Filed pursuant to Rule 424(b)(3)

Registration Statement No. 333-274094

 

Prospectus Supplement No. 2

(To Prospectus dated August 5, 2024)

 

AEON BIOPHARMA, INC.

 

Graphic

 

This prospectus supplement updates, amends and supplements the prospectus dated August 5, 2024 (the “Prospectus”), which forms a part of our Registration Statement on Form S-1 (Registration No. 333-274094). Capitalized terms used in this prospectus supplement and not otherwise defined herein have the meanings specified in the Prospectus.

 

This prospectus supplement is being filed to update, amend and supplement the information included in the Prospectus with the information contained in our Quarterly Report on Form 10-Q filed with the SEC on November 13, 2024, which is set forth below.

 

This prospectus supplement is not complete without the Prospectus. This prospectus supplement should be read in conjunction with the Prospectus, which is to be delivered with this prospectus supplement, and is qualified by reference thereto, except to the extent that the information in this prospectus supplement updates or supersedes the information contained in the Prospectus. Please keep this prospectus supplement with your Prospectus for future reference.

 

AEON Biopharma, Inc.’s Class A common stock is listed on the NYSE American under the symbol “AEON.” On November 11, 2024, the closing price of our common stock was $0.82.

 

We are an “emerging growth company” under federal securities laws and are subject to reduced public company reporting requirements. Investing in our securities involves certain risks. See “Risk Factors” beginning on page 10 of the Prospectus.

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if the Prospectus or this prospectus supplement is truthful or complete. Any representation to the contrary is a criminal offense.

 

The date of this prospectus supplement is November 13, 2024.


UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q


(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2024

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to

Commission File Number: 001-40021


AEON Biopharma, Inc.

(Exact name of registrant as specified in its charter)


Delaware

85-3940478

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification Number)

5 Park Plaza

Suite 1750

Irvine, CA 92614

(Address of Principal Executive Offices)

(949) 354-6499

(Registrant’s telephone number)


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).   Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

  

Smaller reporting company

  

Emerging growth company

   

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes      No  

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading symbol

Name of Exchange on which registered

Class A common stock, $0.0001 par value per share

AEON

NYSE American

As of November 11, 2024, there were 39,970,693 of the registrant’s shares of Class A common stock, $0.0001 par value per share, outstanding.


CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Report”) contains certain statements that are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). All statements other than statements of historical facts contained in this Report, including statements concerning possible or assumed future actions, business strategies, events or results of operations, and any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as “may,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this Report are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Report and are subject to a number of important factors that could cause actual results to differ materially from those in the forward-looking statements, including the risks, uncertainties and assumptions. These forward-looking statements are subject to numerous risks, including, without limitation, the following:

the projected financial information, anticipated growth rate and market opportunities of AEON Biopharma, Inc. (“AEON”);
the ability to maintain the listing of Class A common stock on NYSE American;
AEON’s public securities’ potential liquidity and trading;
AEON’s ability to raise financing in the future and to continue as a going concern;
AEON’s success in retaining or recruiting, or changes required in, officers, key employees or directors;
factors relating to the business, operations and financial performance of AEON;
the initiation, cost, timing, progress and results of research and development activities, preclinical studies or clinical trials with respect to AEON’s current and potential future product candidates;
AEON’s ability to identify, develop and commercialize its main product candidate, botulinum toxin complex, ABP-450 (prabotulinumtoxinA) injection (“ABP-450”);
AEON’s ability to obtain a Biologics License Application for therapeutic uses of ABP-450;
AEON’s ability to advance its current and potential future product candidates into, and successfully complete, preclinical studies and clinical trials;
AEON’s ability to obtain and maintain regulatory approval of its current and potential future product candidates, and any related restrictions, limitations and/or warnings in the label of an approved product candidate;
AEON’s ability to obtain funding for its operations;
AEON’s ability to obtain and maintain intellectual property protection for its technologies and any of its product candidates;
AEON’s ability to successfully commercialize its current and any potential future product candidates;
the rate and degree of market acceptance of AEON’s current and any potential future product candidates;
regulatory developments in the United States and international jurisdictions;
potential liability, lawsuits and penalties related to AEON’s technologies, product candidates and current and future relationships with third parties;
AEON’s ability to attract and retain key scientific and management personnel;
AEON’s ability to effectively manage the growth of its operations;

AEON’s ability to contract with third-party suppliers and manufacturers and their ability to perform adequately under those arrangements, particularly its license and supply agreement with Daewoong Pharmaceutical Co., LTD. (the “Daewoong Agreement”);
AEON’s ability to compete effectively with existing competitors and new market entrants;
potential effects of extensive government regulation;
AEON’s future financial performance and capital requirements;
AEON’s ability to implement and maintain effective internal controls;
the impact of supply chain disruptions; and
the impact of macroeconomic developments beyond our control, such as health epidemics or pandemics, macro-economic uncertainties, social unrest, hostilities, natural disasters or other catastrophic events, on AEON’s business.

The preceding list is not intended to be an exhaustive list of all of our forward-looking statements. We have based these forward-looking statements on our current expectations, assumptions, estimates and projections. While we believe these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond our control. These and other important factors, including those discussed in this Report, may cause our actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. Given these risks and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included elsewhere in this Report are not guarantees of future performance and our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate, may differ materially from the forward-looking statements included elsewhere in this Report. In addition, even if our results of operations, financial condition and liquidity, and events in the industry in which we operate, are consistent with the forward-looking statements included elsewhere in this Report, they may not be predictive of results or developments in future periods.

Any forward-looking statement that we make in this Report speaks only as of the date of such statement. Except as required by law, we do not undertake any obligation to update or revise, or to publicly announce any update or revision to, any of the forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this Report. For all of our forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Reform Act.

As used in this Report, unless otherwise stated or the context otherwise requires: “we,” “us,” “our,” “AEON,” the “Company,” and similar references refer to AEON Biopharma, Inc. and its subsidiaries, and “common stock” refers to our Class A common stock.


TABLE OF CONTENTS

    

    

Page

Part I

Financial Information

Item 1.

