SCHEDULE 13D/A: RTW Investments Bolsters Influence at Allurion Technologies with Board Appointments and Amended Financing Terms

RTW Investments, LP and Roderick Wong, M.D. have increased their beneficial ownership in Allurion Technologies, Inc. to 9.99% and secured additional board representation following an Omnibus Amendment to existing financing agreements.

Summary

• RTW Investments, LP and Roderick Wong, M.D. collectively beneficially own 277,797 shares of Allurion Technologies, Inc. common stock, representing 9.99% of the class.
• This ownership percentage is based on approximately 2,711,263 shares outstanding as of January 3, 2025, following the Issuer's reverse stock split effectuated on that date.
• The Notes held by RTW Funds are subject to a beneficial ownership conversion limitation, preventing conversion if it results in RTW Funds and affiliates owning more than 9.99% of the Issuer's Shares.
• Warrants held by RTW Funds are subject to a 4.99% blocker, which can be increased to 9.99% with 61 days' prior notice.
• On December 19, 2024, Series A Preferred Stock held by the Reporting Persons automatically converted into 90,407 shares after giving effect to the reverse stock split.
• On December 30, 2024, Jason Richey was appointed to Allurion's board of directors upon the recommendation of the Reporting Persons, in anticipation of the Omnibus Amendment.
• An Omnibus Amendment was entered into on January 7, 2025, modifying the Note Purchase Agreement ($48 million convertible senior secured notes) and two Revenue Interest Financing Agreements ($40 million and $7.5 million synthetic royalty interest).
• The Omnibus Amendment introduces new covenants requiring Allurion to maintain minimum unrestricted cash balances in U.S. controlled accounts and achieve minimum trailing twelve-month consolidated Revenue, tested quarterly beginning September 30, 2025.
• It also sets deadlines for Allurion France to regain marketing authorization in France by December 31, 2025, and for Allurion OpCo to receive FDA Marketing Authorization in the U.S. by June 30, 2026.
• As an 'Amendment Fee,' Investors and Purchasers will receive shares representing 5% of the fully-diluted shares outstanding immediately after a future offering of Additional Shares, which must close by February 15, 2025, and raise at least $12 million net proceeds.
• If common shares cannot be issued, Series A-1 non-voting preferred stock will be issued, requiring stockholder approval for conversion by December 31, 2025, or redemption by December 31, 2026.
• RTW Investments and the Investors now have the right to designate two directors to the Board, currently Nicholas Lewin and the newly appointed Jason Richey.

Sentiment

Score: 6

Explanation: While there are new financial covenants and a required capital raise, indicating ongoing financial needs and investor oversight, the active engagement of a major investor (RTW), the appointment of an experienced board member, and the clear setting of regulatory milestones provide a structured path forward. The previous SEC settlement for RTW is a negative, but it's historical for the investor, not the issuer. The dilution from the amendment fee and future capital raise is a negative for existing shareholders. The deadlines for regulatory approvals are critical but also represent clear targets.

Positives

• RTW Investments, a significant investor, is actively engaged with Allurion's management, providing strategic guidance and evaluating investment opportunities.
• The appointment of Jason Richey, an expert in the medical device industry and a consultant to RTW, to the Board is expected to provide valuable leadership and strategic guidance.
• The Omnibus Amendment provides a structured framework for continued financing and sets clear operational and regulatory milestones for the company, which can enhance accountability and focus.

Negatives

• RTW Investments, L.P. previously settled with the SEC on May 30, 2023, for violations related to conflicts of interest disclosure and beneficial ownership reporting, resulting in a $1.4 million civil penalty.
• The company is now subject to new financial and operational covenants, including maintaining minimum cash balances and achieving revenue targets, which could indicate financial pressure or increased investor oversight.
• The 'Amendment Fee' of 5% of fully-diluted shares to investors and purchasers, tied to a future capital raise, suggests dilution for existing shareholders.
• The potential issuance of Series A-1 non-voting preferred stock if common shares cannot be issued, requiring future stockholder approval for conversion, adds complexity and potential uncertainty to the capital structure.

Risks

• Failure to maintain minimum unrestricted cash balances as required by the Omnibus Amendment could lead to default or further financial distress.
• Failure to achieve minimum trailing twelve-month consolidated revenue targets, tested quarterly beginning Q3 2025, could trigger covenant breaches.
• Failure of Allurion France to regain marketing authorization in France by December 31, 2025, could impact European market access and revenue generation.
• Failure of Allurion OpCo to receive FDA Marketing Authorization in the U.S. by June 30, 2026, would significantly delay or prevent entry into the critical U.S. market, impacting growth prospects.
• The requirement for a future offering of Additional Shares by February 15, 2025, to raise at least $12 million net proceeds, indicates ongoing capital needs and potential for further shareholder dilution.
• The risk of not obtaining stockholder approval for the conversion of Series A-1 Preferred Stock into common shares by December 31, 2025, could lead to redemption obligations for the company by December 31, 2026.

