Acquisition

Aegerion Pharmaceuticals, Inc.

On November 29, 2016, Novelion completed its acquisition of Aegerion and each share of Aegerion’s common stock was exchanged for 1.0256 Novelion ("pre-Consolidation") common shares (the "Exchange Ratio"). Immediately after the Merger, the Company had 18,530,323 common shares outstanding; former shareholders of Novelion held approximately 68% of the Company, and former stockholders of Aegerion held approximately 32% of the Company.

The Merger has been accounted for as a business combination under the acquisition method, with Novelion as the accounting acquirer and Aegerion as the “acquired” company. The operating results of Aegerion from November 29, 2016 are included in the accompanying Consolidated Statements of Operations for the years ended December 31, 2017 and 2016. The consolidated balance sheets as of December 31, 2017 and 2016 reflect the acquisition of Aegerion.

The acquisition consideration in connection with the Merger was approximately $62.4 million, and the Company allocated the acquisition consideration to various tangible and intangible assets acquired and liabilities assumed, based on their estimated fair values, which were finalized during 2017.



	Amount
	(in thousands, except for share and per share information)
Number of Novelion common shares issued in connection with the acquisition of Aegerion	6,060,288
Novelion share price on November 29, 2016	$	9.75
Fair value of Novelion common shares issued to Aegerion stockholders	$	59,088
Liabilities assumed (2)	3,000
Stock compensation assumed (1)	293
Total acquisition consideration	$	62,381

(1) Represents the fair value of Aegerion in-the-money options and RSUs attributed to pre-combination services that were outstanding on November 29, 2016 and settled in connection with the Merger. All the outstanding out-of-the-money Aegerion stock options were cancelled as of the Merger date.

(2) Represents amounts borrowed under the term loan facility provided by QLT to Aegerion on June 14, 2016, concurrently with the execution of the Merger Agreement. At the time, Aegerion had borrowed $3.0 million against the term loan and the loan remained outstanding as of November 29, 2016.

The following table summarizes the fair values of the assets acquired and liabilities assumed at the Merger date. There were no adjustments identified subsequent to the acquisition date.




	November 29, 2016
	(in thousands)
Cash and cash equivalents	$	28,290
Restricted cash	390
Accounts receivable (1)	8,182
Inventories	76,800
Prepaid expenses and other current assets	9,839
Insurance proceeds receivable	22,000
Property and equipment, net	4,020
Intangible assets	252,458
Other assets	1,352
Accounts payable	(11,459		)
Accrued liabilities	(41,883		)
Provision for legal settlement (2)	(63,968		)
Convertible notes	(222,908		)
Other liabilities	(732		)
Net assets acquired	$	62,381

(1) As of the Merger date, the fair value of accounts receivable approximated the book value acquired. The amount not expected to be collected was insignificant.

(2) Legal Matters - Aegerion has been the subject of certain ongoing investigations and other legal proceedings. See Note 18 for further information regarding these and other legal proceedings.

The valuation of the intangible assets acquired and related amortization periods are as follows:




	Amount		Amortization period
Developed Technology:	(in thousands)		(in years)
Lomitapide	$	42,300	10.75
Metreleptin	210,158		9.25
Total	$	252,458

The fair values of the intangibles were determined using a multi-period excess earnings approach. Under this method, an intangible asset fair value is equal to the present value of the after-tax cash flows attributable solely to the intangible asset over its remaining useful life. To calculate fair value, the Company used cash flows discounted at 11%.

The fair values of the purchased inventories were also determined using a discounted present value income approach. To calculate fair value, the Company used cash flows discounted at 11%. There was no goodwill recorded as part of the acquisition.

The Company recognized acquisition-related transaction costs associated with the Merger during the year ended December 31, 2016 totaling approximately $4.0 million. These costs, which related primarily to bank fees, legal and accounting services, and fees for other professional services, were expensed as incurred, and reported as SG&A expenses in the accompanying consolidated statement of operations for the year ended December 31, 2016.

Actual and Pro Forma Impact of Acquisition

The following table presents the amount of Aegerion net product sales and net loss included in the Company's consolidated statement of operations from November 29, 2016 through December 31, 2016:




	November 29, 2016 - December 31, 2016
	(in thousands, except for per share information)
Net revenues	$	13,574
Net loss	$	(6,276	)
Basic and diluted net loss per share	$	(0.34	)

The following supplemental unaudited pro forma information presents the financial results as if the Merger had occurred on January 1, 2015 for the years ended December 31, 2016 and 2015.



	Year Ended December 31,
	2016			2015
	(in thousands, except for per share information)
Net product sales	$	153,245		$	239,887
Net loss	$	(207,773	)	$	(96,348	)
Basic and diluted loss per share	$	(18.41	)	$	(9.23	)

This supplemental pro forma information has been prepared for comparative purposes and does not purport to reflect what the Company’s results of operations would have been had the acquisition occurred on January 1, 2015, nor does it project the future results of operations of the Company or reflect the expected realization of any cost savings associated with the acquisition. The actual results of operations of the Company may differ significantly from the pro forma adjustments reflected here due to many factors. The unaudited supplemental pro forma financial information includes various assumptions, including those related to the purchase price allocation of the assets acquired and the liabilities assumed from Aegerion.

Terminated Merger Transaction

On June 8, 2015, QLT entered into an Agreement and Plan of Merger (as amended and restated on each of July 16, 2015 and August 26, 2015) (the "InSite Merger Agreement") with InSite Vision Incorporated, a Delaware corporation ("InSite"). On September 15, 2015, the InSite Merger Agreement was terminated by InSite's board of directors. As a result, InSite paid QLT a termination fee of $2.7 million. In addition, in conjunction with the entry into the InSite Merger Agreement, on June 8, 2015 QLT granted InSite a secured line of credit (the "Secured Note") for up to $9.9 million to fund continuing operations through to the completion of the proposed InSite merger. Upon termination of the InSite Merger Agreement, InSite’s repayment obligations under the Secured Note were accelerated and InSite paid QLT the full amount owed of $5.8 million on September 15, 2015, which consisted of $5.7 million of principal drawn from the Secured Note and $0.1 million of accrued interest.

During the year ended December 31, 2015, QLT incurred $10.2 million of consulting and transaction fees in connection with QLT’s pursuit of the InSite Merger, and such fees have been reflected as part of SG&A expenses on the consolidated statement of operations for the year then ended.