AEON Biopharma Pursues $75 Million IPO

Summary

• AEON Biopharma has filed proposed terms to raise $75 million in an IPO.
• The firm is developing botulinum toxin-based treatments for migraine prevention and other health conditions.
• AEON is currently in Phase 2 trials but we won't know topline results until well into 2022, so I'll watch the IPO from the sidelines.
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Quick Take

AEON Biopharma (AEON) has filed to raise $75 million in an IPO of its common stock, according to an S-1/A registration statement.

The firm is developing botulinum toxins for the treatment of neurological and gastroenterological conditions.

While the IPO appears priced within the usual range and the firm is utilizing a drug that has many approved uses, we don’t have any data on its efficacy for AEON’s proposed treatments.

Given that uncertainty, I'll pass on the IPO.

Company & Technology

Newport Beach, California-based Aeon was founded to utilize a proprietary form of botulinum toxin injection to treat migraines, cervical dystonia and gastroparesis.

Management is headed by Chief Executive Officer Marc Forth, who has been with the firm since May 2019 and was previously SVP of Allergan PLC and Division Head for the U.S. Neurosciences, Urology and Medical Dermatology Division.

Below is a brief overview video of an interview of CEO Marc Forth:

(Source)

The firm's lead program, using its complex ABP-450, for the treatment of migraine in a prophylaxis or prevention mode.

The company has 'exclusive development and distribution rights for therapeutic indications of ABP-450 in the United States, Canada, the European Union, the United Kingdom, and certain other international territories. We have built a highly experienced management team with specific experience in biopharmaceutical and botulinum toxin development and commercialization.'

Below is the current status of the company’s drug development pipeline:

(Source)

Investors in the firm have invested at least $138 million in equity investment and include Strathspey Crown Holdings, Medytox and Daewoong Pharmaceuticals.

AEON's Market & Competition

According to a 2018 market research report by Grand View Research, the global market for migraine drugs was an estimated $1.7 billion in 2017 and is forecast to reach $6 billion by 2025.

This represents a forecast CAGR (Compound Annual Growth Rate) of 18.0% from 2018 to 2025.

Key elements driving this expected growth are an increase in treatment options and preventive treatments due to increased innovation efforts by industry.

Also, the chart below shows the U.S. market of migraine drugs by type in 2017:

(Source)

Major competitive vendors that provide or are developing related treatments include:

• Allergan

• Ipsen

• Merz Pharmaceuticals

• Revance Therapeutics

• Amgen

• Teva Pharmaceutical Industries

• Eli Lilly & Company

• AbbVie

• Others

Financial Status

Aeon’s recent financial results are atypical of a clinical stage biopharma firm in that they feature services revenue along with the typical R&D and G&A expenses associated with its pipeline development efforts.

Below are the company’s financial results for the past two and 1/2 years:

(Source)

As of June 30, 2021, the company had $10.6 million in cash and $88.5 million in total liabilities.

IPO Details

Aeon intends to raise $75 million in gross proceeds from an IPO of its common stock, offering 5 million shares at a proposed midpoint price of $15.00 per share.

No existing shareholders have indicated an interest to purchase shares at the IPO price.

Assuming a successful IPO, the company’s enterprise value at IPO (ex. underwriter options) would approximate $252 million, excluding the effects of underwriter over-allotment options.

Excluding effects of underwriter options and private placement shares or restricted stock, if any, the float to outstanding shares ratio will be approximately 22.73%.

Management says it will use the net proceeds from the IPO as follows:

approximately $20 million to $40 million to fund the ongoing clinical development of ABP-450 for the treatment of migraine, which we anticipate should enable us to complete a Phase 2 study in this indication;

approximately $5 million to $10 million to fund the ongoing clinical development of ABP-450 for the treatment of cervical dystonia, which we anticipate should enable us to complete a Phase 2 study in this indication;

approximately $1 million to $5 million to engage in preclinical development of ABP-450 for the treatment of gastroparesis; and

the remainder for general corporate purposes, including working capital, operating expenses and capital expenditures.

We believe that the net proceeds from this offering, along with our cash, will be sufficient to fund our operating plan through at least the next 12 months.

(Source)

Management’s presentation of the company roadshow is available here.

Regarding outstanding legal proceedings, management says that 'the Company is not subject to any currently pending legal matters or claims that would have a material adverse effect on its accompanying financial position, results of operations or cash flows.'

Listed bookrunners of the IPO are Wells Fargo Securities, Cantor, Mizuho Securities and H.C. Wainwright & Co.

Commentary

Aeon is seeking U.S. public capital market investment to advance its programs through clinical trials.

The firm’s lead candidate, ABP-450, fis in Phase 2 trials for or the treatment of migraine in a prophylaxis modality. Management expects to announce topline results in the second half of 2022.

The market opportunity for treating migraines is substantial and expected to grow at a very high 18.% CAGR over the medium term.

The firm has a major pharma firm collaboration with Daewoong Pharmaceuticals, which is an investor and from whom it licenses its main active ingredient.

Wells Fargo Securities is the lead left underwriter and IPOs led by the firm over the last 12-month period have generated an average return of negative (7.6%) since their IPO. This is a bottom-tier performance for all major underwriters during the period.

The choice of Wells Fargo for lead underwriter on a Biopharma firm IPO is curious and unusual, as Wells has typically focused on taking financial services firms public.

As for valuation, management is seeking an Enterprise Value of approximately $252 million, which is at the low end of the typical range for a clinical stage biopharma firm at IPO.

While the IPO appears priced within the usual range and the firm is utilizing a drug that has many approved uses, we don’t have any data on its efficacy for AEON’s proposed treatments.

Given that uncertainty, I'll watch the IPO from the sidelines.

Expected IPO Pricing Date: October 7, 2021

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Investing in IPOs is an inherently volatile and opaque endeavor. My research is focused on identifying quality IPO companies at a reasonable price, but I’m wrong sometimes. I analyze fundamental company performance and my conclusions may not be relevant for first-day or early IPO trading activity, which can be highly volatile and unrelated to company fundamentals. This report is intended for educational purposes only and is not financial, legal or investment advice.