Description of Business and Basis of Presentation

6 Months Ended

Jun. 30, 2018

Accounting Policies [Abstract]

Description of Business and Basis of Presentation

Description of Business and Basis of Presentation

Organization

Novelion Therapeutics Inc. (“Novelion” or the “Company”) is a rare disease biopharmaceutical company dedicated to developing new standards of care for individuals living with rare diseases. Novelion has international operations, two commercial products, lomitapide and metreleptin, and one orphan drug-designated product candidate, zuretinol acetate (“zuretinol”). Lomitapide, which is marketed in the United States (“U.S.”) under the brand name JUXTAPID (lomitapide) capsules, is approved in the U.S. 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”). Lomitapide is also approved in the European Union (“EU”), under the brand name LOJUXTA, for the treatment of adult patients with HoFH, as well as in Japan, Canada, and a limited number of other countries. Metreleptin, a recombinant analog of human leptin, is currently marketed in the U.S. under the brand name MYALEPT (metreleptin for injection). MYALEPT is approved in the U.S. as an adjunct to diet as replacement therapy to treat the complications of leptin deficiency in patients with congenital or acquired Generalized Lipodystrophy (“GL”). In July 2018, metreleptin, under the brand name MYALEPTA, was approved in the EU as a treatment for the complications of leptin deficiency in patients with GL and Partial Lipodystrophy (“PL”). Additionally, both lomitapide and metreleptin are sold, on a named patient basis, in certain countries outside of the U.S. where such sales are permitted based on the approval of lomitapide and metreleptin in the U.S., such as Brazil.

Basis of Presentation and Principles of Consolidation

The accompanying Unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“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 Unaudited 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, 2018. This Form 10-Q should be read in conjunction with the audited consolidated financial statements and accompanying notes in the Company’s Form 10-K for the year ended December 31, 2017 (“2017 Form 10-K”).

The accompanying Unaudited Condensed Consolidated Financial Statements include operations of Novelion and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated.

Going Concern

The accompanying 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. As presented in the Unaudited Condensed Consolidated Financial Statements, for the six months ended June 30, 2018, the Company incurred a net loss of $64.1 million and used $34.2 million in cash to fund operating activities. The Company also has a significant level of indebtedness, consisting of 1) Aegerion's $325 million principal amount of convertible notes due August 15, 2019 (the “Convertible Notes”), as described in Note 7, Convertible Notes, net, and 2) Aegerion's $20.0 million term loan, along with the accrued unpaid interest, as described in Note 6, Loan and Security Agreement, which becomes due and payable on the earliest of (i) August 1, 2019, (ii) 30 days prior to the maturity date of the Convertible Notes, (iii) the date that any restructuring or recapitalization of all or substantially all of the Convertible Notes, including any exchange offer or similar transaction, is substantially consummated, and (iv) upon acceleration of the obligations under the loan and security agreement. The Company's anticipated operating cash usage and maturities of outstanding debt, as described above, raise substantial doubt about the Company's ability to continue as a going concern within one year after the date that the Unaudited Condensed Consolidated Financial Statements are issued.

In an effort to alleviate the conditions that raise substantial doubt about the Company's ability to continue as a going concern, the Company plans to restructure its Convertible Notes and/or seek funding through equity and/or debt financings, strategic alliances, asset sales and/or other sources. Although the Company believes such plans, if effectively and timely executed, should provide the Company sufficient financing to meet its needs, successful execution of such plans is dependent on factors outside of

the Company’s control. As such, the Company cannot conclude that such plans will be effectively implemented, or that such financing alternatives will be available, within one year after the date that the Unaudited Condensed Consolidated Financial Statements are issued.    

Should the Company be unable to execute its plans on an effective and timely basis, the Company’s business, result of operations, liquidity and financial condition would be materially and negatively affected, and the Company would be unable to continue as a going concern.

Use of Estimates

The preparation of Unaudited Condensed Consolidated Financial Statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the Unaudited Condensed Consolidated Financial Statements, and the reported amounts of expenses during the reporting periods presented. The Company’s estimates often are based on complex judgments, probabilities and assumptions that we believe to be reasonable but that are inherently uncertain and unpredictable. For any given individual estimate or assumption made by us, there may also be other estimates or assumptions that are reasonable. Actual results may differ from estimates made by management. Changes in estimates are reflected in reported results in the period in which they become known.

Recently Adopted Accounting Standards

Effective January 1, 2018, the Company adopted Accounting Standards Codification (“ASU”) No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”) and related ASUs, using the modified retrospective method. ASU 2014-09 represents a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which a company expects to be entitled in exchange for those goods or services. This ASU sets forth a new five-step revenue recognition model which replaces most existing revenue recognition guidance including industry-specific guidance. The adoption of ASU 2014-09 and the related ASUs did not change the Company's revenue recognition and recognition of cost of product sales. As the Company did not identify any accounting changes that impacted the amount of net revenues, no adjustment to retained earnings was required upon adoption. Refer to Note 2, Revenue Recognition, for the required disclosures and a discussion of the Company's policies related to revenue recognition.

New Accounting Standards Not Yet Adopted

On February 25, 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02, Leases (“ASU 2016-02”), its new standard on accounting for leases. The new guidance will require organizations that lease assets (referred to as lessees) for terms of more than 12 months, to recognize on the balance sheet the assets and liabilities associated with the rights and obligations created by those leases. Consistent with current guidance, the recognition, measurement, and presentation of the expenses and cash flows associated with a particular lease will depend on its classification as a capital or operating lease. However, unlike current GAAP, which only requires capital leases to be reflected on the balance sheet, ASU 2016-02 will require both types of leases to be recognized on the balance sheet. ASU 2016-02 will be effective for annual periods beginning after December 15, 2018, and interim periods within those annual reporting periods. The Company engaged an external third party to assist with the adoption of, and is currently assessing the impact ASU 2016-02 will have on its consolidated financial statements.