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Aegerion Pharmaceuticals, Inc. – Rare-Disease Specialist Succumbs to Multiple Challenges and Files Chapter 11, Expected to Emerge as Wholly-Owned Subidiary of Amryt Pharma Plc


May 20, 2019 − Aegerion Pharmaceuticals, Inc and one affiliated Debtor ("Aegerion" or the "Debtors") filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of New York, lead case number 19-11632. The Company, a wholly-owned subsidiary of Novelion Therapeutics Inc. ("Novelion," NASDAQ: NVLN), a biopharmaceutical dedicated to developing and commercializing prescription drug products for individuals living with rare diseases, is represented by Paul V. Shalhoub of Willkie Farr & Gallagher LLP. Further board-authorized engagements include (i) Moelis & Company LLC as financial advisor, (ii) AP Services, LLC as restructuring advisor and (iii) Prime Clerk as claims agent. 

The Company’s petition notes between 1,000 and 5,000 creditors, estimated assets of $444.7mn; and estimated liabilities of $458.3mn. Documents filed with the Court list the Company's three largest unsecured creditors as (i) The Bank of New York Mellon Trust Company, N.A.  (trustee in respect of $304.1mn of the Debtors' 2% Convertible Notes due 2019, the "Convertible Notes"), (ii) the U.S. DoJ Consumer Protection Branch ($19.9mn settlement agreement) and (iii) the U.S. District Court of Massachusetts ($3.3mn settlement agreement).

Restructuring Support Agreement, Plan Funding Agreement and Sale of 100% of Reorganized Debtors' Stock to Amryt Pharma Plc

In a press release announcing the restructuring transactions, Novelion stated: "Aegerion Pharmaceuticals, Inc. (Aegerion) has entered into a plan funding agreement (PFA) and a restructuring support agreement (RSA) that will result in Aegerion selling 100% of its reorganized stock to, and becoming a wholly-owned subsidiary of, Dublin-based Amryt Pharma Plc (Amryt).

The agreements, which will result in a recapitalization of Aegerion (the Recapitalization), are the result of the previously announced capital structure and strategic review undertaken independently by the Boards of Directors of Novelion and Aegerion, and a broad marketing process. The Recapitalization of Aegerion pursuant to the PFA and a proposed Chapter 11 plan of reorganization (the Plan) has been approved by Aegerion's board and approved and recommended by the independent restructuring committee of Aegerion's board.  Novelion's board has approved Novelion's entry into the RSA and support for Aegerion's proposed Chapter 11 restructuring."

Ben Harshbarger, Novelion's Interim Chief Executive Officer, added: "The combination of Amryt and Aegerion will create a financially stronger and well-capitalized rare disease company with two commercial products and a pipeline of late stage rare disease products. With the opportunity to leverage synergies between the two companies to reduce overlap in expenses and eliminate the intercompany royalties through the existing LOJUXTA licensing agreement among the two companies, we believe these transactions create a compelling growth story and value creation opportunity for Aegerion and its stakeholders, including Novelion."

The Disclosure Statement provides considerable further detail as to how the various parts of the restructuring will work:

In the Spring of 2019, following an extensive marketing process, the Debtors entered into an exclusivity agreement with Amryt Pharma Plc ("Amryt" or the "Plan Investor").  Ultimately, the Debtors chose to proceed with a restructuring involving an all-stock investment by the Plan Investor through a chapter 11 restructuring in exchange for which the Plan Investor would receive 100% of the equity of Aegerion (the "Proposed Restructuring Transaction").   

To effectuate the Proposed Restructuring Transaction, the Debtors entered into the RSA with the Plan Investor, Novelion, and certain lenders representing (i) 100% in principal amount and number of holders under the Debtors' existing bridge loan and (ii) in excess of 67% in principal amount of the Convertible Notes.  The Debtors list the benefits of the Proposed Restructuring Transaction as being, inter alia   

