Aegerion Pharmaceuticals, Inc. - FORM 10-Q - November 4, 2016

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EX-31.1 - EXHIBIT 31.1 - Aegerion Pharmaceuticals, Inc.aegr-20160930_exhibit311.htm
EX-32.2 - EXHIBIT 32.2 - Aegerion Pharmaceuticals, Inc.aegr-20160930_exhibit322.htm
EX-32.1 - EXHIBIT 32.1 - Aegerion Pharmaceuticals, Inc.aegr-20160930_exhibit321.htm
EX-31.2 - EXHIBIT 31.2 - Aegerion Pharmaceuticals, Inc.aegr-20160930_exhibit312.htm
EX-10.3 - EXHIBIT 10.3 - Aegerion Pharmaceuticals, Inc.exhibit103.htm
EX-10.2 - EXHIBIT 10.2 - Aegerion Pharmaceuticals, Inc.exhibit102.htm
EX-10.1 - EXHIBIT 10.1 - Aegerion Pharmaceuticals, Inc.exhibit101.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2016
Commission File Number 001-34921
 
AEGERION PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
 
 
DELAWARE
20-2960116
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
 
One Main Street, Suite 800
Cambridge, Massachusetts 02142
(Address of principal executive offices, including zip code)
(617) 500-7867
(Registrant’s telephone number, including area code)
 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  o 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
x
Accelerated Filer
o
 
 
 
 
Non-Accelerated Filer
o  (Do not check if a smaller reporting company)
Smaller Reporting Company
o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No   x 
The number of shares outstanding of the registrant’s Common Stock as of October 31, 2016 was 29,545,088.



AEGERION PHARMACEUTICALS, INC.
INDEX
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2

Forward-Looking Statements
All statements included or incorporated by reference into this Quarterly Report on Form 10-Q, or Quarterly Report, other than statements or characterizations of historical fact, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are often identified by words such as “anticipates,” “expects,” “intends,” “plans,” “predicts,” “believes,” “seeks,” “estimates,” “forecasts,” “may,” “will,” “should,” “would,” “could,” “potential,” "guidance", “continue,” “ongoing” and similar expressions, and variations or negatives of these words. Examples of forward-looking statements contained in this Quarterly Report include our statements regarding: the proposed transaction with QLT Inc. (“QLT”), including the timing and financial and strategic costs and benefits thereof and the loan arrangements with QLT in connection therewith; the commercial potential for, and market acceptance of, our products; our estimates as to the potential number of patients with the diseases for which our products are approved; our expectations with respect to reimbursement of our products in the United States; our plans to withdraw lomitapide from, or alternatively to license or partner lomitapide in, the European Union and certain other global markets; our expectations with respect to pricing and reimbursement approvals required for lomitapide in Japan, Canada and Colombia, and other countries in which we receive, or have received, marketing approval and plan to commercialize lomitapide; our expectations with respect to named patient sales of our products in Brazil and in other countries where such sales are permitted; the potential for and possible timing of approval of our products in countries where we have not yet obtained approval; our plans for further clinical development of our products; our expectations regarding future regulatory filings for our products, including planned marketing approval applications with respect to metreleptin in the European Union and a planned application to expand the indication for metreleptin in the United States, subject to discussions with the FDA; our plans for commercial marketing, sales, manufacturing and distribution of our products; our expectations with respect to the impact of competition on our future operations and results; our beliefs with respect to our intellectual property portfolio for our products and the extent to which it protects us; our expectations regarding the availability of data and marketing exclusivity for our products in the United States, the European Union, Japan and other countries; our view of ongoing government investigations, including the terms of preliminary agreements in principle with the Department of Justice (“DOJ”) and the Securities and Exchange Commission (“SEC”) and potential outcomes of the ongoing DOJ and SEC investigations, stockholder litigation and investigations in Brazil, and the possible impact and additional consequences of each on our business; our forecasts regarding sales of our products, our future expenses, our cash position and the timing of any future need for additional capital to fund operations; and our ability to work with Silicon Valley Bank to obtain a further forbearance or waiver of our breach of certain covenants of our loan agreement with Silicon Valley Bank and to otherwise avoid an acceleration of our debt.
The forward-looking statements contained in this Quarterly Report and in the documents incorporated into this Quarterly Report by reference are based on our current beliefs and assumptions with respect to future events, all of which are subject to change. Forward-looking statements are not guarantees of future performance, and are subject to risks, uncertainties and assumptions that are difficult to predict, including those discussed in “Risk Factors” in Part I, Item 1A of this Quarterly Report. It is not possible for us to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors may impact our operations or results. New risks may emerge from time to time. Past financial or operating performance is not necessarily a reliable indicator of future performance. Given these risks and uncertainties, we can give no assurances that any of the events anticipated by the forward-looking statements will occur or, if any of them does occur, what impact such event will have on our results of operations and financial condition. Our actual results could differ materially and adversely from those expressed in any forward-looking statement in this Quarterly Report or in our other filings with the Securities and Exchange Commission.
Except as required by law, we undertake no obligation to revise our forward-looking statements to reflect events or circumstances that arise after the date of this Quarterly Report or the respective dates of documents incorporated into this Quarterly Report by reference that include forward-looking statements. Thus, you should not assume that our silence over time means that actual events are bearing out as expressed or implied in these forward-looking statements.
In this Quarterly Report, “Aegerion Pharmaceuticals, Inc.,” “Aegerion,” the “Company,” “we,” “us” and “our” refer to Aegerion Pharmaceuticals, Inc. taken as a whole, unless otherwise noted.
Trademarks
Aegerion, JUXTAPID, LOJUXTA and MYALEPT are trademarks of Aegerion. All other trademarks referenced in this Form 10-Q are the property of their respective owners.

3

PART I. FINANCIAL INFORMATION

Aegerion Pharmaceuticals, Inc.
Unaudited Condensed Consolidated Balance Sheets
(in thousands, except per share amounts)

 
September 30, 2016
 
December 31, 2015
Assets
    
 
    
Current assets:
 
 
 
Cash and cash equivalents
$
32,363

 
$
64,501

Restricted cash
26,048

 
25,529

Accounts receivable
7,843

 
13,557

Inventories
41,517

 
58,706

Prepaid expenses and other current assets
13,007

 
13,645

Total current assets
120,778

 
175,938

Property and equipment, net
4,744

 
4,893

Intangible assets, net
227,779

 
242,917

Goodwill
—

 
9,600

Other assets
525

 
850

Total assets
$
353,826

 
$
434,198

Liabilities and stockholders’ (deficit) equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
9,953

 
$
10,784

Accrued liabilities
40,410

 
39,103

Contingent litigation accrual (Note 13)
40,509

 
12,000

Long-term debt in default
25,000

 
25,000

Short-term debt, net
2,915

 
—

Total current liabilities
118,787

 
86,887

Long-term liabilities:
 
 
 
Convertible 2.0% senior notes, net
246,420

 
229,782

Other liabilities
1,445

 
1,984

Total liabilities
366,652

 
318,653

Commitments and contingencies (Note 13)

 

Stockholders’ (deficit) equity:
 
 
 
Preferred stock, $0.001 par value, 5,000 shares authorized; none issued and outstanding at September 30, 2016 and December 31, 2015
—

 
—

Common stock, $0.001 par value, 125,000 shares authorized at September 30, 2016 and December 31, 2015; 30,795 and 30,715 shares issued at September 30, 2016 and December 31, 2015, respectively; 29,544 and 29,464 shares outstanding at September 30, 2016 and December 31, 2015, respectively
31

 
31

Treasury Stock, at cost; 1,251 shares at September 30, 2016 and December 31, 2015
(35,000
)
 
(35,000
)
Additional paid-in-capital
530,532

 
519,166

Accumulated deficit
(507,733
)
 
(368,804
)
Accumulated other comprehensive (loss) income
(656
)
 
152

Total stockholders’ (deficit) equity
(12,826
)
 
115,545

Total liabilities and stockholders’ (deficit) equity
$
353,826

 
$
434,198

See accompanying notes.

4


Aegerion Pharmaceuticals, Inc.
Unaudited Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Net product sales
$
35,387

 
$
67,303

 
$
115,633

 
$
190,884

Cost of product sales
13,838

 
14,486

 
51,867

 
40,321

Operating expenses
 
 
 
 
 
 
 
Selling, general and administrative
27,827

 
43,923

 
107,942

 
133,523

Research and development
9,940

 
11,282

 
30,495

 
33,551

Provision for contingent litigation
126

 
—

 
28,509

 
—

Impairment of goodwill
—

 
—

 
9,600

 
—

Restructuring
2,421

 
—

 
4,172

 
—

Total operating expenses
40,314

 
55,205

 
180,718

 
167,074

Loss from operations
(18,765
)
 
(2,388
)
 
(116,952
)
 
(16,511
)
Interest expense, net
(7,720
)
 
(7,113
)
 
(22,371
)
 
(21,113
)
Other income, net
165

 
30

 
1,126

 
1,631

Loss before provision for income taxes
(26,320
)
 
(9,471
)
 
(138,197
)
 
(35,993
)
Provision for income taxes
(246
)
 
(294
)
 
(732
)
 
(747
)
Net loss
$
(26,566
)
 
$
(9,765
)
 
$
(138,929
)
 
$
(36,740
)
Net loss per common share—basic and diluted
$
(0.90
)
 
$
(0.34
)
 
$
(4.71
)
 
$
(1.28
)
Weighted-average shares outstanding—basic and diluted
29,525

 
28,681

 
29,500

 
28,598

See accompanying notes.

5

Aegerion Pharmaceuticals, Inc.
Unaudited Condensed Consolidated Statements of Comprehensive Loss
(in thousands)


 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2016
 
2015
 
2016
 
2015
Net loss
$
(26,566
)
 
$
(9,765
)
 
$
(138,929
)
 
$
(36,740
)
Other comprehensive (loss) income:
 
 
 
 
 
 
 
Foreign currency translation
(127
)
 
(248
)
 
(808
)
 
201

Other comprehensive (loss) income
(127
)
 
(248
)
 
(808
)
 
201

Comprehensive loss
$
(26,693
)
 
$
(10,013
)
 
$
(139,737
)
 
$
(36,539
)
 
 
See accompanying notes.

6

Aegerion Pharmaceuticals, Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)
 
 
Nine Months Ended
 
September 30,
 
2016
 
2015
Operating activities
    
 
    
Net loss
$
(138,929
)
 
$
(36,740
)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
 
 
 
Depreciation
1,501

 
1,178

Amortization of intangible assets
15,138

 
15,281

Stock-based compensation
11,147

 
18,240

Noncash interest expense
16,726

 
15,693

Provision for inventory excess and obsolescence
16,343

 
1,423

Impairment of goodwill
9,600

 
—

Unrealized foreign exchange gain
(1,111
)
 
(394
)
Loss on disposal of property and equipment
215

 
66

Deferred income taxes
423

 
409

Deferred rent
(413
)
 
(126
)
Changes in assets and liabilities, excluding the effect of acquisition:
 
 
 
Accounts receivable
5,714

 
(1,096
)
Inventories
1,161

 
3,715

Prepaid expenses and other assets
963

 
(3,364
)
Accounts payable
(859
)
 
962

Accrued and other liabilities
759

 
8,850

Contingent litigation accrual
28,509

 
—

Net cash (used in) provided by operating activities
(33,113
)
 
24,097

Investing activities
 
 
 
Purchases of property and equipment
(1,540
)
 
(1,207
)
Payment for acquisition of MYALEPT
—

 
(325,000
)
Net cash used in investing activities
(1,540
)
 
(326,207
)
Financing activities
 
 
 
Proceeds from short-term debt, net
2,828

 
24,962

Increase in restricted cash to collateralize long-term debt in default
(519
)
 
(25,505
)
Principal repayment of long-term debt
—

 
(4,010
)
Payments for withholding taxes on restricted stock units
(102
)
 
(297
)
Proceeds from exercises of stock options
5

 
3,056

Net cash provided by financing activities
2,212

 
(1,794
)
Exchange rate effect on cash
303

 
(295
)
Net decrease in cash and cash equivalents
(32,138
)
 
(304,199
)
Cash and cash equivalents, beginning of period
64,501

 
375,937

Cash and cash equivalents, end of period
$
32,363

 
$
71,738

Supplemental disclosures of cash flow information
 
 
 
Cash paid for interest
$
7,073

 
$
7,015

Cash paid for taxes
$
932

 
$
1,018

Non-cash investing activities
 
 
 
Purchases of property and equipment included in accounts payable
$
28

 
$
61

 
See accompanying notes.


7

Aegerion Pharmaceuticals, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
September 30, 2016
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 Canada, Japan, Mexico, 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 a restructuring under which it intends to withdraw lomitapide from the EU and certain other global markets by the end of 2016, unless the Company earlier enters into supply, license or 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, or approved for sale, on a named patient basis in Brazil and other international countries 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 September 30, 2016, the Company had an accumulated deficit of $507.7 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 September 30, 2016, the Company had unrestricted cash of $32.4 million and an accumulated deficit of $507.7 million. In the three months and nine months ended September 30, 2016, the Company incurred net losses of $26.6 million and $138.9 million, respectively.  Due to the 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 their investigations into the marketing and sales activities and disclosures relating to JUXTAPID. 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 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,

8

including raising additional capital and reductions in its ongoing expenses through the headcount reductions and lease restructuring described in Note 8.  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 (as amended, the “Merger Agreement”) pursuant to which the Company will be merged with an indirect wholly-owned 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 that either 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, the Company 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 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 outstanding closing conditions, including, among others, (i) 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, (ii) the Company's entry into a supplemental indenture related to the Convertible Notes and (iii) 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

9

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.

10

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. 

11

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,

12

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 September 30, 2016 and December 31, 2015, the Company held $32.4 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. This new standard has been subsequently amended by ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, ASU 2016-08, Revenue from Contracts with

13

Customers (Topic 606), ASU 2016-10, Revenue from Contracts with Customers (Topic 606), and ASU 2016-12, Revenue from Contracts with Customers (Topic 606). 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, 2017, with early adoption one year prior to the effective date allowed, and allows for adoption using a full retrospective method, or a modified retrospective method. The Company plans to adopt this standard on January 1, 2018 and 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 2016-09, 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 September 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.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The standard provides guidance on how certain cash receipts and payments are presented and classified in the statement of cash flows, including beneficial interests in securitization, which would impact the presentation of the deferred purchase price from sales of receivables.  The standard is intended to reduce current diversity in practice.  Early adoption is permitted, including adoption in an interim period.  The Company is currently evaluating the impact this guidance will have on its consolidated financial statements and related disclosures and the timing of adoption. 

2. Fair Value of Financial Instruments
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. ASC 820, Fair Value Measurements and Disclosures established a fair value hierarchy for those instruments measured at fair value that distinguishes between fair value measurements based on market data (observable inputs) and those based on the Company’s own assumptions (unobservable inputs). This hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

Level 1 — Quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. The Company’s Level 1 assets consist of cash and money market investments.

14

Level 2 — Inputs other than quoted prices in active markets that are observable for the asset or liability, either directly or indirectly.
Level 3 — Inputs that are unobservable for the asset or liability.
The fair value measurements of the Company’s financial instruments at September 30, 2016 is summarized in the table below:
 
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Balance at
September 30
2016
 
(in thousands)
Assets:
 
 
 
 
 
 
 
Cash
$
11,324

 
$
—

 
$
—

 
$
11,324

Money market funds
21,039

 
—

 
—

 
21,039

Restricted cash
26,048

 
—

 
—

 
26,048

Total assets
$
58,411

 
$
—

 
$
—

 
$
58,411

 
The fair value measurements of the Company’s financial instruments at December 31, 2015 is summarized in the table below:
 
 
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Balance at
December 31
2015
 
(in thousands)
Assets:
    
 
    
 
    
 
    
Cash
$
14,021

 
$
—

 
$
—

 
$
14,021

Money market funds
50,480

 
—

 
—

 
50,480

Restricted cash
25,529

 
—

 
—

 
25,529

Total assets
$
90,030

 
$
—

 
$
—

 
$
90,030

Term Loan
The carrying value of the Company’s long-term debt in default approximates fair value due its current classification and callable nature, and was $25.0 million at September 30, 2016 and December 31, 2015. The carrying value is computed pursuant to a discounted cash flow technique using the effective interest rate method based on a current market interest rate for the Company’s term loan, which are considered Level 2 inputs.
QLT Loan
Based on borrowing rates currently available to the Company with similar terms and remaining maturities, and considering the Company’s credit risk, the carrying value of the loan from QLT of $2.9 million approximates fair value at September 30, 2016. The carrying value is computed pursuant to a discounted cash flow technique using the effective interest rate method based on a current market interest rate for the Company’s loan, which are considered Level 2 inputs.
Convertible 2.0% Senior Notes
In August 2014, the Company issued $325.0 million of 2.0% convertible senior notes due August 15, 2019. Interest is payable semi-annually in arrears on February 15 and August 15 of each year, beginning on February 15, 2015. The Company separately accounted for the liability and equity components of the Convertible Notes by allocating the proceeds between the liability component and equity component, as further discussed in Note 6. The fair value of the Convertible Notes, which differs from their carrying value, is influenced by interest rates, the Company’s stock price and stock price volatility and is determined by prices for the Convertible Notes observed in market fair value which are Level 2 inputs due to limited market trading. The estimated fair value of the Convertible Notes at September 30, 2016 was approximately $215.9 million.

15


3. Inventories
The components of inventory are as follows:
 
 
September 30,
 
December 31,
 
2016
 
2015
 
(in thousands)
Work-in-process
$
1,748

 
$
4,179

Finished goods
39,769

 
54,527

Total
$
41,517

 
$
58,706

 
The inventory reserve balance at September 30, 2016 and December 31, 2015 was $15.0 million and $2.4 million, respectively. During the nine months ended September 30, 2016, the Company recorded charges in the condensed consolidated statements of operations for excess and obsolete inventory of 16.3 million. Charges for excess and obsolete inventory were immaterial in the three months ended September 30, 2016 and the three and nine months ended September 30, 2015. Included in the excess and obsolete inventory charges in the nine months ended September 30, 2016, was a $7.6 million increase in the inventory reserve balance for certain MYALEPT inventory that was identified to be unsalable, and a $1.1 million charge related to certain JUXTAPID inventory that was fully reserved in the first quarter of 2016 and scrapped in the second quarter of 2016. The remaining excess and obsolete inventory charges in the nine months ended September 30, 2016 relate to materials on hand that are not expected to be utilized prior to expiration. The determination of excess or obsolete inventory requires the Company to estimate future demand for its products based on its internal sales forecasts which it then compares to inventory on hand after consideration of expiration dates. To the extent the Company’s actual sales or subsequent sale forecasts decrease, the Company could be required to record additional inventory reserves in future periods, which could have a material negative impact on its gross margin.
4. Goodwill and Intangible Assets
Goodwill.  Goodwill balances were as follows (in thousands):
 
Balance at December 31, 2015
$
9,600

Impairment
(9,600
)
Balance at September 30, 2016
$
—

In accordance with the relevant accounting guidance, goodwill is not amortized. However, it must be assessed for impairment using fair value measurement techniques on an annual basis or more frequently if facts and circumstances warrant such a review. All goodwill has been assigned to the Company’s single reporting unit, which is also the single operating segment by which the chief operating decision maker manages the Company.
 
Due to the significant sustained decline in the Company’s stock price in the second quarter of fiscal year 2016 and other quantitative and qualitative factors, such as the continued decline in JUXTAPID revenue, corroborated by the implied purchase consideration from the proposed merger with QLT, the Company performed an interim goodwill impairment test in accordance with ASC 350, Intangibles- Goodwill and Other (“ASC 350”) as of June 30, 2016. In the first step (“Step 1”) of the two-step impairment test, the Company compared the fair value of its reporting unit to its carrying value. The Company estimated the fair value of its single reporting unit using a discounted cash flow methodology. The discounted cash flow model incorporated the Company’s latest revenue guidance and long range operating expense projections over the patent lives of both lomitapide and metreleptin. These projections were further risk-adjusted and reconciled to the Company’s market capitalization and the implied purchase consideration in the proposed QLT merger. As a result of the Step 1 test, the fair value of the reporting unit was deemed to be lower than the carrying value of its net assets. As such, the Company failed the Step 1 test and proceeded with a second step (“Step 2”) impairment test.
    
The Step 2 test measures the goodwill impairment loss by allocating the estimated fair value of the reporting unit, as determined in Step 1, to the reporting units’ assets and liabilities, with the residual amount representing the implied fair value of goodwill. To the extent the implied fair value of goodwill is less than the carrying value, an impairment loss is recognized. In determining the fair value of its net assets, the Company made certain adjustments from the carrying value of its assets and

16

liabilities, including adjustments to inventory to reflect selling price less selling costs, convertible debt to reflect the fair value of the Convertible Notes, and valuation of lomitapide intangible assets that were not previously recorded. As a result of allocating the fair value of the reporting unit to the fair value of net assets, the Company determined that the implied fair value of goodwill was less than the carrying value and recorded an impairment of $9.6 million in the second quarter of 2016.
Intangible Assets.  Intangible asset balances were as follows (in thousands):
 
September 30, 2016
 
Gross
Carrying
Value
 
Accumulated
Amortization
 
Net
Carrying
Value
Purchased intangibles
$
242,200

 
$
(35,321
)
 
$
206,879

In-process research and development assets
20,900

 
—

 
20,900

Total intangible assets
$
263,100

 
$
(35,321
)
 
$
227,779

 
 
December 31, 2015
 
Gross
Carrying
Value
 
Accumulated
Amortization
 
Net
Carrying
Value
Purchased intangibles
$
242,200

 
$
(20,183
)
 
$
222,017

In-process research and development assets
20,900

 
—

 
20,900

Total intangible assets
$
263,100

 
$
(20,183
)
 
$
242,917

Amortization expense was $5.0 million and $15.1 million in the three and nine months ended September 30, 2016, respectively, and $5.1 million and $15.3 million in the three and nine months ended September 30, 2015, respectively.  Given the significant sustained decline in the Company’s stock price during the second quarter of 2016, the Company determined there were indicators of impairment for the intangible assets as of June 30, 2016. As a result, the Company tested the purchased intangibles to determine if they were recoverable under ASC 360, Property, Plant and Equipment (“ASC 360”). Based on the sum of the undiscounted cash flows of the related asset group, the Company concluded that the carrying amount of the purchased intangibles was recoverable and there was no impairment as of June 30, 2016. The Company reviewed the useful lives of the purchased intangibles as of June 30, 2016 and determined that the useful lives were still considered reasonable. The Company performed a quantitative impairment test on the in-process research and development assets, comparing its current fair value to its carrying value. The Company determined the fair value of the in-process research and development assets was greater than the carrying value as of June 30, 2016 and therefore there was no impairment.  No indicators of impairment were identified during the three months ended September 30, 2016.
As of September 30, 2016, technological feasibility had not been established for the in-process research and development assets; they have no alternative future use and, as such, continue to be accounted for as indefinite-lived intangible assets.
At September 30, 2016, the estimated amortization expense of purchased intangibles for future periods is as follows (in thousands): 
 
Years Ending December 31,
 
2016 (remaining 3 months)
$
5,046

2017
20,183

2018
20,183

2019
20,183

2020 and thereafter
141,284

Total intangible assets subject to amortization
$
206,879



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5. Other Comprehensive (Loss) Income
Other comprehensive (loss) income includes changes in stockholders' (deficit) equity that are excluded from net loss, such as foreign currency translation adjustments.
The following table summarizes accumulated other comprehensive loss, net of zero tax effect, for the nine months ended September 30, 2016 and September 30, 2015 (in thousands):
 
Foreign Currency
Translation Adjustment
 
Total Accumulated
Other
Comprehensive
Items
Balance at December 31, 2015
$
152

 
$
152

Other comprehensive loss
(808
)
 
(808
)
Balance at September 30, 2016
$
(656
)
 
$
(656
)
 
 
 
Foreign Currency
Translation Adjustment
 
Total Accumulated
Other
Comprehensive
Items
Balance at December 31, 2014
$
(263
)
 
$
(263
)
Other comprehensive loss
201

 
201

Balance at September 30, 2015
$
(62
)
 
$
(62
)
 
In preparing its financial statements for the quarter ended June 30, 2015, the Company determined that its accounting related to the elimination of intercompany profits attributable to sales of inventory between consolidated subsidiaries, including the associated exchange rate effect on these transactions, was not correct. The error in not correctly eliminating intercompany profits primarily affected cost of product sales and accumulated other comprehensive income and loss accounts, with a lesser effect on its inventory, which was corrected by the Company in the second quarter of 2015. The Company determined the effect of the error to be an understatement of cost of product sales of approximately $1.7 million for the year ended December 31, 2014 and an overstatement of cost of product sales of approximately $0.6 million for the three months ended March 31, 2015. Cost of product sales in the three months ended June 30, 2015 includes $1.1 million related to this error. In accordance with SEC Staff Accounting Bulletin (“SAB”) No. 99, Materiality and SAB No. 108 (“SAB 108”), Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, the Company assessed the materiality of this error on its financial statements for the year ended December 31, 2014 and for the three months ended March 31, 2015, using both the roll-over method and iron-curtain methods as defined in SAB 108. The Company concluded the effect of this error was not material to its financial statements for any prior period and, as such, those financial statements are not materially misstated.
6. Debt Financing
SVB Loan and Security Agreement
 
On January 9, 2015, the Company amended its Loan and Security Agreement with Silicon Valley Bank (the “SVB Loan and Security Agreement”) to provide for a $25.0 million term loan (the “2015 Term Loan Advance”) with per annum interest of 3.0%. The proceeds received from the 2015 Term Loan Advance were used by the Company to repay an aggregate of $4.0 million outstanding due to Silicon Valley Bank under the Company’s term loan and equipment line of credit under the SVB Loan and Security Agreement. The amendment provided for interest-only payments on the 2015 Term Loan Advance through January 31, 2017, and, starting on February 1, 2017, payment of principal in 30 equal monthly installments, plus accrued interest. The maturity date of the 2015 Term Loan Advance is the earlier of (a) July 1, 2019 and (b) the maturity date of the Convertible Notes. If the Company or Silicon Valley Bank terminates the 2015 Term Loan Advance prior to the maturity date, then the Company will owe a $0.3 million termination fee.  The 2015 Term Loan Advance is subject to (i) a final payment of $1.25 million upon maturity or prior payment thereof and (ii) if the 2015 Term Loan Advance is prepaid prior to its maturity date, a prepayment of 1.0% of the 2015 Term Loan Advance. The SVB Loan and Security Agreement requires the Company to comply with certain covenants, including the maintenance of a specified level of liquidity on a monthly basis and either a

18

minimum quarterly revenue level or a minimum quarterly free cash flow level, which such covenants are not required to be tested during the Forbearance Period (defined below). The Company also granted Silicon Valley Bank (i) a first priority security interest in all of the Company’s personal property then owned or thereafter acquired, excluding intellectual property and assets held within the Company’s securities corporation, (ii) a second priority interest in the Company’s intellectual property related to MYALEPT, and (iii) a negative pledge on all intellectual property other than intellectual property related to MYALEPT. The SVB Loan and Security Agreement also provides for standard indemnification of Silicon Valley Bank, contains standard representations and warranties and provides that a material adverse change to the Company’s business will result in an event of default. 
On October 30, 2015, the Company notified Silicon Valley Bank that it had breached one or more covenants under the SVB Loan and Security Agreement and it is currently in default.  On November 9, 2015, the Company and Silicon Valley Bank entered into the Forbearance Agreement (the “Forbearance Agreement”), pursuant to which Silicon Valley Bank agreed not to take any action as a result of such default, including an agreement to waive the increase in the per annum interest rate under the loan from 3.0% to 8.0% until December 7, 2015 (the “Forbearance Period”), subject to certain conditions, including the deposit of cash into one or more accounts at Silicon Valley Bank to collateralize balances related to the outstanding obligations due to Silicon Valley Bank.  These cash collateral amounts are restricted for all uses until the full and final payment of all of the Company’s obligations to Silicon Valley Bank, as determined by Silicon Valley Bank in its sole and exclusive discretion.  On December 7, 2015, the Company and Silicon Valley Bank entered into an amendment (the “First Amendment”) to the Forbearance Agreement, pursuant to which Silicon Valley Bank agreed to extend the Forbearance Period through January 7, 2016.   On January 7, 2016, the Company and Silicon Valley Bank entered into a second amendment (the “Second Amendment”) to the Forbearance Agreement, pursuant to which Silicon Valley Bank agreed to extend the Forbearance Period through June 30, 2016. Pursuant to the terms of the Second Amendment, the Company and Silicon Valley Bank agreed to terminate the Revolving Line, for which the Company accrued a termination fee of $0.5 million in the three months ended March 31, 2016.  On February 26, 2016, the Company and Silicon Valley Bank entered into a third amendment (the “Third Amendment”) to the Forbearance Agreement, pursuant to which Silicon Valley Bank agreed to forbear exercising its rights that under the SVB Loan and Security Agreement as a result of the Company’s failure to deliver an unqualified opinion (without a going concern explanatory paragraph) of its independent auditors with its annual financial statements for the fiscal year ended December 31, 2015. 
On June 8, 2016, the Company and Silicon Valley Bank entered into a fourth amendment (the “Fourth Amendment”) to the Forbearance Agreement, pursuant to which Silicon Valley Bank agreed to forbear exercising its rights under the SVB Loan and Security Agreement as a result of the Company’s failure to deliver its quarterly financial statements for the fiscal quarter ended March 31, 2016 when due under the terms of the SVB Loan and Security Agreement. On June 14, 2016, the Company and Silicon Valley Bank entered into a fifth amendment (the “Fifth Amendment”) to the Forbearance Agreement, pursuant to which Silicon Valley Bank agreed to extend the Forbearance Period through September 30, 2016. In connection with the Fifth Amendment, the Company was required to deposit an additional $0.6 million with Silicon Valley Bank as cash collateral for the Company’s obligations under the SVB Loan and Security Agreement. On September 30, 2016, the Company and SVB entered into a sixth amendment to the Forbearance Agreement, pursuant to which Silicon Valley Bank agreed to extend the Forbearance Period through November 30, 2016.
The Forbearance Period is subject to early termination upon the occurrence of certain events, including the occurrence of additional events of default.  Upon the expiration of the Forbearance Period or the occurrence of a termination event, the Company would be required to repay all of the outstanding obligations, including, but not limited to, the $25.0 million outstanding principal of the 2015 Term Loan Advance and certain fees totaling $2.0 million.  As the obligations may be accelerated at the election of Silicon Valley Bank upon the expiration of the Forbearance Period, as amended, or earlier if a termination event occurs, these amounts have been presented as current liabilities on the condensed consolidated balance sheets.  Amounts deposited with Silicon Valley Bank to collateralize balances related to outstanding obligations under the SVB Loan and Security Agreement, which include the $25.0 million outstanding principal of the 2015 Term Loan Advance and $0.4 million related to a cash collateral account for letters of credit have been presented as restricted cash as of December 31, 2015. The cash collateral balance increased by an additional $0.6 million in the second quarter of 2016 pursuant to the Fifth Amendment and was presented as restricted cash as of September 30, 2016 on the condensed consolidated balance sheets. The Company plans to continue to engage in discussions with Silicon Valley Bank during the Forbearance Period regarding the loan and the defaults to seek a resolution of this matter.  The Company can provide no assurances that it will be able to resolve this matter, which could result in the Silicon Valley Bank loans under the SVB Loan and Security Agreement and QLT Loans (defined below) being accelerated and have a material negative impact on our cash flows and business.

19

Convertible 2.0% Senior Notes
In August 2014, the Company issued Convertible Notes with an aggregate principal amount of $325.0 million. The Company received net proceeds of approximately $316.6 million from the sale of the Convertible Notes, after deducting fees and expenses of approximately $8.4 million. The Company used approximately $26.1 million of the net proceeds from the sale of the Convertible Notes to pay the net cost of the convertible bond hedges, as described below (after such cost was partially offset by the proceeds to the Company from the sale of warrants in the warrant transactions described below) and used $35.0 million to repurchase shares of the Company’s common stock.
The Convertible Notes are governed by the terms of an indenture between the Company and The Bank of New York Mellon Trust Company, N.A., as the Trustee. The Convertible Notes are senior unsecured obligations and bear interest at a rate of 2.0% per year, payable semi-annually in arrears on February 15 and August 15 of each year, beginning on February 15, 2015. The Convertible Notes will mature on August 15, 2019, unless earlier repurchased or converted. The Convertible Notes will be convertible into shares of the Company’s common stock at an initial conversion rate of 24.2866 shares of common stock per $1,000 principal amount of the Convertible Notes, which corresponds to an initial conversion price of approximately $41.175 per share of the Company’s common stock. The Company can settle the conversion of the Convertible Notes through payment or delivery of cash, shares of the Company’s common stock, or a combination of cash and shares of the Company’s common stock, at its election.
On or after February 15, 2019 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their Convertible Notes, in multiples of $1,000 principal amount, at the option of the holder regardless of the foregoing circumstances.
The indenture does not contain any financial covenants or restrict the Company’s ability to repurchase the Company’s securities, pay dividends or make restricted payments in the event of a transaction that substantially increases the Company’s level of indebtedness. The indenture contains customary terms and covenants and events of default. If an event of default (other than certain events of bankruptcy, insolvency or reorganization involving the Company) occurs and is continuing, the Trustee by notice to the Company, or the holders of at least 25% in principal amount of the outstanding Convertible Notes by written notice to the Company and the Trustee, may declare 100% of the principal of and accrued and unpaid interest, if any, on all of the Convertible Notes to be due and payable. Upon such a declaration of acceleration, such principal and accrued and unpaid interest, if any, will be due and payable immediately. Upon the occurrence of certain events of bankruptcy, insolvency or reorganization involving the Company, 100% of the principal and accrued and unpaid interest, if any, on the Convertible Notes will become due and payable automatically. Notwithstanding the foregoing, the indenture provides that, upon the Company’s election, and for up to 180 days, the sole remedy for an event of default relating to certain failures by the Company to comply with certain reporting covenants in the indenture consists exclusively of the right to receive additional interest on the Convertible Notes.  If Silicon Valley Bank elects to accelerate the principal amount due under the SVB Loan and Security Agreement and the Company fails to pay such amount, the Trustee or holders of at least 25% of the aggregate principal amount of the Notes may deliver a notice of default to the Company. The Company’s failure to pay the amount due under the Loan and Security Agreement within 30 days following its receipt of such notice would be deemed an event of default under the indenture and, among other remedies, the Trustee or holders of at least 25% of the aggregate principal amount of the Notes could declare all unpaid principal of the Notes immediately due and payable.  The default provision, which applies to the failure to repay the outstanding 2015 Term Loan Advance, or other indebtedness, is not considered probable to occur as the Company has sufficient capital to repay the outstanding obligations under the Loan and Security Agreement if such amounts are accelerated by Silicon Valley Bank.
In accordance with accounting guidance for debt with conversion and other options, the Company separately accounted for the liability and equity components of the Convertible Notes by allocating the proceeds between the liability component and the embedded conversion option, or equity component, due to the Company’s ability to settle the Convertible Notes in cash, common stock, or a combination of cash and common stock at the option of the Company. The carrying amount of the liability component was calculated by measuring the fair value of a similar liability that does not have an associated convertible feature. The allocation was performed in a manner that reflected the Company’s non-convertible debt borrowing rate for similar debt. The equity component of the Convertible Notes was recognized as a debt discount and represents the difference between the gross proceeds from the issuance of the Convertible Notes and the fair value of the liability of the Convertible Notes on their respective dates of issuance. The excess of the principal amount of the liability component over its carrying amount, or debt discount, is amortized to interest expense using the effective interest method over five years, or the life of the Convertible Notes. The equity component is not remeasured as long as it continues to meet the conditions for equity classification.

20

 The Company’s outstanding Convertible Note balances as of September 30, 2016 consisted of the following (in thousands):
 
Liability component:
September 30,
2016
 
December 31,
2015
Principal
$
325,000

 
$
325,000

Less: deferred financing costs
(3,476
)
 
(4,212
)
Less: debt discount, net
(75,104
)
 
(91,006
)
Net carrying amount
$
246,420

 
$
229,782

Equity component
$
116,900

 
$
116,900

In connection with the issuance of the Convertible Notes, the Company incurred approximately $8.4 million of debt issuance costs, which primarily consisted of underwriting, legal and other professional fees, and allocated these costs to the liability and equity components based on the allocation of the proceeds. Of the total $8.4 million of debt issuance costs, $3.0 million were allocated to the equity component and recorded as a reduction to additional paid-in capital and $5.4 million were allocated to the liability component and recorded as a reduction to the liability balance on the balance sheet. The portion allocated to the liability component is amortized to interest expense over the expected life of the Convertible Notes using the effective interest method.
The Company determined that the expected life of the Convertible Notes was equal to the five year term on the Convertible Notes. The effective interest rate on the liability component is 11.53%. The following table sets forth total interest expense recognized related to the Convertible Notes during the three and nine months ended September 30, 2016 and 2015 (in thousands):
 
 
Three months ended 
 
Nine months ended
 
September 30, 2016
 
September 30, 2015
 
September 30, 2016
 
September 30, 2015
Contractual interest expense
$
1,625

 
$
1,625

 
$
4,875

 
$
4,875

Amortization of debt issuance costs
254

 
226

 
736

 
653

Amortization of debt discount
5,479

 
4,887

 
15,903

 
14,113

Total
$
7,358

 
$
6,738

 
$
21,514

 
$
19,641

Future payments under the Convertible Notes as of September 30, 2016, are as follows (in thousands):
 
Years Ending December 31,
    
2016 (3 months remaining)
$
—

2017
6,500

2018
6,500

2019
331,500

 
344,500

Less amounts representing interest
(19,500
)
Less: deferred financing costs
(3,476
)
Less debt discount, net
(75,104
)
Net carrying amount of convertible notes
$
246,420

Under the terms of the indenture governing the Convertible Notes, the proposed transaction with QLT does not constitute a fundamental change, and holders will not have the right to require the Company to repurchase any Convertible Notes. Holders may surrender notes for conversion at any time from and after October 5, 2016 through the date that is fifty (50) trading days after the effective date of the merger. Prior to closing, the Company will enter into a supplemental indenture to the indenture governing the Convertible Notes, which will provide that each $1,000 principal amount of Convertible Notes will thereafter be convertible into the same number of Novelion common shares that a holder of the number of shares of Aegerion common stock equal to $1,000 divided by the conversion rate of the Convertible Notes at the effective time of the merger would be entitled to receive as merger consideration.

21

Convertible Bond Hedge and Warrant Transactions
In connection with the offering of the Convertible Notes and in order to reduce the potential dilution to the Company’s common stock and/or offset cash payments due upon conversion of the Convertible Notes, the Company entered into convertible bond hedge transactions convertible into approximately 7.9 million shares of the Company’s common stock (or the value thereof), subject to adjustment, underlying the $325.0 million aggregate principal amount of the Convertible Notes. The convertible bond hedges have an exercise price of approximately $41.175 per share, subject to adjustment upon certain events, and are exercisable when and if the Convertible Notes are converted. If upon conversion of the Convertible Notes, the price of the Company’s common stock is above the exercise price of the convertible bond hedges, shares of the Company’s common stock and/or cash will be delivered with an aggregate value approximately equal to the difference between the price of the Company’s common stock at the conversion date and the exercise price, multiplied by the number of shares of the Company’s common stock related to the convertible bond hedges being exercised. The convertible bond hedges are separate transactions entered into by the Company and are not part of the terms of the Convertible Notes or the warrants, discussed below.
At the same time, the Company also entered into separate warrant transactions relating to, in the aggregate, approximately 7.9 million shares of the Company’s common stock, subject to customary adjustments but capped at a maximum of approximately 15.8 million shares of the Company’s common stock underlying the $325.0 million aggregate principal amount of the Convertible Notes. The initial exercise price of the warrants is $53.375 per share, subject to adjustment upon certain events. The warrants would separately have a dilutive effect to the extent that the market value per share of the Company’s common stock, as measured under the terms of the warrants, exceeds the applicable exercise price of the warrants. The Company received $60.5 million for these warrants and recorded this amount to additional paid-in capital.
As part of the Merger Agreement with QLT, the Company is required to use commercially reasonable efforts to enter into arrangements with the counterparties of the convertible bond hedge and warrant transactions to terminate and cancel such transactions upon completion of the merger.
Loan Agreement with QLT
 
On June 14, 2016, the Company entered into a loan and security agreement (the “QLT Loan Agreement”) with QLT concurrently with the execution of the Merger Agreement, pursuant to which QLT agreed to provide the Company with a term loan facility in an aggregate principal amount not to exceed $15 million. The Company borrowed $3 million in term loans (the “QLT Loans”) on June 15, 2016 and may also borrow up to an additional $3 million per month if and to the extent such amounts are necessary in order for it to maintain an unrestricted cash balance of $25 million, subject to the satisfaction of certain terms and conditions. The QLT Loans mature on the earliest of (i) July 1, 2019, (ii) the maturity date of the Convertible Notes, (iii) three business days after a termination of the Merger Agreement by the Company and (iv) 90 days after a termination of the Merger Agreement by QLT. Under the terms of the QLT Loan Agreement, the Company is subject to certain financial covenants consistent with the financial covenants contained in the SVB Loan and Security Agreement. Such financial covenants will only be tested if (i) the financial covenants under the SVB Loan and Security Agreement are then in effect (and not suspended) or (ii) the SVB Loan and Security Agreement has been terminated.
 
The Company’s obligations under the QLT Loan Agreement are secured by (i) a first priority security interest in the Company’s intellectual property related to MYALEPT and (ii) a second priority security interest in certain other assets securing the Company’s obligations under the SVB Loan and Security Agreement (excluding certain cash collateral accounts).
 
The Company’s obligations under the QLT Loan Agreement may be accelerated upon the occurrence of certain events of default, including a cross-default under the SVB Loan and Security Agreement or upon a material adverse change to the Company’s business. If the QLT Loans are prepaid prior to their maturity date, including at the Company’s election, a prepayment premium of 2.0% of the outstanding amount of the QLT Loans will be due prior to such prepayment. In connection with the QLT Loan Agreement, on June 14, 2016, the Company entered into a subordination agreement with QLT and Silicon Valley Bank (the “Subordination Agreement”), pursuant to which QLT’s liens and right to receive payments under the QLT Loan Agreement are fully subordinated to the SVB Loan and Security Agreement, other than with respect to certain intellectual property relating to MYALEPT and proceeds of dispositions thereof. Pursuant to the Subordination Agreement, upon the occurrence of certain events (including the termination of the Merger Agreement), subject to a 60-day standstill period, QLT may purchase the outstanding obligations owing to Silicon Valley Bank under the SVB Loan and Security Agreement to the extent that Silicon Valley is not exercising its rights against the collateral at such time.
 
The QLT Loans bear interest at a rate of 8.0% per annum, subject to increase as described below.  Until the payment in full of the Company’s obligations under the Silicon Valley Bank Loan Agreement, as amended, supplemented or otherwise modified, and the termination of the Silicon Valley Bank Loan Agreement, accrued interest on the QLT Loans will be added to

22

the aggregate principal amount of the QLT Loans.  If cash interest becomes payable under the QLT Loan Agreement but the Company is prohibited from making such cash payments under the terms of the Subordination Agreement, such interest rate will increase to 15.0% per annum.  If an event of default exists under the terms of the QLT Loan Agreement, an additional 5.0% per annum interest rate will be added to the then-applicable interest rate thereunder, unless the QLT Loans are already accruing interest at the increased rate of 15.0% per annum. As of September 30, 2016, the Company borrowed $3.0 million under the QLT Loan Agreement and had accrued interest of $0.01 million. As a result of the material adverse change provision, the outstanding borrowings and accrued interest have been classified as a current liability as of September 30, 2016.

 7. Accrued Liabilities
Accrued liabilities as of September 30, 2016 and December 31, 2015 consisted of the following: 
 
September 30,
2016
 
December 31,
2015
 
(in thousands)
Accrued employee compensation and related costs
$
7,574

 
$
10,315

Accrued professional fees
4,430

 
3,206

Accrued sales allowances
9,767

 
10,837

Accrued royalties
3,435

 
4,137

Accrued research and development costs
3,468

 
1,561

Accrued interest
875

 
2,502

Other accrued liabilities
10,861

 
6,545

Total
$
40,410

 
$
39,103


8. Restructuring
 
In February 2016, the Company’s Board of Directors approved a cost-reduction plan that eliminated approximately 80 positions from the Company’s workforce, representing a reduction in employees of approximately 25%. The reduction in force was substantially completed on February 10, 2016. 
In July 2016, the Board of Directors approved a strategic plan that included the intent to withdraw lomitapide from the European Union and certain other global markets, and the elimination of approximately 13% of the Company’s workforce. In connection with this restructuring plan, in the third quarter of 2016, the Company entered into a lease amendment to vacate the premises at 101 Main Street, Cambridge, MA as an additional cost-cutting measure, and the premises were vacated in September 2016. The Company completed its reduction in force during the third quarter of 2016, and expects to substantially complete the payment of employee separation and other material costs associated with the restructuring by the second quarter of 2017. The Company expects to complete the withdrawal of lomitapide from the European Union and certain other global markets by the end of 2016. This timeline is subject to change based on whether the Company chooses to enter into ongoing supply, license or other arrangements with suitable partners in such markets.
This cost-reduction plan is part of a broad program to significantly reduce the Company’s operating expenses and extend its cash position as lomitapide sales in the U.S. are impacted by the introduction of competitive therapies.  The positions impacted are across substantially all of the Company’s functions.  The Company accounted for these actions in accordance with ASC 420, Exit or Disposal Cost Obligations and ASC 712, Compensation- nonretirement compensation benefits.  
Restructuring charges of $2.4 million and $4.2 million were recorded during the three and nine months ended September 30, 2016, respectively, which consisted primarily of severance and benefits costs, and costs incurred in vacating its leased premises. No further significant charges are expected to be incurred related to this cost reduction plan.

23

The following table sets forth the components of the restructuring charge and payments made against the reserve for the nine months ended September 30, 2016:
 
 
Restructuring Charges
 
(in thousands)
Restructuring balance at December 31, 2015
$
40

Costs incurred
4,172

Cash paid
(3,529
)
Non-cash adjustments
283

Restructuring balance at September 30, 2016
$
966

9. Capital Structure
Preferred Stock
At September 30, 2016, the Company was authorized to issue 5,000,000 shares of $0.001 par value preferred stock. There were no shares issued and outstanding. Dividends on the preferred stock will be paid when, and if, declared by the Board of Directors.
Common Stock
At September 30, 2016, the Company was authorized to issue 125,000,000 shares of $0.001 par value common stock. Dividends on the common stock will be paid when, and if, declared by the Board of Directors. Each holder of common stock is entitled to vote on all matters and is entitled to one vote for each share held.
Treasury Stock
In August 2014, the Company’s Board of Directors authorized the Company to use a portion of the net proceeds of the Convertible 2.0% Senior Notes offering to repurchase up to an aggregate of $35.0 million of its common stock. In connection with the close of the transaction, the Company repurchased 1,147,540 shares of its common stock.
At September 30, 2016, the Company held 1,251,297 shares of common stock in treasury.
The Company will, at all times, reserve and keep available, out of its authorized but unissued shares of common stock, sufficient shares to effect the conversion of shares for stock options, restricted stock units and Convertible Notes.
 
