Avalo Therapeutics, Inc. quarterly report, Q3 FY2019

Business context and reporting period

The supplied filing is Cerecor Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2019—not an Avalo Therapeutics filing. Cerecor was a biopharmaceutical company developing orphan-disease and neurology candidates, with marketed products including Millipred and a pediatric portfolio that it subsequently sold.

Financial results and liquidity

Third-quarter product revenue was $5.51M, up from $4.07M; nine-month product revenue was $15.37M, compared with $13.05M. Management attributed growth to product mix, unit growth and, for the nine-month comparison, a fuller period of sales from acquired products. The filing reports no positive net income. Product revenue less cost of product sales was approximately 74% of total revenue in Q3 2019 and 79% for the first nine months of 2019; these are simple calculations, not company-reported gross margins.

At September 30, cash and cash equivalents were $5.25M (cash, cash equivalents and restricted cash totaled $5.45M), versus $10.65M cash and cash equivalents at December 31, 2018. Total assets were $57.19M, current liabilities $17.26M, and stockholders’ equity $18.22M. Debt was approximately $15.3M, including $1.05M classified as current; the Deerfield obligation included quarterly payments and a $15.25M balloon due in January 2021. Accumulated deficit was $115.91M.

Material changes versus prior period

• Nine-month operating cash use increased to $17.45M from $1.15M, principally reflecting operating losses and working-capital movements.
• Nine-month R&D expense rose to $8.86M from $3.78M as clinical and manufacturing activity expanded; sales and marketing expense rose to $8.68M from $5.89M.
• 2018 included an $18.72M acquired in-process R&D charge for the Ichorion assets, contributing to the substantially larger prior-year loss.
• 2019 included a $1.45M impairment of Flexichamber and a $1.01M gain from changes in fair value of contingent consideration. A settlement concerning Ulesfia-related obligations also produced a net $1.6M reversal of previously recognized product costs.
• Equity financing provided approximately $9.0M net in a March public offering and $3.7M net in a September private placement with Armistice. Common shares outstanding increased to 44.11M from 40.80M at year-end 2018.

Outlook, commentary, risks and unusual items

Management expected cash and cash equivalents, anticipated revenue and the $4.5M cash proceeds from the subsequent portfolio sale to fund operations through at least November 2020, while also stating that additional financing would be needed to execute its clinical strategy. The company expected continued significant expenses and operating losses. No revenue or earnings guidance was provided.

After quarter-end, Cerecor sold its Pediatric Portfolio and related commercial infrastructure to Aytu for $17M of consideration ($4.5M cash and $12.5M Aytu preferred stock), with Aytu also assuming specified liabilities and contractual obligations. The transaction closed November 1, 2019; the company preliminarily expected a fourth-quarter gain but had not completed its calculation. Cerecor retained Millipred and arranged for Aytu to manage its commercial operations temporarily. Cerecor also guaranteed certain liabilities assumed by Aytu, creating potential exposure if Aytu does not pay; management stated it lacked cash to pay the full Deerfield obligation itself.

Pipeline updates included positive Phase 1 results for CERC-301 in Parkinson’s patients with neurogenic orthostatic hypotension, first-patient enrollment in a diabetes-related orthostatic-hypotension study, and completion of healthy-volunteer dosing for CERC-802, with pharmacokinetic data expected in early 2020. Key risks include clinical and regulatory uncertainty, limited cash and dependence on additional financing, dilution, rare-disease enrollment challenges, reliance on third parties, and dependence on Millipred and Aytu transition services. The filing reported disclosure controls were effective at a reasonable-assurance level and no material changes to internal control over financial reporting.

Important facts for investors to verify

• Confirm the issuer: the provided text identifies Cerecor Inc. (ticker CERC), not Avalo Therapeutics.
• Review the Aytu transaction’s final accounting, including the recognized gain, actual cash proceeds, liabilities transferred, and preferred-stock terms.
• Assess liquidity against the stated November 2020 runway and verify financing needs and subsequent funding.
• Evaluate the scope and enforceability of Cerecor’s guarantees for Aytu-assumed Deerfield and TRIS obligations.
• Track clinical progress, data timing, development spending, and whether expected pipeline milestones are achieved.