Auxilium Pharmaceuticals plans to merge with QLT

Auxilium Pharmaceuticals, Inc. (NASDAQ: AUXL), a fully integrated specialty biopharmaceutical company, and QLT Inc. (NASDAQ: QLTI) (TSX: QLT), a Canadian-based biotechnology company focused on developing innovative orphan ophthalmology products, today announced that they have entered into a definitive agreement under which Auxilium plans to merge with QLT. The transaction is expected to drive shareholder value creation by accelerating Auxilium's ongoing transformation into a leading diversified North American specialty biopharmaceutical company. As a result of the merger, Auxilium expects to have an expanded corporate platform that includes focused investments in research and development and the continued pursuit of new products and M&A due to cost and tax synergies. The companies also intend to continue to pursue a potential partnering agreement for QLT's promising late-stage retinoid program.

Under the terms of the agreement, a wholly-owned subsidiary of QLT will be merged with and into Auxilium. QLT will remain incorporated in British Columbia, Canada, and will be renamed "New Auxilium." Current shareholders of Auxilium will receive 3.1359 QLT shares for each Auxilium share, subject to certain adjustments. For QLT shareholders, the transaction represents a 25% premium based on a calculation of the closing NASDAQ stock prices of Auxilium and QLT on June 25, 2014, the last trading day prior to the announcement of the merger. When completed, Auxilium shareholders will own approximately 76% of the combined entity on a fully diluted basis, and current QLT shareholders will own approximately 24%, subject to certain adjustments.

Adrian Adams, Chief Executive Officer and President of Auxilium, stated, "Building on Auxilium's strong foundation and commercial expertise, the merger with QLT represents a unique opportunity to accelerate our desired strategic transformation into a leading, diversified North American specialty biopharmaceutical company. We are creating what we believe is a more competitive and efficient platform to capitalize on greater market opportunities and position Auxilium to deliver meaningful value for shareholders while enhancing our ability to invest in and offer innovative products that make a difference in the lives of underserved patients."

"We believe that this is an excellent transaction for QLT shareholders and provides them with the opportunity to benefit from the potential upside of the combined company," said Jason Aryeh, Chairman of QLT. "We believe that Adrian Adams and the Auxilium team have proven their ability to execute and deliver on a strategy for providing quality specialty biopharmaceutical products to fill significant unmet medical needs around the world. I am confident that under their leadership, and with the advantages presented by our combined organization, this transaction will leave the merged company well-positioned to achieve sustained growth."

The combined organization will be led by Auxilium's current leadership team and will maintain Auxilium's current offices in Chesterbrook, Pennsylvania. All current Auxilium directors are expected to join the merged company's board, joined by two current QLT directors. Auxilium does not expect any material changes to its current U.S. operations or employment as a result of this transaction, and expects to grow its presence in both the U.S. and Canada. Shares of the combined company are expected to trade on NASDAQ and QLT is expected to be delisted from the Toronto Stock Exchange.

Mr. Adams continued, "We believe this transaction will facilitate the continued build out of our current portfolio and provide us with the corporate platform and strong financial position to build on our strength in men's healthcare and enable expansion into new specialty therapeutic focus areas. The transaction aligns with Auxilium's well-defined growth strategy and our intention to build a more diversified global organization through the aggressive pursuit of product licensing and M&A. We expect Auxilium to create increased value for shareholders and patients for years to come."

QLT Retinoid Program

QLT's synthetic retinoid program is a replacement for 11-cis-retinal and is under development for the treatment of retinal diseases caused by gene mutations that interfere with the availability of 11-cis-retinal. QLT has conducted safety and proof of concept clinical studies to evaluate its oral synthetic retinoid in patients with Leber Congenital Amaurosis (LCA) or Retinitis Pigmentosa (RP). The innovative ophthalmology program is nearing Phase 3 development. With its orphan drug designation, QLT's synthetic retinoid program augments Auxilium's existing orphan drug portfolio and allows Auxilium to expand its orphan drug reach outside of the U.S. Auxilium and QLT intend to continue to pursue discussions around a potential partnering agreement for this promising late-stage retinoid program.

Approvals and Further Details

The transaction, which has been unanimously approved by the Boards of both companies, is subject to certain conditions and approvals, including regulatory approvals in the U.S. and Canada, if necessary, the approval of both companies' shareholders, consents under Auxilium's senior secured credit facility required as a result of the transaction or, in lieu of such consents, the refinancing of such facility, receipt of an opinion of counsel to Auxilium that "New Auxilium" should not be treated as a U.S. domestic corporation for U.S. federal income tax purposes, and other negotiated closing conditions. Deutsche Bank has delivered a commitment letter for a $225 million facility for the refinancing of the senior secured credit facility (together with cash on hand) that is subject to the execution of definitive agreements and other conditions. The transaction is expected to close in the fourth quarter of 2014, and is expected to be taxable to Auxilium shareholders. Holders representing approximately 32% of QLT shares outstanding have agreed to vote in favor of the transaction.

Deutsche Bank, Skadden Arps and Morgan Lewis acted as advisors to Auxilium. Houlihan Lokey Financial Advisors, Inc. also acted as an advisor to Auxilium. Credit Suisse, McCullough O'Connor Irwin LLP, Nutter McClennen & Fish LLP and KPMG LLP acted as advisors to QLT.