on Harmonization. Although international
harmonization efforts continue, many laws, guidelines and standards differ by region or country. We currently market our products in Canada, in various
countries in the E.U., and in the Latin American, Middle Eastern, African and Asia-Pacific regions. The approval requirements and process vary by country,
and the time required to obtain a marketing authorization may vary from that required for FDA approval. Certain drug products and variations in drug product
lines also must meet country-specific and other local regulatory requirements. The following discussion highlights some of the differences in the approval
process in other regions or countries outside the U.S.
23
European Union. Marketing authorizations for medicinal products are obtained pursuant to a centralized, decentralized or mutual recognition procedure.
Irrespective of the procedure, an authorization may only be granted to an applicant established in the E.U.
The centralized procedure, which provides for a single marketing authorization valid for all E.U. member states as well as three of the four European Free
Trade Association countries (Iceland, Liechtenstein and Norway), is mandatory for the approval of certain medicinal products including orphan medicinal
products and biotechnology-derived medicinal products and is optional for others such as novel drug products that are in the interest of patient health. Under
the centralized procedure, a single marketing authorization application is submitted for review to the Committee for Medicinal Products for Human Use
established at the EMA, which makes a recommendation on the application to the European Commission, who determines whether or not to approve the
application. The decentralized procedure allows companies to file identical applications to several E.U. member states simultaneously for product candidates
that have not yet been authorized in any E.U. member state. The maximum timeframe for completion of the procedure is in principle 210 days.
A mutual recognition procedure allows companies that have a product already authorized in one E.U. member state to apply for that authorization to be
recognized by the competent authorities in other E.U. member states.
Biosimilars can only be authorized once the period of data exclusivity on our candidate, as 'reference' biological medicinal product, has expired. In
general, this means that the biological reference medicine must have been authorized for at least eight years before another company can apply for approval of
a similar biological product and further two years until the biosimilar can be marketed.
Medical Devices. In the E.U., medical devices must currently comply with the General Safety and Performance Requirements laid down in Annex I to the
E.U. Medical Devices Regulation ("MDR"). Compliance with these requirements is a prerequisite to be able to affix the CE mark on products, without which
they cannot be marketed or sold in the E.U. To demonstrate compliance with the General Safety and Performance Requirements of the E.U. MDR and obtain
the right to affix the CE mark, medical devices manufacturers must undergo a conformity assessment procedure, which varies according to the type of medical
device and its classification. Apart from low risk medical devices (Class I with no measuring function and which are not sterile and not reusable), in relation
to which the manufacturer may issue an EC Declaration of Conformity based on a self-assessment of the conformity of its products with the General Safety
and Performance Requirements, a conformity assessment procedure requires the intervention of a notified body, which is an organization designated by a
Competent Authority of an E.U. member state to conduct conformity assessments. Depending on the relevant conformity assessment procedure, the notified
body would audit and examine the technical documentation and the quality system for the manufacture, design and final inspection of the medical devices.
The notified body issues a CE Certificate of Conformity following successful completion of a conformity assessment procedure conducted in relation to the
medical device and its manufacturer and their conformity with the General Safety and Performance Requirements. This Certificate and the related conformity
assessment process entitles the manufacturer to affix the CE mark to its medical devices after having prepared and signed a related EC Declaration of
Conformity. Notified bodies must be accredited by the E.U. member states’ accreditation bodies to conduct assessment procedures for medical devices in
accordance with the E.U. MDR. There are currently a relatively small number of notified bodies that have been accredited to conduct these assessments. This
may delay conformity assessment procedures in the future in the E.U.
The E.U. has also adopted directives and other laws that govern the labeling, marketing, advertising, supply, distribution of medicinal products and
medical devices. Such directives set regulatory standards throughout the E.U. and permit member states to supplement such standards with additional
requirements.
Country-specific regulation of the E.U. member states remains essential also regarding pricing and reimbursement. European governments also regulate
medicinal products prices through the control of national healthcare systems that fund a large part of such costs to patients. Many regulate the pricing of a new
medicinal product at launch through direct price controls or reference pricing and, recently, some have also imposed additional cost-containment measures on
drug products. Such differences in national pricing regimes may create price differentials between E.U. member states. Many European governments also
advocate generic substitution by requiring or permitting prescribers or pharmacists to substitute a different company's generic version of a branded medicinal
product that was prescribed, and patients are unlikely to take a drug product that is not reimbursed by their government.
The regulatory regime for the U.K. is different which may cause additional administrative burdens. The U.K., comprising Great Britain and Northern
Ireland, left the E.U. on January 31, 2020, following which existing E.U. medicinal product legislation continued to apply in the U.K. during the transition
period until December 31, 2020, under the terms of the E.U.-U.K. Withdrawal Agreement. During this period, the U.K. and the E.U. negotiated a Trade and
Cooperation Agreement ("TCA"), for their future relationship that became effective on January 1, 2021.
Great Britain (England, Scotland and Wales) is now treated as a "third country," a country that is not a member of the E.U. whereas, as a result of the
Northern Ireland Protocol, Northern Ireland continues to follow the E.U. regulatory regime. The MHRA is responsible for both Great Britain and Northern
Ireland. Following the effectiveness of the Human Medicines (Amendment etc.) (EU Exit) Regulations 2019 on January 31, 2020, the U.K. regulatory regime
for clinical trials, marketing authorizations, importing, exporting and pharmacovigilance largely mirrors that of the E.U. As part of the TCA, the E.U. and the
U.K. will recognize good manufacturing practice ("GMP") inspections carried out by the other party and accept official GMP documents issued by the other
24
party. The TCA also encourages, although it does not oblige, the parties to consult one another on proposals to introduce significant changes to technical
regulations or inspection procedures. Among the areas of absence of mutual recognition are batch testing and batch release. The U.K. has unilaterally agreed
to accept E.U. batch testing and batch release for a period of at least 2 years which terminated on January 1, 2023. However, the E.U. continues to apply E.U.
laws that require batch testing and batch release to take place in the E.U. territory. This means that medicinal products that are tested and released in the U.K.
must be retested and re-released when entering the E.U. market for commercial use. As it relates to marketing authorizations, Great Britain has introduced a
separate regulatory submission process, approval process and a separate national marketing authorization. Northern Ireland, however, continues to be covered
by the marketing authorizations granted by the European Commission. The U.K. regulatory regime for medical devices is largely aligned with previous E.U.
directives and will soon be subject to changes that will probably bring it closer to the current E.U. regulations.
Emerging Markets. Many emerging markets continue to evolve their regulatory review and oversight processes. At present, such countries typically
require prior regulatory approval or marketing authorization from large, developed markets (such as the U.S.) before they will initiate or complete their
review. Some countries also require the applicant to conduct local clinical trials as a condition of marketing authorization. Many emerging markets continue to
implement measures to control drug product prices, such as implementing direct price controls or advocating the prescribing and use of generic drugs.
Environmental
Our operations, like those of other pharmaceutical companies, involve the use of substances regulated under environmental laws, primarily in
manufacturing processes and, as such, we are subject to numerous federal, state, local and non-U.S. environmental protection and health and safety laws and
regulations. We cannot provide assurance that we have been or will be in full compliance with environmental, health and safety laws and regulations at all
times. Certain environmental laws assess strict, (i.e., can be imposed regardless of fault) joint and several liability on current or previous owners of real
property and current or previous owners or operators of facilities for the costs of investigation, removal or remediation of hazardous substances or materials at
such properties or at properties at which parties have disposed of hazardous substances. We have, from time to time, received notification from the EPA and
from state environmental agencies in the U.S. that conditions at a number of sites where the disposal of hazardous substances has taken place requires
investigation, cleanup and other possible remedial actions. These agencies may require that we reimburse the government for costs incurred at these sites or
otherwise pay for the cost of investigation and cleanup of these sites including compensation for damage to natural resources. Primarily due to past
operations, operations of predecessor companies or past disposal practices, we have projects underway at a number of current and former manufacturing
facilities as well as former disposal sites to investigate and remediate environmental contamination resulting from past operations, as further described in Note
18 to the Notes to Consolidated Financial Statements included within Item 8. Financial Statements and Supplementary Data of this Annual Report.
We continue to be dedicated to environmental sustainability programs to minimize the use of natural resources and reduce the utilization and generation
of hazardous materials from our manufacturing process and to remediate identified environmental concerns. Environmental laws are complex and generally
have become more stringent over time. We believe that our operations currently comply in all material respects with applicable environmental laws and
regulations, and have planned for future capital and operating expenditures to comply with these laws and to address liabilities arising from past or future
releases of, or exposures to, hazardous substances.
Raw Materials
We contract with various third-party manufacturers and suppliers, most notably related to our Specialty Brands products, to provide us with raw materials
used in our products, finished goods and certain services. If, for any reason, we are unable to obtain sufficient quantities of any of the raw materials, finished
goods, services or components required for our products, it could have a material adverse effect on our competitive position, business, financial condition,
results of operations and cash flows.
The active ingredients in the majority of our current Specialty Generics products and certain products in development, including oxycodone,
oxymorphone, morphine and hydrocodone, are listed by the DEA as Schedule II substances under the CSA. Consequently, their manufacture, shipment,
storage, sale and use are subject to a high degree of regulation and the DEA limits the availability of controlled substances raw materials and the production of
APIs and generic Schedule II substances through manufacturing and procurement quotas that we must apply for quarterly or annually (as the case may be) in
order to obtain and produce these substances.
Sales, Marketing and Customers
Sales and Marketing
We market our branded products to physicians (including neurologists, rheumatologists, hepatologists, nephrologists, pulmonologists, ophthalmologists,
oncologists, neonatologists and surgeons), other health care providers including respiratory therapists, pharmacists, pharmacy buyers, hospital procurement
departments, ambulatory surgical centers and specialty pharmacies.
25
We distribute our branded and generic products through independent channels, including wholesale drug distributors, specialty pharmaceutical distributors,
retail pharmacy chains, hospital networks, ambulatory surgical centers and governmental agencies. In addition, we contract with group purchasing
organizations ("GPO(s)") and managed care organizations to improve access to our products. We sell and distribute API directly or through distributors to
other pharmaceutical companies.
For further information on our sales and marketing strategies, refer to "Our Businesses and Product Strategies" above.
Customers
Net sales to distributors that accounted for more than 10.0% of our total net sales in the period November 15, 2023 through December 29, 2023
(Successor), the period December 31, 2022 through November 14, 2023 (Predecessor), the period June 17, 2022 through December 30, 2022 (Predecessor),
and the period January 1, 2022 through June 16, 2022 (Predecessor) were as follows:
FFF Enterprise, Inc.
McKesson Corporation
AmerisourceBergen Corporation
CuraScript, Inc.
Successor
Period from
November 15, 2023
through December
29, 2023
Period from
December 31, 2022
through
November 14, 2023
Predecessor
Period from
June 17, 2022
through
December 30, 2022
Period from
January 1, 2022
through
June 16, 2022
23.1 %
10.8 %
*
*
22.3 %
*
10.0 %
*
26.1 %
*
*
*
11.8 %
*
*
15.6 %
* Net sales to this distributor were less than 10.0% of total net sales during the respective periods presented above.
No other customer accounted for 10.0% or more of our net sales in the above periods presented.
Manufacturing and Distribution
As of December 29, 2023 (Successor), we had eleven manufacturing sites, including eight located in the U.S., as well as sites in Ireland and Japan, which
handle production, assembly, quality assurance testing, packaging and sterilization of our products. Approximately 93.9%, 4.0% and 2.1% of our
manufacturing production (as measured by cost of production) was performed within the U.S., Ireland and Japan, respectively, in fiscal 2023.
As of December 29, 2023 (Successor), we maintained distribution centers in eight countries. In addition, in certain countries outside the U.S. we utilize
third-party distribution centers. Products generally are delivered to these distribution centers from our manufacturing facilities and then subsequently
delivered to the customer. In some instances, product is delivered directly from our manufacturing facility to the customer. We contract with a wide range of
transport providers to deliver our products by road, rail, sea and air.
We utilize contract manufacturing organizations ("CMOs") to manufacture certain of our finished goods that are available for resale. We most frequently
utilize CMOs in the manufacture of certain of our Specialty Brands products, including Acthar Gel (for finish and filling of the product) and Therakos
products.
Seasonality
We have historically experienced fluctuations in our business resulting from seasonality. For example, Acthar Gel has typically experienced lower net
sales during the first calendar quarter compared to other calendar quarters, which we believe is partially attributable to effects of annual insurance deductibles
and the lack of warm temperatures that may exacerbate certain medical conditions. DEA quotas for raw materials and final dose products are allocated in each
calendar year or quarter (as the case may be) to companies and may impact our sales until the DEA grants additional quotas, if any. Historically, impacts from
quota limitations were most commonly experienced during the third and fourth calendar quarters, and we have typically experienced lower net sales in
controlled substances during the fourth calendar quarter. Given the DEA’s recent shift in granting procurement quota on a quarterly basis (as compared to an
annual basis), it is possible that impacts from quota limitations, which could be material, will be experienced earlier in 2024 than has been historically
experienced.
Human Capital
At Mallinckrodt, our mission cannot be accomplished without the dedication, collaboration and engagement of our workforce. We value our employees
as our most important asset and we aim to create a culture that is inclusive and welcoming. We work hard to
26
identify, retain and attract a diverse workforce that shares our corporate mission "Listening to Needs, Delivering Solutions" to improve the lives of
underserved patients. We invest in human resources programs designed to develop capabilities to deliver on our critical business priorities. We do this by
offering competitive pay and benefit programs, investing in our employees' growth and development and creating a safe and healthy work environment. We
embrace diversity and empower each individual employee to bring their whole, authentic self to work. Further, we encourage and support our employees to be
active members of their communities.
As of December 29, 2023 (Successor), we employed a multi-national workforce of approximately 2,800 people. Our manufacturing and distribution sites
located across the U.S., Ireland and Japan made up 57% of our workforce and 24% were field-based working across multiple countries engaging with
healthcare professionals and facilities. The remaining 19% of our employees worked within our corporate services locations of Bridgewater, New Jersey;
Hazelwood, Missouri; Webster Groves, Missouri; Washington, District of Columbia ("D.C."), Staines, U.K. and Dublin, Ireland. Of our total workforce, 99%
were full-time.
Employee Benefits and Well-being
We believe in providing comprehensive and competitive benefits our employees value, designed to be equitable and meet their diverse and unique needs.
We are intentional about building inclusivity into our benefits strategy.
In the U.S., Mallinckrodt provides:
• Up to four weeks of paid caregiver leave to help eligible employees deal with family responsibilities;
• Medications at zero employee cost to promote medication adherence for certain chronic medical conditions; and
•
Family formation, including fertility benefits, that provide equitable benefits to same-sex couples; and human immunodeficiency virus prevention
and treatment benefits.
2023 enhancements included:
• A student debt repayment match program;
•
Fiduciary advisory services; and
• Additional coverage and communications for transgender and gender diverse members.
Mallinckrodt also offers a variety of advocacy support resources for employees and their families, including:
•
•
•
Clinical support for infertility, maternity, oncology, inpatient care, musculoskeletal conditions, congenital heart disease, gender dysphoria and
transplant situations;
Second opinion services for new or existing medical issues by board-certified, elite specialists at zero cost to employees; and
Behavioral Health Advocacy to assist employees and their families with complex behavioral health concerns.
Additionally, we leverage our well-being platform by collaborating with our diversity focused Business Resource Groups ("BRGs") to provide resources
and activities to support their specific goals.
Talent Development and Employee Engagement
Mallinckrodt is committed to a culture of continuous learning. Our talent strategies are aligned to business priorities, creating opportunities for employees
to develop professional and technical skills and advance their careers. Our talent review and individual development planning processes allow us to identify
and align individual employee aspirations with business needs so that professional growth and succession planning can occur. By growing our talent through
development assignments, on-the-job training and other skill building opportunities, these processes have yielded positive results in the advancement of high
potential and diverse talent.
Our learning platforms are designed to provide flexibility to meet the needs, interests and aspirations of all employees. We offer a wide range of
individual and leadership development opportunities, inclusive of but not limited to, tuition reimbursement, management and leadership development
programs, as well as business and technical skill building through a robust library of on-demand e-learning content, workshops, seminars, networking
opportunities and professional coaching. We also invest in growing the next generation of talent through our internship programs and programs specifically
aimed at advancing diverse talent.
At Mallinckrodt, we value employee feedback. We are intentional about creating a culture where employees can speak freely and are empowered to ask
questions. We create opportunities to solicit feedback from employees through one-on-one sessions, focus groups and employee engagement surveys. These
forums have and will continue to provide us with feedback that can be translated into actionable steps to enhance the employee experience, ensuring that our
employees are engaged and feel supported both personally and professionally.
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Diversity, Equity and Inclusion
Mallinckrodt is committed to cultivating a workplace that celebrates diversity, fosters equity, and promotes inclusion. We embrace diversity in all its
forms, valuing the unique perspectives, backgrounds, and experiences that each individual brings to our company.
Equity and inclusion are fundamental to our operations. We are dedicated to creating a fair and inclusive environment where every employee has equal
access to opportunities, resources, and pathways for growth and advancement. By nurturing an inclusive workplace, we tap into the full potential of our talent,
driving collaboration and enabling us to better serve the needs of patients and communities worldwide. We recognize that a diverse and inclusive workplace
doesn't happen by chance; it requires deliberate action. We support diversity, equity and inclusion ("DEI") in a variety of ways including:
•
Training and Education: We offer training and education programs to raise awareness, foster understanding, and promote inclusive behaviors across
all levels of the organization.
• Diversity in Leadership: We are committed to fostering diversity in leadership, providing development opportunities for underrepresented groups to
grow, excel and lead within our teams.
•
•
Community Outreach: We extend our commitment beyond our walls, collaborating with communities and organizations to promote health equity and
support underserved populations.
Employee Engagement: Our DEI Council and Business Resources Groups ("BRGs") provide a platform for our employees to connect, share
experiences, and drive initiatives that promote diversity and inclusion. BRGs are voluntary, employee-led groups centered on shared interests,
identities and affiliations. They provide resources for professional development, personal growth, community engagement, well-being and
networking, all while fostering connectivity and enhancing our unique culture.
Our BRGs frequently host company-wide educational events to help foster a culture of belonging and inclusion. Examples from 2023 include:
• African American BRG celebrated Black History Month with an event about cultivating Black girl joy in science, technology, engineering and
mathematics ("STEM") and sponsored a virtual back-to-school fundraiser supporting the Kids in Need Foundation.
• Women in Business BRG hosted webinars that explored topics impacting women such as intersectionality, healthcare inequities, and the importance
of mentoring, being a role model, and sharing grace.
• Namaste Asia BRG celebrated Asian American and Pacific Islander (AAPI) Heritage Month with a webinar on advancing leaders through
opportunity, employee spotlights and cultural events, as well as supported Japanese Respect for the Aged Day.
•
Pride Alliance BRG marked Pride Month with a live event on transgender inclusion and raised awareness of Mallinckrodt’s inclusive benefits with
employees, as well as marked Transgender Day of Visibility and National Coming Out Day.
• Veterans BRG organized employee volunteer initiatives and joined the "Greenlight a Vet" campaign to demonstrate support for veterans by
illuminating green lights at our U.S.-based facilities.
We are honored to be recognized nationally for our commitment to DEI. For the seventh straight year, Mallinckrodt achieved a top score of 100 earning
the coveted "Equality 100 Award" from the Human Rights Campaign Foundation's Corporate Equity Index that assesses LGBTQ+ workplace inclusion.
Additionally, Forbes Magazine acknowledged us as one of the Best Employers for Veterans in 2023.
Social Impact
Mallinckrodt is committed to being a force for good. Our social impact strategy focuses on improving the health and well-being of patients, building
stronger communities, and empowering our employees to dedicate their time and resources to the causes they care about most. We provide grants and
charitable donations to nonprofits worldwide and support employees with their own philanthropy through volunteerism and giving programs.
Corporate Charitable Giving Program
Mallinckrodt provides patient-related and philanthropic support to nonprofit organizations that are aligned with our mission to address unmet needs with
innovative solutions. Our patient-centric charitable contributions support initiatives and programs that have broad public benefit and advance medical care
and/or patient care within the Company's therapeutic areas of focus. Our community-
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based investments are centered in three strategic areas: (i) improving health and wellness; (ii) advancing STEM education; and (iii) stimulating jobs and
economic growth in life sciences.
Mallinckrodt continues to focus efforts on advancing health equity and improving outcomes for underrepresented communities. We collaborate with
patient advocacy organizations to improve engagement with these communities and promote greater awareness of health disparities in our key therapeutic
areas of focus. In 2023, Mallinckrodt continued to support:
•
•
•
NephCure Kidney International's Health Equity and Diversity Initiative aimed at creating more equitable access to research and care for
underrepresented individuals living with, or are at high risk of developing, chronic kidney diseases.
The Myositis Association’s Affinity Groups program to amplify patient voices, equity and access, and create safe spaces for communities that share
more in common than their myositis.
The American Liver Foundation’s Think Liver Think Life national public health campaign that focuses on awareness and screening of liver disease.
Additionally, we supported STEM education, expanding opportunities for female and minority students, and narrowing the access gap for
underrepresented groups. Examples of 2023 engagements include:
•
Students 2 Science, a New Jersey-based nonprofit that inspires and educates students in underserved communities to pursue STEM careers. Grant
funding was provided to support the growth of their out-of-school program with the Boys and Girls Club.
• Maydm, Inc., a nonprofit in Madison, Wisconsin that provides girls and youth of color in grades 6-12 with skill-based training in STEM fields. Grant
funding was provided to support their immersive summer STEM program.
•
South Technical High School, a tuition-free, career and technical education school in St. Louis, Missouri. We hosted pharmacy science students for a
tour and career discussions at our R&D facility.
Employee Giving and Volunteerism
We believe that our employees are the cornerstone of our corporate citizenship efforts, and we provide opportunities for them to embrace their passions
and amplify their philanthropic impact. To encourage charitable giving, Mallinckrodt matches U.S. employee donations to eligible nonprofit organizations -
up to $2,500 per employee, per calendar year. We also activate special matching opportunities during times of disaster or crisis.
Our volunteerism program provides eight hours of extra paid time off to eligible employees annually for qualified volunteer activities, in addition to time
off to participate in our global month of service that is held every October. In 2023, our employees volunteered hundreds of hours on over 40 projects
worldwide, supporting diverse community causes.
Information About Our Executive Officers
Set forth below are the names, ages as of January 15, 2024, and current positions of our executive officers.
Name
Sigurdur O. Olafsson
Bryan M. Reasons
Henriette Nielsen
Mark Tyndall
Kassie Harrold
Lisa French
Peter Richardson
Stephen Welch
Jason Goodson
Paul O'Neill
Age
Title
55
56
58
48
44
55
64
46
43
54
President, Chief Executive Officer and Director
Executive Vice President and Chief Financial Officer
Executive Vice President and Chief Transformation Officer
Executive Vice President and Chief Legal Officer and Company Secretary
Executive Vice President and Chief Compliance Officer
Executive Vice President and Chief Commercial Officer
Executive Vice President and Chief Scientific Officer
Executive Vice President and Head of Specialty Generics
Executive Vice President and Chief Strategy and Restructuring Officer
Executive Vice President, Quality & Operations, Specialty Brands
Set forth below is a brief description of the position and business experience of each of our executive officers.
Sigurdur O. Olafsson has been President, CEO and a board director since June 2022. Mr. Olafsson has almost 30 years of diverse pharmaceutical
experience across branded and generic drugs. Before joining Mallinckrodt, Mr. Olafsson served as CEO of Hikma Pharmaceuticals plc ("Hikma") from
February 2018 to June 2022. Prior to Hikma, Mr. Olafsson served as president and CEO of the Global Generic Medicines Group of Teva Pharmaceuticals
("Teva"), from July 2014 to January 2017. Before that, he served in various senior executive roles at Actavis plc (Watson) from September 2010 to June 2014
and the Actavis Group from October 2003 to August 2010, which develop, manufacture and distribute branded, generic and biosimilar products. Mr. Olafsson
has also held a number of leadership positions in Pfizer’s Global R&D organization in the U.K. and U.S., focused on branded drug development, and
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served as head of drug development for Omega Farma in Iceland. Mr. Olafsson has previously served as a director on the boards of Hikma from 2018 to 2022
and Pfenex Inc. from 2017 to 2019. Mr. Olafsson holds a Master of Science in Pharmacy (Cand Pharm) from the University of Iceland, Reykjavik.
Bryan M. Reasons is our Executive Vice President ("EVP") and Chief Financial Officer ("CFO"). He has executive responsibility for the global finance
function. Prior to joining Mallinckrodt in March 2019, Mr. Reasons served as Senior Vice President ("SVP") and CFO of Amneal Pharmaceuticals, Inc. from
May 2018 until January 2019 and as SVP, Finance and CFO of Impax Laboratories, Inc. from December 2012 until Amneal and Impax completed their
business combination to form Amneal in May 2018. Mr. Reasons previously served as Impax’s Acting CFO from June 2012 to December 2012 and as
Impax’s Vice President ("VP"), Finance from January 2012 to June 2012. Prior to joining Impax in January 2012, he held various finance management
positions at Cephalon, Inc. from 2005 to 2012 and at E. I. Du Pont De Nemours and Company from 2003 to 2005 and was at PricewaterhouseCoopers LLP
("PwC") from 1993 to 2003, last serving as senior manager. Mr. Reasons also serves as an independent board director and audit committee chair for both
Aclaris Therapeutics, Inc. and Recro Pharma, Inc.
Henriette Nielsen is our EVP and Chief Transformation Officer ("CTO"), a role she assumed in August 2022. Ms. Nielsen has executive responsibility for
all human resources, communications and people-related matters, as well as a focus on further building out our Environment, Social and Governance
program. Ms. Nielsen brings significant experience from a range of corporate functions and an impressive track record of enhancing operations at
pharmaceutical companies. Previously, Ms. Nielsen served at Hikma as EVP, Business Operations, a role she held from 2018 to 2022. Before that, Ms.
Nielsen served at Teva as SVP, CTO, Global Marketing and Portfolio from 2015 to 2018, and SVP, CTO, Global Generics Medicine from 2014 to 2015.
Before that, she was the founder of System Matters APS, a healthcare and impact investing consultancy from 2011 to 2014 and the general counsel and an
executive vice president at Actavis Group from 2006 to 2011. Ms. Nielsen began her career as a commercial lawyer in Denmark at Kromann Reumert. She
presently serves as Vice Chair of Think Equal USA, a not-for-profit providing and advocating for early-age social emotional learning, and an advisor to EIR,
which promotes women’s sports in Denmark. From 2017 to 2018 she served as a board member and observer at PGT Healthcare, a joint venture between
Teva and Procter & Gamble Company. Ms. Nielsen was a candidate of law at the University of Copenhagen, received her Master of Laws at the University of
Edinburgh, and completed the Leading Sustainable Corporation Program at the University of Oxford.
Mark Tyndall is our EVP, Chief Legal Officer, and Corporate Secretary, roles he assumed in August 2022. Mr. Tyndall has executive responsibility for all
legal functions and serves as the primary liaison to the Board of Directors. He also has responsibility for Mallinckrodt’s Government Affairs and Patient
Advocacy functions. Previously, from February 2021 to August 2022, Mr. Tyndall served as Mallinckrodt’s SVP and U.S. General Counsel, where he had
responsibility for the U.S. and international commercial legal teams, corporate litigation and investigations, legal operations, and the corporate privacy
function, and oversaw the Government Affairs team. Before that, Mr. Tyndall held the roles of SVP of Government Affairs and Chief Counsel of Litigation
from February 2019 to February 2021, and VP of Government Affairs, Policy and Patient Advocacy from June 2014 to February 2019. Prior to Mallinckrodt,
Mr. Tyndall served as Head of Global Policy and Public Affairs at Bayer Healthcare’s consumer health division, a role he served in from January 2013 to June
2014. Prior to joining Bayer, Mr. Tyndall practiced healthcare and political law in the Washington, D.C. office of Sidley Austin LLP, where he focused on
healthcare regulatory issues, fraud and abuse matters and legislative and policy issues. He is also a former professional staff member of the U.S. Senate
Committee on Agriculture, Nutrition and Forestry. Mr. Tyndall holds a Juris Doctor ("J.D.") from George Washington University Law School, a Master of
Public Policy from the College of William and Mary, and a Bachelor of Arts ("B.A.") degree in Economics from Christopher Newport University. He also
completed the International Human Rights Law Summer Program at the University of Oxford, New College.
Kassie Harrold is our EVP and CCO, a role she assumed in August 2022. Ms. Harrold has executive responsibility for overseeing Mallinckrodt’s global
integrity and compliance program. Previously, Ms. Harrold served as our SVP and CCO, with responsibility for global ethics and the compliance program,
including risk assessment and mitigation, hotline reporting and investigations, program monitoring and governance. Ms. Harrold has more than 15 years of
compliance experience in the pharmaceutical and specialty chemical industries, and has assessed, implemented and managed compliance programs in a broad
range of subject matter areas. Ms. Harrold has held roles of increasing responsibility since joining Mallinckrodt in 2013, including leading the trade
compliance and business support functions and advising senior management on a broad range of business matters as the Senior Staff Liaison to the President
and CEO. Previously, Ms. Harrold held several positions, including global compliance, litigation and employment counsel and government affairs, with
Solutia Inc., the specialty chemicals spin-off of Monsanto. Ms. Harrold is a member of the Healthcare Businesswomen’s Association ("HBA"), previously
serving on the St. Louis chapter board. She also participates in the Pharmaceutical Compliance Forum as a member of the CCO Roundtable. She earned her
Bachelor of Science ("B.S.") and J.D. degrees from Duquesne University in Pittsburgh, Pennsylvania.
Lisa French is our EVP and Chief Commercial Officer, a role she assumed in October 2022. She has executive responsibility for all commercial and
market-access activities for the Company's Specialty Brands products, as well as new product launch execution for assets in Mallinckrodt's near-term
development portfolio. Ms. French has more than 30 years of experience in U.S. go-to-market commercialization strategy development and operating
experience across the therapeutics lifecycle. Prior to joining the Company, she served as U.S. Business Unit Lead of Organon & Co.’s, a global healthcare
company, Women’s Health Franchise, where she led the commercial team. Prior to that, she held various positions of increasing responsibility at Merck,
where she ultimately led all aspects of
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a multi-billion dollar brand, executed commercial innovation initiatives and oversaw multiple sales teams. Her roles included: Associate Vice President, U.S.
Marketing Lead – HPV Franchise; Vice President of U.S. Strategy and Commercial Model Innovation; Executive Director of U.S. Federal Policy; National
Executive Director of Commercial Operations – Women's Health; National Director of Commercial Operations – HIV; Regional Director of Commercial
Operations – Chronic Care; and Regional Director of Commercial Operations – Cardiovascular Care, among other roles. Ms. French earned her B.S. in
Biology from West Chester University and completed Harvard Business School’s Emerging Leaders and Leadership & Strategy executive programs.
Dr. Peter Richardson, MRCP, is our EVP and Chief Scientific Officer, a role he assumed in January 2023. He has executive responsibility for
Mallinckrodt's branded research and development, medical affairs, safety, portfolio and project management, and regulatory affairs functions. Dr. Richardson
is a pharmaceutical executive with more than 30 years of experience in research and development leadership, including building and supporting product
development pipelines and clinical program management. Prior to joining the Company, Dr. Richardson served as EVP and Chief Medical Officer at Antares
Pharmaceuticals, Inc. leading the organization's research and development activities. Prior to Antares Pharmaceuticals, Inc. he held senior leadership positions
in research and development at several pharmaceutical companies, including Novartis, MannKind Corporation and Adare Pharmaceuticals. Dr. Richardson
earned his Bachelor of Medical Sciences from the University of Nottingham and his Bachelor of Medicine and Bachelor of Surgery from the University of
Nottingham Medical School. He completed Stanford University Graduate School of Business' executive program and is a member of the Royal College of
Physicians in the United Kingdom.
Stephen Welch is our EVP and Head of Specialty Generics, a role he assumed in August 2022. He has executive responsibility for the Company’s
Specialty Generics segment, directly managing all aspects of the segment’s business. Before that, from January 2022 to August 2022, Mr. Welch served as our
SVP and General Manager, Specialty Generics. He previously served as the segment’s CFO from December 2020 to January 2022 and CTO for Mallinckrodt
from August 2019 to June 2022, including during the Company’s Chapter 11 process, and regularly represented the Company in those proceedings. He joined
Mallinckrodt in 2012 and during his time with the Company has held a number of increasingly strategic roles, including Chief of Staff to the President and
CEO and Vice President of Corporate Strategy. He began his time at Mallinckrodt in the tax department, focused primarily on mergers and acquisitions
transactions and business integrations. Prior to joining Mallinckrodt, Mr. Welch led the tax functions at Human Genome Sciences and PharMerica. He began
his career at PwC. Mr. Welch holds a J.D. from the Georgetown University Law Center and a Bachelor’s degree in Political Science from California State
University, Bakersfield.
Jason Goodson is our EVP and Chief Strategy and Restructuring Officer, a role he assumed in August 2023. He has executive responsibility for corporate
strategy, business development and business intelligence and analytics. He is a seasoned executive leader with a track record of navigating complex business
issues and delivering results against corporate strategy. Mr. Goodson previously served as our VP of Business Operations, where he had responsibility for
corporate strategy, business development and business intelligence and analytics. Mr. Goodson has also served as Chief of Staff to the President and CEO
supporting various strategic initiatives. Mr. Goodson has over 18 years of experience in various finance leadership, strategy and mergers and acquisitions
transaction focused roles. He began his career at Mallinckrodt as Assistant Controller, within the finance organization focused on mergers and acquisitions
transactions, integration and transformation projects. Prior to joining Mallinckrodt, Mr. Goodson was with SunEdison Inc, in various finance leadership roles
including responsibility for finance transformation initiatives and various business development transactions. Prior to his time at SunEdison, Inc, he was with
PricewaterhouseCoopers as a manager in the audit practice. Mr. Goodson holds Masters and Bachelor's degrees from the University of Missouri–Columbia in
Accounting. He is a Certified Public Accountant in the state of Missouri.
Paul O'Neill is our EVP, Quality & Operations, Specialty Brands, a role he assumed in February 2024. He has executive responsibility for Quality &
Operations for the Specialty Brands business, overseeing internal and external manufacturing, supply chain distribution, device engineering, quality, technical
services and product support. Mr. O’Neill previous served as our Senior Vice President, Quality & Operations, Specialty Brands. Before joining Mallinckrodt,
he served as Executive Director, Biologics Operations, at Merck & Co., Inc., and was responsible for overseeing the end-to-end supply strategy of Merck's
Keytruda and biologics (mABs) pipeline portfolio. Prior to that, Mr. O'Neill held leadership positions at Pfizer and Wyeth in plant operations, supply chain
management, new product launches, site start-ups and network design. Mr. O'Neill holds an MBA from the Alfred Lerner College of Business & Economics
at the University of Delaware and a BSc in Food Science and Technology from University College of Cork.
Available Information
Mallinckrodt plc was organized in 2013 with roots that go back to the founding of G. Mallinckrodt and Company in 1876. Our website address is
mallinckrodt.com. We are not including the information contained on our website as part of, or incorporating it by reference into, this filing. We make
available to the public on our website, free of charge, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and
amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 ("Exchange Act") as soon as
reasonably practicable after such material is electronically filed with, or furnished to, the U.S. Securities and Exchange Commission ("SEC"). Our reports
filed with, or furnished to, the SEC are available on the SEC's website at sec.gov.
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We use our website at mallinckrodt.com as a channel of distribution of important company information, such as press releases, investor presentations and
other financial information. We also use our website to expedite public access to time-critical information regarding our company in advance of or in lieu of
distributing a press release or a filing with the SEC disclosing the same information. Therefore, investors should look to the Investor Relations page of our
website for important and time-critical information. Visitors to our website can also register to receive automatic e-mail and other notifications alerting them
when new information is made available on the Investor Relations page of our website.
Item 1A.
Risk Factors.
You should carefully consider the risks described below in addition to all other information provided to you in this Annual Report. Our competitive
position, business, financial condition, results of operations and cash flows could be affected by the factors set forth below, any one of which could cause our
actual results to vary materially from recent results or from our anticipated future results. The risks and uncertainties described below are those that we
currently believe may materially affect our company.
We operate in a rapidly changing environment that involves a number of risks, some of which are beyond our control. The following discussion
highlights some of these risks and others are discussed elsewhere in this Annual Report. These and other risks could have a material adverse effect on our
competitive position, business, financial condition, results of operations and cash flows.
Risks Related to Our Emergence from Bankruptcy
We have emerged from bankruptcy twice in recent years, which could adversely affect our business and relationships.
Our having twice filed for bankruptcy in recent years, notwithstanding our emergence from the 2020 Bankruptcy Proceedings and the 2023 Bankruptcy
Proceedings, could adversely affect our business and relationships with customers, vendors, contractors, employees or suppliers. Due to uncertainties, many
risks associated with the bankruptcy exist, including the following:
•
•
•
•
•
our ability to attract, motivate, and/or retain key executives and employees may be adversely affected;
our employees may be more easily attracted to other employment opportunities;
competitors may take business away from us, and our ability to retain customers may be negatively impacted;
suppliers may not be willing to do business with us at all or on acceptable terms; and
appeals from orders of the bankruptcy court may increase our liabilities.
The occurrence of one or more of these events could have a material and adverse effect on our operations, financial condition and reputation and we
cannot assure you that having been subject to bankruptcy proceedings will not adversely affect our operations in the future.
Our actual financial results after emerging from the 2023 Bankruptcy Proceedings may not be, comparable to our projections filed with the Bankruptcy
Court or otherwise made public in the course of the bankruptcy proceedings.
In connection with the disclosure statements we filed with the Bankruptcy Court in each of our two bankruptcy proceedings and the hearings to consider
confirmation of each of the 2020 Plan and the 2023 Plan (as well as in certain other filings), we prepared projected financial information for various reasons,
including to demonstrate to the Bankruptcy Court the feasibility of each of the 2020 Plan and the 2023 Plan and our ability to continue operations upon our
emergence from such bankruptcy proceedings. At the time they were prepared, the projections reflected numerous assumptions concerning our anticipated
future performance with respect to then prevailing and anticipated market and economic conditions that were and remain beyond our control and that may not
materialize.
Projections are inherently subject to substantial and numerous uncertainties and to a wide variety of significant business, economic and competitive risks
and the assumptions underlying the projections or valuation estimates may prove to be wrong in material respects. Actual results may vary significantly from
those contemplated by the projections. Our actual financial results after emerging from the 2020 Bankruptcy Proceedings were not, in certain instances,
comparable to our projections filed with the Bankruptcy Court or otherwise made public in the course of the 2020 Bankruptcy Proceedings, and our actual
financial results after emerging from the 2023 Bankruptcy Proceedings may also vary from those contemplated by the projections. Such variations may be
significant. The projections prepared in connection with each of the 2020 and the 2023 Bankruptcy Proceedings were prepared solely for the purposes stated
therein and have not been, and will not be, updated on an ongoing basis and should not be relied upon by investors.
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Our historical financial statements are not comparable to the information contained in our financial statements after the application of fresh-start
accounting following emergence from the 2023 Bankruptcy Proceedings.
Upon emergence from both the 2020 Bankruptcy Proceedings on June 16, 2022 and the 2023 Bankruptcy Proceedings on November 14, 2023, we
adopted fresh-start accounting in accordance with the provisions of ASC 852 and became a new entity for financial reporting purposes as of each of the 2020
Effective Date and the 2023 Effective Date. Fresh-start accounting requires that new fair values be established for our assets, liabilities, and equity as of the
applicable Effective Date. All emergence-related transactions related to the 2020 Effective Date and the 2023 Effective Date were recorded as of June 16,
2022 and November 14, 2023, respectively. Accordingly, the consolidated financial statements for the Successor are not comparable to the consolidated
financial statements for the Predecessor periods and the consolidated financial statements for the Predecessor periods from June 17, 2022 through December
30, 2022 and December 31, 2022 through November 14, 2023 are not comparable to the consolidated financial statements for the Predecessor period prior to
and including June 16, 2022. Further, the information contained in our financial statements following emergence from bankruptcy was and may continue to be
different from historical trends. This will make it difficult for shareholders to assess our performance in relation to prior periods. See Note 3 to the Notes to
Consolidated Financial Statements included within Item 8. Financial Statements and Supplementary Data of this Annual Report.
Following emergence from the 2023 Bankruptcy Proceedings, our Board of Directors was changed and may implement changes in our business strategy
that could affect the scope and results of our operations.
Our corporate business strategy is subject to continued development, evaluation and implementation by our management and Board of Directors.
Pursuant to the 2023 Plan, the composition of our Board of Directors changed significantly following our emergence from the 2023 Bankruptcy Proceedings
with the resignation of all then-serving directors, other than our President and Chief Executive Officer, Sigurdur Olafsson, and the reappointment of Paul
Bisaro as the Chairman of the Board. Our Board of Directors is now made up of seven directors. All directors, other than Mr. Olafsson and Mr. Bisaro, have
not previously served on our Board of Directors prior to our emergence from the 2023 Bankruptcy Proceedings. The new directors have different
backgrounds, experiences and perspectives from those individuals who previously served on the Board of Directors of the Company and, thus, may have
different views on the issues that will determine our future, including our strategic plans and priorities. The Board of Directors may determine, from time to
time, to implement changes in our business strategy, which may affect our operations and the future strategy and plans of the Company and differ materially
from those of the past. For example, under the oversight of our Successor Board of Directors, we are engaged in a process of evaluating the assets across our
portfolio and pursuing the divestiture opportunities. Consistent with these efforts, we have engaged an investment banker to help us, and we have adopted a
transaction incentive plan that provides our Board of Directors and our senior management with incentives based on the proceeds of divestiture transactions.
As a result, their interest may diverge from the interests of our other shareholders.
There is no guarantee that the strategic initiatives and plans, whether current or future, of the Board of Directors will be implemented in a timely manner
or at all and, consequently, there is no guarantee that the operational and financial objectives of the Board of Directors will be achieved in a timely manner or
at all.
Exercise of the Opioid CVRs pursuant to the CVR Agreement would result in either a cash payment to the Trust that could adversely affect our liquidity
or an issuance of ordinary shares that could result in substantial dilution to holders of our ordinary shares.
On the 2023 Effective Date and pursuant to the 2023 Plan, we entered into a contingent value right agreement ("CVR Agreement") with Opioid Master
Disbursement Trust II ("Trust"). Pursuant to the terms of the CVR Agreement, we issued 1,036,649 contingent value rights ("Opioid CVRs") to the Trust,
which Opioid CVRs entitle the Trust to receive from the Company, when exercised, an amount in cash equal to the market price of one ordinary share less an
exercise price of $99.36, subject to our right to issue new ordinary shares to the Trust in lieu of making some or all of the cash payment upon exercise in
accordance with the terms of the CVR Agreement.
The Opioid CVRs are exercisable at any time for four years after the 2023 Effective Date. No assurances can be given as to when and if the Trust will
exercise the Opioid CVRs, or whether we will elect to settle the Opioid CVRs in cash or ordinary shares. If we were to settle the Opioid CVRs in cash, such
cash payment could adversely affect our liquidity and financial condition and the market price of the ordinary shares. Were we to elect to settle the Opioid
CVRs via the issuance of ordinary shares, such equity issuance could result in substantial dilution to existing holders of our ordinary shares and cause the
value of our ordinary shares to decline. The possibility of either such an occurrence may be viewed negatively by investors and have an unfavorable impact
on the liquidity, market for and trading value of our ordinary shares. In addition, because our ordinary shares are not listed on any national securities
exchange, the price for the ordinary shares for purposes of the payment to be made to the Trust could be determined by an appraisal process carried out by a
banking institution, which would cause us to incur additional costs and may lead to a determination of the price for the ordinary shares that is unfavorable to
us.
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Risks Related to Our Business
Governmental investigations, inquiries, and regulatory actions and lawsuits brought against us by government agencies and private parties, in addition to
future legislative actions, with respect to our historical commercialization of opioids could adversely affect our reputation, business, financial condition,
results of operations and cash flows.
As a result of greater public awareness of the public health issue of opioid abuse, there has been increased scrutiny of, and investigation into, the
commercial practices of opioid manufacturers by state and federal agencies. As a company that first began processing opioids in the 1890s, we understand the
utility of these products and that they are safe and effective when taken as appropriately prescribed. We are deeply committed to diversion control efforts,
have sophisticated systems in place to identify suspicious orders and engage in significant due diligence and ongoing monitoring of customers. However, we,
along with other opioid manufacturers, have been the subject of federal and state government investigations and enforcement actions, focused on the misuse
and abuse of opioid medications in the U.S. Similar investigations may be initiated in the future.
In addition, a significant number of lawsuits have been filed against us, other opioid manufacturers, distributors and others in the supply chain by cities,
counties, state Attorneys General and private persons seeking to hold us and others accountable for opioid misuse and abuse. As a result of the Company's
emergence from the 2020 Bankruptcy Proceedings, all opioid claims against us were deemed to have been settled, discharged, waived, released and
extinguished in full on the 2020 Effective Date. We may face new opioid claims in the future, which could have a material adverse effect on our competitive
position, business, financial condition and results of operations.
In connection with the 2020 Bankruptcy Proceedings, we implemented steps to comply with an Operating Injunction enjoining certain Mallinckrodt
entities from engaging in certain conduct related to the manner in which they operate their opioid business. We reaffirmed these obligations in connection
with the 2023 Bankruptcy Proceedings. The Operating Injunction prohibits, among other things, certain promotional activities related to opioid products and
pain treatment, financial and in-kind support for third parties involved with opioids or pain treatment, and certain lobbying activities and communications
related to opioids and pain treatment. The Operating Injunction also contains requirements for controlled substances suspicious order monitoring and
reporting. The Operating Injunction further requires Mallinckrodt to make available certain clinical data through a third-party data archive and publicly
disclose certain produced documents related to the opioid litigation. The Operating Injunction provides that Mallinckrodt must retain a monitor to evaluate
and monitor compliance with the Operating Injunction for a term of five to seven years. On February 8, 2021, the Bankruptcy Court entered an order
appointing R. Gil Kerlikowske to serve as monitor. The obligations imposed by the Operating Injunction would apply to the operation of Mallinckrodt's
opioid business by any subsequent purchaser. The Operating Injunction imposes material limitations on Mallinckrodt's business in addition to those imposed
by otherwise applicable law. Those limitations may have an adverse financial impact on Mallinckrodt's opioid business, including but not limited to by
increasing overhead costs or reducing product sales. A violation of the Operating Injunction may also subject the Company to adverse action by the
Bankruptcy Court, state and territory Attorneys General, or other enforcement authorities, as well as increased legal fees and costs associated with such
actions.
In addition, legislative, regulatory or industry measures to address the misuse of prescription opioid medications may also affect our business in ways that
we are not able to predict. For example, the State of New York enacted the Opioid Stewardship Act ("OSA"), which went into effect on July 1, 2018 and
established an aggregate $100.0 million annual assessment on sales of certain opioid medications in New York. Following a challenge regarding its
constitutionality, the OSA was generally permitted to go into effect, though its "pass through prohibition" was invalidated on the basis that it violates the
Commerce Clause. Some states have enacted opioid taxes or enacted increased licensure and registration fees. For example, New York, effective July 1, 2019,
imposed an excise tax on certain opioids. Other states may consider similar legislation that could require entities to pay an assessment or tax on the sale or
distribution of opioid medications in those states and may vary in the assessment or tax amounts and the means of calculation from the OSA. If additional
state or local jurisdictions successfully enact such legislation and we are not able to mitigate the impact on our business through price increases, operational
changes or commercial arrangements, such legislation in the aggregate may have a material adverse effect on our business, financial condition, results of
operations and cash flows. See the risk factor captioned "Extensive laws and regulations govern the industry in which we operate, and any failure to comply
with such laws and regulations, including any changes to those laws and regulations may materially adversely affect us." for more information.
Furthermore, in the current climate, stories regarding prescription drug abuse and the diversion of opioids and other controlled substances are frequently
in the media. Unfavorable publicity regarding the use or misuse of opioid drugs, the limitations of abuse-deterrent formulations, the ability of drug abusers to
discover previously unknown ways to abuse our products, public inquiries and investigations into prescription drug abuse, litigation, or regulatory activity
regarding sales, marketing, distribution or storage of opioids could have a material adverse effect on our reputation, leading to parties being unwilling to
engage with us from a business perspective, and could have a material impact on the results of litigation.
34
Finally, various government entities, including Congress, state legislatures or other policy-making bodies have in the past and may in the future hold
hearings, conduct investigations and/or issue reports calling attention to the opioid crisis, and may mention or criticize the perceived role of manufacturers,
including us, in the opioid crisis. Similarly, press organizations have and likely will continue to report on these issues, and such reporting may result in
adverse publicity for us, resulting in reputational harm.
The healthcare industry has been under increasing scrutiny from governments, legislative bodies and enforcement agencies related to sales, marketing
and pricing practices, and changes to, or non-compliance with, relevant policies, laws, regulations or government guidance may result in actions that
could adversely affect our business.
In the U.S., over the past several years, a significant number of pharmaceutical and biotechnology companies have been subject to inquiries and
investigations by various federal and state regulatory, investigative, prosecutorial and administrative entities in connection with the promotion of products for
unapproved uses and other sales, marketing and pricing practices, including the DOJ, the OIG within the HHS, the FDA, the FTC and various state Attorneys
General offices. These investigations have alleged violations of various federal and state laws and regulations, including alleged violations of antitrust laws,
the FFDCA, the FCA, the Prescription Drug Marketing Act, anti-kickback laws, data and patient privacy laws, export and import laws, consumer protection
laws and other alleged violations in connection with the promotion of products for unapproved uses, pricing and Medicare and/or Medicaid reimbursement.
These laws are described in greater detail in Item 1. Business. The DOJ and the SEC have also increased their focus on the enforcement of the FCPA,
particularly as it relates to the conduct of pharmaceutical companies.
Many companies, including us, have faced government investigations or lawsuits by whistleblowers who bring a "qui tam" action under the FCA on
behalf of themselves and the government for a variety of alleged improper promotional and marketing activities, including providing free product to
customers expecting that the customers would bill the federal programs for the product; providing consulting fees, grants, free travel and other benefits to
physicians to induce them to prescribe the Company’s products; providing assistance to patients with their insurance co-insurance obligations and providing
donations to third-party charities that provide patients with such assistance; and inflating prices reported to private price publication services, which are used
to set drug reimbursement rates under government healthcare programs. In addition, the government and private whistleblowers have pursued FCA cases
against pharmaceutical companies for causing false claims to be submitted as a result of the promotion and marketing of their products for unapproved uses or
violations of the federal Anti-Kickback Statute. We have in the past been, and may in the future become, the subject of an FCA or other government
investigation or whistleblower suit and we may incur substantial legal costs (including settlement costs) and business disruption responding to any such
investigation or suit, regardless of the outcome.
As described in Item 3. Legal Proceedings, we are subject to various legal proceedings and claims. If we are deemed to have failed to comply with any
relevant laws, regulations or government guidance, we could be subject to additional criminal and/or civil sanctions, including significant fines, damages,
civil monetary penalties and exclusion from participation in government healthcare programs, including Medicare and Medicaid, actions against executives
overseeing our business, consent decrees and corporate integrity agreements pursuant to which our activities would be subject to ongoing scrutiny and
monitoring to ensure compliance with applicable laws and regulations and/or burdensome remediation measures. Any such fines, awards, other sanctions or
required remediation could have an adverse effect on our competitive position, business, financial condition, results of operations and cash flows.
We have various contractual and court-ordered compliance obligations that, if violated could result in monetary, injunctive or other penalties.
We have various contractual and court-ordered compliance obligations, including pursuant to the CIA and the Operating Injunction. The CIA, which was
entered into with the OIG-HHS in March 2022 in concert with the 2020 Plan, has a five-year term and requires, among other things, enhancements to our
compliance program, fulfillment of self-reporting, monitoring and training obligations, management certifications and resolutions from the Mallinckrodt
Board of Directors and the retention of an independent review organization to conduct annual reviews of certain Company systems and transactions related to
Specialty Brands government pricing and patient assistance activities. Similarly, the Operating Injunction entered by the Bankruptcy Court in connection with
the 2020 Plan placed obligations on us with respect to the operation of our opioid business.
In addition, on November 30, 2023, we reached an agreement with the SEC to resolve the SEC staff’s previously disclosed investigation into certain of
the Company’s disclosures. As part of the agreement, we consented to the entry of an SEC order ("SEC Order") that, among other things, requires us to retain
a compliance consultant to review the Company’s disclosure controls and procedures relating to collection and assessment of information concerning potential
risks, contingencies, trends, and uncertainties, and the implementation and sufficiency of the Company’s internal accounting controls related to generally
accepted accounting principles in the U.S. ("GAAP") ASC 450. Under the terms of the SEC Order, we will implement recommendations of the compliance
consultant.
Compliance with our contractual and court-ordered obligations requires the expenditure of significant resources and management time. Further, the
failure to comply with any of our obligations may result in adverse action by the Bankruptcy Court, one or more
35
state Attorneys General, the SEC, or other enforcement authorities; monetary, injunctive or other penalties; exclusion from participation in federal healthcare
programs, including Medicare; increased legal fees and costs; negative publicity; and/or an increased risk of future lawsuits or other actions by third parties.
We face significant competition and may not be able to compete effectively.
The industries in which we operate are highly competitive. Competition takes many forms, such as price reductions on products that are comparable to
our own, development of new products with different mechanisms that obviate the need for our treatments, acquisition or in-licensing of new products that
may be more cost-effective than or have performance superior to our products, the introduction of generic versions when our proprietary products lose their
patent protection or market exclusivity, and technologies that are similar to our devices but may operate either more effectively or less expensively. This
competition may limit the effectiveness of any price increases we initiate. Following any price increase by us, competitors may elect to maintain a lower price
point that may result in a decline in our sales volume. Our failure to compete effectively could have a material adverse effect on our competitive position,
business, financial condition, results of operations and cash flows.
As to competition for our specific products:
• Acthar Gel—Given the approval by the FDA of a competitor's purified cortrophin gel product for the treatment of certain chronic autoimmune
disorders (including acute exacerbations of multiple sclerosis and rheumatoid arthritis as well as excess urinary protein due to nephrotic syndrome),
we anticipate that competition will likely continue to intensify, which could have an adverse effect on our financial condition, results of operations
and cash flows.
•
INOmax—We have seen increased competition following the launch of a competitive nitric oxide product before the expiration of the last of the
listed patents on May 3, 2026 (November 3, 2026 including pediatric exclusivity), which has had an adverse effect on our ability to successfully
maximize the value of INOmax, and if it continues, could have an adverse effect on our financial condition, results of operations and cash flows.
In addition, manufacturers of generic pharmaceuticals typically invest far less in R&D than research-based pharmaceutical companies, allowing generic
versions to typically be significantly less expensive than the related branded products. The generic form of a drug may also enjoy a preferred position relative
to the branded version under third-party reimbursement programs, or be routinely dispensed in substitution for the branded form by pharmacies. If
competitors introduce new products, delivery systems or processes with therapeutic or cost advantages, our products can be subject to progressive price
reductions, decreased sales volume or both.
For further discussion on the competitive nature of our business, as well as the intellectual property rights and market exclusivity that play a key role in
our business, refer to Item 1. Business included within this Annual Report. Our failure to compete effectively could have a material adverse effect on our
competitive position, business, financial condition, results of operations and cash flows.
We may experience pricing pressure on certain of our products due to competitor's product entries, legal changes or changes in insurers' reimbursement
practices resulting from increased public scrutiny of healthcare and pharmaceutical costs, which could reduce our future revenue and profitability.
Public and governmental scrutiny of the cost of healthcare generally and pharmaceuticals in particular, especially in connection with price increases of
certain products, could affect our ability to maintain or increase the prices of one or more of our products, which could negatively impact our future revenue
and profitability. Certain press reports and other commentary have criticized the increases in the price of Acthar Gel over time, including related to the period
prior to our acquisition of the product. Acthar Gel represented 23.5% and 22.7% of our net sales for the period November 15, 2023 through December 29,
2023 (Successor) and the period December 31, 2022 through November 14, 2023 (Predecessor), respectively. In addition, U.S. federal prosecutors have issued
subpoenas to certain pharmaceutical companies seeking information about their drug pricing practices, among other issues, and in October 2020, the U.S.
House of Representatives Committee on Oversight and Reform held hearings relating to drug pricing at which our former CEO testified along with executives
from other major pharmaceutical companies. On December 10, 2021, the committee issued its final majority report detailing findings from the investigation.
We cannot predict whether any particular legislative or regulatory changes or changes in insurers' reimbursement practices may result from any such public
scrutiny, what the nature of any such changes might be or what impact they may have on us. If legislative or regulatory action were taken or insurers changed
their reimbursement practices in a manner that limits our ability to maintain or increase the prices of our products, our financial condition, results of
operations and cash flows could be negatively affected.
36
Sales of our products are affected by, and we may be negatively impacted by any changes to, the reimbursement practices of governmental health
administration authorities, private health coverage insurers and other third-party payers. In addition, reimbursement criteria or policies and the use of
tender systems outside the U.S. could reduce prices for our products or reduce our market opportunities.
Sales of our products depend, in part, on the extent to which the costs of our products are reimbursed by governmental health administration authorities,
private health coverage insurers and other third-party payers. The ability of patients to obtain appropriate reimbursement for products and services from these
third-party payers affects the selection of products they purchase and the prices they are willing to pay. In the U.S., there have been, and we expect there will
continue to be, a number of state and federal proposals that limit the amount that third-party payers may pay to reimburse the cost of drugs, including with
respect to Acthar Gel. We believe the increasing emphasis on managed care in the U.S. has and will continue to put pressure on the usage and reimbursement
of Acthar Gel. Our ability to commercialize our products depends, in part, on the extent to which reimbursement for the costs of these products is available
from government healthcare programs, such as Medicaid and Medicare, private health insurers and others. We cannot be certain that, over time, third-party
reimbursements for our products will be adequate for us to maintain price levels sufficient for realization of an appropriate return on our investment.
Furthermore, demand for new products may be limited unless we obtain reimbursement approval from governmental and private third-party payers prior to
introduction. Reimbursement criteria, which vary by country, are becoming increasingly stringent and require management expertise and significant attention
to obtain and maintain qualification for reimbursement.
For any marketed drug products which are covered in the U.S. by the federal or state healthcare programs, such as the Medicare and Medicaid programs,
we have various obligations, including government price reporting and rebate requirements, which generally require medicines be offered at substantial
rebates and/or discounts to the government and certain private purchasers including "covered entities" purchasing under the 340B Drug Discount Program.
Some of these programs require submission of pricing data and calculation of discounts and rebates pursuant to complex statutory formulas, as well as the
entry into government procurement contracts governed by the Federal Acquisition Regulations, and the guidance governing such calculations is not always
clear or precise. Compliance with such requirements can require significant investment in personnel, systems and resources, but failure to properly calculate
our prices, or offer required discounts or rebates could subject us to substantial penalties. One component of the rebate and discount calculations under the
Medicaid and 340B programs, respectively, is the "additional rebate," a complex calculation which is based, in part, on the extent that a branded drug's price
increases over time more than the rate of inflation (based on the Consumer Price Index for All Urban Consumers). Because, effective January 1, 2024, the
Medicaid rebate amount is no longer capped at 100% of a drug's "average manufacturer price," this "additional rebate" calculation can result in an increase in
Medicaid rebate liability beyond such price. In addition, this "additional rebate" calculation can result in a 340B ceiling price of one penny when such price
calculates to less than $0.01. With respect to Acthar Gel, the "additional rebate" scheme, as applied to the historical pricing of Acthar Gel both before and
after we acquired the medicine, has resulted in a 340B ceiling price of one penny, which has negatively impacted and is expected to continue to negatively
impact our net sales of Acthar Gel. See the risk factor captioned "We have implemented changes to our Acthar Gel patient assistance program, which may
receive additional review from governmental regulators and, if challenged, could have a material adverse effect on future net sales of Acthar Gel." for more
information.
In the E.U., each E.U. member state can restrict the range of medicinal products for which its national health insurance system provides reimbursement
and can control the prices of medicinal products for human use marketed on its territory. In many countries in the E.U., procedures to obtain price approvals,
coverage and reimbursement can take considerable time after the receipt of marketing authorization. Many European countries periodically review their
reimbursement of medicinal products, which could have an adverse impact on reimbursement status. In addition, we expect that legislators, policymakers and
healthcare insurance funds in the E.U. member states will continue to propose and implement cost-containing measures, such as lower maximum prices, lower
or lack of reimbursement coverage and incentives to use cheaper, usually generic, products as an alternative to branded products, and/or branded products
available through parallel import to keep healthcare costs down. Moreover, in order to obtain reimbursement for our products in some European countries,
including some E.U. member states, we may be required to compile additional data comparing the cost-effectiveness of our products to other available
therapies. Health Technology Assessment ("HTA"), of medicinal products is becoming an increasingly common part of the pricing and reimbursement
procedures in some E.U. member states, including those representing the larger markets. The HTA process, which is currently governed by national laws in
each E.U. member state, is the procedure to assess the therapeutic, economic and societal impact of a given medicinal product in the national healthcare
systems of the individual country. The outcome of an HTA will often influence the pricing and reimbursement status granted to these medicinal products by
the competent authorities of individual E.U. member state. The extent to which pricing and reimbursement decisions are influenced by the HTA of the specific
medicinal product currently varies between E.U. member states. The E.U. HTA Regulation (EU) 2021/2282, which was adopted in December 2021 and
entered into force in January 2022, aims to harmonize the clinical benefit assessment of HTA across the E.U. and will apply from January 12, 2025. It
provides for common HTA tools, methodologies and procedures and complements Directive 2011/24/EU on the application of patients’ rights in cross-border
healthcare under which a voluntary network of national authorities or bodies responsible for HTA in the individual E.U. member states was established.
If we are unable to obtain, then maintain favorable pricing and reimbursement status in E.U. member states that represent significant markets, our
anticipated revenue from and growth prospects for our products in the E.U. could be negatively affected. We may face delays by certain European regulatory
authorities in their pricing and reimbursement reviews. If we experience setbacks or
37
unforeseen difficulties in obtaining favorable pricing and reimbursement decisions, planned launches in the affected E.U. member states would be delayed,
which could negatively impact anticipated revenue from and growth prospects for any product candidate.
With regard to private payers, reimbursement of highly-specialized products, such as Acthar Gel, is typically reviewed and approved or denied on a
patient-by-patient, case-by-case basis, after careful review of details regarding a patient's health and treatment history that is provided to the insurance carriers
through a prior authorization submission, and appeal submission, if applicable. During this case-by-case review, the reviewer may refer to coverage guidelines
issued by that carrier. These coverage guidelines are subject to on-going review by insurance carriers. Because of the large number of insurance carriers, there
are a large number of guideline updates issued each year.
In addition, a number of markets outside the U.S. in which we operate have implemented or may implement tender systems in an effort to lower prices.
Under such tender systems, manufacturers submit bids which establish prices for products. The company that wins the tender receives preferential
reimbursement for a period of time. Accordingly, the tender system often results in companies underbidding one another by proposing low pricing in order to
win the tender. Certain other countries may consider implementation of a tender system. Even if a tender system is ultimately not implemented, the
anticipation of such could result in price reductions. Failing to win tenders, or the implementation of similar systems in other markets leading to price
declines, could have a material adverse effect on our competitive position, business, financial condition, results of operations and cash flows.
We are unable to predict what additional legislation or regulation or changes in third-party coverage and reimbursement policies may be enacted or issued
in the future or what effect such legislation, regulation and policy changes would have on our business.
Our reporting and payment obligations under the Medicare and Medicaid rebate programs, and other governmental purchasing and rebate programs, are
complex. Any determination of failure to comply with these obligations or those relating to healthcare fraud and abuse laws could have a material adverse
effect on our business.
The regulations regarding reporting and payment obligations with respect to Medicare and Medicaid reimbursement programs, and rebates and other
governmental programs, are complex. Because our processes for these calculations and the judgments used in making these calculations involve subjective
decisions and complex methodologies, these accruals may have a higher inherent risk for material changes in estimates. In addition, they are subject to review
and challenge by the applicable governmental agencies and it is possible that such reviews could result in material adjustments to amounts previously paid.
See the risk factor captioned "Sales of our products are affected by, and we may be negatively impacted by any changes to, the reimbursement practices of
governmental health administration authorities, private health coverage insurers and other third-party payers. In addition, reimbursement criteria or policies
and the use of tender systems outside the U.S. could reduce prices for our products or reduce our market opportunities."
Pricing and rebate calculations vary among products and programs. The calculations are complex and are often subject to interpretation by us,
governmental or regulatory agencies and the courts. The Medicaid rebate amount will be computed each quarter based on each manufacturer’s submission to
CMS of its current average manufacturer prices and, in the case of innovator products, best prices for the quarter. If a manufacturer becomes aware that its
Medicaid reporting for a prior period was incorrect, or has changed as a result of recalculation of the pricing data, the manufacturer is obligated to resubmit
the corrected data. Such restatements and recalculations could increase our costs for complying with the laws and regulations governing the Medicaid Drug
Rebate Program. Any corrections to its rebate calculations could result in an overage or underage in a manufacturer’s rebate liability for past quarters,
depending on the nature of the correction. Price recalculations also may affect the ceiling price at which a manufacturer is required to offer its products to
covered entities under the 340B program, and may require us to issue refunds to 340B covered entities, which can be costly and burdensome. It is unclear how
these restatements will impact a manufacturer’s liability with respect to the Part B and Part D inflation rebates, passed as part of the Inflation Reduction Act.
Each manufacturer that participates in the Medicaid Drug Rebate Program could be held liable for errors associated with affiliates’ submission of or
failure to submit pricing data. Civil monetary penalties can be applied if a manufacturer is found to have made a misrepresentation in the reporting of its
average sales price for each misrepresentation and for each day in which the misrepresentation was applied, or if the manufacturer is found to have charged
340B covered entities more than the statutorily mandated ceiling price. In addition to retroactive rebates and the potential for 340B program refunds, if a
manufacturer is found to have knowingly submitted false average manufacturer price or best price information to the government, or to have misrepresented
that information, the manufacturer may be liable for significant civil monetary penalties per item of false information. A manufacturer’s failure to submit
monthly/quarterly average manufacturer price and best price data on a timely basis could result in a significant civil monetary penalty per day for each day the
information is late beyond the due date. Such failures also could be grounds for CMS to terminate the manufacturer’s Medicaid drug rebate agreement,
pursuant to which it participates in the Medicaid program, or, if the manufacturer fails to comply with 340B program requirements, HRSA could decide to
terminate its 340B program participation agreement. In the event that CMS terminates a manufacturer’s rebate agreement or HRSA terminates its 340B
program participation agreement, no federal payments would be available under Medicaid or Medicare Part B for the manufacturer’s covered outpatient
drugs. Finally, manufacturers that fail to offer discounts under the Medicare Part D coverage gap discount program may be liable for additional civil monetary
penalties.
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CMS and the OIG have pursued manufacturers that were alleged to have failed to report these data to the government in a timely manner. Governmental
agencies may also make changes in program interpretations, requirements or conditions of participation, some of which may have implications for amounts
previously estimated or paid. Manufacturers cannot guarantee that a submissions will not be found by CMS to be incomplete or incorrect.
Further, the Inflation Reduction Act, as noted in the Healthcare Reform section, establishes Medicare Part B and Part D inflation rebate schemes (the first
Part B inflation rebate period was the first quarter of 2023; the first Part D inflation rebate period was the fourth quarter of 2022 through the third quarter of
2023) and a drug price negotiation program (with the first negotiated prices to take effect in 2026). It also makes changes to the Medicare Part D benefit,
including the creation of a new manufacturer discount program in place of the current coverage gap discount program (beginning in 2025). Manufacturers
may be subject to civil monetary penalties for certain violations of the negotiation and inflation rebate provisions and an excise tax during a noncompliance
period under the negotiation program. Drug manufacturers may be subject to civil monetary penalties with respect to their compliance with the new Part D
manufacturer drug discount program. Manufacturers thus could be subject to additional liability with respect to these programs as well.
In order to be eligible to have our products paid for with federal funds under the Medicaid and Medicare Part B programs and purchased by the Big Four
agencies and certain federal grantees, we are required to participate in the FSS pricing program, established under Section 603 of the Veterans Health Care
Act of 1992. Under this program, we are obligated to make our "covered" drugs (i.e., innovator drugs and biologics) available for procurement on an FSS
contract and charge a price to the Big Four agencies that is no higher than the FCP, which is a price calculated pursuant to a statutory formula. The FSS
program also allows us (but does not require us) to list certain non-covered drugs on an FSS contract at negotiated pricing, not capped at the FCP. The FCP is
derived from a calculated price point called the non-FAMP, which we are required to calculate and report to the VA on a quarterly and annual basis. Pursuant
to applicable law, knowing provision of false information in connection with a non-FAMP filing can subject a manufacturer to significant civil monetary
penalties for each item of false information. The FSS contract also contains extensive disclosure and certification requirements. In addition, Section 703 of the
National Defense Authorization Act for Fiscal Year 2008, requires us to pay quarterly rebates to DoD on utilization of covered drugs that are dispensed
through DoD’s Tricare network pharmacies to Tricare beneficiaries. The rebates are calculated as the difference between the annual non-FAMP and FCP for
the calendar year that the product was dispensed. If we overcharge the government in connection with the FSS contract or Tricare Retail Pharmacy Rebate
Program, whether due to a misstated FCP or otherwise, we will be required to refund the difference to the government. Failure to make necessary disclosures
and/or to identify contract overcharges can result in allegations against us under the FCA and other laws and regulations. Unexpected refunds to the
government, and any response to government investigation or enforcement action, would be expensive and time-consuming, and could have a material
adverse effect on our business, financial condition, results of operations and growth prospects.
Any governmental agencies that have commenced, or may commence, an investigation of us relating to the sales, marketing, pricing, quality or
manufacturing of pharmaceutical products could seek to impose, based on a claim of violation of fraud and false claims laws or otherwise, civil and/or
criminal sanctions, including fines, penalties and possible exclusion from federal healthcare programs including Medicare and Medicaid. Some of the
applicable laws may impose liability even in the absence of specific intent to defraud. Furthermore, should there be ambiguity with regard to how to properly
calculate and report payments, and even in the absence of any such ambiguity, a governmental authority may take a position contrary to a position we have
taken, and may impose civil and/or criminal sanctions. For example, in May 2019, CMS issued a final decision directing the Company to revert to the original
base date average manufacturer price ("AMP") used to calculate Medicaid drug rebates for Acthar Gel despite having granted Questcor Pharmaceuticals, Inc.
("Questcor") written authorizations to reset the base date AMP in 2012. In addition, from time to time, state attorneys general have brought cases against us
that allege generally that we and numerous other pharmaceutical companies reported false pricing information in connection with certain drugs that are
reimbursable under Medicaid, resulting in overpayment by state Medicaid programs for those drugs, and generally seek monetary damages and attorneys'
fees. Any such penalties or sanctions that we might become subject to in this or other actions could have a material adverse effect on our competitive position,
business, financial condition, results of operations and cash flows.
Cost-containment efforts of our customers, purchasing groups, third-party payers and governmental organizations could materially adversely affect our
business.
In an effort to reduce cost, many existing and potential customers for our products within the U.S. are members of GPOs and integrated delivery networks
("IDNs"). GPOs and IDNs negotiate pricing arrangements with healthcare product manufacturers and distributors and offer the negotiated prices to affiliated
hospitals and other members. GPOs and IDNs typically award contracts on a category-by-category basis through a competitive bidding process. Bids are
generally solicited from multiple manufacturers with the intention of driving down pricing. Due to the highly competitive nature of the GPO and IDN
contracting processes, there is no assurance that we will be able to obtain or maintain contracts with major GPOs and IDNs across our product portfolio.
Furthermore, the increasing leverage of organized buying groups may reduce market prices for our products, thereby reducing our profitability. While having
a contract with a GPO or IDN for a given product can facilitate sales to members of that GPO or IDN, having a contract is no assurance that sales volume of
those products will be maintained. GPOs and IDNs increasingly are awarding contracts to
39
multiple suppliers for the same product category. Even when we are the sole contracted supplier of a GPO or IDN for a certain product, members of the GPO
or IDN generally are free to purchase from other suppliers. Furthermore, GPO and IDN contracts typically are terminable without cause upon 60 to 90 days
prior notice. Accordingly, our net sales and results of operations may be negatively affected by the loss of a contract with a GPO or IDN. In addition, although
we have contracts with many major GPOs and IDNs, the members of such groups may choose to purchase from our competitors, which could result in a
decline in our net sales. Distributors of our products are also forming strategic alliances and negotiating terms of sale more aggressively in an effort to
increase their profitability. Failure to negotiate distribution arrangements having advantageous pricing and other terms of sale could cause us to lose market
share to our competitors or result in lower pricing on volume we retain, both of which could have a material adverse effect on our competitive position,
business, financial condition, results of operations and cash flows. Outside the U.S., we have experienced pricing pressure due to the concentration of
purchasing power in centralized governmental healthcare authorities and increased efforts by such authorities to lower healthcare costs. We frequently are
required to engage in competitive bidding for the sale of our products to governmental purchasing agents. Our failure to maintain volume and pricing with
historical or anticipated levels could materially adversely affect our business, financial condition, results of operations and cash flows.
Extensive laws and regulations govern the industry in which we operate and any failure to comply with such laws and regulations, including any changes
to those laws and regulations may materially adversely affect us.
The testing, development, manufacture, quality control, safety, effectiveness, approval, labeling, storage, record-keeping, reporting, import, export,
marketing, sale, promotion, and distribution of our products are subject to comprehensive government regulations that govern and influence the development,
testing, manufacturing, processing, packaging, holding, record keeping, safety, efficacy, approval, advertising, promotion, sale, distribution and import/export
of our products.
Under these laws and regulations, we are subject to periodic inspection of our facilities, procedures and operations and/or the testing of our products by
the FDA, the DEA and similar authorities within and outside the U.S., which conduct periodic inspections to confirm that we are in compliance with all
applicable requirements. We are also required to monitor, track and (periodically) report adverse events and product quality problems associated with our
products to the FDA and other regulatory authorities including the competent authorities of the E.U. member states on behalf of the EMA and the competent
authorities of other European countries. Failure to comply with the requirements of FDA or other regulatory authorities, including a failed inspection or a
failure in our adverse event reporting system, or any other unexpected or serious health or safety concerns associated with our products, including our opioid
pain products and Acthar Gel, could result in adverse inspection reports, warning letters, product recalls or seizures, product liability claims, labeling changes,
monetary sanctions, injunctions to halt the manufacture and distribution of products, civil or criminal sanctions, refusal of a government to grant approvals or
licenses, restrictions on operations or withdrawal of existing approvals and licenses. For instance, in the E.U. the EMA's Pharmacovigilance Risk Assessment
Committee may propose to the Committee for Medicinal Products for Human Use that the authorization holder be required to take specific steps or advise that
the existing marketing authorization be varied, suspended or revoked. Any of these actions could cause a loss of customer confidence in our products, which
could adversely affect our sales, or otherwise have a material adverse effect on our competitive position, business, financial condition, results of operations
and cash flows. In addition, the requirements of regulatory authorities, including interpretative guidance, are subject to change and compliance with additional
or changing requirements or interpretative guidance may subject us to further review, result in product delays or otherwise increase our costs, and thus have a
material adverse effect on our competitive position, business, financial condition, results of operations and cash flows.
Furthermore, the FDA and various foreign regulatory authorities approve drugs and medical devices for the treatment of specific indications, and
products may only be promoted or marketed for the indications for which they have been approved. For example, applicable laws in the E.U. require that
promotional materials and advertising in relation to medicinal products comply with the product’s Summary of Product Characteristics ("SmPC") as approved
by the competent authorities in connection with a marketing authorization approval. The SmPC is the document that provides information to physicians
concerning the safe and effective use of the product. Promotional activity that does not comply with the SmPC is considered off-label and is prohibited in the
E.U. However, in the U.S. the FDA does not attempt to regulate physicians' use of approved products, and physicians are free to prescribe most approved
products for purposes outside the indication for which they have been approved. This practice is sometimes referred to as "off-label" use. While physicians are
free to prescribe approved products for unapproved uses, it is unlawful for drug and device manufacturers to market or promote a product for an unapproved
use. The laws and regulations relating to the promotion of products for unapproved uses are complex and subject to substantial interpretation by the FDA and
other governmental agencies. Promotion of a product for unapproved use is prohibited; however, certain activities that we and others in the pharmaceutical
industry engage in are permitted by the FDA. We have compliance programs in place, including policies, training and various forms of monitoring, designed
to address these risks. Nonetheless, these programs and policies may not always protect us from conduct by individual employees that violate these laws. If
the FDA or any other governmental agency initiates an enforcement action against us and it is determined that we violated prohibitions relating to the
promotion of products for unapproved uses in connection with past or future activities, we could be subject to substantial civil or criminal fines or damage
awards and other sanctions such as consent decrees and corporate integrity agreements pursuant to which our activities would be subject to ongoing scrutiny
and monitoring to ensure compliance with applicable
40
laws and regulations. Any such fines, awards or other sanctions could have an adverse effect on our business, financial condition, results of operations and
cash flows.
Our approved products and investigational products, if successfully developed and approved, may cause undesirable side effects that limit their
commercial profile; delay or prevent further development or regulatory approval; cause regulatory authorities to require labeling statements, such as
boxed warnings or a REMS; or result in other negative consequences.
We may observe undesirable side effects or other potential safety issues in nonclinical studies, in clinical trials at any stage of development of our product
candidates, as part of an expanded access program or in commercial use or post-approval studies of any approved product. Clinical trials by their nature
utilize a sample of the potential patient population. With a limited number of patients and limited duration of exposure, certain side effects of our product
candidates, if successfully developed and approved, may only be uncovered with a larger number of patients exposed to the product. Those side effects could
be serious or life-threatening. If we or others identify undesirable side effects caused by our products:
•
•
regulatory authorities may withdraw or limit their approval of such products;
the FDA or regulatory authorities outside the U.S. may impose a clinical hold or partial clinical hold prior to the initiation of development or during
development of our product candidates which could cause us or our collaborators to have to stop, delay or restrict further development; or we or our
collaborators may, even without a clinical hold, decide to interrupt, delay or halt existing non-clinical studies and clinical trials or stop development;
• we may have difficulty enrolling patients in our clinical trials and completing such trials on the timelines we expect or at all, or we may have to
conduct additional non-clinical studies or clinical trials as part of a development program;
• we may not be able ultimately to demonstrate, to the satisfaction of the FDA or other regulatory authorities, that our product candidates are safe and
that the benefits outweigh the safety risks, and the FDA or applicable foreign regulatory authorities may not approve the product candidate;
•
regulatory authorities may require the addition of labeling statements, such as a boxed warning or additions to an existing boxed warning, or a
contraindication, including as a result of inclusion in a class of drugs for a particular disease, or may require a REMS, or modifications to an existing
REMS;
• we may be required to change the way such products are distributed or administered, conduct post-approval studies or change the labeling of the
products;
• we may be subject to regulatory investigations and government enforcement actions;
• we may decide to remove such products from the marketplace;
• we could be sued and held liable for injury caused to individuals exposed to or taking our products or product candidates; and
•
our reputation may suffer.
We believe that any of these events could prevent us from achieving or maintaining market acceptance of the affected products, could substantially
increase the risks and costs of developing our product candidates or commercializing our products, and could significantly adversely impact our ability to
successfully develop, gain regulatory approval for, and commercialize our current product candidates or future products and generate revenues.
We may be unable to successfully develop, commercialize or launch new products or expand commercial opportunities for existing products or adapt to a
changing technology and, as a result, our business may suffer.
Our future results of operations will depend, to a significant extent, upon our ability to successfully develop, commercialize and launch new products or
expand commercial opportunities for existing products in a timely manner. There are numerous difficulties in developing, commercializing and launching new
products or expanding commercial opportunities for existing products, including:
•
•
•
•
developing, testing and manufacturing products in compliance with regulatory and quality standards in a timely manner;
our ability to successfully engage with the FDA or other regulatory authorities as part of the development and approval process and to receive
requisite regulatory approvals for such products in a timely manner, or at all;
agreement on acceptable terms with prospective clinical research organizations ("CROs") and clinical trial sites, the terms of which can be subject to
extensive negotiation and may vary significantly among CROs and trial sites;
the availability, on commercially reasonable terms, of raw materials, including API and other key ingredients for our products;
41
•
delay or failure in obtaining IRB approval or the approval of other reviewing entities, including comparable foreign regulatory authorities, to conduct
a clinical trial at each site;
• withdrawal of clinical trial sites from our clinical trials as a result of changing standards of care or the ineligibility of a site to participate in our
clinical trials;
delay or failure in recruiting and enrolling suitable trial patients to participate in a trial;
clinical sites and investigators deviating from a trial protocol, failing to conduct the trial in accordance with regulatory requirements, or dropping out
of a trial;
inability to identify and maintain a sufficient number of trial sites, many of which may already be engaged in other clinical trial programs, including
some that may be for competing product candidates with the same indication;
failure of our third-party clinical trial sites to satisfy their contractual duties or meet expected deadlines;
ambiguous or negative interim results or results that are inconsistent with earlier results;
feedback from the FDA or a comparable regulatory authority outside the United States, IRBs, or data safety monitoring boards, or results from
earlier stage or concurrent preclinical studies and clinical trials, that might require modification to the protocol for the trial;
decision by the FDA or a comparable regulatory authority outside the United States, an IRB or us, or a recommendation by a data safety monitoring
board to suspend or terminate clinical trials at any time for safety issues or for any other reason;
unacceptable risk-benefit profile, unforeseen safety issues or adverse side effects or adverse reactions associated with a product candidate;
failure of a product candidate to demonstrate any or enough of a benefit;
difficulties in manufacturing or obtaining from third parties sufficient quantities of a product candidate for use in clinical trials or commercial use
that meet internal and regulatory standards
lack of adequate funding to continue the clinical trial, including the incurrence of unforeseen costs due to enrollment delays, requirements to conduct
additional clinical trials or increased expenses associated with the services of our CROs and other third parties;
developing, commercializing and launching a new product is time-consuming, costly and subject to numerous factors, including legal actions
brought by our competitors, that may delay or prevent the development, commercialization and/or launch of new products;
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• multiple product launches in a short period of time may be challenging, particularly for an organization that has not launched a new product in many
years, and may result in strained resources that could lead to launch delays and cost;
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other unanticipated costs;
payment of prescription drug user fees to the FDA to defray the costs of review and approval of marketing applications for branded and generic
drugs;
experiencing delays as a result of limited resources at the FDA or other regulatory authorities;
changing review and approval policies and standards at the FDA or other regulatory authorities;
changing standards of care;
potential delays in the commercialization of generic products by up to 30 months resulting from the listing of patents with the FDA;
effective execution of the product launches in a manner that is consistent with expected timelines and anticipated costs;
identifying appropriate partners for distribution of our products, including any future over-the-counter commercialization opportunities, and
negotiating contractual arrangements in a timely manner with commercially reasonable terms; and
changes in governmental regulations or administrative actions.
As a result of these and other difficulties, products currently in development by us may or may not receive timely regulatory approvals, or approvals at
all. This risk is heightened with respect to the development of proprietary branded products due to the uncertainties, higher costs and length of time associated
with R&D of such products and the inherent unproven market acceptance of such products. Moreover, the FDA regulates the facilities, processes and
procedures used to manufacture and market pharmaceutical products in the U.S. Manufacturing facilities must be registered with the FDA and all products
made in such facilities must be manufactured in accordance with cGMP regulations enforced by the FDA. Compliance with cGMP regulations requires the
dedication of substantial resources and requires significant expenditures. Prior to approval of any product, the FDA inspects both our facilities
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and procedures to ensure compliance with regulatory standards, and those inspections are also conducted periodically once a product is approved. The FDA
may also cause a suspension or withdrawal of product approvals if regulatory standards are not maintained. In the event an approved manufacturing facility
for a particular drug is required by the FDA to curtail or cease operations, or otherwise becomes inoperable, obtaining the required FDA authorization to
manufacture at the same or a different manufacturing site could result in production delays, which could have a material adverse effect on our competitive
position, business, financial condition, results of operations and cash flows. If we or the manufacturing facilities for our products fail to comply with
applicable regulatory requirements, a regulatory authority may, among other things:
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issue warning letters or untitled letters;
• mandate modifications to promotional materials or require us to provide corrective information to healthcare practitioners;
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require us to enter into a consent decree, which can include imposition of various fines, reimbursements for inspection costs, required due dates for
specific actions and penalties for noncompliance;
seek an injunction or impose civil or criminal penalties or monetary fines;
suspend or withdraw regulatory approval;
suspend any ongoing clinical trials;
refuse to approve pending applications or supplements to applications filed by us;
suspend or impose restrictions on operations, including costly new manufacturing requirements; or
seize or detain products, refuse to permit the import or export of products, or require us to initiate a product recall.