10. Stock-Based Compensation
The Company issues stock options, restricted stock and RSUs with service conditions, which are generally the vesting periods of the awards. The Company has issued stock options and RSUs that vest upon the satisfaction of certain performance conditions. The Company also has issued RSUs that vest upon the satisfaction of certain market conditions.
Determining the Fair Value of Stock Awards and Restricted Stock Unit Awards
Stock Options
The Company measures the fair value of stock options with service-based and performance-based vesting criteria to employees, consultants and directors on the date of grant using the Black-Scholes option pricing model. The fair value of equity instruments issued to non-employees is remeasured as the award vests. For awards that vest upon the achievement of a market condition, the Company calculates the estimated fair value of the stock-based awards using a Monte Carlo simulation.
 The Company does not have sufficient history to support a calculation of volatility and expected term using only its historical data. As such, the Company has used a weighted-average volatility considering the Company’s own volatility since its initial public offering in October 2010 and the volatilities of several guideline companies. For purposes of identifying similar entities, the Company considered characteristics such as industry, length of trading history, and stage of life cycle. The assumed dividend yield was based on the Company’s expectation of not paying dividends in the foreseeable future. The average expected life was determined according to the “simplified method” as described in Staff Accounting Bulletin ("SAB")

24

110, which is the mid-point between the vesting date and the end of the contractual term. The risk-free interest rate is determined by reference to implied yields available from U.S. Treasury securities with a remaining term equal to the expected life assumed at the date of grant. Forfeitures are estimated based on the Company’s historical analysis of both options and awards that forfeited prior to vesting. The weighted-average assumptions used in the Black-Scholes option-pricing model are as follows:
 
 
Three Months Ended 
 
Nine Months Ended
 
September 30,
 
September 30,
 
2016
 
2015
 
2016
 
2015
Expected stock price volatility
68.0
%
 
60.7
%
 
63.2
%
 
61.2
%
Risk-free interest rate
1.14
%
 
1.74
%
 
1.60
%
 
1.63
%
Expected life of options (years)
6.25

 
6.24

 
6.25

 
6.21

Expected dividend yield
—

 
—

 
—

 
—

The Company’s stock option activity for the nine months ended September 30, 2016 is as follows (in thousands, except per share amounts):
 
 
Number of
Stock Options
 
Weighted-
Average
Exercise Price
Per Share
 
Weighted
Average
Remaining
Contractual
Life (years)
 
Aggregate
Intrinsic
Value
Outstanding at December 31, 2015
6,235

 
$
27.32

 
 
 
$
33

Granted
1,429

 
$
6.04

 
 
 
 
Exercised
(3
)
 
$
1.54

 
 
 
 
Forfeited/cancelled
(3,435
)
 
$
25.67

 
 
 
 
Outstanding at September 30, 2016
4,226

 
$
21.38

 
7.0
 
$
233

Vested and expected to vest at September 30, 2016
4,098

 
$
22.84

 
6.7
 
$
159

Exercisable at September 30, 2016
2,043

 
$
29.27

 
4.8
 
$
—

Restricted Stock Units
RSUs are generally subject to forfeiture if employment terminates prior to the satisfaction of the vesting conditions. The Company expenses the cost of RSUs with service-based vesting conditions, which is determined to be the fair value of the shares of common stock underlying the RSUs at the date of grant, ratably over the period during which the vesting restrictions lapse. Additionally, the Company grants RSUs that vest upon the achievement of a market condition. The fair value of RSUs with market-based vesting conditions is determined using a Monte Carlo simulation and the Company recognizes compensation expense over the derived service period.
The Company’s RSU activity for the nine months ended September 30, 2016 is as follows (in thousands, except per share amounts):
 
 
Number of
RSUs
 
Weighted-
Average
Grant  Date
Fair Value
 
Weighted
Average
Remaining
Contractual
Life (years)
Outstanding at December 31, 2015
616

 
$
23.45

 
1.6
Granted
741

 
$
2.46

 
 
Vested
(108
)
 
$
24.23

 
 
Forfeited/cancelled
(436
)
 
$
16.15

 
 
Outstanding at September 30, 2016
813

 
$
8.12

 
1.5


25

 Stock-based Compensation Expense
The Company recorded stock-based compensation expense in the Company’s consolidated statements of operations as follows:
 
 
Three Months Ended 
 
Nine Months Ended
 
September 30,
 
September 30,
 
2016
 
2015
 
2016
 
2015
 
(in thousands)
Stock-based compensation expense by type of award:
    
 
    
 
    
 
    
Stock options
$
2,490

 
$
2,870

 
$
9,702

 
$
16,294

Restricted stock units
274

 
1,084

 
1,761

 
2,246

Less stock-based compensation capitalized to inventories
(84
)
 
(82
)
 
(316
)
 
(300
)
Total stock-based compensation expense included in costs and expenses
$
2,680

 
$
3,872

 
$
11,147

 
$
18,240

 
 
Three Months Ended 
 
Nine Months Ended
 
September 30,
 
September 30,
 
2016
 
2015
 
2016
 
2015
 
(in thousands)
Selling, general and administrative
$
2,650

 
$
2,785

 
$
9,825

 
$
15,093

Research and development
30

 
1,087

 
1,322

 
3,147

Total stock-based compensation expense included in costs and expenses
$
2,680

 
$
3,872

 
$
11,147

 
$
18,240

Total unrecognized stock-based compensation cost related to unvested stock options and RSUs as of September 30, 2016 was approximately $17.1 million. This unrecognized cost is expected to be recognized over a weighted-average period of approximately 2.2 years. In addition, the Company has 21,762 outstanding unvested RSUs that contain performance and market criteria that impact the vesting of the award. Total unrecognized compensation related to those awards was approximately $0.2 million at September 30, 2016.
Pursuant to the terms of the Merger Agreement described in Note 1, upon the closing of the merger with QLT, the Company’s in-the-money stock options and all outstanding 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.
 
11. Basic and Diluted Net Loss per Common Share
Basic net loss per common share is calculated by dividing the net loss by the weighted-average number of common shares outstanding for the period.
In August 2014, in connection with the issuance of the Convertible Notes, the Company entered into convertible bond hedges. The convertible bond hedges are not included for purposes of calculating the number of diluted shares outstanding, as their effect would be anti-dilutive. The convertible bond hedges are generally expected, but not guaranteed, to reduce the potential dilution upon conversion of the Convertible Notes. See Note 6 for additional information.
Diluted net loss per common share is computed by dividing the net loss by the weighted-average number of unrestricted common shares and dilutive common share equivalents outstanding for the period, determined using the treasury-stock and if-converted methods. Since the Company has had net losses for all periods presented, all potentially dilutive securities are anti-dilutive. Accordingly, basic and diluted net loss per common share are equal.
 The following table sets forth potential common shares issuable upon the exercise of outstanding options, warrants, the vesting of RSUs and the conversion of the Convertible Notes (prior to consideration of the treasury stock and if-converted methods), which were excluded from the computation of diluted net loss per share because such instruments were anti-dilutive (in thousands):
 

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As of September 30,
 
2016
 
2015
Stock options
4,226

 
6,792

Unvested restricted stock units
813

 
661

Warrants
7,893

 
7,893

Convertible notes
7,893

 
7,893

Total
20,825

 
23,239


12. Income Taxes
The Company utilizes the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement carrying amounts and tax basis of assets and liabilities using enacted tax rates in effect for years in which the temporary differences are expected to reverse. The Company provides a valuation allowance when it is more likely than not that deferred tax assets will not be realized. 
The Company recorded a provision for income taxes of $0.2 million and $0.7 million for the three and nine months ended September 30, 2016 and $0.3 million and $0.7 million in the three and nine months ended September 30, 2015, respectively. The provision for income taxes consists of current tax expense, which relates primarily to the Company’s profitable operations in its foreign tax jurisdictions, and a net deferred tax expense from the tax amortization of the indefinite-life intangible assets associated with the MYALEPT acquisition offset by the reversal of a deferred tax liability for goodwill that was impaired for financial statement purposes.
The Company does not recognize a tax benefit for uncertain tax positions unless it is more likely than not that the position will be sustained upon examination by tax authorities, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit that is recorded for these positions is measured at the largest amount of cumulative benefit that has greater than a 50% likelihood of being realized upon ultimate settlement. Deferred tax assets that do not meet these recognition criteria are not recorded and the Company recognizes a liability for uncertain tax positions that may result in tax payments. If such unrecognized tax benefits were realized and not subject to valuation allowances, the entire amount would impact the tax provision. As of September 30, 2016, the Company had no material uncertain tax positions.
13. Commitments and Contingencies
In late 2013, the Company received a subpoena from the DOJ, represented by the U.S. Attorney’s Office in Boston, requesting documents regarding the Company’s marketing and sale of JUXTAPID in the U.S., as well as related disclosures.  The Company believes the DOJ is seeking to determine whether it, or any of its current or former employees, violated civil and/or criminal laws, including but not limited to, the securities laws, the Federal False Claims Act, the Food and Drug Cosmetic Act, the Anti-Kickback Statute, and the Foreign Corrupt Practices Act.  The investigation is continuing.
In late 2014, the Company received a subpoena from the SEC requesting certain information related to its sales activities and disclosures related to JUXTAPID. The SEC also has requested documents and information on a number of other topics, including documents related to the investigations by government authorities in Brazil into whether the Company’s activities in Brazil violated Brazilian anti-corruption laws, and whether the Company’s activities in Brazil violated the U.S. Foreign Corrupt Practices Act.  The Company believes the SEC is seeking to determine whether the Company, or any of its current or former employees, violated securities laws.  The investigation is continuing. 
 
The Company believes the SEC and the DOJ are coordinating with one another concerning their investigations.  The Company has provided a broad range of information to the government in response to their requests, including materials related to its past disclosure statements related to the prevalence of HoFH and other disclosures, its U.S. marketing and promotional practices, and its activities in Brazil.    
The Company has reached preliminary agreements in principle with the DOJ and the SEC to resolve their investigations into the marketing and sales activities and disclosures related to JUXTAPID.
Under the terms of the preliminary agreement in principle with the DOJ, the Company would plead guilty to two misdemeanor misbranding violations of the Food, Drug and Cosmetic Act.  One count would be based on the Company’s alleged marketing of JUXTAPID with inadequate directions for use (21 U.S.C. §§ 352(f)), and the second count would involve an alleged failure to comply with a requirement of the JUXTAPID Risk Evaluation and Mitigation Strategies (“REMS”)

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program (21 U.S.C. §§ 352(y)). The Company would separately enter into a five-year deferred prosecution agreement with regard to charges that the Company violated the Health Insurance Portability and Accountability Act and engaged in obstruction of justice relating to the REMS program. The preliminary agreement in principle with the DOJ also requires the Company to enter into a civil settlement agreement with the DOJ to resolve alleged violations of the False Claims Act. Additionally, the Company would enter into a non-monetary consent decree with the Food and Drug Administration prohibiting future violations of law and may have to enter into a corporate integrity agreement with the Department of Health and Human Services as part of any final settlement with the DOJ. Under the preliminary agreement in principle, the Company will not be subject to mandatory exclusion from participation in federal health care programs under 42 U.S.C. § 1320a-7(a).
Under the terms of the preliminary agreement in principle with the SEC staff, the SEC’s Division of Enforcement will recommend that the SEC accept a settlement offer from the Company on a neither-admit-nor-deny basis that contains alleged negligent violations of Sections 17(a)(2) and (3) of the Securities Act of 1933, as amended, related to certain statements made by the Company in 2013 regarding the conversion rate of patients receiving JUXTAPID prescriptions, with remedies that include censure, an order prohibiting future violations of the securities laws and payment of a civil penalty.
The preliminary agreements in principle provide for a consolidated monetary package that covers payments due to both the DOJ and the SEC. The consolidated monetary package includes payments to the DOJ and the SEC totaling approximately $40 million in the aggregate (the “Settlement Payments”), payable over five years as follows: approximately $3 million upon finalization of the settlement with the DOJ and the SEC, approximately $3.7 million per year, payable quarterly, for three years following finalization of the settlement, and approximately $13 million per year, payable quarterly, in years four and five following finalization of the settlement. Certain outstanding amounts would accrue interest at a rate of 1.75% per annum. The Settlement Payments are subject to acceleration in the event of certain change of control transactions or the sale of the Company’s JUXTAPID or MYALEPT assets. The Company has reserved an aggregate of approximately $40 million for these matters. In addition, the Company accrued $0.4 million in the second quarter of 2016 and $0.3 million in the third quarter of 2016 to reflect its current estimates of the minimum liabilities for relator attorney fees and settlement, respectively.
The terms of the preliminary agreements in principle described above may change following further negotiations and other terms of the final settlement remain subject to further negotiation.  The preliminary agreement in principle with the DOJ is subject to approval of supervisory personnel within the DOJ and relevant federal and state agencies, and approval by a U.S. District Court judge of the criminal plea and sentence and the civil settlement agreement.  The preliminary agreement in principle with the SEC is subject to review by other groups in the SEC and approval by the Commissioners of the SEC. The preliminary agreements in principle do not cover the DOJ and SEC’s inquiries concerning the Company’s operations in Brazil, any potential claims by relators for attorneys’ fees, or any employment claims that may have been brought by relators. The Company continues to cooperate with the DOJ and the SEC with respect to their investigations. As part of this cooperation, the DOJ has requested documents and information related to donations the Company made in 2015 and 2016 to support 501(c)(3) organizations that provide financial assistance to patients. As part of this inquiry, the DOJ may pursue theories that will not be covered by the preliminary agreement in principle with the DOJ. Other pharmaceutical and biotechnology companies have disclosed similar inquiries regarding donations to 501(c)(3) organizations.
In addition, federal and state authorities in Brazil are each conducting investigations to determine whether there have been violations of Brazilian laws related to the possible illegal promotion of JUXTAPID in Brazil. In July 2016, the Ethics Council of the national pharmaceutical industry association, Interfarma, unanimously decided to fine the Company approximately $0.5 million for violations of the industry association’s Code of Conduct, to which the Company is bound due to its affiliation with Interfarma.  Although the Interfarma Code of Conduct provides that companies that violate the Code of Conduct are subject to only one penalty, the Board of Directors of Interfarma has decided to impose an additional penalty of suspension of the Company's membership, without suspension of its membership contribution, for a period of 180 days for the Company to demonstrate the implementation of effective measures to cease alleged irregular conduct, or exclusion of its membership in Interfarma if such measures are not implemented. The Company paid $0.5 million in the third quarter of 2016 related to this fine. Also in July 2016, the Company received an inquiry from a Public Prosecutor Office of the Brazilian State of Paraná asking it to respond to questions related to recent media coverage regarding JUXTAPID and its relationship with a patient association to which it has made donations for patient support.  At this time, the Company does not know whether the Public Prosecutor’s inquiry will result in the commencement of any formal proceeding against the Company, but if its activities in Brazil are found to violate any laws or governmental regulations, the Company may be subject to significant civil and administrative penalties imposed by Brazilian regulatory authorities and additional damages and fines. Under certain circumstances, the Company could be barred from further sales to federal and/or state governments in Brazil, including sales of JUXTAPID and/or MYALEPT, due to penalties imposed by Brazilian regulatory authorities or through civil actions initiated by federal or state public prosecutors. As of the filing date of this Form 10-Q, the Company cannot determine if a loss is probable as a result of the investigations and inquiry in Brazil and whether the outcome will have a material adverse effect on its business and, as a result, the Company has not recorded any amounts for a loss contingency.

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In January 2014, a putative class action lawsuit was filed against the Company and certain of its executive officers in the U.S. District Court for the District of Massachusetts alleging certain misstatements and omissions related to the marketing of JUXTAPID and the Company’s financial performance in violation of the federal securities laws. On March 11, 2015, the Court appointed co-lead plaintiffs and lead counsel. On April 1, 2015, the Court entered an order permitting and setting a schedule for co-lead plaintiffs to file an amended complaint within 60 days, and for defendants to file responsive pleadings, co-lead plaintiffs to file any opposition, and defendants to file reply briefs. Accordingly, co-lead plaintiffs filed an amended complaint on June 1, 2015. The amended complaint filed against the Company and certain of its former executive officers alleges that defendants made certain misstatements and omissions during the first three quarters of 2014 related to the Company’s revenue projections for JUXTAPID for 2014, as well as data underlying those projections, in violation of the federal securities laws. The Company filed a motion to dismiss the amended complaint for failure to state a claim on July 31, 2015.  On August 21, 2015, co-lead plaintiffs filed a putative second amended complaint, which alleges that the defendants made certain misstatements and omissions from April 2013 through October 2014 related to the marketing of JUXTAPID and the Company’s financial projections, as well as data underlying those projections.  On September 4, 2015, the Company moved to strike the second amended complaint for the co-lead plaintiffs’ failure to seek leave of court to file a second amended pleading, and briefing is complete with respect to the motion to strike.  Oral argument on the motion to strike was held on March 9, 2016.  On March 23, 2016, plaintiffs filed a motion for leave to amend.  The Company opposed this motion to amend, and following a hearing on April 29, 2016, the Court took defendants’ motion to strike and plaintiffs’ motion for leave to amend under advisement.  On May 13, 2016, co-lead plaintiffs and defendants filed a joint motion wherein the parties stipulated that co-lead plaintiffs could file a third amended pleading within 30 days of the motion, which the Court granted on May 18, 2016, thereby mooting defendants’ pending motion to strike the second amended pleading and co-lead plaintiffs’ motion for leave to file a second amended pleading.  The Court also entered a briefing schedule for defendants to file responsive pleadings, co-lead plaintiffs to file any opposition, and defendants to file reply briefs.  A third amended complaint was filed on June 27, 2016. On July 22, 2016, co-lead plaintiffs and defendants filed a joint motion to stay the briefing schedule while they pursued mediation, which the Court granted on August 10, 2016. As of the filing date of this Form 10-Q, the Company cannot determine if a loss is probable as a result of the class action lawsuit and whether the outcome will have a material adverse effect on its business and, as a result, the Company has not recorded any amounts for a loss contingency. 
On August 16, 2016, a complaint captioned Steinberg v. Aegerion Pharmaceuticals, Inc., et al., Case No. 1:16-cv-11668, was filed in the U.S. District Court for the District of Massachusetts against the Company, QLT, MergerCo and each member of the Company's board of directors (the “Federal Merger Action”). The Federal Merger Action was brought by Chaile Steinberg, who purports to be a stockholder of the Company, on her own behalf, and seeks certification as a class action on behalf of all Company's stockholders. The Steinberg complaint alleges, among other things, that the August 8, 2016 Form S-4 Registration Statement filed in connection with the proposed transaction with QLT is materially misleading. The Steinberg complaint asserts claims arising under Sections 14(a) and 20(a) of the Exchange Act and seeks, among other things, to enjoin the proposed transaction, to rescind it or to award rescissory damages should it be consummated and an award of attorneys’ fees and expenses. The Company believes that the claims asserted in the Federal Merger Action are without merit and the Company has not recorded any amount for a loss contingency in respect of such matter.
On October 3, 2016, a complaint captioned Flanigon v. Aegerion Pharmaceuticals, Inc., et al., C.A. 12794, was filed in the Delaware Court of Chancery (the “Delaware Merger Action”). The Delaware Merger Action was brought by Timothy Flanigon, who purports to be a stockholder of the Company, on his own behalf, and also sought certification as a class action on behalf of all Company stockholders. The Delaware Merger Action alleged, among other things, that the Company's board of directors breached its fiduciary duties in connection with the proposed transaction by agreeing to an inadequate exchange ratio and engaging in a flawed sales process. The Delaware Merger Action further alleged that QLT and MergerCo aided and abetted the alleged breaches. In addition, the Delaware Merger Action alleged that the September 28, 2016 Amendment No. 2 to Form S-4 Registration Statement filed in connection with the proposed transaction is materially misleading. The Flanigon complaint sought, among other things, to enjoin the proposed transaction, to rescind it or to award rescissory damages should it be consummated and an award of attorneys’ fees and expenses. Also on October 3, 2016, plaintiff in the Delaware Merger Action filed motions seeking expedited discovery and a preliminary injunction. On October 21, 2016, the Delaware Merger Action was dismissed without prejudice.
Item 2.        Management’s Discussion and Analysis of Financial Condition and Results of Operations 
You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes included in our audited financial statements and notes thereto for the year ended December 31, 2015, and Management’s Discussion and Analysis of Financial Condition and Results of Operation included in our 2015 Form 10-K, to which the reader is directed for additional information. In addition to historical information, some of the information in this discussion and analysis contains forward-looking statements reflecting our current expectations and that are subject to risks and uncertainties. All statements included or incorporated by reference into this

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report other than statements or characterizations of historical fact, are forward-looking statements. Forward-looking statements are often identified by words such as “anticipates,” “expects,” “intends,” “plans,” “predicts,” “believes,” “forecasts,” “seeks,” “estimates,” “may,” “will,” “should,” “would,” “could,” “potential,” “guidance”, “continue,” “ongoing” and similar expressions, and variations or negatives of these words. For example, statements regarding the proposed transaction with QLT, including the timing and financial and strategic costs and benefits thereof and the loan arrangements with QLT in connection therewith; the commercial potential for, and market acceptance of, our products; our estimates as to the potential number of patients with the diseases for which our products are approved; our expectations with respect to reimbursement of our products in the United States; our plans to withdraw lomitapide from, or alternatively to license or partner lomitapide in, the European Union and certain other global markets; our expectations with respect to pricing and reimbursement approvals required for lomitapide in Japan, Canada and Colombia and other countries in which we receive, or have received, marketing approval and plan to commercialize lomitapide; our expectations with respect to named patient sales of our products in Brazil and in other countries where such sales are permitted; the potential for and possible timing of approval of our products in countries where we have not yet obtained approval; our plans for further clinical development of our products; our expectations regarding future regulatory filings for our products, including planned marketing approval applications with respect to metreleptin in the European Union and a planned application to expand the indication for metreleptin in the United States, subject to discussions with the FDA; our plans for commercial marketing, sales, manufacturing and distribution of our products; our expectations with respect to the impact of competition on our future operations and results; our beliefs with respect to our intellectual property portfolio for our products and the extent to which it protects us; our expectations regarding the availability of data and marketing exclusivity for our products in the United States, the European Union, Japan and other countries; our view of ongoing government investigations, including the terms of preliminary agreements in principle with the DOJ and the SEC and potential outcomes of the ongoing DOJ and SEC investigations, stockholder litigation and investigations in Brazil, and the possible impact and additional consequences of each on our business; our forecasts regarding sales of our products, our future expenses, our cash position and the timing of any future need for additional capital to fund operations; and our ability to work with Silicon Valley Bank to obtain a further forbearance or waiver of our breach of certain covenants of our loan agreement with Silicon Valley Bank and to otherwise avoid an acceleration of our debt are forward-looking statements. Our actual results and the timing of events could differ materially from those discussed in our forward-looking statements as a result of many factors, including those set forth under the “Risk Factors” in Part II, Item 1A of this Quarterly Report on Form 10-Q. 
Overview
We are a biopharmaceutical company dedicated to the development and commercialization of innovative therapies for patients with debilitating rare diseases.
Our first product, lomitapide, received marketing approval, under the brand name JUXTAPID® (lomitapide) capsules (“JUXTAPID”), from the U.S. Food and Drug Administration (“FDA”) in December 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”). We launched JUXTAPID in the U.S. in January 2013. In July 2013, we 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. On September 28, 2016, we received marketing authorization for lomitapide in Japan for HoFH. Pricing and reimbursement approval of lomitapide has not yet been received in many of the countries in which lomitapide is approved. As a result of this and other factors, on July 20, 2016, we announced our intent to withdraw lomitapide from the EU and certain other global markets by the end of 2016, unless we earlier enter into supply, license or 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.
We acquired our 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, or approved for sale, on a named patient basis in Brazil, Argentina, France and Italy as a result of the approval of metreleptin in the U.S.
On June 14, 2016, we entered into a definitive merger agreement under which we will be merged with an indirect wholly-owned subsidiary of QLT.  We and QLT are working to complete the merger and expect the merger to close before the

30

end of 2016. See “Risk Factors” in Part II Item 1A of this report and Note 1, “Description of Business and Significant Accounting Policies” of the notes to the unaudited condensed consolidated financial statements.
We expect that our near-term efforts will be focused on:
•
managing our costs and expenses to better align with our revenues, which have been significantly negatively impacted by the introduction of PCSK9 inhibitor products and the corresponding significant impact on JUXTAPID sales in the U.S.;
•
maintaining market acceptance of JUXTAPID as a treatment for adult HoFH patients in the U.S., particularly given the introduction of PCSK9 inhibitor products, which has had a significant adverse impact on sales of JUXTAPID in the U.S.;
•
continuing to support sales of lomitapide as a treatment for HoFH in Brazil, on a named patient basis, and in other key countries where such sales are permitted, particularly in light of the approval of Amgen’s PCSK9 inhibitor product in Brazil in April 2016, the potential availability of that and other PCSK9 inhibitors on a named patient sales basis in Brazil and other countries, the economic and political challenges and ongoing government investigations in Brazil, and the ongoing court proceedings in Brazil reviewing the regulatory framework for named patient sales;
•
building and maintaining market acceptance for MYALEPT in the U.S. for the treatment of complications of leptin deficiency in GL patients, and supporting named patient sales of metreleptin in GL in Brazil, particularly in light of local economic and political challenges and ongoing governmental investigations, and other key countries where such sales are permitted as a result of the U.S. approval;
•
completing the merger with QLT and executing on our decision to withdraw lomitapide from the EU and certain other global markets by the end of 2016, unless we earlier enter into supply, license or other arrangements with suitable partners in such markets;
•
continuing to support patient access to and reimbursement for our products in the U.S. without significant restrictions, particularly given the introduction of PCSK9 inhibitor products in the U.S., which has impacted reimbursement of JUXTAPID in the U.S;
•
gaining pricing and reimbursement approvals for lomitapide in key markets outside the U.S., including Japan, where lomitapide has received marketing approval and we plan to commercialize lomitapide;  
•
gaining regulatory and pricing and reimbursement approvals to market our products in countries in which our products are not currently approved and/or reimbursed and we elect to commercialize such products, including filing a Marketing Authorization Application (“MAA”) with the European Medicines Agency (“EMA”) seeking marketing approval of metreleptin in the EU as a treatment for complications of leptin deficiency in GL patients and a subset of partial lipodystrophy (“PL”) patients, in connection with which we have committed to the EMA’s Pediatric Committee (“PDCO”) to conduct an additional trial in pediatric GL patients as a condition to approval of metreleptin in such patients, and seeking approval of metreleptin the U.S. for a subset of PL based on the existing clinical data package for metreleptin, subject to discussions with the FDA; 
•
minimizing the number of patients who are eligible to receive but decide not to commence treatment with our products, or who discontinue treatment, including with lomitapide, due to tolerability issues, and with metreleptin, due to its route of administration as an injection, through activities such as patient support programs, to the extent permitted in a particular country;
•
pre-launch and commercial activities to support the launch of lomitapide for HoFH in Japan, subject to the receipt of pricing and reimbursement approval;
•
evaluating the potential for future clinical development of metreleptin in additional indications, including a subset of PL if we are unable to secure approval for such indication with the current metreleptin clinical data package;
•
engaging in possible further development efforts related to our existing products, and assessment, and possible acquisition of, potential new product opportunities targeted at rare diseases where we believe we can leverage our infrastructure and expertise;

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•
resolving the ongoing U.S. DOJ and SEC investigations in accordance with the terms of the preliminary agreements in principle, managing other ongoing government investigations, and managing and defending ourselves in ongoing and potential future litigation and investigations that may arise following the preliminary agreements in principle with the SEC and DOJ investigations or any final resolution of the SEC and DOJ investigations;
•
resolving on acceptable terms the ongoing investigations and inquiry by government authorities in Brazil regarding sales and marketing of JUXTAPID in Brazil;
•
defending ourselves against and resolving on acceptable terms the ongoing securities class action litigation; and
•
defending challenges to the patents or our claims of exclusivity for lomitapide in the U.S., including against two separate inter partes review (“IPR”) petitions against two of the lomitapide U.S. dosing patents which were filed with the Patent Trial and Appeal Board (“PTAB”) of the U.S. Patent and Trademark Office in August 2015 and instituted by the PTAB in March 2016, and against potential generic submissions with the FDA with respect to lomitapide, which could occur beginning December 21, 2016.
 
The introduction of PCSK9 inhibitors in the U.S. has negatively impacted sales of JUXTAPID and we expect this negative trend to continue.  This impact results from several factors, including: healthcare professionals switching some existing JUXTAPID patients to a PCSK9 inhibitor product; healthcare professionals trying most new adult HoFH patients on a PCSK9 inhibitor product before trying JUXTAPID; the provision of free PCSK9 drug to adult HoFH patients by the companies that are commercializing PCSK9 inhibitor products, which such companies may have ceased, but which historically has had a significant negative impact on the rate at which new patients start treatment on JUXTAPID and has caused more patients than we expected to discontinue JUXTAPID and switch their treatment to PCSK9 inhibitor products; and actions by insurance companies, managed care organizations and other private payers in the U.S. that have required, or may require in the future, HoFH patients to demonstrate an inability to achieve an adequate LDL-C response on PCSK9 inhibitor products before access to JUXTAPID is approved, or may impose other hurdles to access or other significant restrictions or limitations on reimbursement, or may require switching of JUXTAPID patients to PCSK9 inhibitor products. Many U.S. insurance companies, managed care organizations and other private payers now require that HoFH patients demonstrate that they are not able to achieve an adequate response in LDL-C reduction on PCSK9 inhibitor products before providing reimbursement for JUXTAPID. For patients currently taking JUXTAPID, several U.S. pharmacy benefits managers (“PBMs”) are using a prior authorization requiring current JUXTAPID patients to "step through" the less expensive PCSK9 inhibitor product, and additional PBMs and payers may follow this practice.  We have been engaging with PBMs to discuss and negotiate potential agreements to limit these so-called "step edits"; these agreements may require us to provide discounts and other price protections, which would impact our net revenues from JUXTAPID. We believe that many of the PCSK9 inhibitor switches from current lomitapide patients have been at the direction of the prescribing physician.  Ultimately, the physician may decide to switch the adult HoFH patient back to JUXTAPID if the patient does not reach a goal of LDL-C response while being treated with a PCSK9 inhibitor product.  It is unknown how many adult HoFH patients may be switched back to JUXTAPID or the period of time in which this would take place.  We expect physicians will continue to consider using JUXTAPID for those adult HoFH patients for whom PCSK9 inhibitor products are not sufficiently effective.  We expect that the introduction of PCSK9 inhibitor products in commercial markets outside of the U.S. will have similarly negative effects on sales, including named patient sales, of lomitapide outside the U.S., particularly in Brazil and Canada, where a PCSK9 inhibitor product has been approved by the local regulatory authorities, as well as in Japan, where PCSK9 inhibitor products have been approved and launched prior to the anticipated launch of lomitapide in Japan. If the continued negative impact of PCSK9 inhibitors is greater than we expect, it may make it more difficult for us to generate revenue and achieve profitability.
 
In the near-term, we expect that the majority of our revenues will continue to be derived from sales of our products in the U.S. We also expect to generate revenues from sales of lomitapide in those countries outside the U.S. in which we have or expect to receive marketing approval and elect to commercialize lomitapide, and are able to obtain pricing and reimbursement approval at acceptable levels, particularly in Japan. We also expect to generate revenues from both our products in a limited number of other countries where they are, or may in the future be, available on a named patient sales basis as a result of existing approvals in the U.S. or EU. We expect that named patient sales of lomitapide in Brazil in the near term will continue to be our second largest source of revenues for lomitapide, on a country-by-country basis. We have received named patient sales orders for metreleptin in Argentina in the first, second and third quarters of 2016 and in Brazil in the second and third quarters of 2016. We expect net product sales from named patient sales to fluctuate quarter-over-quarter significantly more than sales in the U.S. because named patient sales are derived from unsolicited requests from prescribers. In some countries, including Brazil, orders for named patient sales are for multiple months of therapy which can lead to unevenness in orders. For example, in the first and third quarter of 2015, we recorded the largest orders for lomitapide since named patient sales began in Brazil. The sales to Brazil in the second and fourth quarters of 2015 were significantly lower than in the first and third quarters

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of 2015. In the first quarter of 2016, we did not receive any orders for lomitapide in Brazil, causing sales to Brazil in the first quarter of 2016 to be significantly lower than in the first quarter of 2015.  However, we did receive orders for lomitapide in Brazil in the second and third quarters of 2016, varying in size. Thus, we continue to expect that net product sales from named patient sales may fluctuate quarter-over-quarter as a result of government actions and economic pressures.  We believe the investigations in Brazil have contributed to a slower turn-around between price quotation and orders, including re-orders, from the federal government, and delays in orders and re-orders from the government of São Paulo after a patient has obtained access to lomitapide through the judicial process. See Part II, Item 1 – “Legal Proceedings” for further information regarding these investigations and other legal proceedings.  Similarly, we have faced, and may continue to face, a reluctance of some physicians to prescribe lomitapide, and some patients to take or stay on lomitapide, while the investigations are ongoing. In the second quarter of 2015, and in the second quarter of 2016, we observed a significant increase in patients discontinuing therapy in Brazil, and we believe that the increases are due in part to the investigations. These discontinuations may negatively impact re-orders of lomitapide in Brazil in future quarters. As noted above, revenues from named patient sales in Brazil may also be negatively affected by the potential availability of PSCK9 inhibitor products on a named patient sales basis or a commercial basis, particularly in light of the approval of Amgen’s PCSK9 inhibitor product in April 2016 by the Brazilian Health Surveillance Agency (“ANVISA”), the regulatory agency responsible for reviewing marketing authorization applications in Brazil. We also believe the investigations in Brazil may be impacting prescriptions and the timing of potential named patient orders of metreleptin.
During the three and nine months ended September 30, 2016, we generated approximately $35.4 million and $115.6 million of revenues from net product sales of both lomitapide and metreleptin, respectively. During the three and nine months ended September 30, 2015, we generated approximately$67.3 million and $190.9 million of revenues from net product sales of both lomitapide and metreleptin, respectively. As of September 30, 2016 and December 31, 2015, we had approximately $32.4 million and $64.5 million in cash and cash equivalents, respectively.
On May 11, 2016, we reached preliminary agreements in principle with the DOJ and the SEC to resolve certain aspects of their ongoing investigations.  Under the terms of the preliminary agreement in principle with the DOJ, we would plead guilty to two misdemeanor misbranding violations of the Food, Drug and Cosmetic Act.  One count would be based on our alleged marketing of JUXTAPID with inadequate directions for use (21 U.S.C. §§ 352(f)), and the second count would involve an alleged failure to comply with a requirement of the JUXTAPID Risk Evaluation and Mitigation Strategies (“REMS”) program (21 U.S.C. §§ 352(y)). We would separately enter into a five-year deferred prosecution agreement with regard to charges that we violated the Health Insurance Portability and Accountability Act and engaged in obstruction of justice relating to the REMS program. The preliminary agreement in principle with the DOJ also requires us to enter into a civil settlement agreement with the DOJ to resolve alleged violations of the False Claims Act. Additionally, we would enter into a non-monetary consent decree with the Food and Drug Administration prohibiting future violations of law and may have to enter into a corporate integrity agreement with the Department of Health and Human Services as part of any final settlement with the DOJ. Under the preliminary agreement in principle, we will not be subject to mandatory exclusion from participation in federal health care programs under 42 U.S.C. § 1320a-7(a).
Under the terms of the preliminary agreement in principle with the SEC staff, the SEC’s Division of Enforcement will recommend that the SEC accept a settlement offer from us on a neither-admit-nor-deny basis that contains alleged negligent violations of Sections 17(a)(2) and (3) of the Securities Act of 1933, as amended, related to certain statements that we made in 2013 regarding the conversion rate of patients receiving JUXTAPID prescriptions, with remedies that include censure, an order prohibiting future violations of the securities laws and payment of a civil penalty.
The preliminary agreements in principle provide for a consolidated monetary package that covers payments due to both the DOJ and the SEC. The consolidated monetary package includes payments to the DOJ and the SEC totaling approximately $40 million in the aggregate (the “Settlement Payments”), payable over five years as follows: approximately $3 million upon finalization of the settlement with the DOJ and the SEC, approximately $3.7 million per year, payable quarterly, for three years following finalization of the settlement, and approximately $13 million per year, payable quarterly, in years four and five following finalization of the settlement. Certain outstanding amounts would accrue interest at a rate of 1.75% per annum.  The Settlement Payments are subject to acceleration in the event of certain change of control transactions or the sale of JUXTAPID or MYALEPT assets. We have reserved an aggregate of approximately $40 million for these matters. In addition, we accrued $0.4 million in the second quarter of 2016 and $0.3 million in the third quarter of 2016 to reflect our current estimates of the minimum liabilities for relator attorney fees and settlement, respectively.

The terms of the preliminary agreements in principle described above may change following further negotiations and other terms of the final settlement remain subject to further negotiation.  The preliminary agreement in principle with the DOJ is subject to approval of supervisory personnel within the DOJ and relevant federal and state agencies, and approval by a U.S. District Court judge of the criminal plea and sentence and the civil settlement agreement.  The preliminary agreement in principle with the SEC is subject to review by other groups in the SEC and approval by the Commissioners of the SEC. The

33

preliminary agreements in principle do not cover the DOJ and SEC’s inquiries concerning the Company’s operations in Brazil, any potential claims by relators for attorneys’ fees, or any employment claims that may have been brought by relators.  See Part II, Item 1 – “Legal Proceedings” for further information regarding these investigations and other legal proceedings.
 
In July 2016, we announced a restructuring under which we reduced our global workforce by approximately 13% and intend to withdraw lomitapide from the EU and certain other global markets.  The goal of the reconfiguration is to reduce 2017 operating expenses by between $25 and $35 million relative to the previously stated 2016 operating expense guidance of between $145 and $155 million. In connection with this restructuring plan, in the third quarter of 2016, we entered into a lease amendment to vacate the premises at 101 Main Street, Cambridge, MA as an additional cost-cutting measure, and the premises were vacated in September 2016. We incurred aggregate charges of approximately $2.4 million in the third quarter of 2016 and we expect to substantially complete the payment of employee separation and other material costs associated with the restructuring by the second quarter of 2017. We expect to complete the withdrawal of lomitapide from the EU and certain other global markets by the end of 2016, unless we earlier enter into supply, license or other arrangements with suitable partners in such markets. The July 2016 restructuring followed a reduction in personnel announced in February 2016 that was intended to reduce compensation expenses by approximately $10 million, the result of a comprehensive business review intended to improve financial performance, increase operational efficiencies and strengthen our value proposition. The February reduction in force was substantially completed on February 10, 2016, and resulted in termination of approximately 80 employees, representing approximately 25% of our workforce.  We incurred expenses of approximately $1.8 million as a result of the February restructuring, consisting primarily of severance and benefits costs, all of which has been paid out as of the end of the third quarter.
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses. On an ongoing basis, we evaluate these estimates and judgments, including those described below. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results and experiences may differ materially from these estimates.
We believe that our application of the following accounting policies, each of which requires significant judgments and estimates on the part of management, are the most critical to aid in fully understanding and evaluating our reported financial results:
•
Revenue recognition;
•
Inventories;
•
Goodwill, purchased tangible assets and intangibles;
•
Accrued expenses;
•
Stock-based compensation; and
•
Income taxes
For a complete discussion of critical accounting policies, refer to “Critical Accounting Policies and Use of Estimates” within “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations” included within our 2015 Form 10-K.

34

Revenue Recognition
We recognize 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 we have no further performance obligations.
Lomitapide
In the U.S., JUXTAPID is only available for distribution through a specialty pharmacy, and is 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, we defer revenue until the product has been received by the patient.
We also record 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. We generally recognize 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, we recognize revenue on a cash basis if all other revenue recognition criteria have been met.
 
We record distribution and other fees paid to our distributors as a reduction of revenue, unless we receive an identifiable and separate benefit for the consideration and we can reasonably estimate the fair value of the benefit received. If both conditions are met, we record the consideration paid to the distributor as an operating expense. At this time, neither condition has been met and therefore, these fees paid to distributors are recorded as a reduction of revenue. We record 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 estimated 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.
 
We also provide 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. We record 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 us for the treatment of HoFH are recorded as a reduction of selling, general and administrative expense rather than as revenue. Effective January 2015, we also offer 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. We record 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 contractually hold inventory for no more than 21 business days. We recognize revenue for these sales once the product is received by the patient as we are 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. 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.
We also record 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,

35

these distributors typically only hold inventory to supply specific orders for the product. We generally recognize 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, we recognize revenue on a cash basis if all other revenue recognition criteria have been met.
We record distribution and other fees paid to our distributor as a reduction of revenue, unless we receive an identifiable and separate benefit for the consideration and we can reasonably estimate the fair value of the benefit received. If both conditions are met, we record the consideration paid to the distributor as an operating expense. At this time, neither condition has been met and therefore, these fees paid to our distributor are recorded as a reduction of revenue. We record 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, and the government-mandated discounts applicable to government-funded programs. These allowances are adjusted to reflect known changes in the factors that may impact such allowances in the quarter those changes are known. To date, such adjustments have not been significant.
 
As discussed above, we also provide 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. We record donations made to 501(c)(3) organizations as selling, general and administrative expense. Any payments received from 501(c)(3) organizations that have received a donation from us are recorded as a reduction of selling, general and administrative expense rather than as revenue. We also offer 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. We record revenue net of amounts paid under the MYALEPT co-pay assistance program for each patient. 
The following table summarizes combined activity for lomitapide and metreleptin in each of the product revenue allowance and reserve categories during the nine months ended September 30, 2016 (in thousands):
 
Government
Rebates
 
Contractual
Discounts
 
Other
Incentives
 
Total
Balance at December 31, 2015
$
10,837

 
$
—

 
$
112

 
$
10,949

Provision related to current period sales
15,374

 
3,604

 
866

 
19,844

Adjustments related to prior period sales
32

 
—

 
—

 
32

Payments made
(16,476
)
 
(3,604
)
 
(804
)
 
(20,884
)
Balance at September 30, 2016
$
9,767

 
$
—

 
$
174

 
$
9,941

 

 Inventories
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, we consider the probability that revenue will be obtained from the future sale of the related inventory and will write down inventory quantities in excess of expected requirements. Expired inventory is disposed of and the related costs are recognized as cost of product sales in the consolidated statements of operations.
We analyze our inventory levels to identify inventory that may expire prior to sale, inventory that has a cost basis in excess of its estimated realizable value, or inventory in excess of expected sales requirements. Although the manufacturing of our products is subject to strict quality controls, certain batches or units of product may no longer meet quality specifications or may expire, which would require adjustments to our inventory values. 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.
In the future, reduced demand, quality issues or excess supply beyond those anticipated by management may result in an adjustment to inventory levels, which would be recorded as an increase to cost of product sales. The determination of whether or not inventory costs will be realizable requires estimates by our management. A critical input in this determination is future expected inventory requirements based on our internal sales forecasts which we then compare to inventory on hand after

36

consideration of expiration dates.  The inventory reserve balance at September 30, 2016 and December 31, 2015 was $15.0 million and $2.4 million, respectively. To the extent our actual sales or subsequent sale forecasts decrease, we could be required to record additional inventory reserves in future periods, which could have a material negative impact on its gross margin.
Goodwill, Purchased Intangibles and Tangible Assets
We have recorded goodwill as a result of the January 2015 acquisition of MYALEPT, purchased tangible assets and intangibles representing product rights, and in-process research and development assets. When identifiable intangible assets are acquired, we determine fair values of these assets as of the acquisition date.  Discounted cash flow models are typically used in these valuations and the models require the use of significant estimates and assumptions including but not limited to:
•
the probability of obtaining marketing approval and/or achieving relevant development milestones for a drug candidate;
•
projecting regulatory approvals;
•
estimating future cash flows from product sales resulting from completed products; and
•
developing appropriate discount rates and probability rates.
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 also 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 by which the discounted cash flows expected from the intangible asset exceeds its carrying value. In conjunction with the interim goodwill impairment test described below, we determined there were indicators of impairment for the purchased intangibles. As a result, we tested the purchased intangible assets to see if they were recoverable by looking at the undiscounted cash flows of the related asset group. We concluded that the purchased intangible assets were recoverable and there was no impairment as of June 30, 2016. For the third quarter, the Company performed a qualitative assessment of the purchased intangible assets and, based on the assessment, determined that no indicators of impairment existed and the assets were not impaired at September 30, 2016.
In-process research and development assets are accounted for as indefinite-lived intangible assets and are maintained on our consolidated balance sheet until either the project underlying such an asset 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 revenues 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. In conjunction with the interim goodwill impairment test described below, we performed a quantitative impairment test for the in-process research and development assets and noted there was no impairment as of June 30, 2016. For the third quarter, the Company performed a qualitative assessment of the in-process research and development assets and, based on the assessment, determined that no indicators of impairment existed and the assets were not impaired at September 30, 2016.
Purchased tangible assets are accounted for as either inventory or clinical and compassionate use materials classified as other assets on our consolidated balance sheet. Inventory will be maintained on our consolidated balance sheet until the inventory is sold, donated as part of 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 will be recognized as cost of product sales in our consolidated statement of operations, inventory that is donated as part of our compassionate use program will be recognized as a selling, general and administrative expense in the consolidated statement of operations, and inventory used for clinical development will be recognized as research and development expense in the consolidated statement of operations. Other assets will be maintained on our 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 represents the excess of purchase price over fair value of net assets acquired in a business combination accounted for by the acquisition method of accounting and is not amortized, but subject to impairment testing at least annually or when a triggering event occurs that could indicate a potential impairment. We test our goodwill annually for impairment each October 31 unless a triggering event occurs that could indicate a potential impairment. We are organized as a single

37

reporting unit. We may first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is “more likely than not” that the fair value of the reporting unit is less than its carrying amount and whether the two-step impairment test on goodwill is required. If, based upon qualitative factors, it is “more likely than not” that the fair value of a reporting unit is greater than its carrying amount, we will not be required to proceed to a two-step impairment test on goodwill. However, we also have the option to proceed directly to a two-step impairment test on goodwill. In the first step, or Step 1, of the two-step impairment test, we compare the fair value of our reporting unit to our carrying value. If the fair value exceeds the carrying value of the net assets, goodwill is considered not impaired and we are not required to perform further testing. If the carrying value of the net assets exceeds the fair value, then we must perform the second step, or Step 2, of the two-step impairment test in order to determine the implied fair value of goodwill. If the carrying value of goodwill exceeds its implied fair value, then we would record an impairment loss equal to the difference.
 
The fair value of our reporting unit is estimated using a discounted cash flow methodology. This analysis requires significant judgments, including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for our business, estimation of the useful life over which cash flows will occur, and determination of our weighted average cost of capital. We evaluate the reasonableness of the fair value calculation of our reporting unit by reconciling the total fair value to our total market capitalization, taking into account an appropriate control premium. The determination of a control premium requires the use of judgment and is based primarily on comparable industry and deal-size transactions, related synergies and other benefits. When we are required to perform a Step 2 analysis, determining the fair value of our net assets and our off-balance sheet intangibles used in Step 2 requires us to make judgments and involves the use of significant estimates and assumptions.

