AEON Biopharma(US:AEON)2024-05-14 20:09Part I - Financial Information Financial Statements The company reported a significantly increased net loss of $118.0 million for Q1 2024 and faces substantial doubt about its ability to continue as a going concern Condensed Consolidated Balance Sheet Highlights (Successor) | Balance Sheet Item | March 31, 2024 (Unaudited) | December 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $1.6 million | $5.2 million | | Total assets | $3.0 million | $6.8 million | | Total liabilities | $201.4 million | $159.9 million | | Total stockholders' deficit | ($198.4 million) | ($153.0 million) | Condensed Consolidated Statement of Operations Highlights | Income Statement Item | Three Months Ended Mar 31, 2024 (Successor) | Three Months Ended Mar 31, 2023 (Predecessor) | | :--- | :--- | :--- | | Research and development | $5.7 million | $9.2 million | | Selling, general and administrative | $4.6 million | $3.8 million | | Change in fair value of contingent consideration | $63.8 million | $0 | | Loss from operations | ($74.2 million) | ($13.0 million) | | Net loss | ($118.0 million) | ($17.6 million) | | Basic and diluted net loss per share | ($3.17) | ($0.13) | Condensed Consolidated Statement of Cash Flows Highlights | Cash Flow Item | Three Months Ended Mar 31, 2024 (Successor) | Three Months Ended Mar 31, 2023 (Predecessor) | | :--- | :--- | :--- | | Net cash used in operating activities | ($8.6 million) | ($11.1 million) | | Net cash provided by financing activities | $5.0 million | $6.0 million | | Net decrease in cash and cash equivalents | ($3.6 million) | ($5.1 million) | | Cash and cash equivalents at end of period | $1.6 million | $4.7 million | - The company has experienced recurring losses and negative cash flows since inception, leading management to conclude there is substantial doubt about its ability to continue as a going concern within one year3132 - A key subsequent event was the announcement on May 3, 2024, that the Phase 2 trial of ABP-450 for chronic migraine did not meet its primary or secondary endpoints, prompting the company to implement cash preservation measures and review strategic options32159 Note 1. Organization The company is a clinical-stage biopharmaceutical firm that recently merged with a SPAC and faces going concern issues due to trial failures - AEON Biopharma is a clinical-stage biopharmaceutical company focused on developing its proprietary botulinum toxin complex, ABP-450, for debilitating medical conditions27 - On July 21, 2023, the company completed its merger with Priveterra Acquisition Corp, a special purpose acquisition company (SPAC), and began trading on the NYSE American under the symbol "AEON"2830 - As of March 31, 2024, the company had cash of $1.6 million and an accumulated deficit of $591.6 million, with the recent failure of its chronic migraine trial raising substantial doubt about its ability to continue as a going concern3132 Note 3. Forward Merger The merger with Priveterra was accounted for as a $342.1 million asset acquisition, with a subsequent $348.0 million write-off of IPR&D - The merger with Priveterra was consummated on July 21, 2023, and was accounted for as an asset acquisition, with Priveterra as the accounting acquirer7781 - The total purchase price was calculated at $342.1 million, which included the fair value of shares issued, contingent consideration, and replacement share-based awards84 - Acquired in-process research and development (IPR&D) was valued at $348.0 million at closing and was subsequently written off to the consolidated statement of operations for the year ended December 31, 202383 Note 5. Daewoong Convertible Notes The company secured up to $15.0 million in financing from its partner Daewoong through senior secured convertible notes - On March 19, 2024, the company entered into a subscription agreement with its manufacturing partner, Daewoong, for up to $15.0 million in senior secured convertible notes92 - The company received $5.0 million from Daewoong on March 24, 2024, and an additional $10.0 million on April 12, 2024, to support clinical development and for working capital92157 - The license agreement with Daewoong was amended to include a termination clause if AEON ceases commercialization and clinical advancement of ABP-450, granting Daewoong a right to purchase related know-how for $1.0093 Note 6. Fair Value Measurements Significant non-cash charges arose from terminating forward purchase agreements and fair value adjustments to contingent consideration and warrant liabilities - On March 18, 2024, the company terminated its Forward Purchase Agreements with ACM and Polar, resulting in a recorded charge of $20.3 million and a reversal of the related subscription receivable and derivative liability106107108 - The contingent consideration liability, related to milestone-based share issuances, increased significantly to $168.1 million as of March 31, 2024, resulting in a $63.8 million expense for the quarter due to changes in fair value117 - The warrant liability increased to $12.0 million, resulting in a $20.9 million expense for the quarter; during the period, 6.2 million warrants were exercised on a cashless basis for 960,688 shares of common stock119120122 Note 10. Subsequent Events The company announced the failure of its Phase 2 chronic migraine trial and secured an additional $10.0 million in financing - On May 3, 2024, the company announced that its Phase 2 trial of ABP-450 for the