The occurrence of any event or penalty described above may inhibit or preclude our ability to commercialize our products and generate revenue.
Advertising and promotion of our products is heavily scrutinized by, among others, the FDA, the DOJ, the OIG within the HHS, state attorneys general,
members of Congress and the public. Failure to comply with applicable FDA requirements and restrictions in this area may subject a company to adverse
publicity and enforcement action, including enforcement letters, inquiries and investigations, and civil and criminal sanctions by the FDA or other
government agencies.
Furthermore, the market perception and reputation of our products are important to our business and the continued acceptance of our products. Any
negative press reports or other commentary about our products, whether accurate or not, could have a material adverse effect on our business, reputation,
financial condition, results of operation or cash flows or could cause the market value of our common shares and/or debt securities to decline.
With respect to generic products for which we are the first developer to have its application accepted for filing by the FDA, and which filing includes a
certification that the applicable patent(s) are invalid, unenforceable and/or not infringed (known as a "Paragraph IV certification"), our ability to obtain and
realize the full benefits of 180-days of market exclusivity is dependent upon a number of factors, including, being the first to file, the status of any litigation
that might be brought against us as a result of our filing or our not meeting regulatory, manufacturing or quality requirements or standards. If any of our
products are not approved timely, or if we are unable to obtain and realize the full benefits of the respective market exclusivity period for our products, or if
our products cannot be successfully manufactured or commercialized timely, our results of operations could be materially adversely affected. In addition, we
cannot guarantee that any investment we make in developing products will be recouped, even if we are successful in commercializing those products. Finally,
once developed and approved, new products may fail to achieve commercial acceptance due to the price of the product, third-party reimbursement of the
product and the effectiveness of sales, marketing and distribution efforts to support the product.
We may not be successful in our efforts to identify or discover additional products or product candidates beyond our existing products and product
candidates at the rate we expect, or we may expend our limited resources to pursue a particular product candidate or indication and fail to capitalize on
product candidates or indications that may be more profitable or for which there is a greater likelihood of success.
The long-term success of our business depends upon our ability to successfully develop, gain approval of and commercialize our products and on our ability
to identify compounds for development and commercialization in the future and to successfully complete the non-clinical work necessary to file INDs to
pursue clinical development of such new compounds. Our programs may fail to identify or generate new compounds that meet our standards for development
and commercialization, and, even if we are successful in generating or identifying such compounds, we may not be able to produce the data necessary to
support a regulatory approval.
Because we have limited financial and management resources, we focus on a limited number of commercial and R&D programs. As a result, we may
forego or delay pursuit of opportunities with other products or product candidates that later prove to have greater commercial potential. We may focus our
efforts and resources on potential programs or product candidates that ultimately prove to be
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unsuccessful and may not yield any commercially viable products. Our resource allocation decisions may cause us to fail to capitalize on other viable
opportunities. If we do not accurately evaluate the commercial potential or target market for a particular product candidate, we may relinquish valuable rights
through future collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain such sole
development and commercialization rights. If any of these events occur, it may have a material adverse effect on our business.
We may not achieve the anticipated benefits of price increases enacted on our pharmaceutical products, which may adversely affect our business.
From time to time, we may initiate price increases on certain of our pharmaceutical products. There is no guarantee that our customers will be receptive
to these price increases and continue to purchase the products at historical quantities. In addition, it is unclear how market participants will react to price
increases, particularly in light of the scrutiny being paid to drug pricing in the U.S. If customers do not maintain or increase existing sales volumes, we may
be unable to replace lost sales with orders from other customers, and it could have a material adverse effect on our competitive position, business, financial
condition, results of operations and cash flows.
Our customer concentration may materially adversely affect our business.
We sell a significant amount of our products to a limited number of independent wholesale drug distributors, large pharmacy chains and specialty
pharmaceutical distributors. In turn, these wholesale drug distributors, large pharmacy chains and specialty pharmaceutical distributors supply products to
pharmacies, hospitals, governmental agencies and physicians. Sales to one of our distributors that supplies our products to many end user customers, FFF
Enterprises, Inc. for the period of April 2, 2022 (Predecessor) through December 29, 2023 (Successor) and McKesson Corporation for the period from
November 15, 2023 through December 29, 2023 (Successor) and previously AmerisourceBergen Corporation for the period from December 31, 2022 through
November 14, 2023 (Successor) and CuraScript, Inc. from January 1, 2022 through April 1, 2022 (Predecessor) accounted for 10.0% or more of our total net
sales. If we were to lose the business of this distributor, or if this distributor failed to fulfill its obligations, experienced difficulty in paying us on a timely
basis, or negotiated lower pricing terms, it could have a material adverse effect on our competitive position, business, financial condition, results of operations
and cash flows.
Our product concentration may materially adversely affect our business.
We sell a wide variety of products including specialty branded and specialty generic pharmaceuticals, as well as API. However, a small number of
relatively significant products, most notably Acthar Gel, INOmax and Therakos, represent a significant percentage of our net sales. Our ability to maintain
and increase net sales from these products depends on several factors, including:
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our ability to increase market demand for products through our own marketing and support of our sales force;
our ability to implement and maintain pricing and continue to maintain or increase market demand for these products;
our ability to achieve hospital and other third-party payer formulary acceptance, and maintain reimbursement levels by third-party payers;
our ability to maintain confidentiality of the proprietary know-how and trade secrets relating to Acthar Gel;
our ability to continue to procure raw materials or finished goods, as applicable, for Acthar Gel, INOmax and Therakos from internal and third-party
manufacturers in sufficient quantities and at acceptable quality and pricing levels in order to meet commercial demand;
our ability to maintain fees and discounts payable to the wholesalers and distributors and GPOs, at commercially reasonable levels;
• whether the DOJ or other third parties seek to challenge and are successful in challenging patents or patent-related settlement agreements or our sales
and marketing practices;
• warnings or limitations that may be required to be added to FDA-approved labeling; and
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the occurrence of adverse side effects related to or emergence of new information related to the therapeutic efficacy of these products, and any
resulting product liability claims or product recalls.
Moreover, net sales of Acthar Gel may also be materially impacted by the decrease in the relatively small number of prescriptions written for Acthar Gel
as compared to other products in our portfolio, given Acthar Gel's use in treating rare diseases. Any disruption in our ability to generate net sales from Acthar
Gel could have an adverse impact on our business, financial condition, results of operations and cash flows.
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We may be unable to protect our intellectual property rights, intellectual property rights may be limited or we may be subject to claims that we infringe on
the intellectual property rights of others.
We rely on a combination of patents, trademarks, trade secrets, proprietary know-how, market exclusivity gained from the regulatory approval process
and other intellectual property to support our business strategy. However, our efforts to protect our intellectual property rights may not be sufficient. If we do
not obtain sufficient protection for our intellectual property, or if we are unable to effectively enforce our intellectual property rights, or if there is a change in
the way courts and regulators interpret the laws, rules and regulations applicable to our intellectual property, our competitiveness could be impacted, which
could adversely affect our competitive position, business, financial condition, results of operations and cash flows.
Our pending patent applications may not result in the issuance of patents, or the patents issued to or licensed by us in the past or in the future may be
challenged or circumvented by competitors. Existing patents may be found to be invalid or insufficiently broad to preclude our competitors from using
methods or making or selling products similar or identical to those covered by our patents and patent applications. Regulatory agencies may refuse to grant us
the market exclusivity that we were anticipating, or may unexpectedly grant market exclusivity rights to other parties. In addition, our ability to obtain and
enforce intellectual property rights is limited by the unique laws of each country. In some countries, it may be particularly difficult to adequately obtain or
enforce intellectual property rights, which could make it easier for competitors to capture market share in such countries by utilizing technologies and product
features that are similar or identical to those developed or licensed by us. Competitors also may harm our sales by designing products that mirror the
capabilities of our products or technology without infringing our patents, including by coupling separate technologies to replicate what our products
accomplish through a single system. Competitors may diminish the value of our trade secrets by reverse engineering or by independent invention.
Additionally, current or former employees may improperly disclose such trade secrets to competitors or other third parties. We may not become aware of any
such improper disclosure, and, in the event we do become aware, we may not have an adequate remedy available to us.
We operate in an industry characterized by extensive patent litigation, and we may from time to time be a party to such litigation. For example, in
October 2023, we received two notifications from the Japan Patent Office that indicate that a company has filed two invalidation proceedings against two
patent term extension ("PTE") registrations relating to one or more patent(s) we were previously granted that cover Amitiza and its use in Japan. While we
believe that our PTE registrations are valid, and we intend to vigorously defend the PTE registrations, if we are unsuccessful, it could have a material adverse
effect on our competitive position, business, financial condition, results of operations and cash flows.
The pursuit of or defense against patent infringement is costly and time-consuming and we may not know the outcomes of such litigation for protracted
periods of time. We may be unsuccessful in our efforts to enforce our patent or other intellectual property rights. In addition, patent litigation can result in
significant damage awards, including the possibility of treble damages and injunctions. Additionally, we could be forced to stop manufacturing and selling
certain products, or we may need to enter into license agreements that require us to make significant royalty or up-front payments in order to continue selling
the affected products. Given the nature of our industry, we are likely to face additional claims of patent infringement in the future. A successful claim of
patent or other intellectual property infringement against us could have a material adverse effect on our competitive position, business, financial condition,
results of operations and cash flows.
Specifically, we believe that the following risks could impact our existing product portfolio:
• Acthar Gel – The composition patent for Acthar Gel has expired and we have no patent-based market exclusivity with respect to any indication or
condition we might target. We rely on trade secrets and proprietary know-how to protect the commercial viability and value of Acthar Gel. We
currently obtain such protection, in part, through confidentiality and proprietary information agreements. These agreements may not provide
meaningful protection or adequate remedies for proprietary technology in the event of unauthorized use or disclosure of confidential and proprietary
information. The parties may not comply with or may breach these agreements. Furthermore, our trade secrets may otherwise become known to, or
be independently developed by, competitors.
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INOmax – Certain patents related to the use of therapeutic nitric oxide for treating or preventing bronchoconstriction or reversible pulmonary
vasoconstriction expired in 2013. Prior to their expiration, we depended, in part, upon these patents to provide us with exclusive marketing rights for
our product for some period of time. Since then, we have obtained additional patents, which expire at various dates through 2036, including patents
on methods of identifying patients at risk of serious adverse events when nitric oxide is administered to patients with particular heart conditions.
Such methods have been approved by the FDA for inclusion in the Warnings and Precautions sections of the INOmax label. Other patents are on
inhaled nitric oxide gas delivery systems as well as methods of using such systems, and on use of nitric oxide gas sensors. The Paragraph IV patent
litigation trial against Praxair Distribution, Inc. and Praxair, Inc. to prevent the marketing of its potential infringing nitric oxide drug product delivery
system prior to the expiration of the patents covering INOmax was held in March 2017 and a decision was rendered in September 2017 that ruled
five patents invalid and six patents not infringed. We appealed the decision all the way up to the U.S. Supreme Court but were unsuccessful in those
efforts. As a result, a broader-scale launch of competitive nitric oxide products has taken place in the market which has adversely impacted our
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business and may continue to adversely affect our ability to successfully maximize the value of INOmax and could have an adverse effect on our
competitive position, business, financial condition, results of operations and cash flows.
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Therakos – Our Therakos products provide extracorporeal photopheresis, which is an autologous immune cell therapy that is indicated in the U.S. for
skin manifestations of CTCL and is available for several additional indications in markets outside the U.S. In the ECP process, blood is drawn from
the patient, separating white blood cells from plasma and red blood cells (which are immediately returned to the patient). The separated white blood
cells are treated with a UVA light activated drug, UVADEX, followed by UVA radiation in the photopheresis instrument, prior to being returned to
the patient. Patents related to the methoxsalen composition have expired. Therakos historically manufactured two photopheresis systems, the
CELLEX Photopheresis System ("CELLEX"), which is the only FDA-approved closed ECP system, and the UVAR XTS Photopheresis System.
Patents related to the CELLEX system, disposable kit and overall photopheresis method expired in 2023. We continue to pursue additional patentable
enhancements to the Therakos ECP system. Recently granted patents relating to improvements to the CELLEX system, processing of blood,
disposable kit and overall photopheresis method may offer additional patent protection through approximately 2037.
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Clinical trials demonstrating the efficacy of Acthar Gel are limited, which could cause physicians not to prescribe Acthar Gel, or payers not to reimburse
the drug, which could negatively impact our business.
Our net sales of Acthar Gel, which comprise a significant portion of our overall product portfolio, could be negatively impacted by the level of clinical
data available on the product. Acthar Gel was originally approved by the FDA in 1952, prior to the enactment of the 1962 Kefauver Harris Amendment, or the
"Drug Efficacy Amendment," to the FFDCA. This amendment introduced the requirement that drug manufacturers provide proof of the effectiveness (in
addition to the previously required proof of safety) of their drugs in order to obtain FDA approval. As such, the FDA's original approval in 1952 was based on
safety data as clinical trials evaluating efficacy were not then required. In the 1970s, the FDA reviewed the safety and efficacy of Acthar Gel during its
approval of Acthar Gel for the treatment of acute exacerbations in multiple sclerosis and evaluated all other previous indications on the label through the Drug
Efficacy Study Implementation ("DESI") process. In this process, the medical and scientific merits of the label and each indication on the label were evaluated
based on publications, information from sponsors, and the judgment of the FDA. The label obtained after the DESI review and the addition of the multiple
sclerosis indication is the Acthar Gel label that was used until the changes in 2010.
In 2010, in connection with its review of a supplemental NDA for use of Acthar Gel in treatment of IS, the FDA again reviewed evidence of safety and
efficacy of Acthar Gel, and added the IS indication to the label of approved indications while maintaining approval of Acthar Gel for treatment of acute
exacerbations in multiple sclerosis and 17 other indications. In conjunction with its decision to retain these 19 indications on a modernized Acthar Gel label,
the FDA eliminated approximately 30 other indications from the label. The FDA review included a medical and scientific review of Acthar Gel and each
indication and an evaluation of available clinical and non-clinical literature as of the date of the review. The FDA did not require additional clinical trials for
Acthar Gel.
Accordingly, evidence of efficacy is largely based on physician's clinical experience with Acthar Gel and does not include clinical trials except for the
MS and IS indications. We conducted several Phase 4 clinical trials to supplement the non-clinical evidence supporting the use of Acthar Gel. The completion
of future clinical trials to provide further evidence on the efficacy of Acthar Gel in the treatment of its approved indications could take several years to
complete and will require the expenditure of significant time and financial and management resources. Such clinical trials may not result in data that supports
the use of Acthar Gel to treat any of its approved indications. In addition, a clinical trial to evaluate the use of Acthar Gel to treat indications not on the
current Acthar Gel label may not provide a basis to pursue adding such indications to the current Acthar Gel label. Furthermore, even if prescribed by a
physician, third-party payers may implement restrictions on reimbursement of Acthar Gel due, in part, to the limited clinical data of efficacy, which may
negatively impact our business, financial condition, results of operations and cash flows.
Clinical studies required for our product candidates and new indications of our marketed products are expensive and time-consuming, and their outcome
is highly uncertain. If any such studies are delayed or yield unfavorable results, regulatory approval for our product candidates or new indications of our
marketed products may be delayed or become unobtainable.
We must conduct extensive testing of our product candidates and new indications of our marketed products before we can obtain regulatory approval to
market and sell them. For example, INOmax is approved for sale in the U.S. only for the treatment of HRF associated with pulmonary hypertension in term
and near-term infants, and the Therakos systems are approved for sale in the U.S. only for the palliative treatment of the skin manifestations of CTCL in
persons who have not been responsive to other forms of treatment. In order to market these products in the U.S. for any other indications, we will need to
conduct appropriate clinical trials, obtain positive results from those trials, and obtain regulatory approval for such proposed indications. Conducting such
studies is a lengthy, time-consuming, and expensive process and obtaining regulatory approval is uncertain. Even well conducted studies of effective drugs
will sometimes appear to be negative in either safety or efficacy results, or otherwise may not achieve approval. The regulatory review and approval process
to obtain marketing approval for a new indication can take many years, often requires multiple
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clinical trials and requires the expenditure of substantial resources. This process can vary substantially based on the type, complexity, novelty and indication
of the product candidate involved. Success in early clinical trials does not ensure that later clinical trials will be successful, and interim results of a clinical
trial do not necessarily predict final results.
These tests and trials may not achieve favorable results for many reasons, including, among others, failure of the product candidate to demonstrate safety
or efficacy, the development of serious or life-threatening adverse events (or side effects) caused by or connected with exposure to the product candidate (or
prior or concurrent exposure to other products or product candidates), difficulty in enrolling and maintaining subjects in a clinical trial (which, for example,
contributed to our discontinuance of StrataGraft), lack of sufficient supplies of the product candidate or comparator drug, lack of sufficient funding to support
a trial through its conclusion (which, for example, contributed to our discontinuance of StrataGraft), and the failure of clinical investigators, trial monitors,
contractors, consultants, or trial subjects to comply with the trial plan, protocol, or applicable regulations related to GLPs or GCPs. A clinical trial may fail
because it did not include and retain a sufficient number of patients to detect the endpoint being measured or reach statistical significance. A clinical trial may
also fail because the dose(s) of the investigational drug included in the trial were either too low or too high to determine the optimal effect of the
investigational drug in the disease setting. The FDA and other regulatory authorities have substantial discretion in the approval process and may refuse to
accept any application or may decide that any data submitted is insufficient for approval and require additional studies or clinical trials or varying
interpretations of the data obtained from preclinical and clinical testing could delay, limit or prevent regulatory approval of product candidate or a new
indication for a product candidate.
We will need to reevaluate any drug candidate that does not test favorably and either conduct new studies, which are expensive and time consuming, or
abandon that drug development program. The failure of clinical trials to demonstrate the safety and effectiveness of our clinical candidates for the desired
indication(s) would preclude the successful development of those candidates for such indication(s), which would have a material adverse effect on our
business, financial condition, results of operations and cash flows.
We may incur litigation liability, including product liability losses.
We are or may become involved in various legal proceedings and government inquiries and investigations, including with respect to, but not limited to,
patent infringement, product liability, personal injury, antitrust matters, securities class action lawsuits, disclosure matters, breach of contract, Medicare and
Medicaid reimbursement claims, opioid related matters, promotional practices, compliance with laws relating to the manufacture and sale of controlled
substances, and matters relating to the 2020 Bankruptcy Proceedings and the 2023 Bankruptcy Proceedings (including appeals of orders issued in the 2020
Bankruptcy Proceedings and the 2023 Bankruptcy Proceedings). Such proceedings, inquiries and investigations may involve claims for, or the possibility of,
fines and penalties involving substantial amounts of money or other relief, including but not limited to civil or criminal fines and penalties, changes in
business practices and exclusion from participation in various government healthcare-related programs. Some of our existing legal proceedings, inquiries and
investigations and related matters are described in Note 18 of the Notes to Consolidated Financial Statements included within Item 8. Financial Statements
and Supplementary Data of this Annual Report. If existing or future legal proceedings, inquiries or investigations were to result in an adverse outcome, the
impact could have a material adverse effect on our competitive position, business, financial condition, results of operations and cash flows. Even if one or
more of these matters do not result in a direct adverse outcome, they could lead to distraction of management, the incurrence of additional costs and damage
to our reputation, among other potential results that could have a material adverse effect on our business.
With respect to product liability and clinical trial risks, in the ordinary course of business we are subject to liability claims and lawsuits, including
potential class actions, alleging that our marketed products or products in development have caused, or could cause, serious adverse events or other injury.
Side effects or adverse events known or reported to be associated with, or manufacturing defects in, the products sold by us could exacerbate a patient’s
condition, or could result in serious injury or impairment or even death. This could result in product liability claims against us and/or recalls of one or more of
our products. In many countries, including in E.U. member states, national laws provide for strict (no-fault) liability that applies even where damages are
caused both by a defect in a product and by the act or omission of a third party. Any such claim brought against us, with or without merit, could be costly to
defend and could result in an increase in our insurance premiums. We retain liability for $10.0 million per claim and purchase an additional $100.0 million
using a combination of primary/umbrella/excess liability policies with respect to any such claims. We believe this coverage level is adequate to address our
current risk exposure related to product liability claims and lawsuits. However, some claims, such as those brought against us related to our sale of opioids,
might not be covered by our insurance policies. Moreover, where the claim is covered by our insurance, if our insurance coverage is inadequate, we would
have to pay the amount of any settlement or judgment that is in excess of our policy limits. We may not be able to obtain insurance on terms acceptable to us
or at all since insurance varies in cost and can be difficult to obtain. Our failure to maintain adequate insurance coverage or successfully defend against
product liability claims could have a material adverse effect on our business, financial condition, results of operations and cash flows.
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Our operations expose us to the risk of violations of applicable health, safety and environmental laws and regulations and related liabilities and litigation.
We are subject to numerous federal, state, local and non-U.S. environmental protection and health and safety laws and regulations governing, among
other things:
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the generation, storage, use and transportation of hazardous materials;
emissions or discharges of substances into the environment;
investigation and remediation of hazardous substances or materials at various sites;
chemical constituents in products and end-of-life disposal, mandatory recycling and take-back programs; and
the health and safety of our employees.
We may not have been, or we may not at all times be, in full compliance with environmental and health and safety laws and regulations. In the event a
regulatory authority concludes that we are not in full compliance with these laws, we could be fined, criminally charged or otherwise sanctioned.
Environmental laws are becoming more stringent, including outside the U.S., resulting in increased costs and compliance burdens.
Certain environmental laws assess liability on current or previous owners of real property and current or previous owners or operators of facilities for the
costs of investigation, removal or remediation of hazardous substances or materials at such properties or at properties at which parties have disposed of
hazardous substances. Liability for investigative, removal and remediation costs under certain federal and state laws is retroactive, strict (i.e., can be imposed
regardless of fault) and joint and several. In addition to cleanup actions brought by governmental authorities, private parties could bring personal injury or
other claims due to the presence of, or exposure to, hazardous substances. We have received notification from the EPA and similar state environmental
agencies that conditions at a number of sites where the disposal of hazardous substances has taken place requires investigation, cleanup and other possible
remedial action. These agencies may require that we reimburse the government for its costs incurred at these sites or otherwise pay for the costs of
investigation and cleanup of these sites, including by providing compensation for natural resource damage claims arising from such sites.
In the ordinary course of our business planning process, we take into account our known environmental matters as we plan for our future capital
requirements and operating expenditures. The ultimate cost of site cleanup and timing of future cash outflows is difficult to predict, given the uncertainties
regarding the extent of the required cleanup, the interpretation of applicable laws and regulations, and alternative cleanup methods.
We concluded that, as of December 29, 2023 (Successor), it was probable that we would incur remediation costs in the range of $17.7 million to $47.9
million. We also concluded that, as of December 29, 2023 (Successor), the best estimate within this range was $36.1 million. For further information on our
environmental obligations, refer to Note 18 of the Notes to Consolidated Financial Statements included within Item 8. Financial Statements and
Supplementary Data of this Annual Report. Based upon information known to date, we believe our current capital and operating plans are adequate to address
costs associated with the investigation, cleanup and potential remedial action for our known environmental matters.
While we have planned for future capital and operating expenditures to comply with environmental laws, our costs of complying with current or future
environmental protection and health and safety laws and regulations, or our liabilities arising from past or future releases of, or exposures to, hazardous
substances may exceed our estimates or could have a material adverse effect on our competitive position, business, financial condition, results of operations
and cash flows. We may also be subject to additional environmental claims for personal injury or cost recovery actions for remediation of facilities in the
future based on our past, present or future business activities.
If our business development activities or other strategic transactions are unsuccessful, it may adversely affect us.
We expect that from time to time we will evaluate potential business development opportunities to potentially grow the business through merger,
acquisition, licensing agreements or other strategic transactions. We are also actively considering the divestiture of various assets across our portfolio. The
process to evaluate potential business development and divestiture opportunities may be complex, time-consuming and expensive. Once a potential
opportunity is identified, we may not be able to conclude negotiations of a potential transaction on terms that are satisfactory to us, which could result in a
significant diversion of management and other employee time, as well as substantial out-of-pocket costs. In addition, there are a number of risks and
uncertainties relating to our ability to close a potential transaction.
Once an acquisition or licensing transaction is consummated, there are further potential risks related to integration activities, including with regard to
operations, personnel, technologies and products. If we are not able to successfully integrate our acquisitions in the expected time frame, we may not obtain
the advantages and synergies that such acquisitions were intended to create, which may have a material adverse effect on our competitive position, business,
financial condition, results of operations and cash flows.
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In addition, we intend to continue to explore opportunities to enter into strategic collaborations with other parties, which may include other
pharmaceutical companies, academic and research institutions, government agencies and other public and private research organizations. These third-party
collaborators are often directly responsible for certain obligations under these types of arrangements, and we may not have the same level of decision-making
capabilities for the prioritization and management of development-related activities as we would for our internal research and development activities. Failures
by these partners to meet their contractual, regulatory, or other obligations to us, or any disruption in the relationships with these partners, could have a
material adverse effect on our pipeline and business. In addition, these collaborative relationships for research and development could extend for many years
and may give rise to disputes regarding the relative rights, obligations and revenues of us versus our partners, including the ownership of intellectual property
and associated rights and obligations. These could result in the loss of intellectual property rights or other intellectual property protections, delay the
development and sale of potential products, and lead to lengthy and expensive litigation or arbitration.
Furthermore, the due diligence that we conduct in conjunction with an acquisition or other strategic collaboration may not sufficiently discover risks and
contingent liabilities associated with the other party and, consequently, we may consummate an acquisition or otherwise enter into a strategic collaboration for
which the risks and contingent liabilities are greater than were projected. In addition, in connection with acquisitions or other strategic collaborations, we
could experience disruption in our business, technology and information systems, and our customers, licensors, suppliers and employees and may face
difficulties in managing the expanded operations of a larger and more complex company. There is also a risk that key employees of companies that we acquire
or key employees necessary to successfully commercialize technologies and products that we acquire or otherwise collaborate on may seek employment
elsewhere, including with our competitors. Furthermore, there may be overlap between our products or customers and the companies which we acquire or
enter into strategic collaborations with that may create conflicts in relationships or other commitments detrimental to the integrated businesses or impacted
products. Additionally, the time between our expenditures to acquire new products, technologies or businesses and the subsequent generation of revenues
from those acquired products, technologies or businesses, or the timing of revenue recognition related to licensing agreements and/or strategic collaborations,
could cause fluctuations in our financial performance from period to period. Finally, if we are unable to successfully integrate products, technologies,
businesses or personnel that we acquire, we could incur significant impairment charges or other adverse financial consequences. Many of these factors are
outside of our control and any one of them could result in increased costs, decreases in the amount of expected revenues and diversion of management's time
and energy, which could materially impact our business, financial condition, results of operations and cash flows.
Divestitures or proposed divestitures may involve the loss of revenue, and the market for the associated assets may dictate that we sell such assets for less
than what we paid. In connection with divestitures, we could also reduce the benefit of shared costs across our enterprise, as well as risk the departure of key
employees. Divestitures could also lead to disruption in our business, technology and information systems, and the possibility of divestitures could impact the
relationships we have with our customers, licensors, suppliers and employees. In addition, in connection with any asset sales or divestitures, we may be
required to provide certain representations, warranties and covenants to buyers. While we would seek to ensure the accuracy of such representations and
warranties and fulfillment of any ongoing obligations, we may not be completely successful and consequently may be subject to claims by a purchaser of such
assets.
If we are unable to attract and retain key scientific, technical, regulatory and commercial personnel, we may be unable to maintain or expand our
business.
Because of the specialized scientific nature of our business, our ability to develop products and to compete with our current and future competitors will
remain highly dependent, in large part, upon our ability to attract and retain qualified scientific, technical, regulatory and commercial personnel. The loss of
key scientific, technical, regulatory and commercial personnel, or the failure to recruit additional key scientific, technical, regulatory and commercial
personnel, could have a material adverse effect on our competitive position, business, financial condition, results of operations and cash flows. There is
intense competition for qualified personnel in our industry, and we may not be able to continue to attract and retain the qualified personnel necessary for the
development or operation of our business.
Our business depends on the continued effectiveness and availability of our information technology infrastructure, and failures of this infrastructure
could harm our operations.
Significant disruptions to our information technology systems or breaches of information security could adversely affect our business. To remain
competitive in our industry, we must employ information technologies to support manufacturing processes, quality processes, distribution, financial reporting,
as well as R&D and regulatory applications that capture, manage and analyze the large streams of data generated in our clinical trials, and it is critical that we
do so in a secure manner to maintain the confidentiality and integrity of such confidential information. We also rely extensively on technology to allow
concurrent work sharing around the world. As with all information technology, our systems are vulnerable to potential damage or interruptions from fires,
blackouts, telecommunications failures and other unexpected events, as well as physical and electronic break-ins, sabotage, piracy or intentional
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acts of vandalism. Given the extensive reliance of our business on technology, any substantial disruption or resulting loss of data that is not avoided or
corrected by our backup measures could harm our business, financial condition, results of operations and cash flows.
We also have outsourced significant elements of our operations to third parties, some of which are outside the U.S., including significant elements of our
information technology infrastructure, and as a result we are managing many independent vendor relationships with third parties who may or could have
access to our confidential information. The size and complexity of our information technology systems, and those of our third-party vendors with whom we
contract, make such systems potentially vulnerable to service interruptions. The size and complexity of our and our vendors' systems and the large amounts of
confidential information that is present on them also makes them potentially vulnerable to security breaches from inadvertent or intentional actions by our
employees, partners or vendors, or from attacks by malicious third parties. We and our vendors could be susceptible to third-party attacks on our information
security systems, which attacks are of ever-increasing levels of sophistication and are made by groups and individuals with a wide range of motives and
expertise, including criminal groups, "hackers" and others.
Maintaining the secrecy of all of our confidential, proprietary, and/or trade secret information is important to our competitive business position. However,
such information can be difficult to protect. While we have taken steps to protect such information and invested heavily in information technology, there can
be no assurance that our efforts will prevent service interruptions or security breaches in our systems or the unauthorized or inadvertent wrongful use or
disclosure of confidential information, including those caused by our own employees or others to whom we have granted access to our systems, that could
adversely affect our business operations or result in the loss, dissemination, or misuse of critical or sensitive information. A breach of our security measures or
the accidental loss, inadvertent disclosure, unapproved dissemination, misappropriation or misuse of trade secrets, proprietary information, or other
confidential information, whether as a result of theft, hacking, human error, sabotage, industrial espionage, fraud, trickery or other forms of deception, or for
any other cause, could enable others to produce competing products, use our proprietary technology or information, and/or adversely affect our business
position. Further, any such interruption, security breach, loss or disclosure of confidential information, could result in financial, legal, business, and
reputational harm to us and could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Some of our products are regulated as controlled substances, the making, use, sale, importation, exportation, and distribution of which are subject to
significant regulation by the DEA and other regulatory agencies.
Some of our products are considered controlled substances under the federal CSA. The manufacturing, shipping, distribution, import, export, packaging,
storing, prescribing, dispensing, selling and use of controlled substances are subject to additional regulations, including under the CSA and DEA regulations.
These regulations increase the personnel needs and the expense associated with commercialization of products. Because of their restrictive nature, these laws
and regulations could also limit commercialization of our controlled substance products. Failure to comply with these laws and regulations could also result in
loss of DEA registrations, disruption in manufacturing and distribution activities, consent decrees, criminal and civil penalties and state actions, among other
consequences.
Various states also independently regulate controlled substances. Though state-controlled substances laws often mirror federal law, because states are separate
jurisdictions, they may separately schedule drugs as well. While some states automatically schedule a drug when the DEA does so, in other states there must
be a rulemaking or a legislative action. Many states require separate state registrations in order to be able to obtain, manufacture, handle, distribute and
dispense controlled substances for clinical trials or commercial sale, and failure to meet applicable regulatory requirements could lead to enforcement and
sanctions from the states in addition to those from the DEA or otherwise arising under federal law.
The DEA regulates the availability of controlled substances, including API, drug products under development and finished dose products. At times, the
procurement and manufacturing quotas granted by the DEA may be insufficient to meet our needs.
The DEA is the U.S. federal agency responsible for domestic enforcement of the CSA. The CSA classifies drugs and other substances based on identified
potential for abuse. Schedule I controlled substances, such as heroin and LSD, have a high abuse potential and have no currently accepted medical use; thus,
they cannot be lawfully marketed or sold. Schedule II controlled substances include molecules such as oxycodone, oxymorphone, morphine and hydrocodone.
The manufacture, storage, distribution and sale of these controlled substances are permitted, but highly regulated. The DEA regulates the availability of API,
products under development and marketed drug products that are in the Schedule II category by setting annual quotas. Every year, we must apply to the DEA
for manufacturing quota to manufacture API and, starting in 2024 every quarter, we must apply to the DEA for procurement quota to manufacture finished
dose products. Given that the DEA has discretion to grant or deny our manufacturing and procurement quota requests, the quota the DEA grants may be
insufficient to meet our needs. In 2022, manufacturing and procurement quotas granted by the DEA were sufficient to meet our sales and inventory
requirements on most products. Over the past several years and into 2024, the DEA has steadily reduced the amount of opioid medication that may be
manufactured in the U.S. as a response to the opioid crisis. These quota reductions have included oxycodone, hydrocodone, oxymorphone and
hydromorphone. The DEA could take similar actions in the future. Future delay or refusal by the DEA to grant, in whole or in part, our quota requests could
delay or result
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in stopping the manufacture of our current drug products, new product launches or the conduct of bioequivalence studies and clinical trials. Such delay or
refusal also could require us to allocate drug products among our customers. These factors, along with any delay or refusal by the DEA to provide customers
who purchase API from us with sufficient quota, could have a material adverse effect on our competitive position, business, financial condition, results of
operations and cash flows. In addition, the DEA conducts periodic inspections of registered establishments that handle controlled substances and has stringent
regulations on those establishments to prevent loss and diversion. Failure to maintain compliance with these regulations, particularly as manifested in loss or
diversion, can result in regulatory action that could have a material adverse effect on our competitive position, business, financial condition, results of
operations and cash flows. The DEA may seek civil penalties, refuse to renew necessary registrations or initiate proceedings to revoke those registrations. In
certain circumstances, violations could lead to criminal proceedings.
The manufacture of our products is highly exacting and complex, and our business could suffer if we, or our suppliers, encounter manufacturing or
supply problems.
The manufacture of our products is highly exacting and complex, due in part to strict regulatory and manufacturing requirements, as well as due to the
biologic nature of some of our products, which are inherently more difficult to manufacture than chemical-based products. Problems may arise during
manufacturing for a variety of reasons including equipment malfunction, failure to follow specific protocols and procedures, defective raw materials and
environmental factors. If a batch of finished product fails to meet quality standards during a production run, then that entire batch of product may have to be
discarded. These problems could lead to launch delays, product shortages, backorders, increased costs (including contractual damages for failure to meet
supply requirements), lost revenue, damage to our reputation and customer relationships, time and expense spent investigating, correcting and preventing the
root causes and, depending on the root causes, similar losses with respect to other products. If manufacturing problems are not discovered before the product
is released to the market, we also could incur product recall and product liability costs. If we incur a product recall or product liability costs involving one of
our products, such product could receive reduced market acceptance and thus reduced product demand and could harm our reputation and our ability to
market our products in the future. Significant manufacturing problems could have a material adverse effect on our competitive position, business, financial
condition, results of operations and cash flows.
We rely on third-party manufacturers to manufacture certain components of our products and certain of our finished products. In the event that these
third-party manufacturers cease to manufacture sufficient quantities of our products or components in a timely manner and on terms acceptable to us, we
could be forced to locate alternate third-party manufacturers. Additionally, if our third-party manufacturers determine to no longer partner with us, experience
a failure in their production process, are unable to obtain sufficient quantities of the components necessary to manufacture our products or otherwise fail to
meet regulatory or quality requirements, we may be forced to delay the manufacture and sale of our products or locate an alternative third-party manufacturer.
Any failure by our third-party manufacturers to comply with cGMP or failure to scale up manufacturing processes for our investigational product candidates,
including any failure to deliver sufficient quantities of our investigational product candidates in a timely manner, could lead to a delay in, or failure to obtain,
regulatory approval of our investigational products. In addition, such failure, or failures by our third-party manufacturers to comply with cGMP in
manufacturing our approved products, could be the basis for the FDA or other regulatory authorities to issue a warning letter, withdraw approvals, or take
other regulatory or legal action, including recall or seizure of outside supplies of our products, total or partial suspension of production, suspension of ongoing
clinical trials, refusal to approve pending applications or supplemental applications, detention of product, refusal to permit the import or export of products,
injunction, or imposing civil and criminal penalties. Several of our products are manufactured at a single manufacturing facility or stored at a single storage
site. Loss or damage to a manufacturing facility or storage site due to a natural disaster or otherwise could adversely affect our ability to manufacture
sufficient quantities of key products or otherwise deliver products to meet customer demand or contractual requirements which may result in a loss of revenue
and other adverse business consequences. Furthermore, while we work closely with our suppliers to ensure the continuity of supply and to diversify our
sources of components and materials, in certain instances we do acquire components and materials from a sole supplier. Although we do carry strategic
inventory and maintain insurance to mitigate the potential risk related to any related supply disruption, there can be no assurance that such measures will be
effective. Because of the time required to obtain regulatory approval and licensing of a manufacturing facility, an alternate third-party manufacturer may not
be available on a timely basis to replace production capacity in the event we lose manufacturing capacity, experience supply challenges, or products are
otherwise not available due to natural disaster, regulatory action or otherwise.
Significant manufacturing problems could have a material adverse effect on our competitive position, business, financial condition, results of operations
and cash flows.
Our global operations expose us to risks and challenges associated with conducting business internationally.
We operate globally with offices or activities in Europe, Africa, Asia, South America, Australia and North America. We face several risks inherent in
conducting business internationally, including compliance with international and U.S. laws and regulations that apply to our international operations. These
laws and regulations include data privacy requirements, labor relations laws, tax laws, anti-competition regulations, import and trade restrictions, export
requirements, U.S. anti-bribery laws such as the FCPA and similar
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local laws, regulations, industry self-regulation codes of conduct and physicians' codes of professional conduct, which also prohibit corrupt payments to
governmental officials or certain payments or remunerations to customers. Given the high level of complexity of these laws, there is a risk that some
provisions may be violated, inadvertently or through fraudulent or negligent behavior of individual employees, or through our failure to comply with certain
formal documentation requirements or otherwise. Violations of these laws and regulations could result in fines or criminal sanctions against us, our officers or
our employees, and prohibitions on the conduct of our business. Any such violations could include prohibitions on our ability to offer our products in one or
more countries and could materially damage our reputation, our international expansion efforts and our ability to attract and retain employees.
In addition to the foregoing, engaging in international business inherently involves a number of other difficulties and risks, including:
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potentially longer payment cycles and difficulties in enforcing agreements and collecting receivables through certain non-U.S. legal systems;
potential inability to sell products into certain countries given the delay of foreign governments in responding to changes in our U.S. business
licensing;
political and economic instability;
the unpredictability of U.S. trade policy, including Section 301 tariffs and U.S. trade relations with other countries, that may increase raw material
cost or impact our ability to obtain the raw materials we need to manufacture our products and impact our ability to sell our products outside of the
U.S.;
potentially adverse tax consequences, tariffs, customs charges, bureaucratic requirements and trade barriers;
difficulties and costs of staffing and managing our non-U.S. operations;
exposure to global economic conditions;
exposure to potentially unfavorable movements in foreign currency exchange rates associated with international net sales and operating expense and
intercompany debt financings; and
potential negative impact of public health epidemics on employees, our supply chain and the global economy.
These or other factors or any combination of them may have a material adverse effect on our competitive position, business, financial condition, results of
operations and cash flows.
We have significant levels of intangible assets which utilize our future projections of cash flows in impairment testing. Should we experience unfavorable
variances from these projections these assets may have an increased risk of future impairment.
Our intangible assets were $608.4 million as of December 29, 2023 (Successor). At least annually, we review the carrying value of our non-amortizing
intangible assets, and for amortizing intangible assets when indicators of impairment are present. Conditions that could indicate impairment and necessitate an
evaluation of intangible assets include, but are not limited to, a significant adverse change in the business climate or the legal or regulatory environment.
In performing our impairment tests, we utilize our future projections of cash flows. Projections of future cash flows are inherently subjective and reflect
assumptions that may or may not ultimately be realized. Significant assumptions utilized in our projections include, but are not limited to, our evaluation of
the market opportunity for our products, the current and future competitive landscape and resulting impacts to product pricing, future legislative and
regulatory actions or the lack thereof, planned strategic initiatives, the ability to achieve cost synergies from acquisitions, the realization of benefits associated
with our existing and anticipated patents and regulatory approvals. Given the inherent subjectivity and uncertainty in projections, we could experience
significant unfavorable variances in future periods or revise our projections downward. This would result in an increased risk that our intangible assets may be
impaired. If an impairment were recognized, this could have a material impact to our financial condition and results of operations.
We are subject to labor and employment laws and regulations, which could increase our costs and restrict our operations in the future.
As of December 29, 2023 (Successor), we employed approximately 2,800 employees worldwide. Some of our employees are represented by labor
organizations and national works councils. Our management believes that our employee relations are satisfactory. However, further organizing activities or
collective bargaining may increase our employment-related costs and we may be subject to work stoppages and other labor disruptions. Moreover, if we are
subject to employment-related claims, such as individual and class actions relating to alleged employment discrimination, wage-hour and labor standards
issues, and such actions are successful in whole or in part, this may affect our ability to compete or have a material adverse effect on our business, financial
condition, results of operations and cash flows.
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We face risks related to our collection and use of data, which could result in investigations, inquiries, litigation, fines, legislative and regulatory action.
We are subject to laws and regulations governing the privacy and security of health related and other personal data we collect and maintain, including the
GDPR, Section 5 of the FTC Act, HIPAA, the CCPA as amended by the CPRA, and other state comprehensive privacy laws. Any failure by us or any of our
third-party service providers to follow such laws could result in significant liability or reputational harm under such state, federal and international privacy,
data protection and other laws. The landscape of federal and state laws regulating personal data is constantly evolving, and compliance with these laws
requires a flexible privacy framework and substantial resources, and compliance efforts will likely be an increasing and substantial cost in the future.
We have implemented changes to our Acthar Gel patient assistance program, which may receive additional review from governmental regulators and, if
challenged, could have a material adverse effect on future net sales of Acthar Gel.
We currently offer a patient assistance program ("PAP") that provides free Acthar Gel vials to certain eligible patients. Beginning January 1, 2024, we
implemented changes to expand our program to eligible Medicaid beneficiaries who have been prescribed Acthar Gel for an on-label indication and meet all
other PAP eligibility criteria. Our decision to expand PAP eligibility was made in response to changes in the Medicaid Drug Rebate Program’s ("MDRP") unit
rebate amount calculation that becomes effective in 2024 and is designed to ensure that Medicaid patients retain timely and affordable access to Acthar Gel.
We provided CMS and OIG with advance notice of these changes. While we believe these changes comply with existing statutory and regulatory
requirements and related guidance, including based on consultation with external advisors, it is possible that CMS, OIG or other governmental agencies could
take issue with such changes. If we are unable to either expand our PAP as currently planned or find an alternative solution, we will incur additional expenses
under the 2024 changes to the MDRP unit rebate amount calculation, which could have a material adverse effect on our competitive position, business,
financial condition, results of operations and cash flows.
Risks Related to Our Indebtedness and Settlement Obligation
Our substantial indebtedness and settlement obligation could adversely affect our financial condition and prevent us from fulfilling our obligations and
could further adversely affect our ability to make ongoing payments in respect of the 2023 Plan.
We have substantial indebtedness and settlement obligation. As of December 29, 2023 (Successor), total debt principal was $1,647.8 million, of which
$6.5 million was classified as current. In addition, we have $236.1 million of remaining obligations in respect of the Acthar Gel-Related Litigation Settlement
(as defined in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of this Annual Report). Our substantial
indebtedness could adversely affect our ability to fulfill our financial obligations (including our ability to service our indebtedness and our obligations in
respect of the Acthar Gel-Related Litigation Settlement) and have a negative impact on our financing options and liquidity positions.
Our degree of debt leverage and our significant settlement obligation have significant consequences, including the following:
• making it more difficult for us to satisfy our obligations with respect to our debt and our ongoing obligations in respect of the Acthar Gel-Related
Litigation Settlement;
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limiting our ability to refinance our going-forward debt obligations, or to obtain additional financing in the future for working capital, capital
expenditures, acquisitions or other corporate requirements;
requiring us to sell assets or restructure or refinance our indebtedness and Acthar Gel-Related Litigation Settlement obligation;
requiring a substantial portion of our cash flows to be dedicated to debt service payments instead of other purposes, thereby reducing the amount of
cash flows available for working capital, capital expenditures, research and development, acquisitions and other general corporate purposes;
limiting our ability to refinance our indebtedness, certain of which is subject to a significant make-whole payment requirement for prepayments
during the two years following the 2023 Effective Date, or make prepayments of our ongoing obligations in respect of the Acthar Gel-Related
Litigation Settlement on terms acceptable to us or at all;
placing us at a competitive disadvantage to other less leveraged competitors;
• making us more vulnerable to economic downturns and limiting our ability to withstand competitive pressures;
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limiting our flexibility in planning for and reacting to changes, opportunities, and challenges in our business, including changes in the industry in
which we compete, changes in our business and strategic opportunities, and adverse developments in our operations; and
increasing our costs of borrowing.
If we cannot make scheduled payments on our debt or the Acthar Gel-Related Litigation Settlement obligation, we will be in default and, as a result,
lenders under any of our then-outstanding indebtedness could declare essentially all outstanding principal and interest to be due and payable, our secured
lenders could foreclose against the assets securing such borrowings, beneficiaries of our then-outstanding Acthar Gel-Related Litigation Settlement obligation
could declare such obligations to be due and payable, and we could be forced to return to bankruptcy or into liquidation.
We may not be able to generate sufficient cash to service all of our indebtedness and settlement obligation and we may be forced to take other actions to
satisfy our obligations under our indebtedness and settlement obligation, which may not be successful.
Our ability to make scheduled payments on or to refinance our going-forward debt obligations and Acthar Gel-Related Litigation Settlement obligation
depends on our financial condition and operating performance, which are subject to prevailing economic and competitive conditions and to certain financial,
business, legislative, regulatory and other factors beyond our control. We may be unable to maintain a level of cash flows from operating activities sufficient
to permit us to fund our day-to-day operations or to pay the principal, premium, if any, and interest on our indebtedness and satisfy our Acthar Gel-Related
Litigation Settlement obligation.
If our cash flows and capital resources are insufficient to fund our debt service obligations and other cash requirements (including our Acthar Gel-Related
Litigation Settlement obligation), we could face substantial liquidity problems and could be forced to reduce or delay investments and capital expenditures or
to sell assets or operations, seek additional capital or restructure or refinance our indebtedness and Acthar Gel-Related Litigation Settlement obligation. We
may not be able to effect any such alternative measures, if necessary, on commercially reasonable terms or at all and, even if successful, such alternative
actions may not allow us to meet our scheduled debt service obligations and Acthar Gel-Related Litigation Settlement obligation. The agreements governing
our existing indebtedness restrict (a) our ability to dispose of assets and use the proceeds from any such dispositions (other than for repayment of
indebtedness, which repayment, for two years following the 2023 Effective Date, is subject to a significant make-whole premium) and (b) our ability to raise
debt capital to be used to repay our indebtedness when it becomes due. We may not be able to consummate those dispositions or to obtain proceeds in an
amount sufficient to meet any debt service obligations or Acthar Gel-Related Litigation Settlement obligation then due.
Our inability to generate sufficient cash flows to satisfy our debt obligations and Acthar Gel-Related Litigation Settlement obligation, or to refinance our
indebtedness on commercially reasonable terms or at all, would materially and adversely affect our financial position and results of operations.
If we cannot make scheduled payments on our debt or the Acthar Gel-Related Litigation Settlement obligation, we will be in default and, as a result,
lenders under any of our then-outstanding indebtedness could declare essentially all outstanding principal and interest to be due and payable, our secured
lenders could foreclose against the assets securing such borrowings, beneficiaries of our then-outstanding Acthar Gel-Related Litigation Settlement obligation
could declare such obligations to be due and payable, and we could be forced to return to bankruptcy or into liquidation.
The terms of the agreements that govern our indebtedness and settlement obligation restrict our current and future operations, particularly our ability to
respond to changes or to pursue our business strategies.
The agreements that govern the terms of our existing indebtedness and settlement obligation contain a number of restrictive covenants that impose
significant operating and financial restrictions on us and may limit our ability to engage in acts that may be in our long-term best interest, including
limitations or restrictions on our ability to:
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incur, assume or guarantee additional indebtedness;
declare or pay dividends, make other distributions with respect to equity interests, or purchase or otherwise acquire or retire equity interests;
• make any principal payment on, or redeem or repurchase, subordinated, junior secured or unsecured debt and, with respect to certain of our
indebtedness and the Acthar Gel-Related Litigation Settlement obligation;
• make loans, advances or other investments;
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sell or otherwise dispose of assets, including capital stock of subsidiaries;
use the proceeds from dispositions of assets, including capital stock of subsidiaries;
incur liens;
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enter into transactions with affiliates;
enter into sale and lease-back transactions;
permit the occurrence of certain change of control transactions;
consolidate or merge with or into or sell all or substantially all of our assets to, another person or entity; and
draw the full amount otherwise available of our receivables-based financing lending facility.
A breach of the covenants under the agreements that govern the terms of any of our indebtedness or settlement obligation could result in an event of
default under the applicable indebtedness or settlement obligation. Such default may allow the creditors to accelerate the related debt or settlement obligation
and may result in the acceleration of any other debt or settlement obligation to which a cross-acceleration or cross-default provision applies. In addition, an
event of default under the credit agreement that governs our receivables-based financing facility would permit the lenders under such facility to terminate all
commitments to extend further credit thereunder. Furthermore, if we are unable to repay the amounts due and payable under our secured indebtedness, those
creditors will be able to proceed against the collateral granted to them to secure that secured indebtedness. Additionally, if a change in control transaction
were to occur, such a transaction may accelerate the maturity dates on our indebtedness. If the holders of our debt or settlement obligation accelerate the
repayment of our borrowings or the payment of our settlement obligation for the above reasons, or any other, we may not have sufficient assets to repay such
indebtedness or settlement obligation.
As a result of these restrictions, coupled with operating limitations imposed by the 2023 Plan and related arrangements, we may be:
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limited in how we conduct our business;
unable to raise additional debt or equity financing to operate during general economic or business downturns;
unable to respond to changing circumstances or to pursue our business strategies; or
unable to compete effectively, execute our growth strategy or take advantage of new business opportunities.
These restrictions may affect our ability to operate in accordance with our plans, otherwise achieve our operational and financial objectives in a timely
manner or at all, and have an adverse effect on our business, financial condition, results of operations and cash flows.
Our debt levels and settlement obligation and challenges in the commercial and credit environment may materially adversely affect our ability to issue
debt on acceptable terms and our future access to capital.
Our ability to issue debt or enter into other financing arrangements on acceptable terms could be materially adversely affected by our debt levels and
settlement obligation or if there is a material decline in the demand for our products or in the solvency of our customers or suppliers or other significantly
unfavorable changes in economic conditions occur. In addition, volatility in the world financial markets could increase borrowing costs or affect our ability to
access the capital markets, which could have a material adverse effect on our competitive position, business, financial condition, results of operations and cash
flows.
Borrowing capacity under our receivables-based financing facility may decrease, may not be extended upon maturity, or the maturity date may be
accelerated.
The borrowing capacity under our receivables-based financing facility is dependent upon the level of accounts receivable securing the borrowing capacity
as well as certain financial covenants. The amount of accounts receivable may decrease due to various factors such as normal business variations, business
contractions, or asset divestitures, any of which may result in a decrease of the associated borrowing capacity. Failure to comply with the financial covenants
may decrease our ability to borrow up to the full borrowing capacity. Further, the issuance of additional debt having a maturity date that precedes the facility’s
current maturity date may result in the acceleration of the existing maturity date, or, separately, we may be unable to extend the date of existing maturity date
to have continued access to such borrowing capacity beyond the current maturity date. These could have a material adverse effect on our competitive position,
business, financial condition, results of operations, and cash flows.
Our variable-rate indebtedness exposes us to interest rate risk, which could cause our debt service obligations to increase significantly.
Certain of our secured indebtedness, including borrowings under our senior secured term loans and our receivables-based financing facility, is subject to
variable rates of interest and exposes us to interest rate risk. If interest rates increase, our debt service obligations on the variable-rate indebtedness would
increase and our net loss would increase, even though the amount borrowed under the facilities remained the same. As of December 29, 2023 (Successor), we
had variable-rate debt consisting of $869.2 million
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outstanding principal amount on our senior secured term loans. An unfavorable movement in interest rates, primarily Secured Overnight Financing Rate
("SOFR"), could result in higher interest expense and cash payments for us. Although we have entered into an interest rate cap agreement, which serves to
reduce the volatility on future interest expense cash outflows, we cannot provide assurance that such arrangement or any other similar arrangement that we
may enter into will successfully mitigate such interest rate volatility.
Despite current and anticipated indebtedness levels, we may still be able to incur more debt. This could further exacerbate the risks described above.
We may be able to incur substantial additional indebtedness in the future. Although agreements governing our existing indebtedness and settlement
obligation restrict the incurrence of additional indebtedness, these restrictions are and will be subject to a number of qualifications and exceptions and the
additional indebtedness incurred in compliance with these restrictions could be substantial. If new debt is added to our current debt levels, the related risks
that we now face could intensify.
We may need additional financing in the future to meet our capital needs or to make acquisitions, and such financing may not be available on favorable
or acceptable terms, and may be dilutive to existing shareholders. The use of proceeds from future financings will be subject to the restrictions from our
existing indebtedness.
We may need to seek additional financing for general corporate purposes. For example, we may need to increase our investment in R&D activities or
need funds to make acquisitions. We may be unable to obtain any desired additional financing on terms that are favorable or acceptable to us, or at all.
Depending on market conditions and subject to the restrictions from our existing indebtedness, adequate funds may not be available to us on acceptable terms
and we may be unable to fund our expansion, successfully develop or enhance products, or respond to competitive pressures, any of which could have a
material adverse effect on our competitive position, business, financial condition, results of operations and cash flows. If we raise additional funds through the
issuance of equity securities, our shareholders will experience dilution of their ownership interest. In addition, even if we are able to raise such additional
funds, the use of proceeds therefrom will be subject to the limitations imposed by our existing indebtedness.
Risks Related to Tax Matters
The United States could treat Mallinckrodt plc (parent corporation) as a U.S. taxpayer under Internal Revenue Code Section 7874.
Following the emergence from the 2023 Bankruptcy Proceedings, Mallinckrodt plc continues to be an Irish tax resident. The Internal Revenue Service
("IRS") may, however, assert that Mallinckrodt plc should be treated as a U.S. corporation for U.S. federal income tax purposes pursuant to Internal Revenue
Code ("IRC") Section 7874. For U.S. federal income tax purposes, a corporation is generally considered to be tax resident in the jurisdiction of its
organization or incorporation. Because Mallinckrodt plc is an Irish incorporated entity, it would generally be classified as a foreign corporation under these
rules. IRC Section 7874 provides an exception to this general rule under which a foreign corporation may, in certain circumstances, be treated as a U.S.
corporation for U.S. federal income tax purposes if the following requirements are met: (i) the foreign corporation completes the direct or indirect acquisition
of substantially all of the assets held directly or indirectly by a U.S. corporation (including the indirect acquisition of assets of the U.S. corporation by
acquiring the outstanding shares of the U.S. corporation), (ii) the former shareholders of the acquired U.S. corporation hold at least 80% (or 60% in certain
circumstances) of the shares of the foreign acquiring corporation, and (iii) the foreign corporation's "expanded affiliated group" does not have substantial
business activities in the foreign corporation's country of organization or incorporation compared to the expanded affiliated group's worldwide activities.
Although it is not free from doubt, we believe that after implementation of the 2023 Plan, Mallinckrodt plc should not be treated as acquiring directly or
indirectly substantially all of the properties of a U.S. corporation and, as a result, Mallinckrodt plc is not expected to be treated as a U.S. corporation or
otherwise subject to the adverse tax consequences of IRC Section 7874. The law and the Treasury Regulations promulgated under IRC Section 7874 are,
however, unclear and there can be no assurance that the IRS will agree with this conclusion. If it is determined that IRC Section 7874 is applicable,
Mallinckrodt plc would be treated as a U.S. corporation for U.S. federal income tax purposes which could result in additional adverse tax consequences. In
addition, although Mallinckrodt plc would be treated as a U.S. corporation for U.S. federal income tax purposes, it would also be considered an Irish tax
resident for Irish tax and other non-U.S. tax purposes.
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The IRS may interpret IRC Section 382 limitation and cancellation of debt income attribution rules differently.
In general, IRC Section 382, provides an annual limitation with respect to the ability of a corporation to utilize its tax attributes, as well as certain built-
in-losses ("BILs"), against future taxable income in the event of a change in ownership. Emergence from the 2020 Bankruptcy Proceedings and the 2023
Bankruptcy Proceedings resulted in a change in ownership for purposes of IRC Section 382. Any discharge of our external or internal debt obligations as a
result of the bankruptcy proceedings for an amount less than the adjusted issue price may give rise to cancellation of debt income, which must either be
included in our taxable income or result in a reduction to our tax attributes. U.S. tax attributes subject to reduction include: (i) net operating loss ("NOL(s)")
and NOL carryforwards; (ii) credit carryforwards (iii) capital losses and capital loss carryforwards; and (iv) the tax basis of our depreciable, amortizable and
other assets. The amount of our post-ownership change annual U.S. taxable income that can be offset by the pre-ownership change U.S. NOLs and BILs
generally cannot exceed an amount equal to the product of (a) the applicable federal long-term tax exempt rate in effect on the date of the ownership change
and (b) the value of our U.S. affiliate stock immediately prior to implementation of each respective plan of reorganization ("Annual Limitation") (a separate
Annual Limitation must be computed for both the 2020 Plan and the 2023 Plan). The Annual Limitation may also be increased or decreased during the first
five years post-ownership change for certain realized built-in-gains or realized BILs, respectively. Our interpretation of the impact of the IRC's limitations on
the utilization of tax attributes after the ownership change caused by the emergence from bankruptcy may differ from the IRS's interpretation. Any additional
limitations on our ability to prospectively use these tax attributes may have an adverse effect on our prospective cash flow.
Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.
Under IRC Sections 382 and 383, if a corporation undergoes an "ownership change", generally defined as a greater than 50 percent change, determined
by value in its equity ownership by certain stockholders over a rolling three-year period, the corporation’s ability to use its pre-ownership change NOLs and
other pre-ownership change tax attributes to offset its post-ownership change taxable income or tax liability may be limited. We may experience ownership
changes in the future due to shifts in our stock ownership, some of which is outside of our control. Additionally, similar laws at the state level may apply.
A loss of a major tax dispute or a challenge to our operating structure or intercompany pricing policies could result in a higher tax rate on our worldwide
earnings, which could result in a material adverse effect on our financial condition, results of operations and cash flows.
Income tax returns that we file are subject to review and examination. We recognize the benefit of income tax positions we believe are more likely than
not to be sustained upon challenge by a tax authority. If any tax authority successfully challenges our operational structure, intercompany pricing or financing
policies; if the terms of certain income tax treaties are interpreted in a manner that is adverse to our structure; or if we lose a material tax dispute in any
country; our effective tax rate on our worldwide earnings could increase substantially and result in a material adverse effect on our financial condition.
Our status as a foreign corporation for U.S. federal tax purposes could be affected by a change in law.
We believe that, under current law, we are treated as a foreign corporation for U.S. federal tax purposes. However, changes in tax law, such as additional
changes to the rules under IRC Section 7874 or the U.S. Treasury Regulations promulgated thereunder or other IRS guidance, could adversely affect our
status as a foreign corporation for U.S. federal tax purposes, and any such changes could have prospective or retroactive application to us and our
shareholders and affiliates. In addition, legislative proposals issued by the U.S. Department of the Treasury and Congress have aimed to expand the scope of
U.S. corporate tax residence, and such proposals, if passed, could have an adverse effect on us. Although the proposals would generally apply to prospective
transactions, no assurance can be given that such proposals will not be changed to apply retroactively.
Future changes to U.S. and foreign tax laws could adversely affect us.
The European Commission, U.S. Congress and Treasury Department, the Organization for Economic Co-operation and Development ("OECD"), and
other government agencies in jurisdictions where we and our affiliates do business have had an extended focus on issues related to the taxation of
multinational corporations, particularly payments made between affiliates from a jurisdiction with high tax rates to a jurisdiction with lower tax rates. As a
result, the tax laws in the U.K., Ireland, E.U., Switzerland, Japan, U.S. and other countries in which we and our affiliates do business could change on a
prospective or retroactive basis, and any such changes could adversely affect us and our affiliates.
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Recent examples include the European Commission's Anti-Tax Avoidance Directives (ATAD I and ATAD II), the Multilateral Convention to Implement
Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (Multilateral Instrument) and the new corporate alternative minimum tax created in
the U.S. by the Inflation Reduction Act.
Additionally, on December 20, 2021, the OECD released the Global Anti-Base Erosion ("GloBE") Model Rules ("Pillar Two") providing a legislative
framework for the Income Inclusion Rule and the Under-Taxed Payment Rule ("UTPR"). Pillar Two is designed to ensure that large multinational enterprise
groups pay a minimum level of tax on the income arising in each of the jurisdictions where they operate, principally creating a 15% minimum global effective
tax rate. On December 15, 2022, the E.U. member states unanimously adopted a directive implementing the Pillar Two global minimum tax rules. On
December 20, 2022, the OECD released three guidance documents related to Pillar Two. These documents included guidance on safe harbors and penalty
relief and consultation papers on the GloBE Information Return and Tax Certainty for the GloBE rules. A number of E.U. member states have transposed the
directive into national legislation with the rules to be applicable for fiscal years beginning on or after December 31, 2023, with the exception of the UTPR
which is to be applicable for fiscal years beginning on or after December 31, 2024. Our fiscal year end of December 29, 2023 will allow us to postpone the
effective date of these law changes by one year. We are closely monitoring developments and are evaluating the impacts these new rules will have on our tax
rate, including the eligibility to qualify for the safe harbor rules.
The Pillar Two rules could adversely affect us and our affiliates by increasing our effective tax rate and cash tax obligations, which could have a material
adverse effect on our competitive position, business, financial condition, results of operations, and cash flows.
We may not be able to maintain a competitive worldwide effective corporate tax rate.
We cannot give any assurance as to what our effective tax rate will be in the future, because of, among other things, uncertainty regarding the tax policies
of the jurisdictions where we operate. Our actual effective tax rate may vary from our expectation and that variance may be material. Additionally, the tax
laws of Ireland and other jurisdictions could change in the future, and such changes could cause a material change in our effective tax rate.
Risks Related to Our Jurisdiction of Incorporation
Irish law differs from the laws in effect in the U.S. and may afford less protection to holders of our securities.
It may not be possible to enforce court judgments obtained in the U.S. against us in Ireland based on the civil liability provisions of the U.S. federal or
state securities laws. In addition, there is some uncertainty as to whether the courts of Ireland would recognize or enforce judgments of U.S. courts obtained
against us or our directors or officers based on the civil liabilities provisions of the U.S. federal or state securities laws or hear actions against us or those
persons based on those laws. We have been advised the U.S. currently does not have a treaty with Ireland providing for the reciprocal recognition and
enforcement of judgments in civil and commercial matters. Therefore, a final judgment for the payment of money rendered by any U.S. federal or state court
based on civil liability, whether or not based solely on U.S. federal or state securities laws, would not automatically be enforceable in Ireland.
A judgment obtained against us will be enforced by the courts of Ireland if the following general requirements are met: (i) U.S. courts must have had
jurisdiction in relation to the particular defendant according to Irish conflict of law rules (the submission to jurisdiction by the defendant would satisfy this
rule) and (ii) the judgment must be final and conclusive and the decree must be final and unalterable in the court which pronounces it. A judgment can be final
and conclusive even if it is subject to appeal or even if an appeal is pending. Where however the effect of lodging an appeal under the applicable law is to stay
execution of the judgment, it is possible that in the meantime the judgment may not be actionable in Ireland. It remains to be determined whether final
judgment given in default of appearance is final and conclusive. However, Irish courts may refuse to enforce a judgment of the U.S. courts which meets the
above requirements for one of the following reasons: (i) if the judgment is not for a definite sum of money; (ii) if the judgment was obtained by fraud; (iii) the
enforcement of the judgment in Ireland would be contrary to natural or constitutional justice; (iv) the judgment is contrary to Irish public policy or involves
certain U.S. laws which will not be enforced in Ireland; or (v) jurisdiction cannot be obtained by the Irish courts over the judgment debtors in the enforcement
proceedings by personal service in Ireland or outside Ireland under Order 11 of the Ireland Superior Courts Rules.
As an Irish company, we are governed by the Irish Companies Act 2014, which differs in some material respects from laws generally applicable to U.S.
corporations and shareholders, including, among others, differences relating to interested director and officer transactions and shareholder lawsuits. Likewise,
the duties of directors and officers of an Irish company generally are owed to the company only. Shareholders of Irish companies generally do not have a
personal right of action against directors or officers of the company and may exercise such rights of action on behalf of the company only in limited
circumstances. Accordingly, holders of our securities may have more difficulty protecting their interests than would holders of securities of a corporation
incorporated in a jurisdiction of the U.S.
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Irish law imposes restrictions on certain aspects of capital management.
Irish law allows our shareholders to pre-authorize shares to be issued by our Board of Directors without further shareholder approval for up to a
maximum of five years. Additionally, subject to specified exceptions, including as opt-out approved by a shareholder vote, Irish law grants statutory pre-
emptive rights to existing shareholders to subscribe for new issuances of shares for cash. The Company's new Memorandum and Articles of Association,
adopted on November 14, 2023, ("New Articles of Association"), contain a five-year pre-authorization of the Board of Directors to issue shares and opt-out of
pre-emption rights (subject to certain pre-emption rights granted to shareholders holding 1% or more of issued ordinary shares). We cannot guarantee that
renewal of the pre-authorization or opt-out from pre-emptive rights will always be sought or approved. We cannot provide assurance that these Irish legal
restrictions will not interfere with our capital management.
Risks Related to Our Ordinary Shares
Our ordinary shares are not listed on any national securities exchange, and we could cease to be a reporting company in the future.
Our new ordinary shares issued following emergence from the 2023 Bankruptcy Proceedings are not listed on any national securities exchange, and we
have no intention to list our ordinary shares on any national securities exchange or to have our ordinary shares quoted on the OTC market. Our ordinary
shares are issued through a transfer agent and are not eligible for settlement through DTC, which ordinarily facilitates trades in listed securities in the United
States. As a result, our ordinary shares are not able to be held in street name and can only be held in registered form, which means that trading in our ordinary
shares requires additional administrative steps as compared to shares that are listed on a national securities exchange or quoted on the OTC market.
Furthermore, because the ordinary shares will not be listed on a national securities exchange, additional transfer taxes and administrative steps will be
necessary to effect the sale, transfer and settlement of shares. So long as the ordinary shares are not listed on a national securities exchange, it will be an
offense for a transferee of ordinary shares to fail to comply with requirements to file an Irish stamp duty return and to pay any Irish stamp duty due with the
Irish Revenue Commissioners following such transfer, and interest and penalties will accrue. The filing of such returns and payment of the stamp duty
requires both the transferee and transferor to have obtained an Irish tax reference number from the Irish Revenue Commissioners and requires payment of the
stamp duty from an Irish bank account with the Irish Revenue Commissioners. Until such stamp duty return has been duly filed (or duly exempted) and the
related stamp duty duly paid, the transfer of shares will not be legally enforceable or effective under Irish law. Where any transfer of ordinary shares occurs at
less than market value, the transferor can be liable for all of the obligations of the transferee in relation to Irish stamp duty.
Because the ordinary shares will not be listed and because of the additional administrative steps and tax ramifications related to transferring ordinary
shares, we do not expect that there will be an active trading market for our ordinary shares and there may be limited liquidity for our shares, which could have
a negative impact on the market price of our ordinary shares. Holders of our ordinary shares may have difficulty selling or transferring any ordinary shares
that they hold, and the number of investors willing to hold or acquire ordinary shares may be reduced, the trading price of ordinary shares may be depressed,
we may receive decreased news and analyst coverage and we may be limited in our ability to issue additional securities or obtain additional equity financing
in the future on terms acceptable to us, or at all.
The absence of an active trading market for our ordinary shares would also impact our ability to access the capital markets and severely limit our ability
to use equity to effect acquisitions or recruit employees.
If we cease to be subject to Exchange Act reporting obligations, holders of our ordinary shares would be subject to risks of an investment in a private
company rather than a U.S. public reporting company.
Prior to our emergence from the 2023 Bankruptcy Proceedings, holders of a majority of our first lien and second lien debt informed us that they desire for
the Company to no longer be a reporting company for purposes of the Exchange Act. We expect to consider whether and when it would be advisable to
suspend our reporting obligations under the Exchange Act. To suspend reporting obligations under the Exchange Act, among other requirements, we would
need to (a) not be publicly listed on a national securities exchange and (b) deregister our ordinary shares under Section 12(g) of the Exchange Act, following a
determination in accordance with SEC rules that shares in the Company are held by less than 300 shareholders of record. Any decision of whether to
deregister ordinary shares under the Exchange Act and suspend filing Exchange Act reports, and the manner and timing of doing so, would be made by our
Board of Directors. There can be no assurance as to whether or when our Board of Directors may make such a decision or how it would be implemented. If
we suspend filing reports under the Exchange Act, public information regarding the Company may not be readily available. Accordingly, the liquidity, market
for and trading value of our ordinary shares and other securities may be negatively impacted.
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In the event our ordinary shares are deregistered and we suspend filing reports under the Exchange Act, holders of our securities would be subject to the
risks of an investment in a private company rather than a U.S. public reporting company. Upon any deregistration of the ordinary shares, our duty to file
periodic reports with the SEC would be suspended, which would result in a substantial decrease in required public disclosure by us about our operations and
prospects. We would also be relieved of the obligation to comply with the requirements of the proxy rules under Section 14 of the Exchange Act. The
suspension of our reporting obligations under the Exchange Act would likely further reduce any trading market and liquidity for our ordinary shares and may
negatively impact the value of, and ability to sell, such shares. In addition, shareholders may not be able to rely on Rule 144 under the Securities Act of 1933,
as amended, to sell their ordinary shares in the absence of current public information about the Company, which would limit the trading in the ordinary shares.
Ceasing to be a public reporting company would also impact our ability to access the capital markets and severely limit our ability to use equity to effect
acquisitions or recruit employees.
The process of pursuing and potentially suspending Exchange Act reporting could also cause disruptions to our business and divert management’s
attention and other resources from day-to-day operations, which could have an adverse effect on our business, results of operations, and financial condition. In
addition, the possibility of, or any announcement of, suspending Exchange Act reporting could have an adverse effect on our relationships with customers and
third-party service providers, who may react negatively to the possibility of a lack of publicly available information about us.
In connection with our emergence from the 2023 Bankruptcy Proceedings we adopted, the New Articles of Association, which contains provisions that are
more similar to U.S. private companies than U.S. publicly listed companies.
In connection with our emergence from the 2023 Bankruptcy Proceedings, we adopted the New Articles of Association, which contain provisions that are
different than our prior memorandum and articles of association and that may be considered more common to private companies than publicly listed
companies, including with respect to nominations of directors, "drag-along" rights, "tag-along" rights, and various provisions related to potential sales of
Mallinckrodt or its assets or business segments. Many of these provisions provide rights to specified groups of holders, and the interests of those holders may
be different than yours.
The New Articles of Association provide that the number of directors shall be seven (7); provided that the Company may from time to time by special
resolution increase or decrease the maximum number of directors. The New Articles of Association provide that the Board of Directors shall consist of the
following:
•
•
•
•
the CEO of the Company;
one (1) director ("1L AHG Steering Committee Director") designated by the Company shareholder holding the largest number of issued ordinary
shares of the Company (calculated in accordance with the terms of the New Articles of Association) from time to time selected from certain of
holders of our former first lien debt, and that shareholder has the sole right to remove and replace the 1L AHG Steering Committee Director in
accordance with the terms of the New Articles of Association for so long as such shareholder continues to hold at least 5% of the ordinary shares
(calculated on a fully-diluted basis and excluding equity to be issued under the MIP and the Opioid CVRs);
one (1) director ("Crossover AHG Steering Committee Director" and, together with the 1L AHG Steering Committee Director, the "Designated
Directors") designated by the Ad Hoc Crossover Group Steering Committee (as defined in the 2023 Plan), which Ad Hoc Crossover Group Steering
Committee shall have the sole right to remove and replace such Crossover AHG Steering Committee Director in accordance with the terms of the
New Articles of Association for so long as at least one Company shareholder in the Ad Hoc Crossover Group Steering Committee holds at least 5%
of the ordinary shares of the Company (calculated on a fully-diluted basis and excluding equity to be issued under the MIP and the Opioid CVRs);
and
up to four (4) directors who qualify as "independent directors" under the listing requirements of the New York Stock Exchange ("NYSE"), to be
designated by a nominating and selection committee ("Nominating and Selection Committee") comprised of members of the Ad Hoc First Lien
Group Steering Committee, the Ad Hoc Crossover Group Steering Committee and the Ad Hoc 2025 Noteholder Group (each as defined in the 2023
Plan).
As a result, other holders of ordinary shares do not currently have a role in the nomination or any designation of members of the Board of Directors,
though holders of ordinary shares do have the right to vote on the reelection of the four independent directors. Furthermore, the interests of the groups
appointing these directors may be different than yours, including because a number of the parties designating directors and members of the Nominating and
Selection Committee have significant interests in the Company’s debt instruments. As a result, the nominees to the Board of Directors that they designate may
be more inclined to consider the interests of debt holders, which could differ from the interests of holders of ordinary shares. For example, certain members of
the Nominating and Selection Committee, which is comprised of members of the Ad Hoc First Lien Group Steering Committee, the Ad Hoc Crossover Group
Steering Committee and the Ad Hoc 2025 Noteholder Group, have encouraged us to seek deregistration, as well as the divestiture of assets. Certain of these
holders also have the right to appoint non-voting observers to our Board of Directors, which could have the effect of influencing Board decisions.
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Subject to customary exceptions, the New Articles of Association provide that if any of our shareholders owning, or group of shareholders collectively
owning, more than 50% of the issued ordinary shares (excluding equity to be issued under the MIP and the Opioids CVRs) ("Selling Shareholders") agree to
sell all of their ordinary shares to an unaffiliated third party, the Selling Shareholders shall, subject to Irish law, have the right to effect a sale of the Company
through a process set forth in the New Articles of Association without the approval of our other shareholders. Subject to customary exceptions, the New
Articles of Association also provide that if one or more of our shareholders ("Transferring Shareholder(s)") desires to sell more than 50% of the issued
ordinary shares (excluding equity to be issued under the MIP and the Opioid CVRs) to any unaffiliated third party in any transaction (or series of related
transactions) (a "Tag-Along Transaction"), our other shareholders will have customary tag-along rights to participate in such Tag-Along Transaction on a pro
rata basis. The New Articles of Association provide that shareholders collectively owning a majority of the ordinary shares (excluding equity to be issued
under the MIP and the Opioid CVRs) shall have the right, upon reasonable notice, to require the Company to commence and effect within a reasonable time
specified by such shareholder a process to effect a sale of the Company or its assets or business segments.
As a result of the various provisions in the New Articles of Association, including those discussed above, the rights of holders of ordinary shares are
more similar to those customarily found in a private company rather than those found in a publicly listed company. As a result, you may have more limited
rights, and you could be subject to decisions by other shareholders whose interest may be different than yours.
We are a "smaller reporting company" and will be able to avail ourselves of reduced disclosure requirements applicable to smaller reporting companies,
which could make our ordinary shares less attractive to investors.
We are a "smaller reporting company," as defined in the Exchange Act, and we intend to take advantage of certain exemptions from various reporting
requirements that are applicable to other public companies that are not "smaller reporting companies," including reduced disclosure obligations regarding
executive compensation in our periodic reports and proxy statements. We cannot predict if investors will find our ordinary shares less attractive because we
may rely on these exemptions. We may take advantage of these reporting exemptions until we are no longer a "smaller reporting company." We will remain a
"smaller reporting company" until (a) the aggregate market value of our outstanding ordinary shares held by non-affiliates as of the last business day of our
most recently completed second fiscal quarter is $250 million or more and we reported annual net revenues as of our most recently completed fiscal year of
$100 million or more, or (b) the aggregate market value of our outstanding ordinary shares held by non-affiliates as of the last business day of our most
recently completed second fiscal quarter is $700 million or more, regardless of annual revenue.
Item 1B.
Unresolved Staff Comments.
Not applicable.
Item 1C.
Cybersecurity.
We depend on both our own systems, networks, and technology as well as the systems, networks and technology of our contractors, consultants, vendors
and other business partners to conduct key operations across our enterprise.
Cybersecurity Program
We have worked to develop our cybersecurity program to protect the confidentiality, integrity, and availability of systems and data. We have implemented
administrative, technical, and physical safeguards that we believe are appropriate to the size and complexity of our business and the nature and scope of our
activities. We evolve our cyber defenses to help minimize impacts from cyber threats to safeguard our assets and data.
Our program includes a number of safeguards. These safeguards include processes for endpoint security (such as anti-malware and endpoint detection
and response tools), network security (such as firewalls, intrusion detection systems, and filtering), and vulnerability management (such as vulnerability scans
and patch management). Applicable personnel are provided cybersecurity awareness training and receive periodic awareness through ad hoc communications
on security topics, including how to report suspicious activity or potential incidents. However, vulnerabilities or threats identified through our cybersecurity
program may take time to remediate or mitigate.
We use a risk-based approach with respect to our use and oversight of third-party service providers, tailoring processes according to the nature and
sensitivity of the data accessed, processed, or stored by such third-party service provider and performing additional risk screenings and procedures, as
appropriate. We have established a third-party risk management program that includes a formal vendor and cloud security policy and processes to conduct
diligence on applicable vendors, including thorough questionnaires and
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additional documentation. Cybersecurity controls language may be included in third-party service provider contracts, and if applicable, this language is
designed to be tailored to the use case and sensitivity of any data or business processes involved.
Process for Assessing, Identifying and Managing Material Risks from Cybersecurity Threats
To assess, identify, and manage potential cybersecurity threats, our Security Operations Center ("SOC") team works in conjunction with a third-party
managed security service provider to monitor systems and threats, including those on systems managed by third-parties, such as cloud platforms.
In the event of a potential or actual cybersecurity incident, we maintain an incident response program. Pursuant to the program and its escalation
protocols, designated personnel are responsible for assessing the severity of an incident and associated threat, containing the threat, remediating the threat,
including recovery of data and access to systems, analyzing any reporting obligations associated with the incident, and performing post-incident analysis and
program enhancements. We maintain a Cybersecurity Incident Response Plan ("IRP") and business continuity and disaster recovery plans in the event of a
significant cybersecurity incident or disruption. The IRP is tested using tabletop exercises.
Governance
Management Oversight
The controls and processes employed to assess, identify and manage material risks from cybersecurity threats are implemented and overseen by a team
that includes our Chief Information Security Officer ("CISO"), who reports to our VP of Information Systems. The CISO is supported by a SOC team, an
Incident Response Manager, a Governance Risk and Compliance Manager, and cybersecurity architects. These individuals and groups are responsible for the
day-to-day management of our cybersecurity program, including the prevention, detection, investigation, response to, and recovery from cybersecurity threats
and incidents, and are regularly engaged to help ensure our cybersecurity program functions effectively in the face of evolving cybersecurity threats. The
individuals involved generally have significant experience in cybersecurity and related information technology, including responding to incidents and
developing security policies, with our three most senior leaders having an average of 25 years of experience in cybersecurity.
In addition to the day-to-day management of these risks, we hold a monthly meeting of an Information Risk Committee, which is comprised of
representatives from our legal, human resources, compliance, and information technology departments. On a quarterly basis, we also hold a meeting of our
Executive IT Steering Committee, which is comprised of members of the executive leadership, so that they can receive regular briefings on cybersecurity
matters, including threats, events, and program enhancements.
Board Oversight
Our full Board of Directors provides oversight for our cybersecurity program. At least annually, the CISO and the VP of Information Technology report
to the Board of Directors on information technology, cybersecurity and information security-related matters, including relevant business activities, key risks
and mitigation efforts, prior incidents, results of assessments and monitoring, and the potential impact on the Company’s business.
Cybersecurity Risk Management and Strategy
Our cybersecurity risk management processes are integrated into our overall business risk management program. As part of our risk management
program, we identify, assess and evaluate risks impacting our operations across the Company, including those risks related to cybersecurity. As part of risk
management processes, we maintain cybersecurity insurance that provides coverage for certain costs related to cybersecurity-related incidents. However, the
amount or type of coverage may not be sufficient to address costs for handling an incident, or future changes may occur to insurance coverage.
As of December 29, 2023, we are not aware of any risks from cybersecurity threats, including from previous cybersecurity incidents, that materially
impacted the Company's strategy, operations, or financial condition in the last three years. However, we have been the target of previous cyber attacks and
anticipate we will continue to face risks of incidents through various types of attacks, including those using sophisticated techniques and evolving
technologies such as artificial intelligence. Although we make efforts to maintain the security of our systems and data, we are subject to the risk of a
cybersecurity incident or disruption, and there can be no assurance that our security efforts and measures, and those of our third-party vendors, will prevent
breakdowns or incidents to our or our third-party vendors’ systems that could adversely affect our business. For further discussion, see the risk factor
captioned "Our business depends on the continued effectiveness and availability of our information technology infrastructure, and failures of this
infrastructure could harm our operations" included within Item 1A. Risk Factors of this Annual Report.
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Item 2.
Properties.
Our principal executive offices and Specialty Brands global external manufacturing operations are located in Dublin, Ireland. In addition, we have other
locations in the U.S., most notably our corporate shared services facility in Hazelwood, Missouri, our Specialty Brands commercial headquarters in
Bridgewater, New Jersey and our Specialty Generics headquarters and technical development center in Webster Groves, Missouri. As of December 29, 2023
(Successor), in addition to a number of leased facilities, we owned a total of ten facilities in the U.S., Ireland and Japan. Our owned facilities consist of
approximately 2.1 million square feet, and our leased facilities consist of approximately 0.4 million square feet. We have eleven manufacturing sites: one in
Ireland; two in Japan; and eight in the U.S. We believe all of these facilities are well-maintained and suitable for the operations conducted in them.
Item 3.
Legal Proceedings.
We are subject to various legal proceedings and claims, including government investigations, environmental matters, product liability matters, patent
infringement claims, antitrust matters, securities class action lawsuits, personal injury claims, employment disputes, contractual and other commercial
disputes, and other legal proceedings, sometimes in the ordinary course of business. Although it is not feasible to predict the outcome of these matters, we
believe, unless otherwise indicated, given the information currently available, that the ultimate resolution of any particular matter, or matters that have the
same legal or factual issues, would not have a material adverse effect on our financial condition, results of operations and cash flows.
For further information regarding our material pending legal proceedings, refer to Note 18 of the Notes to Consolidated Financial Statements included
within Item 8. Financial Statements and Supplementary Data of this Annual Report, which is incorporated by reference into this Part I, Item 3.
Item 4.
Mine Safety Disclosures.
Not applicable.
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PART II
Item 5.