Future Outlook

The company is committed to achieving key regulatory milestones, including regaining marketing authorization in France by December 31, 2025, and securing FDA Marketing Authorization in the U.S. by June 30, 2026. It also faces new financial covenants, including maintaining minimum cash balances and achieving minimum trailing twelve-month consolidated revenue starting Q3 2025, and plans a capital raise of at least $12 million by February 15, 2025.

Management Comments

• "The Reporting Persons continuously evaluate their investment in the Issuer, and, from time to time, engage in discussions with the Issuer's management with respect to the Issuer's strategic direction, business opportunities, financing, and other matters."
• "The Reporting Persons believe that Mr. Richey's significant experience in the medical device industry, knowledge and experience with respect to leading medical device companies, financing and strategic initiatives, will provide valuable leadership and strategic guidance to the Board and the Issuer's management."

Industry Context

Allurion Technologies operates in the medical device industry, specifically focusing on products requiring stringent regulatory approvals (e.g., marketing authorization in France, FDA approval in the U.S.). The company's financing structure, involving convertible notes and revenue interest financing, is common for growth-stage medical device companies seeking capital for R&D, commercialization, and navigating regulatory hurdles. The active involvement of a major investor like RTW Investments, including board representation and specific performance covenants, suggests a hands-on approach to managing their investment in a high-growth, high-risk sector. The deadlines for regulatory approvals highlight the critical path for market expansion in key geographies.

Comparison to Industry Standards

• NA

Management Changes

Corporate Governance

Legal Proceedings

• RTW Investments, L.P. entered into a settlement order with the SEC dated May 30, 2023 (File No. 3-21473). The SEC found violations of Sections 206(2) and 206(4) of the Investment Advisors Act of 1940 and Rule 206(4)-7 thereunder, and Section 13(d) of the Exchange Act and Rules 13d-1 and 13d-2 thereunder, relating to conflicts of interest disclosure and beneficial ownership reporting, respectively. Under the terms of the settlement, RTW Investments agreed to a cease-and-desist order, a censure, and a civil penalty of $1.4 million.

Related Party Transactions

• RTW Investments, LP and entities managed by RTW Investments are significant investors and lenders to Allurion Technologies, Inc. and its subsidiary Allurion Opco, through convertible notes and revenue interest financing agreements.
• Jason Richey, newly appointed director, serves as a consultant to RTW Investments.
• The Omnibus Amendment, which modifies the terms of these financing agreements, involves RTW Investments and entities it manages as parties.
• The 'Amendment Fee' involves the issuance of shares to RTW-managed entities.

Stakeholder Impact

• Shareholders: Potential dilution from the 5% 'Amendment Fee' and the required future capital raise of at least $12 million. Increased influence of RTW Investments on the board.
• Creditors/Lenders (RTW-managed entities): Strengthened financial covenants (minimum cash, revenue targets) provide more protection for their existing investments. Receipt of additional shares as an amendment fee.
• Management: Subject to new financial and operational performance targets and increased oversight from RTW-designated board members.
• Customers/Patients: Potential benefit from accelerated regulatory approvals in France and the U.S., leading to broader product availability, assuming milestones are met.

Next Steps

• Issuer and Allurion Opco to maintain certain minimum balances of unrestricted cash in controlled accounts in the U.S.
• Issuer to receive minimum trailing twelve-month consolidated Revenue, tested quarterly beginning with the twelve-month period ending September 30, 2025.
• Allurion France to successfully regain marketing authorization to resume commercialization of the Product in France on or prior to December 31, 2025.
• Allurion OpCo to receive Marketing Authorization from the U.S. Food & Drug Administration for the Commercialization of the Product in the United States no later than June 30, 2026.
• Issuer to consummate an offering and sale of Additional Shares, raising at least $12 million aggregate net proceeds, no later than February 15, 2025.
• Issuer to include a proposal in a definitive proxy statement on Schedule 14A seeking stockholder approval no later than December 31, 2025, to allow the conversion of Series A-1 Preferred Stock into Shares.
• Redemption of Series A-1 Preferred Stock outstanding on December 31, 2026, for cash if not converted.

Key Dates

Recommendation

Keywords

Allurion Technologies, RTW Investments, SEC Schedule 13D, Beneficial Ownership, Convertible Notes, Revenue Interest Financing, Omnibus Amendment, Board Appointment, Medical Device Industry, FDA Authorization, Marketing Authorization, Capital Raise, Stock Split, Corporate Governance, Investment Management