Financial Statements

1

Condensed Consolidated Balance Sheets as of September 30, 2024 (Successor) and December 31, 2023 (Successor)

1

Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income for the three and nine months ended September 30, 2024 (Successor) and the periods from January 1, 2023 to July 21, 2023 (Predecessor), July 1, 2023 to July 21, 2023 (Predecessor) and July 22, 2023 to September 30, 2023 (Successor)

2

Condensed Consolidated Statements of Stockholders’ Deficit for the three and nine months ended September 30, 2024 (Successor) and the periods from January 1, 2023 to July 21, 2023, July 1, 2023 to July 21, 2023 (Predecessor) and July 22, 2023 to September 30, 2023 (Successor)

3

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2024 (Successor) and the periods from January 1, 2023 to July 21, 2023 (Predecessor) and July 22, 2023 to September 30, 2023 (Successor)

5

Notes to Condensed Consolidated Financial Statements

6

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

30

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

42

Item 4.

Controls and Procedures

42

Part II

Other Information

Item 1.

Legal Proceedings

43

Item 1A.

Risk Factors

43

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

44

Item 3.

Defaults Upon Senior Securities

44

Item 4.

Mine Safety Disclosures

44

Item 5.

Other Information

44

Item 6.

Exhibits

44

Exhibit Index

Signatures


PART I —FINANCIAL INFORMATION

Item 1. Financial Statements

AEON BIOPHARMA, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data and par value amounts)

September 30, 

December 31, 

    

2024

    

2023

(Unaudited)

ASSETS

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

537

$

5,158

Prepaid expenses and other current assets

 

1,834

 

1,064

Total current assets

 

2,371

 

6,222

Property and equipment, net

 

258

 

332

Operating lease right-of-use asset

 

1,346

 

262

Other assets

 

29

 

29

Total assets

$

4,004

$

6,845

LIABILITIES AND STOCKHOLDERS' DEFICIT

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

4,630

$

3,388

Accrued clinical trials expenses

 

1,373

 

5,128

Accrued compensation

 

1,563

 

943

Other accrued expenses

 

3,160

 

3,590

Total current liabilities

 

10,726

 

13,049

Convertible notes at fair value, including related party amount of $15,170 and $0, at September 30, 2024 and December 31, 2023, respectively

 

15,170

 

Operating lease liability

 

1,204

 

Warrant liability

1,844

1,447

Contingent consideration liability

6,886

104,350

Embedded forward purchase agreements and derivative liabilities

264

41,043

Total liabilities

 

36,094

 

159,889

Commitments and contingencies

 

  

 

  

Stockholders’ Deficit:

 

  

 

Class A common stock, $0.0001 par value; 500,000,000 shares authorized at September 30, 2024 and December 31, 2023, and 39,587,630 and 37,159,600 shares issued and outstanding at September 30, 2024 and December 31, 2023, respectively

 

4

 

4

Additional paid-in capital

 

401,585

 

381,264

Subscription receivables

(60,710)

Accumulated deficit

 

(433,679)

 

(473,602)

Total stockholders' deficit

 

(32,090)

 

(153,044)

Total liabilities and stockholders' deficit

$

4,004

$

6,845

See accompanying notes to the consolidated financial statements

1


AEON BIOPHARMA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS) INCOME

(in thousands, except share and per share data) (Unaudited)

    

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

2024

    

2023

2024

    

2023

Successor

Successor
July 22 to
September 30

  

  

Predecessor
July 1 to
July 21

        

Successor

Successor
July 22 to
September 30

  

  

Predecessor
January 1 to
July 21

Operating expenses:

 

 

  

  

Selling, general and administrative

$

3,044

$

5,265

$

1,055

$

11,014

$

5,265

$

9,841

Research and development

 

972

 

6,388

 

1,573

 

11,144

 

6,388

 

19,803

Acquired in-process research and development

348,000

348,000

Change in fair value of contingent consideration

 

 

(75,939)

 

 

(97,464)

 

(75,939)

 

Total operating costs and expenses

 

4,016

 

283,714

 

2,628

 

(75,306)

 

283,714

 

29,644

(Loss) income from operations

 

(4,016)

 

(283,714)

 

(2,628)

 

75,306

 

(283,714)

 

(29,644)

Other (loss) income:

 

  

 

  

 

  

 

  

 

  

 

Change in fair value of convertible notes

 

(1,878)

 

 

(13,249)

 

(170)

 

 

(19,359)

Change in fair value of warrants

 

(377)

 

1,593

 

 

(15,376)

 

1,593

 

Income (loss) on embedded forward purchase agreements and derivative liabilities, net

81

(15,776)

(11,789)

(19,931)

 

(15,776)

 

(11,789)

Other income, net

 

19

 

186

 

5

 

94

 

186

 

114

Total other loss, net

 

(2,155)

 

(13,997)

 

(25,033)

 

(35,383)

 

(13,997)

 

(31,034)

(Loss) income before taxes

 

(6,171)

 

(297,711)

 

(27,661)

 

39,923

 

(297,711)

 

(60,678)

Income taxes

 

 

 

 

 

 

Net (loss) income

$

(6,171)

$

(297,711)

$

(27,661)

$

39,923

$

(297,711)

$

(60,678)

Basic net (loss) income per share

$

(0.16)

$

(8.01)

$

(0.20)

$

1.04

$

(8.01)

$

(0.44)

Diluted net (loss) income per share

$

(0.16)

$

(8.01)

$

(0.20)

$

0.97

$

(8.01)

$

(0.44)

Weighted average shares of common stock outstanding used to compute basic net (loss) income per share

39,515,292

37,159,600

138,848,177

38,545,882

37,159,600

138,848,177

Weighted average shares of common stock outstanding used to compute diluted net (loss) income per share

 

39,515,292

 

37,159,600

 

138,848,177

 

41,318,831

 

37,159,600

 

138,848,177

See accompanying notes to the consolidated financial statements

2


AEON BIOPHARMA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(in thousands, except share data) (Unaudited)

    

Convertible

  

  

    

    

Additional

    

    

    

    

    

    

    

Non-

    

Total

Preferred Stock

Common Stock

Paid-in

Subscription

Accumulated

Treasury Stock

controlling

Stockholders'

Shares

    

Amount

Shares

Amount

Capital

Receivables

Deficit

Shares

Amount

Interest

Deficit

Balance as of July 1, 2024 (Successor)

 

$

 

39,122,238

$

4

$

399,557

$

$

(427,508)

 

$

$

$

(27,947)

Net loss

 

 

 

 

 

 

 

(6,171)

 

 

 

 

(6,171)

Issuance of shares related to at-the-market offering, net

65,392

50

50

Issuance of common stock

 

 

 

400,000

 

 

384

 

 

 

 

 

 

384

Stock-based compensation expense

 

 

 

 

1,594

 

 

 

 

 

1,594

Balance as of September 30, 2024 (Successor)

 

$

 