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Prior to the 2023 Bankruptcy Proceedings, the ordinary shares of our Predecessor were traded on the NYSE American LLC ("NYSE American") under
the ticker symbol "MNK." On September 6, 2023, the NYSE filed a Form 25 with the SEC to delist the Predecessor ordinary shares from the NYSE
American. The delisting became effective September 16, 2023. The deregistration of the ordinary shares under Section 12(b) of the Exchange Act became
effective on December 5, 2023, at which point the ordinary shares were deemed registered under Section 12(g) of the Exchange Act. The Predecessor
ordinary shares began trading on the Pink Open Market (formerly known as the OTC Pink Marketplace) on August 29, 2023 under the symbol "MNKTQ."
On November 14, 2023, upon emergence from the 2023 Bankruptcy Proceedings, all outstanding ordinary shares of our Predecessor were cancelled, and we
issued a total of 19,696,335 new ordinary shares. As a result of the cancellation of our Predecessor ordinary shares, the Company ceased trading on the Pink
Open Market. There is currently no established public trading market for our ordinary shares.
As of March 22, 2024, we had 19,696,335 ordinary shares outstanding, held by 446 shareholders of record. The number of record holders does not
necessarily bear any relationship to the number of beneficial owners of our ordinary shares.
Under Irish law, we can only pay dividends and repurchase shares out of distributable reserves. We did not declare or pay any dividends and we do not
currently intend to pay dividends in the foreseeable future.
During the quarter ended December 29, 2023, we repurchased 10,636 of our ordinary shares for the satisfaction of tax withholding obligations in
connection with the vesting of restricted stock issued to employees as follows:
Predecessor
September 30, 2023 to October 27, 2023
October 28, 2023 to November 14, 2023
Successor
November 15, 2023 to December 29, 2023
Total Number of Shares
Purchased
Average Price Paid per
Share
—
10,636
$
—
$
—
0.09
—
On the 2023 Effective Date, the Company entered into a CVR Agreement with the Trust. Pursuant to the terms of the CVR Agreement, the Company
issued 1,036,649 Opioid CVRs to the Trust, which Opioid CVRs entitle the Trust to receive from the Company, when exercised, an amount in cash equal to
(a) the Market Price of one new ordinary share of the Company at the time of exercise less (b) $99.36, subject to the right of the Company to, at its option but
subject to certain conditions, issue ordinary shares to the Trust in lieu of making some or all of the cash payment due upon exercise in accordance with the
terms of the CVR Agreement. The Opioid CVRs are exercisable at any time for four years after the 2023 Effective Date.
Item 6.
[Reserved]
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial
statements and the accompanying notes included within this Annual Report. The following discussion may contain forward-looking statements that reflect our
plans, estimates and beliefs and involve risks, uncertainties and assumptions. Our actual results could differ materially from those discussed in these forward-
looking statements. Factors that could cause or contribute to these differences include those discussed in Item 1A. Risk Factors and "Forward-Looking
Statements" included within this Annual Report.
Fiscal Year
The Company reports its results based on a "52-53 week" year ending on the last Friday of December. The period November 15, 2023 through December
29, 2023 reflects the Successor period, while the period December 31, 2022 through, and including, November 14, 2023 reflects the Predecessor period. The
combined periods of December 31, 2022 through November 14, 2023 (Predecessor) and November 15, 2023 through December 29, 2023 (Successor) ("fiscal
2023") and the combined periods of January 1, 2022 through June 16, 2022 (Predecessor) and June 17, 2022 through December 30, 2022 (Predecessor)
("fiscal 2022") consisted of 52 weeks, while the fiscal year ended December 31, 2021 (Predecessor) ("fiscal 2021") consisted of 53 weeks.
64
Overview
We are a global business consisting of multiple wholly owned subsidiaries that develop, manufacture, market and distribute specialty pharmaceutical
products and therapies. Areas of focus include autoimmune and rare diseases in specialty areas like neurology, rheumatology, hepatology, nephrology,
pulmonology, ophthalmology and oncology; immunotherapy and neonatal respiratory critical care therapies; analgesics; and gastrointestinal products.
We operate our business in two reportable segments, which are further described below:
•
•
Specialty Brands includes innovative specialty pharmaceutical brands; and
Specialty Generics includes niche specialty generic drugs and API(s).
For further information on our business and products, refer to Item 1. Business included within this Annual Report.
Significant Events
Emergence from Voluntary Reorganization
On the 2023 Petition Date, we voluntarily initiated the 2023 Chapter 11 Cases under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court. On
October 10, 2023, the Bankruptcy Court entered an order confirming the 2023 Plan. Subsequent to the order confirming the 2023 Plan, the High Court of
Ireland made an order on November 10, 2023 confirming the 2023 Scheme of Arrangement. The 2023 Plan and the 2023 Scheme of Arrangement became
effective on November 14, 2023, and on such date we emerged from the 2023 Bankruptcy Proceedings.
On the 2023 Effective Date, pursuant to the 2023 Plan and the 2023 Scheme of Arrangement, among other things:
• We issued 18,179,718 ordinary shares to the holders of our previously outstanding first lien debt and 1,516,617 ordinary shares to the holders of our
previously outstanding second lien notes;
• We issued 1,036,649 Opioid CVRs to the Trust;
•
•
•
The opioid-related litigation settlement ("Opioid-Related Litigation Settlement") obligation agreement ("Opioid Deferred Cash Payment
Agreement") and the Company's prior obligation to pay all remaining Opioid-Related Litigation Settlement payment obligations ("Opioid Deferred
Cash Payment") were permanently eliminated;
Lenders holding allowed claims under the Senior Secured Debtor-In-Possession Credit Agreement, dated as of September 8, 2023, received their pro
rata share of a $50.6 million cash payment and the First-Out Takeback Term Loans (as defined below) in satisfaction thereof; and
Principal debt outstanding was reduced by more than $1.9 billion.
For further details of the 2023 Plan, refer to Note 2 of the Notes to the Consolidated Financial Statements included within Item 8. Financial Statements
and Supplementary Data of the Annual Report.
New Financing
In connection with emergence from the 2023 Bankruptcy Proceedings, we entered into a new senior secured first lien term loan facility with an aggregate
principal amount of approximately $871.4 million ("Takeback Term Loans"), consisting of approximately $229.4 million of "first-out" Takeback Term Loans
("First-Out Takeback Term Loans") and approximately $642.0 million of "second-out" Takeback Term Loans ("Second-Out Takeback Term Loans"). We also
issued approximately $778.6 million in aggregate principal amount of "second-out" 14.75% senior secured first lien notes due 2028 ("Takeback Notes" and,
together with the Second-Out Takeback Term Loans, the "Second-Out Takeback Debt" and, together with the Takeback Term Loans, the "Takeback Debt").
Fresh-Start Accounting
Upon emergence from both the 2020 Bankruptcy Proceedings on June 16, 2022 and the 2023 Bankruptcy Proceedings on November 14, 2023, we
adopted fresh-start accounting in accordance with ASC 852 and became a new entity for financial reporting purposes as of each of the 2020 Effective Date
and the 2023 Effective Date. References to "Successor" relate to the financial position as of December 29, 2023 and results of operations of the reorganized
Company subsequent to November 14, 2023, while references to "Predecessor" relate to the financial position as of December 30, 2022 and results of
operations of the Company for the period from December 31, 2022 through November 14, 2023, the period from June 17, 2022 through December 30, 2022,
and for the periods prior to, and including June 16, 2022. All emergence-related transactions related to the 2020 Effective Date and the 2023 Effective Date
were recorded as of June 16, 2022 and November 14, 2023, respectively. Accordingly, the consolidated financial statements for the Successor are not
comparable to the consolidated financial statements for the Predecessor periods and the consolidated financial
65
statements for the Predecessor period from June 17, 2022 through December 30, 2022 and December 31, 2022 through November 14, 2023 are not
comparable to the consolidated financial statements for the Predecessor period prior to and including June 16, 2022. Operating results for the Successor and
Predecessor periods are not necessarily indicative of the results to be expected for a full fiscal year. References to the "Company," "we," "our," and "us" refer
to Mallinckrodt and its consolidated subsidiaries, whether Predecessor and/or Successor, as appropriate.
Our results of operations as reported in our Consolidated Financial Statements for the Successor and Predecessor periods are in accordance with GAAP.
The presentation of the combined financial information of the Predecessor and Successor for fiscal 2023 and the combined financial information of the
Predecessor periods for fiscal 2022 is not in accordance with GAAP. However, we believe that for purposes of discussion and analysis in this Annual Report
the combined financial information is useful for management and investors to assess our ongoing financial and operational performance and trends.
For further information, refer to Note 3 of the Notes to Consolidated Financial Statements included within Item 8. Financial Statements and
Supplementary Data of this Annual Report.
Reorganization items, net
During the period from December 31, 2022 through November 14, 2023 (Predecessor) and January 1, 2022 through June 16, 2022 (Predecessor), we
incurred income of $892.7 million and expenses of $630.9 million from reorganization items, net, respectively. These expenses were primarily driven by the
loss on application of fresh-start accounting of $1,452.7 million and $1,354.6 million, respectively, partially offset by a $1,966.0 million and $943.7 million
gain on settlement of liabilities subject to compromise ("LSTC") in accordance with the 2023 Plan and the 2020 Plan, respectively. Also included in
reorganization items was adjustment of other claims of $1,139.5 million and $5.4 million during the period from December 31, 2022 through November 14,
2023 (Predecessor) and January 1, 2022 through June 16, 2022 (Predecessor), respectively. During the period from November 15, 2023 through December 29,
2023 (Successor) and June 17, 2022 through December 30, 2022 (Predecessor), we incurred expenses of $4.0 million and $23.2 million from reorganization
items, net, respectively, comprised entirely of professional fees associated with the implementation of the 2023 and 2020 Plan, respectively.
Acthar Gel
On March 1, 2024, the FDA approved the Acthar Gel Single-Dose Pre-filled SelfJect™ Injector ("SelfJect"), a new delivery device for Acthar Gel for
appropriate patients with a range of chronic and acute inflammatory and autoimmune conditions. SelfJect is intended to provide the appropriate subcutaneous
dose of Acthar Gel, as prescribed by a healthcare professional, and is designed to help give patients control of their administration. SelfJect is expected to
launch in the U.S. in the second half of 2024.
StrataGraft
On January 4, 2024, we committed to a plan to cease commercialization and clinical development and wind down production of StrataGraft. We expect to
complete this process by the end of the first quarter of 2025.
The decision to discontinue StrataGraft was made following a slower-than-anticipated commercial uptake of the product and slower-than-anticipated
enrollment in clinical trials. We are evaluating our next steps with respect to StrataGraft, which could include pursuing a sale, out-license or other strategic
arrangement.
In connection with ceasing commercialization and clinical development and winding down production of StrataGraft, we currently expect to incur pre-tax
charges of approximately $15 million, which include (i) approximately $5 million of one-time termination benefits, (ii) approximately $5 million in contract
and lease termination costs, and (iii) approximately $5 million of other associated costs. We plan to recognize the majority of these charges in the first fiscal
quarter of 2024, with the remaining amount to be recognized over the course of fiscal 2024 and into the first fiscal quarter of fiscal 2025. These estimated
charges are expected to be cash charges.
During the three months ended September 29, 2023 (Predecessor), due to lower than anticipated cash flows expected from StrataGraft, we identified a
triggering event with respect to the StrataGraft intangible asset within the Specialty Brands segment and assessed the recoverability of the definite-lived asset.
We determined that the undiscounted cash flows related to the StrataGraft intangible asset were less than its net book value, which resulted in a full
impairment charge of $50.1 million for the difference between the fair value of the StrataGraft intangible asset and its net book value.
66
Generics IPR&D
During the three months ended September 29, 2023 (Predecessor), the FDA approved the abbreviated new drug applications for certain of our Specialty
Generics in-process research and development ("IPR&D") assets. Upon approval, we transferred a total of $26.0 million of asset value from non-amortizable
indefinite-lived IPR&D rights to amortizable, finite-lived completed technology with amortization commencing upon the first commercial shipment of the
respective products.
Additionally, during the three months ended September 29, 2023 (Predecessor), we decided we will no longer pursue further development of certain of
our Specialty Generics IPR&D assets. As a result, we recognized a full impairment on the respective assets of $85.8 million.
Business Factors Influencing the Results of Operations
We cannot adequately benchmark certain operating results of fiscal 2023 against fiscal 2022 as the comparison would include the twelve months ended
December 29, 2023 combined Successor and Predecessor periods against the fiscal 2022 combined Predecessor periods, which would be considered to not be
in accordance with GAAP. We do not believe that reviewing the results of the Successor or Predecessor periods in isolation would be useful in identifying
trends in or reaching conclusions regarding our overall operating performance. Management believes that our key performance metrics such as net sales and
segment results of operations for the Successor period and the current Predecessor year-to-date period for fiscal 2023 when taken together, provide more
meaningful comparisons to the combined Predecessor periods for fiscal 2022 and are more useful in identifying current business trends. Accordingly, in
addition to presenting our results of operations as reported in our consolidated financial statements in accordance with GAAP, in certain circumstances the
discussion in "Results of Operations" and "Segment Results" below utilizes the combined results for fiscal year 2023 and the combined results for fiscal year
2022.
Specialty Brands
Net sales of Acthar Gel for the period November 15, 2023 through December 29, 2023 (Successor) were $57.0 million. Net sales of Acthar Gel for the
period December 31, 2022 through November 14, 2023 (Predecessor), the period June 17, 2022 through December 30, 2022 (Predecessor), and the period
January 1, 2022 through June 16, 2022 (Predecessor) were $368.3 million, $294.1 million, and $221.9 million, respectively. Non-GAAP combined net sales
for fiscal year 2023 and 2022 were $425.3 million and $516.0 million, respectively. Net sales decreased $90.7 million, or 17.6%, driven primarily by
continued scrutiny on overall specialty pharmaceutical spending, as well as slower than expected returning patient volumes, impacted primarily by
affordability. Competition intensified with the commercial launch of a purified cortrophin gel product in 2022 and this competitive pressure continued to
negatively impact sales of Acthar Gel in 2023. The ongoing competition is expected to continue to have an adverse effect on our financial condition, results of
operations and cash flows. We continue to differentiate Acthar Gel through pre-clinical studies and through product enhancements, including the development
of the Acthar Gel delivery device and its Supplemental New Drug Application submission, which was approved by the FDA on March 1, 2024. We anticipate
a launch in the second half of 2024. This product is expected to create an easier and more patient-friendly application for single unit dosage indications.
Net sales of Amitiza for the period November 15, 2023 through December 29, 2023 (Successor) were $5.0 million. Net sales of Amitiza for the period
December 31, 2022 through November 14, 2023 (Predecessor), the period June 17, 2022 through December 30, 2022 (Predecessor), and the period January 1,
2022 through June 16, 2022 (Predecessor) were $72.0 million, $77.1 million, and $81.5 million, respectively. Non-GAAP combined net sales for fiscal year
2023 and 2022 were $77.0 million and $158.6 million, respectively. Net sales decreased $81.6 million, or 51.5%, driven primarily by a decline in royalties
associated with loss of U.S. exclusivity. Additional generic competitors entered the market in fiscal 2023, resulting in the elimination of U.S. royalties under
our agreement with Par Pharmaceuticals, Inc. et al.
Net sales of INOmax for the period November 15, 2023 through December 29, 2023 (Successor) were $35.3 million. Net sales of INOmax for the period
December 31, 2022 through November 14, 2023 (Predecessor), the period June 17, 2022 through December 30, 2022 (Predecessor), and the period January 1,
2022 through June 16, 2022 (Predecessor) were $267.9 million, $173.9 million, and $165.8 million, respectively. Non-GAAP combined net sales for fiscal
year 2023 and 2022 were $303.2 million and $339.7 million, respectively. Net sales decreased $36.5 million, or 10.7%, driven primarily by continued
competition from alternative nitric oxide products, which could continue to adversely affect our ability to successfully maximize the value of INOmax and
have an adverse effect on our financial condition, results of operations and cash flows. We received FDA approval of our 510(k) for INOmax Evolve our next-
generation nitric oxide delivery system. We expect the platform to be available in U.S. hospitals in the first half of 2024. We intend to vigorously enforce our
intellectual property rights relating to our nitric oxide products against any additional parties that may seek to market an alternative version of our INOmax
product and/or our next generation delivery systems.
Net sales of Therakos for the period November 15, 2023 through December 29, 2023 (Successor) were $39.1 million. Net sales of Therakos for the
period December 31, 2022 through November 14, 2023 (Predecessor), the period June 17, 2022 through December 30, 2022 (Predecessor), and the period
January 1, 2022 through June 16, 2022 (Predecessor) were $220.0 million, $130.5 million, and
67
$109.6 million, respectively. Non-GAAP combined net sales for fiscal year 2023 and 2022 were $259.1 million and $240.1 million, respectively. Net sales
increased $19.0 million, or 7.9%, driven primarily by stabilization in the use of the platform for treatment of graft-versus-host disease ("GvHD"), which is a
non-promoted use in the U.S. market, and to a lesser extent the impact of competitive oral therapies for GvHD.
Specialty Generics
Net sales of the Specialty Generics segment for the period November 15, 2023 through December 29, 2023 (Successor) were $103.2 million. Net sales of
the Specialty Generics segment for the period December 31, 2022 through November 14, 2023 (Predecessor), the period June 17, 2022 through December 30,
2022 (Predecessor), and the period January 1, 2022 through June 16, 2022 (Predecessor) were $673.7 million, $357.3 million, and $287.5 million,
respectively. Non-GAAP combined net sales for fiscal year 2023 and 2022 were $776.9 million and $644.8 million, respectively. Net sales increased $132.1
million, or 20.5%, driven primarily by an increase in generics net sales of $123.8 million and an increase in API net sales of $8.3 million.
Results of Operations
This Annual Report contains certain financial measures, including net sales, gross profit, gross profit margin, SG&A expenses as a percentage of net sales
and R&D expenses as a percentage of net sales.
We have provided these measures because they are used by management to evaluate our operating performance. In addition, we believe that they will be
used by investors to measure Mallinckrodt's operating results. Management believes that presenting these measures provides useful information about our
performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. These
measures should be considered supplemental to and not a substitute for financial information prepared in accordance with GAAP.
Because these measures exclude the effect of items that will increase or decrease our reported results of operations, management strongly encourages
investors to review our consolidated financial statements and this Annual Report in its entirety. A reconciliation of certain of these financial measures to the
most directly comparable GAAP financial measures is included herein.
Period from November 15, 2023 through December 29, 2023 (Successor) and Period from December 31, 2022 through November 14, 2023 (Predecessor)
Compared with Period June 17, 2022 through December 30, 2022 (Predecessor) and Period from January 1, 2022 through June 16, 2022 (Predecessor)
Net Sales
Net sales by geographic area are as follows (dollars in millions):
Successor
Predecessor
Non-GAAP
Predecessor
Non-GAAP
Period from
November 15, 2023
through December
29, 2023
Period from
December 31, 2022
through
November 14, 2023
Period from
June 17, 2022
through
December 30, 2022
Period from
January 1, 2022
through
June 16, 2022
Combined Fiscal
Year Ended
December 29, 2023
1,661.7
$
185.9
18.3
1,448.9
157.1
16.9
$
928.3
100.4
11.0
$
$
Combined Fiscal
Year Ended
December 30, 2022
1,712.5
$
174.0
27.8
1,914.3
784.2
73.6
16.8
Percentage
Change
(3.0)%
6.8
(34.2)
(2.5)%
1,622.9
$
1,865.9
$
1,039.7
874.6
$
U.S.
Europe, Middle East and
Africa
Other
Net sales
$
$
212.8
28.8
1.4
243.0
$
$
Net sales for the period November 15, 2023 through December 29, 2023 (Successor) were $243.0 million. Net sales for the period December 31, 2022
through November 14, 2023 (Predecessor), the period June 17, 2022 through December 30, 2022 (Predecessor), and the period January 1, 2022 through June
16, 2022 (Predecessor) were $1,622.9 million, $1,039.7 million, and $874.6 million, respectively. Net sales decreased $48.4 million, or 2.5%, for the non-
GAAP combined fiscal 2023, compared to the non-GAAP combined fiscal 2022 (Predecessor). This decrease was primarily driven by a decrease in our
Specialty Brands segment including a significant decrease in net sales of Amitiza, Acthar Gel and INOmax. These decreases were partially offset by an
increase in net sales in our Specialty Generics segment including a significant increase in net sales of our finished-dosage generics. For further information on
changes in our net sales, refer to "Business Segment Results" within this Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations.
68
Operating Loss
Gross profit. Gross profit for the period November 15, 2023 through December 29, 2023 (Successor) was $63.9 million. Gross profit for the period
December 31, 2022 through November 14, 2023 (Predecessor), the period June 17, 2022 through December 30, 2022 (Predecessor), and the period January 1,
2022 through June 16, 2022 (Predecessor) were $322.4 million, $48.7 million, and $292.6 million, respectively. Gross profit margin was 26.3% for the period
November 15, 2023 through December 29, 2023 (Successor), 19.9% for the period December 31, 2022 through November 14, 2023 (Predecessor), 4.7% for
the period June 17, 2022 through December 30, 2022 (Predecessor), and 33.5% for the period January 1, 2022 through June 16, 2022 (Predecessor). These
increases were driven by lower inventory step-up amortization of $58.5 million and $187.0 million during the period November 15, 2023 through December
29, 2023 (Successor) and the period December 31, 2022 through November 14, 2023 (Predecessor), respectively, as compared to $268.7 million and $30.0
million of inventory step-up amortization expense and other fresh-start related inventory related expenses during the period from June 17, 2022 through
December 30, 2022 (Predecessor). The decrease during the period January 1, 2022 through June 16, 2022 (Predecessor) was primarily driven by a $13.6
million increase in amortization expense for the Amitiza intangible asset resulting from a change in amortization method as discussed further in Note 12 of
the Notes to the Consolidated Financial Statements. Partially offsetting these increases was a $44.0 million Acthar Gel inventory write-down to net realizable
value during the period December 30, 2022 through November 14, 2023 (Predecessor), coupled with the decrease in net sales as well as a change in product
mix.
Selling, general and administrative expenses. SG&A expenses for the period November 15, 2023 through December 29, 2023 (Successor) were $64.2
million. SG&A expenses for the period December 31, 2022 through November 14, 2023 (Predecessor), the period June 17, 2022 through December 30, 2022
(Predecessor), and the period January 1, 2022 through June 16, 2022 (Predecessor) were $448.2 million, $268.9 million, and $266.3 million, respectively. As
a percentage of net sales, SG&A expenses were 26.4% for the period November 15, 2023 through December 29, 2023 (Successor), 27.6% for the period
December 31, 2022 through November 14, 2023 (Predecessor), 25.9% for the period June 17, 2022 through December 30, 2022 (Predecessor), and 30.4% for
the period January 1, 2022 through June 16, 2022 (Predecessor). The period June 17, 2022 through December 30, 2022 (Predecessor), and the period January
1, 2022 through June 16, 2022 (Predecessor) included $2.1 million and $15.8 million of foreign currency remeasurement losses. In addition, the period
January 1, 2022 through June 16, 2022 (Predecessor) included an $11.1 million increase to certain of our environmental liabilities. The period December 31,
2022 through November 14, 2023 (Predecessor) had a $7.3 million gain related to the change in the fair value of our contingent consideration liability,
compared to a $0.5 million loss during the period June 17, 2022 through December 30, 2022 (Predecessor). These decreases were partially offset by increased
employee compensation costs during the period December 31, 2022 through November 14, 2023 (Predecessor) related to the key employee retention program.
Research and development expenses. R&D expenses for the period November 15, 2023 through December 29, 2023 (Successor) were $15.9 million.
R&D expenses for the period December 31, 2022 through November 14, 2023 (Predecessor), the period June 17, 2022 through December 30, 2022
(Predecessor), and the period January 1, 2022 through June 16, 2022 (Predecessor) were $97.1 million, $64.2 million, and $65.5 million, respectively. As a
percentage of net sales, R&D expenses were 6.5% for the period November 15, 2023 through December 29, 2023 (Successor), 6.0% for the period December
31, 2022 through November 14, 2023 (Predecessor), 6.2% for the period June 17, 2022 through December 30, 2022 (Predecessor), and 7.5% for the period
January 1, 2022 through June 16, 2022 (Predecessor). These decreases were driven by cost containment initiatives coupled with the completion of certain
development programs. We continue to focus current R&D activities on performing clinical studies and publishing clinical and non-clinical experiences and
evidence that support health economic activities and patient outcomes.
Restructuring and related charges, net. During the period November 15, 2023 through December 29, 2023 (Successor) the period December 31, 2022
through November 14, 2023 (Predecessor), the period June 17, 2022 through December 30, 2022 (Predecessor), and the period January 1, 2022 through June
16, 2022 (Predecessor), we incurred zero, $1.7 million, $12.1 million, and $9.6 million of restructuring and related charges, net, respectively. These charges
were primarily related to employee severance and benefits. Included in these charges was $0.8 million and $1.0 million of accelerated depreciation during the
period December 31, 2022 through November 14, 2023 (Predecessor) and the period June 17, 2022 through December 30, 2022 (Predecessor), respectively.
Non-restructuring impairment charges. During the period November 15, 2023 through December 29, 2023 (Successor) and the period December 31,
2022 through November 14, 2023 (Predecessor), we incurred $2.6 million and $135.9 million of non-restructuring impairment charges, respectively. The
impairment charges resulted from the full impairment of the StrataGraft long-lived assets of $2.6 million during the period November 15, 2023 through
December 29, 2023 (Successor) and the full impairment of certain of our Specialty Generics IPR&D assets of $85.8 million and our StrataGraft intangible
asset of $50.1 million during the period December 31, 2022 through November 14, 2023 (Predecessor).
Liabilities management and separation costs. Liabilities management and separation costs for the period November 15, 2023 through December 29, 2023
(Successor) and the period December 31, 2022 through November 14, 2023 (Predecessor) were $1.4 million and $157.7 million, respectively, primarily
related to professional fees incurred by us (including where we are responsible for the fees of third parties) in connection with the evaluation of our financial
situation and related discussions with our stakeholders prior to the commencement of the 2023 Bankruptcy Proceedings. Comparatively, we incurred $21.2
million and $9.0 million of liabilities management and separation costs during the period June 17, 2022 through December 30, 2022 (Predecessor) and the
period January 1,
69
2022 through June 16, 2022 (Predecessor), respectively, related to the severance for the former CEO and certain former executives of the Predecessor,
expense associated with the Predecessor directors' and officers' insurance policies and professional fees and costs incurred as we explored potential sales of
non-core assets to enable further deleveraging post-emergence from the 2020 Bankruptcy Proceedings.
Non-Operating Items
Interest expense and interest income. During the period November 15, 2023 through December 29, 2023 (Successor), the period December 31, 2022
through November 14, 2023 (Predecessor), the period June 17, 2022 through December 30, 2022 (Predecessor), and the period January 1, 2022 through June
16, 2022 (Predecessor) net interest expense was $27.4 million $492.5 million, $320.4 million, and $108.0 million, respectively. During the period December
31, 2022 through November 14, 2023 (Predecessor) interest expense included $112.7 million and $64.0 million of accretion expense associated with our
settlement obligations and debt, respectively, compared to $87.5 million and $51.7 million during the period June 17, 2022 through December 30, 2022
(Predecessor). The period December 31, 2022 through November 14, 2023 (Predecessor) also reflects increased interest rates on our variable interest rate debt
as compared to the period June 17, 2022 through December 30, 2022 (Predecessor) and the period January 1, 2022 through June 16, 2022 (Predecessor).
Interest expense during the period January 1, 2022 through June 16, 2022 (Predecessor) included cash adequate protection payments of $28.8 million on
certain of our predecessor senior secured debt instruments. The increase in our interest income of $11.1 million was primarily driven by higher interest earned
on our money market funds during the period November 15, 2023 through December 29, 2023 (Successor) and the period December 31, 2022 through
November 14, 2023 (Predecessor).
Other income (expense), net. During the period November 15, 2023 through December 29, 2023 (Successor) and the period June 17, 2022 through
December 30, 2022 (Predecessor) we recorded other income of $5.4 million and $10.0 million, respectively. During the period December 31, 2022 through
November 14, 2023 (Predecessor) and the period January 1, 2022 through June 16, 2022 (Predecessor) we incurred other expense of $6.5 million and
$14.6 million, respectively. The period November 15, 2023 through December 29, 2023 and the period June 17, 2022 through December 30, 2022 included
$13.5 million and $9.2 million of unrealized gains on equity securities related to our investments in Silence and Panbela, respectively, compared to the period
December 31, 2022 through November 14, 2023 (Predecessor) and the period January 1, 2022 through June 16, 2022 (Predecessor), which included $10.1
million and $22.2 million of unrealized losses on equity securities related to our investments in Silence and Panbela, respectively. During the period
November 15, 2023 through December 29, 2023 (Successor), we recorded an $8.4 million unrealized loss related to the changes in fair value of the interest
rate cap as discussed further in Note 19 of the Notes to the Consolidated Financial Statements.
Reorganization items, net. During the period November 15, 2023 through December 29, 2023 (Successor) and the period June 17, 2022 through
December 30, 2022 (Predecessor) we incurred $4.0 million and $23.2 million of reorganization items, net, respectively, primarily related to professional fees
associated with the implementation of the 2023 and 2020 Plan incurred after the 2023 and 2020 Effective Dates, respectively. During the period December 31,
2022 through November 14, 2023 (Predecessor), we recorded a loss of $892.7 million in reorganization items, net, which primarily included a gain on the
settlement of LSTC of $1,966.0 million partially offset by a loss of $1,452.7 million on fresh-start adjustment as a result of the emergence from the 2023
Bankruptcy Proceedings and $1,139.5 million of adjustments of claims to their estimated allowed claim amount during the 2023 Bankruptcy Proceedings.
During the period January 1, 2022 through June 16, 2022 (Predecessor), we recorded a loss of $630.9 million in reorganization items, net driven primarily by
a loss on fresh-start adjustments of $1,354.6 million partially offset by a gain on settlement of LSTC of $943.7 million as a result of the emergence from the
2020 Bankruptcy Proceedings.
Benefit from income taxes. We recognized an income tax benefit of $8.0 million on a loss from continuing operations before income taxes of $46.2
million for the period November 15, 2023 through December 29, 2023 (Successor). This resulted in an effective tax rate of 17.3%. The income tax benefit
was comprised of $1.4 million of current tax benefit and $6.6 million of deferred tax benefit.
Our effective tax rate for the period November 15, 2023 through December 29, 2023 (Successor) was impacted by $5.3 million of tax benefit associated
with impacts of fresh-start accounting and $58.5 million of inventory step-up amortization expense, $2.6 million of tax benefit associated with $16.2 million
of intangible asset amortization expense and $0.5 million of tax benefit associated with $2.4 million of accretion expense related to our settlement obligation,
offset by $0.3 million of tax expense associated with $3.0 million of amortization related to our debt and $0.1 million of tax expense on income of $27.9
million predominately associated with pretax earnings in various jurisdictions net of valuation allowances.
We recognized an income tax benefit of $277.8 million on a loss from continuing operations before income taxes of $1,909.1 million for the period
December 31, 2022 through November 14, 2023 (Predecessor). This resulted in an effective tax rate of 14.6%. The income tax benefit was comprised of $41.3
million of current tax expense and $319.1 million of deferred tax benefit.
Our effective tax rate for the period December 31, 2022 through November 14, 2023 (Predecessor) was impacted by $162.7 million of tax benefit
associated with impacts on emergence and $892.7 million of loss on reorganization items, net, $44.7 million of tax benefit related to legal entity
reorganizations, $31.3 million of tax benefit associated with $135.9 million of non-restructuring charges related to the impairment of certain of our Specialty
Generics IPR&D assets and the full impairment of our StrataGraft intangible asset, $21.8 million of tax benefit associated with $157.7 million of liabilities
management and separation costs, and $17.3
70
million tax benefit on the loss of $722.8 million predominately associated with pretax earnings in various jurisdictions net of valuation allowances.
We recognized an income tax benefit of $52.0 million on a loss from continuing operations before income taxes of $650.3 million for the period June 17,
2022 through December 30, 2022 (Predecessor). This resulted in an effective tax rate of 8.0%. The income tax benefit was comprised of $27.1 million of
current tax benefit and $24.9 million of deferred tax benefit.
Our effective tax rate for the period June 17, 2022 through December 30, 2022 (Predecessor) was impacted by $52.1 million tax benefit associated with
$268.7 million of inventory step-up amortization expense, $44.0 million tax benefit associated with $318.7 million of intangible asset amortization expense,
$19.1 million of tax benefit associated with $87.5 million of accretion expense related to our settlement obligations, and $2.4 million of tax benefit associated
with $51.7 million of accretion expense related to our debt offset by $4.7 million withholding tax expense associated with a Swiss distribution. The remaining
$60.9 million of tax expense is predominately associated with pretax earnings in various jurisdictions and valuation allowances.
We recognized an income tax benefit of $497.3 million on a loss from continuing operations before income taxes of $811.3 million for the period January
1, 2022 through June 16, 2022 (Predecessor). This resulted in an effective tax rate of 61.3%. The income tax benefit was comprised of $23.9 million of
current tax benefit and $473.4 million of deferred tax benefit.
Our effective tax rate for the period January 1, 2022 through June 16, 2022 (Predecessor) was impacted by $600.8 million of tax benefit associated with
valuation allowance and $31.6 million of tax benefit associated with emergence from the 2020 Bankruptcy Proceedings as further detailed in Note 7 of the
Notes to Consolidated Financial Statements included within Item 8. Financial Statements and Supplementary Data of this Annual Report. Additional impacts
include $80.9 million of tax benefit associated with the $1,678.8 million loss on fresh-start adjustments, $29.1 million of tax benefit associated with $205.4
million of professional and lender fees, and $14.7 million of tax benefit predominately associated with pretax earnings in various jurisdictions offset with
$259.8 million of tax expense associated with $1,253.0 million of gain on adjustments to LSTC.
Business Segment Results
Management measures and evaluates our operating segments based on segment net sales and operating income. Management excludes corporate
expenses from segment operating income. In addition, certain amounts that management considers to be non-recurring or non-operational are excluded from
segment net sales and operating income because management and the chief operating decision maker evaluate the operating results of the segments excluding
such items. These items include, but are not limited to, depreciation and amortization, share-based compensation, net restructuring charges, non-restructuring
impairment charges, liabilities management and separation costs, R&D upfront payments and changes related to the Opioid-Related Litigation Settlement.
Although these amounts are excluded from segment net sales and segment operating income, as applicable, they are included in reported consolidated net
sales and operating loss and in the reconciliations presented below. Selected information by business segment is as follows:
Period from November 15, 2023 through December 29, 2023 (Successor) and Period from December 31, 2022 through November 14, 2023 (Predecessor)
Compared with Period June 17, 2022 through December 30, 2022 (Predecessor) and Period from January 1, 2022 through June 16, 2022 (Predecessor)
Net Sales
Net sales by segment are shown in the following table (dollars in millions):
Successor
Predecessor
Non-GAAP
Predecessor
Non-GAAP
Period from
November 15, 2023
through December
29, 2023
Period from
December 31, 2022
through
November 14, 2023
Combined Fiscal
Year Ended
December 29, 2023
Period from
June 17, 2022
through
December 30, 2022
Period from
January 1, 2022
through
June 16, 2022
Combined Fiscal
Year Ended
December 30, 2022
Percentage
Change
Specialty Brands
Specialty Generics
Net sales
$
$
139.8
103.2
243.0
$
$
949.2
673.7
1,622.9
$
$
1,089.0
776.9
1,865.9
$
$
682.4
357.3
1,039.7
$
$
587.1
287.5
874.6
$
$
1,269.5
644.8
1,914.3
(14.2)%
20.5
(2.5)%
Specialty Brands. Net sales for the period November 15, 2023 through December 29, 2023 (Successor) were $139.8 million. Net sales for the period
December 31, 2022 through November 14, 2023 (Predecessor), the period June 17, 2022 through December 30, 2022 (Predecessor), and the period January 1,
2022 through June 16, 2022 (Predecessor) were $949.2 million, $682.4 million, and $587.1 million, respectively. Net sales decreased $180.5 million, or
14.2%, for the non-GAAP combined fiscal 2023, compared to the non-GAAP combined fiscal 2022 (Predecessor). The decrease in non-GAAP combined net
sales was primarily driven by a decrease of
71
$90.7 million, or 17.6%, in Acthar Gel, a decrease of $81.6 million, or 51.5%, in Amitiza, and a decrease of $36.5 million, or 10.7%, in INOmax.
Net sales for Specialty Brands by geography are as follows (dollars in millions):
Successor
Predecessor
Non-GAAP
Predecessor
Non-GAAP
Period from
November 15, 2023
through December
29, 2023
Period from
December 31, 2022
through
November 14, 2023
Combined Fiscal
Year Ended
December 29, 2023
Period from
June 17, 2022
through
December 30, 2022
Period from
January 1, 2022
through
June 16, 2022
Combined Fiscal
Year Ended
December 30, 2022
Percentage
Change
U.S.
Europe, Middle East and
Africa
Other
Net sales
$
$
128.0
11.0
0.8
139.8
$
$
877.7
$
1,005.7
$
58.4
13.1
69.4
13.9
949.2
$
1,089.0
$
642.1
33.9
6.4
682.4
$
$
547.1
$
1,189.2
29.2
10.8
63.1
17.2
587.1
$
1,269.5
(15.4)%
10.0
(19.2)
(14.2)%
Net sales for Specialty Brands by key products are as follows (dollars in millions):
Successor
Predecessor
Non-GAAP
Predecessor
Non-GAAP
Period from
November 15, 2023
through December
29, 2023
Period from
December 31, 2022
through
November 14, 2023
Combined Fiscal
Year Ended
December 29, 2023
Period from
June 17, 2022
through
December 30, 2022
Period from
January 1, 2022
through
June 16, 2022
Combined Fiscal
Year Ended
December 30, 2022
Percentage
Change
Acthar Gel
INOmax
Therakos
Amitiza
Terlivaz
Other
Specialty Brands
$
$
$
57.0
35.3
39.1
5.0
2.3
1.1
139.8
$
368.3
267.9
220.0
72.0
13.3
7.7
949.2
$
$
$
425.3
303.2
259.1
77.0
15.6
8.8
1,089.0
$
294.1
173.9
130.5
77.1
1.2
5.6
682.4
$
$
221.9
165.8
109.6
81.5
—
8.3
587.1
$
$
516.0
339.7
240.1
158.6
1.2
13.9
1,269.5
(17.6)%
(10.7)
7.9
(51.5)
1,200.0
(36.7)
(14.2)%
Specialty Generics. Net sales for the period November 15, 2023 through December 29, 2023 (Successor) were $103.2 million. Net sales for the period
December 31, 2022 through November 14, 2023 (Predecessor), the period June 17, 2022 through December 30, 2022 (Predecessor), and the period January 1,
2022 through June 16, 2022 (Predecessor) were $673.7 million, $357.3 million, and $287.5 million, respectively. Net sales increased $132.1 million, or
20.5%, for the non-GAAP combined fiscal 2023, compared to the non-GAAP combined fiscal 2022 (Predecessor). The increase in combined net sales was
primarily driven by an increase in generics of $123.8 million, or 37.6%, and an increase in API of $8.3 million, or 2.6%.
Net sales for Specialty Generics by geography are as follows (dollars in millions):
Successor
Predecessor
Non-GAAP
Predecessor
Non-GAAP
Period from
November 15, 2023
through December
29, 2023
Period from
December 31, 2022
through
November 14, 2023
Combined Fiscal
Year Ended
December 29, 2023
Period from
June 17, 2022
through
December 30, 2022
Period from
January 1, 2022
through
June 16, 2022
Combined Fiscal
Year Ended
December 30, 2022
Percentage
Change
U.S.
Europe, Middle East and
Africa
Other
Net sales
$
$
84.8
17.8
0.6
103.2
$
$
571.2
$
656.0
$
98.7
3.8
116.5
4.4
673.7
$
776.9
$
286.2
66.5
4.6
357.3
$
$
237.1
$
44.4
6.0
287.5
$
523.3
110.9
10.6
644.8
25.4 %
5.0
(58.5)
20.5 %
72
Net sales for Specialty Generics by key products are as follows (dollars in millions):
Successor
Period from
November 15,
2023
through
December 29,
2023
Predecessor
Period from
December 31,
2022
through
November 14,
2023
Non-GAAP
Predecessor
Non-GAAP
Combined Fiscal
Year Ended
December 29,
2023
Period from
June 17, 2022
through
December 30,
2022
Period from
January 1, 2022
through
June 16, 2022
Combined Fiscal
Year Ended
December 30,
2022
Percentage
Change
Opioids
ADHD
Addiction treatment
Other
Generics
Controlled substances
APAP
Other
API
$
$
31.6
13.5
10.5
1.6
57.2
11.6
32.5
1.9
46.0
Specialty Generics
$
103.2
$
230.7
101.4
55.6
8.2
395.9
75.5
184.8
17.5
277.8
673.7
$
$
262.3
114.9
66.1
9.8
453.1
87.1
217.3
19.4
323.8
776.9
$
$
117.9
28.4
35.0
6.8
188.1
47.0
111.4
10.8
169.2
357.3
$
$
88.8
17.5
30.0
4.9
141.2
37.6
96.5
12.2
146.3
287.5
$
$
206.7
45.9
65.0
11.7
329.3
84.6
207.9
23.0
315.5
644.8
26.9 %
150.3
1.7
(16.2)
37.6
3.0
4.5
(15.7)
2.6
20.5 %
Operating Loss
Operating income by segment and as a percentage of segment net sales for the period November 15, 2023 through December 29, 2023 (Successor), the
period December 31, 2022 through November 14, 2023 (Predecessor), the period June 17, 2022 through December 30, 2022 (Predecessor), and the period
January 1, 2022 through June 16, 2022 (Predecessor) is shown in the following table (dollars in millions):
Successor
Predecessor
Non-GAAP
Predecessor
Non-GAAP
Period from
November 15, 2023
through December
29, 2023
Period from
December 31, 2022
through
November 14, 2023
Combined Fiscal Year
Ended December 29,
2023
Period from
June 17, 2022
through
December 30, 2022
Period from
January 1, 2022
through
June 16, 2022
Combined Fiscal Year
Ended December 30,
2022
Specialty Brands
Specialty Generics
(1)
(2)
Segment operating income
Unallocated amounts:
(3)
Corporate and unallocated
expenses
Depreciation and
amortization
Share-based compensation
Restructuring charges, net
Non-restructuring
impairment charges
Liabilities management and
separation costs
Bad debt expense - customer
bankruptcy
(5)
(4)
$
9.0
5.8
14.8
(4.0)
(25.8)
—
—
(3.8)
(1.4)
—
$
6.4 %
5.6
6.1 %
209.9
156.2
366.1
22.1 % $
23.2
22.6 %
218.9
162.0
380.9
20.1 % $
20.9
20.4 %
113.8
(3.6)
110.2
16.7 %
(1.0)
10.6 %
$
267.2
65.3
332.5
45.5 % $
22.7
38.0 %
381.0
61.7
442.7
30.0 %
9.6
23.1 %
(45.8)
(490.3)
(8.9)
(0.9)
(179.9)
(157.7)
—
(49.8)
(516.1)
(8.9)
(0.9)
(183.7)
(159.1)
—
(39.3)
(347.5)
(1.4)
(11.1)
—
(21.2)
(6.4)
(48.2)
(321.8)
(1.7)
(9.6)
—
(9.0)
—
(87.5)
(669.3)
(3.1)
(20.7)
—
(30.2)
(6.4)
Total operating loss
$
(20.2)
$
(517.4)
$
(537.6)
$
(316.7)
$
(57.8)
$
(374.5)
(1)
(2)
(3)
(4)
Includes $40.5 million, $165.0 million and $241.7 million of inventory fair-value step-up expense during the period from November 15, 2023 through December 29, 2023
(Successor), the period December 31, 2022 through November 14, 2023 (Predecessor) and the period June 17, 2022 through December 30, 2022 (Predecessor), respectively.
Includes $30.0 million of fresh-start inventory-related expense during the period June 17, 2022 through December 30, 2022 (Predecessor), primarily driven by the Company's
change in accounting estimate as disclosed in Note 1 of the Notes to Consolidated Financial Statements included within Item 8. Financial Statements and Supplementary Data of this
Annual Report and $18.0 million, $22.0 million and $27.0 million of inventory fair-value step-up expense during the period November 15, 2023 through December 29, 2023
(Successor), the period December 31, 2022 through November 14, 2023 (Predecessor) and the period June 17, 2022 through December 30, 2022 (Predecessor), respectively.
Includes administration expenses and certain compensation, legal, environmental and other costs not charged to our reportable segments.
Includes $135.9 million of impairment charges on intangible assets during the period December 31, 2022 through November 14, 2023 (Predecessor), a $44.0 million Acthar Gel
inventory write-down to net realizable value during the period December 31, 2022 through November 14, 2023 (Predecessor), and $3.8 million of impairment charges on StrataGraft
long-lived assets during the period November 15, 2023 through December 29, 2023 (Successor).
73
(5) Represents costs included in SG&A, primarily related to expenses incurred related to severance for the former CEO and certain former executives of the Predecessor and the
Predecessor directors' and officers' insurance policies, in addition to professional fees and costs incurred as we explore potential sales of non-core assets to enable further
deleveraging post-emergence from the 2023 Bankruptcy Proceedings.
Specialty Brands. Operating income was $9.0 million, $209.9 million, $113.8 million, and $267.2 million for the period November 15, 2023 through
December 29, 2023 (Successor), the period December 31, 2022 through November 14, 2023 (Predecessor), the period June 17, 2022 through December 30,
2022 (Predecessor) and the period January 1, 2022 through June 16, 2022 (Predecessor), respectively. Operating income decreased $162.1 million, or 42.5%,
for the non-GAAP combined fiscal 2023, compared to the non-GAAP combined fiscal 2022 (Predecessor). Operating margin decreased to 20.1% for the non-
GAAP combined fiscal 2023 from 30.0% for the non-GAAP combined fiscal 2022 (Predecessor). These decreases in operating income and margin were
primarily driven by the $180.5 million, or 14.2%, decrease in net sales and a change in product mix. The decrease was partially offset by inventory fair-value
step-up expense of $40.5 million and $165.0 million during the period November 15, 2023 through December 29, 2023 and the period December 31, 2022
through November 14, 2023 (Predecessor), respectively, compared to $241.7 million during the period June 17, 2022 through December 30, 2022
(Predecessor), resulting in a decrease in gross profit of $165.6 million. The decrease in operating income also included a $14.3 million, or 4.0%, increase in
SG&A expense primarily driven by foreign currency remeasurement losses, partially offset by a $17.9 million, or 17.3%, decrease in R&D expense driven by
continued cost containment initiatives.
Specialty Generics. Operating income was $6.7 million, $180.8 million and $65.3 million for the period November 15, 2023 through December 29, 2023
(Successor), the period December 31, 2022 through November 14, 2023 (Predecessor) and the period January 1, 2022 through June 16, 2022 (Predecessor),
respectively. Operating loss was $3.6 million for the period June 17, 2022 through December 30, 2022 (Predecessor). Operating income increased $104.4
million, or 169.2%, for the non-GAAP combined fiscal 2023, compared to the non-GAAP combined fiscal 2022 (Predecessor). Operating margin increased to
21.4% for the non-GAAP combined fiscal 2023 from 9.6% for the non-GAAP combined fiscal 2022 (Predecessor). The increase in operating income was
primarily attributable to a $131.9 million, or 20.5%, increase in net sales, partially offset by inventory fair-value step-up expense of $18.0 million and $22.0
million during the period November 15, 2023 through December 29, 2023 and the period December 31, 2022 through November 14, 2023 (Predecessor),
respectively, compared to $27.0 million during the period June 17, 2022 through December 30, 2022 (Predecessor), resulting in an increase in gross profit of
$114.4 million. The increase in operating income was also offset by a $7.6 million, or 9.9%, increase in SG&A expense and a $2.2 million, or 9.4%, increase
in R&D expense.
Corporate and unallocated expenses. Corporate and unallocated expenses were $4.0 million, $45.8 million, $39.3 million, and $48.2 million for the
period November 15, 2023 through December 29, 2023 (Successor), the period December 31, 2022 through November 14, 2023 (Predecessor), the period
June 17, 2022 through December 29, 2023 (Successor), and the period January 1, 2022 through June 16, 2022 (Predecessor), respectively. Corporate and
unallocated expenses decreased by $37.7, or 43.1% for the non-GAAP combined fiscal 2023 compared to the non-GAAP combined fiscal 2022 (Predecessor).
The decrease in corporate and unallocated expenses was primarily driven by $1.9 million and $4.8 million of foreign currency remeasurement losses during
the period June 17, 2022 through December 30, 2022 (Predecessor) and the period January 1, 2022 through June 16, 2022 (Predecessor), respectively, coupled
with an $11.1 million increase in certain of our environmental liabilities during the period January 1, 2022 through June 16, 2022 (Predecessor). The period
December 31, 2022 through November 14, 2023 (Predecessor) had a $7.3 million gain related to the change in the fair value of our contingent consideration
liability, compared to a $0.5 million loss during the period June 17, 2022 through December 30, 2022 (Predecessor). The decreases were partially offset by
increased employee compensation costs during the period December 31, 2022 through November 14, 2023 (Predecessor) related to the key employee
retention program.
Liquidity and Capital Resources
Significant factors driving our liquidity position include cash flows generated from operating activities, financing transactions (inclusive of interest on
our variable-rate debt instruments), capital expenditures, cash paid in connection with legal settlements (refer to Note 2 of the Notes to Consolidated Financial
Statements included within Item 8. Financial Statements and Supplementary Data of this Annual Report), acquisitions and licensing agreements and cash
received as a result of our divestitures. We have historically generated and expect to continue to generate positive cash flows from operations, and we believe
that our sources of liquidity are adequate to fund our operations for the next twelve months and the foreseeable future. Our ability to fund our capital needs is
impacted by our ongoing ability to generate cash from operations and access to capital markets. In addition, with a goal of further reducing our debt and
providing a stronger base to maximize long-term shareholder value, we are also evaluating the assets across our portfolio and pursuing divestiture
opportunities.
Cash Requirements and Sources From Existing Contractual Arrangements
Our material cash requirements from known contractual obligations include debt obligations, legal settlements, lease obligations, purchase obligations
and other liabilities reflected on our balance sheet, as presented and discussed below.
74
The following table summarizes our contractual obligations as of December 29, 2023 (Successor) (dollars in millions):
(1)
Long-term debt obligations
Interest on long-term debt obligations
Acthar Gel-Related Litigation Settlement
Operating lease obligations
Purchase obligations
(4)
(5)
(2)
(3)
Total contractual obligations
Payments Due By Period
Total
Less than 1 year
1 - 3 years
3 - 5 years
More than 5 years
$
$
$
1,647.8
1,182.1
236.1
77.2
28.1
$
6.5
245.6
21.4
16.9
11.7
$
17.4
468.6
55.0
22.1
15.9
$
1,623.9
467.9
96.8
13.5
0.5
3,171.3
$
302.1
$
579.0
$
2,202.6
$
—
—
62.9
24.7
—
87.6
(1) For further details on our debt obligations, refer to Note 13 of the Notes to the Consolidated Financial Statements included within Item 8. Financial Statements and Supplementary
Data of this Annual Report.
(2)
Interest on long-term debt obligations are projected for future periods using interest rates in effect as of December 29, 2023 (Successor). Contractual obligations under the long-term
debt agreements have been shown in the table above. Certain of these projected interest payments may differ in the future based on changes in market interest rates and excludes any
potential impact from our interest rate cap.
For further information regarding the fixed and variable rates of our debt obligations, refer to Note 13 of the Notes to the Consolidated Financial Statements included within Item 8.
Financial Statements and Supplementary Data of this Annual Report.
(3) Acthar Gel-Related Litigation Settlement includes interest of $1.4 million, $2.5 million, $1.8 million and $0.4 million for obligations due within one year, one to three years, three to
five years and more than five years, respectively.
(4)
Includes obligations for leases with an initial term of 12 months or less and not recorded on the consolidated balance sheet. Refer to Note 11 of the Notes to Consolidated Financial
Statements included within Item 8. Financial Statements and Supplementary Data of this Annual Report for further information on our lease liabilities.
(5) Purchase obligations consist of commitments for purchases of goods and services made in the ordinary course of business to meet operational requirements.
During the Successor period, we made a $100.0 million payment to repay in full our receivables securitization financing facility. The instrument remains
undrawn as of December 29, 2023 (Successor) and provides $200.0 million of borrowing capacity.
Pursuant to the Opioid Deferred Cash Payments Agreement entered into in connection with the 2020 Plan, we were required to make the $200.0 million
installment payment with respect to our Opioid Deferred Cash Payment on June 16, 2023, the one-year anniversary of the 2020 Effective Date. On June 15,
2023, we entered into an amendment to the Opioid Deferred Cash Payments Agreement, which was followed by several additional written notices that had the
effect of extending the due date on which the Opioid Deferred Cash Payment was required to be made to August 15, 2023. In connection with the entry into
the 2023 restructuring support agreement ("2023 RSA"), we and the Trust entered into a final amendment to the Opioid Deferred Cash Payments Agreement,
which provided that our prior obligation to pay all remaining Opioid-Related Litigation Settlement payment obligations (including the $200.0 million
installment payment originally due on June 16, 2023) was permanently eliminated subject to our (a) making a $250.0 million payment to the Trust prior to the
commencement of the 2023 Chapter 11 Cases (which was made on August 24, 2023) and (b) entrance into the CVR Agreement (which occurred upon
effectuation of the 2023 Plan).
Pursuant to the 2020 Plan, we made a payment of $16.5 million, inclusive of interest, related to our Acthar Gel-related settlement during the period from
December 30, 2022 through November 14, 2023 (Predecessor), and are required to make a $21.4 million payment, inclusive of interest, upon the two-year
anniversary of the 2020 Effective Date.
Additionally, during the period December 31, 2022 through November 14, 2023 (Predecessor), we received $141.6 million of tax refunds as a result of
provisions in the CARES Act.
We are exposed to interest rate risk on our variable-rate debt. On March 14, 2023, we entered into an interest rate cap agreement by converting a portion
of our variable-rate debt to a fixed rate through the expiration date of the interest rate cap, which serves to reduce the volatility on future interest expense cash
outflows. The interest rate cap agreement has a total notional value of $860.0 million with an upfront premium of $20.0 million and provides us with interest
rate protection (i) for the period March 16, 2023 through July 19, 2023 to the extent that one-month London Interbank Offered Rate ("LIBOR") exceeded
4.65%, and (ii) for the period July 20, 2023 through March 26, 2026 to the extent that one-month SOFR exceeds 3.84%. Refer to Note 19 of the Notes to the
Consolidated Financial Statements included within Item 8. Financial Statements and Supplementary Data of this Annual Report for further information.
As of December 29, 2023 (Successor), we had net unfunded pension and postretirement benefit obligations of $18.9 million and $25.9 million,
respectively. The timing and amounts of long-term funding requirements for pension and postretirement obligations are uncertain. We do not anticipate
making material involuntary contributions in fiscal 2024, but may elect to make voluntary contributions to our defined pension plans or our postretirement
benefit plans during fiscal 2024. For further information regarding pension and postretirement benefit obligations, refer to Note 14 of the Notes to
Consolidated Financial Statements included within Item 8. Financial Statements and Supplementary Data of this Annual Report.
We are involved in various stages of investigation and cleanup related to environmental remediation matters at a number of sites. The ultimate cost of
cleanup and timing of future cash outlays is difficult to predict given uncertainties regarding the extent of the
75
required cleanup, the interpretation of applicable laws and regulations and alternative cleanup methods. As of December 29, 2023 (Successor), we believe that
it is probable that we will incur investigation and remediation costs of approximately $36.1 million, of which $1.0 million was included in accrued and other
current liabilities and the remaining $35.1 million was included in environmental liabilities on the consolidated balance sheet as of December 29, 2023
(Successor). Refer to Note 18 of the Notes to Consolidated Financial Statements included within Item 8. Financial Statements and Supplementary Data of this
Annual Report for additional information regarding environmental matters.
In general, we intend to fund capital expenditures with cash generated from operations. As of December 29, 2023 (Successor), we had no capital
expenditure commitments.
Our remaining cash requirements are obligations that arise from the normal course of our business.
A summary of our cash flows from operating, investing and financing activities is provided in the following table (dollars in millions):
Net cash from:
Operating activities
Investing activities
Financing activities
Effect of currency exchange rate changes on cash, cash equivalents and restricted cash
Net change in cash, cash equivalents and restricted cash
Operating Activities
Successor
Period from
November 15, 2023
through December
29, 2023
Predecessor
Period from
December 31, 2022
through
November 14, 2023
Period from
June 17, 2022
through
December 30, 2022
Period from
January 1, 2022
through
June 16, 2022
$
$
178.4
(7.6)
(102.2)
1.4
70.0
$
$
(412.1)
$
(52.7)
273.2
(1.7)
(193.3)
$
47.1
27.5
(54.1)
(1.1)
19.4
$
$
(642.3)
(33.0)
(278.7)
(3.9)
(957.9)
Net cash provided by operating activities of $178.4 million for the period November 15, 2023 through December 29, 2023 (Successor) was attributable to
a net loss of $38.2 million, adjusted for non-cash items of $29.0 million, driven by depreciation and amortization of $25.8 million, other non-cash items of
$6.7 million and non-cash impairment charges of $3.8 million, partially offset by deferred income taxes of $6.6 million and non-cash amortization expense on
our debt obligation of $0.7 million. The change in working capital was primarily driven by an $88.6 million cash inflow related to a decrease in accounts
receivable, a $51.1 million cash inflow related to a decrease in inventories, a $30.6 million cash inflow related to an increase in other net working capital and
a $25.8 million cash inflow related to an increase in accounts payable, partially offset by $6.8 million cash outflow related to a decrease in accrued consulting.
Net cash used in operating activities of $412.1 million for the period December 31, 2022 through November 14, 2023 (Predecessor) was attributable to a
net loss of $1,631.3 million, adjusted for non-cash items of $1,381.8 million, driven by reorganization items, net, of $831.0 million, depreciation and
amortization of $490.3 million, non-cash impairment charges of $179.9 million, non-cash accretion expense of $176.7 million, other non-cash items of $14.2
million and share-based compensation of $8.9 million, partially offset by deferred income taxes of $319.2 million. The change in working capital was
primarily driven by a $250.0 million cash outflow related to a decrease in the Opioid-Related Litigation Settlement liability, a $95.9 million net cash outflow
in other working capital, a $65.5 million cash outflow related to an increase in accounts receivable, net, and a $37.2 million cash outflow related to a decrease
in accounts payable, partially offset by a $169.3 million cash inflow related to an increase in income taxes payable and a $108.2 million net cash inflow
related to a decrease in inventories.
Net cash provided by operating activities of $47.1 million for the period June 17, 2022 through December 30, 2022 (Predecessor) was attributable to a net
loss of $598.1 million, adjusted for non-cash items of $480.0 million, driven by depreciation and amortization of $347.5 million and accretion on our
settlement obligations and debt of $139.2 million, partially offset by $165.2 million of cash inflow from net changes in working capital. The change in
working capital was primarily driven by a $267.9 million decrease in inventory as a result of fair-value step-up expense of $268.7 million and an $8.1 million
net cash inflow related to an increase in accounts payable coupled with a $28.1 million net cash inflow in other working capital driven by an increase in our
accrued rebates, partially offset by a $90.7 million net cash outflow related to a decrease in accrued consulting driven by payment of professional fees related
to emergence from the 2020 Bankruptcy Proceedings, a $30.1 million change in income taxes, primarily driven by an increase in prepaid income taxes and an
$18.1 million increase in accounts receivable, net.
Net cash used in operating activities of $642.3 million for the period January 1, 2022 through June 16, 2022 (Predecessor) was attributable to a net loss of
$313.1 million, adjusted for non-cash items of $311.2 million, driven by non-cash reorganization items of
76
$425.4 million and depreciation and amortization of $321.8 million, partially offset by a $473.0 million change in net deferred tax assets coupled with cash
used in working capital of $640.4 million. The change in working capital was primarily driven by a $629.0 million cash outflow related to the payment of
claims as a result of the 2020 Plan coupled with a $2.5 million net cash outflow related to a decrease in other working capital, a $26.9 million change in
income taxes, primarily driven by a decrease in income taxes payable and a $33.2 million increase in inventory, partially offset by a $49.8 million decrease in
accounts receivable primarily due to lower net sales.
Investing Activities
Net cash used in investing activities was $7.6 million for the period November 15, 2023 through December 29, 2023 (Successor) primarily driven by $8.5
million in capital expenditures.
Net cash used in investing activities was $52.7 million for the period December 31, 2022 through November 14, 2023 (Predecessor) primarily driven by
$53.9 million in capital expenditures.
Net cash provided by investing activities was $27.5 million for the period June 17, 2022 through December 30, 2022 (Predecessor) primarily driven by
the sale of our PRV for $100.0 million in which we received from the buyer $65.0 million and the buyer remitted $35.0 million to the General Unsecured
Claims Trustee pursuant to the terms of (i) the 2020 Plan, and (ii) the General Unsecured Claims Trust Agreement entered into in connection with the 2020
Plan, partially offset by capital expenditures of $28.8 million and a $17.5 million milestone payment related to the FDA approval of Terlivaz.
Net cash used in investing activities was $33.0 million for the period January 1, 2022 through June 16, 2022 (Predecessor), primarily driven by $33.4
million in capital expenditures.
Financing Activities
Net cash used in financing activities was $102.2 million for the period November 15, 2023 through December 29, 2023 (Successor), entirely driven by
debt repayments.
Net cash provided by financing activities was $273.2 million for the period December 31, 2022 through November 14, 2023 (Predecessor), primarily
attributable to proceeds from the issuance of $380.0 million of debt driven by the issuance of $250.0 million from the debtor-in-possession financing coupled
with the draw on our receivables financing facility of $130.0 million. This was partially offset by $102.6 million in debt repayments driven by the $50.6
million cash sweep prior to the Company's emergence from the 2020 Bankruptcy Proceedings, $30.0 million repayment on our receivables financing facility
and $22.0 million repayment on our variable-rate term loans. We also incurred $4.1 million of debt issuance costs associated with our receivables financing
facility.
Net cash used in financing activities was $54.1 million for the period June 17, 2022 through December 29, 2023 (Successor) primarily driven by debt
repayments of $50.1 million on our variable-rate term loans and open market debt repurchases at a discount that aggregated to a total principal amount of
$47.7 million coupled with the repurchase of the opioid warrants issued in connection with the 2020 Plan for $4.0 million.
Net cash used in financing activities was $278.7 million for the period January 1, 2022 through June 16, 2022 (Predecessor) which was inclusive of debt
repayments of $904.6 million primarily driven by the repayment of our predecessor revolving credit facility of $900.0 million, as well as $24.1 million of debt
issuance costs, partially offset by $650.0 million in proceeds from the issuance of the 11.50% first lien senior secured notes due December 2028 in connection
with the 2020 Plan.
Concentration of Credit and Other Risks
Financial instruments that potentially subject us to concentrations of credit risk primarily consist of accounts receivable. We generally do not require
collateral from customers. A portion of our accounts receivable outside the U.S. includes sales to government-owned or supported healthcare systems in
several countries, which are subject to payment delays. Payment is dependent upon the financial stability and creditworthiness of those countries' national
economies.
Capitalization
Shareholders' equity was $1,160.2 million as of December 29, 2023 (Successor) compared to $1,613.7 million as of December 30, 2022 (Predecessor).
The decrease in shareholders' equity is primarily attributed to a net loss of $38.2 million and $1,631.3 million during the period from November 15, 2023
through December 29, 2023 (Successor) and December 31, 2022 through November 14, 2023 (Predecessor), respectively, partially offset by the cancellation
of the Predecessor equity and the issuance of approximately $1,169.5 million of Successor ordinary shares following emergence from the 2023 Bankruptcy
Proceedings and the application of fresh-start accounting.
77
Dividends
Historically, we have not made any cash dividend payments and we do not currently intend to pay dividends in the foreseeable future.
Commitments and Contingencies
Legal Proceedings
We are subject to various legal proceedings and claims, including government investigations, environmental matters, product liability matters, patent
infringement claims, antitrust matters, securities class action lawsuits, personal injury claims, employment disputes, contractual and other commercial
disputes, and other legal proceedings, sometimes in the ordinary course of business. Although it is not feasible to predict the outcome of these matters, we
believe, unless otherwise indicated, given the information currently available, that the ultimate resolution of any particular matter, or matters that have the
same legal or factual issues, would not have a material adverse effect on our financial condition, results of operations and cash flows.
For further information regarding our material pending legal proceedings, refer to Note 18 of the Notes to Consolidated Financial Statements included within
Item 8. Financial Statements and Supplementary Data of this Annual Report, which are incorporated by reference into this Part II, Item 7.
Guarantees
In disposing of assets or businesses, we have from time to time provided representations, warranties and indemnities to cover various risks and liabilities,
including unknown damage to the assets, environmental risks involved in the sale of real estate, liability to investigate and remediate environmental
contamination at waste disposal sites and manufacturing facilities, and unidentified tax liabilities related to periods prior to disposition. We assess the
probability of potential liabilities related to such representations, warranties and indemnities and adjust potential liabilities as a result of changes in facts and
circumstances. We believe, given the information currently available, that the ultimate resolutions will not have a material adverse effect on our financial
condition, results of operations and cash flows. These representations, warranties and indemnities are discussed in Note 17 of the Notes to Consolidated
Financial Statements included within Item 8. Financial Statements and Supplementary Data of this Annual Report.
Off-Balance Sheet Arrangements
As of December 29, 2023 (Successor), we had various letters of credit, guarantees and surety bonds totaling $31.4 million and restricted cash of
$42.9 million held in segregated accounts primarily to collateralize surety bonds for our environmental liabilities.
Critical Accounting Estimates
The consolidated financial statements have been prepared in U.S. dollars and in accordance with GAAP. The preparation of the consolidated financial
statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities,
disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. The following critical accounting estimates are based on,
among other things, judgments and assumptions made by management that include inherent risks and uncertainties. Management's estimates are based on the
relevant information available at the end of each period.
Revenue Recognition
Product Sales Revenue
We sell products through independent channels, including direct to retail pharmacies, end user customers and through distributors who resell our products
to retail pharmacies, institutions and end user customers, while certain products are sold and distributed directly to hospitals. We also enter into arrangements
with indirect customers, such as health care providers and payers, wholesalers, government agencies, institutions, managed care organizations and GPOs to
establish contract pricing for certain products that provide for government-mandated and/or privately-negotiated rebates, sales incentives, chargebacks,
distribution service agreement fees, fees for services and administration fees and discounts with respect to the purchase of our products.
78
Reserve for Variable Considerations
Product sales are recorded at the net sales price (transaction price), which includes estimates of variable consideration for which reserves are established.
These reserves result from estimated chargebacks, rebates, product returns and other sales deductions that are offered within contracts between us and our
customers, health care providers and payers relating to the sale of our products. These reserves are based on the amounts earned or to be claimed on the
related sales and are classified as reductions of accounts receivable (if the amount is payable to the customer) or a current liability (if the amount is payable to
a party other than a customer). Where appropriate, these estimates take into consideration a range of possible outcomes that are probability-weighted for
relevant factors such as our historical experience, estimated future trends, estimated customer inventory levels, current contracted sales terms with customers,
level of utilization of our products and other competitive factors. Overall, these reserves reflect our best estimate of the amount of consideration to which we
are entitled based on the terms of the contract. The amount of variable consideration that is included in the transaction price may be constrained (reduced),
and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will
not occur in a future period. We adjust reserves for chargebacks, rebates, product returns and other sales deductions to reflect differences between estimated
and actual experience. Such adjustments impact the amount of net sales recognized in the period of adjustment.
The following table reflects activity in our sales reserve accounts (dollars in millions):
Balance as of December 31, 2021 (Predecessor)
Provisions
Payments or credits
Balance as of June 16, 2022 (Predecessor)
Balance as of June 17, 2022 (Predecessor)
Provisions
Payments or credits
Balance as of December 30, 2022 (Predecessor)
Provisions
Payments or credits
Balance as of November 14, 2023 (Predecessor)
Balance as of November 15, 2023 (Successor)
Provisions
Payments or credits
Balance as of December 29, 2023 (Successor)
Rebates and
Chargebacks
Product Returns
Other Sales
Deductions
Total
$
$
$
$
$
$
$
241.8
693.4
(684.6)
250.6
$
$
250.6
804.4
(789.7)
265.3
1,368.8
(1,410.1)
$
$
$
21.5
5.2
(8.1)
18.6
18.6
7.0
(9.6)
16.0
9.9
(13.1)
$
9.5
17.1
(18.9)
7.7
$
$
7.7
36.7
(31.7)
12.7
43.3
(42.3)
224.0
$
12.8
$
13.7
$
$
224.0
173.0
(195.4)
201.6
$
12.8
3.0
(1.3)
14.5
$
$
13.7
6.9
(9.3)
11.3
$
$
272.8
715.7
(711.6)
276.9
276.9
848.1
(831.0)
294.0
1,422.0
(1,465.5)
250.5
250.5
182.9
(206.0)
227.4
Provisions presented in the table above are recorded as reductions to net sales. As of December 29, 2023 (Successor), a five percent change in our sales
reserve accounts would have led to an approximately $11.4 million impact on our loss from continuing operations before income taxes. For our presentation
of net sales by product family, refer to Note 20 of the Notes to Consolidated Financial Statements included within Item 8. Financial Statements and
Supplementary Data of this Annual Report.
Total provisions for the period November 15, 2023 through December 29, 2023 (Successor) and the period December 31, 2022 through November 14,
2023 (Predecessor) were $182.9 million and $1,422.0 million, respectively, for a non-GAAP combined $1,604.9 million for fiscal 2023, compared to $841.8
million and $715.7 million for the period June 17, 2022 through December 30, 2022 (Predecessor) and the period January 1, 2022 through June 16, 2022
(Predecessor), respectively, for a non-GAAP combined $1,563.8 million for fiscal 2022 (Predecessor). The increase of $41.4 million was driven primarily by
an increase in rebates and chargebacks within the Specialty Generics segment of $70.4 million as a result of price increases, partially offset by a decrease in
rebates and chargebacks within the Specialty Brands segment of $39.3 million as a result of a decrease in net sales.
Product sales are recognized when the customer obtains control of our product. Control is transferred either at a point in time, generally upon delivery to
the customer site, or in the case of certain of our products, over the period in which the customer has access to the product and related services. Revenue
recognized over time is based upon either consumption of the product or passage of time based upon our determination of the measure that best aligns with
how the obligation is satisfied. Our considerations of why such measures provide a faithful depiction of the transfer of our products are as follows:
•
For those contracts whereby revenue is recognized over time based upon consumption of the product, we either have:
79
1.
the right to invoice the customer in an amount that directly corresponds with the value to the customer of our performance to date, for
which the practical expedient to recognize in proportion to the amount it has the right to invoice has been applied, or
2.
the remaining goods and services to which the customer is entitled is diminished upon consumption.
•
For those contracts whereby revenue is recognized over time based upon the passage of time, the benefit that the customer receives from
unlimited access to our product does not vary, regardless of consumption. As a result, our obligation diminishes with the passage of time;
therefore, ratable recognition of the transaction price over the contract period is the measure that best aligns with how the obligation is satisfied.
For additional information, refer to Note 4 of the Notes to Consolidated Financial Statements included within Item 8. Financial Statements and
Supplementary Data of this Annual Report.
Intangible Assets
Intangible assets include completed technology and IPR&D. Intangible assets acquired in a business combination are recorded at fair value, while
intangible assets acquired in other transactions are recorded at cost. Intangible assets with finite useful lives are amortized according to the pattern in which
the economic benefit of the asset is used up over their estimated useful lives. We assess the remaining useful life and the recoverability of finite-lived
intangible assets whenever events or circumstances indicate that the carrying value of an asset may not be recoverable. When a triggering event occurs, we
evaluate potential impairment of finite-lived intangible assets by first comparing undiscounted cash flows associated with the asset, or the asset group they are
a part of, to its carrying value. If the carrying value is greater than the undiscounted cash flows, the amount of potential impairment is measured by comparing
the fair value of the assets, or asset group, with their carrying value. The fair value of the intangible asset, or asset group, is estimated using an income
approach. If the fair value is less than the carrying value of the intangible asset, or asset group, the amount recognized for impairment is equal to the
difference between the carrying value of the asset and the fair value of the asset. We annually test the indefinite-lived intangible assets for impairment, or
whenever events or changes in circumstances indicate that the carrying value may not be recoverable by either a qualitative or income approach. We compare
the fair value of the assets with their carrying value and record an impairment when the carrying value exceeds the fair value. Changes in economic and
operating conditions impacting these assumptions could result in intangible asset impairment in future periods.
For more information on our intangible impairment analyses and the results thereof, refer to Note 12 of the Notes to Consolidated Financial Statements
included within Item 8. Financial Statements and Supplementary Data of this Annual Report.
Acquisitions
For acquisitions that meet the criteria for business combination accounting, the amounts paid are allocated to the tangible assets acquired and liabilities
assumed based on their estimated fair values at the date of acquisition. We then allocate the purchase price in excess of net tangible assets acquired to
identifiable intangible assets, including purchased research and development. The fair value of identifiable intangible assets is based on detailed valuations.
These valuations rely on a number of factors including operating results, business plans, economic projections, anticipated future cash flows, transactions and
market place data. There are inherent uncertainties related to these factors and judgment in applying them to estimate the fair value of individual assets
acquired in a business combination. Due to these inherent uncertainties, there is risk that the carrying value of our recorded intangible assets may be
overstated, which may result in an increased risk of impairment in future periods. We perform our intangible asset valuations using an income approach based
on the present value of future cash flows. This approach incorporates many assumptions including future growth rates, discount factors and income tax rates.
Changes in economic and operating conditions impacting these assumptions could result in impairment in future periods.
Our purchased research and development represents the estimated fair value as of the acquisition date of in-process projects that have not reached
technological feasibility. The primary basis for determining technological feasibility of these projects is obtaining regulatory approval.
The fair value of IPR&D is determined using the discounted cash flow method. In determining the fair value of IPR&D, we consider, among other
factors, appraisals, the stage of completion of the projects, the technological feasibility of the projects, whether the projects have an alternative future use and
the estimated residual cash flows that could be generated from the various projects and technologies over their respective projected economic lives. The
discount rate used includes a rate of return that accounts for the time value of money, as well as risk factors that reflect the economic risk that the cash flows
projected may not be realized.
The fair value attributable to IPR&D projects at the time of acquisition is capitalized as an indefinite-lived intangible asset and tested annually for
impairment until the project is completed or abandoned. Upon completion of the project, the indefinite-lived intangible asset is then accounted for as a finite-
lived intangible asset and amortized on a straight-line basis over its estimated useful life. If the project is abandoned, the indefinite-lived intangible asset is
charged to expense.
80
Certain asset acquisitions or license agreements may not meet the criteria for a business combination. We account for these transactions as an asset
acquisition and recognize the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquired entity. Any initial up-front
payments incurred in connection with the acquisition or licensing of IPR&D product candidates that do not meet the definition of a business are treated as
research and development expense.
Contingent Consideration
As part of certain acquisitions, we are subject to contractual arrangements to pay contingent consideration to former owners of these businesses. The
payment of obligations under these arrangements are uncertain, and even if payments are expected to be made the timing of these payments may be uncertain
as well. These contingent consideration obligations are required to be recorded at fair value within the consolidated balance sheet and adjusted at each
respective balance sheet date, with changes in the fair value being recognized in the consolidated statement of operations. The determination of fair value is
dependent upon a number of factors, which include projections of future revenues, the probability of successfully achieving certain regulatory milestones,
competitive entrants into the marketplace, the timing associated with the aforementioned criteria and market place data (e.g., interest rates). Several of these
assumptions require projections several years into the future. Due to these inherent uncertainties, there is risk that the contingent consideration liabilities may
be overstated or understated. Changes in economic and operating conditions impacting these assumptions are expected to impact future operating results, with
the magnitude of the impact tied to the significance in the change in assumptions. For additional information, refer to Note 19 of the Notes to Consolidated
Financial Statements included within Item 8. Financial Statements and Supplementary Data of this Annual Report.
Contingencies
We are involved, either as a plaintiff or a defendant, in various legal proceedings that arise in the ordinary course of business, including, without
limitation, government investigations, environmental matters, product liability matters, patent infringement claims, antitrust matters, securities class action
lawsuits, personal injury claims, employment disputes, contractual and other commercial disputes, and other legal proceedings, as further discussed in Note
18 of Notes to Consolidated Financial Statements included within Item 8. Financial Statements and Supplementary Data of this Annual Report. Accruals
recorded for various contingencies, including legal proceedings, self-insurance and other claims, are based on judgment, the probability of losses and, where
applicable, the consideration of opinions of internal and/or external legal counsel, internal and/or external technical consultants and actuarially determined
estimates. When a range is established but a best estimate cannot be made, we record the minimum loss contingency amount. These estimates are often
initially developed substantially earlier than the ultimate loss is known, and the estimates are reevaluated each accounting period as additional information
becomes available. When we are initially unable to develop a best estimate of loss, we record the minimum amount of loss, which could be zero. As
information becomes known, additional loss provisions are recorded when either a best estimate can be made or the minimum loss amount is increased. When
events result in an expectation of a more favorable outcome than previously expected, our best estimate is changed to a lower amount. We record receivables
from third-party insurers up to the amount of the related liability when we have determined that existing insurance policies will provide reimbursement. In
making this determination, we consider applicable deductibles, policy limits and the historical payment experience of the insurance carriers. Receivables are
not netted against the related liabilities for financial statement presentation.
Derivatives and hedging
We evaluated the terms and features of our First-Out Takeback Term Loans, Second-Out Takeback Term Loans and Takeback Notes and identified an
embedded feature that, in certain scenarios, could modify the cash flows of the respective debt instruments.
We evaluated the embedded feature and determined that it was not clearly and closely related to the underlying debt instruments and did not qualify for
any scope exceptions set forth in the accounting standards. Accordingly, this embedded feature is required to be bifurcated from its host instruments and
accounted for separately as an embedded derivative liability. As a result, we recorded the fair value of the embedded derivatives as of the issuance date as a
liability on our consolidated balance sheet.
The embedded derivative will be adjusted to fair value each reported period with changes in fair value subsequent to the issuance date recognized within
other income (expense) in the consolidated statements of operations. The fair value of the embedded derivative is reflected within non-current liabilities in the
consolidated balance sheet.
The fair value of the derivative is determined using the with-and-without model which compares the estimated fair value of the
underlying debt instruments with the embedded feature to the estimated fair value of the underlying debt instruments without the embedded feature, with the
difference representing the estimated fair value of the embedded derivative feature. The with-and-without model includes significant unobservable estimates,
including an estimation of our probability of an asset sale. Management estimates the probability of the asset sale based on its assessment of entity specific
factors and the status of on-going transaction negotiations, if any. Changes in the inputs into the valuation model may have a significant impact on the
estimated fair value of the embedded
81
derivatives. For further details, refer to Note 19 of the Notes to the Consolidated Financial Statements included within Item 8. Financial Statements and
Supplementary Data of the Annual Report.
Income Taxes
In determining income for financial statement purposes, we must make certain estimates and judgments. These estimates and judgments affect the
calculation of certain tax liabilities and the determination of the recoverability of certain of the deferred tax assets, which arise from temporary differences
between the tax and financial statement recognition of revenue and expense.
Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some or all of the
deferred tax assets will not be realized. In evaluating our ability to recover our deferred tax assets, we consider all available positive and negative evidence
including our past operating results, the existence of cumulative losses in the most recent years and our forecast of future taxable income. In estimating future
taxable income, we develop assumptions including the amount of future state, federal and international pre-tax operating income, the reversal of temporary
differences, and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of
future taxable income and are consistent with the plans and estimates we use to manage the underlying businesses.
We determine whether it is more likely than not that a tax position will be sustained upon examination. The tax benefit of any tax position that meets the
more-likely-than-not recognition threshold is calculated as the largest amount that is more than 50.0% likely of being realized upon resolution of the
uncertainty. To the extent a full benefit is not realized on the uncertain tax position, an income tax liability or a reduction to a deferred tax asset ("contra-
DTA"), is established. We adjust these liabilities and contra-DTAs as a result of changing facts and circumstances; however, due to the complexity of some of
these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the tax liabilities.
The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax regulations in a multitude of jurisdictions across
our global operations. Changes in tax laws and rates could affect recorded deferred tax assets and liabilities in the future. Management is not aware of any
such changes, however, which would have a material adverse effect on our competitive position, business, financial condition, results of operations and cash
flows. Refer to Note 7 of Notes to Consolidated Financial Statements included within Item 8. Financial Statements and Supplementary Data of this Annual
Report for further information.
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk.
Our operations include activities in the U.S. and countries outside of the U.S. These operations expose us to a variety of market risks, including the
effects of changes in interest rates and currency exchange rates. We monitor and manage these financial exposures as an integral part of our overall risk
management program. We do not utilize derivative instruments for trading or speculative purposes.
Interest Rate Risk
Our exposure to interest rate risk relates primarily to our variable-rate debt instruments, which bear interest based on SOFR plus a margin. As of
December 29, 2023 (Successor), our outstanding debt included $869.2 million of variable-rate debt on our senior secured term loans. Assuming a one percent
increase in the applicable interest rates, in excess of applicable minimum floors, annual interest expense for fiscal 2024 would increase by approximately $8.6
million.
The remaining outstanding debt as of December 29, 2023 (Successor) is fixed-rate debt. Changes in market interest rates generally affect the fair value of
fixed-rate debt, but do not impact earnings or cash flows.
Currency Risk
Certain net sales and costs of our international operations are denominated in the local currency of the respective countries. As such, profits from these
subsidiaries may be impacted by fluctuations in the value of these local currencies relative to the U.S. dollar. We also have significant intercompany financing
arrangements that may result in gains and losses in our results of operations. In an effort to mitigate the impact of currency exchange rate effects we may
hedge certain operational and intercompany transactions; however, our hedging strategies may not fully offset gains and losses recognized in our results of
operations.
The consolidated statement of operations is exposed to currency risk from intercompany financing arrangements, which primarily consist of
intercompany debt and intercompany cash pooling, where the denominated currency of the transaction differs from the functional currency of one or more of
our subsidiaries. The aggregate potential unfavorable impact from a hypothetical 10.0% adverse change in foreign exchange rates was $1.3 million as of
December 29, 2023 (Successor), with all other variables held constant. This
82
hypothetical loss does not reflect any hypothetical benefits that would be derived from hedging activities, including cash holdings in similar foreign
currencies, that we have historically utilized to mitigate our exposure to movements in foreign exchange rates.
83
Item 8.
Financial Statements and Supplementary Data.
INDEX TO FINANCIAL STATEMENTS
Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34).
Consolidated Statements of Operations for the period from November 15, 2023 through December 29, 2023 (Successor), the period from
December 31, 2022 through November 14, 2023 (Predecessor), the period from June 17, 2022 through December 30, 2022
(Predecessor), the period from January 1, 2022 through June 16, 2022 (Predecessor) and the fiscal year ended December 31, 2021
(Predecessor).
Consolidated Statements of Comprehensive Operations for the period from November 15, 2023 through December 29, 2023 (Successor),
the period from December 31, 2022 through November 14, 2023 (Predecessor), the period from June 17, 2022 through December 30,
2022 (Predecessor), the period from January 1, 2022 through June 16, 2022 (Predecessor) and the fiscal year ended December 31,
2021 (Predecessor).
Consolidated Balance Sheets as of December 29, 2023 (Successor) and December 30, 2022 (Predecessor).
Consolidated Statements of Cash Flows for the period from November 15, 2023 through December 29, 2023 (Successor), the period
from December 31, 2022 through November 14, 2023 (Predecessor), the period from June 17, 2022 through December 30, 2022
(Predecessor), the period from January 1, 2022 through June 16, 2022 (Predecessor) and the fiscal year ended December 31, 2021
(Predecessor).
Consolidated Statement of Changes in Shareholders' Equity for the period from November 15, 2023 through December 29, 2023
(Successor), the period from December 31, 2022 through November 14, 2023 (Predecessor), the period from June 17, 2022 through
December 30, 2022 (Predecessor), the period from January 1, 2022 through June 16, 2022 (Predecessor), and the period from
December 25, 2020 through December 31, 2021 (Predecessor).
Notes to Consolidated Financial Statements.