Due to the significant sustained decline in our stock price in the second quarter of 2016 and other quantitative and qualitative factors, such as the continued decline in JUXTAPID revenue, corroborated by the implied purchase consideration from the proposed merger with QLT, we performed an interim goodwill impairment test. We performed a Step 1 analysis as of June 30, 2016, which indicated the carrying value of our net assets exceeded the fair value of the company. As a result, we proceeded with a Step 2 impairment test to determine the implied fair value of goodwill. The Step 2 test measures the goodwill impairment loss by allocating the estimated fair value of the reporting unit, as determined in Step 1, to the reporting units’ assets and liabilities, with the residual amount representing the implied fair value of goodwill. To the extent the implied fair value of goodwill is less than the carrying value, an impairment loss is recognized. The valuation of our reporting unit used our latest revenue projections and long range operating expense projections over the patent lives of both lomitapide and metreleptin. These projections were further risk-adjusted and reconciled to our market capitalization and the implied purchase consideration in the proposed QLT merger.  We assessed a range of different weighted average cost of capital assumptions, from 13% to 16%, in order to determine an appropriate discount rate. In determining the fair value of our net assets, we made certain adjustments from the carrying value of our assets and liabilities, including adjustments to inventory to reflect selling price less selling costs, convertible debt to reflect the fair value of the Convertible Notes, and valuation of lomitapide intangible assets that were not previously recorded. As a result of allocating the fair value of our reporting unit to the fair value of our net assets, we determined that the implied fair value of goodwill was less than the carrying value and recorded an impairment of $9.6 million in the second quarter of 2016. See Note 4, “Goodwill and Intangible Assets,” to the unaudited condensed consolidated financial statements for discussion of the interim goodwill impairment test that we performed as of June 30, 2016.     
 
Accrued Expenses
As part of the process of preparing our financial statements, we are required to estimate accrued expenses. This process involves reviewing open contracts and purchase orders, communicating with our applicable personnel as well as applicable vendor personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost. The majority of our service providers invoice us monthly in arrears for services performed. We make estimates of our accrued expenses as of each balance sheet date in our consolidated financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary. Examples of estimated accrued expenses include fees paid to clinical research organizations and investigative sites in connection with clinical studies and professional service fees. If our previous estimates of accrued liabilities are 5% too high or too low, this may result in an adjustment to our total accrued expenses in future periods of approximately $2.0 million.
 
Income Taxes
Our provision for income taxes is comprised of a current and a deferred portion. The current income tax provision is calculated as the estimated taxes payable or refundable on tax returns for the current year. We provide for deferred income taxes resulting from temporary differences between financial and taxable income. Such differences arise primarily from tax net

38

operating loss and credit carryforwards, depreciation, stock-based compensation expense, accruals, reserves and the treatment of convertible notes.
We assess the recoverability of any tax assets recorded on the balance sheet and provide any necessary valuation allowances as required. In evaluating our ability to recover our deferred tax assets, we consider all available positive and negative evidence including our past operating results, the existence of cumulative income in the most recent fiscal years, changes in the business in which we operate and our forecast of future taxable income. In determining future taxable income, assumptions utilized include the amount of state, federal and international pre-tax operating income, the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates we are using to manage the underlying business. Such assessment is completed on a jurisdiction by jurisdiction basis. In future periods, we may determine that it is more likely than not that some or all of our deferred tax assets are realizable and in such periods we may reduce some or all of our valuation allowance against our deferred tax assets. The reduction of our valuation allowance on our deferred tax assets could have a material effect on our financial statements.
 
We provide for income taxes during interim periods based on the estimated effective tax rate for the full fiscal year. We record a cumulative adjustment to the tax provision in an interim period in which a change in the estimated annual effective tax rate is determined.
 
Stock-Based Compensation
We issue stock options, restricted stock and restricted stock units (“RSUs”) with service conditions, which are generally the vesting periods of the awards. We also issue stock options that vest upon the satisfaction of certain performance conditions. We also issue stock options and RSUs that vest upon the satisfaction of certain market conditions.
We measure the fair value of stock options and other stock-based awards issued to employees and directors on the date of grant. The fair value of equity instruments issued to non-employees is remeasured as the award vests. For stock awards with service-based vesting conditions, compensation expense is recognized net of estimated forfeitures using the ratable method over the requisite service period, which is typically the vesting period. For stock awards that vest or begin vesting upon achievement of a performance condition, we begin recognizing compensation expense when achievement of the performance condition is deemed probable using an accelerated attribution model over the implicit service period. For stock awards that vest upon the achievement of a market condition, we recognize compensation expense over the derived service period. For stock awards that have 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 (vesting) period for unvested awards. The incremental compensation cost is the excess of the fair value of the modified award on the date of modification over the fair value of the original award immediately before the modification.
For stock awards subject to service-based and performance-based conditions, we calculate the estimated fair value of the awards using the Black-Scholes option-pricing model. As of September 30, 2016, we had 21,762 outstanding unvested RSUs that contain performance or market criteria that impacts the vesting of the award. The Black-Scholes option-pricing model requires the input of subjective assumptions, including stock price volatility and the expected life of stock options. For stock awards and RSUs that vest upon achievement of a market condition, we calculate the estimated fair value of the stock-based awards using a Monte Carlo simulation. A Monte Carlo simulation requires the input of assumptions, including our stock price, and the volatility of our stock price, and was developed to reflect the impact of the market condition on the value of the awards.
For RSUs with service-based vesting conditions, we determine the fair value of the RSUs to be the fair value of our common stock underlying the RSUs at the date of grant.
We do not have sufficient history to estimate the volatility of our common stock price or the expected life of our options based on our specific evidence. Our expected stock price volatility is based on an average of our own historical volatility and that of several peer companies. We utilize a weighted average method using our own volatility data for the time that we have been public, along with similar data for peer companies that are publicly traded. For purposes of identifying peer companies, we considered characteristics such as industry, length of trading history, and stage of life cycle. We will continue to use a weighted average method until the historical volatility of our common stock is relevant to measure expected volatility for future option grants. The assumed dividend yield is based on our expectation of not paying dividends in the foreseeable future. We determine the average expected life of stock options according to the “simplified method” as described in Staff Accounting Bulletin (“SAB”) 110, which is the mid-point between the vesting date and the end of the contractual term. We determine the risk-free interest rate by reference to implied yields available from five-year and seven-year U.S. Treasury securities with a remaining term equal to the expected life assumed at the date of grant. We have performed a historical analysis of both options

39

and awards that were forfeited prior to vesting and recorded total stock-based compensation expense that reflected this estimated forfeiture rate. Forfeitures are estimated each period and adjusted if actual forfeitures differ from those estimates. The weighted-average assumptions used in the Black-Scholes option-pricing model are as follows:
 
Three Months Ended 
 
Nine Months Ended
 
September 30,
 
September 30,
 
2016
 
2015
 
2016
 
2015
Expected stock price volatility
68.0
%
 
60.7
%
 
63.2
%
 
61.2
%
Risk-free interest rate
1.14
%
 
1.74
%
 
1.60
%
 
1.63
%
Expected life of options (years)
6.25

 
6.24

 
6.25

 
6.21

Expected dividend yield
—

 
—

 
—

 
—

Results of Operations
Comparison of the Three Months Ended September 30, 2016 and 2015
The following table summarizes the results of our operations for each of the three-month periods ended September 30, 2016 and 2015, together with the changes in those items in dollars and as a percentage:
 
Three Months Ended September 30,
 
 
 
 
 
2016
 
2015
 
Change
 
%
Net product sales
$
35,387

 
$
67,303

 
$
(31,916
)
 
(47
)%
Cost of product sales
13,838

 
14,486

 
(648
)
 
(4
)%
Operating expenses
 
 
 
 
 
 
 
Selling, general and administrative
27,827

 
43,923

 
(16,096
)
 
(37
)%
Research and development
9,940

 
11,282

 
(1,342
)
 
(12
)%
Provision for contingent litigation
126

 
—

 
126

 
100
 %
Restructuring
2,421

 
—

 
2,421

 
100
 %
Total operating expenses
40,314

 
55,205

 
(14,891
)
 
(27
)%
Loss from operations
(18,765
)
 
(2,388
)
 
(16,377
)
 
686
 %
Interest expense, net
(7,720
)
 
(7,113
)
 
(607
)
 
9
 %
Other income, net
165

 
30

 
135

 
450
 %
Loss before provision for income taxes
(26,320
)
 
(9,471
)
 
(16,849
)
 
178
 %
Provision for income taxes
(246
)
 
(294
)
 
48

 
(16
)%
Net loss
$
(26,566
)
 
$
(9,765
)
 
(16,801
)
 
172
 %
Net Product Sales
 
Three Months Ended September 30,
 
2016
 
2015
 
(in thousands)
Lomitapide
$
21,982

 
$
58,828

Metreleptin
13,405

 
8,475

Total net product sales
$
35,387

 
$
67,303

Lomitapide
We generated revenues from net product sales of lomitapide of $22.0 million in the three months ended September 30, 2016, a decrease of $36.8 million, or 63%, as compared to the same period in 2015. The significant decrease in net product sales in the quarter ended September 30, 2016 is primarily attributable to a lower patient base as a result of the introduction of

40

PCSK9 inhibitor products in the U.S. in the fall of 2015, partially offset by an increase in international revenue in the third quarter of 2016.
We continue to see revenues from net product sales of lomitapide in the U.S. decline significantly in 2016 as compared to 2015, due primarily to the launch of PCSK9 inhibitor products. Also, the launch of higher strength lomitapide capsules in the third quarter of 2015 has reduced net product sales in 2016 for sales to those patients who take more than one capsule of lomitapide per day in the absence of higher strength capsules utilized to achieve the higher daily dose. We have factored the launch of higher strength capsules and this reduction in net product sales into our financial expectations for the remainder of 2016.  
 
We expect that named patient sales in Brazil for lomitapide and metreleptin will continue to be our largest source of revenues, on a country-by-country basis, in the short-term, outside the U.S. However, we expect that net product sales from named patient sales in Brazil will fluctuate quarter-over-quarter given that orders for named patient sales are typically for multiple months of therapy which can lead to an unevenness in orders. Future revenues from named patient sales in Brazil may also be negatively affected by the significant increase in discontinuations of patients on lomitapide that we observed in Brazil beginning in the second quarter of 2015, ongoing government investigations in Brazil, and potentially by the availability of PCSK9 inhibitor products on a named patient sales or commercial basis, particularly in light of the approval by ANVISA of Amgen Inc.’s PCSK9 inhibitor product in April 2016, and the ongoing court proceedings in Brazil reviewing the regulatory framework for named patient sales. In addition, net product sales from named patient sales of both products in Brazil may fluctuate quarter-over-quarter as a result of negative media coverage, government actions, economic pressures and political instability.
Metreleptin
We generated revenues from net product sales of metreleptin of approximately $13.4 million in the three months ended September 30, 2016, an increase of $4.9 million, or 58%, compared to the same period in 2015. The increase in net product sales was primarily due to an increase in the volume of sales of metreleptin in the U.S. and a significant shipment to Japan in the third quarter of 2016. We expect net product sales of metreleptin to continue to increase in 2016 due to an increase in the number of patients and maintenance of patients on metreleptin in the U.S. and named patient sales of metreleptin outside the U.S., including in Brazil. The expected increase in net product sales of metreleptin is highly dependent on our ability to continue to find GL patients and to build market acceptance for metreleptin in the U.S. In addition, given the significantly higher launch price of MYALEPT set by us in the first quarter of 2015 compared to AstraZeneca’s original launch price, we have paid, and expect to continue to pay, significant Medicaid rebates for MYALEPT, which will have a negative impact on our net product sales in future quarters. The degree of such impact on our overall financial performance will depend on the percentage of MYALEPT patients that have Medicaid as their primary insurance coverage and the quantity of units ordered per patient. 
Cost of Product Sales
We recorded cost of product sales of $13.8 million in the three months ended September 30, 2016, a decrease of $0.6 million, or 4%, as compared to the same period in 2015. Cost of sales includes the cost of inventory sold, amortization of acquired product rights, which result from the acquisition of Myalept, manufacturing and supply chain costs, product shipping and handling costs, provisions for excess and obsolete inventory, as well as estimated royalties payable related to the sale of lomitapide and metreleptin. The decrease in cost of product sales in the third quarter of 2016 is primarily due to a quarter over quarter decrease in the provision for excess and obsolete inventory, royalty expense associated with a $36.8 million decrease in sales of lomitapide, and a decrease in third-party logistics fees. This was partially offset by increased royalties and other costs of sales associated with a $4.9 million increase in sales of metreleptin.
We expect cost of product sales of lomitapide in the U.S., excluding any charges for excess and obsolete inventory, to continue to decline in 2016 due to the expected decline of net product sales in the U.S. and to fluctuate outside the U.S. primarily based on named patient sales in Brazil. We expect cost of product sales of metreleptin, excluding any charges for excess and obsolete inventory, to increase throughout 2016 due to the expected increases in net product sales of metreleptin.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $27.8 million in the three months ended September 30, 2016, a decrease of $16.1 million, or 37%, as compared to the same period in 2015. The $16.1 million decrease was primarily attributable to a $8.9 million decrease in salary and employee-related costs as a result of the reductions in force completed in the first and third quarter of 2016, a $5.5 million decrease in legal fees due to increased costs in the prior year associated with

41

ongoing litigation, and a $2.7 million decrease in corporate and outside service costs related to a charitable contribution made in the third quarter of the prior year.
We expect that our selling, general and administrative expenses will decrease in 2016 as compared to 2015 due primarily to the reductions in force in February 2016 and July 2016.
Research and Development Expenses
Research and development expenses were $9.9 million in the three months ended September 30, 2016, a decrease of $1.4 million, or 12%, as compared to the same period in 2015. The $1.4 million decrease was primarily attributable to a $0.7 million decrease in salary and employee-related costs as a result of the reductions in force completed in the first and third quarter of 2016 and a $1.0 million decrease in contract manufacturing costs due to the timing of our manufacturing activities during the year.
We expect research and development expenses to decrease slightly for the remainder of 2016 as compared to 2015 as a result of the reductions in force in February 2016 and July 2016 and the related reduction in expense.  We will continue to incur expenses related to our clinical development and regulatory activities to support a marketing authorization approval for lomitapide in HoFH in Japan; continuation of the observational cohort and vascular imaging post-marketing studies related to lomitapide initiated in 2014; clinical development and regulatory activities related to our planned application for marketing approval in the EU for MYALEPT for  GL and a subset of PL patients, including a planned additional trial in pediatric GL patients under the age of six years old; planned filings and activities related to obtaining approval of MYALEPT for a subset of PL in the U.S. and for GL and a subset of PL in certain other markets; and initiation and continuation of certain post-marketing requirements related to MYALEPT. Due to the numerous risks and uncertainties associated with the timing and costs to conduct clinical trials and related activities, we cannot determine these future expenses with certainty and the actual amounts may vary significantly from our forecasts.
Interest Expense, net
Interest expense was $7.7 million in the three months ended September 30, 2016, an increase of $0.6 million as compared to the same period in 2015. Interest expense primarily relates to the amortization of the debt discount and interest incurred in relation to the issuance in August 2014 of the Convertible Notes, for which interest is payable semi-annually in arrears on February 15 and August 15 of each year, beginning on February 15, 2015. 
Other Income (Expense), net
Other income, net was $0.2 million in the three months ended September 30, 2016, an increase of $0.2 million, as compared to the same period in 2015. Other income (expense), net relates to unrealized and realized foreign currency charges incurred related to our foreign operations.
Provision for Income Taxes
Our provision for income taxes was $0.2 million for the three-month period ended September 30, 2016, a decrease of $0.1 million from the same period in 2015. The provision for income taxes consists of current tax expense, which relates primarily to our profitable operations in our foreign tax jurisdictions, and a net deferred tax expense from the tax amortization of the indefinite-life intangible assets associated with the MYALEPT acquisition offset by the reversal of a deferred tax liability for goodwill that was impaired for financial statement purposes.

Comparison of the Nine Months Ended September 30, 2016 and 2015
The following table summarizes the results of our operations for each of the nine-month periods ended September 30, 2016 and 2015, together with the changes in those items in dollars and as a percentage:

42

 
Nine Months Ended September 30,
 
 
 
 
 
2016
 
2015
 
Change
 
%
 
(in thousands)
 
 
 
 
Net product sales
$
115,633

 
$
190,884

 
$
(75,251
)
 
(39
)%
Cost of product sales
51,867

 
40,321

 
11,546

 
29
 %
Operating expenses
 
 
 
 
 
 
 
Selling, general and administrative
107,942

 
133,523

 
(25,581
)
 
(19
)%
Research and development
30,495

 
33,551

 
(3,056
)
 
(9
)%
Provision for contingent litigation
28,509

 
—

 
28,509

 
100
 %
Impairment of goodwill
9,600

 
—

 
9,600

 
100
 %
Restructuring
4,172

 
—

 
4,172

 
100
 %
Total operating expenses
180,718

 
167,074

 
13,644

 
8
 %
Loss from operations
(116,952
)
 
(16,511
)
 
(100,441
)
 
608
 %
Interest expense, net
(22,371
)
 
(21,113
)
 
(1,258
)
 
6
 %
Other income, net
1,126

 
1,631

 
(505
)
 
(31
)%
Loss before provision for income taxes
(138,197
)
 
(35,993
)
 
(102,204
)
 
284
 %
Provision for income taxes
(732
)
 
(747
)
 
15

 
(2
)%
Net loss
$
(138,929
)
 
$
(36,740
)
 
(102,189
)
 
278
 %
Net Product Sales
 
Nine Months Ended September 30,
 
2016
 
2015
 
(in thousands)
Lomitapide
$
79,226

 
$
173,227

Metreleptin
36,407

 
17,657

Total net product sales
$
115,633

 
$
190,884

Lomitapide
We generated revenues from net product sales of lomitapide of $79.2 million in the nine months ended September 30, 2016, a decrease of $94.0 million, or 54%, as compared to the same period in 2015. The significant decrease in net product sales in the nine months ended September 30, 2016 is primarily attributable to a lower patient base as a result of the introduction of PCSK9 inhibitor products in the U.S. in the fall of 2015.
We continue to see revenues from net product sales of lomitapide in the U.S. decline significantly in 2016 as compared to 2015, due primarily to the launch of PCSK9 inhibitor products. Also, the launch of higher strength lomitapide capsules in the third quarter of 2015 has net product sales in 2016 for sales to those patients who currently take more than one capsule of lomitapide per day in the absence of higher strength capsules utilized to achieve the higher daily dose. We have factored the launch of higher strength capsules and this potential reduction in net product sales into our financial expectations for the remainder of 2016.  
We expect that named patient sales in Brazil for lomitapide and metreleptin will continue to be our largest source of revenues, on a country-by-country basis, in the short-term, outside the U.S. However, we expect that net product sales from named patient sales in Brazil will fluctuate quarter-over-quarter given that orders for named patient sales are typically for multiple months of therapy which can lead to an unevenness in orders. Future revenues from named patient sales in Brazil may also be negatively affected by the significant increase in discontinuations of patients on lomitapide that we observed in Brazil since 2015, ongoing government investigations in Brazil, and potentially by the availability of PCSK9 inhibitor products on a named patient sales or commercial basis, particularly in light of the approval by ANVISA of Amgen’s PCSK9 inhibitor product in April 2016, and the ongoing court proceedings in Brazil reviewing the regulatory framework for named patient sales. In addition, net product sales from named patient sales may fluctuate quarter-over-quarter as a result of negative media coverage, government actions, economic pressures and political instability.

43

Metreleptin
We generated revenues from net product sales of metreleptin of approximately $36.4 million in the nine months ended September 30, 2016, an increase of $18.7 million, or 106%, compared to the same period in 2015. The increase in net product sales was primarily due to increased sales in the U.S., a shipment in Japan in the third quarter of 2016, and a shipment in Brazil in the second quarter of 2016, which was the first time we shipped metreleptin in Brazil. We expect net product sales of metreleptin to continue to increase in 2016 due to an expected increase in the number of patients and maintenance of patients on metreleptin in the U.S. and named patient sales of metreleptin outside the U.S., including Brazil. The expected increase in net product sales of metreleptin is highly dependent on our ability to continue to find GL patients and to build market acceptance for metreleptin in the U.S. In addition, given the significantly higher launch price of MYALEPT set by us in the first quarter of 2015 compared to AstraZeneca’s original launch price, we have paid, and expect to continue to pay, significant Medicaid rebates for MYALEPT, which will have a negative impact on our net product sales in future quarters. The degree of such impact on our overall financial performance will depend on the percentage of MYALEPT patients that have Medicaid as their primary insurance coverage and the quantity of units ordered per patient. 
Cost of Product Sales
We recorded cost of product sales of $51.9 million in the nine months ended September 30, 2016, an increase of $11.6 million, or 29%, as compared to the same period in 2015. Cost of sales includes the cost of inventory sold, amortization of acquired product rights, which result from the acquisition of Myalept, manufacturing and supply chain costs, product shipping and handling costs, provisions for excess and obsolete inventory, as well as estimated royalties payable related to the sale of lomitapide and metreleptin. The increase in cost of product sales is largely attributable to excess and obsolete charges of $7.6 million related to certain inventory originally acquired in the MYALEPT acquisition that was identified to be unsalable in the second quarter of 2016. The increase is also attributable to reserves taken related to the withdrawal of lomitapide from the European Union and certain other global markets. Metreleptin cost of product sales included a $2.6 million increase in royalty expense associated with increased product sales, while royalty expense associated with lomitapide decreased by $4.5 million and third-party logistics fees decreased by $2.5 million due to declining sales.
We expect cost of product sales of lomitapide in the U.S., excluding any charges for excess and obsolete inventory, to decline in 2016 due to the expected decline of net product sales in the U.S. and to fluctuate outside the U.S. primarily based on named patient sales in Brazil. We expect cost of product sales of metreleptin, excluding any charges for excess and obsolete inventory, to increase throughout 2016 due to the expected increases in net product sales of metreleptin.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $107.9 million in the nine months ended September 30, 2016, a decrease of $25.6 million, or 19%, as compared to the same period in 2015. The $25.6 million decrease was primarily attributed to a $20.2 million decrease in salary and employee-related costs and a $5.3 million decrease in stock-based compensation fees as a result of the reductions in force completed in the first and third quarters of 2016, as well as a $5.8 million decrease in outside corporate service costs incurred in the prior year related to the Myalept acquisition. This was partially offset by a $3.5 million increase in consulting for current year corporate initiatives.
We expect that our selling, general and administrative expenses will decrease in 2016 as compared to 2015 due primarily to the reductions in force in February 2016 and July 2016.
Research and Development Expenses
Research and development expenses were $30.5 million in the nine months ended September 30, 2016, a decrease of $3.1 million, or 9%, as compared to the same period in 2015. The $3.1 million decrease was primarily attributable to a decrease in contract manufacturing due to timing of our manufacturing activities in the current year, and outside services of $2.2 million and a decrease in stock-based compensation of $1.8 million, partially offset by an increase in severance of $1.1 million.
We expect research and development expenses to decrease slightly in 2016 as compared to 2015 as a result of the reductions in force in February and July 2016 and the related reduction in expense.  We will continue to incur expenses related to our clinical development and regulatory activities to support a marketing authorization approval for lomitapide in HoFH in Japan; continuation of the observational cohort and vascular imaging post-marketing studies related to lomitapide initiated in 2014; clinical development and regulatory activities related to our planned application for marketing approval in the EU for MYALEPT for  GL and a subset of PL patients, including a planned additional trial in pediatric GL patients under the age of six years old; planned filings and activities related to obtaining approval of MYALEPT for a subset of PL in the U.S. and for GL and a subset of PL in certain other markets; and initiation and continuation of certain post-marketing requirements related to

44

MYALEPT. Due to the numerous risks and uncertainties associated with the timing and costs to conduct clinical trials and related activities, we cannot determine these future expenses with certainty and the actual amounts may vary significantly from our forecasts.
Provision for Contingent Litigation
In May 2016, we reached preliminary agreements in principle with the DOJ and the SEC to resolve certain aspects of their ongoing investigations. We increased our existing reserve related to the investigations by approximately $29 million, including accrued interest, bringing the aggregate reserve for these matters to approximately $41 million. The increased principal reserve amount of approximately $28 million was recorded in the first quarter of 2016. See Part II, Item 1 – “Legal Proceedings” for further information regarding these investigations and other legal proceedings.
Impairment of Goodwill
 
Due to the significant sustained decline in our stock price in the second quarter of 2016 and other qualitative factors, such as the decrease in our forecasts related to JUXTAPID revenue, corroborated by the implied purchase consideration from the proposed merger with QLT, we performed an interim goodwill impairment test. As a result of our impairment test, we wrote off the goodwill balance of $9.6 million in the second quarter of 2016. See Note 4, “Goodwill and Intangible Assets,” to the unaudited condensed consolidated financial statements for discussion of the interim goodwill impairment test that we performed as of June 30, 2016.
Restructuring
A restructuring charge of $4.2 million was recorded during the nine months ended September 30, 2016, which consisted primarily of severance and benefits costs as a part of a reduction in force of approximately 25% of employees in February 2016 and approximately 13% of employees in July 2016, and costs associated with the vacating of office space at our headquarters in Cambridge in the third quarter of 2016. No further significant charges are expected to be incurred related to this cost reduction plan. See Note 8, “Restructuring,” to the unaudited condensed consolidated financial statements for further discussion.
Interest Expense, net
Interest expense was $22.4 million in the nine months ended September 30, 2016, an increase of $1.3 million as compared to the same period in 2015. Interest expense primarily relates to the amortization of the debt discount and interest incurred in relation to the issuance in August 2014 of the Convertible Notes, for which interest is payable semi-annually in arrears on February 15 and August 15 of each year, beginning on February 15, 2015.
Other Income (Expense), net
Other income, net was $1.1 million in the nine months ended September 30, 2016, a decrease of $0.5 million, as compared to the same period in 2015. Other income (expense), net relates to unrealized and realized foreign currency charges incurred related to our foreign operations.
Provision for Income Taxes
Our provision for income taxes for the nine months ended September 30, 2016 did not change from the same period in 2015. During the nine months ended September 30, 2016, the provision for income taxes consists of current tax expense, which relates primarily to our profitable operations in our foreign tax jurisdictions, and a net deferred tax expense from the tax amortization of the indefinite-life intangible assets associated with the MYALEPT acquisition offset by the reversal of a deferred tax liability for goodwill that was impaired for financial statement purposes. 

45

Liquidity and Capital Resources
Since our inception in 2005, we have funded our operations primarily through proceeds from the issuance of convertible notes, public issuances of common stock, revenue from the sales of lomitapide and metreleptin, proceeds from our long-term debt and the private placement of convertible preferred stock. We have incurred losses since inception, and except for the third and fourth quarters of 2014, the second and third quarters of 2015 and the second quarter of 2016, have generated negative cash flows from operations each quarter since inception.
During the three and nine months ended September 30, 2016, we generated $35.4 million and $115.6 million of revenues from net product sales, respectively. During the three and nine months ended September 30, 2015, we generated $67.3 million and $190.9 million of revenues from net product sales, respectively. As of September 30, 2016 and December 31, 2015, we had $32.4 million and $64.5 million in cash and cash equivalents on hand, respectively.
In January 2015, we amended our Loan and Security Agreement with Silicon Valley Bank to provide for a $25.0 million term loan (the “2015 Term Loan Advance”), as well as a revolving line of credit (the “Revolving Line”) of up to $15.0 million subject to a borrowing base. We used $4.0 million of the proceeds received from the 2015 Term Loan Advance to repay the aggregate of all amounts outstanding due to Silicon Valley Bank under our existing financing arrangements.  The Revolving Line was terminated in January 2016 pursuant to the amendment to the Forbearance Agreement discussed below.
On October 30, 2015, we notified Silicon Valley Bank that we had breached one or more covenants under the SVB Loan and Security Agreement and we are currently in default.  On November 9, 2015, we and Silicon Valley Bank entered into a Forbearance Agreement (the “Forbearance Agreement”), pursuant to which Silicon Valley Bank agreed not to take any action as a result of such default, including an agreement to waive the increase in the per annum interest rate under the loan from 3.0% to 8.0% until December 7, 2015 (the “Forbearance Period”), subject to certain conditions, including the deposit of cash into one or more accounts at Silicon Valley Bank to collateralize balances related to the outstanding obligations due to Silicon Valley Bank.  These cash collateral amounts are restricted for all uses until the full and final payment of all of our obligations to Silicon Valley Bank, as determined by Silicon Valley Bank in its sole and exclusive discretion.  On December 7, 2015, we and Silicon Valley Bank entered into an amendment (the “First Amendment”) to the Forbearance Agreement, pursuant to which Silicon Valley Bank agreed to extend the Forbearance Period through January 7, 2016.  On January 7, 2016, we and Silicon Valley Bank entered into a second amendment (the “Second Amendment”) to the Forbearance Agreement, pursuant to which Silicon Valley Bank agreed to extend the Forbearance Period through June 30, 2016. Pursuant to the terms of the Second Amendment, we and Silicon Valley Bank agreed to terminate the Revolving Line, for which we accrued a termination fee of $0.5 million as of March 31, 2016.  On February 26, 2016, we and Silicon Valley Bank entered into a third amendment (the “Third Amendment”) to the Forbearance Agreement, pursuant to which Silicon Valley Bank agreed to forbear exercising its rights under the SVB Loan and Security Agreement as a result of our failure to deliver an unqualified opinion (without a going concern explanatory paragraph) of our independent auditors with our annual financial statements for the fiscal year ended December 31, 2015.  On June 8, 2016, we and Silicon Valley Bank entered into a fourth amendment (the “Fourth Amendment”) to the Forbearance Agreement, pursuant to which Silicon Valley Bank agreed to forbear exercising its rights under the SVB Loan and Security Agreement as a result of our failure to deliver our quarterly financial statements for the fiscal quarter ended March 31, 2016 when due under the terms of the SVB Loan and Security Agreement. On June 14, 2016, we and Silicon Valley Bank entered into a fifth amendment (the “Fifth Amendment”) to the Forbearance Agreement, pursuant to which Silicon Valley Bank agreed to extend the Forbearance Period through September 30, 2016. In connection with the Fifth Amendment, we were required to deposit an additional $0.6 million with Silicon Valley Bank as cash collateral for our obligations under the SVB Loan and Security Agreement. On September 30, 2016, we entered into a sixth amendment to the Forbearance Agreement with Silicon Valley Bank, pursuant to which Silicon Valley Bank agreed to extend the Forbearance Period through November 30, 2016.
The Forbearance Period is subject to early termination upon the occurrence of certain events, including the occurrence of additional events of default.   Upon the expiration of the Forbearance Period or the occurrence of a termination event, we would be required to repay all of the outstanding obligations, including, but not limited to, the $25.0 million outstanding principal of the 2015 Term Loan Advance and certain fees totaling $2.0 million.  As our obligations may be accelerated at the election of Silicon Valley Bank upon the expiration of the Forbearance Period, or earlier if a termination event occurs, these amounts have been presented as current liabilities on the consolidated balance sheet.  Amounts deposited with Silicon Valley Bank to collateralize balances related to outstanding obligations under the SVB Loan and Security Agreement, which include the $25.0 million outstanding principal of the 2015 Term Loan Advance and $0.4 million related to a cash collateral account for letters of credit have been presented as restricted cash as of December 31, 2015. The cash collateral balance increased by an additional $0.6 million in the second quarter of 2016 pursuant to the Fifth Amendment and was presented as restricted cash as of September 30, 2016 on the condensed consolidated balance sheets. We plan to continue to engage in discussions with Silicon Valley Bank during the Forbearance Period regarding the loan and the defaults to seek a resolution of this matter.  We can

46

provide no assurances that we will be able to resolve this matter, which could result in the loans under the SVB Loan and Security Agreement and QLT Loans (defined below) being accelerated and have a material negative impact on our cash flows and business.
On June 14, 2016, we entered into a loan and security agreement (the “QLT Loan Agreement”) with QLT concurrently with the execution of the Merger Agreement, pursuant to which QLT agreed to provide us with a term loan facility in an aggregate principal amount not to exceed $15 million. We borrowed $3 million in term loans on June 15, 2016 and may also borrow up to an additional $3 million per month if and to the extent such amounts are necessary in order for us to maintain an unrestricted cash balance of $25 million, subject to the satisfaction of certain terms and conditions (the “QLT Loans”). The QLT Loans mature on the earliest of (i) July 1, 2019, (ii) the maturity date of the Convertible Notes, (iii) three business days after a termination of the Merger Agreement by us and (iv) 90 days after a termination of the Merger Agreement by QLT. Under the terms of the QLT Loan Agreement, we are subject to certain financial covenants consistent with the financial covenants contained in the SVB Loan and Security Agreement. Such financial covenants will only be tested if (i) the financial covenants under the SVB Loan and Security Agreement are then in effect (and not suspended) or (ii) the SVB Loan and Security Agreement has been terminated. Our obligations under the QLT Loan Agreement are secured by (i) a first priority security interest in our intellectual property related to MYALEPT and (ii) a second priority security interest in certain other assets securing our obligations under the SVB Loan and Security Agreement (excluding certain cash collateral accounts). Our obligations under the QLT Loan Agreement may be accelerated upon the occurrence of certain events of default, including a cross-default under the SVB Loan and Security Agreement. If the QLT Loans are prepaid prior to their maturity date, including at our election, a prepayment premium of 2.0% of the outstanding amount of the QLT Loans will be due prior to such prepayment. In connection with the QLT Loan Agreement, on June 14, 2016, we entered into a subordination agreement with QLT and Silicon Valley Bank (the “Subordination Agreement”), pursuant to which QLT’s liens and right to receive payments under the QLT Loan Agreement are fully subordinated to the SVB Loan and Security Agreement, other than with respect to certain intellectual property relating to MYALEPT and proceeds of dispositions thereof. Pursuant to the Subordination Agreement, upon the occurrence of certain events (including the termination of the Merger Agreement), subject to a 60-day standstill period, QLT may purchase the outstanding obligations owing to Silicon Valley Bank under the SVB Loan and Security Agreement to the extent that Silicon Valley is not exercising its rights against the collateral at such time.    
Cash Flows
The following table sets forth the major sources and uses of cash and cash equivalents for the periods set forth below:

 
Nine Months Ended September 30,
 
2016
 
2015
 
(in thousands)
Net cash provided by/(used in):
 
 
 
Operating activities
$
(33,113
)
 
$
24,097

Investing activities
(1,540
)
 
(326,207
)
Financing activities
2,212

 
(1,794
)
Effect of exchange rates on cash
303

 
(295
)
Net decrease in cash and cash equivalents
$
(32,138
)
 
$
(304,199
)

Net cash used in operating activities was $33.1 million in the nine months ended September 30, 2016. For the nine months ended September 30, 2016, the cash used in operations was primarily related to the net loss of $138.9 million offset by non-cash expenses, including non-cash interest expense of $16.7 million, the amortization of intangible assets acquired of $15.1 million, provision for inventory excess and obsolescence of 16.3 million and stock-based compensation of $11.1 million. Additionally, for the nine months ended September 30, 2016, cash used in operations reflected changes in net working capital which included an increase in contingent litigation accrual of $28.5 million, accounts receivable of $5.7 million, and prepaid expenses and other assets of $2.9 million. This was partially offset by decreases in accounts payable of $0.9 million.
Net cash provided by operating activities was $24.1 million in the nine months ended September 30, 2015. For the nine months ended September 30, 2015, the cash provided by operations was primarily related to the net loss of $36.7 million offset by non-cash expenses, including stock compensation of $18.2 million, non-cash interest expense of $15.7 million and the

47

amortization of intangible assets acquired of $15.3 million. Additionally, for the nine months ended September 30, 2015, the cash provided by operations included decreases in inventories of $3.7 million and increases in accrued expenses and other liabilities of $8.9 million, offset by increases in prepaid expenses and other assets of $3.4 million.
Cash used in investing activities for the nine months ended September 30, 2016 of $1.5 million was due to additions of property and equipment. Cash used in investing activities for the nine months ended September 30, 2015 of $326.2 million was primarily for the acquisition of MYALEPT for $325.0 million. 
Cash provided by financing activities for the nine months ended September 30, 2016 of $2.2 million was primarily due to proceeds from our loan with QLT, partially offset by increases in our restricted cash and payment of debt issuance costs. Cash used in financing activities for the nine months ended September 30, 2015 of $1.8 million primarily consisted of proceeds from long-term debt associated with amended term loan with SVB of $25.0 million and $3.0 million of proceeds from exercises of stock options offset by principal repayment of $4.0 million of long-term debt and increase in restricted cash used as collateral for the amended term loan with SVB of $25.5 million.
Future Funding Requirements
In the future, we likely need to raise additional capital to fund our operations. Our future capital requirements may be substantial, and will depend on many factors, including:
•
the level of physician, patient and payer acceptance of our products;
•
the success of our commercialization efforts and the level of revenues we generate from sales of our products in the U.S., which, with respect to JUXTAPID, has been significantly negatively impacted by the introduction of PCSK9 inhibitor products and the corresponding significant impact on JUXTAPID revenues;
•
our ability to complete the merger with QLT and on the timeline we have anticipated;
•
the level of revenue we receive from named patient sales of our products in Brazil and other key countries where a mechanism exists to sell the product on a pre-approval basis in such country based on U.S. approval of such products or EU approval of lomitapide, particularly in light of the regulatory approval of Amgen’s PCSK9 inhibitor product in Brazil in April 2016, the potential availability of that and other PCSK9 inhibitor products on a named patient sales or commercial basis in Brazil, and the ongoing court proceedings in Brazil reviewing the regulatory framework for named patient sales;
•
our ability to obtain pricing and reimbursement approval of lomitapide in the key countries in which lomitapide is approved and where we elect to commercialize, at acceptable prices, and on a timely basis, and without significant restrictions, discounts, caps or other cost containment measures, particularly in markets where lomitapide does not have orphan drug designation at all or at the time of pricing and reimbursement negotiations;  
•
the extent of the negative impact of the introduction of PCSK9 inhibitor products on sales of lomitapide;
•
the cost of building and maintaining the sales and marketing capabilities necessary for the commercialization of our products for their targeted indications in the market(s) in which each has received regulatory approval and we elect to commercialize such products, to the extent reimbursement and pricing approvals are obtained, and certain other key international markets, if approved;
•
pre-launch and commercial activities to support the launch of lomitapide in HoFH in Japan, subject to the receipt of reimbursement approval; 
•
the timing and costs of clinical development and regulatory activities to support the potential approval of metreleptin in the EU as a treatment for complications of leptin deficiency in GL patients and a subset of PL patients, in connection with which we have committed to the PDCO to conduct an additional trial in pediatric GL patients as a condition to approval of metreleptin in such patients;  
•
the timing and costs of future business development opportunities;
•
the timing and cost of seeking regulatory approvals and potential future clinical development of metreleptin in additional indications and possible lifecycle management opportunities for lomitapide;

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•
the cost of filing, prosecuting and enforcing patent claims, including our efforts to defend two of our lomitapide dosing patents in the ongoing IPRs and efforts to prepare for potential generic submissions for lomitapide with FDA, which could occur beginning in December 2016, and subsequent efforts to defend and enforce our patents if such a generic submission occurs;  
•
the costs of our manufacturing-related activities and the other costs of commercializing our products;
•
the costs associated with finalizing and complying with the preliminary agreements in principle we have reached with the DOJ and SEC and other ongoing government investigations and litigation, including: the payment of the settlement amounts in connection with the DOJ and SEC investigations, as described above; the negotiation and implementation, as applicable, of the corporate integrity agreement, FDA consent decree and deferred prosecution agreement as provided in the preliminary agreements in principle with the DOJ and the SEC;  whether we are successful in our efforts to defend ourselves in, or to settle on acceptable terms, ongoing or future litigation; and responding to additional investigations or litigation which may follow the preliminary agreements in principle or final settlement of the DOJ and SEC investigations; 
•
the levels, timing and collection of revenue received from sales of our products in the future;
•
the timing and costs of satisfying our debt obligations, including interest payments and any amounts due upon the maturity of such debt, including under our Convertible Notes, the QLT Loans and 2015 Term Loan Advance;
•
the cost of our observational cohort studies and other post-marketing commitments to the FDA and EU, and the costs of post-marketing commitments in any other countries where our products are ultimately approved; and
•
the timing and cost of other clinical development activities.
In May 2016, we filed a shelf registration statement on Form S-3 with the SEC that will permit us to offer, from time to time, an unspecified amount of any combination of common stock, preferred stock, debt securities and warrants.  We may seek additional capital due to favorable market conditions or strategic considerations. The source, timing and availability of any future financing will depend principally upon equity and debt market conditions, interest rates and, more specifically, on the extent of our commercial success and our continued progress in our regulatory and development activities. There can be no assurance that external funds will be available on favorable terms, if at all. For the year ended December 31, 2015 and the first nine months of 2016, we have generated revenues of $239.9 million and $115.6 million, respectively, the majority of which are from net product sales of lomitapide, which we expect to decline significantly in 2016.  In connection with the acquisition of MYALEPT in January 2015, we used a substantial amount of our then existing cash and cash equivalents.  Additionally, on October 30, 2015, we notified Silicon Valley Bank that we breached one or more covenants under the Loan and Security Agreement and we are currently in default, as described further in Note 6 within the notes to the unaudited condensed consolidated financial statements.  Silicon Valley Bank and/or QLT could accelerate the amounts due by us if we default under the terms of our debt arrangements with QLT or the Forbearance Agreement, as amended, and we may need to raise additional capital.  In addition, holders of the Convertible Notes have the right to require us to repurchase their notes for cash upon the occurrence of a fundamental change at a repurchase price equal to 100% of the respective principal amount, plus accrued and unpaid interest, if any. Further, upon conversion of the Convertible Notes, unless we elect to deliver solely shares of our common stock to settle such conversion (other than cash in lieu of any fractional share), we would be required to settle a portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity.  If we are unable to obtain such financing at all or on acceptable terms when we need it, we will have to delay, reduce or cease operations. Any of these outcomes would harm our business, financial condition and operating results.
Contractual Obligations and Commitments
On July 19, 2016, we entered into a Fifth Amendment to Lease (the “Lease Amendment”), with an effective date as of July 12, 2016, by and between the Company and RREEF America REIT II Corp. PPP (the “Landlord”), which amends the Lease, with an effective date as of January 1, 2011, by and between the Company and the Landlord, as such lease has been amended from time to time (as so amended and together with the Lease Amendment, the “Lease”). Under the terms of the Lease Amendment, we paid to the Landlord a termination fee of $0.8 million. As of September 30, 2016, our total future conditional cash obligation over the remaining term of the Lease is approximately $0.2 million.
There have been no other material changes to our contractual obligations and commitments outside the ordinary course of business from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2015 filed with the SEC on March 15, 2016.

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Off-Balance Sheet Arrangements
We have a lease for office space for our headquarters in Cambridge, Massachusetts, which expires in 2019. We do not currently have, nor have we ever had, any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. In addition, we do not engage in trading activities involving non-exchange traded contracts. Therefore, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in these relationships.
Item 3.         Quantitative and Qualitative Disclosures About Market Risk.
In August 2014, we issued $325.0 million of 2.0% Convertible Notes due August 15, 2019. The Convertible Notes have a fixed annual interest rate of 2.0% and we, therefore, do not have economic interest rate exposure on the Convertible Notes. However, the fair value of the Convertible Notes is exposed to interest rate risk. We do not carry the Convertible Notes at fair value but present the fair value of the principal amount for disclosure purposes. Generally, the fair value of the Convertible Notes will increase as interest rates fall and decrease as interest rates rise. These Convertible Notes are also affected by the price and volatility of our common stock and will generally increase or decrease as the market price of our common stock changes. As of September 30, 2016, the fair value of the Convertible Notes was estimated by us to be $215.9 million.
 We are also exposed to market risk related to change in foreign currency exchange rates related to our international subsidiaries in which we continue to help support operations with financial contributions. We do not currently hedge our foreign currency exchange rate risk.
 
Item 4.        Controls and Procedures
Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and our principal financial officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures. Based on that evaluation, our principal executive officer and principal financial officer concluded that, due to material weaknesses identified in the 2015 Form 10-K, our disclosure controls and procedures as of September 30, 2016 are not effective, at the reasonable assurance level, in ensuring that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is timely and accurately recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely and accurate decisions regarding required disclosure.
 
Previously Identified Material Weaknesses
As previously disclosed in the 2015 Form 10-K, management concluded that, as of December 31, 2015, the Company’s internal control over financial reporting was not effective based on the criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. For a discussion of the material weaknesses in internal control over financial reporting, please see “Controls and Procedures” in Part II, Item 9A of the 2015 Form 10-K.
 
Remediation Status
As more fully discussed in the 2015 Form 10-K, to remediate the material weaknesses referenced above, the Company has implemented or plans to implement the remediation initiatives described in Part II, Item 9A of the 2015 Form 10-K and will continue to evaluate the remediation and plans to implement additional measures in the future.
 
Changes in Internal Control Over Financial Reporting
During the three months ended September 30, 2016, management continued to implement certain remediation initiatives discussed in Part II, Item 9A of the 2015 Form 10-K. However, there were no material changes to the Company’s internal control over financial reporting during the third quarter of 2016 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.


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PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
In late 2013, we received a subpoena from the DOJ, represented by the U.S. Attorney’s Office in Boston, requesting documents regarding our marketing and sale of JUXTAPID in the U.S., as well as related disclosures. We believe the DOJ is seeking to determine whether we, or any of our current or former employees, violated civil and/or criminal laws, including, but not limited to, the securities laws, the Federal False Claims Act, the Food and Drug Cosmetic Act, the Anti-Kickback Statute, and the FCPA.  The investigation is continuing.
In late 2014, we received a subpoena from the SEC requesting certain information related to our sales activities and disclosures related to JUXTAPID. The SEC also has requested documents and information on a number of other topics, including documents related to the investigations by government authorities in Brazil into whether our activities in Brazil violated Brazilian anti-corruption laws, and whether our activities in Brazil violated the U.S. Foreign Corrupt Practices Act. We believe the SEC is seeking to determine whether we, or any of our current or former employees, violated securities laws. The investigation is continuing.

We believe the SEC and the DOJ are coordinating with one another concerning their investigations.  We have provided a broad range of information to the government in response to their requests, including materials related to our past disclosure statements related to the prevalence of HoFH and other disclosures, our U.S. marketing and promotional practices, and our activities in Brazil.

We have reached preliminary agreements in principle with the DOJ and the SEC to resolve their investigations into the marketing and sales activities and disclosures relating to JUXTAPID. Under the terms of the preliminary agreement in principle with the DOJ, we would plead guilty to two misdemeanor misbranding violations of the Food, Drug and Cosmetic Act.  One count would be based on our alleged marketing of JUXTAPID with inadequate directions for use (21 U.S.C. §§ 352(f)), and the second count would involve an alleged failure to comply with a requirement of the JUXTAPID Risk Evaluation and Mitigation Strategies (“REMS”) program (21 U.S.C. §§ 352(y)). We would separately enter into a five-year deferred prosecution agreement with regard to charges that the Company violated the Health Insurance Portability and Accountability Act and engaged in obstruction of justice relating to the REMS program. The preliminary agreement in principle with the DOJ also requires us to enter into a civil settlement agreement with the DOJ to resolve alleged violations of the False Claims Act. Additionally, we would enter into a non-monetary consent decree with the Food and Drug Administration prohibiting future violations of law and may have to enter into a corporate integrity agreement with the Department of Health and Human Services as part of any final settlement with the DOJ. Under the preliminary agreement in principle, we will not be subject to mandatory exclusion from participation in federal health care programs under 42 U.S.C. § 1320a-7(a).

Under the terms of the preliminary agreement in principle with the SEC staff, the SEC’s Division of Enforcement will recommend that the SEC accept a settlement offer from us on a neither-admit-nor-deny basis that contains alleged negligent violations of Sections 17(a)(2) and (3) of the Securities Act of 1933, as amended, related to certain statements we made in 2013 regarding the conversion rate of patients receiving JUXTAPID prescriptions, with remedies that include censure, an order prohibiting future violations of the securities laws and payment of a civil penalty.


