Description of Business and Significant Accounting Policies	6 Months Ended
Jun. 30, 2016
Description of Business and Significant Accounting Policies
Description of Business and Significant Accounting Policies	1. Description of Business and Significant Accounting Policies Organization Aegerion Pharmaceuticals, Inc. (the “Company” or “Aegerion”) is a biopharmaceutical company dedicated to the development and commercialization of innovative therapies for patients with debilitating rare diseases. The Company’s first product, lomitapide, received marketing approval, under the brand name JUXTAPID® (lomitapide) capsules (“JUXTAPID”), from the U.S. Food and Drug Administration (“FDA”) on December 21, 2012, as an adjunct to a low-fat diet and other lipid-lowering treatments, including low-density lipoprotein (“LDL”) apheresis, where available to reduce low-density lipoprotein cholesterol (“LDL-C”), total cholesterol (“TC”), apolipoprotein B (“apo B”) and non-high-density lipoprotein cholesterol (“non-HDL-C”) in adult patients with homozygous familial hypercholesterolemia (“HoFH”). The Company launched JUXTAPID in the U.S. in late January 2013. In July 2013, the Company received marketing authorization for lomitapide in the European Union (“EU”), under the brand name LOJUXTA® (lomitapide) hard capsules (“LOJUXTA”), as a treatment for adult patients with HoFH. Lomitapide is also approved for the treatment of adult HoFH in Mexico, Canada, Taiwan, South Korea and a small number of other countries. Pricing and reimbursement approval of lomitapide has not yet been received in many of the countries in which the product is approved. As a result of this and other factors, on July 20, 2016, the Company announced its intent to withdraw lomitapide from the EU and certain other global markets by the end of 2016, unless the Company earlier enters into ongoing supply and other arrangements with suitable partners in such markets. Lomitapide is also sold on a named patient basis in Brazil as a result of the approval of lomitapide in the U.S. and in a limited number of other countries as a result of the approval of lomitapide in the U.S. or the EU. The Company acquired its second product, metreleptin, from Amylin Pharmaceuticals, LLC (“Amylin”) and AstraZeneca Pharmaceuticals LP, an affiliate of Amylin, in January 2015. Metreleptin, a recombinant analog of human leptin, is currently marketed in the U.S. under the brand name MYALEPT® (metreleptin) for injection (“MYALEPT”). MYALEPT received marketing approval from the FDA in February 2014 as an adjunct to diet as replacement therapy to treat the complications of leptin deficiency in patients with congenital or acquired generalized lipodystrophy (“GL”). Metreleptin is also sold on a named patient basis in Brazil and Argentina as a result of the approval of metreleptin in the U.S. In the near term, the Company’s ability to generate revenue is primarily dependent upon sales of lomitapide and metreleptin in the U.S. and, on a named patient basis, in Brazil. The Company has incurred substantial losses in every fiscal period since inception, and expects operating losses and negative cash flows during 2016. As of June 30, 2016, the Company had an accumulated deficit of $481.2 million. The unaudited condensed consolidated financial statements have been prepared assuming the Company will continue to operate as a going concern, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. However, at June 30, 2016, the Company had unrestricted cash of $46.1 million and an accumulated deficit of $481.2 million. In the three months and six months ended June 30, 2016, the Company incurred a net loss of $46.8 million and $112.4 million, respectively. Due to the recent introduction of two competitive therapies during 2015, the Company incurred a significant reduction in net sales of JUXTAPID during the second half of 2015 and the first half of 2016, and expects total 2016 net sales to be significantly lower than 2015. Additionally, as described further in Note 13, the Company is the subject of ongoing government investigations in the U.S. and Brazil. The Company has reached preliminary agreements in principle with the Department of Justice (“DOJ”) and the Securities and Exchange Commission (“SEC”) to resolve these investigations. However, the preliminary agreements in principle and any final settlements are subject to final approvals and do not cover the DOJ and SEC’s inquiries concerning the Company’s operations in Brazil. The Company is also the subject of an ongoing government investigations in Brazil. The outcome of these investigations has had and could have additional material negative consequences for the Company’s business, financial position, results of operations and/or cash flows. As a result of these factors, there is substantial doubt about the Company’s ability to continue as a going concern. The unaudited condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from uncertainty related to the Company’s ability to continue as a going concern. The Company is currently considering several activities to finance its operations and reduce operating costs, including raising additional capital and reductions in its ongoing expenses through the headcount reductions and lease restructuring described in Note 8 and Note 14. However, there can be no assurances that these activities will be successful and/or mitigate the risks associated with the factors noted above. Proposed Merger with QLT. On June 14, 2016, the Company entered into a definitive merger agreement (“Merger Agreement”) pursuant to which the Company will be merged with a wholly owned indirect subsidiary of QLT Inc. (“QLT”). Upon completion of the proposed merger, each outstanding share of the Company’s common stock will be exchanged for 1.0256 shares of QLT common stock. QLT plans to change its name to Novelion Therapeutics Inc. (“Novelion”) upon closing of the proposed transaction and its common shares will trade on the NASDAQ Global Select Market and the Toronto Stock Exchange. A broad-based investor syndicate (the “Investors”) comprised of both new investors and existing shareholders of both companies has committed to invest approximately $22 million in QLT and to vote in favor of the proposed merger and related transactions. This investment would be funded immediately prior to the closing of the merger and is expected to provide Novelion with additional capital to support future operations and the potential opportunity for targeted business development initiatives. The exchange ratio for the merger is subject to downward adjustment if the Company’s previously disclosed securities class action litigation and DOJ and SEC investigations are resolved prior to the closing of the merger for amounts in excess of negotiated thresholds up to a maximum excess amount of $25 million. In the event the class action litigation or DOJ and SEC investigations are not settled prior to closing of the merger, QLT will enter into a warrant agreement pursuant to which warrants will be issued to QLT shareholders and the Investors that would be exercisable for additional Novelion common shares if the class action litigation or DOJ and SEC investigations are subsequently resolved for amounts in excess of negotiated thresholds up to a maximum excess amount of $25 million. The equity exchange ratio will not be adjusted to reflect stock price changes for either QLT or Aegerion prior to the closing of the merger. Upon completion of the merger, and giving effect to the investment in QLT immediately prior to the merger by the Investors, QLT shareholders immediately prior to the merger will own approximately 67% of the outstanding Novelion common shares, and the Company’s stockholders will own approximately 33% of the outstanding Novelion common shares. The Company’s in-the-money stock options and restricted stock units (“RSUs”) will be converted into the right to receive equivalent options and RSUs exercisable for or convertible into, respectively, Novelion common shares. The remainder of the Company’s equity-based awards would be cancelled upon the completion of the merger. In addition, QLT would enter into a supplemental indenture to the indenture governing the Company’s 2.00% Convertible Senior Notes Due 2019 (the “Convertible Notes”) providing that as of the effective time of the merger each outstanding Convertible Note will be convertible solely into Novelion common shares. See Note 6, “Debt Financing,” for discussion of the treatment of the Convertible Notes in connection with the pending merger. Concurrent with the signing of the Merger Agreement, the Company and QLT entered into a loan agreement under which QLT has agreed to loan the Company up to $15 million for working capital. The Company borrowed $3 million in connection with execution of the Merger Agreement and may borrow up to $3 million per month in subsequent months, subject to certain conditions, if and to the extent such amounts are necessary in order for the Company to maintain an unrestricted cash balance of $25 million. See Note 6, “Debt Financing,” for further information