39,587,630

$

4

$

401,585

$

$

(433,679)

 

$

$

$

(32,090)

Balance as of July 22, 2023 (Successor)

 

$

 

37,159,600

$

4

$

377,498

$

(60,710)

$

(149,648)

$

$

$

167,144

Net loss

 

(297,711)

(297,711)

Stock-based compensation expense

 

2,171

2,171

Balance as of September 30, 2023 (Successor)

 

$

 

37,159,600

$

4

$

379,669

$

(60,710)

$

(447,359)

 

$

$

$

(128,396)

Balance as of July 1, 2023 (Predecessor)

 

21,257,708

$

137,949

 

138,848,177

$

14

$

204,384

$

$

(507,856)

(22,821)

$

(23)

$

19,592

$

(283,889)

Net loss

 

 

 

 

 

 

 

(27,661)

 

 

 

 

(27,661)

Stock-based compensation expense

 

 

730

730

Balance as of July 21, 2023 (Predecessor)

 

21,257,708

$

137,949

 

138,848,177

$

14

$

204,384

$

$

(535,517)

 

(22,821)

$

(23)

$

20,322

$

(310,820)

3


AEON BIOPHARMA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(in thousands, except share data) (Unaudited) (Continued)

    

Convertible

  

  

    

    

Additional

    

    

    

    

    

    

    

Non-

    

Total

Preferred Stock

Common Stock

Paid-in

Subscription

Accumulated

Treasury Stock

controlling

Stockholders'

Shares

    

Amount

Shares

Amount

Capital

Receivables

Deficit

Shares

Amount

Interest

Deficit

Balance as of January 1, 2024 (Successor)

 

$

 

37,159,600

$

4

$

381,264

$

(60,710)

$

(473,602)

 

$

$

$

(153,044)

Net income

 

 

 

 

 

 

 

39,923

 

 

 

 

39,923

Termination of Forward Purchase Agreements

60,710

60,710

Issuance of shares related to cashless warrant exercises

 

 

 

1,962,638

 

 

14,979

 

 

 

 

 

 

14,979

Issuance of shares related to at-the-market offering, net

 

 

 

65,392

 

 

50

 

 

 

 

 

 

50

Issuance of common stock

400,000

384

384

Stock-based compensation expense

 

 

 

 

4,908

 

 

 

 

 

 

4,908

Balance as of September 30, 2024 (Successor)

 

$

 

39,587,630

$

4

$

401,585

$

$

(433,679)

 

$

$

=

$

(32,090)

Balance as of July 22, 2023 (Successor)

 

$

37,159,600

$

4

$

377,498

$

(60,710)

$

(149,648)

 

$

$

$

167,144

Net loss

 

 

 

 

 

 

(297,711)

 

 

 

(297,711)

Stock-based compensation expense

 

 

 

 

2,171

 

 

 

 

 

2,171

Balance as of September 30, 2023 (Successor)

 

$

 

37,159,600

$

4

$

379,669

$

(60,710)

$

(447,359)

 

$

$

$

(128,396)

Balance as of January 1, 2023 (Predecessor)

 

21,257,708

$

137,949

 

138,848,177

$

14

$

187,348

$

$

(474,839)

 

(22,821)

$

(23)

$

17,087

$

(270,413)

Net loss

 

 

 

(60,678)

 

(60,678)

Stock-based compensation expense

 

 

 

 

3,235

3,235

Debt extinguishment due to warrant modification

 

 

17,036

 

17,036

Balance as of July 21, 2023 (Predecessor)

 

21,257,708

$

137,949

 

138,848,177

$

14

$

204,384

$

$

(535,517)

 

(22,821)

$

(23)

$

20,322

$

(310,820)

See accompanying notes to the consolidated financial statements

4


AEON BIOPHARMA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands, except per share data) (Unaudited)

    

Nine Months Ended

September 30, 

2024

2023

Successor

Successor
July 22 to
September 30

Predecessor
January 1 to
July 21

Cash flows from operating activities:

 

  

Net income (loss)

$

39,923

$

(297,711)

$

(60,678)

Adjustments to reconcile net income (loss) to net cash used in operating activities:

 

 

  

Depreciation

 

74

 

21

54

Stock-based compensation expense

4,908

 

2,171

3,235

Write-off of acquired in-process research and development

 

 

348,000

Change in fair value of convertible notes

 

170

 

19,359

Change in fair value of warrants

15,376

 

(1,593)

Change in fair value of embedded forward purchase agreements and derivative liabilities

19,931

 

15,776

11,789

Change in fair value of contingent consideration

(97,464)

 

(75,939)

Changes in operating assets and liabilities:

 

Prepaid expenses and other current assets

 

(770)

 

(363)

36

Accounts payable

 

1,242

 

(3,716)

(248)

Accrued expenses and other liabilities

 

(3,181)

 

(1,701)

4,736

Other assets and liabilities

 

120

 

(6)

(28)

Net cash used in operating activities

 

(19,671)

 

(15,061)

(21,745)

Net cash used in investing activities

 

 

Cash flows from financing activities:

 

  

 

  

Proceeds from issuance of convertible notes

 

15,000

 

14,000

Proceeds from issuance of at-the-market shares

 

50

 

Net cash provided by financing activities

 

15,050

 

14,000

Net decrease in cash

 

(4,621)

 

(15,061)

(7,745)

Cash and cash equivalents at beginning of period

 

5,158

 

31,238

9,746

Cash and cash equivalents at end of period

$

537

$

16,177

$

2,001

See accompanying notes to the consolidated financial statements

5


AEON BIOPHARMA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1.    Organization

Description of Business

AEON Biopharma, Inc. (formerly known as Priveterra Acquisition Corp.; “AEON” or the “Company”) is a biopharmaceutical company focused on developing its proprietary botulinum toxin complex, ABP-450 (prabotulinumtoxinA) injection (“ABP-450”), for debilitating medical conditions. The Company is headquartered in Irvine, California.

