MALLINCKRODT PLC

INDEX


			Page

PART I.		FINANCIAL INFORMATION	~~Page~~

~~PART I.~~Item 1.		~~FINANCIAL INFORMATION~~
~~Item 1.~~	Financial Statements (Unaudited).
		Condensed Consolidated Statements of ~~Income~~Operations for the three and six months ended June 26 , 2020 and June 28 ~~2019 and June 29, 2018.~~, 2019.	2
		Condensed Consolidated Statements of Comprehensive ~~Income~~Operations for the three and six months ended June 26 , 2020 and June 28 ~~2019 and June 29, 2018.~~, 2019.	3
		Condensed Consolidated Balance Sheets as of June ~~28, 2019~~26 , 2020 and December ~~28, 2018.~~27, 2019.	4
		Condensed Consolidated Statements of Cash Flows for the six months ended June 26 , 2020 and June 28 ~~2019 and June 29, 2018.~~, 2019.	5
		Condensed Consolidated Statements of Changes in Shareholders' Equity for the three and six months ended June 26 , 2020 and June 28 ~~2019 and June 29, 2018.~~, 2019.	6
		Notes to Condensed Consolidated Financial Statements.	7
Item 2.		Management's Discussion and Analysis of Financial Condition and Results of Operations.	4133
Item 3.		Quantitative and Qualitative Disclosures About Market Risk.	5550
Item 4.		Controls and Procedures.	5551

PART II.		OTHER INFORMATION
Item 1.		Legal Proceedings.	5652
Item 1A.		Risk Factors.	6152
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds.	6157
Item 6.		Exhibits.	6258

SIGNATURES				6359

PART I. FINANCIAL INFORMATION



Item 1.			Financial Statements.

MALLINCKRODT PLC

CONDENSED CONSOLIDATED STATEMENTS OF ~~INCOME~~OPERATIONS

(unaudited, in millions, except per share data)


	Three Months Ended						Six Months Ended
	June 26, 2020		June 28, 2019		June 26, 2020		June 28, 2019
Net sales (includes retrospective one-time charge of $534.4 million related to the Medicaid lawsuit for the three and six months ended June 26, 2020)	$	166.5	$	823.3	$	832.3	$	1,613.9
Cost of sales	386.7		434.4		768.7		889.9
Gross (loss) profit	(220.2)		388.9		63.6		724.0
Selling, general and administrative expenses	231.3		225.9		462.4		456.1
Research and development expenses	82.9		79.6		160.3		164.9
Restructuring charges, net	14.4		(0.2)		12.6		4.0
Non-restructuring impairment charges	63.5		113.5		63.5		113.5
Gains on divestiture	(0.6)		—		(0.4)		—
Opioid-related litigation settlement (Note 11)	8.5		—		(8.3)		—
Medicaid lawsuit (Note 11)	105.3		—		105.3		—
Operating loss	(725.5)		(29.9)		(731.8)		(14.5)
Interest expense	(64.2)		(71.5)		(138.7)		(154.2)
Interest income	1.0		2.2		4.5		3.7

Other (expense) income, net	(0.6)		74.4		1.1		90.7
Loss from continuing operations before income taxes	(789.3)		(24.8)		(864.9)		(74.3)
Income tax expense (benefit)	161.3		(24.3)		142.4		(229.0)
(Loss) income from continuing operations	(950.6)		(0.5)		(1,007.3)		154.7
Income from discontinued operations, net of income taxes	17.5		7.3		24.0		7.0
Net (loss) income	$	(933.1)	$	6.8	$	(983.3)	$	161.7

Basic (loss) earnings per share (Note 5):
(Loss) income from continuing operations	$	(11.25)	$	(0.01)	$	(11.95)	$	1.85
Income from discontinued operations	0.21		0.09		0.28		0.08
Net (loss) income	$	(11.04)	$	0.08	$	(11.66)	$	1.93
Basic weighted-average shares outstanding	84.5		83.8		84.3		83.7

Diluted (loss) earnings per share (Note 5):
(Loss) income from continuing operations	$	(11.25)	$	(0.01)	$	(11.95)	$	1.84
Income from discontinued operations	0.21		0.09		0.28		0.08
Net (loss) income	$	(11.04)	$	0.08	$	(11.66)	$	1.92
Diluted weighted-average shares outstanding	84.5		83.8		84.3		84.3

Three Months Ended Six Months Ended
June 28,
2019 June 29,
2018 June 28,
2019 June 29,
2018
Net sales $ 823.3
$ 825.5
$ 1,613.9
$ 1,580.8
Cost of sales 434.4
431.5
889.9
839.3
Gross profit 388.9
394.0
724.0
741.5

Selling, general and administrative expenses 225.9
189.9
456.1
401.1
Research and development expenses 79.6
92.6
164.9
174.6
Restructuring charges, net (0.2 ) 58.8
4.0
87.0
Non-restructuring impairment charge 113.5
—
113.5
—
Operating (loss) income (29.9 ) 52.7
(14.5 ) 78.8

Interest expense (71.5 ) (95.1 ) (154.2 ) (186.5 )
Interest income 2.2
1.4
3.7
4.6
Other income (expense), net 74.4
(0.2 ) 90.7
4.4
Loss from continuing operations before income taxes (24.8 ) (41.2 ) (74.3 ) (98.7 )

Income tax benefit (24.3 ) (44.4 ) (229.0 ) (81.0 )
(Loss) income from continuing operations (0.5 ) 3.2
154.7
(17.7 )

Income from discontinued operations, net of income taxes 7.3
12.4
7.0
15.3

Net income (loss) $ 6.8
$ 15.6
$ 161.7
$ (2.4 )

Basic earnings per share (Note 6):
(Loss) income from continuing operations $ (0.01 ) $ 0.04
$ 1.85
$ (0.21 )
Income from discontinued operations 0.09
0.15
0.08
0.18
Net income (loss) $ 0.08
$ 0.19
$ 1.93
$ (0.03 )

Basic weighted-average shares outstanding 83.8
83.2
83.7
84.7

Diluted earnings per share (Note 6):
(Loss) income from continuing operations
$ (0.01 ) $ 0.04
$ 1.84
$ (0.21 )
Income from discontinued operations 0.09
0.15
0.08
0.18
Net income (loss) $ 0.08
$ 0.19
$ 1.92
$ (0.03 )

Diluted weighted-average shares outstanding 83.8
83.5
84.3
84.7

See Notes to Condensed Consolidated Financial Statements.

MALLINCKRODT PLC

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE ~~INCOME~~OPERATIONS

(unaudited, in millions)


	Three Months Ended						Six Months Ended
	June 26, 2020		June 28, 2019		June 26, 2020		June 28, 2019
Net (loss) income	$	(933.1)	$	6.8	$	(983.3)	$	161.7
Other comprehensive income (loss), net of tax:
Currency translation adjustments	0.8		2.3		(0.3)		3.7
Derivatives, net of tax	0.1		0.5		0.1		0.7
Benefit plans, net of tax	(0.5)		(0.4)		(0.7)		(0.7)

Total other comprehensive income (loss), net of tax	0.4		2.4		(0.9)		3.7
Comprehensive (loss) income	$	(932.7)	$	9.2	$	(984.2)	$	165.4

Three Months Ended Six Months Ended
June 28,
2019 June 29,
2018 June 28,
2019 June 29,
2018
Net income (loss) $ 6.8
$ 15.6
$ 161.7
$ (2.4 )
Other comprehensive income (loss), net of tax:
Currency translation adjustments 2.3
(5.0 ) 3.7
(7.3 )
Derivatives, net of tax 0.5
0.1
0.7
0.5
Benefit plans, net of tax (0.4 ) —
(0.7 ) (0.5 )
Total other comprehensive income (loss), net of tax 2.4
(4.9 ) 3.7
(7.3 )
Comprehensive income (loss) $ 9.2
$ 10.7
$ 165.4
$ (9.7 )

See Notes to Condensed Consolidated Financial Statements.

MALLINCKRODT PLC

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited, in millions, except share data)


	June 26, 2020		December 27, 2019
Assets
Current Assets:
Cash and cash equivalents	$	818.3	$	790.9
Accounts receivable, less allowance for doubtful accounts of $4.0 and $4.0	493.3		577.5
Inventories	333.0		312.1
Prepaid expenses and other current assets	310.2		150.2

Total current assets	1,954.8		1,830.7
Property, plant and equipment, net	864.7		896.5

Intangible assets, net	6,566.5		7,018.0

Other assets	304.1		593.7
Total Assets	$	9,690.1	$	10,338.9

Liabilities and Shareholders' Equity
Current Liabilities:
Current maturities of long-term debt	$	19.5	$	633.6
Accounts payable	86.5		139.8
Accrued payroll and payroll-related costs	132.5		105.2
Accrued interest	67.2		62.9
Medicaid lawsuit (Note 11)	639.7		—
Accrued and other current liabilities	375.5		485.4

Total current liabilities	1,320.9		1,426.9
Long-term debt	5,223.4		4,741.2
Opioid-related litigation settlement liability (Note 11)	1,635.1		1,643.4
Pension and postretirement benefits	61.4		62.4
Environmental liabilities	60.3		60.0

Other income tax liabilities	220.9		227.1

Other liabilities	198.6		237.2
Total Liabilities	8,720.6		8,398.2
Shareholders' Equity:
Preferred shares, $0.20 par value, 500,000,000 authorized; none issued and outstanding	—		—
Ordinary A shares, €1.00 par value, 40,000 authorized; none issued and outstanding	—		—
Ordinary shares, $0.20 par value, 500,000,000 authorized; 94,059,693, and 93,459,206 issued; 84,564,406 and 84,105,786 outstanding	18.8		18.7
Ordinary shares held in treasury at cost, 9,495,287 and 9,353,420	(1,616.0)		(1,615.7)
Additional paid-in capital	5,575.7		5,562.5
Retained deficit	(3,000.2)		(2,016.9)
Accumulated other comprehensive loss	(8.8)		(7.9)
Total Shareholders' Equity	969.5		1,940.7
Total Liabilities and Shareholders' Equity	$	9,690.1	$	10,338.9

June 28,
2019 December 28,
2018
Assets
Current Assets:
Cash and cash equivalents $ 241.1
$ 348.9
Accounts receivable, less allowance for doubtful accounts of $4.7 and $5.0 528.4
623.3
Inventories 337.4
322.3
Prepaid expenses and other current assets 112.5
132.7
Total current assets 1,219.4
1,427.2
Property, plant and equipment, net 994.2
982.0
Intangible assets, net 7,721.1
8,282.8
Other assets 287.0
185.3
Total Assets $ 10,221.7
$ 10,877.3

Liabilities and Shareholders' Equity
Current Liabilities:
Current maturities of long-term debt $ 717.9
$ 22.4
Accounts payable 148.6
147.5
Accrued payroll and payroll-related costs 79.8
124.0
Accrued interest 45.9
77.6
Accrued and other current liabilities 565.3
572.2
Total current liabilities 1,557.5
943.7
Long-term debt 4,823.0
6,069.2
Pension and postretirement benefits 59.5
60.5
Environmental liabilities 60.5
59.7
Deferred income taxes 53.4
324.3
Other income tax liabilities 262.5
228.0
Other liabilities 330.1
304.6
Total Liabilities 7,146.5
7,990.0
Shareholders' Equity:
Preferred shares, $0.20 par value, 500,000,000 authorized; none issued and outstanding —
—
Ordinary A shares, €1.00 par value, 40,000 authorized; none issued and outstanding —
—
Ordinary shares, $0.20 par value, 500,000,000 authorized; 93,339,914 and 92,705,747 issued;
83,918,620 and 83,323,877 outstanding

18.7
18.5
Ordinary shares held in treasury at cost, 9,421,294 and 9,381,870 (1,617.4 ) (1,617.4 )
Additional paid-in capital 5,551.5
5,528.2
Retained deficit (857.5 ) (1,017.7 )
Accumulated other comprehensive loss (20.1 ) (24.3 )
Total Shareholders' Equity 3,075.2
2,887.3
Total Liabilities and Shareholders' Equity $ 10,221.7
$ 10,877.3

See Notes to Condensed Consolidated Financial Statements.

MALLINCKRODT PLC

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited, in millions)


	Six Months Ended
	June 26, 2020		June 28, 2019
Cash Flows From Operating Activities:
Net (loss) income	$	(983.3)	$	161.7
Adjustments to reconcile net cash from operating activities:
Depreciation and amortization	439.4		488.6
Share-based compensation	13.3		22.8
Deferred income taxes	314.1		(271.2)
Non-cash impairment charges	63.5		113.5
Gains on divestiture	(0.4)		—


Other non-cash items	(12.5)		(76.0)
Changes in assets and liabilities, net of the effects of acquisitions:
Accounts receivable, net	83.6		95.5
Inventories	(27.2)		(23.8)
Accounts payable	(45.7)		7.2
Income taxes	(219.8)		22.4
Medicaid lawsuit (Note 11)	639.7		—
Other	(40.1)		(73.3)
Net cash from operating activities	224.6		467.4
Cash Flows From Investing Activities:
Capital expenditures	(31.3)		(77.6)

Proceeds from divestitures, net of cash	(3.5)		—
Other	6.0		8.2
Net cash from investing activities	(28.8)		(69.4)
Cash Flows From Financing Activities:
Issuance of external debt	—		200.0
Repayment of external debt	(129.6)		(685.9)
Debt financing costs	(9.1)		—
Repurchase of shares	(0.3)		(2.5)
Other	(19.2)		(18.0)
Net cash from financing activities	(158.2)		(506.4)
Effect of currency rate changes on cash	(0.5)		0.8
Net change in cash, cash equivalents and restricted cash	37.1		(107.6)
Cash, cash equivalents and restricted cash at beginning of period	822.6		367.5
Cash, cash equivalents and restricted cash at end of period	$	859.7	$	259.9

Cash and cash equivalents at end of period	$	818.3	$	241.1
Restricted cash included in other assets at end of period	41.4		18.8
Cash, cash equivalents and restricted cash at end of period	$	859.7	$	259.9

Six Months Ended
June 28,
2019 June 29,
2018
Cash Flows From Operating Activities:
Net income (loss) $ 161.7
$ (2.4 )
Adjustments to reconcile net cash from operating activities:
Depreciation and amortization 488.6
397.1
Share-based compensation 22.8
16.4
Deferred income taxes (271.2 ) (101.0 )
Non-cash impairment charge 113.5
—
Other non-cash items (76.0 ) (19.0 )
Changes in assets and liabilities, net of the effects of acquisitions:
Accounts receivable, net 95.5
(21.8 )
Inventories (23.8 ) 18.4
Accounts payable 7.2
2.1
Income taxes 22.4
7.4
Other (73.3 ) (35.4 )
Net cash from operating activities 467.4
261.8
Cash Flows From Investing Activities:
Capital expenditures (77.6 ) (67.1 )
Acquisitions, net of cash —
(699.9 )
Proceeds from divestitures, net of cash —
298.3
Other 8.2
12.4
Net cash from investing activities (69.4 ) (456.3 )
Cash Flows From Financing Activities:
Issuance of external debt 200.0
657.2
Repayment of external debt (685.9 ) (1,392.8 )
Debt financing costs —
(12.0 )
Proceeds from exercise of share options 0.5
—
Repurchase of shares (2.5 ) (56.8 )
Other (18.5 ) (24.9 )
Net cash from financing activities (506.4 ) (829.3 )
Effect of currency rate changes on cash 0.8
(1.2 )
Net change in cash, cash equivalents and restricted cash (107.6 ) (1,025.0 )
Cash, cash equivalents and restricted cash at beginning of period 367.5
1,279.1
Cash, cash equivalents and restricted cash at end of period $ 259.9
$ 254.1

Cash and cash equivalents at end of period $ 241.1
$ 235.7
Restricted cash included in other assets at end of period 18.8
18.4
Cash, cash equivalents and restricted cash at end of period $ 259.9
$ 254.1

See Notes to Condensed Consolidated Financial Statements.

MALLINCKRODT PLC

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(unaudited, in millions)


	Ordinary Shares				Treasury Shares						Additional Paid-In Capital		Retained Deficit		Accumulated Other Comprehensive Loss	Total Shareholders' Equity
	Number	Par Value		Number	Amount
Balance as of December 28, 2018	92.7	$	18.5	9.4	$	(1,617.4)	$	5,528.2	$	(1,017.7)	$	(24.3)	$	2,887.3
Impact of accounting standard adoptions, net of tax	—	—		—	—		—		(0.5)		0.5		—
Net income	—	—		—	—		—		154.9		—		154.9
Other comprehensive income	—	—		—	—		—		—		1.3		1.3
Share options exercised	—	—		—	—		0.3		—		—		0.3
Vesting of restricted shares	0.2	0.1		—	(0.5)		—		—		—		(0.4)
Share-based compensation	—	—		—	—		10.0		—		—		10.0
Reissuance of treasury shares	—	—		—	0.9		—		(0.4)		—		0.5
Balance as of March 29, 2019	92.9	$	18.6	9.4	$	(1,617.0)	$	5,538.5	$	(863.7)	$	(22.5)	$	3,053.9
Net income	—	—		—	—		—		6.8		—		6.8
Other comprehensive income	—	—		—	—		—		—		2.4		2.4
Share options exercised	—	—		—	—		0.2		—		—		0.2
Vesting of restricted shares	0.4	0.1		0.1	(2.0)		—		—		—		(1.9)
Share-based compensation	—	—		—	—		12.8		—		—		12.8
Reissuance of treasury shares	—	—		(0.1)	1.6		—		(0.6)		—		1.0
Balance as of June 28, 2019	93.3	$	18.7	9.4	$	(1,617.4)	$	5,551.5	$	(857.5)	$	(20.1)	$	3,075.2

Balance as of December 27, 2019	93.5	$	18.7	9.4	$	(1,615.7)	$	5,562.5	$	(2,016.9)	$	(7.9)	$	1,940.7
Net loss	—	—		—	—		—		(50.2)		—		(50.2)
Other comprehensive loss	—	—		—	—		—		—		(1.3)		(1.3)
Vesting of restricted shares	0.1	—		—	—		(0.1)		—		—		(0.1)
Share-based compensation	—	—		—	—		6.7		—		—		6.7
Balance as of March 27, 2020	93.6	$	18.7	9.4	$	(1,615.7)	$	5,569.1	$	(2,067.1)	$	(9.2)	$	1,895.8
Net loss	—	—		—	—		—		(933.1)		—		(933.1)
Other comprehensive income	—	—		—	—		—		—		0.4		0.4
Vesting of restricted shares	0.5	0.1		0.1	(0.3)		—		—		—		(0.2)
Share-based compensation	—	—		—	—		6.6		—		—		6.6
Balance as of June 26, 2020	94.1	$	18.8	9.5	$	(1,616.0)	$	5,575.7	$	(3,000.2)	$	(8.8)	$	969.5

Ordinary Shares Treasury Shares
Additional
Paid-In Capital
Retained Earnings (Deficit) Accumulated Other Comprehensive Loss
Total
Shareholders'
Equity
Number
Par
Value
Number Amount
Balance as of December 29, 2017 92.2
$ 18.4
5.9
$ (1,564.7 ) $ 5,492.6
$ 2,588.6
$ (12.9 ) $ 6,522.0
Impact of accounting standard adoptions, net of tax —
—
—
—
—
2.6
(1.5 ) 1.1
Net loss —
—
—
—
—
(18.0 ) —
(18.0 )
Currency translation adjustments —
—
—
—
—
—
(2.3 ) (2.3 )
Change in derivatives, net of tax —
—
—
—
—
—
0.4
0.4
Change in benefit plans, net of tax —
—
—
—
—
—
(0.5 ) (0.5 )
Vesting of restricted shares 0.3
0.1
—
(1.4 ) —
—
—
(1.3 )
Share-based compensation —
—
—
—
4.6
—
—
4.6
Reissuance of treasury shares —
—
—
0.8
—
(0.3 ) —
0.5
Repurchase of shares —
—
2.9
(45.2 ) —
—
—
(45.2 )
Balance as of March 30, 2018 92.5
$ 18.5
8.8
$ (1,610.5 ) $ 5,497.2
$ 2,572.9
$ (16.8 ) $ 6,461.3
Net income —
—
—
—
—
15.6
—
15.6
Currency translation adjustments —
—
—
—
—
—
(5.0 ) (5.0 )
Change in derivatives, net of tax —
—
—
—
—
—
0.1
0.1
Vesting of restricted shares —
—
0.1
(0.2 ) (0.1 ) —
—
(0.3 )
Share-based compensation —
—
—
—
11.8
—
—
11.8
Reissuance of treasury shares —
—
(0.1 ) 1.6
—
(0.7 ) —
0.9
Repurchase of shares —
—
0.7
(10.0 ) —
—
—
(10.0 )
Balance as of June 29, 2018 92.5
$ 18.5
9.5
$ (1,619.1 ) $ 5,508.9
$ 2,587.8
$ (21.7 ) $ 6,474.4

Balance as of December 28, 2018 92.7
$ 18.5
9.4
$ (1,617.4 ) $ 5,528.2
$ (1,017.7 ) $ (24.3 ) $ 2,887.3
Impact of accounting standard adoptions, net of tax —
—
—
—
—
(0.5 ) 0.5
—
Net income —
—
—
—
—
154.9
—
154.9
Currency translation adjustments —
—
—
—
—
—
1.4
1.4
Change in derivatives, net of tax —
—
—
—
—
—
0.2
0.2
Change in benefit plans, net of tax —
—
—
—
—
—
(0.3 ) (0.3 )
Share options exercised —
—
—
—
0.3
—
—
0.3
Vesting of restricted shares 0.2
0.1
—
(0.5 ) —
—
—
(0.4 )
Share-based compensation —
—
—
—
10.0
—
—
10.0
Reissuance of treasury shares —
—
—
0.9
—
(0.4 ) —
0.5
Balance as of March 29, 2019 92.9
$ 18.6
9.4
$ (1,617.0 ) $ 5,538.5
$ (863.7 ) $ (22.5 ) $ 3,053.9
Net income —
—
—
—
—
6.8
—
6.8
Currency translation adjustments —
—
—
—
—
—
2.3
2.3
Change in derivatives, net of tax —
—
—
—
—
—
0.5
0.5
Change in benefit plans, net of tax —
—
—
—
—
—
(0.4 ) (0.4 )
Share options exercised —
—
—
—
0.2
—
—
0.2
Vesting of restricted shares 0.4
0.1
0.1
(2.0 ) —
—
—
(1.9 )
Share-based compensation —
—
—
—
12.8
—
—
12.8
Reissuance of treasury shares —
—
(0.1 ) 1.6
—
(0.6 ) —
1.0
Balance as of June 28, 2019 93.3
$ 18.7
9.4
$ (1,617.4 ) $ 5,551.5
$ (857.5 ) $ (20.1 ) $ 3,075.2

See Notes to Condensed Consolidated Financial Statements.

MALLINCKRODT PLC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited, dollars in millions, except share data, per share data and where indicated)



1.			Background and Basis of Presentation

Background

Mallinckrodt plc is a global business ~~consisting~~ 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, nephrology, pulmonology and ophthalmology; immunotherapy and neonatal respiratory critical care therapies; analgesics and gastrointestinal products.

~~On May 28, 2019, as an update to the Company's planned separation of the previously reported Specialty Generics and Amitiza~~^® ~~(lubiprostone) ("Amitiza") segment, the~~The Company announced that given the strong, return-to-growth performance of the Specialty Generics business, the Amitiza product should remain with the Specialty Brands business. As a result of this announcement, the Company identifiedoperates in two reportable segments, ~~that align with the operations of the two independent publicly traded companies anticipated post-separation,~~ which are further described below:

•Specialty Brands includes innovative specialty pharmaceutical brands; and


•	~~Specialty Brands~~ ~~includes innovative specialty pharmaceutical brands (inclusive of Amitiza); and~~


•	Specialty Generics includes niche specialty generic drugs and active pharmaceutical ingredients ("API(s)").

All prior period segment information has been recast to reflect the realignment of the Company's reportable segments on a comparable basis. Refer to Note 18 for an update on the Company's plans for the Specialty Generics business.

The Company owns or has rights to use the trademarks and trade names that are used in conjunction with the operation of its business. One of the more important trademarks that the Company owns or has rights to use that appears in this Quarterly Report on Form 10-Q is "Mallinckrodt," which is a registered trademark or the subject of pending trademark applications in the United States ("U.S.") and other jurisdictions. Solely for convenience, the Company only uses the ™ or ^® symbols the first time any trademark or trade name is mentioned in the following notes. 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 the following notes is, to the Company's knowledge, owned by such other company.

Basis of Presentation

The unaudited condensed 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 unaudited condensed 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 unaudited condensed consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries and entities in which they own or control more than ~~50%~~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 results of entities disposed of are included in the unaudited condensed 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 income.

The fiscal year end balance sheet data was derived from audited consolidated financial statements, but do not include all of the annual disclosures required by GAAP; accordingly these unaudited condensed consolidated financial statements should be read in conjunction with the Company's audited annual consolidated financial statements included in its Annual Report on Form 10-K for the fiscal year ended December ~~28, 2018~~27, 2019 filed with the U.S. Securities and Exchange Commission ("SEC") on February 26, ~~2019.~~2020.

Beginning in the first quarter through the third quarter of fiscal 2018, the historical financial results attributable to "the Specialty Generics Disposal Group" were reflected in the Company's interim

Going Concern

The accompanying unaudited condensed consolidated financial statements are prepared in accordance with GAAP applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

Management has identified the following negative conditions and events that raise substantial doubt about the Company’s ability to continue as ~~discontinued operations.~~a going concern within one year from the date of issuance of the unaudited condensed consolidated financial statements:

•During the three months ended June 26, 2020, the Company changed the base date average manufacturer price ("AMP") for Acthar^® Gel ("Acthar Gel") in the Centers for Medicare & Medicaid Services ("CMS") data reporting system to reflect the original base date AMP for Acthar Gel. As a result, the Company recorded an accrual of $639.7 million related to this retrospective liability (the “Acthar Gel Medicaid Retrospective Rebate”) in the unaudited condensed consolidated balance sheet as of June 26, 2020. The Company continues to appeal the March 2020 adverse ruling by the court, which upheld CMS' decision to reverse its previous determination of the ~~December 6, 2018 announcement~~base date AMP used to calculate Acthar Gel rebates. See Note 11 for further information on this matter, described as the Medicaid Lawsuit. Barring other arrangements, the cash payments for this current liability will begin to come due in accordance with the normal rebate payment schedule before the end of 2020.

•As further described in Note 9 and within the planned separation of the Specialty Generics business, the Specialty Generics Disposal Group no longer met the requirements to be classified as held-for-sale, and the historical financial results attributablenotes to the ~~Specialty Generics Disposal Group were recast as continuing operations in~~financial statements included within the ~~Company's~~Company’s Annual Report filed on Form 10-K for the fiscal year ended December ~~28, 2018,~~27, 2019, the agreements governing the Company's debt contain various restrictive covenants, including, with respect to the Company's revolving credit facility, the financial covenant requiring the Company to maintain a net debt leverage ratio that does not exceed a specified threshold as ~~well~~of the last day of each fiscal quarter. In the event the Company is unable either to comply with this financial covenant, or to obtain a waiver from its revolving credit facility lenders, such lenders will have the right, but not the obligation, to declare all or any portion of the outstanding revolving credit facility balance due and payable. Furthermore, in the event that outstanding balances under the revolving credit facility are declared due and payable by the lenders, the lenders of certain of the Company's other debt will have the right, but not the obligation, to declare all of the outstanding balance of such debt due and payable as well.