85
89
90
91
92
93
94
84
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Mallinckrodt plc
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Mallinckrodt plc (the "Company") as of December 29, 2023 (Successor Company balance
sheet) and December 30, 2022 (Predecessor Company balance sheet), the related consolidated statements of operations, comprehensive operations, changes in
shareholders' equity, and cash flows for the period from November 15, 2023 through December 29, 2023 (Successor Company operations), for the period
from December 31, 2022 through November 14, 2023 (Predecessor Company operations), for the period from June 17, 2022 through December 30, 2022
(Predecessor Company operations), for the period from January 1, 2022 through June 16, 2022 (Predecessor Company operations), and for the fiscal year
ended December 31, 2021 (Predecessor Company operations), and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as
the "financial statements"). In our opinion, the Successor Company financial statements present fairly, in all material respects, the financial position of the
Company as of December 29, 2023, and the results of its operations and its cash flows for the period from November 15, 2023 through December 29, 2023, in
conformity with accounting principles generally accepted in the United States of America. Further, in our opinion, the Predecessor Company financial
statements present fairly, in all material respects, the financial position of the Predecessor Company as of December 30, 2022, and the results of its operations
and its cash flows for the period from December 31, 2022 through November 14, 2023, for the period from June 17, 2022 through December 30, 2022, for the
period from January 1, 2022 through June 16, 2022, and the fiscal year ended December 31, 2021, in conformity with accounting principles generally
accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's
internal control over financial reporting as of December 29, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 26, 2024, expressed an unqualified opinion on the
Company's internal control over financial reporting.
Fresh-Start Accounting
As discussed in Note 1 to the financial statements, on October 10, 2023, and November 10, 2023, the United States Bankruptcy Court for the District of
Delaware and the High Court of Ireland, respectively, entered an order confirming the plan of reorganization and the scheme of arrangement, respectively,
related to the 2023 bankruptcy proceedings, which became effective on November 14, 2023. Accordingly, the accompanying financial statements have been
prepared in conformity with FASB Accounting Standard Codification (ASC) Topic 852, Reorganizations, for the Successor Company as a new entity with
assets, liabilities, and a capital structure having carrying values not comparable with prior periods as described in Note 3 to the financial statements. Fresh-
start accounting is also communicated as critical audit matter below.
As discussed in Note 1 to the financial statements, on March 2, 2022, and April 27, 2022, the United States Bankruptcy Court for the District of Delaware and
the High Court of Ireland, respectively, entered an order confirming the fourth amended plan of reorganization and the scheme of arrangement, respectively,
related to the 2020 bankruptcy proceedings, which became effective after the close of business on June 16, 2022. Accordingly, the accompanying financial
statements as of December 30, 2022 and for the period June 17, 2022 through December 30, 2022 were prepared in conformity with ASC 852 as a result of
the 2022 fresh-start accounting and resulted in assets, liabilities, and a capital structure having carrying values not comparable with prior periods as described
in Note 3 to the financial statements.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial
statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company
in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures
to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used
85
and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a
reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or
required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved
our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the
financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit
matters or on the accounts or disclosures to which they relate.
Fresh-start Accounting - Refer to Notes 1 and 3 to the financial statements (also see fresh-start accounting explanatory paragraph above)
Critical Audit Matter Description
On October 10, 2023 and November 10, 2023, the United States Bankruptcy Court for the District of Delaware and the High Court of Ireland, respectively,
entered an order confirming the plan of reorganization and the scheme of arrangement, respectively, which became effective on November 14, 2023 and the
Company emerged from the 2023 bankruptcy proceedings. In connection with its emergence and in accordance with ASC 852 the Company qualified for and
adopted fresh-start accounting which resulted in a new basis of accounting and the Company becoming a new entity for financial reporting purposes.
Management derived a reorganization value from the Company’s enterprise value. Under fresh-start accounting, reorganization value represents the fair value
of the Successor Company's total assets and is intended to approximate the amount a willing buyer would pay for the assets immediately after restructuring.
Upon the application of fresh-start accounting, the Company allocated the reorganization value to its identified tangible and intangible assets and liabilities
based on their estimated fair values in accordance with ASC 805 - Business Combinations. The Company engaged a third-party valuation advisor to assist
with the determination of the fair value of certain assets, liabilities, and equity.
Auditing the adoption of fresh-start accounting was complex due to the significant estimation uncertainty in determining the fair value of the Company’s
intangible assets, which required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.
The identified intangible assets of $624.6 million, which consisted of completed technology, were subject to significant estimation uncertainty primarily due
to the sensitivity of the respective fair values to underlying assumptions in the discounted cash flow models used to measure the intangible assets. Significant
assumptions included projected financial information and discount rates.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to management’s significant assumptions related to the application of fresh-start accounting, specifically the fair value of
intangibles assets, included the following, among others:
• We tested the operating effectiveness of internal controls related to the Company’s projected financial information and discount rates.
• We evaluated the reasonableness of management’s projected financial information by performing the following:
– Compared the projected financial information to historical results for certain products and evaluated certain assumptions that form the basis
of the projected financial information, such as revenue growth rates and gross margins, which may be affected by future economic and
market conditions.
–
Inspected internal communications from members of management to (1) other members of management and (2) the Successor Company's
Board of Directors.
• We evaluated the Company’s third-party valuation advisor’s experience and qualifications.
• With the assistance of our fair value specialists, we obtained an understanding and evaluated the significant assumptions related to the discount rates
used by the Company's third-party valuation advisor for the development of the fair values of certain intangible assets by performing the following
procedures:
–
–
Evaluated the methodologies used by the third-party valuation advisor by comparing to generally accepted valuation methodologies.
Independently estimated a weighted average cost of capital.
86
–
–
Evaluated the relevant facts and objective evidence used by management to support the company specific risk premium and the premium
applied to the weighted average cost of capital by analyzing external publications obtained through independent research.
Evaluated the completeness, accuracy, and relevance of certain cash flow projections used in calculating the internal rate of return.
Income Taxes - Income Tax Impacts from the Restructuring Transactions and Emergence from Voluntary Reorganization - Refer to Notes 3, 4 and 7 to
the financial statements
Critical Audit Matter Description
On October 10, 2023 and November 10, 2023, the United States Bankruptcy Court for the District of Delaware and the High Court of Ireland, respectively,
entered an order confirming the plan of reorganization and the scheme of arrangement, respectively, which became effective on November 14, 2023, and the
Company emerged from the 2023 bankruptcy proceedings. Evaluating the associated income tax impacts of the restructuring transactions and emergence from
voluntary reorganization involved the interpretation of tax laws and regulations, supported by a third-party tax opinion as well as management judgments
related to the realizability of deferred tax assets. Interpretation of tax laws can be inherently uncertain as tax law is complex and often subject to varied
interpretations. Accordingly, tax law interpretations can be subject to potential challenges by the relevant tax authorities and the ultimate outcome with respect
to taxes the Company may owe may differ from the amounts recognized, which the Company considered in assessing the need for reserves for uncertain tax
positions. ASC-740, Income Taxes, requires that deferred tax assets be reduced by a valuation allowance if based on the weight of available evidence it is
more likely than not that some portion or all of the deferred tax assets will not be realized. Weighing the available evidence is subjective and requires
significant judgments by management.
We identified the income tax impacts of the restructuring transactions and emergence from voluntary reorganization as a critical audit matter because of the
significant judgments made by management and the complex nature of identifying, measuring, and interpreting the tax implications, particularly related to the
interpretation of tax laws and regulations, and significant judgments made by management related to the realizability of the deferred tax assets, and the
necessity for reserves for uncertain tax positions. This required a high degree of auditor judgment and an increased extent of effort, including the need to
involve our tax specialists with specialized skills and knowledge when performing audit procedures to evaluate the Company's interpretation of, and
compliance with tax laws and regulations.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the income taxes associated with the restructuring transactions and emergence from voluntary reorganization included the
following, among others:
• We tested the operating effectiveness of the internal controls related to the Company’s income taxes for the restructuring transactions, emergence
from voluntary reorganization, the realizability of deferred tax assets, the necessity for reserves for uncertain tax positions, and the interpretation of
tax laws and regulations.
• With the assistance of our tax specialists, we evaluated the income taxes associated with the restructuring transactions and emergence from voluntary
reorganization by performing the following:
– Obtained an understanding of the Company's restructuring transactions.
– Obtained and evaluated the third-party tax opinion related to the analysis of relevant tax laws and regulations.
–
–
–
–
–
Evaluated the experience and qualifications of the Company’s third-party tax advisor.
Evaluated the appropriateness of management's judgments and conclusions with respect to reserves for certain uncertain tax positions,
including the technical merits and reasonableness of probabilities applied to uncertain tax positions.
Evaluated the appropriateness of management's judgments and conclusions with respect to the realizability of the Company's deferred tax
assets.
Evaluated the completeness and accuracy of certain underlying data, calculations, and allocations supporting the amount of deferred income
taxes.
Tested significant assumptions and key inputs to assess the Company’s recognition and measurement of deferred income taxes.
87
/s/ Deloitte & Touche LLP
St. Louis, Missouri
March 26, 2024
We have served as the Company's auditor since 2011.
88
MALLINCKRODT PLC
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
Successor
Period from
November 15, 2023
through December
29, 2023
Predecessor
Period from
December 31, 2022
through
November 14, 2023
Period from
June 17, 2022
through
December 30, 2022
Period from
January 1, 2022
through
June 16, 2022
Year Ended
December 31, 2021
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Research and development expenses
Restructuring charges, net
Non-restructuring impairment charges
Liabilities management and separation costs
Opioid-Related Litigation Settlement loss
Operating loss
Interest expense
Interest income
Other income (expense), net
Reorganization items, net
Loss from continuing operations before income taxes
Benefit from income taxes
Loss from continuing operations
Income from discontinued operations, net of tax benefit of $—, $—, $—,
$—, and $(5.0)
Net loss
Basic loss per share (Note 8):
Loss from continuing operations
Income from discontinued operations
Net loss
Basic weighted-average shares outstanding
Diluted loss per share (Note 8):
Loss from continuing operations
Income from discontinued operations
Net loss
Diluted weighted-average shares outstanding
$
$
$
$
$
$
243.0
179.1
63.9
64.2
15.9
—
2.6
1.4
—
(20.2)
(28.3)
0.9
5.4
(4.0)
(46.2)
(8.0)
(38.2)
—
(38.2)
(1.94)
—
(1.94)
19.7
(1.94)
—
(1.94)
19.7
$
1,622.9
1,300.5
$
1,039.7
991.0
$
322.4
448.2
97.1
0.9
135.9
157.7
—
(517.4)
(507.2)
14.7
(6.5)
(892.7)
(1,909.1)
(277.8)
(1,631.3)
—
(1,631.3)
$
(122.75)
—
(122.75)
13.3
(122.75)
—
(122.75)
13.3
$
$
$
$
$
$
$
$
$
48.7
268.9
64.2
11.1
—
21.2
—
(316.7)
(324.3)
3.9
10.0
(23.2)
(650.3)
(52.0)
(598.3)
0.2
(598.1)
(45.43)
0.02
(45.41)
13.2
(45.43)
0.02
(45.41)
13.2
$
$
$
$
$
$
874.6
582.0
292.6
266.3
65.5
9.6
—
9.0
—
(57.8)
(108.6)
0.6
(14.6)
(630.9)
(811.3)
(497.3)
(314.0)
0.9
(313.1)
$
$
$
$
$
(3.70)
0.01
(3.69)
84.8
(3.70)
0.01
(3.69)
84.8
2,208.8
1,317.1
891.7
581.4
205.2
26.9
154.9
1.2
125.0
(202.9)
(222.6)
1.9
22.0
(428.2)
(829.8)
(106.3)
(723.5)
6.1
(717.4)
(8.54)
0.07
(8.47)
84.7
(8.54)
0.07
(8.47)
84.7
See Notes to Consolidated Financial Statements.
89
MALLINCKRODT PLC
CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS
(in millions)
Successor
Period from
November 15, 2023
through December
29, 2023
Predecessor
Period from
December 31, 2022
through
November 14, 2023
Period from
June 17, 2022
through
December 30, 2022
Period from
January 1, 2022
through
June 16, 2022
(38.2)
$
(1,631.3)
$
(598.1)
$
(313.1)
Year Ended
December 31, 2021
(717.4)
$
Net loss
Other comprehensive income (loss), net of tax
Currency translation adjustments
Unrecognized loss on derivatives
Unrecognized (loss) gain on benefit plans
Total other comprehensive income (loss), net of tax
Comprehensive loss
$
$
5.2
—
(1.6)
3.6
(5.3)
5.7
(0.8)
(0.4)
2.1
—
8.7
10.8
(1.5)
—
—
(1.5)
(0.5)
—
1.8
1.3
(34.6)
$
(1,631.7)
$
(587.3)
$
(314.6)
$
(716.1)
See Notes to Consolidated Financial Statements.
90
MALLINCKRODT PLC
CONSOLIDATED BALANCE SHEETS
(in millions, except share data)
Successor
December 29,
2023
Predecessor
December 30,
2022
Assets
Current Assets:
Cash and cash equivalents
Accounts receivable, less allowance for doubtful accounts of $6.5 and $4.4
Inventories
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment, net
Intangible assets, net
Deferred income taxes
Other assets
Total Assets
Liabilities and Shareholders' Equity
Current Liabilities:
Current maturities of long-term debt
Accounts payable
Accrued payroll and payroll-related costs
Accrued interest
Acthar Gel-Related Settlement liability
Opioid-Related Litigation Settlement liability
Accrued and other current liabilities
Total current liabilities
Long-term debt
Acthar Gel-Related Settlement liability
Opioid-Related Litigation Settlement liability
Pension and postretirement benefits
Environmental liabilities
Other income tax liabilities
Other liabilities
Total Liabilities
Shareholders' Equity:
Predecessor preferred shares, $0.01 par value, 500,000,000 authorized; none issued or outstanding
Predecessor ordinary A shares, €1.00 par value, 40,000 authorized; none issued or outstanding
Successor ordinary A shares, €1.00 par value, 25,000 authorized; none issued or outstanding
Predecessor ordinary shares, $0.01 par value, 500,000,000 authorized; 13,170,932 issued and outstanding
Successor ordinary shares, $0.01 par value, 500,000,000 authorized; 19,696,335 issued and outstanding
Additional paid-in capital
Retained deficit
Accumulated other comprehensive income
Total Shareholders' Equity
Total Liabilities and Shareholders' Equity
See Notes to Consolidated Financial Statements.
91
$
$
$
$
262.7
377.5
982.7
138.9
1,761.8
321.7
608.4
801.0
240.7
3,733.6
6.5
100.4
82.8
20.1
21.5
—
269.9
501.2
1,755.9
128.5
—
40.6
35.1
19.6
92.5
2,573.4
—
—
—
—
0.2
1,194.6
(38.2)
3.6
1,160.2
3,733.6
$
$
$
$
409.5
405.3
947.6
273.4
2,035.8
457.6
2,843.8
475.5
201.1
6,013.8
44.1
114.0
49.5
29.0
16.5
200.0
290.7
743.8
3,027.7
75.0
379.9
41.0
35.8
18.2
78.7
4,400.1
—
—
—
0.1
—
2,191.0
(588.2)
10.8
1,613.7
6,013.8
MALLINCKRODT PLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
Successor
Period from
November 15,
2023
through December
29, 2023
Period from
December 31,
2022
through
November 14,
2023
Predecessor
Period from
June 17, 2022
through
December 30, 2022
Period from
January 1, 2022
through
June 16, 2022
Year Ended
December 31, 2021
$
(38.2)
$
(1,631.3)
$
(598.1)
$
(313.1)
$
(717.4)
Cash Flows From Operating Activities:
Net loss
Adjustments to reconcile net cash provided by operating activities:
Depreciation and amortization
Share-based compensation
Deferred income taxes
Non-cash impairment charges
Losses on divestiture
Reorganization items, net
Non-cash (amortization) accretion expense
Other non-cash items
Changes in assets and liabilities:
Accounts receivable, net
Inventories
Accounts payable
Accrued consulting
Income taxes
Opioid-Related Litigation Settlement liability
Acthar Gel-Related Litigation Settlement liability
Medicaid lawsuit
Payment of claims
Other
Net cash from operating activities
Cash Flows From Investing Activities:
Capital expenditures
Proceeds related to divestiture, net of cash
Other
Net cash from investing activities
Cash Flows From Financing Activities:
Issuance of external debt
Repayment of external debt
Debt financing costs
Other
Net cash from financing activities
Effect of currency rate changes on cash
Net change in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of period
Cash, cash equivalents and restricted cash at end of period
Cash and cash equivalents at end of period
Restricted cash included in prepaid expenses and other assets at end of period
Restricted cash included in other long-term assets at end of period
Cash, cash equivalents and restricted cash at end of period
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest, net
Cash paid (received) for income taxes, net
$
$
$
$
25.8
—
(6.6)
3.8
—
—
(0.7)
6.7
88.6
51.1
25.8
(6.8)
(1.7)
—
—
—
—
30.6
178.4
(8.5)
—
0.9
(7.6)
—
(102.2)
—
—
(102.2)
1.4
70.0
273.4
343.4
262.7
40.8
39.9
343.4
9.0
0.3
$
$
$
$
490.3
8.9
(319.2)
179.9
—
831.0
176.7
14.2
(65.5)
108.2
(37.2)
25.0
169.3
(250.0)
(16.5)
—
—
(95.9)
(412.1)
(53.9)
—
1.2
(52.7)
380.0
(102.6)
(4.1)
(0.1)
273.2
(1.7)
(193.3)
466.7
273.4
186.7
47.0
39.7
$
$
273.4
$
$
316.8
(128.0)
347.5
1.4
(24.9)
—
—
—
139.2
16.8
(18.1)
267.9
8.1
(90.7)
(30.1)
—
—
—
—
28.1
47.1
(28.8)
70.0
(13.7)
27.5
—
(50.1)
—
(4.0)
(54.1)
(1.1)
19.4
447.3
466.7
409.5
20.6
36.6
466.7
164.1
3.0
$
$
$
$
321.8
1.7
(473.0)
—
—
425.4
—
35.3
49.8
(33.2)
(3.6)
0.1
(26.9)
—
—
—
(629.0)
2.4
(642.3)
(33.4)
—
0.4
(33.0)
650.0
(904.6)
(24.1)
—
(278.7)
(3.9)
(957.9)
1,405.2
447.3
297.9
113.0
36.4
$
$
447.3
$
$
111.5
3.0
675.8
10.2
(59.9)
154.9
0.8
22.5
—
(1.6)
98.2
(14.0)
(1.1)
14.3
108.5
125.0
—
(4.2)
—
43.4
455.4
(55.3)
15.7
1.8
(37.8)
—
(137.5)
—
—
(137.5)
(1.9)
278.2
1,127.0
1,405.2
1,345.0
24.0
36.2
1,405.2
243.2
(160.0)
See Notes to Consolidated Financial Statements.
92
MALLINCKRODT PLC
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(in millions)
Ordinary Shares
Treasury Shares
Number
Par
Value
Number
Amount
Additional Paid-In
Capital
Retained Deficit
Accumulated
Other
Comprehensive
(Loss) Income
Total
Shareholders'
Equity
Balance as of December 25, 2020 (Predecessor)
Net loss
Other comprehensive income
Vesting of restricted shares
Share-based compensation
Balance as of December 31, 2021 (Predecessor)
Net loss
Other comprehensive loss
Share-based compensation
Cancellation of Predecessor equity
Issuance of common stock
Issuance of Opioid Warrants
Balance as of June 16, 2022
(Predecessor)
Net loss
Other comprehensive income
Share-based compensation
Repurchase of Opioid Warrants
Balance as of December 30, 2022 (Predecessor)
Net loss
Other comprehensive loss
Share-based compensation
Vesting of restricted shares
Cancellation of Predecessor equity
Issuance of common stock
Issuance of Opioid Contingent Value Rights
Balance as of November 14, 2023 (Predecessor)
Net loss
Other comprehensive income
Balance as of December 29, 2023 (Successor)
$
$
$
94.1
—
—
0.2
—
94.3
—
—
—
(94.3)
13.2
—
13.2
—
—
—
—
13.2
—
—
—
0.3
(13.5)
19.7
—
19.7
—
—
19.7
$
18.8
—
—
0.1
—
18.9
—
—
—
(18.9)
0.1
—
0.1
—
—
—
—
0.1
—
—
—
—
(0.1)
0.2
—
0.2
—
—
0.2
9.5
—
—
0.1
—
9.6
—
—
—
(9.6)
—
—
—
—
—
—
—
—
—
—
—
0.1
(0.1)
—
—
—
—
—
—
$
$
$
$
(1,616.1)
—
—
—
—
(1,616.1)
—
—
—
1,616.1
—
—
—
—
—
—
—
—
—
—
—
(0.1)
0.1
—
—
—
—
—
—
$
$
$
5,587.6
—
—
—
10.2
5,597.8
—
—
1.7
(5,599.5)
2,189.6
13.9
2,203.5
—
—
1.4
(13.9)
2,191.0
—
—
8.9
—
(2,199.9)
1,169.5
25.1
1,194.6
—
—
$
1,194.6
$
$
$
$
$
$
$
$
$
(2,961.5)
(717.4)
—
—
—
(3,678.9)
(313.1)
—
—
3,992.0
—
—
—
(598.1)
—
—
9.9
(588.2)
(1,631.3)
—
—
—
2,219.5
—
—
—
(38.2)
—
(38.2)
$
(9.6)
—
1.3
—
—
(8.3)
—
(1.5)
—
9.8
—
—
—
—
10.8
—
—
10.8
—
(0.4)
—
—
(10.4)
—
—
—
—
3.6
3.6
$
$
$
1,019.2
(717.4)
1.3
0.1
10.2
313.4
(313.1)
(1.5)
1.7
(0.5)
2,189.7
13.9
2,203.6
(598.1)
10.8
1.4
(4.0)
1,613.7
(1,631.3)
(0.4)
8.9
(0.1)
9.2
1,169.7
25.1
1,194.8
(38.2)
3.6
$
1,160.2
See Notes to Consolidated Financial Statements.
93
MALLINCKRODT PLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in millions, except share data and where indicated)
1.
Background and Basis of Presentation
Background
Mallinckrodt plc is a global business of multiple wholly owned subsidiaries (collectively, "Mallinckrodt" or "the Company") that develop, manufacture,
market and distribute specialty pharmaceutical products and therapies. Areas of focus include autoimmune and rare diseases in specialty areas like neurology,
rheumatology, hepatology, nephrology, pulmonology, ophthalmology and oncology; immunotherapy and neonatal respiratory critical care therapies;
analgesics and gastrointestinal products.
The Company operates our business in two reportable segments, which are further described below:
•
•
Specialty Brands includes innovative specialty pharmaceutical brands; and
Specialty Generics includes niche specialty generic drugs and active pharmaceutical ingredients ("API(s)").
The Company is incorporated and maintains its principal executive offices in Ireland. The Company continues to be subject to United States ("U.S.")
Securities and Exchange Commission ("SEC") reporting requirements.
Basis of Presentation
2023 Chapter 11 Cases
On August 28, 2023 ("2023 Petition Date"), the Company voluntarily initiated Chapter 11 proceedings ("2023 Chapter 11 Cases") under chapter 11 of
title 11 ("Chapter 11") of the United States Code ("Bankruptcy Code") in the U.S. Bankruptcy Court for the District of Delaware ("Bankruptcy Court"). On
September 20, 2023, the directors of the Company initiated examinership proceedings with respect to Mallinckrodt plc by presenting a petition to the High
Court of Ireland pursuant to Section 510(1)(b) of the Companies Act 2014 seeking the appointment of an examiner to Mallinckrodt plc. On October 10, 2023,
the Bankruptcy Court entered an order confirming a plan of reorganization ("2023 Plan"). Subsequent to the Bankruptcy Court’s order confirming the 2023
Plan, the High Court of Ireland made an order confirming a scheme of arrangement on November 10, 2023, which is based on and consistent in all respects
with the 2023 Plan ("2023 Scheme of Arrangement"). The 2023 Plan and the 2023 Scheme of Arrangement became effective on November 14, 2023, ("2023
Effective Date"), and the Company emerged from the 2023 Chapter 11 Cases and the Irish examinership proceedings (together, the "2023 Bankruptcy
Proceedings") on that date. See Note 2 for further information on the 2023 Plan and emergence from the 2023 Bankruptcy Proceedings.
2020 Chapter 11 Cases
On October 12, 2020 ("2020 Petition Date"), the Company voluntarily initiated Chapter 11 proceedings ("2020 Chapter 11 Cases"). On March 2, 2022,
the Bankruptcy Court entered an order confirming a plan of reorganization ("2020 Plan"). Subsequent to the Bankruptcy Court’s order confirming the 2020
Chapter 11 Cases, the High Court of Ireland made an order confirming a scheme of arrangement on April 27, 2022, which was based on and consistent in all
respects with the 2020 Plan ("2020 Scheme of Arrangement"). On June 8, 2022, the Bankruptcy Court entered an order approving a minor modification to the
2020 Plan. The 2020 Plan became effective on June 16, 2022 ("2020 Effective Date"), and the Company emerged from the 2020 Chapter 11 Cases and the
Irish examinership proceedings (together, the "2020 Bankruptcy Proceedings") on that date.
Adoption of Fresh-Start Accounting
Upon emergence from both the 2020 Bankruptcy Proceedings on June 16, 2022 and the 2023 Bankruptcy Proceedings on November 14, 2023, the
Company adopted fresh-start accounting in accordance with the provisions of Financial Accounting Standards Board Accounting Standards Codification
("ASC") Topic 852 - Reorganizations ("ASC 852"), and became a new entity for financial reporting purposes as of each of the 2020 Effective Date and the
2023 Effective Date. References to "Successor" relate to the financial position as of December 29, 2023 and results of operations of the reorganized Company
subsequent to November 14, 2023, while references to "Predecessor" relate to the financial position as of December 30, 2022 and results of operations of the
Company for the period from December 31, 2022 through November 14, 2023, the period from June 17, 2022 through December 30, 2022, and for the
periods prior to, and including June 16, 2022. All emergence-related transactions related to the 2020 Effective Date and the 2023 Effective Date were
recorded as of June 16, 2022 and November 14, 2023, respectively. Accordingly, the consolidated financial statements for the Successor are not comparable to
the consolidated financial statements for the Predecessor periods and the consolidated financial statements for the Predecessor periods from June 17, 2022
through December 30, 2022 and December 31, 2022 through November 14, 2023 are not comparable to the consolidated financial statements for the
Predecessor period prior to and including June 16, 2022. Refer to Note 3 for further information.
94
The consolidated financial statements have been prepared in U.S. dollars and in accordance with accounting principles generally accepted in the U.S.
("GAAP"). The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that
affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of revenues and expenses. Actual
results may differ from those estimates. The consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries and entities
in which they own or control more than 50.0% of the voting shares, or have the ability to control through similar rights. All intercompany balances and
transactions have been eliminated in consolidation and all normal recurring adjustments necessary for a fair presentation have been included in the results
reported.
The Company's significant accounting policies are described within Note 4. In connection with the adoption of fresh-start accounting on the 2020
Effective Date, the Company elected to make an accounting policy change as described below:
Predecessor Contingencies — Legal fees pertaining to asbestos-related matters were estimated and accrued as part of the Company's projected asbestos
liability.
Contingencies as of the 2020 Effective Date — Legal fees pertaining to asbestos matters are expensed as incurred.
This change in accounting policy resulted in a $22.8 million fresh-start adjustment to the asbestos-related liability and a $20.3 million adjustment to the
corresponding indemnification receivable as of the 2020 Effective Date.
Also in connection with the adoption of fresh-start accounting, the Company made a change in estimate related to the Specialty Generics segment
inventory turn calculation. This prospective change resulted in the discrete amortization of $20.5 million of capitalized variances with $19.9 million and
$0.6 million recognized in June 17, 2022 through December 30, 2022 (Predecessor) and December 31, 2022 through November 14, 2023 (Predecessor),
respectively.
The results of entities disposed of are included in the consolidated financial statements up to the date of disposal and, where appropriate, these operations
have been reported in discontinued operations. Divestitures of product lines and businesses not meeting the criteria for discontinued operations have been
reflected in operating loss.
Certain prior-period amounts on the consolidated financial statements have been reclassified to conform to current-period presentation.
Fiscal Year
The Company reports its results based on a "52-53 week" year ending on the last Friday of December. The period November 15, 2023 through December
29, 2023 reflects the Successor period, while the period December 31, 2022 through, and including, November 14, 2023 reflects the Predecessor period. The
combined periods of December 31, 2022 through November 14, 2023 (Predecessor) and November 15, 2023 through December 29, 2023 (Successor) ("fiscal
2023") and the combined periods of January 1, 2022 through June 16, 2022 (Predecessor) and June 17, 2022 through December 30, 2022 (Predecessor)
("fiscal 2022") consisted of 52 weeks, while the fiscal year ended December 31, 2021 (Predecessor) ("fiscal 2021") consisted of 53 weeks.
2.
Emergence from Voluntary Reorganization
During the pendency of the 2023 and 2020 Bankruptcy Proceedings, the Company and each of the respective debtors and debtors in-possession in the
2023 Chapter 11 Cases ("2023 Debtors") and the 2020 Chapter 11 Cases ("2020 Debtors") operated their businesses as debtors-in-possession under the
jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and orders of the Bankruptcy Court. As
debtors-in-possession, the 2023 and 2020 Debtors were authorized to continue to operate as ongoing businesses, and were allowed to pay all debts and honor
all obligations arising in the ordinary course of their businesses after the respective 2023 and 2020 Petition Dates. However, the 2023 and 2020 Debtors were
not allowed to pay third-party claims or creditors on account of obligations arising before the respective 2023 or 2020 Petition Dates or engage in transactions
outside the ordinary course of business without approval of the Bankruptcy Court.
Under the Bankruptcy Code, third-party actions to collect pre-petition indebtedness owed by the 2023 and 2020 Debtors, as well as most litigation
pending against the Company as of the 2023 and 2020 Petition Dates, were subject to an automatic stay. See "Plan of Reorganization" below for the
distributions to creditors and interest holders.
Plan of Reorganization
2023 Plan
In accordance with the 2023 Plan, the following significant transactions occurred upon the Company's emergence from the 2023 Bankruptcy Proceedings
on the 2023 Effective Date:
95
• DIP Claims (as defined below) were converted on a dollar-for-dollar basis into First-Out Takeback Term Loans (as defined below);
•
•
•
•
Pre-petition first lien term debt was reduced from $2,861.8 million to $1,650.0 million, which was in the form of Takeback Debt (as defined below)
distributed to post-petition term lenders and pre-petition first lien creditors;
The pre-petition first lien creditors also received 92.3% of the 2023 Debtors’ reorganized equity (subject to dilution from equity reserved under the
management incentive program ("MIP") and the Opioid CVRs (as defined below) if equity settled), plus cash in an amount sufficient to repay in full
accrued and unpaid interest on the pre-petition first lien debt, and Second-Out Takeback Debt (as defined below);
Pre-petition second lien debt was eliminated in its entirety, with pre-petition second lien creditors receiving 7.7% of the 2023 Debtors’ reorganized
equity (subject to dilution from equity reserved under the MIP and the Opioid CVRs, if equity settled);
The 2023 Debtors’ remaining opioid-related litigation settlement payment obligations (including the $200.0 million installment payment originally
due on June 16, 2023) were permanently eliminated, subject to the Company (a) making a $250.0 million payment to the Opioid Master
Disbursement Trust II ("Trust") prior to the commencement of the 2023 Chapter 11 Cases (which was made on August 24, 2023) and (b) entering
into the CVR Agreement (as defined below);
•
The 2023 Debtors’ non-monetary obligations to the Trust were generally preserved, including the compliance-related operating injunction;
• All other claims against the 2023 Debtors (with the exception of subordinated securities claims) were treated as unimpaired, including the Debtors’
settlement under the 2020 Plan with governmental entities regarding Acthar Gel (repository corticotropin injection) ("Acthar Gel"), and the
associated Corporate Integrity Agreement, and also trade liabilities; and
®
• All of Mallinckrodt ordinary shares were cancelled for no consideration.
Contingent Value Right Agreement
On the 2023 Effective Date and pursuant to the 2023 Plan, the Company entered into a contingent value right agreement ("CVR Agreement") with the
Trust. Pursuant to the terms of the CVR Agreement, the Company issued 1,036,649 contingent value rights ("Opioid CVRs") to the Trust, which Opioid
CVRs entitle the Trust to receive from the Company, when exercised, an amount in cash equal to (a) the Market Price (as defined in the CVR Agreement) of
one new ordinary share of the Company (subject to adjustment as described in the CVR Agreement) at the time of exercise less (b) $99.36 (subject to
adjustment as described in the CVR Agreement) ("Cash Payment"), subject to the right of the Company to, at its option but subject to certain conditions, issue
new ordinary shares to the Trust in lieu of making some or all of the Cash Payment due upon exercise in accordance with the terms of the CVR Agreement.
The Opioid CVRs are exercisable at any time for four years after the 2023 Effective Date.
Upon entering into the CVR Agreement the terms of the final amendment to the opioid-related litigation settlement ("Opioid-Related Litigation
Settlement") obligation agreement ("Opioid Deferred Cash Payment Agreement") and the Company's prior obligation to pay all remaining Opioid-Related
Litigation Settlement payment obligations ("Opioid Deferred Cash Payment") were permanently eliminated. For further discussion of the Opioid-Related
Litigation Settlement, refer to Note 18.
Registration Rights Agreement
On the 2023 Effective Date and pursuant to the 2023 Plan, the Company entered into a registration rights agreement ("Registration Rights Agreement")
with certain owners of new ordinary shares (any owner of new ordinary shares, a "Company Shareholder"). Pursuant to the terms of the Registration Rights
Agreement, following an initial public offering, any Company Shareholder that owns 1% or more of the new ordinary shares (calculated in accordance with
the Registration Rights Agreement) shall have customary "piggyback" registration rights. In addition, 180 days following an initial public offering, any
Company Shareholder owning at least 15% of the new ordinary shares (calculated in accordance with the Registration Rights Agreement) shall have the right
to initiate up to three (3) demand registrations each, subject to customary exceptions.
Information Rights Deed
On the 2023 Effective Date and pursuant to the 2023 Plan, the Company entered into a deed poll ("Information Rights Deed") for the benefit of each
Company Shareholder that (i) has executed and delivered to the Company a confidentiality agreement substantially in the form appended thereto (each, a
"Confidentiality Agreement") and (ii) is not a person designated on the list of Company competitors maintained by the Board (such Company Shareholder, an
"Information Rights Holder").
Pursuant to the terms of the Information Rights Deed, the Company will provide each Information Rights Holder with (i) quarterly unaudited financial
statements within 60 days following each quarter’s end and (ii) annual audited financial statements within 120 days following each fiscal year’s end (together,
the "Financial Statements"). Upon the written request of an Information Rights Holder, the Company will also provide a copy of the register of members of
the Company then in effect, regular updates on any process initiated under Article 43 of the Company’s new articles of association as well as any such
additional information that an Information Rights Holder may reasonably request as required for regulatory, tax or compliance purposes. In addition, the
Company will schedule a teleconference with all Information Rights Holders between five (5) and twenty (20) business days after the delivery of
96
each Financial Statement to discuss the Company’s business, financial condition and financial performance, prospects, liquidity and capital resources. The
foregoing information rights are subject to customary exceptions.
New Takeback Debt
On the 2023 Effective Date and pursuant to the 2023 Plan, Mallinckrodt International Finance S.A. ("MIFSA") and Mallinckrodt CB LLC ("MCB" and,
together with MIFSA, the "Issuers"), each of which is a subsidiary of the Company, (i) entered into a new senior secured first lien term loan facility with an
aggregate principal amount of approximately $871.4 million ("Takeback Term Loans"), consisting of approximately $229.4 million of "first-out" Takeback
Term Loans ("First-Out Takeback Term Loans") and approximately $642.0 million of "second-out" Takeback Term Loans ("Second-Out Takeback Term
Loans") and (ii) issued approximately $778.6 million in aggregate principal amount of "second-out" 14.75% senior secured first lien notes due 2028
("Takeback Notes") and, together with the Second-Out Takeback Term Loans, the "Second-Out Takeback Debt" and, together with the Takeback Term Loans,
the "Takeback Debt").
All allowed claims ("DIP Claims") under the Senior Secured Debtor-In-Possession Credit Agreement, dated as of September 8, 2023 ("DIP Credit
Agreement"), by and among the Company, MIFSA and MCB, as debtors and debtors-in-possession, the lenders from time to time party thereto, Acquiom
Agency Services LLC and Seaport Loan Products LLC, as co-administrative agents, and Acquiom Agency Services LLC, as collateral agent, not otherwise
satisfied in cash were converted on a dollar-for-dollar basis into First-Out Takeback Term Loans.
Each holder of an allowed claim related to the outstanding 10.00% first lien senior secured notes due 2025 issued by certain of the Company’s
subsidiaries ("2025 First Lien Notes") pursuant to the indenture, dated as of April 7, 2020, the outstanding 11.50% first lien senior secured notes due 2028
issued by certain of the Company’s subsidiaries ("2028 First Lien Notes" and, together with the 2025 First Lien Notes, the "First Lien Notes") pursuant to the
indenture, dated as of June 16, 2022, or the first lien senior secured term loans due 2027 borrowed by certain of the Company’s subsidiaries pursuant to the
credit agreement, dated as of June 16, 2022, by and among the Company, certain of its subsidiaries and the lenders party thereto, Acquiom Agency Services
LLC and Seaport Loan Products LLC, as co-administrative agents, and Deutsche Bank AG New York Branch, as collateral agent ("First Lien Term Loans"
and, collectively with the First Lien Notes , the "First Lien Debt"), elected to receive such Takeback Debt either in the form of Second-Out Takeback Term
Loans or Takeback Notes.
2020 Plan
In accordance with the effectuated 2020 Plan, the following significant transactions occurred upon the Company's emergence from the 2020 Bankruptcy
Proceedings on the 2020 Effective Date:
Resolution of Opioid-Related Claims.
Pursuant to the 2020 Plan and the 2020 Scheme of Arrangement, all previous opioid claims against the Company and its subsidiaries were deemed to
have been settled, discharged, waived, released and extinguished in full, and the Company and its subsidiaries ceased to have any liability or obligation with
respect to such claims, which were treated in accordance with the 2020 Plan as follows:
◦ Opioid claims were channeled to certain trusts, which were to receive $1,725.0 million in deferred payments from the Company and certain of its
subsidiaries consisting of (i) a $450.0 million payment upon the 2020 Effective Date (of which $2.6 million was prefunded); (ii) a $200.0 million
payment upon each of the first and second anniversaries of the 2020 Effective Date; (iii) a $150.0 million payment upon each of the third through
seventh anniversaries of the 2020 Effective Date; and (iv) a $125.0 million payment upon the eighth anniversary of the 2020 Effective Date
(collectively, the "Opioid Deferred Payments") with the Company retaining an eighteen-month option to prepay outstanding Opioid Deferred
Payments (other than the initial 2020 Effective Date payment) at a discount (and to prepay the Opioid Deferred Payments at their undiscounted value
even after the expiration of such eighteen-month period). The Opioid Deferred Payments were unsecured and were guaranteed by Mallinckrodt and
its subsidiaries that were borrowers, issuers or guarantors under the First Lien Term Loans, the 2028 First Lien Notes, the 2025 First Lien Notes, the
2025 Second Lien Notes (as defined below) and the 2029 Second Lien Notes (as defined below), and certain future indebtedness (subject to certain
exceptions). The Opioid Deferred Cash Payments Agreement contained affirmative and negative covenants (including an obligation to offer to pay
the Opioid Deferred Payments without discount upon the occurrence of certain change of control triggering events) and events of default (subject in
certain cases to customary grace and cure periods). The occurrence of an event of default under the Opioid Deferred Cash Payments Agreement
could result in the required repayment of all outstanding Opioid Deferred Payments and could cause a cross-default that could result in the
acceleration of certain indebtedness of Mallinckrodt and its subsidiaries. The Opioid Deferred Cash Payments Agreement was subsequently
permanently eliminated as discussed above in "2023 Plan."
• Opioid claimants also received, in addition to other potential consideration, 3,290,675 warrants for approximately 19.99% of the Predecessor's new
ordinary shares, with a nominal value $0.01 per share, after giving effect to the exercise of the
97
warrants, but subject to dilution from equity reserved under the management incentive plan, exercisable at any time on or prior to the sixth
anniversary of the 2020 Effective Date, at a strike price of $103.40 per ordinary share ("Opioid Warrants"). These Opioid Warrants were
subsequently repurchased during the period June 17, 2022 through December 30, 2022 (Predecessor) for $4.0 million.
•
Pursuant to the 2020 Plan, certain subsidiaries of the Company remained subject to an agreed-upon operating injunction with respect to the operation
of their opioid business. The Company reaffirmed the obligations contained in the operating injunction in connection with the 2023 Bankruptcy
Proceedings.
Governmental Acthar Gel-Related Settlement
Pursuant to the 2020 Plan and the 2020 Scheme of Arrangement, on the 2020 Effective Date, all claims of the U.S. Department of Justice ("DOJ") and
other governmental parties relating to Acthar Gel against the Company were deemed to have been settled, discharged, waived, released and extinguished in
full, and the Company ceased to have any liability or obligation with respect to such claims, which were treated in accordance with the 2020 Plan and the
terms of the settlement as summarized below:
•
The Company entered into an agreement with the DOJ and other governmental parties to settle a range of litigation matters and disputes relating to
Acthar Gel ("Acthar Gel-Related Settlement") including a Medicaid lawsuit with the Centers for Medicare and Medicaid Services ("CMS"), a related
False Claims Act ("FCA") lawsuit in Boston, and an Eastern District of Pennsylvania ("EDPA") FCA lawsuit principally relating to interactions of
Acthar Gel's previous owner (Questcor Pharmaceuticals Inc.) with an independent charitable foundation. To implement the Acthar Gel-Related
Settlement, the Company entered into two settlement agreements with the U.S. and certain relators. Under the Acthar Gel-Related Settlement, which
was conditioned upon the Company commencing its 2020 Chapter 11 Cases and provided for the distributions the applicable claimants received
under the 2020 Plan, the Company agreed to pay $260.0 million to the DOJ and other parties over seven years and reset Acthar Gel’s Medicaid
rebate calculation as of July 1, 2020, such that state Medicaid programs would receive 100% rebates on Acthar Gel Medicaid sales, based on then-
current Acthar Gel pricing. The $260.0 million in payments consists of (i) a $15.0 million payment upon the 2020 Effective Date; (ii) a $15.0 million
payment upon the first anniversary of the 2020 Effective Date; (iii) a $20.0 million payment upon each of the second and third anniversaries of the
2020 Effective Date; (iv) a $32.5 million payment upon each of the fourth and fifth anniversaries of the 2020 Effective Date; and (v) a $62.5 million
payment upon the sixth and seventh anniversaries of the 2020 Effective Date. Also in connection with the Acthar Gel-Related Settlement, the
Company entered into (a) separate settlement agreements with certain states, the Commonwealth of Puerto Rico, the District of Columbia and the
above-noted relators, which further implement the Acthar Gel-Related Settlement, and (b) a five-year corporate integrity agreement with the Office
of Inspector General of the U.S. Department of Health and Human Services ("HHS") in March 2022. As a result of these agreements, upon
effectiveness of the Acthar Gel-Related Settlement in connection with the effectiveness of the 2020 Plan, the U.S. Government dropped its demand
for approximately $640 million in retrospective Medicaid rebates for Acthar Gel and agreed to dismiss the FCA lawsuit in Boston and the EDPA
FCA lawsuit. Similarly, state and territory Attorneys General also dropped related lawsuits. In turn, the Company dismissed its appeal of the U.S.
District Court for the District of Columbia's adverse decision in the Medicaid lawsuit, which was filed in the U.S. Court of Appeals for the District of
Columbia Circuit.
• Mallinckrodt entered into the Acthar Gel-Related Settlement with the DOJ and other governmental parties solely to move past these litigation matters
and disputes and does not make any admission of liability or wrongdoing.
•
•
In accordance with the effectuated Acthar Gel-Related Settlement, on June 28, 2022, the Bankruptcy Court entered an order dismissing the federal
government's FCA lawsuit with prejudice, and further ordered the related state lawsuits dismissed without prejudice.
In accordance with the effectuated Acthar Gel-Related Settlement, on July 20, 2022, the court entered an order dismissing the EDPA FCA lawsuit
with prejudice.
• As of December 29, 2023 (Successor), the Company has $236.1 million of remaining obligation with respect to the Acthar Gel-Related Litigation
Settlement.
Satisfaction of Predecessor Term Loans and Repayment of Existing Revolver
On the 2020 Effective Date and pursuant to the 2020 Plan, the Issuers, each of which is a subsidiary of the Company, entered into a facility governing the
First Lien Term Loans consisting of $1,392.9 million aggregate principal amount of 2017 replacement term loans ("2017 Replacement Term Loans") and
$369.7 million aggregate principal amount of 2018 replacement term loans ("2018 Replacement Term Loans"). Pursuant to the 2020 Plan and the 2020
Scheme of Arrangement, on the 2020 Effective Date, lenders holding allowed claims in respect of the predecessor senior secured term loans due September
2024 ("2024 Term Loans") and predecessor senior secured term loans due February 2025 ("2025 Term Loans" and, together with the 2024 Term Loans, the
"Predecessor Term Loans") incurred by the Issuers received their pro rata share of the 2017 Replacement Term Loans (in the case of the 2024 Term Loans) or
the 2018 Replacement Term Loans (in the case of the 2025 Term Loans) and payment in cash of an exit fee equal to 1.00% of the remaining principal amount
of Predecessor Term Loans held by such lenders in satisfaction thereof.
98
Pursuant to the 2020 Plan and the 2020 Scheme of Arrangement, on the 2020 Effective Date, lenders’ allowed claims in respect of the existing
$900.0 million senior secured revolving credit facility ("Predecessor Revolver") incurred by the Issuers and certain of their respective subsidiaries were paid
in full in cash.
Reinstatement of 2025 First Lien Notes
Pursuant to the 2020 Plan and the 2020 Scheme of Arrangement, on the 2020 Effective Date, the Issuers’ existing 2025 First Lien Notes in an aggregate
principal amount of $495.0 million and the note documents relating thereto were reinstated. In addition, pursuant to the terms of the indenture governing the
2025 First Lien Notes, the Issuers, Mallinckrodt plc and the subsidiary guarantors of the 2025 First Lien Notes entered into a supplemental indenture, dated as
of the 2020 Effective Date, pursuant to which certain additional assets were added to the collateral securing the 2025 First Lien Notes and the guarantees
thereof.
Satisfaction of 10.00% Second Lien Senior Secured Notes due 2025
Pursuant to the 2020 Plan and the 2020 Scheme of Arrangement, on the 2020 Effective Date, lenders holding allowed claims in respect of the Issuers’
existing 10.00% second lien senior secured notes due 2025 ("Predecessor 2025 Second Lien Notes") in an aggregate principal amount of $322.9 million
received their pro rata share of a like aggregate principal amount of new 10.00% second lien senior secured notes due 2025 ("2025 Second Lien Notes") in
satisfaction thereof.
Discharge of Mallinckrodt's Guaranteed Unsecured Notes
Pursuant to the 2020 Plan and the 2020 Scheme of Arrangement, on the 2020 Effective Date, holders of allowed claims in respect of the Issuers' 5.75%
senior notes due 2022, the 5.625% senior notes due 2023 and the 5.50% senior notes due 2025 ("Predecessor Guaranteed Unsecured Notes") received their
pro rata share of $375.0 million aggregate principal amount of new 10.00% second lien senior secured notes due 2029 ("2029 Second Lien Notes" and
together with the 2025 Second Lien Notes, the "Second Lien Notes") and 100% of the new 13,170,932 ordinary shares issued on the 2020 Effective Date,
subject to dilution by the Opioid Warrants described above and the management incentive plan. Otherwise, pursuant to the 2020 Plan and the 2020 Scheme of
Arrangement, all claims in respect of the Predecessor Guaranteed Unsecured Notes and the indentures governing them were settled, discharged, waived,
released and extinguished in full.
Resolution of Other Remaining Claims
Pursuant to the 2020 Plan and the 2020 Scheme of Arrangement, on the 2020 Effective Date, certain trade claims and other general unsecured claims,
including the claims of holders of the predecessor 4.75% senior notes due April 2023, against the 2020 Debtors were deemed to have been settled, discharged,
waived, released and extinguished in full, and Mallinckrodt ceased to have any liability or obligation with respect to such claims, which were then treated in
accordance with the 2020 Plan and the 2020 Scheme of Arrangement, which provided for the holders of such claims to share in $135.0 million in cash, plus
other potential consideration, including but not limited to 35.0% of the proceeds of the sale of the StrataGraft (allogenic cultured keratinocytes and dermal
fibroblasts in murine collagen - dsat) ("StrataGraft") Priority Review Voucher ("PRV") and $20.0 million payable upon the achievement of (1) U.S. Food and
Drug Administration ("FDA") approval of Terlivaz (terlipressin) ("Terlivaz") and (2) cumulative net sales of $100.0 million of Terlivaz.
®
®
On June 30, 2022, subsequent to the 2020 Effective Date, the Company completed the sale of its PRV for $100.0 million and received net proceeds of
$65.0 million as the buyer remitted the remaining $35.0 million to the General Unsecured Claims Trustee pursuant to the terms of (i) the 2020 Plan, and (ii)
that certain General Unsecured Claims Trust Agreement entered into in connection with the 2020 Plan.
New Warrant Agreement and Warrant Termination Agreement
Pursuant to the 2020 Plan and the 2020 Scheme of Arrangement, on the 2020 Effective Date, Mallinckrodt entered into a warrant agreement and issued
3,290,675 Opioid Warrants to purchase ordinary shares to MNK Opioid Abatement Fund, LLC ("Initial Holder"), a wholly owned subsidiary of the Trust, a
master disbursement trust established in accordance with the 2020 Plan. Each Opioid Warrant was initially exercisable for one ordinary share at an initial
exercise price of $103.40 per ordinary share, subject to the cashless exercise provisions contained in the warrant agreement. The Opioid Warrants were
exercisable from the date of issuance until the sixth anniversary of the 2020 Effective Date. The warrant agreement governing the Opioid Warrants contained
customary anti-dilution adjustments in the event of any share dividends, share splits, distributions, issuance of additional shares or options, or certain other
dilutive events.
On December 8, 2022, the Company, the Initial Holder and the Trust entered into an agreement to accelerate the expiration date of the Opioid Warrants and to
terminate the warrant agreement in exchange for a payment by the Company of $4.0 million to the Initial Holder ("Warrant Termination Agreement"). At the
closing of the transactions contemplated by the Warrant Termination Agreement, which also occurred on December 8, 2022, the Company and the warrant
agent entered into an amendment to the warrant agreement that accelerated the expiration of the Opioid Warrants to such date. As a result of such expiration,
the Opioid Warrants were cancelled and each of the warrant agreement and the registration rights agreement that were entered into on the 2020 Effective Date
terminated in accordance with its terms.
99
Exit Financing
On the 2020 Effective Date, the Company issued $650.0 million aggregate principal amount of 2028 First Lien Notes and entered into a receivables
financing facility based on a borrowing base with a maximum draw of up to $200.0 million.
Predecessor Chapter 11 Financing
The Company obtained an order of the Bankruptcy Court in the 2020 Chapter 11 Cases (in a form agreed with, among others, the agent under the
predecessor senior secured credit facilities, lenders under the Predecessor Revolver and the Predecessor Term Loans and holders of the 2025 First Lien Notes
and the Predecessor 2025 Second Lien Notes) permitting the use of cash collateral to finance the 2020 Chapter 11 Cases.
Such order required that the Company make cash adequate protection payments on the Predecessor Revolver and Predecessor Term Loans for, among
other things, unpaid pre-petition and post-petition fees, unpaid pre-petition interest (at the specified contract rate) and post-petition interest (at a rate equal to
(1) the adjusted London Interbank Offered Rate ("LIBOR"), plus (2) the contract-specified applicable margin, and plus (3) an incremental 200 basis points),
quarterly amortization payments on the Predecessor Term Loans and reimbursement of certain costs. Such order further required that the Company make cash
adequate protection payments on the 2025 First Lien Notes and the Predecessor 2025 Second Lien Notes for, among other things, unpaid pre-petition and
post-petition interest (at the specified non-default interest rate) and reimbursement of certain costs. On April 13, 2021, the 2020 Debtors received Bankruptcy
Court approval of their motion to amend the final cash collateral order as of March 22, 2021 to pay post-petition interest on the Predecessor Term Loans at a
rate equal to (1) the adjusted LIBOR, plus (2) the contract-specified applicable margin, and plus (3) an incremental 250 basis points for its Predecessor Term
Loans. The cash collateral order expired on June 16, 2022 (Predecessor).
Interest expense incurred and paid with respect to the incremental adequate protection payments of 200 basis points and 250 basis points on the
Predecessor Revolver and the Predecessor Term Loans, respectively, were as follows:
Predecessor
Interest expense incurred for adequate protection payments
Cash paid for adequate protection payments
$
Period from
January 1, 2022
through
June 16. 2022
Year Ended
December 31, 2021
63.1
66.7
28.8 $
28.8
Contractual interest
While the 2023 Chapter 11 Cases were pending, the Company was not accruing interest on the Second Lien Notes as of the 2023 Petition Date on a go-
forward basis as the 2023 Debtors did not anticipate making interest payments due under the Second Lien Notes. The total aggregate amount of interest
payments contractually due under the predecessor Second Lien Notes for the period from December 31, 2022 to November 14, 2023 (Predecessor), which the
Company did not pay, was $48.5 million. The 2023 Debtors paid all interest payments in full as they came due under the predecessor First Lien Debt.
While the 2020 Chapter 11 Cases were pending, the Company was not accruing interest on its predecessor unsecured debt instruments as of the 2020
Petition Date on a go-forward basis as the 2020 Debtors did not anticipate making interest payments due under their respective predecessor unsecured debt
instruments; however, the 2020 Debtors expected to pay all interest payments in full as they came due under their respective predecessor senior secured debt
instruments. The total aggregate amount of interest payments contractually due under the Company's predecessor unsecured debt instruments, which the
Company did not pay as the obligation was extinguished pursuant to the 2020 Plan, was $46.5 million and $93.0 million for the period January 1, 2022
through June 16, 2022 (Predecessor) and fiscal 2021 (Predecessor), respectively.
100
3.
Fresh-start Accounting
2023 Fresh-Start Accounting
The Company qualified for and adopted fresh-start accounting as of the 2023 Effective Date in accordance with ASC 852 as (i) the reorganization value
of the assets of the Company immediately prior to the date of effectuation of the 2023 Plan was less than the post-petition liabilities and allowed claims and
(ii) the holders of the voting shares of the Predecessor immediately before effectuation of the 2023 Plan received less than 50% of the voting shares of the
Successor.
Reorganization Value
Reorganization value represents the fair value of the Successor's total assets and is intended to approximate the amount a willing buyer would pay for the
assets immediately after restructuring. Upon the application of fresh-start accounting, the Company allocated the reorganization value to its identified tangible
and intangible assets and liabilities based on their estimated fair values in accordance with ASC Topic 805 - Business Combinations. Deferred income tax
amounts were determined in accordance with ASC Topic 740 - Income Taxes.
As set forth in the disclosure statement approved by the Bankruptcy Court, the enterprise value of the Successor was estimated to be between
$2,700.0 million and $3,200.0 million, with a midpoint of $2,950.0 million, which was estimated with the assistance of third-party valuation advisors using
various valuation methods, including (i) discounted cash flow analysis, a calculation of the present value of the future cash flows to be generated by the
business based on its projection, and (ii) comparable public company analysis, a method to estimate the value of a company relative to other publicly traded
companies with similar operation and financial characteristics. The estimated enterprise value per the disclosure statement included estimated equity value in
a range between $1,110.0 million and $1,610.0 million, with a midpoint of $1,360.0 million.
The basis of the discounted cash flow analysis used in developing the enterprise value was based on Company prepared projections that included a
variety of estimates and assumptions. While the Company considers such estimates and assumptions reasonable, they are inherently subject to significant
business, economic and competitive uncertainties, many of which are beyond the Company’s control and, therefore, may not be realized. Changes in these
estimates and assumptions may have had a significant effect on the determination of the Company’s enterprise value.
The following table reconciles the enterprise value to the implied fair value of the Successor's equity as of the 2023 Effective Date:
Enterprise value
Plus: Non-operating assets, net
Less: Fair value of debt
Less: Fair value of Acthar Gel-Related Settlement and Terlivaz contingent value rights
(1)
Successor equity value
$
$
2,950.0
290.0
(1,882.7)
(162.5)
1,194.8
(1) Represents non-operating assets and liabilities which were excluded from the enterprise value as put forth in the disclosure statement as there were no cash projections associated with
these net assets.
Upon the application of fresh-start accounting, the Company allocated the reorganization value to its individual assets based on their estimated fair
values. Reorganization value represents the fair value of the Successor’s assets before considering liabilities.
The following table reconciles the Company's enterprise value to its reorganization value as of the 2023 Effective Date:
Enterprise value
Plus: Non-operating assets, net
Plus: Current liabilities (excluding debt or debt-like items)
Plus: Other non-current liabilities (excluding debt or debt-like items)
(1)
(2)
Reorganization value of Successor assets
(1) Excludes $7.6 million related to the current portion of the embedded derivative.
(2) Excludes $15.0 million and $7.5 million related to the Terlivaz CVR (as defined below) and the non-current portion of the embedded derivative, respectively.
$
$
2,950.0
290.0
404.8
172.1
3,816.9
Consolidated Balance Sheet
The four-column consolidated balance sheet as of the 2023 Effective Date included herein, applies effects of the 2023 Plan (reflected in the column
"Reorganization Adjustments") and fresh-start accounting (reflected in the column "Fresh-Start Adjustments") to the carrying values and classifications of
assets or liabilities. Upon adoption of fresh-start accounting, the recorded amounts of assets and liabilities were adjusted to reflect their estimated fair values.
Accordingly, the reported historical financial statements of the
101
Predecessor prior to the adoption of fresh-start accounting for periods ended on or prior to the 2023 Effective Date are not comparable to those of the
Successor. The explanatory notes highlight methods used to determine fair values or other amounts of the assets and liabilities as well as significant
assumptions.
The four-column consolidated balance sheet as of November 14, 2023 is as follows:
Predecessor
Reorganization
Adjustments
Fresh-Start
Adjustments
Successor
Assets
Current Assets:
Cash and cash equivalents
Accounts receivable, less allowance for doubtful accounts
Inventories
Prepaid expenses and other current assets
Total current assets
Property, plant and equipment, net
Intangible assets, net
Deferred income taxes
Other assets
Total Assets
Liabilities and Shareholders' Equity
Current Liabilities:
Current maturities of long-term debt
Accounts payable
Accrued payroll and payroll-related costs
Accrued interest
Income taxes payable
Accrued and other current liabilities
Acthar Gel-Related Settlement
Total current liabilities
Long-term debt
Pension and postretirement benefits
Environmental liabilities
Deferred income taxes
Other income tax liabilities
Other liabilities
Acthar Gel-Related Settlement
Liabilities subject to compromise
Total Liabilities
Shareholders' Equity:
Predecessor ordinary shares
Successor ordinary shares
Predecessor ordinary shares held in treasury
Predecessor additional paid-in capital
Successor additional paid-in capital
Predecessor accumulated other comprehensive income
Retained (deficit) earnings
Total Shareholders' Equity
Total Liabilities and Shareholders' Equity
(127.3) (a)
—
—
6.4 (b)
(120.9)
—
—
586.6 (c)
(2.4) (d)
463.3
(370.0) (e)
(19.4) (f)
—
(31.5) (g)
—
31.6 (h)
21.4 (i)
(367.9)
1,858.9 (e)
—
—
—
—
7.5 (j)
214.7 (i)
(4,932.1) (k)
(3,218.9)
(0.1) (l)
0.2 (l)
0.1 (l)
(2,199.9) (l)
1,194.6 (l)
0.7 (m)
4,686.6 (n)
3,682.2
463.3
$
$
$
$
—
—
257.6 (o)
(0.7) (p)
256.9
(150.2) (q)
(1,633.7) (r)
208.5 (s)
12.5 (t)
(1,306.0)
—
—
—
—
—
(0.1) (u)
—
(0.1)
—
—
—
(1.3) (v)
—
27.6 (w)
(88.6) (x)
—
(62.4)
—
—
—
—
—
(11.1) (y)
(1,232.5) (z)
(1,243.6)
(1,306.0)
$
$
$
$
186.8
467.7
1,036.3
155.0
1,845.8
318.4
624.6
795.1
233.0
3,816.9
8.7
73.8
81.6
0.7
2.7
253.6
21.4
442.5
1,858.9
39.4
34.6
—
19.6
101.0
126.1
—
2,622.1
—
0.2
—
—
1,194.6
—
—
1,194.8
3,816.9
$
$
$
$
314.1
467.7
778.7
149.3
1,709.8
468.6
2,258.3
—
222.9
4,659.6
$
$
378.7
93.2
81.6
32.2
2.7
222.1
—
810.5
—
39.4
34.6
1.3
19.6
65.9
—
4,932.1
5,903.4
0.1
—
(0.1)
2,199.9
—
10.4
(3,454.1)
(1,243.8)
$
4,659.6
$
102
Reorganization Adjustments
(a) The table below reflects the sources and uses of cash on the 2023 Effective Date:
Uses:
Payment of professional fees
Payment to fund professional fees escrow (prepaid and other current assets restricted cash)
Payment of costs, fees and expenses related to exit-financing activities and accrued and unpaid interest on certain pre-emergence debt
Payment of cash sweep
Total Uses of Cash
$
$
19.4
24.0
33.3
50.6
127.3
(b) Represents the transfer of funds to a restricted cash account for purposes of funding the $24.0 million professional fee reserve offset by the net write-
off of $17.2 million and $0.4 million of prepaid expenses related to premiums for the Predecessor's directors' and officers' insurance policy and the
Predecessor's directors' compensation, respectively.
(c) Reflects adjustments primarily consisting of the reduction in the valuation allowance on the Company's deferred tax assets, and the net increase on
the Company’s deferred tax assets as a result of reorganization adjustments.
(d) Represents the write-off of $2.4 million of the non-current portion of premiums related to the Predecessor's directors' and officers' insurance policy.
(e)
Impacts to long-term debt, net of current maturities, pursuant to the 2023 Plan, include the following:
•
•
•
Conversion of all DIP Claims (i) under the DIP Credit Agreement of $280.0 million and (ii) related to the 2025 First Lien Notes, the 2028
First Lien Notes and the First Lien Term Loans into $871.4 million of Takeback Term Loans, and $778.6 million in aggregate principal
amount of Takeback Notes;
Elimination of the Second Lien Notes; and
Capitalization of an additional $1.7 million of deferred financing fees associated with the receivables financing facility due December 2027.
All Predecessor debt was classified as liabilities subject to compromise ("LSTC") as of the 2023 Effective Date except for the DIP Credit Agreement
and the receivables financing facility. The receivables financing facility, with an outstanding balance of $98.7 million, net of deferred financing fees,
was reclassed to long-term debt as the maturity date was amended to December 2027 upon the effectuation of the 2023 Plan.
Reflects the fair value adjustments to the carrying value of debt instruments impacted by the 2023 Plan as determined by the Black-Derman-Toy
model as follows:
First-Out Takeback Term Loans
Second-Out Takeback Term Loans
Takeback Notes
Total fair value adjustment to debt instruments
$
$
15.0
46.3
59.3
120.6
(f) Represents $19.4 million of professional fees paid to the Company’s restructuring advisors upon the Company's emergence from the 2023
Bankruptcy Proceedings.
(g) Represents payments of accrued interest on the Company's predecessor DIP Credit Agreement, the 2025 First Lien Notes, the 2028 First Lien Notes
and the First Lien Term Loans, in accordance with the cash collateral order on the 2023 Effective Date.
(h) Represents the reserve for $24.0 million related to the professional fees coupled with the current portion of the embedded derivative of $7.6 million
related to certain of the Company's debt obligations. Refer to Note 19 for further information on the valuation of the embedded derivative.
(i) Represents the reinstatement of the Acthar Gel-Related Settlement liability from LSTC.
(j) Represents the non-current portion of the debt-related embedded derivative of $7.5 million as further described in Notes 19.
103
(k) LSTC were settled as follows in accordance with the 2023 Plan (in millions):
Liabilities subject to compromise
(1)
Accrued interest
Debt
Acthar Gel-Related Settlement liability
Opioid-Related Litigation Settlement liability
Other non-current liabilities
(1)
(1)
Total liabilities subject to compromise
To be reinstated on the 2023 Effective Date:
Acthar Gel-Related Settlement liability
Other non-current liabilities
Total liabilities reinstated
Consideration provided to settle amounts per the 2023 Plan
Issuance of Successor ordinary shares
Issuance of Opioid CVRs
Issuance of Second-Out Takeback Term Loans and Second-Out Takeback Notes
Total consideration provided to settle amounts per the 2023 Plan
Gain on settlement of liabilities subject to compromise
$
$
$
$
$
$
$
158.8
3,512.1
236.1
1,025.0
0.1
4,932.1
(236.1)
(0.1)
(236.2)
(1,169.7)
(25.1)
(1,535.1)
(2,729.9)
1,966.0
(1) Excluded from the calculation of gain on settlement of LSTC is the accretion acceleration of $377.6 million, $145.0 million and $598.4 million on the Company's debt obligations,
Acthar Gel-Related Settlement liability and Opioid-Related Litigation Settlement liability, respectively, to the estimated allowed claim amount. Also excluded is $18.5 million of
deferred financing fee write-offs in order to reflect the carrying value of debt at its estimated allowed claim amount.
(l) Pursuant to the 2023 Plan, as of the 2023 Effective Date, all Predecessor preferred and ordinary shares were cancelled without any distribution. The
following table reconciles reorganization adjustments made to Successor ordinary shares, Opioid CVRs and additional paid in capital:
Par value of 19,696,335 shares of Successor ordinary shares issued to holders of the Predecessor First Lien Notes and Second Lien Notes
(par valued at $0.01 per share)
Fair value of Opioid CVRs issued to the Trust
Additional paid in capital - Successor ordinary shares
(1)
Successor equity
$
$
0.2
25.1
1,169.5
1,194.8
(1) The fair value of the Opioid CVRs were estimated using a Black-Scholes model with the following assumptions: $60.28 implied share price of the Successor; exercise price per
share of $99.36; expected volatility of 65.0%; risk free interest rate of 4.49%, continuously compounded; and a holding period of four years. The expected volatility assumption is
based on the historical and implied volatility of the Company's peer group with similar business models.
(m) Represents adjustments primarily consisting of the reduction in the valuation allowance on the Company's accumulated other comprehensive income.
(n) Retained (deficit) earnings - The cumulative effect of the consummation of the 2023 Plan on the Predecessor's retained deficit is as follows:
Gain on settlement of LSTC
Professional and exit fees
Release of prepaid insurance
Fair value of First-Out Takeback Term Loans and related embedded derivative
Income tax benefit on plan adjustments
Cancellation of Predecessor equity
and directors fees
(1)
Net impact on retained earnings
(1) Write off of prepaid expenses related to premiums for the Predecessor's directors' and officers' insurance policy.
$
$
1,966.0
(24.0)
(20.0)
(21.2)
585.9
2,199.9
4,686.6
Fresh-Start Adjustments
(o) Reflects the fair value adjustment related to the Company's inventory. Both the bottom-up and top-down approach were used. The bottom-up
approach considers the inventory value that had been created by the Company including the costs incurred, profit realized, and tangible and
intangible assets used pre-2023 Effective Date. The top-down approach measures the
104
incremental inventory value created by the market participant buyer as part of its selling effort to an end customer and considers the costs that will be
incurred, the profit that will be realized, and the tangible and intangible assets that will be used post-2023 Effective Date.
(p) Reflects the reduction of prepaid income taxes due to remeasurement as a result of fresh-start accounting.
(q) Reflects the fair value adjustment related to the Company's property, plant and equipment. Both the market and cost approaches were utilized to fair
value land and buildings. The cost approach was utilized to fair value capitalized software and machinery and equipment. Construction in process
was reported at its cost. The results from all approaches were adjusted for the impact of economic obsolescence.
(r) Reflects the fair value adjustment related to the Company's intangible assets. The fair value of the completed technology intangible assets were
determined using the income approach. The cash flows were discounted commensurate with the level of risk associated with each asset within its
projected cash flows. The discount rates applied to the intangible assets consider the overall risk of the business, which reflects a level of risk
commensurate with the Company having emerged from bankruptcy twice in the most recent two fiscal years. In addition, the intangible asset
discount rates reflect differences in risk within each business segment, as well as the impact of certain tax attributes recorded on the balance sheet.
The valuation used discount rates ranging from 13.5% through 52.5%, depending on the asset. See Note 12 for further information on intangible
assets.
(s) Reflects the net increase on the Company's deferred tax assets as a result of fresh-start accounting, primarily driven by the fair value adjustment on
the Company's intangible assets.
(t) The Company’s lease obligations were revalued using the incremental borrowing rate applicable to the Company upon emergence from the 2023
Bankruptcy Proceedings and commensurate with its new capital structure. The incremental borrowing rate used in the revaluation of the lease
obligations decreased from 13.2% in the Predecessor period to 8.1% in the Successor period. The revaluation of lease obligations includes the
adjustment for contract-based off-market intangibles for favorable or unfavorable terms to the right-of-use assets as well as the removal of right-of-
use assets (and affiliated lease liabilities) associated with the Company’s leases with a remaining contract term of less than one year as of the 2023
Effective Date. The revaluation resulted in an increase in the right-of-use asset of $12.5 million.
(u) Reflects an adjustment of $0.1 million to decrease the Company's current lease liabilities as a result of the revaluation of the lease obligations as
described in footnote (s) above.
(v) Reflects the reduction of the Company's deferred tax liabilities as a result of fresh-start accounting.
(w) Reflects the (i) fair value adjustment to the contingent value rights associated with Terlivaz ("Terlivaz CVR") utilizing a net present value of a
probability-weighted assessment estimated using a Monte Carlo simulation. The Company determined the fair value adjustment to be $14.9 million;
and (ii) an increase to the Company's non-current lease liabilities of $12.7 million as described in footnote (s) above.
(x) Reflects the fair value adjustment to the Acthar Gel-Related Settlement liability utilizing a discounted cash flow model with an average credit-
adjusted discount rate of 13.3%.
(y) Reflects the fair value adjustment to eliminate the accumulated other comprehensive income of $10.0 million related to pension benefits and
$5.7 million of cash flow hedges, partially offset by the elimination $2.1 million of currency translation adjustment and $2.5 million of income tax
effects, which resulted in income tax benefit of zero.
(z) The cumulative effect of the fresh-start accounting on the Successor's retained deficit is as follows:
Fresh-start adjustment:
Inventories
Property, plant and equipment
Intangible assets
Acthar Gel-Related Settlement
Other assets and liabilities
Total fresh-start adjustments impacting reorganization items, net
Fresh-start adjustments to accumulated other comprehensive income, net of zero tax benefit
Total fresh-start adjustments recorded to income tax benefit
Net fresh-start impact to accumulated deficit
105
$
$
257.6
(150.2)
(1,633.7)
88.6
(15.0)
(1,452.7)
11.1
209.1
(1,232.5)
2020 Fresh-Start Accounting
The Company qualified for and adopted fresh-start accounting as of the 2020 Effective Date in accordance with ASC 852 as (i) the reorganization value
of the assets of the Company immediately prior to the 2020 Effective Date was less than the post-petition liabilities and allowed claims and (ii) the holders of
the voting shares of the Company immediately before the 2020 Effective Date received less than 50% of the voting shares of the Company after the 2020
Effective Date.
Reorganization Value
Reorganization value represents the fair value of the Company's total assets immediately after the 2020 Effective Date and is intended to approximate the
amount a willing buyer would pay for the assets immediately after restructuring. Upon the application of fresh-start accounting, the Company allocated the
reorganization value to its identified tangible and intangible assets and liabilities based on their estimated fair values in accordance with ASC Topic 805 -
Business Combinations. Deferred income tax amounts were determined in accordance with ASC Topic 740 - Income Taxes.
As set forth in the disclosure statement approved by the Bankruptcy Court, the enterprise value of the Company immediately after the 2020 Effective
Date was estimated to be between $5,200.0 million and $5,700.0 million, with a midpoint of $5,450.0 million, which was estimated with the assistance of
third-party valuation advisors using various valuation methods, including (i) discounted cash flow analysis, a calculation of the present value of the future
cash flows to be generated by the business based on its projection, and (ii) comparable public company analysis, a method to estimate the value of a company
relative to other publicly traded companies with similar operation and financial characteristics. The estimated enterprise value per the disclosure statement
included estimated equity value in a range between $563.0 million and $1,063.0 million, with a midpoint of $813.0 million. Subsequent to the filing of the
disclosure statement, the Company made revisions to certain of the cash flow projections due to declines in projected operating performance. Based upon a
reevaluation of relevant factors used in determining the range of enterprise value and updated expected cash flow projections, the Company concluded the
enterprise value, or fair value, was $5,223.0 million.
The basis of the discounted cash flow analysis used in developing the enterprise value was based on Company prepared projections that included a
variety of estimates and assumptions. While the Company considered such estimates and assumptions reasonable, they were inherently subject to significant
business, economic and competitive uncertainties, many of which were beyond the Company’s control and, therefore, may not have been realized. Changes in
these estimates and assumptions may have had a significant effect on the determination of the Company’s enterprise value.
The following table reconciles the enterprise value to the implied fair value of the Company's equity as of the 2020 Effective Date:
Enterprise value
Plus: Enterprise value adjustments
(1)
Adjusted enterprise value
Plus: Cash and cash equivalents
Plus: Non-operating assets, net
Less: Fair value of debt
Less: Fair value of Opioid-Related Litigation Settlement, Acthar Gel-Related Settlement, StrataGraft PRV proceeds and Terlivaz contingent value rights
(2)
Equity value
$
$
5,223.0
197.0
5,420.0
297.9
178.7
(3,067.2)
(625.8)
2,203.6
(1) Represents incremental tax benefits not contemplated in the projections utilized in the disclosure statement.
(2) Represents non-operating assets and liabilities which were excluded from the enterprise value as put forth in the disclosure statement as there were no cash projections associated
with these net assets.
Upon the application of fresh-start accounting, the Company allocated the reorganization value to its individual assets based on their estimated fair
values. Reorganization value represents the fair value of the Company’s assets before considering liabilities.
The following table reconciles the Company's enterprise value to its reorganization value as of the 2020 Effective Date:
Adjusted enterprise value
Plus: Cash and cash equivalents
Plus: Non-operating assets, net
Plus: Current liabilities (excluding debt or debt-like items)
Plus: Other non-current liabilities (excluding debt or debt-like items)
Reorganization value of assets
106
$
$
5,420.0
297.9
178.7
522.5
183.2
6,602.3
Consolidated Balance Sheet
The four-column consolidated balance sheet as of the 2020 Effective Date included herein, applies effects of the 2020 Plan (reflected in the column
"Reorganization Adjustments") and fresh-start accounting (reflected in the column "Fresh-Start Adjustments") to the carrying values and classifications of
assets or liabilities. Upon adoption of fresh-start accounting, the recorded amounts of assets and liabilities were adjusted to reflect their estimated fair values.
Accordingly, the reported historical financial statements of the Company prior to the adoption of fresh-start accounting for periods ended on or prior to the
2020 Effective Date are not comparable to those of the Company after the 2020 Effective Date. The explanatory notes highlight methods used to determine
fair values or other amounts of the assets and liabilities as well as significant assumptions.
107
The four-column consolidated balance sheet as of June 16, 2022 was as follows:
Predecessor
Reorganization
Adjustments
Fresh-Start
Adjustments
Successor
(1)
Assets
Current Assets:
Cash and cash equivalents
Accounts receivable, less allowance for doubtful accounts
Inventories
Prepaid expenses and other current assets
Current asset held for sale
Total current assets
Property, plant and equipment, net
Intangible assets, net
Deferred income taxes
Other assets
Total Assets
Liabilities and Shareholders' Equity
Current Liabilities:
Current maturities of long-term debt
Accounts payable
Accrued payroll and payroll-related costs
Accrued interest
Acthar Gel-Related Settlement
Opioid-Related Litigation Settlement
Accrued and other current liabilities
Current liability held for sale
Total current liabilities
Long-term debt
Acthar Gel-Related Settlement
Opioid-Related Litigation Settlement liability
Pension and postretirement benefits
Environmental liabilities
Deferred income taxes
Other income tax liabilities
Other liabilities
Liabilities subject to compromise
Total Liabilities
Shareholders' Equity:
Predecessor preferred shares
Predecessor ordinary A shares
Predecessor ordinary shares
Successor ordinary shares
Predecessor ordinary shares held in treasury
Predecessor additional paid-in capital
Successor additional paid-in capital
Predecessor accumulated other comprehensive loss
Retained (deficit) earnings
Total Shareholders' Equity
Total Liabilities and Shareholders' Equity
$
$
$
$
1,392.6
387.4
375.2
322.6
—
2,477.8
748.6
5,166.6
—
222.8
8,615.8
$
$
1,389.9
156.4
71.4
20.8
—
—
296.1
—
1,934.6
—
—
—
27.6
37.1
20.4
75.9
68.6
6,402.7
8,566.9
—
—
18.9
—
(1,616.1)
5,599.5
—
(9.9)
(3,943.5)
48.9
$
8,615.8
$
(1,094.7) (a)
—
—
75.3 (b)
—
(1,019.4)
—
—
—
(3.9) (c)
(1,023.3)
(1,355.2) (d)
(53.8) (e)
—
(13.0) (f)
16.5 (g)
200.0 (h)
50.8 (i)
35.0 (j)
(1,119.7)
3,050.9 (d)
63.2 (g)
304.3 (h)
27.2 (k)
—
102.7 (l)
—
23.6 (m)
(6,402.7) (n)
(3,950.5)
—
—
(18.9) (o)
0.1 (o)
1,616.1 (o)
(5,599.5) (o)
2,203.5 (o)
—
4,725.9 (p)
2,927.2
(1,023.3)
$
$
$
$
—
—
851.8 (q)
(58.3) (r)
100.0 (j)
893.5
(299.2) (s)
(2,014.4) (t)
453.4 (l)
(23.5) (u)
(990.2)
—
—
—
—
—
—
(6.1) (v)
—
(6.1)
(18.4) (w)
—
—
—
—
(121.7) (l)
(61.9) (x)
(9.6) (v)
—
(217.7)
—
—
—
—
—
—
—
9.9 (y)
(782.4) (z)
(772.5)
(990.2)
$
$
$
$
297.9
387.4
1,227.0
339.6
100.0
2,351.9
449.4
3,152.2
453.4
195.4
6,602.3
34.7
102.6
71.4
7.8
16.5
200.0
340.8
35.0
808.8
3,032.5
63.2
304.3
54.8
37.1
1.4
14.0
82.6
—
4,398.7
—
—
—
0.1
—
—
2,203.5
—
—
2,203.6
6,602.3
(1) The term Successor was used to illustrate the four column consolidated balance sheet as of the 2020 Effective Date. Upon adoption of fresh-start accounting on the 2023 Effective Date,
all balances in this four-column consolidated balance sheet became Predecessor period balances.
108
Reorganization Adjustments
(a) The table below reflects the sources and uses of cash on the 2020 Effective Date:
Sources:
Proceeds from the 2028 First Lien Notes
Total Sources
Uses:
Payment of Predecessor revolving credit facility
Upfront payment of the Opioid-Related Litigation Settlement
Upfront payment of the Acthar Gel-Related Settlement, inclusive of settlement interest
Payment of secured, administrative, priority and trade claims
Payment of professional fees
Payment to fund professional fees escrow (prepaid and other current assets restricted cash)
Payment of general unsecured claims
Payment of noteholder consent fees
Payment of costs, fees and expenses related to exit-financing activities, an exit fee associated with predecessor senior secured loans and accrued and unpaid interest
on certain pre-emergence debt
Total Uses
Net Uses of Cash
$
$
637.0
637.0
(900.0)
(447.4)
(17.8)
(26.2)
(43.5)
(89.0)
(135.0)
(19.3)
(53.5)
(1,731.7)
(1,094.7)
(b) Represents the transfer of funds to a restricted cash account for purposes of funding the $89.0 million professional fee reserve offset by the release of
a $10.9 million prepaid success fee as a result of emergence from the 2020 Bankruptcy Proceedings and the write off of prepaid expenses related to
premiums for the predecessor's directors' and officers' insurance policy in existence prior to the 2020 Effective Date.
(c) Debt issuance costs of $2.6 million related to entering into a receivables financing facility. These costs were capitalized as other non-current assets as
the facility was undrawn as of June 16, 2022. Refer to Note 13 for further information on the receivables financing facility. Also reflects a write-off
of $6.5 million of prepaid expenses related to premiums for the predecessor's directors' and officers' insurance policy in existence prior to the 2020
Effective Date.
(d) Impacts to long-term debt, net of current maturities, pursuant to the 2020 Plan, include the following:
•
•
•
•
•
•
Repayment of the $900.0 million Predecessor Revolver;
Issuance of the 2017 and 2018 Replacement Term Loans of $1,392.9 million and $369.7 million, respectively, of which $34.7 million was
current;
Issuance of the 2025 Second Lien Notes of $322.9 million;
Issuance of the 2029 Second Lien Notes of $375.0 million;
Reinstatement of the 2025 First Lien Notes of $495.0 million principal, net of $5.1 million deferred financing fees; and
Issuance of $650.0 million 2028 First Lien Notes, net of a $13.0 million original issuance discount and $9.7 million of deferred debt
issuance costs.
Fair value adjustments to the carrying value of debt instruments impacted by the 2020 Plan as determined by the Black-Derman-Toy model as
follows:
2017 Replacement Term Loans
2018 Replacement Term Loans
2025 Second Lien Notes
2029 Second Lien Notes
Total fair value adjustment to debt instruments
$
$
(169.4)
(42.2)
(95.7)
(184.8)
(492.1)
Debt for certain of these instruments described above in existence prior to the 2020 Effective Date were classified in LSTC as of the 2020 Effective
Date.
(e) Represents $43.5 million of professional fees paid to the Company’s restructuring advisors upon the Company's emergence from the 2020
Bankruptcy Proceedings and $25.2 million of secured, administrative and priority payments, partially offset by $14.6 million of professional advisor
success fees incurred on the 2020 Effective Date plus reinstatement of LSTC.
(f) Represents payments of accrued interest on the Company's Predecessor Revolver, Predecessor Term Loans and Predecessor 2025 Second Lien Notes
in accordance with the cash collateral order on the 2020 Effective Date.
109
(g) Pursuant to the 2020 Plan, the Company agreed to pay $260.0 million to the DOJ and other parties over seven years to settle the Acthar Gel-related
matters. The Company reduced its estimated allowed claim amount related to these matters to the settlement amount of $260.0 million and
reclassified it from LSTC to other non-current liabilities. On the 2020 Effective Date, the Company made an upfront payment of $17.8 million,
inclusive of settlement interest. The remaining deferred cash payments of $245.0 million and related settlement interest were recorded at fair value
utilizing a discounted cash flow model with an average credit-adjusted discount rate of 27.8%. The fair value of the liability was $16.5 million and
$63.2 million, respectively, reflected within current and other non-current liabilities in the above table.
(h) Pursuant to the 2020 Plan, the Company agreed to pay $1,725.0 million into certain trusts to resolve all opioid claims, and made an upfront payment
of $447.4 million on the 2020 Effective Date. The remaining Opioid Deferred Cash Payments of $1,275.0 million were recorded at fair value
utilizing the Black-Derman-Toy model, which incorporates the option to prepay as well as other inputs such as an average credit-adjusted discount
rate of 27.8%. The fair value of the liability was $200.0 million and $304.3 million, respectively, reflected within current and other non-current
liabilities in the above table.
(i) The following table reconciles reorganization adjustments to accrued and other current liabilities:
Severance - Exiting Chief Executive Officer ("CEO")
Reinstatement of various successor obligations from LSTC
Success fees for professionals incurred on 2020 Effective Date
$
$
5.7
15.4
29.7
50.8
(j) As part of fresh-start accounting, the Company recorded a $100.0 million intangible asset in relation to the Company's PRV that was awarded under
an FDA program intended to encourage the development of certain product applications for therapies used to treat or prevent material threat medical
countermeasures. It also recorded a $35.0 million liability related to the proceeds from a sale of the PRV, which was due to the general unsecured
claims trustee pursuant to the terms of the 2020 Plan and the general unsecured claims trust agreement entered into with the 2020 Plan. As of the
2020 Effective Date, this asset and liability were classified as held-for-sale. Refer to Note 12 for further information on the subsequent sale of the
PRV.