On July 21, 2023 (the “Closing Date”), the Company completed the acquisition of AEON Biopharma Sub, Inc. (formerly known as AEON Biopharma, Inc.) (“Old AEON”) pursuant to the definitive agreement dated December 12, 2022 (the “Business Combination Agreement”), as amended April 27, 2023, by and among Priveterra Acquisition Corp. (“Priveterra”), Priveterra’s wholly-owned subsidiary, Priveterra Merger Sub, Inc., and Old AEON. Old AEON was incorporated in Delaware in February 2012 under the name Alphaeon Corporation as a wholly-owned subsidiary of Strathspey Crown Holdings Group, LLC (“SCH”). On December 18, 2019, the Company changed its name to “AEON Biopharma, Inc.” On the Closing Date, Old AEON merged with Priveterra Merger Sub, Inc., with Old AEON surviving the merger as a wholly-owned subsidiary of the Company. Also on the Closing Date, the Company changed its name from “Priveterra Acquisition Corp.” to “AEON Biopharma, Inc.” and is referred to herein as “AEON,” or the “Company.” Unless the context otherwise requires, references to “Priveterra” herein refer to the Company prior to the Closing Date.

Under the Business Combination Agreement, the Company agreed to acquire all outstanding equity interests of Old AEON for approximately 16,500,000 shares of Class A common stock, par value $0.0001 per share (“common stock”), which Old AEON’s stockholders received in the form of shares of common stock of the Company (the consummation of the Merger and the other transactions contemplated by the Business Combination Agreement, collectively, the “Merger”). In addition, following the closing of the Merger (the “Closing”), certain AEON stockholders will be issued up to 16,000,000 additional shares of common stock to the extent certain milestones are achieved.

Prior to the Closing, Priveterra shares were listed on Nasdaq as “PMGM.” The post-Merger Company common stock and warrants commenced trading on the NYSE American under the symbols “AEON” and “AEON WS,” respectively, on July 24, 2023. See Note 3 Forward Merger for additional details.

Liquidity and Going Concern

The accompanying condensed consolidated financial statements have been prepared on a basis that assumes the Company will continue as a going concern. The Company has experienced recurring losses from operations and has a net capital deficiency and negative cash flows from operations since its inception. As of September 30, 2024, the Company reported cash and cash equivalents of $0.5 million and an accumulated deficit of $433.7 million. The Company expects to incur losses and use cash in its operations for the foreseeable future.

On May 3, 2024, the Company announced preliminary top-line results from its planned interim analysis of the Phase 2 trial with ABP-450 in the preventative treatment of chronic migraine, which did not meet the primary or secondary endpoints. The Company originally intended to pursue submission of an Original BLA seeking one or more potential therapeutic indications for ABP-450. However, in May 2024, the Company announced the discontinuation of its Phase 2 clinical trials for episodic and chronic migraine in order to implement certain cash preservation measures. On July 9, 2024, the Company announced a strategic reprioritization to pursue a Section 351(k) biosimilar regulatory pathway for ABP-450, using AbbVie Inc.’s product Botox as a proposed reference product. The Company held an initial meeting with the FDA in the third quarter of 2024 during which it aligned with the FDA on next steps to develop a Botox biosimilar. The Company anticipates commencing comparative analytic studies in the fourth quarter of 2024 and preparing for a potential Biosimilar Biological Product Development (“BPD”) meeting with the FDA in 2025 to review the results from the studies.

On August 14, 2024, the Company entered into an “at-the-market” sales agreement with Leerink Partners LLC (“Leerink Partners”) relating to an at-the-market offering program (the “ATM”), pursuant to which the Company may offer and sell, from time to time at its sole discretion, shares of common stock, registered pursuant to a shelf registration statement on Form S-3 that the Securities and Exchange Commission (the “SEC”) declared effective on August 21, 2024, having aggregate gross proceeds of up to

6


$50.0 million through Leerink Partners as sales agent. As of September 30, 2024, the Company issued 65,392 shares under the ATM for net proceeds of $50 thousand and approximately $49.9 million of common stock remained available to be sold under the ATM. See Note 8 Common Stock for additional information.

The commencement of studies, preparation for the potential BPD meeting and any further development of ABP-450 would require additional funding in the form of equity financings or debt. There can be no assurance that such efforts will be successful or that, in the event that they are successful, the terms and conditions of such financing will be commercially acceptable. Furthermore, the use of equity as a source of financing would dilute existing shareholders. The Company is actively attempting to secure additional capital to fund its operations. However, there can be no assurance that the Company will be able to raise additional capital on commercially reasonable terms or at all. As a result of these conditions, management has concluded that there is substantial doubt about the Company’s ability to continue as a going concern and to meet its obligations as they become due within one year after the date that these condensed consolidated financial statements are issued.

The preparation of these condensed consolidated financial statements does not include any adjustments that may result from the outcome of this uncertainty. This basis of accounting contemplates the recovery of the Companys assets and the satisfaction of the Companys liabilities and commitments in the normal course of business and does not include any adjustments to reflect the possible future effects of the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. If the Company is unable to obtain adequate capital, it could be forced to cease operations.

The Company’s future operations are highly dependent on a combination of factors, including (1) the success of its research and development programs; (2) the timely and successful completion of any additional financing; (3) the development of competitive therapies by other biotechnology and pharmaceutical companies; (4) the Company’s ability to manage growth of the organization; (5) the Company’s ability to protect its technology and products; and, ultimately (6) regulatory approval and successful commercialization and market acceptance of its product candidates.

Note 2.    Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). The condensed consolidated financial statements include the accounts of the Company and its controlled subsidiaries.

On July 21, 2023, AEON completed the Merger with Old AEON, with Old AEON surviving the merger as a wholly-owned subsidiary of the Company, the accounting acquirer. The transaction was accounted for as a forward merger asset acquisition.

Unless the context otherwise requires, the “Company,” for periods prior to the Closing, refers to Old AEON, AEON Biopharma Sub, Inc. (“Predecessor”), and for the periods after the Closing, refers to AEON Biopharma, Inc., including AEON Biopharma Sub, Inc. (“Successor”). As a result of the Merger, the results of operations, financial position and cash flows of the Predecessor and Successor are not directly comparable. AEON Biopharma Sub, Inc. was deemed to be the predecessor entity. Accordingly, the historical financial statements of AEON Biopharma Sub, Inc. became the historical financial statements of the combined Company, upon the consummation of the Merger. As a result, the financial statements included in this report reflect (i) the historical operating results of AEON Biopharma Sub, Inc. prior to the Merger and (ii) the combined results of the Company, including AEON Biopharma Sub, Inc., following the Closing. The accompanying financial statements include Predecessor periods from January 1, 2023 to July 21, 2023 and July 1, 2023 to July 21, 2023, and Successor periods for the period from July 22, 2023 to September 30, 2023, and the three and nine months ended September 30, 2024. A black line between the Successor and Predecessor periods has been placed in the condensed consolidated financial statements and in the tables to the notes to the condensed consolidated financial statements to highlight the lack of comparability between these two periods.