regarding the loan arrangements with QLT. The Merger Agreement provides that the Novelion board of directors would consist of four individuals designated by the Company, four individuals designated by QLT, one individual designated by Broadfin Capital, LLC and one individual designated by Sarissa Capital Management LP (“Sarissa Capital”). For a specified period of time following the merger, Sarissa Capital would also have the right to designate one additional member of the board of directors of Novelion. Mary Szela, the Company’s Chief Executive Officer, would serve as Chief Executive Officer of Novelion. The completion of the merger is subject to the approval of shareholders of the Company and QLT and other closing conditions, including, among others, (i) if required by law, the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (ii) the effectiveness of a registration statement on Form S-4 filed by QLT with the SEC, (iii) the approval of the listing on the NASDAQ Global Select Market and the Toronto Stock Exchange of the Novelion common shares to be issued in connection with the merger, (iv) QLT’s entry into a supplemental indenture related to the Convertible Notes and (v) receipt by QLT of the proceeds of an equity investment from the Investors contemplated in connection with the merger. The Merger Agreement contains certain termination rights for both QLT and the Company, including, among others, a right to terminate with the mutual consent of the Company and QLT, in the event that the merger is not consummated by December 14, 2016, subject to an extension in certain circumstances; and if the requisite shareholder approvals are not received. The Merger Agreement also provides for payment of a $5 million termination fee by QLT or the Company, as applicable, upon termination of the Merger Agreement under specified circumstances, including, among others, termination of the Merger Agreement by a party following a change in the recommendation of the Company’s or QLT’s board of directors, as applicable. Basis of Presentation and Principles of Consolidation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and footnotes required by GAAP for complete financial statements. In the opinion of management, the accompanying condensed consolidated financial statements include all adjustments (including normal recurring accruals) considered necessary for fair presentation of the Company’s consolidated financial position, results of operations and cash flows for the periods presented. Operating results for the current interim period are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2016. This Form 10-Q should be read in conjunction with the audited consolidated financial statements and accompanying notes in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 (“2015 Form 10-K”). Certain prior period amounts have been reclassified to conform to the current period presentation, including the classification of contingent litigation accrual in the unaudited condensed consolidated financial statements. The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The Company operates in one segment, pharmaceuticals. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant estimates in these consolidated financial statements have been made in connection with the calculation of net product sales, inventories, certain accruals related to contingencies and the Company’s research and development expenses, stock-based compensation, valuation procedures for the fair value of intangible assets, tangible assets and goodwill from the acquisition of MYALEPT, useful lives of acquired intangibles, impairments of goodwill and long-lived assets and the provision for or benefit from income taxes. Actual results could differ from those estimates. Changes in estimates are reflected in reported results in the period in which they become known. Revenue Recognition The Company applies the revenue recognition guidance in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Subtopic 605-15, Revenue Recognition—Products. The Company recognizes revenue from product sales when there is persuasive evidence that an arrangement exists, title to product and associated risk of loss has passed to the customer, the price is fixed or determinable, collectability is reasonably assured and the Company has no further performance obligations. Lomitapide In the U.S., JUXTAPID is only available for distribution through a specialty pharmacy, and is generally shipped directly to the patient. JUXTAPID is not available in retail pharmacies. Prior authorization and confirmation of coverage level by the patient’s private insurance plan or government payer are currently prerequisites to the shipment of product to a patient in the U.S. Revenue from sales in the U.S. covered by the patient’s private insurance plan or government payer is recognized once the product has been received by the patient. For uninsured amounts billed directly to the patient, revenue is recognized at the time of cash receipt as collectability is not reasonably assured at the time the product is received by the patient. To the extent amounts are billed in advance of delivery to the patient, the Company defers revenue until the product has been received by the patient. The Company also records revenue on sales in Brazil and other countries where lomitapide is available on a named patient basis, and typically paid for by a government authority or institution. In many cases, these sales are facilitated through a third-party distributor that takes title to the product upon acceptance. Because of factors such as the pricing of lomitapide, the limited number of patients, the short period from product sale to delivery to the end-customer and the limited contractual return rights, these distributors typically only hold inventory to supply specific orders for the product. The Company generally recognizes revenue for sales under these named patient programs once the product is shipped through to the government authority or institution. In the event the payer’s creditworthiness has not been established, the Company recognizes revenue on a cash basis if all other revenue recognition criteria have been met. The Company records distribution and other fees paid to its distributors as a reduction of revenue, unless the Company receives an identifiable and separate benefit for the consideration and the Company can reasonably estimate the fair value of the benefit received. If both conditions are met, the Company records the consideration paid to the distributor as an operating expense. At this time, neither condition has been met and therefore, the fees paid to the Company’s distributors are recorded as a reduction to revenue. The Company records revenue net of estimated discounts and rebates, including those provided to Medicare, Medicaid, Tricare and other government programs in the U.S. and other countries. Allowances are recorded as a reduction of revenue at the time revenues from product sales are recognized. Allowances for government rebates and discounts are established based on the actual payer information, which is reasonably estimable at the time of delivery. These allowances are adjusted to reflect known changes in the factors that may impact such allowances in the quarter those changes are known. The Company also provides financial support to 501(c)(3) organizations that assist patients in the U.S. in accessing treatment for certain diseases and conditions. These organizations provide charitable services to patients according to eligibility criteria defined independently by the organization. The Company records donations made to 501(c)(3) organizations as selling, general and administrative expense. Any payments received from a 501(c)(3) organization that has received a donation from the Company are recorded as a reduction of selling, general and administrative expense rather than as revenue. Effective January 2015, the Company also offers a branded co-pay assistance program for certain patients in the U.S. with HoFH who are on JUXTAPID therapy. The branded co-pay assistance program assists commercially insured patients who have coverage for JUXTAPID, and is intended to reduce each participating patient’s portion of the financial responsibility for JUXTAPID’s purchase price up to a specified dollar amount of assistance. The Company records revenue net of amounts paid under the branded specific co-pay assistance program for each patient. Metreleptin In the U.S., MYALEPT is only available through an exclusive third-party distributor that takes title to the product upon shipment. MYALEPT is not available in retail pharmacies. The distributor may only contractually acquire up to 21 business days worth of inventory. The Company recognizes revenue for these sales once the product is received by the patient, as it is currently unable to reasonably estimate the rebates owed to certain government payers at the time of receipt by the distributor. Prior authorization and confirmation of coverage level by the patient’s private insurance plan or government payer are currently prerequisites