Fair Value Measurements

9 Months Ended

Sep. 30, 2025

Fair Value Measurements

Fair Value Measurements

Note 5. Fair Value Measurements

The Company measures fair value based on the prices that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The carrying value of cash and cash equivalents, accounts payable and accrued liabilities approximate fair value because of the short-term nature of those instruments. The following are other financial assets and liabilities that are measured at fair value on a recurring basis.

Convertible Notes at Fair Value

Due to certain embedded features within the convertible notes, the Company elected the fair value option to account for its convertible notes, including any paid-in-kind principal and interest, and the embedded features. For more information on convertible notes, see Note 3 Daewoong Convertible Notes. The fair value of the convertible notes was determined based on Level 3 inputs using a scenario-based analysis that estimated the fair value of the convertible notes based on the probability-weighted present value of expected future investment returns, considering each of the possible outcomes available to the noteholders, including various qualified financings, corporate transaction and dissolution scenarios. The significant unobservable input assumptions that can significantly change the fair value included (i) the weighted average cost of capital, (ii) the timing of payments, (iii) the discount for lack of marketability, and (iv) the probability of certain corporate scenarios. During the three months ended September 30, 2025 and 2024, the Company utilized discount rates ranging from 15% to 60%, reflecting changes in the Company’s risk profile, time-to-maturity probability, and key terms when modified to the convertible notes.

Termination of Forward Purchase Agreements

On March 18, 2024, the Company and ACM ARRT J LLC (“ACM”) entered into a termination agreement (the “ACM Termination Agreement”) terminating that certain Forward Purchase Agreement, dated June 29, 2023, by and among the Company and ACM (the “ACM FPA”). The ACM Termination Agreement provides that ACM will retain 43,056 previously issued shares of common stock held by ACM pursuant to the ACM FPA and its respective subscription agreement (the “ACM Retained Shares”). ACM did not pay any cash to the Company for the ACM Retained Shares and retained all portions of the Prepayment Amount associated with the ACM Retained Shares.

On March 18, 2024, the Company and Polar Multi-Strategy Fund (“Polar”) entered into a termination agreement (the “Polar Termination Agreement”) terminating that certain Forward Purchase Agreement, dated June 29, 2023, by and among the Company and Polar (the “Polar FPA”). The Polar Termination Agreement provides that Polar will retain 44,098 previously issued shares of common stock held by Polar pursuant to the Polar FPA and its respective subscription agreement (the “Polar Retained Shares”). Polar did not pay any cash to the Company for the Polar Retained Shares and retained all portions of the Prepayment Amount associated with the Polar Retained Shares.

As a result of the ACM Termination Agreement and Polar Termination Agreement, the Company recorded a charge to the condensed consolidated statement of operations of $20.3 million during the first quarter of 2024 to reverse the related subscription

receivable and derivative liability on the accompanying condensed consolidated balance sheet. Additionally, in the first quarter of 2024, the Company had recorded potential liquidated damages of $3.0 million related to ACM and Polar; however, since ACM and Polar each elected to remove its respective shares from the registration statement, the Company released the liability from the condensed consolidated balance sheet during the second quarter of 2024.

In connection with the negotiation of the Forward Purchase Agreements (and FPA Termination Agreements) and related subscription agreements, J.V.B. Financial Group, LLC, acting through its Cohen & Company Capital Markets division (“CCM”), provided certain consulting services, initially to Priveterra and subsequently to AEON, pursuant to an engagement letter, by and between the Company and CCM, dated July 27, 2023 and amended July 1, 2024 (the “CCM Engagement Letter”). On July 5, 2024, pursuant to the CCM Engagement Letter, the Company issued 5,556 shares of the Company’s common stock to CCM.

Contingent Consideration and Contingent Founder Shares

As part of the Business Combination Agreement, certain Founder Shares and Participating Stockholders shares (together, “Contingent Consideration Shares”), as further discussed below, contain certain contingent provisions.

On April 27, 2023, concurrently with the amendment of the Business Combination Agreement, Priveterra amended the Sponsor Support Agreement to include restriction and forfeiture provisions related to the Founder Shares. In addition, following the Closing, certain AEON stockholders will be issued up to 222,653 additional shares of common stock.

