Description of Business and Basis of Presentation

9 Months Ended

Sep. 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 and two commercial products, lomitapide and metreleptin. 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. or EU, 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 nine months ended September 30, 2018, the Company incurred a net loss of $88.9 million and used $46.3 million in cash to fund operating activities. The Company, and Aegerion in particular, also has a significant level of indebtedness, consisting of (1) Aegerion's approximately $302.5 million principal amount of 2% convertible notes due August 15, 2019 (the “Convertible Notes”), as described in Note 8, Convertible Notes, net, (2) Aegerion's new $72.5 million secured term loans (the “Bridge Loans”), as described in Note 7, Loan Facilities, which have a stated maturity date of February 15, 2019, which maturity date is subject to extension upon the satisfaction of certain preconditions, which are also described in Note 7, Loan Facilities, and (3) Aegerion’s approximately $36.8 million principal amount of existing secured term loans owed to Novelion, which is also described in more detail in Note 7. These loan arrangements involve certain restrictions, including on cash usage, which is described in Note 7.

In addition, the NASDAQ Global Select Market ("NASDAQ"), on which the Company's common shares are listed and traded, has listing requirements that include a $1.00 minimum closing bid price requirement. NASDAQ will issue a deficiency notice if an issuer is in violation of a listing standard for a period of 30 consecutive days. The Company's stock has recently traded below $1.00. If its stock trades below $1.00 for 30 consecutive days, or if the Company fails to satisfy other listing requirements, NASDAQ may elect, subject to any potential cure periods, to initiate a process that could delist the Company's common shares from trading on NASDAQ.

The Company’s anticipated operating cash usage and maturities of outstanding debt, and restrictions on intercompany cash payments, as described in Note 7, Loan Facilities, 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 committed to a cost-reduction plan, including the reduction in workforce announced and implemented in August 2018, as described in Note 6, Restructuring. In November 2018, the Company announced that Aegerion has engaged advisors (who advised on the Bridge Credit Agreement) to undertake a comprehensive review of Aegerion’s capital structure and that Novelion and Aegerion have engaged advisors, respectively, to explore and advise the companies on all available financial and strategic options, such as a restructuring of Aegerion’s Convertible Notes (including a restructuring that would likely involve a debt for equity swap), a sale or merger of Novelion or Aegerion, or the sale or other disposition of certain businesses or assets, including territorial licensing transactions.

Although the Company believes its cost-reduction plan, together with the funds from the New Money Loans portion of the Bridge Loans (described below), will provide the Company and Aegerion with sufficient financing to meet its immediate operational needs and obligations through February 15, 2019, there is no guarantee that Aegerion will be able to successfully refinance the Intercompany Loan, its Convertible Notes, or the Bridge Loans, or that either Novelion or Aegerion will be able to otherwise raise capital to continue to operate as a standalone business beyond February 15, 2019. The Company cannot provide any assurance that the ongoing financial and strategic alternatives review will result in any particular alternative or transaction or funding. Further, effecting such a refinancing, or other wholesale recapitalization or other strategic alternative (any of which could cause Novelion and/or Aegerion to use the protections of applicable bankruptcy laws to effectuate such alternative) will be critical for the Company to continue to execute on its commercial strategy and pursue its goals and objectives. The forward-looking statements in this Form 10-Q assume that the Company is able to receive additional funding as a result of the financial and strategic review process, which is highly speculative. As such, the Company cannot conclude that such plans will be effectively implemented, or that such financing or strategic 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.