As of June 26, 2020, the Company was fully drawn on its $900.0 million revolving credit facility. The Company was in compliance with the above-described financial covenant as of June 26, 2020. However, the Company expects that it would be unable to continue to comply with such financial covenant commencing in the first fiscal quarter of 2021 if it were to pay the Acthar Gel Medicaid Retrospective Rebate.

•As previously disclosed, on February 25, 2020, the Company announced an agreement in principle on the terms of a global settlement that would resolve all opioid-related claims against the Company and its subsidiaries (“Opioid-Related Litigation Settlement”), described more fully in Note 11. The Opioid-Related Litigation Settlement is subject to a number of conditions, which may not be satisfied. Among other things, the Opioid-Related Litigation Settlement included an unsatisfied condition with respect to the outcome of the Medicaid lawsuit. The Company is engaged in constructive dialogue with the plaintiff parties to the Opioid-Related Litigation Settlement to address the impact of the U.S. District Court for the District of Columbia (the "District Court")’s decision in regards to the Medicaid lawsuit, but there can be no assurance that such dialogue will result in a modification of the Opioid-Related Litigation Settlement that would be satisfactory to all parties. Moreover, the Opioid-Related Litigation Settlement contemplates a bankruptcy filing for Mallinckrodt’s Specialty Generics Subsidiaries (as defined in Note 11) only. If Mallinckrodt plc and most of its subsidiaries (and not only the Specialty Generics Subsidiaries) were to choose to pursue a Chapter 11 filing, the Company would expect to seek to modify the Opioid-Related Litigation Settlement so that it would be effectuated in the context of the related bankruptcy proceedings, but there likewise can be no assurance that the Company would be able to agree to a modification of the Opioid-Related Litigation Settlement that would be satisfactory to all parties. If the opioid-related claims are not settled, the Company would be subject to continued litigation with certain plaintiffs with opioid-related claims and the Company may become subject to some or all of the liabilities that would have otherwise been settled, which could have a material and adverse effect on the Company’s business, financial condition, results of operations and cash flows.

These conditions and events raise substantial doubt about the Company’s ability to continue as a going concern.

Any plans to resolve these risks as a going concern have not yet been finalized and are not fully within the Company's control, and therefore cannot be deemed probable. The Company has been working with external advisors to explore a range of options and engage in dialogue with financial creditors and litigation claimants and their advisors, which may result in a filing for reorganization in bankruptcy under Chapter 11 by Mallinckrodt plc and most of its subsidiaries in the near-term. As a result, the Company has concluded that management’s plans at this stage do not alleviate substantial doubt about the Company’s ability to continue as a going concern.

The unaudited condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts and classification of liabilities that might result from the outcome of this uncertainty. See Note 4 for discussion regarding the ~~prior periods~~valuation allowance of $341.6 million on the Company’s net deferred tax assets that was recorded within the unaudited condensed consolidated balance sheet as ~~presented herein.~~of June 26, 2020 as a result of considering the aforementioned substantial doubt in the Company’s assessment of the realizability of certain net deferred tax assets.

Fiscal Year

The Company reports its results based on a "52-53 week" year ending on the last Friday of December. Unless otherwise indicated, the three and six months ended June 26, 2020 refers to the thirteen and twenty-six week periods ended June 26, 2020 and the three and six months ended June 28, 2019 refers to the thirteen and twenty-six week periods ended June 28, ~~2019 and the three and six months ended June 29, 2018 refers to the thirteen and twenty-six week periods ended June 29, 2018.~~2019.



2.			~~Recently Issued Accounting Standards~~

~~Adopted~~

The Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income," in February 2018. This ASU allows for a reclassification from accumulated other comprehensive income ("AOCI") to retained earnings for the stranded tax effects arising from the change in the reduction of the U.S. federal statutory income tax rate from 35% to 21%. The Company adopted this standard as of day 1 of fiscal 2019, which resulted in a reclassification between AOCI and retained deficit of $0.5 million, and had no impact on the Company's results of operations or financial position.

The FASB issued ASU 2016-02, "Leases," in February 2016. This ASU was issued to increase transparency and comparability among organizations by recognizing all lease transactions (with terms in excess of 12 months) on the balance sheet as a lease liability and a right-of-use asset. The FASB subsequently issued additional ASUs to clarify the guidance of ASU 2016-02 ("Topic 842,") as amended. The Company adopted this standard as of day 1 of fiscal 2019 utilizing the modified transition approach expedient which allows an entity to elect not to recast its comparative periods in the period of adoption. In addition, the Company elected to use the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the Company to carry forward the historical lease classification. The Company also elected the hindsight practical expedient to determine the lease term for existing leases. Adoption of the new standard resulted in the recording of additional lease assets and corresponding liabilities of $83.1 million and $99.7 million, respectively, as of day 1 of fiscal 2019. Refer to Note 9 for further details on the Company's leases.



3.	Revenue from Contracts with Customers

Product Sales Revenue

See Note 1613 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:


	Rebates and Chargebacks		Product Returns		Other Sales Deductions		Total
Balance as of December 28, 2018	$	354.3	$	34.0	$	17.1	$	405.4
Provisions	1,214.3		11.7		34.7		1,260.7
Payments or credits	(1,240.2)		(15.6)		(35.9)		(1,291.7)
Balance as of June 28, 2019	$	328.4	$	30.1	$	15.9	$	374.4

Balance as of December 27, 2019	$	295.8	$	28.4	$	13.2	$	337.4
Provisions ⁽¹⁾	947.5		13.3		29.2		990.0

Provision for Medicaid lawsuit (Note 11) ⁽²⁾	534.4		—		—		534.4
Payments or credits	(982.0)		(15.4)		(31.7)		(1,029.1)
Balance as of June 26, 2020	$	795.7	$	26.3	$	10.7	$	832.7

Rebates and Chargebacks Product Returns Other Sales Deductions Total
Balance as of December 29, 2017 $ 327.4
$ 34.5
$ 14.7
$ 376.6
Provisions 1,029.0
23.2
29.5
1,081.7
Payments or credits (999.2 ) (22.5 ) (31.1 ) (1,052.8 )
Balance as of June 29, 2018 $ 357.2
$ 35.2
$ 13.1
$ 405.5

Balance as of December 28, 2018 $ 354.3
$ 34.0
$ 17.1
$ 405.4
Provisions 1,214.3
11.7
34.7
1,260.7
Payments or credits (1,240.2 ) (15.6 ) (35.9 ) (1,291.7 )
Balance as of June 28, 2019 $ 328.4
$ 30.1
$ 15.9
$ 374.4
(1)Rebates and Chargebacks include the prospective change to the Medicaid rebate calculation of $8.6 million for the period from June 15, 2020 to June 26, 2020, of which $6.8 million represents the channel impact. See Note 11 for further detail on the status of the Medicaid lawsuit.

(2)Excludes the $105.3 million that is reflected as a component of operating expenses as it represents a pre-acquisition contingency related to the portion of the liability that arose from sales of Acthar Gel prior to the Company’s acquisition of Questcor Pharmaceuticals Inc. ("Questcor") in August 2014. See Note 11 for further detail on the status of the Medicaid lawsuit.

Product sales transferred to customers at a point in time and over time were as follows:


	Three Months Ended						Six Months Ended
	June 26, 2020		June 28, 2019		June 26, 2020		June 28, 2019
Product sales transferred at a point in time	77.7	%	82.9	%	78.1	%	81.8	%
Product sales transferred over time	22.3		17.1		21.9		18.2

Three Months Ended Six Months Ended
June 28,
2019 June 29,
2018 June 28,
2019 June 29,
2018
Product sales transferred at a point in time 82.9 % 84.0 % 81.8 % 82.7 %
Product sales transferred over time 17.1 % 16.0 % 18.2 % 17.3 %

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 June ~~28, 2019:~~26, 2020:


Remainder of Fiscal 2020	$	97.9
Fiscal 2021	102.7
Fiscal 2022	37.7
Fiscal 2023	8.1
Thereafter	0.3

Remainder of Fiscal 2019 $ 81.5
Fiscal 2020 154.2
Fiscal 2021 60.3
Fiscal 2022 9.2
Thereafter 6.2

Costs to fulfill a contract

As of June ~~28, 2019~~26, 2020 and December ~~28, 2018,~~27, 2019, 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, were ~~$27.5~~$26.8 million and ~~$28.4~~$26.5 million, respectively, and ~~are~~were classified in property, plant and equipment, net, on the unaudited condensed consolidated balance sheets. The associated depreciation expense recognized during the six months ended June 26, 2020 and June 28, 2019 ~~and June 29, 2018~~ was ~~$3.4~~$2.7 million and ~~$6.8~~$3.4 million, respectively.

Product Royalty Revenues

The Company licenses certain rights to Amitiza^® (lubiprostone) ("Amitiza") to a third party in exchange for royalties on net sales of the product. The Company recognizes such royalty revenue as the related sales occur. The royalty rates consist of several tiers ranging from ~~18%~~18.0% to ~~26%~~26.0% with the royalty rate resetting every year. The associated royalty revenue recognized was as follows:


	Three Months Ended						Six Months Ended
	June 26, 2020		June 28, 2019		June 26, 2020		June 28, 2019
Royalty revenue	$	16.3	$	19.4	$	31.9	$	36.8

Three Months Ended Six Months Ended
June 28,
2019 June 29,
2018 June 28,
2019 June 29,
2018
Royalty revenue $ 19.4
$ 21.6
$ 36.8
$ 29.6

Royalty revenue for the three and six months ended June 29, 2018 reflects royalty revenue for the period subsequent to the Company's February 2018 acquisition of Sucampo Pharmaceuticals, Inc. ("Sucampo Acquisition").

Contract Liabilities

The following table reflects the balance of the Company's contract liabilities at the end of ~~the respective periods:~~each period:

June 28,
2019 December 28,
2018
Accrued and other current liabilities $ 20.3
$ 20.4
Other liabilities 16.9
15.1
Contract liabilities $ 37.2
$ 35.5


	June 26, 2020		December 27, 2019
Accrued and other current liabilities	$	3.4	$	5.6
Other liabilities	0.4		0.6
Contract liabilities	$	3.8	$	6.2

Revenue recognized during the six months ended June 26, 2020 and June 28, 2019 from amounts included in contract liabilities at the beginning of the period was $3.6 million and $9.2 ~~million.~~million, respectively, inclusive of the Company's wholly owned subsidiary BioVectra Inc. ("BioVectra"), prior to the completion of the sale of this business in November 2019.



4.3.			Restructuring and Related Charges

~~In July~~During fiscal 2018 and 2016, the ~~Company's Board~~Company launched restructuring programs designed to improve its cost structure. Charges of ~~Directors approved a~~ $100.0 million to $125.0 million ~~restructuring~~were provided for under each program. Each program ("the 2016 Mallinckrodt Program"), designed to further improve its cost structure as the Company continues to transform its business. The 2016 Mallinckrodt Program included actions across the Specialty Brands segment and the Specialty Generics segment, as well as within the corporate functions. The 2016 Mallinckrodt Program was substantially completed in fiscal 2018.

In February 2018, the Company's Board of Directors approved a $100.0 million to $125.0 million restructuring program ("the 2018 Mallinckrodt Program") that is of similar design as the 2016 Mallinckrodt Program. The utilization of the 2018 Mallinckrodt Programgenerally commenced upon substantial completion of the ~~2016 Mallinckrodt Program. There is no specified time period associated with the 2018 Mallinckrodt Program.~~

previous program. In addition to the ~~2018 and 2016 Mallinckrodt Programs,~~aforementioned programs, the Company has taken restructuring actions to generate synergies from its acquisitions.

Net restructuring and related charges by segment were as follows:


	Three Months Ended						Six Months Ended
	June 26, 2020		June 28, 2019		June 26, 2020		June 28, 2019
Specialty Brands	$	0.1	$	(0.1)	$	0.1	$	0.4
Specialty Generics	—		(0.9)		0.1		2.6
Corporate	14.3		0.8		12.4		1.0
Restructuring charges, net	$	14.4	$	(0.2)	$	12.6	$	4.0

Three Months Ended Six Months Ended
June 28,
2019 June 29,
2018 June 28,
2019 June 29,
2018
Specialty Brands $ (0.1 ) $ 47.0
$ 0.4
$ 47.5
Specialty Generics (0.9 ) 0.1
2.6
5.2
Corporate 0.8
11.7
1.0
34.3
Restructuring and related charges, net (0.2 ) 58.8
4.0
87.0
Less: accelerated depreciation —
—
—
—
Restructuring charges, net $ (0.2 ) $ 58.8
$ 4.0
$ 87.0

Net restructuring and related charges by program were comprised of the following:


	Three Months Ended						Six Months Ended
	June 26, 2020		June 28, 2019		June 26, 2020		June 28, 2019
2018 Program	$	14.5	$	(0.9)	$	14.6	$	2.6
2016 Program	(0.1)		1.5		(0.1)		2.2
Acquisition Programs	—		(0.8)		(1.9)		(0.8)


Total charges expected to be settled in cash	$	14.4	$	(0.2)	$	12.6	$	4.0

Three Months Ended Six Months Ended
June 28,
2019 June 29,
2018 June 28,
2019 June 29,
2018
2018 Mallinckrodt Program $ (0.9 ) $ —
$ 2.6
$ —
2016 Mallinckrodt Program 1.5
52.3
2.2
60.5
Acquisition programs (0.8 ) 6.5
(0.8 ) 26.5
Total charges expected to be settled in cash $ (0.2 ) $ 58.8
$ 4.0
$ 87.0

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:


	2018 Program		2016 Program		Acquisition Programs		Total
Balance as of December 27, 2019	$	2.7	$	31.3	$	0.2	$	34.2
Charges	14.6		0.1		—		14.7
Changes in estimate	—		(0.2)		(1.9)		(2.1)
Cash payments	(3.3)		(30.5)		(0.2)		(34.0)

Currency translation and other	—		—		1.9		1.9
Balance as of June 26, 2020	$	14.0	$	0.7	$	—	$	14.7

2018 Mallinckrodt Program 2016 Mallinckrodt Program Acquisition Programs Total
Balance as of December 28, 2018 $ 2.2
$ 61.0
$ 7.8
$ 71.0
Charges 3.5
2.4
—
5.9
Changes in estimate (0.9 ) (0.2 ) (0.8 ) (1.9 )
Cash payments (1.4 ) (11.0 ) (1.4 ) (13.8 )
Reclassifications ⁽¹⁾
—
(5.0 ) (4.3 ) (9.3 )
Balance as of June 28, 2019 $ 3.4
$ 47.2
$ 1.3
$ 51.9


~~(1)~~	Represents the reclassification of lease liabilities, net to lease liabilities and lease assets, which are reflected within other liabilities and other assets on the unaudited condensed consolidated balance sheet, due to the adoption of ASU 2016-02.

As of June ~~28, 2019,~~26, 2020, net restructuring and related charges incurred cumulative to date ~~related to the 2018 and 2016 Mallinckrodt Programs~~ were as follows:

2018 Mallinckrodt Program 2016 Mallinckrodt Program
Specialty Brands $ 3.0
$ 82.2
Specialty Generics 2.6
14.6
Corporate 2.2
27.6
$ 7.8
$ 124.4


	2018 Program		2016 Program
Specialty Brands	$	3.0	$	68.1
Specialty Generics	10.1		14.6
Corporate	16.5		28.8
	$	29.6	$	111.5

All of the restructuring reserves were included in accrued and other current liabilities on the Company's unaudited condensed consolidated balance sheets. Amounts paid in the future may differ from the amount currently recorded.



5.4.			Income Taxes

On March 27, 2020, the U.S. government enacted the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act. The CARES Act was a response to the market volatility and instability resulting from the novel coronavirus ("COVID-19") pandemic. It includes provisions to support individuals and businesses in the form of loans, grants, and tax changes among other types of relief. Estimates of the effects of the changes to the U.S. tax code have been incorporated into the Company’s six months ended June 26, 2020 provision for income taxes, as applicable.

The CARES Act income tax provisions applicable to the Company include, but are not limited to (1) carrybacks of certain net operating losses (“NOL(s)”) generated in tax years beginning after December 31, 2017 and before January 1, 2021 to the preceding five taxable years, (2) suspension of the 80.0% taxable income limitation for NOLs generated in tax years beginning after December 31, 2017 and before January 1, 2021, (3) increase in the limitation of the interest expense deduction under Internal Revenue Code ("IRC") §163(j) from 30.0% to 50.0% of adjusted taxable income for any taxable year beginning in 2019 or 2020, (4) expansion of the charitable contribution deduction limit to 25.0% of taxable income versus the previous 10.0% limitation for contributions made during 2020, and (5) acceleration of alternative minimum tax credits being refunded incrementally in tax years 2018, 2019, 2020 and 2021 to recover the entire remaining balance in either the 2018 or 2019 tax year.

As a result of the CARES Act, the Company is able to carryback a portion of its estimated prior year U.S. Federal NOLs resulting in an anticipated cash tax refund of $200.5 million. A tax benefit of $49.6 million has been recognized primarily due to a remeasurement of the NOLs to the historical statutory tax rates. The carryback of the U.S. Federal NOLs has an ancillary effect on the Company’s unrecognized tax benefits, as disclosed below.

As further discussed in Note 1, the Company concluded that there is substantial doubt about its ability to continue as a going concern within one year from the date of issuance of the unaudited condensed consolidated financial statements. The Company considered this in determining that certain net deferred tax assets were no longer more likely than not realizable. As a result, an increase in valuation allowance of $341.6 million on the Company’s net deferred tax assets was recorded for the three months ended June 26, 2020. Approximately $202.7 million of this increase was a valuation allowance placed on prior year deferred tax assets predominately related to U.S. Federal NOLs and the Opioid-Related Litigation Settlement charge. The remaining $138.9 million increase was placed on the Company's net deferred tax assets resulting from current year activity predominately related to the Acthar Gel Medicaid Retrospective Rebate accrual.

The Company recognized an income tax expense of $161.3 million on a loss from continuing operations before income taxes of $789.3 million for the three months ended June 26, 2020, and an income tax benefit of $24.3 million on a loss from continuing operations before income taxes of $24.8 million for the three months ended June 28, ~~2019, and an income tax benefit of $44.4 million on a loss from continuing operations before income taxes of $41.2 million for the three months ended June 29, 2018.~~2019. This resulted in effective tax rates of ~~98.0%~~negative 20.4% and ~~107.8%~~98.0% for the three months ended June 26, 2020 and June 28, 2019, respectively. The income tax expense for the

three months ended June 26, 2020 was comprised of $146.5 million of current tax benefit and ~~June 29, 2018, respectively.~~$307.8 million of deferred tax expense. The current tax benefit was primarily the result of the CARES Act and unrecognized tax benefits. The deferred tax expense was predominately related to the valuation allowance noted above, recorded against the Company's net deferred tax assets, and unrecognized tax benefits, partially offset by a tax benefit related to previously acquired intangibles and the fiscal 2019 reorganization of the Company's intercompany financing and associated legal entity ownership including related adjustments to elections on the fiscal 2019 U.S. tax return primarily as a result of changes to the NOL carryback provisions in the CARES Act. The income tax benefit for the three months ended June 28, 2019 was comprised of $5.6 million of current tax expense and $29.9 million of deferred tax benefit. The deferred tax benefit ~~which~~ was ~~predominately~~predominantly related to previously acquired intangibles, the generation of tax loss and credit carryforwards net of valuation allowances and the non-restructuring impairment ~~charge, as further discussed in Note 10.~~ charges.

The Company recognized an income tax ~~benefit~~expense of $142.4 million on a loss from continuing operations before income taxes of $864.9 million for the ~~three~~six months ended June ~~29, 2018 was comprised of $10.2 million of current tax expense~~26, 2020, and ~~$54.6 million of deferred tax benefit. The deferred tax benefit was predominantly related to previously acquired intangibles.~~

~~The Company recognized~~ an income tax benefit of $229.0 million on a loss from continuing operations before income taxes of $74.3 million for the six months ended June 28, ~~2019, and an income tax benefit of $81.0 million on a loss from continuing operations before income taxes of $98.7 million for the six months ended June 29, 2018.~~2019. This resulted in effective tax rates of ~~308.2%~~negative 16.5% and ~~82.1%~~308.2% for the six months ended June 26, 2020 and June 28, 2019, respectively. The income tax expense for the six months ended June 26, 2020 was comprised of $168.8 million of current tax benefit and ~~June 29, 2018, respectively.~~$311.2 million of deferred tax expense. The current tax benefit was primarily the result of the CARES Act and unrecognized tax benefits. The deferred tax expense was predominantly related to the valuation allowance noted above, recorded against the Company's net deferred tax assets, partially offset by a tax benefit related to previously acquired intangibles and the fiscal 2019 reorganization of the Company's intercompany financing and associated legal entity ownership including related adjustments to elections on the fiscal 2019 U.S. tax return primarily as a result of changes to the NOL carryback provisions in the CARES Act. The income tax benefit for the six months ended June 28, 2019 was comprised of $44.1 million of current tax expense and $273.1 million of deferred tax benefit. The deferred tax benefit was predominantly related to previously acquired intangibles, the generation of tax loss and credit carryforwards net of valuation allowances, the non-restructuring impairment ~~charge,~~charges, as well as the reorganization of the Company's intercompany financing and associated legal entity ownership, which eliminated the interest bearing deferred tax obligation. The income tax benefit for the six months ended June 29, 2018 was comprised of $21.4 million of current tax expense and $102.4 million of deferred tax benefit. The deferred tax benefit was predominantly related to previously acquired intangibles.

The income tax expense was $161.3 million for the three months ended June 26, 2020, compared with an income tax benefit ~~was~~of $24.3 million for the three months ended June 28, ~~2019, compared with a tax benefit of $44.4 million for the three months ended June 29, 2018.~~2019. The ~~$20.1~~$185.6 million net ~~decrease~~increase in the tax ~~benefit~~expense included an increase of $202.7 million attributed to a ~~$20.7~~valuation allowance recorded against the Company's net deferred tax assets, an increase of $11.7 million ~~decrease~~ attributed to changes in the timing, amount and jurisdictional mix of income, ~~a $7.1 million decrease attributed to the gain on debt repurchased and a $3.4 million decrease attributed to restructuring and related charges, partially offset by~~ an increase ~~in tax benefit~~ of $8.5 million attributed to ~~the~~ non-restructuring impairment ~~charge and $2.6~~charges, an increase of $4.6 million ~~increase~~ attributed to separation ~~costs.~~

The income tax benefit was $229.0 million for the six months ended June 28, 2019, compared with a tax benefit of $81.0 million for the six months ended June 29, 2018. The $148.0 million net increase in the tax benefit includedcosts, an increase of ~~$189.8~~$4.3 million attributed to the ~~tax benefit from the~~fiscal 2019 reorganization of the Company's intercompany financing and associated legal entity ownership including related adjustments to elections on the fiscal 2019 U.S. tax return primarily as a ~~$8.5 million increase attributed~~result of changes to the ~~non-restructuring impairment charge and a $3.6 million increase attributed to separation costs,~~NOL carryback provisions in the CARES Act, partially offset by a decrease inof $38.1 million attributed to the CARES Act, a decrease of $7.2 million attributed to the gain on debt repurchased, and a decrease of $0.9 million attributed to net restructuring.

The income tax expense was $142.4 million for the six months ended June 26, 2020, compared with an income tax benefit of ~~$35.2~~$229.0 million ~~predominately~~for the six months ended June 28, 2019. The $371.4 million net increase in the tax expense included an increase of $202.7 million attributed to a valuation allowance recorded against the Company's net deferred tax assets, an increase of $197.1 million attributed to the fiscal 2019 reorganization of the Company's intercompany financing and associated legal entity ownership including related adjustments to elections on the fiscal 2019 U.S. tax return primarily as a result of changes to the NOL carryback provisions in the CARES Act, an increase of $17.7 million attributed to changes in the timing, amount and jurisdictional mix of income, ~~a $9.8~~an increase of $8.5 million ~~decrease~~ attributed to non-restructuring impairment charges, an increase of $3.4 million attributed to separation costs, an increase of $0.5 million attributed to net restructuring, ~~and related charges~~partially offset by a decrease of $49.6 million attributed to the CARES Act, and a decrease of $8.9 million ~~decrease~~ attributed to the gain on debt repurchased.

During the three months ended March 29, 2019, the Company completed a reorganization of its intercompany financing and associated legal entity ownership in response to the changing global tax environment. As a result, during the six months ended June ~~28,~~26, 2020, and fiscal 2019, the Company recognized current income tax expense of $28.9 million and a deferred income tax benefit of $218.7 million with a corresponding reduction to net deferred tax liabilities. The reduction in net deferred tax liabilities was comprised of a decrease in interest-bearing deferred tax obligations which resulted in the elimination of the December 28, 2018 balance of $227.5 million, a $42.3 million increase to a deferred tax asset related to excess interest carryforwards, a $26.4 million increase in various other net deferred tax liabilities and a $24.7 million decrease to a deferred tax asset related to tax loss and credit carryforwards net of

~~valuation allowances. The elimination of the interest-bearing deferred tax obligation also eliminated the annual Internal Revenue Code section 453A interest expense.~~

~~During the six months ended June 28, 2019, and the fiscal year ended December 28, 2018,~~ the net cash payments for income taxes were ~~$21.5~~$32.8 million and ~~$12.4~~$30.7 million, respectively.

On August 5, 2019, the Internal Revenue Service ("IRS") proposed an adjustment to the taxable income of Mallinckrodt Hospital Products Inc. ("MHP") (formerly known as Cadence Pharmaceuticals, Inc. ("Cadence") as a result of its findings in the audit of MHP's tax year ended September 26, 2014. The proposed adjustment to taxable income was $871.0 million, excluding potential associated interest and penalties. During the ~~three~~six months ended June ~~28, 2019,~~26, 2020, the Company ~~filed its~~has made progress in negotiations with the IRS towards achieving a settlement that would reduce the amount of the proposed adjustment and allow the adjustment to be offset against the Company's U.S. Federal ~~income tax return~~NOLs of $891.3 million. Additionally, IRC §453A and underpayment interest expense would be assessed. It is reasonably possible that this audit will be concluded within fiscal 2020. See Note 11 for the period ended September 28, 2018 reporting a U.S. Federal net operating loss carryforward expiring in fiscal 2038. As of June 28, 2019, the Company’s U.S. Federal net operating loss carryforward was $815.4 million ($171.2 million measured at applicable statutory tax rates and net of uncertain tax positions).further details.