(k) Reinstatement of certain long-term pension and other postretirement plans from LSTC to other liabilities.
(l) Reflects reorganization adjustments consisting of (1) the reduction in federal and state net operating loss ("NOL") carryforwards from cancellation of
debt income ("CODI") realized upon emergence from bankruptcy and limitations under Sections 382 and 383 of the U.S. Internal Revenue Code of
1986 ("IRC"); (2) the net decrease in deferred tax assets resulting from reorganization adjustments; (3) the reduction in the valuation allowance on
the Company's deferred tax assets and fresh-start adjustments consisting of (4) the net decrease in deferred tax liabilities resulting from fresh-start
adjustments; and (5) the release of uncertain tax positions that are no longer required upon emergence from bankruptcy.
(m) Reflects the reinstatement of the Company's $16.8 million asbestos-related defense costs from LSTC to other liabilities and establishment of the
Terlivaz CVR in accordance with the 2020 Plan and the 2020 Scheme of Arrangement. The Terlivaz CVR is based upon the achievement of a
cumulative net sales milestone. The Company will assess the likelihood of and timing of making such payment at each balance sheet date. The fair
value of the contingent payment was measured based on the net present value of a probability-weighted assessment estimated using a Monte Carlo
simulation. The Company determined the fair value of the Terlivaz CVR to be $6.8 million as of the 2020 Effective Date.
110
(n) LSTC were settled as follows in accordance with the 2020 Plan (in millions):
Liabilities subject to compromise
Accounts payable
Accrued interest
Debt
Environmental liabilities
Acthar Gel-Related Settlement liability
Opioid-Related Litigation Settlement liability
Other current and non-current liabilities
Pension and postretirement benefits
Total liabilities subject to compromise
Reinstated on the 2020 Effective Date:
Accounts payable
Other current and non-current liabilities
Pension and postretirement benefits
Total liabilities reinstated
Consideration provided to settle amounts per the 2020 Plan
Issuance of successor common stock
Issuance of Opioid Warrants
Issuance of First Lien Term Loans and 2025 Second Lien Notes
Acthar Gel-Related Settlement liability
Opioid-Related Litigation Settlement liability
Issuance of 2029 Second Lien Notes to holders of the Guaranteed Unsecured Notes
Contingent liabilities for proceeds of sale of StrataGraft PRV and Terlivaz CVR
Cash payment
Total consideration provided to settle amounts per the 2020 Plan
Gain on settlement of liabilities subject to compromise
$
$
$
$
$
$
$
17.7
35.2
3,746.2
67.2
630.0
1,722.4
151.6
32.4
6,402.7
(0.1)
(27.3)
(32.4)
(59.8)
(2,189.7)
(13.9)
(1,778.3)
(79.7)
(504.3)
(190.2)
(41.8)
(601.3)
(5,399.2)
943.7
(o) Pursuant to the 2020 Plan, as of the 2020 Effective Date, all of the Company's preferred and ordinary shares in existence prior to the 2020 Effective
Date were cancelled without any distribution. The following table reconciles reorganization adjustments made to the Company's common stock,
Opioid Warrants and additional paid in capital:
Par value of 13,170,932 shares of Common Stock issued to former holders of the Guaranteed Unsecured Notes
(par valued at $0.01 dollars per share)
Fair value of Opioid Warrants issued to holders of the Guaranteed Unsecured Notes
Additional paid in capital - Common Stock
(1)
Equity
$
$
0.1
13.9
2,189.6
2,203.6
(1) The fair value of the Opioid Warrants was estimated using a Black-Scholes model with the following assumptions: $18.50 stock price of the Company; exercise price per share of
$103.40; expected volatility of 62.28%; risk free interest rate of 3.34%, continuously compounded; and a holding period of six years. The expected volatility assumption is based on
the historical and implied volatility of the Company's peer group with similar business models.
(p) Retained deficit - The cumulative effect of the consummation of the 2020 Plan on the Company's retained deficit was as follows:
Gain on settlement of LSTC
Professional, success and exit fees
Release of prepaid success fee
(1)
Release of prepaid insurance
Accrual of severance for former CEO
Income tax expense on plan adjustments
Cancellation of predecessor equity
Net impact on retained deficit
$
$
943.7
(91.6)
(10.9)
(9.2)
(5.7)
(102.7)
4,002.3
4,725.9
(1) Write off of prepaid expenses related to premiums for the predecessor's directors' and officers' insurance policy in existence prior to the 2020 Effective Date.
111
Fresh-Start Adjustments
(q) Reflects the fair value adjustment related to the Company's inventory. Both the bottom-up and top-down approach were used. The bottom-up
approach considers the inventory value that had been created by the Company including the costs incurred, profit realized, and tangible and
intangible assets used pre-2020 Effective Date. The top-down approach measures the incremental inventory value created by the market participant
buyer as part of its selling effort to an end customer and considers the costs that will be incurred, the profit that will be realized, and the tangible and
intangible assets that will be used post-2020 Effective Date.
(r) Reflects the reduction of $54.0 million in prepaid income taxes due to remeasurement as a result of fresh-start accounting. Also reflects a write-off of
$4.3 million of asbestos indemnification receivable affiliated with asbestos-related defense costs.
(s) Reflects the fair value adjustment related to the Company's property, plant and equipment. Both the market and cost approaches were utilized to fair
value land and buildings. The cost approach was utilized to fair value capitalized software and machinery and equipment. Construction in process
was reported at its cost less adjustments for economic obsolescence.
(t) Reflects the fair value adjustment related to the Company's intangible assets. The fair value of the completed technology and in-process research and
development ("IPR&D") intangible assets were determined using the income approach. The cash flows were discounted commensurate with the level
of risk associated with each asset or its projected cash flows. The valuation used discount rates ranging from 13.0% through 15.0%, depending on the
asset. The IPR&D discount rate was developed after assigning a probability of success to achieving the projected cash flows based on the current
stages of development, inherent uncertainty in the FDA approval process and risks associated with commercialization of a new product.
(u) Reflects the write-off of (i) $16.0 million of asbestos indemnification receivable affiliated with asbestos-related defense costs; (ii) $3.9 million of
spare parts that did not meet the Company's capitalization threshold; and (iii) $1.1 million of third party debt issuance costs. Also reflects a decrease
of $0.9 million to income tax receivables associated with a change in uncertain tax positions as a result of fresh-start accounting.
In addition, the Company’s lease obligations were revalued using the incremental borrowing rate applicable to the Company upon emergence from
the 2020 Bankruptcy Proceedings and commensurate with its new capital structure. The incremental borrowing rate used in the revaluation of the
lease obligations increased from 8.85% in the period prior to the 2020 Effective Date to 11.83% in the period after the 2020 Effective Date. The
revaluation of lease obligations includes the adjustment for contract-based off-market intangibles for favorable or unfavorable terms to the right-of-
use assets as well as the removal of right-of-use assets (and affiliated lease liabilities) associated with the Company’s leases with a remaining
contract term of less than one year as of the 2020 Effective Date. The revaluation resulted in a reduction in the right-of-use asset of $1.6 million.
(v) Reflects the write-off of (i) $6.1 million and $16.7 million of current and non-current asbestos-related defense costs, respectively; and (ii) an
adjustment of $6.9 million to increase the Company's total lease liabilities as a result of the revaluation of the lease obligations as described in
footnote (t) above.
(w) Reflects the write-off of $5.1 million of unamortized debt issuance costs and a $23.5 million fair value adjustment to debt principal as determined by
the Black-Derman-Toy model related to the reinstated 2025 First Lien Notes.
(x) Reflects the reduction of liabilities for unrecognized tax benefits that are no longer required upon emergence from the 2020 Bankruptcy Proceedings.
(y) Reflects the fair value adjustment to eliminate the accumulated other comprehensive income of $8.1 million related to pension benefits and
$2.1 million of currency translation adjustment, partially offset by the elimination of $0.3 million of income tax effects, which resulted in income tax
benefit of $0.3 million.
112
(z) The cumulative effect of the fresh-start accounting on the predecessor's retained deficit as of the 2020 Effective Date was as follows:
Fresh-start adjustment:
Inventories
Property, plant and equipment, net
Intangible assets, net
Current asset held for sale
Debt
Other assets and liabilities
Total fresh-start adjustments impacting reorganization items, net
Fresh-start adjustments to accumulated other comprehensive income, net of $0.3 million of tax benefit
Total fresh-start adjustments recorded to income tax benefit
Net fresh-start impact to accumulated deficit
$
$
851.8
(299.2)
(2,014.4)
100.0
18.4
(11.2)
(1,354.6)
(9.9)
582.1
(782.4)
Reorganization items, net
Reorganization items, net, include amounts incurred after a petition date but prior to emergence from bankruptcy as a direct result of the 2020 Chapter 11
Cases or the 2023 Chapter 11 Cases, as applicable, as well as gains and losses associated with emergence from the 2020 Chapter 11 Cases or the 2023 Chapter
11 Cases, as applicable. These amounts include gains and losses associated with the reorganization, primarily the loss on fresh-start adjustments, gain on
settlement of LSTC, bankruptcy-related professional fees, debt financing fees, write-off of debt issuance costs and related unamortized premiums and
discounts and other items.
The period from November 15, 2023 through December 29, 2023 (Successor) included professional fees associated with the implementation of the 2023
Plan incurred after the 2023 Effective Date that are directly related to the restructuring and reorganization of the Company. The period from December 31,
2022 through November 14, 2023 (Predecessor) primarily included a gain on the settlement of LSTC of $1,966.0 million partially offset by a loss of $1,452.7
million on fresh-start adjustment and $1,139.5 million of adjustments of claims to their estimated allowed claim amount as a result of the emergence from the
2023 Bankruptcy Proceedings.
The period from June 17, 2022 through December 30, 2022 (Predecessor) included professional fees associated with the implementation of the 2020 Plan
incurred after the 2020 Effective Date that are directly related to the restructuring and reorganization of the Company. The period from January 1, 2022
through June 16, 2022 (Predecessor) included a loss on fresh-start adjustments of $1,354.6 million partially offset by a gain on settlement of LSTC of $943.7
million as a result of the emergence from the 2020 Bankruptcy Proceedings. Fiscal year 2021 included professional fees related to the 2020 Bankruptcy
Proceedings.
Cash paid for reorganization items, net for the period from November 15, 2023 through December 29, 2023 (Successor), December 31, 2022 through
November 14, 2023 (Predecessor), June 17, 2022 through December 30, 2022 (Predecessor), January 1, 2022 through June 16, 2022 (Predecessor) and fiscal
2021 (Predecessor) were $0.8 million, $22.6 million, $18.4 million, $304.1 million, and $333.1 million, respectively.
113
Reorganization items, net, were comprised of the following:
Successor
Period from
November 15, 2023
through December
29, 2023
Predecessor
Period from
December 31, 2022
through
November 14, 2023
Period from
June 17, 2022
through
December 30, 2022
Period from
January 1, 2022
through
June 16, 2022
Gain on settlements of LSTC
Loss on fresh-start adjustments
Adjustments of other claims
Professional and other service provider fees
Success fees for professional service providers
Debt financing
Debt valuation adjustments
Write off of prepaid premium for directors and officers' insurance
policies, net, and directors fees
Acceleration of the vesting of Predecessor equity awards upon the 2023
Effective Date
Total reorganization items, net
$
$
—
—
—
4.0
—
—
—
—
—
4.0
4.
Summary of Significant Accounting Policies
Revenue Recognition
Product Sales Revenue
$
$
(1,966.0)
1,452.7
1,139.5
61.7
—
154.6
21.2
20.0
9.0
$
—
—
—
23.2
—
—
—
—
—
(943.7)
1,354.6
5.4
161.1
44.3
—
—
9.2
—
$
892.7
$
23.2
$
630.9
$
Year Ended
December 31, 2021
—
$
—
(0.5)
405.6
—
—
23.1
—
—
428.2
The Company sells its products through independent channels, including direct to retail pharmacies, end user customers and through distributors who
resell the products to retail pharmacies, institutions and end user customers, while certain products are sold and distributed directly to hospitals. The Company
also enters into arrangements with indirect customers, such as health care providers and payers, wholesalers, government agencies, institutions, managed care
organizations and group purchasing organizations to establish contract pricing for certain products that provide for government-mandated and/or privately-
negotiated rebates, sales incentives, chargebacks, distribution service agreements fees, fees for services and administration fees and discounts with respect to
the purchase of the Company's products.
Reserve for Variable Considerations
Product sales are recorded at the net sales price (transaction price), which includes estimates of variable consideration for which reserves are established.
These reserves result from estimated chargebacks, rebates, product returns and other sales deductions that are offered within contracts between the Company
and its customers, health care providers and payers relating to the sale of the Company's products. These reserves are based on the amounts earned or to be
claimed on the related sales and are classified as reductions of accounts receivable (if the amount is payable to the customer) or a current liability (if the
amount is payable to a party other than a customer). Where appropriate, these estimates take into consideration a range of possible outcomes that are
probability-weighted for relevant factors such as the Company's historical experience, estimated future trends, estimated customer inventory levels, current
contracted sales terms with customers, level of utilization of the Company's products and other competitive factors. Overall, these reserves reflect the
Company's best estimate of the amount of consideration to which it is entitled based on the terms of the contract. The amount of variable consideration that is
included in the transaction price may be constrained (reduced) and is included in the net sales price only to the extent that it is probable that a significant
reversal in the amount of the cumulative revenue recognized will not occur in a future period. The Company adjusts reserves for chargebacks, rebates, product
returns and other sales deductions to reflect differences between estimated and actual experience. Such adjustments impact the amount of net sales recognized
in the period of adjustment.
Product sales are recognized when the customer obtains control of the Company's product. Control is transferred either at a point in time, generally upon
delivery to the customer site, or in the case of certain of the Company's products, over the period in which the customer has access to the product and related
services. Revenue recognized over time is based upon either consumption of the product or passage of time based upon the Company's determination of the
measure that best aligns with how the obligation is satisfied. The Company's considerations of why such measures provide a faithful depiction of the transfer
of its products are as follows:
•
For those contracts whereby revenue is recognized over time based upon consumption of the product, the Company either has:
114
1.
the right to invoice the customer in an amount that directly corresponds with the value to the customer of the Company's performance
to date, for which the practical expedient to recognize in proportion to the amount it has the right to invoice has been applied, or
2.
the remaining goods and services to which the customer is entitled is diminished upon consumption.
•
For those contracts whereby revenue is recognized over time based upon the passage of time, the benefit that the customer receives from
unlimited access to the Company's product does not vary, regardless of consumption. As a result, the Company's obligation diminishes with the
passage of time; therefore, ratable recognition of the transaction price over the contract period is the measure that best aligns with how the
obligation is satisfied.
Transaction price allocated to the remaining performance obligations
The majority of the Company's contracts have a term of less than one year; and the amount of transaction price allocated to the performance obligations
that are unsatisfied at period end is generally expected to be satisfied within one year.
Cost to obtain a contract
As the majority of the Company's contracts are short-term in nature, sales commissions are generally expensed when incurred as the amortization period
would have been less than one year. These costs are recorded within selling, general and administrative expense ("SG&A") in the consolidated statements of
operations. For contracts that extend beyond one year, the incremental expense recognition matches the recognition of related revenue.
Costs to fulfill a contract
The Company capitalizes the costs associated with the devices used in the Company's portfolio of drug-device combination products, which are used in
satisfaction of future performance obligations. Capital expenditures for these devices represent cash outflows for the Company's cost to produce the asset,
which is classified in property, plant and equipment, net on the consolidated balance sheets and expensed to cost of sales over the useful life of the equipment.
Product Royalty Revenues
The Company licensed certain rights to Amitiza (lubiprostone) ("Amitiza") to third parties in exchange for royalties on net sales of the product. The
®
Company recognized such royalty revenue as the related sales occurred.
Contract Balances
Accounts receivable are recorded when the right to consideration becomes unconditional. Payments received from customers are typically based upon
payment terms of 30 days. The Company does not maintain contract asset balances aside from the accounts receivable balance as presented on the
consolidated balance sheets as costs to obtain a contract are expensed when incurred as the amortization period would have been less than one year. These
costs are recorded within SG&A on the consolidated statements of operations. Contract liabilities are recorded when cash payments are received in advance of
the Company's performance, including amounts that are refundable.
Taxes collected from customers relating to product sales and remitted to governmental authorities are accounted for on a net basis. Accordingly, such
taxes are excluded from both net sales and expenses.
Shipping and Handling Costs
Shipping costs, which are costs incurred to physically move product from the Company's premises to the customer's premises, are classified as SG&A.
Handling costs, which are costs incurred to store, move and prepare product for shipment, are classified as cost of sales. Shipping costs included in SG&A
expenses in continuing operations were as follows:
Shipping costs
$
3.5
$
22.3
$
13.9
$
12.8
$
23.6
Successor
Period from
November 15, 2023
through December
29, 2023
Predecessor
Period from
December 31, 2022
through
November 14, 2023
Period from
June 17, 2022
through
December 30, 2022
Period from
January 1, 2022
through
June 16, 2022
Year Ended
December 31, 2021
Research and Development
Internal research and development costs are expensed as incurred. Research and development ("R&D") expenses include salary and benefits, allocated
overhead and occupancy costs, clinical trial and related clinical manufacturing costs, contract services, medical affairs and other costs.
115
From time to time, the Company has entered into licensing or collaborative agreements with third parties to develop a new drug candidate or intellectual
property asset. These agreements may include R&D, marketing, promotion and selling activities to be performed by one or all parties involved. These
collaborations generally include upfront, milestone and royalty or profit sharing payments contingent upon future events tied to the developmental and
commercial success of the asset. In general, upfront and milestone payments made to third parties under these agreements are expensed as incurred up to the
point of regulatory approval of the product. Milestone payments made to third parties upon regulatory approval are capitalized as an intangible asset and
amortized to cost of sales over the estimated useful life of the related product.
Currency Translation
For the Company's non-U.S. subsidiaries that transact in a functional currency other than U.S. dollars, assets and liabilities are translated into U.S. dollars
using fiscal year-end exchange rates. Revenues and expenses are translated at the average exchange rates in effect during the related month. The net effect of
these translation adjustments is shown in the consolidated financial statements as a component of accumulated other comprehensive income (loss). From time
to time, the Company has entered into derivative instruments to mitigate the exposure of movements in certain of these foreign currency transactions. Gains
and losses resulting from foreign currency transactions are included in net loss.
Cash and Cash Equivalents
The Company classifies cash on hand and deposits in banks, including commercial paper, money market accounts and other investments it may hold from
time to time, with an original maturity to the Company of three months or less, as cash and cash equivalents.
Accounts Receivable and Allowance for Doubtful Accounts
Trade accounts receivable are presented net of an allowance for doubtful accounts. The allowance for doubtful accounts reflects an estimate of losses
inherent in the Company's accounts receivable portfolio determined on the basis of historical experience, current facts and circumstances, reasonable and
supportable forecasts and other available evidence. Accounts receivable are written off when management determines they are uncollectible. Trade accounts
receivable are also presented net of reserves related to chargebacks and rebates payable to customers with whom the Company has trade accounts receivable
and the right of offset exists.
Inventories
Inventories are recorded at the lower of cost or net realizable value, primarily using the first-in, first-out convention. The Company reduces the carrying
value of inventories for those items that are potentially excess, obsolete or slow-moving based on changes in customer demand, technology developments or
other economic factors.
Property, Plant and Equipment
Property, plant and equipment is stated at cost less accumulated depreciation and impairment. Major renewals and improvements are capitalized, while
routine maintenance and repairs are expensed as incurred. Depreciation for property, plant and equipment, other than land and construction in process, is
generally based upon the following estimated useful lives, using the straight-line method:
Buildings
Leasehold improvements
Capitalized software
Machinery and equipment
10
1
1
1
to
to
to
to
45 years
20 years
10 years
20 years
The Company capitalizes certain computer software and development costs incurred in connection with developing or obtaining software for internal use.
Upon retirement or other disposal of property, plant and equipment, the cost and related amount of accumulated depreciation are eliminated from the
asset and accumulated depreciation accounts, respectively. The difference, if any, between the net asset value and the proceeds is included in net loss.
The Company assesses the recoverability of assets or asset groups using undiscounted cash flows whenever events or circumstances indicate that the
carrying value of an asset or asset group may not be recoverable. If an asset or asset group is found to
116
be impaired, the amount recognized for impairment is equal to the difference between the carrying value of the asset or asset group and its fair value.
Leases
The Company assesses all contracts at inception to determine whether a lease exists. The Company leases office space, manufacturing and warehousing
facilities, equipment and vehicles, which are generally operating leases. Leases with an initial term of 12 months or less are not recorded on the consolidated
balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term. The Company has lease agreements with
lease and non-lease components, which are accounted for separately. The Company's lease agreements generally do not contain variable lease payments or
any material residual value guarantees.
Lease assets and liabilities are recognized based on the present value of the future minimum lease payments over the lease term as of the commencement
date. As the Company's leases do not generally provide an implicit rate, the Company utilizes its incremental borrowing rate based on the information
available at commencement date in determining the present value of future lease payments. Most leases include one or more options to terminate or renew,
with renewal terms that can extend the lease term from one to five years. The exercise of lease renewal options is at the Company's sole discretion.
Termination and renewal options are included within the lease assets and liabilities only to the extent they are reasonably certain.
Intangible Assets
Intangible assets acquired in a business combination are recorded at fair value, while intangible assets acquired in other transactions are recorded at cost.
Intangible assets with finite useful lives are amortized according to the pattern in which the economic benefit of the asset is used up over their estimated
useful lives, as shown below. The estimated useful lives of the Company's intangible assets as of December 29, 2023 (Successor) were the following:
Completed technology
1
to
20 years
Amortization expense related to completed technology and certain other intangible assets is included in cost of sales.
When a triggering event occurs, the Company evaluates potential impairment of finite-lived intangible assets by first comparing undiscounted cash flows
associated with the asset, or the asset group they are part of, to its carrying value. If the carrying value is greater than the undiscounted cash flows, the amount
of potential impairment is measured by comparing the fair value of the assets, or asset group, with their carrying value. The fair value of the intangible asset,
or asset group, is estimated using an income approach. If the fair value is less than the carrying value of the intangible asset, or asset group, the amount
recognized for impairment is equal to the difference between the carrying value of the asset and the fair value of the asset. The Company assesses the
remaining useful life and the recoverability of finite-lived intangible assets whenever events or circumstances indicate that the carrying value of an asset may
not be recoverable. The Company annually tests the indefinite-lived intangible assets for impairment, or whenever events or changes in circumstances
indicate that the carrying value may not be recoverable by either a qualitative or income approach. The Company will compare the fair value of the assets
with their carrying value and record an impairment when the carrying value exceeds the fair value.
Contingencies
The Company is subject to various legal proceedings and claims, including government investigations, environmental matters, product liability matters,
patent infringement claims, antitrust matters, securities class action lawsuits, personal injury claims, employment disputes, contractual and other commercial
disputes, and all other legal proceedings, all in the ordinary course of business as further discussed in Note 18. The Company records accruals for
contingencies when it is probable that a liability has been incurred and the amount can be reasonably estimated. The Company discounts environmental
liabilities using a risk-free rate of return when the obligation is fixed or reasonably determinable. The impact of the discount in the consolidated balance
sheets was not material in any period presented. Legal fees, other than those pertaining to environmental matters, are expensed as incurred. Insurance
recoveries related to potential claims are recognized up to the amount of the recorded liability when coverage is confirmed and the estimated recoveries are
probable of payment. Assets and liabilities are not netted for financial statement presentation.
Derivatives and hedging
The Company evaluated the terms and features of its First-Out Takeback Term Loans, Second-Out Takeback Term Loans and Takeback Notes and
identified an embedded feature that, in certain scenarios, could materially modify the cash flows of the respective debt instruments.
117
The Company evaluated the embedded feature and determined that it was not clearly and closely related to the underlying debt instruments and did not
qualify for any scope exceptions set forth in the accounting standards. Accordingly, this embedded feature is required to be bifurcated from its host
instruments and accounted for separately as an embedded derivative liability. As a result, the Company recorded the fair value of the embedded derivatives as
of the issuance date as a liability on its consolidated balance sheet.
The embedded derivative will be adjusted to fair value each reported period with changes in fair value subsequent to the issuance date recognized within
other income (expense) in the consolidated statements of operations. The fair value of the embedded derivative is reflected within current liabilities in the
consolidated balance sheet as of December 29, 2023.
The fair value of the derivative is determined using the with-and-without model which compares the estimated fair value of the
underlying debt instruments with the embedded feature to the estimated fair value of the underlying debt instruments without the embedded feature, with the
difference representing the estimated fair value of the embedded derivative feature. The with-and-without model includes significant unobservable estimates,
including an estimation of the Company’s probability of an asset sale. Management estimates the probability of the asset sale based on its assessment of entity
specific factors and the status of on-going transaction negotiations, if any. Changes in the inputs into the valuation model may have a significant impact on the
estimated fair value of the embedded derivatives. For further details, refer to Note 19.
Liabilities Subject to Compromise
As a result of the commencement of the 2023 and 2020 Bankruptcy Proceedings, the payment of pre-petition liabilities was subject to compromise or
other treatment pursuant to the 2023 and 2020 Plans. The determination of how liabilities would ultimately be settled or treated could not be made until the
confirmed 2023 and 2020 Plans became effective. Accordingly, the ultimate amount of such liabilities was not determinable prior to the respective 2023 and
2020 Effective Dates. Pre-petition liabilities that were subject to compromise were reported at the amounts that were expected to be allowed by the
Bankruptcy Court, even if they may be settled for different amounts. The amounts classified as LSTC prior to the 2023 and 2020 Effective Dates were
preliminary and were subject to future adjustments dependent upon Bankruptcy Court actions, further developments with respect to disputed claims,
determinations of the secured status of certain claims, the values of any collateral securing such claims, rejection of executory contracts, continued
reconciliation or other events.
Share-Based Compensation
The Company recognizes the cost of employee services received in exchange for awards of equity or liability-based instruments based on the grant-date
fair value of those awards. That cost is recognized over the period during which an employee is required to provide service in exchange for the award, the
requisite service period (generally the vesting period). The cost for liability-based instruments is remeasured accordingly each reporting period throughout the
requisite service period.
Restructuring
The Company recognizes charges associated with the Company's Board of Directors approved restructuring programs designed to transform its business
and improve its cost structure. Restructuring charges can include severance costs, infrastructure charges, distributor contract cancellations and other items.
The Company accrues for costs when they are probable and reasonably estimable.
Income Taxes
Deferred tax assets and liabilities are recognized for the expected future tax consequences of events that have been reflected in the consolidated financial
statements. Deferred tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and
operating loss carryforwards, using tax rates expected to be in effect for the years in which the differences are expected to reverse. A valuation allowance is
provided to reduce net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be
realized.
The Company determines whether it is more likely than not that a tax position will be sustained upon examination. The tax benefit of any tax position
that meets the more-likely-than-not recognition threshold is calculated as the largest amount that is more than 50.0% likely of being realized upon resolution
of the uncertainty. To the extent a full benefit is not realized on the uncertain tax position, an income tax liability or a reduction to a deferred tax asset
("contra-DTA(s)") is established. Interest and penalties on income tax obligations, associated with uncertain tax positions, are included in the provision for
income taxes.
The calculation of the Company's tax liabilities involves dealing with uncertainties in the application of complex tax regulations in a multitude of
jurisdictions across the Company's global operations. The Company adjusts these liabilities and contra-DTAs as a result of changing facts and circumstances;
however, due to the complexity of some of these uncertainties, the ultimate resolution may
118
result in a payment that is materially different from current estimates of the tax liabilities. If the Company's estimate of tax liabilities proves to be less than the
ultimate assessment, an additional charge to expense would result. If payment of these amounts ultimately proves to be less than the recorded amounts, the
reversal of the liabilities may result in income tax benefits being recognized in the period when it is determined that the liabilities are no longer necessary.
Refer to Note 7 for further information regarding the classification of such amounts in the consolidated balance sheets.
New Accounting Pronouncements
Not Yet Adopted
In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2023-07, Segment
Reporting: Improvements to Reportable Segment Disclosures. This guidance requires disclosure of incremental segment information on an annual and interim
basis. This amendment is effective for fiscal year ending December 27, 2024 and interim periods within fiscal year ending December 26, 2025. The Company
is currently assessing the impact of this guidance on its disclosures.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes: Improvements to Income Tax Disclosures. This guidance requires consistent
categories and greater disaggregation of information in the rate reconciliation and disclosures of income taxes paid by jurisdiction. This amendment is
effective for fiscal year ending December 25, 2025 and interim periods within fiscal year ending December 26, 2026. The Company is currently assessing the
impact of this guidance on its disclosures.
No other new accounting pronouncement issued or effective during the fiscal year has had, or is expected to have, a material impact on the Company’s
consolidated financial statements.
5. Revenue from Contracts with Customers
Product Sales Revenue
See Note 20 for presentation of the Company's net sales by product family.
Reserves for variable consideration
The following table reflects activity in the Company's sales reserve accounts:
Balance as of December 25, 2020 (Predecessor)
Provisions
Payments or credits
Balance as of December 31, 2021 (Predecessor)
Provisions
Payments or credits
Balance as of June 16, 2022 (Predecessor)
Balance as of June 17, 2022 (Predecessor)
Provisions
Payments or credits
Balance as of December 30, 2022 (Predecessor)
Provisions
Payments or credits
Balance as of November 14, 2023 (Predecessor)
Balance as of November 15, 2023 (Successor)
Provisions
Payments or credits
Balance as of December 29, 2023 (Successor)
Rebates and
Chargebacks
(1)
Product Returns
Other Sales
Deductions
Total
196.5
2,087.1
(2,041.8)
241.8
693.4
(684.6)
250.6
$
$
$
250.6
804.4
(789.7)
265.3
1,368.8
(1,410.1)
26.6
23.7
(28.8)
21.5
5.2
(8.1)
18.6
18.6
7.0
(9.6)
16.0
9.9
(13.1)
$
$
$
12.3
55.2
(58.0)
9.5
17.1
(18.9)
7.7
$
$
$
7.7
36.7
(31.7)
12.7
43.3
(42.3)
224.0
$
12.8
$
13.7
$
$
224.0
173.0
(195.4)
201.6
$
12.8
3.0
(1.3)
14.5
$
$
13.7
6.9
(9.3)
11.3
$
$
235.4
2,166.0
(2,128.6)
272.8
715.7
(711.6)
276.9
276.9
848.1
(831.0)
294.0
1,422.0
(1,465.5)
250.5
250.5
182.9
(206.0)
227.4
$
$
$
$
$
$
(1)
Includes $59.0 million and $89.3 million of accrued Medicaid and $35.1 million and $55.3 million of accrued rebates as of December 29, 2023 (Successor) and December 30, 2022
(Predecessor), respectively, included within accrued and other current liabilities in the consolidated balance sheets.
119
Product sales transferred to customers at a point in time and over time were as follows:
Product sales transferred at a point in time
Product sales transferred over time
85.3 %
14.7
83.2 %
16.8
83.0 %
17.0
80.8 %
19.2
79.4 %
20.6
Successor
Period from
November 15, 2023
through December
29, 2023
Predecessor
Period from
December 31, 2022
through
November 14, 2023
Period from
June 17, 2022
through
December 30, 2022
Period from
January 1, 2022
through
June 16, 2022
Year Ended
December 31, 2021
Transaction price allocated to the remaining performance obligations
The following table includes estimated revenue from contracts extending greater than one year for certain of the Company's hospital products that are
expected to be recognized in the future related to performance obligations that were unsatisfied or partially unsatisfied as of December 29, 2023 (Successor):
(1)
(1)
Fiscal 2024
Fiscal 2025
Thereafter
$
41.6
23.7
4.2
(1) Certain estimated revenue included in the above table may not be recognized as a result of the Company's plan to cease commercialization of the StrataGraft product as further described
in Note 22.
Costs to fulfill a contract
As of December 29, 2023 (Successor) and December 30, 2022 (Predecessor), the total net book value of the devices used in the Company's portfolio of
drug-device combination products, which are used in satisfying future performance obligations and reflected in property, plant and equipment, net, on the
consolidated balance sheets was $0.6 million and $10.3 million, respectively. The associated depreciation expense recognized during the period November 15,
2023 through December 29, 2023 (Successor), the period December 31, 2022 through November 14, 2023 (Predecessor), the period June 17, 2022 through
December 30, 2022 (Predecessor), the period January 1, 2022 through June 16, 2022 (Predecessor), and fiscal 2021 (Predecessor) was zero, $1.9 million, $1.0
million, $2.9 million, and $6.1 million, respectively.
Product Royalty Revenues
The Company licensed certain rights to Amitiza to third parties in exchange for royalties on net sales of the product. Prior to 2023, the Company received
a double-digit royalty based on a percentage of the gross profits of the licensed products sold during the term of the agreements. The Company recognized
such royalty revenue as the related sales occurred. The associated royalty revenue recognized was as follows:
Royalty revenue
$
0.1
$
4.3
$
36.2
$
34.9
Successor
Period from
November 15, 2023
through December
29, 2023
Predecessor
Period from
December 31, 2022
through
November 14, 2023
Period from
June 17, 2022
through
December 30, 2022
Period from
January 1, 2022
through
June 16, 2022
Year Ended
December 31, 2021
102.4
$
6. Restructuring and Related Charges
During fiscal 2021 (Predecessor) and fiscal 2018 (Predecessor), the Company launched restructuring programs designed to improve its cost structure,
neither of which has a specified time period. Charges of $50.0 million to $100.0 million were provided for under the 2021 program and $100.0 million to
$125.0 million were provided for under the 2018 program. The 2021 program will commence upon substantial completion of the 2018 program, and has not
commenced as of December 29, 2023 (Successor). In addition to the aforementioned restructuring programs, the Company has taken restructuring actions to
generate synergies from its acquisitions.
120
Net restructuring and related charges by segment were as follows:
Specialty Brands
Specialty Generics
Corporate
Restructuring and related charges, net
Less: accelerated depreciation
Restructuring charges, net
Successor
Period from
November 15, 2023
through December
29, 2023
Predecessor
Period from
December 31, 2022
through
November 14, 2023
Period from
June 17, 2022
through
December 30, 2022
Period from
January 1, 2022
through
June 16, 2022
$
$
—
—
—
—
—
—
$
$
$
—
—
1.7
1.7
(0.8)
0.9
$
—
0.8
11.3
12.1
(1.0)
11.1
$
$
—
3.5
6.1
9.6
—
9.6
Year Ended
December 31, 2021
0.1
$
4.9
24.0
29.0
(2.1)
26.9
$
Net restructuring and related charges by program from continuing operations were comprised of the following:
Successor
Period from
November 15, 2023
through December
29, 2023
Predecessor
Period from
December 31, 2022
through
November 14, 2023
Period from
June 17, 2022
through
December 30, 2022
Period from
January 1, 2022
through
June 16, 2022
2018 Program
Less: non-cash charges, including accelerated depreciation
Total charges expected to be settled in cash
$
$
—
—
—
$
$
1.7
(0.8)
0.9
$
$
12.1
(2.2)
9.9
$
$
Year Ended
December 31, 2021
29.0
$
(6.3)
9.6
(3.6)
6.0
$
22.7
The following table summarizes cash activity for restructuring reserves, substantially all of which related to contract termination costs, employee
severance and benefits and exiting of certain facilities:
Balance as of December 25, 2020 (Predecessor)
Charges from continuing operations
Changes in estimate from continuing operations
Cash payments
Balance as of December 31, 2021 (Predecessor)
Charges from continuing operations
Changes in estimate from continuing operations
Cash payments
Balance as of June 16, 2022 (Predecessor)
Balance as of June 17, 2022 (Predecessor)
Charges from continuing operations
Changes in estimate from continuing operations
Cash payments
Balance as of December 30, 2022 (Predecessor)
Charges from continuing operations
Changes in estimate from continuing operations
Cash payments
Balance as of November 14, 2023 (Predecessor)
Balance as of November 15, 2023 (Successor) and December 29, 2023 (Successor)
121
2018 Program
1.0
23.7
(1.0)
(12.8)
10.9
7.1
(1.1)
(15.9)
1.0
1.0
12.7
(2.8)
(6.3)
4.6
1.3
(0.4)
(5.4)
0.1
0.1
$
$
$
$
$
As of December 29, 2023 (Successor), net restructuring and related charges incurred cumulative to date for the 2018 Program were as follows:
Specialty Brands
Specialty Generics
Corporate
$
$
3.1
19.3
96.9
119.3
All of the restructuring reserves were included in accrued and other current liabilities on the Company's consolidated balance sheets. Amounts paid in the
future may differ from the amount currently recorded.
7.
Income Taxes
The domestic and international components
(1)
of loss from continuing operations before income taxes were as follows:
Successor
Period from
November 15, 2023
through December
29, 2023
Predecessor
Period from
December 31, 2022
through
November 14, 2023
Period from
June 17, 2022
through
December 30, 2022
Period from
January 1, 2022
through
June 16, 2022
Year Ended
December 31, 2021
(512.2)
$
(317.6)
(2,883.3)
2,072.0
(811.3)
$
(829.8)
Domestic
International
Total
(1) Domestic reflects Ireland.
$
$
(46.1)
(0.1)
(46.2)
$
$
(3,628.8)
1,719.7
(1,909.1)
$
$
(359.4)
(290.9)
(650.3)
$
$
Significant components
(1)
of income taxes related to continuing operations were as follows:
Current:
Domestic
International
Current income tax (benefit) provision
Deferred:
Domestic
International
Deferred income tax (benefit) provision
Total
(1) Domestic reflects Ireland.
Successor
Period from
November 15, 2023
through December
29, 2023
Predecessor
Period from
December 31, 2022
through
November 14, 2023
Period from
June 17, 2022
through
December 30, 2022
Period from
January 1, 2022
through
June 16, 2022
Year Ended
December 31, 2021
$
$
(0.8)
(0.6)
(1.4)
(6.1)
(0.5)
(6.6)
(8.0)
$
$
$
36.6
4.7
41.3
(300.6)
(18.5)
(319.1)
(277.8)
$
(32.8)
5.7
(27.1)
(44.6)
19.7
(24.9)
(52.0)
$
$
$
33.7
(57.6)
(23.9)
(82.3)
(391.1)
(473.4)
(497.3)
$
(33.7)
(12.7)
(46.4)
(59.5)
(0.4)
(59.9)
(106.3)
The domestic current income tax provision reflects a tax benefit of zero, $2.9 million, $7.9 million, $4.1 million and $2.2 million from using NOL
carryforwards for the period from November 15, 2023 through December 29, 2023 (Successor), the period from December 31, 2022 through November 14,
2023 (Predecessor), the period from June 17, 2022 through December 30, 2022 (Predecessor), the period from January 1, 2022 through June 16, 2022
(Predecessor) and fiscal 2021 (Predecessor), respectively. The international current income tax provision reflects a tax benefit of $6.9 million, $259.6 million,
$61.0 million, $0.1 million and $1.2 million from using NOL carryforwards for the period from November 15, 2023 through December 29, 2023 (Successor),
the period from December 31, 2022 through November 14, 2023 (Predecessor), the period from June 17, 2022 through December 30, 2022 (Predecessor), the
period from January 1, 2022 through June 16, 2022 (Predecessor) and fiscal 2021 (Predecessor), respectively.
122
During the period from November 15, 2023 through December 29, 2023 (Successor) and the period from December 31, 2022 through November 14,
2023 (Predecessor), net cash payments and net cash refunds for income taxes were $0.3 million and $128.0 million, respectively. Included within the net cash
refunds of $128.0 million were refunds of $141.6 million received as a result of the provisions in the Coronavirus Aid, Relief and Economic Security
("CARES") Act. During the period from June 17, 2022 through December 30, 2022 (Predecessor) and the period from January 1, 2022 through June 16, 2022
(Predecessor), net cash payments for income taxes were $3.0 million and $3.0 million, respectively. During fiscal 2021 (Predecessor) net cash refunds for
income taxes were $160.0 million, of which $178.8 million was received as a result of the provisions in the CARES Act.
The reconciliation between domestic income taxes at the statutory rate and the Company's provision for income taxes on continuing operations is as
follows:
Successor
Predecessor
Period from
November 15, 2023
through December
29, 2023
Period from
December 31, 2022
through
November 14, 2023
Period from
June 17, 2022
through
December 30, 2022
Period from
January 1, 2022
through
June 16, 2022
Year Ended
December 31, 2021
(103.7)
(101.4) $
Benefit for income taxes at domestic statutory income tax rate
Adjustments to reconcile to income tax provision:
(1)
$
(5.8)
$
(238.6) $
(81.3)
$
(2)
Rate difference between domestic and international jurisdictions
Adjustments to accrued income tax liabilities and uncertain tax positions
Credits, principally research and orphan drug
Permanently nondeductible and nontaxable items
Emergence
Withholding tax on Swiss distribution
Legal entity reorganization
Reorganization items, net
Other
Valuation allowances
(4)
(3)
(5)
(Benefit) provision for income taxes
$
(2.2)
—
—
(0.2)
—
—
—
—
0.1
0.1
(8.0)
56.6
—
(1.9)
3.2
(103.7)
—
(44.7)
6.7
0.6
44.0
(4.7)
—
—
3.1
—
4.7
—
1.7
(1.4)
25.9
226.5
—
(0.9)
(1.7)
(31.6)
—
—
15.7
(3.1)
(600.8)
$
(277.8) $
(52.0)
$
(497.3) $
(224.9)
(9.7)
(4.7)
9.8
—
—
—
36.9
0.3
189.7
(106.3)
(1) The statutory tax rate reflects the Irish statutory tax rate of 12.5%.
(2)
Includes interest and penalties on accrued income tax liabilities and uncertain tax positions.
(3) For fiscal 2021 (Predecessor), the permanently nondeductible and nontaxable items were primarily driven by the Opioid-Related Litigation Settlement loss.
(4) Associated unrecognized tax expense is netted within this line.
(5) The period from January 1, 2022 through June 16, 2022 (Predecessor) consists of $512.1 million of tax benefit for the reduction in the valuation allowance on the Company's deferred tax
assets due to the alleviation of the previous substantial doubt about the Company's ability to continue as a going concern.
During the period from November 15, 2023 through December 29, 2023 (Successor), the rate difference between domestic and international jurisdictions
was $2.2 million of tax benefit, which was primarily related to $3.7 million of tax benefit attributable to inventory step-up amortization expense and
$0.2 million of tax benefit attributable to accretion expense associated with the Company's settlement obligation, offset by $0.3 million of tax expense
attributable to amortization associated with the Company's debt and $1.4 million of tax expense predominately attributable to the pretax earnings in various
jurisdictions.
During the period from December 31, 2022 through November 14, 2023 (Predecessor), the rate difference between domestic and international
jurisdictions was $56.6 million of a tax expense, which was primarily related to $48.9 million of tax expense attributable to reorganization items, net, and
$35.0 million of tax expense predominately related to pretax earnings in various jurisdictions, offset by $15.7 million of tax benefit related to liabilities
management and separation costs and $11.6 million of tax benefit related to non-restructuring impairment charges.
During the period from June 17, 2022 through December 30, 2022 (Predecessor), the rate difference between domestic and international jurisdictions was
$4.7 million of tax benefit, which was primarily related to $19.7 million of tax benefit attributable to inventory step-up amortization expense, $8.9 million of
tax benefit attributable to accretion expense associated with our settlement liabilities and $6.3 million of tax benefit attributable to accretion expense
associated with our debt offset by $30.2 million of tax expense predominately attributable to the pretax earnings in various jurisdictions.
During the period from January 1, 2022 through June 16, 2022 (Predecessor), the rate difference between domestic and international jurisdictions was
$226.5 million of tax expense, which was primarily related to $128.9 million of tax expense related to fresh-start adjustments, $103.4 million of tax expense
attributable to gain on adjustments to LSTC and $12.8 million of tax expense predominately related to the pretax earnings in various jurisdictions offset by
$18.6 million of tax benefit related to professional and lender fees.
123
During fiscal year 2021 (Predecessor), the rate difference between domestic and international jurisdictions was $224.9 million of tax benefit, which was
primarily related to $27.6 million of tax benefit attributable to reorganization items, net, $13.2 million of tax benefit attributable to non-restructuring
impairment charges, $10.6 million of tax benefit attributable to the opioid-related litigation settlement loss, and $173.5 million of tax benefit predominately
attributable to the pretax earnings in various jurisdictions.
During the period from December 31, 2022 through November 14, 2023 (Predecessor), the Company recognized a tax benefit of $103.7 million upon
emergence from the 2023 Bankruptcy Proceedings. These impacts of emergence consist of a $242.8 million tax benefit related to the revaluation of net
deferred tax assets as a result of fresh-start accounting, offset by $139.1 million of tax expense related to permanently nondeductible impacts on fair value
adjustments.
During the period from January 1, 2022 through June 16, 2022 (Predecessor), the Company recognized a tax benefit of $31.6 million upon emergence
from the 2020 Bankruptcy Proceedings. These impacts of emergence consist of a $1,202.0 million tax benefit related to the revaluation of net deferred tax
assets as a result of fresh-start accounting and a $285.3 million tax benefit related to the release of uncertain tax positions, offset by $1,209.8 million of tax
expense for the reduction in federal and state NOL carryforwards from the CODI realized upon emergence from bankruptcy and limitations under IRC
Sections 382 and 383, $191.9 million of tax expense related to permanently nondeductible impacts on fair value adjustments, and $54.0 million of tax expense
related to prepaid income taxes.
As a result of the 2023 Plan and the 2020 Plan, the Company recognized CODI on its indebtedness, resulting in the utilization of, and reduction to,
certain of its tax losses and tax credits in the U.S. and Luxembourg. The emergence from each of the respective 2023 and 2020 Bankruptcy Proceedings
resulted in a change in ownership for purposes of IRC Section 382, causing the remaining U.S. tax losses, credits, and certain built in losses ("BILs") to be
limited under IRC Sections 382 and 383. The amount of our pre-ownership change U.S. NOLs and BILs that can be utilized generally cannot exceed an
amount equal to the product of (a) the applicable federal long-term tax-exempt rate in effect on the date of the ownership change and (b) the value of our U.S.
affiliate stock immediately prior to the implementation of each respective plan ("382 Annual Limitation"). Evaluating the income tax impacts of each
respective plan involves the interpretation of complex tax law and regulations which can be inherently uncertain and subject to varied interpretations. The 382
Annual Limitation for periods following the 2023 Effective Date is expected to be significant enough to be able to utilize all of the pre-ownership change U.S.
attributes that are benefited in the consolidated financial statements; however, the utilization is expected to occur over a period of greater than 20 years and is
dependent on the Company's generation of future taxable income. The portion of deferred tax assets associated with the tax losses and credits that are limited
under IRC Section 382 or 383, and that have a remote possibility of being utilized, have been written off. The benefiting of the U.S. tax attributes required
significant judgments made by management as to the expected amount and timing of the generation of future taxable income. With respect to non-U.S.
deferred tax assets that have been recorded by the Company at emergence, the benefiting of the tax attributes is dependent on significant judgments made by
management related to the generation of future taxable income. Based on current projections, the utilization is expected to occur over a period greater than 20
years. Refer to Note 4 for further information regarding the Company's income tax accounting policies.
On December 20, 2021, the OECD released the Global Anti-Base Erosion ("GloBE") Model Rules ("Pillar Two") providing a legislative framework for
the Income Inclusion Rule and the Under-Taxed Payment Rule ("UTPR"). Pillar Two is designed to ensure that large multinational enterprise groups pay a
minimum level of tax on the income arising in each of the jurisdictions where they operate, principally creating a 15% minimum global effective tax rate. On
December 15, 2022, the E.U. member states unanimously adopted a directive implementing the Pillar Two global minimum tax rules. On December 20, 2022,
the OECD released three guidance documents related to Pillar Two. These documents included guidance on safe harbors and penalty relief and consultation
papers on the GloBE Information Return and Tax Certainty for the GloBE rules. A number of jurisdictions have transposed the directive into national
legislation with the rules to be applicable for fiscal years beginning on or after December 31, 2023, with the exception of the UTPR which is to be applicable
for fiscal years beginning on or after December 31, 2024. The Company's fiscal year end of December 29, 2023 will allow the Company to postpone the
effective date of these law changes by one year. The Company is closely monitoring developments and is evaluating the impacts these new rules will have on
its tax rate, including the eligibility to qualify for the safe harbor rules.
124
The following table summarizes the activity related to the Company's unrecognized tax benefits, excluding interest:
Balance at beginning of period
Additions related to current year tax positions
Additions related to prior period tax positions
Reductions related to prior period tax positions
Settlements
Lapse of statutes of limitations
Balance at end of period
Successor
Period from
November 15,
2023
through
December 29,
2023
$
$
33.3
—
—
—
—
—
33.3
$
$
Predecessor
Period from
December 31,
2022
through
November 14,
2023
Period from
June 17, 2022
through
December 30,
2022
Period from
January 1, 2022
through
June 16, 2022
Year Ended
December 31,
2021
24.8
8.5
—
—
—
—
33.3
$
$
24.8
—
—
—
—
—
24.8
$
$
$
333.5
—
—
(306.1)
(2.6)
—
24.8
$
349.0
—
9.3
(2.8)
(0.2)
(21.8)
333.5
Unrecognized tax benefits, excluding interest, were reported in the following consolidated balance sheet captions in the amounts shown:
Deferred income tax asset
Other income tax liabilities
Successor
Predecessor
December 29, 2023
December 30, 2022
17.9
15.4
33.3
$
9.4
15.4
24.8
$
Total unrecognized tax benefits ("UTB(s)") of $30.1 million as of both December 29, 2023 (Successor) and November 14, 2023 (Predecessor), and
$24.8 million as of both December 30, 2022 (Predecessor) and June 16, 2022 (Predecessor), if favorably settled, would benefit the effective tax rate. Total
UTBs of $77.0 million as of December 31, 2021 (Predecessor), if favorably settled, would benefit the effective tax rate with the remaining reflected as a
write-off of related other tax assets. During the period January 1, 2022 through June 16, 2022 (Predecessor), the decrease of $306.1 million primarily resulted
from fresh-start adjustments. During fiscal 2021 (Predecessor), due to a lapse of statutes of limitations, $5.1 million of tax and interest on unrecognized tax
benefits related to the Nuclear Imaging business were eliminated, and a benefit of $5.1 million was recorded in discontinued operations within the
consolidated statement of operations.
The Company recorded zero accrued interest and penalties for the period November 15, 2023 through December 29, 2023 (Successor) and an increase to
accrued interest and penalties of $1.4 million during the period December 31, 2022 through November 14, 2023 (Predecessor). Interest and penalties activity
during the period from June 17, 2022 through December 30, 2022 (Predecessor), the period from January 1, 2022 through June 16, 2022 (Predecessor) and
fiscal 2021 (Predecessor), was a net increase of $0.6 million, a net decrease of $16.7 million, and a net increase of $2.2 million, respectively. The total amount
of accrued interest and penalties related to uncertain tax positions was $4.2 million and $2.8 million as of December 29, 2023 (Successor) and December 30,
2022 (Predecessor), respectively.
Within the next twelve months, the unrecognized tax benefits and the related interest and penalties are not expected to significantly increase or decrease.
Certain of the Company's subsidiaries continue to be subject to examination by taxing authorities. The earliest open year subject to examination for the
U.S. federal and the U.S. state is 2015 and 2013, respectively. The earliest open year subject to examination in other jurisdictions, including Ireland, Japan,
Luxembourg, Switzerland and the U.K. is 2014.
Income taxes payable, including uncertain tax positions and related interest accruals, was reported in the following consolidated balance sheet captions in
the amounts shown:
Accrued and other current liabilities
Other income tax liabilities
Successor
Predecessor
December 29, 2023
December 30, 2022
$
$
1.7
19.6
21.3
$
$
3.6
18.2
21.8
125
Tax receivables were included in the following consolidated balance sheet captions in the amounts shown:
Prepaid expenses and other current assets
Successor
Predecessor
December 29, 2023
December 30, 2022
11.5
179.5
Deferred income taxes result from temporary differences between the amount of assets and liabilities recognized for financial reporting and tax purposes.
The components of the net deferred tax asset (liability) at the end of each fiscal year were as follows:
Deferred tax assets:
Tax loss and credit carryforward
Capital tax loss carryforward and related assets
Intangible assets
Opioid-Related Litigation Settlement liability
Excess interest
Other
Deferred tax liabilities:
Investment in partnership
Other
Net deferred tax asset before valuation allowances
Valuation allowances
Net deferred tax asset (liability)
Successor
Predecessor
December 29, 2023
December 30, 2022
$
$
3,600.7
983.5
571.5
—
95.1
231.3
5,482.1
(68.7)
(28.6)
(97.3)
5,384.8
(4,583.8)
$
801.0
$
3,646.0
1,412.6
278.4
111.7
84.0
159.8
5,692.5
(67.4)
(157.0)
(224.4)
5,468.1
(4,992.9)
475.2
The net deferred tax asset before valuation allowances was $5,384.8 million as of December 29, 2023 (Successor), compared to $5,468.1 million as of
December 30, 2022 (Predecessor). This decrease consists of $434.3 million of a decrease related to the expiration of capital tax loss related assets and
$111.7 million of a decrease related to the Opioid-Related Litigation Settlement offset by $252.5 million of an increase related to fresh-start activity,
$110.5 million of an increase predominately related to tax loss and other operational activity, and $99.7 million of an increase associated with amortization of
intangible assets. The $252.5 million increase related to fresh-start activity consists of fair value adjustments related to intangible assets and other deferred tax
liabilities.
The deferred tax asset valuation allowances were $4,583.8 million and $4,992.9 million as of December 29, 2023 (Successor) and December 30, 2022
(Predecessor), respectively. The valuation allowances as of both December 29, 2023 (Successor) and December 30, 2022 (Predecessor) relate primarily to the
uncertainty of the utilization of certain deferred tax assets, driven by domestic and international net operating and capital losses, credits, and intangible assets.
Deferred taxes were included in the following consolidated balance sheet captions in the amounts shown:
Deferred income tax asset
Deferred income tax liability
Net deferred tax asset (liability)
Successor
Predecessor
December 29, 2023
December 30, 2022
$
$
801.0
—
801.0
$
$
475.5
(0.3)
475.2
As of December 29, 2023 (Successor), the Company had approximately $3,552.1 million of NOL carryforwards in certain international jurisdictions
measured at the applicable statutory rates, of which $1,371.9 million have no expiration and the remaining $2,180.2 million will expire in future years through
2039. As of December 29, 2023 (Successor), the Company had $46.9 million of domestic NOL carryforwards measured at the applicable statutory rates,
which have no expiration date.
As of December 29, 2023 (Successor), the Company had $13.9 million of capital loss carryforwards in certain international jurisdictions measured at the
applicable statutory rates, which will expire in 2028. As of December 29, 2023 (Successor), the Company had approximately $969.6 million of domestic
capital loss carryforwards measured at the applicable statutory rates, which have no expiration date.
As of December 29, 2023 (Successor), the Company had $1.7 million of tax credits available to reduce future income taxes payable, in international
jurisdictions, which will expire in future years through 2043.
126
As of December 29, 2023 (Successor), the Company's taxable financial reporting basis in subsidiaries exceeded its corresponding tax basis by $3.4
million. Such excess amount is indefinitely reinvested and it is not practicable to determine the associated potential tax liability due to the complexity of the
Company's legal entity structure as well as the timing, extent, and nature of any hypothetical realization.
8.
Loss per Share
Loss per share is computed by dividing net loss by the number of weighted-average shares outstanding during the period. Dilutive securities, including
participating securities, have not been included in the computation of loss per share as the Company reported a net loss from continuing operations during all
periods presented below and therefore, the impact would have been anti-dilutive.
The weighted-average number of shares outstanding used in the computations of both basic and diluted loss per share were as follows (in millions):
Basic
19.7
13.3
13.2
84.8
Successor
Period from
November 15, 2023
through December
29, 2023
Predecessor
Period from
December 31, 2022
through
November 14, 2023
Period from
June 17, 2022
through
December 30, 2022
Period from
January 1, 2022
through
June 16, 2022
Year Ended
December 31, 2021
84.7
The computation of diluted weighted-average shares outstanding for the period November 15, 2023 through December 29, 2023 (Successor), the period
December 31, 2022 through November 14, 2023 (Predecessor), the period June 17, 2022 through December 30, 2022 (Predecessor), the period January 1,
2022 through June 16, 2022 (Predecessor), and fiscal 2021 (Predecessor) excluded approximately 1.0 million, zero, zero, 0.5 million, and 5.2 million shares of
equity awards, respectively, because the effect would have been anti-dilutive.
9.
Inventories
Inventories were comprised of the following at the end of each period:
Raw materials
Work in process
Finished goods
Inventories
10. Property, Plant and Equipment
Successor
December 29,
2023
Predecessor
December 30,
2022
$
$
98.0
501.8
382.9
982.7
$
$
80.2
552.1
315.3
947.6
The gross carrying amount and accumulated depreciation of property, plant and equipment were comprised of the following at the end of each period:
Land
Buildings
Capitalized software
Machinery and equipment
Construction in process
Less: accumulated depreciation
Property, plant and equipment, net
127
Successor
Predecessor
December 29, 2023
December 30, 2022
$
$
37.7
94.6
1.9
136.3
60.8
331.3
(9.6)
321.7
$
$
51.0
127.2
17.5
216.8
72.5
485.0
(27.4)
457.6
Depreciation expense was as follows:
Depreciation expense
$
9.6
$
40.7
$
28.8
$
40.0
$
94.7
Successor
Period from
November 15, 2023
through December
29, 2023
Predecessor
Period from
December 31, 2022
through
November 14, 2023
Period from
June 17, 2022
through
December 30, 2022
Period from
January 1, 2022
through
June 16, 2022
Year Ended
December 31, 2021
11. Leases
Lease assets and liabilities related to the Company's operating leases are reported in the following consolidated balance sheet captions:
Other assets
Accrued and other current liabilities
Other liabilities
Total lease liabilities
Successor
December 29,
2023
Predecessor
December 30,
2022
$
$
$
50.9
10.5
44.8
55.3
$
$
$
38.1
10.3
30.4
40.7
Dependent on the nature of the leased asset, lease expense is included within cost of sales or SG&A. The primary components of lease expense were as
Successor
Period from
November 15, 2023
through December
29, 2023
Predecessor
Period from
December 31, 2022
through
November 14, 2023
Period from
June 17, 2022
through
December 30, 2022
Period from
January 1, 2022
through
June 16, 2022
Year Ended
December 31, 2021
$
$
1.8
0.5
—
2.3
$
$
15.0
0.9
2.3
18.2
$
$
7.9
1.6
1.5
11.0
$
$
$
8.7
0.4
1.2
10.3
$
19.6
1.1
2.4
23.1
follows:
Lease cost:
Operating lease cost
Short-term lease cost
Variable lease cost
Total lease cost
Lease terms and discount rates were as follows:
Weighted-average remaining lease term (in years) - operating lease
Weighted-average discount rate - operating leases
Contractual maturities of operating lease liabilities as of December 29, 2023 (Successor) were as follows:
Fiscal 2024
Fiscal 2025
Fiscal 2026
Fiscal 2027
Fiscal 2028
Thereafter
Total lease payments
Less: Interest
Present value of lease liabilities
128
Successor
December 29,
2023
Predecessor
December 30,
2022
7.4
8.1 %
6.7
11.9 %
$
$
14.4
13.2
8.9
6.9
6.6
24.7
74.7
(19.4)
55.3
Other supplemental cash flow information related to leases were as follows:
Successor
Period from
November 15, 2023
through December
29, 2023
Predecessor
Period from
December 31, 2022
through
November 14, 2023
Period from
June 17, 2022
through
December 30, 2022
Period from
January 1, 2022
through
June 16, 2022
Year Ended
December 31, 2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Lease assets obtained in exchange for lease obligations:
Operating leases
$
2.4
$
14.6
$
9.2
$
9.4
$
—
13.2
7.1
13.4
20.4
2.6
12.
Intangible Assets
Intangible Assets
The gross carrying amount and accumulated amortization of intangible assets were comprised of the following at the end of each period:
Amortizable:
Completed technology
Non-Amortizable:
In-process research and development
Successor
December 29, 2023
Predecessor
December 30, 2022
Gross
Carrying
Amount
Accumulated
Amortization
Gross
Carrying
Amount
Accumulated
Amortization
$
624.6
$
16.2
$
3,041.2
$
318.7
—
121.3
The Company recorded impairment charges related to its Specialty Brands segment totaling $50.1 million and $154.9 million during the period from
December 31, 2022 through November 14, 2023 (Predecessor) and fiscal 2021 (Predecessor), respectively. The valuation method used to approximate fair
value in each of these periods was based on the estimated discounted cash flows for the respective asset. The impairment charge during the period from
December 31, 2022 through November 14, 2023 (Predecessor) was related to StrataGraft due to lower than anticipated cash flows and the fiscal 2021
(Predecessor) impairment charge included a partial impairment of $90.4 million related to Amitiza as the undiscounted cash flows were less than its net book
value, and a full impairment of $64.5 million related to MNK-6105 and MNK-6106 as the Company decided it would no longer pursue further development
of this in-process research and development ("IPR&D") asset.
The Company recorded impairment charges related to its Specialty Generics segment totaling $85.8 million during the period from December 31, 2022
through November 14, 2023 (Predecessor). The valuation method used to approximate fair value was based on the estimated discounted cash flows. The
Company has decided it will no longer pursue further development of the IPR&D assets and as a result, recognized a full impairment.
As part of fresh-start accounting, as of the 2023 Effective Date, the Company wrote-off the existing intangible assets and accumulated amortization of the
Predecessor and recorded $624.6 million to reflect the fair value of intangible assets of the Successor (see also Note 3).
129
Intangible assets of the Successor as of the 2023 Effective Date consisted of the following:
Amortizable completed technology:
Acthar Gel
Therakos
Amitiza
INOmax
Terlivaz
Generics
APAP
Amitiza
Carrying
Amount
Amortization Method
Amortization Period (in
years)
Discount Rate
Segment
$
$
110.0
129.4
12.3
41.3
68.1
186.7
76.8
624.6
Sum of the years digits
Sum of the years digits
Sum of the years digits
Sum of the years digits
Straight-line
Straight-line
Straight-line
10.0
9.0
1.0
8.0
5.5
18.0
20.0
52.3%
51.5
51.5
51.5
52.5
14.1
13.5
Specialty Brands
Specialty Brands
Specialty Brands
Specialty Brands
Specialty Brands
Specialty Generics
Specialty Generics
Beginning January 1, 2022 (Predecessor), the Company changed its amortization method used for the Amitiza intangible asset from the straight-line
method to the sum of the years digits method, an accelerated method of amortization, to more accurately reflect the consumption of economic benefits over
the remaining useful life of the asset. This change in amortization method resulted in additional amortization expense of $21.7 million, which impacted basic
loss per share by $0.26 for the period January 1, 2022 through June 16, 2022 (Predecessor).
Intangible asset amortization expense
Intangible asset amortization expense was as follows:
Amortization expense
$
16.2
$
449.6
$
318.7
$
281.8
Successor
Period from
November 15, 2023
through December
29, 2023
Predecessor
Period from
December 31, 2022
through
November 14, 2023
Period from
June 17, 2022
through
December 30, 2022
Period from
January 1, 2022
through
June 16, 2022
Year Ended
December 31, 2021
581.1
$
The estimated aggregate amortization expense on intangible assets owned by the Company and being amortized as of December 29, 2023 (Successor) is
expected to be as follows:
Fiscal 2024
Fiscal 2025
Fiscal 2026
Fiscal 2027
Fiscal 2028
$
90.3
74.8
68.4
62.0
55.6
130
`
13. Debt
Debt was comprised of the following at the end of each period:
Successor
December 29, 2023
Predecessor
December 30, 2022
Principal
Carrying
(1)
Value
Unamortized
Discount and Debt
Issuance Costs
Principal
Carrying
(2)
Value
Unamortized
Discount and Debt
Issuance Costs
First-Out Takeback Term Loan due November 2028
Second-Out Takeback Term Loan due November 2028
14.75% Second-Out Takeback Notes due November 2028
Receivables financing facility due December 2027
10.00% first lien senior secured notes due April 2025
10.00% second lien senior secured notes due April 2025
2017 Replacement Term loan due September 2027
2018 Replacement Term loan due September 2027
11.50% first lien senior secured notes due December 2028
10.00% second lien senior secured notes due June 2029
Total debt
Less: Current portion
$
$
228.8
640.4
778.6
—
—
—
—
—
—
—
$
243.4
685.5
836.4
—
—
—
—
—
—
—
1,647.8
(6.5)
1,765.3
(6.5)
Total long-term debt, net of current portion
$
1,641.3
$
1,758.8
$
—
—
—
2.9
—
—
—
—
—
—
2.9
—
2.9
$
$
—
—
—
—
495.0
321.9
1,374.1
364.8
650.0
328.3
3,534.1
(44.1)
$
—
—
—
—
475.9
242.2
1,222.1
326.9
650.0
175.5
3,092.6
(44.1)
$
3,490.0
$
3,048.5
$
—
—
—
—
—
—
—
—
20.8
—
20.8
—
20.8
(1) Upon adoption of fresh-start accounting upon the emergence from the 2023 Bankruptcy Proceedings, the Company recorded its debt instruments at fair value utilizing the Black-Derman-
Toy model, which takes into consideration prepayment options and a credit-adjusted discount rate. Subsequent to the 2023 Effective Date, the Company accounted for its debt instruments
utilizing the amortized cost method and amortizes the fair value premium to the principal amount over the term of the respective instruments. Such amortization expense is reflected as
interest expense on the consolidated statement of operations for the Successor period.
(2) Upon adoption of fresh-start accounting upon the emergence from the 2020 Bankruptcy Proceedings, the Company recorded its debt instruments at fair value utilizing the Black-Derman-
Toy model, which takes into consideration prepayment options and a credit-adjusted discount rate. Subsequent to the 2020 Effective Date up through the 2023 Petition Date, the Company
accounted for its debt instruments utilizing the amortized cost method and accreted the fair value discount to the principal amount over the term of the respective instruments. Such
accretion expense was reflected as interest expense on the consolidated statement of operations for the Predecessor period. As of the petition date of the 2023 Bankruptcy Proceedings, the
Company expensed $377.6 million of accelerated accretion to adjust the carrying value up to the principal value or allowed claim amount pursuant to the 2023 Plan and recorded the
expense within reorganization items, net in the consolidated statement of operations for the period from December 31, 2022 to November 14, 2023 (Predecessor). Additionally, as a result
of the 2023 Bankruptcy Proceedings, the Company expensed $18.5 million of unamortized discount and debt issuance costs, net, recorded in reorganization items, net in the consolidated
statement of operations for the period from December 31, 2022 to November 14, 2023 (Predecessor). Refer to Note 3 for further information on reorganization items, net.
The commencement of the 2023 Chapter 11 Cases constituted an event of default under certain of the Predecessor's debt agreements. As a result of the
2023 Chapter 11 Cases, the principal and interest due under these debt instruments became immediately due and payable. However, any efforts to enforce
payment was automatically stayed in accordance with the applicable provisions of the Bankruptcy Code.
On the 2023 Effective Date, $1,716.8 million of First Lien Term Loans, $495.0 million in aggregate principal amount of 2025 First Lien Notes,
$650.0 million in aggregate principal amount of 2028 First Lien Notes, $321.9 million in aggregate principal amount of 2025 Second Lien Senior Notes and
$328.3 million in aggregate principal amount of 2029 Second Lien Senior Notes were canceled and the Company entered into the new Takeback Term Loans
and the Takeback Notes.
Successor Indebtedness
New Takeback Debt
On the 2023 Effective Date and pursuant to the 2023 Plan, the Issuers (i) entered into a new senior secured first lien term loan facility with an aggregate
principal amount of approximately $871.4 million, consisting of approximately $229.4 million of First-Out Takeback Term Loans and approximately
$642.0 million of Second-Out Takeback Term Loans, pursuant to the credit agreement and (ii) issued approximately $778.6 million in aggregate principal
amount of Takeback Notes pursuant to the indenture.
All DIP Claims under the DIP Credit Agreement not otherwise satisfied in cash were converted on a dollar-for-dollar basis into First-Out Takeback Term
Loans.
Each holder of an allowed claim related to the outstanding 2025 First Lien Notes, the outstanding 2028 First Lien Notes, or the First Lien Term Loans
elected to receive such Takeback Debt either in the form of Second-Out Takeback Term Loans or Takeback Notes.
131
All obligations of the Issuers under the Takeback Debt are unconditionally guaranteed, on a joint and several basis, by each of the obligors of the
previously issued First Lien Term Loans, 2025 First Lien Notes and 2028 First Lien Notes (collectively, the "First Lien Debt"), subject to certain limited
exceptions (including the exclusion of Mallinckrodt Petten Holdings B.V.) (collectively, the "Guarantors").
The Takeback Debt is secured by a first priority lien and security interest in substantially all collateral that secured the First Lien Debt and substantially
all previously unencumbered property of the Issuers and the Guarantors, other than (i) any receivables or related assets transferred to, or constituting collateral
for, the Amended ABL Credit Agreement, dated as of June 16, 2022, as amended on August 23, 2023, by and among ST US AR Finance LLC, the lenders
party thereto, the L/C Issuers (as defined therein) party thereto and Barclays Bank plc, as administrative agent and collateral agent ("Post-Petition A/R
Facility"), (ii) the equity of ST US AR Finance LLC, the non-Debtor subsidiary of the Company that is the borrower under the Post-Petition A/R Facility, and
(iii) certain other customary exceptions. The Takeback Debt is governed by the terms of a first lien intercreditor agreement, dated as of the 2023 Effective
Date ("Intercreditor Agreement"), by and among the Issuers, the Company, the other grantors from time to time party thereto, Acquiom Agency Services
LLC, as Collateral Agent and as credit agreement authorized representative, Wilmington Savings Fund Society, FSB, as initial additional authorized
representative, and each additional authorized representative from time to time party thereto. The First-Out Takeback Term Loans rank senior in waterfall
priority to the Second-Out Takeback Term Loans and the Takeback Notes. The Second-Out Takeback Term Loans rank pari passu in waterfall priority to the
Takeback Notes.
The First-Out Takeback Term Loans mature on November 14, 2028 and bear interest at a rate equal to SOFR plus 7.50% per annum, subject to a SOFR
floor of 4.50%, or in the case of an ABR Loan (as defined in the Credit Agreement), ABR (as defined in the Credit Agreement) plus 6.50% per annum, and
amortize quarterly on the last day of each March, June, September and December of each year, at a rate of 1.00% per annum, commencing December 29,
2023. The Second-Out Takeback Term Loans mature on November 14, 2028 and bear interest at a rate equal to SOFR plus 9.50% per annum, subject to a
SOFR floor of 4.50%, or in the case of an ABR Loan, ABR plus 8.50% per annum, and amortize quarterly on the last day of each March, June, September
and December of each year, at a rate of 1.00% per annum, commencing December 29, 2023. The Takeback Notes mature on November 14, 2028 and bear
interest at a rate equal to 14.75% payable semi-annually in arrears on each May 15 and November 15, commencing May 15, 2024.
The Credit Agreement contains certain customary affirmative and negative covenants, representations and warranties and events of default (including as a
result of a change of control), subject in certain cases to customary grace and cure periods. The occurrence of an event of default under the Credit Agreement
could result in the acceleration of all outstanding borrowings under the Takeback Term Loans and could cause a cross-default that could result in the
acceleration of other indebtedness of the Company and its subsidiaries.
The indenture contains certain customary affirmative and negative covenants and events of default (including as a result of a change of control), subject
in certain cases to customary grace and cure periods. The occurrence of an event of default under the indenture could result in the acceleration of the
Takeback Notes and could cause a cross-default that could result in the acceleration of other indebtedness of the Company and its subsidiaries.
The Takeback Debt is subject to (i) mandatory prepayment or redemption, as applicable, with the net proceeds of certain asset sales and recovery events,
subject to customary exceptions, at a prepayment price equal to 100% of the principal amount thereof plus a make-whole premium (for the first two years
following issuance of the Takeback Debt) and accrued and unpaid interest, and (ii) mandatory prepayment or repurchase (at the option of each lender
thereunder) with 50% of excess cash flow (for the excess cash flow period ending December 27, 2024, to the extent excess cash flow exceeds $100 million) at
a prepayment price equal to 100% of the principal amount thereof plus accrued and unpaid interest.
The Company determined that the Takeback Debt includes an embedded feature that requires mandatory prepayment with the net proceeds of certain
asset sales and recovery events, subject to customary exceptions, at a prepayment price equal to 100% of the principal amount thereof plus a make-whole
premium ("Applicable Premium") for the first two years following issuance of the Takeback Debt and accrued and unpaid interest. The Applicable Premium
shall mean an amount equal to the greater of (i) 1% of the principal amount of the Takeback Debt prepaid and (ii) the excess, if any, of (A) the sum of (1) all
required interest payable on the principal amount of such Initial Term Loans subject to the applicable prepayment from the date of such prepayment through
(and including) the second anniversary of the valuation date (as if such Initial Term Loans has been outstanding) calculated over an interest period of three
months in effect on the third business day prior to such prepayment plus (2) the principal amount of such Initial Term Loans subject to the applicable
prepayment, in each case, discounted to the date of such prepayment on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at
the treasury rate as of such date of determination plus 50 basis points, over (B) the principal amount of such Initial Term Loans subject to the applicable
prepayment.
This mandatory prepayment feature was determined to not be clearly and closely related to the debt host contract and required to be bifurcated and
recognized at fair value on the consolidated balance sheet. The Company estimated the fair value of the embedded derivative to be $15.1 million. Refer to
Note 19 for further information.
132
Accounts Receivable Financing Facility
On the 2020 Effective Date, MEH, Inc. ("MEH"), as servicer, ST US AR Finance LLC, a direct wholly owned subsidiary of MEH ("ST US AR"), as
borrower, the lenders party thereto, and the letter of credit issuers party thereto entered into a receivables financing facility ("Receivables Financing Facility")
pursuant to an ABL Credit Agreement ("Receivables Financing Credit Agreement") and a Purchase and Sale Agreement ("Purchase and Sale Agreement").
Under the Receivables Financing Facility, ST US AR may borrow money up to an amount based on a borrowing base with a maximum draw of up to
$200.0 million, which may vary depending on the underlying receivables amount. Borrowings are secured by a first-lien security interest under the
Receivables Financing Facility on existing and future accounts receivables and related assets that have been sold from certain subsidiaries of MEH to ST US
AR. The Receivables Financing Facility includes customary affirmative and negative covenants for transactions of this type. From the closing date until the
last day of the first fiscal quarter after the closing date, borrowings bore interest at a rate of (a) either (i) the alternate base rate or (ii) SOFR, and (b) an
applicable margin. On the first day of each fiscal quarter thereafter, the applicable margins are determined from a pricing grid based upon the historical excess
availability for the most recent fiscal quarter ended immediately prior.
On August 23, 2023, the Company entered into an amendment with the lenders and agents under the Receivables Financing Facility Credit Agreement
("ABL Amendment"), by and among ST US AR, the lenders party thereto, the L/C Issuers (as defined in the Receivables Financing Facility Credit
Agreement) party thereto and Barclays Bank plc, as administrative agent ("Administrative Agent") and collateral agent (as amended, the "Amended ABL
Credit Agreement").
The Receivables Financing Facility matures on the earlier of December 16, 2027 and a date that is 91 days prior to the maturity date of any other material
indebtedness that is incurred after the closing date. ST US AR may borrow, pay or prepay and reborrow under the Receivables Financing Facility at any time.
So long as there is not an overadvance under the Receivables Financing Facility, and subject to certain other conditions, ST US AR can elect to repay
borrowings or use cash to make distributions to MEH and certain subsidiaries of MEH that have contributed receivables to ST US AR. The obligations under
the Receivables Financing Facility are not guaranteed by MEH or any of its restricted subsidiaries. The Receivables Financing Facility is subject to customary
events of defaults for transactions of this type.
As of December 29, 2023 (Successor), the Company had no outstanding borrowings on its Receivables Financing Facility.
Predecessor Indebtedness
Pursuant to the 2023 Plan and the 2023 Scheme of Arrangement, on the 2023 Effective Date, each holder of an allowed claim related to the outstanding
First Lien Debt received its pro rata share of (A) 92.3% of the Successor ordinary shares (subject to dilution from equity reserved under the MIP and the
Opioid CVRs, if equity settled), (B) cash in an amount sufficient to repay in full (i) the accrued and unpaid interest on the First Lien Term Loans in the case of
any holder of the First Lien Term Loans, (ii) the accrued and unpaid interest on the 2025 First Lien Notes in the case of any holder of 2025 First Lien Notes,
and (iii) the accrued and unpaid interest on the 2028 First Lien Notes in the case of any holder of the 2028 First Lien Notes; and (C) the Second-Out Takeback
Debt in satisfaction thereof. Furthermore, on the 2023 Effective Date, the 2023 Debtors paid in cash certain outstanding fees, expenses and costs of the agents
and trustees related to the First Lien Debt. As a result of the satisfaction of the First Lien Debt pursuant to the 2023 Plan and the 2023 Scheme of
Arrangement, the Company and its subsidiaries terminated the First Lien Debt and the indentures and agreements related thereto.
Pursuant to the 2023 Plan and the 2023 Scheme of Arrangement, on the 2023 Effective Date, each holder of an allowed claim related to then outstanding
Second Lien Notes received its pro rata share of 7.7% of the Successor ordinary shares (subject to dilution from equity reserved under the MIP and the Opioid
CVRs, if equity settled) in satisfaction thereof. Furthermore, on the 2023 Effective Date, the 2023 Debtors paid in cash certain outstanding fees, expenses and
costs of the agents and trustees related to the Second Lien Notes. As a result of the satisfaction of the Second Lien Notes pursuant to the 2023 Plan and the
2023 Scheme of Arrangement, the Company and its subsidiaries terminated the Second Lien Notes and the indentures related thereto.
Applicable interest rate
As of December 29, 2023 (Successor), the applicable interest rate and outstanding principal on the Company's debt instruments were as follows:
Fixed-rate instrument
First-Out Takeback Term Loans
Second-Out Takeback Term Loans
(1)
(1)
(1)
Includes the impact of the interest rate cap agreement, which is discussed further in Note 19.
133
Applicable interest rate Outstanding principal
14.8 % $
11.4
13.4
778.6
228.8
640.4
The Company's stated long-term debt principal maturity amounts as of December 29, 2023 are as follows:
Fiscal 2024
Fiscal 2025
Fiscal 2026
Fiscal 2027
Fiscal 2028
14. Retirement Plans
Defined Benefit Plans
$
6.5
8.7
8.7
10.9
1,613.0
The Company sponsors a number of defined benefit retirement plans covering certain of its U.S. employees and non-U.S. employees. As of
December 29, 2023 (Successor), U.S. plans represented 31.4% of the Company's remaining projected benefit obligation. The Company generally does not
provide postretirement benefits other than retirement plan benefits for its employees; however, certain of the Company's U.S. employees participate in
postretirement benefit plans that provide medical benefits. These plans are unfunded.
The benefit obligation recognized on the consolidated balance sheets were $18.9 million and $18.7 million as of December 29, 2023 (Successor) and
December 30, 2022 (Predecessor), respectively, for pension benefits and $25.9 million and $26.8 million as of December 29, 2023 (Successor) and December
30, 2022 (Predecessor), respectively, for postretirement benefits. The weighted-average discount rate to determine benefit obligations for the Company's
pension and postretirement benefit plans ranged from 5.4% to 5.6%. For the Company's unfunded U.S. plans, the discount rate is based on the market rate for
a broad population of AA-rated (Moody's Investor Services, Inc. or Standard & Poor's Corporation) corporate bonds over $250.0 million.
Defined Contribution Retirement Plans
The Company maintains one active tax-qualified 401(k) retirement plan and one active non-qualified deferred compensation plan in the U.S. The 401(k)
retirement plan provides for an automatic Company contribution of 3% of an eligible employee's pay, with an additional Company matching contribution
generally equal to 50.0% of each employee's elective contribution to the plan up to 8% of the employee's eligible pay. The deferred compensation plan
permitted eligible employees to defer a portion of their compensation. The deferred compensation plan is currently frozen for employee deferrals. Total
defined contribution expense was $2.5 million, $18.6 million, $7.8 million, $9.6 million, and $22.2 million for the period November 15, 2023 through
December 29, 2023 (Successor), the period December 31, 2022 through November 14, 2023 (Predecessor), the period June 17, 2022 through December 30,
2022 (Predecessor), the period January 1, 2022 through June 16, 2022 (Predecessor), and fiscal 2021 (Predecessor), respectively.
Rabbi Trusts and Other Investments
The Company maintains several rabbi trusts, the assets of which are used to pay retirement benefits. The rabbi trust assets are subject to the claims of the
Company's creditors in the event of the Company's insolvency. Plan participants are general creditors of the Company with respect to these benefits. The
trusts primarily hold life insurance policies and debt and equity securities, the value of which is included in other assets on the consolidated balance sheets.
Note 19 provides additional information regarding the debt and equity securities. The carrying value of the 48 and 55 life insurance contracts held by these
trusts was $38.0 million and $39.5 million as of December 29, 2023 (Successor) and December 30, 2022 (Predecessor), respectively. These contracts had a
total death benefit of $74.2 million and $81.0 million as of December 29, 2023 (Successor) and December 30, 2022 (Predecessor), respectively. However,
there are outstanding loans against the policies amounting to $18.3 million and $21.6 million as of December 29, 2023 (Successor) and December 30, 2022
(Predecessor), respectively.
The Company has insurance contracts that serve as collateral for certain of the Company's non-U.S. pension plan benefits. These insurance contracts
totaled $7.3 million and $7.3 million as of December 29, 2023 (Successor) and December 30, 2022 (Predecessor), respectively. These amounts were included
in other assets on the consolidated balance sheets.
134
15. Equity
Share Repurchases
The Predecessor's Board of Directors previously authorized share repurchase programs. Under the previous program, $1,000.0 million was authorized for
share repurchase. No shares were repurchased during the period from January 1, 2022 through June 16, 2022 (Predecessor) and fiscal 2021(Predecessor). The
March 2017 Repurchase Program was terminated upon the emergence from the 2020 Bankruptcy Proceedings.
On September 29, 2022, during the 2022 Annual General Meeting of Shareholders, the Company’s shareholders approved the Predecessor to make
market purchases or overseas market purchases of a maximum of 1,317,093 ordinary shares of the Predecessor. No shares were repurchased during the period
from June 17, 2022 through December 30, 2022 (Predecessor) or January 1, 2023 through November 14, 2023 (Predecessor). This repurchase program was
terminated upon emergence from the 2023 Bankruptcy Proceedings.
The Company also repurchases shares from certain employees in order to satisfy employee tax withholding requirements in connection with the vesting
of restricted shares. In addition, the Company repurchases shares to settle certain option exercises. The Company spent zero to acquire shares in connection
with equity-based awards in all periods.
16. Share Plans
Total share-based compensation cost was zero, $8.9 million, $1.4 million, $1.7 million, and $10.2 million for the period November 15, 2023 through
December 29, 2023 (Successor), the period December 31, 2022 through November 14, 2023 (Predecessor), the period June 17, 2022 through December 30,
2022 (Predecessor), the period January 1, 2022 through June 16, 2022 (Predecessor), and fiscal 2021 (Predecessor), respectively. These amounts are generally
included within SG&A expenses in the consolidated statements of operations. The Company recognized zero related tax benefits associated with this expense
for all periods presented.
Stock Compensation Plans
On the 2023 Effective Date, all outstanding equity-based awards under the Mallinckrodt Pharmaceuticals Stock and Incentive Plan, as amended and
restated effective February 23, 2022, were automatically cancelled without consideration. No awards were granted during the period from November 15, 2023
through December 29, 2023 (Successor).
On the 2020 Effective Date, all outstanding equity-based awards under the Mallinckrodt Pharmaceuticals Stock and Incentive Plan, as amended and
restated effective February 23, 2022, were automatically cancelled without consideration.