Unaudited Interim Financial Information

The accompanying interim condensed consolidated balance sheets as of September 30, 2024 (Successor), the condensed consolidated statements of operations and comprehensive (loss) income and stockholders’ deficit for the three and nine months ended September 30, 2024 (Successor) and the periods from January 1, 2023 to July 21, 2023 (Predecessor), July 1, 2023 to July 21, 2023

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(Predecessor) and July 22, 2023 to September 30, 2023 (Successor), and the condensed consolidated statements of cash flows for the nine months ended September 30, 2024 (Successor) and the periods from January 1, 2023 to July 21, 2023 (Predecessor) and July 22, 2023 to September 30, 2023 (Successor) and the related note disclosures are unaudited. The balance sheet information as of December 31, 2023 (Successor) is derived from the Successor’s audited financial statements. These unaudited interim financial statements have been prepared in accordance with U.S. GAAP and, in management’s opinion, on a basis consistent with the audited financial statements and reflect all adjustments which only include normal recurring adjustments necessary for the fair presentation of the Company’s financial position as of September 30, 2024 (Successor) and its results of operations and comprehensive (loss) income and cash flows for the three and nine months ended September 30, 2024 (Successor) and the periods from January 1, 2023 to July 21, 2023 (Predecessor), July 1, 2023 to July 21, 2023 (Predecessor) and July 22, 2023 to September 30, 2023 (Successor). The results for the three and nine months ended September 30, 2024 (Successor) are not necessarily indicative of the results to be expected for the year ending December 31, 2024 or any other interim period.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the amounts reported in the financial statements and disclosures made in the accompanying notes. The Company’s most significant estimates relate to the research and development accruals, valuation of common stock and related stock-based compensation, and the fair values of the contingent consideration, forward purchase agreements, in-process research and development, warrant liabilities and convertible notes. Although the Company bases estimates on historical experience, knowledge of current events and actions it may undertake in the future, and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments over the carrying values of assets and liabilities, this process may result in actual results differing materially from those estimated amounts used in the preparation of the financial statements.

Segment Reporting

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. The Company provides segment financial information and results for its segments based on the segregation of revenues and expenses that its chief operating decision makers review for purposes of allocating resources and evaluating its financial performance.

As of September 30, 2024 and December 31, 2023, the Company operates and manages its business as one operating and reportable segment.

Risk and Uncertainties

The Company is subject to risks common to early-stage companies in the pharmaceutical industry including, but not limited to, dependency on the clinical and commercial success of its current and any future product candidates, ability to obtain regulatory approval of its current and any future product candidates, the need for substantial additional financing to achieve its goals, uncertainty of broad adoption of its approved products, if any, by physicians and patients and significant competition.

The Company relies on Daewoong Pharmaceutical Co., LTD. (“Daewoong”), a South Korean pharmaceutical manufacturer, as an exclusive and sole supplier to manufacture the Company’s source material for product candidates. Any termination or loss of significant rights, including exclusivity, under the Company’s license and supply agreement with Daewoong (the “Daewoong Agreement”) would materially and adversely affect the Company’s commercialization of its products. See Note 7 Commitments and Contingencies for a discussion of the Daewoong Agreement.

Property and Equipment

Property and equipment are carried at cost less accumulated depreciation and amortization. The cost of property and equipment is depreciated over the estimated useful lives of the respective assets. The Company’s furniture and fixtures are depreciated on a straight-line basis over a period of seven years. Equipment is depreciated over a useful life of five years. Leasehold improvements are amortized over the lesser of the estimated useful life of the asset or the related lease term.

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Property and equipment, net, as of September 30, 2024 and December 31, 2023 (unaudited) are as follows (in thousands):

September 30, 

December 31, 

    

2024

    

2023

Furniture and fixtures

$

199

$

199

Equipment

 

237

 

237

Leasehold improvements

 

66

 

66

Property and equipment

 

502

 

502

Accumulated depreciation

 

(244)

 

(170)

Property and equipment, net

$

258

$

332

Other Accrued Expenses

Other accrued expenses were as follows (in thousands):

    

September 30, 

December 31, 

2024

2023

Legal expenses

$

1,779

$

1,867

Excise tax liability

569

569

Operating lease liability - short term portion

128

278

Daewoong vial usage

444

33

Remaining other accrued expenses

240

843

Total other accrued expenses

$

3,160

 

$

3,590

Convertible Notes

The Company elected to account for its convertible promissory notes at fair value at inception and at each subsequent reporting date. Subsequent changes in fair value are recorded as a component of non-operating income (loss) in the condensed consolidated statements of operations and comprehensive (loss) income or as a component of other comprehensive (loss) income for changes related to instrument-specific credit risk. As a result of electing the fair value option, direct costs and fees related to the convertible promissory notes are expensed as incurred. The Predecessor convertible promissory notes were converted into shares of the Company’s common stock at the Closing.

Contingent Consideration (Successor)

The Company accounts for its contingent consideration as either equity-classified or liability-classified instruments based on an assessment of the Contingent Consideration Shares specific terms (as further defined in Note 6 Fair Value Measurements) and applicable authoritative guidance in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity (“ASC 480”) and Derivatives and Hedging (“ASC 815”). The Contingent Consideration Shares are classified as a liability on the Successor’s condensed consolidated balance sheets and remeasured at each reporting period with changes to fair value recorded to the Successor’s condensed consolidated statements of operations and comprehensive (loss) income.

Forward Purchase Agreements (Successor)

Based on the applicable guidance in ASC 480, ASC 815, Equity (“ASC 505”) and Staff Accounting Bulletin Topic 4.E, Receivables from Sale of Stock (“SAB 4E”), the Company had determined that each of its forward purchase agreements entered in connection with the Merger was a freestanding hybrid financial instrument comprising a subscription receivable and embedded features, which were bifurcated and accounted for separately as derivative instruments. The Company recorded the derivatives as liabilities and measured them at fair value each reporting period. For more information, see Note 3 Forward Merger. Subsequent changes in the bifurcated derivatives were recorded in the Successor’s condensed consolidated statements of operations and comprehensive (loss) income. The forward purchase agreements were terminated in March 2024, and the loss related to the termination was recorded to the condensed consolidated statement of operations and comprehensive (loss) income.