preventative treatment of chronic migraine did not meet its primary or secondary endpoints159 - Following the negative trial results, the company immediately began cash preservation measures and a review of all strategic options159 - On April 12, 2024, the company received the remaining $10.0 million in financing from Daewoong under their convertible note agreement157 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the unsuccessful migraine trials, a significantly increased net loss driven by non-cash charges, and severe liquidity concerns Overview The company's development of ABP-450 has been set back by the failure of its chronic migraine trial, shifting focus to other indications - AEON is a clinical-stage biopharmaceutical company developing its proprietary botulinum toxin, ABP-450, for therapeutic uses, with initial programs in migraine, cervical dystonia, and gastroparesis164166 - The Phase 2 trial for episodic migraine, reported in October 2023, did not meet its primary endpoint but showed statistical significance on some secondary endpoints168 - The interim analysis of the Phase 2 trial for chronic migraine, reported in May 2024, did not meet its primary or secondary endpoints, leading the company to re-evaluate its development strategy and implement cash preservation measures164169 - The Phase 2 study for cervical dystonia, with data released in September 2022, met all primary endpoints, and the company is in discussions with the FDA regarding a Phase 3 study design, contingent on capital resources170 Results of Operations The net loss widened dramatically due to non-cash fair value adjustments, while R&D expenses decreased as clinical trials wound down Comparison of Operating Results (in thousands) | Expense Category | Q1 2024 (Successor) | Q1 2023 (Predecessor) | Change | | :--- | :--- | :--- | :--- | | Selling, General & Administrative | $4,649 | $3,841 | +$808 | | Research & Development | $5,732 | $9,205 | -$3,473 | | Change in fair value of contingent consideration | $63,769 | $0 | +$63,769 | | Loss from operations | ($74,150) | ($13,046) | (+$61,104) | | Net loss | ($118,018) | ($17,639) | (+$100,379) | - R&D expenses decreased by $3.5 million (38%) in Q1 2024 compared to Q1 2023, primarily due to the wind-down of Phase 2 clinical trials for migraine and cervical dystonia200 - SG&A expenses increased by $0.8 million (21%), mainly due to higher legal/professional fees related to the merger and increased D&O insurance costs as a public company199 - Other loss, net increased by $39.3 million, driven by a $22.9 million loss on the termination of forward purchase agreements and a $20.9 million loss on the change in fair value of warrants203 Liquidity and Capital Resources With only $1.6 million in cash and an accumulated deficit of $591.6 million, the company's ability to continue as a going concern is in substantial doubt - As of March 31, 2024, the company had $1.6 million in cash and cash equivalents and an accumulated deficit of $591.6 million204 - Management has concluded there is substantial doubt about the company's ability to continue as a going concern, expecting current cash (including recent financing) to fund operations only through June 2024211218 - In March and April 2024, the company secured a total of $15.0 million in financing from Daewoong through the issuance of senior secured convertible notes208209 - The Forward Purchase Agreements, which were expected to provide capital, were terminated in March 2024; the company did not receive any proceeds and may be liable for up to $3.0 million in liquidated damages207 Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, AEON Biopharma, Inc is not required to provide the information under this item - The Company is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk253 Controls and Procedures Management concluded that disclosure controls were not effective due to a material weakness in internal control over financial reporting - The company's certifying officers concluded that disclosure controls and procedures were not effective as of March 31, 2024258 - A material weakness was identified related to an ineffective risk assessment over complex transactions, stemming from a lack of sufficient and qualified resources259 - The company is implementing remediation plans, which include designing new controls for reviewing valuations and estimates, and engaging additional qualified resources or hiring new staff263264 Part II - Other Information Legal Proceedings The company is involved in a lawsuit with Odeon Capital Group over an alleged unpaid deferred underwriting fee of $1.25 million - Odeon Capital Group LLC filed a lawsuit against the company on September 18, 2023, alleging failure to pay a $1.25 million deferred underwriting fee from the SPAC merger268 - Odeon is seeking monetary damages for the full fee, punitive damages, and attorneys' fees; the company filed a motion to dismiss certain claims in November 2023268 Risk Factors No material changes have been made to the risk factors previously disclosed in the company's Annual Report on Form 10-K - There have been no material changes to the risk factors disclosed in the company's Annual Report on Form 10-K filed on May 14, 2024269 Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the quarter that were not previously disclosed - No unregistered issuances or sales of equity securities occurred during the quarter ended March 31, 2024, that were not already reported on a Form 8-K270