The Company's unrecognized tax benefits, excluding interest, totaled ~~$448.9~~$465.0 million and ~~$287.7~~$398.6 million as of June ~~28, 2019~~26, 2020 and December ~~28, 2018,~~27, 2019, respectively. The net increase of ~~$161.2~~$66.4 million primarily resulted from a net increase to ~~current year tax positions of $151.7 million,~~ net ~~increases from~~ prior period tax positions of ~~$13.7 million, a net decrease from settlements of $0.9~~$40.3 million and current period tax positions of $51.7 million offset by a ~~net~~ decrease ~~from~~related to releases due to a lapse of statute of limitations of ~~$3.3~~$25.3 million and settlements of $0.3 million. If favorably settled, ~~$437.4~~$197.8 million of unrecognized tax benefits as of June ~~28, 2019~~26, 2020 would benefit the effective tax ~~rate, of which up to $20.0 million may be reported in discontinued operations.~~rate. The total amount of accrued interest and penalties related to these obligations was ~~$44.6~~$28.0 million and ~~$37.1~~$32.9 million as of June ~~28, 2019~~26, 2020 and December ~~28, 2018,~~27, 2019, respectively. During the three months ended June 26, 2020, due to a lapse of the statute of limitations noted above, $18.1 million of tax and interest on unrecognized tax benefits

related to the Nuclear Imaging business were eliminated, and a benefit of $17.3 million was recorded in discontinued operations within the unaudited condensed consolidated statement of operations.

It is reasonably possible that within the next twelve months the unrecognized tax benefits could decrease by up to ~~$102.8~~$109.3 million and the amount of related interest and penalties could decrease by up to ~~$32.5~~$18.7 million as a result of payments or releases due to the resolution of various United Kingdom ("U.K.") and non-U.K. examinations, appeals and litigation and the expiration of various statutes of limitation.

Due to a legislative change during the three months ended June 28, 2019, the overall corporate income tax rate in Luxembourg has decreased from 26.01% to 24.94% effective January 1, 2019. As a result, the Company’s net deferred tax assets decreased by approximately $65.8 million, and the associated valuation allowances were also decreased by this same amount.



6.5.			(Loss) Earnings per Share

Basic (loss) earnings per share is computed by dividing net (loss) income by the number of weighted-average shares outstanding during the period. Diluted (loss) earnings per share is computed using the weighted-average shares outstanding and, if dilutive, potential ordinary shares outstanding during the period. Potential ordinary shares represent the incremental ordinary shares issuable for restricted share units and share option exercises. The Company ~~calculates~~calculated the dilutive effect of outstanding restricted share units and share options on earnings per share by application of the treasury stock method. Dilutive securities, including participating securities, are not included in the computation of loss per share when the Company reports a net loss from continuing operations as the impact would be anti-dilutive.

The weighted-average number of shares outstanding used in the computations of basic and diluted (loss) earnings per share were as follows (in millions):


	Three Months Ended		Six Months Ended			Three Months Ended			Six Months Ended
	June 28, 2019	June 29, 2018	June 28, 2019	June 29, 2018		June 26, 2020	June 28, 2019	June 26, 2020	June 28, 2019
Basic	83.8	83.2	83.7	84.7	Basic	84.5	83.8	84.3	83.7
Dilutive impact of restricted share units and share options	—	0.3	0.6	—	Dilutive impact of restricted share units and share options	—	—	—	0.6
Diluted	83.8	83.5	84.3	84.7	Diluted	84.5	83.8	84.3	84.3

The computation of diluted weighted-average shares outstanding for both the three and six months ended June 26, 2020 excluded approximately 5.9 million shares of equity awards, and for both the three and six months ended June 28, 2019 excluded approximately 4.6 million shares of equity awards, ~~and for both the three and six months ended June 29, 2018 excluded approximately 3.6 million shares of equity awards,~~respectively, because the effect would have been anti-dilutive.



7.6.			Inventories

Inventories were comprised of the following at the end of ~~the respective~~each period:


	June 26, 2020		December 27, 2019
Raw materials and supplies	$	57.9	$	62.7
Work in process	193.1		166.5
Finished goods	82.0		82.9
	$	333.0	$	312.1

June 28,
2019 December 28,
2018
Raw materials and supplies $ 63.8
$ 69.2
Work in process 177.3
167.6
Finished goods 96.3
85.5
$ 337.4
$ 322.3



Item 2.			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 unaudited condensed consolidated financial statements and the accompanying notes included in this Quarterly Report on Form 10-Q. 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 of our Annual Report on Form 10-K for the fiscal year ended December ~~28, 2018,~~27, 2019, filed with the United States ("U.S.") Securities and Exchange Commission ("SEC") on February 26, ~~2019.~~2020 and within Part II, Item 1A of this Quarterly Report on Form 10-Q.

We own or have rights to use the trademarks and trade names that we use in conjunction with the operation of our business. One of the more important trademarks that we own or have rights to use that appears in this Quarterly Report on Form 10-Q is "Mallinckrodt," which is a registered trademark or the subject of pending trademark applications in the U.S. and other jurisdictions. Solely for convenience, we only use the ™ or ^® symbols the first time any trademark or trade name is mentioned in the following discussion. Such references are not intended to indicate in any way that we will not assert, to the fullest extent permitted under applicable law, our rights to our trademarks and trade names. Each trademark or trade name of any other company appearing in the following discussion is, to our knowledge, owned by such other company.

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, nephrology, pulmonology and ophthalmology; immunotherapy and neonatal respiratory critical care therapies; analgesics and gastrointestinal products.

~~On May 28, 2019, as an update to~~We operate our ~~planned separation of the previously reported Specialty Generics and Amitiza~~^® ~~(lubiprostone) ("Amitiza") segment discussed further below, we announced that given the strong, return-to-growth performance of the Specialty Generics~~ business ~~the Amitiza product should remain with the Specialty Brands business. As a result of this announcement, we identified~~in two reportable segments, ~~that align with the operations of the two independent publicly traded companies anticipated post-separation,~~ which are further described below:

•Specialty Brands includes innovative specialty pharmaceutical brands; and


•	~~Specialty Brands~~ ~~includes innovative specialty pharmaceutical brands (inclusive of Amitiza); and~~


•	Specialty Generics includes niche specialty generic drugs and active pharmaceutical ingredients ("API(s)").

All prior period segment information has been recast to reflect the realignment of our reportable segments on a comparable basis. Refer below for an update on our plans for the Specialty Generics business.

For further information on our business and products, refer to our Annual Report on Form 10-K for the fiscal year ended December ~~29, 2018,~~27, 2019, filed with the SEC on February 26, ~~2019.~~2020.

Significant Events

Medicaid Lawsuit

In May 2019, we filed a lawsuit under the Administrative Procedure Act in the U.S. District Court for the District of Columbia (the "District Court") against the U.S. Department of Health and Human Services ("HHS") and the Centers for Medicare & Medicaid Services ("CMS" and together with the HHS, the "Agency"). This lawsuit is in response to a decision by CMS to require that we revert to the original base date average manufacturer price (“AMP”) used to calculate Medicaid drug rebates for Acthar^® Gel ("Acthar Gel"). In March 2020, we received an adverse decision from the District Court, which upheld CMS' decision to reverse its previous determination of the base date AMP used to calculate Acthar Gel rebates. On March 16, 2020, we filed an Emergency Motion for Reconsideration and Stay of Entry of Judgment Pending Reconsideration Or, Alternatively, Injunction Pending Appeal. In response, the government agreed that CMS would not require us to change the Medicaid rebate calculation for Acthar Gel until June 14, 2020, to allow the District Court time to decide our reconsideration motion. The District Court subsequently denied our reconsideration motion and in June 2020 we appealed the District Court's decision to the U.S. Court of Appeals for the District of Columbia Circuit (the "Court of Appeals") and filed an Emergency Motion for Injunction Pending Appeal and to Expedite Briefing and Argument. The Court of Appeals subsequently denied our request for an injunction pending appeal on June 15, 2020. Consequently, we changed the base date AMP for Acthar Gel in the CMS data reporting system to reflect the original base date AMP for Acthar Gel. As a result, during the three months ended June 26, 2020, we incurred a retrospective one-time charge of $639.7 million (the "Acthar Gel Medicaid Retrospective Rebate"), of which $534.4 million and $105.3 million have been reflected as a component of net sales and operating expenses, respectively, in the unaudited condensed consolidated statement of operations for the three months ended June 26, 2020. The $105.3 million reflected as a component of operating expenses represents a pre-acquisition contingency related to the portion of the Acthar Gel Medicaid Retrospective Rebate that arose from sales of Acthar Gel prior to our acquisition of Questcor Pharmaceuticals Inc. (“Questcor”) in August 2014. Of the $534.4 million recorded as a component of net sales, $12.3 million and $27.6 million represent the impact of the Medicaid rebate calculation through June 14, 2020 for the three and six months ended June 26, 2020, respectively. The prospective change to the Medicaid rebate calculation also served to reduce Acthar Gel net sales by $8.6 million for the period from June 15, 2020 to June 26, 2020, of which $6.8 million represents the channel impact. The Court of Appeals will hear oral argument on our appeal on September 24, 2020. We disagree with the District Court's decision and continue to believe

that our lawsuit has strong factual and legal bases. For further information, refer to Note 11 of the notes to the unaudited condensed consolidated financial statements.

This report contains certain financial measures, including net sales, gross (loss) profit, gross profit margin, selling, general and administrative ("SG&A") expenses as a percentage of net sales and research and development ("R&D") expenses as a percentage of net sales, which exclude the one-time charge related to the Medicaid lawsuit that is included as a component 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 certain 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 accounting principles generally accepted in the U.S.("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 unaudited condensed consolidated financial statements and this report in its entirety. A reconciliation of certain of these financial measures to the most directly comparable GAAP financial measures is included herein.

Opioid-Related Matters

As a result of the greater 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. 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. During the three and six months ended June 26, 2020, we incurred $17.2 million and $39.7 million in opioid defense costs, respectively, and $15.1 million and $34.5 million during the three and six months ended June 28, 2019, respectively, which are included in SG&A expenses.

Opioid-RelatedLitigation Settlement

On February 25, 2020, we, certain of our subsidiaries operating the Specialty Generics business (the "Specialty Generics Subsidiaries") and certain other affiliates announced an agreement in principle on the terms of a global settlement that would resolve all opioid-related claims against us, which we refer to herein as the "Opioid-Related Litigation Settlement." The Opioid-Related Litigation Settlement was reached with a court-appointed plaintiffs' executive committee representing the interests of thousands of plaintiffs in the federal multi-district litigation ("MDL") and supported by a broad-based group of 48 state and U.S. Territory Attorneys General. The Opioid-Related Litigation Settlement would contemplate the filing of voluntary petitions under Chapter 11 of the U.S. Bankruptcy Code ("Chapter 11") by the Specialty Generics Subsidiaries and the establishment of a trust for the benefit of plaintiffs holding opioid-related claims against Mallinckrodt (the "Opioid Claimant Trust"). Under the terms of the proposed settlement as it was structured when initially agreed, subject to court approval and other conditions, we would (1) make cash payments of $1,600.0 million in structured payments over eight years, beginning upon the Specialty Generics Subsidiaries' emergence from the completed Chapter 11 case, the substantial majority of which would be expected to be contributed to the Opioid Claimant Trust and (2) issue warrants with an eight year term to the Opioid Claimant Trust exercisable at a strike price of $3.15 per share to purchase our ordinary shares that would represent approximately 19.99% of our fully diluted outstanding shares, including after giving effect to the exercise of the warrants (the "Settlement Warrants"). As a result of the Opioid-Related Litigation Settlement, we recorded an accrual for this contingency of $1,600.0 million related to the structured cash payments and $43.4 million related to the Settlement Warrants in the consolidated balance sheet as of December 27, 2019. During the six months ended June 26, 2020, we recorded a non-cash gain of $8.3 million as a result of the change in the Settlement Warrants' fair value.

The Opioid-Related Litigation Settlement as it was structured when initially agreed included a number of conditions, such as the satisfactory outcome of our lawsuit against the Agency regarding our calculation of Medicaid drug rebates for Acthar Gel. As further described above and in Note 11 of the notes to the unaudited condensed consolidated financial statements, in March 2020, we received an adverse decision from the federal district court for the D.C. with respect to the Medicaid lawsuit and subsequently filed our notice of appeal with the Appeals Court. We are engaged in constructive dialogue with the plaintiff parties to the Opioid-Related Litigation Settlement to address the impact of the court’s decision, but there can be no assurance that such dialogue will result in a modification of the Opioid-Related Litigation Settlement that will be satisfactory to all parties.

The court-supervised process contemplated by the Opioid-Related Litigation Settlement would be expected to provide a fair, orderly, efficient and legally binding mechanism to resolve all opioid-related claims against the Company, Specialty Generics, and all of our other subsidiaries and related entities. The Opioid-Related Litigation Settlement as it was structured when initially agreed contemplated thatMallinckrodt plc and our Specialty Brands-related subsidiaries would not be part of the Chapter 11 filing and that Mallinckrodt plc would receive the benefit of a "channeling injunction" that would provide for the release of all opioid-related claims that have been or could have been asserted against Mallinckrodt plc or our subsidiaries related to Specialty Generics' manufacture and sale of opioids prior to the time the Specialty Generics Chapter 11 plan becomes effective. If Mallinckrodt plc and most of its subsidiaries choose to pursue a Chapter 11 filing, we would expect to seek to modify the Opioid-Related Litigation Settlement so that it would be effectuated in the context of the related bankruptcy proceedings. All of our subsidiaries, including Specialty Generics, are

operating as normal and would be expected to continue operating normally throughout any court-supervised process contemplated for Mallinckrodt plc or any of its subsidiaries. If the Opioid-Related Litigation Settlement is consummated, we currently expect that the Specialty Generics Subsidiaries would continue to be indirect, wholly owned subsidiaries of Mallinckrodt plc during and following emergence from the court-supervised process. Further discussion of the Opioid-Related Litigation Settlement is included in Note 11 of the notes to the unaudited condensed consolidated financial statements.

Separation

In fiscal 2016, the Board of Directors began to explore a range of strategic alternatives for our Specialty Generics business. Consistent with that strategy, on December 6, 2018, we announced our plans to spin off to our shareholders a new independent public company that would hold the Specialty Generics business. On August 6, 2019, based on market conditions and developments, including increasing uncertainties created by the opioid litigation, we announced the suspension of our previously announced plans to spin off the Specialty Generics business. Our long-standing goal remains to be an innovation-driven biopharmaceutical company focused on improving outcomes for underserved patients with severe and critical conditions. ~~However, based on current market conditions~~We hope that the Opioid-Related Litigation Settlement will help resolve opioid uncertainties and ~~developments, including increasing uncertainties created by the opioid litigation, subsequent to June 28, 2019,~~ we ~~decided to suspend for now our previously announced plans to spin off the Specialty Generics company (the "Separation"). We~~will continue to ~~actively consider a range of~~evaluate strategic options ~~intended to lead to the ultimate separation of~~for the Specialty Generics business ~~consistent with our previously stated strategy.~~

~~Beginning in~~upon emergence from the first quarter through the third quarter of fiscal 2018, the historical financial results attributable to "the Specialty Generics Disposal Group" were reflected in our interim unaudited condensed consolidated financial statements as discontinued operations. As a result of the December 6, 2018 Separation announcement, the Specialty Generics Disposal Group no longer met the requirements to be classified as held-for-sale, and the historical financial results attributable to the Specialty Generics Disposal Group were recast as continuing operations in our Annual Report on Form 10-K for the fiscal year ended December 28, 2018, as well as the unaudited condensed consolidated financial statements as presented herein.contemplated Chapter 11 process.

During the three and six months ended June ~~28, 2019,~~26, 2020, we incurred $20.7 million and $42.0 million in separation costs, respectively, compared to $18.9 million and $30.6 million ~~in costs related to~~for the ~~Separation,~~three and six months ended June 28, 2019, respectively. These costs, which are included in ~~selling, general and administrative ("~~SG~~&A")~~&A expenses, primarily relate to professional fees, ~~and~~costs incurred as we work to resolve opioid uncertainties, incremental costs incurred to build out the corporate infrastructure of the ~~new company,~~previously planned spin-off of the Specialty Generics business, as well as rebranding ~~initiatives.~~initiatives associated with the Specialty Brands ongoing transformation.

Tax Matters

~~On August 5, 2019,~~We continue to be subject to examination by the Internal Revenue Service ("IRS") for tax years 2014 to 2019. In August 2019, the IRS proposed an adjustment to the taxable income of Mallinckrodt Hospital Products Inc. (“MHP”) as a result of its findings in the audit of ~~MHP’s~~MHP's tax year ended September 26, 2014. MHP, ~~then~~formerly known as Cadence Pharmaceuticals, Inc. (“Cadence”), was acquired as a U.S. subsidiary on March 19, 2014. Following the acquisition of Cadence, we transferred certain rights and risks in Ofirmev^® intellectual property (“Transferred IP”) to one of our wholly owned non-U.S. subsidiaries. The transfer occurred at a price ~~(“Transfer Price”)~~ determined in conjunction with our external advisors, in accordance with applicable Treasury Regulations and with reference to the $1,329.0 million taxable consideration we paid to the shareholders of Cadence. The IRS asserts the value of the Transferred IP exceeds the value of the acquired Cadence shares and, further, partially disallows our control premium subtraction. The proposed adjustment to taxable income ofwas $871.0 million, excluding potential associated interest and ~~penalties, is~~penalties. During the six months ended June 26, 2020, we have made progress in negotiations with the IRS towards achieving a settlement that would reduce the amount of the proposed ~~as a multi-year~~ adjustment and ~~may result in a non-cash reduction of~~allow the adjustment to be offset against our U.S. Federal net operating loss ~~carryforward~~("NOL") of ~~$815.4~~$891.3 million. ~~We strongly disagree with~~Additionally, Internal Revenue Code §453A and underpayment interest expense would be assessed. It is reasonably possible that this audit will be concluded within fiscal 2020.

On July 15, 2020, the proposed increase to the Transfer Price and intend to contest it through all available administrative and judicial remedies, which may take a number of years to conclude. The final outcome cannot be reasonably quantified at this time, however, the adjustment may be material. We believe our allowance for income tax contingencies is adequate.

~~Medicaid Lawsuit~~

In May 2019, we filed a lawsuit in federal district court against the Centers for Medicare & Medicaid Services ("CMS") and the Department of Health and Human Services. This lawsuit is in response to a decision by CMS to require that we revert to the prior base date average manufacturer price (“AMP”) used to calculate Medicaid drug rebates for Acthar^® ~~Gel~~(repository corticotropin injection) ("Acthar Gel"), which has the practical effect of imposing approximately $600.0 million in retroactive rebates and prospective rebate increases of approximately $100.0 million annually. This matter is further described in Note 14 to the unaudited condensed consolidated financial statements.

~~Reorganization of Intercompany Financing and Legal Entity Ownership~~

~~During the three months ended March 29, 2019, we completed a reorganization~~activities of our ~~intercompany financing and associated legal entity ownership in response~~principal executive offices were relocated from the United Kingdom ("U.K.") to the changing global tax environment. As a result, during the six months ended June 28, 2019, we recognized current income tax expense of $28.9 million and a deferred income tax benefit of $218.7 million with a corresponding reduction to net deferred tax liabilities. The reduction in net deferred tax liabilities was comprised of a decrease in interest-bearing deferred tax obligations,Ireland, which resulted in a change in our tax residence to Ireland. Mallinckrodt plc has always been and remains incorporated in Ireland. Relocation of Mallinckrodt plc’s tax residence to Ireland allows us to mitigate the ~~elimination~~potential impacts of the ~~December 28, 2018 balance of $227.5 million, a $42.3 million increase~~U.K.’s departure from the European Union and align with the significant commercial activity in Ireland. We continue to ~~a deferred tax asset related~~be subject to ~~excess interest carryforwards, a $26.4 million increase~~taxation in various ~~other net deferred~~ tax ~~liabilities~~jurisdictions worldwide. Accordingly, in fiscal 2020 we will report the Irish tax jurisdiction as our Domestic jurisdiction using an Irish statutory tax rate of 12.5% versus the U.K. statutory rate of 19%, and ~~a $24.7 million decrease~~the International jurisdiction will represent areas outside the Irish tax jurisdiction. There is no material financial impact to a deferred tax asset related to tax loss and credit carryforwards net of valuation allowances. The elimination of the interest-bearing deferred tax obligation also eliminated the annual Internal Revenue Code section 453A interest expense.this change.

~~Stannsoporfin~~Ofirmev^®

During the three months ended June ~~28, 2019,~~26, 2020, due to decreased demand as a result of the deprioritization of non-critical medical treatment in the face of the novel coronavirus ("COVID-19") pandemic, along with increased generic competition anticipated in the marketplace post the product's loss of exclusivity in December 2020, we ~~recognized~~identified a ~~full impairment on our in-process research~~triggering event with respect to the Ofirmev intangible asset within the Specialty Brands segment and ~~development ("IPR&D") asset~~assessed the recoverability of the definite-lived asset. Additionally, we evaluated whether these events warranted a revision to the remaining period of amortization that previously extended to March 2022. As a result of this analysis, we revised the useful life to end December 25, 2020, commensurate with the final period of market exclusivity. After this change in estimate of the asset's useful life, we determined that the undiscounted cash flows related to ~~stannsoporfin~~the Ofirmev intangible asset were less than its net book value, which required us to record an impairment charge of ~~$113.5~~$63.5 million ~~as we will no longer pursue this development product.~~

~~VTS-270~~

VTS-270 is our development product to treat Niemann-Pick Type C, a complicated, ultra-rare neurodegenerative disease that typically presents in childhood and is ultimately fatal. The results of our completed registration trial for the product did not show a statistically significant separation from placebo. Neither the VTS-270 nor the placebo arm showed disease progression as would be expected for a neurodegenerative condition over 52 weeks of observation. We are in the process of evaluating this portion of the study in order to ensure the data was properly captured and of the highest quality. The U.S. Food and Drug Administration ("FDA") indicated to us at a Type A meeting in August 2018 that their view on the potential approvability will be based on the totality of data, not a single study or endpoint. Accordingly, our review of the data from the Phase 2b/3 trial, including the longer term open label portion, continues to proceed and is being assessed in combination with several other available data sources. A better understanding of the potential benefit of VTS-270 will emerge as we carefully consider the totality of data available and continue to work with the primary investigators and the FDA to determine the best path forward. We will continue to assess the impact of any changes to planned revenue or earnings ondifference between the fair value of the ~~associated in-process research~~Ofirmev intangible assest and ~~development~~its net book value. The remaining intangible asset value of ~~$274.5~~$91.5 million ~~included within intangible assets, net on the unaudited condensed consolidated balance sheet as of June 28, 2019.~~

~~CPP-1X/sulindac~~

In May 2019, we along with Cancer Prevention Pharmaceuticals, Inc. ("CPP"), announced that CPP's pivotal phase 3 clinical trial for CPP-1X/sulindac in patients with familial adenomatous polyposis ("FAP") did not meet its primary endpoint. Specifically, the reduction of time to the first occurrence of an FAP-related event for the combination of CPP-1X/sulindac did not reach statistical significance compared to the two control arms. Based on the topline results, we are no longer pursuing the commercialization of the CPP-1X/sulindac program under our collaborative agreement.

~~Silence Therapeutics~~

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

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

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

Business Factors Influencing the Results of Operations

~~Products~~COVID-19 Business Update

The COVID-19 pandemic has presented a substantial public health and economic challenge around the world. As we navigate the unprecedented challenges created by the COVID-19 pandemic, we remain committed to supporting our employees, customers, patients and the broader communities in which we operate.

Since the onset of the COVID-19 pandemic, we have continued to manufacture, supply and deliver our products largely without interruption. At present, we do not anticipate significant COVID-19-related manufacturing or supply chain disruptions, and we continue to evaluate our end-to-end supply chain and assess opportunities to refine our processes going forward.

We are supporting the fight against COVID-19 in a number of ways, including by partnering with Novoteris, LLC and Massachusetts General Hospital to study inhaled nitric oxide for use as a therapeutic option for COVID-19 patients; giving medically trained employees paid time off to volunteer to treat or care for COVID-19 patients; providing funding and therapies to hospitals to conduct treatment-related research; adapting certain of our manufacturing facilities to produce hand sanitizers for designated counties, state health departments and emergency operation distribution centers located in states where we have operations; donating excess personal protective equipment (PPE) and other resources to healthcare providers, first responders, and medical facilities; and partnering with advocacy groups to help mitigate the impact of the pandemic on patients.

We expect the coming months to be challenging due to the impact of COVID-19, as some of our products are sensitive to reduced numbers of surgical procedures and doctor visits. Our business performance was significantly impacted by COVID-19 during the second quarter, and we continue to expect to see challenges in the back half of the year. The ultimate business impact for the second half of the year will largely be determined by the ongoing return to work guidance issued by international, national, and local governments and health officials and organizations. We are monitoring the demand for our products, including the duration and degree to which we may see declines in customer orders or delays in starting new patients on a product, such as Acthar Gel, due to the limited ability of our sales representatives to meet with physicians and patients to visit their doctors and pharmacists to receive prescriptions for certain of our products. In regards to Acthar Gel, we continue to see a reduction in new patients during the second quarter, which is anticipated to impact results in the second half of the year. In addition, due to the deprioritization of non-critical medical treatment in the face of this pandemic, demand for Ofirmev was affected in the second quarter and may continue to be impacted the remainder of the year. We also experienced and may continue to experience reduced demand for Therakos due to immunosuppressed patients who have been instructed to stay-at-home during the COVID-19 pandemic. Furthermore, while we are supporting the continuation of ongoing patients in our clinical trials, as much as possible, we expect that COVID-19 precautions may directly or indirectly impact the timeline for some of our clinical trials.

Given the rapid and evolving nature of the COVID-19 virus, the full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain and cannot be predicted. For additional information on the various risks posed by the COVID-19 pandemic, please read Part II, Item 1A. Risk Factors included in this report.

Specialty Brands

Net sales of Acthar Gel for the three months ended June ~~28, 2019~~26, 2020 decreased ~~$26.8~~$52.7 million, or ~~9.1%~~19.8%, to ~~$266.4~~$213.7 million driven primarily by continued reimbursement challenges impacting new and returning patients and continued payer scrutiny on overall specialty pharmaceutical spending. ~~This is partially offset by strength in Ofirmev, Inomax~~^® ~~and Therakos~~^®~~, as well as an increase in Amitiza~~^® ~~net sales.~~

~~Specialty Generics~~

After experiencing contraction over the last several years, the Specialty Generics business is projected to return to growth in fiscal 2019, as compared to fiscal 2018, primarily driven by share recapture in specialty generic products. Net sales ~~from the Specialty Generics segment increased $1.7 million or 0.9% to $195.5 million~~of Acthar Gel were also impacted by COVID-19 market dynamics, along with Ofirmev and Therakos as previously mentioned. Additionally, Acthar Gel net sales for the three months ended June ~~28, 2019 compared~~26, 2020 were reduced by $8.6 million due to ~~$193.8 million~~the change in the base date AMP for the ~~three months ended~~period from June ~~29, 2018.~~

The U.S. generic market is growing overall in volume, but has been declining in value over the past several years due to pricing pressure. Hydrocodone, oxycodone and other controlled substances have experienced significant volume declines due to continued downward pressure on the use15, 2020 through June 26, 2020, of ~~opioids in the U.S. Despite this market contraction, acetaminophen and opioids are still viewed as the standard of care for many types of pain. Pain management~~which $6.8 million represents the ~~second largest therapeutic area in~~channel impact. We estimate the U.S. based upon prescriptions dispensed, with pain medications accounting for approximately one out of every 11 dispensed prescriptions in 2018. We expect the decline in usage rates for opioids in the U.S. to continue, stabilizing at levels consistent with historical prescribing patterns and aligning with treatment guidelines being developed by the medical community. Globally, we expect the use of acetaminophen and opioids to trend with population rates for the foreseeable future.