Pursuant to the terms of the amended Sponsor Support Agreement, effective immediately after the Closing, 50% of the Founder Shares (i.e., 47,921 Founder Shares) (the “Contingent Founder Shares”) were unvested and subject to the restrictions and forfeiture provisions set forth in this Sponsor Support Agreement, of which 13,980 of such Contingent Founder Shares were forfeited on June 30, 2025 as the result of a vesting event not occurring. The remaining 50% of the Founder Shares were not subject to such restrictions and forfeiture provisions. The remaining Contingent Founder Shares shall vest, and shall become free of the provisions as follows:

● 13,890 of the Contingent Founder Shares shall vest upon the achievement of the conditions for the issuance of the CD BLA Contingent Consideration Shares (as defined below) on or prior to the CD BLA Outside Date; and

● 20,141 of the Contingent Founder Shares shall vest upon the earlier of (x) the achievement of the conditions for the issuance of the Episodic Migraine Contingent Consideration Shares (as defined below) on or before the Episodic Migraine Outside Date (as defined below) and (y) the achievement of the conditions for the issuance of the Chronic Migraine Contingent Consideration Shares (as defined below) on or before the Chronic Migraine Outside Date (as defined below).

The Priveterra Sponsor, LLC (the “Sponsor”) has agreed not to vote the Contingent Founder Shares during any period of time that such Contingent Founder Shares are subject to vesting.

Following the Closing, in addition to the consideration received at the Closing and as part of the overall consideration paid in connection with the Merger, certain holders of common stock in Old AEON may be issued a portion of up to 208,657 additional shares of common stock, subject to the occurrence of the following milestones:

● 55,659 shares of common stock, in the aggregate, if, on or before November 30, 2026 (as it may be extended, the “CD BLA Outside Date”), the Company shall have received from the FDA acceptance for review of the BLA submitted by the Company for the treatment of cervical dystonia (such 55,659 shares of common stock, the “CD BLA Contingent Consideration Shares”);

● 55,659 shares of common stock, in the aggregate, if, on or before June 30, 2029 (as it may be extended, the “Episodic Migraine Outside Date”), the Company shall have received from the FDA acceptance for review of the BLA submitted by the Company for the treatment of episodic migraine (such 55,659 shares of common stock, the “Episodic Migraine Contingent Consideration Shares”); provided that in the event the satisfaction of the conditions for the issuance of the Episodic Migraine Contingent Consideration Shares occurs prior to the satisfaction of the conditions for the issuance of the Chronic Migraine Contingent Consideration Shares, then the number of Episodic Migraine Contingent Consideration Shares shall be increased to 152,998 shares of common stock; and

● 97,339 shares of common stock, in the aggregate, if, on or before June 30, 2028, the Company shall have received from the FDA acceptance for review of the BLA submitted by AEON for the treatment of chronic migraine (such 97,339 shares of common stock, the “Chronic Migraine Contingent Consideration Shares”); provided that in the event that the number of Episodic Migraine Contingent Consideration Shares is increased to 152,998, then the number of Chronic Migraine Contingent Consideration Shares shall be decreased to zero and no Contingent Consideration Shares will be issued in connection with the satisfaction of the conditions to the issuance of the Chronic Migraine Contingent Consideration Shares.

● In the event that the Company licenses any of its products (except in connection with migraine or cervical dystonia indications) to a third-party licensor for distribution in the U.S. market (a “Qualifying License”) prior to the satisfaction of (x) the conditions for the issuance of the Episodic Migraine Contingent Consideration Shares and (y) the conditions for the issuance of the Chronic Migraine Contingent Consideration Shares, then upon the entry of AEON into such Qualifying License, 27,992 shares of common stock shall become due and payable to Participating Stockholders and the number of Episodic Migraine Contingent Consideration Shares and (A) the number of Episodic Migraine Contingent Consideration Shares shall be reduced by 13,996 or by 27,992 and (B) the number of Chronic Migraine Contingent Consideration Shares shall be reduced by 13,996, but not below zero.

The Company classifies the Contingent Consideration as a liability on the condensed consolidated balance sheets and remeasures at each reporting period with changes to fair value recorded to the condensed consolidated statements of operations and comprehensive (loss) income.