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The preliminary agreements in principle provide for a consolidated monetary package that covers payments due to both the DOJ and the SEC. The consolidated monetary package includes payments to the DOJ and the SEC totaling approximately $40 million in the aggregate (the “Settlement Payments”), payable over five years as follows: approximately $3 million upon finalization of the settlement with the DOJ and the SEC, approximately $3.7 million per year, payable quarterly, for three years following finalization of the settlement, and approximately $13 million per year, payable quarterly, in years four and five following finalization of the settlement. Certain outstanding amounts would accrue interest at a rate of 1.75% per annum.  The Settlement Payments are subject to acceleration in the event of certain change of control transactions or the sale of JUXTAPID or MYALEPT assets. We have reserved an aggregate of approximately $40 million for these matters. In addition, we accrued $0.4 million in the second quarter of 2016 and $0.3 million in the third quarter of 2016 to reflect our current estimates of the minimum liabilities for relator attorney fees and settlement, respectively.
. The terms of the preliminary agreements in principle described above may change following further negotiations and other terms of the final settlement remain subject to further negotiation.  The preliminary agreement in principle with the DOJ is subject to approval of supervisory personnel within the DOJ and relevant federal and state agencies, and approval by a U.S. District Court judge of the criminal plea and sentence and the civil settlement agreement.  The preliminary agreement in principle with the SEC is subject to review by other groups in the SEC and approval by the Commissioners of the SEC.
The preliminary agreements in principle do not cover the DOJ and SEC’s inquiries concerning our operations in Brazil, any potential claims by relators for attorneys’ fees, or any employment claims that may been brought by relators. We continue to cooperate with the DOJ and the SEC with respect to their investigations. As part of this cooperation, the DOJ has requested documents and information related to donations we made in 2015 and 2016 to 501(c)(3) organizations that provide financial assistance to patients. As part of this inquiry, the DOJ may pursue theories that will not be covered by the preliminary agreement in principle with the DOJ. Other pharmaceutical and biotechnology companies have disclosed similar inquiries regarding donations to 501(c)(3) organizations. In addition, federal and state authorities in Brazil are each conducting investigations to determine whether there have been violations of Brazilian laws related to the possible illegal promotion of JUXTAPID in Brazil. In July 2016, the Ethics Council of the national pharmaceutical industry association, Interfarma, unanimously decided to fine us approximately $0.5 million for violations of the industry association’s Code of Conduct, to which we are bound due to our affiliation with Interfarma. Although the Interfarma Code of Conduct provides that companies that violate the Code of Conduct are subject to only one penalty, the Board of Directors of Interfarma has decided to impose an additional penalty of suspension of our membership, without suspension of our membership contribution, for a period of 180 days for us to demonstrate the implementation of effective measures to cease alleged irregular conduct, or exclusion of our membership in Interfarma if such measures are not implemented. We paid $0.5 million related to this fine during the third quarter of 2016. Also in July 2016, we received an inquiry from a Public Prosecutor Office of the Brazilian State of Paraná asking us to respond to questions related to recent media coverage regarding JUXTAPID and our relationship with a patient association to which we have made donations for patient support.  At this time, we do not know whether the Public Prosecutor’s inquiry will result in the commencement of any formal proceeding against the Company, but if our activities in Brazil are found to violate any laws or governmental regulations, we may be subject to significant civil and administrative penalties imposed by Brazilian regulatory authorities and additional damages and fines. Under certain circumstances, we could be barred from further sales to federal and/or state governments in Brazil, including sales of JUXTAPID and/or MYALEPT, due to penalties imposed by Brazilian regulatory authorities or through civil actions initiated by federal or state public prosecutors. As of the filing date of this Form 10-Q, we cannot determine if a loss is probable as a result of the investigations

52

and inquiry in Brazil and whether the outcome will have a material adverse effect on our business and, as a result, we have not recorded any amounts for a loss contingency.

In January 2014, a putative class action lawsuit was filed against us and certain of our former executive officers in the U.S. District Court for the District of Massachusetts alleging certain misstatements and omissions related to the marketing of JUXTAPID and our financial performance in violation of the federal securities laws. On March 11, 2015, the Court appointed co-lead plaintiffs and lead counsel. On April 1, 2015, the Court entered an order permitting and setting a schedule for co-lead plaintiffs to file an amended complaint within 60 days, and for defendants to file responsive pleadings, co-lead plaintiffs to file any opposition, and defendants to file reply briefs. Accordingly, co-lead plaintiffs filed an amended complaint on June 1, 2015. The amended complaint filed against us and certain of our former executive officers alleges that defendants made certain misstatements and omissions during the first three quarters of 2014 related to our revenue projections for JUXTAPID sales for 2014, as well as data underlying those projections, in violation of the federal securities laws. We filed a motion to dismiss the amended complaint for failure to state a claim on July 31, 2015.  On August 21, 2015, co-lead plaintiffs filed a putative second amended complaint, which alleges that the defendants made certain misstatements and omissions from April 2013 through October 2014 related to the marketing of JUXTAPID and our financial projections, as well as data underlying those projections.  On September 4, 2015, we moved to strike the second amended complaint for the co-lead plaintiffs’ failure to seek leave of court to file a second amended pleading, and briefing is complete with respect to the motion to strike.  Oral argument on the motion to strike was held on March 9, 2016.    On March 23, 2016, plaintiffs filed a motion for leave to amend.  The Company opposed this motion to amend, and following a hearing on April 29, 2016, the Court took defendants’ motion to strike and plaintiffs’ motion for leave to amend under advisement.  On May 13, 2016, co-lead plaintiffs and defendants filed a joint motion wherein the parties stipulated that co-lead plaintiffs could file a third amended pleading within 30 days of the motion, which the Court granted on May 18, 2016, thereby mooting defendants’ pending motion to strike the second amended pleading and co-lead plaintiffs’ motion for leave to file a second amended pleading.  The Court also entered a briefing schedule for defendants to file responsive pleadings, co-lead plaintiffs to file any opposition, and defendants to file reply briefs.  A third amended complaint was filed on June 27, 2016. On July 22, 2016, co-lead plaintiffs and defendants filed a joint motion to stay the briefing schedule while they pursued mediation, which the Court granted on August 10, 2016. As of the filing date of this Form 10-Q, we cannot determine if a loss is probable as a result of the class action lawsuit and whether the outcome will have a material adverse effect on our business and, as a result, we have not recorded any amounts for a loss contingency.

On August 16, 2016, a complaint captioned Steinberg v. Aegerion Pharmaceuticals, Inc., et al., Case No. 1:16-cv-11668, was filed in the U.S. District Court for the District of Massachusetts against Aegerion, QLT, MergerCo and each member of the Aegerion board of directors (the “Federal Merger Action”). The Federal Merger Action was brought by Chaile Steinberg, who purports to be a stockholder of Aegerion, on her own behalf, and seeks certification as a class action on behalf of all Aegerion stockholders. The Steinberg complaint alleges, among other things, that the August 8, 2016 Form S-4 Registration Statement filed in connection with the proposed transaction with QLT is materially misleading. The Steinberg complaint asserts claims arising under Sections 14(a) and 20(a) of the Exchange Act and seeks, among other things, to enjoin the proposed transaction, to rescind it or to award rescissory damages should it be consummated and an award of attorneys’ fees and expenses. We believe that the claims asserted in the Federal Merger Action are without merit and we have not recorded any amount for a loss contingency in respect of such matter.


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On October 3, 2016, a complaint captioned Flanigon v. Aegerion Pharmaceuticals, Inc., et al., C.A. 12794, was filed in the Delaware Court of Chancery (the “Delaware Merger Action”). The Delaware Merger Action was brought by Timothy Flanigon, who purports to be a stockholder of Aegerion, on his own behalf, and also sought certification as a class action on behalf of all Aegerion stockholders. The Delaware Merger Action alleged, among other things, that our board of directors breached its fiduciary duties in connection with the proposed transaction by agreeing to an inadequate exchange ratio and engaging in a flawed sales process. The Delaware Merger Action further alleged that QLT and MergerCo aided and abetted the alleged breaches. In addition, the Delaware Merger Action alleged that the September 28, 2016 Amendment No. 2 to Form S-4 Registration Statement filed in connection with the proposed transaction is materially misleading. The Flanigon complaint sought, among other things, to enjoin the proposed transaction, to rescind it or to award rescissory damages should it be consummated and an award of attorneys’ fees and expenses. Also on October 3, 2016, plaintiff in the Delaware Merger Action filed motions seeking expedited discovery and a preliminary injunction. On October, 21, 2016, the Delaware Merger Action was dismissed without prejudice.
 Item 1A.     Risk Factors
Risks Associated with Product Development and Commercialization
Our business depends on the success of lomitapide. We may not be able to meet expectations with respect to sales of lomitapide and revenues from such sales, and if we are not able to meet such expectations, we may not be able to attain or maintain positive cash flow and profitability in the time periods we anticipate, or at all.
    
Our business depends on the successful commercialization of lomitapide. Lomitapide was launched in the U.S. in January 2013, under the brand name, JUXTAPID® (lomitapide) capsules (“JUXTAPID”), as an adjunct to a low-fat diet and other lipid-lowering treatments, including low-density (“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”). In July 2013, the EC authorized lomitapide for marketing in the EU, under the brand name, LOJUXTA® (lomitapide) hard capsules, as an adjunct to a low-fat diet and other lipid-lowering medicinal products with or without LDL apheresis in adult patients with HoFH. On September 28, 2016, we announced that we received marketing authorization approval from the Japanese Ministry of Health, Labor and Welfare (“MHLW”) for JUXTAPID for the treatment of HoFH in Japan. Lomitapide is also approved for the treatment of HoFH in Canada, Mexico, Taiwan, South Korea, Israel, Norway, Iceland, and Liechtenstein. In April 2016, INVIMA, the regulatory agency responsible for reviewing marketing authorization applications in Colombia, approved JUXTAPID 20mg capsules in Colombia. 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, we announced our intent to withdraw lomitapide from the EU and certain other global markets by the end of 2016, unless we enter into supply, license or other arrangements with suitable partners in such markets. We also sell lomitapide, 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. We expect that named patient sales in Brazil in the near term will continue to be our largest source of revenues from lomitapide sales on a country by country basis outside the U.S.; however, we expect net product sales from named patient sales in Brazil and other countries to continue to fluctuate quarter-over-quarter significantly more than sales in the U.S. We have also filed for marketing approval in certain other countries, and expect to file for marketing approval in additional

54

countries where, in light of the potential size of the market and other relevant commercial and regulatory factors, it makes business sense to do so.
We have a limited history of generating revenues from the sale of lomitapide. We anticipate that we will continue to incur significant costs associated with commercializing lomitapide and in connection with our ongoing clinical efforts and post-marketing commitments for lomitapide. Our ability to meet expectations with respect to sales of lomitapide and revenues from such sales, and to attain profitability and maintain positive cash flow from operations, in the time periods we anticipate, or at all, will depend on a number of factors, including the following:

•
our ability to continue to maintain market acceptance for lomitapide among healthcare professionals and patients in the U.S. in the treatment of adult HoFH, particularly given the introduction of PCSK9 inhibitor products, which has had a significant adverse impact on sales of lomitapide in the U.S., and to gain such market acceptance in the other countries where lomitapide is approved and being commercialized, or may in the future receive approval and be commercialized;
•
the degree to which both physicians and HoFH patients determine that the safety and side effect profile of lomitapide are manageable, and that the benefits of lomitapide in reducing LDL-C levels outweigh the risks, including those risks set forth in the boxed warning and other labeling information for JUXTAPID in the U.S. and in the prescribing information and risk management plan for lomitapide where it is approved and being commercialized outside the U.S., which cite the risk of liver toxicity, and any other risks that may be identified in the course of commercial use;
•
the prevalence of HoFH being significantly higher than the historically reported rate of one person in one million, and more consistent with management’s estimates;
•
a safety and side effect profile for lomitapide in commercial use and in further clinical development that is not less manageable than that seen in our pivotal trial;
•
the degree to which HoFH patients are willing to agree to be treated with lomitapide after taking into account the potential benefits, the dietary restrictions recommended to reduce the risk of gastrointestinal (“GI”) side effects, the safety and side effect profile, and the availability of other therapies; the long-term ability of patients who use lomitapide to comply with the dietary restrictions, and to tolerate the drug and stay on the medication; and our ability to minimize the number of patients who discontinue lomitapide treatment;
•
the extent of the negative impact of the introduction of PCSK9 inhibitor products on sales of JUXTAPID in the U.S., which has caused a significant number of  JUXTAPID patients to discontinue JUXTAPID and switch to a PCSK9 inhibitor product, and has significantly decreased the rate at which new HoFH patients start treatment with lomitapide;
•
the provision of free PCSK9 inhibitor drug to adult HoFH patients by the companies that are commercializing PCSK9 inhibitor products, which such companies may have ceased, but which historically has had a negative impact on the rate at which new patients start treatment on lomitapide and has caused more patients than we expected to discontinue lomitapide and switch their treatment to PCSK9 inhibitor products;
•
the number of adult HoFH patients treated with a PCSK9 inhibitor who physicians decide to switch to lomitapide if a patient does not achieve target LDL-C response goals, and the timeline of such transitions, neither of which we can reasonably predict;

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•
the expected negative impact of the availability of PCSK9 inhibitor products on sales of lomitapide outside the U.S., including in Japan after our anticipated launch, and the degree to which the availability of PCSK9 inhibitor products outside the U.S., and the potential availability of named patient sales of PCSK9 inhibitor products outside the U.S., impacts named patient sales of lomitapide outside the U.S., particularly in Brazil, where a PCSK9 inhibitor product was approved by the local regulatory authority in April 2016;
•
the number of new adult HoFH patients identified by the larger PCSK9 inhibitor sales forces and the potential for those adult patients to be eligible for treatment with JUXTAPID, which we cannot reasonably predict;
•
our continued ability to be able to sell lomitapide on a named patient sales basis or through an equivalent mechanism in Brazil and other certain key markets where such sales are permitted based on U.S. or EU approval, and the amount of revenues generated from such sales, particularly in Brazil, where a PCSK9 inhibitor product was approved by the local regulatory authority in April 2016 and where the Brazil Supreme Federal Court is currently hearing a trial to decide whether the government has an obligation to provide drugs, such as JUXTAPID, that have not received regulatory and/or pricing and reimbursement approval in Brazil, and in markets where such sales are based on EU approval, given our plans to withdraw LOJUXTA from the EU;
•
the extent to which the diagnosis criteria for HoFH used by physicians in the countries outside the U.S. where lomitapide is approved and being commercialized are similar to those used by physicians in the U.S.;
•
requirements of insurance companies, managed care organizations, other private payers, and government entities that provide reimbursement for medical costs in the U.S. to require newly diagnosed adult HoFH patients to be treated with PCSK9 inhibitor products prior to JUXTAPID and to switch JUXTAPID patients to PCSK9 inhibitor products, and require that patients demonstrate an insufficient response to PCSK9 inhibitor products before providing reimbursement for JUXTAPID at the prices at which we offer JUXTAPID, and our ability to work with such organizations to minimize such requirements, where clinically appropriate and permitted by applicable laws and regulations, without such parties imposing onerous discounts, rebates, other pricing provisions or diagnosis criteria;
•
the willingness of insurance companies, managed care organizations, other private payers, and government entities that provide reimbursement for medical costs in the U.S. to continue to provide reimbursement for JUXTAPID at the prices at which we offer JUXTAPID without requiring genotyping for specific mutations that cause HoFH, or imposing any additional major hurdles to access or other significant restrictions or limitations, and the ability and willingness of HoFH patients to pay, or to arrange for payment assistance with respect to, any patient cost-sharing amounts for JUXTAPID applicable under their insurance coverage, particularly in light of the availability of PCSK9 inhibitor products;
•
our ability to obtain pricing approval and/or reimbursement required for selling lomitapide in Japan, Canada, Colombia, and in other countries in which we or our distributors may receive approval to market, and elect to commercialize, lomitapide on a timely basis and at price levels that are acceptable to us without the applicable government agencies or other payers in such countries imposing onerous pricing caps, discounts, rebates, risk sharing, the provision of a significant amount of free product or other requirements which effectively and significantly lower the reimbursement rates for lomitapide, and without requiring genotyping, narrowing the diagnosis criteria for HoFH patients or imposing any additional major hurdles to access or other significant restrictions or limitations, such as requirements that patients demonstrate an insufficient response to other therapies, such as LDL apheresis or PCSK9 inhibitor products when they become available in such markets, before using lomitapide;

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•
our ability to gain approval of risk management plans in any future markets where lomitapide may be approved and to subsequently comply with such plans;
•
the level of acceptance by physicians of the efficacy data from our pivotal trial of lomitapide, which is based on the surrogate endpoint of LDL-C lowering, and which was not designed to show clinical outcome data as to the effect of LDL-C lowering on cardiac outcomes in HoFH patients;
•
the mix of government and private payers providing coverage and reimbursement for JUXTAPID in the U.S.;
•
our ability to gain regulatory approval of lomitapide in additional countries where we are seeking, or plan to seek, regulatory approval, without restrictions that are substantially more onerous or manufacturing specifications that are more difficult to consistently achieve than those imposed in the U.S.;
•
our ability to accurately forecast revenues from sales of lomitapide and the metrics that impact revenues, such as prescription rate, short-term and long-term dropout rate, conversion rate, reimbursement and pricing, the timing and availability of named patient sales, and the impact of PCSK9 inhibitors and future competition;
•
our ability to finally resolve government investigations by the DOJ, the SEC and foreign agencies regarding JUXTAPID sales activities and disclosures and our operations in Brazil, and the willingness of physicians to continue to prescribe JUXTAPID, and in the case of named patient sales in Brazil, the willingness of the state and federal governments to continue to process orders of JUXTAPID without significant delay, and the willingness of patients to continue to use JUXTAPID, despite such investigations, a decision by the Brazilian pharmaceutical industry association that we violated its Code of Conduct, and recent media coverage in Brazil;
•
the extent to which expected changes to the JUXTAPID REMS Program, including the recertification of physicians, the requirement that patients sign a patient-prescriber acknowledgment form as a pre-condition to JUXTAPID being dispensed to patients, and enhancements to the JUXTAPID prescription authorization form to capture liver monitoring as directed by the JUXTAPID labeling, along with changes to the labeling for JUXTAPID instructing patients to cease therapy upon the occurrence of severe diarrhea, may negatively affect the ability or willingness of a healthcare professional to prescribe JUXTAPID, a patient to be willing to initiate or continue on therapy, or insurance companies, managed care organizations, other private payers, and government entities that provide reimbursement for medical costs to continue to provide reimbursement for JUXTAPID;
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our ability to successfully gain pricing and reimbursement approval to commercialize and sell lomitapide for the treatment of HoFH in Japan on the timelines we have forecasted, and if such approval is obtained, to effectively commercialize and sell JUXTAPID in Japan;
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our ability to manufacture, or have manufactured, sufficient bulk quantities of drug substance and sufficient quantities of each strength of lomitapide to meet demand;
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our ability to maintain the focus of the organization in light of the significant changes within the senior leadership team since June 2015, and the related transition to new leadership, and to minimize turnover within the organization, particularly in light of our reductions in force in February and July 2016, the continuing challenges to the lomitapide business, and the pending merger with QLT Inc. (“QLT”);
•
our ability to hire and retain key personnel necessary to optimize the lomitapide business, particularly in light of our reductions in force in February and July 2016 and the continuing challenges to the lomitapide business;
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our ability to execute effectively on our commercial plan and other key activities related to JUXTAPID in the U.S., and to launch lomitapide successfully in those key markets outside the U.S. where it makes business sense to do so and in which we receive pricing and reimbursement approval, and the level of cost required to conduct such activities, particularly in light of the continuing challenges to the lomitapide business, including our plans to

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withdraw lomitapide from the EU and certain other global markets, and the corporate integrity agreement, FDA consent decree and deferred prosecution agreement contemplated by the preliminary agreement in principle with the DOJ; and
•
the strength of the patent portfolio and marketing and data exclusivity for lomitapide and our ability to defend any challenges to the patents or our claims of exclusivity, including against two separate inter partes review (“IPR”) petitions which were filed with the Patent Trial and Appeal Board (“PTAB”) of the U.S. Patent and Trademark Office in August 2015 and instituted by the PTAB in March 2016; and the degree to which generic competition will affect the lomitapide business in the U.S. and other key markets.
Our business depends on the success of metreleptin. We may not be able to meet expectations with respect to sales of metreleptin and revenues from such sales, in the time periods we anticipate, or at all, which could harm our business operations and prospects.
Our business also depends on the successful commercialization of metreleptin, which we acquired in January 2015. Metreleptin, a recombinant analog of human leptin, is marketed under the brand name MYALEPT® (metreleptin) for injection (“MYALEPT”) in the U.S., and is indicated 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”). MYALEPT has a boxed warning, citing the risk of anti-metreleptin antibodies with neutralizing activity and risk of lymphoma. MYALEPT is only available via a REMS program which is designed to educate physicians on its proper use and potential risks. We may not be able to successfully commercialize MYALEPT without a significant expenditure of costs and operating, financial and management resources, and even with these investments, which we may not be able to make on a timely basis or at the levels we would desire due to the expected decline in our total revenues, we may still be unsuccessful in commercializing MYALEPT in the U.S. and in other jurisdictions. If we are unsuccessful in our efforts with respect to MYALEPT, our financial condition and results of operations may be adversely affected. Our ability to meet our expectations with respect to revenues from sales of MYALEPT, and to realize the resulting positive impact on our business and overall financial results, is dependent on a number of factors, including the following:

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our ability to commercialize MYALEPT without negatively impacting ongoing commercialization efforts related to lomitapide, particularly in light of our reductions in force in February and July 2016, and without incurring significant costs beyond amounts forecasted;
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our ability to build and to maintain market acceptance for MYALEPT in the U.S. for the treatment of GL, including the degree to which both physicians and GL patients determine that the benefits of MYALEPT outweigh the risks, including those risks set forth in the boxed warning and other labeling information for MYALEPT in the U.S.;
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a side effect profile for MYALEPT observed in commercial use and in further clinical studies that is manageable and that is generally consistent, in scope and severity, with the side effect profile observed in the phase 3 study on which U.S. approval of MYALEPT was based;
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the prevalence of GL being consistent with management’s estimates of approximately one in a million, which is based on assumptions which may prove not to be accurate;
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the percentage of patients experiencing anti-metreleptin antibody formation with MYALEPT in commercial use being not significantly different than that observed in the phase 3 study;

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•
our ability to continue to sell MYALEPT for the treatment of GL on a named patient sales basis or through an equivalent mechanism in Brazil and other certain key markets outside the U.S., based on the U.S. approval, and the amount of revenues generated from such sales, particularly in light of the ongoing government investigations in Brazil, a decision by the Brazilian pharmaceutical industry association that we violated its Code of Conduct, recent media coverage in Brazil, and a case currently before the Brazil Supreme Federal Court to decide whether the government has an obligation to provide drugs, such as MYALEPT, that have not received regulatory and/or pricing and reimbursement approval in Brazil;
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the willingness of insurance companies, managed care organizations, other private payers, and government entities in the U.S. that provide reimbursement for medical costs to continue to provide reimbursement for MYALEPT at the price at which we offer the product and without imposing restrictions on the use of MYALEPT, such as leptin level tests, which delay or otherwise impact reimbursement; the payer mix with respect to MYALEPT patients, particularly given the significant Medicaid rebate we have paid and expect to continue to pay on MYALEPT, which we expect will have a continued significant negative impact on net product sales in future quarters; and the ability and willingness of GL patients to pay, or to arrange for payment assistance with respect to, any patient cost-sharing amounts for MYALEPT applicable under their insurance coverage;
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our ability to gain regulatory approval for MYALEPT as a treatment for GL in the EU, in connection with which we have committed to the PDCO to conduct an additional trial in pediatric GL patients as a condition to approval of metreleptin in such patients, and in other key countries outside the U.S. without restrictions that are substantially more onerous or manufacturing specifications that are more difficult to consistently achieve than those imposed in the U.S., and without the need to conduct further clinical studies, despite the limited number of patients studied in the pivotal clinical trial;
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our ability to obtain regulatory approval of metreleptin as a treatment for a subset of partial lipodystrophy (“PL”) in the U.S., the EU and other key countries without further clinical development in light of the FDA’s conclusion that the data in the pivotal trial did not provide adequate evidence of efficacy in patients with PL;
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our ability to attain reimbursement for metreleptin in countries outside the U.S. in which metreleptin may be sold on a named patient basis or where it may be approved in the future at price levels that are acceptable to us without the applicable government agencies in such countries imposing onerous pricing caps, discounts, rebates, risk sharing, the provision of a significant amount of free product or other requirements which effectively and significantly lower the reimbursement rates for metreleptin, and without governmental authorities imposing any additional major hurdles to access or other significant restrictions or limitations;
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the impact of any data on metreleptin generated in the course of further anticipated clinical development;
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our ability to manufacture, or have manufactured, sufficient bulk quantities of drug substance and sufficient quantities of metreleptin drug product to meet demand, in light of the susceptibility to product loss and contamination inherent in the process of manufacturing biologics;
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our ability to maintain the focus of the organization in light of the significant changes within the senior leadership team since June 2015, and the related transition to new leadership, and to minimize turnover within the organization, particularly in light of our reductions in force in February and July 2016 and the pending merger with QLT;
•
our ability to hire and retain key personnel necessary to optimize the metreleptin business, particularly in light of our reductions in force in February and July 2016;

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•
our ability to continue to execute effectively on our commercial plan and other key activities related to MYALEPT in the U.S., and to launch metreleptin successfully in those key markets outside the U.S. in which we receive regulatory and pricing and reimbursement approvals where it makes business sense to do so, and the level of cost required to conduct such activities, particularly in light of our reductions in force in February and July 2016,  and the corporate integrity agreement contemplated by the preliminary agreement in principle with the DOJ;
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the strength of the patent portfolio and marketing and data exclusivity for metreleptin; the length of the patent term extension, if any, granted, with respect to metreleptin; and our ability to defend any challenges to the patents or our claims of exclusivity; and
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the continued lack of significant competitive challenges for metreleptin in the treatment of GL, and our ability to compete effectively with any therapies approved in GL or in other indications in which we may elect to develop metreleptin further, such as a subset of PL, particularly in light of an investigational drug currently being studied in patients with familial PL which, if approved, would compete directly with metreleptin, if metreleptin is approved for the treatment of a subset of PL.
We may not be able to maintain or expand market acceptance for lomitapide and metreleptin in the U.S. or to gain market acceptance in markets outside the U.S. where we commercialize such products, and, for lomitapide, we may continue to see a significant number of patients who choose not to start or stay on therapy.
The commercial success of lomitapide and metreleptin will depend upon our ability to maintain and expand the acceptance of these products by the medical community, including physicians and healthcare payers, and by the relevant patients in the U.S., and to gain and maintain such acceptance in countries outside the U.S. where such products are commercialized.
Some physicians and HoFH patients may determine that the benefits of lomitapide in reducing LDL-C levels do not outweigh the risks, including those risks set forth in the boxed warning for JUXTAPID in the U.S., and in the prescribing information for lomitapide in the other countries in which it is approved, which warn physicians that lomitapide can cause hepatotoxicity as manifested by elevations in transaminases and increases in hepatic fat, and that physicians are recommended to measure alanine aminotransferase (“ALT”), aspartate aminotransferase (“AST”), alkaline phosphatase, and total bilirubin before initiating treatment and then to measure ALT and AST regularly during treatment. During the first year of treatment, physicians must conduct a liver-related test prior to each increase in the dose of lomitapide or monthly, whichever occurs first. After the first year, physicians are required to perform these tests every three months and before increases in dose. The prescribing information in the EU provides further recommendations for monitoring for hepatic steatohepatitis/fibrosis and the risk of progressive liver disease, including annual imaging for tissue elasticity, and measuring of biomarkers and/or scoring methods in consultation with a hepatologist. Likewise, some physicians and GL patients may determine that the benefits of metreleptin in treating complications of leptin deficiency in GL do not outweigh the risks, including those risks set forth in the boxed warning for MYALEPT in the U.S., which warns physicians of the risk of anti-metreleptin antibodies with neutralizing activity and the risk of lymphoma. The consequences of these neutralizing antibodies are not well characterized but could include inhibition of endogenous leptin action and/or loss of MYALEPT efficacy, and physicians are advised to test for these antibodies in patients with severe infections or loss of efficacy during MYALEPT treatment. T-cell lymphoma has been reported in patients with acquired GL, both treated and not treated with MYALEPT.

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Because of the risks discussed above, each of JUXTAPID and MYALEPT is available in the U.S. only through a REMS program under which we must certify all qualified healthcare providers who prescribe JUXTAPID or MYALEPT and the pharmacies that dispense the medicine. The goals of each of the REMS Programs are:

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to educate prescribers about the risks associated with the use of JUXTAPID or MYALEPT, as the case may be, and in the case of JUXTAPID, the need to monitor patients during treatment as per product labeling; and
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in the case of JUXTAPID, to restrict access to therapy with JUXTAPID to patients with a clinical or laboratory diagnosis consistent with HoFH, and in the case of MYALEPT, to restrict access to therapy with MYALEPT to patients with a clinical diagnosis consistent with GL.
The FDA assesses on a periodic basis whether a REMS program is meeting its goals and whether the goals or elements of the program should be modified. In June 2015, we received a letter from the FDA expressing concern that the JUXTAPID REMS Program is not meeting its goals of educating healthcare professionals about the risks of hepatotoxicity and the need to periodically conduct liver tests to monitor patients during treatment with JUXTAPID as set forth in the product label. The letter also expressed concern about the difficulty in assessing whether the goal of restricting access to JUXTAPID to patients with a clinical or laboratory diagnosis consistent with HoFH was being met. In response to the FDA’s concerns, we proposed to the FDA modifications to the JUXTAPID REMS Program to improve prescriber awareness of the risk of hepatotoxicity associated with JUXTAPID and the need to monitor patients during treatment, and to reinforce the approved indication and the characteristics of HoFH. On March 11, 2016, we received from the FDA an additional letter describing certain modifications the FDA considers necessary to the JUXTAPID REMS Program and the labeling for JUXTAPID. In response to the FDA’s proposed modifications to the labeling for JUXTAPID, on April 8, 2016, we submitted a prior approval labeling supplement to the FDA addressing certain of the FDA’s proposed modifications to the labeling for JUXTAPID, including an instruction that patients cease therapy upon the occurrence of severe diarrhea.  The labeling changes were approved by the FDA on May 23, 2016. We submitted our response to the FDA’s proposal regarding modifications to the JUXTAPID REMS Program in a prior approval supplement on July 7, 2016, and the FDA has informed us that it expects to respond by January 3, 2017.  The FDA’s proposed modifications to the JUXTAPID REMS Program include, among others, the recertification of physicians, the requirement that patients sign a patient-prescriber acknowledgment form as a pre-condition to JUXTAPID being dispensed to patients, and enhancements to the JUXTAPID prescription authorization form to capture liver monitoring as directed by the JUXTAPID labeling.  Such modifications to the JUXTAPID REMS Program, which we expect to be made, and the labeling modifications, may negatively affect the ability or willingness of a healthcare professional to prescribe JUXTAPID, a patient to be willing to initiate or continue on therapy, or insurance companies, managed care organizations, other private payers, and government entities that provide reimbursement for medical costs to continue to provide reimbursement for JUXTAPID, in which case we will have difficulty achieving or maintaining market acceptance of JUXTAPID, and our business and ability to achieve our financial expectations will be harmed. The outcome of the ongoing investigations of the SEC and DOJ may also have an effect on the FDA’s requirements for the JUXTAPID REMS Program.
Similarly, in the EU and other countries where we have obtained approval of lomitapide, we have adopted risk management plans to help educate physicians on the safety information for lomitapide and appropriate precautions to be followed by healthcare professionals and patients. Other countries that may approve lomitapide or metreleptin may require risk management plans that may be similar to or more onerous than those we have adopted to date. Physicians may be hesitant to prescribe lomitapide or metreleptin, and patients may be hesitant to take lomitapide or metreleptin, because of the boxed

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warning or warnings in the prescribing information, the requirements for liver testing and monitoring, in the case of lomitapide, or the existence of the REMS Program or risk management plan in connection with lomitapide or metreleptin. The prescribing information also describes a number of additional contraindications, warnings, and precautions, including those related to pregnancy and potential adverse interactions with other drugs, and other potential adverse reactions, that could limit the market acceptance of lomitapide and metreleptin. For example, GI adverse reactions are common with lomitapide, occurring in 27 out of 29 patients in our pivotal trial. GI adverse reactions lead to treatment discontinuation in a meaningful percentage of patients, and the FDA has recently required a modification to the JUXTAPID label to instruct patients to cease therapy upon the occurrence of severe diarrhea. To reduce the risk of GI adverse reactions, patients should adhere to a low-fat diet supplying less than 20% of calories from fat and the dosage of lomitapide should be increased gradually. A meaningful percentage of patients decide that they do not want to start or maintain the recommended diet. In the EU and in many other countries outside the U.S., we cannot communicate directly with or provide educational or supportive materials directly to patients. As a result, it may be more difficult to support patients in their efforts to adjust to the recommended dietary restrictions while taking lomitapide. Patients on lomitapide in the U.S. are also advised not to consume more than one alcoholic drink per day. The LOJUXTA prescribing information in the EU specifies that the use of alcohol during LOJUXTA treatment is not recommended. These requirements make it more difficult for some patients to decide to begin therapy or to stay on therapy. Elevated ALTs and ASTs and other concerns also lead to treatment discontinuation in some lomitapide patients. With respect to metreleptin, concerns related to the route of administration of metreleptin, as an injection, may deter some patients from beginning therapy or staying on therapy. As a result, even if a physician prescribes one of our products, the prescription may not result in a patient beginning therapy or staying on therapy. The degree of market acceptance of our products will also depend on a number of other factors, including:
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physicians’ views as to the scope of the approved indication and limitations on use and warnings and precautions contained in the approved labeling or prescribing information for our products, including the modifications to the JUXTAPID label to include language instructing patients to cease therapy upon the occurrence of severe diarrhea;
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the efficacy, safety and tolerability of competitive therapies, including, in the case of lomitapide, PCSK9 inhibitor products;
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the extent of the negative impact of the introduction of PCSK9 inhibitor products on sales of JUXTAPID in the U.S., which has caused a significant number of JUXTAPID patients to discontinue JUXTAPID and switch to a PCSK9 inhibitor product, and has significantly decreased the rate at which new HoFH patients start treatment with JUXTAPID;
•
the provision of free PCSK9 inhibitor drug to adult HoFH patients by the companies that are commercializing PCSK9 inhibitor products, which such companies may have ceased, but which historically has had a negative impact on the rate at which new patients start treatment on lomitapide and has caused more patients than we expected to discontinue lomitapide and switch their treatment to PCSK9 inhibitor products;
•
pricing and the perception of physicians and payers as to cost effectiveness of our products in relation to other therapies that treat HoFH and GL, respectively, including therapies with a price substantially lower than that of our products, which, in the case of lomitapide, includes PCSK9 inhibitor products and apheresis;
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the existence of sufficient private payer, government or other third-party coverage or reimbursement and the availability of co-pay assistance; and
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the effectiveness of our sales, marketing and distribution strategies and our ability to achieve these strategies, particularly in light of our reductions in force in February and July 2016, and the continuing challenges to the lomitapide business.

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If we are not able to achieve a high degree of market acceptance of lomitapide in the treatment of adult patients with HoFH and metreleptin in the treatment of GL, we may not be able to achieve our revenue goals or other financial goals or to achieve profitability or to maintain cash-flow positive operations in the time periods we expect, or at all.
The number of patients suffering from the diseases for which our products are approved is small, and has not been established with precision. Our assumptions and estimates regarding prevalence may be wrong. If the actual number of patients is smaller than we estimate or if any approval outside the U.S., EU and the other countries where lomitapide is approved or outside the U.S. for metreleptin, is based on a narrower definition of these patient populations, our revenue and ability to achieve profitability and to maintain cash-flow positive operations from our product businesses will be adversely affected, possibly materially.
There is no patient registry or other method of establishing with precision the actual number of patients with HoFH in any geography. Medical literature has historically reported the prevalence rate of HoFH as one person in a million, based on an estimated prevalence rate for heterozygous familial hypercholesterolemia (“HeFH”) of one person in 500. Analysis of HoFH prevalence has been evolving in recent years, culminating in published medical literature which suggests that the actual prevalence of both HeFH and HoFH may be significantly higher than the historical estimate of one person in a million. For example, in 2014, the European Atherosclerosis Society Consensus Panel on Familial Hypercholesterolaemia (“FH”) published an article citing research that would result in an estimate of the prevalence of HoFH in the range of between one person in 300,000 and one person in 160,000 or 3.33 persons per million to 6.25 persons per million, which is consistent with estimates that can be derived from other publications from the last few years.  The FDA cited this estimate in its review of PCSK9 products in June 2015.  In addition, rare diseases may be found to have a higher than expected prevalence rate once products available to treat the disease are introduced. There is also a founder effect for FH in certain populations. Given these factors and the evolving medical literature, the prevalence of HoFH may be higher or lower than cited in the current literature. There is no guarantee that the prevalence of HoFH is higher than the current medical literature suggests or is even higher than reported in the historical literature. Ultimately the actual size of the total addressable HoFH market in the U.S. will be determined only after we and others have substantial commercial history selling products for the treatment of HoFH. Lomitapide is indicated solely for adult HoFH. We are not permitted to promote lomitapide for HeFH or any other indication other than adult HoFH. As part of the prescriber authorization form under the JUXTAPID REMS Program in the U.S., the prescriber must affirm that the patient has a clinical or laboratory diagnosis consistent with HoFH.
We believe that the prevalence rate of HoFH in countries outside the U.S. is likely to be consistent with the prevalence rate in the U.S.; however, we expect that our net product sales in countries outside the U.S. are likely to be significantly lower than in the U.S. given significant patient and payment caps in some countries and the likelihood of other reimbursement restrictions in ex-U.S. countries as a result of economic pressures to reduce healthcare costs, the more widespread availability of apheresis in certain countries, particularly in the EU, and the possibility that genotyping, despite its limitations, will be required in some countries, reducing the number of patients diagnosed with HoFH.
There is no patient registry or other method of establishing with precision the actual number of patients with GL in any geography. Based on a review of an analysis of several insurance claims databases in the U.S., we initially estimated that the prevalence of GL is approximately one in a million and now believe the prevalence is slightly under one in a million. We calculated this rate by first estimating the prevalence of lipodystrophy using data from the selected claims databases. Using this data, we calculated an estimated prevalence range for patients diagnosed with lipodystrophy (based on the ICD-9 Code and

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other relevant diagnostic codes). We then used diagnostic codes and other lab values to try to exclude forms of lipodystrophy other than GL and PL. Our research with key opinion leaders suggests that 30% of the pool of patients who have been identified as having GL or PL have GL. Due to the severity and presumed higher diagnosis rate of GL specifically, we estimated that GL represents 40% of the total population in the selected claims databases that we assumed had GL or PL, which led us to the estimated prevalence of GL of approximately one in a million. We believe that the prevalence rate of GL in countries outside the U.S. is likely to be consistent with the prevalence rate in the U.S. Estimating the prevalence of a rare disease that is underdiagnosed globally is difficult and may rely on an amalgam of information from multiple sources, resulting in potential under- or over-reporting. There is no guarantee that our assumptions and beliefs are correct, or that our use of these selected databases and our methodology have generated an accurate estimate. Medical literature has historically estimated the prevalence of GL significantly lower than our estimates. The actual prevalence of GL may be significantly lower than we expect. Ultimately, the actual size of the total addressable market in the U.S. will be determined only after we have substantial commercial history selling MYALEPT.
If the total addressable market for our products in the U.S. and other key markets is smaller than we expect, then it may be more difficult for us to achieve our revenue goals and estimates and to attain profitability and meet our expectations with respect to cash flow operations.
Our market is subject to intense competition. If we are unable to compete effectively, we may not be able to achieve our revenue goals or achieve profitability or maintain cash-flow positive operations in the time periods we expect, or at all, and lomitapide, metreleptin or any other product candidate that we develop or acquire may be rendered noncompetitive or obsolete.
Our industry is highly competitive and subject to rapid and significant technological change. Our potential competitors include large pharmaceutical and biotechnology companies, specialty pharmaceutical and generic drug companies, academic institutions, government agencies and research institutions. All of these competitors currently engage in, have engaged in or may engage in the future in the development, manufacturing, marketing and commercialization of new pharmaceuticals, some of which may compete with lomitapide, metreleptin or other products or product candidates we may acquire, license or develop. Smaller or early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies. Key competitive factors affecting the commercial success of lomitapide, metreleptin and any other products that we develop or acquire are likely to be efficacy, safety and tolerability profile, reliability, convenience of dosing, price and reimbursement.
The market for cholesterol-lowering therapeutics is large and competitive with many drug classes. Lomitapide is approved in the U.S., Japan, the EU and in certain other countries as an adjunct to a low-fat diet and other lipid-lowering treatments to reduce LDL-C in adult HoFH patients. As a treatment for HoFH, JUXTAPID competes directly in the U.S. and certain other countries with Kynamro. Developed by Ionis Pharmaceuticals Inc., formerly known as Isis Pharmaceuticals (“Ionis”), and acquired by Ionis and Kastle Therapeutics in May 2016, Kynamro is an antisense apolipoprotein B-100 inhibitor which is taken as a weekly subcutaneous injection. JUXTAPID also faces competition in the treatment of adult HoFH patients with a class of drugs known as PCSK9 inhibitors. In July 2015, Regeneron Pharmaceuticals, Inc. (“Regeneron”) and Sanofi announced that the FDA had approved the Biologics License Application (“BLA”) for their PCSK9 inhibitor candidate, alirocumab, for use in addition to diet and maximally tolerated statin therapy in adult HeFH patients and in patients with clinical atherosclerotic cardiovascular disease who require additional lowering of LDL-C. In September 2015, following the

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positive opinion of the Committee for Medicinal Products for Human Use (“CHMP”) of the EMA, the EC approved alirocumab for the treatment of adult patients with HeFH or mixed dyslipidemia as an adjunct to diet, either in combination with a statin, or statin with other lipid-lowering therapies in patients unable to reach their LDL-cholesterol goals with the maximally-tolerated statin, or alone or in combination with other lipid-lowering therapies for patients who are statin intolerant, or for whom a statin is contraindicated. The FDA approved Amgen’s BLA for its anti-PCSK9 antibody, evolocumab, in August 2015, as an adjunct to diet and maximally tolerated statin therapy for the treatment of adults with HeFH or clinical atherosclerotic cardiovascular disease, who require additional lowering of LDL-C; and as an adjunct to diet and other LDL-lowering therapies for the treatment of patients with HoFH, who require additional lowering of LDL-C. In July 2015, following the positive opinion of the CHMP, the EC approved the marketing authorization of evolocumab for the same indication as alirocumab and for the treatment for certain patients with high cholesterol, including patients aged 12 years and over with HoFH in combination with other lipid-lowering therapies. In January 2016, Japan’s regulatory authority, the MHLW, approved evolocumab for the treatment of patients with FH or hypercholesterolemia who have high risk of cardiovascular events and do not adequately respond to statins, and in July 2016, the MHLW approved alirocumab for the same indication. Health Canada and ANVISA, the regulatory agency responsible for reviewing marketing authorization applications in Brazil, have approved evolocumab for the treatment of patients with HoFH. Other companies such as Roche Holding AG, and Alnylam, in collaboration with The Medicines Company, are also developing PCSK9 inhibitor products.
The introduction of PCSK9 inhibitors in the U.S. has negatively impacted sales of JUXTAPID and we expect this negative trend to continue.  This impact results from several factors, including: healthcare professionals switching some existing JUXTAPID patients to a PCSK9 inhibitor product; healthcare professionals trying most new adult HoFH patients on a PCSK9 inhibitor product before trying JUXTAPID; the provision of free PCSK9 drug to adult HoFH patients by the companies that are commercializing PCSK9 inhibitor products, which such companies may have ceased, but which historically has had a negative impact on the rate at which new patients start treatment on lomitapide and has caused more patients than we expected to discontinue lomitapide and switch their treatment to PCSK9 inhibitor products; and actions by insurance companies, managed care organizations and other private payers in the U.S. that have required, or may require in the future, HoFH patients to demonstrate an inability to achieve an adequate LDL-C response on PCSK9 inhibitor products before access to JUXTAPID is approved, or may impose other hurdles to access or other significant restrictions or limitations on reimbursement, or may require switching of JUXTAPID patients to PCSK9 inhibitor products. Many U.S. insurance companies, managed care organizations and other private payers now require that HoFH patients are not able to achieve an adequate response in LDL-C reduction on PCSK9 inhibitor products before providing reimbursement for JUXTAPID. For patients currently taking JUXTAPID, we believe that all U.S. payers require prior authorization, which may influence a switch of the current JUXTAPID patients to the less expensive PCSK9 inhibitor product.  We believe that many of the PCSK9 inhibitor switches from current JUXTAPID patients have been at the direction of the prescribing physician.  Ultimately, the physician may decide to switch the adult HoFH patient back to JUXTAPID, if the patient does not reach a goal of LDL-C response while being treated with a PCSK9 inhibitor product.  It is unknown how many adult HoFH patients, if any, may be switched back to JUXTAPID or the period of time in which this would take place.  We expect physicians will continue to consider using JUXTAPID for those adult HoFH patients for whom PCSK9 inhibitor products are not sufficiently effective.  Additionally, we expect that the availability of PCSK9 inhibitor products in commercial markets outside of the U.S. will have similarly negative effects on sales, including named patient sales, of lomitapide outside the U.S., particularly in Brazil, Canada, and Japan, where a PCSK9 inhibitor product has been approved by the local regulatory authorities.  If the continued negative impact of PCSK9 inhibitors is greater than we expect, it may make it more difficult for us to generate revenues and achieve profitability. Also,

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although there are no other MTP-I compounds currently approved by the FDA for the treatment of hyperlipidemia, there may be other MTP-I compounds in development.
In addition, in some countries, particularly in the EU and Japan, patients with HoFH who are unable to reach their recommended target LDL-C levels on conventionally used drug therapies may be treated using LDL apheresis, in which cholesterol is removed from the body through mechanical filtration. Although levels of LDL-C are reduced acutely using apheresis, there is a rapid rebound. Because apheresis provides only temporary reductions in LDL-C levels, it must be repeated frequently, typically one or two times per month. The widespread use and availability of apheresis as a treatment for HoFH in the EU, combined with the lower cost of apheresis as compared to LOJUXTA, has made it more difficult for us to obtain commercially acceptable pricing and reimbursement approvals for LOJUXTA in the key markets of the EU. As a result, in July 2016, we announced our intent to withdraw LOJUXTA from the EU by the end of 2016, unless we earlier enter into supply, license or other arrangements with suitable partners in such markets.
MYALEPT is the first and only product approved in the U.S. for the treatment of complications of leptin deficiency in patients with GL. There are, however, a number of therapies approved to treat these complications independently that are not specific to GL. Certain of the clinical complications of GL, including diabetes and hypertriglyceridemia, may be treated with insulin and/or oral medications, such as metformin, insulin secretagogues, fibrates, or statins.
We intend to seek regulatory approval of metreleptin as a treatment for a subset of PL in the U.S., the EU and in other key countries where it makes business sense to do so. We are aware of an investigational drug currently in development and being studied in patients with familial PL, which, if approved, would compete directly with metreleptin, if metreleptin is approved for the treatment of a subset of PL.
We may also face future competition from companies selling generic alternatives of lomitapide or metreleptin in countries where we do not have patent coverage, orphan drug status or another form of data or marketing exclusivity or where patent coverage or data or marketing exclusivity has expired, is not enforced, or may, in the future, be challenged.
Many of our potential competitors have substantially greater financial, technical and human resources than we do, and significantly greater experience in the discovery and development of drug candidates, obtaining FDA and other regulatory approvals of products and the commercialization of those products. Accordingly, our competitors may be more successful than we may be in obtaining marketing approvals for drugs and achieving and maintaining widespread market acceptance.
Our competitors’ drugs may be more effective, or more effectively marketed and sold, than any drug we may commercialize, and may render lomitapide, metreleptin or any other product or product candidate that we acquire, license or develop obsolete or non-competitive before we can recover the expenses of developing and commercializing the product. We anticipate that we will face intense and increasing competition as new drugs enter the market and advanced technologies become available. Finally, the development of new treatment methods for the diseases we are targeting could render lomitapide, metreleptin or any other product or product candidate that we acquire, license or develop non-competitive or obsolete.
As a result of the side effects observed in the Phase 3 clinical study and other clinical and preclinical studies for each of lomitapide and metreleptin, the prescribing information for both lomitapide and metreleptin contains significant limitations on use and other important warnings and precautions, including boxed warnings in the U.S. labeling. Our products may continue to cause such side effects or have other properties that could impact market acceptance and dropout rates, result in