~~Opioid-Related Matters~~

As a result of the greater awareness of the public health issue of opioid abuse, there has been increased scrutiny of, and investigation into, the commercial practices of opioid manufacturers, distributors, and others in the supply chain by state and federal agencies. We, along with other opioid manufacturers and others in the supply chain, have been the subject of federal and state government investigations and enforcement actions, as well as lawsuits by private parties, focused on the misuse and abuse of opioid medications in the U.S. Similar investigations, lawsuits and other actions may be initiated in the future. We will continue to incur significant legal costs in defending these matters and could in the future be required to pay significant amounts as a result of fines, penalties, settlements or judgments. Such litigation and related matters are described in Note 14annualized prospective change to the ~~unaudited condensed consolidated financial statements.~~

Medicaid rebate calculation will reduce Acthar Gel annual net sales by roughly $90.0 million to $100.0 million.

Research and Development ~~Investment~~

We devote significant resources to ~~research and development ("~~R~~&D")~~&D of products and proprietary drug technologies. We incurred R&D expenses of $82.9 million and $160.3 million for the three and six months ended June 26, 2020 and June 28, 2019, respectively, and $79.6 million and $164.9 million for the three and six months ended June 28, 2019, ~~respectively, and $92.6 million and $174.6 million for the three and six months ended June 29, 2018,~~ respectively. We expect to continue to pursue targeted investments in R&D activities, both for existing products and the development of new portfolio assets. We intend to focus our R&D investments in the specialty pharmaceuticals areas, specifically investments to support our Specialty Brands business, where we believe there is the greatest opportunity for growth and profitability.

We have completed the Phase 3 clinical studies for two of our development programs, terlipressin for the treatment of hepatorenal syndrome (HRS) type 1 and StrataGraft^® for the treatment of deep partial thickness burns, both of which had positive top line results.

•Terlipressin. In March 2020, we submitted the new drug application ("NDA") filing to the U.S. Food and Drug Administration ("FDA") for terlipressin, and in April 2020 the FDA accepted the NDA for review. In June 2020, the Company paid $5.0 million to acquire products rights for terlipressin in Japan. Upon FDA approval, we would be responsible for a one-time milestone payment related to terlipressin of $12.5 million in relation to product rights in the U.S., in addition to a $5.0 million one-time milestone payment in relation to product rights in Japan after we paid $5.0 million to acquire such rights during the three months ended June 26, 2020. On July 15, 2020, the Cardiovascular and Renal Drugs Advisory Committee of the FDA voted to recommend approval of the investigational agent terlipressin to treat adults with HRS type 1.

•StrataGraft. In April 2020, we initiated a rolling submission of a biologics license application filing to the FDA for StrataGraft, and we completed the submission in June 2020. As part of the contingent consideration included in our acquisition of StrataGraft, we are responsible for a $20.0 million payment upon acceptance of our submission by the FDA and another $20.0 million upon approval.

Specialty Generics

Net sales from the Specialty Generics segment decreased $17.4 million or 8.9% to $178.1 million for the three months ended June 26, 2020 compared to $195.5 million for the three months ended June 28, 2019.

Results of Operations

Three Months Ended June ~~28, 2019~~26, 2020 Compared with Three Months Ended June ~~29, 2018~~28, 2019

Net Sales

Net sales by geographic area were as follows (dollars in millions):


	Three Months Ended
	June 26, 2020		June 28, 2019		Percentage Change
U.S.	$	615.8	$	717.2	(14.1)	%
Europe, Middle East and Africa	71.1		73.5		(3.3)
Other geographic areas	14.0		32.6		(57.1)
Geographic area net sales	700.9		823.3		(14.9)
Medicaid lawsuit (Note 11)	(534.4)		—		*
Net sales	$	166.5	$	823.3	(79.8)

Three Months Ended
June 28,
2019 June 29,
2018 Percentage
Change
U.S. $ 717.2
$ 729.1
(1.6 )%
Europe, Middle East and Africa 73.5
64.2
14.5
Other geographic areas 32.6
32.2
1.2
Net sales $ 823.3
$ 825.5
(0.3 )
*Not meaningful

Net sales for the three months ended June ~~28, 2019~~26, 2020 decreased ~~$2.2~~$656.8 million or ~~0.3%~~79.8%, to ~~$823.3~~$166.5 million compared with ~~$825.5~~$823.3 million for the three months ended June ~~29, 2018.~~28, 2019. This decrease inwas primarily driven by a retrospective one-time charge of $534.4 million reflected as a component of net sales related to the Medicaid lawsuit. For further information, refer to Note 11 of the notes to the unaudited condensed consolidated financial statements.

Net sales (excluding the one-time charge related to the Medicaid lawsuit, as discussed below) for the three months ended June 26, 2020 decreased $122.4 million, or 14.9%, to $700.9 million, compared with $823.3 million for the three months ended June 28, 2019. This decrease was primarily driven by a decrease in our Specialty Brands segment including a significant decrease in net sales of Acthar Gel, ~~partially offset by continued strength in Ofirmev, Inomax, Therakos and Amitiza,~~ as well as ~~increased~~decreases in net sales ~~from~~of Ofirmev and Therakos. In addition, Other Specialty Brands products during the ~~Specialty Generics segment as it continues~~three months ended June 28, 2019 includes $13.9 million of net sales related to BioVectra Inc. ("BioVectra") prior to the completion of the sale of this business in ~~its return to growth.~~November 2019. For further information on changes in our net sales, refer to "Segment Results" within this Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Operating ~~Income~~Loss

Gross (loss) profit. Gross loss for the three months ended June 26, 2020 was $220.2 million compared with gross profit of $388.9 million for the three months ended June 28, 2019, ~~decreased $5.1~~which was a decrease of $609.1 million or ~~1.3%~~156.6%. This decrease was primarily driven by a retrospective one-time charge of $534.4 million reflected as a component of net sales related to the Medicaid lawsuit. For further information, refer to Note 11 of the notes to the unaudited condensed consolidated financial statements.

Gross (loss) profit (excluding the one-time charge related to the Medicaid lawsuit, as discussed above) for the three months ended June 26, 2020 decreased $74.7 million, or 19.2%, to ~~$388.9~~$314.2 million, compared with ~~$394.0~~$388.9 million for the three months ended June ~~29, 2018.~~28, 2019, primarily driven by the $122.4 million decrease in net sales and a change in product mix. Gross loss as a percentage of net sales was 132.3% for the three months ended June 26, 2020. Gross profit margin (excluding the one-time charge related to the Medicaid lawsuit) was 44.8% for the three months ended June 26, 2020, compared with 47.2% for the three months ended June 28, ~~2019, compared with 47.7% for the three months ended June 29, 2018.~~2019. The decrease in ~~gross profit and~~ gross profit margin was primarily attributable to ~~an additional $29.8~~the decrease in net sales, partially offset by a $24.1 million ofdecrease in amortization expense for the Ofirmev intangible asset resulting from a change into an accelerated amortization method as discussed further in Note 10 to the unaudited condensed consolidated financial statements, as well as higher depreciation expense. The additional amortization and depreciation expense was partially offset by a decrease in the amortization of the inventory fair value adjustments related to Amitiza, which was fully amortized during the ~~first quarter of~~three months ended March 29, 2019.

Selling, general and administrative expenses. SG&A expenses for the three months ended June ~~28, 2019~~26, 2020 were ~~$225.9~~$231.3 million, compared with ~~$189.9~~$225.9 million for the three months ended June ~~29, 2018,~~28, 2019, an increase of ~~$36.0~~$5.4 million, or ~~19.0%~~2.4%. This increase was primarily related to an increase in employee compensation and benefits driven by certain changes made to the design of our long-term incentive compensation program in an effort to manage share usage and dilution and the approval of a ~~$27.5 million decrease in the fair value of the contingent consideration liability related to stannsoporfin recorded~~key employee incentive program during the three months ended June ~~29, 2018. The remaining~~26, 2020, both of which reflect the shorter-term nature of our new target opportunities. This increase was ~~attributable to~~partially offset by various factors, including ~~$18.9 million in costs related to the Separation, inclusive of rebranding initiatives, and an increase in legal expense, partially offset by~~ cost benefits gained from restructuring actions, including lower ~~employee compensation costs~~professional fees and ~~advertising costs. SG&A~~

~~expenses were 27.4%~~lower travel expense due to temporary travel restrictions as a result of COVID-19. As a percentage of net sales, SG&A expenses were 138.9% for the three months ended June ~~28, 2019 and 23.0%~~26, 2020. As a percentage of net sales (excluding the one-time charge related to the Medicaid lawsuit, as previously discussed above), SG&A expenses were 33.0% and 27.4% for the three months ended June ~~29, 2018.~~26, 2020 and June 28, 2019, respectively.

Research and development expenses. R&D expenses ~~decreased $13.0~~increased $3.3 million, or ~~14.0%~~4.1%, to $82.9 million for the three months ended June 26, 2020, compared with $79.6 million for the three months ended June 28, ~~2019, compared with $92.6 million for the three months ended June 29, 2018. Current~~2019. The Company continues to focus current R&D activities ~~focus~~ on performing clinical studies and publishing clinical and non-clinical experiences and evidence that support health economic activities and patient outcomes. As a percentage of net sales, R&D expenses were ~~9.7% and 11.2%~~49.8% for the three months ended June ~~28, 2019~~26 2020. As a percentage of net sales, (excluding the one-time charge related to the Medicaid lawsuit, as previously discussed above), R&D expenses were 11.8% and 9.7% for the three months ended June 26, 2020 and June ~~29, 2018,~~28, 2019, respectively.

Restructuring charges, net. During the three months ended June 26, 2020 and June 28, 2019, we ~~recognized~~incurred $14.4 million of restructuring and related charges, net, and a net benefit of $0.2 million, respectively, primarily related to employee severance and benefits.

Non-restructuring impairment charges. During the three months ended June ~~29, 2018,~~26, 2020, we recognized a partial impairment charge on our Ofirmev intangible asset of $63.5 million as previously described above. During the three months ended June 28, 2019, we recognized a full impairment on our in-process research and development ("IPR&D") asset related to stannsoporfin of $113.5 million as we are no longer pursuing this development product.

Opioid-related litigation settlement. During the three months ended June 26, 2020, we recorded ~~$58.8~~a non-cash loss of $8.5 million as a result of ~~restructuring charges, net,~~the change in the Settlement Warrants' fair value primarily ~~related~~driven by the increased value of our share price. For further information, refer to ~~contract termination costs~~Note 12 of the notes to the unaudited condensed consolidated financial statements.

Medicaid lawsuit. During the three months ended June 26, 2020, we incurred a retrospective one-time charge of $105.3 million, which represents a pre-acquisition contingency related to the ~~production~~portion of ~~Raplixa, as well as~~ the ~~exiting~~Acthar Gel Medicaid Retrospective Rebate that arose from sales of ~~certain facilities and employee severance and benefits associated with the~~Acthar Gel prior to our acquisition of ~~Sucampo Pharmaceuticals, Inc. ("~~Questcor in August 2014. For further information, refer to Note 11 of the ~~Sucampo Acquisition") in February 2018.~~notes to the unaudited condensed consolidated financial statements.

Non-Operating Items

Interest expense and interest income. During the three months ended June ~~28, 2019~~26, 2020 and June ~~29, 2018,~~28, 2019, net interest expense was ~~$69.3~~$63.2 million and ~~$93.7~~$69.3 million, respectively. This decrease was primarily attributable to the recognition of an $8.6 million benefit to interest expense during the three months ended June 28, 2019, due to a lapse of certain statute of limitations, in addition to a $6.3 million decrease in interest accrued on deferred tax liabilities associated with our previously outstanding installment notes. For further information, refer to Note 14 to the unaudited condensed consolidated financial statements. Additionally, a lower average outstanding debt balance during the three months ended June ~~28, 2019~~26, 2020, which yielded a decrease in interest expense of ~~$7.8~~$6.4 million. Additionally, the three months ended June 26, 2020 and June 28, 2019 included the recognition of a $10.8 million ~~over the comparable period.~~and $8.6 million benefit to interest expense, respectively, due to a lapse of certain statute of limitations. Interest income ~~increased~~decreased to $1.0 million for the three months ended June 26, 2020, compared with $2.2 million for the three months ended June 28, 2019 ~~compared with $1.4 million for the three months ended June 29, 2018,~~ primarily ~~related to~~driven by lower interest ~~on preferred equity certificates received as contingent consideration associated with the sale of the Nuclear Imaging business.~~rates.

Other (expense) income, ~~(expense),~~ net. During the three months ended June ~~28, 2019,~~26, 2020, we recorded expense, net, of $0.6 million compared with other income, net, of $74.4 million and during the three months ended June 29, 2018, we recorded other expense, net, of $0.2 million. The increase was primarily attributable to a gain of $65.0 million on debt repurchased, as well as royalty income, partially offset by a write-off of unamortized debt discount and fees during the three months ended June 28, 2019. The ~~other~~three months ended June 26, 2020 included $1.0 million of unrealized loss on the equity securities, net of foreign currency loss, related to our investment in Silence Therapeutics plc, partially offset by gains on intercompany financing and foreign currency transactions. The three months ended June 28, 2019 included a net gain of $62.4 million on debt repurchased, as well as royalty income.

Income tax expense ~~net, recorded during~~(benefit). We recognized an income tax expense of $161.3 million on a loss from continuing operations before income taxes of $789.3 million for the three months ended June ~~29, 2018 represented items including gains on intercompany financing, foreign currency transactions losses~~26, 2020, and ~~related hedging instruments.~~

~~Income tax benefit.~~ ~~We recognized~~ an income tax benefit of $24.3 million on a loss from continuing operations before income taxes of $24.8 million for the three months ended June 28, ~~2019,~~2019. This resulted in effective tax

rates of negative 20.4% and ~~an income tax benefit of $44.4 million on a loss from continuing operations before income taxes of $41.2 million~~98.0% for the three months ended June ~~29, 2018. This resulted in effective~~26, 2020 and June 28, 2019, respectively. The income tax ~~rates of 98.0% and 107.8%~~expense for the three months ended June ~~28,~~26, 2020 was comprised of $146.5 million of current tax benefit and $307.8 million of deferred tax expense. The current tax benefit was primarily the result of the Coronavirus Aid, Relief, and Economic Security ("CARES") Act and unrecognized tax benefits. The deferred tax expense was predominately related to the valuation allowance noted above, recorded against our net deferred tax assets, and unrecognized tax benefits, partially offset by a tax benefit related to previously acquired intangibles and the fiscal 2019 reorganization of our intercompany financing and ~~June 29, 2018, respectively.~~associated legal entity ownership including related adjustments to elections on the fiscal 2019 U.S. tax return primarily as a result of changes to the NOL carryback provisions in the CARES Act. The income tax benefit for the three months ended June 28, 2019 was comprised of $5.6 million of current tax expense and $29.9 million of deferred tax benefit. The deferred tax benefit ~~which~~ was ~~predominately~~predominantly related to previously acquired intangibles, the generation of tax loss and credit carryforwards net of valuation allowances and the non-restructuring impairment ~~charge, as further discussed in Note 10 of the unaudited condensed consolidated financial statements.~~ charges.

The income tax ~~benefit~~expense was $161.3 million for the three months ended June ~~29, 2018 was comprised of $10.2 million of current tax expense and $54.6 million of deferred tax benefit. The deferred tax benefit was predominantly related to previously acquired intangibles.~~

~~The~~26, 2020, compared with an income tax benefit ~~was~~of $24.3 million for the three months ended June 28, ~~2019, compared with a tax benefit of $44.4 million for the three months ended June 29, 2018.~~2019. The ~~$20.1~~$185.6 million net ~~decrease~~increase in the tax ~~benefit~~expense included an increase of $202.7 million attributed to a ~~$20.7~~valuation allowance recorded against our net deferred tax assets, an increase of $11.7 million ~~decrease~~ attributed to changes in the timing, amount and jurisdictional mix of income, an increase of $8.5 million attributed to non-restructuring impairment charges, an increase of $4.6 million attributed to separation costs, an increase of $4.3 million attributed to the fiscal 2019 reorganization of our intercompany financing and associated legal entity ownership including related adjustments to elections on the fiscal 2019 U.S. tax return primarily as a ~~$7.1~~result of changes to the NOL carryback provisions in the CARES Act, partially offset by a decrease of $38.1 million attributed to the CARES Act, a decrease of $7.2 million attributed to the gain on debt repurchased, and a ~~$3.4 million~~ decrease ~~attributed to restructuring and related charges, partially offset by an increase in tax benefit~~ of ~~$8.5~~$0.9 million attributed to ~~the non-restructuring impairment charge and $2.6 million increase attributed to separation costs.~~net restructuring.

Income from discontinued operations, net of income ~~taxes~~taxes.. We recorded income from discontinued operations of $17.5 million and $7.3 million during the three months ended June 26, 2020 and ~~$12.4 million~~June 28, 2019, respectively. The income during the three months ended June 26, 2020 was primarily related to the recognition of a tax benefit related to the release of tax and interest on unrecognized tax benefits due to a lapse of certain statute of limitations related to the Nuclear Imaging business. The income during the three months ended June 28, 2019 ~~and June 29, 2018, respectively,~~was primarily related to the receipt of contingent consideration associated with the sale of the Nuclear Imaging business.

Six Months Ended June ~~28, 2019~~26, 2020 Compared with Six Months Ended June ~~29, 2018~~28, 2019

Net Sales

Net sales by geographic area were as follows (dollars in millions):


	Six Months Ended
	June 26, 2020		June 28, 2019		Percentage Change
U.S.	$	1,203.7	$	1,396.9	(13.8)	%
Europe, Middle East and Africa	131.7		148.3		(11.2)
Other geographic areas	31.3		68.7		(54.4)
Geographic area net sales	1,366.7		1,613.9		(15.3)
Medicaid lawsuit (Note 11)	(534.4)		—		*
Net sales	$	832.3	$	1,613.9	(48.4)

Six Months Ended
June 28,
2019 June 29,
2018 Percentage
Change
U.S. $ 1,396.9
$ 1,399.3
(0.2 )%
Europe, Middle East and Africa 148.3
124.1
19.5
Other geographic areas 68.7
57.4
19.7
Net sales $ 1,613.9
$ 1,580.8
2.1
*Not meaningful

Net sales for the six months ended June ~~28, 2019 increased $33.1~~26, 2020 decreased $781.6 million or ~~2.1%~~48.4%, to ~~$1,613.9~~$832.3 million compared with ~~$1,580.8~~$1,613.9 million for the six months ended June ~~29, 2018.~~28, 2019. This ~~increase~~decrease was primarily driven by a retrospective one-time charge of $534.4 million reflected as a component of net sales related to the Medicaid lawsuit. For further information, refer to Note 11 of ~~Amitiza, which~~the notes to the unaudited condensed consolidated financial statements.

Net sales (excluding the one-time charge related to the Medicaid lawsuit, as discussed below) for the six months ended June 26, 2020 decreased $247.2 million, or 15.3%, to $1,366.7 million, compared with $1,613.9 million for the six months ended June 28, 2019. This decrease was ~~acquired during the first quarter of 2018, and continued strength~~primarily driven by a decrease in ~~Ofirmev, Inomax and Therakos. These increases were partially offset by decreased~~our Specialty Brands segment including a significant decrease in net sales of Acthar Gel, as ~~previously mentioned.~~well as decreases in net sales of Ofirmev, Amitiza and Therakos. In addition, ~~we experienced lower~~Other Specialty Brands products during the six months ended June 28, 2019 includes $26.3 million of net sales ~~in Other branded products primarily due~~related to BioVectra prior to the completion of the sale of ~~Recothrom during the first quarter of 2018.~~this business in November 2019. For further information on changes in our net sales, refer to "Segment Results" within this Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Operating ~~Income~~Loss

Gross ~~profit.~~profit. Gross profit for the six months ended June ~~28, 2019~~26, 2020 decreased ~~$17.5~~$660.4 million or ~~2.4%,~~91.2% to ~~$724.0~~$63.6 million compared with ~~$741.5~~$724.0 million. This decrease was primarily driven by a retrospective one-time charge of $534.4 million reflected as a component of net sales related to the Medicaid lawsuit. For further information, refer to Note 11 of the notes to the unaudited condensed consolidated financial statements.

Gross profit (excluding the one-time charge related to the Medicaid lawsuit, as discussed above) for the six months ended June 26, 2020 decreased $126.0 million, or 17.4%, to $598.0 million, compared with $724.0 million for the six months ended June ~~29, 2018.~~28, 2019, due in part to the $247.2 million decrease in net sales. Gross profit as a percentage of net sales was 7.6% for the six months ended June 26, 2020. Gross profit margin (excluding the one-time charge related to the Medicaid lawsuit) was 43.8% for the six months ended June 26, 2020, compared with 44.9% for the six months ended June 28, ~~2019, compared with 46.9% for the six months ended June 29, 2018.~~2019. The decrease in ~~gross profit and~~ gross profit margin was primarily attributable to ~~an additional $65.7~~the decrease in net sales, partially offset by a $48.3 million ofdecrease in amortization expense for the Ofirmev intangible asset resulting from a change into an accelerated amortization method as discussed further in Note 10 to the unaudited condensed consolidated financial statements. This additional amortization was partially offset by a decrease in the amortization of the inventory fair value adjustments related to Amitiza, which was fully amortized during ~~the first quarter of~~fiscal 2019.

Selling, general and administrative expenses. SG&A expenses for the six months ended June ~~28, 2019~~26, 2020 were ~~$456.1~~$462.4 million, compared with ~~$401.1~~$456.1 million for the six months ended June 29, 2018, an increase of $55.0 million, or 13.7%. This increase was primarily attributable to $30.6 million in costs related to the Separation, inclusive of rebranding initiatives, and increased legal expenses. Additionally, during the six months ended June 29, 2018 we recorded a $28.0 million decrease in the fair value of the contingent consideration liability related to stannsoporfin. These increases were partially offset by cost benefits gained from restructuring actions, including lower employee compensation costs and lower advertising costs. SG&A expenses were 28.3% of net sales for the six months ended June 28, 2019, an increase of $6.3 million, or 1.4%. This increase was primarily attributable to an increase in employee compensation and ~~25.4%~~benefits driven by certain changes made to the design of ~~net sales~~our long-term incentive compensation program in an effort to manage share usage and dilution and the approval of a key employee incentive program during the six months ended June 26, 2020, both of which reflect the shorter-term nature of our new target opportunities. Also contributing to the increase was an increase in legal fees, and an $11.4 million increase in separation costs for the six months ended June ~~29, 2018.~~26, 2020 compared to the six months ended June 28, 2019. These increases were partially offset by decreases in consulting and professional fees and a $5.7 million decrease in the fair value of our contingent consideration liabilities during the six months ended June 26, 2020 compared to a $2.3 million increase in fair value during the six months ended June 28, 2019 as well as a decrease in travel expense due to temporary travel restrictions as a result of COVID-19. As a percentage of net sales, SG&A expenses were 55.6% for the six months ended June 26, 2020. As a percentage of net sales, (excluding the one-time charge related to the Medicaid lawsuit, as previously discussed above), SG&A expenses were 33.8% and 28.3% for the six months ended June 26, 2020 and June 28, 2019, respectively.

Research and development expenses. R&D expenses decreased ~~$9.7~~$4.6 million, or ~~5.6%~~2.8%, to $160.3 million for the six months ended June 26, 2020, compared with $164.9 million for the six months ended June 28, ~~2019, compared with $174.6 million for the six months ended June 29, 2018. Current~~2019. The Company continues to focus current R&D activities ~~focus~~ on performing clinical studies and publishing clinical and non-clinical experiences and evidence that support health economic activities and patient outcomes. As a percentage of net sales, R&D expenses were ~~10.2% and 11.0%~~19.3% for the six months ended June ~~28, 2019~~26, 2020. As a percentage of net sales, (excluding the one-time charge related to the Medicaid lawsuit, as previously discussed above), R&D expenses were 11.7% and 10.2% for the six months ended June 26, 2020 and June ~~29, 2018,~~28, 2019, respectively.

Restructuring charges, net. During the six months ended June 26, 2020 and June 28, 2019, we ~~recorded~~incurred $12.6 million and $4.0 million of restructuring ~~and related~~ charges, net, primarily related to employee severance and benefits.

Non-restructuring impairment charges. During the six months ended June ~~29, 2018,~~26, 2020, we recognized a partial impairment charge on our Ofirmev intangible asset of $63.5 million as previously described above. During the six months ended June 28, 2019, we recognized a full impairment on our IPR&D asset related to stannsoporfin of $113.5 million as we are no longer pursuing this development product.

Opioid-related litigation settlement. During the six months ended June 26, 2020, we recorded ~~$87.0~~a non-cash gain of $8.3 million as a result of ~~restructuring and related charges, net,~~the change in the Settlement Warrants' fair value primarily ~~attributable~~driven by a decline in the value of our share price. For further information, refer to ~~contract termination costs~~Note 12 of the notes to the unaudited condensed consolidated financial statements.

Medicaid lawsuit. During the six months ended June 26, 2020, we incurred a retrospective one-time charge of $105.3 million, which represents a pre-acquisition contingency related to the ~~production~~portion of ~~Raplixa, as well as employee severance and benefits, and exiting certain facilities.~~the Acthar Gel Medicaid Retrospective Rebate that arose from sales of Acthar Gel prior to our acquisition of Questcor in August 2014. For further information, refer to Note 11 of the notes to the unaudited condensed consolidated financial statements.

Non-Operating Items

Interest expense and interest income. During the six months ended June ~~28, 2019~~26, 2020 and June ~~29, 2018,~~28, 2019, net interest expense was ~~$150.5~~$134.2 million and ~~$181.9~~$150.5 million, respectively. This decrease was primarily attributable to an $11.6 million decrease in interest accrued on deferred tax liabilities associated with our previously outstanding installment notes, in addition to the recognition of an $8.6 million benefit to interest expense during the three months ended June 28, 2019, due to a lapse of certain statute of limitations. For further information, refer to Note 14 to the unaudited condensed consolidated financial statements. Additionally, a lower average outstanding debt balance during the six months ended June ~~28, 2019~~26, 2020, which yielded a decrease in interest expense of ~~$10.0~~

~~million and non-cash interest expense decreased by $2.0 million over the comparable period. During~~$15.4 million. Additionally, the six months ended June 26, 2020 and June 28, 2019 ~~we also~~included the recognition of a $10.8 million and $8.6 million benefit to interest expense, respectively, due to a lapse of certain statute of limitations. The Company recognized interest income of ~~$3.7~~$4.5 million ~~compared to $4.6~~and $3.7 million during the six months ended June ~~29, 2018, due to a decrease~~26, 2020 and June 28, 2019, respectively. The increase in interest ~~rates resulting in lower~~ income was primarily driven by

interest earned on our ~~money market funds.~~preferred equity certificates that were received as contingent consideration related to the sale of the Nuclear Imaging business, partially offset by lower interest rates during the six months ended June 26, 2020.