A new Mallinckrodt Pharmaceuticals Stock and Incentive Plan became effective on the 2020 Effective Date, which provided for the award of share
options, share appreciation rights, annual performance bonuses, long-term performance awards, restricted units, restricted shares, deferred share units,
promissory shares and other share-based awards (collectively, "Awards"). The maximum number of common shares to be issued as Awards, subject to
adjustment as provided under the terms of the plan was 1.8 million shares.
Share options. Share options are granted to purchase the Company's ordinary shares at prices that are equal to the fair market value of the shares on the
date the share option is granted. Share options generally vest in equal annual installments over a period of four years and expire ten years after the date of
grant. The grant-date fair value of share options, adjusted for estimated forfeitures, is recognized as expense on a straight-line basis over the requisite service
period, which is generally the vesting period. Forfeitures are estimated based on historical experience.
Share option activity and information was as follows:
Outstanding as of December 25, 2020 (Predecessor)
Expired/Forfeited
Outstanding as of December 31, 2021 (Predecessor)
Expired/Forfeited
Outstanding as of June 16, 2022 (Predecessor)
135
Share Options
Weighted-Average
Exercise Price
6,069,712
(516,193)
5,553,519
(5,553,519)
—
35.95
45.63
35.05
35.05
—
Restricted share units. Recipients of restricted share units ("RSUs") have no voting rights and receive dividend equivalent units that vest upon the vesting
of the related shares. RSUs generally vest in equal annual installments over a period of three years. Restrictions on RSUs lapse upon normal retirement, death
or disability of the employee. The grant-date fair value of RSUs, adjusted for estimated forfeitures, is recognized as expense on a straight-line basis over the
service period. The fair market value of RSUs granted is determined based on the market value of the Company's shares on the date of grant.
RSU activity was as follows:
Non-vested as of December 25, 2020 (Predecessor)
Exercised
Expired/Forfeited
Non-vested as of December 31, 2021 (Predecessor)
Expired/Forfeited
Non-vested as of June 16, 2022 (Predecessor)
Non-vested as of June 17, 2022 (Predecessor)
Granted
Non-vested as of December 30, 2022 (Predecessor)
Granted
Exercised
Expired/Forfeited
Non-vested as of November 14, 2023 (Predecessor)
Shares
Weighted-Average
Grant-Date Fair
Value
490,671
(186,930)
(60,844)
242,897
(242,897)
—
—
890,485
890,485
2,089,814
(332,604)
(2,647,695)
—
20.96
23.43
19.58
19.40
19.40
—
—
12.03
12.03
1.18
12.89
3.35
—
The total fair value of RSU awards granted during the period from December 31, 2022 through November 14, 2023 (Predecessor) was $2.5 million.
Performance share units. Similar to recipients of RSUs, recipients of performance share units ("PSUs") have no voting rights and receive dividend
equivalent units. The grant-date fair value of PSUs, adjusted for estimated forfeitures, is generally recognized as expense on a straight-line basis from the
grant-date through the end of the performance period. The vesting of PSUs and related dividend equivalent units is generally based on various performance
metrics and relative total shareholder return (total shareholder return for the Company as compared to total shareholder return of the PSU peer group),
measured over a three year performance period. The PSU peer group is comprised of various healthcare companies which attempts to replicate the Company's
mix of businesses. Depending on Mallinckrodt's relative performance during the performance period, a recipient of the award is entitled to receive a number
of ordinary shares equal to a percentage, ranging from 0.0% to 200.0%, of the award granted.
A portion of the PSUs granted during the period from June 17, 2022 (Predecessor) to December 30, 2022 (Predecessor) and the period from December
31, 2022 to November 14, 2023 (Predecessor) could have been settled in shares and were classified as equity-based awards, and a portion of the PSUs had the
ability to be settled in either shares or cash and were classified as liability-based awards. The Company recognized $2.6 million and $0.1 million of equity-
based compensation costs during the period from December 31, 2022 (Predecessor) through November 14, 2023 (Predecessor) and the period from June 17,
2022 (Predecessor) through December 30, 2022 (Predecessor), respectively. The fair value of the liability-based awards was measured quarterly and based on
the Company's performance.
PSU activity was as follows
(1)
:
Non-vested as of June 17, 2022 (Predecessor)
Granted
Non-vested as of December 30, 2022 (Predecessor)
Granted
Forfeited
Non-vested as of November 14, 2023 (Predecessor)
(1) The number of shares disclosed within this table are at the target number of 100.0%.
136
Shares
—
675,821
675,821
1,459,493
(2,135,314)
—
Weighted-Average
Grant-Date Fair
Value
—
8.34
8.34
10.13
10.36
—
The Company generally uses the Monte Carlo model to estimate the probability of satisfying the performance criteria and the resulting fair value of PSU
awards. The assumptions used in the Monte Carlo model for PSUs granted during the period December 31, 2022 through November 14, 2023 (Predecessor)
and the period from June 17, 2022 through December 30, 2022 (Predecessor) were as follows:
Expected stock price volatility
Peer group stock price volatility
Correlation of returns
Period from
December 31, 2022
through
November 14, 2023
Period from
June 17, 2022
through
December 30, 2022
40.1 %
124.7
23.8
38.9 %
128.0
24.4
The weighted-average grant-date fair value per share of PSUs granted was $10.13 for the equity-based awards from the period from December 30, 2022
through November 14, 2023 (Predecessor).
17. Guarantees
In disposing of assets or businesses, the Company has from time to time provided representations, warranties and indemnities to cover various risks and
liabilities, including unknown damage to assets, environmental risks involved in the sale of real estate, liability to investigate and remediate environmental
contamination at waste disposal sites and manufacturing facilities, and unidentified tax liabilities related to periods prior to disposition. The Company
assesses the probability of potential liabilities related to such representations, warranties and indemnities and adjusts potential liabilities as a result of changes
in facts and circumstances. The Company believes, given the information currently available, that the ultimate resolutions will not have a material adverse
effect on its financial condition, results of operations and cash flows.
In connection with the sale of the Specialty Chemical business (formerly known as Mallinckrodt Baker) in fiscal 2010, the Company agreed to indemnify
the purchaser with respect to various matters, including certain environmental, health, safety, tax and other matters. The indemnification obligations relating
to certain environmental, health and safety matters have a term of 17 years from the sale, while some of the other indemnification obligations have an
indefinite term. The liability relating to all of these indemnification obligations was governed by a contract that was rejected as part of the 2020 Bankruptcy
Proceedings and is no longer a liability subsequent to the 2020 Effective Date. The Company was required to pay $30.0 million into an escrow account as
collateral to the purchaser. The contract governing the escrow account was assumed in the 2020 Bankruptcy Proceedings. As of December 29, 2023
(Successor) and December 30, 2022 (Predecessor), $20.2 million and $19.3 million, respectively, remained in restricted cash, included in other long-term
assets on the consolidated balance sheets. As of December 29, 2023 (Successor), the Company does not expect to make future payments related to these
indemnification obligations.
As of December 29, 2023 (Successor), the Company had various other letters of credit, guarantees and surety bonds totaling $31.4 million and restricted
cash of $42.9 million held in segregated accounts primarily to collateralize surety bonds for the Company's environmental liabilities.
18. Commitments and Contingencies
The Company is subject to various legal proceedings and claims, including government investigations, environmental matters, product liability matters,
patent infringement claims, antitrust matters, securities class action lawsuits, personal injury claims, employment disputes, contractual and other commercial
disputes, and other legal proceedings, all in the ordinary course of business, including those described below. Although it is not feasible to predict the outcome
of these matters, the Company believes, unless otherwise indicated below, given the information currently available, that the ultimate resolution of any
particular matter, or matters that have the same legal or factual issues, will not have a material adverse effect on its financial condition, results of operations
and cash flows.
Governmental Proceedings
Acthar Gel-Related Matters
SEC Subpoena. In August 2019, the Company received a subpoena from the SEC for documents related to the Company's disclosure of its dispute with
the HHS and CMS (together with the HHS, the "Agency") concerning the base date average manufacturer price for Acthar Gel under the Medicaid Drug
Rebate Program, which was also the subject of litigation that the Company filed against the Agency. The SEC issued subsequent subpoenas on January 7,
2022 and September 28, 2022, requesting additional documents from the Company.
137
In connection with the investigation, on January 13, 2023, the SEC staff issued Wells Notices to the Company and individuals, including certain of its
current and former executive officers, who were employed during 2019 (collectively, the "Individuals"). The notices indicate that the SEC staff has made a
preliminary determination to recommend that the SEC file an enforcement action against the Company that would allege violations of the federal securities
laws, and against the Individuals that would allege violations of the federal securities laws and/or aiding and abetting violations of the federal securities laws.
The Wells Notices indicated that the SEC staff would allege, among other things, that (a) the Company improperly omitted to disclose the dispute with the
Agency prior to the litigation filed by the Company in federal court on May 21, 2019, and (b) the Company’s disclosure of the civil investigative demand
received from the U.S. Attorney’s Office for the District of Massachusetts in January 2019 ("Boston CID") should have stated that the Boston CID related to
the Company’s dispute with the Agency.
On November 30, 2023, the Company reached an agreement with the SEC to resolve the SEC staff’s investigation into the Company’s disclosures
relating to (a) the dispute with the Agency and (b) the Boston CID. Specifically, the Company consented to the entry of an Order Instituting Cease-And-Desist
Proceedings Pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act, Making Findings, and Imposing a Cease-And-Desist Order
("Order"). The Order included findings by the SEC that are neither admitted nor denied by the Company and directed Mallinckrodt to cease and desist from
committing or causing any violations and any future violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933, as amended, Sections 13(a),
13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act of 1934, as amended (Exchange Act"), and Exchange Act Rules 12b-20, 13a-1, 13a-13, and 13a-15(a). In
addition, the Order requires the Company to retain a compliance consultant ("Consultant") to review the Company’s disclosure controls and procedures
relating to collection and assessment of information concerning potential risks, contingencies, trends, and uncertainties, and the implementation and
sufficiency of the Company’s internal accounting controls related to GAAP ASC 450. Under the terms of the Order, the Company will implement
recommendations of the Consultant.
Other Related Matters
Florida Civil Investigative Demand. In or around February 2019, the Company received a civil investigative demand ("CID") from the U.S. Attorney's
Office for the Middle District of Florida for documents related to alleged payments to healthcare providers in Florida and whether those payments violated the
Anti-Kickback Statute. The Company has cooperated with the investigation.
Generic Pricing Subpoena. In March 2018, the Company received a grand jury subpoena issued by the U.S. District Court for the EDPA pursuant to
which the Antitrust Division of the DOJ is seeking documents regarding generic products and pricing, communications with generic competitors and other
related matters. The Company is in the process of responding to this subpoena and intends to cooperate in the investigation.
MNK 2011 Inc. (formerly known as Mallinckrodt Inc.) v. U.S. Food and Drug Administration and United States of America. In November 2014, the FDA
reclassified the Company's Methylphenidate ER in the Orange Book: Approved Drug Products with Therapeutic Equivalence ("Orange Book"). In November
2014, the Company filed a Complaint in the U.S. District Court for the District of Maryland Greenbelt Division against the FDA and the U.S. ("MD
Complaint") for judicial review of the FDA's reclassification. In July 2015, the court granted the FDA's motion to dismiss with respect to three of the five
counts in the MD Complaint and granted summary judgment in favor of the FDA with respect to the two remaining counts ("MD Order"). On October 18,
2016, the FDA initiated proceedings, proposing to withdraw approval of the Company's Abbreviated New Drug Application ("ANDA") for Methylphenidate
ER. On October 21, 2016, the U.S. Court of Appeals for the Fourth Circuit issued an order placing the Company's appeal of the MD Order in abeyance
pending the outcome of the withdrawal proceedings. The parties exchanged documents and in April 2018, the Company filed its submission in support of its
position in the withdrawal proceedings. A potential outcome of the withdrawal proceedings is that the Company's Methylphenidate ER products may lose
their FDA approval and have to be withdrawn from the market.
U.S. Attorney's Office Subpoena. On August 22, 2023, the Company received a grand jury subpoena from the U.S. Attorney's Office for the Western
District of Virginia ("USAO") seeking production of data and information for the time period from July 17, 2017 to the present, including information and
data relating to the Company's reporting of suspicious orders for controlled substances, chargebacks and other transactions, and communications between the
Company and the U.S. Drug Enforcement Administration ("DEA") regarding those issues. The Company's legal representatives discussed the intended scope
of the subpoena and initial timeline with the USAO in August and September 2023. On September 27, 2023, the Company received a second grand jury
subpoena from the USAO for documents pertaining to financial accounts related to the prior requests. On March 13, 2024, the Company received an
additional grand jury subpoena from the USAO requesting additional information regarding financial transactions involving prescription drug products.
On October 11, 2023, the Company’s legal representatives met with the USAO to, among other things, share information with the USAO about the
operating injunction under which the Company's Specialty Generics segment has been operating since October 2020 and which was agreed to by 50 state and
territory attorneys general and entered by the Bankruptcy Court ("operating injunction"). Among other things, the operating injunction provides that Specialty
Generics must retain an independent monitor to evaluate and audit compliance with the operating injunction. R. Gil Kerlikowske, former Director of the
Office of National Drug Control Policy and former Commissioner of U.S. Customs and Border Protection, currently serves as the monitor and issues periodic
reports on Specialty
138
Generics' compliance program, which can be found on the Company's web site at https://www.mallinckrodt.com/corporate-responsibility/corporate-
compliance/.
The Company believes that Specialty Generics is in compliance with its obligations through its industry-leading compliance program for controlled
substances. Prior to the existing operating injunction, Specialty Generics operated under a compliance-related memorandum of understanding with DEA
established in July 2017 that expired in July 2020.
The Company is in the process of responding to the subpoenas and intends to cooperate in the investigation. The Company cannot predict the eventual
scope, duration or outcome of the investigation at this time.
Patent Litigation
Branded Products. The Company will continue to vigorously enforce its intellectual property rights relating to its Branded products to prevent the
marketing of infringing generic or competing products prior to the expiration of patents covering those products, which, if unsuccessful, could adversely
affect the Company's ability to successfully maximize the value of individual Branded products and have an adverse effect on its financial condition, results of
operations and cash flows. In the case of litigation filed against potential generic or competing products to Company's Branded products, those litigation
matters can either be settled or the litigation pursued through a trial and any potential appeals of the lower court decision.
Generic Products. The Company continues to pursue development of a portfolio of generic products, some of which require submission of a Paragraph
IV certification against patents listed in the FDA's Orange Book for the Branded product asserting that the Company's proposed generic product does not
infringe and/or the Orange Book patent(s) are invalid and/or unenforceable. In the case of litigation filed against Company for such potential generic products,
those litigation matters can either be settled or the litigation pursued through a trial and any potential appeals of the lower court decision in order to
successfully launch those generic products in the future.
Mallinckrodt Pharmaceuticals Ireland Limited et al. v. Airgas Therapeutics LLC et al. On December 30, 2022, the Company initiated litigation against
Airgas Therapeutics, LLC, Airgas USA LLC, and Air Liquide S.A. (collectively "Airgas") in the District of Delaware following notice from Airgas of its
abbreviated new drug application ("ANDA") submission seeking approval from the FDA for a generic version of INOmax (nitric oxide) gas, for inhalation
("INOmax"). Airgas's ANDA received final approval from the FDA in July 2023, and according to Airgas' counsel, the original ANDA was filed in April
2011. The case is at an early stage and discovery is ongoing. In October 2023, the parties completed briefing on the Company’s motion for preliminary
injunction seeking to prevent defendants Airgas Therapeutics LLC and Airgas USA LLC from infringing the Company’s U.S. patents during the pendency of
the litigation; no hearing date has been scheduled at this time. On February 12, 2024, the court entered stipulations of consent for filing of an amended
complaint. On March 22, 2024, the court granted Air Liquide S.A.’s motion to dismiss. AirGas Therapeutics, LLC and AirGas USA LLC remain parties to the
litigation. The court set a trial date of September 8, 2025.
®
Many of the patents asserted against Airgas were previously asserted in the District of Delaware against Praxair Distribution, Inc. and Praxair, Inc.
(collectively "Praxair") in 2015 and 2016 following Praxair's submissions with FDA seeking approval for a nitric oxide drug product and delivery system. The
litigation against Praxair resulted in Praxair's launch of a competitive nitric oxide product. The Company continues to develop and pursue patent protection of
next generation nitric oxide delivery systems and additional uses of nitric oxide and intends to vigorously enforce its intellectual property rights against any
parties that may seek to market a generic version of the Company's INOmax product and/or next generation delivery systems.
Amitiza Patent Challenges. The Company was granted numerous Japanese patents related to Amitiza and its use. In October 2023, the Company received
two notifications from the Japan Patent Office ("JPO") that Sawai Pharmaceutical Co., Ltd. has filed two invalidation proceedings against two patent term
extension ("PTE") registrations against JP Patent No. 4332353 issued to the Company that cover Amitiza and its use in Japan. In December 2023, the
Company received notification that a new invalidation trial has been filed with the JPO against JP Patent Appln. No. 2002-586947 by Sawai Pharmaceutical
Co., Ltd. The process is at an early stage. The Company believes that its patents and PTE registrations are valid, and the Company will vigorously defend its
patents and PTE registrations.
In January 2024, the Company received notification of a new invalidation trial against the Amitiza PTE application as to JP Patent Appln. No. 2002-
586947 filed by Towa Pharmaceutical Co., Ltd. that covers Amitiza and its use in Japan. This process is at an early stage. The Company believes that this PTE
registration is valid, and the Company will vigorously defend its PTE registrations.
Commercial and Securities Litigation
Putative Class Action Securities Litigation (Continental General). On July 7, 2023, a putative class action lawsuit was filed against the Company, its
Chief Executive Officer ("CEO") Sigurdur Olafsson, its Chief Financial Officer ("CFO") Bryan Reasons, and the Chairman of the Board, Paul Bisaro, in the
U.S. District Court for the Southern District of New Jersey, captioned Continental General Insurance Company and Percy Rockdale, LLC v. Mallinckrodt plc
et al., No. 23-cv-03662. The complaint purports to be
139
brought on behalf of all persons who purchased or otherwise acquired Mallinckrodt's securities between June 17, 2022 and June 14, 2023. The lawsuit
generally alleges that the defendants made false and misleading statements in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as
amended, and Rule 10b-5 promulgated thereunder related to the Company’s business, operations, and prospects, including its financial strength, its ability to
timely make certain payments related to Mallinckrodt’s Opioid-Related Litigation Settlement and the risk of additional filings for bankruptcy protection. The
lawsuit seeks monetary damages in an unspecified amount. A lead plaintiff was designated by the court on September 10, 2023. On December 26, 2023, an
amended complaint was filed by the lead plaintiff against Olafsson, Reasons, and Bisaro ("Individual Defendants"). As to the Company, any liability to the
plaintiffs in this matter was discharged upon emergence from the 2023 Bankruptcy Proceedings. The Individual Defendants filed a motion to dismiss on
February 26, 2024.
Acument Global. In May 2019, Acument Global Technologies, Inc. ("Acument"), filed a non-class complaint against the Company and other defendants
in Tennessee state court, captioned as Acument Global Technologies, Inc., v. Mallinckrodt ARD Inc., et al., alleging violations of Tennessee Consumer
Protection Laws, unjust enrichment, fraud and conspiracy to defraud. In February 2020, the court granted-in-part and denied-in-part the Company's motion to
dismiss. While the court dismissed Acument's fraud-based claims and its claim under the Tennessee Consumer Protection Act, the court ruled that the antitrust
and unjust enrichment claims may proceed. Following lifting of the automatic stay of this litigation pursuant to Section 362 of the Bankruptcy Code, on
September 29, 2022, the court remanded the case to state court. On October 31, 2023, the state court granted the plaintiff’s voluntary motion to dismiss the
Company from the case.
Local 542. In May 2018, the International Union of Operating Engineers ("IUOE") Local 542 filed a non-class complaint against the Company and other
defendants in Pennsylvania state court alleging improper pricing and distribution of Acthar Gel, in violation of Pennsylvania's Unfair Trade Practices and
Consumer Protection Law, aiding and abetting, unjust enrichment and negligent misrepresentation captioned as Int'l Union of Operating Engineers Local 542
v. Mallinckrodt ARD Inc., et al. Plaintiff filed an amended complaint in August 2018, the Company's objections to which were denied by the court. In January
2021, the Company removed this case to the EDPA. In March 2021, the EDPA granted the Company's motion to transfer the case to the U.S. District Court
for the District of Delaware ("District of Delaware") and denied without prejudice Local 542's motion to remand the case to state court. In June 2021, the
District of Delaware referred this case to the Bankruptcy Court in Delaware. On November 17, 2022, Local 542 filed a motion to withdraw the reference to
the District Court, and the case was transferred back to the District of Delaware at Case No. 22-cv-01502. On December 22, 2022, Local 542 filed a request
for the motion to withdraw the reference to be decided by the EDPA and to permit remand to state court. On December 28, 2022, the case was assigned to
Judge Ambro of the United States Court of Appeals for the Third Circuit due to related cases. On June 27, 2023, the District of Delaware entered an order to
withdraw reference of the action to the Delaware Bankruptcy Court and to transfer the case back to the EDPA in order to be remanded to state court. On
January 9, 2024, the Court of Common Please entered an order marking the claims against the Mallinckrodt defendants "discontinued and ended without
prejudice."
Generic Pharmaceutical Antitrust Multi-District Litigation.
In August 2016, a multi-district litigation ("MDL") was established in the EDPA relating to allegations of antitrust violations with respect to generic
pharmaceutical pricing ("Generic Pricing MDL"). Plaintiffs in the Generic Pricing MDL, captioned In re: Generic Pharmaceuticals Pricing Antitrust
Litigation, allege a conspiracy of price-fixing and customer allocation among generic drug manufacturers beginning in or around July 2009. The Generic
Pricing MDL includes lawsuits against the Company and dozens of other pharmaceutical companies, including a complaint filed by Attorneys General for 51
States, Territories and the District of Columbia seeking monetary damages and injunctive relief. While the Company is not subject to monetary damages in
connection with these matters as a result of the 2023 Plan and vigorously disagrees with the plaintiffs' characterization of the facts and law, the Company is
not able to reasonably estimate whether any injunctive relief will be granted, and if granted, whether it will materially impact the Company's financial position
or operations; the Company does not intend to provide further disclosure unless this assessment changes.
Environmental Remediation and Litigation Proceedings
The Company is involved in various stages of investigation and cleanup related to environmental remediation matters at a number of sites, including as
described below. The ultimate cost of site cleanup and timing of future cash outlays is difficult to predict, given the uncertainties regarding the extent of the
required cleanup, the interpretation of applicable laws and regulations and alternative cleanup methods. The Company concluded that, as of December 29,
2023 (Successor), it was probable that it would incur remediation costs in the range of $17.7 million to $47.9 million. The Company also concluded that, as of
December 29, 2023 (Successor), the best estimate within this range was $36.1 million, of which $1.0 million was included in accrued and other current
liabilities and the remainder was included in environmental liabilities on the consolidated balance sheet as of December 29, 2023 (Successor). While it is not
possible at this time to determine with certainty the ultimate outcome of these matters, the Company believes, given the information currently available, that
the final resolution of all known claims, after taking into account amounts already accrued, will not have a material adverse effect on its financial condition,
results of operations and cash flows.
140
Lower Passaic River, New Jersey. The Company and approximately 70 other companies ("Cooperating Parties Group" or "CPG") are parties to a May
2007 Administrative Order on Consent with the Environmental Protection Agency ("EPA") to perform a remedial investigation and feasibility study ("RI/FS")
of the 17-mile stretch known as the Lower Passaic River Study Area ("River"). The Company's potential liability stems from former operations at Lodi and
Belleville, New Jersey (the "Lodi facility" and the "Belleville facility" respectively). In April 2014, the EPA issued a revised Focused Feasibility Study
("FFS"), with remedial alternatives to address cleanup of the lower 8-mile stretch of the River. The EPA estimated that the cost for the remediation
alternatives ranged from $365.0 million to $3.2 billion and the EPA's preferred approach had an estimated cost of $1.7 billion. In April 2015, the CPG
presented a draft of the RI/FS of the River to the EPA that included alternative remedial actions for the entire 17-mile stretch of the River. In March 2016, the
EPA issued the Record of Decision ("ROD(s)") for the lower 8 miles of the River with a slight modification on its preferred approach and a revised estimated
cost of $1.38 billion. In October 2016, the EPA announced that Occidental Chemicals Corporation had entered into an agreement to develop the remedial
design.
In August 2018, the EPA finalized a buyout offer of $280,600 with the Company, limited to its former Lodi facility, for the lower 8 miles of the River. In
September 2021, the EPA issued the ROD for the upper 9 miles of the River selecting source control as the remedy for the upper 9 miles with an estimated
cost of $441.0 million. In September 2022, the Company entered into a conditional $0.3 million Early Cash-Out Consent Decree ("CD") with the EPA as a
buyout for its portion of the upper part of the River related to its former Lodi facility; finalization of the CD is subject to the EPA approval following the
public comment period that was extended until a September 22, 2023 court hearing to determine whether the court will hold a Fairness Hearing or whether the
EPA will finalize and approve the conditional CD. On October 16, 2023, the court granted the EPA's request for a sixty-day extension, until November 21,
2023, to notify the Court regarding whether it plans to move forward with the conditional CD. The comment period resulted in a modification to the CD by
USEPA which includes a cost reopener of $3.7 billion to the covenant not to sue. The United States filed the modified CD on January 17, 2024, and a motion
for entry and response to comments was filed on January 31, 2024.
The portion of the liability related to the Belleville facility was discharged against the Company as a result of the 2020 Plan. Any reserves associated with
this contingency were included in LSTC as of June 16, 2022, and any related liabilities were discharged under the Bankruptcy Code. The portion of the
liability related to the Lodi facility remains a part of the reserve until the CD is lodged.
As of December 29, 2023 (Successor), the Company estimated that its remaining liability related to the River was $21.0 million, which was included
within environmental liabilities on the consolidated balance sheet as of December 29, 2023 (Successor). Despite the issuance of the revised FFS and the
RODs for both the lower and upper River by the EPA, the RI/FS by the CPG, and the conditional CD by the EPA, there are many uncertainties associated with
the final agreed-upon remediation, potential future liabilities and the Company's allocable share of the remediation. Given those uncertainties, the amounts
accrued may not be indicative of the amounts for which the Company may be ultimately responsible and will be refined as the remediation progresses.
Bankruptcy Litigation and Appeals
First Lien Noteholder Matters. The 2020 Plan reinstated the 2025 First Lien Notes in an aggregate principal amount of $495.0 million and the note
documents relating thereto. Certain holders of the 2025 First Lien Notes and the trustee in respect thereof (collectively, "Noteholder Parties"), objected to the
reinstatement, arguing, among other things, that the Company was required to pay a significant make-whole premium as a condition to reinstatement of the
2025 First Lien Notes. In the course of confirming the 2020 Plan, the Bankruptcy Court overruled these objections.
On March 30, 2022, the Noteholder Parties appealed the confirmation order's approval of the reinstatement of the 2025 First Lien Notes to the United
States District Court for the District of Delaware ("District Court"). The Company and the 2025 First Lien Notes trustee reached an agreement to hold the
trustee's appeal in abeyance, to be determined by the result of the holders' appeals, subject to certain conditions, which was approved by the District Court.
Briefing on the merits of the Noteholder Parties' appeals was completed on July 1, 2022. On the same date, the Company moved to dismiss the Noteholder
Parties' appeals as equitably moot. Briefing on the motion was completed on August 5, 2022 and supplemental declarations were filed in the appeal. Oral
argument was held on the Noteholder Parties' appeals on May 5, 2023, and the District Court took the matter under advisement.
As part of the 2023 restructuring support agreement ("2023 RSA"), certain holders including holders representing a substantial majority of the 2025 First
Lien Notes ("Ad Hoc First Lien Notes Group") agreed to settle these appeals through the 2023 Plan. Among other provisions, the 2023 Plan incorporates the
2025 First Lien Notes Makewhole Settlement (as defined in the 2023 Plan), which comprises the allowance of a 2025 First Lien Notes Makewhole Amount
Claim (as defined in the 2023 Plan) in a stipulated amount of $14.9 million (or 3.0% of the principal amount of the 2025 First Lien Notes). In exchange, the
Ad Hoc First Lien Notes Group agreed to dismiss its appeal, and to cause the trustee to dismiss its companion appeal, upon the 2023 Effective Date. On
August 23, 2023, the parties wrote to the District Court to outline the settlement and request that the appeals be held in abeyance pending the confirmation of
the amended 2023 Plan. On August 23, 2023, the District Court entered an order stating that it would defer indefinitely issuing a decision in the appeal, but
reserving the right to file an opinion and order at any later time prior to the filing of a stipulated dismissal of the appeals. On August 28, 2023, Columbus Hill
Capital Management, L.P., a Noteholder Party that had filed a separate appeal, agreed to dismiss its appeal because it had sold the entirety of its position in the
2025 First Lien Notes.
141
As further described herein, the 2023 Plan, including the 2025 First Lien Notes Makewhole Settlement, was confirmed by the Bankruptcy Court on
October 10, 2023. The appeal of the Ad Hoc First Lien Notes Group was resolved under the 2023 Plan, and the parties thereto filed an agreement to
voluntarily dismiss the appeal on December 5, 2023.
Sanofi. On October 13, 2021, in the Company's 2020 Chapter 11 Cases, sanofi-aventis U.S. LLC ("Sanofi") filed a motion asking the Bankruptcy Court
for an order determining that, under the Bankruptcy Code, the Company could not discharge certain alleged royalty obligations owed to Sanofi under an asset
purchase agreement through which the Company acquired certain intellectual property from Sanofi's predecessor ("Sanofi Motion"). On November 4, 2021,
the Bankruptcy Court denied the Sanofi Motion and ordered that any royalty obligations allegedly owed to Sanofi constitute prepetition unsecured claims that
may be discharged under the Bankruptcy Code. On November 19, 2021, Sanofi appealed the Bankruptcy Court's ruling of the Sanofi Motion to the District
Court. Briefing was completed on March 10, 2022 and the District Court affirmed on December 21, 2022, for which Sanofi filed a notice of appeal to the
Third Circuit Court of Appeals on January 17, 2023. While the appeal has been fully briefed and the Third Circuit heard oral argument on December 11,
2023, the Third Circuit has yet to rule on the appeal.
Stratatech. Consummation of the 2020 Plan discharged the Company's liability with respect to certain contingent consideration provided to the prior
securityholders of Stratatech Corporation ("Stratatech"). However, Russell Smestad, as the representative of these securityholders, has filed a motion in the
Bankruptcy Court for an order either (i) granting allowance and immediate payment of an administrative expense claim in the amount of the liability of
$20 million or (ii) finding that the claim was not susceptible to discharge and should be paid in full. The Company believes that the securityholders’ motion is
without merit and intends to vigorously oppose it.
Discovery was substantially complete prior to the 2023 Bankruptcy Proceedings. Litigation of the securityholders’ motion was stayed automatically when
the Company commenced the 2023 Bankruptcy Proceedings on August 28, 2023. Since the 2023 Debtors emerged from the 2023 Bankruptcy Proceedings on
November 14, 2023, the Court set a schedule to complete discovery and other pre-hearing procedures. No hearing date before the Bankruptcy Court has been
set.
Opioid-Related Litigation Settlement
On June 15, 2023, the Company, certain subsidiaries of the Company and the Trust entered into Amendment No. 1 ("Amendment") to the Opioid
Deferred Cash Payments Agreement, which was entered into in connection with the 2020 Plan. The Amendment extended to June 23, 2023, from June 16,
2023, the date on which the $200.0 million installment payment with respect to the Opioid Deferred Cash Payment was required to be made to the Trust.
Pursuant to the Amendment, the Trust subsequently provided several additional written notices that had the effect of extending the due date of the Opioid
Deferred Cash Payment to August 15, 2023. In connection with entry into the 2023 RSA, the Company and the Trust entered into a final amendment to the
Opioid Deferred Cash Payments Agreement, which provided that the Company's prior obligation to pay all remaining Opioid-Related Litigation Settlement
payment obligations (including the Opioid Deferred Cash Payment) was permanently eliminated subject to the Company (a) making a $250.0 million
payment to the Trust prior to the commencement of the 2023 Bankruptcy Proceedings (which was made on August 24, 2023) and (b) entering into the CVR
Agreement to receive a payment (in cash or, at the Company's option subject to certain conditions, shares of the Company's equity) equal to the value of 5%
of the Company's total outstanding equity (subject to certain dilution) less the exercise price, which is based on a total enterprise value of $3.776 billion less
funded debt at emergence plus any excess cash at emergence after the emergence-date cash sweep contemplated by the 2023 RSA. Additionally, the 2023
Debtors' non-monetary obligations to the Trust were generally preserved, including the compliance-related operating injunction and the cooperation
agreement (as amended).
Other Matters
The Company is a defendant in a number of other pending legal proceedings relating to present and former operations, acquisitions and dispositions. The
Company does not expect the outcome of these proceedings, either individually or in the aggregate, to have a material adverse effect on its financial
condition, results of operations and cash flows.
19. Financial Instruments and Fair Value Measurements
Fair value is defined as the exit price that would be received from the sale of an asset or paid to transfer a liability, using assumptions that market
participants would use in pricing an asset or liability. The fair value guidance establishes a three-level fair value hierarchy, which maximizes the use of
observable inputs and minimizes the use of unobservable inputs used in measuring fair value. The levels within the hierarchy are as follows:
Level 1— observable inputs such as quoted prices in active markets for identical assets or liabilities;
Level 2— significant other observable inputs that are observable either directly or indirectly; and
142
Level 3— significant unobservable inputs in which there is little or no market data, which requires the Company to develop its own assumptions.
The following tables provide a summary of the significant assets and liabilities that are measured at fair value on a recurring basis at the end of each
period:
Assets:
Debt and equity securities held in rabbi trusts
Equity securities
Interest rate cap
Liabilities:
Debt derivative liabilities
Deferred compensation liabilities
Contingent consideration liabilities
Assets:
Debt and equity securities held in rabbi trusts
Equity securities
Liabilities:
Deferred compensation liabilities
Contingent consideration liabilities
December 29, 2023
(Successor)
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
$
$
$
$
43.3
28.9
12.9
85.1
15.1
21.0
14.7
50.8
$
$
$
$
29.1
28.9
—
58.0
—
—
—
—
$
$
$
$
14.2
—
—
14.2
—
21.0
—
21.0
December 30, 2022
(Predecessor)
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
$
$
$
$
36.6
25.5
62.1
26.0
7.3
33.3
$
$
$
$
24.8
25.5
50.3
—
—
—
$
$
$
$
11.8
—
11.8
26.0
—
26.0
$
$
$
$
$
$
$
$
—
—
12.9
12.9
15.1
—
14.7
29.8
Significant
Unobservable
Inputs
(Level 3)
—
—
—
—
7.3
7.3
Debt and equity securities held in rabbi trusts. Debt securities held in rabbi trusts primarily consist of U.S. government and agency securities and
corporate bonds. When quoted prices are available in an active market, the investments are classified as level 1. When quoted market prices for a security are
not available in an active market, they are classified as level 2. Equity securities held in rabbi trusts primarily consist of U.S. common stocks, which are
valued using quoted market prices reported on nationally recognized securities exchanges.
Equity securities. Equity securities consist of shares in Silence Therapeutics plc and Panbela Therapeutics, Inc. for which quoted prices are available in an
active market; therefore, these investments are classified as level 1 and are valued based on quoted market prices reported on internationally recognized
securities exchanges.
During the period November 15, 2023 through December 29, 2023 (Successor), the period June 17, 2022 through December 30, 2022 (Predecessor), and
fiscal 2021 (Predecessor), the Company recognized an unrealized gain of $13.5 million, $9.2 million, and $4.7 million, respectively and during the period
December 31, 2022 through November 14, 2023 (Predecessor) and the period January 1, 2022 through June 16, 2022 (Predecessor), the Company recognized
an unrealized loss of $10.1 million and $22.2 million, respectively, related to our investments within other income (expense), net in the consolidated
statements of operations.
Interest rate cap. The Company is exposed to interest rate risk on its variable-rate debt. During the three months ended March 31, 2023 (Predecessor), the
Company entered into an interest rate cap agreement, which serves to reduce the volatility on future interest expense cash outflows. The interest rate cap
agreement has a total notional value of $860.0 million with an upfront premium of $20.0 million and provides the Company with interest rate protection (i)
for the period March 16, 2023 through July 19, 2023 to the extent that the one-month LIBOR exceeds 4.65%, and (ii) for the period July 20, 2023 through
March 26, 2026 to the extent that the one-month SOFR exceeds 3.84%.
143
During the period from March 16, 2023 to November 14, 2023 (Predecessor), the interest rate cap agreement qualified as a cash flow hedge. The
premium paid was recognized in income on a rational basis, and changes in the fair value of the interest rate cap were recorded within accumulated other
comprehensive income ("AOCI") and were subsequently reclassed into interest expense in the period when the hedged interest affects earnings. Upon
adoption of fresh-start accounting, the Company reassessed the interest rate cap and elected to not apply hedge accounting. As such, during the Successor
period, the interest rate cap agreement was not accounted for as a cash flow hedge and the changes in fair value of the interest rate cap were recorded within
other income (expense) in the consolidated statement of operations. The fair value of the interest rate cap is included in other assets on the Company’s
consolidated balance sheet as of December 29, 2023 (Successor).
The Company elected to use the income approach to value the interest rate cap derivative using observable Level 2 market expectations at the
measurement date and standard valuation techniques to convert future amounts to a single present amount (discounted) reflecting current market expectations
about those future amounts. Level 2 inputs for derivative valuations are limited to quoted prices for similar assets or liabilities in active markets (specifically
futures contracts) and inputs other than quoted prices that are observable such as LIBOR or SOFR rate curves, futures and volatilities. Mid-market pricing is
used as a practical expedient in the fair value measurements. During the period from December 31, 2022 through November 14, 2023 (Predecessor), the
Company recognized an unrealized gain of $5.7 million within AOCI with a gain of $0.7 million being reclassified into earnings as a component of interest
expense, net. During the period from November 15, 2023 to December 29, 2023 (Successor), the Company recognized an $8.4 million unrealized loss in other
income (expense) related to the changes in fair value of the interest rate cap. The cash payment of the $20.0 million premium and other corresponding activity
related to the interest rate cap were reflected as cash flows from operating activities in the consolidated statement of cash flows for the period December 31,
2022 to November 14, 2023 (Predecessor).
Debt derivative liabilities. The debt derivative liabilities related to the Company's First and Second-Out Takeback Term Loans and Takeback Notes are
measured using a 'with and without' valuation model to compare the fair values of each debt instrument including the identified embedded derivative feature.
The "with" value corresponds to the fair value of each instrument assuming mandatory prepayment upon an asset sale. The "without" value corresponds to the
fair value of each instrument assuming no mandatory prepayment upon an asset sale These derivative liabilities are classified as level 3 and the fair value of
the debt instruments including the embedded derivative features were determined using the Black-Derman-Toy model based on three potential scenarios
included in the tables below which includes significant unobservable inputs. The estimated settlement value of each scenario, which would include any
required applicable premium (see Note 13), is then discounted to present value using a discount rate that is a 3.08% and 4.58% credit spread for the First and
Second-Out Takeback Term Loans, respectively, plus the U.S. treasury yield commensurate with the cash flow payment date. The applicable premium
estimates were calculated at each mandatory prepayment event date in accordance with the contractual definition and were based, in part, on subjective
assumptions. These subjective assumptions relate to scenario-related proceeds from an asset sale, inclusive of estimated transaction fees and related taxes. The
debt derivative liability is recorded at fair value, with the changes in fair value reported within earnings. The debt derivative liability was $15.1 million as of
November 14, 2023 (Predecessor) and December 29, 2023 (Successor) and was recorded within accrued and other current liabilities within the consolidated
balance sheet as of December 29, 2023 (Successor). Significant assumptions utilized in the determination of the fair value are as follows:
First and Second-Out Takeback Term Loans:
Input
Scenario 1
Scenario 2
Scenario 3
Remaining term (years)
Maturity Date
Coupon Rate
Probability of mandatory prepayment event before November 2025
Estimated timing of mandatory prepayment event before November 2025
(1)
(1)
(1)
Represents a significant unobservable input
Takeback Notes:
Input
Remaining term (years)
Maturity Date
Coupon Rate
Probability of mandatory prepayment event before November 2025
Estimated timing of mandatory prepayment event before November 2025
(1)
(1)
5
November 14, 2028
7.50% - 9.50% + SOFR
25.00%
August 2024
5
November 14, 2028
7.50% - 9.50% + SOFR
25.00%
December 2024
5
November 14, 2028
7.50% - 9.50% + SOFR
6.25%
August and December 2024
Scenario 1
5
November 14, 2028
14.75%
25.00%
August 2024
Scenario 2
5
November 14, 2028
14.75%
25.00%
December 2024
Scenario 3
5
November 14, 2028
14.75%
6.25%
August and December 2024
(1)
Represents a significant unobservable input
144
Deferred compensation liabilities. The Company maintains a non-qualified deferred compensation plan in the U.S., which permits eligible employees of
the Company to defer a portion of their compensation. A recordkeeping account is set up for each participant and the participant chooses from a variety of
funds for the deemed investment of their accounts. The recordkeeping accounts generally correspond to the funds offered in the Company's U.S. tax-qualified
defined contribution retirement plan and the account balance fluctuates with the investment returns on those funds.
Contingent consideration liabilities. In accordance with the 2020 Plan and the 2020 Scheme of Arrangement, the Company will provide consideration for
the Terlivaz CVR primarily in the form of the achievement of a cumulative net sales milestone. The Company assesses the likelihood and timing of making
such payments at each balance sheet date. The fair value of the contingent payment was measured based on the net present value of a probability-weighted
assessment. The Company determined the fair value of the Terlivaz CVR as of December 29, 2023 (Successor) and December 30, 2022 (Predecessor) to be
$14.7 million and $7.3 million, respectively.
All contingent consideration liabilities were classified within other liabilities in the consolidated balance sheets as of December 29, 2023 (Successor) and
December 30, 2022 (Predecessor), respectively. The following table summarizes activity for contingent consideration:
Balance as of December 30, 2022 (Predecessor)
Fair value adjustments
Fresh-start adjustment
Balance as of November 14, 2023 (Predecessor)
Balance as of November 15, 2023 (Successor)
Fair value adjustments
Balance as of December 29, 2023 (Successor)
$
$
$
$
7.3
(7.2)
14.9
15.0
15.0
(0.3)
14.7
Financial Instruments Not Measured at Fair Value
The following methods and assumptions were used by the Company in estimating fair values for financial instruments not measured at fair value as of
December 29, 2023 (Successor) and December 30, 2022 (Predecessor):
• The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and the majority of other current assets and liabilities
approximate fair value because of their short-term nature. The Company classifies cash on hand and deposits in banks, including commercial paper,
money market accounts and other investments it may hold from time to time, with an original maturity of three months or less, as cash and cash
equivalents (level 1). The fair value of restricted cash was equivalent to its carrying value of $80.7 million and $57.2 million as of December 29, 2023
(Successor) and December 30, 2022 (Predecessor), (level 1), respectively. Included within the balance as of the 2023 Effective Date was $24.0 million
related to the funding of a professional fee escrow account upon emergence from the 2023 Bankruptcy Proceedings. Refer to Note 3 for further
information. As of December 29, 2023 (Successor), the professional fee escrow balance was $17.6 million.
• The Company's life insurance contracts are carried at cash surrender value, which is based on the present value of future cash flows under the terms of the
contracts (level 3). Significant assumptions used in determining the cash surrender value include the amount and timing of future cash flows, interest
rates and mortality charges. The fair value of these contracts approximates the carrying value of $45.3 million and $46.7 million as of December 29, 2023
(Successor) and December 30, 2022 (Predecessor), respectively. These contracts are included in other assets on the consolidated balance sheets.
• Successor debt. The Company's Takeback Notes and receivables securitization facility are classified as level 1, as quoted prices are available in an active
market for these notes. Since quoted market prices for the Company's Takeback Term Loans are not available in an active market, they are classified as
level 2 for purposes of developing an estimate of fair value.
Predecessor debt. The Company's First Lien Notes and receivables financing facility are classified as level 1, as quoted prices are available in an active
market for these notes. Since quoted market prices for the Company's term loans are not available in an active market, they are classified as level 2 for
purposes of developing an estimate of fair value.
145
Level 1:
14.75% Second-Out Takeback Notes due November 2028
10.00% first lien senior secured notes due April 2025
10.00% second lien senior secured notes due April 2025
11.50% first lien senior secured notes due December 2028
10.00% second lien senior secured notes due June 2029
Level 2:
First-Out Takeback Term Loan Due November 2028
Second-Out Takeback Term Loan Due November 2028
2017 Replacement Term loan due September 2027
2018 Replacement Term loan due September 2027
Total Debt
Concentration of Credit and Other Risks
Successor
December 29, 2023
Predecessor
December 30, 2022
Carrying
Value
Fair
Value
Carrying
Value
Fair
Value
$
$
836.4
—
—
—
—
243.4
685.5
—
—
$
844.4
—
—
—
—
232.8
654.0
—
—
$
—
475.9
242.2
650.0
175.5
—
—
1,222.1
326.9
$
1,765.3
$
1,731.2
$
3,092.6
$
—
425.9
216.8
552.6
176.7
—
—
1,037.8
274.8
2,684.6
Financial instruments that potentially subject the Company to concentrations of credit risk primarily consist of accounts receivable. The Company
generally does not require collateral from customers. A portion of the Company's accounts receivable outside the U.S. includes sales to government-owned or
supported healthcare systems in several countries, which are subject to payment delays. Payment is dependent upon the financial stability and
creditworthiness of those countries' national economies.
The following table shows net sales attributable to distributors that accounted for 10.0% or more of the Company's total segment net sales:
FFF Enterprises, Inc.
McKesson Corporation
AmerisourceBergen Corporation
CuraScript, Inc.
Successor
Period from
November 15, 2023
through December
29, 2023
23.1 %
10.8
*
*
Predecessor
Period from
December 31, 2022
through
November 14, 2023
Period from
June 17, 2022
through
December 30, 2022
Period from
January 1, 2022
through
June 16, 2022
22.3 %
*
10.0
*
26.1 %
*
*
*
11.8 %
*
*
15.6
Year Ended
December 31, 2021
*%
*
*
26.1
* Net sales to this distributor were less than 10.0% of total net sales during the respective periods presented above.
The following table shows accounts receivable attributable to distributors that accounted for 10.0% or more of the Company's gross accounts receivable
at the end of each period:
AmerisourceBergen Corporation
McKesson Corporation
FFF Enterprises, Inc.
Successor
December 29,
2023
Predecessor
December 30,
2022
24.2%
20.0
*
23.3%
17.3
16.2
* Accounts receivable attributable to this distributor was less than 10.0% of total gross accounts receivable at the end of the respective period presented above.
146
The following table shows net sales attributable to products that accounted for 10.0% or more of the Company's total segment net sales:
Acthar Gel
INOmax
Therakos
APAP
Successor
Period from
November 15, 2023
through December
29, 2023
23.5 %
14.5
16.1
13.4
Predecessor
Period from
December 31, 2022
through
November 14, 2023
Period from
June 17, 2022
through
December 30, 2022
Period from
January 1, 2022
through
June 16, 2022
Year Ended
December 31, 2021
22.7 %
16.5
13.6
11.4
28.3 %
16.7
12.5
10.7
25.4 %
19.0
12.5
11.0
26.9 %
20.3
12.1
*
* Net sales attributable to these products were less than 10.0% of total net sales during the respective periods presented above.
20.
Segment and Geographical Data
The Company operates in two reportable segments, which are further described below:
•
•
Specialty Brands includes innovative specialty pharmaceutical brands; and
Specialty Generics includes niche specialty generic drugs and API(s).
Management measures and evaluates the Company's operating segments based on segment net sales and operating income. Management excludes
corporate expenses from segment operating income. In addition, certain amounts that management considers to be non-recurring or non-operational are
excluded from segment operating income because management and the chief operating decision maker evaluate the operating results of the segments
excluding such items. These items may include, but are not limited to, depreciation and amortization, share-based compensation, net restructuring charges,
non-restructuring impairment charges and liabilities management and separation costs. Although these amounts are excluded from segment operating income,
as applicable, they are included in reported consolidated operating loss and are reflected in the reconciliations presented below.
Management manages assets on a total company basis, not by operating segment. The Company's chief operating decision maker does not regularly
review any asset information by operating segment and, accordingly, the Company does not report asset information by operating segment. Total assets were
approximately $3,733.6 million and $6,013.8 million as of December 29, 2023 (Successor) and December 30, 2022 (Predecessor), respectively.
147
Selected information by reportable segment was as follows:
Net sales:
Specialty Brands
Specialty Generics
Net sales
Operating loss:
Specialty Brands
Specialty Generics
(1)
Segment operating income
Unallocated amounts:
(2)
Corporate and unallocated expenses
Depreciation and amortization
Share-based compensation
Restructuring charges, net
Non-restructuring impairment charges
Liabilities management and separation costs
Opioid-Related Litigation Settlement loss
Bad debt expense - customer bankruptcy
(3)
(4)
Operating loss
Depreciation and amortization:
Specialty Brands
Specialty Generics
Successor
Period from
November 15, 2023
through December
29, 2023
Predecessor
Period from
December 31, 2022
through
November 14, 2023
Period from
June 17, 2022
through
December 30, 2022
Period from
January 1, 2022
through
June 16, 2022
Year Ended
December 31, 2021
$
$
$
$
$
$
139.8
103.2
243.0
9.0
5.8
14.8
(4.0)
(25.8)
—
—
(3.8)
(1.4)
—
—
(20.2)
15.3
10.5
25.8
$
$
$
$
$
$
$
$
$
949.2
673.7
1,622.9
209.9
156.2
366.1
(45.8)
(490.3)
(8.9)
(0.9)
(179.9)
(157.7)
—
—
(517.4)
$
455.3
35.0
490.3
$
$
682.4
357.3
1,039.7
113.8
(3.6)
110.2
(39.3)
(347.5)
(1.4)
(11.1)
—
(21.2)
—
(6.4)
(316.7)
323.6
23.9
347.5
$
$
$
$
$
$
$
$
$
587.1
287.5
874.6
267.2
65.3
332.5
(48.2)
(321.8)
(1.7)
(9.6)
—
(9.0)
—
—
(57.8)
$
288.4
33.4
321.8
$
$
1,547.0
661.8
2,208.8
812.8
107.9
920.7
(129.6)
(675.8)
(10.2)
(26.9)
(154.9)
(1.2)
(125.0)
—
(202.9)
597.7
78.1
675.8
(1)
(2)
(3)
Includes $30.0 million of fresh-start inventory-related expense during the period from June 17, 2022 through December 30, 2022 (Predecessor) primarily driven by the Company's change
in accounting estimate.
Includes administration expenses and certain compensation, legal, environmental and other costs not charged to the Company's reportable segments.
Includes $135.9 million and $154.9 million of impairment charges on intangible assets during the period December 31, 2022 through November 14, 2023 (Predecessor) and fiscal 2021
(Predecessor), respectively, as further described in Note 12, a $44.0 million Acthar Gel inventory write-down to net realizable value during the period December 31, 2022 through
November 14, 2023 (Predecessor), and $3.8 million of impairment charges on StrataGraft long-lived assets during the period November 15, 2023 through December 29, 2023 (Successor).
(4) Represents costs primarily related to professional fees incurred by the Company (including where the Company is responsible for the fees of third parties) in connection with its
evaluation of its financial situation and related discussions with its stakeholders prior to the commencement of the 2023 Bankruptcy Proceedings, expenses incurred related to the
severance of certain former executives of the Predecessor as a result of the 2020 Bankruptcy Proceedings, in addition to professional fees and costs incurred as the Company explores
potential sales of non-core assets to enable further deleveraging post-emergence. As of the 2023 Petition Date and 2020 Petition Date, professional fees directly related to the 2023
Bankruptcy Proceedings and 2020 Bankruptcy Proceedings, respectively, that were previously reflected as liabilities management and separation costs were classified on a go-forward
basis as reorganization items, net until the 2023 Effective Date and the 2020 Effective Date, respectively.
148
Net sales by product family within the Company's reportable segments were as follows:
Acthar Gel
INOmax
Therakos
Amitiza
Terlivaz
Other
(1)
Specialty Brands
Opioids
ADHD
Addiction treatment
Other
Generics
Controlled substances
APAP
Other
API
Specialty Generics
Net Sales
Successor
Period from
November 15, 2023
through December
29, 2023
Predecessor
Period from
December 31, 2022
through
November 14, 2023
Period from
June 17, 2022
through
December 30, 2022
Period from
January 1, 2022
through
June 16, 2022
Year Ended
December 31, 2021
$
$
57.0
35.3
39.1
5.0
2.3
1.1
139.8
31.6
13.5
10.5
1.6
57.2
11.6
32.5
1.9
46.0
103.2
243.0
$
$
368.3
267.9
220.0
72.0
13.3
7.7
949.2
230.7
101.4
55.6
8.2
395.9
75.5
184.8
17.5
277.8
673.7
$
294.1
173.9
130.5
77.1
1.2
5.6
682.4
117.9
28.4
35.0
6.8
188.1
47.0
111.4
10.8
169.2
357.3
$
1,622.9
$
1,039.7
$
221.9
165.8
109.6
81.5
—
8.3
587.1
88.8
17.5
30.0
4.9
141.2
37.6
96.5
12.2
146.3
287.5
874.6
$
593.6
448.5
266.5
196.9
—
41.5
1,547.0
213.2
37.4
68.3
12.0
330.9
93.4
215.9
21.6
330.9
661.8
$
2,208.8
(1) Amitiza net sales consist of both product and royalty net sales.
Selected information by geographic area was as follows:
(1)
:
Net sales
U.S.
Europe, Middle East and Africa
Other
Net Sales
Successor
Period from
November 15, 2023
through December
29, 2023
Predecessor
Period from
December 31, 2022
through
November 14, 2023
Period from
June 17, 2022
through
December 30, 2022
Period from
January 1, 2022
through
June 16, 2022
Year Ended
December 31, 2021
$
$
212.8
28.8
1.4
243.0
$
$
$
1,448.9
157.1
16.9
1,622.9
$
928.3
100.4
11.0
1,039.7
$
$
$
784.2
73.6
16.8
874.6
$
1,991.8
181.8
35.2
2,208.8
(1) Net sales are attributed to regions based on the location of the entity that records the transaction, none of which relate to the country of Ireland.
(1)
:
Long-lived assets
U.S.
Europe, Middle East and Africa
Other
(2)
Successor
December 29,
2023
Predecessor
December 30,
2022
$
$
165.9
164.6
2.8
333.3
$
$
287.3
178.0
3.1
468.4
(1) Long-lived assets are primarily composed of property, plant and equipment, net.
(2)
Includes long-lived assets located in Ireland of $162.1 million and $174.9 million as of December 29, 2023 (Successor) and December 30, 2022 (Predecessor), respectively.
149
21. Subsequent Events
StrataGraft
On January 4, 2024, the Company committed to a plan to cease commercialization and clinical development and wind down production of its StrataGraft
product. The decision to discontinue StrataGraft was made following a slower-than-anticipated commercial uptake of the product and slower-than-anticipated
enrollment in clinical trials. The Company is evaluating its next steps with respect to StrataGraft, which could include pursuing a sale, out-license or other
strategic arrangement.
Employment Agreement and Compensation
On February 2, 2024, Mallinckrodt’s indirect subsidiary ST Shared Services LLC entered into a new employment agreement with Sigurdur Olafsson
pursuant to which Mr. Olafsson will continue to serve as Mallinckrodt’s President and Chief Executive Officer.
On February 2, 2024, consistent with the 2023 Plan, the Successor's Board of Directors adopted the Mallinckrodt Pharmaceuticals 2024 Stock and
Incentive Plan and reserved an aggregate of 1,036,649 ordinary shares (subject to adjustment in accordance with the terms of the plan) for the issuance of
equity awards thereunder to employees and directors.
On February 2, 2024, the Board of Directors adopted a Transaction Incentive Plan intended to compensate designated Mallinckrodt executive officers and
members of the Mallinckrodt Board of Directors with bonus payments based on the consummation of qualifying asset sale transactions.
Acthar Gel
On March 1, 2024, the FDA approved the Acthar Gel Single-Dose Pre-filled SelfJect™ Injector ("SelfJect"), a new delivery device for Acthar Gel for
appropriate patients with a range of chronic and acute inflammatory and autoimmune conditions. SelfJect is intended to provide the appropriate subcutaneous
dose of Acthar Gel, as prescribed by a healthcare professional, and is designed to help give patients control of their administration.
Commitments and Contingencies
Certain litigation matters occurred prior to December 29, 2023 (Successor) but had subsequent updates through the date of this report. See further
discussion in Note 18.
150
Item 9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
Item 9A.
Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities
Exchange Act of 1934, as amended ("Exchange Act"), is recorded, processed, summarized and reported within the specified time periods, and that such
information is accumulated and communicated to management, including our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), as
appropriate, to allow timely decisions regarding required disclosure.
Our management, with the participation of our CEO and CFO, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules
13a-15 and 15d-15 under the Exchange Act) as of December 29, 2023 (Successor). Based on that evaluation, our CEO and CFO concluded that, as of that
date, our disclosure controls and procedures were effective.
Management's Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined under Exchange Act Rules
13a-15(f) and 15d-15(f). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Internal control over financial reporting
includes those policies and procedures that:
•
•
•
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company's
assets;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP,
and that the Company's receipts and expenditures are being made only in accordance with authorizations of the Company's management and
directors; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company's assets
that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of our internal control over financial reporting as of December 29, 2023 (Successor). In making this assessment,
management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated
Framework (2013). Management's assessment included an evaluation of the design of the Company's internal control over financial reporting and testing of
the operational effectiveness of its internal control over financial reporting. Based on its assessment, management concluded that, as of December 29, 2023,
our internal controls over financial reporting were effective.
Our internal control over financial reporting as of December 29, 2023 (Successor) has been audited by Deloitte & Touche LLP, the independent registered
public accounting firm that audited and reported on the consolidated financial statements included in this Annual Report. This report is included below.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the three months ended December 29, 2023 (Successor) that have materially
affected, or are likely to materially affect, our internal control over financial reporting.
151
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Mallinckrodt plc
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Mallinckrodt plc (the "Company") as of December 29, 2023 (Successor), based on criteria
established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 29, 2023, based on criteria
established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated
financial statements as of December 29, 2023 and for the periods from November 15, 2023 through December 29, 2023 (Successor Company) and December
31, 2022 through November 14, 2023 (Predecessor Company) of the Company and our report dated March 26, 2024, expressed an unqualified opinion on
those financial statements and included an explanatory paragraph regarding the Company's adoption of fresh-start accounting.
Basis for Opinion
The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility
is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being
made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
St. Louis, Missouri
March 26, 2024
152
Item 9B.
Other Information.
During the fourth quarter of 2023, none of the Company's directors or officers (as defined in Rule 16a-1(f) of the Exchange Act) adopted, terminated or
modified a Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408(a) of Regulation S-K).
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable
Item 10.
Directors, Executive Officers and Corporate Governance.
PART III
Information regarding our directors required under this Item 10. Directors, Executive Officers and Corporate Governance will be filed with the SEC
within 120 days after December 29, 2023 pursuant to General Instruction G(3) to Form 10-K.
Information regarding our executive officers required under this Item 10. Directors, Executive Officers and Corporate Governance is included in Item 1.
Business of this Annual Report.
We have adopted the Mallinckrodt Code of Conduct, which meets the requirements of a "code of ethics" as defined in Item 406 of Regulation S-K, as
well as the requirements of a code of business conduct and ethics under the listing standards of the New York Stock Exchange. Our Code of Conduct applies
to all employees, officers and directors of Mallinckrodt, including, without limitation, our CEO, CFO and other senior financial officers. Our Code of Conduct
is posted on our website at mallinckrodt.com under the heading "Investor Relations - Corporate Governance." We will also provide a copy of our Code of
Conduct to shareholders upon request. We intend to disclose any amendments to our Code of Conduct, as well as any waivers for executive officers or
directors, on our website.
Item 11.
Executive Compensation.
Information regarding the compensation of our named executive officers and directors required under this Item 11. Executive Compensation will be filed
with the SEC within 120 days after December 29, 2023 pursuant to General Instruction G(3) to Form 10-K.
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Information regarding individuals or groups which own more than 5.0% of our ordinary shares, as well as information regarding the security ownership
of our executive officers and directors, and other shareholder matters required under this Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters will be filed with the SEC within 120 days after December 29, 2023 pursuant to General Instruction G(3) to
Form 10-K.
Item 13.
Certain Relationships and Related Transactions, and Director Independence.
Information regarding transactions with related parties and director independence required under this Item 13. Certain Relationships and Related
Transactions, and Director Independence will be filed with the SEC within 120 days after December 29, 2023 pursuant to General Instruction G(3) to Form
10-K.
Item 14.
Principal Accounting Fees and Services.
Information regarding the services provided by and the fees paid to Deloitte & Touche LLP, our independent auditors, required under this Item 14.
Principal Accounting Fees and Services will be filed with the SEC within 120 days after December 29, 2023 pursuant to General Instruction G(3) to Form 10-
K.
153
Item 15.
Exhibits, Financial Statement Schedules.
Documents filed as part of this report:
PART IV
1) Financial Statements. The following are included within Item 8. Financial Statements and Supplementary Data of this Annual Report.
•
•
•
•
•
•
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Operations for the period from November 15, 2023 through December 29, 2023 (Successor), the period from
December 31, 2022 through November 14, 2023 (Predecessor), the period from June 17, 2022 through December 30, 2022 (Predecessor),
the period from January 1, 2022 through June 16, 2022 (Predecessor) and the fiscal year ended December 31, 2021 (Predecessor)
Consolidated Statements of Comprehensive Operations for the period from November 15, 2023 through December 29, 2023 (Successor),
the period from December 31, 2022 through November 14, 2023 (Predecessor), the period from June 17, 2022 through December 30, 2022
(Predecessor), the period from January 1, 2022 through June 16, 2022 (Predecessor) and the fiscal year ended December 31, 2021
(Predecessor).
Consolidated Balance Sheets as of December 29, 2023 (Successor) and December 30, 2022 (Predecessor)
Consolidated Statements of Cash Flows for the period from November 15, 2023 through December 29, 2023 (Successor), the period from
December 31, 2022 through November 14, 2023 (Predecessor), the period from June 17, 2022 through December 30, 2022 (Predecessor),
the period from January 1, 2022 through June 16, 2022 (Predecessor) and the fiscal year ended December 31, 2021 (Predecessor).
Consolidated Statement of Changes in Shareholders' Equity for the period from November 15, 2023 through December 29, 2023
(Successor), the period from December 31, 2022 through November 14, 2023 (Predecessor), the period from June 17, 2022 through
December 30, 2022 (Predecessor), the period from January 1, 2022 through June 16, 2022 (Predecessor), and the period from December 25,
2020 through December 31, 2021 (Predecessor)
• Notes to Consolidated Financial Statements
2) Financial Statement Schedules. The financial statement schedule is included below. All other schedules have been omitted because they are not
applicable, not required or the information is included in the financial statements or notes thereto.
154
Schedule II - Valuation and Qualifying Accounts
(in millions)
Description
Allowance for doubtful accounts:
Fiscal year ended Period from November 15, 2023 through December 29,
2023 (Successor)
$
Fiscal year ended Period from December 31, 2022 through November 14,
2023 (Predecessor)
Fiscal year ended Period from June 17, 2022 through December 30, 2022
(Predecessor)
Fiscal year ended Period from January 1, 2022 through June 16, 2022
(Predecessor)
Fiscal year ended December 31, 2021 (Predecessor)
Sales reserve accounts:
Fiscal year ended Period from November 15, 2023 through December 29,
2023 (Successor)
$
Fiscal year ended Period from December 31, 2022 through November 14,
2023 (Predecessor)
Fiscal year ended Period from June 17, 2022 through December 30, 2022
(Predecessor)
Fiscal year ended Period from January 1, 2022 through June 16, 2022
(Predecessor)
Fiscal year ended December 31, 2021 (Predecessor)
Tax valuation allowance:
Fiscal year ended Period from November 15, 2023 through December 29,
2023 (Successor)
$
Fiscal year ended Period from December 31, 2022 through November 14,
2023 (Predecessor)
Fiscal year ended Period from June 17, 2022 through December 30, 2022
(Predecessor)
Fiscal year ended Period from January 1, 2022 through June 16, 2022
(Predecessor)
Fiscal year ended December 31, 2021 (Predecessor)
Balance at
Beginning of
Period
Charged to Costs
and Expenses
Charged to Other
Accounts
Deductions
Balance at End of
Period
5.6
4.4
5.9
4.7
4.5
2.9
$
—
$
(2.0)
$
4.2
0.5
1.2
1.2
—
—
—
—
(3.0)
(2.0)
—
(1.0)
250.5
$
182.9
$
—
$
(206.0)
$
294.0
276.9
272.8
235.4
1,422.0
848.1
715.7
2,166.0
—
—
—
—
4,584.8
$
(1.1)
$
0.1
$
4,992.9
5,129.7
6,344.2
6,110.8
(407.4)
(136.0)
(1,213.5)
233.4
(0.7)
(0.8)
(1.0)
—
(1,465.5)
(831.0)
(711.6)
(2,128.6)
—
—
—
—
—
6.5
5.6
4.4
5.9
4.7
227.4
250.5
294.0
276.9
272.8
4,583.8
4,584.8
4,992.9
5,129.7
6,344.2
3) Exhibits. The exhibits are included in the Exhibit Index that appears at the end of this Annual Report.
Item 16.
Form 10-K Summary.
None.
155
Exhibit
Number
2.1
3.1
3.2
4.1
4.2
4.3
10.1†
10.2†
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.14†
10.15†
10.16†
10.17†
EXHIBIT INDEX
Exhibit
First Amended and Prepackaged Joint Chapter 11 Plan of Reorganization of Mallinckrodt Plc and Its Debtor Affiliates, dated September
29, 2023 (incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed October 10, 2023).
Certificate of Incorporation of Mallinckrodt plc (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K
filed July 1, 2013).
Memorandum and Articles of Association of Mallinckrodt plc (incorporated by reference to Exhibit 3.1 to the Company's Current Report
on Form 8-K filed November 15, 2023).
Indenture, dated as of November 14, 2023, by and among the Issuers, the Guarantors, Wilmington Savings Fund Society, FSB, as first lien
trustee and Acquiom Agency Services LLC, as Collateral Agent (incorporated by reference to Exhibit 4.1 to the Company’s Current
Report on Form 8-K filed November 15, 2023).
Form of 14.750% senior secured first lien notes due 2028 (included in Exhibit 4.1).
Description of Mallinckrodt's Registered Securities.
Mallinckrodt Pharmaceuticals Severance Plan for U.S. Officers and Executives, amended September 8, 2021 (incorporated by reference to
Exhibit 10.1 to the Company’s Current Report on Form 10-Q filed November 2, 2021).
Mallinckrodt Pharmaceuticals Change in Control Severance Plan for Certain U.S. Officers and Executives, amended May 18, 2017
(incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q filed August 8, 2017).
Contingent Value Rights Agreement, dated as of November 14, 2023, by and among the Company and the Opioid Master Disbursement
Trust II (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed November 15, 2023).
Registration Rights Agreement, dated as of November 14, 2023, by and among the Company and the initial holders identified therein
(incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed November 15, 2023).
Deed Poll Relating to the Information Rights of Members of Mallinckrodt plc, dated November 14, 2023 (incorporated by reference to
Exhibit 10.3 to the Company’s Current Report on Form 8-K filed November 15, 2023).
Credit Agreement, dated as of November 14, 2023, by and among the Issuers, the Company, the lenders party thereto from time to time,
Acquiom Agency Services LLC and Seaport Loan Products LLC, as co-administrative agents, and Acquiom Agency Services LLC, as
Collateral Agent (incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed November 15, 2023).
Form of First Lien Intercreditor Agreement, dated as of November 14, 2023, by and among the Issuers, the Company, the other grantors
from time to time party thereto, Acquiom Agency Services LLC, as Collateral Agent and as credit agreement authorizing representative,
Wilmington Savings Fund Society, FSB, as initial additional authorized representative, and each additional authorized representative from
time to time party thereto (incorporated by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K filed November 15,
2023).
Settlement Agreement, dated as of March 7, 2022, among the United States of America, acting through the United States Department of
Justice and on behalf of the Office of Inspector General of the Department of Health and Human Services, Mallinckrodt plc, Mallinckrodt
ARD LLC and James Landolt (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed March 11,
2022).
Settlement Agreement, dated as of March 7, 2022, among the United States of America, acting through the United States Department of
Justice and on behalf of the Office of Inspector General of the Department of Health and Human Services, Mallinckrodt plc, Mallinckrodt
ARD LLC, Charles Strunck, Lisa Pratta and Scott Clark (incorporated by reference to Exhibit 10.2 to the Company's Current Report on
Form 8-K filed March 11, 2022).
Opioid Deferred Cash Payments Agreement, dated as of June 16, 2022, by and among Mallinckrodt plc, Mallinckrodt LLC, SpecGx
Holdings LLC, SpecGx LLC and the Opioid Master Disbursement Trust II (incorporated by reference to Exhibit 10.1 to the Company’s
Current Report on Form 8-K filed June 22, 2022).
Letter Agreement, by and between Hugh O’Neill and Mallinckrodt plc (incorporated by reference to Exhibit 10.11 to the Company’s
Current Report on Form 8-K filed June 22, 2022).
Letter Agreement by and between Steven Romano and Mallinckrodt plc (incorporated by reference to Exhibit 10.12 to the Company’s
Current Report on Form 8-K filed June 22, 2022).
Employment Agreement, by and between ST Shared Services LLC and Sigurdur Olafsson, dated February 2, 2024 (incorporated by
reference to Exhibit 10.1 to the Company's Current Report on FOrm 8-K filed February 2, 2024).
Form of Second Amended and Restated Employment Agreement for Executive Officers.
Amended and Restated Employment Agreement dated February 28, 2024, between Mallinckrodt Pharmaceuticals Ireland, Ltd. and Paul
O'Neill.
Mallinckrodt Pharmaceuticals 2024 Stock and Incentive Plan (incorporated by reference to Exhibit 10.3 to the Company’s Current Report
on Form 8-K filed February 2, 2024).
156
10.18†
10.19†
10.20†
10.21†
10.22†
10.23†
10.24†
21.1
31.1
31.2
32.1
99.1
99.2
101
104
Form of Restricted Stock Unit Award for Officers under the Mallinckrodt plc 2024 Stock and Incentive Plan (incorporated by reference to
Exhibit 10.4 to the Company’s Current Report on Form 8-K filed February 2, 2024).
Form of Restricted Stock Unit Award for the CEO under the Mallinckrodt plc 2024 Stock and Incentive Plan (incorporated by reference to
Exhibit 10.5 to the Company’s Current Report on Form 8-K filed February 2, 2024).
Form of Restricted Stock Unit Award for Directors under the Mallinckrodt plc 2024 Stock and Incentive Plan (incorporated by reference
to Exhibit 10.6 to the Company’s Current Report on Form 8-K filed February 2, 2024).
Form of Performance Stock Unit Award for Officers under the Mallinckrodt plc 2024 Stock and Incentive Plan (incorporated by reference
to Exhibit 10.7 to the Company’s Current Report on Form 8-K filed February 2, 2024).
Form of Performance Stock Unit Award for the CEO under the Mallinckrodt plc 2024 Stock and Incentive Plan (incorporated by reference
to Exhibit 10.8 to the Company’s Current Report on Form 8-K filed February 2, 2024).
Form of Performance Stock Unit Award for Directors under the Mallinckrodt plc 2024 Stock and Incentive Plan (incorporated by
reference to Exhibit 10.9 to the Company’s Current Report on Form 8-K filed February 2, 2024).
Mallinckrodt plc Transaction Incentive Plan (incorporated by reference to Exhibit 10.10 to the Company’s Current Report on Form 8-K
filed February 2, 2024).
Subsidiaries of Mallinckrodt plc.
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
Certifications of the Chief Executive Officer and Interim Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
Order Confirming the First Amended Plan of Reorganization of Mallinckrodt Plc and Its Debtor Affiliates Under Chapter 11 of the
Bankruptcy Code (incorporated by reference to Exhibit 99.1 to the Company's Current Report on Form 8-K filed October 10, 2023).
Order of the High Court of Ireland, dated as of November 10, 2023 (incorporated by reference to Exhibit 99.1 to Mallinckrodt plc’s
Current Report on Form 8-K filed with the SEC on November 13, 2023).
The following materials from the Mallinckrodt plc Annual Report on Form 10-K for the fiscal year ended December 29, 2023 formatted
in Extensible Business Reporting Language (XBRL): (i) the Consolidated Statements of Operations, (ii) the Consolidated Statements of
Comprehensive Operations, (iii) the Consolidated Balance Sheets, (iv) the Consolidated Statements of Cash Flows, (v) the Consolidated
Statements of Shareholders' Equity and (vi) related notes. The instance document does not appear in the interactive data file because its
XBRL tags are embedded within the inline XBRL document.
Cover Page Interactive Data File (embedded within the inline XBRL document).
†
Compensation plans or arrangements.
*Portions of this exhibit have been omitted in accordance with Item 601(b)(10) of Regulations S-K.
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with
respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and
warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may
not describe the actual state of affairs as of the date they were made or at any other time.
157
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
March 26, 2024
MALLINCKRODT PLC
By:
/s/ Bryan M. Reasons
Bryan M. Reasons
Executive Vice President and Chief Financial Officer
(principal financial and accounting officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature
/s/ Sigurdur Olafsson
Sigurdur Olafsson
/s/ Bryan M. Reasons
Bryan M. Reasons
/s/ Paul Bisaro
Paul Bisaro
/s/ Katina Dorton
Katina Dorton
/s/ Abbas Hussain
Abbas Hussain
/s/ David Stetson
David Stetson
/s/ Wesley Wheeler
Wesley Wheeler
/s/ Jon Zinman
Jon Zinman
Title
Date
President, Chief Executive Officer and Director
March 26, 2024
(principal executive officer)
Executive Vice President and Chief Financial
Officer
(principal financial and accounting officer)
March 26, 2024
Chairman of the Board of Directors
March 26, 2024
March 26, 2024
March 26, 2024
March 26, 2024
March 26, 2024
March 26, 2024
Director
Director
Director
Director
Director
158
DESCRIPTION OF THE REGISTRANT’S SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF THE
SECURITIES EXCHANGE ACT OF 1934
Exhibit 4.3
The following description of the share capital of Mallinckrodt plc (“Mallinckrodt” or the “Company”) is a summary. This summary does not
purport to be complete and is qualified in its entirety by reference to the Irish Companies Act 2014 (the “Companies Act”) and the complete text
of Mallinckrodt’s memorandum and articles of association (the “Memorandum and Articles of Association”), each of which are incorporated by
reference as an exhibit to the Annual Report on Form 10-K of which this exhibit is a part. You should read those laws and documents carefully.
As used in this exhibit, “we,” and “our” refer to Mallinckrodt.
Description of Ordinary Shares
Legal Name; Formation; Fiscal Year; Registered Office
The legal name of the company is Mallinckrodt public limited company. Mallinckrodt was incorporated in Ireland as a public limited
company on January 9, 2013 with company registration number 522227. Mallinckrodt’s fiscal year ends on the last Friday in December and
Mallinckrodt’s registered address is College Business & Technology Park, Cruiserath, Blanchardstown, Dublin 15, Ireland.
Share Capital
The authorized share capital of Mallinckrodt is €25,000 and $5,000,000, divided into 40,000 ordinary A shares with a par value of €1.00 per
share and 500,000,000 ordinary shares with a par value of $0.01 per share.
Mallinckrodt may issue shares subject to the maximum prescribed by its authorized share capital contained in its memorandum of
association. For the avoidance of doubt, notwithstanding anything in the Memorandum and Articles of Association to the contrary, pursuant to
Section 1123(a)(6) of chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”), Mallinckrodt shall not issue non-voting equity
securities; provided, however, that the foregoing restriction (i) shall have no further force or effect beyond that required under Section 1123 of
the Bankruptcy Code, (ii) shall have such force and effect, if any, only for so long as such section is in effect and applicable to the Company
and (iii) in all events may be amended or eliminated in accordance with applicable law as from time to time in effect.
Mallinckrodt’s Memorandum and Articles of Association do not provide for authorized preferred shares, the creation of which will require (i)
an ordinary resolution to increase Mallinckrodt’s authorized share capital and create the preference shares and (ii) a special resolution to
amend Mallinckrodt’s Memorandum and Articles of Association to increase Mallinckrodt’s authorized share capital and set out the preference
share rights. In addition, Mallinckrodt’s directors will need to be authorized and empowered by the shareholders to issue any preference shares
so created, free of statutory preemption rights, whether generally or in respect of a specific issuance, which will require (i) an allotment authority
conferred by an ordinary resolution and (ii) a disapplication of statutory preemption rights by a special resolution. An ordinary resolution
requires over 50% and a special resolution requires over 75% of the votes of a company’s shareholders cast at a general meeting (in person or
by proxy).
As a matter of Irish company law, the directors of a company may cause the company to issue new ordinary or preferred shares without
shareholder approval once authorized to do so by the articles of association of the company or by an ordinary resolution adopted by the
shareholders at a general meeting. The authority conferred can be granted for a maximum period of five years, at which point it must be
renewed by the shareholders of the company by an ordinary resolution. The board of directors of Mallinckrodt was granted authority to issue
shares up to the amount of the Company’s authorized share capital pursuant to the Memorandum and Articles of Association, such authority to
expire five years from November 14, 2023, the date on which the Memorandum and Articles of Association were adopted.
The authorized share capital may be increased or reduced (but not below the number of issued ordinary shares or ordinary A shares, as
applicable) by way of an ordinary resolution of Mallinckrodt’s shareholders, but not below the number of shares then outstanding. The shares
comprising the authorized share capital of Mallinckrodt may be divided into shares of such par value as the resolution prescribes.
The rights and restrictions to which the ordinary shares are subject are prescribed in Mallinckrodt’s Memorandum and Articles of
Association.
Irish law does not recognize fractional shares held of record; accordingly, Mallinckrodt’s Memorandum and Articles of Association do not
provide for the issuance of fractional ordinary shares of Mallinckrodt, and the official Irish register of Mallinckrodt will not reflect any fractional
ordinary shares.
Whenever an alteration or reorganization of the share capital of Mallinckrodt would result in any Mallinckrodt shareholder becoming entitled
to fractions of a share, the Mallinckrodt board of directors may, on behalf of those shareholders that would become entitled to fractions of a
share, arrange for the sale of the shares representing fractions and the distribution of the net proceeds of sale in due proportion among the
shareholders who would have been entitled to the fractions. For the purpose of any such sale the board may authorize some person to transfer
the shares representing fractions to the purchaser, who shall not be bound to see to the application of the purchase money, nor shall his title to
the shares be affected by any irregularity or invalidity in the proceedings relating to the sale.
Preemption Rights, Share Warrants and Share Options
Under Irish law, certain statutory preemption rights apply automatically in favor of shareholders where securities are to be issued for cash
unless an opt-out has been approved by a shareholder resolution (requiring the support of at least 75% of votes cast) or in a company’s
constitution. The Memorandum and Articles of Association provide for such opt-out and pro rata preemptive rights are suspended for five years
after November 14, 2023, the effective date (the “Effective Date”) of the Company’s emergence from its 2023 Chapter 11 cases and Irish
examinership proceedings (together, the “2023 Bankruptcy Proceedings”), such that during the initial five-year period, only Mallinckrodt
shareholder(s) owning, individually in the case of a Mallinckrodt shareholder, or collectively in the case of any group of affiliated Mallinckrodt
shareholders (including Mallinckrodt shareholder entities that share the same investment manager), at least 1% of the ordinary shares
(excluding equity to be issued under the Mallinckrodt Pharmaceuticals 2024 Stock and Incentive Plan (the “Incentive Plan”) and the contingent
value rights issued in connection with emergence from the 2023 Bankruptcy Proceedings (the “CVRs”)) will have the right to participate in
issuances of securities of Mallinckrodt, subject to certain exceptions and rights of oversubscription as described in the Memorandum and
Articles of Association.
The Memorandum and Articles of Association of Mallinckrodt provide that, subject to any shareholder approval requirement under any
laws, regulations or the rules of any stock exchange to which Mallinckrodt is subject, the board is authorized, from time to time, in its discretion,
to grant such persons, for such periods and upon such terms as the board deems advisable, options to purchase or subscribe for such number
of shares of any class or classes or of any series of any class as the board may deem advisable, and to cause warrants or other appropriate
instruments evidencing such options to be issued. The Companies Act provides that boards of directors may issue share warrants or options
without shareholder approval once authorized to do so by the Memorandum and Articles of Association or an ordinary resolution of
shareholders. Under Irish law, the board may issue shares upon exercise of validly issued warrants or options without shareholder approval or
authorization.
Dividends
Under Irish law, dividends and distributions may only be made from “distributable reserves.” Distributable reserves, broadly, means the
accumulated realized profits of Mallinckrodt less accumulated realized losses of Mallinckrodt and includes reserves created by way of capital
reduction. In addition, no distribution or dividend may be made unless the net assets of Mallinckrodt are equal to, or in excess of, the aggregate
of Mallinckrodt’s called up share capital plus distributable reserves and the distribution does not reduce Mallinckrodt’s net assets below such
aggregate. Undistributable reserves include the share premium account, the capital redemption reserve fund and the amount by which
Mallinckrodt’s accumulated unrealized profits, so far as not previously utilized by any capitalization, exceed Mallinckrodt’s accumulated
unrealized losses, so far as not previously written off in a reduction or reorganization of capital.
The determination as to whether or not Mallinckrodt has sufficient distributable reserves to fund a dividend must be made by reference to
the “relevant financial statements” of Mallinckrodt. The “relevant financial statements” are either the last set of unconsolidated annual audited
financial statements or unaudited financial statements prepared in accordance with the Companies Act, which give a “true and fair view” of
Mallinckrodt’s unconsolidated financial position and accord with accepted accounting practice.
The mechanism as to who declares a dividend and when a dividend becomes payable is governed by the Memorandum and Articles of
Association of Mallinckrodt. Mallinckrodt’s Memorandum and Articles of Association authorize the directors to declare such dividends as appear
justified from the profits of Mallinckrodt without the approval of the shareholders at a general meeting. The board of directors may also
recommend a dividend to be approved and declared by the shareholders at a general meeting. Any general meeting declaring a dividend and
any resolution of the directors declaring a dividend may direct that the payment be made by distribution of assets, shares or cash. No dividend
issued may exceed the amount recommended by the directors. The dividends can be declared and paid in the form of assets, shares or cash.
The directors of Mallinckrodt may deduct from any dividend payable to any shareholder all sums of money (if any) immediately payable by
such shareholder to Mallinckrodt in relation to the shares of Mallinckrodt.
The holders of ordinary A shares are not entitled to receive any dividend.
Share Repurchases and Redemptions
Overview
Mallinckrodt’s Memorandum and Articles of Association provide that unless the board of directors specifically resolves to treat such
acquisition as a purchase for the purposes of the Companies Act, any ordinary share or an interest in any ordinary share which Mallinckrodt
has acquired or agreed to acquire from a third party is deemed to be a redeemable share. Accordingly, for Irish company law purposes, the
repurchase of ordinary shares by Mallinckrodt may technically be effected as a redemption of those shares as described below under “Share
Repurchases and Redemptions-Repurchases and Redemptions by Mallinckrodt.” If such shares were not to be deemed to be redeemable
shares, their repurchase by Mallinckrodt would be subject to additional requirements imposed by Irish law. Neither Irish law nor any constituent
document of Mallinckrodt places limitations on the right of non-resident or foreign owners to vote or hold Mallinckrodt ordinary shares. Except
where otherwise noted, when we refer elsewhere in this exhibit to repurchasing or buying back ordinary shares of Mallinckrodt, we are referring
to the redemption of ordinary shares by Mallinckrodt or the purchase of Mallinckrodt ordinary share by a subsidiary of Mallinckrodt, in each case
in accordance with the Mallinckrodt Memorandum and Articles of Association and Irish company law as described below.