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adverse limitations in any approved labeling or other adverse regulatory consequences, including delaying or preventing additional marketing approval in territories outside the U.S., EU and other countries where lomitapide is approved or, in the case of metreleptin, marketing approval outside the U.S.
The prescribing information for lomitapide in the U.S. and the EU and in the other countries in which lomitapide is approved contains significant limitations on use and other important warnings and precautions, including a boxed warning in the JUXTAPID labeling, and warnings in the LOJUXTA prescribing information citing concerns over liver toxicity associated with use of lomitapide. Lomitapide can cause elevations in liver transaminases. In our pivotal trial of lomitapide, ten of the 29 patients (34%) treated with lomitapide had at least one elevation in ALT or AST greater than or equal to three times the upper limit of normal (“ULN”), including four patients who experienced liver enzymes greater than or equal to five times the ULN. There were no concomitant clinically meaningful elevations of total bilirubin, international normalized ratio (“INR”), or alkaline phosphatase. Lomitapide also has been shown to increase hepatic fat, with or without concomitant increases in transaminases. The median absolute increase in hepatic fat during the pivotal trial was 6% after both 26 and 78 weeks of treatment, from 1% at baseline, measured by magnetic resonance spectroscopy. Hepatic steatosis associated with lomitapide treatment may be a risk factor for progressive liver disease, including steatohepatitis and cirrhosis.
The most common adverse reactions in our pivotal trial of lomitapide were GI adverse reactions, reported by 27 of 29 patients (93%). Adverse reactions reported by greater than or equal to eight patients (28%) in the HoFH pivotal clinical trial included diarrhea, nausea, vomiting, dyspepsia and abdominal pain. Other common adverse reactions, reported by five to seven (17-24%) patients, included weight loss, abdominal discomfort, abdominal distension, constipation, flatulence, increased ALT, chest pain, influenza, nasopharyngitis and fatigue. The FDA has recently required a modification to the JUXTAPID label to instruct patients to cease therapy upon the occurrence of severe diarrhea.
In a two-year dietary carcinogenicity study of lomitapide in mice, statistically significant increased incidences of tumors in the small intestine and liver were observed. The relationship of these findings in mice is uncertain with regard to human safety for a number of reasons, including the fact that they did not occur in a dose-related manner, and liver tumors are common spontaneous findings in the strain of mice used in this study. In a two-year oral carcinogenicity study of lomitapide in rats, there were no statistically significant increases in the incidences of any tumors, but there can be no assurance that long-term usage of lomitapide in humans will not be determined to cause an increase in tumors.
As part of our post-marketing commitment to the FDA, the EMA, the Taiwan Food and Drug Administration (“TFDA”), and Health Canada, we have initiated an observational cohort study to generate more data on the long-term safety profile of lomitapide, the patterns of use and compliance and the long-term effectiveness of controlling LDL-C levels. The commitment to the FDA is to target enrollment of 300 HoFH patients worldwide, and to study enrolled patients for a period of ten years. The EMA has required that all patients taking lomitapide in the EU be encouraged to participate in the study, and that the study period be open-ended. The TFDA has required that all patients taking lomitapide in Taiwan who meet the study’s protocol requirements participate in the study. In the study, investigators will follow each patient to track malignancies, tumors, teratogenicity, hepatic effects, GI adverse reactions, events associated with coagulopathy, major adverse cardiovascular events and death. The EMA has also required that we conduct a vascular imaging study to determine the impact of lomitapide on vascular endpoints. Enrollment has proven to be challenging due to the design of the study. In addition, we have conducted certain drug-drug interaction studies. If we withdraw lomitapide from the EU and certain other global markets, as planned, we may no longer be required to satisfy certain of these post-marketing commitments with respect to lomitapide.  However, post-

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marketing commitments imposed by regulatory authorities outside the U.S. and the EU may be more onerous and/or different than applicable commitments imposed by the FDA and the EU, which could result in increased costs to us if we elect to market lomitapide in these markets. A failure to meet post-marketing commitments to the FDA, the EMA or other regulatory authorities could impact our ability to continue to market lomitapide in countries where we are unable to meet such commitments.
In the pivotal trial of metreleptin, the most frequent adverse drug reactions reported in the GL study population were headache, hypoglycemia, and decreased weight (each reported by six patients; 13%) and abdominal pain (reported by five patients; 10%). Two cases of peripheral T-cell lymphoma and one case of a localized anaplastic lymphoma kinase (ALK)-positive anaplastic large cell lymphoma (a type of T-cell lymphoma) were reported, all in patients with acquired GL. Lymphoma is known to be associated with autoimmune disease. As the boxed warning for MYALEPT states, T-cell lymphoma has been reported in patients with acquired GL, both treated and not treated with MYALEPT. There was evidence of pre-existing lymphoma and/or bone marrow abnormalities in the two patients with peripheral T-cell lymphoma before metreleptin therapy, and the third case of anaplastic large cell lymphoma occurred in the context of a specific chromosomal translocation.
As part of the post-marketing commitments to the FDA for metreleptin, we plan to initiate a long-term, prospective, observational study (product exposure registry) in patients to evaluate serious risks related to the use of the product.  The registry will attempt to enroll at least 100 new patients treated with metreleptin.  Enrollment will close after five years or after 100 new patients have been enrolled, whichever occurs first.  The registry will continue for ten years from the date of last patient’s enrollment. In addition, we have completed the first of three sequential programs to expand the understanding of the immunogenicity of metreleptin, and we have initiated certain studies related to the manufacturing of metreleptin.
In addition, as part of our observational cohort studies or in the conduct of additional clinical studies or in post-marketing surveillance of our products, we or others may identify additional safety information on known side effects or new undesirable side effects caused by our products, or the data may raise other issues with respect to our products, and, in that event, a number of potentially significant negative consequences could result, including:
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we may experience a negative impact on market acceptance and dropout rates;
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regulatory authorities may suspend, withdraw or alter their approval of the relevant product;
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regulatory authorities may require the addition of labeling statements, such as warnings or contraindications or distribution and use restrictions, such as, for example, the modifications to the JUXTAPID label to include language instructing patients to cease therapy upon the occurrence of severe diarrhea;
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regulatory authorities may require us to issue specific communications to healthcare professionals, such as “Dear Doctor” letters;
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regulatory authorities may issue negative publicity regarding the relevant product, including safety communications;
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we may be required to change the way the relevant product is administered, conduct additional preclinical studies or clinical trials or restrict the distribution or use of the relevant product;
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we could be sued and held liable for harm caused to patients;
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the regulatory authorities may require us to amend the relevant REMS or risk management plan; and
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our reputation may suffer.

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As part of the development of the commercial manufacturing process of lomitapide, we tightened specifications for lomitapide drug substance such that the commercial drug substance differs from the material used in our Phase 3 trial in certain physical parameters and specifications that we assessed not to be clinically meaningful. Exposure measurements collected in the Japanese pharmacokinetic and pharmacodynamic (“PK/PD”) study using material meeting current commercial specifications, however, do not align with certain earlier data generated under different circumstances using pre-commercial materials. Importantly, there was no evidence of a relationship between increases in dose or exposure and elevations in ALT or AST levels in the PK/PD study. While we do not expect the differences between our commercial material and our clinical material to have adverse efficacy or safety consequences, there is a risk that we may see unexpected differences in the type or severity of side effects with the commercial product from those observed in our Phase 3 trial. There is also the risk that regulatory authorities may not agree with our assessment of the differences between the materials or the potential impact of such differences or may require changes in the prescribing information.
Any known safety concerns for lomitapide or metreleptin or any unknown safety issues that may develop could prevent us from achieving or maintaining market acceptance of the respective product, could affect our ability to obtain or retain marketing approval of the respective product in one or more countries, or result in onerous restrictions on such approval, or could affect our ability to achieve our financial goals.
If we are unable to establish and maintain effective sales, marketing and distribution capabilities, we will be unable to successfully commercialize our drug products.
We are marketing and selling JUXTAPID and MYALEPT directly in the U.S. using our own marketing and sales resources. We are marketing and selling, or plan to market and sell, lomitapide directly, using our own marketing and sales resources, in certain key countries outside the U.S. in which lomitapide is, or may be, approved, or where we can make lomitapide available on a named patient sales basis, in either case where it makes business sense to do so. Upon the anticipated approval of JUXTAPID in Japan, we will be selling JUXTAPID in Japan using a third-party sales force. We also plan to market and sell metreleptin directly in key countries outside of the U.S., if approved in such countries. We use, and plan to use, third parties to provide warehousing, shipping, third-party logistics, invoicing, collections and other distribution services on our behalf in the U.S. and in other countries throughout the world. We have entered into, or may selectively seek to establish, distribution and similar forms of arrangements to reach patients in certain geographies that we do not believe we can cost-effectively address with our own sales and marketing capabilities. If we are unable to establish and maintain the capabilities to sell, market and distribute our drug products, either through our own capabilities or through arrangements with others, particularly after our February and July 2016 reductions in force, which had a significant impact on our sales and marketing functions, and as we continue to assess our cost structure in light of declining revenues of JUXTAPID in the U.S. or if we are unable to enter into distribution agreements in those countries that we do not believe we can cost-effectively address with our own sales and marketing capabilities, we may not be able to successfully sell lomitapide or metreleptin. We cannot guarantee that we will be able to establish and maintain our own capabilities or to enter into and maintain favorable distribution agreements with third-parties on acceptable terms, if at all.
We have built sales, marketing, medical, regulatory, supply chain, managerial, patient support and other non-technical capabilities in the U.S., and have more limited commercial capabilities, and in some cases, medical, regulatory and other non-technical capabilities infrastructure, in the EU, Japan, Brazil, Canada, Mexico, Argentina, Colombia, Turkey, Taiwan, and South Korea. As a result of the restructuring we announced in July 2016, we intend to eliminate our infrastructure in certain

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global markets and, in the near-term, reduce our capabilities in the EU. We anticipate developing a commercial infrastructure in additional jurisdictions as business needs warrant.  Doing so will require a high degree of coordination and compliance with laws and regulations in such jurisdictions. If we are unable to effectively coordinate such activities or comply with such laws and regulations, our ability to commercialize our products, if approved, in those jurisdictions will be adversely affected. Our sales force in countries outside the U.S. may not be successful in commercializing lomitapide in the countries in which it is approved. Furthermore, even following the February and July 2016 workforce reductions intended to reduce expenses associated with our sales force, our expenses associated with maintaining the sales force and distribution capabilities around the world may be substantial compared to the revenues we may be able to generate on sales of our products. The reductions in force announced in February and July 2016 reduced the size of our marketing function and sales forces significantly, which could impede our sales and marketing strategy, and ability to generate revenues consistent with our expectations.  If we are unable to establish and maintain adequate sales, marketing and distribution capabilities, whether independently or with third parties, particularly as we continue to assess our cost structure in light of declining revenues of JUXTAPID in the U.S., we may not be able to generate product revenue consistent with our expectations and may not become profitable or maintain cash flow positive operations.
We have evaluated markets outside the U.S. and major market countries in the EU to determine in which geographies we might choose to commercialize our products ourselves, if approved, and in which geographies we might choose to collaborate with third parties. To the extent we rely on third parties to commercialize our products, if marketing approval is obtained in the relevant country, we may receive less revenue than if we commercialized the product ourselves. In addition, we would have less control over the sales efforts of any third parties involved in our commercialization efforts, including, in some countries, pricing. For example, upon the anticipated approval of JUXTAPID in Japan, we will sell JUXTAPID in Japan via a third-party sales force over which we will have less control than if we used our own sales force. Use of a third party can also make it more difficult to ensure that commercialization activities are conducted in a manner compliant with applicable laws. In the event we are unable to collaborate with third parties to commercialize our products, for certain geographies, if approved, our ability to generate product revenue may be limited internationally.
We only have regulatory approval for commercial distribution and reimbursement of lomitapide in a small number of countries. We are only permitted to market metreleptin in the U.S. We may not receive the requisite regulatory approvals for commercialization and reimbursement of our products in other countries. We also rely on named patient sales, but there is no assurance that named patient sales of lomitapide will continue at current levels, or at all, or that we will be able to achieve significant levels of named patient sales of metreleptin in any country, or at all.
We are currently permitted to market lomitapide in only a small number of countries on a commercial basis, and to market metreleptin in the U.S. Shionogi holds a marketing authorization for metreleptin in Japan under a distribution agreement assigned to us as part of the our acquisition of the metreleptin assets. There is no assurance that we will be able to obtain marketing authorizations for either product in additional countries. To obtain marketing approval in other countries, we must establish, and comply with, numerous and varying regulatory requirements of other countries regarding safety and efficacy and governing, among other things, clinical trials, pricing, promotion and distribution of the respective product. Approval procedures vary among countries, and can involve additional product testing and additional administrative review periods. Marketing approval in one country does not ensure such approval in another.

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Regulatory authorities in countries where we seek approval for lomitapide or metreleptin may not be satisfied with the design, size, end-point or efficacy and safety results of the pivotal trial of the product, or the risk/benefit profile of the product, and may reject our applications for approval. For example, we filed to register JUXTAPID as a marketed product in Brazil, and, in May 2014, appealed a rejection of the registration by ANVISA, the Brazilian regulatory authority. We subsequently withdrew our appeal, and while we intend to resubmit our marketing application with additional data and information, we are currently assessing the timing of this submission. Even if we do resubmit our application, we may not be successful in receiving regulatory approval to market JUXTAPID in Brazil. It is also possible that regulatory authorities in countries where we are seeking, or may in the future seek, approval may disagree with our assessment that certain changes made to lomitapide’s physical parameters and specifications as compared to the material used in the pivotal trial are not clinically meaningful. If regulatory authorities require additional studies or trials for either of our products or changes to specifications, we would incur increased costs and delays in the marketing approval process and may not be able to obtain approval. For example, Japanese regulatory authorities required a small therapeutic study of lomitapide in adult Japanese HoFH patients, which became the basis of our Japanese new drug application, filed in January 2016. In September 2016, Japan’s MHLW approved JUXTAPID for HoFH.
In addition, regulatory authorities in countries outside the U.S. and EU are increasingly requiring risk management plans and post-marketing commitments, which may be more onerous than those required in the U.S. and EU. In certain countries, if the post-marketing commitment is a post-marketing study that would qualify as an interventional or similar form of study, we may be required to provide free product to participants in the study in such country even if our products are reimbursed there. The time required to obtain approval in other countries may differ from that required to obtain FDA approval or marketing authorization in the EU. In several countries outside the U.S. in which we are commercializing lomitapide, including Japan and Canada, a product must also receive pricing and reimbursement approval before it can be commercialized broadly. This can result in substantial delays in commercializing products in such countries, and the price that is ultimately approved may be lower than the price for which we expect to offer, or would be willing to offer, lomitapide or metreleptin, in such countries, and may impact pricing in other countries. Pricing and reimbursement approval in one country does not ensure such approvals in another. Failure to obtain the approvals necessary to commercialize lomitapide or metreleptin in other countries at reimbursement levels that are acceptable to us or any delay or setback in obtaining such approvals would impair our ability to develop foreign markets for lomitapide and metreleptin, and, for lomitapide, is one of the primary reasons why, as part of our July 2016 restructuring, we plan to withdraw lomitapide from the EU and certain other global markets by the end of 2016, unless we earlier enter into supply, license or other arrangements with suitable partners in such markets. For example, the reimbursement authority in Germany, the G-BA (Gemeinsamer Bundesausschuss), deemed our dossier for lomitapide to be incomplete as a result of certain technical deficiencies. As a result of the technical deficiencies, LOJUXTA was automatically put into the category of “no additional benefit” under the G-BA process, without a review of the clinical merits, which limits the reimbursement level significantly. After the G-BA assessment, we withdrew LOJUXTA from the German market in July 2014. We re-filed our dossier for LOJUXTA with the G-BA in June 2015.  In November 2015, LOJUXTA once again received a “no additional benefit” assessment of LOJUXTA from G-BA.  As a result, we did not enter into national price negotiations for LOJUXTA in the German market.
Similarly, in France, our dossier for lomitapide has twice received a “minor improvement” rating from Haute Autorité de Santé (HAS), the committee responsible for assessing the benefit of medicinal products in France before they can be approved for reimbursement. Such a rating was re-affirmed by HAS at a hearing early in the third quarter of 2015.  In

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November 2015, the price of LOJUXTA was rejected by the Spanish Ministry of Health.  In June 2015, Taiwan’s Pharmaceutical Benefit and Reimbursement Scheme (PBRS), which is responsible for assessing the suitability of a pharmaceutical product for Taiwan’s National Health Insurance system, voted not to recommend our dossier for lomitapide for reimbursement in Taiwan, which aligned with a previous decision by Taiwan’s Expert Review Committee of the National Health Insurance Administration (NHIA). We filed appeals of this decision in October 2015 and the second quarter of 2016, and in response to both appeals, the Expert Review Committee decided not to recommend our dossier for lomitapide for reimbursement in Taiwan. As a result, we have decided to withdraw lomitapide from Taiwan and close operations there. Similarly, we have decided to withdraw lomitapide from, and close operations in, South Korea. In July 2015, the Mexican GHC declined our request to include lomitapide in Mexico’s basic formulary, which is required in order to obtain reimbursement approval in Mexico. We filed an appeal of this decision in May 2016, but since we had not been successful in obtaining GHC’s approval to include lomitapide in the formulary by September 2016, we decided to withdraw lomitapide from the Mexican market and close operations there. In July 2015, we received a notice of rejection to list JUXTAPID on the Ontario Public Drug Programs (OPDP) Formulary by the Committee to Evaluate Drugs (CED). We re-submitted our dossier to OPDP in March 2016 and remain in discussion with the Executive Officer on possible options for review. If we are not successful in obtaining approval to include lomitapide in the OPDP Formulary after our second submission, we may not be able to obtain public reimbursement for lomitapide in Ontario.
Additionally, as described in this Form 10-Q, if our activities in Brazil are found to violate any laws or governmental regulations, we may be subject to significant civil and administrative penalties and/or fines imposed by Brazilian regulatory authorities.  Under certain circumstances, we could be barred from further sales to federal and/or state governments in Brazil, including sales of JUXTAPID and/or MYALEPT, due to penalties imposed by Brazilian regulatory authorities or through civil actions initiated by federal or state public prosecutors.  We believe significant recent media coverage in Brazil may increase the likelihood that such authorities will initiate inquiries and/or litigation. In addition, we believe the investigations in Brazil have contributed to a slower turn-around between price quotation and orders, including re-orders, from the federal government, and, in some cases, delays in orders and re-orders from the government of the State of São Paulo after a patient has obtained access to JUXTAPID through the judicial process. These delays may continue, and we may experience other delays or suspension of the ordering process. Similarly, we have faced, and may continue to face, a reluctance of physicians to prescribe JUXTAPID, and some patients to take or stay on JUXTAPID, while the investigations are ongoing, particularly given that some of the investigators in Brazil have recently made formal inquiries of certain prescribers of JUXTAPID and there has been significant local media coverage of such inquiries and our activities in Brazil. In the second quarter of 2015 and in the second quarter of 2016, we observed a significant increase in patients discontinuing therapy in Brazil, and we believe that the increases are due in part to the investigations. In addition, the Brazil Supreme Federal Court is currently hearing a trial to decide whether the government has an obligation to continue to provide, on a named patient sales basis, drugs that have not received regulatory and/or pricing and reimbursement approval in Brazil, like JUXTAPID and MYALEPT. These issues could negatively affect our ability to generate product revenue for JUXTAPID consistent with our expectations, and may impact our ability to achieve and maintain profitability or maintain cash-flow-positive operations. Prescriptions for and sales of MYALEPT in Brazil may also be negatively affected.  We do not yet know the full extent of the impact that the approval of PCSK9 inhibitor products in the U.S., or the approval of evolocumab in Brazil in April 2016, will have on our named patient sales of lomitapide in Brazil or any other country. We also do not know whether we will be permitted to sell metreleptin on a named patient basis in any countries besides Brazil, Argentina, and the few other countries where we are currently permitted to do so. In certain countries, we may decide not to pursue named patient sales even if permitted to do so.  Further, we expect that the anticipated withdrawal

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of lomitapide in the EU will impact our ability to continue to make named patient sales in markets that require EU approval as a prerequisite to named patient sales.  Even if named patient sales or their equivalent sales are permitted in a certain country, and we elect to make lomitapide or metreleptin available on such basis in such country, there is no guarantee that physicians in such country will prescribe the product, and that patients will be willing to start therapy, or that the country will agree to pay for the product at all or at a level that is acceptable to us or, after access is granted, will continue to pay for the product at the levels initially approved, without delay or imposing other hurdles on payment, or at all, particularly in Brazil, in light of the recent approval of a PCSK9 inhibitor by the local Brazilian regulatory authority, ongoing state and federal government investigations, a decision by the Brazilian pharmaceutical industry association that we violated its Code of Conduct, and recent coverage by Brazilian media. There is no guarantee that we will generate sales or substantial revenue from such sales.
If named patient sales do not meet our expectations in key named patient sales markets, particularly Brazil, we may not be able to meet our expectations with respect to sales of lomitapide and metreleptin or revenues from such sales, maintain cash flow positive operations, or meet our expectations with respect to profitability in the time periods we anticipate or at all. There are also countries where we choose to make lomitapide and metreleptin available under an expanded access program at no cost prior to approval in such country. This program may result in significant expenses, and could impact our financial results.
We depend on single third-party manufacturers to produce our drug substance and drug product for each of our products. This may increase the risk that we will not have sufficient quantities of our products or will not be able to obtain such quantities at an acceptable cost, which could negatively impact commercialization of our products or delay, prevent or impair our clinical development programs.
We currently have no manufacturing facilities and limited personnel with manufacturing experience. We rely on contract manufacturers to produce drug substance and drug product for commercial supplies and for our clinical trials.
We have long-term supply agreements with our lomitapide drug product and drug substance manufacturers. We also have supply agreements with our metreleptin drug substance and drug product manufacturers, which were assigned to us in connection with the acquisition of metreleptin in January 2015. We do not have agreements in place for redundant supply or a second source for drug substance or drug product for either of our products. Any termination or non-renewal of our agreements with our contract manufacturers, including by reason of merger and acquisition activities, performance failure, bankruptcy filing, plant closing or strategic shift in their business could impact availability of lomitapide or metreleptin for commercial sale in any country where such product is approved for commercial sale or sold on a named patient basis, or may delay further clinical development or marketing approval of such product in additional countries. If for some reason our contract manufacturers cannot or will not perform as agreed, we may be required to replace such manufacturer. If we are unable to maintain arrangements for third-party manufacturing, or are unable to do so on commercially reasonable terms, or are unable to obtain timely regulatory approvals in connection with our contract manufacturers, we may not be able to successfully commercialize our products or complete development of our products. Although we believe there are a number of third-party manufacturers that could manufacture the clinical and commercial supply of drug substance or drug product for our products, we may incur significant added costs and substantial delays in identifying and qualifying any such replacements, and in obtaining regulatory approval to use such manufacturer in the manufacture of our products. Furthermore, although we generally do not begin a clinical trial unless we have a sufficient supply of a product candidate for the trial, any significant delay in the supply of a product candidate for an ongoing trial due to the need to replace a third-party manufacturer could delay completion

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of the trial. If for any reason we are unable to obtain adequate supplies of lomitapide, metreleptin or any other product candidate that we develop or acquire, or the drug substances used to manufacture it, it will be more difficult for us to compete effectively, generate revenue, meet our expectations for financial performance and further develop our products. In addition, if we are unable to assure a sufficient quantity of the drug for patients with rare diseases or conditions, we may lose any orphan drug exclusivity to which the product otherwise would be entitled.
We have limited experience manufacturing commercial supplies of lomitapide, and only became responsible for the manufacture of metreleptin in January 2015. We rely on our contract manufacturers to utilize processes that consistently produce drug substance and drug product to their required specifications, including those imposed by the FDA, the EMA and other regulatory authorities, as applicable. There can be no assurance that our contractors will consistently be able to produce commercial supplies of drug substance or drug product meeting the approved specifications. A number of factors could cause production interruptions at the facilities of our contract manufacturers, including equipment malfunctions, facility contamination, labor problems, raw material shortages or contamination, natural disasters, disruption in utility services, terrorist activities, human error or disruptions in the operations of our suppliers. We have experienced failures by our third-party manufacturers to produce product that meets our specifications in the past, and any future failure by our third-party manufacturers to produce product that meets specifications could lead to a shortage of lomitapide or metreleptin.
The manufacture of biologic pharmaceuticals, such as metreleptin, is more difficult and more risky than the manufacture of small molecule pharmaceuticals, such as lomitapide. Biologics are produced in living systems and are inherently complex due to naturally-occurring molecular variations. Highly specialized knowledge and extensive process and product characterization are required to transform laboratory-scale processes into reproducible commercial manufacturing processes. The process of manufacturing biologics is highly susceptible to product loss due to contamination, oxidation, equipment failure or improper installation or operation of equipment, or vendor or operator error. Even minor deviations from normal manufacturing processes could result in reduced production yields, product defects and other supply disruptions. If microbial, viral or other contaminations are discovered in metreleptin or the facilities of our contract manufacturer, we may need to cease manufacturing for an extended period of time to investigate and remediate the contaminant. A contamination, recall, raw material shortage, or other supply disruption could adversely impact or disrupt commercial manufacturing of metreleptin or could result in a withdrawal of metreleptin from the market. This, in turn, could adversely affect our ability to satisfy demand for metreleptin, which could materially and adversely affect our operating results and expectations for financial performance.
The FDA, the EMA and other regulatory authorities require that product candidates and drug products be manufactured according to current good manufacturing practice (“cGMP”). Any failure by our third-party manufacturers to comply with cGMP could lead to a shortage of our products. In addition, such failure could be the basis for action by the FDA, the EMA or regulatory authorities in other territories or countries to withdraw approvals previously granted to us and for other regulatory action, including seizure, injunction or other civil or criminal penalties. We are aware, for example, that the manufacturer of metreleptin drug product has issued numerous recalls, including at the site that manufactures metreleptin, in each case for the manufacture of products other than metreleptin, but which could impact the manufacturer’s operations with respect to all products at the affected sites. The failure by our third-party manufacturers to respond adequately to any concerns raised by the FDA could lead to plant shutdown or the withholding of product approval by the FDA in additional indications, or by foreign regulators in any indication. Certain countries may impose additional requirements on the manufacturing of drug products or drug substance, and on our third-party manufacturers, as part of the regulatory approval process for our products in

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such countries. The failure by us or our third-party manufacturers to satisfy such requirements could impact our ability to obtain or maintain approval of our products in such countries.
We may face resistance from certain private, government and other third-party payers and from healthcare professionals and patients given the prices we charge for lomitapide and metreleptin. We may not be able to achieve our revenue goals or achieve profitability or maintain cash-flow positive operations from the lomitapide or metreleptin businesses in the time periods we expect, or at all, if reimbursement for these products is limited or delayed.
Market acceptance and sales of lomitapide and metreleptin will continue to depend on insurance coverage and reimbursement policies, and may be affected by healthcare reform measures. Government authorities and third-party payers, such as private health insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels. A primary trend in the U.S. healthcare industry and elsewhere is cost containment and predictability. Government authorities and these third-party payers have attempted to control costs by limiting coverage and limiting the amount of reimbursement for particular medications.
Given that HoFH and GL are rare diseases with small patient populations, we have set prices for JUXTAPID and MYALEPT in the U.S. that are significantly higher than that of most pharmaceuticals in order to generate enough revenue to fund our operating costs and become profitable. We also expect to increase the price of lomitapide and metreleptin from time to time in the future. We believe our pricing for our products in the U.S. is consistent with the level of pricing for other ultra-orphan drugs that treat diseases with comparable prevalence rates. The majority of payers in the U.S. are providing coverage for our products. With some exceptions, most payers in the U.S. have not required genotyping to determine a diagnosis of HoFH for JUXTAPID reimbursement purposes.  Many payers in the U.S. have imposed requirements, conditions or limitations as conditions to coverage and reimbursement for JUXTAPID as a result of commercial availability of PCSK9 inhibitor products, which often includes a requirement that HoFH patients have not achieved an adequate LDL-C response on PCSK9 inhibitor products before access to lomitapide is approved.  For patients currently taking JUXTAPID, several U.S. pharmacy benefit managers (“PBMs”) are using a prior authorization requiring current JUXTAPID patients to “step through” the less expensive PCSK9 inhibitor product, and additional PBMs and payers may follow this practice. We have been engaging with PBMs to discuss and negotiate potential agreements to limit these so-called “step edits”; these agreements may require us to provide discounts and other price protections, which would impact our net revenues from JUXTAPID.
We acquired the rights to metreleptin in January 2015, and, as a result, have some early experience as to coverage and reimbursement issues with MYALEPT in the U.S. During the payer review process, some U.S. payers are requiring additional information such as a leptin level test for the patient which may delay or otherwise impact reimbursement. The cost of JUXTAPID and MYALEPT in the U.S. may result in cost-sharing amounts for some patients that are prohibitive, and prevent these patients from being able to commence therapy on JUXTAPID or MYALEPT, respectively. From time to time, we make donations to support independent 501(c)(3) patient foundations in the U.S. that assist eligible HoFH and GL patients, as determined solely by the foundation, with certain co-payments or co-insurance requirements for their drug therapies, which may include lomitapide or metreleptin. We do not have control or input into the decisions of these foundations. In January 2015, we commenced a direct co-pay assistance program that provides support to eligible commercial patients for certain drug co-pays and co-insurance obligations for lomitapide. We also provide support to eligible commercial patients for certain drug co-pays and co-insurance obligations for MYALEPT treatment. Our support of any 501(c)(3) foundation and our own co-pay assistance programs could result in significant costs to us, and reduce our net product sales.

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In Japan, Canada, and certain other countries outside the U.S. where lomitapide is or may be approved, we are seeking or expect to seek a price that, like the U.S. price, is at a level that is significantly higher than that of most pharmaceuticals, and which reflects the rare nature of HoFH. There is no assurance that government agencies in such countries that are responsible for reimbursement of healthcare costs or other third-party payers in such countries will agree to provide coverage for lomitapide at the prices we propose, or at all. In many countries outside the U.S., the proposed pricing for a drug must be approved by governmental authorities before it may be lawfully sold. The requirements governing drug pricing vary widely from country to country. The EU Member States and such other countries are free to restrict the range of medicinal products for which the national health insurance systems provide reimbursement, and to control the prices and/or reimbursement levels of medicinal products for human use. Such countries may approve a specific price or level of reimbursement for the medicinal product, or alternatively adopt a system of direct or indirect controls on the profitability of the company responsible for placing the medicinal product on the market, including volume-based arrangements, payment or patient caps, reference pricing mechanisms, and the use of other therapies prior to the use of a medicinal product. For example, in March 2015, as part of negotiating a price agreement for lomitapide in Italy with the Italian Medicines Agency (“AIFA”), we, among other things, agreed to an annual payment cap for the first twelve months after the final publication of the agreement, which we would need to re-negotiate in order to increase the cap. We submitted a dossier to AIFA in March 2016 for purposes of negotiating the future cap, but we expect to cease negotiations due to our announcement of our intention to withdraw lomitapide from the EU by the end of 2016. In July 2016, because pharmaceutical expenses in Italy in 2015 exceeded AIFA’s planned budget, AIFA requested that pharmaceutical companies, including the Company, refund part of their 2015 revenues in Italy to manage this over-expenditure. As a result, LOJUXTA 2015 revenues in Italy are subject to a 20% rebate, which we paid in the third quarter of 2016. We have also agreed to an annual payment cap and certain other pricing terms as part of obtaining approval of lomitapide from the Ministry of Health of the Netherlands in November 2015. We expect other countries will seek price and patient number caps. In some countries outside the U.S., we have faced, and will continue to face significant delays or impediments to obtaining reimbursement due to lengthy pricing negotiations with governmental authorities or the decisions of pricing authorities or authorities that indirectly impact pricing or reimbursement. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our product candidate to other available therapies, which may not be possible for us to do.
In July 2016, we announced our intent to withdraw lomitapide from the EU and certain other global markets by the end of 2016 unless we earlier enter into supply, license or other arrangements with suitable partners in such markets. We plan to continue to seek pricing and reimbursement approvals for lomitapide in Japan, Canada, and a small number of other markets. There is no assurance that we will receive such approvals or, if we do, that the price and terms will be acceptable to us.  For example, in July 2015, the Mexican GHC declined our request to include lomitapide in Mexico’s basic formulary, which is required in order to obtain reimbursement approval in Mexico. We filed an appeal of this decision in May 2016, but since we had not been successful in obtaining GHC’s approval to include lomitapide in the formulary by September 2016, we decided to withdraw lomitapide from the Mexican market and close operations there.  In July 2015, we received a notice of rejection to list JUXTAPID on the OPDP Formulary by the CED. We re-submitted our dossier to CED in March 2016. If we are not successful in obtaining approval to include lomitapide in the OPDP Formulary after our second submission, we may not be able to obtain public reimbursement for lomitapide in Ontario. In June 2015, Taiwan’s PBRS, which is responsible for assessing the suitability of a pharmaceutical product for Taiwan’s National Health Insurance system, voted not to recommend our dossier for lomitapide for reimbursement in Taiwan, which aligned with a previous decision by Taiwan’s Expert Review Committee of the NHIA. We filed appeals of this decision in October 2015 and in the second quarter of 2016, and in response to both appeals, the

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Expert Review Committee decided not to recommend our dossier for lomitapide for reimbursement in Taiwan. As a result, we have decided to withdraw lomitapide from Taiwan and close operations there. Similarly, we have decided to withdraw lomitapide from, and close operations in, South Korea.
Outside the U.S., the continuing effects of the debt crisis and the macroeconomic climate, or local regulations or practices, may adversely affect our ability to set and charge a sufficiently high price to generate adequate revenue in those markets. The price of lomitapide, or metreleptin if approved, in one country may adversely affect the price in other countries. We may elect not to launch our products in any country where it does not make commercial sense to do so given the approved price or other conditions. In addition, while we do not expect to obtain approval of our products outside of rare disease indications, in the future if we were to obtain such approval for new indications with a higher prevalence rate than our existing indications, it may be more difficult for us to obtain or maintain our current price levels and targets for lomitapide and metreleptin. For example, due to the broader indication for MYALEPT in Japan, MYALEPT is sold by Shionogi in Japan at a price significantly lower than the U.S. price.
Even if we are successful in obtaining pricing and reimbursement approval for lomitapide in a country, such countries may impose onerous conditions on reimbursement, which may include genotyping or the use of other therapies, such as apheresis, prior to the use of lomitapide.
In addition, outside the U.S., products that have orphan designation may be exempted or waived from having to provide certain clinical, cost-effectiveness and other economic data in connection with their filings for pricing/reimbursement approval or filings for therapeutic reviews which impact pricing and reimbursement approvals or negotiations. In the EU, LOJUXTA was not granted orphan designation by the EMA for treatment of HoFH and has therefore not been eligible for the benefits related to orphan designation.  We may not be able to provide all of the data required to obtain pricing/reimbursement approvals in certain countries outside the U.S. where we seek to commercialize lomitapide, if approved, or we may not satisfactorily meet the technical or substantive requirements of such submissions or receive ratings from pricing or other regulatory authorities commensurate with our expectations or that would support the price levels we want for our products, which could result in delays of pricing/reimbursement approvals for lomitapide, lomitapide not obtaining pricing/reimbursement approval at all, or lomitapide obtaining approvals at less than acceptable levels or with significant restrictions on use or reimbursement. We may also face pricing and reimbursement pressure in the U.S. and other countries as a result of prices charged for competitive products or therapies.
We are making lomitapide and metreleptin available, or plan to do so, in countries that allow use of a drug, on a named patient basis or under a compassionate use or other type of so-called expanded access program, before marketing approval has been obtained in such countries. We obtain reimbursement for lomitapide for authorized pre-approval uses in some of these countries to the extent permitted by applicable law and local regulatory authorities, and are seeking, or plan to seek, reimbursement of metreleptin in the treatment of complications of GL in certain of these countries in 2016. In other countries or under certain circumstances, we are providing our products free of charge for permitted pre-approval uses. We do not yet know the impact that the availability in the U.S. of PCSK9 inhibitor products, or the approval of evolocumab in April 2016 in Brazil, will have on our named patient sales in Brazil and in other countries where we currently sell lomitapide on a named patient sales basis. There is no assurance that we will be able to obtain reimbursement at all or at acceptable levels or to maintain reimbursement for our products in any country under an expanded access program. In certain countries where we seek reimbursement for the product during the pre-approval phase, we are able to establish the price for the product, while in other

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countries we need to negotiate the price. Such negotiations may not result in a price acceptable to us, in which case we may elect not to distribute our products in such country prior to approval or we may curtail distribution. In addition, in certain countries such as Brazil, the price we are able to charge for named patient sales prior to approval may be higher than the price that is approved by governmental authorities after approval. Further, we expect that if lomitapide is withdrawn from the EU, instead of being divested or licensed to a partner, our ability to continue to make named patient sales in markets that require EU approval as a prerequisite to named patient sales will be impacted.
If we fail to successfully secure and maintain reimbursement coverage for our products at levels that are acceptable to us or are significantly delayed in doing so or if onerous conditions are imposed by private payers, government authorities or other third-party payers on such reimbursement, we will have difficulty achieving or maintaining market acceptance of our products and our business and ability to achieve our financial expectations will be harmed.
The amount of reimbursement for JUXTAPID and MYALEPT and the manner in which government and private payers in the U.S. may reimburse for our potential future products are uncertain.
Beginning April 1, 2013, Medicare payments for all items and services under Part A and B, including drugs and biologicals, and most payments to plans under Medicare Part D were reduced by 2% under the sequestration (i.e., automatic spending reductions) required by the Budget Control Act of 2011 (“BCA”) as amended by the American Taxpayer Relief Act of 2012. The BCA requires sequestration for most federal programs, excluding Medicaid, Social Security, and certain other programs. The BCA caps the cuts to Medicare payments for items and services and payments to Part D plans at 2%. Subsequent legislation extended the 2% reduction, on average, to 2025. As long as these cuts remain in effect, they could adversely impact payment for JUXTAPID or MYALEPT. Payers also are increasingly considering new metrics as the basis for reimbursement rates, such as average sales price (“ASP”), average manufacturer price (“AMP”) or actual acquisition cost (“AAC”). The existing data for reimbursement based on these metrics is relatively limited, although certain states have begun to survey acquisition cost data for the purpose of setting Medicaid reimbursement rates. The Centers for Medicare & Medicaid Services (“CMS”) surveys and publishes retail community pharmacy acquisition cost information in the form of National Average Drug Acquisition Cost, or NADAC, files to provide state Medicaid agencies with a basis of comparison for their own reimbursement and pricing methodologies and rates. It is difficult to project the impact of these evolving reimbursement mechanics on the willingness of providers to furnish JUXTAPID or MYALEPT, and the prices we can command for them and other products we may market. Legislative changes to the Public Health Service Section 340B drug pricing program (the “340B program”), the Medicaid Drug Rebate Program, and the Medicare Part D prescription drug benefit also could impact our revenues. If reimbursement is not available or available only to limited levels or if the mix of patients for our products is more heavily weighted to patients reimbursed under government programs, we may not be able to generate sufficient revenue to meet our operating costs or to achieve our revenue and profitability goals and to achieve and maintain positive cash flow in the timeframe that we expect, or at all. Price reductions and other discounts we offer or may offer for our products, and significant price increases, such as the price increase for MYALEPT in February 2015, typically result in increasing the rebates we are required to pay under the Medicaid Drug Rebate Program or state Medicaid supplemental rebate programs and discounts we are required to offer under the 340B program. For example, given the significantly higher launch price of MYALEPT set by us in the first quarter of 2015 compared to Astra Zeneca’s original launch price, we have paid and expect to continue to pay significant Medicaid rebates for MYALEPT which will offset the majority of revenue from Medicaid and negatively impact net product sales in future quarters.  The degree of such impact on our overall financial performance will depend on the percentage of MYALEPT patients that have Medicaid as their primary insurance coverage and the quantity of units ordered per patient.

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The FDA, the EU Member States and other regulatory agencies outside the U.S. and the EU actively enforce laws and regulations prohibiting the promotion of off-label uses. We are currently the subject of a DOJ investigation regarding our marketing and selling of JUXTAPID in the U.S.  Enforcement actions by these agencies can result in significant liability.
The FDA, the competent authorities of the EU Member States and other regulatory agencies outside the U.S. and the EU strictly regulate the promotional claims that may be made about prescription drug products. In particular, a drug product may not be promoted in a jurisdiction prior to approval or for uses that are not approved by the FDA, the EC, the competent authorities of the EU Member States or such other regulatory agencies, as applicable, as reflected in the product’s approved prescribing information or SmPC. In the U.S., promotion of drug products for unapproved (or off-label) uses may result in enforcement letters, inquiries and investigations, and civil and criminal sanctions by the FDA.
Promotion of drug products for off-label uses in the U.S. can also result in false claims litigation under federal and state statutes, which can lead to consent decrees, civil money penalties, restitution, criminal fines and imprisonment, and exclusion from participation in Medicare, Medicaid and other federal and state healthcare programs. As noted above, we have been the subject of certain investigations by the DOJ and the SEC, for which we have recently reached preliminary agreements in principle. The preliminary agreement in principle we have reached with the DOJ contemplates that we will enter into a corporate integrity agreement, FDA consent decree and deferred prosecution agreement, each of which will be costly to negotiate and may require us to expend significant costs and resources to implement and maintain compliance.  In addition, we may see new governmental investigations of or actions against us citing additional theories of recovery. We may also be subject to regulatory and/or enforcement action by federal agencies, private insurers and states’ attorneys general. See Part II, Item 1-“Legal Proceedings” for further information regarding ongoing investigations, including the preliminary agreements in principle we have reached with the SEC and the DOJ, and other legal proceedings.

The agreements in principle with the DOJ and SEC and other comparable outcomes of ongoing and future investigations and litigation have and would further adversely affect our reputation, and have a material adverse effect on our business, financial condition, results of operations, and stock price, and divert the attention of our management from operating our business and may be disruptive, to our employees, possibly resulting in further employee attrition. In addition, the existence of the investigations and related activities has impacted, and may continue to impact, the willingness of some physicians prescribe JUXTAPID and/or MYALEPT.
Our relationships with customers and payers in the U.S. will be subject to applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, and reputational harm and could diminish future earnings and prevent us from achieving our forecasted financial results.
Healthcare providers and others play an important role in the recommendation and prescription of our products. Our arrangements with third-party payers and customers in the U.S. expose us to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute our products. Restrictions under applicable federal and state healthcare laws and regulations in the U.S. include the following:
The federal healthcare Anti-Kickback Statute prohibits, among other things, persons from knowingly and willfully soliciting, offering, paying, or receiving remuneration, directly or indirectly, in cash or in kind, to induce or reward the purchasing, leasing, ordering, or arranging or recommending for the purchase, lease or order of any healthcare item or service,

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for which payment may be made, in whole or in part, by federal healthcare programs such as Medicare and Medicaid. This statute has been interpreted to apply to, among others, arrangements between pharmaceutical companies, on the one hand, and prescribers, purchasers, formulary managers and organizations that provide financial assistance to patients, on the other. Further, the Patient Protection and Affordable Care Act, amended by the Health Care and Education Reconciliation Act of 2010 (collectively, the “Healthcare Reform Act”), among other things, clarified that liability may be established under the federal Anti-Kickback Law without proving actual knowledge of this statute or specific intent to violate it. In addition, the Healthcare Reform Act amended the Social Security Act to provide that the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the civil False Claims Act. Although there are a number of statutory exemptions and regulatory safe harbors protecting certain common manufacturer business arrangements and activities from prosecution, the exemptions and safe harbors are drawn narrowly, and practices that involve remuneration may be subject to scrutiny if they do not qualify for an exemption or safe harbor. We intend to comply with the exemptions and safe harbors whenever possible, but our practices may not in all cases meet all of the criteria for safe harbor protection from anti-kickback liability, and may be subject to scrutiny.
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The federal civil False Claims Act prohibits any person from, among other things, knowingly presenting, or causing to be presented, a false or fraudulent claim for payment of government funds or knowingly making, using or causing to be made or used, a false record or statement material to an obligation to pay money to the government or knowingly concealing or knowingly and improperly avoiding, decreasing or concealing an obligation to pay money to the federal government. Many pharmaceutical and other healthcare companies have been investigated and have reached substantial financial settlements with the federal government under the federal Anti-Kickback Statute and the civil False Claims Act for a variety of alleged marketing activities, including providing free product to customers with the expectation that the customers would bill federal programs for the product; providing consulting fees, grants, free travel, and other benefits to physicians to induce them to prescribe the company’s products; and inflating prices reported to private price publication services, which are used to set drug payment rates under government healthcare programs. Companies have been prosecuted for causing false claims to be submitted because of the marketing of their products for unapproved uses. Pharmaceutical and other healthcare companies have also been prosecuted on other legal theories of Medicare and Medicaid fraud.
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The federal criminal false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a material fact, making any materially false, fictitious, or fraudulent statement or representation, or making or using any false writing or document knowing the same to contain any materially false, fictitious or fraudulent statement or entry in connection with the delivery of or payment for healthcare benefits, items or services.  There are also criminal penalties, including imprisonment and criminal fines, for making or presenting a false, fictitious or fraudulent claim to the federal government. Conviction under any of the aforementioned federal criminal statutes requires mandatory exclusion from participation in federal healthcare programs.
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The federal Physician Payment Sunshine Act, being implemented as the Open Payments Program, requires certain pharmaceutical manufacturers to engage in extensive tracking of payments and other transfers of value to physicians and teaching hospitals and to submit data to CMS, which will then make all of this data publicly available on the CMS website. Pharmaceutical manufacturers, such as us, with products for which payment is available under Medicare, Medicaid, or the State Children’s Health Insurance Program are required to track reportable payments and transfers of value during each calendar year and must submit a report on or before the 90th day of each calendar year disclosing reportable payments made in the previous calendar year. Failure to comply with the reporting obligations may result in civil monetary penalties.

