Aegerion, QLT Ink Merger Deal to Form Novelion Therapeutics

Aegerion Pharmaceuticals, Inc. AEGR announced that it has entered into a definitive merger agreement with QLT Inc. QLTI.

Terms of the Merger

Under the agreement, Aegerion will combine with a wholly owned indirect subsidiary of QLT. Post completion, each outstanding share of Aegerion's common stock will be exchanged for 1.0256 shares of QLT's common stock.

QLT will change its name upon the closing of the proposed transaction to Novelion Therapeutics Inc. The resulting entity will have its principal headquarters in Vancouver, British Columbia, where QLT is currently located, with business operations in Cambridge, MA.

The proposed merger has been approved by the boards of directors of both companies. The transaction is expected to close late third-quarter 2016 or fourth-quarter 2016. Meanwhile, a broad-based investor syndicate is committed to invest approximately $22 million in QLT and to vote in favor of the proposed transaction. The syndicate comprises new investors as well as existing shareholders of both companies.

Post merger, QLT shareholders, including those who are investing in QLT immediately before closing, are expected to own approximately 67%, while current shareholders of Aegerion will own approximately 33% of Novelion's common shares.

Moreover, Aegerion and QLT have inked a loan agreement, whereby QLT will provide a loan of up to $15 million as working capital to Aegerion.

Portfolio for a New Entity

The proposed merger will led to the formation of a global biopharmaceutical company with focus on rare diseases. It will offer a diversified portfolio primarily consisting of Aegerion's two marketed drugs – Juxtapid and Myalept – and QLT's late-stage candidate, QLT091001 (zuretinol), which is being developed for the treatment of inherited retinal disease caused by underlying mutations in RPE65 or LRAT genes that prevent adequate functioning of the retinoid cycle leading to Leber Congenital Amaurosis (LCA) and Retinitis Pigmentosa RP.

As per the companies' projection, zuretinol's approval will create a portfolio (including Juxtapid and Myalept) that can generate peak sales of $500 million annually.

How Does QLT Benefit?

QLT plans to use Aegerion's existing orphan product infrastructure to build a global infrastructure to maximize the value of its ophthalmology candidate, zuretinol. Given the resource requirements for this, the merger with Aegerion will allow QLT to reap benefits from a larger scale and diversification, apart from creating a more liquid stock.

QLT INC Price

QLT INC Price | QLT INC Quote

How Does Aegerion Benefit?

On the other hand, Aegerion is facing challenging marketing conditions. Launch of PCSK9 inhibitors in the U.S. market hit Juxtapid sales severely and will continue to do so in the forthcoming quarters. The company also faced reimbursement hurdles for Myalept in the first quarter as prior authorizations are taking longer than expected and payers are requesting additional data. In fact, Myalept sales are expected to remain under pressure due to the payer mix.

Hence, Aegerion is looking to turn over a new leaf with the proposed merger with the ophthalmic biotechnology company.  Aegerion is also looking to address its capital needs from the proposed merger and move forward with a regulatory filing for Juxtapid in Japan and a filing for Myalept in Europe for generalized liver dystrophy and severe partial liver dystrophy by the end of 2016.

The company will also get the time to reconfigure its core business to generate a positive operating cash flow in 2017. Moreover, the transaction structure does not trigger a repayment obligation with respect to Aegerion's outstanding convertible senior notes.

AEGERION PHARMA Price

AEGERION PHARMA Price | AEGERION PHARMA Quote

Our Take

The merger appears to combine two companies, each with its own set of challenges and each looking forward to nullify the same with the other's strengths. Zuretinol, which enjoys orphan drug status in both the U.S. and Europe, is expected to be advanced to phase III development in the third quarter of 2016.

There are currently no approved treatments in the U.S. or Europe for LCA or RP. As per estimates, there are approximately 2,000 to 3,000 RP patients and approximately 1,000 to 2,000 LCA patients on a global basis, reflecting significant need an unmet ophthalmologic condition.

While zuretinol does look promising, Juxtapid's growth prospects appear pretty bleak, especially with the launch of PCSK9 inhibitors in the U.S. The companies have witnessed a significant decline in share prices in the recent past. The merger looks like a desperate attempt by the two parties to overcome existing challenges and build a strong portfolio.

While QLT currently carries a Zacks Rank #4 (Sell), Aegerion is a Zacks Rank #3 (Hold) stock. A couple of better-ranked stocks in the healthcare sector include Abbott Laboratories ABT and Johnson & Johnson JNJ. Both stocks have a Zacks Rank #2 (Buy).

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