The Company utilized the Probability-Weighted Expected Return Method (PWERM) model to value the contingent consideration based on earnout milestones, probability of forfeiture and success scenarios. For the three and nine months ended September 30, 2025 and September 30, 2024, the Company recognized $37 thousand, $3.5 million, $0 and $97.5 million of income, respectively, related to the change in fair value of contingent consideration on the condensed consolidated statements of operations and comprehensive (loss) income, and relates to the change in probabilities of achieving certain scenarios prior to and following the clinical results released in the second quarter of 2024 and changes in the Company’s stock price during the period. As of September 30, 2025 and December 31, 2024, the contingent consideration liability was $32 thousand and $3.5 million, respectively.

Warrants

Public and Private Placement Warrants related to the Closing

Upon the Closing, 201,112 warrants, consisting of 127,788 public warrants sold in Priveterra’s initial public offering and 73,334 warrants issued in a concurrent private placement, were outstanding. The terms of the warrants are governed by a Warrant Agreement dated February 8, 2021 between the Company (then known as Priveterra Acquisition Corp.) and Continental Stock Transfer & Trust Company (the “Warrant Agreement”).

Public warrants related to the Closing

Each whole public warrant entitles the holder to purchase one share of the Company’s common stock at a price of $828.00 per share. The public warrants became exercisable 30 days after the completion of the Merger, and will expire at 5:00 p.m., New York City time, on July 21, 2028, the five-year anniversary of the completion of the Merger, or earlier upon redemption or liquidation. Warrant holders may, until such time as there is an effective registration statement and during any period when the Company has failed to maintain an effective registration statement covering the shares of the Company’s common stock issuable upon exercise of the warrants, exercise warrants on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act or another exception. When exercised on a cashless basis, the number of shares received per warrant is capped at 1.0.

The Company may call the public warrants for redemption for cash:

● in whole and not in part;

● at a price of $0.72 per warrant;

● upon not less than 30 days’ prior written notice of redemption to each warrant holder (the “30-day redemption period”);

● if, and only if, there is an effective registration statement under the Securities Act of 1933 covering the issuance of the shares of common stock issuable upon exercise of the warrants, and a current prospectus relating thereto, available through the 30-day redemption period; and

● if, and only if, the closing price of the Company's common stock equals or exceeds $1,296.00 per share (as adjusted for stock splits, stock capitalizations, reorganizations, recapitalizations and the like) for any 20 trading days within a 30-trading day period ending three business days before the Company sends to the notice of redemption to the warrant holders.

The Company may also call the public warrants for redemption:

● in whole and not in part;

● at $7.20 per warrant upon a minimum of 30 days’ prior written notice of redemption provided that holders will be able to exercise their warrants on a cashless basis prior to redemption and receive that number of shares to be determined by reference to a table in the Warrant Agreement, based on the redemption date and the “fair market value” (as defined in the Warrant Agreement) of common stock except as otherwise described below; and

● if, and only if, the closing price of the Company’s common stock equals or exceeds $720.00 per share (as adjusted for stock splits, stock capitalizations, reorganizations, recapitalizations and the like) for any 20 trading days within a 30-trading day period ending three business days before the Company sends to the notice of redemption to the warrant holders.

On March 29, 2024, the Company delivered notice of redemptions to warrant holders with a redemption date of April 29, 2024 for cashless redemptions of the Company’s outstanding public warrants. The number of shares of common stock that each exercising warrant holder received by virtue of the cashless exercise (instead of paying the $11.50 per public warrant cash exercise price) was calculated in accordance with the terms of the Warrant Agreement. Any remaining unexercised public warrants on the redemption date were cancelled and the public warrant holders received the redemption price of $0.10 for each public warrant. The Company paid $21 thousand in April 2024 related to the cancellation of the remaining 2,881 public warrants on the redemption date.

Private placement warrants related to the Closing

Each private placement warrant was identical to the public warrants initially sold by Priveterra in the IPO, except that the private placement warrants, so long as they are held by the Sponsor or its permitted transferees, (i) will not be redeemable by the Company and (ii) may be exercised by the holders on a cashless basis.