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Warrants (Successor)

The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480 and ASC 815. The assessment considers whether the warrants are freestanding financial instruments and meet all of the requirements for equity classification, including whether the warrants are indexed to the Company’s own shares of common stock, among other conditions for equity classification. This assessment is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding. For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded as a liability and measured at their fair value on the date of issuance, and each balance sheet date thereafter until settlement. Changes in the estimated fair value of the warrants are recognized in the Successor’s condensed consolidated statements of operations and comprehensive (loss) income.

Convertible Preferred Stock (Predecessor)

The Company recorded its Predecessor convertible preferred stock at their respective issuance price, less issuance costs on the dates of issuance. The convertible preferred stock was classified outside of permanent equity as temporary equity in the accompanying Predecessor’s condensed consolidated balance sheets. Although the convertible preferred stock was not redeemable at the holder’s option, upon certain change in control events that are outside of the Company’s control, including liquidation, sale or transfer of control of the Company, holders of the convertible preferred stock may have had the right to receive their liquidation preference to any distribution of the proceeds under the terms of the Company’s amended and restated certificate of incorporation. The Company did not adjust the carrying values of the convertible preferred stock to the liquidation preferences of such shares since it is uncertain whether or when a redemption event will occur. Subsequent adjustments to increase the carrying values to the redemption values will be made only when it becomes probable that such redemption will occur. As part of the Merger, each share of Old AEON common stock issued with respect to the Old AEON convertible preferred stock was converted into approximately 2.328 shares of common stock and the right to receive a pro-rata portion of the contingent consideration.

Fair Value of Financial Instruments

Fair value is defined as the exchange price that would be received for an asset or an exit price paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

Fair value measurements are based on a three-tiered valuation hierarchy, which is classified and disclosed by the Company in one of the three categories as follows:

·

Level 1 — Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

·

Level 2 — Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities in active markets; quoted prices in markets that are not active; or other inputs that are observable, either directly or indirectly, or can be corroborated by observable market data for substantially the full term of the asset or liability; and

·

Level 3 — Prices or valuation techniques that require unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The categorization of a financial instrument within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

Leases

The Company determines whether a contract is, or contains, a lease at inception. Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset during the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at lease commencement based upon the

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estimated present value of unpaid lease payments over the lease term using the Company’s incremental borrowing rate applicable to the underlying asset unless the implicit rate is readily determinable. The Company determines the lease term as the noncancellable period of the lease, and may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Leases with a term of 12 months or less are not recognized on the balance sheets.

Research and Development Expenses

Research and development costs are expensed as incurred. Research and development expenses consist primarily of costs associated with clinical studies including clinical trial design, clinical site reimbursement, data management, travel expenses and the cost of products used for clinical trials and internal and external costs associated with the Company’s regulatory compliance and quality assurance functions, including the costs of outside consultants and contractors that assist in the process of submitting and maintaining regulatory filings, and overhead costs. Additionally, research and development expenses include employee compensation, including stock-based compensation, supplies, consulting, prototyping, testing, materials, travel expenses and an allocation of facility overhead expenses. Costs incurred in obtaining technology licenses are charged to acquired in-process research and development (“IPR&D”) if the technology licensed has not reached technological feasibility and has no alternative future use. The acquired IPR&D at the Closing was written off to the Successor’s consolidated income statement for the period ended September 30, 2023.

The Company accrues the expenses for its clinical trial activities performed by third parties, including clinical research organizations and other service providers, based upon estimates of the work completed over the life of the individual study in accordance with associated agreements. The Company determines these estimates through discussion with internal personnel and outside service providers as to progress or stage of completion of trials or services pursuant to contracts with clinical research organizations and other service providers and the agreed-upon fee to be paid for such services. Payments made to outside service providers in advance of the performance of the related services are recorded as prepaid expenses and other current assets until the services are rendered. There have been no material adjustments to the Company’s estimates for clinical trial expenses through September 30, 2024 (Successor) and December 31, 2023 (Successor).

Stock-Based Compensation

The Company recognizes compensation expense for all share-based awards. The Company accounts for stock-based compensation as measured at grant date, based on the fair value of the award. The Company measures the fair value of awards granted using the Black-Scholes option pricing model, which requires the input of subjective assumptions, including the estimated fair value of common stock, the expected volatility of the Company’s common stock, expected risk-free interest rate, and the option’s expected life. The Company also evaluates the impact of modifications made to the original terms of equity awards when they occur.

The fair value of equity awards that are expected to vest is amortized on a straight-line basis over the requisite service period. Stock-based compensation expense is recognized net of actual forfeitures when they occur, as an increase to additional paid-in capital or noncontrolling interest in the condensed consolidated balance sheets and in selling, general and administrative or research and development expenses in the condensed consolidated statements of operations and comprehensive (loss) income. All stock-based compensation costs are recorded in the condensed consolidated statements of operations and comprehensive (loss) income based upon the underlying employee’s role within the Company.

Income Taxes

The Company accounts for income taxes under the asset and liability method, which requires, among other things, that deferred income taxes be provided for temporary differences between the tax basis of the Company’s assets and liabilities and their financial statement reported amounts. In addition, deferred tax assets are recorded for the future benefit of utilizing net operating losses and research and development credit carryforwards and are measured using the enacted tax rates and laws that will be in effect when such items are expected to reverse. A valuation allowance is provided against deferred tax assets unless it is more likely than not that they will be realized.

The Company records uncertain tax positions on the basis of a two-step process whereby (i) it determines whether it is more likely than not that the tax positions will be sustained on the basis of the technical merits of the position and (ii) for those tax positions that meet the more-likely-than-not recognition threshold, it recognizes the largest amount of tax benefit that is more than 50 percent likely to be realized upon ultimate settlement with the related tax authority.

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The Company recognizes interest and penalties related to unrecognized tax benefits within the income tax expense line in the accompanying condensed consolidated statements of operations and comprehensive (loss) income. Any accrued interest and penalties related to uncertain tax positions will be reflected as a liability in the condensed consolidated balance sheets.

Net income (loss) Per Share

Prior to the Merger, the Predecessor calculated basic and diluted net income (loss) per share to common stockholders in conformity with the two-class method required for companies with participating securities. The Company considered all series of convertible preferred stock to be participating securities as they participate in any dividends declared by the Company. Under the two-class method, undistributed earnings allocated to these participating stockholders were subtracted from net income in determining net income (loss) attributable to common stockholders. Net income (loss) was not allocated to convertible preferred stock as the holders of convertible preferred stock did not have a contractual obligation to share in losses. Subsequent to the Merger, the Company only has one class of shares.