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Analogous state laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by Medicaid or other state programs or, in several states, apply regardless of the payer. Several states now require pharmaceutical companies to report expenses relating to the marketing and promotion of pharmaceutical products in those states and to report gifts and payments to certain healthcare providers in those states. Some of these states also prohibit certain marketing-related activities including the provision of gifts, meals, or other items to certain healthcare providers.  In addition, several states require pharmaceutical companies to implement compliance programs or marketing codes.  Efforts to ensure that our business arrangements with third parties will continue to comply with applicable healthcare laws and regulations could be costly. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations, including activities conducted by our sales team, are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, exclusion from government-funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. If any of the physicians or other providers or entities with whom we expect to do business is found to be not in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government-funded healthcare programs.
We are also subject to laws and regulations covering data privacy and the protection of health-related and other personal information. The legislative and regulatory landscape for privacy and data protection continues to evolve, and there has been an increasing focus on privacy and data protection issues which may affect our business, including recently enacted laws in many jurisdictions where we operate. Numerous U.S. federal and state laws and regulations, including state security breach notification laws, state health information privacy laws and federal and state consumer protection laws, govern the collection, use, disclosure and protection of personal information. Failure to comply with laws and regulations covering data privacy and the protection of health-related and other personal information could result in government enforcement actions, which could include civil or criminal penalties, private litigation and/or adverse publicity and could negatively affect our operating results and business.  In addition, we obtain patient health information from most healthcare providers who prescribe our products and research institutions we collaborate with, and they are subject to privacy and security requirements under HIPAA. Although we are not directly subject to HIPAA other than with respect to providing certain employee benefits, we could potentially be subject to criminal penalties if we knowingly obtain or disclose individually identifiable health information maintained by a HIPAA-covered entity in a manner that is not authorized or permitted by HIPAA.
In late 2013, we received a subpoena from the Department of Justice, represented by the U.S. Attorney’s Office in Boston, requesting documents regarding our marketing and sale of JUXTAPID in the U.S., as well as disclosures related to the same.  See Part II, Item 1-“Legal Proceedings” for further information regarding ongoing investigations, including the preliminary agreements in principle we have reached with the SEC and the DOJ, and other legal proceedings.
We could become subject to other government investigations and related subpoenas. Subpoenas are often associated with previously filed qui tam actions, or lawsuits filed under seal under the federal civil False Claims Act. Qui tam actions are brought by private plaintiffs suing on behalf of the federal government for alleged federal civil False Claims Act violations.  The time and expense associated with responding to subpoenas, and any related qui tam or other actions, may be extensive, and we cannot predict the results of our review of the responsive documents and underlying facts or the results of

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such actions. Any investigation, including the investigation described above, if resolved adversely to us, including by settlement, could result in civil and/or criminal sanctions being levied against us, including significant fines, sanctions, and other negative consequences that will have a material adverse effect on our business, financial condition, results of operations and/or cash flows. Even if we can resolve such a matter without incurring significant penalties, responding to subpoenas is costly and time-consuming. Moreover, responding to any additional government investigations, defending any claims raised, and any resulting fines, restitution, damages and penalties, settlement payments and administrative actions, as well as any related actions brought by stockholders or other third parties, could have further material adverse impacts beyond those attributable to the DOJ and SEC investigations described above, including on our reputation, our business, financial condition, results of operations, and stock price.  These investigations have diverted, and may continue to divert, the attention of our management from operating our business, and have been disruptive, and may continue to be disruptive, to our employees, possibly resulting in employee attrition. In addition, the existence of the investigations described above and related activities have impacted, and may continue to impact, the willingness of some physicians to prescribe JUXTAPID and/or MYALEPT.
The number and complexity of both federal and state laws continues to increase, and additional governmental resources are being added to enforce these laws and to prosecute companies and individuals who are believed to be violating them. In particular, the Healthcare Reform Act includes a number of provisions aimed at strengthening the government’s ability to pursue anti-kickback and false claims cases against pharmaceutical manufacturers and other healthcare entities, including substantially increased funding for healthcare fraud enforcement activities, enhanced investigative powers, and amendments to the False Claims Act that make it easier for the government and whistleblowers to pursue cases for alleged kickback and false claim violations. While it is too early to predict what effect these changes will have on our business, we anticipate that government scrutiny of pharmaceutical sales and marketing practices, interactions with health care professionals, payers, patient organizations, and patients, and interactions with other entities and organizations involved in the supply of and payment for pharmaceutical products will continue for the foreseeable future and subject us to the risk of government investigations and enforcement actions. For example, federal enforcement agencies recently have shown interest in pharmaceutical companies’ product and patient assistance programs, including manufacturer reimbursement support services and relationships with specialty pharmacies. Some of these investigations have resulted in significant civil and criminal settlements.  Responding to a government investigation or enforcement action would be expensive and time-consuming, and could have a material adverse effect on our business and financial condition and growth prospects.
Enacted and future legislation and related implementing regulations may increase the difficulty and cost for us to commercialize lomitapide, metreleptin or any other product candidate for which we obtain marketing approval, and may affect the prices we are able to obtain for lomitapide.
In the U.S., there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that restrict or regulate post-approval activities, and may affect our ability to profitably sell JUXTAPID, MYALEPT or any other product candidate for which we obtain marketing approval. Legislative and regulatory proposals have been made to expand post-approval requirements and restrict sales and promotional activities for pharmaceutical products. We are not sure whether additional legislative changes will be enacted, or whether the FDA regulations, guidance or interpretations will be changed, or what the impact of such changes for JUXTAPID or MYALEPT may be. In addition, increased scrutiny by the U.S. Congress of the FDA’s approval process may subject us to more stringent product labeling and post-marketing testing and other requirements.

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In the U.S., most outpatient prescription drugs, including JUXTAPID and MYALEPT, may be covered under Medicare Part D. Medicare Part D prescription drug plans are authorized to use formularies where they can limit the number of drugs that will be covered in any therapeutic class and/or impose differential cost sharing or other utilization management techniques. This places pressure on us to contain and reduce costs. Changes to Medicare Part D that give plans more freedom to limit coverage or manage utilization, and/or other cost reduction initiatives in the program could decrease the coverage and price that we receive for any approved products, and could seriously harm our business.
In March 2010, President Obama signed into law the Healthcare Reform Act, a sweeping law intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add new transparency requirements for healthcare and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms. The Healthcare Reform Act made significant changes to the Medicaid Drug Rebate program, including changes to the definition of AMP, and contains a number of provisions that are expected to impact our business and operations. Changes that may affect our business in the U.S. include those governing expanded enrollment in federal and private healthcare programs, changes to Medicare Part D, increased rebates and taxes on pharmaceutical products, expansion of the 340B program, and revised fraud and abuse and enforcement requirements.
Additional provisions of the Healthcare Reform Act, some of which have already taken effect, may negatively affect our future revenues. For example, the Healthcare Reform Act requires pharmaceutical manufacturers of branded prescription drugs to pay a branded prescription drug fee to the federal government. Each individual pharmaceutical manufacturer pays a prorated share of the branded prescription drug fee of $3.0 billion in 2016, based on the dollar value of its branded prescription drug sales to certain federal programs identified in the law. Sales of “orphan drugs” are excluded from this fee. “Orphan drugs” are specifically defined for purposes of the fee.  For each indication approved by the FDA for the drug, such indication must have been designated as orphan by the FDA under section 526 of the FDCA, an orphan drug tax credit under section 45C of the Internal Revenue Code must have been claimed with respect to such indication, and such tax credit must not have been disallowed by the Internal Revenue Service. Finally, the FDA must not have approved the drug for any indication other than an orphan indication for which a section 45C orphan drug tax credit was claimed (and not disallowed).  As part of the Healthcare Reform Act’s provisions closing a coverage gap that currently exists in the Medicare Part D prescription drug program (commonly known as the “donut hole”), manufacturers are required to provide a 50% discount on branded prescription drugs dispensed to beneficiaries within this donut hole. The Healthcare Reform Act also made changes to the Medicaid Drug Rebate Program, including revising the definition of AMP and increasing the minimum rebate from 15.1% to 23.1% of the AMP for most innovator products, and from 11% to 13% for non-innovator products. The increased minimum rebate of 23.1% applies to JUXTAPID and MYALEPT. We do not know the full effects that the Health Care Reform Act will have on our sales of JUXTAPID or MYALEPT, our business and operations, but the law appears likely to continue the pressure on pharmaceutical pricing, especially under the Medicare program, and may also increase our regulatory burdens and operating costs.
On January 21, 2016, CMS issued final regulations to implement the changes to the Medicaid Drug Rebate program under the Health Reform Laws.  These regulations became effective on April 1, 2016.  We do not believe these regulations will have a material impact on our business and operations.  In addition, in the future, Congress could enact legislation that further increases Medicaid drug rebates or other costs and charges associated with participating in the Medicaid Drug Rebate program. The issuance of regulations and coverage expansion by various governmental agencies relating to the Medicaid Drug Rebate program has and will continue to increase our costs and the complexity of compliance, has been and will be time-consuming, and could have a material adverse effect on our results of operations.

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Federal law requires that any company that participates in the Medicaid Drug Rebate program also participate in the 340B program in order for federal funds to be available for the manufacturer’s drugs under Medicaid and Medicare Part B. The 340B program requires participating manufacturers to agree to charge statutorily-defined covered entities no more than the 340B “ceiling price” for the manufacturer’s covered outpatient drugs. The Healthcare Reform Act expanded the 340B program to include additional entity types: certain free-standing cancer hospitals, critical access hospitals, rural referral centers and sole community hospitals, each as defined by the Healthcare Reform Act. The Healthcare Reform Act exempts “orphan drugs” -those designated under section 526 of the Federal Food, Drug, and Cosmetic Act (“FDCA”), such as JUXTAPID and MYALEPT -from the ceiling price requirements for these newly-eligible entities.
The Healthcare Reform Act also obligates the Health Resources and Services Administration (“HRSA”), the agency which administers the 340B program, to create regulations and processes to improve the integrity of the 340B program and to update the agreement that manufacturers must sign to participate in the 340B program to obligate a manufacturer to offer the 340B price to covered entities if the manufacturer makes the drug product available to any other purchaser at any price and to report the ceiling prices for its drugs to the government. HRSA recently issued a proposed regulation regarding the calculation of the 340B ceiling price and the imposition of civil monetary penalties on manufacturers that knowingly and intentionally overcharge covered entities, as well as proposed omnibus guidance that addresses many aspects of the 340B program, including a proposed expansion of manufacturer recordkeeping requirements and 340B ceiling price restatement and refund obligations. Final 340B omnibus guidance and other rules are currently expected in late 2016 or 2017. Any final regulations and guidance could affect our obligations under the 340B program in ways we cannot anticipate.  Further, legislation may be introduced that, if passed, would further expand the 340B program to additional covered entities or would require participating manufacturers to agree to provide 340B discounted pricing on drugs used in the inpatient setting.
Countries outside the U.S. may make changes to their healthcare systems which may in the future affect the revenues we generate from sales of lomitapide and, if approved outside of the U.S., metreleptin and other product candidates for which we obtain approval.
We face extensive regulatory requirements, and may still face future development and regulatory difficulties.
Even after marketing approval, a regulatory authority may still impose significant restrictions on a product’s indications, conditions for use, distribution or marketing or impose ongoing requirements for post-marketing surveillance, post-approval studies or clinical trials. JUXTAPID is available in the U.S. only through the JUXTAPID REMS Program. We must certify all healthcare providers who prescribe JUXTAPID and the pharmacies that dispense the medicine. The FDA has also required that we periodically assess the effectiveness of the JUXTAPID REMS Program. The FDA itself assesses on a periodic basis whether a REMS program is meeting its goals and whether the goals or elements of the plan should be modified.  In June 2015, we received a letter from the FDA expressing concern that the JUXTAPID REMS Program is not meeting its goals of educating healthcare professionals about the risks of hepatotoxicity and the need to periodically conduct liver tests to monitor patients during treatment with JUXTAPID as set forth in the product label. The letter also expressed concern about the difficulty in assessing whether the goal of restricting access to JUXTAPID to patients with a clinical or laboratory diagnosis consistent with HoFH was being met. In response to the FDA’s concerns, we proposed to the FDA modifications to the JUXTAPID REMS Program to improve prescriber awareness of the risk of hepatotoxicity associated with JUXTAPID and the need to monitor patients during treatment, and to reinforce the approved indication and the characteristics of HoFH. On March 11, 2016, we received from the FDA an additional letter describing certain modifications the FDA considers necessary to the

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JUXTAPID REMS Program and the labeling for JUXTAPID. In response to the FDA’s proposed modifications to the labeling for JUXTAPID, on April 8, 2016, we submitted a prior approval labeling supplement to the FDA addressing certain of the FDA’s proposed modifications, including an instruction that patients cease therapy upon the occurrence of severe diarrhea.  The labeling changes were approved by the FDA on May 23, 2016.  We submitted our response to the FDA’s proposal regarding modifications to the JUXTAPID REMS Program in a prior approval supplement on July 7, 2016, and the FDA has informed us that it expects to respond by January 3, 2017.  The FDA’s proposed modifications to the JUXTAPID REMS Program include the recertification of physicians, the requirement that patients sign a patient-prescriber acknowledgment form as a pre-condition to JUXTAPID being dispensed to patients, and enhancements to the JUXTAPID prescription authorization form to capture liver monitoring as directed by the JUXTAPID labeling.  Such modifications to the JUXTAPID REMS Program, which we expect to be made, and the labeling modifications, may negatively affect the ability or willingness of a healthcare professional to prescribe JUXTAPID, a patient to be willing to initiate or continue on therapy, or insurance companies, managed care organizations, other private payers, and government entities that provide reimbursement for medical costs to continue to provide reimbursement for JUXTAPID, in which case we will have difficulty achieving or maintaining market acceptance of JUXTAPID, and our business and ability to achieve our financial expectations will be harmed. The outcome of the investigations of the SEC and DOJ may also have an effect on the FDA’s requirements for the JUXTAPID REMS Program.
In the EU, Japan and in the other countries outside the U.S. in which lomitapide is approved, we have adopted risk management plans to help educate physicians on the safety information for lomitapide and appropriate precautions to be followed by healthcare professionals and patients.
MYALEPT is also available only through the MYALEPT REMS Program, due to potential for development of anti-metreleptin antibodies and the associated risks of serious adverse sequelae (such as severe infections, excessive weight gain, glucose intolerance, diabetes mellitus) and risk of lymphoma. As a part of this program, we must certify all healthcare providers who prescribe MYALEPT, certify the pharmacies that dispense the medicine, and obtain prescriber attestation that each patient has a diagnosis consistent with GL. We are responsible for maintaining, monitoring and evaluating the implementation of the MYALEPT REMS Program.
Regulatory authorities have significant post-marketing authority, including, for example, the authority to require labeling changes based on new safety information, and to require post-marketing studies or clinical trials to evaluate serious safety risks related to the use of a drug or biologic. For example, in July 2015, the FDA notified us that they considered post-marketing reports of anaphylaxis to be new safety information, and requested that we add it to the prescribing information for MYALEPT; we complied with that request.  Part of our post-marketing commitment to the FDA and EMA with respect to lomitapide is to conduct an observational cohort study, which we have initiated, to generate more data on the long-term safety profile of lomitapide in the treatment of patients with HoFH, the patterns of use and compliance and the long-term effectiveness of controlling LDL-C levels. The EMA has also required that we conduct a vascular imaging study to determine the impact of lomitapide on vascular endpoints, which has been initiated. Enrollment in the vascular imaging study has proven to be challenging due to the design of the study. If we withdraw LOJUXTA from the EU markets, we will no longer be required to satisfy post-marketing commitments to the EMA with respect to lomitapide.  If we license LOJUXTA to a partner that can continue to provide access to the therapy but we continue to hold the marketing authorization, these commitments will continue. As part of the post-marketing commitments to the FDA for metreleptin, we plan to initiate a long-term, prospective, observational study (product exposure registry) in patients to evaluate serious risks related to the use of the product.  The registry will attempt to enroll at least 100 new patients treated with metreleptin.  Enrollment will close after five years or after

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100 new patients have been enrolled, whichever occurs first.  The registry will continue for ten years from the date of last patient’s enrollment.  We are also required to conduct programs to expand the understanding of the immunogenicity of metreleptin and to conduct certain studies related to the manufacturing of metreleptin, which we have initiated. We expect that the regulatory authorities in certain other countries outside the U.S. and EU where our products are, or may be, approved may impose post-approval obligations, including patient registries, and requirements that may in some countries be more onerous than those imposed by the FDA and EMA. Depending on the nature of these post-marketing studies, we may be required to provide our products free of charge to participants in the studies in certain countries even if we have pricing and reimbursement approval in such countries, which would negatively impact our level of revenues.
In the EU, because we were not able to provide comprehensive clinical data on the efficacy and safety of lomitapide under normal conditions of use due to the rarity of HoFH, and in light of our commitments to conduct an appropriate risk-mitigation program, LOJUXTA was approved under exceptional circumstances. This type of marketing authorization requires an annual reassessment of the risk/benefit of LOJUXTA by the CHMP. Any changes in known safety concerns for lomitapide or any unknown safety issues that may develop could cause the EC to decline to renew our market authorization for lomitapide in the EU which could affect our ability to achieve our financial goals. In July 2016, we announced that we intend to withdraw lomitapide from the EU and certain other global markets by the end of 2016 unless we earlier enter into supply, license or other arrangements with suitable partners in such markets. If lomitapide is withdrawn from the EU, we will not be subject to the requirement of such an annual reassessment.
We will also be subject to other ongoing regulatory requirements in each of the countries in which our products are approved governing the labeling, packaging, storage, advertising, distribution, promotion, recordkeeping and submission of safety, REMS, risk management program and other post-marketing information, including adverse reactions, and any changes to the approved product, product labeling, or manufacturing process. As a company with limited internal resources and expertise in these areas, we rely on third parties to facilitate our compliance with many of these extensive regulatory requirements, which often include detailed record keeping and reporting requirements.  We and the third parties we work with may not be able to fully comply with these requirements or the reports we file with regulatory authorities may result in changes to our post-marketing compliance requirements.  For example, as noted above, we expect to agree to enhancements to the JUXTAPID REMS Program as a result of the FDA’s review of the program and changes it proposed in its March 11, 2016 letter. In addition, manufacturers of drug products and their facilities are subject to continual review and periodic inspections by the FDA, the EMA, the competent authorities of the EU Member States and other regulatory authorities for compliance with cGMP, and other regulations.
If we, or third party service providers acting on our behalf, or our drug substance or drug product or the manufacturing facilities for our drug substance or drug product, fail to comply with applicable regulatory requirements, including global pharmacovigilance requirements and meeting the requirements of the JUXTAPID REMS Program, a regulatory agency may:
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issue warning letters or untitled letters;
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seek an injunction or impose civil or criminal penalties or monetary fines;
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suspend, withdraw or alter the conditions of our marketing approval;
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require us to provide corrective information to healthcare practitioners;
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suspend any ongoing clinical trials;

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require us to enter into a consent decree, which is a component of our preliminary agreement in principle with the DOJ related to the JUXTAPID REMS Program, which can include imposition of various fines, reimbursements for inspection costs, required due dates for specific actions and penalties for noncompliance;
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refuse to approve pending applications or supplements to applications submitted by us;
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suspend or impose restrictions on operations, including costly new manufacturing requirements;
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seize or detain products, refuse to permit the import or export of products or request that we initiate a product recall;
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impose further refinements and enhanced obligations under existing risk management and other forms of post-marketing requirements and programs; or
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refuse to allow us to enter into supply contracts, including government contracts.
The occurrence of any event or penalty described above may inhibit our ability to commercialize our products and candidate products and to generate revenue.
If we fail to comply with our reporting and payment obligations under the Medicaid Drug Rebate Program or other governmental pricing programs in the U.S., we could be subject to additional reimbursement requirements, penalties, sanctions and fines which could have a material adverse effect on our business, financial condition, results of operations and growth prospects.
We participate in the Medicaid Drug Rebate Program and a number of other Federal and state government pricing programs in the U.S., and we may participate in additional government pricing programs in the future. These programs are described in detail under “Business-Regulatory Matters” section of our Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on March 15, 2016, and generally require us to pay rebates or provide discounts to government payers in connection with our products, dispensed to beneficiaries of these programs. In some cases, such as with the Medicaid Drug Rebate Program, the rebates are based on pricing and rebate calculations that we report on a monthly and quarterly basis to the government agencies that administer the programs. The terms, scope and complexity of these government pricing programs change frequently. Responding to current and future changes may increase our costs and the complexity of compliance, will be time-consuming, and could have a material adverse effect on our results of operations.
Pricing and rebate calculations vary among products and programs. The calculations are complex and are often subject to interpretation by governmental or regulatory agencies and the courts. For example, the Medicaid rebate amount is computed each quarter based on our submission to the CMS of our AMP and best price for the quarter. If we become aware that our reporting for prior quarters was incorrect, or has changed as a result of recalculation of the pricing data, we will be obligated to resubmit the corrected data for a period not to exceed twelve quarters from the quarter in which the data originally were due. Such restatements and recalculations would serve to increase our costs for complying with the laws and regulations governing the Medicaid rebate program. Any corrections to our rebate calculations could result in an overage or underage in our rebate liability for past quarters, depending on the nature of the correction. Price recalculations also may affect the price that we will be required to charge certain safety net providers under the Public Health Service 340B drug discount program.
In February 2015, we significantly increased the U.S. wholesale acquisition cost per 11.3 mg vial of MYALEPT. As a result of this substantial price increase, we continue to expect a significant gross-to-net adjustment for Medicaid rebates which will offset the majority of revenue from Medicaid and negatively impact net product sales in future quarters, since Medicaid rebates directly reduce our net product sales. The degree of such impact on our overall financial performance will depend on the

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percentage of MYALEPT patients that have Medicaid as their primary insurance coverage and the quantity of units ordered per patient. To date, approximately 23% to 40% of patients prescribed MYALEPT were Medicaid beneficiaries. The number of patients prescribed MYALEPT in the future who are Medicaid beneficiaries could be higher than historical rates.
We are liable for errors associated with our submission of pricing data and for overcharging government payers. For example, in addition to retroactive rebates and the potential for 340B program refunds, if we are found to have knowingly submitted false AMP or best price information to the government, we may be liable for civil monetary penalties in the amount of $100,000 per item of false information. Our failure to submit monthly/quarterly AMP and best price data on a timely basis could result in a civil monetary penalty of $10,000 per day for each day the submission is late beyond the due date. In the event that CMS were to terminate our rebate agreement, no federal payments would be available under Medicaid or Medicare Part B for our products, such as JUXTAPID. In addition, if we overcharge the government in connection with our Federal Supply Schedule (“FSS”) contract or under any other government program, we will be required to refund the difference to the government. Failure to make necessary disclosures and/or to identify contract overcharges could result in allegations against us under the federal civil False Claims Act and other laws and regulations.
In order to be eligible to have our products paid for with federal funds under the Medicaid and Medicare Part B programs and purchased by four federal agencies (noted below) and certain federal grantees, we are required to participate in the Department of Veterans Affairs (“VA”) FSS pricing program, established by Section 603 of the Veterans Health Care Act of 1992. Under this program, we are obligated to make JUXTAPID and MYALEPT available for procurement on an FSS contract and charge a price to four federal agencies -VA, Department of Defense (“DoD”), Public Health Service, and Coast Guard -that is no higher than the statutory Federal Ceiling Price (“FCP”). The FCP is based on the non-federal average manufacturer price (“Non-FAMP”), which we calculate and report to the VA on a quarterly and annual basis. If a company misstates Non-FAMPs or FCPs it must restate these figures. Pursuant to the VHCA, knowing provision of false information in connection with a Non-FAMP filing can subject a manufacturer to penalties of $100,000 for each item of false information.
FSS contracts are federal procurement contracts that include standard government terms and conditions, separate pricing for each product, and extensive disclosure and certification requirements. In addition to the four agencies described above, all other federal agencies and some non-federal entities are authorized to access FSS contracts. FSS contractors are permitted to charge FSS purchasers other than the four federal agencies “negotiated pricing” for covered drugs that is not capped by the FCP; instead, such pricing is negotiated based on a mandatory disclosure of the contractor’s commercial “most favored customer” pricing. Moreover, all items on FSS contracts are subject to a standard FSS contract clause that requires FSS contract price reductions under certain circumstances where pricing to an agreed “tracking” customer is reduced. In July 2016, we concluded negotiations with the VA, and effective August 15, 2016, we will have an FSS contract for both JUXTAPID and MYALEPT.
In addition, pursuant to regulations issued by the DoD Defense Health Agency (“DHA”) to implement Section 703 of the National Defense Authorization Act for Fiscal Year 2008, we expect that DoD will claim entitlement to rebates on covered drug prescriptions dispensed to Tricare beneficiaries by Tricare network retail pharmacies. The formula for determining the rebate is established in the regulations and our Section 703 Agreement and is based on the difference between annual Non-FAMP and the FCP.

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If we overcharge the government in connection with VA FSS pricing program or Tricare Retail Pharmacy Program, whether due to a misstated FCP or otherwise, we are required to refund the difference to the government. Failure to make necessary disclosures and/or to identify contract overcharges could result in allegations against us under the False Claims Act and other laws and regulations.
Unexpected refunds to the U.S. government, and responding to a government investigation or enforcement action, would be expensive and time-consuming, and could have a material adverse effect on our business, financial condition, results of operations and growth prospects.
Commercialization of our products requires third-party relationships, and our dependence on these relationships may have an adverse effect on our business.
Lomitapide, our first marketed product, was launched in 2013. We acquired metreleptin in January 2015. As a result, we do not have a long history commercializing pharmaceutical products. To maximize the commercial potential of lomitapide and metreleptin, we utilize, and plan to continue to use, distributors and other third parties to help distribute and, in some cases, to commercialize our products. We currently have a contract with a single specialty pharmacy distributor in the U.S. for the distribution of lomitapide, a single distributor in Brazil, a single distributor in Japan, a single logistics provider in the EU and single distributors, importers and/or specialty pharmacies in certain other countries. Upon the anticipated approval of JUXTAPID in Japan, we plan to use a third-party sales force to sell lomitapide in Japan. We also have a contract with a single specialty pharmacy distributor in the U.S. for the distribution of metreleptin. Any performance failure, inability or refusal to perform on the part of our specialty pharmacy distributors in the U.S., our logistics provider in the EU, or our single third-party service providers in other countries, or any failure to renew existing agreements or enter into new agreements when these relationships expire, could impair our marketing, sales or named patient supply of lomitapide or metreleptin, as the case may be. In those countries outside the U.S. where we plan to use our own personnel to commercialize lomitapide, we have, or plan to have, agreements with local wholesalers or logistics providers to provide logistics and distribution support. In those geographic locations in which we are using third parties to commercialize lomitapide, we will be reliant on such third parties to generate revenue on our behalf. If we enter into arrangements with third parties to perform sales, marketing or distribution services, our product revenues or the profitability of these product revenues to us are likely to be lower than if we were to market and sell any products that we develop ourselves. In addition, we may not be successful in entering into arrangements with third parties to sell and market our products or in doing so on terms that are favorable to us, and we may have difficulty making changes to our distributors, or terminating such agreements, without incurring penalties or termination payments even if our agreements allow us to do so. We likely will have little control over such third parties, and any of them may fail to devote the necessary resources and attention to sell and market our products effectively. If we do not establish sales and marketing capabilities successfully, either on our own or in collaboration with third parties, we will not be successful in commercializing our products. Furthermore, our expenses associated with building up and maintaining the sales force and distribution capabilities around the world may be substantial compared to the revenues we may be able to generate on sales of our products. We cannot guarantee that our success in commercializing lomitapide or metreleptin will meet our expectations.
Failures or delays in the completion or commencement of any of our ongoing or planned clinical trials of lomitapide or metreleptin could result in increased costs to us and delay, prevent or limit our ability to generate revenue with respect to the relevant product in a new territory or indication.
The commencement and completion of clinical trials may be delayed or prevented for a number of reasons, including:

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difficulties obtaining regulatory clearance to commence a clinical trial or complying with conditions imposed by a regulatory authority regarding the scope or term of a clinical trial;
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delays in reaching or failing to reach agreement on acceptable terms with prospective clinical research organizations (“CROs”) and trial sites, and problems with the performance of CROs;
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insufficient or inadequate supply or quality of a product candidate or other materials necessary to conduct our clinical trials, or other manufacturing issues;
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difficulties obtaining institutional review board (“IRB”) approval or Ethics Committee’s positive opinion to conduct a clinical trial at a prospective site;
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challenges recruiting and enrolling patients to participate in clinical trials for a variety of reasons, including the size and nature of a patient population, the proximity of patients to clinical sites, the eligibility criteria for the trial, the nature of trial protocol, the availability of approved treatments for the relevant disease and the competition from other clinical trial programs for similar indications;
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severe or unexpected drug-related side effects experienced by patients in a clinical trial; and
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difficulties retaining patients who have enrolled in a clinical trial but may be prone to withdraw due to the rigors of the trials, lack of efficacy, side effects or personal issues, or who are lost to further follow-up.
For example, in the first quarter of 2015, the FDA issued a Written Request for a study to evaluate lomitapide in pediatric HoFH patients, which, if completed as described, would provide for 6 months of pediatric exclusivity under the FDCA. In the second quarter of 2015, we decided to decline the FDA’s Written Request regarding our planned study in pediatric HoFH patients, because we believe that the size and complexity of the requested trial created a considerable barrier to the feasibility of the study, and as a result we will not be entitled to six months of additional exclusivity. In July 2016, we notified the EMA of our intention to withdraw LOJUXTA from the EU markets, unless we earlier enter into an supply, license or other arrangements with a suitable partner that could continue to provide access to the therapy. The lack of approval to market lomitapide for the pediatric HoFH population may limit our product revenue potential for lomitapide.
On May 2, 2016, in connection with our marketing authorization application (“MAA”) filing for metreleptin for the treatment of GL patients and a subset of PL patients in the EU, the EMA’s PDCO issued a summary report regarding the metreleptin pediatric investigation plan, or PIP. The PDCO expressed concern that the number of young patients with lipodystrophy included in the clinical trials proposed to be included in the PIP is very limited, and that no information on metreleptin as used by European patients was provided. The PDCO advised that we provide additional data, in particular for patients younger than 6 years of age, and if such data were not available, conduct an additional study.  We proposed to the PDCO that we conduct a study in GL patients below the age of 6, as a deferred commitment, and in July 2016, the PDCO approved our proposal.  Given the prevalence of GL and other factors, conducting a clinical trial in GL patients in the EU below a defined age will likely make such a trial lengthy in nature and potentially difficult to complete. Even if we conduct a study in pediatric GL patients, we may not be able to show, to the satisfaction of the EMA, that metreleptin is safe and effective in pediatric patients under the age of 6, and we may never receive approval for this indication in the EMA. The lack of approval to market metreleptin for the pediatric GL population outside of the U.S. would limit expansion of our product revenue potential.
Clinical trials may also be delayed or terminated as a result of ambiguous or negative interim results or the results of other clinical, preclinical or nonclinical studies. In addition, a clinical trial may be suspended or terminated by us, the FDA, the competent authorities of the EU Member States and other countries, the IRBs or the Ethics Committees at the sites, or a data

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safety monitoring board overseeing the clinical trial at issue, or other regulatory authorities due to a number of factors, including:
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failure to conduct the clinical trial in accordance with regulatory requirements or our clinical protocols;
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failure to respect applicable data privacy obligations;
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inspection of the clinical trial operations or trial sites by the FDA or other regulatory authorities;
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unforeseen safety issues or lack of effectiveness; and
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lack of adequate funding to continue the clinical trial.
Positive results in preclinical studies and earlier clinical trials of our products or product candidates may not be replicated in later clinical trials, which could result in development delay or a failure to obtain marketing approval or affect market acceptance.
Positive results in preclinical or clinical studies of lomitapide, metreleptin or any other product candidate that we acquire, license or develop may not be predictive of similar results in humans during further clinical trials. A number of companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials even after achieving promising results in early-stage development. Accordingly, there is, for example, a possibility that any potential future clinical development of metreleptin in pediatric patients or new indications may generate results that are not consistent with the results of the Phase 3 clinical study for the product or other relevant studies. The results of such clinical trials may not be sufficient to gain approval of metreleptin in any pediatric population or new indication. In addition, given that we have declined to conduct the study requested by the FDA, we will not be entitled to the six months of additional exclusivity available for conducting a study that is the subject of a Written Request issued by the FDA. Our preclinical studies or clinical trials may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional preclinical studies or clinical trials. Moreover, preclinical and clinical data can be susceptible to varying interpretations and analyses, and many companies that believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain FDA or other regulatory approval for their products.
Changes in regulatory requirements and guidance or unanticipated events during our clinical trials may occur, as a result of which we may need to amend clinical trial protocols. Amendments may require us to resubmit our clinical trial protocols to the FDA, IRBs, Ethics Committees or the competent authorities of the EU Member States for review and approval, which may impact the cost, timing or successful completion of a clinical trial. If we experience delays in completion of, or if we terminate, any of our previous clinical trials of our products or generate results that differ from earlier clinical trial results, the commercial prospects for lomitapide or metreleptin may be harmed.
If we fail to obtain or maintain orphan drug exclusivity for our products in any country where exclusivity is available, we will have to rely on our data and marketing exclusivity, if any, and on our intellectual property rights, to the extent there is coverage in such country, which may reduce the length of time that we can prevent competitors from selling generic versions of our products.
We have obtained orphan drug exclusivity for JUXTAPID in the U.S. for the treatment of HoFH. We also have orphan drug exclusivity for MYALEPT in the U.S. for the treatment of GL. Under the Orphan Drug Act, the FDA may designate a product as an orphan drug if it is a drug intended to treat a rare disease or condition, defined, in part, as a patient population of fewer than 200,000 in the U.S. In the U.S., the company that first obtains FDA approval for a designated orphan drug for the specified rare disease or condition receives orphan drug marketing exclusivity for that drug for a period of seven years. This

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orphan drug exclusivity prevents the FDA from approving another application for the “same drug” for the same orphan indication during the exclusivity period, except in very limited circumstances. For small molecule drugs, the FDA defines “same drug” as a drug that contains the same active moiety and is intended for the same use as the drug in question. For biologic drugs, the FDA defines “same drug” as a drug that contains the same principal molecular structural features (but not necessarily all of the same structural features) and is intended for the same use as a previously approved drug. A designated orphan drug may not receive orphan drug exclusivity if it is approved for a use that is broader than the indication for which it received orphan designation. In addition, orphan drug exclusive marketing rights in the U.S. may be lost if the FDA later determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the drug to meet the needs of patients with the rare disease or condition.
Metreleptin also qualifies for 12 years of exclusivity from the date of approval under the Biologics Price Competition and Innovation Act of 2009 (“BPCI Act”). Under the BPCI Act, an application for a biosimilar product cannot be approved by the FDA until 12 years after the original reference product was approved under a BLA. The law is complex and is still being interpreted and implemented by the FDA. As a result, its ultimate impact, implementation, and meaning are subject to uncertainty. The abbreviated regulatory pathway establishes legal authority for the FDA to review and approve biosimilar biologics, including the possible designation of a biosimilar as “interchangeable” based on its similarity to an existing reference product. While it is uncertain when such processes intended to implement the BPCI Act may be fully adopted by the FDA, any such processes could have a material adverse effect on the future commercial prospects for metreleptin. There is a risk that this exclusivity could be shortened due to congressional action or otherwise, or that the FDA will not consider metreleptin to be a reference product for competing products, potentially creating the opportunity for competition sooner than anticipated. Moreover, the extent to which a biosimilar, once approved, will be substituted for metreleptin in a way that is similar to traditional generic substitution for non-biological products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing.
The EC, following an opinion by the EMA, grants orphan designation to promote the development of products that may offer therapeutic benefits for life-threatening or chronically debilitating conditions affecting not more than five in 10,000 people in the EU. Metreleptin has received orphan drug designation in the EU for the treatment of Barraquer-Simons syndrome (acquired partial lipodystrophy), Berardinelli-Seip syndrome (congenital GL), Lawrence syndrome (acquired GL) and familial partial lipodystrophy. Medicinal products benefiting from orphan designation are, following grant of marketing authorization, provided ten years of marketing exclusivity. This exclusivity may be reduced to six years if the designation criteria are no longer met. Despite the prevalence rate, we do not have orphan drug exclusivity for lomitapide in the treatment of HoFH in the EU since the EMA views the relevant condition, for orphan designation purposes, to include both HoFH and HeFH. Our failure to obtain orphan designation for lomitapide for the treatment of HoFH in the EU means that we have not had the benefit of the orphan market exclusivity for this indication in the EU. Lomitapide qualifies as an innovative medicinal product in the EU. We believe that metreleptin, which is already subject to orphan designation in the EU, will also qualify as an innovative medicinal product if it is approved in the EU. Innovative medicinal products authorized in the EU on the basis of a full marketing authorization application (as opposed to an application for marketing authorization of a generic medicinal product that relies on the results of pre-clinical and clinical trials in the marketing authorization dossier for another, previously approved innovative medicinal product) are entitled to eight years’ data exclusivity. During this period, applicants for approval of generics of these innovative products cannot rely on data contained in the marketing authorization dossier submitted for the innovative medicinal product. Innovative medicinal products are also entitled to ten years’ market exclusivity, which runs concurrently with the data

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exclusivity period. During this ten year period no generic medicinal product can be placed on the EU market. The ten year period of market exclusivity can be extended to a maximum of eleven years if, during the first eight years of those ten years, the marketing authorization holder for the innovative product obtains an authorization for one or more new therapeutic indications which, during the scientific evaluation prior to their authorization, are held to bring a significant clinical benefit in comparison with existing therapies. If we do not obtain data exclusivity for our products, our business may be materially harmed.
In Japan, we have received orphan drug designation for lomitapide in the treatment of HoFH from Japan’s regulatory authority, MHLW. In April 2016, INVIMA, the regulatory agency responsible for reviewing marketing authorization applications in Colombia, approved JUXTAPID 20mg capsules in Colombia and granted JUXTAPID five years of post-approval data protection. Metreleptin also has orphan drug exclusivity in Japan where Shionogi has rights to market metreleptin under a distribution agreement assigned to us as part of our acquisition of metreleptin assets and rights. Shionogi received marketing and manufacturing approval in Japan for metreleptin for lipodystrophy in March 2013.
There are many other countries, including some key markets for lomitapide, like Brazil, in which we do not have intellectual property coverage for our products, and where neither orphan drug exclusivity nor data and marketing exclusivity is available.
Even if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs can be approved for the same condition. In the U.S., even after an orphan drug is approved, the FDA can subsequently approve the same drug for the same condition if the FDA concludes that the later drug is safer, more effective or makes a major contribution to patient care.
Recent federal legislation and actions by state and local governments may permit re-importation of drugs from foreign countries into the U.S., including foreign countries where the drugs are sold at lower prices than in the U.S. Similarly, purchasers in the EU are permitted to purchase products in one EU Member State and import it into another EU Member State where the price may be higher. These practices could materially adversely affect our operating results and our overall financial condition.
The Medicare Prescription Drug, Improvement and Modernization Act contains provisions that may change importation laws and expand pharmacists’ and wholesalers’ ability to import lower priced versions of an approved drug and competing products from Canada, where there are government price controls. These changes to U.S. importation laws, which will not take effect unless and until the Secretary of Health and Human Services certifies that the changes will pose no additional risk to the public’s health and safety, may result in a significant reduction in the cost of products to consumers. While the Secretary of Health and Human Services has not yet announced any plans to make this required certification, we may ultimately face the risk that a distributor or other purchaser of JUXTAPID or MYALEPT in the U.S. will be permitted to import lower priced product from a country outside the U.S. that places price controls on pharmaceutical products. This risk may be particularly applicable to JUXTAPID and MYALEPT as drugs that currently command premium prices, and especially to JUXTAPID, as a drug that is formulated for oral delivery. In addition, some states and local governments have implemented importation schemes for their citizens and, in the absence of federal action to curtail such activities, other states and local governments may launch importation efforts.

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In the EU, a purchaser cannot be restricted from purchasing a medicinal procedure in one EU Member State and importing the product into another EU Member State in which it is also subject to marketing authorization.  This activity is called parallel importing. As a result, a purchaser in one EU Member State where lomitapide is sold at a high price may seek to import lomitapide from another EU country where lomitapide is sold at a lower price.
The re-importation of lomitapide or metreleptin into the U.S. market from a foreign market and the parallel importation of lomitapide, and, if approved, metreleptin, among countries of the EU could negatively impact our revenue and anticipated financial results, possibly materially.
We face potential product liability exposure, and, if claims are brought against us, we may incur substantial liability.
The use of any product in clinical trials and the sale of any product for which we have or obtain marketing approval expose us to the risk of product liability claims. Product liability claims might be brought against us by consumers, healthcare providers or others selling or otherwise coming into contact with our product and product candidates. If we cannot successfully defend ourselves against product liability claims, we could incur substantial liabilities. In addition, regardless of merit or eventual outcome, product liability claims may result in:
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decreased demand for our products and any product candidate for which we obtain marketing approval;
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impairment of our business reputation and exposure to adverse publicity;
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increased warnings on product labels;
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withdrawal of clinical trial participants;
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costs as a result of related litigation;
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distraction of management’s attention from our primary business;
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substantial monetary awards to patients or other claimants;
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loss of revenue; and
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the inability to successfully commercialize our products or any product candidate for which we obtain marketing approval.
We have obtained product liability insurance coverage for both our clinical trials and our commercial exposures with a $25.0 million annual aggregate coverage limit. However, our insurance coverage may not be sufficient to reimburse us for any expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive, and, in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability. On occasion, large judgments have been awarded in class action lawsuits relating to drugs that had unanticipated side effects or warnings found to be inadequate. The cost of any product liability litigation or other proceedings, even if resolved in our favor, could be substantial. A product liability claim or series of claims brought against us could harm our reputation and cause our stock price to decline and, if the claim is successful and judgments exceed our insurance coverage, could have a material adverse impact on our business, financial condition, results of operations and prospects.
A variety of risks associated with our international business operations could materially adversely affect our business.
In each country outside the U.S. in which lomitapide is approved, or where we are making lomitapide or metreleptin available on a named patient or compassionate use basis before it has obtained marketing approval, we are subject to additional risks related to entering into international business operations, including:
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differing regulatory requirements for drug approvals in foreign countries;

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pricing, pricing deals and reimbursement approvals that have a negative impact on our global pricing strategy;
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potentially reduced protection for intellectual property rights;
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the potential for parallel importing;
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unexpected changes in tariffs, trade barriers and regulatory requirements;
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economic weakness, including inflation, or political instability in particular foreign economies and markets, including, for example, the current political instability in Brazil, our largest source of revenues from lomitapide sales on a country by country basis outside the U.S;
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compliance with foreign and U.S. laws, rules, regulations or industry codes, including data privacy requirements, labor relations laws, anti-competition regulations, import, export and trade restrictions, and required reporting of payments to healthcare professionals and others;
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negative consequences from changes in applicable tax laws;
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foreign currency fluctuations, which could result in increased operating expenses and reduced revenue, and other obligations incident to doing business in another country;
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workforce uncertainty in countries where labor unrest is more common than in the U.S.;
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production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad;
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dependence upon third parties to perform distribution, pharmacovigilance, quality control testing, collections and other aspects of the distribution, supply chain and commercialization of our products that are required to be performed in order to conduct such activities in international markets, and our ability to effectively manage such third parties; and
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business interruptions resulting from geopolitical and economic events or actions, including social unrest, economic crises, war, terrorism, or natural disasters.
In addition to the foregoing, we are subject to anti-corruption laws, including the U.S. Foreign Corrupt Practices Act (the “FCPA”) and various other anti-corruption laws. The FCPA generally prohibits companies and their intermediaries from making improper payments to foreign officials for the purpose of obtaining or keeping business and/or other benefits. While we have certain training programs, policies and guidelines for our employees and third parties to promote compliance with laws prohibiting corrupt business conduct, we continue to review the effectiveness of our programs, policies and guidelines and seek ways as we grow and our business becomes more complex to further strengthen our compliance controls in this area. An aspect of the SEC’s ongoing investigation into our disclosures and activities relates to alleged FCPA violations in Brazil.  These potential violations are excluded from the preliminary agreements in principle with the DOJ and the SEC.
Our activities outside the U.S. and those of our employees, licensees, distributors, manufacturers, clinical research organizations and other third parties who act on our behalf or with whom we do business subject us to the risk of investigation and prosecution under foreign and U.S. laws. For example, federal and state authorities in Brazil are each conducting investigations to determine whether there have been violations of Brazilian laws related to possible illegal promotion of JUXTAPID in Brazil. In July 2016, the Ethics Council of the national pharmaceutical industry association, Interfarma, unanimously decided to fine us approximately $0.5 million for violations of the industry association’s Code of Conduct, to which we are bound due to our affiliation with Interfarma.  We paid this fine in the third quarter of 2016. Although the Interfarma Code of Conduct provides that companies that violate the Code of Conduct are subject to only one penalty, the Board of Directors of Interfarma has decided to impose an additional penalty of suspension of our membership, without

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suspension of our membership contribution, for a period of 180 days for us to demonstrate the implementation of effective measures to cease alleged irregular conduct, or exclusion of our membership in Interfarma if such measures are not implemented. Also in July 2016, we received an inquiry from a Public Prosecutor Office of the Brazilian State of Paraná asking us to respond to questions related to recent media coverage regarding JUXTAPID and our relationship with a patient association to which we have made donations for patient support. At this time, we do not know whether the Public Prosecutor’s inquiry will result in the commencement of any formal proceeding against the Company, but if our activities in Brazil are found to violate any laws or governmental regulations we may be subject to significant civil and administrative penalties imposed by Brazilian regulatory authorities and additional damages and fines. Under certain circumstances, we could be barred from further sales to federal and/or state governments in Brazil, including sales of JUXTAPID and/or MYALEPT, due to penalties imposed by Brazilian regulatory authorities or through civil actions initiated by federal or state public prosecutors.  We believe recent significant unfavorable media coverage in Brazil may increase the likelihood that such authorities will initiate inquiries and/or litigation. In addition, we believe the investigations in Brazil have contributed to a slower turn-around between price quotation and orders, including re-orders, from the federal government, and, in some cases, delays in orders and re-orders from the government of the State of São Paulo after a patient has obtained access to JUXTAPID through the judicial process. These delays may continue, and we may experience other delays or suspension of the ordering process. Similarly, we have faced, and may continue to face, a reluctance of physicians to prescribe JUXTAPID, and some patients to take or stay on JUXTAPID, while the investigations are ongoing, particularly given that some investigators in Brazil have recently made formal inquiries of certain prescribers of JUXTAPID and significant local media coverage of such inquiries and our activities in Brazil. In the second quarter of 2015, and in the second quarter of 2016, we observed a significant increase in patients discontinuing therapy in Brazil, and we believe that the increases are due in part to the investigations. These issues could negatively affect our ability to generate product revenue for JUXTAPID consistent with our expectations, and may impact our ability to achieve and maintain profitability or maintain cash-flow-positive operations. Prescriptions for and sales of MYALEPT in Brazil may also be negatively affected.
Despite our ongoing efforts to ensure compliance with foreign and domestic laws, our employees, agents, and companies with which we do business may nevertheless take actions in violation of our policies, for which we may be ultimately held responsible. If so, we may be subject to criminal or civil penalties or other punitive measures, including restrictions on our ability to continue selling in certain markets. Any such outcome, or any allegation or investigation regarding such actions involving us, could harm our reputation and have a material adverse impact on our business, financial condition, results of operations and prospects.
Security breaches and other disruptions could compromise our information and expose us to liability, which would cause our business and reputation to suffer.
In the ordinary course of our business, we collect and store sensitive data, including intellectual property, our proprietary business information and that of our suppliers, business partners, healthcare professionals and patients. This includes, where required or permitted by applicable laws, personally identifiable information. The secure maintenance of this information is critical to our operations and business strategy. Despite our security measures, our information technology and infrastructure may be vulnerable to attacks by hackers or breached due to employee error, malfeasance or other disruptions. Any such breach could compromise our networks and the information stored there could be accessed, publicly disclosed, lost or stolen. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws

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that protect the privacy of personal information, disrupt our operations, and damage our reputation which could adversely affect our business.
Risks Related to Our Intellectual Property
If our patent position does not adequately protect our product and product candidates, others could compete against us more directly, which would harm our business, possibly materially.
Our lomitapide patent portfolio consists of seven issued U.S. patents and issued patents in Europe, Australia, New Zealand, South Korea and Japan and pending applications in the U.S., Japan, Canada, and India, all of which have been licensed to us in a specific field. A five-year patent term extension for our U.S. patent covering the composition of matter of lomitapide, which was originally scheduled to expire in early 2015, has been granted and the patent will now expire in 2020.  The non-U.S. patents directed to the composition of matter of lomitapide issued in certain jurisdictions of the EU, Canada, Israel and Japan have expired. Our five method-of-use patents in the U.S., cover certain dosing regimens for lomitapide, with one such patent expiring in 2027 and the other four patents expiring in 2025. The non-U.S. patents directed to methods-of-use issued in certain jurisdictions of the EU, Japan, and South Korea are scheduled to expire in 2025. The method-of-use patent may be eligible for up to three years of supplemental protection in certain European countries, and we are seeking such protection in the countries in which LOJUXTA is approved, on a country-by-country basis. An opposition was filed by a third-party with respect to the European method-of-use patent, but such opposition has since been revoked.
On August 28, 2015, the Coalition for Affordable Drugs VIII L.L.C. filed two separate IPR petitions with the PTAB of the U.S. PTO, challenging the validity of U.S. Patent Nos. 7,932,268, and 8,618,135, which are directed to methods-of-use for lomitapide.  We filed a preliminary response opposing the petitions to institute the IPRs on December 8, 2015. On March 7, 2016, the PTAB ordered that proceedings be instituted on the IPR petitions filed on both patents. The IPR trial has been scheduled for December 1, 2016, and we expect a decision in both IPRs on or before March 7, 2017. We intend to fully oppose the full proceedings and defend the validity of these patents. We cannot predict whether additional IPR challenges will be filed by another entity, the outcome of any IPR, and whether the PTAB will institute any petitioned IPR proceeding.
Our metreleptin patent portfolio consists of three issued U.S. patents and issued patents in Europe, Canada, Israel, Australia, New Zealand, Mexico, China, South Korea and Japan, all of which have been licensed to us. The U.S. patent covering the composition of matter of metreleptin is scheduled to expire in 2016, but an interim extension has been granted extending the term for one year until a final determination of a request for patent term extension is made. The non-U.S. patents directed to the composition of matter of metreleptin have expired.  The patent family covering metreleptin methods of use, directed to treating human lipoatrophy, is co-owned by Amgen, University of Texas and the National Institutes of Health, and is sublicensed to us from Amgen. We are in discussions with one of the co-owners to obtain the co-owner’s consent to the sublicense granted by Amgen, and plan to commence discussions regarding in-license of the co-owners’ rights. We do not have a direct license from this co-owner. If we do not obtain consent to Amgen’s sublicense from each other co-owner or obtain a direct license, we may be limited in our ability to market metreleptin in certain foreign jurisdictions or in granting further sublicenses. Further, if we are unable to acquire, license or maintain license and/or enforcement rights from each of the co-owners, we may be prevented from enforcing these patent rights against a competitor in the U.S. or in foreign jurisdictions. The two method-of-use patents in the U.S. expire in 2022 and 2023, and the non-U.S. patents issued in certain European countries, Canada, and Australia, and pending in Japan, expire in 2022. An application for a patent term extension in the U.S. with respect

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to MYALEPT has been filed which, if granted, will be applied to either the U.S. composition of matter patent or the method-of-use patent, to extend one of these patents by 1,206 days.
Our commercial success with respect to lomitapide and metreleptin will depend significantly on our ability to protect our existing patent position with respect to lomitapide and metreleptin, as well as our ability to obtain and maintain adequate protection of other intellectual property for our technologies, product candidates and any future products in the U.S. and other countries. If we do not adequately protect our intellectual property, competitors may be able to use our technologies and erode or negate any competitive advantage we may have, which could harm our business and ability to achieve our expected financial results. Our ability to use the patents and patent applications licensed to us to protect our business will also depend on our ability to comply with the terms of the applicable licenses and other agreements and to obtain requisite licenses. The laws of some foreign countries do not protect our proprietary rights to the same extent as the laws of the U.S., and we may encounter significant problems in protecting our proprietary rights in these countries.
An ANDA or 505(b)(2) NDA may be submitted for JUXTAPID on or after December 21, 2016 if it contains a paragraph IV certification of patent invalidity or non-infringement.  If we instigate a suit against an ANDA or 505(b)(2) applicant for patent infringement within 45 days of receiving a Paragraph IV notice, the FDA is prohibited from approving the ANDA or 505(b)(2) application for a period of 30 months.  If the notice is given and suit filed between December 21, 2016 and December 21, 2017, the 30-month stay does not begin until December 21, 2017.  The FDA may approve the proposed competitor product before the expiration of the 30-month stay if a court finds our patents invalid or not infringed or if the court shortens the period because the parties have failed to cooperate in expediting the litigation.
Moreover, if one or more ANDA filers were to receive approval to sell a generic or follow-on version of JUXTAPID, those competitor products could potentially be marketed as early as December 21, 2019 (the date on which JUXTAPID’s orphan drug exclusivity ends) and we would become subject to increased competition at that time.
There are many countries, including some key markets for lomitapide and metreleptin, like Brazil, in which we do not have intellectual property coverage, and where neither orphan drug exclusivity nor data and marketing exclusivity is available.
The patent positions of biotechnology and pharmaceutical companies, including our patent position, involve complex legal and factual questions, and, therefore, validity and enforceability cannot be predicted with certainty. Patents may be challenged, deemed unenforceable, invalidated or circumvented. U.S. patents and patent applications may also be subject to interference proceedings, ex parte reexamination, inter partes review and post-grant review proceedings and supplemental examination and may be challenged in district court. Patents granted in certain other countries may be subjected to opposition or comparable proceedings lodged in various national and regional patent offices. These proceedings could result in either loss of the patent or denial of the patent application or loss or reduction in the scope of one or more of the claims of the patent or patent application. In addition, such interference, re-examination, opposition, post-grant review, inter partes review, supplemental examination or revocation proceedings may be costly. We will be able to protect our proprietary rights from unauthorized use by third parties only to the extent that our proprietary technologies, product candidates and any future products are covered by valid and enforceable patents or are effectively maintained as trade secrets.
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The degree of future protection for our proprietary rights is uncertain, and we cannot ensure that:
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we will be able to successfully commercialize our product before some or all of our relevant patents expire, or in countries where we do not have patent protection;

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we or our licensors were the first to make the inventions covered by each of our pending patent applications and patents;
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we or our licensors were the first to file patent applications for these inventions;
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others will not independently develop similar or alternative technologies or duplicate any of our technologies;
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any of our pending patent applications or those we have licensed will result in issued patents;
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any of our patents or those we have licensed will be valid or enforceable;
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we are able to license patents or pending patents that are necessary or desirable to enforce or protect our patent rights on commercially reasonable terms or at all;
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any patents issued to us or our licensors and collaborators will provide a basis for any additional commercially viable products, will provide us with any competitive advantages or will not be challenged by third parties;
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we will develop additional proprietary technologies or product candidates that are patentable; or
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the patents of others will not have an adverse effect on our business.
If we do not obtain protection under the Hatch-Waxman Act, the BPCI Act and similar foreign legislation by extending the patent terms and obtaining regulatory exclusivity for our products or product candidates, our business may be materially harmed.
The Hatch-Waxman Act established a patent restoration term of up to five years as compensation for patent term lost during product development and the FDA regulatory review process.  Our application seeking a five-year patent term extension for our U.S. patent covering the composition of matter of lomitapide, has been granted, extending the patent term of this patent to 2020.  An application for a patent term extension in the U.S. with respect to MYALEPT has been filed which, if granted, we will apply to either the U.S. composition of matter patent or the method-of-use patent, to extend one of these patents by 1,206 days. We are also seeking three years of supplemental protection for our EPO method-of-use patent in certain EPO countries in which LOJUXTA is approved. However, we may not be granted an extension in a particular country if we, for example, fail to apply within applicable deadlines, fail to apply prior to expiration of relevant patents or otherwise fail to satisfy applicable requirements. Moreover, the applicable time period of the extension or the scope of patent protection afforded could be less than we request. If we are unable to obtain patent term extension or restoration of the term of any such extension is less than we request, our competitors, including manufacturers of generic alternatives, may obtain approval of competing products following our patent expiration, and our revenue could be reduced, possibly materially.
In addition, the FDA has classified lomitapide as a new chemical entity (“NCE”) in the U.S. and it is therefore eligible for data exclusivity under the Hatch-Waxman Act. A drug can be classified as a NCE if the FDA has not previously approved any other new drug containing the same active moiety. An NCE that is granted marketing approval may, even in the absence of patent protection, be eligible for five years of data exclusivity in the U.S. following marketing approval. This data exclusivity precludes submission of 505(b)(2) applications or Abbreviated New Drug Applications (“ANDA”) that reference the NCE application for four years if certain patents covering the NCE or its method-of-use expire or are challenged by a generic applicant.
With the enactment of the BPCI Act as part of the Patient Protection and Affordable Care Act, an abbreviated pathway for the approval of biosimilar and interchangeable biological products was created. The abbreviated regulatory pathway establishes legal authority for the FDA to review and approve biosimilar biologics, including the possible designation of a biosimilar as “interchangeable” based on its similarity to an existing reference product. Under the BPCI Act, an application for

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a biosimilar product cannot be approved by the FDA until 12 years after the original reference product was approved under a BLA. The law is complex and is still being interpreted and implemented by the FDA. As a result, its ultimate impact, implementation, and meaning are subject to uncertainty. While it is uncertain when such processes intended to implement the BPCI Act may be fully adopted by the FDA, any such processes could have a material adverse effect on the future commercial prospects for metreleptin.
While metreleptin, which is approved under a BLA, qualifies for the 12-year period of exclusivity, there is a risk that this exclusivity could be shortened due to congressional action or otherwise, or that the FDA will not consider metreleptin to be a reference product for competing products, potentially creating the opportunity for competition sooner than anticipated. Moreover, the extent to which a biosimilar, once approved, will be substituted for metreleptin in a way that is similar to traditional generic substitution for non-biological products is not yet clear, and will depend on a number of marketplace and regulatory factors that are still developing.
Innovative medicinal products authorized in the EU on the basis of a full marketing authorization application (as opposed to an application for marketing authorization that relies on data in the marketing authorization dossier for another, previously approved medicinal product) are entitled to eight years’ data exclusivity. During this period, applicants for approval of generics of these innovative products cannot rely on data contained in the marketing authorization dossier submitted for the innovative medicinal product. Innovative medicinal products are also entitled to ten years’ market exclusivity. During this ten-year period no generic medicinal product can be placed on the EU market. The ten-year period of market exclusivity can be extended to a maximum of 11 years if, during the first eight years of those ten years, the Marketing Authorization Holder for the innovative product obtains an authorization for one or more new therapeutic indications which, during the scientific evaluation prior to their authorization, are held to bring a significant clinical benefit in comparison with existing therapies. If we are not able to gain or exploit the period of data exclusivity, we may face significant competitive threats to our commercialization of these compounds from other manufacturers, including the manufacturers of generic alternatives. Further, even though our compounds are considered to be NCEs and we were able to gain the period of data exclusivity, another company nevertheless could also market another version of the drug if such company submits a full NDA or a full application for marketing authorization in the EU with a complete human clinical trial program and obtains marketing approval of its product.
If we are not able to adequately prevent disclosure of trade secrets and other proprietary information, the value of our technology, products and any product candidates could be significantly diminished.
We may rely on trade secrets to protect our proprietary technologies, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect. We rely in part on confidentiality agreements with our employees, consultants, outside scientific collaborators, sponsored researchers and other advisors to protect our trade secrets and other proprietary information. These agreements may not effectively prevent disclosure of confidential information, and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover our trade secrets and proprietary information. For example, the FDA is currently considering whether to make additional information publicly available on a routine basis, and the EMA is planning to amplify its disclosure rules. These changes could mean that information that we may consider to be trade secrets or other proprietary information may be disclosed, and it is not clear at the present time how the FDA’s and EMA’s disclosure policies may change in the future, if at all. Costly and time-consuming litigation could be necessary to enforce and determine

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the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business position.
We may infringe the intellectual property rights of others, which may prevent or delay our product development efforts and stop us from commercializing or increase the costs of commercializing our products and any product candidates.
Our success will depend in part on our ability to operate without infringing the proprietary rights of third parties. There could be issued patents of which we are not aware that our products or product candidates infringe. There also could be patents that we believe we do not infringe, but that we may ultimately be found to infringe. Moreover, patent applications are in some cases maintained in secrecy until patents are issued. The publication of discoveries in the scientific or patent literature frequently occurs substantially later than the date on which the underlying discoveries were made and patent applications were filed. Because patents can take many years to issue, there may be currently pending applications of which we are unaware that may later result in issued patents that our products or product candidates infringe. For example, pending applications may exist that provide support or can be amended to provide support for a claim that results in an issued patent that our product infringes.
The pharmaceutical industry is characterized by extensive litigation regarding patents and other intellectual property rights. Other parties may obtain patents in the future and allege that our products or product candidates or the use of our technologies infringes these patent claims or that we are employing their proprietary technology without authorization. Likewise, third parties may challenge or infringe upon our existing or future patents.
Proceedings involving our patents or patent applications or those of others could result in adverse decisions regarding:
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the patentability of our inventions relating to our product or any product candidates; and
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the enforceability, validity or scope of protection offered by our patents relating to our product or any product candidates.
Even if we are successful in these proceedings, we may incur substantial costs and divert management’s time and attention in pursuing these proceedings, which could have a material adverse effect on us. If we are unable to avoid infringing the patent rights of others, we may be required to seek a license, defend an infringement action or challenge the validity of the patents in court. Patent litigation is costly and time consuming. We may not have sufficient resources to bring these actions to a successful conclusion.
In addition, if we do not obtain a license, develop or obtain non-infringing technology, fail to defend an infringement action successfully or have infringed patents declared invalid, we may:
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incur substantial monetary damages;
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encounter significant delays in bringing our product candidates to market; and
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be precluded from manufacturing or selling our product candidates.
In such event, our business could be adversely affected, possibly materially.
If we fail to comply with our obligations in our license agreements for our product candidates, we could lose license rights that are important to our business.

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Our existing license agreements with respect to lomitapide and metreleptin impose, and we expect any future license agreements that we enter into will impose, various diligence, milestone payment, royalty, insurance and other obligations on us. If we fail to comply with such obligations, we could lose license rights that are important to our business.
In addition, our license agreement with UPenn limits the field of use for lomitapide as a monotherapy or in combination with other dyslipidemic therapies for treatment of patients with HoFH, or for the treatment of patients with severe hypercholesterolemia unable to come within 15% of the National Cholesterol Education Program (“NCEP”) LDL-C goal on maximal tolerated oral therapy, as determined by the patient’s prescribing physician, or with severe combined hyperlipidemia unable to come within 15% of the NCEP non-HDL-C goal on maximal tolerated oral therapy, as determined by the patient’s prescribing physician, or with severe hypertriglyceridemia unable to reduce triglycerides (“TG”) levels to less than 1,000 mg/dL on maximal tolerated therapy. If we fail to comply with the obligations and restrictions under our license agreements, including the limited field of use under our license agreement with UPenn, the applicable licensor may have the right to terminate the license, in which case we might not be able to market any product that is covered by the licensed patents. Any breach or termination of our license agreement with UPenn would have a particularly significant adverse effect on our business because of our reliance on the commercial success of lomitapide. Although we intend to comply with the restrictions on field of use in our license agreement with UPenn by seeking product labels for lomitapide that are consistent with the license field, we may still be subject to the risk of breaching the license agreement if we are deemed to be promoting or marketing lomitapide for an indication not covered by any product label that we are able to obtain. In addition, because this restriction on the field of use limits the indications for which we can develop lomitapide, the commercial potential of lomitapide may not be as great as without this restriction.
Risks Related to Our Dependence on Third Parties
We rely on third parties to conduct our clinical trials and registry studies and to perform related services, and those third parties may not perform satisfactorily, including failing to meet established deadlines for the completion of such clinical trials and compliance with post-marketing requirements. We may become involved in commercial disputes with these parties.
We do not have the ability to independently conduct clinical trials or registry studies, or perform pharmacovigilance and REMS monitoring and reporting, and we rely on third parties such as CROs, medical institutions, academic institutions, clinical investigators, specialty pharmacies and other third party service providers to perform these functions. Our reliance on these third parties for clinical development, pharmacovigilance and REMS activities reduces our control over these activities. However, if we sponsor clinical trials, we are responsible for ensuring that each of our clinical trials is conducted in accordance with the general investigational plan and protocols for the trial, and given our ownership of lomitapide and metreleptin, we are responsible for REMS and pharmacovigilance monitoring and reporting for lomitapide and metreleptin on a global basis. Moreover, the FDA and the competent authorities in the EU and Japan require us to comply with standards, commonly referred to as Good Clinical Practices, for conducting, recording, and reporting the results of clinical trials to assure that data and reported results are credible and accurate and that the rights, integrity and confidentiality of trial participants are protected. Our reliance on third parties does not relieve us of these responsibilities and requirements. Furthermore, these third parties may have relationships with other entities, some of which may be our competitors. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, if they need to be replaced or if the quality or accuracy of the data they provide is compromised or delayed due to the failure to adhere to regulatory requirements or our clinical trial protocols, or for other reasons, our development programs may be extended, delayed or terminated, additional marketing approvals for

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lomitapide, metreleptin or any other product candidate may be delayed or denied in the targeted indication or jurisdiction, and we may be delayed or precluded in our efforts to successfully commercialize lomitapide, metreleptin or any other product for targeted indications or in the targeted jurisdiction or it may impact existing approvals.
In addition, we may from time to time become involved in commercial disputes with these third parties, for example regarding the quality of the services provided by these third parties or our ultimate liability to pay for services they purported to provide, or the value of such services. In some cases, we may be required to pay for work that was not performed to our specifications or not utilized by us, and these obligations may be material.
We do not have in-house drug discovery capabilities, and will need to acquire or license existing drug compounds from third parties to expand our product candidate pipeline. The ongoing SEC and DOJ investigations could negatively affect our ability to complete strategic acquisitions or licensing arrangements.
We currently have no in-house drug discovery capabilities. Accordingly, if we are to expand our product candidate pipeline, we will need to acquire or license existing compounds from third parties. We will face significant competition in seeking to acquire or license promising drug compounds. Many of our competitors for such promising compounds may have significantly greater financial resources and more extensive experience in preclinical testing and clinical trials, obtaining regulatory approvals and manufacturing and marketing pharmaceutical products, and thus, may be a more attractive option to a potential licensor than us. In addition, our intellectual property rights under our license agreement with UPenn with respect to lomitapide are limited to specified patient populations, such as patients with HoFH, severe hypercholesterolemia or severe hypertriglyceridemia. Accordingly, if we wish to expand the development of lomitapide to address indications that are outside of the specified patient populations, we would need to expand our license agreement with UPenn and potentially acquire rights from Bristol-Myers Squibb Company (“BMS”). Further, the ongoing SEC and DOJ investigations may negatively impact our ability to complete strategic acquisitions or licensing arrangements.  If we are unable to acquire or license additional promising drug compounds or expand our rights to lomitapide should we wish to do so, we will not be able to expand our product candidate pipeline, which may adversely impact our future profitability and growth prospects and increase the risk of insolvency.
Risks Related to Employee Matters
Our future success depends on our ability to hire and retain our key executives and to attract, retain, and motivate qualified personnel.
Our success depends upon the principal members of our executive, commercial, medical, development, and regulatory teams. We have entered into employment agreements with certain members of our executive, commercial, medical, development, and regulatory teams, but any employee may terminate his or her employment with us at any time. The loss of the services of any of these persons might impede the achievement of our development and commercialization objectives.
In July 2015, we announced the resignation of our Chief Executive Officer and Chief Operating Officer and appointment of Sandford D. Smith, a director of the Company, to act as Chief Executive Officer while the Board of Directors conducted a search to identify a successor. In January 2016, we appointed Mary T. Szela to succeed Mr. Smith as Chief Executive Officer.  We also implemented a reduction in force in February 2016, which impacted virtually all of our functions, and attrition has been higher than usual in the months since the reduction in force. The announcement of the proposed merger

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with QLT in June 2016, the elimination in July 2016 of approximately 28 positions, or the announcement of the anticipated withdrawal of lomitapide from the EU and certain other global markets by the end of 2016 unless we earlier partner lomitapide in such markets, could also lead to additional attrition, as well as the potential for disruption to business operations, initiatives, plans and strategies.
Recruiting and retaining qualified personnel will be critical to our success. We may not be able to attract and retain these personnel given the competition among numerous pharmaceutical and biotechnology companies for similar personnel.
In addition, we need to continue to establish and maintain effective disclosure and financial controls, particularly as our business grows and continues to expand internationally. Failure to maintain adequate controls could impact the quality and integrity of our financial statements and cause us reputational harm.
In addition, we rely on consultants and advisors, including scientific, manufacturing, clinical, regulatory, pharmacovigilance and sales and marketing advisors, to assist us in formulating our development, manufacturing and commercialization strategy. Our consultants and advisors may be employed by employers other than us and may have commitments under consulting or advisory contracts with other entities that may limit their availability to us.
We recently reduced the size of our organization, and we may encounter difficulties in managing our business as a result of this reduction, or the attrition that has occurred since our reductions in force in February and July 2016, which could disrupt our operations. In addition, we may not achieve anticipated benefits and savings from the reduction.
In February 2016, our Board of Directors approved a cost-reduction plan that eliminated 80 positions from our workforce, representing a reduction in employees of approximately 25%. In July 2016, our Board of Directors approved an additional cost-reduction and restructuring plan that eliminated approximately 28 positions from our workforce, representing a reduction in employees of approximately 13%.  Following the reduction in force in July, and the attrition since such reduction, as of November 1, 2016, we had approximately 174 employees. The reductions in force, and the attrition thereafter, have resulted in the loss of longer-term employees, the loss of institutional knowledge and expertise and the reallocation and combination of certain of roles and responsibilities across the organization, all of which could adversely affect our operations. Given the complexity and global nature of our business, we must continue to implement and improve our managerial, operational and financial systems, manage our facilities and continue to recruit and retain qualified personnel. This will be made more challenging given the reductions in force described above and additional measures we may take to reduce costs to better align with projected revenues, particularly lower revenues for JUXTAPID in the U.S. As a result, our management may need to divert a disproportionate amount of its attention away from our day-to-day activities, and devote a substantial amount of time to managing these activities. Further, the restructuring and possible additional cost containment measures may yield unintended consequences, such as attrition beyond our intended reduction in force and reduced employee morale. This has resulted in employees who were not affected by the reduction in force seeking alternate employment.  In addition, we may not achieve anticipated benefits from the reductions in force. Due to our limited resources, we may not be able to effectively manage our operations or recruit and retain qualified personnel, which may result in weaknesses in our infrastructure and operations, risks that we may not be able to comply with legal and regulatory requirements, loss of business opportunities, loss of employees and reduced productivity among remaining employees. For example, the reductions in force may negatively impact our clinical and regulatory functions, which would have a negative impact on our ability to successfully develop, and ultimately, commercialize lomitapide and metreleptin.  If our management is unable to effectively manage this

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transition and reduction in force and additional cost containment measures, our expenses may be more than expected, our ability to generate or increase our revenue could be reduced and we may not be able to implement our business strategy. As a result, our future financial performance and our ability to commercialize lomitapide and metreleptin successfully, and to compete effectively, would be negatively affected.
Risks Related to Our Financial Position and Capital Requirements
We have incurred significant operating losses since our inception, and have not yet achieved profitability for any fiscal year.
We have a limited operating history. To date, we have primarily focused on developing and commercializing lomitapide, and since January 2015, we have also focused on the integration of metreleptin operations and commercialization of MYALEPT. We have funded our operations to date primarily through proceeds from our initial public offering and the proceeds from our public common stock offerings and our August 2014 convertible debt offering, revenues from JUXTAPID, proceeds from our long-term debt and our private placement of convertible preferred stock. We have incurred losses in each year since our inception in February 2005. As of September 30, 2016, we had an accumulated deficit of approximately $507.7 million. Substantially all of our operating losses resulted from costs incurred in connection with our development programs and from selling, general and administrative costs associated with our operations. The losses we have incurred to date, combined with potential future losses, have had and may continue to have an adverse effect on our stockholders’ (deficit) equity and working capital. We expect our expenses to decrease in the near-term as a result of the reductions in force in February and July 2016.  We expect to continue to incur expenses related to the commercialization of lomitapide and metreleptin in the U.S. and in the key countries in which lomitapide is currently approved and in which we intend to commercialize lomitapide, including Japan, or in which lomitapide or metreleptin may be approved and commercialized in the future, and expected distribution of our products in Brazil and certain other countries as part of named patient supply or compassionate use; manufacturing costs for both metreleptin and lomitapide; possibility of hiring of additional key personnel in the U.S.; the conduct of our observational cohort studies and other post-marketing commitments to the FDA for lomitapide and metreleptin, and to the EMA for lomitapide until our planned withdrawal of lomitapide from the EU by the end of 2016 unless we earlier partner lomitapide in the EU; the conduct of any post-marketing commitments imposed by regulatory authorities in countries outside the U.S. and EU where our products are or may be approved; other possible clinical development activities for our products, including an anticipated clinical trial for metreleptin in the pediatric population or a subset thereof and an ongoing clinical study in adult patients with HoFH in Japan; required regulatory activities for our products; and business development activities. We expect to incur significant royalties, sales, marketing, and outsourced manufacturing expenses, as well as continued research and development expenses. In addition, we have incurred, and expect to continue to incur, additional costs associated with operating as a public company and in connection with ongoing government investigations, and the potential outcome thereof, including debt incurred under the QLT Loan Agreement (defined below) and payments to the government with respect to the ongoing DOJ and SEC investigations and the costs and resources of negotiating, implementing and complying with the corporate integrity agreement, FDA consent decree and deferred prosecution agreement contemplated by the preliminary agreement in principle with the DOJ, and a securities class action lawsuit, as described in detail in Part II, Item 1-“Legal Proceedings”.
The transaction through which we acquired MYALEPT was accounted for as a business combination under the acquisition method of accounting. Accordingly, the assets acquired and liabilities assumed were recorded at fair value, with the remaining purchase price recorded as goodwill. We have valued the acquired assets and liabilities based on their estimated fair

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value. We have recorded material assets related to the acquisition, which are subject to periodic or annual impairment tests, the results of these tests could cause significant impairment charges to be recorded and therefore negatively impact our financial results. For example, due to the significant sustained decline in our stock price and other qualitative factors, such as the decrease in our forecasts related to JUXTAPID revenue, corroborated by the implied purchase consideration from the proposed merger with QLT, we performed an interim goodwill impairment test under ASC 350, Intangibles- Goodwill and Other (“ASC 350”) as of June 30, 2016, and determined that our fair value was below the carrying value of our net assets. As a result, we performed a Step 2 impairment test to determine the implied fair value of goodwill and recorded an impairment of $9.6 million in the second quarter of 2016.
Because of the numerous risks and uncertainties associated with developing and commercializing pharmaceutical products, we are unable to predict with certainty the extent of any future losses or when we will become profitable, if at all.
Our independent auditor’s report for the fiscal year ended December 31, 2015 included an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern.
In its report accompanying our audited consolidated financial statements for the year ended December 31, 2015, our independent registered public accounting firm included an explanatory paragraph regarding concerns about our ability to continue as a going concern.  The inclusion of a going concern explanatory paragraph may have negatively impacted, and may continue to negatively impact, the trading price of our common stock and make it more difficult, time consuming or expensive to obtain necessary financing. In the event we are unable to continue our operations, we may have to liquidate our assets and it is likely that investors will lose all or a part of their investment.
Our internal controls over financial reporting could fail to prevent or detect misstatements or have material weaknesses.
Our internal controls over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Any failure to maintain effective internal controls or to timely effect any necessary improvement or remediate any lapse in our internal control and disclosure controls could, among other things, result in losses from fraud or error, require significant resources and divert management’s attention, harm our reputation, causing investors to lose confidence in our reported financial and other information, and expose use to legal or regulatory proceedings, all of which could have a material adverse effect on our financial condition, results of operations and cash flows.
During 2015, material weaknesses in internal control over financial reporting were identified relating to internal controls around business combinations and accounting for significant non-routine transactions. Management has taken and continues to take steps to remediate these material weaknesses and performed additional analysis and procedures to conclude that the consolidated financial statements included in this Quarterly Report on Form 10-Q for the quarter ended September 30, 2016 fairly present, in all material respects, our financial condition and results of operations as of September 30, 2016. See "Management's Annual Report On Internal Control Over Financial Reporting" in our Annual Report on Form 10-K, as filed with the Securities and Exchange Commission on March 15, 2016.  However, we may be unable to remediate these weaknesses effectively, and, even if we do remediate these weaknesses, we may in the future identify additional material weaknesses.
We do not have a long history of generating revenue from sales of our products, and may never be profitable.

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Our ability to become profitable depends upon our ability to generate significant revenue. We do not have a long history of generating revenue from lomitapide, and we had no history of generating revenue from MYALEPT before January 2015. We may never generate substantial revenues from the sale of MYALEPT. Our ability to generate revenues sufficient to achieve profitability currently depends on a number of factors, including our ability to:
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manage our costs and expenses to better align with our revenues, which have been significantly negatively impacted by the introduction of PCSK9 inhibitor products and the corresponding significant impact on JUXTAPID sales in the U.S.;
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effectively market, sell and distribute lomitapide and metreleptin in the U.S.;
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continue to maintain market acceptance for lomitapide among healthcare professionals and patients in the U.S. in the treatment of adult HoFH, particularly given the introduction of PCSK9 inhibitor products, which has had a significant adverse impact on sales of lomitapide in the U.S., and to gain such market acceptance in the other countries where lomitapide is approved and being commercialized, or may in the future receive approval and be commercialized; 
•
minimize the extent of the negative impact of the introduction of PCSK9 inhibitor products on sales of lomitapide in the U.S., which has caused a significant number of  JUXTAPID patients to discontinue JUXTAPID and switch to a PCSK9 inhibitor product, and has significantly decreased the rate at which new HoFH patients start treatment with lomitapide;
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continue to have named patient sales of lomitapide in Brazil and other key countries where such sales can occur as a result of the FDA approval or of the marketing authorization granted for lomitapide in the EU, particularly given the approval of evolocumab in Brazil in April 2016;
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obtain named patient sales of metreleptin in Brazil and other key countries where such sales can occur as a result of the FDA approval;
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obtain timely pricing and reimbursement approval of lomitapide in Japan and other key countries outside the U.S. where lomitapide is approved and where it makes business sense to commercialize lomitapide, at acceptable prices and without significant restrictions, discounts, caps or other cost containment measures, and to effectively launch lomitapide in those countries where it makes business sense to do so;
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obtain timely approval of lomitapide in other key international markets as a treatment for patients with HoFH where it makes business sense to seek approval, and obtain timely approval of metreleptin in the EU and other key international markets as a treatment for patients with GL or a subset of PL, and an expansion of the indication in the U.S. to include a subset of PL, subject to discussions with the FDA, without onerous restrictions or limitations in the resulting label, and successfully obtain timely pricing approval for the relevant product in such markets at acceptable prices and without onerous restrictions or caps;
•
gaining regulatory and pricing and reimbursement approvals to market our products in countries in which the products are not currently approved and/or reimbursed where it makes business sense to do so, including pricing and reimbursement approval in Japan for JUXTAPID and filing a MAA with the EMA seeking marketing approval of metreleptin in the EU as a treatment for complications of leptin deficiency in GL patients and a subset of PL patients, in connection with which we have committed to the PDCO to conduct an additional trial in pediatric GL patients as a condition to approval of metreleptin in such patients, and seeking approval of metreleptin in the U.S. for a subset of PL based on the existing clinical data package for metreleptin, subject to discussions with the FDA; minimize the number of patients who are eligible to receive but decide not to commence treatment with our products, or who discontinue treatment, including with lomitapide, due to

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tolerability issues, and with metreleptin, due to its route of administration as an injection, through activities such as patient support programs, to the extent permitted in a particular country;
•
effectively estimate the size of the total addressable market for our products;
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maintain reimbursement policies for JUXTAPID and MYALEPT in the U.S. that do not impose significant restrictions on reimbursement and a payer mix that does not include significantly more Medicaid patients than the current payer mix;
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minimize the expected negative impact of the availability of PCSK9 inhibitor products on sales of lomitapide outside the U.S., including in Japan after our anticipated launch, and the degree to which the availability of PCSK9 inhibitor products outside the U.S., and the potential availability of named patient sales of PCSK9 inhibitor products outside the U.S. impacts named patient sales of lomitapide outside the U.S., particularly in Brazil, Canada, and Japan, where a PCSK9 inhibitor product has been approved by the local regulatory authorities; and
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effectively respond to requirements of insurance companies, managed care organizations, other private payers, and government entities that provide reimbursement for medical costs in the U.S. to require that newly diagnosed adult HoFH patients be treated with PCSK9 inhibitor products prior to JUXTAPID treatment, that current JUXTAPID patients switch to PCSK9 inhibitor products, and that potential JUXTAPID patients fail to adequately respond to PCSK9 inhibitor products before providing reimbursement for JUXTAPID at the prices at which we offer JUXTAPID.
Our products may not gain or maintain long-term market acceptance or achieve or maintain commercial success. In addition, we anticipate incurring significant costs associated with commercializing our products, and meeting our post-marketing commitments, in connection with our ongoing clinical efforts related to our products and in connection with defense against government investigations and other legal actions. We may not continue to generate substantial revenue from sales of lomitapide, or generate substantial revenue from sales of metreleptin. We may not achieve profitability. If we are unable to continue to generate significant product revenue, we will not become profitable, and may be unable to continue operations without additional funding.
We will likely need to raise substantial additional capital in the future. The ongoing SEC and DOJ investigations have negatively affected our ability to raise additional capital. If additional capital is not available at all or on acceptable terms when we need it, we will have to delay, reduce or cease operations.
The acquisition of metreleptin, the significant negative impact of PCSK9 inhibitor products on U.S. JUXTAPID sales, the payments to the government under the preliminary agreements in principle with respect to the ongoing investigations, if finalized, and the costs and expenses we have incurred, and expect to continue to incur, in connection with ongoing government investigations have significantly diminished the capital we have to fund anticipated and unanticipated expenses. Further, in connection with the Forbearance Agreement (defined below) and its subsequent amendments, we deposited cash with Silicon Valley Bank to collateralize the balances related to our outstanding obligations due to Silicon Valley Bank, which amounts are restricted for all uses until the full and final payment of such obligations, and agreed to terminate our revolving line of credit from Silicon Valley Bank.  On June 14, 2016, we entered into the QLT Loan Agreement (as defined below), which provides for term loans in an aggregate principal amount of up to $15 million. We subsequently borrowed $3 million in term loans under the QLT Loan Agreement on June 15, 2016. We may also borrow up to an additional $3 million per month if and to the extent such amounts are necessary in order for us to maintain an unrestricted cash balance of $25 million, subject to the satisfaction of

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certain terms and conditions. We are obligated to repay such borrowings (subject to acceleration upon the occurrence of an event of default) on the earliest of (i) July 1, 2019, (ii) the maturity date of the Convertible Notes (as defined below), (iii) three business days after a termination of the Agreement and Plan of Merger among Aegerion, QLT and Isotope Acquisition Corp., a Delaware corporation and an indirect wholly-owned subsidiary of QLT  (the “Merger Agreement”) by us and (iv) 90 days after a termination of the Merger Agreement by QLT.

In light of the reduction in capital available for our operations, as described above, in February 2016, we implemented a reduction in force intended to better align our operating expenses with our expected revenues, and in July 2016, we announced an intent to withdraw lomitapide from the EU and certain other global markets by the end of 2016, unless we earlier
enter into supply, license or other arrangements with suitable partners in such markets, and the elimination of approximately 28 positions to further reduce costs. We may need to implement additional cost containment measures based on our updated forecast of expected revenues, particularly due to the declining revenues from JUXTAPID in the U.S. There can be no assurance, however, that these reductions in force and cost containment measures will result in the cost savings we anticipate or that additional cost containment measures will be capable of being obtained or implemented. Accordingly, we will likely need to seek additional capital through debt or equity financing to service our indebtedness, strengthen our cash position and fund our operations. We may not be able to obtain additional capital when we need it or such capital may not be available on terms that are favorable to us, particularly while the preliminary agreements in principle to resolve the aspects of the ongoing DOJ and SEC government investigations remain subject to final approvals. We may also pursue opportunities to obtain additional external financing in the future through lease arrangements related to facilities and capital equipment, collaborative research and development agreements, and license agreements, in order to, among other things, finance additional potential product acquisitions and maintain sufficient resources for unanticipated events. Any such additional financing may not be available when we need it or may not be available on terms that are favorable to us. Our need to raise additional capital in the future, and the size of any such financings, will depend on many factors, including:
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our ability to manage our costs and expenses to better align with our revenues, which have been significantly negatively impacted by the introduction of PCSK9 inhibitor products and the corresponding significant impact on JUXTAPID sales in the U.S.;
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the level of physician, patient and payer acceptance of our products;
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the success of our commercialization efforts and the level of revenues we generate from sales of our products in the U.S.;
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our ability to complete the merger with QLT, and on the timeline we have anticipated;
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the level of revenue we receive from named patient sales of our products in Brazil and other key countries where a mechanism exists to sell the product on a pre-approval basis in such country based on U.S. approval of such products or EU approval of lomitapide, particularly in light of the regulatory approval of Amgen’s PCSK9 inhibitor product in Brazil in April 2016, the potential availability of that and other PCSK9 inhibitor products on a named patient sales basis in Brazil, and the ongoing court proceedings in Brazil reviewing the regulatory framework for named patient sales.
•
gaining regulatory and pricing and reimbursement approvals to market our products in countries in which the products are not currently approved and/or reimbursed, where it makes business sense to seek such approval, including filing a MAA with the EMA seeking marketing approval of metreleptin in the EU as a treatment for complications of leptin deficiency in GL patients and a subset of PL patients, in connection with which we have committed to the PDCO to conduct an additional trial in pediatric GL patients as a condition to approval of

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metreleptin in such patients, and seeking approval of metreleptin in the U.S. for a subset of PL based on the existing clinical data package for metreleptin, subject to discussions with the FDA;
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our ability to obtain pricing and reimbursement approval of lomitapide in Japan and in other key countries in which lomitapide is approved, where it makes business sense to seek approval, at acceptable prices, on a timely basis, and without significant restrictions, discounts, caps or other cost containment measures;
•
the extent of the negative impact of the introduction of PCSK9 inhibitor products on sales of JUXTAPID in the U.S., which has caused a significant number of  JUXTAPID patients to discontinue JUXTAPID and switch to a PCSK9 inhibitor product, and has significantly decreased the rate at which new HoFH patients start treatment with lomitapide;
•
the provision of free PCSK9 inhibitor drug to adult HoFH patients by the companies that are commercializing PCSK9 inhibitor products, which such companies may have ceased, but which historically has had a negative impact on the rate at which new patients start treatment on lomitapide and has caused more patients than we expected to discontinue lomitapide and switch their treatment to PCSK9 inhibitor products
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the number of adult HoFH patients treated with a PCSK9 inhibitor product, if any, who physicians decide to switch to lomitapide if a patient does not achieve target LDL-C response goals, and the timeline of such transitions, which we cannot reasonably predict;
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requirements of insurance companies, managed care organizations, other private payers, and government entities that provide reimbursement for medical costs in the U.S. to require that newly diagnosed adult HoFH patients be treated with PCSK9 inhibitor products prior to JUXTAPID, that current JUXTAPID patients switch to PCSK9 inhibitor products, and that patients fail to adequately respond to PCSK9 inhibitor products before providing reimbursement for JUXTAPID at the prices at which we offer JUXTAPID;
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the willingness of insurance companies, managed care organizations, other private payers, and government entities that provide reimbursement for medical costs in the U.S. to continue to provide reimbursement for JUXTAPID at the prices at which we offer JUXTAPID without requiring genotyping for specific mutations that cause HoFH, or imposing any additional major hurdles to access or other significant restrictions or limitations, and the ability and willingness of HoFH patients to pay, or to arrange for payment assistance with respect to, any patient cost-sharing amounts for JUXTAPID applicable under their insurance coverage, particularly in light of the availability of PCSK9 inhibitor products;
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the cost of building and maintaining the sales and marketing capabilities necessary for the commercialization of our products for their targeted indications in the market(s) in which each has received regulatory approval and we elect to commercialize such products, to the extent reimbursement and pricing approvals are obtained, and certain other key international markets, if approved;
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the timing and costs of future business development opportunities;
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the timing and cost of seeking regulatory approvals and conducting potential future clinical development of metreleptin in additional indications and possible lifecycle management opportunities for lomitapide;
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the cost of filing, prosecuting and enforcing patent claims, including the cost of defending any challenges to the patents or our claims of exclusivity, including against two separate IPR petitions which were filed with the PTAB of the U.S. PTO in August 2015 and instituted by the PTAB in March 2016;
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the status of ongoing government investigations and lawsuits, including the disclosure of possible or actual outcomes, including regarding the preliminary agreements in principle we have reached with the DOJ and the SEC;

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•
the costs of our manufacturing-related activities and the other costs of commercializing our products;
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the costs associated with ongoing government investigations and lawsuits, including any damages, settlement amounts, fines or other payments, or implementation of compliance related agreements or consent decrees, that may result from settlements or enforcement actions related to government investigations or whether we are successful in our efforts to defend ourselves in, or to settle on acceptable terms, ongoing or future litigation;
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the levels, timing and collection of revenue received from sales of our products in the future;
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the timing and costs of satisfying our debt obligations, including interest payments and any amounts due upon the maturity of such debt, including under our Convertible Notes, the QLT Loans and 2015 Term Loan Advance;  
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the cost of our observational cohort studies and other post-marketing commitments to the FDA and EU, and the costs of post-marketing commitments in any other countries where our products are ultimately approved;
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the timing and cost of other clinical development activities; and
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the status and terms of our loans from Silicon Valley Bank and QLT.  
We have incurred significant indebtedness, which may affect our ability to raise additional capital in the future. In August 2014, we issued $325.0 million of 2.00% convertible senior notes due August 15, 2019 (the “Convertible Notes”). Interest is payable semi-annually in arrears on February 15 and August 15 of each year, beginning on February 15, 2015. In June 2015, at the Annual Meeting of Stockholders, our stockholders voted to approve our option to settle conversions of the Convertible Notes in cash, shares of our common stock or through a combination of cash and common stock, at our election. In connection with the issuance of the Convertible Notes, we entered into convertible bond hedges, which are generally expected, but not guaranteed, to reduce the potential dilution and/or offset the cash payments we may elect to make upon conversion of the Convertible Notes. We may not have sufficient capital to elect to make cash payments upon conversion of the Convertible Notes. Electing to settle conversions of the Convertible Notes in shares would have a dilutive effect on our stockholders.
On January 9, 2015, the Loan and Security Agreement we originally entered into with Silicon Valley Bank in 2012 (as amended, the “SVB Loan and Security Agreement”) was amended to provide for a $25.0 million term loan (the “2015 Term Loan Advance”) with per annum interest of 3.0% and a revolving line (the “Revolving Line”) of credit of up to $15.0 million. The amendment provides for interest-only payments on the 2015 Term Loan Advance through January 31, 2017, and, starting on February 1, 2017, payment of principal in 30 equal monthly installments. The maturity date of the 2015 Term Loan Advance is the earlier of (a) July 1, 2019 and (b) the maturity date of the Convertible Notes. In addition, the 2015 Term Loan Advance is subject to (i) a final payment of $1.25 million upon maturity or prior payment thereof, and (ii) if the 2015 Term Loan Advance is prepaid prior to its maturity date, a prepayment of 1% of the 2015 Term Loan Advance. The SVB Loan and Security Agreement requires us to comply with certain covenants, including the maintenance of a specified level of liquidity on a monthly basis and either a minimum quarterly revenue level or a minimum quarterly free cash flow level, which such covenants are not required to be tested during the Forbearance Period (defined below).  The Revolving Line was terminated in January 2016 pursuant to the amended Forbearance Agreement, as discussed below.
On October 30, 2015, we notified Silicon Valley Bank that we had breached one or more covenants under the SVB Loan and Security Agreement and we are currently in default.  On November 9, 2015, we and Silicon Valley Bank entered into a Forbearance Agreement (the “Forbearance Agreement”), pursuant to which Silicon Valley Bank agreed not to take any action as a result of such default, including an agreement to waive the increase in the per annum interest rate under the loan from 3% to 8.0% until December 7, 2015 (the “Forbearance Period”), subject to certain conditions, including the deposit of cash into one or more accounts at Silicon Valley Bank to collateralize balances related to the outstanding obligations due to Silicon Valley

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Bank.  These cash collateral amounts are restricted for all uses until the full and final payment of all of our obligations to Silicon Valley Bank, as determined by Silicon Valley Bank in its sole and exclusive discretion.  On December 7, 2015, we and Silicon Valley Bank entered into an amendment (the “First Amendment”) to the Forbearance Agreement, pursuant to which Silicon Valley Bank agreed to extend the Forbearance Period through January 7, 2016.  On January 7, 2016, we and Silicon Valley Bank entered into a second amendment (the “Second Amendment”) to the Forbearance Agreement, pursuant to which Silicon Valley Bank agreed to extend the Forbearance Period through June 30, 2016. Pursuant to the terms of the Second Amendment, we and Silicon Valley Bank agreed to terminate the Revolving Line, for which we accrued a termination fee of $0.5 million as of March 31, 2016.  On February 26, 2016, we and Silicon Valley Bank entered into a third amendment (the “Third Amendment”) to the Forbearance Agreement, pursuant to which Silicon Valley Bank agreed to forbear exercising its rights under the SVB Loan and Security Agreement as a result of our failure to deliver an unqualified opinion (without a going concern explanatory paragraph) of our independent auditors with our annual financial statements for the fiscal year ended December 31, 2015.  On June 8, 2016, we and Silicon Valley Bank entered into a fourth amendment (the “Fourth Amendment”) to the Forbearance Agreement, pursuant to which Silicon Valley Bank agreed to forbear exercising its rights under the SVB Loan and Security Agreement as a result of our failure to deliver our quarterly financial statements for the fiscal quarter ended March 31, 2016 when due under the terms of the SVB Loan and Security Agreement. On June 14, 2016, we and Silicon Valley Bank entered into a fifth amendment (the “Fifth Amendment”) to the Forbearance Agreement pursuant to which Silicon Valley Bank agreed to extend the Forbearance Period through September 30, 2016. In connection with the Fifth Amendment, we were required to deposit an additional $0.6 million with Silicon Valley Bank as cash collateral for our obligations under the SVB Loan and Security Agreement. On September 30, 2016, we and Silicon Valley Bank entered into a sixth amendment (the “Sixth Amendment”) to the Forbearance Agreement pursuant to which Silicon Valley Bank agreed to extend the Forbearance Period through November 30, 2016.
The Forbearance Period is subject to early termination upon the occurrence of certain events, including the occurrence of additional events of default.   Upon the expiration of the Forbearance Period or the occurrence of a termination event, we would be required to repay all of the outstanding obligations, including, but not limited to, the $25.0 million outstanding principal of the 2015 Term Loan Advance and certain fees totaling $2.0 million.  As our obligations may be accelerated at the election of Silicon Valley Bank upon the expiration of the Forbearance Period, or earlier if a termination event occurs, these amounts have been presented as current liabilities on the consolidated balance sheet.  Amounts deposited with Silicon Valley Bank to collateralize balances related to outstanding obligations under the SVB Loan and Security Agreement, which include the $25.0 million outstanding principal of the 2015 Term Loan Advance and $1.1 million related to a cash collateral account for letters of credit and the $0.6 million additional cash collateral amount required pursuant to the Fifth Amendment, have been presented as restricted cash as of June 30, 2016 on the consolidated balance sheet. We plan to continue to engage in discussions with Silicon Valley Bank during the Forbearance Period regarding the loan and the defaults to seek a resolution of this matter.  We can provide no assurances that we will be able to resolve this matter, which could result in the loans under the SVB Loan and Security Agreement and QLT Loans (defined below) being accelerated and have a material negative impact on our cash flows and business.
On June 14, 2016, we entered into a loan and security agreement (the “QLT Loan Agreement”) with QLT concurrently with the execution of the Merger Agreement, pursuant to which QLT agreed to provide us with a term loan facility in an aggregate principal amount not to exceed $15 million. We borrowed $3 million in term loans on June 15, 2016 and may also borrow up to an additional $3 million per month if and to the extent such amounts are necessary in order for us to maintain an unrestricted cash balance of $25 million, subject to the satisfaction of certain terms and conditions (the “QLT Loans”). The