to the shipment of product to a patient in the U.S. The Company also records revenue on sales in Brazil and other countries where metreleptin is available on a named patient basis and is typically paid for by a government authority or institution. In many cases, these sales are facilitated through a third-party distributor that takes title to the product upon acceptance. Because of factors such as the pricing of metreleptin, the limited number of patients, the short period from product sale to delivery to the end-customer and the limited contractual return rights, these distributors typically only hold inventory to supply specific orders for the product. The Company generally recognizes revenue for sales under these named patient programs once the product is shipped through to the government authority or institution. In the event the payer’s creditworthiness has not been established, the Company recognizes revenue on a cash basis if all other revenue recognition criteria have been met. The Company records distribution and other fees paid to its distributor as a reduction of revenue, unless the Company receives an identifiable and separate benefit for the consideration and the Company can reasonably estimate the fair value of the benefit received. If both conditions are met, the Company records the consideration paid to the distributor as an operating expense. At this time, neither condition has been met and therefore, these fees paid to the distributor of MYALEPT are recorded as reduction to revenue. The Company records revenue from sales of MYALEPT net of estimated discounts and rebates, including those provided to Medicare and Medicaid in the U.S. Allowances for government rebates and discounts are established based on the actual payer information, which is reasonably estimable at the time of delivery. These allowances are adjusted to reflect known changes in the factors that may impact such allowances in the quarter those changes are known. As discussed above, the Company also provides financial support to 501(c)(3) organizations that assist patients in the U.S. in accessing treatment for certain diseases and conditions. These organizations provide charitable services to patients according to eligibility criteria defined independently by the organization. The Company records donations made to 501(c)(3) organizations as selling, general and administrative expense. Any payments received from a 501(c)(3) organization that has received a donation from the Company are recorded as a reduction of selling, general and administrative expense rather than as revenue. The Company also offers co-pay assistance for patients in the U.S. with GL who are on MYALEPT therapy. The co-pay assistance program assists commercially insured patients who have coverage for MYALEPT, and is intended to reduce each participating patient’s portion of the financial responsibility for MYALEPT’s purchase price up to a specified dollar amount of assistance. The Company records revenue net of amounts paid under the MYALEPT co-pay assistance program for each patient. Business Combinations The Company evaluates acquisitions of assets and other similar transactions to assess whether or not each such transaction should be accounted for as a business combination by assessing whether or not the Company has acquired inputs and processes that have the ability to create outputs. If the Company determines that an acquisition qualifies as a business, the Company assigns the value of consideration transferred in such business combination to the appropriate accounts on the Company’s consolidated balance sheet based on their fair value as of the effective date of the transaction. Transaction costs associated with business combinations are expensed as incurred. Fair Value of Purchased Tangible Assets, Intangibles and In-process Research and Development Assets in Business Combinations The present-value models used to estimate the fair values of purchased tangible assets, intangibles and in-process research and development assets incorporate significant assumptions, include, but are not limited to: assumptions regarding the probability of obtaining marketing approval and/or achieving relevant development milestones for a drug candidate; estimates regarding the timing of and the expected costs to develop a drug candidate; estimates of future cash flows from potential product sales; and the appropriate discount and tax rates. The Company records the fair value of purchased intangible assets with definite useful lives as of the transaction date of a business combination. Purchased intangible assets with definite useful lives are amortized to their estimated residual values over their estimated useful lives and reviewed for impairment if certain events occur. Impairment testing and assessments of remaining useful lives are performed when a triggering event occurs that could indicate a potential impairment. Such test first entails comparison of the carrying value of the intangible asset to the undiscounted cash flows expected from that asset. If impairment is indicated by this test, the intangible asset is written down by the amount, if any, by which the discounted cash flows expected from the intangible asset exceeds its carrying value. See Note 4 for further discussion of the Company’s interim impairment analysis. The Company records the fair value of in-process research and development assets as of the transaction date of a business combination. Each of these assets is accounted for as an indefinite-lived intangible asset and is maintained on the Company’s consolidated balance sheet until either the project underlying it is completed or the asset becomes impaired. If the asset becomes impaired or is abandoned, the carrying value of the related intangible asset is written down to its fair value, and an impairment charge is recorded in the period in which the impairment occurs. If a project is completed, the carrying value of the related intangible asset is amortized as a part of cost of product revenue over the remaining estimated life of the asset beginning in the period in which the project is completed. In-process research and development assets are tested for impairment on an annual basis as of October 31, and more frequently if indicators are present or changes in circumstances suggest that impairment may exist. See Note 4 for further discussion of the Company’s interim impairment analysis. The Company records the fair value of purchased tangible assets as of the transaction date of a business combination. These tangible assets are accounted for as either inventory or clinical and compassionate use materials, which are classified as other assets on the Company’s consolidated balance sheet. Inventory is maintained on the Company’s consolidated balance sheet until the inventory is sold, donated as part of the Company’s compassionate use program, used for clinical development, or determined to be in excess of expected requirements. Inventory that is sold or determined to be in excess of expected requirements is recognized as cost of product sales in the consolidated statement of operations, inventory that is donated as part of the Company’s compassionate use program is recognized as a selling, general and administrative expense in the consolidated statement of operations, and inventory used for clinical development is recognized as research and development expense in the consolidated statement of operations. Other assets are maintained on the Company’s consolidated balance sheet until these assets are consumed. If the asset becomes impaired or is abandoned, the carrying value is written down to its fair value, and an impairment charge is recorded in the period in which the impairment occurs. Goodwill The difference between the purchase price and the fair value of assets acquired and liabilities assumed in a business combination is allocated to goodwill. Goodwill is evaluated for impairment on an annual basis as of October 31, and more frequently if indicators are present or changes in circumstances suggest that impairment may exist. See Note 4 for further discussion of the Company’s interim goodwill impairment analysis, which resulted in an impairment charge of $9.6 million in the second quarter of 2016. Concentration of Credit Risk The Company’s financial instruments that are exposed to credit risks consist primarily of cash, cash equivalents, restricted cash and accounts receivable. The Company maintains its cash, cash equivalents and restricted cash in bank accounts, which, at times, exceed federally insured limits. The Company has not experienced any credit losses in these accounts and does not believe it is exposed to any significant credit risk on these funds. The Company is subject to credit risk from its accounts receivable related to its product sales of lomitapide and metreleptin. The majority of the Company’s accounts receivable arise from product sales in the U.S. For accounts receivable that have arisen from named patient sales outside of the U.S., the payment terms are predetermined and the Company evaluates