Basic net income (loss) per share is computed by dividing the net income (loss) by the weighted average number of shares of common stock outstanding during the period, without consideration for potentially dilutive shares of common stock in Predecessor periods. For Predecessor periods, diluted net income (loss) per share was computed by dividing the net income (loss) by the weighted average number of shares of common stock and potentially dilutive securities outstanding for the period using the “treasury stock,” “if converted” or “two-class” method unless their inclusion would have been anti-dilutive. For purposes of the diluted net income (loss) per share calculation, convertible preferred stock, warrants, convertible notes and common stock options were considered as potentially dilutive securities.

Since the Company was in a loss position for the periods from January 1, 2023 to July 21, 2023 (Predecessor) and July 1, 2023 to July 21, 2023 (Predecessor), July 22, 2023 to September 30, 2023 (Successor), and the three months ended September 30, 2024, basic net loss per share is the same as diluted net loss per share as the inclusion of all potentially dilutive shares of common stock was anti-dilutive. For the nine months ended September 30, 2024 (Successor), dilutive options of 1,924,428 and restrict stock units of 848,521 were included in the calculation for diluted net income per share.

Basic and diluted net loss per share for the Predecessor periods from January 1, 2023 to July 21, 2023 and July, 1, 2023 to July 21, 2023 were calculated as follows (in thousands, except share and per share amounts) (unaudited):

Period from January 1, 2023 to July 21, 2023 (Predecessor)

    

    

Net loss

$

(60,678)

Weighted average shares of common stock outstanding, basic and diluted

 

138,848,177

Net loss per share, basic and diluted

$

(0.44)

Period from July 1, 2023 to July 21, 2023 (Predecessor)

    

    

Net loss

 

$

(27,661)

Weighted average shares of common stock outstanding, basic and diluted

 

138,848,177

Net loss per share, basic and diluted

 

$

(0.20)

Basic and diluted net (loss) income per share for the Successor periods from July 22, 2023 to September 30, 2023, and the three and nine months ended September 30, 2024 were calculated as follows (in thousands, except share and per share amounts) (unaudited):

Period from July 22, 2023 to September 30, 2023 (Successor)

    

    

Net loss

 

$

(297,711)

Weighted average shares of common stock outstanding, basic and diluted

 

37,159,600

Net loss per share, basic and diluted

 

$

(8.01)

Three months ended September 30, 2024 (Successor)

    

    

Net loss

 

$

(6,171)

Weighted average shares of common stock outstanding, basic and diluted

 

39,515,292

Net loss per share, basic and diluted

 

$

(0.16)

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Nine months ended September 30, 2024 (Successor)

    

    

Net income

$

39,923

Weighted average shares of common stock outstanding, basic

 

38,545,882

Net income per share, basic

$

1.04

Weighted average shares of common stock outstanding, diluted

 

41,318,831

Net income per share, diluted

$

0.97

The following potentially dilutive securities outstanding have been excluded from the computation of diluted weighted average shares outstanding because such securities have an anti-dilutive impact (unaudited):

    

Three Months Ended

Nine Months Ended

September 30, 

September 30, 

2024

2023

2024

2023

   

Successor

  

Successor
July 22 to
September 30

   

   

Predecessor
July 1 to July 21

      

Successor

  

Successor
July 22 to
September 30

   

   

Predecessor
July 1 to July 21

Warrants

3,988,952

14,479,999

14,479,999

3,988,952

14,479,999

14,479,999

Contingent consideration

16,000,000

16,000,000

16,000,000

16,000,000

16,000,000

16,000,000

Contingent founder shares

3,450,000

3,450,000

3,450,000

3,450,000

3,450,000

3,450,000

Common stock options and restricted stock units

 

8,966,962

 

4,888,537

4,888,537

6,194,013

4,888,537

4,888,537

 

32,405,914

 

38,818,536

38,818,536

29,632,965

38,818,536

38,818,536

Contingencies

The Company may be, from time to time, a party to various disputes and claims arising from normal business activities. The Company continually assesses litigation to determine if an unfavorable outcome would lead to a probable loss or reasonably possible loss which could be estimated. The Company accrues for all contingencies at the earliest date at which the Company deems it probable that a liability has been incurred and the amount of such liability can be reasonably estimated. If the estimate of a probable loss is a range and no amount within the range is more likely than another, the Company accrues the minimum of the range. In the cases where the Company believes that a reasonably possible loss exists, the Company discloses the facts and circumstances of the litigation, including an estimable range, if possible.

Recent Accounting Standards

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740), Improvements to Income Tax Disclosures. This update requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. ASU 2023-09 is effective for public entities with annual periods beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280), Improvements to Reportable Segment Disclosures. This update requires public entities to disclose information about their reportable segments’ significant expenses and other segment items on an interim and annual basis. Public entities with a single reportable segment are required to apply the disclosure requirements in ASU 2023-07, as well as all existing segment disclosures and reconciliation requirements in ASC 280, on an interim and annual basis. ASU 2023-07 is effective for fiscal years beginning after December 31, 2023, and for interim periods beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.

Other recent accounting pronouncements issued by the FASB, the American Institute of Certified Public Accountants, and the SEC did not, or are not believed by management to, have a material impact on the Company’s financial position, results of operations or cash flows.

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Note 3.     Forward Merger

On December 12, 2022, Old AEON and Priveterra entered into a Business Combination Agreement. On July 3, 2023, Priveterra held the special meeting of stockholders, at which the Priveterra stockholders considered and adopted, among other matters, a proposal to approve the transactions contemplated by the Business Combination Agreement, including the Merger. On July 21, 2023, the parties consummated the Merger. In connection with the Closing, Priveterra changed its name from Priveterra Acquisition Corp. to AEON Biopharma, Inc.

At the effective time of the Merger (the “Effective Time”), each outstanding share of Old AEON common stock (on an as-converted basis after taking into effect the conversion of the outstanding warrants of Old AEON exercisable for shares of Old AEON preferred stock, the conversion of the shares of Old AEON preferred stock into Old AEON common stock in accordance with the governing documents of Old AEON as of the Effective Time, the conversion of the outstanding convertible notes of Old AEON into Old AEON common stock in accordance with the terms of such convertible notes and after giving effect to the issuance of Old AEON common stock in connection with the merger of ABP Sub, Inc. with and into Old AEON) issued and outstanding immediately prior to the Effective Time converted into the right to receive approximately 2.328 shares of the Company’s common stock and the right to receive a pro-rata portion of the contingent consideration. In addition, each share of Priveterra Class B common stock (“Founder Shares”), par value $0.0001 per share, issued and outstanding immediately prior to the Effective Time converted into one share of common stock totaling 6,900,000 shares of common stock (of which 3,450,000 Founder Shares are subject to certain vesting and forfeiture conditions).