Other income, ~~(expense),~~ net. During the six months ended June ~~28, 2019~~26, 2020 and June ~~29, 2018,~~28, 2019, we recorded other income, net, of $1.1 million and $90.7 million, ~~and $4.4 million,~~ respectively. The increase was primarily attributable to a gain of $79.9 million on debt repurchased, as well as royalty income, partially offset by a write-off of unamortized debt discount and fees during the six months ended June 28, 2019. The six months ended June ~~29, 2018~~26, 2020 included a $1.9 million unrealized gain on the equity securities, net of ~~$6.5 million on debt repurchased. The remaining amounts~~foreign currency loss, related to our investment in ~~both periods represented items including gains and~~Silence Therapeutics plc, partially offset by losses on intercompany financing, foreign currency transactions and related hedging instruments. The six months ended June 28, 2019 included a net gain of $71.3 million on debt repurchased, as well as royalty income.

Income tax ~~benefit.~~expense (benefit). We recognized an income tax expense of $142.4 million on a loss from continuing operations before income taxes of $864.9 million for the six months ended June 26, 2020, and an income tax benefit of $229.0 million on a loss from continuing operations before income taxes of $74.3 million for the six months ended June 28, ~~2019, and an income tax benefit of $81.0 million on a loss from continuing operations before income taxes of $98.7 million for the six months ended June 29, 2018.~~2019. This resulted in effective tax rates of ~~308.2%~~negative 16.5% and ~~82.1%~~308.2% for the six months ended June 26, 2020 and June 28, 2019, respectively. The income tax expense for the six months ended June 26, 2020 was comprised of $168.8 million of current tax benefit and ~~June 29, 2018, respectively.~~$311.2 million of deferred tax expense. The current tax benefit was primarily the result of the CARES Act and unrecognized tax benefits. The deferred tax expense was predominantly related to the valuation allowance noted above, recorded against our net deferred tax assets, partially offset by a tax benefit related to previously acquired intangibles and the fiscal 2019 reorganization of our intercompany financing and associated legal entity ownership including related adjustments to elections on the fiscal 2019 U.S. tax return primarily as a result of changes to the NOL carryback provisions in the CARES Act. The income tax benefit for the six months ended June 28, 2019 was comprised of $44.1 million of current tax expense and $273.1 million of deferred tax benefit. The deferred tax benefit was predominantly related to previously acquired intangibles, the generation of tax loss and credit carryforwards net of valuation allowances, the non-restructuring impairment ~~charge,~~charges, as well as the reorganization of our intercompany financing and associated legal entity ownership, which eliminated the interest bearing deferred tax obligation.

The income tax ~~benefit~~expense was $142.4 million for the six months ended June ~~29, 2018 was comprised of $21.4 million of current tax expense and $102.4 million of deferred tax benefit. The deferred tax benefit was predominantly related to previously acquired intangibles.~~

~~The~~26, 2020, compared with an income tax benefit ~~was~~of $229.0 million for the six months ended June 28, ~~2019, compared with a tax benefit of $81.0 million for the six months ended June 29, 2018.~~2019. The ~~$148.0~~$371.4 million net increase in the tax ~~benefit~~expense included an increase of ~~$189.8~~$202.7 million attributed to a valuation allowance recorded against our net deferred tax assets, an increase of $197.1 million attributed to the ~~tax benefit from the~~fiscal 2019 reorganization of our intercompany financing and associated legal entity ownership including related adjustments to elections on the fiscal 2019 U.S. tax return primarily as a ~~$8.5 million increase attributed~~result of changes to the ~~non-restructuring impairment charge and a $3.6~~NOL carryback provisions in the CARES Act, an increase of $17.7 million ~~increase attributed to separation costs, partially offset by a decrease in tax benefit of $35.2 million predominately~~ attributed to changes in the timing, amount and jurisdictional mix of income, ~~a $9.8~~an increase of $8.5 million ~~decrease~~ attributed to non-restructuring impairment charges, an increase of $3.4 million attributed to separation costs, an increase of $0.5 million attributed to net restructuring, ~~and related charges~~partially offset by a decrease of $49.6 million attributed to the CARES Act, and a decrease of $8.9 million ~~decrease~~ attributed to the gain on debt repurchased.

Income from discontinued operations, net of income taxes. We recorded income from discontinued operations of ~~$7.0~~$24.0 million and ~~$15.3~~$7.0 million during the six months ended June 26, 2020 and June 28, 2019, respectively. The income during the six months ended June 26, 2020 primarily related to the recognition of a tax benefit related to a release of tax and interest on unrecognized tax benefits due to a lapse of certain statute of limitations related to the Nuclear Imaging business. The remaining income during the six months ended June 26, 2020 and June ~~29, 2018, respectively,~~28, 2019 primarily related to the receipt of contingent consideration associated with the sale of the Nuclear Imaging business. ~~These were partially offset by various post-sale adjustments associated with our previous divestitures.~~

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 ~~evaluates~~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, intangible asset amortization, net restructuring and related charges, non-restructuring ~~impairments~~impairment charges, separation costs, R&D upfront payments, changes related to the Opioid-Related Litigation Settlement and ~~separation costs.~~the Acthar Gel Medicaid Retrospective Rebate incurred as a result of the Medicaid lawsuit. Although these amounts are excluded from segment net sales and operating income, as applicable, they are included in reported consolidated net sales and operating ~~income~~loss and are reflected in the following reconciliations presented below. Selected information by business segment is as follows:

Three Months Ended June ~~28, 2019~~26, 2020 Compared with Three Months Ended June ~~29, 2018~~28, 2019

Net Sales

Net sales by segment are shown in the following table (dollars in millions):


	Three Months Ended
	June 26, 2020		June 28, 2019		Percentage Change
Specialty Brands ⁽¹⁾	$	522.8	$	627.8	(16.7)	%
Specialty Generics	178.1		195.5		(8.9)
Segment net sales	700.9		823.3		(14.9)
Medicaid lawsuit (Note 11)	(534.4)		—		*
Net sales	$	166.5	$	823.3	(79.8)

Three Months Ended
June 28,
2019 June 29,
2018
Percentage
Change
Specialty Brands $ 627.8
$ 631.7
(0.6 )%
Specialty Generics 195.5
193.8
0.9
Net sales $ 823.3
$ 825.5
(0.3 )
*Not meaningful

(1)The three months ended June 26, 2020 includes the prospective change to the Medicaid rebate calculation of $8.6 million for the period from June 15, 2020 through June 26, 2020, of which $6.8 million represents the channel impact. For further information, refer to Note 11 of the notes to the unaudited condensed consolidated financial statements.

Specialty Brands. Net sales for the three months ended June ~~28, 2019~~26, 2020 decreased ~~$3.9~~$105.0 million to ~~$627.8~~$522.8 million, compared with ~~$631.7~~$627.8 million for the three months ended June ~~29, 2018.~~28, 2019. The decrease in net sales was primarily driven by a ~~$26.8~~$52.7 million or ~~9.1%~~19.8% decrease in Acthar Gel net sales driven primarily by continued reimbursement challenges impacting new and returning patients and continued payer scrutiny on overall specialty pharmaceutical ~~spending, partially offset by strength in Inomax, Ofirmev, Therakos~~spending; and ~~Amitiza resulting in increased net sales of $8.7 million, $4.9 million, $4.1 million and $4.0 million, respectively, compared with~~reduced patient demand due to COVID-19 stay-at-home orders. As previously mentioned, the three months ended June ~~29, 2018.~~26, 2020 also includes a reduction of $8.6 million due to the change in the base date AMP for Acthar Gel that took effect on June 15, 2020. See Note 11 of the notes to the unaudited condensed consolidated financial statements for further detail on the status of the Medicaid lawsuit. Net sales for Ofirmev and Therakos decreased $38.1 million, or 42.1%, and $13.1 million, or 21.5%, respectively, primarily driven by the overall reduction in elective surgeries and stay-at-home directives, respectively, due to public health orders implemented as part of the COVID-19 pandemic. In addition, Other Specialty Brands products during the three months ended June 28, 2019 includes $13.9 million of net sales related to BioVectra prior to the completion of the sale of this business in November 2019. These were partially offset by a $15.2 million, or 10.9%, increase in INOmax net sales driven by increased consumption, including strong utilization within COVID-19 patients.

Net sales for Specialty Brands by geography were as follows (dollars in millions):


	Three Months Ended
	June 26, 2020		June 28, 2019		Percentage Change
U.S.	$	472.2	$	559.4	(15.6)	%
Europe, Middle East and Africa	39.8		40.2		(1.0)
Other	10.8		28.2		(61.7)
Net sales	$	522.8	$	627.8	(16.7)

Three Months Ended
June 28,
2019 June 29,
2018 Percentage
Change
U.S. $ 559.4
$ 570.6
(2.0 )%
Europe, Middle East and Africa 40.2
34.0
18.2
Other 28.2
27.1
4.1
Net sales $ 627.8
$ 631.7
(0.6 )

Net sales for Specialty Brands by key products were as follows (dollars in millions):


	Three Months Ended
	June 26, 2020		June 28, 2019		Percentage Change
Acthar Gel ⁽¹⁾	$	213.7	$	266.4	(19.8)	%
INOmax	154.9		139.7		10.9
Ofirmev	52.4		90.5		(42.1)
Therakos	47.8		60.9		(21.5)
Amitiza	49.4		52.0		(5.0)
Other	4.6		18.3		(74.9)
Specialty Brands	$	522.8	$	627.8	(16.7)

Three Months Ended
June 28,
2019 June 29,
2018 Percentage Change
Acthar Gel $ 266.4
$ 293.2
(9.1 )%
Inomax 139.7
131.0
6.6
Ofirmev 90.5
85.6
5.7
Therakos 60.9
56.8
7.2
Amitiza 52.0
48.0
8.3
BioVectra 13.9
11.3
23.0
Other 4.4
5.8
(24.1 )
Specialty Brands $ 627.8
$ 631.7
(0.6 )

Specialty Generics. Net sales for the three months ended June ~~28, 2019 increased $1.7~~26, 2020 decreased $17.4 million, or ~~0.9%~~8.9%, to ~~$195.5~~$178.1 million, compared with ~~$193.8~~$195.5 million for the three months ended June ~~29, 2018.~~28, 2019. The ~~increase~~decrease in net sales was driven by ~~Oxycodone~~a decrease in Other controlled substances products and ~~Hydrocodone~~Other Specialty Generics products net sales of ~~$6.5~~$20.8 million and ~~$1.2~~$6.4 million, respectively. These ~~increases~~decreases were partially offset by ~~a $3.3~~increases of $7.3 million ~~decrease~~and $7.1 million in hydrocodone-related products and acetaminophen ~~products~~ net sales, respectively compared to the three months ended June ~~29, 2018.~~28, 2019.

Net sales for Specialty Generics by geography were as follows (dollars in millions):


	Three Months Ended
	June 26, 2020		June 28, 2019		Percentage Change
U.S.	$	143.6	$	157.8	(9.0)	%
Europe, Middle East and Africa	31.3		33.3		(6.0)
Other	3.2		4.4		(27.3)
Net sales	$	178.1	$	195.5	(8.9)

Three Months Ended
June 28,
2019 June 29,
2018
Percentage
Change
U.S. $ 157.8
$ 158.5
(0.4 )%
Europe, Middle East and Africa 33.3
30.2
10.3
Other 4.4
5.1
(13.7 )
Net sales $ 195.5
$ 193.8
0.9

Net sales for Specialty Generics by key products were as follows (dollars in millions):


	Three Months Ended							Three Months Ended
	June 28, 2019		June 29, 2018		Percentage Change			June 26, 2020		June 28, 2019		Percentage Change
Hydrocodone (API) and hydrocodone-containing tablets	$	18.1	$	16.9	7.1	%	Hydrocodone (API) and hydrocodone-containing tablets	$	25.4	$	18.1	40.3	%
Oxycodone (API) and oxycodone-containing tablets	19.6		13.1		49.6		Oxycodone (API) and oxycodone-containing tablets	15.0		19.6		(23.5)
Acetaminophen (API)	48.4		51.7		(6.4	)	Acetaminophen (API)	55.5		48.4		14.7
Other controlled substances	98.6		99.5		(0.9	)	Other controlled substances	77.8		98.6		(21.1)
Other	10.8		12.6		(14.3	)	Other	4.4		10.8		(59.3)
Specialty Generics	$	195.5	$	193.8	0.9		Specialty Generics	$	178.1	$	195.5	(8.9)

Operating ~~Income~~Loss

Operating income by segment and as a percentage of segment net sales for the three months ended June ~~28, 2019~~26, 2020 and June ~~29, 2018~~28, 2019 is shown in the following table (dollars in millions):


	Three Months Ended
	June 26, 2020						June 28, 2019
Specialty Brands ⁽¹⁾	$	245.1	46.9	%	$	321.4	51.2	%
Specialty Generics	34.9		19.6		33.9		17.3
Segment operating income	280.0		39.9		355.3		43.2
Unallocated amounts:
Corporate and unallocated expenses	(62.1)				(36.4)
Intangible asset amortization	(191.6)				(216.6)
Restructuring and related charges, net	(14.4)				0.2
Non-restructuring impairment charges	(63.5)				(113.5)
Separation costs	(20.7)				(18.9)
R&D upfront payment ⁽²⁾	(5.0)				—
Opioid-related litigation settlement ⁽³⁾	(8.5)				—
Medicaid lawsuit (Note 11)	(639.7)				—
Total operating loss	$	(725.5)			$	(29.9)

Three Months Ended
June 28, 2019 June 29, 2018
Specialty Brands ⁽¹⁾
$ 321.4
51.2 % $ 265.2
42.0 %
Specialty Generics 33.9
17.3
43.1
22.2
Segment operating income 355.3
43.2
308.3
37.3
Unallocated amounts:
Corporate and allocated expenses (36.4 ) (12.5 )
Intangible asset amortization (216.6 ) (184.3 )
Restructuring and related charges, net 0.2
(58.8 )
Non-restructuring impairment (113.5 ) —

Separation costs (18.9 ) —

Total operating (loss) income $ (29.9 ) $ 52.7

(1)The three months ended June 26, 2020 includes the prospective change to the Medicaid rebate calculation of $8.6 million for the period from June 15, 2020 through June 26, 2020, of which $6.8 million represents the channel impact. For further information, refer to Note 11 of the notes to the unaudited condensed consolidated financial statements.


~~(1)~~	~~Includes $31.5 million of inventory fair-value step up expense, primarily related to Amitiza, during the three months ended June 29, 2018.~~

(2)Represents R&D expense incurred related to an upfront payment made to acquire product rights in Japan for terlipressin.

(3)Represents the change in the Settlement Warrants' fair value. Refer to Note 12 of the notes to the unaudited condensed consolidated financial statements for further information regarding the valuations of the Settlement Warrants.

Specialty Brands. Operating income for the three months ended June ~~28, 2019 increased $56.2~~26, 2020 decreased $76.3 million, to ~~$321.4~~$245.1 million, compared with ~~$265.2~~$321.4 million for the three months ended June ~~29, 2018.~~28, 2019. Operating margin ~~increased~~decreased to 46.9% for the three months

ended June 26, 2020 compared with 51.2% for the three months ended June 28, 2019 compared with 42.0% for the three months ended June 29, 2018. While net sales decreased, gross margin increased $24.7 million primarily driven by an additional $31.5 million of expense recorded during the three months ended June 29, 2018 related to the inventory fair value adjustments for Amitiza, which was fully amortized in the first quarter of 2019. ~~The increase~~This decrease in operating income and margin was ~~also attributable~~primarily driven by the $105.0 million, or 16.7% decrease in net sales, partially offset by a slightly higher gross margin due to ~~decreases~~a change in product mix. During the three months ended June 26, 2020, SG&A expenses ~~of $18.6~~decreased $8.6 million, or 6.3%, compared with the three months ended June 28, 2019, primarily ~~driven by lower employee compensation costs,~~due to cost benefits gained from restructuring actions and decreased travel expense due to temporary travel restrictions from COVID-19, while R&D expenses ~~of $13.1 million.~~increased $1.3 million, or 1.9%.

Specialty Generics. Operating income for the three months ended June ~~28, 2019 decreased $9.2~~26, 2020 increased $1.0 million to ~~$33.9~~$34.9 million, compared with ~~$43.1~~$33.9 million for the three months ended June ~~29, 2018.~~28, 2019. Operating margin ~~decreased~~increased to 19.6% for the three months ended June 26, 2020, compared with 17.3% for the three months ended June 28, ~~2019, compared with 22.2%~~2019. The increase in operating income and margin was primarily due to the $15.2 million decrease in SG&A expenses for the three months ended June ~~29, 2018.~~26, 2020, compared to the three months ended June 28, 2019. The decrease in SG&A was driven by opioid defense costs being considered non-recurring and excluded from segment operating income and ~~margin was impacted by~~presented as a ~~$12.1~~corporate and unallocated expense on a go-forward basis, beginning in the first quarter of fiscal 2020, as a result of the Opioid-Related Litigation Settlement until effectuation of the Opioid-Related Litigation Settlement. In comparison, there were $15.1 million ~~increase in SG&A primarily due to higher legal expense related to~~of opioid defense costs reflected in operating income during the three months ended June 28, 2019. During the three months ended there was also a decrease in R&D expense of $3.0 million. These increases to operating income were partially offset by ~~a $2.5~~the $17.4 million ~~increase~~decrease in ~~gross profit.~~net sales.

Corporate and ~~allocated~~unallocated expenses. Corporate and ~~allocated~~unallocated expenses were ~~$36.4~~$62.1 million and ~~$12.5~~$36.4 million for the three months ended June ~~28, 2019~~26, 2020 and June ~~29, 2018,~~28, 2019, respectively. This increase was primarily driven by certain changes made to the design of our long-term incentive compensation program in an effort to manage share usage and dilution and the approval of a ~~$27.5 million decrease in the fair value of the contingent consideration liability related to stannsoporfin recorded during the~~key employee incentive program during the three months ended June ~~29, 2018,~~26, 2020, both of which reflect the shorter-term nature of our new target opportunities. The remaining increase was related to opioid defense costs of $17.2 million being presented as a corporate and unallocated expense beginning in ~~addition to higher professional and legal expenses,~~the first quarter of fiscal 2020, as a result of the Opioid-Related Litigation Settlement, as previously discussed, partially offset by lower ~~employee compensation costs.~~professional and consulting fees.

Six Months Ended June ~~28, 2019~~26, 2020 Compared with Six Months Ended June ~~29, 2018~~28, 2019

Net Sales

Net sales by segment are shown in the following table (dollars in millions):


	Six Months Ended
	June 26, 2020		June 28, 2019		Percentage Change
Specialty Brands ⁽¹⁾	$	1,013.4	$	1,232.0	(17.7)	%
Specialty Generics	353.3		381.9		(7.5)
Segment net sales	1,366.7		1,613.9		(15.3)
Medicaid lawsuit (Note 11)	(534.4)		—		*
Net sales	$	832.3	$	1,613.9	(48.4)

Six Months Ended
June 28,
2019 June 29,
2018
Percentage
Change
Specialty Brands $ 1,232.0
$ 1,204.3
2.3 %
Specialty Generics 381.9
376.5
1.4
Net sales $ 1,613.9
$ 1,580.8
2.1
*Not meaningful

(1)The six months ended June 26, 2020 includes the prospective change to the Medicaid rebate calculation of $8.6 million for the period from June 15, 2020 through June 26, 2020, of which $6.8 million represents the channel impact. For further information, refer to Note 11 of the notes to the unaudited condensed consolidated financial statements.

Specialty Brands. Net sales for the six months ended June ~~28, 2019 increased $27.7~~26, 2020 decreased $218.6 million to ~~$1,232.0~~$1,013.4 million, compared with ~~$1,204.3~~$1,232.0 million for the six months ended June ~~29, 2018.~~28, 2019. The ~~increase~~decrease in net sales ~~was primarily driven by net sales of Amitiza, which was acquired during the first quarter of 2018, and continued strength in Ofirmev, Inomax and Therakos~~ compared with the six months ended June ~~29, 2018. These increases were partially offset~~28, 2019 was primarily driven by a ~~$46.7~~$109.0 million, or ~~8.7%~~22.2% decrease in Acthar Gel net ~~sales, as~~sales. As previously mentioned, ~~and an $11.1 million or 50.7% decrease in Other products compared with~~ the six months ended June ~~29, 2018.~~26, 2020 also includes a reduction of $8.6 million due to the change in the base date AMP for Acthar Gel that took effect on June 15, 2020. See Note 11 of the notes to the unaudited condensed consolidated financial statements for further detail on the status of the Medicaid lawsuit. Net sales for Ofirmev, Amitiza and Therakos decreased $58.8 million, or 31.6%, $14.5 million, or 13.8%, and $11.2 million, or 9.1%, respectively. The decrease in ~~Other products~~Ofirmev and Therakos net sales were primarily driven by the overall reduction in elective surgeries and stay-at-home directives, respectively, due to public health orders implemented as part of the COVID-19 pandemic, while the decrease in Amitiza net sales was primarily ~~attributable to the sale of Recothrom during the first quarter of 2018, which contributed net sales of $10.5 million~~driven by volume. In addition, Other Specialty Brands products during the six months ended June ~~29, 2018.~~28, 2019 includes $26.3 million of net sales related to BioVectra prior to the completion of the sale of this business in November 2019.

Net sales for Specialty Brands by geography were as follows (dollars in millions):


	Six Months Ended
	June 26, 2020		June 28, 2019		Percentage Change
U.S.	$	916.9	$	1,090.6	(15.9)	%
Europe, Middle East and Africa	72.3		81.0		(10.7)
Other	24.2		60.4		(59.9)
Net sales	$	1,013.4	$	1,232.0	(17.7)

Six Months Ended
June 28,
2019 June 29,
2018 Percentage
Change
U.S. $ 1,090.6
$ 1,092.6
(0.2 )%
Europe, Middle East and Africa 81.0
64.1
26.4
Other 60.4
47.6
26.9
Net sales $ 1,232.0
$ 1,204.3
2.3

Net sales for Specialty Brands by key products were as follows (dollars in millions):


	Six Months Ended
	June 26, 2020		June 28, 2019		Percentage Change
Acthar Gel ⁽¹⁾	$	381.3	$	490.3	(22.2)	%
INOmax	296.6		290.8		2.0
Ofirmev	127.3		186.1		(31.6)
Therakos	111.5		122.7		(9.1)
Amitiza	90.5		105.0		(13.8)
Other	6.2		37.1		(83.3)
Specialty Brands	$	1,013.4	$	1,232.0	(17.7)

Six Months Ended
June 28,
2019 June 29,
2018 Percentage Change
Acthar Gel $ 490.3
$ 537.0
(8.7 )%
Inomax 290.8
270.8
7.4
Ofirmev 186.1
167.6
11.0
Therakos 122.7
114.2
7.4
Amitiza 105.0
71.0
47.9
BioVectra 26.3
21.8
20.6
Other 10.8
21.9
(50.7 )
Specialty Brands $ 1,232.0
$ 1,204.3
2.3
(1)The six months ended June 26, 2020 includes the prospective change to the Medicaid rebate calculation of $8.6 million for the period from June 15, 2020 through June 26, 2020, of which $6.8 million represents the channel impact. For further information, refer to Note 11 of the notes to the unaudited condensed consolidated financial statements.

Specialty Generics. Net sales for the six months ended June ~~28, 2019 increased $5.4~~26, 2020 decreased $28.6 million, or ~~1.4%~~7.5%, to ~~$381.9~~$353.3 million, compared with ~~$376.5~~$381.9 million for the six months ended June ~~29, 2018.~~28, 2019. The ~~increase~~decrease in net sales was primarily driven by ~~Oxycodone~~decreases in other controlled substances and ~~Hydrocodone~~other products of ~~$6.4~~$31.4 million and ~~$4.7~~$14.4 million, respectively. These ~~increases~~decreases were partially offset by a ~~$6.5~~$16.4 million ~~decrease~~or 46.2% increase in ~~acetaminophen products~~ net sales for hydrocodone-related products compared to the six months ended June ~~29, 2018.~~28, 2019.

Net sales for Specialty Generics by geography were as follows (dollars in millions):


	Six Months Ended
	June 26, 2020		June 28, 2019		Percentage Change
U.S.	$	286.8	$	306.3	(6.4)	%
Europe, Middle East and Africa	59.4		67.3		(11.7)
Other	7.1		8.3		(14.5)
Net sales	$	353.3	$	381.9	(7.5)

Six Months Ended
June 28,
2019 June 29,
2018
Percentage
Change
U.S. $ 306.3
$ 306.7
(0.1 )%
Europe, Middle East and Africa 67.3
60.0
12.2
Other 8.3
9.8
(15.3 )
Net sales $ 381.9
$ 376.5
1.4

Net sales for Specialty Generics by key products were as follows (dollars in millions):


	Six Months Ended
	June 26, 2020		June 28, 2019		Percentage Change
Hydrocodone (API) and hydrocodone-containing tablets	$	51.9	$	35.5	46.2	%
Oxycodone (API) and oxycodone-containing tablets	31.9		36.1		(11.6)
Acetaminophen (API)	99.6		94.6		5.3
Other controlled substances	161.4		192.8		(16.3)
Other	8.5		22.9		(62.9)
Specialty Generics	$	353.3	$	381.9	(7.5)

Six Months Ended
June 28,
2019 June 29,
2018 Percentage Change
Hydrocodone (API) and hydrocodone-containing tablets $ 35.5
$ 30.8
15.3 %
Oxycodone (API) and oxycodone-containing tablets 36.1
29.7
21.5
Acetaminophen (API) 94.6
101.1
(6.4 )
Other controlled substances 192.8
188.5
2.3
Other 22.9
26.4
(13.3 )
Specialty Generics $ 381.9
$ 376.5
1.4

Operating ~~Income~~Loss

Operating income by segment and as a percentage of segment net sales were as follows (dollars in millions):


	Six Months Ended
	June 26, 2020						June 28, 2019
Specialty Brands ^(1),(2)	$	457.3	45.1	%	$	596.9	48.4	%
Specialty Generics	83.2		23.5		58.3		15.3
Segment operating income	540.5		39.5		655.2		40.6
Unallocated amounts:
Corporate and unallocated expenses	(128.6)				(82.2)
Intangible asset amortization	(389.2)				(439.4)
Restructuring and related charges, net	(12.6)				(4.0)
Non-restructuring impairment charges	(63.5)				(113.5)
Separation costs	(42.0)				(30.6)
R&D upfront payment ⁽³⁾	(5.0)				—
Opioid-related litigation settlement ⁽⁴⁾	8.3				—
Medicaid lawsuit (Note 11)	(639.7)				—
Total operating loss	$	(731.8)			$	(14.5)

Six Months Ended
June 28, 2019 June 29, 2018
Specialty Brands ⁽¹⁾
$ 596.9
48.4 % $ 506.4
42.0 %
Specialty Generics 58.3
15.3
78.2
20.8
Segment operating income 655.2
40.6
584.6
37.0
Unallocated amounts:
Corporate and allocated expenses (82.2 ) (56.5 )
Intangible asset amortization (439.4 ) (362.3 )
Restructuring and related charges, net (4.0 ) (87.0 )
Non-restructuring impairment (113.5 ) —

Separation costs (30.6 ) —

Total operating income $ (14.5 ) $ 78.8

(1)Includes $10.0 million of inventory fair-value step up expense, primarily related to Amitiza, during the three months ended March 29, 2019.