the creditworthiness of each customer or distributor on a regular basis. The Company periodically assesses the financial strength of the holders of its accounts receivable to establish allowances for anticipated losses, if necessary. The Company does not recognize revenue for uninsured amounts billed directly to a patient until the time of cash receipt as collectability is not reasonably assured at the time the product is received. To date, the Company has not incurred any credit losses. Inventories and Cost of Sales Inventories are stated at the lower of cost or market price with cost determined on a first-in, first-out basis. Inventories are reviewed periodically to identify slow-moving or obsolete inventory based on sales activity, both projected and historical, as well as product shelf-life. In evaluating the recoverability of inventories produced, the Company considers the probability that revenue will be obtained from the future sale of the related inventory. The Company writes down inventory quantities in excess of expected requirements. Inventory becomes obsolete when it has aged past its shelf-life, cannot be recertified and is no longer usable or able to be sold, or the inventory has been damaged. In such instances, a full reserve is taken against such inventory. Expired inventory is disposed of and the related costs are recognized as cost of product sales in the consolidated statement of operations. Cost of product sales includes the cost of inventory sold, manufacturing and supply chain costs, product shipping and handling costs, charges for excess and obsolete inventory, amortization of acquired intangibles, as well as royalties payable to The Trustees of the University of Pennsylvania (“UPenn”) related to the sale of lomitapide and royalties payable to Amgen, Rockefeller University and Bristol-Myers Squibb (“BMS”) related to the sale of metreleptin. Stock-Based Compensation The Company accounts for its stock-based compensation to employees in accordance with ASC 718, Compensation-Stock Compensation and to non-employees in accordance with ASC 505-50, Equity Based Payments to Non-Employees. For service-based awards, compensation expense is recognized using the ratable method over the requisite service period, which is typically the vesting period. For awards that vest or begin vesting upon achievement of a performance condition, the Company recognizes compensation expense when achievement of the performance condition is deemed probable using an accelerated attribution model over the implicit service period. Certain of the Company’s awards that contain performance conditions also require the Company to estimate the number of awards that will vest, which the Company estimates when the performance condition is deemed probable of achievement. For awards that vest upon the achievement of a market condition, the Company recognizes compensation expense over the derived service period. For equity awards that have previously been modified, any incremental increase in the fair value over the original award has been recorded as compensation expense on the date of the modification for vested awards or over the remaining service period for unvested awards. See Note 9 for further information about the Company’s stock option plans. Cash and Cash Equivalents Cash and cash equivalents consist of highly liquid instruments purchased with an original maturity of three months or less at the date of purchase. As of June 30, 2016 and December 31, 2015, the Company held $46.1 million and $64.5 million in cash and cash equivalents, respectively, consisting of cash and money market funds. Restricted Cash Restricted cash represents amounts deposited with Silicon Valley Bank to collateralize balances related to outstanding obligations under the SVB Loan and Security Agreement (as defined below). These amounts are restricted for all uses until the full and final payment of all obligations, as determined by Silicon Valley Bank in its sole and exclusive discretion. See Note 6 for further discussion. Recent Accounting Pronouncements – Not Yet Adopted In May 2014, the FASB issued a comprehensive Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which amends revenue recognition principles and provides a single set of criteria for revenue recognition among all industries. The new standard provides a five step framework whereby revenue is recognized when promised goods or services are transferred to a customer at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard also requires enhanced disclosures pertaining to revenue recognition in both interim and annual periods. The standard is effective for interim and annual periods beginning after December 15, 2016 and allows for adoption using a full retrospective method, or a modified retrospective method. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which defers the effective date of ASU 2014-09 by one year, but permits entities to adopt one year earlier if they choose (i.e., the original effective date). As such, ASU 2014-09 will be effective for interim and annual reporting periods beginning after December 15, 2017. The Company is currently assessing the method of adoption and the expected impact the new standard has on its financial position and results of operations. In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements-Going Concern, which provides guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern within one year from the date the financial statements are issued for each reporting period. This new accounting guidance is effective for interim and annual periods ending after December 15, 2016. Early adoption is permitted. The Company does not expect the new guidance to have a significant effect on its consolidated financial statements, but may require further disclosure in its financial statements once adopted. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires lessees to recognize lease assets and lease liabilities for those leases classified as operating leases under previous GAAP. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from previous GAAP. There continues to be a differentiation between finance leases and operating leases. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, and early adoption is permitted. The Company is currently in the process of evaluating the impact of adoption of ASU No. 2016-02 on its consolidated financial statements and related disclosures. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606). ASU 2016-08 provides clarification on principal versus agent considerations, including identifying the unit of account at which an entity should assess whether it is a principal or an agent, identifying the nature of the good or the service provided to the customer, applying the control principle to certain types of transactions, and interaction of the control principle with the indicators provided to assist in the principal versus agent evaluation. ASU 2016-08 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, and early adoption is permitted. The Company is currently in the process of evaluating the impact of adoption of ASU No. 2016-08 on its consolidated financial statements and related disclosures. In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718). ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification of related activity on the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years, and early adoption is permitted. The Company is currently in the process of evaluating the impact of adoption of ASU No. 2016-09 on its consolidated financial statements and related disclosures. In March 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606). ASU 2016-10 provides clarification on the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance. ASU 2016-10 is effective for fiscal years beginning after December 15, 2018, and interim periods beginning after December 15, 2017, and early adoption is permitted. The Company is currently in the process of evaluating the impact of adoption of ASU No. 2016-10 on its consolidated financial statements and related disclosures. In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606). ASU 2016-12 provides narrow-scope improvements and practical expedients on assessing collectability, presentation of sales taxes, noncash consideration, completed contracts at transition and contract modifications at transition. ASU 2016-12 is effective for fiscal years beginning after December 15, 2017, and interim periods beginning after December 15, 2018, and early adoption is permitted. The Company is currently in the process of evaluating the impact of adoption of ASU No. 2016-12 on its consolidated financial statements and related disclosures. In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326). The amendments in ASU 2016-13 replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, and interim periods beginning after December 15, 2019, and early adoption is permitted. The Company is currently in the process of evaluating the impact of adoption of ASU No. 2016-13 on its consolidated financial statements and related disclosures.