  • After giving effect to the transaction, the Debtors will reduce their debt balance from approximately $440 million to approximately $225 million and the maturity dates under their continuing debt facilities will be extended by at least five years.  
  • This balance sheet restructuring will include holders of Novelion Intercompany Loan Claims and Other General Unsecured Claims…converting their Claims into New Common Stock of the Plan Investor as well as (in the case of holders of Other General Unsecured Claims) New Convertible Notes.  In addition, the outstanding amount due under the Bridge Loan will be refinanced into a new secured term loan facility.    
  • Payment in full in Cash to the Debtors’ trade creditors that will continue to provide goods and services to the Debtors after their emergence from these chapter 11 cases. 
  • The Debtors’ obligations under the Government Settlement Agreements will not be impacted or altered in any way by the Proposed Restructuring Transaction.  
  • The Debtors and the Plan Investor will raise $60 million in cash through the Plan Investor’s issuance of New Common Stock—all of which will be backstopped by the backstop parties.  Specifically, the Plan Investor will conduct a $42 million Rights Offering as part of these chapter 11 cases and issue New Common Stock in the Plan Investor to holders of Claims in Class 4 and Class 6B.  In addition, the Plan Investor will conduct a separate $18 million equity raise for New Common Stock issued to existing shareholders of the Plan Investor.  
  • In connection with executing the RSA, the Debtors also entered into the Plan Funding Agreement with the Plan Investor, which, subject to certain terms and conditions, provides that the Plan Investor will acquire 100% of the equity interests of reorganized Aegerion in exchange for New Common Stock of the Plan Investor.  Reorganized Aegerion will then distribute such equity to holders of Class 4 and Class 6B Claims.  Following the transaction, the Plan Investor will continue as a public company, with reorganized Aegerion as its wholly-owned subsidiary, diversely held by its former shareholders and creditors of the Debtors.  
  • Following the transaction, the pro forma ownership of reorganized Aegerion, after giving effect to the new money equity raises but prior to giving effect to the conversion of the New Convertible Notes, will be:  (A) 49.4% creditors of the Debtors (including Novelion), (b) 31.1% former Plan Investor shareholders, and (c) 19.4% investors who participate in the Rights Offering.

Events Leading to the Chapter 11 Filing

In a declaration in support of the Chapter 11 filing (the "Castellano Dclaration"), John R. Castellano, a Managing Director at Alix Partners and the Debtors' Chief Restructuring Officer, commented on an impressive set of obstacles facing the Debtors including (i) the financial and reputational costs of major settlements with the DoJ, SEC and others, (ii) the introduction of a cheaper and doctor-favored alternative to one of its (only two) commercial products, (iii) tightening liquidity leaving it unable to fully exploit its existing products, much less develop new ones, and, if that were not enough, (iv) $404.0mn of debt maturing in 2019.

The Castellano Dclaration details: "Despite the revenues generated from the Debtors’ underlying products and management’s best efforts to stabilize operations, the Debtors’ business performance has significantly declined in recent years. Several factors contributed to the Debtors’ recent struggles. 

First, the Debtors formerly engaged in practices denounced by the DOJ and SEC, incurring substantial fines and exposing the Debtors to ongoing litigation, which led to a corresponding decline in revenues and profitability. Due to these past practices, the Debtors have significant ongoing legal costs in the form of $40.1 million of fines imposed under the DOJ and SEC settlements (approximately $26.4 million of which remains outstanding as of the Petition Date) that have placed a significant financial burden on the Debtors. As a result of the government settlements, Aegerion must also comply with a series of rigorous compliance obligations commensurate with the admissions it made during the investigations and the conduct at issue in the investigations. 

Second, the pharmaceutical industry is highly competitive and is characterized by rapidly changing markets and technology, emerging industry standards and frequent introduction of new products. In particular, the market for cholesterol lowering therapeutics is large and competitive with many drug classes. Most significantly, the introduction of PCSK9 inhibitors in the United States in 2015 (which are much less expensive and have fewer side effects than lomitapide) has, along with attrition of patients who were likely not HoFH patients, dramatically impacted sales of JUXTAPID. Since that time, healthcare professionals have been placing substantially all newly-diagnosed HoFH patients on a PCSK9 inhibitor product before prescribing JUXTAPID. 

Third, the Debtors have been unable to replace key revenue generators. The Debtors’ business depends on the success of only two commercial products. Hampered by the restrictions set forth above, among others, and the cost and operational structure that has historically been misaligned with revenues, the Company has incurred losses each year since inception, having suffered a net loss of $103.8 million in 2018 alone. Such losses created a – vicious cycle ? as operations deteriorated, the Debtors were unable to deploy sufficient operating and management resources associated with developing and commercializing their existing products, or exploring new revenue-generating products. While the Debtors took many steps to increase revenues and limit losses, the Debtors were unable to generate sufficient profits and revenues to prevent their bankruptcy filing and to restructure their substantial debt outside of bankruptcy. 

Fourth, the Debtors have substantial indebtedness under their long-term credit facilities. As of the date hereof, the Debtors’ capital structure has approximately $414 million of consolidated outstanding indebtedness related to the Debtors’ credit facilities, a significant portion of which is secured by liens on substantially all assets of the Debtors, and all of which matures in 2019. 

