Business Context and Reporting Period
This Form 8-K filing by Perrigo Company plc, dated March 29, 2017, reports the completion of a significant asset divestiture on March 27, 2017. The Company, incorporated in Ireland, divested its rights to the royalty stream from global net sales of the multiple sclerosis drug Tysabri (natalizumab) to RPI Finance Trust, an affiliate of Royalty Pharma.
Key Financial Metrics
- Transaction Proceeds: Perrigo received $2.2 billion in cash at closing.
- Contingent Consideration: Potential additional milestone payments of $250 million (based on 2018 thresholds) and $400 million (based on 2020 thresholds).
- Financial Statements: The filing does not provide current revenue, profit, cash flow, or margin data. Audited financial statements for the fiscal year ended December 31, 2016, and the corresponding Form 10-K have not yet been released due to ongoing reviews of historical revenue recognition practices.
- Pro Forma Information: Not provided at this time as it is not practicable to prepare without the completed 2016 audit.
Material Changes
The primary material change is the removal of the Tysabri royalty asset from the Company's balance sheet in exchange for immediate liquidity. The Company assigned all rights to royalty payments made on or after January 1, 2017, to RPI. This transaction alters the Company's future revenue profile by eliminating the Tysabri royalty stream while providing significant cash proceeds.
Outlook, Risks, and Contingencies
Management Commentary and Outlook: The Company expects to file an amendment to this report containing required pro forma financial information as soon as practicable after filing its Annual Report on Form 10-K. The independent auditor, Ernst & Young LLP, is focused on completing audit procedures regarding deferred tax assets and other effects at Omega Pharma Invest N.V.
Risks and Contingencies:
- Audit Delays: Ongoing reviews of historical revenue recognition practices have delayed the filing of the 2016 Form 10-K.
- Restatement Risk: The Company may be required to restate financial statements, which could lead to additional tax liabilities, penalties, or breaches of Irish company legislation.
- Internal Controls: There is a risk of identifying material weaknesses in internal control over financial reporting.
- Listing Compliance: Delays or restatements could impact the Company's ability to regain compliance with NYSE continued listing rules.
- Milestone Uncertainty: Future milestone payments depend on Tysabri royalty amounts meeting specified thresholds in 2018 and 2020.
Investor Verification Checklist
- Verify the timeline for the filing of the audited 2016 Form 10-K and the subsequent amendment to this 8-K containing pro forma information.
- Monitor disclosures regarding the outcome of the revenue recognition review and any potential restatements of prior financial statements.
- Assess the impact of the $2.2 billion cash inflow on the Company's debt levels and liquidity position once the 2016 financials are released.
- Track the status of the Company's compliance with NYSE listing rules given the delay in financial reporting.
- Review future filings for updates on the potential $650 million in contingent milestone payments.