1. Description of Business and Significant Accounting Policies

Organization

Aegerion Pharmaceuticals, Inc. (the “Company” or “Aegerion”) is a biopharmaceutical company dedicated to the development and commercialization of innovative therapies for patients with debilitating rare diseases.

The Company’s first product, lomitapide, received marketing approval, under the brand name JUXTAPID® (lomitapide) capsules (“JUXTAPID”), from the U.S. Food and Drug Administration (“FDA”) on December 21, 2012, as an adjunct to a low-fat diet and other lipid-lowering treatments, including low-density lipoprotein (“LDL”) apheresis, where available to reduce low-density lipoprotein cholesterol (“LDL-C”), total cholesterol (“TC”), apolipoprotein B (“apo B”) and non-high-density lipoprotein cholesterol (“non-HDL-C”) in adult patients with homozygous familial hypercholesterolemia (“HoFH”). The Company launched JUXTAPID in the U.S. in late January 2013. In July 2013, the Company received marketing authorization for lomitapide in the European Union (“EU”), under the brand name LOJUXTA® (lomitapide) hard capsules (“LOJUXTA”), as a treatment for adult patients with HoFH. Lomitapide is also approved for the treatment of adult HoFH in Mexico, Canada, Taiwan, South Korea and a small number of other countries. Pricing and reimbursement approval of lomitapide has not yet been received in many of the countries in which the product is approved. As a result of this and other factors, on July 20, 2016, the Company announced its intent to withdraw lomitapide from the EU and certain other global markets by the end of 2016, unless the Company earlier enters into ongoing supply and other arrangements with suitable partners in such markets. Lomitapide is also sold on a named patient basis in Brazil as a result of the approval of lomitapide in the U.S. and in a limited number of other countries as a result of the approval of lomitapide in the U.S. or the EU.

The Company acquired its second product, metreleptin, from Amylin Pharmaceuticals, LLC (“Amylin”) and AstraZeneca Pharmaceuticals LP, an affiliate of Amylin, in January 2015. Metreleptin, a recombinant analog of human leptin, is currently marketed in the U.S. under the brand name MYALEPT® (metreleptin) for injection (“MYALEPT”). MYALEPT received marketing approval from the FDA in February 2014 as an adjunct to diet as replacement therapy to treat the complications of leptin deficiency in patients with congenital or acquired generalized lipodystrophy (“GL”). Metreleptin is also sold on a named patient basis in Brazil and Argentina as a result of the approval of metreleptin in the U.S.

In the near term, the Company’s ability to generate revenue is primarily dependent upon sales of lomitapide and metreleptin in the U.S. and, on a named patient basis, in Brazil. The Company has incurred substantial losses in every fiscal period since inception, and expects operating losses and negative cash flows during 2016. As of June 30, 2016, the Company had an accumulated deficit of $481.2 million.

The unaudited condensed consolidated financial statements have been prepared assuming the Company will continue to operate as a going concern, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. However, at June 30, 2016, the Company had unrestricted cash of $46.1 million and an accumulated deficit of $481.2 million. In the three months and six months ended June 30, 2016, the Company incurred a net loss of $46.8 million and $112.4 million, respectively. Due to the recent introduction of two competitive therapies during 2015, the Company incurred a significant reduction in net sales of JUXTAPID during the second half of 2015 and the first half of 2016, and expects total 2016 net sales to be significantly lower than 2015. Additionally, as described further in Note 13, the Company is the subject of ongoing government investigations in the U.S. and Brazil. The Company has reached preliminary agreements in principle with the Department of Justice (“DOJ”) and the Securities and Exchange Commission (“SEC”) to resolve these investigations. However, the preliminary agreements in principle and any final settlements are subject to final approvals and do not cover the DOJ and SEC’s inquiries concerning the Company’s operations in Brazil. The Company is also the subject of an ongoing government investigations in Brazil. The outcome of these investigations has had and could have additional material negative consequences for the Company’s business, financial position, results of operations and/or cash flows. As a result of these factors, there is substantial doubt about the Company’s ability to continue as a going concern. The unaudited condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from uncertainty related to the Company’s ability to continue as a going concern. The Company is currently considering several activities to finance its operations and reduce operating costs, including raising additional capital and reductions in its ongoing expenses through the headcount reductions and lease restructuring described in Note 8 and Note 14. However, there can be no assurances that these activities will be successful and/or mitigate the risks associated with the factors noted above.

Proposed Merger with QLT. On June 14, 2016, the Company entered into a definitive merger agreement (“Merger Agreement”) pursuant to which the Company will be merged with a wholly owned indirect subsidiary of QLT Inc. (“QLT”). Upon completion of the proposed merger, each outstanding share of the Company’s common stock will be exchanged for 1.0256 shares of QLT common stock. QLT plans to change its name to Novelion Therapeutics Inc. (“Novelion”) upon closing of the proposed transaction and its common shares will trade on the NASDAQ Global Select Market and the Toronto Stock Exchange.

A broad-based investor syndicate (the “Investors”) comprised of both new investors and existing shareholders of both companies has committed to invest approximately $22 million in QLT and to vote in favor of the proposed merger and related transactions. This investment would be funded immediately prior to the closing of the merger and is expected to provide Novelion with additional capital to support future operations and the potential opportunity for targeted business development initiatives.

The exchange ratio for the merger is subject to downward adjustment if the Company’s previously disclosed securities class action litigation and DOJ and SEC investigations are resolved prior to the closing of the merger for amounts in excess of negotiated thresholds up to a maximum excess amount of $25 million. In the event the class action litigation or DOJ and SEC investigations are not settled prior to closing of the merger, QLT will enter into a warrant agreement pursuant to which warrants will be issued to QLT shareholders and the Investors that would be exercisable for additional Novelion common shares if the class action litigation or DOJ and SEC investigations are subsequently resolved for amounts in excess of negotiated thresholds up to a maximum excess amount of $25 million. The equity exchange ratio will not be adjusted to reflect stock price changes for either QLT or Aegerion prior to the closing of the merger.

Upon completion of the merger, and giving effect to the investment in QLT immediately prior to the merger by the Investors, QLT shareholders immediately prior to the merger will own approximately 67% of the outstanding Novelion common shares, and the Company’s stockholders will own approximately 33% of the outstanding Novelion common shares. The Company’s in-the-money stock options and restricted stock units (“RSUs”) will be converted into the right to receive equivalent options and RSUs exercisable for or convertible into, respectively, Novelion common shares. The remainder of the Company’s equity-based awards would be cancelled upon the completion of the merger. In addition, QLT would enter into a supplemental indenture to the indenture governing the Company’s 2.00% Convertible Senior Notes Due 2019 (the “Convertible Notes”) providing that as of the effective time of the merger each outstanding Convertible Note will be convertible solely into Novelion common shares. See Note 6, “Debt Financing,” for discussion of the treatment of the Convertible Notes in connection with the pending merger.