Warrant exercises for Warrants related to the Closing

There were no warrants related to the Closing exercised during the three and nine months ended September 30, 2025 and the three months ended September 30, 2024. During the nine months ended September 30, 2024, there were 142,828 warrants exercised on a cashless basis for 27,310 shares of common stock, with an impact to additional paid in capital of $15.0 million. A summary of activity for the Company’s issued and outstanding public and private warrants related to the Closing for the nine months ended September 30, 2025 and 2024 is as follows:

	Public	Private
Issued and Outstanding, January 1, 2025	—	55,403
Number of warrants issued	—	—
Number of warrants exercised	—	—
Number of warrants cancelled	—	—
Issued and Outstanding, September 30, 2025	—	55,403
Issued and Outstanding, January 1, 2024	127,778	73,334
Number of warrants exercised	(124,897)	(17,931)
Number of warrants cancelled	(2,881)	—
Issued and Outstanding, September 30, 2024	—	55,403

The private warrants are accounted for as a liability with changes in the fair value recorded to the condensed consolidated statement of operations. The Company utilized the Black-Scholes option pricing model (Level 3), which requires the input of subjective assumptions, including the Company’s stock price, expected volatility of the Company’s common stock, expected risk-free interest rate, and the option’s expected remaining life. The fair value of the warrants at September 30, 2025 and December 31, 2024 were de minimus and $1.2 million, respectively. For the three and nine months ended September 30, 2025 and 2024, the Company recorded de minimus, $1.2 million, $(0.4) million, and $(15.4) million, respectively, of income (expense) related to the change in fair value of the warrants related to the Closing.

Series A and Series B Warrants

The measurement of fair value for the Series A and Series B warrants were determined utilizing a Monte-Carlo simulation considering all relevant assumptions at the date of issuance of January 7, 2025 and at September 30, 2025. The fair value on grant date was recorded as a liability on the condensed consolidated balance sheets and changes in fair value will be recognized at each reporting period on the condensed consolidated statement of operations.

The table below summarizes the significant assumptions:

	September 30,				January 7
	2025				2025
		Series A		Series B		Series A		Series B
		(Level 3)		(Level 3)		(Level 3)		(Level 3)
Stock Price	$	0.81	$	0.81	$	15.91	$	15.91
Exercise Price		8.06		8.06		45.00		45.00
Expected volatility		151.00%		203.00%		99.00%		130.00%
Risk-free interest rate		3.70%		3.60%		4.36%		4.22%
Expected life (in years)		4.27		1.77		5.00		2.50
Expected dividend yield		—		—		—		—

The grant date fair values for these warrants were $94.0 million, comprised of $20.7 million and $73.3 million for Series A and Series B Warrants, respectively, on January 7, 2025 and was recorded as a liability as of the grant date due to certain exercise price adjustment provisions occurring in connection with future events. Proceeds were allocated to the warrant liability based on the fair value as of grant date of the warrants of $94.0 million. As the fair value of the warrants issued were greater than the proceeds received, the Company recognized a loss on issuance of common shares and the warrants of $75.6 million.

A summary of activity for the Company’s issued and outstanding Series A and Series B warrants for the nine months ended September 30, 2025 is as follows:

	Series A	Series B
Issued and Outstanding, January 1, 2025	—	—
Number of warrants issued	3,565,245	3,565,245
Number of warrants exercised	—	(3,438,095)
Issued and Outstanding, September 30, 2025	3,565,245	127,150

Summary of Recurring Fair Value Measurements

The following details the Company’s recurring measurements for assets and liabilities at fair value (in thousands):

		Convertible Notes		Warrant Liabilities		Contingent Consideration		Embedded Forward Purchase Agreement and Make Whole Derivative
		(Level 3)		(Level 3)		(Level 3)		(Level 3)
Balance, January 1, 2025	$	11,689	$	1,187	$	3,541	$	—
Issuance of convertible notes		—		—		—		—
Issuance of warrants		—		93,986		—		—
Change in fair value		5,362		(85,950)		(3,509)		—
Warrant cashless exercise		—		(6,885)		—		—
Termination of forward purchase agreements		—		—		—		—
Balance, September 30, 2025	$	17,051	$	2,338	$	32	$	—
Balance, January 1, 2024	$	—	$	1,447	$	104,350	$	41,043
Issuance of convertible notes		15,000		—		—		—
Change in fair value		170		15,376		(97,464)		(399)
Warrant cashless exercise		—		(14,979)		—		—
Termination of forward purchase agreements		—		—		—		(40,380)
Balance, September 30, 2024	$	15,170	$	1,844	$	6,886	$	264