Repurchases and Redemptions by Mallinckrodt
Under Irish law, a company can issue redeemable shares and redeem them out of distributable reserves (which are described above under
“—Dividends”) or the proceeds of a new issue of shares for that purpose. The issue of redeemable shares may only be made by Mallinckrodt
where the nominal value of the issued share capital that is not redeemable is not less than 10% of the nominal value of the total issued share
capital of Mallinckrodt. All redeemable shares must also be fully paid and the terms of redemption of the shares must provide for payment on
redemption. Based on the provision of Mallinckrodt’s Memorandum and Articles of Association described above, shareholder approval is not
required to redeem Mallinckrodt ordinary shares.
Mallinckrodt may also be given an additional general authority by its shareholders to purchase its own shares as overseas market
purchases on a recognized stock exchange such as the New York Stock Exchange or the Nasdaq stock market, which would take effect on the
same terms and be subject to the same conditions as applicable to purchases by Mallinckrodt’s subsidiaries as described below.
Repurchased and redeemed shares may be cancelled or held as treasury shares. The nominal value of treasury shares held by
Mallinckrodt at any time must not exceed 10% of the nominal value of the issued share capital of Mallinckrodt. While Mallinckrodt holds shares
as treasury shares, it cannot exercise any voting rights in respect of those shares. Treasury shares may be cancelled by Mallinckrodt or re-
issued subject to certain conditions.
Purchases by Subsidiaries of Mallinckrodt
Under Irish law, it may be permissible for an Irish or non-Irish subsidiary to purchase ordinary shares of Mallinckrodt either as overseas
market purchases on a recognized stock exchange or off-market. A general authority of the shareholders of Mallinckrodt is required to allow a
subsidiary of Mallinckrodt to make on-market purchases of Mallinckrodt ordinary shares; however, as long as this general authority has been
granted, no specific shareholder authority for a particular on-market purchase by a subsidiary of Mallinckrodt ordinary shares is required.
In order for a subsidiary of Mallinckrodt to make an on-market purchase of Mallinckrodt’s ordinary shares, such shares must be purchased
on a “recognized stock exchange.” Each of the New York Stock Exchange and the Nasdaq stock market are specified as a recognized stock
exchange for this purpose by Irish company law.
For an off-market purchase by a subsidiary of Mallinckrodt, the proposed purchase contract must be authorized by special resolution of the
shareholders of Mallinckrodt before the contract is entered into. The person whose shares are to be bought back cannot vote in favor of the
special resolution and, for at least 21 days prior to the special resolution, the purchase contract must be on display or must be available for
inspection by shareholders at the registered office of Mallinckrodt.
The number of shares held by the subsidiaries of Mallinckrodt at any time will count as treasury shares and will be included in any
calculation of the permitted treasury share threshold of 10% of the nominal value of the issued share capital of Mallinckrodt. While a subsidiary
holds Mallinckrodt ordinary shares, it cannot exercise any voting rights in respect of those shares. The acquisition of the ordinary shares of
Mallinckrodt by a subsidiary must be funded out of distributable reserves of the subsidiary.
Lien on Shares, Calls on Shares and Forfeiture of Shares
Mallinckrodt’s Memorandum and Articles of Association provide that Mallinckrodt will have a first and paramount lien on every share for all
moneys, whether presently due or not, payable in respect of such Mallinckrodt ordinary share. Subject to the terms of their allotment, directors
may call for any unpaid amounts in respect of any shares to be paid, and if payment is not made, the shares may be forfeited. These provisions
are standard inclusions in the articles of association of an Irish company limited by shares such as Mallinckrodt and will only be applicable to
Mallinckrodt shares that have not been fully paid up.
Bonus Shares
Under Mallinckrodt’s Memorandum and Articles of Association, the board may resolve to capitalize any amount for the time being standing
to the credit of Mallinckrodt’s reserves accounts or to the credit of the profit and loss account which is not available for distribution by applying
such sum in paying up in full unissued shares to be allotted as fully paid-up bonus shares to shareholders of Mallinckrodt who would have been
entitled to that sum if it were distributable and had been distributed by way of dividend (and in the same proportions).
Consolidation and Division; Subdivision
Under its Memorandum and Articles of Association, Mallinckrodt may, by ordinary resolution, consolidate and divide all or any of its share
capital into shares of larger par value than its existing shares or subdivide its shares into smaller amounts than are fixed by its Memorandum
and Articles of Association.
Reduction of Share Capital
Mallinckrodt may, by ordinary resolution, reduce its authorized but unissued share capital in any way. Mallinckrodt also may, by special
resolution and subject to confirmation by the Irish High Court, reduce or cancel its issued share capital (which includes share premium) in any
way permitted by the Companies Act.
Annual General Meetings of Shareholders
Mallinckrodt held its first annual general meeting on March 20, 2014, and is required to hold subsequent annual general meetings at
intervals of no more than 15 months thereafter, provided that an annual general meeting is held in each calendar year following the first annual
general meeting, no more than nine months after Mallinckrodt’s fiscal year end. Any annual general meeting may be held outside Ireland if a
resolution so authorizing has been passed at the preceding annual general meeting. Because of the 15-month requirement described in this
paragraph, Mallinckrodt’s Memorandum and Articles of Association include a provision reflecting this requirement of Irish law.
Notice of an annual general meeting must be given to all Mallinckrodt shareholders and to the auditors of Mallinckrodt. The Memorandum
and Articles of Association of Mallinckrodt provide for a minimum notice period of 21 days, which is the minimum permitted under Irish law.
The only matters which must, as a matter of Irish company law, be transacted at an annual general meeting are the review by the members
of the company’s affairs, presentation of the statutory financial statements and reports of the directors and auditors, the appointment of new
auditors and the fixing of the
auditor’s remuneration (or delegation of same). If no resolution is made in respect of the reappointment of an existing auditor at an annual
general meeting, the existing auditor will be deemed to have continued in office.
At any annual general meeting, only such business may be conducted as has been brought before the meeting (i) by or at the direction of
the board of directors, (ii) in certain circumstances, at the direction of the Irish High Court, (iii) as required by law or (iv) such business that the
chairman of the meeting determines is properly within the scope of the meeting. The business to be conducted at any extraordinary general
meeting must be set forth in the notice of the meeting. In addition, shareholders entitled to vote at an annual general meeting may make
nominations of candidates for election to the board of directors.
Extraordinary General Meetings of Shareholders
Extraordinary general meetings of Mallinckrodt may be convened by (i) the board of directors, (ii) on requisition of the shareholders holding
not less than 10% of the paid-up share capital of Mallinckrodt carrying voting rights, (iii) on requisition of Mallinckrodt’s auditors upon their
resignation or (iv) in exceptional cases, by court order. Extraordinary general meetings are generally held for the purposes of approving
shareholder resolutions of Mallinckrodt as may be required from time to time. At any extraordinary general meeting only such business shall be
conducted as is set forth in the notice thereof.
Notice of an extraordinary general meeting must be given to all Mallinckrodt shareholders and to the auditors of Mallinckrodt. Under Irish
law and Mallinckrodt’ Memorandum and Articles of Association, the minimum notice periods are 21 days’ notice in writing for an extraordinary
general meeting to approve a special resolution and 14 days’ notice in writing for any other extraordinary general meeting. General meetings
may be called by shorter notice in accordance with the terms of the Companies Act.
In the case of an extraordinary general meeting convened by shareholders of Mallinckrodt, the proposed purpose of the meeting must be
set out in the requisition notice. The requisition notice can contain any resolution. Upon receipt of this requisition notice, the board of directors
has 21 days to convene a meeting of Mallinckrodt’s shareholders to vote on the matters set out in the requisition notice. This meeting must be
held within two months of the receipt of the requisition notice. If the board of directors does not convene the meeting within such 21-day period,
the requisitioning shareholders, or any of them representing more than one half of the total voting rights of all of them, may themselves
convene a meeting, which meeting must be held within three months of the receipt of the requisition notice.
If the directors become aware that the net assets of Mallinckrodt are half or less of the amount of Mallinckrodt’s called-up share capital, the
directors of Mallinckrodt must convene an extraordinary general meeting of Mallinckrodt’s shareholders not later than 28 days from the date
that they learn of this fact. This meeting must be convened for the purposes of considering whether any, and if so what, measures should be
taken to address the situation.
Voting
Where a vote is to be taken at a general meeting, every shareholder has one vote for each ordinary share that he or she holds as of the
record date for the meeting. Voting rights may be exercised by shareholders registered in Mallinckrodt’s share register as of the record date for
the meeting or by a duly appointed proxy of such a registered shareholder, which proxy need not be a shareholder. Where interests in shares
are held by a nominee trust company, this company may exercise the rights of the beneficial holders on their behalf as their proxy. All proxies
must be appointed in the manner prescribed by Mallinckrodt’s Memorandum and Articles of Association. The Memorandum and Articles of
Association of Mallinckrodt permit the appointment of proxies by the shareholders to be notified to Mallinckrodt electronically.
Except where a greater majority is required by the Companies Act, any question, business or resolution proposed at any general meeting
shall be decided by a simple majority of the votes cast.
Mallinckrodt’s Memorandum and Articles of Association provide that all resolutions are decided by a show of hands unless a poll (before or
on the declaration of the result of the show of hands) is demanded by (i) the chair of the meeting, (ii) at least three shareholders present in
person or by proxy, (iii) any shareholder or shareholders present in person or by proxy, holding not less than one-tenth of the total voting rights
of Mallinckrodt having the right to vote at such meeting, or (iv) any shareholder or shareholders holding shares in Mallinckrodt conferring the
right to vote at the meeting being shares on which an aggregate sum has been paid equal to not less than one-tenth of the total sum paid up on
all
shares conferring that right. Each Mallinckrodt ordinary shareholder of record as of the record date for the meeting has one vote at a general
meeting on a show of hands.
The holders of ordinary A shares shall not be entitled to receive notice of, nor attend, speak or vote at, general meetings of shareholders.
Treasury shares and shares held by subsidiaries will not be entitled to vote at general meetings of shareholders.
Irish company law requires “special resolutions” of the shareholders at a general meeting to approve certain matters. A special resolution
requires not less than 75% of the votes cast of Mallinckrodt’s shareholders present in person or by proxy at a general meeting. This may be
contrasted with “ordinary resolutions,” which require a simple majority of the votes of Mallinckrodt’s shareholders cast in person or by proxy at a
general meeting. Examples of matters requiring special resolutions include:
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amending the objects (i.e., main purposes) of Mallinckrodt;
amending the Memorandum and Articles of Association of Mallinckrodt;
approving a change of name of Mallinckrodt;
authorizing the entering into of a guarantee or provision of security in connection with a loan, quasi-loan or credit transaction to a
director or a person who is deemed to be “connected” to a director for the purposes of the Companies Act;
opting-out of preemption rights on the issuance of new shares;
re-registration of Mallinckrodt from a public limited company to a private company;
variation of class rights attaching to classes of shares;
purchasing Mallinckrodt’s ordinary shares off-market;
any reduction of Mallinckrodt’s issued share capital;
resolving that Mallinckrodt be wound up by the Irish courts;
sanctioning a compromise/scheme of arrangement;
resolving in favor of a shareholders’ voluntary winding-up;
re-designation of shares into different share classes; and
setting the re-issue price of treasury shares.
Unanimous Shareholder Consent to Action Without Meeting
The Companies Act provides that shareholders may approve an ordinary or special resolution of shareholders without a meeting only if (a)
all shareholders sign the written resolution and (b) the company’s articles of association permit written resolutions of shareholders.
Mallinckrodt’s Memorandum and Articles of Association permit unanimous written resolutions of shareholders, as permitted under Irish law.
Variation of Class Rights Attaching to Shares
Variation of all or any special rights attached to any class of shares of Mallinckrodt is addressed in the Memorandum and Articles of
Association of Mallinckrodt as well as the Companies Act. Any variation of class rights attaching to the issued shares of Mallinckrodt must be
approved by a special resolution of the shareholders of the class affected.
The provisions of the Memorandum and Articles of Association of Mallinckrodt relating to general meetings shall apply to every such
general meeting of the holders of any class of shares with certain exceptions in relation to quorum and the right to demand a poll.
Quorum for General Meetings
The presence, in person or by proxy, of the holders of shares in Mallinckrodt entitling them to exercise a majority of the voting power of
Mallinckrodt constitutes a quorum for the conduct of business. No business may take place at a general meeting of Mallinckrodt if a quorum is
not present in person or by proxy. The board of directors has no authority to waive quorum requirements stipulated in the Memorandum and
Articles of Association of Mallinckrodt. Abstentions and broker non-votes will be counted as present for purposes of determining whether there
is a quorum in respect of the proposals.
Requirements for Advance Notification of Director Nominations and Proposals of Shareholders
Mallinckrodt’s Memorandum and Articles of Association provide that with respect to an annual or extraordinary general meeting of
shareholders, nominations of persons for election to its board of
directors and the proposal of business to be considered by shareholders may be made only (i) pursuant to Mallinckrodt’s notice of meeting; (ii)
by the board of directors; (iii) by any shareholders pursuant to the valid exercise of power granted to them under the Companies Act; (iv) or by a
shareholder who is entitled to vote at the meeting and who has complied with the advance notice procedures provided for in the Memorandum
and Articles of Association.
In order to comply with the advance notice procedures of Mallinckrodt’s Memorandum and Articles of Association, a shareholder must give
written notice to Mallinckrodt’s secretary on a timely basis. To be timely for an annual general meeting, notice must be delivered not earlier than
the close of business on the 90th day and not later than the close of business on the 60th day prior to the first anniversary of the preceding
year’s annual general meeting, provided, however, that in the event that the date of the annual general meeting is more than 30 days before or
more than 60 days after such anniversary date, notice by the member must be so delivered not earlier than the close of business on the 90th
day prior to the date of such annual general meeting and not later than the close of business on the later of the 60th day prior to the date of
such annual general meeting or, if the first public announcement of the date of such annual general meeting is less than 100 days prior to the
date of such annual general meeting, the 10th day following the day on which public announcement is first made of the date of the annual
general meeting; provided, further, that with respect to the 2024 annual general meeting, notice by the shareholder must be so delivered not
later than the 10th day following the day on which public announcement of the date of such meeting is first made by the Company. In no event
shall the public announcement of an adjournment or postponement of an annual general meeting commence a new time period (or extend any
time period) for the giving of a shareholder’s notice.
To be timely for an extraordinary general meeting, notice must be delivered not earlier than the close of business on the 120th day prior to
the date of such extraordinary general meeting and not later than the close of business on the 90th day prior to the date of such extraordinary
general meeting or, if the first public announcement of the date of such extraordinary general meeting is less than 100 days prior to the date of
such extraordinary general meeting, the 10th day following the day on which public announcement is first made of the date of the extraordinary
general meeting and of the nominees proposed by the board of directors to be elected at such meeting. In no event shall the public
announcement of an adjournment or postponement of an annual general meeting commence a new time period (or extend any time period) for
the giving of a shareholder’s notice.
In addition, whether relating to an annual or extraordinary general meeting, to be timely, a shareholder’s notice must be updated and
supplemented, if necessary, so the information provided or required to be provided is true and correct as of the record date for the meeting and
as of the date that is 10 business days prior to the meeting or any adjournment or postponement thereof. Such update and supplement shall be
delivered to Mallinckrodt’s secretary (i) not later than five business days after the record date for the meeting in the case of the update and
supplement required to be made as of the record date and (ii) not later than eight business days prior to the meeting or any adjournment or
postponement thereof in the case of the update and supplement required to be made as of 10 business days prior to the meeting on any
adjournment or postponement thereof.
For nominations to the board, the notice must include (i) all information about the director nominee that is required to be disclosed by the
U.S. Securities and Exchange Commission ( the “SEC”) rules regarding the solicitation of proxies for the election of directors pursuant to
Section 14 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) (including such person’s written consent to being
named in the proxy statement as a nominee and to serving as a director if elected), (ii) a description of all direct and indirect compensation and
other material monetary agreements or arrangements during the past three years, any other material relationships between the nominating
shareholder, and their affiliates and associates or others acting in concert, and the proposed nominee and his or her affiliates and associates
and other concert parties (including, but not limited to, information that would be required to be disclosed pursuant to Rule 404 promulgated
under Regulation S-K under the Exchange Act) and (iii) such other information as Mallinckrodt may reasonably require to determine the
eligibility of the proposed nominee, as well as a completed questionnaire, representation and agreement signed by the proposed nominee
regarding the background, qualification and certain existing relationships and arrangements of the proposed nominee.
For other business that a shareholder proposes to bring before the meeting, the notice must include a brief description of the business, the
reasons for proposing the business at the meeting, the text of the proposal or wording (including the text of any proposed resolutions for
consideration and if such business includes a proposal to amend the Memorandum and Articles of Association of Mallinckrodt, the text of the
proposed amendment), a discussion of any material interest of the shareholder in the business and a description of all arrangements between
the shareholder(s) any other person or persons in connection with the proposal.
Whether the notice relates to a nomination to the board of directors or to other business to be proposed at the meeting, the notice also
must include information about (i) the shareholder, (ii) the shareholder’s holdings of Mallinckrodt shares (as well as “derivative instruments” or
“short interests” with respect to Mallinckrodt shares, as defined in the Memorandum and Articles of Association), (iii) any arrangements giving
the shareholder the right to vote shares of Mallinckrodt, (iv) any rights to dividends on the Mallinckrodt shares that are separated or separable
from the underlying Mallinckrodt shares, (v) any proportionate interest in Mallinckrodt’s shares or “derivative instruments,” held by a general or
limited partnership in which the shareholder has an interest, (vi) any performance-related fees (other than an asset-based fee) that the
shareholder is entitled to base on any increase or decrease in the value of the Mallinckrodt shares or “derivative instruments,” (vii) any
significant equity interests or any “derivative instruments” or “short interests” in any of Mallinckrodt’s principal competitors held by the
shareholder, (viii) any interest of the shareholder in any contract with Mallinckrodt or any of its affiliates or principal competitors and (ix) any
other information that would be required to be disclosed by the SEC rules regarding solicitation of proxies for the director nomination and/or
other business to be proposed at the meeting.
The chairman of the meeting shall have the power and duty to determine whether any business proposed to be brought before the meeting
was made or proposed in accordance with these procedures (as set out in Mallinckrodt’s Memorandum and Articles of Association), and if any
proposed business is not in compliance with these provisions, to declare that no action shall be taken in respect of such defective proposal and
that it shall be disregarded.
In addition, the Companies Act provides that shareholders holding not less than 10% of the total voting rights may call an extraordinary
general meeting for the purpose of considering director nominations or other proposals, as described above under “Extraordinary General
Meetings of Shareholders.”
Inspection of Books and Records
Under Irish law, shareholders have the right to: (i) receive a copy of the memorandum and Memorandum and Articles of Association of
Mallinckrodt and any act of the Irish legislature which alters the Memorandum and Articles of Association of Mallinckrodt; (ii) inspect and obtain
copies of the minutes and resolutions of general meetings of Mallinckrodt; (iii) inspect and receive a copy of the register of shareholders,
register of directors and secretaries, register of directors’ interests and other statutory registers maintained by Mallinckrodt; (iv) receive copies
of statutory financial statements and directors’ and auditors’ reports which have previously been sent to shareholders prior to an annual general
meeting; and (v) receive any statutory financial statement of a subsidiary company of Mallinckrodt which have previously been sent to
shareholders prior to an annual general meeting for the preceding 10 years. The auditors of Mallinckrodt also have the right to inspect all
books, records and vouchers of Mallinckrodt. The auditors’ report must be circulated to the shareholders 21 days before the annual general
meeting with Mallinckrodt’s financial statements prepared in accordance with the Companies Act, and must be available to the shareholders at
Mallinckrodt’s annual general meeting.
Acquisitions
There are a number of mechanisms for acquiring an Irish public limited company, including:
(i) a court-approved scheme of arrangement under the Companies Act. A scheme of arrangement with shareholders requires a court
order from the Irish High Court and the approval of a majority in number representing 75% in value of the shareholders present and
voting in person or by proxy at a meeting called to approve the scheme;
(ii)
through a tender offer or takeover offer by a third party for all of the shares of Mallinckrodt. Where the holders of 80% or more of
Mallinckrodt’s shares have accepted an offer by a bidder for their shares in Mallinckrodt, the remaining shareholders may be statutorily
required to also transfer their shares to such bidder. If the bidder does not exercise its “squeeze out” right, then the non-accepting
shareholders also have a statutory right to require the bidder to acquire their shares on the same terms. If shares of Mallinckrodt were
listed on the main market of the Irish Stock Exchange or another regulated stock exchange in the European Economic Area (the
European
Economic Area includes all member states of the E.U. and Norway, Iceland and Liechtenstein), this threshold would be increased to
90%; and
(iii) it is also possible for Mallinckrodt to be acquired by way of a merger with an E.U.-incorporated public company under the E.U. Cross
Border Merger Directive 2017/1132. Such a merger must be approved by a special resolution. If Mallinckrodt is being merged with
another E.U. public company under the E.U. Cross Border Merger Directive 2017/1132 and the consideration payable to Mallinckrodt’s
shareholders is not all in the form of cash, Mallinckrodt’s shareholders may be entitled to require their shares to be acquired at fair
value.
Under Irish law, there is no requirement for a company’s shareholders to approve a sale, lease or exchange of all or substantially all of a
company’s property and assets. However, Mallinckrodt’s Memorandum and Articles of Association provide that the passing of an ordinary
resolution is required to approve a sale, lease or exchange of all or substantially all of its property or assets.
Appraisal Rights
Generally, under Irish law, shareholders of an Irish company do not have dissenters’ or appraisal rights. Under the European Communities
(Cross-Border Mergers) Regulations 2008 (as amended) governing the merger of an Irish company limited by shares such as Mallinckrodt and
a company incorporated in the European Economic Area, a shareholder (i) who voted against the special resolution approving the transaction
or (ii) of a company in which 90% of the shares are held by the other party to the transaction has the right to request that the company acquire
its shares for cash at a price determined in accordance with the share exchange ratio set out in the transaction.
In the event of a takeover of Mallinckrodt by a third party in accordance with the Irish Takeover Rules and the Companies Act where the
holders of 80% or more in value of a class of Mallinckrodt’ shares (excluding any shares already beneficially owned by the bidder) have
accepted an offer for their shares, the remaining shareholders in that class may be statutorily required to transfer their shares, unless, within
one month, the non-tendering shareholders can obtain an Irish court order otherwise providing. If the bidder does not exercise this “squeeze
out” right, the non-accepting shareholders also have a statutory right to require the bidder to acquire their shares on the same terms as the
original offer, or such other terms as the bidder and the non-tendering shareholders may agree or on such terms as an Irish court, on
application of the bidder or non-tendering shareholder, may order.
In an acquisition effected by a scheme of arrangement under Irish law, 100% of the ordinary shares of a company may be acquired
following a shareholder resolution approved by at least a majority in number of the registered shareholders representing 75% of votes cast and
approved by the Irish High Court.
The Memorandum and Articles of Association provide that Mallinckrodt shareholder(s) collectively owning a majority of the ordinary shares
(excluding equity to be issued under the Incentive Plan and the CVRs) shall have the right, upon reasonable notice, to require Mallinckrodt to
commence and effect within a reasonable time specified by such Mallinckrodt shareholder(s) a process to effect a sale of Mallinckrodt.
Mallinckrodt shall provide the Mallinckrodt shareholders who have signed a confidentiality agreement with regular updates of the sale process
and prompt notice of any material developments of such process.
Drag-Along Rights
Subject to customary exceptions, the Memorandum and Articles of Association provide that if any Mallinckrodt shareholder owning, or
group of Mallinckrodt shareholders collectively owning, more than 50% of the issued and outstanding ordinary shares (excluding equity to be
issued under the Incentive Plan and the CVRs) (the “Selling Shareholders”) agree to sell all of their ordinary shares to an unaffiliated third party,
the Selling Shareholders shall, subject to Irish law, have the right to effect a sale of Mallinckrodt through (a) a sale of all or substantially all of
the assets of Mallinckrodt and its subsidiaries or (b) a sale of more than 50% of the issued and outstanding ordinary shares (any such sale
transaction, a “Drag-Along Sale”) without the approval of the other Mallinckrodt shareholders and shall have the right to require all other
Mallinckrodt shareholders (the “Dragged Shareholders”) to, among other things, (i) sell all of their ordinary shares (including equity to be issued
under the Incentive Plan and the CVRs) in such Drag-Along Sale; (ii) vote such Dragged Shareholders’ ordinary shares, whether by proxy,
voting agreement or otherwise, in favor of the Drag-Along Sale and not raise any objection thereto; (iii) (A) enter into agreements with the
purchaser in the Drag-Along Sale on terms and conditions substantially identical to those applicable to the Selling Shareholders, and to obtain
any required consents applicable to such Dragged Shareholders and (B) agree to the same covenants, indemnities (pro rata with respect to
Mallinckrodt matters) and agreements (other than non-competition commitments) as made by the Selling
Shareholders; provided, however, that any indemnity and participation in any escrow to be provided in a Drag-Along Sale shall be pro rata and
the aggregate amount of liability for each Dragged Shareholder to an acquirer under any indemnity and any escrow to be provided by a
Dragged Shareholder in a Drag-Along Sale shall not exceed the amount of gross proceeds payable to such Dragged Shareholder in connection
with such Drag-Along Sale (other than, in the case of an indemnity, on account of such Dragged Shareholder’s own fraud); (iv) make certain
customary representations and warranties, on a several and not joint basis, as described in the Memorandum and Articles of Association; (v)
waive and refrain from exercising any appraisal, dissenters or similar rights; (vi) not assert any claim against Mallinckrodt, any member of the
board or any committee thereof or any other Mallinckrodt shareholder or any of its affiliates in connection with the Drag-Along Sale; (vii) if
required by the Selling Shareholders, elect, and agree to reimburse and indemnify (subject to a customary cap and customary limitations), a
shareholder representative designated by the Selling Shareholders in connection with a Drag-Along Sale; and (viii) take any and all reasonably
necessary actions in furtherance of the consummation of the Drag-Along Sale; provided that the consideration to be received by the Dragged
Shareholders shall, subject to management rollover opportunities, be on the same terms, the same per share consideration and in the same
form as the consideration received by the Selling Shareholders.
Tag-Along Rights
Subject to customary exceptions, the Memorandum and Articles of Association provide that if one or more Mallinckrodt shareholders (the
“Transferring Shareholder(s)”) desires to sell more than 50% of the issued and outstanding ordinary shares (excluding equity to be issued
under the Incentive Plan and the CVRs) to any unaffiliated third party in any transaction (or series of related transactions) (a “Tag-Along
Transaction”), the other Mallinckrodt shareholder(s) will have customary tag-along rights to participate in such Tag-Along Transaction on a pro
rata basis (any such participating shareholder(s), the “Tagging Holders”); provided that such tag-along rights shall, subject to management
rollover opportunities, be on the same terms, the same per share consideration and in the same form as the Transferring Shareholders and
notice of such sale or transfer shall include, among other things, a description of any non-cash consideration; provided, further, that in
connection with a Tag-Along Transaction, (i) the Tagging Holders shall only be required to make certain customary representations and
warranties, on a several and not joint basis, as described in the Memorandum and Articles of Association, and (ii) any indemnity and
participation in any escrow to be provided in such Tag-Along Transaction shall be pro rata and not exceed the amount of proceeds payable to
such Tagging Holder in connection with such Tag-Along Transaction (other than, in the case of an indemnity, on account of such Tagging
Holder’s own fraud).
Disclosure of Interests in Shares
Under the Companies Act, there is a notification requirement for shareholders who acquire or cease to be interested in 3% of the shares of
an Irish public company. A shareholder of Mallinckrodt must notify Mallinckrodt (but not the public at large) if as a result of a transaction the
shareholder will be interested in 3% or more of any class of shares of Mallinckrodt carrying voting rights; or if as a result of a transaction a
shareholder who was interested in more than 3% of any class of shares of Mallinckrodt carrying voting rights ceases to be so interested. Where
a shareholder is interested in more than 3% of any class of shares of Mallinckrodt carrying voting rights, any alteration of his or her interest that
brings his or her total holding through the nearest whole percentage number, whether an increase or a reduction, must be notified to
Mallinckrodt (but not the public at large). The relevant percentage figure is calculated by reference to the aggregate par value of the class of
shares in which the shareholder is interested as a proportion of the entire par value of the issued shares of that class. Where the percentage
level of the shareholder’s interest does not amount to a whole percentage, this figure may be rounded down to the next whole number. All such
disclosures must be notified to Mallinckrodt within five business days of the transaction or alteration of the shareholder’s interests that gave rise
to the requirement to notify. Where a person fails to comply with the notification requirements described above, no right or interest of any kind
whatsoever in respect of any shares in Mallinckrodt concerned, held by such person, will be enforceable by such person, whether directly or
indirectly, by action or legal proceeding. However, such person may apply to the Irish High Court to have the rights attaching to the shares
concerned reinstated.
In addition to the above disclosure requirement, Mallinckrodt, under the Companies Act, may by notice in writing require a person whom
Mallinckrodt knows or has reasonable cause to believe to be or, at any time during the three years immediately preceding the date on which
such notice is issued, to have been interested in shares comprised in Mallinckrodt’s relevant share capital: (i) to indicate whether or not it is the
case, and (ii) where such person holds or has during that time held an interest in any class of shares of Mallinckrodt carrying voting rights to
give such further information as may be required by
Mallinckrodt, including particulars of such person’s own past or present interests in such class of shares of Mallinckrodt. Any information given
in response to the notice is required to be given in writing within such reasonable time as may be specified in the notice.
Where such a notice is served by Mallinckrodt on a person who is or was interested in shares of Mallinckrodt carrying voting rights and that
person fails to give Mallinckrodt any information required within the reasonable time specified, Mallinckrodt may apply to the court for an order
directing that the affected shares be subject to certain restrictions.
Under the Companies Act, the restrictions that may be placed on the shares by the court are:
(i) any transfer of those shares, or in the case of unissued shares any transfer of the right to be issued with shares and any issue of
shares, is void;
(ii) no voting rights are exercisable in respect of those shares;
(iii) no further shares may be issued in right of those shares or in pursuance of any offer made to the holder of those shares; and
(iv) no payment may be made of any sums due from Mallinckrodt on those shares, whether in respect of capital or otherwise.
Where the shares in Mallinckrodt are subject to these restrictions, the court may order the shares to be sold and may also direct that the
shares will cease to be subject to these restrictions.
In the event that Mallinckrodt is in an offer period pursuant to the Irish Takeover Rules, accelerated disclosure provisions apply for persons
holding an interest in Mallinckrodt securities of 1% or more.
Anti-Takeover Provisions
Shareholder Rights Plans and Share Issuances
Irish law does not expressly prohibit companies from issuing share purchase rights or adopting a shareholder rights plan (commonly known
as a “poison pill”) as an anti-takeover measure. However, there is no directly relevant case law on the validity of such plans under Irish law. In
addition, such a plan is subject to the Irish Takeover Rules described below.
Mallinckrodt’s Memorandum and Articles of Association allow the board to adopt a shareholder rights plan upon such terms and conditions
as the board deems expedient and in the best interests of Mallinckrodt, subject to applicable law, in certain circumstances.
Subject to the Irish Takeover Rules described below, the board also has power to cause Mallinckrodt to issue any of its authorized and
unissued shares on such terms and conditions as the board may determine (as described under “—Share Capital”) and any such action must
be taken in the best interests of Mallinckrodt.
Irish Takeover Rules
A transaction by virtue of which a third party is seeking to acquire 30% or more of the voting rights of Mallinckrodt will be governed by the
Irish Takeover Panel Act 1997 and the Irish Takeover Rules made thereunder and will be regulated by the Irish Takeover Panel. The “General
Principles” of the Irish Takeover Rules and certain important aspects of the Irish Takeover Rules are described below.
General Principles. The Irish Takeover Rules are built on the following General Principles which will apply to any transaction regulated by
the Irish Takeover Panel:
•
•
•
in the event of an offer, all classes of shareholders of the target company should be afforded equivalent treatment and, if a person
acquires control of a company, the other holders of securities must be protected;
the holders of securities in the target company must have sufficient time and information to allow them to make an informed decision
regarding the offer. If the board of the target company advises the holders of securities as regards the offer, it must advise on the
effects of the implementation of the offer on employment, employment conditions and the locations of the target company’s place of
business;
the board of the target company must act in the interests of the company as a whole and must not deny the holders of securities the
opportunity to decide on the merits of the offer;
•
•
•
•
false markets (i.e., a market based on erroneous, imperfect or unequally disclosed information) must not be created in the securities of
the target company, the bidder or any other company concerned by the offer in such a way that the rise or fall of the prices of the
securities become artificial and the normal functioning of the markets is distorted;
a bidder must announce an offer only after ensuring that he or she can pay in full the consideration offered and after taking all
reasonable measures to secure the implementation of any other type of consideration;
a target company may not be hindered in the conduct of its affairs longer than is reasonable by an offer for its securities, (this is a
recognition that an offer will disrupt the day-to-day running of a target company, particularly if the offer is hostile, and the board of the
target company must divert its attention to deal with the offer); and
a substantial acquisition of securities (whether such acquisition is to be effected by one transaction or a series of transactions) shall
take place only at an acceptable speed and shall be subject to adequate and timely disclosure.
Mandatory Bid. Under certain circumstances, a person who acquires shares or other voting rights in Mallinckrodt may be required under the
Irish Takeover Rules to make a mandatory cash offer for the remaining outstanding shares in Mallinckrodt at a price not less than the highest
price paid for the shares by the acquirer (or any parties acting in concert with the acquirer) during the previous 12 months. This mandatory bid
requirement is triggered if an acquisition of shares would increase the aggregate holding of an acquirer (including the holdings of any parties
acting in concert with the acquirer) to shares representing 30% or more of the voting rights in Mallinckrodt, unless the Irish Takeover Panel
otherwise consents. An acquisition of shares by a person holding (together with its concert parties) shares representing between 30% and 50%
of the voting rights in Mallinckrodt would also trigger the mandatory bid requirement if, after giving effect to the acquisition, the percentage of
the voting rights held by that person (together with its concert parties) would increase by 0.05% within a 12-month period. Any person
(excluding any parties acting in concert with the holder) holding shares representing more than 50% of the voting rights of a company is not
subject to these mandatory offer requirements in purchasing additional securities.
Voluntary Bid; Requirements to Make a Cash Offer and Minimum Price Requirements. If a person makes a voluntary offer to acquire
outstanding Mallinckrodt ordinary shares, the offer price must be no less than the highest price paid for Mallinckrodt ordinary shares by the
bidder or its concert parties during the three month period prior to the commencement of the offer period. The Irish Takeover Panel has the
power to extend the “look back” period to 12 months if the Irish Takeover Panel, taking into account the General Principles, believes it is
appropriate to do so.
If the bidder or any of its concert parties has acquired Mallinckrodt ordinary shares (i) during the period of 12 months prior to the
commencement of the offer period which represent more than 10% of the total Mallinckrodt ordinary shares or (ii) at any time after the
commencement of the offer period, the offer must be in cash (or accompanied by a full cash alternative) and the price per Mallinckrodt ordinary
share must not be less than the highest price paid by the bidder or its concert parties during, in the case of (i), the 12-month period prior to the
commencement of the offer period and, in the case of (ii), the offer period. The Irish Takeover Panel may apply this rule to a bidder who,
together with its concert parties, has acquired less than 10% of the total Mallinckrodt ordinary shares in the 12-month period prior to the
commencement of the offer period if the Irish Takeover Panel, taking into account the General Principles, considers it just and proper to do so.
A voluntary offer period will generally commence on the date of the first announcement of the offer or proposed offer.
Substantial Acquisition Rules. The Irish Takeover Rules also contain rules governing substantial acquisitions of shares that restrict the
speed at which a person may increase his or her holding of voting shares and rights over voting shares to an aggregate of between 15% and
30% of the voting rights of Mallinckrodt. Except in certain circumstances, an acquisition or series of acquisitions of shares or rights over shares
representing 10% or more of the voting rights is prohibited if such acquisition(s), when aggregated with shares or rights already held, would
result in the acquirer holding 15% or more but less than 30% of the voting rights of Mallinckrodt and such acquisitions are made within a period
of seven days. These rules also require accelerated disclosure of acquisitions of shares or rights over shares relating to such acquisitions.
Frustrating Action. Under the Irish Takeover Rules, the board of directors of Mallinckrodt is not permitted to take any action which might
frustrate an offer for the shares of Mallinckrodt once the board of directors has received an approach which may lead to an offer, or has reason
to believe an offer is imminent, except as noted below. Potentially frustrating actions such as (i) the issue of shares, options or convertible
securities, (ii) material disposals, (iii) entering into contracts other than in the ordinary course of business or (iv) any action, other than seeking
alternative offers, which may result in frustration of an offer, are prohibited during the course of an offer or at any time during which the board
has reason to believe an offer is imminent. Exceptions to this prohibition are available:
(i) where the action is approved by Mallinckrodt’s shareholders at a general meeting; or
(ii) with the consent of the Irish Takeover Panel where:
(a) the Irish Takeover Panel is satisfied the action would not constitute a frustrating action;
(b) the Mallinckrodt shareholders that hold 50% of the voting rights state in writing that they approve the proposed action and
would vote in favor of it at a general meeting;
(c) such action is in accordance with a contract entered into prior to the announcement of the offer; or
(d) the decision to take such action was made before the announcement of the offer and either has been at least partially
implemented or is in the ordinary course of business.
For other provisions that could be considered to have an anti-takeover effect, see “Share Capital” (regarding issuance of preferred shares)
“Preemption Rights, Share Warrants and Share Options,” “Disclosure of Interests in Shares,” “Requirements for Advance Notification of
Director Nominations and Proposals of Shareholders” and “Unanimous Shareholder Consent to Action Without Meeting,” in addition to “Election
of Directors,” “Vacancies on Board of Directors” and “Amendment of Governing Documents” below.
Insider Dealing
The Irish Takeover Rules also provide that no person, other than the bidder, who is privy to confidential price-sensitive information
concerning an offer made in respect of the acquisition of our company (or a class of its securities) or a contemplated offer shall deal in relevant
securities of the target during the period from the time at which such person first has reason to suppose that such an offer, or an approach with
a view to such an offer being made, is contemplated to the time of (i) the announcement of such offer or approach or (ii) the termination of
discussions relating to such offer, whichever is earlier.
Corporate Governance
The articles of association of Mallinckrodt delegate the day-to-day management of Mallinckrodt to its board of directors. The board of
directors may then delegate management of Mallinckrodt to committees, executives or to a management team, but regardless, the directors
remain responsible, as a matter of Irish law, for the proper management of the affairs of Mallinckrodt. Committees may meet and adjourn as
they determine proper. Unless otherwise determined by the board of directors, the quorum necessary for the transaction of business at any
committee meeting shall be a majority of the members of such committee then in office unless the committee shall consist of one or two
members, in which case one member shall constitute a quorum.
Election of Directors
The Companies Act provides for a minimum of two directors. Mallinckrodt’s Memorandum and Articles of Association provide for seven
directors. The shareholders of Mallinckrodt may from time to time increase or reduce the maximum number of directors by a special resolution
amending the Memorandum and Articles of Association.
The Memorandum and Articles of Association provide that Mallinckrodt’s board of directors shall consist of the following:
•
•
the Chief Executive Officer of Mallinckrodt;
one director (the “1L AHG Steering Committee Director”) designated by the Mallinckrodt shareholder holding the largest number of
issued and outstanding ordinary shares (calculated on a fully-diluted basis and excluding equity to be issued under the Incentive Plan
and the CVRs) on the Ad Hoc First Lien Group Steering Committee (as defined in the plan of reorganization for the 2023 Bankruptcy
Proceedings), which Mallinckrodt shareholder shall have the sole right to
remove and replace such 1L AHG Steering Committee Director in accordance with the terms of the Memorandum and Articles of
Association for so long as such Mallinckrodt shareholder continues to hold at least 5% of the ordinary shares of Mallinckrodt (calculated
on a fully-diluted basis and excluding equity to be issued under the Incentive Plan and the CVRs);
one director (the “Crossover AHG Steering Committee Director” and, together with the 1L AHG Steering Committee Director, the
“Designated Directors”) designated by the Ad Hoc Crossover Group Steering Committee (as defined in the plan of reorganization for
the 2023 Bankruptcy Proceedings), which Ad Hoc Crossover Group Steering Committee shall have the sole right to remove and
replace such Crossover AHG Steering Committee Director in accordance with the terms of the Memorandum and Articles of
Association for so long as at least one Mallinckrodt shareholder in the Ad Hoc Crossover Group Steering Committee holds at least 5%
of the ordinary shares of Mallinckrodt (calculated on a fully-diluted basis and excluding equity to be issued under the Incentive Plan and
the CVRs); and
up to four directors who qualify as “independent directors” under the listing requirements of the New York Stock Exchange, to be
designated by a nominating and selection committee (the “Nominating and Selection Committee”) comprised of members of the Ad Hoc
First Lien Group Steering Committee, the Ad Hoc Crossover Group Steering Committee and the Ad Hoc 2025 Noteholder Group (as
defined in the plan of reorganization for the 2023 Bankruptcy Proceedings).
•
•
The Memorandum and Articles of Association provide that the chair of the board will be determined by the Nominating and Selection
Committee. Subject to customary exclusions for affiliated transactions, and save for the Nominating and Selection Committee, the
Memorandum and Articles of Association provide that committees of the board will be appointed by a majority of the board and will include in all
cases the Designated Directors that request such appointment unless any Designated Director(s) declines, in his or her sole discretion, to serve
on any such committee.
At each annual general meeting of Mallinckrodt, all the directors (other than the Designated Directors) shall retire from office and be eligible
for re-election.
Vacancies on the Board of Directors
Subject to the rights of the Ad Hoc First Lien Group Steering Committee, the Ad Hoc Crossover Group Steering Committee and the
Nominating and Selection Committee as set forth in the Memorandum and Articles of Association, a vacancy caused by the removal of a
director may be filled at the meeting at which the director is removed by ordinary resolution of Mallinckrodt’s shareholders, subject to
compliance with the applicable advance notice requirements for the election of directors (see “—Requirements for Advance Notification of
Director Nominations and Proposals of Shareholders”). Where the number of director nominees exceeds the number of directors to be elected,
each nominee is voted upon separately, in which case directors will be elected based on a plurality of votes received in absolute terms, not by
relative percentage, until the maximum number of directors are appointed. If shareholders do not appoint a director to fill such vacancy within
45 days after the occurrence of such vacancy, it may be filled by the board of directors, subject to the rights of the Ad Hoc First Lien Group
Steering Committee, the Ad Hoc Crossover Group Steering Committee and the Nominating and Selection Committee as set forth in the
Memorandum and Articles of Association.
During any vacancy on the board, the remaining directors will have full power to act as the board. If and so long as the number of directors
is below the minimum number required by the Companies Act, the continuing directors may act to increase the number of directors to the
minimum number or to summon a general meeting of Mallinckrodt but may conduct no other business.
Removal of Directors
The Companies Act provides that, notwithstanding anything contained in the memorandum and articles of association of a company or in
any agreement between that company and a director, the shareholders may, by an ordinary resolution, remove a director from office before the
expiration of his or her term at a meeting held on no less than 28 days’ notice and at which the director is entitled to be heard. Accordingly, the
shareholders of Mallinckrodt may by an ordinary resolution remove a director from office before the expiration of his or her term
(notwithstanding any agreement between Mallinckrodt and the director); provided, that notwithstanding anything in the Memorandum and
Articles of Association to the contrary, (i) the Chief Executive Officer may only be removed or replaced as a director by the resolution of the
board of directors, (ii) the 1L AHG Steering Committee Director may only be removed or replaced by the Ad Hoc First Lien Group Steering
Committee, (iii) the Crossover AHG Steering Committee
Director may only be removed or replaced by the Ad Hoc Crossover Group Steering Committee, and (iv) other than removals by the board of
directors for cause, the remaining four directors may only be removed or replaced by the Nominating and Selection Committee, subject to the
terms and conditions set forth in the Memorandum and Articles of Association. The power of removal is without prejudice to any claim for
damages for breach of contract (e.g., employment contract) which the director may have against Mallinckrodt in respect of his or her removal.
Board Observer
With respect to each of the Ad Hoc First Lien Group Steering Committee and the Ad Hoc Crossover Group Steering Committee (each, a
“Designating Committee”), the Memorandum and Articles of Association provide that the shareholder holding the largest number of issued and
outstanding ordinary shares of Mallinckrodt as of the Effective Date (calculated on a fully-diluted basis and excluding equity to be issued under
the Incentive Plan and the CVRs) in each Designating Committee shall, subject to customary restrictions (including confidentiality obligations
and recusal provisions), be entitled to designate one representative as a non-voting observer to the board of directors for so long as such
shareholder holds at least 5% of the issued and outstanding ordinary shares of Mallinckrodt (calculated on a fully-diluted basis and excluding
equity to be issued under the Incentive Plan and the CVRs).
Amendment of Governing Documents
Irish companies, including Mallinckrodt, may only alter their memorandum and articles of association with the approval of a special
resolution of a general meeting of the company.
Duration; Dissolution; Rights upon Liquidation
Mallinckrodt’s corporate existence has unlimited duration. Mallinckrodt may be dissolved at any time by way of either a shareholders’
voluntary winding up or a creditors’ voluntary winding up. In the case of a shareholders’ voluntary winding up, a special resolution of the
shareholders of Mallinckrodt is required. Mallinckrodt may also be dissolved by way of court order on the application of a creditor, or by the
Companies Registration Office as an enforcement measure where Mallinckrodt has failed to file certain returns. Mallinckrodt may also be
dissolved by the Director of Corporate Enforcement in Ireland where the affairs of Mallinckrodt have been investigated by an inspector and it
appears from the report or any information obtained by the Director of Corporate Enforcement that Mallinckrodt should be wound up.
The rights of the shareholders to a return of Mallinckrodt’s assets on dissolution or winding up, following the settlement of all claims of
creditors, may be prescribed in Mallinckrodt’s Memorandum and Articles of Association. If the Memorandum and Articles of Association contain
no specific provisions in respect of a dissolution or winding up, then, subject to the priorities of any creditors, the assets will be distributed to
shareholders in proportion to the paid-up par value of the shares held. Mallinckrodt’s Memorandum and Articles of Association provide that the
ordinary shareholders of Mallinckrodt are entitled to participate pro rata in a winding up.
Uncertificated Shares
Holders of ordinary shares of Mallinckrodt do not have the right to require Mallinckrodt to issue certificates for their shares. Mallinckrodt
only issues uncertificated ordinary shares.
Stock Exchange Listing
Prior to our emergence from the 2023 Bankruptcy Proceedings, our ordinary shares were traded on the NYSE American LLC (“NYSE
American”) under the ticker symbol “MNK.” On September 6, 2023, the NYSE filed a Form 25 with the SEC to delist our ordinary shares from
the NYSE American. The delisting became effective September 16, 2023. Our ordinary shares began trading on the Pink Open Market
(formerly known as the OTC Pink Marketplace) on August 29, 2023 under the symbol “MNKTQ.” On the Effective Date, upon emergence from
the 2023 Bankruptcy Proceedings, all of our outstanding ordinary shares were cancelled and we ceased trading on the Pink Open Market.
Following our emergence from the 2023 Bankruptcy Proceedings, our ordinary shares are not listed on any Irish Stock Exchange (including
Euronext Dublin) or any other exchange.
No Sinking Fund
The Mallinckrodt ordinary shares have no sinking fund provisions.
Transfer and Registration of Shares
Mallinckrodt’s official share register is maintained by its transfer agent and the transfer agent’s affiliates. Registration in this share register is
determinative of membership in Mallinckrodt. A shareholder of Mallinckrodt who holds shares beneficially is not the holder of record of such
shares. Instead, the depository or other nominee is the holder of record of such shares. Accordingly, a transfer of shares from a person who
holds such shares beneficially to a person who also holds such shares beneficially through the same depository or other nominee is not
registered in Mallinckrodt’s official share register, as the depository or other nominee remains the record holder of such shares. Under Irish law,
rights attaching to Mallinckrodt’s shares, including those outlined in this exhibit are generally only exercisable by the legal owner of the relevant
shares on Mallinckrodt’s official Irish share register. A shareholder holding through a depository may only exercise such rights by either
procuring the transfer of the shares from the depository into their direct legal ownership or by procuring the exercise by the depository nominee
of those rights on their behalf in accordance with the applicable terms, procedures and rules of the depository.
A written instrument of transfer is required under Irish law in order to register on Mallinckrodt’s official share register any transfer of shares
(i) from a person who holds such shares directly to any other person, (ii) from a person who holds such shares beneficially to a person who
holds such shares directly, or (iii) from a person who holds such shares beneficially to another person who holds such shares beneficially where
the transfer involves a change in the depository or other nominee that is the record owner of the transferred shares. An instrument of transfer
also is required for a shareholder who directly holds shares to transfer those shares into his or her own broker account (or vice versa). Such
instruments of transfer may give rise to Irish stamp duty which must be paid prior to registration of the transfer on Mallinckrodt’s official Irish
share register. However, a shareholder who directly holds shares may transfer those shares into his or her own broker account (or vice versa)
without giving rise to Irish stamp duty, provided there is no change in the ultimate beneficial ownership of the shares as a result of the transfer
and the transfer is not made in contemplation of a sale of the shares by a beneficial owner to a third party.
Mallinckrodt may, in its absolute discretion, pay (or cause one of its affiliates to pay) any stamp duty. Mallinckrodt’s Memorandum and
Articles of Association provide that, in the event of any such payment, Mallinckrodt (i) may seek reimbursement from the buyer, (ii) will have a
lien against the Mallinckrodt ordinary shares acquired by such buyer and any dividends paid on such shares and (iii) may set-off the amount of
the stamp duty against future dividends on such shares.
Mallinckrodt’s Memorandum and Articles of Association delegate to Mallinckrodt’s secretary and certain other persons and delegates the
authority to execute an instrument of transfer on behalf of a transferring party.
Under specific exceptions outlined for certain circumstances, holders of Mallinckrodt shares are restricted from encumbering, transferring,
or entering agreements to do the any of the foregoing related to their shares without meeting certain conditions.
The directors of Mallinckrodt, in their absolute discretion, may decline to recognize any instrument of transfer unless (i) it is accompanied by
such evidence as the directors may reasonably require to show the right of the transferor to make the transfer; (ii) it is in respect of one class of
share only; (iii) it is in favor of not more than four transferees; and (iv) it is lodged at the registered office of Mallinckrodt or at such other place
as the directors may appoint. In the case of a transfer of shares by means other than a sale through a stock exchange on which the shares are
listed, the directors have absolute discretion and without assigning any reason therefor to decline to register (i) any transfer of a share which is
not fully paid; (ii) any transfer to or by a minor or person of unsound mind; (iii) any transfer where the board of directors is not reasonably
satisfied that the transfer restrictions contained in the Memorandum and Articles of Association have been complied with in respect of such
transfer, subject to certain exceptions; (iv) any transfer where the instrument of transfer has not been correctly stamped in respect of stamp
duty; and (v) any transfer where the board of directors is satisfied, based on written advice from outside legal counsel, that any required
consent has not been obtained. The directors of Mallinckrodt shall also refuse to register any purported transfer if (i) the transfer would have
adverse regulatory or tax consequences to Mallinckrodt; (ii) the transferee is a Company Competitor (as defined in the Memorandum and
Articles of Association); or (iii) the transferor has failed to comply with its obligations set forth in articles 26-35 of the Memorandum and Articles
of Association.
The transferor shall be deemed to remain the holder of the share until the name of the transferee is entered on the register in respect
thereof.
The registration of transfers may be suspended by the directors at such times and for such period, not exceeding 30 days in each year, as
the directors may from time to time determine.
Transfer Agent and Registrar
The transfer agent and registrar for Mallinckrodt ordinary shares is Computershare Investor Services (Ireland) Limited.
Exhibit 10.15
SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this “Agreement”) is entered into on February 2, 2024 (the
“Effective Date”) by and between ST Shared Services LLC, a Delaware limited liability company, or any successor thereto (the “Company”), and [ ] (the
“Executive”) (collectively referred to as “Parties” or individually referred to as a “Party”).
WHEREAS, the Executive was previously party to that certain Amended and Restated Employment Agreement, dated as of February 22, 2023, by
and between the Company and the Executive, as subsequently amended on June 14, 2023 (the “Prior Agreement”), pursuant to which the Executive was
employed as the [ ] of the Company and, in connection therewith but for no remuneration, of Mallinckrodt plc, a public company with limited liability
incorporated in Ireland (“Mallinckrodt” and, collectively with the Company and their respective subsidiaries and affiliates, the “Company Group”);
WHEREAS, the Company and the Executive desire to enter into this Agreement, which shall supersede the Prior Agreement in its entirety as of the
Effective Date, to set forth the rights and obligations of the Parties hereto in respect of the Executive’s continued employment with the Company;
WHEREAS, the Company desires to be assured that the unique and expert services of the Executive will be available to the Company and that the
Executive is willing and able to render such services on the terms and conditions hereinafter set forth; and
WHEREAS, the Company desires to be assured that the confidential information and good will of the Company Group will be preserved for the
exclusive benefit of the Company Group.
NOW, THEREFORE, in consideration of such employment and the mutual covenants and promises herein contained, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Executive agree as follows:
Section 1.
Effective Date; Employment; Position and Location. The Company hereby agrees to continue to employ the Executive, effective as of the
Effective Date, as the [ ] of the Company and, in connection therewith but for no remuneration, of Mallinckrodt, and the Executive hereby accepts
such continued employment under and subject to the terms and conditions hereinafter set forth. The Executive shall perform the Executive’s services
principally in [ ]. The Executive acknowledges that the Executive may be required to travel in connection with the performance of the Executive’s
duties.
Section 2.
Term of Employment. The Executive’s employment with the Company commenced on [ ] and shall end on the last day of employment upon
termination by either party, as set forth herein.
Section 3. Duties. The Executive shall perform services in a manner consistent with the Executive’s position as [ ] subject to the general supervision
and direction of the Chief Executive Officer of the Company Group (the “CEO”). The Executive shall report solely and directly to the CEO. The
Executive hereby agrees to devote substantially all of the Executive’s business time, skill, attention, and reasonable best efforts to the faithful
performance of such duties and to the promotion of the business and affairs of the Company Group during the Executive’s employment with the
Company. Notwithstanding the foregoing, the Executive may (a) serve on the boards of trade associations and charitable organizations and, subject to
Board approval, one private commercial entity so long as such entity is not engaged in a Competing Business (as defined below), (b) engage in
charitable and educational activities and community affairs, and (c) manage the Executive’s personal investments and affairs, in each case, subject to
compliance with this Agreement (including, without limitation, Sections 8 and 9 hereof) and provided that such activities do not materially interfere
with the Executive’s performance of the Executive’s duties and responsibilities hereunder.
Section 4.
Base Salary. In consideration of the services rendered by the Executive under this Agreement, the Company shall pay the Executive a base
salary at the rate of [ ] dollars ($[ ]) per calendar year (the “Base Salary”), payable in accordance with the Company’s applicable payroll practices.
The Base Salary shall be subject to review and increase (but may not decrease, unless the reduction in Base Salary is (a) part of a program approved
by the Board of Directors of Mallinckrodt (the “Board”) or its delegate, the Human Resources and Compensation Committee (collectively, the
“Committee”) that affects all executive officers on a consistent basis and (b) no greater than 10% in the aggregate) by the Committee in its sole
discretion. References in this Agreement to “Base Salary” shall be deemed to refer to the most recently effective annual base salary, unless otherwise
specifically set forth herein.
Section 5. Additional Benefits. In addition to the Base Salary, the Executive shall be entitled to the following additional benefits:
Section 5.1 Annual Short-Term Management Incentive Plan. The Executive shall be eligible to participate in an annual short-term management
incentive plan established by the Committee (the “STIP”) pursuant to which the Executive will have the opportunity to earn a cash
incentive bonus in respect of each year of employment (the “Annual Bonus”), subject to terms established by the Committee from time to
time. The Executive’s Annual Bonus target shall be [ ]% of the Base Salary (the “Target Bonus”) and the Executive can earn an Annual
Bonus of up to [ ]% of the Base Salary (prorated for any partial year of employment), respectively. The actual Annual Bonus earned by the
Executive in respect of a given year, if any, shall be based on performance metrics to be determined by the Committee, in its sole discretion.
The Committee shall determine whether the Executive has met or exceeded the performance metrics in any given year with regard to
determining the amount of the Executive’s Annual Bonus. For the avoidance of doubt, except as provided in Sections 7.01 through 7.04, the
Executive’s participation in the STIP and the Executive’s right to earn any cash bonus thereunder shall be subject to the same terms and
conditions established by the Committee for other executive officers of the Company. The Annual Bonus shall be paid to the Executive in
accordance with the STIP and at the same time other executive annual bonuses under the STIP are paid.
Section 5.2 Long-Term Incentives.
(a) Transaction Incentive Plan. The Executive shall participate in the Transaction Incentive Plan to be adopted by the Board (the
“Transaction Incentive Plan”) pursuant to which, in connection with the closing of certain asset sales of the Company (each, a
“Qualifying Asset Sale”), the Executive and certain other members of management will have the opportunity to earn and be paid
cash incentive bonuses equal to a percentage of the net proceeds received in connection with such Qualifying Asset Sale (each, a
“Transaction Bonus”) in accordance with the terms of the Transaction Incentive Plan.
(b) Equity Grant. As soon as reasonably practicable following the Effective Date, the Executive shall be granted a one-time equity
award (the “Initial Grant” or “Initial Award”) under Mallinckrodt’s 2024 Stock and Incentive Plan to be adopted by the Board (the
“MIP”) covering [ ]% of the fully-diluted shares of Mallinckrodt, excluding the Opioid CVRs which would dilute all shareholders
equally. One-third of the Initial Grant shall consist of restricted stock units (“RSUs”) that will vest ratably on each of the first three
(3) anniversaries of January 1, 2024 and the remaining two-thirds of the Initial Grant shall consist of performance stock units
(“PSUs”) that will cliff vest following the performance period which began on December 30, 2023 and ends on December 25,
2026 as outlined in the applicable award agreement (the “Performance Period”), with 50% vesting based on Mallinckrodt’s
attainment of certain realized value targets and 50% vesting based on Mallinckrodt’s attainment of aggregate adjusted operating
cash flow targets during the Performance Period. The terms and conditions applicable to the Initial Grant shall be consistent with
those applicable to RSUs and PSUs issued under the MIP, except as otherwise set forth herein. Notwithstanding anything set forth
in the MIP, “Cause”, “Change in Control Termination”, “Disability”, “Good Reason”, “Early Retirement” and “Normal
Retirement” shall have the meanings set forth herein, to the extent they differ from the definitions set forth in the MIP, with respect
to the Initial Grant and any other awards that may be granted to Executive under the MIP.
(c) The Transaction Incentive Plan and the Initial Award shall be the Executive’s long-term incentives with respect to the 2024, 2025
and 2026 fiscal years of the Company. For periods following the 2026 fiscal year, the Executive shall be eligible to participate in
such long-term incentive arrangements as the Board shall establish for the executives of the Company, based on then-current
market data and taking into account such corporate and individual performance objectives, all as may be determined by the Board
in its good faith discretion in consultation with the Executive.
Section 5.3 Benefits. The Executive shall be entitled to participate in the Company’s health, welfare, and other benefit plans and programs,
including vacation, that are in effect for its executive officers from time to time, subject to the terms and conditions of such plans and such
participation in each case shall be on terms and conditions no less favorable to the Executive than executive officers of the Company
generally; provided, that such plans may be amended, modified, or terminated at any time so long as Executive is not treated less favorably
than executive officers of the Company generally. For the avoidance of doubt, the Executive is not entitled to any
employment benefits under Irish law and/or the law of any jurisdiction other than the United States, or to the protection of Irish employment
legislation and/or employment legislation of any jurisdiction other than the United States as the Executive is not an employee of any
member of the Company Group other than the Company.
Section 5.4 Reimbursement of Expenses. The Company shall reimburse the Executive for all reasonable, necessary, and documented expenses
actually incurred by the Executive directly in connection with the business affairs of the Company and the performance of the Executive’s
duties hereunder, upon presentation of proper receipts or other proof of expenditure and subject to such reasonable guidelines or limitations
that are applicable generally to executive officers of the Company, as provided by the Company from time to time. The Executive shall
comply with such reasonable limitations and reporting requirements with respect to such expenses as the Committee may establish from
time to time, in each case that are applicable generally to executive officers of the Company. Except to the extent specifically provided,
however, the Executive shall not use Company funds for non-business, non-Company related matters or for personal matters.
Section 5.5 Indemnification and D&O Insurance. The Company shall provide Executive with indemnification and liability insurance coverage
to the maximum extent permitted by the Company’s and its subsidiaries’ and affiliates’ organizational documents, including, if applicable,
any directors’ and officers’ insurance policies, with such indemnification to be on terms determined by the Committee or any of its
committees, but on terms no less favorable than provided to any other Company executive officer or director and subject to the terms of any
separate written indemnification agreement.
Section 5.6 Compensation. The Executive agrees and acknowledges that (i) the Executive is employed solely by the Company and not by any
member of the Company Group; (ii) the Executive’s compensation is paid for the services the Executive renders to the Company; and (iii) in
connection with the Executive’s employment with the Company, and for no compensation, the Executive serves as the [ ] of Mallinckrodt.
Section 6.
Termination. This Agreement and the Executive’s employment hereunder shall be terminated as follows:
Section 6.1 Death. This Agreement and the Executive’s employment hereunder shall automatically terminate upon the death of the Executive.
Section 6.2 Disability. In the event of any physical or mental disability of the Executive rendering the Executive substantially unable to
perform the Executive’s duties hereunder for a continuous period of at least 90 days or for at least 120 days out of any twelve (12)-month
period after reasonable accommodation that, in any case, meets the requirements for disability benefits under the Company’s long-term
disability plan (a “Disability”), the Executive’s employment under this Agreement shall terminate automatically. Any determination of
Disability shall be made by the Board in consultation with a qualified physician or physicians selected by the Executive and reasonably
acceptable to the Board. The failure of the Executive to submit to a reasonable examination by a physician or physicians reasonably
acceptable to the Board within thirty (30) day’s following the Board’s request for such an examination shall act as an estoppel to any
objection by the Executive to the determination of Disability by the Board.
Section 6.3 By the Company for Cause. The employment of the Executive may be terminated by the Company for Cause (as defined below) at
any time, effective upon written notice to the Executive specifying in detail the event(s) or circumstance(s) constituting Cause. For purposes
hereof, the term “Cause” shall mean Executive’s (a) substantial failure or refusal to perform the lawful duties and responsibilities of the
Executive’s job at a satisfactory level as required by the Company Group, other than due to Disability, (b) a material violation of any
fiduciary duty or duty of loyalty owed to the Company Group, (c) conviction of a misdemeanor (other than a traffic offense) or felony, (d)
any act(s) of fraud, embezzlement or theft against the Company Group, (e) violation of a material Company Group rule or policy, (f)
unauthorized disclosure of any trade secret or confidential information of the Company Group or (g) other egregious conduct, that has or
could have a serious and detrimental impact on the Company Group and its employees. The Committee, in its sole and absolute discretion,
shall determine Cause.
Section 6.4 By the Company without Cause. The Company may terminate the Executive’s employment at any time without Cause effective
upon not less than thirty (30) days’ prior written notice to the Executive; provided, that in lieu of providing the notice described above, the
Company may, in its sole discretion, continue to pay the Executive’s Base Salary during such thirty (30) day period.
Section 6.5 By the Executive without Good Reason. The Executive may terminate this Agreement and the Executive’s employment hereunder
at any time effective upon at least sixty (60) days’ prior written notice to the Company; provided, that the Company may, in its sole
discretion, within five (5) days of its receipt of such notice, waive such notice period and accelerate the date of the Executive’s termination
to any date that occurs following the Company’s receipt of such notice without changing the characterization of such termination as a
resignation, even if such date is prior to the date specified in such notice, and any pay in lieu of such notice period or portion thereof that the
Company has so waived is capped at thirty (30) days.
Section 6.6 By the Executive with Good Reason. The Executive may terminate this Agreement effective upon written notice to the Company
with Good Reason (as defined below). Such notice must provide a reasonably detailed explanation of the circumstances constituting Good
Reason. For purposes of this Agreement, the term “Good Reason” shall mean the occurrence of one of the following events: (a) the
Company, without the Executive’s written consent, requires the Executive to relocate to a principal place of employment more than fifty
(50) miles from the Executive’s existing place of employment, which materially increases the Executive’s commuting time; (b) the
Company, without the Executive’s consent, materially reduces the Executive’s base salary or target annual bonus opportunity, other than a
reduction of less than 10% that is made at the same time to the base salary or target annual bonus opportunity, as applicable, of all similarly
situated employees; or (c) a requirement that the Executive report to any other person, position or entity other than the CEO.
Notwithstanding the foregoing, in the event that the Executive provides written notice of termination with Good Reason in reliance upon
this Section 6.06 (such notice to be provided within thirty (30) days of the Executive’s knowledge of the occurrence of the events or
circumstances constituting Good Reason), the Company shall have the opportunity to cure such circumstances within thirty (30) business
days of receipt of such notice. If the Company shall not have cured such event or events giving rise to Good Reason within thirty (30)
business days after receipt of written notice from the Executive, the Executive may terminate employment with Good Reason by delivering
a resignation letter to the Company within thirty (30) business days following such thirty (30) business day cure period; provided, that if the
Executive has not delivered such resignation letter to the Company within such thirty (30) business day period, or has not provided written
notice to the Company within thirty (30) days of the occurrence of the events or circumstances constituting Good Reason, the Executive
waives the right to terminate employment with Good Reason.
Section 7.
Effect of Termination.
Section 7.1 Death, Disability, Voluntary Termination without Good Reason, Normal Retirement or Early Retirement or Termination for Cause.
Upon any termination of the Executive’s employment under this Agreement either (a) voluntarily by the Executive without Good Reason
(including as a result of Normal Retirement or Early Retirement), (b) by the Company for Cause, or (c) as a result of the Executive’s death
or Disability, all payments, salary and other benefits hereunder shall cease at the effective date of termination. Notwithstanding the
foregoing, the Company shall pay or provide to the Executive or the Executive’s estate (a) all salary earned or accrued through the date the
Executive’s employment is terminated, (b) reimbursement for any and all monies advanced by the Executive in connection with the
Executive’s employment for reasonable and necessary expenses incurred by the Executive through the date the Executive’s employment is
terminated, (c) except upon termination of the Executive’s employment by the Company for Cause, any unpaid Annual Bonus earned in a
prior calendar year, based on the actual level of achievement of the applicable targets or performance as determined by the Committee at the
end of such calendar year, (d) solely upon a termination of employment as a result of the Executive’s death or Disability, a Prorated Target
Bonus (as defined below), and (e) all other payments and benefits to which the Executive may be entitled under the terms of any applicable
compensation arrangement or benefit plan or program of the Company, including any earned and accrued, but unused, vacation pay and
benefits under any retirement plans, but excluding any bonus payments except as provided in subsections (c) and (d) of this Section 7.01
(collectively, “Accrued Benefits”), except that, for this purpose, Accrued Benefits shall not include any entitlement to severance under any
Company Group severance policy generally applicable to the Company’s salaried employees. For the avoidance of doubt, all outstanding
equity-based awards held by the
Executive that were granted under the MIP shall be treated in accordance with the terms of the MIP, subject to any different treatment as
provided for in Sections 7.02 and 7.03, if applicable.
Section 7.2 Termination without Cause or Voluntary Termination with Good Reason. In the event that the Executive’s employment under this
Agreement is terminated by the Company without Cause or by the Executive with Good Reason, the Company shall pay or provide to
Executive as the Executive’s exclusive severance benefit right and remedy in respect of such termination, (a) the Executive’s Accrued
Benefits, except that, for this purpose, Accrued Benefits shall not include entitlement to severance under any Company Group severance
policy generally applicable to the Company’s salaried employees, and (b) as long as the Executive does not violate in any material respect
the provisions of Section 8 and Section 9 hereof, severance pay as follows (collectively, the “Severance Benefits”):
(a) an amount equal to the product of (i) the sum of the Executive’s Base Salary and Target Bonus (in each case, not taking into
account, for this and other severance provisions, reductions which would constitute Good Reason or were otherwise made in the
prior six (6) months) multiplied by (ii) 1.5, net of deductions and tax withholdings, as applicable (the “Cash Severance”), payable
in installments commencing on the first regular payroll date following the effective date of the Release (as defined below);
(b) an amount equal to a prorated portion (based on the number of days the Executive was employed by the Company during the
calendar year in which the termination occurs) of the Target Bonus payable with respect to the year in which the termination
occurs, net of deductions and tax withholdings, as applicable (the “Prorated Target Bonus”), payable in a lump sum on the first
regular payroll date following the effective date of the Release;
(c) an amount equal to twelve (12) months of the premiums that would have been payable by the Executive if the Executive had
elected continued coverage under the Company’s health and welfare plans pursuant to the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended, and the regulations promulgated thereunder (“COBRA”), determined based on the
COBRA rates in effect as of the date of the Executive’s termination, net of deductions and tax withholdings, as applicable (the
“COBRA Benefits”), payable in a lump sum on the first regular payroll date following the effective date of the Release;
(d) all outstanding equity-based awards held by the Executive that were granted under the MIP, including, without limitation, the
Initial Award, shall be treated in accordance with the terms of the MIP and any Transaction Bonus shall be treated as set forth in
the Executive’s Transaction Incentive Plan participation letter;
(e) coverage of the cost of outplacement services for the Executive at the level and outplacement agency that the Company regularly
uses for such purpose for similar level executives; provided, however, that the period of outplacement shall not exceed twelve (12)
months after the Executive’s termination of employment or, if earlier, the date of Executive’s death.
Section 7.3 Termination without Cause or Voluntary Termination with Good Reason Upon a Change in Control. If the Executive’s employment
is terminated by the Company without Cause or by the Executive with Good Reason during the period beginning 120 days prior to the date
of a Change in Control (as defined in the MIP) and ending twelve (12) months after the date of such Change in Control (a “Change in
Control Termination”), then the Executive shall receive the Severance Benefits with the following enhancements: (a) Cash Severance will
be paid in lump sum on the first payroll date following the effective date of the Release (or, if later, the Change in Control) and (b) all of the
Executive’s unvested and outstanding RSUs, PSUs and other equity-based awards shall immediately vest as of the effective date of the
Release (or, if later, the Change in Control). In the event of a Change in Control Termination prior to the occurrence of the Change in
Control (x) payments under this Section 7.03 shall be reduced by any payments made previously under Section 7.02 hereof and (y) if
necessary to comply with the provisions of Code Section 409A (as defined below) certain severance payments shall continue to be made in
installments.
Section 7.4 Payment of Accrued Benefits. Notwithstanding anything else herein to the contrary, all Accrued Benefits to which the Executive
(or the Executive’s estate or beneficiary) is entitled shall be payable in cash promptly upon the effective date of termination, except as
otherwise
specifically provided herein, or under the terms of any applicable policy, plan, or program; provided, that all Accrued Benefits shall be paid
no later than December 31 of the calendar year immediately following the calendar year of the Executive’s termination.
Section 7.5 No Other Benefits. Except as explicitly provided in this Section 7, the Executive shall not be entitled to any compensation,
severance, or other benefits from the Company Group upon or following the termination of the Executive’s employment for any reason
whatsoever. Notwithstanding anything else herein to the contrary, all payments and benefits due to the Executive under this Section 7 after
termination of employment which are not otherwise required by law (other than Accrued Benefits) shall be contingent upon execution by
the Executive (or the Executive’s beneficiary or estate) of a general release of all claims, to the maximum extent permitted by law, against
the Company Group, its affiliates, and its then current and former equity holders, directors, employees, and agents, in substantially the form
attached hereto as Exhibit A (the “Release”) and such Release becoming irrevocable no later than thirty (30) days following the Executive’s
termination of employment.
Section 7.6 Resignation as an Officer. If the Executive’s employment with the Company terminates for any reason, the Executive will be
deemed to have automatically resigned, effective as of the date of termination of the Executive’s employment with the Company, from all
positions with the Company Group, unless otherwise mutually agreed by the Parties in writing, and the Executive agrees to execute any
documents needed to effect the foregoing.
Section 7.7 No Mitigation. The Executive shall not be required to mitigate the amount of any payment provided pursuant to Section 7 by
seeking other employment or otherwise, and the amount of any payment provided for pursuant to Section 7 shall not be reduced by any
compensation earned as a result of the Executive’s other employment or otherwise.
Section 7.8 Survival of Certain Provisions. Provisions of this Agreement shall survive any termination of the Executive’s employment if so
provided herein, including, without limitation, the obligations of the Executive under Sections 8 and 9 hereof. The obligation of the
Company to make payments to or on behalf of the Executive under this Section 7 hereof is expressly conditioned upon the Executive’s
continued performance in all material respects of Executive’s obligations under Section 8 and Section 9 hereof. The Executive recognizes
that, except as expressly provided in this Section 7, no compensation is earned after termination of employment.
Section 8.
Confidentiality; Assignment of Inventions.
Section 8.1 Confidentiality. The Executive acknowledges that the Executive is in possession of confidential information concerning the
business and operations of the Company Group, including the identity of customers and suppliers (the “Confidential Information”). The
Executive agrees that the Executive shall keep all such Confidential Information strictly confidential and use such Confidential Information
only for the purpose of fulfilling the Executive’s obligations hereunder and in order to perform any service to the Company Group as a
director, consultant, or employee, and not for any other purpose. Notwithstanding the foregoing, Confidential Information shall not include
any information that (a) has become publicly known and made generally available or is known within the Company Group’s industry
through no wrongful act of the Executive or (b) is required to be disclosed by applicable laws, court order or subpoena or a governmental or
regulatory agency (or similar body or entity) after, to the extent legally permitted, providing prompt written notice of such request to the
Board so that the Company Group may seek an appropriate protective order or other appropriate remedy. The Executive may also disclose
Confidential Information to the extent required pursuant to any legal process between the Executive and the Company Group.
Section 8.2 Assignment of Inventions. The Executive agrees to assign and transfer to the Company or its designee, without any separate
remuneration or compensation, the Executive’s entire right, title, and interest in and to all Inventions (as defined below), together with all
United States and foreign rights with respect thereto, and at the Company Group’s expense to execute and deliver all appropriate patent and
copyright applications for securing United States and foreign patents and copyrights on Inventions, and to perform all lawful acts, including
giving testimony, and to execute and deliver all such instruments that may be necessary or proper to vest all such Inventions and patents and
copyrights with respect thereto in the Company Group, and to assist the Company Group in the prosecution or defense of any interference
which may be declared involving any of said patent applications, patents, copyright applications, or copyrights. For the
purposes of this Agreement, “Inventions” shall mean any discovery, process, design, development, improvement, application, technique, or
invention, whether patentable or copyrightable or not and whether reduced to practice or not, conceived or made by the Executive,
individually or jointly with others (whether on or off the Company’s premises or during or after normal working hours), while in the employ
of the Company and (x) which was or is directly or indirectly related to the business of the Company Group or (y) which resulted or results
from any work performed by any executive or agent thereof during the Executive’s employment with the Company.
Section 8.3 Return of Documents upon Termination of Employment. All notes, letters, documents, records, tapes, and other media of every
kind and description relating to the business, present or otherwise, of the Company Group, and any copies, in whole or in part, thereof
(collectively, the “Documents”), whether or not prepared by the Executive, shall be the sole and exclusive property of the Company Group.
The Executive shall safeguard all Documents and shall surrender to the Company at the time the Executive’s employment terminates, or at
such earlier time or times as the Board or its designee may specify, all Documents then in the Executive’s possession or control.
Notwithstanding the foregoing, the Executive may retain all information, documentation and devices personal to the Executive; provided
that such materials do not contain Confidential Information, and the Company will cooperate in transferring any personal information from
Company devices to the Executive’s personal devices.
Section 8.4 Whistleblower Acknowledgement. Notwithstanding anything to the contrary contained herein, nothing in this Agreement shall
prohibit the Executive from reporting possible violations of federal law or regulation to or otherwise cooperating with or providing
information requested by any governmental agency or entity, including, but not limited to, the Department of Justice, the Securities and
Exchange Commission, the Congress, and any agency Inspector General, or making other disclosures that are protected under the
whistleblower provisions of federal law or regulation. The Executive does not need the prior authorization of the Company to make any
such reports or disclosures and the Executive is not required to notify the Company that the Executive has made such reports or disclosures.
Section 8.5 Trade Secret Acknowledgement. Notwithstanding anything to the contrary contained herein, the Executive will not be held
criminally or civilly liable under any federal or state trade secret law for any disclosure of a trade secret that is made: (a) in confidence to a
federal, state, or local government official, either directly or indirectly, or to an attorney; and (b) solely for the purpose of reporting or
investigating a suspected violation of law; or is made in a complaint or other document that is filed under seal in a lawsuit or other
proceeding. If the Executive files a lawsuit for retaliation by the Company for reporting a suspected violation of law, the Executive may
disclose the Company Group’s trade secrets to the Executive’s attorney and use the trade secret information in the court proceeding if the
Executive: (A) files any document containing the trade secret under seal; and (B) does not disclose the trade secret, except pursuant to court
order.
Section 9.
Restrictions on Activities of the Executive.
Section 9.1 Acknowledgments. The Executive and the Company agree that the Executive is being employed hereunder in a key capacity with
the Company and that the Company Group is engaged in a highly competitive business and that the success of the Company Group’s
business in the marketplace depends upon its good will and reputation for quality and dependability. The Executive and the Company
further agree that reasonable limits may be placed on the Executive’s ability to compete against the Company Group as provided herein to
the extent that they protect and preserve the legitimate business interests and good will of the Company Group and are reasonable and valid
in geographical and temporal scope and in all other respects. Notwithstanding anything to the contrary herein, the covenants contained in
this Section 9 shall be in addition to, and not in lieu of, and shall not amend, modify, abrogate, or otherwise alter any other restrictive
covenants by which the Executive is bound pursuant to any other written agreement with the Company Group.
Section 9.2 Restrictions. During the Executive’s employment with the Company and during the twelve (12) month period following the date of
the Executive’s termination from employment with the Company for any reason (the “Restricted Period”; provided that, with respect to
clause (a), the Restricted Period shall be reduced to six (6) months following the date of the Executive’s termination from employment with
the Company following June 30, 2025; and further provided
that clause (a) shall not apply if Executive’s employment is terminated by the Company without Cause or by Executive with Good Reason),
the Executive shall not:
(a) directly or indirectly engage in, provide services to, have any equity interest in, or manage or operate any individual, firm,
corporation, partnership, business or entity (a “Business”) (whether as director, officer, employee, principal, agent, representative,
owner, partner, member, security holder, consultant or otherwise) that engages in (either directly or through any subsidiary or
Affiliate thereof) any business or activity in any geographic location in which the Company Group engages in, whether through
selling, distributing, manufacturing, marketing, purchasing, or otherwise, that competes with any of the businesses of the Company
Group or any entity owned by the Company Group (a “Competing Business”); provided that a “Competing Business” shall not
include (i) hospitals or pharmacies that purchase Company Group products or similar products or (ii) retailers or wholesalers that
sell Company Group products or similar products;
(b) directly or indirectly solicit or recruit, on the Executive’s own behalf or on behalf of any other Business, the services of, or hire or
engage, or interfere with the Company Group’s relationship with, any individual who is (or, at any time during the previous twelve
(12) months, was) an employee, independent contractor or director of the Company Group, or solicit any of the Company Group’s
then-current employees, independent contractors or directors to terminate services with the Company Group;
(c) directly or indirectly, on the Executive’s own behalf or on behalf of any other Business, recruit or otherwise solicit for a Competing
Business, any customer, client, distributor, vendor, supplier, licensee, licensor or other business relation of the Company Group, or
encourage or induce any such Person to terminate its arrangement with the Company Group or otherwise change or interfere with
its relationship with the Company Group.
The Restricted Period shall be tolled during (and shall be deemed automatically extended by) any period in which the Executive is
in violation of any of the provisions of this Section 9.02.
Section 9.3 THE EXECUTIVE REPRESENTS AND WARRANTS THAT THE KNOWLEDGE, SKILLS, AND ABILITIES THE
EXECUTIVE POSSESSES AT THE TIME OF COMMENCEMENT OF EMPLOYMENT HEREUNDER ARE SUFFICIENT TO
PERMIT THE EXECUTIVE, IN THE EVENT OF TERMINATION OF THE EXECUTIVE’S EMPLOYMENT HEREUNDER, TO
EARN A LIVELIHOOD SATISFACTORY TO THE EXECUTIVE WITHOUT VIOLATING ANY PROVISION OF SECTION 8 OR 9
HEREOF, FOR EXAMPLE, BY USING SUCH KNOWLEDGE, SKILLS, AND ABILITIES, OR SOME OF THEM, IN THE SERVICE
OF A NON-COMPETITOR.
Section 9.4 Non-Disparagement. The Executive shall not, during the term of the Executive’s employment or at any time thereafter, whether in
writing or orally, malign, denigrate, or disparage the Company Group, or any current or former directors, officers, or employees of the
Company Group, with respect to any of their respective past or present activities, or otherwise publish (whether in writing or orally)
statements that tend to portray any of the aforementioned parties in an unfavorable light. The Executive understands that nothing in this
Agreement is intended to prevent Executive from making truthful statements (a) in any legal proceeding or as otherwise required by law, or
from reporting possible violations of federal law or regulation to a governmental agency or entity; (b) when requested by a governmental,
regulatory, or similar body or entity; (c) in confidence to a professional advisor for the purpose of securing professional advice; (d) in the
course of performing Executive’s duties during the Executive’s term of employment (e.g., performance reviews); or (e) in response to
statements, references or characterizations made, directly or indirectly, by the Company Group that are misleading, disparage the Executive,
or reflect negatively on the Executive. The Company Group will instruct its executives and Board members not to disparage the Executive
to the same extent the Executive is restricted in this Section 9.04.
Section 10. Remedies. It is expressly understood and agreed that, notwithstanding anything to the contrary herein, in the event of any breach of the
provisions of Section 8 or 9 of this Agreement, the Company Group shall have the right and remedy, without regard to any other available remedy, to
(a) have the restrictive covenants set forth in Section 8 or 9 specifically enforced by any court of competent jurisdiction, (b) seek to have issued an
injunction restraining any breach or threatened breach without posting of a bond,
and (c) seek any and all other remedies available to the Company Group under applicable law; it being understood that any breach of any of the
restrictive covenants set forth in Section 8 or 9 could cause irreparable and material damages to the Company Group (including, for the avoidance of
doubt, any loss of the proprietary advantage and trade secrets related to the identity of customers and suppliers), the amount of which cannot be
readily determined and as to which the Company Group will not have any adequate remedy at law or in damages. The Executive agrees that any
remedy at law for any breach by the Executive of the restrictive covenants set forth in Section 8 or 9 would be inadequate, and that the Company
Group would be entitled to seek injunctive relief in such a case. If it is ever held that this restriction on the Executive is too onerous and is not
necessary for the protection of the Company Group, the Executive agrees that any court of competent jurisdiction may impose such lesser restrictions
that may be necessary or appropriate to properly protect the Company Group. For the avoidance of doubt, the failure in one or more instances of the
Company Group to insist upon performance of any of the covenants or restrictive covenants set forth in Section 8 or 9, to exercise any right or
privilege herein conferred, or the waiver by the Company Group of any breach of any of the covenants or restrictive covenants set forth in Section 8
or 9 shall not be construed as a subsequent waiver by the Company Group of any breach of any of the covenants or restrictive covenants set forth in
Section 8 or 9, but the same shall continue and remain in full force and effect as if no forbearance or waiver had occurred.
Section 11. Severable Provisions. The provisions of this Agreement are severable and the invalidity of any one or more provisions shall not affect the
validity of any other provision. In the event that a court of competent jurisdiction shall determine that any provision of this Agreement or the
application thereof is unenforceable in whole or in part because of the duration or scope thereof, the Parties hereto agree that said court in making
such determination shall have the power to reduce the duration and scope of such provision to the extent necessary to make it enforceable, and that
the Agreement in its reduced form shall be valid and enforceable to the full extent permitted by law.