Concurrent with the signing of the Merger Agreement, the Company and QLT entered into a loan agreement under which QLT has agreed to loan the Company up to $15 million for working capital. The Company borrowed $3 million in connection with execution of the Merger Agreement and may borrow up to $3 million per month in subsequent months, subject to certain conditions, if and to the extent such amounts are necessary in order for the Company to maintain an unrestricted cash balance of $25 million. See Note 6, “Debt Financing,” for further information regarding the loan arrangements with QLT.

The Merger Agreement provides that the Novelion board of directors would consist of four individuals designated by the Company, four individuals designated by QLT, one individual designated by Broadfin Capital, LLC and one individual designated by Sarissa Capital Management LP (“Sarissa Capital”). For a specified period of time following the merger, Sarissa Capital would also have the right to designate one additional member of the board of directors of Novelion. Mary Szela, the Company’s Chief Executive Officer, would serve as Chief Executive Officer of Novelion.

The completion of the merger is subject to the approval of shareholders of the Company and QLT and other closing conditions, including, among others, (i) if required by law, the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (ii) the effectiveness of a registration statement on Form S-4 filed by QLT with the SEC, (iii) the approval of the listing on the NASDAQ Global Select Market and the Toronto Stock Exchange of the Novelion common shares to be issued in connection with the merger, (iv) QLT’s entry into a supplemental indenture related to the Convertible Notes and (v) receipt by QLT of the proceeds of an equity investment from the Investors contemplated in connection with the merger.

The Merger Agreement contains certain termination rights for both QLT and the Company, including, among others, a right to terminate with the mutual consent of the Company and QLT, in the event that the merger is not consummated by December 14, 2016, subject to an extension in certain circumstances; and if the requisite shareholder approvals are not received. The Merger Agreement also provides for payment of a $5 million termination fee by QLT or the Company, as applicable, upon termination of the Merger Agreement under specified circumstances, including, among others, termination of the Merger Agreement by a party following a change in the recommendation of the Company’s or QLT’s board of directors, as applicable.

Basis of Presentation and Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information and footnotes required by GAAP for complete financial statements. In the opinion of management, the accompanying condensed consolidated financial statements include all adjustments (including normal recurring accruals) considered necessary for fair presentation of the Company’s consolidated financial position, results of operations and cash flows for the periods presented. Operating results for the current interim period are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2016. This Form 10-Q should be read in conjunction with the audited consolidated financial statements and accompanying notes in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 (“2015 Form 10-K”). Certain prior period amounts have been reclassified to conform to the current period presentation, including the classification of contingent litigation accrual in the unaudited condensed consolidated financial statements.

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The Company operates in one segment, pharmaceuticals.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant estimates in these consolidated financial statements have been made in connection with the calculation of net product sales, inventories, certain accruals related to contingencies and the Company’s research and development expenses, stock-based compensation, valuation procedures for the fair value of intangible assets, tangible assets and goodwill from the acquisition of MYALEPT, useful lives of acquired intangibles, impairments of goodwill and long-lived assets and the provision for or benefit from income taxes. Actual results could differ from those estimates. Changes in estimates are reflected in reported results in the period in which they become known.

Revenue Recognition

The Company applies the revenue recognition guidance in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Subtopic 605-15, Revenue Recognition—Products. The Company recognizes revenue from product sales when there is persuasive evidence that an arrangement exists, title to product and associated risk of loss has passed to the customer, the price is fixed or determinable, collectability is reasonably assured and the Company has no further performance obligations.

Lomitapide

In the U.S., JUXTAPID is only available for distribution through a specialty pharmacy, and is generally shipped directly to the patient. JUXTAPID is not available in retail pharmacies. Prior authorization and confirmation of coverage level by the patient’s private insurance plan or government payer are currently prerequisites to the shipment of product to a patient in the U.S. Revenue from sales in the U.S. covered by the patient’s private insurance plan or government payer is recognized once the product has been received by the patient. For uninsured amounts billed directly to the patient, revenue is recognized at the time of cash receipt as collectability is not reasonably assured at the time the product is received by the patient. To the extent amounts are billed in advance of delivery to the patient, the Company defers revenue until the product has been received by the patient.

The Company also records revenue on sales in Brazil and other countries where lomitapide is available on a named patient basis, and typically paid for by a government authority or institution. In many cases, these sales are facilitated through a third-party distributor that takes title to the product upon acceptance. Because of factors such as the pricing of lomitapide, the limited number of patients, the short period from product sale to delivery to the end-customer and the limited contractual return rights, these distributors typically only hold inventory to supply specific orders for the product. The Company generally recognizes revenue for sales under these named patient programs once the product is shipped through to the government authority or institution. In the event the payer’s creditworthiness has not been established, the Company recognizes revenue on a cash basis if all other revenue recognition criteria have been met.

The Company records distribution and other fees paid to its distributors as a reduction of revenue, unless the Company receives an identifiable and separate benefit for the consideration and the Company can reasonably estimate the fair value of the benefit received. If both conditions are met, the Company records the consideration paid to the distributor as an operating expense. At this time, neither condition has been met and therefore, the fees paid to the Company’s distributors are recorded as a reduction to revenue. The Company records revenue net of estimated discounts and rebates, including those provided to Medicare, Medicaid, Tricare and other government programs in the U.S. and other countries. Allowances are recorded as a reduction of revenue at the time revenues from product sales are recognized. Allowances for government rebates and discounts are established based on the actual payer information, which is reasonably estimable at the time of delivery. These allowances are adjusted to reflect known changes in the factors that may impact such allowances in the quarter those changes are known.

The Company also provides financial support to 501(c)(3) organizations that assist patients in the U.S. in accessing treatment for certain diseases and conditions. These organizations provide charitable services to patients according to eligibility criteria defined independently by the organization. The Company records donations made to 501(c)(3) organizations as selling, general and administrative expense. Any payments received from a 501(c)(3) organization that has received a donation from the Company are recorded as a reduction of selling, general and administrative expense rather than as revenue. Effective January 2015, the Company also offers a branded co-pay assistance program for certain patients in the U.S. with HoFH who are on JUXTAPID therapy. The branded co-pay assistance program assists commercially insured patients who have coverage for JUXTAPID, and is intended to reduce each participating patient’s portion of the financial responsibility for JUXTAPID’s purchase price up to a specified dollar amount of assistance. The Company records revenue net of amounts paid under the branded specific co-pay assistance program for each patient.

