AEON Biopharma, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter ended September 30, 2023. AEON completed its merger with Priveterra on July 21, 2023. The filing therefore presents “Predecessor” results through July 21 and “Successor” results from July 22 onward; the accounting basis and share count changed, so the periods are not directly comparable. Amounts below are in U.S. dollars unless stated otherwise.
Business context and results
AEON is a clinical-stage biopharmaceutical company developing ABP-450 (prabotulinumtoxinA) for therapeutic indications, including migraine, cervical dystonia and gastroparesis. It has generated no product revenue and does not expect revenue unless and until a product receives regulatory approval and is commercialized.
| Metric | Reported result |
|---|---|
| Operating expenses, July 1–21 Predecessor | $2.6 million; operating loss of $2.6 million |
| Operating expenses, July 22–September 30 Successor | Reported as negative $57.9 million after a $69.7 million noncash gain from remeasuring contingent consideration; reported operating income was $57.9 million |
| Net result, July 1–21 Predecessor | Net loss of $5.0 million |
| Net result, July 22–September 30 Successor | Net income of $43.9 million, or $1.19 per share; substantially affected by fair-value items |
| 2022 comparators | Three-month net loss of $10.4 million; nine-month net loss of $18.0 million |
| Revenue | None reported |
| Cash and liquidity, September 30 | Cash of $16.2 million; current assets of $16.9 million and current liabilities of $14.2 million |
| Cash flows | Operating cash used: $21.7 million in the Predecessor period and $15.1 million in the Successor period. Investing and financing cash flows were zero in the Successor period; Predecessor financing provided $14.0 million. |
| Debt and other liabilities | No convertible notes outstanding at September 30. Total liabilities were $139.4 million, including $74.5 million of contingent consideration and $48.5 million of embedded forward-purchase and derivative liabilities. |
The reported Successor net income does not indicate operating profitability: it included a $69.7 million noncash contingent-consideration gain, while the company continued to incur research and development and general and administrative expenses. Predecessor and Successor results should not be combined or compared as though they were prepared on a consistent basis.
Material changes and financing
- Merger-related changes included conversion of legacy convertible notes into equity, issuance of successor shares and assumption of warrants and contingent share obligations. There were 37,159,600 Class A shares outstanding at September 30; 38,876,675 additional shares were reserved for options, restricted stock units, warrants and contingent consideration.
- Cash increased from $9.7 million at December 31, 2022 to $16.2 million at September 30, 2023, but the company reported substantial doubt about its ability to continue as a going concern. Management said available cash would fund its operating plan only through mid-December 2023 and that additional financing was necessary.
- The company recorded $60.7 million of subscription receivables related to forward purchase agreements as a reduction to stockholders’ deficit. These arrangements do not assure access to the stated prepayment amount. At the November 10 share price of $4.18, the filing illustrated potential proceeds of about $13.7 million if all 6.275 million shares were registered and sold; if all were unregistered at settlement, the company could instead owe approximately $12.6 million.
- Contingent consideration may result in up to 16 million additional shares upon specified clinical and regulatory milestones. Its fair value is remeasured and can materially affect reported earnings.
Outlook, risks and unusual items
- Clinical outlook: On October 19, 2023, after quarter-end, AEON announced that its Phase 2 episodic migraine study did not meet its primary endpoint, although it reported statistical significance on multiple secondary and exploratory endpoints. Chronic migraine topline data were expected in the second half of 2024. The company said a cervical dystonia Phase 3 study was subject to available capital; its Phase 2 study had met primary endpoints. Further studies, including migraine and cervical dystonia development, require additional funding.
- Funding and going concern: Management expects to seek equity or debt financing, but gives no assurance it will be available on acceptable terms. Failure to obtain capital could force reductions, delays or termination of development programs, or other strategic actions.
- Forward purchase exposure: Settlement depends on share price, registration and other contractual conditions. The agreements may limit proceeds or require cash or share payments, including in certain delisting or registration-failure scenarios.
- Other risks: AEON relies on Daewoong as its exclusive and sole supplier of ABP-450 source material. The filing also identifies clinical, regulatory, competition, intellectual-property, financing and commercialization risks.
- Legal matter: Odeon Capital Group sued in New York, alleging an unpaid $1.25 million deferred underwriting fee and seeking additional damages and fees. AEON had not filed a response as of the filing.
- Controls: Management concluded disclosure controls were ineffective due to a material weakness involving Priveterra’s accounting for extinguishment of a contingent obligation. Remediation was ongoing and the weakness was not yet considered remediated.
- Guidance: The filing provides no revenue or earnings guidance; management describes expected continued losses and significant development and public-company costs.
Important facts for investors to verify
- Current cash runway, financing progress and the status of the going-concern uncertainty.
- Forward purchase agreement registration, settlement and potential cash-payment obligations; these are not equivalent to immediately available cash.
- Follow-up clinical data and plans after the episodic migraine study missed its primary endpoint, plus funding and timing for planned trials.
- The contingent-consideration valuation and potential milestone-related share issuance and dilution.
- Outcome and potential exposure from the Odeon lawsuit, and progress in remediating the material weakness.