~~(1)~~	~~Includes $10.0 million and $46.5 million of inventory fair-value step up expense, primarily related to Amitiza, during the three months ended June 28, 2019 and June 29, 2018, respectively.~~

(2)The six months ended June 26, 2020 includes the prospective change to the Medicaid rebate calculation of $8.6 million for the period from June 15, 2020 through June 26, 2020, of which $6.8 million represents the channel impact. For further information, refer to Note 11 of the notes to the unaudited condensed consolidated financial statements.

(3)Represents R&D expense incurred related to an upfront payment made to acquire product rights in Japan for terlipressin.

(4)Represents the change in the Settlement Warrants' fair value. Refer to Note 12 of the notes to the unaudited condensed consolidated financial statements for further information regarding the valuations of the Settlement Warrants.

Specialty Brands. Operating income for the six months ended June ~~28, 2019 increased $90.5~~26, 2020 decreased $139.6 million to ~~$596.9~~$457.3 million, compared with ~~$506.4~~$596.9 million for the six months ended June ~~29, 2018.~~28, 2019. Operating margin ~~increased~~decreased to 45.1% for the six months ended June 26, 2020, compared with 48.4% for the six months ended June 28, ~~2019, compared with 42.0%~~2019. The decrease in operating income and margin is primarily driven by the $218.6 million, or 17.7%, decrease in net sales over the same period partially offset by an increase in gross profit margin and decreases in SG&A and R&D expense of $17.6 million or 6.5% and $4.1 million or 2.8%, respectively, for the six months ended June 29, 2018. The increase in operating income and margin includes a $57.6 million increase in gross profit primarily driven by an additional $36.5 million of expense recorded during the six months ended June 29, 2018 related to the inventory fair value adjustments for Amitiza, which was fully amortized in the first quarter of 2019. Additionally, SG&A expenses decreased $32.5 million26, 2020, compared to the six months ended June ~~29, 2018~~28, 2019. The increased gross profit margin was driven by a change in product mix, as well as an additional $10.0 million of amortization expense during the six months ended June 28, 2019 for inventory fair value adjustments related to Amitiza, which was fully amortized during the first quarter of 2019. The decreased SG&A expenses are primarily due to cost benefits gained from restructuring actions, ~~including~~ lower ~~employee compensation~~travel costs ~~in addition~~due to temporary travel restrictions from COVID-19 and lower ~~advertising expenses.~~consulting and professional fees.

Specialty Generics. Operating income for the six months ended June ~~28, 2019 decreased $19.9~~26, 2020 increased $24.9 million to ~~$58.3~~$83.2 million, compared with ~~$78.2~~$58.3 million for the six months ended June ~~29, 2018.~~28, 2019. Operating margin ~~decreased~~increased to 23.5% for the six months ended June 26, 2020, compared with 15.3% for the six months ended June 28, ~~2019, compared with 20.8% for~~2019. As a result of the Opioid-Related Litigation Settlement announced during the three months ended March 27, 2020, the corresponding opioid defense costs are considered to be non-recurring; therefore, such costs will be excluded from segment operating income and presented as a corporate and unallocated expense on a go-forward basis until effectuation of the Opioid-Related Litigation Settlement. In comparison, there were $34.5 million of opioid defense costs reflected in operating income during the six months ended June ~~29, 2018.~~28, 2019. The ~~decrease~~remaining increase in operating income and margin

was ~~primarily impacted by a $31.9 million increase in SG&A~~ primarily due to ~~higher legal expense related to opioid defense costs,~~an increase in gross profit primarily driven by product mix. This was partially offset by a ~~$9.9~~$13.4 million decrease in ~~R&D expense.~~gross profit driven by the decrease in net sales.

Corporate and ~~allocated~~unallocated expenses. Corporate and ~~allocated~~unallocated expenses were ~~$82.2~~$128.6 million and ~~$56.5~~$82.2 million for the six months ended June ~~28, 2019~~26, 2020 and June ~~29, 2018,~~28, 2019, respectively. This increase was primarily driven by opioid defense costs of $39.7 million being presented as a ~~$28.0 million decrease in fair value of the contingent consideration liability related to stannsoporfin recorded~~corporate and unallocated expense beginning during the six months ended June ~~29, 2018.~~26, 2020, as a result of the Opioid-Related Litigation Settlement, as previously discussed. The remaining increase is primarily related to increased employee compensation and benefits driven by certain changes made to the design of our long-term incentive compensation program in an effort to manage share usage and dilution and the approval of a key employee incentive program during the six months ended June 26, 2020, both of which reflect the shorter-term nature of our new target opportunities, partially offset by lower professional and consulting fees.

Liquidity and Capital Resources

Significant factors driving our liquidity position include cash flows generated from operating activities, financing transactions, capital expenditures, cash paid in connection with acquisitions and licensing agreements and cash received as a result of our divestitures. We ~~believe~~have historically generated and expect to continue to generate positive cash flows from operations. Our ability to fund

our capital needs is impacted by our ongoing ability to generate cash from operations and access to capital markets. Furthermore, from time to time, we may seek to enter into certain transactions to extend the maturities of our outstanding indebtedness. For example, on April 7, 2020, we announced the completion of the exchange of a portion of our 4.875% senior secured notes that had a maturity date of April 15, 2020 (the "2020 Notes") as discussed further in "Debt and Capitalization" within this Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations."

During the three months ended June 26, 2020, we incurred a retrospective one-time charge of $639.7 million related to the Acthar Gel Medicaid Retrospective Rebate. Barring other arrangements, the cash payments for this current liability will begin to come due in accordance with the normal rebate payment schedule before the end of 2020. See Note 11 of the notes to the unaudited condensed consolidated financial statements for further information on this matter, described as the Medicaid Lawsuit.

As previously discussed, on February 25, 2020, we announced the Opioid-Related Litigation Settlement. If the Opioid-Related Litigation Settlement is not fully implemented or consummated, we or our subsidiaries may become subject to some or all of the liabilities that would have otherwise been settled, which could have a material and adverse effect on our business, financial condition, results of operations and cash flows. See Note 11 of the notes to the unaudited condensed consolidated financial statements for further information.

The accompanying unaudited condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. As we have previously disclosed, our business is exposed to a variety of material risks, including opioid-related claims, the Medicaid lawsuit, other lawsuits and significant existing indebtedness.As a result of these uncertainties, management has concluded that there is substantial doubt regarding our ability to continue as a going concern and that any plans to resolve these risks as a going concern have not yet been finalized and are not fully within our control, and therefore cannot be deemed probable. We have been working with external advisors to explore a range of options and engage in dialogue with financial creditors and litigation claimants and their advisors, which may result in a filing for reorganization in bankruptcy under Chapter 11 by Mallinckrodt plc and most of its subsidiaries in the near-term. Consequently, our future cash from operations ~~borrowing capacity under our revolving credit facility~~ and access to capital markets ~~will~~may not provide adequate resources to fund our working capital needs, capital expenditures and strategic investments for the foreseeable future.

A summary of our cash flows from operating, investing and financing activities is provided in the following table (dollars in millions):


	Six Months Ended
	June 26, 2020		June 28, 2019
Net cash from:
Operating activities	$	224.6	$	467.4
Investing activities	(28.8)		(69.4)
Financing activities	(158.2)		(506.4)
Effect of currency exchange rate changes on cash and cash equivalents	(0.5)		0.8
Net increase (decrease) in cash and cash equivalents	$	37.1	$	(107.6)

Six Months Ended
June 28,
2019 June 29,
2018
Net cash from:
Operating activities $ 467.4
$ 261.8
Investing activities (69.4 ) (456.3 )
Financing activities (506.4 ) (829.3 )
Effect of currency exchange rate changes on cash and cash equivalents 0.8
(1.2 )
Net decrease in cash and cash equivalents $ (107.6 ) $ (1,025.0 )

Operating Activities

Net cash provided by operating activities of $224.6 million for the six months ended June 26, 2020 was attributable to a net loss of $983.3 million, adjusted for non-cash items of $817.4 million, driven by depreciation and amortization of $439.4 million and a $314.1 million reduction in our deferred income tax assets. This net loss was offset by cash provided from net investment in working capital of $390.5 million, which was primarily driven by the recognition of the $639.7 million retrospective one-time charge related to the Acthar Gel Medicaid Retrospective Rebateas previously mentioned. Also included within this change in working capital was an $83.6 million decrease in accounts receivable, offset by a $219.8 million increase in net receivables related to income taxes, a $45.7 million decrease in accounts payable, a $40.1 million net cash outflow related to other assets and liabilities and a $27.2 million increase in inventory.

Net cash provided by operating activities of $467.4 million for the six months ended June 28, 2019 was primarily attributable to net income of $161.7 million, adjusted for non-cash items of $277.7 million driven by depreciation and amortization of $488.6 million and a non-cash impairment charge of $113.5 million, partially offset by a $271.2 million related to a reduction in our deferred income tax liabilities and other non-cash adjustments, including a $79.9 million gain on debt repurchased. Net investment in working capital contributed $28.0 million of cash flow from operating activities. Included within this change in working capital was a $95.5 million ~~decrease~~increase in accounts receivable primarily attributable to a shift in customer mix and the timing of receipts, in addition to a higher balance of gross receivables at the end of fiscal 2018. This was partially offset by a $73.3 million net cash outflow related to other

assets and liabilities, which included decreases in accrued payroll and accrued interest of $44.2 million and $31.8 million, respectively.

Net cash provided by operating activities of $261.8 million for the six months ended June 29, 2018 was primarily attributable to a net loss of $2.4 million, adjusted for non-cash items of $293.5 million driven by depreciation and amortization of $397.1 million, partially offset by a $29.3 million outflow from net investment in working capital. Included within this change in working capital were a $35.4 million net cash outflow related to other assets and liabilities, a $21.8 million increase in accounts receivable, a $2.1 million increase in accounts payable, and a $7.4 million increase in net payables related to income taxes. The net cash outflow from other assets and liabilities was primarily attributable to the payment of liabilities assumed from the Sucampo Acquisition in February 2018.

Investing Activities

Net cash used in investing activities was $28.8 million for the six months ended June 26, 2020, compared with $69.4 million for the six months ended June 28, ~~2019, compared with $456.3~~2019. The $40.6 million ~~for the six months ended June 29, 2018. The $386.9 million~~ change primarily resulted from the cash outflows during the three months ended March 30, 2018 related to the Sucampo Acquisition of $698.0 million, partially offset by the $144.3 million of proceeds received, net of transaction costs, from the divestiture of a portion of the Hemostasis business, inclusive of the PreveLeak and Recothrom products. During the three months ended March 30, 2018, we also received payment of the $154.0 million note receivable from the purchaser of the Intrathecal Therapy business, which was sold during the three months ended March 31, 2017. The cash used in investing activities during the six months ended June 28, 2019 was primarily attributable to ~~$77.6~~the $46.3 million decrease in capital ~~expenditures, partially offset by cash received from the disposal of certain long-lived assets.~~

expenditures. Under our term loan credit agreement, the proceeds from the sale of assets and businesses must be either reinvested into capital expenditures or business development activities within one year of the respective transaction or we are required to make repayments on our term loan. For further information, refer to "Debt and Capitalization" within this Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Financing Activities

Net cash used in financing activities was $158.2 million for the six months ended June 26, 2020, compared with $506.4 million for the six months ended June 28, ~~2019, compared with $829.3 million for the six months ended June 29, 2018.~~2019. The ~~$322.9~~$348.2 million decrease in cash outflows was attributable to a ~~$249.7~~$356.3 million decrease in debt repayments, net of issuances, and a ~~$54.3~~$2.2 million decrease in shares repurchased. Our current year debt repayments included a $119.8 million payment on the remaining principal amount of 2020 Notes and $9.8 million in aggregate payments on our variable-rate term loans. The significant components of our ~~current year~~ debt repayments during the six months ended June 28, 2019 included aggregate debt repayments of $281.4 million on our variable-rate term loans, and open market debt repurchases that aggregated to a total principal amount of $419.2 ~~million, and a repayment of $50.0 million on the receivable securitization program.~~million. These repayments were partially offset by a net draw of $185.0 million on our revolving credit facility. The six months ended June 29, 2018 included debt repayment of $450.0 million related to our revolving credit facility, a $225.0 million voluntary repayment of the variable-rate term loan maturing in 2024, repayment of $366.0 million of assumed debt from the Sucampo Acquisition, a $300.0 million repayment of fully matured unsecured fixed rate notes and open market debt repurchases that aggregated to a total principal amount of $33.0 million.

Debt and Capitalization

As of June ~~28, 2019,~~26, 2020, the total debt principal was ~~$5,591.0~~$5,293.1 million, of which ~~$720.1~~$19.7 million was classified as current.

The total debt principal as of June ~~28, 2019~~26, 2020 was comprised of the following:


Variable-rate instruments:
Term loan due September 2024	$	1,513.0
Term loan due February 2025	401.5

Revolving credit facility	900.0
Fixed-rate instruments	2,478.6
Debt principal	$	5,293.1

Variable-rate instruments:
Term loan due September 2024 $ 1,524.7
Term loan due February 2025 404.6
Variable-rate receivable securitization 200.0
Revolving credit facility 405.0
Fixed-rate instruments 3,056.7
Debt principal $ 5,591.0

The variable-rate term loan interest rates are based on ~~LIBOR,~~the London Inter-bank Offered Rate ("LIBOR"), subject to a minimum LIBOR level of 0.75% with interest payments generally expected to be payable every 90 days, and requires quarterly principal payments equal to 0.25% of the principal amount. As of June ~~28, 2019,~~26, 2020, our fixed-rate instruments have a weighted-average interest rate of ~~5.36%~~7.05% and pay interest at various dates throughout the fiscal year. Prior to termination of this facility on July 19, 2019, as discussed further below, our receivable securitization program bore interest based on one-month LIBOR plus a margin of 0.90% and had a capacity of $250.0 million. As of June ~~28, 2019,~~26, 2020, we ~~had $495.0 million available under~~were fully drawn on our $900.0 million revolving credit facility.

In November 2015, our Board of Directors authorized us to reduce our outstanding debt at our discretion. As market conditions warrant, we may from time to time repurchase debt securities issued by us, in the open market, in privately negotiated transactions, by tender offer or otherwise. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements and other factors. The amounts involved may be material.

~~Debt reduction continues~~2020 Notes

On April 7, 2020, we and Mallinckrodt International Finance S.A. and Mallinckrodt CB LLC, two of our wholly owned subsidiaries ( “Issuers”), entered into an exchange agreement (the “Exchange Agreement”) with certain third parties (collectively, the “Exchanging Holders”). Pursuant to ~~be one~~the Exchange Agreement, the Exchanging Holders agreed to exchange with the Issuers, on April 7, 2020, their holdings of the ~~primary focuses~~2020 Notes issued by the Issuers (the “Existing Notes”) (consisting of ~~our capital allocation strategy for fiscal 2019. Total principal debt reduction during the six months ended June 28, 2019 was $565.7~~approximately $495.0 million ~~inclusive of debt repurchases of total~~aggregate principal amount of ~~$419.2 million, voluntary prepayments~~the Existing Notes) for new 10.00% First Lien Senior Secured Notes due 2025 issued by the Issuers (the “First Lien 2025 Notes”), at a rate of ~~$25.0 million~~$1,000 of First Lien 2025 Notes for every $1,000 of Existing Notes exchanged (such exchange, the “Exchange”). The Issuers and ~~$175.0 million~~Exchanging Holders consummated the Exchange on ~~our outstanding term loans due September 2024~~April 7, 2020.

Interest on the First Lien 2025 Notes is payable semi-annually in cash on April 15^th and ~~February 2025, respectively. In making these voluntary prepayments, we satisfied certain obligations included within external debt agreements to reinvest proceeds from the sale~~October 15^th of ~~assets and businesses within one~~each year, commencing on October 15, 2020.

The Issuers may redeem some or all of the ~~respective transaction~~First Lien 2025 Notes prior to April 15, 2022 by paying a “make-whole” premium. The Issuers may redeem some or ~~use~~all of the First Lien 2025 Notes on or after April 15, 2022 at specified redemption prices. In addition, prior to April 15, 2022, the Issuers may redeem up to 40% of the aggregate principal amount of the First Lien 2025 Notes with the net proceeds of certain equity offerings. The Issuers may also redeem all, but not less than all, of the First Lien 2025 Notes at any time at a price of 100% of their principal amount, plus accrued and unpaid interest, if any, in the event the Issuers become obligated to pay ~~down debt.~~ additional amounts as a result of changes affecting certain withholding tax laws applicable to payments on the First Lien 2025 Notes.

The Issuers are obligated to offer to repurchase (a) all of the First Lien 2025 Notes at a price of 101% of their principal amount plus accrued and unpaid interest, if any, as a result of certain change of control events and (b) First Lien 2025 Notes using asset sale proceeds at a price of 100% of their principal amount plus accrued and unpaid interest, if any, in the event of certain asset sales. These obligations are subject to certain qualifications and exceptions.

The First Lien 2025 Notes are subject to an indenture that contains certain customary covenants and events of default (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 First Lien 2025 Notes and could cause a cross-default that could result in the acceleration of our other indebtedness.

The First Lien 2025 Notes are jointly and severally guaranteed, subject to certain exceptions, on a secured, unsubordinated basis by us and each of our subsidiaries (other than the Issuers) (the “Note Guarantors”) that guarantees the obligations under the Issuers’ existing senior secured credit facilities.

The First Lien 2025 Notes and the guarantees thereof are secured by liens on the same assets of the Issuers and the Note Guarantors that are subject to liens securing the existing senior secured credit facilities, subject to certain exceptions.

On April 15, 2020, we paid in full the remaining approximately $119.8 million in principal amount of outstanding 2020 Notes at the maturity thereof with cash on hand.

As of June ~~28, 2019,~~26, 2020, we were ~~and expect to remain,~~ in full compliance with the provisions and covenants associated with our debt agreements.

~~On July 11, 2019, we borrowed an additional $400.0 million on our revolving credit facility, bringing total outstanding borrowings to $805.0 million for this instrument as~~ See Note 1 of the ~~date~~notes to the unaudited condensed consolidated financial statements for further information regarding the risk of ~~this report,~~non-compliance with ~~$95.0 million of remaining availability. The proceeds from this draw will be used to continue to execute on a capital allocation strategy focused primarily on~~our financial debt ~~reduction, as well as general business needs. The additional liquidity better positions~~covenant over the ~~Company to continue to redeem higher cost or discounted debt and accelerate progress toward its stated deleveraging goals.~~next twelve months.

~~On July 19, 2019, we repaid $200.0 million of outstanding obligations under our variable-rate receivable securitization, thus automatically terminating this facility.~~

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

Commitments and Contingencies

Legal Proceedings

See Note 1411 of the notes to the unaudited condensed consolidated financial statements for a description of the legal proceedings and claims as of June ~~28, 2019.~~26, 2020.

Guarantees

In disposing of assets or businesses, we have historically 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 their 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 1310 of the notes to the unaudited condensed consolidated financial statements.

Off-Balance Sheet Arrangements

As of June ~~28, 2019,~~26, 2020, we had various letters of credit, guarantees and surety bonds totaling ~~$36.2~~$29.8 million. There has been no change in our off-balance sheet arrangements during the six months ended June ~~28, 2019.~~26, 2020.

Critical Accounting Policies and Estimates

The preparation of our unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the U.S. (GAAP) requires management to use judgment in making estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosure of contingent assets and liabilities.

We believe that our accounting policies for revenue recognition, intangible assets, acquisitions, contingencies and income taxes are based on, among other things, judgments and assumptions made by management that include inherent risks and uncertainties. During the six months ended June ~~28, 2019~~,26, 2020, there were no significant changes to these policies or in the underlying accounting

assumptions and estimates used in the above critical accounting policies from those disclosed in our Annual Report on Form 10-K for the year ended December ~~28, 2018.~~27, 2019.

~~Refer to Note 9 to the unaudited condensed consolidated financial statements for our adoption of ASU 2016-02, "Leases," and its related amendments.~~

Forward-Looking Statements

We have made forward-looking statements in this Quarterly Report on Form 10-Q 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 our possible or assumed future results of operations, business strategies, financing plans, competitive position, potential growth opportunities, potential operating performance improvements, ~~and~~ the effects of competition, ~~litigation~~ 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," ~~"should,~~"could," ~~"will," "would," "could"~~"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 within Item 1A. of our Annual Report on Form 10-K for the fiscal year ended December ~~28, 2018~~27, 2019 and within Part II, Item 1A of this Quarterly Report on Form 10-Q could cause our results to differ materially from those expressed in forward-looking statements. There may be other risks and uncertainties that we are unable to predict at this time or that we currently do not expect to have a material adverse effect on our business.

These forward-looking statements are made as of the filing date of this Quarterly Report on Form 10-Q. We expressly disclaim any obligation to update these forward-looking statements other than as required by law.



Item 3.			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 LIBOR plus margin. As of June ~~28, 2019,~~26, 2020, our outstanding debt included ~~$1,929.3~~$1,914.5 million variable-rate debt on our senior secured term loans ~~$405.0~~and $900.0 million outstanding borrowings on our senior ~~unsecured~~secured revolving credit ~~facility and $200.0 million variable-rate debt on our receivables securitization program.~~facility. Assuming a one percent increase in the applicable interest rates, in excess of applicable minimum floors, quarterly interest expense would increase by approximately ~~$6.3~~$7.0 million.

The remaining outstanding debt as of June ~~28, 2019~~26, 2020 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 unaudited condensed consolidated statement of ~~income~~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. We performed a sensitivity analysis for these arrangements as of June ~~28, 2019~~26, 2020 that measured the potential unfavorable impact to income from continuing operations before income taxes from a hypothetical 10.0% adverse movement in foreign exchange rates relative to the U.S. dollar, with all other variables held constant. The aggregate potential unfavorable impact from a hypothetical 10.0% adverse change in foreign exchange rates was ~~$0.2~~$1.5 million aggregate potential as of June ~~28, 2019.~~26, 2020. This 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.

~~The financial results of our international operations are translated into U.S. dollars, further exposing us to currency exchange rate fluctuations. We have performed a sensitivity analysis as of~~ ~~June 28, 2019~~ that measures the change in the net financial position arising from a hypothetical 10.0% adverse movement in the exchange rates of all foreign currencies used, including the Euro and the Canadian Dollar, our most widely used foreign currencies, relative to the U.S. dollar, with all other variables held constant. The aggregate potential change in net financial position from a hypothetical 10.0% adverse change in the above currencies was $14.6 million as of ~~June 28, 2019~~. The change in the net financial position associated with the translation of these currencies is generally recorded as an unrealized gain or loss on foreign currency translation within accumulated other comprehensive loss in shareholders' equity of our unaudited condensed consolidated balance sheets.



Item 4.			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 ("the 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(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q.

As previously disclosed under “Part II - Item 9A - Controls and Procedures” in our Annual Report on Form 10-K for the fiscal year ended December 28, 2018, the Company did not design and maintain sufficiently precise or effective review and approval controls over the future cash flow forecasts used to develop certain management estimates, including those related to goodwill and other intangible assets. Management concluded that this control deficiency represented a material weakness. This material weakness did not result in a material misstatement to the Company’s financial statements or disclosures.

~~Management’s Remediation Initiatives~~

During the three months ended March 29, 2019, management, under the oversight of the executive leadership team and those charged with governance, completed the remedial actions below to improve the Company’s internal control over financial reporting and remediated the design of the material weakness:

Continued to emphasize the importance of, and monitor the sustained compliance with, the execution of our internal controls over financial reporting through, among other activities, numerous meetings and trainings.

Enhanced, and will continue to enhance, the design of internal controls governing oversight and evaluation of future cash flow forecasts used to develop certain management estimates, including those related to goodwill and other intangible assets.

Tested the design effectiveness of the enhanced internal controls by performing them to re-evaluate the appropriateness, and test the accuracy, of information used to develop future cash flow forecasts in 2018.

~~Concluded the enhanced controls were designed effectively and developed a plan to implement them to support future cash flow forecasts in 2019.~~

During the three months ended March 29, 2019, we successfully completed the actions above of testing the design of the enhanced internal controls to the extent necessary to conclude that the deficiencies in the design of the internal controls over future cash flows have been remediated. We will test and conclude on the operating effectiveness of these controls as they occur in 2019. Based on ~~the activities and~~that evaluation, ~~described above,~~ our CEO and CFO concluded that, as of ~~June 28, 2019,~~that date, our disclosure controls and procedures were effective.

The remediation efforts were intended both to address the identified material weakness and to enhance our overall financial control environment. Management is committed to continuous improvement of the Company’s internal control over financial reporting and will continue to diligently review the Company’s internal control over financial reporting.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting during the quarter ended June ~~28, 2019~~26, 2020 that have materially affected, or are likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION



Item 1.			Legal Proceedings.

We are subject to various legal proceedings and claims, including government investigations, environmental matters, product liability matters, patent infringement claims, employment disputes, contractual disputes and other commercial disputes, including those described below. We believe these legal proceedings and claims likely will be resolved over an extended period of time. Although it is not feasible to predict the outcome of these matters, we believe, unless indicated below, given the information currently available, that their ultimate resolution will not have a material adverse effect on our financial condition, results of operations and cash flows.

~~Opioid-Related Matters~~

Since 2017, multiple U.S. states, counties, other governmental persons or entities and private plaintiffs have filed lawsuits against certain entities of our company, as well as various other manufacturers, distributors, pharmacies, pharmacy benefit managers, individual doctors and/or others, asserting claims relating to defendants’ alleged sales, marketing, distribution, reimbursement, prescribing, dispensing and/or other practices with respect to prescription opioid medications, including certain of our products. As of August 6, 2019, the cases we are aware of include, but are not limited to, approximately 2,153 cases filed by counties, cities, Native American tribes and/or other government-related persons or entities; approximately 140 cases filed by hospitals, health systems,

unions, health and welfare funds or other third-party payers; approximately 103 cases filed by individuals and 10 cases filed by the Attorneys General for New Mexico, Kentucky, Rhode Island, Georgia, Florida, Alaska, New York, Hawaii, Nevada and Idaho, with Idaho being the only state Attorney General to file in federal as opposed to state court. Certain of the lawsuits have been filed as putative class actions.

~~Federal Lawsuits~~

Most pending federal lawsuits have been coordinated in a federal multi-district litigation (“MDL”) pending in the U.S. District Court for the Northern District of Ohio. The MDL court has issued a series of case management orders permitting motion practice addressing threshold legal issues in certain cases, allowing discovery, setting pre-trial deadlines and setting a trial date on October 21, 2019 for two cases originally filed in the Northern District of Ohio by Summit County and Cuyahoga County against opioid manufacturers, distributors, and pharmacies. The counties claim that opioid manufacturers’ marketing activities changed the medical standard of care for treating both chronic and acute pain, which led to increases in the sales of their prescription opioid products. They also allege that opioid manufacturers’ and distributors’ failure to maintain effective controls against diversion was a substantial cause of the opioid crisis.