Metreleptin

In the U.S., MYALEPT is only available through an exclusive third-party distributor that takes title to the product upon shipment. MYALEPT is not available in retail pharmacies. The distributor may only contractually acquire up to 21 business days worth of inventory. The Company recognizes revenue for these sales once the product is received by the patient, as it is currently unable to reasonably estimate the rebates owed to certain government payers at the time of receipt by the distributor. Prior authorization and confirmation of coverage level by the patient’s private insurance plan or government payer are currently prerequisites to the shipment of product to a patient in the U.S.

The Company also records revenue on sales in Brazil and other countries where metreleptin is available on a named patient basis and is typically paid for by a government authority or institution. In many cases, these sales are facilitated through a third-party distributor that takes title to the product upon acceptance. Because of factors such as the pricing of metreleptin, the limited number of patients, the short period from product sale to delivery to the end-customer and the limited contractual return rights, these distributors typically only hold inventory to supply specific orders for the product. The Company generally recognizes revenue for sales under these named patient programs once the product is shipped through to the government authority or institution. In the event the payer’s creditworthiness has not been established, the Company recognizes revenue on a cash basis if all other revenue recognition criteria have been met.

The Company records distribution and other fees paid to its distributor as a reduction of revenue, unless the Company receives an identifiable and separate benefit for the consideration and the Company can reasonably estimate the fair value of the benefit received. If both conditions are met, the Company records the consideration paid to the distributor as an operating expense. At this time, neither condition has been met and therefore, these fees paid to the distributor of MYALEPT are recorded as reduction to revenue. The Company records revenue from sales of MYALEPT net of estimated discounts and rebates, including those provided to Medicare and Medicaid in the U.S. Allowances for government rebates and discounts are established based on the actual payer information, which is reasonably estimable at the time of delivery. These allowances are adjusted to reflect known changes in the factors that may impact such allowances in the quarter those changes are known.

As discussed above, the Company also provides financial support to 501(c)(3) organizations that assist patients in the U.S. in accessing treatment for certain diseases and conditions. These organizations provide charitable services to patients according to eligibility criteria defined independently by the organization. The Company records donations made to 501(c)(3) organizations as selling, general and administrative expense. Any payments received from a 501(c)(3) organization that has received a donation from the Company are recorded as a reduction of selling, general and administrative expense rather than as revenue. The Company also offers co-pay assistance for patients in the U.S. with GL who are on MYALEPT therapy. The co-pay assistance program assists commercially insured patients who have coverage for MYALEPT, and is intended to reduce each participating patient’s portion of the financial responsibility for MYALEPT’s purchase price up to a specified dollar amount of assistance. The Company records revenue net of amounts paid under the MYALEPT co-pay assistance program for each patient.

Business Combinations

The Company evaluates acquisitions of assets and other similar transactions to assess whether or not each such transaction should be accounted for as a business combination by assessing whether or not the Company has acquired inputs and processes that have the ability to create outputs. If the Company determines that an acquisition qualifies as a business, the Company assigns the value of consideration transferred in such business combination to the appropriate accounts on the Company’s consolidated balance sheet based on their fair value as of the effective date of the transaction. Transaction costs associated with business combinations are expensed as incurred.

Fair Value of Purchased Tangible Assets, Intangibles and In-process Research and Development Assets in Business Combinations

The present-value models used to estimate the fair values of purchased tangible assets, intangibles and in-process research and development assets incorporate significant assumptions, include, but are not limited to: assumptions regarding the probability of obtaining marketing approval and/or achieving relevant development milestones for a drug candidate; estimates regarding the timing of and the expected costs to develop a drug candidate; estimates of future cash flows from potential product sales; and the appropriate discount and tax rates.

The Company records the fair value of purchased intangible assets with definite useful lives as of the transaction date of a business combination. Purchased intangible assets with definite useful lives are amortized to their estimated residual values over their estimated useful lives and reviewed for impairment if certain events occur. Impairment testing and assessments of remaining useful lives are performed when a triggering event occurs that could indicate a potential impairment. Such test first entails comparison of the carrying value of the intangible asset to the undiscounted cash flows expected from that asset. If impairment is indicated by this test, the intangible asset is written down by the amount, if any, by which the discounted cash flows expected from the intangible asset exceeds its carrying value. See Note 4 for further discussion of the Company’s interim impairment analysis.

The Company records the fair value of in-process research and development assets as of the transaction date of a business combination. Each of these assets is accounted for as an indefinite-lived intangible asset and is maintained on the Company’s consolidated balance sheet until either the project underlying it is completed or the asset becomes impaired. If the asset becomes impaired or is abandoned, the carrying value of the related intangible asset is written down to its fair value, and an impairment charge is recorded in the period in which the impairment occurs. If a project is completed, the carrying value of the related intangible asset is amortized as a part of cost of product revenue over the remaining estimated life of the asset beginning in the period in which the project is completed. In-process research and development assets are tested for impairment on an annual basis as of October 31, and more frequently if indicators are present or changes in circumstances suggest that impairment may exist. See Note 4 for further discussion of the Company’s interim impairment analysis.

The Company records the fair value of purchased tangible assets as of the transaction date of a business combination. These tangible assets are accounted for as either inventory or clinical and compassionate use materials, which are classified as other assets on the Company’s consolidated balance sheet. Inventory is maintained on the Company’s consolidated balance sheet until the inventory is sold, donated as part of the Company’s compassionate use program, used for clinical development, or determined to be in excess of expected requirements. Inventory that is sold or determined to be in excess of expected requirements is recognized as cost of product sales in the consolidated statement of operations, inventory that is donated as part of the Company’s compassionate use program is recognized as a selling, general and administrative expense in the consolidated statement of operations, and inventory used for clinical development is recognized as research and development expense in the consolidated statement of operations. Other assets are maintained on the Company’s consolidated balance sheet until these assets are consumed. If the asset becomes impaired or is abandoned, the carrying value is written down to its fair value, and an impairment charge is recorded in the period in which the impairment occurs.

Goodwill

The difference between the purchase price and the fair value of assets acquired and liabilities assumed in a business combination is allocated to goodwill. Goodwill is evaluated for impairment on an annual basis as of October 31, and more frequently if indicators are present or changes in circumstances suggest that impairment may exist. See Note 4 for further discussion of the Company’s interim goodwill impairment analysis, which resulted in an impairment charge of $9.6 million in the second quarter of 2016.

Concentration of Credit Risk

The Company’s financial instruments that are exposed to credit risks consist primarily of cash, cash equivalents, restricted cash and accounts receivable. The Company maintains its cash, cash equivalents and restricted cash in bank accounts, which, at times, exceed federally insured limits. The Company has not experienced any credit losses in these accounts and does not believe it is exposed to any significant credit risk on these funds.