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QLT Loans mature on the earliest of (i) July 1, 2019, (ii) the maturity date of the Convertible Notes, (iii) three business days after a termination of the Merger Agreement by us and (iv) 90 days after a termination of the Merger Agreement by QLT. Under the terms of the QLT Loan Agreement, we are subject to certain financial covenants consistent with the financial covenants contained in the SVB Loan and Security Agreement. Such financial covenants will only be tested if (i) the financial covenants under the SVB Loan and Security Agreement are then in effect (and not suspended) or (ii) the SVB Loan and Security Agreement has been terminated. Our obligations under the QLT Loan Agreement are secured by (i) a first priority security interest in our intellectual property related to MYALEPT and (ii) a second priority security interest in certain other assets securing our obligations under the SVB Loan and Security Agreement (excluding certain cash collateral accounts). Our obligations under the QLT Loan Agreement may be accelerated upon the occurrence of certain events of default, including a cross-default under the SVB Loan and Security Agreement. If the QLT Loans are prepaid prior to their maturity date, including at our election, a prepayment premium of 2.0% of the outstanding amount of the QLT Loans will be due prior to such prepayment. In connection with the QLT Loan Agreement, on June 14, 2016, we entered into a subordination agreement with QLT and Silicon Valley Bank (the “Subordination Agreement”), pursuant to which QLT’s liens and right to receive payments under the QLT Loan Agreement are fully subordinated to the SVB Loan and Security Agreement, other than with respect to certain intellectual property relating to MYALEPT and proceeds of dispositions thereof. Pursuant to the Subordination Agreement, upon the occurrence of certain events (including the termination of the Merger Agreement), subject to a 60-day standstill period, QLT may purchase the outstanding obligations owing to Silicon Valley Bank under the SVB Loan and Security Agreement to the extent that Silicon Valley is not exercising its rights against the collateral at such time.
We may be unable to obtain additional financing on favorable terms, or at all. If we are unable to obtain additional financing, including for purposes of settling conversions of the Convertible Notes, we may be required to delay, reduce or cease operations, including our planned development, sales and marketing and business development efforts. Any of these outcomes would harm our business, financial condition and operating results. Further harm to our business would result if we default under the terms of our loan agreements or the Forbearance Agreement, as amended, and Silicon Valley Bank and/or QLT elects to accelerate our obligations under the SVB Loan and Security Agreement and/or the QLT Loan Agreement, respectively. The source, timing and availability of any future financing will depend principally upon equity and debt market conditions, interest rates and, more specifically, on our commercial success, the status of ongoing government investigations and the results of our future development efforts. Any additional sources of financing could involve the issuance of our equity securities, which would have a dilutive effect on our stockholders.
Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights.
We may seek additional capital through a combination of private and public equity offerings, debt financings and collaborations and strategic and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our existing stockholders will be diluted, and the terms may include liquidation or other preferences that adversely affect the rights of our stockholders. For example, our existing stockholders may be diluted if the Convertible Notes we issued in August 2014 are converted by their holders. Debt financing, if available, would result in increased fixed payment obligations and may involve agreements that include covenants limiting or restricting our ability to take specific actions such as incurring debt, making capital expenditures or declaring dividends. If we raise additional funds through collaboration, strategic alliance and licensing arrangements with third parties, we may have to relinquish

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valuable rights to our technologies, future revenue streams or product candidates, or grant licenses on terms that are not favorable to us.
Our limited operating history makes it difficult to evaluate our business and prospects.
We were incorporated in February 2005. Our operations to date have been limited to organizing and staffing our company and conducting product development activities, commercial-build and activities related to commercialization of lomitapide. We only began generating revenues in January 2013. Consequently, any predictions about our future performance may not be as accurate as they could be if we had a longer operating history and more experience in generating revenue. In addition, as a relatively young business, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors.
Changes in our effective income tax rate could adversely affect our results of operations, particularly once we utilize our remaining federal, state and foreign net operating loss, or NOL, carryforwards.
We are subject to federal and state income taxes in the U.S., as well as in many tax jurisdictions throughout the world. Tax rates in these jurisdictions may be subject to significant change. Our effective income tax rate can vary significantly between periods due to a number of complex factors including, but are not limited to: (i) interpretations of existing tax laws; (ii) the accounting for business combinations, including accounting for contingent consideration; (iii) the tax impact of existing or future healthcare reform legislation; (iv) changes in accounting standards; (v) changes in the mix of earnings in the various tax jurisdictions in which we operate; (vi) the outcome of examinations by the Internal Revenue Service and other jurisdictions; (vii) adjustments to income taxes upon finalization of income tax returns; (viii) the accuracy of our estimates for unrecognized tax benefits; (ix) the repatriation of non-U.S. earnings for which we have not previously provided for income taxes and (x) increases or decreases to valuation allowances recorded against deferred tax assets. If our effective tax rate increases, our operating results and cash flow could be adversely affected.
Under Section 382 of the Internal Revenue Code of 1986, as amended, if a corporation undergoes an “ownership change,” generally defined as a greater than 50% change (by value) in its equity ownership over a three-year period, the corporation’s ability to use its pre-change net operating loss carryforwards (NOLs), and other pre-change tax attributes (such as research tax credits) to offset its post-change income may be limited. We have triggered an “ownership change” limitation in 2005 and 2012 and may also experience ownership changes in the future as a result of the subsequent shifts in our stock ownership. As a result, if we earn net taxable income, our ability to use our pre-change NOL carryforwards to offset U.S. federal taxable income may be subject to limitations, which could potentially result in increased future tax liability to us. In addition, at the state level, there may be periods during which the use of NOLs is suspended or otherwise limited, which could accelerate or permanently increase state taxes owed.
Any changes to existing accounting pronouncements or taxation rules or practices may cause adverse fluctuations in our reported results of operations or affect how we conduct our business.
A change in accounting pronouncements or taxation rules or practices can have a significant effect on our reported results and may affect our reporting of transactions completed before the change is effective. New accounting pronouncements, taxation rules and varying interpretations of accounting pronouncements or taxation rules have occurred in the past and may

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occur in the future. The change to existing rules, future changes, if any, or the need for us to modify a current tax or accounting position may adversely affect our reported financial results or the way we conduct our business.
Risks Related to our Common Stock
The market price of our common stock has been, and may continue to be, highly volatile.
Our stock price is highly volatile, and from October 22, 2010, the first day of trading of our common stock, to November 1, 2016, the trading prices of our stock have ranged from $1.23 to $101.00 per share. Our stock could be subject to wide fluctuations in price in response to various factors, many of which are beyond our control, including the following:
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our ability, or lack thereof, to manage our costs and expenses to better align with our revenues, which have been significantly negatively impacted by the introduction of PCSK9 inhibitor products and the corresponding significant impact on JUXTAPID sales in the U.S.;
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the short-term or long-term success or failure of our commercialization of lomitapide and metreleptin in the U.S.;
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the level of revenue we receive from named patient sales of our products in Brazil and other key countries where such sales can occur as a result of FDA approval of such products, particularly in light of the approval of Amgen’s PCSK9 inhibitor product in Brazil in April 2016;
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any unexpected hurdles in the commercialization or further development of metreleptin;
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our ability to obtain timely pricing and reimbursement approval for lomitapide in the countries in which lomitapide is approved and being commercialized, or other countries in which lomitapide may be approved, at acceptable price levels and on acceptable terms;
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the extent of the negative impact of the availability of PCSK9 inhibitor products on sales of lomitapide;
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our ability to complete the merger with QLT, and on the timeline we have anticipated;
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the short-term or long-term success or failure of our commercialization of our products in key countries outside the U.S. in which we have or obtain approval, and the level of revenues we generate;
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our ability to accurately forecast net product sales and operating expenses, and to meet such forecasts;
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the timing and cost of seeking regulatory approvals and conducting potential future clinical development of metreleptin in additional indications;
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any issues that may arise with our supply chain for our products;
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any adverse regulatory decisions, or regulatory issues that arise, made with respect to our products;
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any issues that may arise with respect to the safety of our products;
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the perception of the terms of the preliminary agreements in principle we have reached with the DOJ and the SEC and in connection with their investigations, and any adverse consequences that may result from such preliminary agreements in principle, such as additional litigation or investigations, and risks related to finalization of the preliminary agreements in principle and outstanding required approvals in respect thereof; 
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our ability to defend ourselves successfully against claims made in securities class action lawsuits, and, if we are unsuccessful in such defense or decide to settle, the type and amount of any damages, settlement amounts, fines or other payments or adverse consequences that may result;
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the extent to which expected changes to the JUXTAPID REMS Program, including the recertification of physicians, the requirement that patients sign a patient-prescriber acknowledgment form as a pre-condition to JUXTAPID being dispensed to patients, enhancements to the JUXTAPID prescription authorization form to capture liver monitoring as directed by the JUXTAPID labeling, and other proposed modifications are

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incorporated into the JUXTAPID REMS Program, and the extent to which such modifications, along with changes to the labeling for JUXTAPID instructing patients to cease therapy upon the occurrence of severe diarrhea, may negatively affect the ability or willingness of a healthcare professional to prescribe JUXTAPID, a patient to be willing to initiate or continue on therapy, or insurance companies, managed care organizations, other private payers, and government entities that provide reimbursement for medical costs to continue to provide reimbursement for JUXTAPID;
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any adverse actions or decisions related to our intellectual property or marketing or data exclusivity, including the inter partes proceedings filed by the Coalition for Affordable Drugs VIII L.L.C. with the PTAB, challenging the validity of U.S. Patent Nos. 7,932,268, and 8,618,135, which are directed to methods-of-use for lomitapide, or any action by a third party to gain approval of a generic or biosimilar product;
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fluctuations in stock market prices and trading volumes of similar companies; and general market conditions and overall fluctuations in U.S. equity markets;
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low trading volume and short interest positions in our stock;
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international financial market conditions, including the ongoing sovereign debt crisis in the EU;
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variations in our quarterly operating results;
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changes in our financial guidance or securities analysts’ estimates of our financial performance;
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announcements of investigations or litigation, and updates to the status of investigations and litigation, or other notifications from enforcement or regulatory authorities related to our business or business practices;
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announcements of clinical data, registrational submissions, product launches, new products, services or technologies, commercial relationships, acquisitions or other events by us or our competitors;
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changes in or materially incorrect application of accounting principles;
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issuance by us of new securities, or sales of large blocks of our common stock, including sales by our executive officers, directors and significant stockholders;
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the dilutive effect of the Convertible Notes or any other equity or equity-linked financings or alternative strategic arrangements;
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the acceleration of our long-term debt;
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additional changes in, and loss of, key personnel;
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success or failure of products within our therapeutic areas of focus;
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discussion of us or our stock price by the financial press and in online investor communities;
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our relationships with and the conduct of third parties on which we depend; and
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other risks and uncertainties described in these risk factors.
In particular, our revenue guidance relating to our year ending 2016 is predicated on many assumptions, most notably that we have correctly forecast our U.S. revenue for both of our products and that ex-U.S. sales of lomitapide and metreleptin, particularly to the federal Ministry of Health in Brazil, continue as we have forecasted for those patients who have previously received JUXTAPID or MYALEPT and to new patients who have obtained federal court orders for JUXTAPID or MYALEPT treatment, particularly in light of the ongoing investigations in Brazil, significant local media coverage, recent negative decision of Interfarma, current political instability in Brazil, and the trial currently being heard by the Brazil Supreme Federal Court to decide whether the government has an obligation to provide drugs, such as JUXTAPID, that have not received regulatory and/or pricing and reimbursement approval in Brazil. Such factors may cause additional delays or eventually the suspension of the ordering process in Brazil. If any of our assumptions turn out to be incorrect, including our assumptions with

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regard to the extent of the negative impact of the launch of PCSK9 inhibitor products in the U.S., the EU and Brazil on our sales of lomitapide in those countries and in other countries where PCSK9 inhibitors are, in the future, approved or available on a named patient basis, our 2016 financial results could be weaker than expected, and the price of our common stock could decline, perhaps precipitously.
In addition, the stock market in general, and the market for small pharmaceutical and biotechnology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Also, broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance. In the past, following periods of volatility in the market in a company’s stock, securities class-action litigation has often been instituted against such a company. We, and certain of our former executive officers, have been named as defendants in a federal securities class action lawsuit filed against us alleging that we and the officers made certain false and misleading statements in violation of federal securities laws. See Part II, Item 1-“Legal Proceedings”.  These proceedings and similar litigation, if instituted against us, could result in substantial costs and diversion of management’s attention and resources, which could materially and adversely affect our business and financial condition.
Servicing our debt requires a significant amount of cash and we are in breach of the terms of the SVB Loan and Security Agreement, which could lead to acceleration of the loans under the SVB Loan and Security Agreement and/or the QLT Loan Agreement. We may not have sufficient cash flow from our business to make payments on our debt, and we may not have the ability to raise the funds necessary to settle conversions of, or to repurchase, the Convertible Notes upon a fundamental change, which could adversely affect our business, financial condition and results of operations.
In August 2014, we incurred indebtedness in the amount of $325.0 million in aggregate principal with additional accrued interest under the Convertible Notes, for which interest is payable semi-annually in arrears on February 15 and August 15 of each year, beginning on February 15, 2015. On January 9, 2015, our SVB Loan and Security Agreement with Silicon Valley Bank was amended to provide for the $25 million 2015 Term Loan Advance and the Revolving Line. The Revolving Line was terminated in January 2016 pursuant to the amended Forbearance Agreement, as discussed above.  On June 14, 2016, we entered into the QLT Loan Agreement, which provides for term loans in an aggregate principal amount of up to $15 million. Our ability to make scheduled payments of the principal, to pay interest on or to refinance our indebtedness, including the Convertible Notes, depends on our future performance, which is subject to economic, financial, competitive and other factors that may be beyond our control. If we were unable to repay amounts due under the SVB Loan and Security Agreement or the QLT Loan Agreement, subject to the terms of the Subordination Agreement, SVB or QLT could proceed against the collateral granted to them to secure such debt. We have pledged substantially all of our assets as collateral under the SVB Loan and Security Agreement and the QLT Loan Agreement. If the debt under our credit facilities were to be accelerated, our assets may not be sufficient to repay such debt in full.  For more information on the SVB Loan and Security Agreement, as amended, see the risk factor captioned “We will likely need to raise substantial additional capital in the future. The ongoing SEC and DOJ investigations have negatively affected our ability to raise additional capital. If additional capital is not available at all or on acceptable terms when we need it, we will have to delay, reduce or cease operations.”
Our business may not generate cash flow from operations in the future sufficient to service our debt. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling or licensing assets, further reducing the size of our workforce and curtailing operations and planned development activities, restructuring debt or obtaining

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additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations, including the Convertible Notes.
In addition, holders of the Convertible Notes have the right to require us to repurchase their notes for cash upon the occurrence of a fundamental change at a repurchase price equal to 100% of the respective principal amount, plus accrued and unpaid interest, if any. Further, upon conversion of the Convertible Notes, unless we elect to deliver solely shares of our common stock to settle such conversion (other than cash in lieu of any fractional share), we would be required to settle a portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity. We may not have enough available cash or be able to obtain financing at the time we are required to make repurchases of Convertible Notes surrendered therefor or Convertible Notes being converted. In addition, our ability to pay cash upon repurchase or conversion of the Convertible Notes is restricted by our existing credit facility and may be limited by law, by regulatory authority or by agreements governing our future indebtedness. Our failure to repurchase Convertible Notes at a time when the repurchase is required by the indenture or to pay any cash payable on future conversions of the Convertible Notes as required by the indenture would constitute a default under the indenture. Additionally, if Silicon Valley Bank elects to accelerate the principal amount due under the SVB Loan and Security Agreement, whether or not QLT elects to accelerate the principal amount due under the QLT Loan Agreement, and we fail to pay such amounts due to Silicon Valley Bank and, if applicable, QLT, the Trustee or holders of at least 25% of the aggregate principal amount of the Notes may deliver a notice of default to us. Our failure to pay the amount due under the SVB Loan and Security Agreement within 30 days following our receipt of such notice would be deemed an event of default under the Indenture and, among other remedies, the Trustee or holders of at least 25% of the aggregate principal amount of the Notes could declare all unpaid principal of the Notes immediately due and payable.  A default under the indenture or the fundamental change itself could also lead to a default under agreements governing our current and future indebtedness. If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase the Convertible Notes or make cash payments upon conversions thereof. In addition, even if holders of the Convertible Notes do not elect to convert their Convertible Notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the Convertible Notes as a current rather than long-term liability, which would result in a material reduction of our net working capital.
Our indebtedness could adversely affect our financial health and our ability to respond to changes in our business.
Our significant indebtedness, combined with our other financial obligations and contractual commitments, could have important consequences. For example, it could:
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make us more vulnerable to adverse changes in general U.S. and worldwide economic, industry and competitive conditions and adverse changes in government regulation;
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limit our flexibility in planning for, or reacting to, changes in our business and our industry;
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place us at a disadvantage compared to our competitors who have less debt; and
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limit our ability to borrow additional amounts for working capital, capital expenditures, acquisitions, general corporate purposes or other purposes, or raise additional capital through equity or other types of financings.

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We cannot be sure that our leverage resulting from our level of debt will not materially and adversely affect our ability to finance our operations or capital needs or to engage in other business activities. In addition, we cannot be sure that additional financing will be available when required or, if available, will be on terms satisfactory to us. Further, even if we are able to obtain additional financing, we may be required to use proceeds to repay a portion of our debt. Any of these factors could materially and adversely affect our business, financial condition and results of operations. In addition, if we incur additional indebtedness, the risks related to our business and our ability to service or repay our indebtedness would increase.
Our business could be negatively affected as a result of proxy contests and other actions of activist stockholders.
Proxy contests have been waged against many companies in the biopharmaceutical industry over the last few years. If faced with a proxy contest, we may not be able to successfully defend against the contest, which would be disruptive to our business. Even if we are successful, our business could be adversely affected by a proxy contest because:
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responding to proxy contests and other actions by activist stockholders may be costly and time-consuming and may disrupt our operations and divert the attention of our management and our employees;
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perceived uncertainties as to our future direction may result in our inability to consummate potential acquisitions, collaborations or in-licensing opportunities and may make it more difficult to attract and retain qualified personnel and business partners; and
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if individuals are elected to our Board of Directors with a specific agenda different from our strategy for creating long-term stockholder value, it may adversely affect our ability to effectively and timely execute on our strategic plans and create additional value for our stockholders.
As previously disclosed, on March 21, 2016, we and Sarissa Capital (along with its affiliates, the “Sarissa Group”) entered into an amendment to the Nomination and Standstill Agreement, dated March 29, 2015 (the “Agreement”), between the parties.  Pursuant to the amendment, the Standstill Period (as defined in the Agreement) was deemed terminated as of March 21, 2016, and the Sarissa Group agreed not to submit any notices nominating directors or proposing business proposals for consideration at our 2016 Annual Meeting of Stockholders. This summary does not purport to be complete and is qualified in its entirety by reference to the disclosures contained in our Current Reports on Form 8-K, filed with the SEC on March 22, 2016 and March 31, 2015 and by reference to the Agreement itself, a copy of which is attached as Exhibit 99.1 to Current Report on Form 8-K filed on March 31, 2015.
Anti-takeover provisions in our charter documents and under Delaware law could make an acquisition of us, which may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or remove our current management.
Provisions in our certificate of incorporation and by-laws may delay or prevent an acquisition of us or a change in our management. These provisions include a classified board of directors, a prohibition on actions by written consent of our stockholders and the ability of our board of directors to issue preferred stock without stockholder approval. In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which limits the ability of stockholders owning in excess of 15% of our outstanding voting stock to merge or combine with us. Although we believe these provisions collectively provide for an opportunity to obtain greater value for stockholders by requiring potential acquirers to negotiate with our board of directors, they would apply even if an offer rejected by our board of directors was considered beneficial by some stockholders. In addition, these provisions may frustrate or prevent any attempts

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by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors, which is responsible for appointing the members of our management.
We do not intend to pay dividends on our common stock and, consequently, a stockholder’s ability to achieve a return on investment will depend on appreciation in the price of our common stock.
We have never declared or paid any cash dividend on our common stock, and do not currently intend to do so for the foreseeable future.
We currently anticipate that we will retain any future earnings for the development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. Therefore, the success of an investment in shares of our common stock will depend upon any future appreciation in the value of such shares. There is no guarantee that shares of our common stock will appreciate in value or even maintain the price at which our stockholders have purchased their shares.
Future sales of our common stock may cause our stock price to decline.
Sales of a substantial number of shares of our common stock in the public market or a sale of securities convertible into common stock or the perception that these sales might occur, could significantly reduce the market price of our common stock and impair our ability to raise adequate capital through the sale of additional equity securities.
If our existing stockholders sell, or if the market believes our existing stockholders will sell, substantial amounts of our common stock in the public market, the trading price of our common stock could decline significantly.
As of September 30, 2016, there were:
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4,225,574 shares issuable upon the exercise of stock options outstanding under our 2006 Stock Option and Award Plan, the 2010 Stock Option and Incentive Plan (the “2010 Plan”) and the Inducement Stock Option Plan;
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812,703 restricted stock units subject to vesting;
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3,871,765 shares available for future issuance under the 2010 Plan;
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1,232,926 shares available for issuance under our Inducement Stock Option Plan, a plan that is to be used exclusively for the grant of stock options to individuals who were not previously an employee or a non-employee director (or following a bona fide period of non-employment with us), as an inducement material to the individual’s entry into employment with us within the meaning of Rule 5635(c)(4) of the NASDAQ Listing Rules; and
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$325.0 million of 2.0% convertible senior notes due August 15, 2019 which are convertible into shares of our common stock at an initial conversion rate of 24.2866 shares of common stock per $1,000 principal amount of the Convertible Notes, which corresponds to $41.175 per share of our common stock and in connection with the offering of the Convertible Notes, we entered into warrant transactions convertible into 7,893,145 shares of our common stock.
Under the 2010 Plan, the shares reserved for issuance under the plan are automatically increased on an annual basis in accordance with a pre-determined formula. As a result, on January 1, 2016, January 1, 2015, and January 1, 2014, an additional

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1,178,564, 1,138,596 and 1,175,372 shares, respectively, were added to the aggregate number of shares reserved for future issuance under the 2010 Plan under the annual automatic share increase provision of the plan.
If additional shares are sold, or if it is perceived that they will be sold, in the public market, the price of our common stock could decline substantially.
We have registered approximately 10,000,000 shares of the common stock described above that are subject to outstanding stock options and reserved for issuance under our equity plans. These shares can be freely sold in the public market upon issuance, subject to vesting restrictions.

Risk Factors Relating to the Proposed Merger with QLT
The exchange ratio will not be adjusted in the event of any change in either our stock price or QLT’s share price.
Upon the closing of the merger with QLT, each outstanding share of our common stock (with certain exceptions), by virtue of the merger and without any action on the part of the parties to the Merger Agreement or the holders of shares of our common stock, will be converted into the right to receive 1.0256 validly issued, fully paid and nonassessable QLT common shares, subject to downward adjustment only in specified circumstances in the event the ongoing government investigations and litigation are settled for amounts in excess of negotiated thresholds. The maximum aggregate excess settlement amount to be reflected in the equity exchange ratio adjustment is $25 million. For more information, see Note 1 "Description of Business and Significant Accounting Policies", to the Notes to Unaudited Condensed Consolidated Financial Statements. This exchange ratio will not be adjusted for changes in the market price of either our common stock or QLT common shares.  Changes in the price of QLT common shares prior to completion of the merger will affect the market value of the QLT common shares that our stockholders will receive in the merger.  Share price changes may result from a variety of factors (many of which are beyond Aegerion’s or QLT’s control), including the following:
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changes in Aegerion’s and QLT’s respective businesses, operations and prospects, or the market assessments thereof;
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market assessments of the likelihood that the merger will be completed; and
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general market and economic conditions and other factors generally affecting the price of QLT common shares.

The price of QLT common shares at the closing of the merger may vary from the price on the date the Merger Agreement was executed and the dates of the respective special meetings of our stockholders and QLT shareholders.  As a result, the market value of the merger consideration will also vary.  For example, based on the range of closing prices of QLT common shares during the period from June 13, 2016, which was the last trading day before the public announcement of the execution of the Merger Agreement, through November 1, 2016, the exchange ratio represented a market value ranging from a low of $1.33 to a high of $2.15 for each share of our common stock.
Because the merger will be completed after the dates of our special meeting, you will not know, at the time of our special meeting, the market value of the QLT common shares that you will receive upon completion of the merger.

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If the price of QLT common shares increases between the time of our special meeting and the time at which QLT common shares are distributed to our stockholders following completion of the merger, our stockholders will receive QLT common shares that have a market value that is greater than the market value of such shares at the time of our special meeting.  If the price of QLT common shares decreases between the time of our special meeting and the time at which QLT common shares are distributed to our stockholders following completion of the merger, our stockholders will receive QLT common shares that have a market value that is less than the market value of such shares at the time of our special meetings.  Therefore, our stockholders will not have certainty at the time of our special meeting of the market value of the consideration that will be paid to our stockholders upon completion of the merger.
Failure to complete the merger could negatively impact our stock price, future business and financial results.
If the merger is not completed, our ongoing business may be adversely affected.  Additionally, if the merger is not completed and the Merger Agreement is terminated, in certain circumstances, we may be required to pay QLT a termination fee of $5 million.  In addition, we have incurred significant transaction expenses in connection with the merger regardless of whether the merger is completed.  The foregoing risks, or other risks arising in connection with the failure of the merger, including the diversion of management attention from conducting our business and pursuing other opportunities during the pendency of the merger, may have an adverse effect on our business, operations, financial results and stock price.  In addition, we could be subject to litigation related to any failure to consummate the merger transaction or any related action that could be brought to enforce our obligations under the Merger Agreement.
We are subject to the additional risk that if the Merger Agreement is terminated, we will no longer have access to the interim financing provided to us by QLT in connection with the execution of the Merger Agreement, in which case we would need to raise capital or obtain alternative financing to strengthen our cash position and fund our operations. We entered into the QLT Loan Agreement in connection with the execution of the Merger Agreement, which provides that, subject to the terms and conditions thereof, QLT will provide a term loan facility to us in an aggregate principal amount of up to $15 million. The term loan facility will mature on the earliest of (i) July 19, 2019, (ii) the maturity date of the Convertible Notes, (iii) three business days after a termination of the Merger Agreement by us and (iv) 90 days after a termination of the Merger Agreement by QLT. Our significant indebtedness and other long‑term liabilities will likely negatively impact our ability to raise additional capital or obtain alternative financing on terms acceptable to us, or at all.
If we are unable to raise sufficient additional capital or obtain alternative financing to strengthen our cash position and fund our operations, we may not be able to service our existing indebtedness and may be required to delay, reduce or cease operations, including planned development, sales and marketing and business development efforts.  Any of these outcomes would harm our business, financial condition and results of operations. The source, timing and availability of any future financing will depend principally upon equity and debt market conditions, interest rates and, more specifically, on our commercial success, the status of ongoing government investigations and the results of future development efforts. Any alternative sources of financing could involve the issuance of our equity securities, which would have a dilutive effect on our stockholders.
The Merger Agreement contains provisions that could discourage a potential competing acquirer of Aegerion.
The Merger Agreement contains “no shop” provisions that, subject to limited exceptions, restrict our ability to solicit, encourage, facilitate or discuss competing third party proposals to acquire shares or assets of Aegerion.  In specified

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circumstances, upon termination of the Merger Agreement, we will be required to pay the termination fee to QLT.  In the event that we receive an alternative acquisition proposal, QLT has the right to propose changes to the terms of the Merger Agreement before our board of directors may withdraw or qualify its recommendation with respect to the merger and related transactions.
These provisions could discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of Aegerion from considering or proposing that acquisition, even if it were prepared to pay consideration with a higher per share cash or market value than the market value proposed to be received or realized in the merger, or might result in a potential competing acquirer proposing to pay a lower price than it might otherwise have proposed to pay because of the added expense of the termination fee that may become payable in specified circumstances.  QLT’s right to match specified alternative acquisition proposals with respect to the other party could also discourage potential competing acquirers from considering or proposing that acquisition.
If the Merger Agreement is terminated and we determine to seek another transaction, we may not be able to negotiate a transaction with another party on terms comparable to, or better than, the terms of the merger.
Novelion may be treated as a U.S. domestic corporation for U.S. federal income tax purposes.
Under current U.S. federal tax law, a corporation is generally considered for U.S. federal income tax purposes to be a tax resident in the jurisdiction of its organization or incorporation. Accordingly, under the generally applicable U.S. federal income tax rules, QLT, which is incorporated under the laws of British Columbia, Canada, would be classified as a non-U.S. corporation (and, therefore, not a U.S. tax resident) for U.S. federal income tax purposes. Section 7874 of the Internal Revenue Code of 1986, as amended (the “Code”) provides an exception to this general rule, under which a non-U.S. incorporated entity will nevertheless be treated as a U.S. corporation for U.S. federal income tax purposes (and, therefore, as a U.S. tax resident subject to U.S. federal income tax on its worldwide income) if each of the following three conditions are met:  (i) the non-U.S. corporation, directly or indirectly, acquires substantially all of the properties held directly or indirectly by a U.S. corporation (including through the acquisition of all of the outstanding shares of the U.S. corporation), (ii) the non-U.S. corporation’s “expanded affiliated group” does not have “substantial business activities” in the non-U.S. corporation’s country of organization or incorporation and tax residence relative to the expanded affiliated group’s worldwide activities and (iii) after the acquisition, the former shareholders of the acquired U.S. corporation hold at least 80% (by either vote or value) of the shares of the non-U.S. acquiring corporation by reason of holding shares in the U.S. acquired corporation (taking into account the receipt of the non-U.S. corporation’s shares in exchange for the U.S. corporation’s shares) as determined for purposes of Section 7874 (this test is referred to as the “80% ownership test”).
On April 4, 2016, the U.S. Treasury and the U.S. Internal Revenue Service (the “IRS”) issued the Temporary Section 7874 Regulations, which, among other things, require certain adjustments that generally increase, for purposes of the 80% ownership test, the percentage of the stock of the acquiring non-U.S. corporation deemed owned (within the meaning of Section 7874) by the former shareholders of the acquired U.S. corporation by reason of holding stock in such U.S. corporation.  Whether the 80% ownership test will be satisfied will be impacted by the implied gross value of the QLT assets at the effective time. It is possible that our stockholders could be deemed to acquire for purposes of Section 7874 more than 80% of QLT in the merger and that as a result Novelion will be treated as a U.S. corporation for U.S. federal income tax purposes.  This outcome depends principally on the fair market value of QLT at the effective time. If Novelion were to be treated as a U.S. corporation for U.S. federal tax purposes, it could suffer adverse tax consequences, including potential U.S. income taxes on

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future profits distributed from non-U.S. subsidiaries and loss of eligibility for benefits under the income tax treaty between Canada and the United States.
Novelion may not be able to achieve tax savings as a result of the merger.
Even if Novelion is not treated as a U.S. corporation for U.S. federal income tax purposes under the inversion rules discussed above, there can be no assurance as to the effective tax rates applicable to Novelion’s future revenue. For example, the ability of the companies to locate personnel, and to integrate and manage operations in a manner that supports and protects the tax benefits that potentially may be realized from QLT’s Canadian tax domicile is uncertain.
Potential improvements to Novelion’s effective tax rate that may result from QLT’s Canadian tax domicile have not been reflected in the pro forma financial information.
Novelion may not be able to use Aegerion’s and QLT’s net operating loss carryforwards to offset future taxable income for U.S. or Canadian federal income tax purposes.
At December 31, 2015, we had net operating loss carryforwards (“NOLs”) for U.S. federal income tax purposes of approximately $173.3 million, which expire in the years 2025 through 2035.
It is currently expected that we will undergo an “ownership change” within the meaning of Section 382 of the Code as a result of the merger, and therefore an annual limit may be imposed on the amount of NOLs that may be used to offset future taxable income.  Such annual limit is generally the product of the total value of a company’s outstanding equity immediately prior to an “ownership change” (subject to certain adjustments) and the applicable federal long term tax exempt interest rate.
At December 31, 2015, QLT had NOLs for Canadian federal income tax purposes of approximately $147 million, which expire at various dates through 2035.  The extent to which Novelion can utilize any or all of QLT’s NOLs will depend on many factors, including the jurisdiction applicable to any future taxable revenue of Novelion.
The ability of Novelion to use NOLs will also depend on the amount of taxable income generated in future periods.  The NOLs may expire before Novelion can generate sufficient taxable income to use the NOLs.
Risk Factors Relating to the Novelion Common Shares Following the Merger

The failure to successfully integrate the businesses of Aegerion and QLT in the expected timeframe would adversely affect the future results of Novelion following the merger.
The ability of Aegerion and QLT to realize the anticipated benefits from the merger will depend, in part, on the ability of the companies to successfully integrate their operations following the merger.  If the companies are not able to achieve these objectives within the anticipated time frame, or at all, the anticipated benefits of the merger may not be realized fully, or at all, or may take longer to realize than expected, and the value of Novelion common shares may be adversely affected.  In addition, the integration of our and QLT’s respective businesses will be a time-consuming and expensive process.  Proper planning and effective and timely implementation will be critical to avoid any significant disruption to the companies’ operations.  It is possible that the integration process could result in the loss of key employees, the disruption of its ongoing business or the identification of inconsistencies in standards, controls, procedures and policies that adversely affect the companies’ abilities to maintain relationships with customers, suppliers, manufacturers, creditors, lessors, clinical trial investigators or managers and

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other business partners or to achieve the anticipated benefits of the merger.  Delays encountered in the integration process could have a material adverse effect on the companies’ revenues, expenses, operating results and financial condition, including the value of Novelion’s common shares.
Specifically, risks in integrating our operations and QLT’s operations in order to realize the anticipated benefits and cost savings of the merger include, among other factors, the companies’ inability to effectively:
•
coordinate standards, compliance programs, controls, procedures and policies, business cultures and compensation structures;
•
integrate and harmonize financial reporting and information technology systems of the two companies;
•
manage operations in a manner that supports and protects the tax benefits related to, and that may be realized from, QLT’s Canadian domicile;
•
coordinate research and drug candidate development efforts to effectuate their product capabilities;
•
compete against companies serving the market opportunities expected to be available to the companies following the merger;
•
manage inefficiencies associated with integrating the operations of the companies;
•
identify and eliminate redundant or underperforming personnel, operations and assets;
•
manage the diversion of management’s attention from business matters to integration issues;
•
control additional costs and expenses in connection with, and as a result of, the merger;
•
conduct successful clinical development programs for their respective strategic product candidates and products and achieve regulatory approval for product candidates in major geographic areas;
•
define and develop successful commercial strategies for Aegerion’s products in markets in which they are approved for sale and obtain reimbursement for its products in these markets;
•
resolve the ongoing investigations and litigation of Aegerion and manage and defend Novelion and the Company in future litigation and investigations that may arise from any resolution of Aegerion’s ongoing investigations and litigation;
•
service Aegerion’s significant indebtedness;
•
commercialize our and Novelion’s respective strategic products at commercially attractive margins and generate revenues in line with our and Novelion’s expectations, particularly in light of our reductions in force in 2016 and the impact of competitive products on JUXTAPID sales; and
•
raise capital through equity or debt financing on attractive terms to support the development and commercialization of our and Novelion’s respective strategic products.
    
In addition, the actual integration may result in additional and unforeseen expenses, and the anticipated benefits of the integration plan may not be realized.  Actual cost synergies, if achieved at all, may be lower than we and Novelion expect and may take longer to achieve than anticipated.  If Novelion is not able to adequately address these challenges, it may be unable to successfully integrate the operations of our business, or to realize the anticipated benefits and cost synergy savings of the integration.  The anticipated benefits and cost savings assume a successful integration and are based on projections, which are inherently uncertain.  Even if integration is successful, anticipated benefits and cost savings may not be as expected.
Novelion’s future results will suffer if it does not effectively manage its expanded operations.

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As a result of the merger, Novelion will become a larger company than either of Aegerion and QLT prior to the merger, and Novelion’s business will become more complex.  There can be no assurance that Novelion will effectively manage the increased complexity without experiencing operating inefficiencies or control deficiencies.  Significant management time and effort is required to effectively manage the increased complexity of the larger organization and Novelion’s failure to successfully do so could have a material adverse effect on its business, financial condition, results of operations and growth prospects.  In addition, as a result of the merger, the companies’ financial statements and results of operations in prior years may not provide meaningful guidance to form an assessment of the prospects or potential success of Novelion’s future business operations.
The market price of Novelion’s common shares after the merger may be affected by factors different from those currently affecting the shares of our common stock.
Upon completion of the merger, holders of our common stock will become holders of Novelion’s common shares.  Our business differs from that of QLT in important respects and, accordingly, the results of operations of Novelion and the market price of Novelion’s common shares following the merger may be affected by factors different from those currently affecting our independent results of operations.
We and QLT have incurred and expect to continue to incur substantial expenses related to the merger transaction and integration of the companies.
We and QLT have incurred and expect to continue to incur substantial expenses related to the merger transaction and the integration of the companies. We and QLT have incurred significant expenses in connection with the drafting and negotiation of the Merger Agreement and the documentation of transactions contemplated thereby and may potentially incur significant severance expenses as a result of the merger. Upon closing, there are a large number of processes, policies, procedures, operations, technologies and systems that must be integrated, including purchasing, accounting and finance, sales, billing, payroll, research and development, sales and marketing and benefits.  In addition, the ongoing operation of locations in Cambridge, Massachusetts and Vancouver, British Columbia could result in inefficiencies, creating additional expenses for the companies.  While we and QLT have assumed that a certain level of expenses will be incurred, there are many factors beyond our control that could affect the total amount or timing of transaction and integration expenses.  Moreover, many of the expenses that will be incurred are, by their nature, difficult to estimate accurately. These expenses likely will result in the companies’ taking significant charges against consolidated earnings following the completion of the merger, and the amount and timing of such charges are uncertain at present.
We, QLT and, subsequently Novelion, must continue to retain, motivate and recruit executives and other key employees, which may be difficult in light of the uncertainty regarding the merger, and failure to do so could negatively affect the companies.
For the merger to be successful, during the period before the merger is completed, we and QLT must continue to retain, recruit and motivate executives and other key employees.  Novelion also must be successful at retaining, recruiting and motivating key employees following the completion of the merger.  Experienced employees in the biopharmaceutical and biotechnology industries are in high demand and competition for their talents can be intense.  Our employees and QLT’s employees may experience uncertainty about their future roles with their respective company until, or even after, strategies with regard to Novelion are announced or executed following the merger.  These potential distractions of the merger may adversely

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affect the ability of us, QLT or Novelion to attract, motivate and retain executives and other key employees and keep them focused on applicable strategies and goals.  A failure by us, QLT or Novelion to retain and motivate executives and other key employees during the period prior to or after the completion of the merger could have an adverse impact on our business, or the business of QLT or Novelion.
Novelion may be treated as a passive foreign investment corporation (a “PFIC”) for U.S. federal income tax purposes.
QLT likely was classified as a PFIC in 2015.  If Novelion is treated as a foreign corporation for U.S. federal income tax purposes, QLT/Novelion expects to be classified as a PFIC in 2016 and may continue to be so classified in future years. The determination of whether Novelion is a PFIC is made annually and depends on the particular facts and circumstances (such as the valuation of its assets, including goodwill and other intangible assets) and also may be affected by the application of the PFIC rules, which are subject to differing interpretations.
The rules governing PFICs can have adverse tax effects on U.S. holders which may be mitigated by making certain elections for U.S. federal income tax purposes, which elections may or may not be available. If Novelion is a PFIC in any year, a U.S. holder of common shares in such year will be required to file an annual information return on IRS Form 8621 regarding distributions received on such common shares and any gain realized on disposition of such common shares and will generally be required to file an annual information return with the IRS (also on IRS Form 8621, which PFIC shareholders are required to file with their U.S. federal income tax or information return) relating to their ownership of Novelion common shares. Additionally, if Novelion is classified as a PFIC in any taxable year with respect to which a U.S. holder owns common shares, it generally will continue to be treated as a PFIC with respect to such U.S. holder in all succeeding taxable years, regardless of whether it continues to meet the tests described above, unless the U.S. holder makes a “deemed sale election.”
For purposes of this risk factor, a “U.S. holder” is a beneficial owner of our common stock, QLT common shares or warrants that is for U.S. federal income tax purposes: (a) an individual who is a citizen or resident of the U.S.; (b) a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the U.S., any state thereof or the District of Columbia; (c) an estate the income of which is subject to U.S. federal income taxation regardless of its source; or (d) a trust (i) if a court within the U.S. can exercise primary supervision over its administration, and one or more U.S. persons have the authority to control all of the substantial decisions of that trust, or (ii) that has a valid election in effect under applicable Treasury regulations to be treated as a U.S. person.
Lawsuits have been filed against Aegerion, QLT, Isotope Acquisition Corp. ("MergerCo") and the Aegerion board of directors, and additional lawsuits may be filed against Aegerion, QLT and/or the board of directors of either company challenging the merger, and an adverse judgment in any such lawsuit may prevent the merger from becoming effective or from becoming effective within the expected timeframe.
On August 16, 2016, a complaint captioned Steinberg v. Aegerion Pharmaceuticals, Inc., et al., Case No. 1:16-cv-11668, was filed in the United States District Court for the District of Massachusetts against Aegerion, QLT, MergerCo and each member of the Aegerion board of directors (the ‘‘Federal Merger Action’’). The Federal Merger Action was brought by Chaile Steinberg, who purports to be a stockholder of Aegerion, on her own behalf, and seeks certification as a class action on behalf of all Aegerion stockholders. The Steinberg complaint alleges, among other things, that the August 8, 2016 Form S-4 Registration Statement filed in connection with the proposed transaction with QLT is materially misleading. The Steinberg complaint asserts claims arising under Sections 14(a) and 20(a) of the Exchange Act and seeks, among other things, to enjoin

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the proposed transaction, to rescind it or to award rescissory damages should it be consummated and an award of attorneys’ fees and expenses.
On October 3, 2016, a complaint captioned Flanigon v. Aegerion Pharmaceuticals, Inc., et al., C.A. 12794, was filed in the Delaware Court of Chancery (the ‘‘Delaware Merger Action’’). The Delaware Merger Action was brought by Timothy Flanigon, who purports to be a stockholder of Aegerion, on his own behalf, and also sought certification as a class action on behalf of all Aegerion stockholders. The Delaware Merger Action alleged, among other things, that our board of directors breached its fiduciary duties in connection with the proposed transaction by agreeing to an inadequate exchange ratio and engaging in a flawed sales process. The Delaware Merger Action further alleged that QLT and MergerCo aided and abetted the alleged breaches. In addition, the Delaware Merger Action alleged that the September 28, 2016 Amendment No. 2 to Form S-4 Registration Statement filed in connection with the proposed transaction is materially misleading. The Flanigon complaint sought, among other things, to enjoin the proposed transaction, to rescind it or to award rescissory damages should it be consummated and an award of attorneys’ fees and expenses. Also on October 3, 2016, plaintiff in the Delaware Merger Action filed motions seeking expedited discovery and a preliminary injunction. On October 21, 2016, the Delaware Merger Action was dismissed without prejudice.
Additional lawsuits may be filed against Aegerion, QLT and/or the board of directors of either company in connection with the merger in an effort to enjoin the proposed merger or seek monetary relief from Aegerion, QLT or MergerCo. An unfavorable resolution of any such litigation surrounding the proposed merger could delay or prevent the consummation of the merger. In addition, the cost of defending the litigation, even if resolved favorably, could be substantial. Such litigation could also substantially divert the attention of Aegerion’s and QLT’s management and their resources in general. There can also be no assurance that Aegerion, QLT or MergerCo will prevail in its defense of any such lawsuits to which it is a party, even in an event where such company believes that the claims made in such lawsuits are without merit.
One of the conditions to the closing of the merger is that no outstanding judgment, injunction, order or decree of a competent governmental authority shall have been entered and shall continue to be in effect that prohibits, enjoins or makes illegal the consummation of the merger or any of the other transactions contemplated in the merger agreement. Therefore, if the plaintiffs in any lawsuit that have been or may be filed secure injunctive relief or other relief prohibiting, delaying or otherwise adversely affecting the defendants’ ability to complete the merger, then such injunctive or other relief may prevent the merger from becoming effective within the expected timeframe or at all.
Item 2.         Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable

Item 3.         Defaults Upon Senior Securities
Not applicable
 
Item 4.         Mine Safety Disclosure
Not applicable
 
Item 5.         Other Information
Not applicable

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Item 6.        Exhibit List

2.1
Amendment No. 1 dated as of September 1, 2016, to Agreement and Plan of Merger, dated as of June 14, 2016 by and among Aegerion, QLT and Isotope Acquisition Corp. (incorporated by reference to Annex A to the joint proxy statement/prospectus, which is part of QLT Inc.’s Amendment No. 1 to the Registration Statement on Form S-4 filed with the SEC on September 12, 2016).
10.1*
Sixth Amendment to Forbearance Agreement, dated as of September 30, 2016, by and between the Company and Silicon Valley Bank.
10.2*
Employment Agreement, dated as of September 24, 2016, by and between the Company and Remi Menes.
10.3*
Fifth Amendment to Lease by and between the Company and RREEF America REIT II Corp. PPP, dated as of July 19, 2016.
31.1*
Certification of Mary Szela, Chief Executive Officer of the Company, filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).
31.2*
Certification of Gregory D. Perry, Chief Financial Officer of the Company, filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).
32.1**
Certification of Mary Szela, Chief Executive Officer of the Company, furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).
32.2**
Certification of Gregory D. Perry, Chief Financial Officer of the Company, furnished pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350).
101.DEF*
XBRL Taxonomy Extension Definition Linkbase Document.
101.INS*
XBRL Instance Document.
101.SCH*
XBRL Taxonomy Extension Schema Document.
101.CAL*
XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB*
XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*
XBRL Taxonomy Extension Presentation Linkbase Document.

    
 
*Filed herewith
**Furnished Herewith

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
AEGERION PHARMACEUTICALS, INC.
 
 
 
(Registrant)
 
 
 
 
Date: November 4, 2016
 
By:
/s/ Mary Szela 
 
 
 
Mary Szela
Chief Executive Officer (principal executive officer) and Director
 
 
 
 
Date: November 4, 2016
 
By:
/s/ Gregory D. Perry 
 
 
 
Gregory D. Perry
 
 
 
Chief Financial and Administrative Officer (principal financial officer)


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Aegerion Pharmaceuticals, Inc. Reports