Summit County filed a complaint on December 20, 2017, an amended complaint that added us on April 25, 2018, and a second amended complaint on May 18, 2018. The manufacturer defendants jointly moved to dismiss the second amended complaint on May 25, 2018. Judge Polster, who is presiding over the MDL, denied the motion on December 19, 2018. Summit County filed a third amended complaint on March 21, 2019, which alleges violations of Racketeer-Influenced and Corrupt Organizations (“RICO”), the Ohio Corrupt Practices Act, statutory public nuisance, common law absolute public nuisance, negligence, common law fraud, violations of Injury Through Criminal Acts, unjust enrichment, and civil conspiracy. Summit County seeks damages including but not limited to actual damages, treble damages, equitable and/or injunctive relief, restitution, disgorgement of profits, compensatory and punitive damages, attorneys’ fees, all costs and expenses of suit, and pre- and post-judgment interest. Cuyahoga County filed a complaint on October 21, 2017, and an amended complaint on April 25, 2018 that added us. Cuyahoga County filed a third amended complaint on May 10, 2019. The third amended complaint contains causes of action and damages similar to those in the Summit County litigation. In June 2019, the parties filed motions for summary judgment and Daubert motions in Summit County and Cuyahoga County. The parties are in the process of briefing the summary judgment and Daubert motions and anticipate that all briefs will be submitted by the end of August 2019.

We are also named in 235 similar state court cases in 29 states. These state court cases include actions filed by (1) state attorneys general; (2) counties, cities, and other municipalities; (3) district attorneys; (4) hospitals and other health systems; (5) individuals; (6) third-party payers; and (7) Native American Tribes. There are differences among these cases. For instance, counties and cities often seek to recoup governmental expenses related to public services, while hospitals and other health systems typically seek compensation for opioid-related medical services. These cases also contain different causes of action. For example, state attorneys general complaints often utilize consumer protection statutes whereas third-party payers tend to focus on claims of fraud and breach of implied warranties. Further, not all lawsuits name the same defendants - some name manufacturers and distributors, while others also include pharmacies, pain clinics, doctors, and/or other individuals as defendants.

On June 14, 2019, MDL Plaintiffs filed a Notice of Motion and Motion for Certification of Rule 23(b)(3) Cities/Counties Negotiation Class. On July 9, 2019, the Plaintiffs' Executive Committee filed an Amended Motion for Class Certification. In July 2019, parties and third parties filed responses and replies to Plaintiffs' Amended Motion for Class Certification. A hearing on the Amended Motion took place on August 6, 2019.

~~State Court Lawsuits~~


A.	~~Lawsuits Filed by State Attorneys General~~

Nine state attorneys general have filed lawsuits against us in their respective state courts. The Florida Attorney General was the first attorney general to file suit against us on May 15, 2018. The Nevada Attorney General filed the most recent attorney general lawsuit against us on June 17, 2019. In general, the state attorneys general allege that opioid manufacturers engaged in fraudulent or misleading marketing activities that led to increases in the sales of their prescription opioid products. They also allege that opioid manufacturers and distributors failed to maintain effective controls against diversion and to identify, report, and halt suspicious orders. For example, on August 14, 2018, the New York Attorney General brought an action against Purdue in the coordinated opioid litigation in Suffolk County, New York. An amended complaint was filed on March 28, 2019, naming us, among other opioid manufacturers, distributors, and individuals. The amended complaint alleges state law violations of the New York State Finance Law, the New York Social Service Law, the New York General Business Law, the New York Controlled Substance Act, and the New York Executive Law, as well as public nuisance, fraud, gross negligence, willful misconduct, and unjust enrichment against us. The amended complaint seeks, among other remedies, declaratory judgment, injunctive relief, the creation of an abatement fund, damages, civil penalties, and the disgorgement of profits. Certain defendants, including us, filed motions to dismiss on May 31, 2019. The State of New York opposed the motions on July 31, 2019 and defendants have until August 30, 2019 to reply. While the New York Attorney

General action is illustrative, there are differences between the cases filed by state attorneys general. Each lawsuit contains different causes of action, including different common law claims and alleged violations of state-specific statutes. The lawsuits also contain different claims for damages. For instance, the Kentucky and Hawaii actions seek punitive damages, but the Florida action does not. Further, not all lawsuits name the same defendants - some name manufacturers and distributors, while others also include pharmacies and/or individuals as defendants. The New York Attorney General action is currently part of the Track One cases in the New York consolidated proceedings in Suffolk County, New York, with a trial scheduled to begin on March 2, 2020.


B.	~~Lawsuits Filed by Cities, Counties, and Other Municipalities~~

There are currently more than 198 lawsuits against us filed by cities, counties, and other municipalities, pending in various state courts in 21 states. The earliest lawsuit that remains in state court was filed by the County of Northampton, Pennsylvania on December 28, 2017. In general, the complaints allege that opioid manufacturers engaged in fraudulent or misleading marketing activities that led to increases in the sales of their prescription opioid products. They also allege that opioid manufacturers and distributors failed to maintain effective controls against diversion and to identify, report, and halt suspicious orders. For example, on May 16, 2018, Clark County filed an amended complaint in the Eighth Judicial District Court of Nevada and named us as a defendant, among other opioid manufacturers, distributors, and pharmacies. The amended complaint alleges violations of statutory public nuisance, common law public nuisance, negligent misrepresentation, negligence, and unjust enrichment. Clark County seeks damages including but not limited to compensatory and punitive damages, general damages, special damages, a fund for establishing a medical monitoring program, restitution and reimbursement, and attorneys’ fees and costs. Defendants filed motions to dismiss on October 19, 2018, which were denied on March 19, 2019. On June 4, 2019, the court denied defendants’ motion for partial reconsideration concerning their motions to dismiss. Several defendants, including us, have petitioned the Nevada Supreme Court for a writ of mandamus to dismiss the case, as well as a stay of proceedings pending resolution of that petition. While the Clark County action is illustrative, there are differences between the cases filed by cities, counties and other municipalities. These lawsuits contain different causes of action, including different common law claims and alleged violations of state-specific statutes. For example, municipalities in Maryland, Pennsylvania, and Virginia assert violations of their state consumer protection statutes, while many other states do not. The lawsuits also contain different claims for damages. For example, the City of Granite City and the County of Jersey, Illinois seek damages for particular public health expenditures, while municipalities in other states allege damages related more generally to costs for public services. Further, not all lawsuits name the same defendants - some name manufacturers and distributors, while others also include pharmacies and/or individuals as defendants.

In some jurisdictions, such as Connecticut, Illinois, Massachusetts, New York, Pennsylvania, South Carolina, Texas and West Virginia, certain of the 198 state lawsuits filed by counties, cities and other municipalities have been coordinated for pre-trial proceedings before a single court within their respective state court systems. The first coordinated proceeding was formed in New York on July 31, 2017. The most recent state coordinated proceeding was formed in Massachusetts on June 13, 2019. We are not named as a defendant in each case that may be pending in a particular state court MDL or coordinated proceeding. For example, approximately 49 cases filed by Texas counties are consolidated in the ~~In re: Texas Opioid Litigation~~, No. 2018-63587, MDL No. 18-0358 (the “Texas MDL”), of which we are named in 16 cases. The Texas complaints generally allege violations of public nuisance, negligence, the Texas Controlled Substances Act, the Deceptive Trade Practices-Consumer Protection Act, unjust enrichment, common law fraud, and civil conspiracy, though there are differences among the complaints. Plaintiffs seek damages including but not limited to injunctive relief, economic and treble damages arising from alleged violations of the Texas Deceptive Trade Practices-Consumer Protection Act, civil penalties for violations of the Texas Controlled Substances Act, abatement of public nuisance, injunctive relief, punitive and actual damages, restitution, and attorneys’ fees. We have filed answers in certain cases. A hearing on bellwether selection and other trial scheduling matters occurred on July 26, 2019, in which eight bellwether counties and alternates were selected as candidates for four trials, the first two of which are tentatively scheduled to occur in October 2020 and January 2021. We are currently named in four out of the eight selected bellwether counties but plaintiffs may amend their complaints to add us to the other four cases. While the Texas MDL is illustrative, there are differences between the coordinated cases. Each states’ coordinated proceedings contain different causes of action, including different common law claims and alleged violations of state-specific statutes. For example, municipalities in Connecticut, Illinois, Massachusetts, New York, Pennsylvania, South Carolina, and Texas assert violations of their state unfair or deceptive trade practices acts, while other plaintiffs do not. The lawsuits also contain different claims for damages. For example, some of the cases in the Texas MDL request exemplary and punitive damages for gross negligence, while other cases do not. Further, not all lawsuits name the same defendants-some name manufacturers and distributors, while others also include pharmacies and/or individuals as defendants. A Case Management Order has been entered in the New York consolidated cases in Suffolk County, which provides for two separate case tracks to proceed to discovery and ultimately to trial. We are named in the three Track One cases with a trial scheduled to begin on March 2, 2020.


C.	~~Lawsuits Filed by District Attorneys General~~

Three District Attorneys General (“DAGs”) have also filed lawsuits in state court against us. In general, they allege that defendants engaged in false and deceptive promotion of opioids and contributed to the oversupply and diversion of those products. They also allege that defendants’ actions caused high addiction rates, overdose deaths, and increased rates of neonatal abstinence syndrome. The DAGs have initiated lawsuits against opioid manufacturers, distributors, prescribers, retailers, and other individuals. The DAGs allege that defendants participated in an illegal opioids market and that plaintiffs suffered damages related to increased law

~~enforcement and health care costs, expenses related to rehabilitation and addiction treatment, prosecution costs, and foster care expenses, among others.~~ ~~Staubus et al. v. Purdue Pharma, LP et al., No. C-41916~~was filed in the Circuit Court for Sullivan County on June 13, 2017 and amended on July 27, 2017 and February 15, 2018. We joined a motion to dismiss filed by the manufacturer defendants and filed a supplemental motion to dismiss regarding Company-specific claims on March 23, 2018. The court held a hearing on the motion to dismiss, in addition to other motions, on May 8, 2018. The court denied the motions to dismiss in an order filed on June 12, 2018. We filed an answer to the second amended complaint on June 29, 2018. The parties are currently engaged in discovery. ~~Effler et al. v. Purdue Pharma, LP et al., No. 16596~~was filed in the Circuit Court for Campbell County on September 29, 2017 and amended on October 6, 2017, January 10, 2018 and May 21, 2018. We joined a motion to dismiss filed by the manufacturer defendants on July 27, 2018. The court held a hearing on the motion to dismiss on October 4, 2018 and issued an order granting the manufacturer defendants’ motion to dismiss on October 5, 2018. Plaintiffs filed a Notice of Appeal on November 1, 2018. We joined defendants-appellees’ response brief which was filed on May 28, 2019. Plaintiff-appellants’ filed their reply brief on July 11, 2019, and oral argument occurred on July 18, 2019. ~~Dunaway et al. v. Purdue Pharma, LP et al., No. CCI-2018-cv-6347~~ was filed in the Circuit Court for Cumberland County on January 10, 2018 and amended on August 7, 2018. We joined a motion to dismiss filed by the manufacturer defendants on September 21, 2018. Plaintiffs filed a second amended complaint on April 1, 2019, adding new defendants. A distributor defendant removed the action on May 3, 2019, and the district court remanded the case on May 22, 2019. We joined a motion to dismiss filed by the manufacturer defendants on July 15, 2019. Plaintiffs' opposition to defendants' motions to dismiss are due on September 30, 2019. Replies are due on October 30, 2019, and oral argument is scheduled for December 16, 2019. There are currently no trials set in these cases.


D.	~~Lawsuits Filed by Hospitals and Health Systems~~

Hospitals and other health systems have also filed lawsuits in state courts against us, and there are currently three such lawsuits. The first lawsuit that remains in state court was filed by various hospitals and other health systems in West Virginia on April 29, 2019. The second lawsuit that remains in state court was filed by various hospitals and other health systems in Arizona on June 18, 2019. The third lawsuit that remains in state court was filed by various hospitals and other health systems in Tennessee on July 12, 2019. The plaintiffs allege that opioid manufacturers have engaged in fraudulent or misleading marketing activities that led to increases in the sales of their opioid products. They also allege that opioid manufacturers and distributors failed to maintain effective controls against diversion and to identify, report, and halt suspicious orders. For example, on April 29, 2019, various hospitals and other health systems in West Virginia filed a complaint in the Circuit Court of Marshall County, West Virginia against us, among other opioid manufacturers, distributors, pharmacies and individuals. A first amended complaint was filed on June 7, 2019, which asserts claims for negligence, nuisance, unjust enrichment, fraud and deceit, violation of Kentucky's Consumer Protection Act, civil conspiracy, fraudulent concealment and negligent and intentional diversion and distribution against an individual defendant. The plaintiffs seek judgment against defendants, jointly and severely, and they also seek damages and costs. This case will likely be transferred to West Virginia's Mass Litigation Panel. While the West Virginia action is illustrative, there are differences between these cases. Each lawsuit contains different causes of action, including different common law claims and alleged violations of state-specific statutes. The lawsuits also name different defendants: the Arizona plaintiff names manufacturers, distributors and pharmacies as defendants, while the West Virginia and Tennessee plaintiffs also include individuals as defendants. There are currently no trials set in these cases.


E.	~~Lawsuits Filed by Individuals~~

Individuals have filed lawsuits in state courts against us, and there are currently nine such lawsuits. The first lawsuit that remains in state court was initially filed by the Estate of Bruce Brockel in the Circuit Court of Mobile County, Alabama, on October 25, 2017, and amended to add us to plaintiff’s first amended complaint on February 5, 2018. The most recent lawsuit that remains in state court was filed by plaintiff Tina Batts in the 22nd Judicial Circuit Court, City of St. Louis, Missouri, on July 29, 2019. In general, these lawsuits allege that opioid manufacturers have engaged in fraudulent or misleading marketing activities that led to increases in the sales of their opioid products. They also allege that opioid manufacturers and distributors failed to maintain effective controls against diversion and to identify, report, and halt suspicious orders. Individual plaintiffs generally claim that they suffered damages related to increased healthcare costs, or wrongful death. For example, on December 5, 2018, the Estate of Bruce Brockel filed a third amended complaint in the Circuit Court of Mobile County, Alabama against us, among other prescription opioid manufacturers and individual doctors. The complaint contains a variety of causes of actions, including medical malpractice, negligence, wantonness, Alabama extended manufacturer’s doctrine, fraud and misrepresentation, suppression and concealment, deceit, unjust enrichment and civil conspiracy. The plaintiff alleges that manufacturers engaged in the false and deceptive promotion of opioids, which led to the oversupply of opioids and caused decedent’s death. The plaintiff seeks damages in an unspecified amount. We moved to dismiss the complaint on March 26, 2019. An opposition to the motion to dismiss was filed on April 25, 2019. The motion is currently pending. While the ~~Brockel~~ ~~action is illustrative, there are differences among the cases filed by individuals. Many of these lawsuits contain different causes of action. For example,~~ ~~Brockel~~ ~~asserts a claim for civil conspiracy, while five of the individual actions filed in Missouri state court do not. One of the cases,~~ ~~Robert Ruth~~, is a putative class action, asserting claims on behalf of Missouri citizens who purchased or paid for health insurance policies. Further, not all lawsuits name the same defendants - for example, some name manufacturers, while others also include individuals as defendants. There are currently no trials set in these cases.


F.	~~Lawsuits Filed by Third-Party Payers~~

Third-party payers, such as insurers, have also filed lawsuits in state courts against us. There are currently six such lawsuits. The first lawsuit that remains in state court was filed by UFCW, Local 23 and Employers Health Fund in Pennsylvania on April 24, 2018. The most recent lawsuit that remains in state court, the Illinois Public Risk Fund, was filed on May 10, 2019. In general, plaintiffs allege that opioid manufacturers have engaged in fraudulent or misleading marketing activities that led to increases in the sales of their opioid products. They also allege that opioid manufacturers and distributors failed to maintain effective controls against diversion and to identify, report, and halt suspicious orders. Third-party payer plaintiffs claim that they paid costs for health issues stemming from opioid overuse.

~~The~~ ~~Illinois Public Risk Fund~~ case asserts state law claims against the Company such as violations of the Illinois Consumer Fraud and Deceptive Business Practices Act, fraudulent misrepresentation, insurance fraud, negligence, public nuisance and unjust enrichment. ~~Fire and Police Retiree Health Care Fund~~, filed in Bexar County District Court in Texas and transferred to the Texas MDL, asserts similar state law claims against us, including public nuisance, common law fraud, negligence, gross negligence, unjust enrichment, civil conspiracy and fraudulent concealment. The remaining four cases are in Pennsylvania state court and have been consolidated in the coordinated proceedings in Delaware County, Pennsylvania. The Pennsylvania complaints assert state law claims for violations of the Pennsylvania Unfair Trade Practices and Consumer Protection Law statute, public nuisance, negligence, unjust enrichment, common law fraud, breach of implied warranties, negligence per se, negligent misrepresentation, negligent marketing and civil conspiracy. Defendants’ joint preliminary objections await rulings and certain test cases are proceeding to discovery. There are differences between these cases. Certain of these lawsuits contain different causes of action. For example, a case filed by Carpenters Health and Welfare Fund of Philadelphia and Vicinity asserts a claim for public nuisance, while a case filed by the International Union of Painters and Allied Trades, District Council 21 Welfare Fund~~does not. The lawsuits also contain different claims for damages. For instance,~~ ~~Carpenters Health~~ ~~seeks a declaratory judgment regarding plaintiffs’ public nuisance claims, but~~ ~~Painters and Allied Trades~~ ~~does not. Further, not all lawsuits name the same defendants - some name manufacturers, while at least one lawsuit includes individuals as defendants. There are currently no trials set in these cases.~~


G.	~~Lawsuits Filed by Native American Tribes~~

Seven Native American tribes have also filed lawsuits in state court against us that remain in state court. All seven cases were filed in state courts in Oklahoma. The first lawsuit that remains in state court was filed by Citizen Potawatomi Nation on July 15, 2019. The most recent lawsuits that remain in state court were filed by the Thlopthlocco Indian Tribal Town and Pawnee Nation of Oklahoma on July 30, 2019. In general, the Native American tribes allege that defendants downplayed the risks of prescription opioids, overstated their benefits, used third-parties to promote false information about prescription opioids, and failed to prevent the diversion of prescription opioid products. All seven complaints assert claims for public nuisance, actual and constructive fraud, negligence and negligent misrepresentation, civil conspiracy and unjust enrichment. Plaintiffs in all seven cases seek punitive damages, actual damages, compensation for past and future costs of abatement, an abatement fund and attorneys' fees and costs. We have not yet filed a response to any of the seven complaints.

We intend to vigorously defend ourselves against all of these lawsuits as detailed above and similar lawsuits that may be brought by others. Since these lawsuits are in early stages, we are unable to predict outcomes or estimate a range of reasonably possible losses.

~~Investigations and Other Inquiries~~

In addition to the lawsuits described above, certain entities of the Company have received subpoenas and civil investigative demands (“CIDs”) for information concerning the sale, marketing and/or distribution of prescription opioid medications and the Company’s suspicious order monitoring programs, including from the U.S. Department of Justice and the Attorneys General for Missouri, New Hampshire, Kentucky, Washington, Alaska, South Carolina, Puerto Rico, New York, West Virginia, Indiana and the Divisions of Consumer Protection and Occupational and Professional Licensing of the Utah Department of Commerce. We have been contacted by the coalition of State Attorneys General investigating the role manufacturers and distributors may have had in contributing to the increased use of opioids in the U.S. On January 27, 2018, we received a grand jury subpoena from the U.S. Attorneys’ Office (“USAO”) for the Southern District of Florida for documents related to the distribution, marketing and sale of generic oxymorphone products. On April 17, 2019, we received a grand jury subpoena from the USAO for the Eastern District of New York (“EDNY”) for documents related to the sales and marketing of controlled substances, the policies and procedures regarding controlled substances, and other related documents. On June 4, 2019, we received a rider from the USAO for EDNY requesting additional documents regarding our anti-diversion program. We are responding or have responded to these subpoenas, CIDs and any informal requests for documents.

The Attorneys General for Kentucky, Alaska and New York have subsequently filed lawsuits against us. Similar subpoenas and investigations may be brought by others or the foregoing matters may be expanded or result in litigation. Since these investigations and/or lawsuits are in early stages, we are unable to predict outcomes or estimate a range of reasonably possible losses.

~~New York State Opioid Stewardship Act~~

On October 24, 2018, we filed suit in the U.S. District Court for the Southern District of New York against the State of New York, asking the court to declare New York State’s Opioid Stewardship Act (“OSA”) unconstitutional and to enjoin its enforcement. On December 19, 2018, the court declared the OSA unconstitutional and granted our motion for preliminary injunctive relief. On January 17, 2019, the State of New York appealed the court’s decision. We intend to vigorously assert our position in this matter. In April 2019, the State of New York passed its 2020 budget, which amended the OSA so that if the OSA decision is reversed on appeal, the OSA would apply only to the sale or distribution of certain opioids in New York for 2017 and 2018 and, effective July 1, 2019, imposed an excise tax on certain opioids.

~~DEA Investigation~~

In November 2011 and October 2012, we received subpoenas from the DEA requesting production of documents relating to our suspicious order monitoring program for controlled substances. The USAO for the Eastern District of Michigan investigated the possibility that we failed to report suspicious orders of controlled substances during the period 2006-2011 in violation of the Controlled Substances Act and its related regulations. The USAO for the Northern District of New York and Office of Chief Counsel for the U.S. DEA investigated the possibility that we failed to maintain appropriate records and security measures with respect to manufacturing of certain controlled substances at our Hobart facility during the period 2012-2013. In July 2017, we entered into a final settlement with the DEA and the USAOs for the Eastern District of Michigan and the Northern District of New York to settle these investigations. As part of the agreement, we paid $35.0 million in fiscal 2017 to resolve all potential claims and agreed, as part of a Memorandum of Agreement (“MOA”), to utilize all available transaction information to identify suspicious orders of any of our controlled substance products and to report to the DEA when we conclude that chargeback data or other information indicates that a downstream registrant poses a risk of diversion, among other things. The MOA remains in effect until July 10, 2020, but we will continue utilizing all available transaction information to identify suspicious orders for reporting to the DEA beyond that date.

~~House Energy and Commerce Committee Investigation of Opioid Marketing and Distribution~~

In August 2018, we received a letter from the leaders of the Energy and Commerce Committee in the U.S. House of Representatives requesting a range of documents relating to our marketing and distribution of opioids. We completed our response to this letter in December 2018. We will cooperate with the investigation, which is expected to continue and may ultimately result in a congressional hearing in the second half of 2019.

See Note 1411 of the notes to the unaudited condensed consolidated financial statements for further description of the litigation, legal and administrative proceedings as of June ~~28, 2019.~~26, 2020.



Item 1A.			Risk Factors.

~~There~~Except for the risk factors included below, there have been no material changes to the risk factors previously disclosed in Part I, Item 1A. "Risk Factors" in our Annual Report on Form 10-K for the year ended December ~~28, 2018,~~27, 2019, filed with the SEC on February 26, ~~2019.~~2020.

The uncertainty surrounding our ability to reach a resolution with certain of our financial creditors and opioid-related plaintiffs in connection with ongoing restructuring and settlement discussions, together with the uncertain outcome of the Medicaid lawsuit, has raised substantial doubt about our ability to continue as a going concern. We may seek protection from our creditors under Chapter 11 of the Bankruptcy Code or an involuntary petition for bankruptcy may be filed against us, either of which could have a material adverse impact on our business, financial condition, results of operations, and cash flows and could place our shareholders at significant risk of losing all of their investment in our ordinary shares.

As we have previously disclosed, our business is exposed to a variety of material risks, including opioid-related claims, the Medicaid lawsuit, other lawsuits and significant existing indebtedness. As a result of these uncertainties, management has concluded that there is substantial doubt regarding our ability to continue as a going concern. We are currently engaged in restructuring and settlement discussions with various parties and their advisors, including certain of our financial creditors and plaintiffs in opioid-related lawsuits and continuing to appeal the March 16th ruling by the District Court with respect to the Medicaid lawsuit. While we are continuing to evaluate options with respect to addressing these liabilities and risks, there can be no assurances that we will be able to reach an acceptable resolution with respect to these matters that allows Mallinckrodt plc and its subsidiaries to avoid seeking bankruptcy protection. Although no determination has been made, it is possible that Mallinckrodt plc and most of its subsidiaries may choose to pursue a reorganization under Chapter 11 of the U.S. Bankruptcy Code (the “Bankruptcy Code”) in the near-term.

Any bankruptcy would subject us to risks and uncertainties that could have a material adverse effect on our business, financial condition, results of operations and liquidity, including, but not limited to, by causing increased difficulty obtaining and maintaining commercial relationships on competitive terms with customers, suppliers and other counterparts; increased difficulty retaining and motivating key employees, as well as attracting new employees; diversion of management’s time and attention to dealing with bankruptcy and restructuring activities rather than focusing exclusively on business operations; incurrence of substantial costs, fees and other expenses associated with bankruptcy proceedings; and loss of ability to maintain or obtain sufficient financing sources for operations or to fund any reorganization plan and meet future obligations. We may also become subject to risks and uncertainties caused by the actions of creditors and other third parties who have interests that may be inconsistent with our plans.

All of our indebtedness and litigation liabilities are senior to the existing ordinary shares in our capital structure. As a result, we believe that seeking bankruptcy court protection under a Chapter 11 proceeding could cause our ordinary shares to be canceled, resulting in a limited recovery, if any, for holders of our ordinary shares, and would place shareholders at significant risk of losing all of their investment in our shares.

The Opioid-Related Litigation Settlement included certain contingencies and may not go into effect in its current form or at all, as a result of which our business prospects may be adversely impacted.

The Opioid-Related Litigation Settlement is neither final nor binding and there is no assurance that the necessary parties will agree to definitive documentation, that the contingencies to any agreement will be fulfilled or that any potential final settlement agreement entered into by us will be on terms as favorable as the Opioid-Related Litigation Settlement previously announced. In particular, the Opioid-Related Litigation Settlement is subject to a number of conditions, which may not be satisfied. Among other things, the Opioid-Related Litigation Settlement included an unsatisfied condition with respect to the outcome of the Medicaid lawsuit, with respect to which we received an adverse decision from the District Court in March 2020. While we are currently appealing this decision, we are concurrently engaged in constructive dialogue with the plaintiff parties to the Opioid-Related Litigation Settlement to address the impact of the District Court’s decision in the event that the appeal does not have a favorable result, and there can be no assurance that such dialogue will result in a modification of the Opioid-Related Litigation Settlement that would be satisfactory to all parties. Moreover, we and the other parties to the Opioid-Related Litigation Settlement would not intend to proceed with its implementation absent supermajority support and participation amongst the plaintiffs in the opioid cases, and there is no

assurance that such support and participation will be obtained. Furthermore, the Opioid-Related Litigation Settlement as it was structured when initially agreed was intended to be implemented through a filing by the Specialty Generics Subsidiaries (and not Mallinckrodt plc or its subsidiaries other than the Specialty Generics Subsidiaries) of a pre-arranged bankruptcy case under Chapter 11, which would require confirmation of a plan of reorganization for such subsidiaries by a U.S. Bankruptcy Court. Confirmation of such a plan would be uncertain and could be denied.