The Company is subject to credit risk from its accounts receivable related to its product sales of lomitapide and metreleptin. The majority of the Company’s accounts receivable arise from product sales in the U.S. For accounts receivable that have arisen from named patient sales outside of the U.S., the payment terms are predetermined and the Company evaluates the creditworthiness of each customer or distributor on a regular basis. The Company periodically assesses the financial strength of the holders of its accounts receivable to establish allowances for anticipated losses, if necessary. The Company does not recognize revenue for uninsured amounts billed directly to a patient until the time of cash receipt as collectability is not reasonably assured at the time the product is received. To date, the Company has not incurred any credit losses.

Inventories and Cost of Sales

Inventories are stated at the lower of cost or market price with cost determined on a first-in, first-out basis. Inventories are reviewed periodically to identify slow-moving or obsolete inventory based on sales activity, both projected and historical, as well as product shelf-life. In evaluating the recoverability of inventories produced, the Company considers the probability that revenue will be obtained from the future sale of the related inventory. The Company writes down inventory quantities in excess of expected requirements. Inventory becomes obsolete when it has aged past its shelf-life, cannot be recertified and is no longer usable or able to be sold, or the inventory has been damaged. In such instances, a full reserve is taken against such inventory. Expired inventory is disposed of and the related costs are recognized as cost of product sales in the consolidated statement of operations.

Cost of product sales includes the cost of inventory sold, manufacturing and supply chain costs, product shipping and handling costs, charges for excess and obsolete inventory, amortization of acquired intangibles, as well as royalties payable to The Trustees of the University of Pennsylvania (“UPenn”) related to the sale of lomitapide and royalties payable to Amgen, Rockefeller University and Bristol-Myers Squibb (“BMS”) related to the sale of metreleptin.

Stock-Based Compensation

The Company accounts for its stock-based compensation to employees in accordance with ASC 718, Compensation-Stock Compensation and to non-employees in accordance with ASC 505-50, Equity Based Payments to Non-Employees. For service-based awards, compensation expense is recognized using the ratable method over the requisite service period, which is typically the vesting period. For awards that vest or begin vesting upon achievement of a performance condition, the Company recognizes compensation expense when achievement of the performance condition is deemed probable using an accelerated attribution model over the implicit service period. Certain of the Company’s awards that contain performance conditions also require the Company to estimate the number of awards that will vest, which the Company estimates when the performance condition is deemed probable of achievement. For awards that vest upon the achievement of a market condition, the Company recognizes compensation expense over the derived service period. For equity awards that have previously been modified, any incremental increase in the fair value over the original award has been recorded as compensation expense on the date of the modification for vested awards or over the remaining service period for unvested awards. See Note 9 for further information about the Company’s stock option plans.

Cash and Cash Equivalents

Cash and cash equivalents consist of highly liquid instruments purchased with an original maturity of three months or less at the date of purchase. As of June 30, 2016 and December 31, 2015, the Company held $46.1 million and $64.5 million in cash and cash equivalents, respectively, consisting of cash and money market funds.

Restricted Cash

Restricted cash represents amounts deposited with Silicon Valley Bank to collateralize balances related to outstanding obligations under the SVB Loan and Security Agreement (as defined below). These amounts are restricted for all uses until the full and final payment of all obligations, as determined by Silicon Valley Bank in its sole and exclusive discretion. See Note 6 for further discussion.

Recent Accounting Pronouncements – Not Yet Adopted

In May 2014, the FASB issued a comprehensive Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which amends revenue recognition principles and provides a single set of criteria for revenue recognition among all industries. The new standard provides a five step framework whereby revenue is recognized when promised goods or services are transferred to a customer at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard also requires enhanced disclosures pertaining to revenue recognition in both interim and annual periods. The standard is effective for interim and annual periods beginning after December 15, 2016 and allows for adoption using a full retrospective method, or a modified retrospective method. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which defers the effective date of ASU 2014-09 by one year, but permits entities to adopt one year earlier if they choose (i.e., the original effective date). As such, ASU 2014-09 will be effective for interim and annual reporting periods beginning after December 15, 2017. The Company is currently assessing the method of adoption and the expected impact the new standard has on its financial position and results of operations.

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements-Going Concern, which provides guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern within one year from the date the financial statements are issued for each reporting period. This new accounting guidance is effective for interim and annual periods ending after December 15, 2016. Early adoption is permitted. The Company does not expect the new guidance to have a significant effect on its consolidated financial statements, but may require further disclosure in its financial statements once adopted.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires lessees to recognize lease assets and lease liabilities for those leases classified as operating leases under previous GAAP. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. The recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed from previous GAAP. There continues to be a differentiation between finance leases and operating leases. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, and early adoption is permitted. The Company is currently in the process of evaluating the impact of adoption of ASU No. 2016-02 on its consolidated financial statements and related disclosures.

In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606). ASU 2016-08 provides clarification on principal versus agent considerations, including identifying the unit of account at which an entity should assess whether it is a principal or an agent, identifying the nature of the good or the service provided to the customer, applying the control principle to certain types of transactions, and interaction of the control principle with the indicators provided to assist in the principal versus agent evaluation. ASU 2016-08 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years, and early adoption is permitted. The Company is currently in the process of evaluating the impact of adoption of ASU No. 2016-08 on its consolidated financial statements and related disclosures.

In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718). ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification of related activity on the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years, and early adoption is permitted. The Company is currently in the process of evaluating the impact of adoption of ASU No. 2016-09 on its consolidated financial statements and related disclosures.

In March 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606). ASU 2016-10 provides clarification on the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance. ASU 2016-10 is effective for fiscal years beginning after December 15, 2018, and interim periods beginning after December 15, 2017, and early adoption is permitted. The Company is currently in the process of evaluating the impact of adoption of ASU No. 2016-10 on its consolidated financial statements and related disclosures.

In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606). ASU 2016-12 provides narrow-scope improvements and practical expedients on assessing collectability, presentation of sales taxes, noncash consideration, completed contracts at transition and contract modifications at transition. ASU 2016-12 is effective for fiscal years beginning after December 15, 2017, and interim periods beginning after December 15, 2018, and early adoption is permitted. The Company is currently in the process of evaluating the impact of adoption of ASU No. 2016-12 on its consolidated financial statements and related disclosures.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326). The amendments in ASU 2016-13 replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, and interim periods beginning after December 15, 2019, and early adoption is permitted. The Company is currently in the process of evaluating the impact of adoption of ASU No. 2016-13 on its consolidated financial statements and related disclosures.