Section 12. Notices. Any and all notices or other communication required or permitted to be given under any of the provisions of this Agreement shall
be in writing and shall be deemed to have been duly given (a) upon delivery if personally delivered, (b) three (3) days after deposit if sent by first
class registered mail, return receipt requested, (c) one (1) day after deposit if sent by a reputable overnight courier, or (d) upon confirmation if sent
by facsimile or email, addressed to the Parties at the addresses set forth below (or at such other address as any Party may specify by notice to all
other Parties given as aforesaid):
If to the Company: ST Shared Services LLC
675 McDonnell Boulevard
Hazelwood, Missouri 63042
Attention: Chief Human Resource Officer
Facsimile: 908-997-9400
with a copy to:
Latham & Watkins LLP
1271 Avenue of the Americas
New York, New York 10019 Attention: Rifka Singer
Email: rifka.singer@lw.com
If to the Executive:
at the most recent address on file for the Executive in the Company’s records
or to such other address as a Party may notify the other pursuant to a notice given in accordance with this Section 12.
Section 13. Miscellaneous.
Section 13.1 Amendment. This Agreement may not be amended or revised except by a writing signed by the Parties.
Section 13.2 Assignment and Transfer. The provisions of this Agreement shall be binding on and shall inure to the benefit of any successor in
interest to the Company. Neither this Agreement nor any of the rights, duties, or obligations of the Executive or the Company shall be
assignable by the Executive or the Company, except with respect to a successor, nor shall any of the payments
required or permitted to be made to the Executive by this Agreement be encumbered, transferred, or in any way anticipated, except as
required by applicable laws. This Agreement shall not be terminated by, nor shall it be deemed an assignment of this Agreement upon, the
merger or consolidation of the Company with any corporate or other entity or by the transfer of all or substantially all of the assets of the
Company to any other person, corporation, firm, or entity. However, all rights of the Executive under this Agreement shall inure to the
benefit of and be enforceable by the Executive’s personal or legal representatives, estates, executors, administrators, heirs, and beneficiaries.
All amounts payable to the Executive hereunder shall be paid, in the event of the Executive’s death, to the Executive’s estate, heirs, or
representatives.
Section 13.3 Waiver of Breach. A waiver by the Company or the Executive of any breach of any provision of this Agreement by the other Party
shall not operate or be construed as a waiver of any other or subsequent breach by the other Party.
Section 13.4 Entire Agreement. This Agreement contains the entire agreement of the Parties with respect to the subject matter hereof and
supersedes all prior agreements (including, without limitation, the Prior Agreement), understandings, negotiations, and discussions, whether
oral or written, of the Parties, including, without limitation, any term sheet related to the subject matter hereof.
Section 13.5 Withholding. The Company shall withhold from any amounts to be paid or benefits provided to the Executive hereunder any
federal, state, local, or foreign withholding or other taxes or charges which it is from time to time required to withhold. The Company shall
be entitled to rely on an opinion of counsel if any question as to the amount or requirement of any such withholding shall arise.
Section 13.6 Captions. Captions herein have been inserted solely for convenience of reference and in no way define, limit, or describe the scope
or substance of any provision of this Agreement.
Section 13.7 Counterparts. This Agreement may be executed in one or more counterparts (including by facsimile transmission or electronic
image scan (PDF)), each of which shall be deemed an original and shall have the same effect as if the signatures hereto and thereto were on
the same instrument.
Section 13.8 Governing Law; No Construction Against Drafter. This Agreement shall be construed under and enforced in accordance with the
laws of the State of New York without regard to conflicts of law principles. No provision of this Agreement or any related document will be
construed against or interpreted to the disadvantage of any Party hereto by any court or other governmental or judicial authority by reason of
such Party having or being deemed to have structured or drafted such provision.
Section 13.9 Dispute Resolution. Any controversy or claim between the Executive and the Company arising out of or relating to or concerning
this Agreement or any aspect of the Executive’s employment with the Company or the termination of that employment will be finally settled
by binding arbitration in New York, New York administered by the American Arbitration Association under its Rules for the Resolution of
Employment Disputes; provided, however, that with respect to any controversy or claim arising out of or relating to or concerning
injunctive relief for the Executive’s breach or purported breach of Section 8 or 9 of this Agreement, the Company will have the right, in
addition to any other remedies it may have, to seek specific performance and injunctive relief with a court of competent jurisdiction, without
the need to post a bond or other security. Each of the Executive and the Company will bear its own legal expenses and will share the
arbitration costs equally.
Section 13.10
Representations of Executive; Advice of Counsel.
(a) The Executive represents, warrants, and covenants that as of the Effective Date: (i) the Executive has the full right, authority, and
capacity to enter into this Agreement and perform the Executive’s obligations hereunder and the Executive’s application for
employment with the Company has been truthful and complete, the Executive will not be bound by any agreement that conflicts
with or prevents or restricts the full performance of the Executive’s duties and obligations to the Company hereunder during or
after the Executive’s employment with the Company, (ii) the execution and delivery of this Agreement shall not result in any
breach or violation of, or a default under, any existing obligation, commitment, or agreement to which the Executive is subject, and
(iii) the
Executive has disclosed to the Company all pending or closed litigations, judgments, or regulatory matters involving the Executive.
(b) Prior to execution of this Agreement, the Executive was advised by the Company of the Executive’s right to seek independent
advice from an attorney of the Executive’s own selection regarding this Agreement. The Executive acknowledges that the
Executive has entered into this Agreement knowingly and voluntarily and with full knowledge and understanding of the provisions
of this Agreement after being given the opportunity to consult with counsel. The Executive further represents that in entering into
this Agreement, the Executive is not relying on any statements or representations made by any of the Company’s directors,
officers, employees, or agents which are not expressly set forth herein, and that the Executive is relying only upon the Executive’s
own judgment and any advice provided by the Executive’s attorney.
Section 13.11
Code Section 409A. Notwithstanding anything to the contrary contained in this Agreement:
(a) The Parties agree that this Agreement shall be interpreted to comply with or be exempt from Section 409A of the Internal Revenue
Code of 1986, as amended (the “Code”), and the regulations and guidance promulgated thereunder to the extent applicable
(collectively, “Code Section 409A”), and all provisions of this Agreement shall be construed in a manner consistent with the
requirements for avoiding taxes or penalties under Code Section 409A. If any provision of this Agreement contravenes Code
Section 409A or would cause the Executive to be subject to additional taxes, interest or penalties under Code Section 409A the
Executive and the Company shall discuss in good faith modifications to this Agreement in order to mitigate or eliminate such
taxes, interest or penalties. In making such modifications the Company and the Executive shall reasonably attempt to maintain the
original intent of the applicable provision without contravening the provisions of Code Section 409A to the maximum extent
practicable. In no event whatsoever will the Company be liable for any additional tax, interest, or penalties that may be imposed on
the Executive under Code Section 409A or any damages for failing to comply with Code Section 409A.
(b) A termination of employment shall not be deemed to have occurred for purposes of any provision of this Agreement providing for
the payment of any amounts or benefits considered “nonqualified deferred compensation” under Code Section 409A upon or
following a termination of employment unless such termination is also a “separation from service” within the meaning of Code
Section 409A and, for purposes of any such provision of this Agreement, references to a “termination,” “termination of
employment” or like terms shall mean “separation from service.” If the Executive is deemed on the date of termination to be a
“specified employee” within the meaning of that term under Code Section 409A(a)(2)(B), then with regard to any payment or the
provision of any benefit that is considered nonqualified deferred compensation under Code Section 409A payable on account of a
“separation from service,” such payment or benefit shall be made or provided at the date which is the earlier of (i) the expiration of
the six (6)-month period measured from the date of such “separation from service” of the Executive, and (ii) the date of the
Executive’s death (the “Delay Period”). Upon the expiration of the Delay Period, all payments and benefits delayed pursuant to
this Section 13.11(b) (whether they would have otherwise been payable in a single sum or in installments in the absence of such
delay) shall be paid or reimbursed on the first business day following the expiration of the Delay Period to the Executive in a lump
sum with interest during the Delay Period at the prime rate, and any remaining payments and benefits due under this Agreement
shall be paid or provided in accordance with the normal payment dates specified for them herein.
(c) With regard to any provision herein that provides for reimbursement of costs and expenses or in-kind benefits, except as permitted
by Code Section 409A, (i) the right to reimbursement or in-kind benefits shall not be subject to liquidation or exchange for another
benefit, (ii) the amount of expenses eligible for reimbursement, or in-kind benefits, provided during any taxable year shall not
affect the expenses eligible for reimbursement, or in-kind benefits, to be provided in any other taxable year, provided, that, this
clause (ii) shall not be violated with regard to expenses reimbursed under any
arrangement covered by Internal Revenue Code Section 105(b) solely because such expenses are subject to a limit related to the
period the arrangement is in effect, and (iii) such payments shall be made on or before the last day of the Executive’s taxable year
following the taxable year in which the expense occurred.
(d) For purposes of Code Section 409A, the Executive’s right to receive any installment payments pursuant to this Agreement shall be
treated as a right to receive a series of separate and distinct payments. Whenever a payment under this Agreement specifies a
payment period with reference to a number of days (e.g., “payment shall be made within thirty (30) days following the date of
termination”), the actual date of payment within the specified period shall be within the sole discretion of the Company
Section 13.12
Code Section 280G.
(a)
If there is a change of ownership or effective control or change in the ownership of a substantial portion of the assets of the
Company (within the meaning of Section 280G of the Code) (a “280G Change in Control”) and any payment or benefit (including
payments and benefits pursuant to this Agreement) that the Executive would receive from the Company or otherwise (a
“Transaction Payment”) would (i) constitute a “parachute payment” within the meaning of Section 280G of the Code and (ii) but
for this sentence, be subject to the excise tax imposed by Section 4999 of the Code (the “Excise Tax”), then the Company shall
cause to be determined, before any amounts of the Transaction Payment are paid to the Executive, which of the following two
alternative forms of payment would result in the Executive’s receipt, on an after-tax basis, of the greater amount of the Transaction
Payment notwithstanding that all or some portion of the Transaction Payment may be subject to the Excise Tax: (A) payment in
full of the entire amount of the Transaction Payment (a “Full Payment”), or (B) payment of only a part of the Transaction Payment
so that the Executive receives the largest payment possible without the imposition of the Excise Tax (a “Reduced Payment”, and
Executive shall be entitled to payment of whichever amount that shall result in a greater after-tax amount for Executive. For
purposes of determining whether to make a Full Payment or a Reduced Payment, the Company shall cause to be taken into account
all applicable federal, state and local income and employment taxes and the Excise Tax (all computed at the highest applicable
marginal rate reasonably applicable to Executive, net of the maximum reduction in federal income taxes which could be obtained
from a deduction of such state and local taxes). If a Reduced Payment is made, the reduction in payments and/or benefits will occur
in the following order: (1) first, reduction of cash payments, in reverse order of scheduled payment date (or if necessary, to zero),
(2) then, reduction of non-cash and non-equity benefits provided to the Executive, on a pro rata basis (or if necessary, to zero) and
(3) then, cancellation of the acceleration of vesting of equity award compensation in the reverse order of the date of grant of the
Executive’s equity awards.
(b) Unless the Executive and the Company otherwise agree in writing, any determination required under this section shall be made in
writing by a nationally recognized accounting firm selected by the Company subject to the approval of the Executive which shall
not be unreasonably withheld (the “Accountants”), whose determination shall be conclusive and binding upon the Executive and
the Company for all purposes absent manifest error. For purposes of making the calculations required by this section, the
Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good
faith interpretations concerning the application of Sections 280G and 4999 of the Code. Without limiting the generality of the
foregoing, any determination by the Accountants under this Section 13.12(b) will take into account the value of any reasonable
compensation for services to be rendered by the Executive (or for holding oneself out as available to perform services and
refraining from performing services (such as under a covenant not to compete)). The Accountants shall provide detailed supporting
calculations to the Company and the Executive as requested by the Company or the Executive. The Executive and the Company
shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a
determination under this section. The Company shall bear all costs the Accountants may incur in connection with any calculations
contemplated by this section as well as any costs incurred by the Executive with the Accountants for tax planning under Sections
280G and 4999 of the Code.
Section 13.13
Recoupment. By executing this Agreement, the Executive acknowledges and agrees that the compensation provided under
this Agreement is subject to recoupment in accordance with the terms and provisions of Mallinckrodt’s Executive Financial Recoupment
Program as in effect on the Effective Date (the “Recoupment Policy”), attached hereto as Exhibit B, as such Recoupment Policy may be
amended by the Board in compliance with the conditions set forth in Section 6.8 of the Recoupment Policy.
[remainder of page intentionally left blank]
IN WITNESS WHEREOF, the Parties hereto have duly executed this Agreement as of the day and year first above written.
ST SHARED SERVICES LLC
By:
Name:
Title:
EXECUTIVE
[ ]
Exhibit A
RELEASE OF CLAIMS (“Release”)
In connection with the termination of employment of [ - ] (the “Executive”) by ST Shared Services LLC, a Delaware limited liability company (the
“Company”) pursuant to the Second Amended and Restated Employment Agreement between Executive and the Company, dated as of February 2, 2024 (the
“Employment Agreement”), Executive agrees as follows:
1. Release of Claims
In consideration of the payments and benefits described in Section 7.02 or Section 7.03 (as applicable) of the Employment Agreement
(other than Accrued Benefits), to which Executive agrees that Executive is not entitled until and unless Executive executes this Release and it becomes
effective in accordance with the terms hereof, Executive, for and on behalf of the Executive and the Executive’s heirs, successors, and assigns, subject to the
last sentence of this Section 1, hereby waives and releases any employment, compensation, or benefit-related common law, statutory, or other complaints,
claims, charges, or causes of action, both known and unknown, in law or in equity (collectively, the “Claims”), which Executive ever had, now has, or may
have against the Company, Mallinckrodt plc, a public company with limited liability incorporated in Ireland, and their respective subsidiaries and affiliates,
and their equity holders, parents, subsidiaries, successors, assigns, directors, officers, partners, members, managers, employees, trustees (in their official and
individual capacities), employee benefit plans and their administrators and fiduciaries (in their official and individual capacities), representatives, or agents,
and each of their affiliates, successors, and assigns, (collectively, the “Releasees”) by reason of facts or omissions which have occurred on or prior to the date
that Executive signs this Release, including, without limitation, any complaint, charge, or cause of action arising out of Executive’s employment or
termination of employment (including failure to provide notice of termination), or any term or condition of that employment, or claim for severance, equity, or
equity-based compensation, except as set forth in Section 7.02 or Section 7.03 (as applicable) of the Employment Agreement, or arising under federal, state,
or local laws pertaining to employment, including the Age Discrimination in Employment Act of 1967 (“ADEA,” a law which prohibits discrimination on the
basis of age), the Older Workers Benefit Protection Act, the National Labor Relations Act, the Civil Rights Act of 1991, the Americans With Disabilities Act
of 1990, Title VII of the Civil Rights Act of 1964, the Employee Retirement Income Security Act of 1974, the Family and Medical Leave Act, the Sarbanes-
Oxley Act of 2002, all as amended, and any other federal, state, and local laws relating to discrimination on the basis of age, sex, or other protected class, all
Claims under federal, state, or local laws for express or implied breach of contract, wrongful discharge, defamation, intentional infliction of emotional
distress, and any Claims for attorneys’ fees and costs with respect to any of the foregoing.
Executive further agrees that this Release may be pleaded as a full defense to any action, suit, arbitration, or other proceeding covered by
the terms hereof which is or may be initiated, prosecuted, or maintained by Executive, Executive’s descendants, dependents, heirs, executors, administrators,
or permitted assigns. By signing this Release, Executive acknowledges that Executive intends to waive and release any Claims known or unknown that
Executive may have against the Releasees under these and any other laws; provided, that Executive does not waive or release Claims with respect to (i) any
rights the Executive may have to enforce the Employment Agreement, (ii) accrued vested benefits or any other benefits remaining due under employee benefit
plans of the Company and its subsidiaries and affiliates subject to the terms and conditions of such plans and applicable law, (iii) any rights to continuation of
medical and/or dental coverage in accordance with COBRA, (iv) any claims to coverage under any indemnification agreement or policy or liability insurance
arrangement, (v) any rights in vested equity awards and (vi) any other rights that may not be released in accordance with applicable law (collectively, the
“Unreleased Claims”).
2. Proceedings
Executive acknowledges that Executive has not filed any complaint, charge, claim, or proceeding with respect to a Claim, except with
respect to an Unreleased Claim, if any, against any of the Releasees before any local, state, or federal agency, court, or other body (each individually a
“Proceeding”). Executive represents that Executive is not aware of any basis on which such a Proceeding could reasonably be instituted. Executive (i)
acknowledges that Executive will not initiate or cause to be initiated on the Executive’s behalf any Proceeding and will not participate in any Proceeding, in
each case, except as required by law and (ii) waives any right Executive may have to benefit in any manner from any relief (whether monetary or otherwise)
arising out of any Proceeding, including any Proceeding conducted by the Equal Employment Opportunity Commission (“EEOC”). Further,
Executive understands that, by executing this Release, Executive will be limiting the availability of certain remedies that Executive may have against the
Company and limiting also the ability of Executive to pursue certain claims against the Releasees. Notwithstanding the above, nothing in Section 1 of this
Release shall prevent Executive from (i) initiating or causing to be initiated on the Executive’s behalf any complaint, charge, claim, or proceeding against the
Company before any local, state, or federal agency, court, or other body challenging the validity of the waiver of the Executive’s claims under the ADEA
contained in Section 1 of this Release (but no other portion of such waiver); or (ii) initiating or participating in an investigation or proceeding conducted by
the EEOC.
3. Time to Consider
Executive acknowledges that Executive has been advised that Executive has twenty-one (21) days from the date of receipt of this Release to
consider all the provisions of this Release and, to the extent Executive signs this Release prior to the expiration of such period, Executive does hereby
knowingly and voluntarily waive the remaining portion of such twenty-one (21) day period. EXECUTIVE FURTHER ACKNOWLEDGES THAT
EXECUTIVE HAS READ THIS RELEASE CAREFULLY, HAS BEEN ADVISED BY THE COMPANY TO, AND HAS IN FACT, CONSULTED AN
ATTORNEY, AND FULLY UNDERSTANDS THAT BY SIGNING BELOW EXECUTIVE IS GIVING UP CERTAIN RIGHTS WHICH EXECUTIVE
MAY HAVE TO SUE OR ASSERT A CLAIM AGAINST ANY OF THE RELEASEES, AS DESCRIBED IN SECTION 1 OF THIS RELEASE AND THE
OTHER PROVISIONS HEREOF. EXECUTIVE ACKNOWLEDGES THAT EXECUTIVE HAS NOT BEEN FORCED OR PRESSURED IN ANY
MANNER WHATSOEVER TO SIGN THIS RELEASE, AND EXECUTIVE AGREES TO ALL OF ITS TERMS VOLUNTARILY.
4. Revocation
Executive hereby acknowledges and understands that Executive shall have seven (7) days from the date of execution of this Release to
revoke this Release (including, without limitation, any and all Claims arising under the ADEA) and that neither the Company nor any other person is
obligated to provide any benefits to Executive pursuant to the Employment Agreement until eight (8) days have passed since Executive’s signing of this
Release without Executive having revoked this Release, in which event the Company immediately shall arrange and/or pay for any such benefits otherwise
attributable to said eight (8) day period, consistent with the terms of the Employment Agreement. If Executive revokes this Release, Executive will be deemed
not to have accepted the terms of this Release, and no action will be required of the Company under any section of this Release.
5. No Admission
This Release does not constitute an admission of liability or wrongdoing of any kind by Executive or the Company or any of the Releasees.
6.
Indemnification
The Executive shall be entitled to indemnification to the maximum extent permitted by law with regard to actions or inactions taken in good
faith performance of the Executive’s duties to the Company, and to the extent applicable, the Releasees, during the Executive’s employment and to directors
and officers liability insurance coverage in accordance with the Company’s policies that cover officers and directors generally. Such indemnification and
coverage shall apply, while potential liability exists, to the same extent as provided to active directors and senior officers.
7. General Provisions
A failure of any of the Releasees to insist on strict compliance with any provision of this Release shall not be deemed a waiver of such
provision or any other provision hereof. If any provision of this Release is determined to be so broad as to be unenforceable, such provision shall be
interpreted to be only so broad as is enforceable, and in the event that any provision is determined to be entirely unenforceable, such provision shall be
deemed severable, such that all other provisions of this Release shall remain valid and binding upon Executive and the Releasees.
8. Governing Law; Dispute Resolution
This Release shall be construed under and enforced in accordance with the laws of the State of New York without regard to conflicts of law
principles. Any controversy or claim between the Executive and the Company or any Releasee arising out of or relating to or concerning this Release or any
aspect of the Executive’s employment with the Company or the termination of that employment will be finally settled by binding arbitration in New York,
New York administered by the American Arbitration Association under its Rules for the Resolution of Employment Disputes; provided, however, that with
respect to any controversy or claim arising out of or relating to or concerning injunctive relief for the Executive’s breach or purported breach of Section 8 or 9
of the Employment Agreement, the Company will have the right, in addition to any other remedies it may have, to seek specific performance and
injunctive relief with a court of competent jurisdiction, without the need to post a bond or other security. Each of the Executive and the Company will bear its
own legal expenses and will share the arbitration costs equally.
IN WITNESS WHEREOF, Executive has hereunto set the Executive’s hand as of the day and year set forth opposite the Executive’s
signature below.
EXECUTIVE
________________________ __________________________
DATE [ ]
(Not to be signed prior to
termination of services)
Exhibit B
EXECUTIVE FINANCIAL RECOUPMENT PROGRAM (“Recoupment Policy”)
EXHIBIT 10.16
FIRST AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This FIRST AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this “Agreement”) is entered into on February 28, 2024 (the
“Effective Date”) by and between Mallinckrodt Pharmaceuticals Ireland Ltd., an Irish limited liability company, or any successor thereto (the “Company”),
and Paul O’Neill (the “Executive”) (collectively referred to as “Parties” or individually referred to as a “Party”).
WHEREAS, the Executive was previously party to an Employment Agreement, dated January 18, 2023, by and between the Company and the
Executive, as subsequently amended on March 9, 2023 (the “Prior Agreement”), pursuant to which the Executive was employed as the Senior Vice President,
Quality and Operations Brands, of the Company ;
WHEREAS, the Company and the Executive desire to enter into this Agreement, which shall supersede the Prior Agreement in its entirety as of the
Effective Date, except that the Company will pay the Executive the remainder of his sign-on bonus as stated in his Prior Agreement, to set forth the rights and
obligations of the Parties hereto in respect of the Executive’s continued employment with the Company and, in connection therewith but for no remuneration,
of Mallinckrodt plc, a public company with limited liability incorporated in Ireland (“Mallinckrodt” and, collectively with the Company and their respective
subsidiaries and affiliates, the “Company Group”);
WHEREAS, the Company desires to be assured that the unique and expert services of the Executive will be available to the Company and that the
Executive is willing and able to render such services on the terms and conditions hereinafter set forth; and
WHEREAS, the Company desires to be assured that the confidential information and good will of the Company Group will be preserved for the
exclusive benefit of the Company Group.
NOW, THEREFORE, in consideration of such employment and the mutual covenants and promises herein contained, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Executive agree as follows:
Section 4.1. Effective Date; Employment; Position and Location. The Company hereby agrees to employ the Executive, effective as of the Effective
Date, as the EVP, Operations and Quality (Specialty Brands), of the Company and, in connection therewith but for no remuneration, of Mallinckrodt,
and the Executive hereby accepts such continued employment under and subject to the terms and conditions hereinafter set forth. The Executive shall
perform the Executive’s services principally in Dublin, Ireland. The Executive acknowledges that the Executive may be required to travel in
connection with the performance of the Executive’s duties.
Section 4.2. Term of Employment. The Executive’s employment with the Company commenced on 27 March 2023 and shall end on the last day of
employment upon termination by either party, as set forth herein.
Section 4.3. Duties. The Executive shall perform services in a manner consistent with the Executive’s position as EVP, Operations and Quality
(Specialty Brands), subject to the general supervision and direction of the Chief Executive Officer of the Company Group (the “CEO”). The
Executive shall report solely and directly to the CEO. The Executive will be required to work such hours as are necessary to perform their functions
and duties under this Agreement to the satisfaction of the Company and will be expected, at a minimum, to work the Company’s normal working
hours. It is agreed that the Executive is a person who determines their own working time and therefore Part 2 of the Organisation of Working Time
Act 1997 will not apply to the employment. The Executive hereby agrees to devote substantially all of the Executive’s business time, skill, attention,
and reasonable best efforts to the faithful performance of such duties and to the promotion of the business and affairs of the Company Group during
the Executive’s employment with the Company. Notwithstanding the foregoing, the Executive may (a) serve on the boards of trade associations and
charitable organizations and, subject to Board (as defined below) approval, one private commercial entity so long as such entity is not engaged in a
Competing Business (as defined below), (b) engage in charitable and educational activities and community affairs, and (c) manage the Executive’s
personal investments and affairs, in each case, subject to compliance with this Agreement (including, without limitation, Sections 8 and 9 hereof) and
provided that such activities do not materially interfere with the Executive’s performance of the Executive’s duties and responsibilities hereunder.
Section 4.4. Base Salary. In consideration of the services rendered by the Executive under this Agreement, the Company shall pay the Executive a base
salary at the rate of four hundred two thousand five hundred euros (€402,500) per calendar year (the “Base Salary”), payable at the end of the month
(subject to all statutory and agreed deductions) by credit transfer to a nominated bank account. The Exectuvie is entitled to request
a written statement of their average hourly rate of pay in any month under section 23 of the National Minimum Wage Acts 2000 and 2015.
Section 4.1 Base Salary Review. The Base Salary shall be subject to review and increase (but may not decrease, unless the reduction in Base
Salary is (a) part of a program approved by the Board of Directors of Mallinckrodt (the “Board”) or its delegate, the Human Resources and
Compensation Committee (collectively, the “Committee”) that affects all executive officers on a consistent basis and (b) no greater than
10% in the aggregate) by the Committee in its sole discretion. and the Executive by entering this Agreement irrevocably consents to same.
References in this Agreement to “Base Salary” shall be deemed to refer to the most recently effective annual base salary, unless otherwise
specifically set forth herein.
Section 4.2 Statutory Deductions. All payments made to the Executive which are expressly provided for in this Agreement or otherwise to
which the Executive is entitled to receive in connection with the employment, will be subject to statutory deductions. The provision of all
benefits pursuant to the provision of this Agreement will be subject to benefit-in- kind tax or income tax/pay related social insurance
(“PRSI”)/universal social charge (as appropriate). The Company will make the appropriate returns and deductions in respect of same.
Employer’s PRSI contributions will be collected by the Irish Revenue Commissioners and a record of the contributions will be retained for
the Department of Social Protection.
Section 5. Additional Benefits. In addition to the Base Salary, the Executive shall be entitled to the following additional benefits:
Section 5.1 Annual Short-Term Management Incentive Plan. The Executive shall be eligible to participate in an annual short-term management
incentive plan established by the Committee (the “STIP”) pursuant to which the Executive will have the opportunity to earn a cash
incentive bonus in respect of each year of employment (the “Annual Bonus”), subject to terms established by the Committee from time to
time. The Executive’s Annual Bonus target shall be 75% of the Base Salary (the “Target Bonus”) and the Executive can earn an Annual
Bonus of up to 150% of the Base Salary (prorated for any partial year of employment), respectively. The actual Annual Bonus earned by the
Executive in respect of a given year, if any, shall be based on performance metrics to be determined by the Committee, in its sole discretion.
The Committee shall determine whether the Executive has met or exceeded the performance metrics in any given year with regard to
determining the amount of the Executive’s Annual Bonus. For the avoidance of doubt, except as provided in Sections 7.01 through 7.04, the
Executive’s participation in the STIP and the Executive’s right to earn any cash bonus thereunder shall be subject to the same terms and
conditions established by the Committee for other executive officers of the Company. The Annual Bonus shall be paid to the Executive in
accordance with the STIP and at the same time other executive annual bonuses under the STIP are paid.
Section 5.2 Long-Term Incentives.
(a) Transaction Incentive Plan. The Executive shall participate in the Transaction Incentive Plan to be adopted by the Board (the
“Transaction Incentive Plan”) pursuant to which, in connection with the closing of certain asset sales of Mallinckrodt (each, a
“Qualifying Asset Sale”), the Executive and certain other members of management will have the opportunity to earn and be paid
cash incentive bonuses equal to a percentage of the net proceeds received in connection with such Qualifying Asset Sale (each, a
“Transaction Bonus”) in accordance with the terms of the Transaction Incentive Plan.
(b) Equity Grant. As soon as reasonably practicable following the Effective Date, the Executive shall be granted a one-time equity
award (the “Initial Grant” or “Initial Award”) under Mallinckrodt’s 2024 Stock and Incentive Plan as adopted by the Board (the
“MIP”) covering 0.8% of the fully-diluted shares of Mallinckrodt, excluding the Opioid CVRs which would dilute all shareholders
equally. One-third of the Initial Grant shall consist of restricted stock units (“RSUs”) that will vest ratably on each of the first three
(3) anniversaries of January 1, 2024 and the remaining two-thirds of the Initial Grant shall consist of performance stock units
(“PSUs”) that will cliff vest following the performance period which began on December 30, 2023 and ends on December 25,
2026 as outlined in the applicable award agreement (the “Performance Period”), with 50% vesting based on Mallinckrodt’s
attainment of certain realized value targets and 50% vesting based on Mallinckrodt’s attainment of aggregate adjusted operating
cash flow
targets during the Performance Period. The terms and conditions applicable to the Initial Grant shall be consistent with those
applicable to RSUs and PSUs issued under the MIP, except as otherwise set forth herein. Notwithstanding anything set forth in the
MIP, “Cause”, “Change in Control Termination”, “Disability”, “Good Reason”, “Early Retirement” and “Normal Retirement” shall
have the meanings set forth herein, to the extent they differ from the definitions set forth in the MIP, with respect to the Initial
Grant and any other awards that may be granted to Executive under the MIP.
(c) The Transaction Incentive Plan and the Initial Award shall be the Executive’s long-term incentives with respect to the 2024, 2025
and 2026 fiscal years of the Company. For periods following the 2026 fiscal year, the Executive shall be eligible to participate in
such long-term incentive arrangements as the Board shall establish for the executives of the Company, based on then-current
market data and taking into account such corporate and individual performance objectives, all as may be determined by the Board
in its good faith discretion in consultation with the Executive.
Section 5.3 Benefits. The Executive shall be entitled to participate in the Company’s health, welfare, and other benefit plans and programs,
including vacation, that are in effect from time to time; provided, that such plans may be amended, modified, or terminated at any time by
the Company in its sole discretion. The Executive will be entitled to sick pay i naccordance with the Company’s sick pay policy For the
avoidance of doubt, the Executive is not entitled to any employment benefits under the law of any jurisdiction other than Ireland, or to the
protection of employment legislation and/or employment legislation of any jurisdiction other than Ireland as the Executive is not an
employee of any member of the Company Group other than the Company.Subject at all times to the foregoing the Executive’s current
benefits are: annual leave 26 days’ per annum), car allowance (€2,150 (gross, per month), dental (currently DeCare) and healthcare
(currently Laya) insurance and defined contribution pension scheme contributions (currently 10% employer and 5% employee). As the
Executive has reached his maximum pension the employer contribution is being redirected as additional salary.
Section 5.4 Reimbursement of Expenses. The Company shall reimburse the Executive for all reasonable, necessary, and documented expenses
actually incurred by the Executive directly in connection with the business affairs of the Company and the performance of the Executive’s
duties hereunder, upon presentation of proper receipts or other proof of expenditure. The Executive shall comply with such reasonable
limitations and reporting requirements with respect to such expenses as the Committee may establish from time to time. Except to the extent
specifically provided, however, the Executive shall not use Company funds for non-business, non-Company related matters or for personal
matters.
Section 5.5 Indemnification and D&O Insurance. The Company shall provide Executive with indemnification and liability insurance coverage
to the maximum extent permitted by the Company’s and its subsidiaries’ and affiliates’ organizational documents, including, if applicable,
any directors’ and officers’ insurance policies, with such indemnification to be on terms determined by the Committee or any of its
committees, but on terms no less favorable than provided to any other Company executive officer or director and subject to the terms of any
separate written indemnification agreement.
Section 5.6 Compensation. The Executive agrees and acknowledges that (i) the Executive is employed solely by the Company and not by any
member of the Company Group; (ii) the Executive’s compensation is paid for the services the Executive renders to the Company; and (iii) in
connection with the Executive’s employment with the Company, and for no compensation, the Executive serves as the EVP, OPerations and
Quality (Specialty Brands) of Mallinckrodt.
Section 6.
Termination. This Agreement and the Executive’s employment hereunder shall be terminated as follows:
Section 6.1 Death. This Agreement and the Executive’s employment hereunder shall automatically terminate upon the death of the Executive.
Section 6.2 Disability. In the event of any physical or mental disability of the Executive rendering the Executive substantially unable to
perform the Executive’s duties hereunder for a continuous period of at least 90 days or for at least 120 days out of any twelve (12)-month
period after reasonable accommodation that, in any case, meets the requirements for disability benefits under the Company’s long-term
disability plan if any (a “Disability”), the Executive’s employment
under this Agreement shall terminate automatically. Any determination of Disability shall be made by the Board in consultation with a
qualified physician or physicians selected by the Executive and reasonably acceptable to the Board. The failure of the Executive to submit
to a reasonable examination by a physician or physicians reasonably acceptable to the Board within thirty (30) day’s following the Board’s
request for such an examination shall act as an estoppel to any objection by the Executive to the determination of Disability by the Board.
Section 6.3 By the Company for Cause. The employment of the Executive may be terminated by the Company for Cause (as defined below) at
any time, effective upon written notice to the Executive specifying in detail the event(s) or circumstance(s) constituting Cause. For purposes
hereof, the term “Cause” shall mean Executive’s (a) substantial failure or refusal to perform the lawful duties and responsibilities of the
Executive’s job at a satisfactory level as required by the Company Group, other than due to Disability, (b) a material violation of any
fiduciary duty or duty of loyalty owed to the Company Group, (c) conviction of a misdemeanor or an indictable offence (other than a traffic
offence not carrying a custodial sentence) or felony, (d) any act(s) of fraud, embezzlement or theft against the Company Group, (e) violation
of a material Company Group rule or policy, (f) unauthorized disclosure of any trade secret or confidential information of the Company
Group or (g) other egregious conduct, that has or could have a serious and detrimental impact on the Company Group and its employees.
The Committee, in its sole and absolute discretion, shall determine Cause.
Section 6.4 By the Company without Cause. The Company may terminate the Executive’s employment at any time without Cause effective
upon the higher of statutory minimum notice or thirty (30) days’ prior written notice to the Executive.
Section 6.5 By the Executive without Good Reason. The Executive may terminate this Agreement and the Executive’s employment hereunder
at any time effective upon at least sixty (60) days’ prior written notice to the Company.
Section 6.6 By the Executive with Good Reason. The Executive may terminate this Agreement effective upon written notice to the Company
with Good Reason (as defined below). Such notice must provide a reasonably detailed explanation of the circumstances constituting Good
Reason. For purposes of this Agreement, the term “Good Reason” shall mean the occurrence of one of the following events: (a) the
Company, without the Executive’s written consent, requires the Executive to relocate to a principal place of employment more than fifty
(50) miles from the Executive’s existing place of employment, which materially increases the Executive’s commuting time; (b) the
Company, without the Executive’s consent, materially reduces the Executive’s Base Salary or target annual bonus opportunity, other than a
reduction of less than 10% that is made at the same time to the base salary or target annual bonus opportunity, as applicable, of all similarly
situated employees; or (c) a requirement that the Executive report to any other person, position or entity other than the CEO.
Notwithstanding the foregoing, in the event that the Executive provides written notice of termination with Good Reason in reliance upon
this Section 6.06 (such notice to be provided within thirty (30) days of the Executive’s knowledge of the occurrence of the events or
circumstances constituting Good Reason), the Company shall have the opportunity to cure such circumstances within thirty (30) business
days of receipt of such notice. If the Company shall not have cured such event or events giving rise to Good Reason within thirty (30)
business days after receipt of written notice from the Executive, the Executive may terminate employment with Good Reason by delivering
a resignation letter to the Company within thirty (30) business days following such thirty (30) business day cure period; provided, that if the
Executive has not delivered such resignation letter to the Company within such thirty (30) business day period, or has not provided written
notice to the Company within thirty (30) days of the occurrence of the events or circumstances constituting Good Reason, the Executive
waives the right to terminate employment with Good Reason.
Section 6.7 Garden Leave. Following service of notice to terminate this Agreement by either Party or if the Executive repudiates or purports to
terminate the Agreement in breach of contract, or, if the Company so decides, at any time during the Agreement, the Company may, by
written notice require the Executive not to perform any services (or to perform only specified and/or limited services) for the Company
(hereinafter called “Garden Leave”) until the termination of the Executive’s employment. During any period of Garden Leave the Company
will be under no obligation to provide any work to the Executive, or vest any powers in the Executive, and the
Executive will have no right to perform any services for the Company. During any period of Garden Leave the Executive will:
(a) continue to receive Base Salary and all contractual benefits in the usual way and subject to the terms of any benefit
arrangement;
(b) remain an employee of the Company and bound by the terms of this Agreement;
(c) not, without the prior written consent of the Company, attend any premises of the Company Group;
(d) not, without the prior written consent of the Company, for business purposes, contact or deal with (or attempt to contact or
deal with) any officer, employee, consultant, client, customer, supplier, agent distributor, shareholder, adviser or other
business contact of the Company Group. For the avoidance of doubt, contact for non-business purposes is permitted; and
(e)
(except during any periods taken as vacation in the usual way) ensure that the Company knows where the Executive will
be and how the Executive can be contacted during each working day and shall comply with any written requests to contact
a specified employee of the Company Group at specified intervals.
Section 7.
Effect of Termination.
Section 7.1 Death, Permanent Disability, Voluntary Termination without Good Reason, Normal Retirement or Early Retirement or Termination
for Cause. Upon any termination of the Executive’s employment under this Agreement either (a) voluntarily by the Executive without Good
Reason (including as a result of Normal Retirement or Early Retirement), (b) by the Company for Cause, or (c) as a result of the Executive’s
death or Disability, all payments, salary and other benefits hereunder shall cease at the effective date of termination. Notwithstanding the
foregoing, the Company shall pay or provide to the Executive or the Executive’s estate (a) all salary earned or accrued through the date the
Executive’s employment is terminated, (b) reimbursement for any and all monies advanced by the Executive in connection with the
Executive’s employment for reasonable and necessary expenses incurred by the Executive through the date the Executive’s employment is
terminated, (c) except upon termination of the Executive’s employment by the Company for Cause, any unpaid Annual Bonus earned in a
prior calendar year, based on the actual level of achievement of the applicable targets or performance as determined by the Committee at the
end of such calendar year, (d) solely upon a termination of employment as a result of the Executive’s death or Permanent Disability, a
Prorated Target Bonus (as defined below), and (e) all other payments and benefits to which the Executive may be entitled under any
applicable law or the terms of any applicable compensation arrangement or benefit plan or program of the Company, including any earned
and accrued, but unused, vacation pay and benefits under any retirement plans, but excluding any bonus payments except as provided in
subsections (c) and (d) of this Section 7.01 (collectively, “Accrued Benefits”), except that, for this purpose, Accrued Benefits shall not
include any entitlement to severance under any Company Group severance policy generally applicable to the Company’s salaried
employees. For the avoidance of doubt, all outstanding equity-based awards held by the Executive that were granted under the MIP shall be
treated in accordance with the terms of the MIP, subject to any different treatment as provided for in Sections 7.02 and 7.03, if applicable.
Section 7.2 Termination without Cause or Voluntary Termination with Good Reason. In the event that the Executive’s employment under this
Agreement is terminated by the Company without Cause or by the Executive with Good Reason, the Company shall pay or provide to
Executive as the Executive’s exclusive severance benefit right and remedy in respect of such termination, (a) the Executive’s Accrued
Benefits, except that, for this purpose, Accrued Benefits shall not include entitlement to severance under any Company Group severance
policy generally applicable to the Company’s salaried employees, and (b) as long as the Executive does not violate in any material respect
the provisions of Section 8 and Section 9 hereof, severance pay as follows (collectively, the “Severance Benefits”):
(a) an amount equal to the product of (i) the sum of the Executive’s Base Salary and Target Bonus (in each case, not taking into
account, for this and other severance provisions, reductions which would constitute Good Reason or were otherwise made in the
prior six (6) months) multiplied by (ii) 1.5, net of deductions and tax withholdings, as applicable
(the “Cash Severance”), payable in installments commencing on the first regular payroll date following the effective date of the
Release (as defined below). The Cash Severance shall be inclusive of any statutory redundancy payment if/where applicable;
(b) an amount equal to a prorated portion (based on the number of days the Executive was employed by the Company during the
calendar year in which the termination occurs) of the Target Bonus payable with respect to the year in which the termination
occurs, net of deductions and tax withholdings, as applicable (the “Prorated Target Bonus”), payable in a lump sum on the first
regular payroll date following the effective date of the Release;
(c) all outstanding equity-based awards held by the Executive that were granted under the MIP, including, without limitation, the
Initial Award, shall be treated in accordance with the terms of the MIP and any Transaction Bonus shall be treated as set forth in
the Executive’s Transaction Incentive Plan participation letter;
(d) coverage of the cost of outplacement services for the Executive at the level and outplacement agency that the Company regularly
uses for such purpose for similar level executives; provided, however, that the period of outplacement shall not exceed twelve (12)
months after the Executive’s termination of employment or, if earlier, the date of Executive’s death.
Section 7.3 Termination without Cause or Voluntary Termination with Good Reason Upon a Change in Control. If the Executive’s employment
is terminated by the Company without Cause or by the Executive with Good Reason during the period beginning 120 days prior to the date
of a Change in Control (as defined in the MIP) and ending twelve (12) months after the date of such Change in Control (a “Change in
Control Termination”), then the Executive shall receive the Severance Benefits with the following enhancements: (a) Cash Severance will
be paid in lump sum on the first payroll date following the effective date of the Release (or, if later, the Change in Control) and (b) all of the
Executive’s unvested and outstanding RSUs, PSUs and other equity-based awards shall immediately vest as of the effective date of the
Release (or, if later, the Change in Control). In the event of a Change in Control Termination prior to the occurrence of the Change in
Control payments under this Section 7.03 shall be reduced by any payments made previously under Section 7.02 hereof.
Section 7.4 Payment of Accrued Benefits. Notwithstanding anything else herein to the contrary, all Accrued Benefits to which the Executive
(or the Executive’s estate or beneficiary) is entitled shall be payable in cash promptly upon the effective date of termination, except as
otherwise specifically provided herein, or under the terms of any applicable policy, plan, or program; provided, that all Accrued Benefits
shall be paid no later than December 31 of the calendar year immediately following the calendar year of the Executive’s termination.
Section 7.5 No Other Benefits. Except as explicitly provided in this Section 7, the Executive shall not be entitled to any compensation,
severance, or other benefits from the Company Group upon or following the termination of the Executive’s employment for any reason
whatsoever. Notwithstanding anything else herein to the contrary, all payments and benefits due to the Executive under this Section 7 after
termination of employment which are not otherwise required by law (other than Accrued Benefits) shall be contingent upon execution by
the Executive (or the Executive’s beneficiary or estate) of a general release of all claims, to the maximum extent permitted by law, against
the Company Group, its affiliates, and its then current and former equity holders, directors, employees, and agents, in substantially the form
attached hereto as Exhibit A (the “Release”) and such Release becoming irrevocable no later than thirty (30) days following the Executive’s
termination of employment.
Section 7.6 Resignation as an Officer. If the Executive’s employment with the Company terminates for any reason, the Executive will be
deemed to have automatically resigned, effective as of the date of termination of the Executive’s employment with the Company, from all
positions with the Company Group, unless otherwise mutually agreed by the Parties in writing, and the Executive agrees to execute any
documents needed to effect the foregoing.
Section 7.7 No Mitigation. The Executive shall not be required to mitigate the amount of any payment provided pursuant to Section 7 by
seeking other employment or otherwise, and the amount of any payment provided for pursuant to Section 7 shall not be reduced by any
compensation earned as a result of the Executive’s other employment or otherwise.
Section 7.8 Survival of Certain Provisions. Provisions of this Agreement shall survive any termination of the Executive’s employment if so
provided herein, including, without limitation, the obligations of the Executive under Sections 8 and 9 hereof. The obligation of the
Company to make payments to or on behalf of the Executive under this Section 7 hereof is expressly conditioned upon the Executive’s
continued performance in all material respects of Executive’s obligations under Section 8 and Section 9 hereof. The Executive recognizes
that, except as expressly provided in this Section 7, no compensation is earned after termination of employment.
Section 8.
Confidentiality; Assignment of Inventions.
Section 8.1 Confidentiality. The Executive acknowledges that the Executive is in possession of confidential information concerning the
business and operations of the Company Group, including the identity of customers and suppliers (the “Confidential Information”). The
Executive agrees that the Executive shall keep all such Confidential Information strictly confidential and use such Confidential Information
only for the purpose of fulfilling the Executive’s obligations hereunder and in order to perform any service to the Company Group as a
director, consultant, or employee, and not for any other purpose. Notwithstanding the foregoing, Confidential Information shall not include
any information that (a) has become publicly known and made generally available or is known within the Company Group’s industry
through no wrongful act of the Executive or (b) is required to be disclosed by applicable laws, court order or subpoena or a governmental or
regulatory agency (or similar body or entity) after, to the extent legally permitted, providing prompt written notice of such request to the
Board so that the Company Group may seek an appropriate protective order or other appropriate remedy. The Executive may also disclose
Confidential Information to the extent required pursuant to any legal process between the Executive and the Company Group.
Section 8.2 Assignment of Inventions. The Executive agrees to assign and transfer to the Company or its designee, without any separate
remuneration or compensation, the Executive’s entire right, title, and interest in and to all Inventions (as defined below), together with all
EU, United States and foreign rights with respect thereto, and at the Company Group’s expense to execute and deliver all appropriate patent
and copyright applications for securing United States and foreign patents and copyrights on Inventions, and to perform all lawful acts,
including giving testimony, and to execute and deliver all such instruments that may be necessary or proper to vest all such Inventions and
patents and copyrights with respect thereto in the Company Group, and to assist the Company Group in the prosecution or defense of any
interference which may be declared involving any of said patent applications, patents, copyright applications, or copyrights. For the
purposes of this Agreement, “Inventions” shall mean any discovery, process, design, development, improvement, application, technique, or
invention, whether patentable or copyrightable or not and whether reduced to practice or not, conceived or made by the Executive,
individually or jointly with others (whether on or off the Company’s premises or during or after normal working hours), while in the employ
of the Company and (x) which was or is directly or indirectly related to the business of the Company Group or (y) which resulted or results
from any work performed by any executive or agent thereof during the Executive’s employment with the Company.
Section 8.3 Return of Documents upon Termination of Employment. All notes, letters, documents, records, tapes, and other media of every
kind and description relating to the business, present or otherwise, of the Company Group, and any copies, in whole or in part, thereof
(collectively, the “Documents”), whether or not prepared by the Executive, shall be the sole and exclusive property of the Company Group.
The Executive shall safeguard all Documents and shall surrender to the Company at the time the Executive’s employment terminates, or at
such earlier time or times as the Board or its designee may specify, all Documents then in the Executive’s possession or control.
Notwithstanding the foregoing, the Executive may retain all information, documentation and devices personal to the Executive; provided
that such materials do not contain Confidential Information, and the Company will cooperate in transferring any personal information from
Company devices to the Executive’s personal devices.
Section 8.4 Whistleblower Acknowledgement. Notwithstanding anything to the contrary contained herein, nothing in this Agreement shall
prohibit the Executive from reporting possible violations of US federal law or regulation, or EU or domestic law to or otherwise cooperating
with or providing information requested by any governmental agency or entity, including, but not limited to, the US Department of Justice,
the Securities and Exchange Commission, the US Congress, and
any agency Inspector General, or making other disclosures that are protected under any applicable whistleblower provisions. The Executive
does not need the prior authorization of the Company to make any such reports or disclosures and the Executive is not required to notify the
Company that the Executive has made such reports or disclosures.
Section 8.5 Trade Secret Acknowledgement. Notwithstanding anything to the contrary contained herein, the Executive will not be held
criminally or civilly liable under any US, EU or domestic trade secret law for any disclosure of a trade secret that is made: (a) in confidence
to a US, EU or domestic government official, either directly or indirectly, or to an attorney; and (b) solely for the purpose of reporting or
investigating a suspected violation of law; or is made in a complaint or other document that is filed in a lawsuit or other proceeding. If the
Executive files a lawsuit for retaliation by the Company for reporting a suspected violation of law, the Executive may disclose the Company
Group’s trade secrets to the Executive’s attorney and use the trade secret information in the court proceeding if the Executive: (A) takes all
necessary steps within those proceedings to prevent the public disclosure of the trade secret; and (B) does not disclose the trade secret,
except pursuant to court order.
Section 9.
Restrictions on Activities of the Executive.
Section 9.1 Acknowledgments. The Executive and the Company agree that the Executive is being employed hereunder in a key capacity with
the Company and that the Company Group is engaged in a highly competitive business and that the success of the Company Group’s
business in the marketplace depends upon its good will and reputation for quality and dependability. The Executive and the Company
further agree that reasonable limits may be placed on the Executive’s ability to compete against the Company Group as provided herein to
the extent that they protect and preserve the legitimate business interests and good will of the Company Group and are reasonable and valid
in geographical and temporal scope and in all other respects. Notwithstanding anything to the contrary herein, the covenants contained in
this Section 9 shall be in addition to, and not in lieu of, and shall not amend, modify, abrogate, or otherwise alter any other restrictive
covenants by which the Executive is bound pursuant to any other written agreement with the Company Group.
Section 9.2 Restrictions. During the Executive’s employment with the Company and during the twelve (12) month period following the date of
the Executive’s termination from employment with the Company for any reason (the “Restricted Period”; provided that, with respect to
clause (a), the Restricted Period shall be reduced to six (6) months following the date of the Executive’s termination from employment with
the Company following June 30, 2025; and further provided that clause (a) shall not apply if Executive’s employment is terminated by the
Company without Cause or by Executive with Good Reason), the Executive shall not:
(a) directly or indirectly engage in, provide services to, have any equity interest in, or manage or operate any individual, firm,
corporation, partnership, business or entity (a “Business”) (whether as director, officer, employee, principal, agent, representative,
owner, partner, member, security holder, consultant or otherwise) that engages in (either directly or through any subsidiary or
Affiliate thereof) any business or activity in any geographic location in which the Company Group engages in, whether through
selling, distributing, manufacturing, marketing, purchasing, or otherwise, that competes with any of the businesses of the Company
Group or any entity owned by the Company Group (a “Competing Business”); provided that a “Competing Business” shall not
include (i) hospitals or pharmacies that purchase Company Group products or similar products or (ii) retailers or wholesalers that
sell Company Group products or similar products;
(b) directly or indirectly solicit or recruit, on the Executive’s own behalf or on behalf of any other Business, the services of, or hire or
engage, or interfere with the Company Group’s relationship with, any individual who is an employee, independent contractor or
director of the Company Group, or solicit any of the Company Group’s then-current employees, independent contractors or
directors to terminate services with the Company Group;
(c) directly or indirectly, on the Executive’s own behalf or on behalf of any other Business, recruit or otherwise solicit for a Competing
Business, any customer, client, distributor, vendor, supplier, licensee, licensor or other business relation of the Company Group, or
encourage or induce any such Person to terminate its arrangement with the Company Group or otherwise change or interfere with
its relationship with the Company Group.
Section 9.3 THE EXECUTIVE REPRESENTS AND WARRANTS THAT THE KNOWLEDGE, SKILLS, AND ABILITIES THE
EXECUTIVE POSSESSES AT THE TIME OF COMMENCEMENT OF EMPLOYMENT HEREUNDER ARE SUFFICIENT TO
PERMIT THE EXECUTIVE, IN THE EVENT OF TERMINATION OF THE EXECUTIVE’S EMPLOYMENT HEREUNDER, TO
EARN A LIVELIHOOD SATISFACTORY TO THE EXECUTIVE WITHOUT VIOLATING ANY PROVISION OF SECTION 8 OR 9
HEREOF, FOR EXAMPLE, BY USING SUCH KNOWLEDGE, SKILLS, AND ABILITIES, OR SOME OF THEM, IN THE SERVICE
OF A NON-COMPETITOR.
Section 9.4 Non-Disparagement. The Executive shall not, during the term of the Executive’s employment or at any time thereafter, whether in
writing or orally, malign, denigrate, or disparage the Company Group, or any current or former directors, officers, or employees of the
Company Group, with respect to any of their respective past or present activities, or otherwise publish (whether in writing or orally)
statements that tend to portray any of the aforementioned parties in an unfavorable light. The Executive understands that nothing in this
Agreement is intended to prevent the Executive from making truthful statements (a) in any legal proceeding or as otherwise required by law,
or from reporting possible violations of US federal law or regulation or EU or domestic law to a governmental agency or entity; (b) when
requested by a governmental, regulatory, or similar body or entity; (c) in confidence to a professional advisor for the purpose of securing
professional advice; (d) in the course of performing Executive’s duties during the Executive’s term of employment (e.g., performance
reviews); or (e) in response to statements, references or characterizations made, directly or indirectly, by the Company Group that are
misleading, disparage the Executive, or reflect negatively on the Executive. The Company Group will instruct its executives and Board
members not to disparage the Executive to the same extent the Executive is restricted in this Section 9.04.
Section 10. Remedies. It is expressly understood and agreed that, notwithstanding anything to the contrary herein, in the event of any breach of the
provisions of Section 8 or 9 of this Agreement, the Company Group shall have the right and remedy, without regard to any other available remedy, to
(a) have the restrictive covenants set forth in Section 8 or 9 specifically enforced by any court of competent jurisdiction, (b) seek to have issued an
injunction restraining any breach or threatened breach, and (c) seek any and all other remedies available to the Company Group under applicable
law; it being understood that any breach of any of the restrictive covenants set forth in Section 8 or 9 could cause irreparable and material damages to
the Company Group (including, for the avoidance of doubt, any loss of the proprietary advantage and trade secrets related to the identity of
customers and suppliers), the amount of which cannot be readily determined and as to which the Company Group will not have any adequate remedy
at law or in damages. The Executive agrees that any remedy at law for any breach by the Executive of the restrictive covenants set forth in Section 8
or 9 would be inadequate, and that the Company Group would be entitled to seek injunctive relief in such a case. If it is ever held that this restriction
on the Executive is too onerous and is not necessary for the protection of the Company Group, the Executive agrees that any court of competent
jurisdiction may impose such lesser restrictions that may be necessary or appropriate to properly protect the Company Group. For the avoidance of
doubt, the failure in one or more instances of the Company Group to insist upon performance of any of the covenants or restrictive covenants set
forth in Section 8 or 9, to exercise any right or privilege herein conferred, or the waiver by the Company Group of any breach of any of the covenants
or restrictive covenants set forth in Section 8 or 9 shall not be construed as a subsequent waiver by the Company Group of any breach of any of the
covenants or restrictive covenants set forth in Section 8 or 9, but the same shall continue and remain in full force and effect as if no forbearance or
waiver had occurred.
Section 11. Severable Provisions. The provisions of this Agreement are severable and the invalidity of any one or more provisions shall not affect the
validity of any other provision. In the event that a court of competent jurisdiction shall determine that any provision of this Agreement or the
application thereof is unenforceable in whole or in part because of the duration or scope thereof, the Parties hereto agree that said court in making
such determination shall have the power to reduce the duration and scope of such provision to the extent necessary to make it enforceable, and that
the Agreement in its reduced form shall be valid and enforceable to the full extent permitted by law.
Section 12. Notices. Any and all notices or other communication required or permitted to be given under any of the provisions of this Agreement shall
be in writing and shall be deemed to have been duly given (a) upon delivery if personally delivered, (b) three (3) days after deposit if sent by prepaid
registered post, return receipt requested, (c) one (1) day after deposit if sent by a reputable overnight courier, or (d) upon
confirmation if sent by facsimile or email, addressed to the Parties at the addresses set forth below (or at such other address as any Party may specify
by notice to all other Parties given as aforesaid):
If to the Company: Mallinckrodt Pharmaceuticals Ireland Ltd.
College Business & Technology Park
Cruiserath
Blanchardstown
Dublin 15
Attention: Chief Human Resource Officer
Facsimile: 908-997-9400
with a copy to:
Latham & Watkins LLP
1271 Avenue of the Americas
New York, New York 10019 Attention: Rifka Singer
Email: rifka.singer@lw.com
If to the Executive:
at the most recent address on file for the Executive in the Company’s records
or to such other address as a Party may notify the other pursuant to a notice given in accordance with this Section 12.
Section 13. Miscellaneous.
Section 13.1 Amendment. This Agreement may not be amended or revised except by a writing signed by the Parties.
Section 13.2 Assignment and Transfer. The provisions of this Agreement shall be binding on and shall inure to the benefit of any successor in
interest to the Company. Neither this Agreement nor any of the rights, duties, or obligations of the Executive or the Company shall be
assignable by the Executive or the Company, except with respect to a successor, nor shall any of the payments required or permitted to be
made to the Executive by this Agreement be encumbered, transferred, or in any way anticipated, except as required by applicable laws. This
Agreement shall not be terminated by, nor shall it be deemed an assignment of this Agreement upon, the merger or consolidation of the
Company with any corporate or other entity or by the transfer of all or substantially all of the assets of the Company to any other person,
corporation, firm, or entity. However, all rights of the Executive under this Agreement shall inure to the benefit of and be enforceable by the
Executive’s personal or legal representatives, estates, executors, administrators, heirs, and beneficiaries. All amounts payable to the
Executive hereunder shall be paid, in the event of the Executive’s death, to the Executive’s estate, heirs, or representatives.
Section 13.3 Waiver of Breach. A waiver by the Company or the Executive of any breach of any provision of this Agreement by the other Party
shall not operate or be construed as a waiver of any other or subsequent breach by the other Party.
Section 13.4 Entire Agreement. This Agreement contains the entire agreement of the Parties with respect to the subject matter hereof and
supersedes all prior agreements (including, without limitation, the Prior Agreement), understandings, negotiations, and discussions, whether
oral or written, of the Parties, including, without limitation, any term sheet related to the subject matter hereof.
Section 13.5 Withholding. The Company shall withhold from any amounts to be paid or benefits provided to the Executive hereunder any US
federal, state, local, or foreign withholding or other taxes or charges which it is from time to time required to withhold. The Company shall
be entitled to rely on an opinion of counsel if any question as to the amount or requirement of any such withholding shall arise.
Section 13.6 Captions. Captions herein have been inserted solely for convenience of reference and in no way define, limit, or describe the scope
or substance of any provision of this Agreement.
Section 13.7 Counterparts. This Agreement may be executed in one or more counterparts (including by facsimile transmission or electronic
image scan (PDF)), each of which shall be deemed an original and shall have the same effect as if the signatures hereto and thereto were on
the same instrument.
Section 13.8 Governing Law; No Construction Against Drafter. This Agreement shall be construed under and enforced in accordance with the
laws of the Ireland without regard to conflicts of law principles. No provision of this Agreement or any related document will be construed
against or interpreted to the disadvantage of any Party hereto by any court or other governmental or judicial authority by reason of such
Party having or being deemed to have structured or drafted such provision. Nothing in this Agreement shall affect the governing law
provisions of equity plans applicable to the Executive (including but not limited to the MIP, Transaction Incentive Plan, RSU Award
Agreement, PSU Award Agreement and Transaction Incentive Plan participation letter).
Section 13.9 Dispute Resolution. Any controversy or claim between the Executive and the Company arising out of or relating to or concerning
this Agreement or any aspect of the Executive’s employment with the Company or the termination of that employment will be finally settled
by the laws of Irealdn (unless otherwise agreed at the time). Nothing in this Agreement shall affect the dispute resolution provision of equity
plans applicable to the Executive (including but not limited to the MIP, Transaction Incentive Plan, RSU Award Agreement, PSU Award
Agreement and Transaction Incentive Plan participation letter.
Section 13.10
Representations of Executive; Advice of Counsel.
(a) The Executive represents, warrants, and covenants that as of the Effective Date: (i) the Executive has the full right, authority, and
capacity to enter into this Agreement and perform the Executive’s obligations hereunder and the Executive’s application for
employment with the Company has been truthful and complete, (ii) the execution and delivery of this Agreement shall not result in
any breach or violation of, or a default under, any existing obligation, commitment, or agreement to which the Executive is subject,
and (iii) the Executive has disclosed to the Company all pending or closed litigations, judgments, or regulatory matters involving
the Executive.
(b) Prior to execution of this Agreement, the Executive was advised by the Company of the Executive’s right to seek independent
advice from an attorney of the Executive’s own selection regarding this Agreement. The Executive acknowledges that the
Executive has entered into this Agreement knowingly and voluntarily and with full knowledge and understanding of the provisions
of this Agreement after being given the opportunity to consult with counsel. The Executive further represents that in entering into
this Agreement, the Executive is not relying on any statements or representations made by any of the Company’s directors,
officers, employees, or agents which are not expressly set forth herein, and that the Executive is relying only upon the Executive’s
own judgment and any advice provided by the Executive’s attorney.
Section 13.13
Recoupment. By executing this Agreement, the Executive acknowledges and agrees that the compensation provided under
this Agreement is subject to recoupment in accordance with the terms and provisions of Mallinckrodt’s Executive Financial Recoupment
Program as in effect on the Effective Date (the “Recoupment Policy”), attached hereto as Exhibit B, as such Recoupment Policy may be
amended by the Board in compliance with the conditions set forth in Section 6.8 of the Recoupment Policy and the Executive hereby
irrevocably consents to same.
Section 13.14
No collective agreements affect the terms of the Executive’s employment with the Company
[remainder of page intentionally left blank]
IN WITNESS WHEREOF, the Parties hereto have duly executed this Agreement as of the day and year first above written.
MALLINCKRODT PHARMACEUTICALS IRELAND LTD
By:
Name: Bryan Reasons
Title: EVP and Chief Financial Officer
EXECUTIVE
Paul O’Neill
Exhibit A
RELEASE OF CLAIMS (“Release”)
THIS RELEASE is made between:
1. Mallinckrodt Pharmaceuticals Ireland Ltd., having its relevant place of business at College Business & Technology Park, Cruiserath,
Blanchardstown, Dublin 15 (the “Company” which expression shall, where the context so permits or requires, include the Company Group); and
2. Paul O’Neill of [INSERT ADDRESS] (the “Executive”), (together the “Parties” and each a “Party”).
BACKGROUND:
(A) The Parties entered into an employment agreement dated 28 February 2024 (the “Employment Agreement”);
(B) The Executive’s employment with the Company will terminate by agreement on [DATE] (the “Termination Date”);
(C) The Parties have entered into this Release to record and implement the terms on which they have agreed to settle any claims which the
Executive has or may have in connection with the Executive’s employment and/or its termination in Ireland and/or any other jurisdiction
against the Company and/or the Company Group and/or each Specified Person, whether or not those claims are, or could be, in the
contemplation of the Parties at the time of signing this Release; and
(D) The Parties intend this Release to be an effective waiver of any such claims.
IN CONSIDERATION OF THE MUTUAL COVENANTS HEREINAFTER CONTAINED, IT IS HEREBY AGREED AS FOLLOWS:
1. Termination of Employment and Related Matters
1.1. The Executive’s employment with the Company will terminate by agreement with effect as and from the Termination Date, on which date
the Employment Agreement will terminate without further obligation on the part of the Company.
1.2. Save as expressly provided for in this Release, the Executive acknowledges that the Executive has no entitlement to any annual leave,
payment in lieu of annual leave, notice, payment in lieu of notice, bonus, commission, share options or other incentive benefit or scheme of
any type or any entitlement to compensation for the loss of any rights or benefits in respect of any such incentives or schemes and all
entitlement to salary and benefits will end on the Termination Date.
1.3. [The Executive will attend work in the normal manner between the date hereof and the Termination Date] OR [The Executive will cease
active employment on close of business on [DATE / the Termination Date] AND EITHER [and will go on paid garden leave from that date
until the Termination Date (“Garden Leave”).] OR [and will be paid in lieu of [the unexpired part of] the Executive’s notice period.]
1.4. The Company will pay any outstanding business expenses to the Executive in accordance with its normal expenses policy as long as a claim
supported by the appropriate documentation in respect of such expenses.
1.5. Any overpayments or payments due from the Executive to the Company on the Termination Date or otherwise (including loans and training
costs that are repayable) may be deducted from any sums to be paid to the Executive under this Release.
2. Payments upon Termination
2.1. The Executive will receive [in the event of termination pursuant to Section 7.02, the Accrued Benefits and the Severance Benefits] OR [in
the event of termination pursuant to Section 7.03, the Accrued Benefits, the Severance Benefits and the enhancements provided for in
Section 7.03] in connection with the termination of the Executive’s employment (the “Termination Payments”).
2.2. The Termination Payments will be paid to the Executive by in accordance with the provisions of the Employment Agreement provided the
Company receives a copy of this Release duly executed by the Executive.
3. Taxation
The Termination Payments are subject to such tax and other deductions as the Company is required to deduct from the gross amount and remit
to the Revenue Commissioners under the relevant tax and social welfare legislation.
4. Full and Final Settlement, Release, Waiver and Discharge
The Executive confirms that the Executive accepts the terms of this Release in full and final settlement of all and any claims, rights of action, demands,
complaints, grievances, disputes made and/or which may be made by the Executive or on the Executive’s behalf in any jurisdiction including Ireland against
the Company and/or the Company Group and/or each Specified Person in connection with the Executive’s employment by the Company and/or the
termination of such employment, whether such claims arise at common law, in tort, in equity, pursuant to contract or pursuant to statute (including but not
limited to claims in Ireland pursuant to the statutes and regulations outlined in the Schedule) and/or pursuant to any other employee protection legislation or
for personal injury (including any claims for alleged psychological or psychiatric personal injuries or alleged occupational stress, bullying or harassment) or
otherwise howsoever arising whether such claims are, or could be, known to the Parties or in the contemplation of the Parties at the date of this Release.
5. Additional Warranties
6.1. As a strict condition of this Release, the Executive warrants that, at the date of this Release, the Executive has not issued any claims or
proceedings against the Company and/or the Company Group and/or each Specified Person and agrees not to do so. The Executive
acknowledges that the Company enters into this Release in reliance on this warranty.
6.2. If the Executive issues or commences any claims or proceedings against the Company, the Company Group and/or each Specified Person in
relation to claims accepted as settled pursuant to Clause 4, the Executive agrees to repay to the Company on demand a sum equal to the
Termination Payments. The Executive agrees that in such circumstances the said sum shall be recoverable from the Executive by the
Company as a debt.
6. Pension
6.1. The Company will request the pension scheme administrators to provide the Executive with a pension leaving service option statement.
6.2. For the avoidance of doubt the Executive will not continue to accrue any further benefits under the Company’s pension scheme after the
Termination Date, however, the provisions of Clause 4 will not prevent the Executive from bringing legal proceedings in respect of the
Executive’s accrued pension rights.
7. Statement of Employment
The Company will provide the Executive with a statement of employment outlining the Executive’s date of commencement of employment, the date of
termination of employment, job title and principal duties and responsibilities.
8. Confidentiality
The Executive confirms that the Executive will comply with the confidentiality obligations set out in Section 8 of the Employment Agreement.
9. Non-Disparagement
The Executive will not make any statement or other comment, oral or written, touching upon or concerning the Company and/or the Company Group and/or
each Specified Person and/or the Company Group’s clients, customers, suppliers or business contacts, which is intended to or might reasonably be expected to
damage the reputation of or be detrimental to or otherwise critical of any of the aforementioned persons or entities including without limitation directly or
indirectly and whether anonymously, by proxy or otherwise, using any social media platform.
10. Non-Disclosure
10.1.
Both Parties agree to keep the circumstances connected with the termination of the Executive’s employment and the existence,
contents and details of this Release and all discussions and other correspondence on this subject strictly private and confidential to the
Parties and not to disclose, communicate or otherwise make public to any Person except:
(a)
to a professional adviser who has agreed to be bound by this restriction (for the purposes of obtaining legal and tax
advice);
(b) the relevant tax authorities or any other State agencies;
(c)
in the case of the Company, as is necessary to process or implement the terms of this Release;
(d) to the Executive’s spouse or civil partner provided such person agrees to be bound by the terms of this Clause 10; and
(e) otherwise as may be required or expressly permitted by law.
10.2.
Nothing in this Clause 10 shall prevent the Executive from disclosing information which the Executive is entitled to disclose under
the Protected Disclosures Act 2014, as amended provided that the disclosure is made in accordance with the provisions of the relevant Act.
11. Post Termination Restrictions
The Executive confirms that the Executive will comply with the obligations contained in Section 9 of the Employment Agreement.
12. Company Property
12.1.
Without prejudice to the Executive’s obligations contained in Section 8.03 of the Employment Agreement, the Executive will
return to the Company, on or before the Termination Date, any Company property in the Executive’s possession or under the Executive’s
control including but not limited to: Company laptop, mobile telephone, charging equipment, security fobs, keys, access passes, and IT
remote access security fobs/passes pertaining to the business and affairs of the Company.
12.2.
At the request of the Company, the Executive will disclose to the Company all passwords to all password protected files, software
and hardware and any pins or codes which have been created or protected by the Executive and which are on the Company’s or the
Company Group’s computers (including laptops, tablets and other electronic devices).
12.3.
[Immediately upon the commencement of Garden Leave] OR [On or before the Termination Date], the Executive will return to the
Company all intellectual property in the Executive’s possession whether in tangible or intangible form, all physical files and all records, and
other data and documentation in the Executive’s possession or under the Executive’s control (whether in electronic or hard copy format)
pertaining to the business and affairs of the Company.
13. Connection with the Company
13.1.
The Executive will not represent himself as being employed by or connected in any way with the Company or the Company Group
following the Termination Date. Unless otherwise expressly agreed, the Executive hereby covenants and agrees that the Executive will not,
from the Termination Date, hold himself out or expressly or impliedly represent to any third party that the Executive has the authority to
speak for, represent or in any way bind the Company or the Company Group nor will the Executive conduct himself in any way which is
inconsistent with having surrendered the Executive’s authority, whether in matters of the internal administration of the Company or the
Company Group or externally.
13.2.
Immediately upon termination of the Executive’s employment the Executive will amend all of the Executive’s social media profiles
such as LinkedIn in order to ensure that such profiles do not wrongly represent the Executive as being an employee of, or otherwise
associated with, the Company or the Company Group.
14. Resignation from Directorships and Offices
The Executive will resign from all directorships and offices held by the Executive in the Company and the Company Group on such date(s) as are required by
the Company and the Executive agrees to sign such resignation letters and
execute such documentation as required by the Company in order to comply with the Executive’s obligations under this Clause 14.
15. Announcements
The Executive will co-operate with the Company in agreeing the terms and timing of any oral and written announcements regarding the termination of the
Executive’s employment, which the Company requires to be communicated to employees, customers, clients, suppliers and any other Persons as required by
the Company.
16. Future Assistance
On the request of the Company or the Company Group, the Executive will assist in any internal investigation, regulatory proceedings, and threatened or actual
litigation where the Executive has in his possession or knowledge any facts or other matters which the Company or the Company Group reasonably considers
is relevant to such investigation, proceedings or litigation (including but not limited to giving witness statements/affidavits, meeting with legal and other
professional advisers and attending any hearing and giving evidence). The Executive will be reimbursed for reasonable expenses properly incurred by the
Executive in giving such assistance.
17. Handover Arrangements
In order to ensure an orderly transition, before the Termination Date the Executive will provide to the Executive’s successor/department/team, in such form as
the Company may reasonably require, such information and material as the Executive’s successor/department/team could reasonably expect to receive in
order to perform their duties effectively.
18. Independent Legal Advice
18.1.
The Executive confirms that the Executive has had the opportunity to obtain such independent advice as the Executive deems
appropriate in relation to the terms and effect of this Release, and in particular its effect on the Executive’s ability to pursue any claim or
complaint in respect of the Executive’s employment and/or the termination thereof in contract, equity, tort, statute or at common law in any
jurisdiction and that the Executive understands and accepts the full meaning, effect and implications of entering into same.
18.2.
The Executive confirms that the Executive is signing this Release voluntarily without coercion of any description and with full
understanding that the Executive is releasing and compromising any and all claims and demands of every nature whatsoever that the
Executive has or might have against the Company and/or the Company Group and/or each Specified Person.
19. Entire Agreement
This Release constitutes the entire agreement between the Parties in relation to the termination of the Executive’s employment and once executed by or on
behalf of both Parties, supersedes all (if any) previous arrangements and arrangements in relation thereto. The Executive acknowledges that the Executive is
not entering into this Release in reliance on any representations or warranties not expressly set out herein.
20. Counterparts and Electronic Signature
This Release may be executed in any number of counterparts and by the Parties on separate counterparts each of which when executed and delivered will
constitute an original, all such counterparts together constituting but one and the same instrument. Transmission of an executed counterpart of this Release by
(a) email (in PDF or other agreed format) or (b) any electronic document signing platform (including, but not limited to, DocuSign) shall take effect as
delivery of an executed counterpart of this Release and shall be treated in a manner and in all respects as an original and shall be considered to have the same
binding legal effect as if it were the original.
21. Severance
21.1.
If any provision of this Release shall be found by any court, adjudicating body or administrative body of competent jurisdiction to
be invalid or unenforceable, such invalidity or unenforceability shall not affect the other provisions of this Release which shall remain in
full force and effect.
21.2.
If any provision of this Release is so found to be invalid or unenforceable but would be valid or enforceable if some part of the
provision were deleted, the provision in question shall apply with such modification(s) as may be necessary to make it valid.
22. Jurisdiction and Choice of Law
All disputes between the Parties arising out of or in any way relating to this Release or any other dispute between the Parties in any way connected with the
subject matter of this Release shall be governed by the laws of Ireland. Furthermore, both Parties hereby submit to the exclusive jurisdiction of the Irish
Courts for the purposes of any proceedings arising out of or in any way relating to this Release or any other proceedings in any way connected with the
subject matter of this Release.
23. No Admissions
This Release does not constitute an admission by the Company that the Company or the Company Group or any Specified Person has breached any law or
regulation, or contractual or other obligation, or that the Executive has any claims against the Company, the Company Group or any Specified Person.
24. Subject to Contract and Without Prejudice
This Release shall be deemed to be without prejudice and subject to contract until such time as it is signed and dated by both Parties, when it shall be treated
as an open document evidencing a binding agreement.
25. Variation
No variation of the Release will be valid unless in writing and signed in manuscript by or on behalf of each of the Parties. For the avoidance of doubt,
agreements made by email shall not be valid to vary this Release.
26. Interpretation and Definitions
26.1.
The definitions in this clause apply in this Release:
“Company Group” has the meaning ascribed to it in the Employment Agreement.
“Confidential Information” has the meaning ascribed to it in the Employment Agreement.
“Person” includes any individual person, firm, company, partnership, unincorporated association, joint venture or other legal
entity.“
Specified Person” means any of the former or existing employees, directors, officers or shareholders, workers or agents (in each
case, whether past or present) of the Company or the Company Group.
26.2.
References to the word “include” or “including” (or any similar term) are not to be construed as implying any limitation.
SCHEDULE
1. Adoptive Leave Acts 1995 and 2005;
2. Carer's Leave Act 2001;
3. Criminal Justice Act 2011;
4. Data Protection Act 2018;
5. Employment Equality Acts 1998 to 2021
6. Employment (Miscellaneous Provisions) Act 2018;
7. Employment Permit Acts 2003 to 2020;
8. European Communities (Protection of Employees on Transfer of Undertakings) Regulations 2003;
9.
Industrial Relations Acts 1946 to 2019;
10. Maternity Protection Acts 1994 and 2004;
11. Minimum Notice and Terms of Employment Acts 1973 to 2005;
12. National Minimum Wage Acts 2000 and 2015;
13. Organisation of Working Time Act 1997;
14. Paternity Leave and Benefit Act 2016;
15. Parental Leave Acts 1998 to 2019;
16. Payment of Wages Act 1991;
17. Pensions Acts 1990 to 2018;
18. Protection of Employees (Fixed-Term Work) Act 2003;
19. Protection of Employees (Part Time Work) Act 2001;
20. Protection of Employment Acts 1977 to 2014;
21. Protection of Employees (Temporary Agency Work) Act 2012;
22. Protection of Employment (Exceptional Collective Redundancies and Related Matters) Act 2007;
23. Protection of Young Persons (Employment) Act 1996;
24. Protected Disclosures Act 2014;
25. Redundancy Payments Acts 1967 to 2022;
26. Safety, Health and Welfare at Work Acts 2005 to 2014;
27. Terms of Employment (Information) Acts 1994 to 2014;
28. Unfair Dismissals Acts 1977 to 2015;
29. Workplace Relations Act 2015;
30. Workplace Relations (Miscellaneous Provisions) Act 2021;
and all other legislation relating to employment and its termination or pursuant to any amendment of any of the foregoing statutory provisions or
otherwise.
IN WITNESS whereof the Parties have executed this Release in the manner hereinafter appearing the day and year written below.
Signed for and on behalf of ______________________________
EMPLOYER ENTITY NAME
Dated the day of
Signed by EXECUTIVE NAME
in the presence
Signature of Witnes
Name of Witnes
Dated the day of
__________________________________
Exhibit B
EXECUTIVE FINANCIAL RECOUPMENT PROGRAM (“Recoupment Policy”)
The following is a list of subsidiaries of Mallinckrodt plc as of December 29, 2023.
SUBSIDIARIES OF MALLINCKRODT PLC
Name of Subsidiary
Jurisdiction of Incorporation/Organization
Exhibit 21.1
Acthar IP Unlimited Company
Cache Holdings Limited
Carnforth Limited
Dritte CORSA Verwaltungsgesellschaft GmbH
Ikaria Australia Pty Ltd
Ikaria Canada Inc.
IMC Exploration Company
Infacare Pharmaceutical Corporation
INO Therapeutics LLC
Ludlow LLC
MAK LLC
Mallinckrodt APAP LLC
Mallinckrodt ARD Finance LLC
Mallinckrodt ARD Holdings Inc.
Mallinckrodt ARD Holdings Limited
Mallinckrodt ARD IP Unlimited Company
Mallinckrodt ARD LLC
Mallinckrodt Brand Pharmaceuticals LLC
Mallinckrodt Buckingham Unlimited Company
Mallinckrodt Canada Cooperatie U.A.
Mallinckrodt Canada ULC
Mallinckrodt CB LLC
Mallinckrodt Chemical Holdings (U.K.) Limited
Mallinckrodt Chemical Limited
Mallinckrodt Critical Care Finance LLC
Mallinckrodt Enterprises Holdings LLC
Mallinckrodt Enterprises LLC
Mallinckrodt Enterprises UK Limited
Mallinckrodt Equinox Finance LLC
Mallinckrodt Equinox Limited
Mallinckrodt Finance Management Ireland Limited
Mallinckrodt Group S.à r.l.
Mallinckrodt Group S.à r.l., Luxembourg (LU) Schaffhausen Branch
Mallinckrodt Holdings GmbH
Mallinckrodt Hospital Products Inc.
Mallinckrodt Hospital Products IP Unlimited Company
Mallinckrodt International Finance SA
Mallinckrodt International Holdings S. à r.l.
Mallinckrodt IP Unlimited Company
Mallinckrodt LLC
Mallinckrodt Lux IP S.à r.l.
Mallinckrodt Manufacturing LLC
Mallinckrodt Medical Holdings (UK) Limited
Mallinckrodt Medical Holdings (UK) Limited, Zweigniederlassung Deutschland (the German
Branch)
Mallinckrodt Netherlands B.V.
Mallinckrodt Petten Holdings B.V.
Mallinckrodt Pharma IP Trading Unlimited Company
Ireland
Bermuda
Bermuda
Germany
Australia
Canada
Maryland
Delaware
Delaware
Massachusetts
Delaware
Delaware
Delaware
Delaware
United Kingdom
Ireland
California
Delaware
Ireland
Netherlands
British Columbia
Delaware
United Kingdom
United Kingdom
Delaware
California
Delaware
United Kingdom
Delaware
United Kingdom
Ireland
Luxembourg
Switzerland
Switzerland
Delaware
Ireland
Luxembourg
Luxembourg
Ireland
Delaware
Luxembourg
Delaware
United Kingdom
Germany
Netherlands
Netherlands
Ireland
Mallinckrodt Pharma K.K.
Mallinckrodt Pharmaceuticals Ireland Limited
Mallinckrodt Pharmaceuticals Limited
Mallinckrodt Quincy S.à r.l.
Mallinckrodt SAG Holdings GmbH
Mallinckrodt Securitization S.à r.l.
Mallinckrodt UK Finance LLP
Mallinckrodt UK Ltd
Mallinckrodt US Holdings LLC
Mallinckrodt US Pool LLC
Mallinckrodt Veterinary, Inc.
Mallinckrodt Windsor Ireland Finance Unlimited Company
Mallinckrodt Windsor S.à r.l.
MCCH LLC
MEH, Inc.
MHP Finance LLC
MKG Medical UK Ltd
MNK 2011 LLC
Montjeu Limited
MUSHI UK Holdings Limited
OCERA Therapeutics LLC
Petten Holdings Inc.
Profibrix B.V.
Questcor International Limited
Sonorant Therapeutics Limited
SpecGx Holdings LLC
SpecGx LLC
ST 2020 LLC
ST Operations LLC
ST Shared Services LLC
ST US AR Finance LLC
ST US Holdings LLC
ST US Pool LLC
Stratatech Corporation
Sucampo Finance Inc.
Sucampo GmbH
Sucampo Holdings Inc.
Sucampo International Holdings Limited
Sucampo Pharma Americas LLC
Sucampo Pharma LLC
Sucampo Pharmaceuticals LLC
Therakos (Belgium) SPRL
Therakos (Canada) Company
Therakos (France) SAS
Therakos (Italia) S.r.l.
Therakos (UK) Limited, Dutch Branch
Therakos (UK), Limited, Sucursal en Espana
Therakos (UK), Ltd
Therakos (UK), Ltd (Prywatna Spólka Z Ograniczona Odpowiedzialnoscia) Oddzial W Polsce
Therakos (UK), Ltd, Sweden Filial
Therakos EMEA Limited
Therakos Europe Limited
Therakos Germany GmbH
Therakos, Inc.
Japan
Ireland
United Kingdom
Luxembourg
Switzerland
Luxembourg
United Kingdom
United Kingdom
Delaware
Nevada
Delaware
Ireland
Luxembourg
Delaware
Nevada
Delaware
United Kingdom
Delaware
Ireland
United Kingdom
Delaware
Delaware
Netherlands
Ireland
Ireland
New York
Delaware
Delaware
Delaware
Delaware
Delaware
Nevada
Delaware
Delaware
Delaware
Switzerland
Delaware
United Kingdom
Delaware
Japan
Delaware
Belgium
Nova Scotia
France
Italy
Netherlands
Spain
United Kingdom
Poland
Sweden
Ireland
Ireland
Germany
Florida
Vtesse LLC
WebsterGx Holdco LLC
Delaware
New York
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13A-14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Exhibit 31.1
I, Sigurdur Olafsson, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Mallinckrodt plc;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in the Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and we have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal
control over financial reporting.
Date: March 26, 2024
By:
/s/ Sigurdur Olafsson
Sigurdur Olafsson
President, Chief Executive Officer and
Director
(principal executive officer)
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO RULE 13A-14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Exhibit 31.2
I, Bryan M. Reasons, certify that:
1.
2.
3.
4.
I have reviewed this annual report on Form 10-K of Mallinckrodt plc;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in the Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and we have:
a)
b)
c)
d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles;
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably
likely to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a)
b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal
control over financial reporting.
Date: March 26, 2024
By:
/s/ Bryan M. Reasons
Bryan M. Reasons
Executive Vice President and Chief Financial Officer,
(principal financial and accounting officer)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
The undersigned officers of Mallinckrodt plc ("the Company") hereby certify to their knowledge that the Company's annual report on Form 10-K
for the annual period ended December 29, 2023 ("the Report"), as filed with the Securities and Exchange Commission on the date hereof, fully complies with
the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended, and that the information contained in the
Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Sigurdur Olafsson
By:
Sigurdur Olafsson
President and Chief Executive Officer and Director
(principal executive officer)
March 26, 2024
/s/ Bryan M. Reasons
By:
Bryan M. Reasons
Executive Vice President and Chief Financial Officer
(principal financial and accounting officer)
March 26, 2024