Furthermore, subject to the satisfaction of the conditions to the Opioid-Related Litigation Settlement, the consummation of the Opioid-Related Litigation Settlement as it was structured when initially agreed would become effective upon the emergence of the Specialty Generics Subsidiaries from Chapter 11 bankruptcy, the timing of which emergence would be uncertain.

If Mallinckrodt plc and most of its subsidiaries choose to pursue a Chapter 11 filing, we would expect to seek to modify the Opioid-Related Litigation Settlement so that it would be effectuated in the context of the related bankruptcy proceedings, but there can be no assurance that we would be able to agree to a modification of the Opioid-Related Litigation Settlement that would be satisfactory to all parties or as to whether or when such modified settlement would be implemented.

The settlement process may use a significant portion of our resources and divert management’s attention from our day-to-day operations, all of which could harm our business. Furthermore, the Opioid-Related Litigation Settlement may not be implemented or consummated in its current form, in a modified form in connection with a Chapter 11 filing of Mallinckrodt plc and most of its subsidiaries, or at all. If the opioid-related claims are not settled, we would be subject to continued litigation with plaintiffs with opioid-related claims, and we or our subsidiaries may become subject to some or all of the liabilities that would have otherwise been settled, which could have a material and adverse effect on our business, financial condition, results of operations and cash flows. If Mallinckrodt plc were to file for bankruptcy protection, whether as a result of the failure of the Opioid-Related Litigation Settlement or in connection with implementing a modified version thereof or otherwise, we would be subject to additional risks and uncertainties that could adversely affect our business prospects, as further described in the risk factor “The uncertainty surrounding our ability to reach a resolution with certain of our financial creditors and opioid-related plaintiffs in connection with ongoing restructuring and settlement discussions, together with the uncertain outcome of the Medicaid lawsuit, has raised substantial doubt about our ability to continue as a going concern. We may seek protection from our creditors under Chapter 11 of the Bankruptcy Code or an involuntary petition for bankruptcy may be filed against us, either of which could have a material adverse impact on our business, financial condition, results of operations, and cash flows and could place our shareholders at significant risk of losing all of their investment in our ordinary shares.”

Our business may be adversely affected by public health crises and epidemics/pandemics, including the recent coronavirus outbreak.

A pandemic, epidemic or outbreak of an infectious disease occurring in the U.S., or elsewhere, could result in our business being adversely affected. In December 2019, COVID-19, was identified in China, which has now spread to countries throughout the world, including Ireland, the United Kingdom and the U.S. and has resulted in the World Health Organization declaring the outbreak as a pandemic. Our business performance was significantly impacted by COVID-19 during the second quarter, and we continue to expect to see challenges while the pandemic persists and potentially thereafter.

We may experience significant and unpredictable increases or decreases in demand for certain of our products as the needs of health care providers and patients evolve during this pandemic. For example, as we are among the world's largest manufacturers of bulk acetaminophen and the only producer of acetaminophen in the North American and European regions, we could experience an increase in demand which we may not be able to meet in accordance with the needs of the market. Additionally, our INOmax product is a potential treatment for acute respiratory distress syndrome (ARDS), which is a known clinical manifestation of infection with many respiratory viruses including coronaviruses, which could be subject to similar dynamics. Alternatively, due to the deprioritization of non-critical medical treatment in the face of this pandemic, demand for our Ofirmev product was negatively affected in the second quarter and may continue to be negatively impacted. We also experienced and may continue to experience reduced demand for Therakos due to immunosuppressed patients who have been instructed to stay-at-home during the COVID-19 pandemic..

Furthermore, earlier this year U.S. President Trump invoked emergency powers under the Defense Production Act, which allows the U.S. government to direct private companies to meet the needs of the nation in the time of an emergency. Given the critical nature of some of the products we manufacture, as well as our pharmaceutical and medical device manufacturing capabilities, we may be impacted by governmental action taken under this or similar legislation.

Many countries around the world have imposed quarantines and restrictions on travel and mass gatherings to slow the spread of the virus. Such disruptions could materially delay potential FDA approval with respect to our clinical trials and product candidates, including the FDA’s decision on our NDA for terlipressin. Other factors caused by the COVID-19 virus have already impacted and could materially delay or otherwise impact clinical trials we are conducting related to our products, including our ability to recruit and retain patients and principal investigators and site staff who, as healthcare providers, may have heightened exposure to the COVID-19 virus. Furthermore, business pressures driven by the ongoing COVID-19 pandemic have led us to prioritize certain investments over

others, resulting in the termination of two of our Phase 4 studies related to Acthar Gel, and such pressures could result in similar decisions across our product portfolio. Any delays in our clinical trials or regulatory review resulting from such disruptions could materially affect the development or approval of our product candidates or our lifecycle management efforts.

In addition, the economic impact of the spread of the COVID-19 virus', which has caused a broad impact globally, has adversely impacted our business and may continue to adversely affect us. In particular, the COVID-19 virus has negatively affected demand for our products due to limitations on the ability of our sales representatives to meet with physicians, and a reduction in patient visits to their doctors and pharmacists in order to receive prescriptions for our products, all of which may continue so long as the pandemic does not abate. There is also an increased risk of supply interruption at our third-party suppliers to deliver components as well as our manufacturing facilities to produce finished products on a timely basis, which could result in business or operational disruption. Additionally, while the potential long-term economic impact of the COVID-19 virus may be difficult to assess or predict, COVID-19 pandemic has resulted in significant disruption of global financial markets, which could reduce our ability to access capital, thereby negatively affecting our liquidity. The extent to which the COVID-19 pandemic impacts our results will depend on future developments that are highly uncertain and cannot be predicted.

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, for example 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.

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 carriers, there are a large number of guideline updates issued each year.

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.

In addition, a number of markets 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. In May 2019, CMS issued a decision requiring that we revert to the base date AMP used to calculate Medicaid drug rebates for Acthar Gel. We subsequently filed suit in District Court against the HHS and CMS seeking to hold unlawful and set aside this decision. In March 2020, we received an adverse decision from the District Court which upheld CMS' decision to reverse its previous determination of the base date AMP used to calculate Acthar Gel rebates. On March 16, 2020, we filed an Emergency Motion for Reconsideration and Stay of Entry of Judgment Pending Reconsideration Or, Alternatively, Injunction Pending Appeal. In response, the government agreed that CMS would not require us to change the Medicaid rebate calculation for Acthar Gel until June 14, 2020, to allow the District Court time to decide our reconsideration motion. The District Court subsequently denied our reconsideration motion

and in June 2020 we appealed the District Court's decision to the Court of Appeals and filed an Emergency Motion for Injunction Pending Appeal and to Expedite Briefing and Argument. The Court of Appeals subsequently denied our request for an injunction pending appeal on June 15, 2020. Consequently, we changed the base date AMP for Acthar Gel in the CMS data reporting system to reflect the original base date AMP for Acthar Gel. As a result, during the three months ended June 26, 2020, we incurred a retrospective one-time charge of $639.7 million. The prospective change to the Medicaid rebate calculation also served to reduce Acthar Gel net sales by $8.6 million for the period from June 15, 2020 to June 26, 2020. We disagree with the District Court's decision and continue to believe that our lawsuit has strong factual and legal bases. If we are unsuccessful in our efforts to set aside CMS' decision through the appeals process, Medicaid net sales of Acthar Gel could be substantially eliminated and our efforts to continue building on our investment in non-sales and marketing activities to modernize Acthar Gel could be significantly undermined.

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, most notably in relation to Acthar Gel, Ofirmev, INOmax, Therakos and Amitiza products. 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.

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.

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. (collectively "Praxair") 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 September 5, 2017 that ruled five patents invalid and six patents not infringed. We appealed the decision to the Court of Appeals for the Federal Circuit, which upheld the lower court's decision on August 27, 2019. We filed a petition for en banc review at the Federal Circuit on September 26, 2019, which the Federal Circuit denied on November 19, 2019. We filed a petition for a writ of certiorari with the United States Supreme Court on March 6, 2020 and the petition was denied on April 6, 2020. There has been limited commercial launch activity by Praxair. While Praxair received FDA approval of their Abbreviated New Drug Application ("ANDA") for their Noxivent nitric oxide and clearance of their 510(k) for their NOxBOXi device on October 2, 2018, the Noxivent product received an AA-rating and the Noxivent label states that Noxivent must be delivered using the NOxBOXi device. The adverse final outcome in the appeal of the Praxair litigation decision could result in the broader-scale launch of a competitive nitric oxide product before the expiration of the last of the patents listed in the FDA Orange Book: Approved Drug Products with Therapeutic Equivalence, which could adversely affect our ability to successfully maximize the value of INOmax and have an adverse effect on our competitive position, business, financial condition, results of operations and cash flows.

The active ingredient in Ofirmev is acetaminophen. Patent protection is not available for the acetaminophen molecule itself in the territories licensed to us, which include the U.S. and Canada. As a result, competitors who obtain the requisite regulatory approval can offer products with the same active ingredient as Ofirmev so long as the competitors do not infringe any process or formulation patents that we have in-licensed from Bristol Myers Squibb and its licensor, New Pharmatop LLC and any method-of-use patents that we subsequently obtained. The latest expiration date of the in-licensed patents is 2021 whereas the latest expiration date of the subsequently obtained Company-owned patents is 2032. Settlement agreements have been reached in association with certain challenges to the in-licensed patents, which allow for generic competition to Ofirmev in December 2020, or earlier under certain circumstances.

Our Therakos products focus on extracorporeal photopheresis ("ECP"), which is an autologous immune cell therapy that is indicated in the U.S. for skin manifestations of cutaneous T-cell lymphoma ("CTCL") and is available for several additional indications in markets outside the U.S. In the extracorporeal photopheresis 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 an Ultraviolet-A ("UVA") light activated drug, UVADEX^® (methoxsalen) Sterile Solution, 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 (“UVAR XTS”). While we no longer manufacture the UVAR XTS system, disposable, sterile kits are still supplied to customers for each of the systems. The kits are single use and discarded after a treatment. Certain key patents related to the UVAR XTS system, disposable kit and overall photopheresis method expire in 2020. Key patents related to the CELLEX system, disposable kit and overall photopheresis method expire in 2023. We continue to pursue additional patentable enhancements to the Therakos ECP system. Patent applications were filed in 2016 relating to improvements to the CELLEX system, disposable kit and overall photopheresis method, that, if approved, may offer patent protection through approximately 2036.

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.

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.



Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds.

The following table summarizes the repurchase activity of our ordinary shares during the three months ended June ~~28, 2019~~.26, 2020. The repurchase activity presented below ~~includes both market repurchases of shares and~~is limited to deemed repurchases in connection with the vesting of restricted share units under employee benefit plans to satisfy minimum statutory tax withholding ~~obligations.~~obligations as there were no market repurchases during the three months ended June 26, 2020.

On March 1, 2017, the Company's Board of Directors authorized a $1.0 billion share repurchase program (the "March 2017 Program") which commenced upon the completion of the March 2016 Program. The March 2017 Program has no expiration date, and the Company currently expects to fully utilize the program.


	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under Plans or Programs (in millions)
March 27, 2020 to April 24, 2020	37,460	$	1.86	—	$	564.2
April 25, 2020 to May 29, 2020	88,641	2.96		—	564.2
May 30, 2020 to June 26, 2020	917	2.86		—	564.2
March 27, 2020 to June 26, 2020	127,018	2.63

Total Number of
Shares Purchased
Average Price
Paid
Per Share
Total Number of
Shares Purchased
as Part of
Publicly
Announced Plans
or Programs
Maximum Number (or Approximate Dollar Value) of Shares That May Yet Be Purchased Under Plans or Programs
(in millions)
March 30, 2019 to April 26, 2019 32,151
$ 22.80
—
$ 564.2
April 27, 2019 to May 31, 2019 80,759
15.21
—
564.2
June 1, 2019 to June 28, 2019 2,492
9.06
—
564.2
March 30, 2019 to June 28, 2019 115,402
17.19



Item 6.			Exhibits.



Exhibit Number						Exhibit

~~31.1~~10.1						Mallinckrodt Pharmaceuticals Severance Plan for U.S. Officers and Executives (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed July 24, 2020).
10.2						Form of Employment Agreement by and between ST Shared Services LLC and Executive Officers (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed July 24, 2020).
31.1						Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2						Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1						Certifications of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101						Interactive Data File (Form 10-Q for the quarterly period ended June ~~28, 2019~~26, 2020 filed in XBRL). The financial information contained in the XBRL-related documents is "unaudited" and "unreviewed." The instance document does not appear in the interactive file because its XBRL tags are embedded within the inline XBRL document.
104						Cover Page Interactive Data File (embedded within the inline XBRL document).

SIGNATURES

Pursuant to the requirements 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.


	MALLINCKRODT PLC

	~~MALLINCKRODT PUBLIC LIMITED COMPANY~~

By:		/s/ Bryan M. Reasons
			Bryan M. Reasons Executive Vice President and Chief Financial Officer (principal financial officer)

Date: August ~~6, 2019~~4, 2020



Ireland						98-1088325
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)



(Title of each class)	(Trading Symbol(s))	(Name of each exchange on which registered)
Ordinary shares, par value $0.20 per share	MNK	New York Stock Exchange


	June 26, 2020		December 27, 2019
Property, plant and equipment, gross	$	1,913.7	$	1,900.1
Less: accumulated depreciation	(1,049.0)		(1,003.6)
Property, plant and equipment, net	$	864.7	$	896.5



	June 28, 2019			December 28, 2018
Property, plant and equipment, gross	$	1,987.8		$	1,936.2
Less: accumulated depreciation	(993.6		)	(954.2		)
Property, plant and equipment, net	$	994.2		$	982.0



8.			June 28, 2019
~~Weighted-average remaining lease term (in years) - operating lease~~	~~7.4~~
~~Weighted-average discount rate - operating leases~~	~~3.8~~	%Intangible Assets



☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



	June 28, 2019			December 28, 2018
Assets
Current Assets:
Cash and cash equivalents	$	241.1		$	348.9
Accounts receivable, less allowance for doubtful accounts of $4.7 and $5.0	528.4			623.3
Inventories	337.4			322.3
Prepaid expenses and other current assets	112.5			132.7
Total current assets	1,219.4			1,427.2
Property, plant and equipment, net	994.2			982.0
Intangible assets, net	7,721.1			8,282.8
Other assets	287.0			185.3
Total Assets	$	10,221.7		$	10,877.3

Liabilities and Shareholders' Equity
Current Liabilities:
Current maturities of long-term debt	$	717.9		$	22.4
Accounts payable	148.6			147.5
Accrued payroll and payroll-related costs	79.8			124.0
Accrued interest	45.9			77.6
Accrued and other current liabilities	565.3			572.2
Total current liabilities	1,557.5			943.7
Long-term debt	4,823.0			6,069.2
Pension and postretirement benefits	59.5			60.5
Environmental liabilities	60.5			59.7
Deferred income taxes	53.4			324.3
Other income tax liabilities	262.5			228.0
Other liabilities	330.1			304.6
Total Liabilities	7,146.5			7,990.0
Shareholders' Equity:
Preferred shares, $0.20 par value, 500,000,000 authorized; none issued and outstanding	—			—
Ordinary A shares, €1.00 par value, 40,000 authorized; none issued and outstanding	—			—
Ordinary shares, $0.20 par value, 500,000,000 authorized; 93,339,914 and 92,705,747 issued; 83,918,620 and 83,323,877 outstanding	18.7			18.5
Ordinary shares held in treasury at cost, 9,421,294 and 9,381,870	(1,617.4		)	(1,617.4		)
Additional paid-in capital	5,551.5			5,528.2
Retained deficit	(857.5		)	(1,017.7		)
Accumulated other comprehensive loss	(20.1		)	(24.3		)
Total Shareholders' Equity	3,075.2			2,887.3
Total Liabilities and Shareholders' Equity	$	10,221.7		$	10,877.3



Remainder of Fiscal 2019	$	81.5
Fiscal 2020	154.2
Fiscal 2021	60.3
Fiscal 2022	9.2
Thereafter	6.2



	2018 Mallinckrodt Program			2016 Mallinckrodt Program			Acquisition Programs			Total
Balance as of December 28, 2018	$	2.2		$	61.0		$	7.8		$	71.0
Charges	3.5			2.4			—			5.9
Changes in estimate	(0.9		)	(0.2		)	(0.8		)	(1.9		)
Cash payments	(1.4		)	(11.0		)	(1.4		)	(13.8		)
Reclassifications ⁽¹⁾	—			(5.0		)	(4.3		)	(9.3		)
Balance as of June 28, 2019	$	3.4		$	47.2		$	1.3		$	51.9



	June 28, 2019
Other assets	$	90.6

Accrued and other current liabilities	$	19.6
Other liabilities	77.7
Total lease liabilities	$	97.3



	Operating Leases
Remainder of Fiscal 2019	$	11.8
Fiscal 2020	21.6
Fiscal 2021	16.3
Fiscal 2022	12.3
Fiscal 2023	11.7
Thereafter	39.2
Total lease payments	112.9
Less: Interest	(15.6		)
Present value of lease liabilities	$	97.3



	Six Months Ended
	June 28, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	11.3
Lease assets obtained in exchange for lease obligations:
Operating leases	6.9


	June 26, 2020						December 27, 2019
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Amortizable:
Completed technology	$	10,394.6	$	4,208.3	$	10,456.9	$	3,822.8
License agreements	120.1		76.1		120.1		74.1
Trademarks	77.7		21.8		77.7		20.1


Total	$	10,592.4	$	4,306.2	$	10,654.7	$	3,917.0
Non-Amortizable:
Trademarks	$	35.0			$	35.0
In-process research and development	245.3				245.3
Total	$	280.3			$	280.3



Remainder of Fiscal 2019	$	414.7
Fiscal 2020	756.7
Fiscal 2021	659.9
Fiscal 2022	587.3
Fiscal 2023	583.1



~~11.~~Remainder of Fiscal 2020	~~Debt~~$	382.0
Fiscal 2021	581.1
Fiscal 2022	581.1
Fiscal 2023	581.1
Fiscal 2024	581.1


	Applicable interest rate		Outstanding borrowings
Term loan due September 2024	4.20	%	$	1,513.0
Term loan due February 2025	3.75		401.5

Revolving credit facility	3.27		900.0



	Currency Translation			Unrecognized Loss on Derivatives			Unrecognized Gain (Loss) on Benefit Plans			Accumulated Other Comprehensive Loss
Balance as of December 28, 2018	$	(20.4	)	$	(4.0	)	$	0.1		$	(24.3	)
Impact of accounting standard adoptions	—			—			0.5			0.5
Other comprehensive income before reclassifications	3.7			—			—			3.7
Amounts reclassified from accumulated other comprehensive loss	—			0.7			(0.7		)	—
Net current period other comprehensive income (loss)	3.7			0.7			(0.7		)	3.7
Balance as of June 28, 2019	$	(16.7	)	$	(3.3	)	$	(0.1	)	$	(20.1	)



	Currency Translation			Unrecognized Loss on Derivatives			Unrecognized Loss on Benefit Plans			Accumulated Other Comprehensive Loss
Balance as of December 29, 2017	$	(8.2	)	$	(4.7	)	$	(1.5	)	$	(14.4	)
Other comprehensive (loss) income before reclassifications	(7.3		)	—			0.9			(6.4		)
Amounts reclassified from accumulated other comprehensive loss	—			0.5			(1.4		)	(0.9		)
Net current period other comprehensive (loss) income	(7.3		)	0.5			(0.5		)	(7.3		)
Balance as of June 29, 2018	$	(15.5	)	$	(4.2	)	$	(2.0	)	$	(21.7	)



	Amount Reclassified from Accumulated Other Comprehensive Loss
	Six Months Ended
	June 28, 2019			June 29, 2018			Line Item in the Unaudited Condensed Consolidated Statement of Income
Amortization and other of unrealized loss on derivatives	$	0.7		$	0.5		Interest expense
Amortization of pension and post-retirement benefit plans:
Net actuarial loss	0.3			0.3			Other income, net
Prior service credit	(1.0		)	(1.0		)	Other income, net
Plan settlements	—			(0.7		)	Other income, net
Total reclassifications for the period	$	—		$	(0.9	)


	June 28, 2019		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)			June 26, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:									Assets:
Debt and equity securities held in rabbi trusts	$	35.4	$	25.6	$	9.8	$	—	Debt and equity securities held in rabbi trusts	$	30.9	$	21.0	$	9.9	$	—
Equity securities									Equity securities	28.2		28.2		—		—
										$	59.1	$	49.2	$	9.9	$	—

Liabilities:									Liabilities:
Deferred compensation liabilities	$	45.4	$	—	$	45.4	$	—	Deferred compensation liabilities	$	29.6	$	—	$	29.6	$	—
Contingent consideration and acquired contingent liabilities	130.4		—		—		130.4		Contingent consideration and acquired contingent liabilities	39.1		—		—		39.1
Settlement Warrants									Settlement Warrants	35.1		—		—		35.1
	$	175.8	$	—	$	45.4	$	130.4
										$	103.8	$	—	$	29.6	$	74.2


Balance as of December 27, 2019	$	69.3
Payments	(25.0)
Accretion expense	0.5
Fair value adjustments	(5.7)
Balance as of June 26, 2020	$	39.1



Balance as of December 28, 2018	$	151.4
Payments	(25.0		)
Accretion expense	1.7
Fair value adjustments	2.3
Balance as of June 28, 2019	$	130.4


	June 26, 2020			December 27, 2019
Expected share price volatility	63.1		%	54.4		%
Weighted-average risk-free rate	0.5		%	1.8		%
Expected annual dividend per share	—		%	—		%
Weighted-average expected term (in years)	7.6			7.6
Share price	$	2.77		$	3.45


	June 26, 2020						December 27, 2019
	Carrying Value		Fair Value		Carrying Value		Fair Value
Level 1:
4.875% senior notes due April 2020	$	—	$	—	$	614.8	$	480.0
5.75% senior notes due August 2022	610.3		149.6		610.3		251.0
4.75% senior notes due April 2023	133.7		20.2		133.7		53.7
5.625% senior notes due October 2023	514.7		100.4		514.7		193.2
5.50% senior notes due April 2025	387.2		59.5		387.2		135.5
10.00% first lien senior notes due April 2025	495.0		420.2		—		—
10.00% second lien senior notes due April 2025	322.9		194.5		322.9		253.8
Revolving credit facility	900.0		900.0		900.0		900.0
Level 2:
9.50% debentures due May 2022	10.4		3.6		10.4		5.4
8.00% debentures due March 2023	4.4		1.1		4.4		2.0
Term loan due September 2024	1,513.0		1,121.3		1,520.8		1,240.0
Term loan due February 2025	401.5		296.7		403.6		326.2
Total Debt	$	5,293.1	$	3,267.1	$	5,422.8	$	3,840.8


	June 26, 2020		December 27, 2019
AmerisourceBergen Corporation	27.1	%	31.3	%
McKesson Corporation	17.1		15.3
CuraScript, Inc.	11.5		12.1


•	~~Specialty Generics~~ ~~includes niche specialty generic drugs and APIs.~~


~~(1)~~	~~Includes administration expenses and certain compensation, legal, environmental and other costs not charged to the Company's reportable segment.~~


~~(2)~~	~~Represents costs incurred related to the separation of the Company's Specialty Generics segment, inclusive of rebranding costs, which are included in SG&A.~~


~~(1)~~	~~Amitiza consists of both product net sales and royalties. Refer to Note 3 for further details on Amitiza's revenues.~~



	Mallinckrodt plc		Mallinckrodt International Finance S.A.		Other Subsidiaries		Eliminations			Consolidated
Assets
Current Assets:
Cash and cash equivalents	$	0.1	$	4.9	$	236.1	$	—		$	241.1
Accounts receivable, net	—		—		528.4		—			528.4
Inventories	—		—		337.4		—			337.4
Prepaid expenses and other current assets	0.3		0.3		111.9		—			112.5
Intercompany receivables	134.1		28.9		5,885.7		(6,048.7		)	—
Total current assets	134.5		34.1		7,099.5		(6,048.7		)	1,219.4
Property, plant and equipment, net	—		—		994.2		—			994.2
Intangible assets, net	—		—		7,721.1		—			7,721.1
Investment in subsidiaries	2,673.5		12,937.0		3,849.3		(19,459.8		)	—
Intercompany loans receivable	462.3		—		2,613.9		(3,076.2		)	—
Other assets	—		—		287.0		—			287.0
Total Assets	$	3,270.3	$	12,971.1	$	22,565.0	$	(28,584.7	)	$	10,221.7

Liabilities and Shareholders' Equity
Current Liabilities:
Current maturities of long-term debt	$	—	$	—	$	717.9	$	—		$	717.9
Accounts payable	—		—		148.6		—			148.6
Accrued payroll and payroll-related costs	—		—		79.8		—			79.8
Accrued interest	—		4.0		41.9		—			45.9
Accrued and other current liabilities	0.8		0.2		564.3		—			565.3
Intercompany payables	194.3		5,638.9		215.5		(6,048.7		)	—
Total current liabilities	195.1		5,643.1		1,768.0		(6,048.7		)	1,557.5
Long-term debt	—		397.6		4,425.4		—			4,823.0
Pension and postretirement benefits	—		—		59.5		—			59.5
Environmental liabilities	—		—		60.5		—			60.5
Deferred income taxes	—		—		53.4		—			53.4
Other income tax liabilities	—		—		262.5		—			262.5
Intercompany loans payable	—		3,076.2		—		(3,076.2		)	—
Other liabilities	—		4.9		325.2		—			330.1
Total Liabilities	195.1		9,121.8		6,954.5		(9,124.9		)	7,146.5
Shareholders' Equity	3,075.2		3,849.3		15,610.5		(19,459.8		)	3,075.2
Total Liabilities and Shareholders' Equity	$	3,270.3	$	12,971.1	$	22,565.0	$	(28,584.7	)	$	10,221.7



	Three Months Ended
	June 28, 2019					June 29, 2018
Specialty Brands ⁽¹⁾	$	321.4		51.2	%	$	265.2		42.0	%
Specialty Generics	33.9			17.3		43.1			22.2
Segment operating income	355.3			43.2		308.3			37.3
Unallocated amounts:
Corporate and allocated expenses	(36.4		)			(12.5		)
Intangible asset amortization	(216.6		)			(184.3		)
Restructuring and related charges, net	0.2					(58.8		)
Non-restructuring impairment	(113.5		)			—
Separation costs	(18.9		)			—
Total operating (loss) income	$	(29.9	)			$	52.7



Variable-rate instruments:
Term loan due September 2024	$	1,524.7
Term loan due February 2025	404.6
Variable-rate receivable securitization	200.0
Revolving credit facility	405.0
Fixed-rate instruments	3,056.7
Debt principal	$	5,591.0