In connection with the Merger, on January 6, 2023, Priveterra and Old AEON entered into separate subscription agreements for convertible notes with each of Alphaeon 1 LLC (“A1”) and Daewoong (collectively, the “Original Committed Financing Agreements”), pursuant to which A1 and Daewoong agreed to purchase, and Priveterra and Old AEON agreed to sell to each of them, up to $15 million and $5 million, respectively, aggregate of principal of interim convertible notes or equity. Further, on June 8, 2023, Old AEON and Priveterra entered into a committed financing agreement with A1 (the “Additional Committed Financing Agreement”), pursuant to which A1 agreed to purchase, and Priveterra and Old AEON agreed to sell to A1, up to an additional $20 million aggregate principal of interim convertible notes or equity. Pursuant to such agreement, Old AEON issued $14 million of interim convertible notes to A1 in the first and second quarters of 2023. The notes were subsequently measured at fair value under a fair value option election, with changes in fair value reported in earnings of the Predecessor (Old AEON). Conversion of the notes was contingent and automatically convertible on the Merger, and 2,226,182 shares of Priveterra Class A common stock were issued on the Closing Date in settlement of their conversion. The proceeds from the interim convertible notes were used to fund Old AEON’s operations through the consummation of the Merger. Additionally, approximately $25 million was received on the Closing Date in exchange for an aggregate of 3,571,429 shares of Priveterra Class A common stock at $7.00 per share that were issued under the Original Committed Financing Agreements and Additional Committed Financing Agreements, and reflected “on the line” in the Successor’s opening accumulated deficit.

On April 27, 2023, Priveterra and AEON amended the Business Combination Agreement. Concurrently with the amendment to the Business Combination Agreement, Priveterra amended the Sponsor Support Agreement to include restriction and forfeiture provisions related to the Founder Shares. See Note 6 Fair Value Measurements for additional information. The fair value of the contingent consideration at the Closing was valued to be $125.7 million, and is included in the purchase price. Additionally, the Successor assumed the Predecessor’s 2019 Incentive Award Plan, and as such, the fair value of the replacement awards of $13.3 million were included in purchase consideration, $11.5 million related to stock options and $1.8 million related to restricted stock units. See Note 9 Share-based Compensation for additional information.

Asset Acquisition Method of Accounting

The Merger was accounted for using the asset acquisition method in accordance with U.S. GAAP. Under this method of accounting, Priveterra was considered to be the accounting acquirer based on the terms of the Merger. Upon consummation of the Merger, the cash on hand resulted in the equity at risk being considered insufficient for Old AEON to finance its activities without additional subordinated financial support. Therefore, Old AEON was considered a Variable Interest Entity (“VIE”) and the primary beneficiary of Old AEON was treated as the accounting acquirer. Priveterra held a variable interest in Old AEON and owned 100% of Old AEON’s equity. Priveterra was considered the primary beneficiary as it has the decision-making rights that gives it the power to direct the most significant activities. Also, Priveterra retained the obligation to absorb the losses and/or receive the benefits of Old AEON that could have potentially been significant to Old AEON. The Merger was accounted for as an asset acquisition as substantially all of the fair value was concentrated in IPR&D, an intangible asset. Old AEON’s assets (except for cash) and liabilities

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were measured at fair value as of the transaction date. Consistent with authoritative guidance on the consolidation of a VIE that is not considered a business, differences in the total purchase price and fair value of assets and liabilities are recorded as a gain or loss. The loss on the consolidation of the VIE is reflected “on the line” in the Successor’s opening accumulated deficit.

Costs incurred in obtaining technology licenses are charged to research and development expense as IPR&D if the technology licensed has not reached technological feasibility and has no alternative future use. The acquired IPR&D of $348.0 million at the Closing was written off to the Successor’s consolidated statement of operations for the period ended September 30, 2023. To estimate the value of the acquired IPR&D, the Company used a Multi-Period Excess Earnings Method under the Income Approach. The determination of the fair value requires management to make significant estimates including, but not limited to, the discount rate used, the total addressable market for each potential drug, market penetration assumptions, and the estimated timing of commercialization of the drugs. Changes in these assumptions could have a significant impact on the fair value of the IPR&D. The significant assumptions used in determining IPR&D was the discount rate of 25%, implied internal rate of return of 24.8% and long-term growth rate of 4%.

The following is a summary of the purchase price calculation (in thousands except share and per share data):

Number of shares issued as consideration in the Merger

16,500,000

Shares issued for interim convertible notes related to Committed Financing

2,226,182

Total number of shares of common stock of the combined company

18,726,182

Multiplied by the Priveterra share price, as of the Closing

$

10.84

Total

$

202,992

Fair value of contingent consideration

125,699

Replacement of share-based payment awards

13,331

Assumed liabilities

125

Total purchase price

$

342,147

The allocation of the purchase price was as follows (in thousands):

Cash and cash equivalents

$

2,001

Net working capital (excluding cash and cash equivalents)

(16,182)

Other assets and liabilities

 

775

Acquired in-process research and development

 

348,000

Net assets acquired

334,594

Loss on consolidation of VIE

7,553

Total purchase price

$

342,147

In connection with the Merger, the transactions that occurred concurrently with the closing date of the Merger were reflected “on the line”. “On the line” describes those transactions triggered by the consummation of the Merger that are not recognized in the consolidated financial statements of the Predecessor nor the Successor as they are not directly attributable to either period but instead were contingent on the Merger. The opening cash balance in the Successor’s condensed consolidated statement of cash flow of $31.2 million consists of cash and cash equivalents from Priveterra of $29.2 million and Old AEON $2.0 million.

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The number of shares of common stock issued and amounts recorded on the line within stockholders’ deficit are reflected below to arrive at the opening consolidated balance sheet of the Successor.

                

Shares of common stock

    

Common stock amount

    

Subscription Receivable

    

APIC

    

Accumulated Deficit

Priveterra closing equity as of July 21, 2023

557,160

$

$

$

5,937

$

(12,897)

Shares issued as Consideration in the Merger

Note 1

16,500,000

2

192,189

Merger Consideration - Shares issued for Interim Convertible Notes related to Committed Financing

Note 5

2,226,182

24,132

Stock-Compensation for Class B Founder Shares

Note 3

6,900,000

1

68,972

(68,972)

Forward Purchase Agreements

Note 6