Preliminary summary of classes, claims and voting rights:

  • Class 1 (“Priority Non-Tax Claims”) is not impaired, deemed to accept and not entitled to vote on the Plan.
  • Class 2 (“Other Secured Claims”) is not impaired, deemed to accept and not entitled to vote on the Plan.
  • Class 3 (“Bridge Loan Claims”) is impaired and is entitled to vote on the Plan. Each holder of a Bridge Loan Claim shall receive, subject to the terms of the Plan: (i) New Money Bridge Loan Claim: receipt of New Term Loan Facility Obligations on a dollar for dollar basis on account of its New Money Bridge Loan Claim and (ii) Roll Up Loan Claim: receipt of New Convertible Notes on a dollar for dollar basis on account of its Roll Up Loan Claim
  • Class 4 (“Novelion Intercompany Loan Claims”) is impaired and is entitled to vote on the Plan. The claim will be allowed in an amount of $36.3mn and estimated recovery is 100%.      
  • Class 5 (“Government Settlement Claims”) is not impaired, deemed to accept and not entitled to vote on the Plan.
  • Class 6A (“Ongoing Trade Claims”) is not impaired, deemed to accept and not entitled to vote on the Plan.
  • Class 6B (“Other General Unsecured Claims”) is impaired and is entitled to vote on the Plan. Each holder of an Allowed Other General Unsecured Claim shall receive its Pro Rata Share of:  (i) New Convertible Notes in the principal amount of $125,000,000 less the portion of New Convertible Notes distributed to (x) holders of DIP Claims (to the extent the DIP Claims are not repaid in full in Cash and receive a distribution of New Convertible Notes pursuant to Section 3.1 of the Plan), and (y) the holders of Roll Up Loan Claims pursuant to Section 5.3(a)(ii) of the Plan; and (ii) the Class 6B New Common Stock Distribution (including any New Common Stock issuable upon exercise of the New Warrants).
  • Class 7 (“Existing Securities Law Claims”) is impaired, deemed to reject and not entitled to vote on the Plan.
  • Class 8 (“Existing Interests”) is impaired, deemed to reject and not entitled to vote on the Plan.

Prepetition Capital Structure  

As of the Petition Date, the Debtors had approximately $440.0mn of consolidated outstanding indebtedness, which includes approximately $414.8mn of institutional debt that matures in 2019.  The components of the Debtors’ outstanding indebtedness are:

  • Convertible Notes. In August 2014, Aegerion issued 2% senior unsecured convertible notes in the original aggregate principal amount of $325.0mn due August 15, 2019 (the “Convertible Notes”).  The principal amount was subsequently reduced to $302.5mn upon consummation of the Roll Up Loan under the Bridge Loan facility (see below). As of the Petition Date, approximately $304.1mn remains outstanding under the Convertible Notes, including interest and fees. 
  • Novelion Intercompany Loan. In connection with Novelion’s merger with Aegerion, on June 14, 2016 Novelion provided a senior secured term loan to Aegerion in the principal amount of $40.0mn, bearing paid-in-kind interest at 8% and maturing on July 1, 2019 (the “Novelion Intercompany Loan”).  The Novelion Intercompany Loan is secured by, among other things, Aegerion’s intellectual property and all of Aegerion’s equity interests (including up to 65% of Aegerion’s equity interests of any first-tier foreign subsidiary).  In November 2018, the terms of the Novelion Intercompany Loan Credit Agreement were amended further in connection with the closing of the Bridge Loan. As of the Petition Date, approximately $36.1mn remains outstanding under the Novelion Intercompany Loan, including interest and fees. 
  • Bridge Loan. On November 8, 2018, Aegerion entered into a bridge credit agreement (the “Bridge Loan Credit Agreement”) with funds managed by Highbridge Capital Management, LLC and Athyrium Capital Management, LP (the “Bridge Loan Lenders”). Pursuant to the Bridge Loan Credit Agreement, the Debtors borrowed secured first lien term loans in the aggregate principal amount of $50.0mn (collectively, the “New Money Bridge Loan”) and $22.5mn of secured term loans that were funded to repurchase and retire, at par, an equal amount of Convertible Notes held by the Bridge Loan Lenders (collectively, the “Roll Up Loan” and together with the New Money Bridge Loan, the “Bridge Loan”).  The New Money Bridge Loan accrues interest at the rate of 11% per annum and the Roll Up Loan accrues interest at the rate of 2% per annum.  Interest accrues and compounds quarterly in arrears and is not payable in cash until maturity.   The liens granted to secure the obligations under the New Money Bridge Loan are senior to the liens granted to secure the Debtors’ obligations under the Novelion Intercompany Loan, however, the liens granted to secure the Roll Up Loan are junior to those granted under the Novelion Intercompany Loan. As of the Petition Date, approximately $73.8mn remains outstanding under the Bridge Loan, including interest and fees.

Additional Advisors   

In addition to the advisors noted in respect of the Debtors above, (i) Evercore acted as financial advisor and Goodwin Procter LLP and Norton Rose Fulbright Canada LLP acted as legal advisors to Novelion and (ii) Ducera Partners LLC acted as financial advisor and Latham & Watkins LLP and King & Spalding LLP acted as legal advisors to the ad hoc group of convertible noteholders.

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