Filing summary
Entity and period: The supplied filing is Cerecor Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2020, not an Avalo Therapeutics filing. The financial information below summarizes Cerecor’s filing.
Business context
Cerecor described itself as a biopharmaceutical company focused on rare pediatric and orphan diseases. Its commercial product was Millipred. The February 3, 2020 Aevi merger added CERC-002, CERC-006 and CERC-007, expanding the company’s clinical-stage pipeline. The previously divested pediatric portfolio was reported as discontinued operations.
Key financial results
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Continuing-operations revenue | $2.75 million | $2.58 million |
| Operating expenses | $34.17 million | $7.58 million |
| Loss from continuing operations | $22.15 million | $5.16 million |
| Net loss | $21.12 million | $7.45 million |
| Net loss per common share | $0.34 | $0.13 |
| Net cash used in operating activities | $5.74 million | $3.12 million |
| Cash and cash equivalents at quarter-end | $5.66 million | Not presented as a comparable quarter-end balance in the balance sheet table |
Q1 2020 operating expenses included $25.55 million of acquired in-process research and development expense from the Aevi transaction. A $7.08 million non-cash gain from revaluing the Aytu investment and a $2.16 million income-tax benefit partly offset the continuing-operations loss. Discontinued operations generated $1.04 million of income, including a $1.76 million gain from reassessing the Aytu guarantee.
Gross margin was not expressly reported as a percentage. Product revenue was $2.75 million and cost of product sales was $0.07 million. Total assets were $44.12 million and total liabilities were $18.53 million at quarter-end. Current assets were $25.49 million and current liabilities $15.33 million; these include balances associated with discontinued operations. The filing reports no conventional outstanding borrowings in the presented balance sheet, but discloses guarantees, lease obligations and a $2.0 million royalty obligation.
Material changes versus prior period
- Revenue from continuing operations rose modestly, while net loss increased substantially, primarily because of the Aevi-related acquired IPR&D charge and higher R&D spending.
- R&D expense increased to $4.77 million from $3.40 million, reflecting the expanded pipeline, manufacturing work and increased personnel; clinical expense declined as CERC-301 activity was curtailed.
- Operating cash use rose to $5.74 million from $3.12 million. Financing provided $9.10 million, principally from February and March equity offerings.
- Common shares outstanding increased to 59.56 million from 44.38 million at December 31, 2019, reflecting merger consideration, equity financings and conversion of preferred shares.
Outlook, risks and unusual items
- Management stated that substantial doubt existed about the company’s ability to continue as a going concern within one year after issuance of the financial statements. It expected further losses and said additional financing, asset sales, licensing or other funding would be needed.
- After quarter-end, Cerecor sold its Aytu common shares for approximately $12.8 million net proceeds. Management cited these proceeds as part of its liquidity plans, but said they did not remove the need to pursue additional funding and other strategic options.
- No quantified earnings or revenue guidance was provided. Management anticipated continued significant expenses and operating losses while investing in the pipeline.
- COVID-19 had paused the CERC-002 Phase 1b Crohn’s disease study because of an endoscopy moratorium. The company initiated a biomarker study assessing LIGHT in COVID-19-related acute respiratory distress and lung injury. It warned that the pandemic could disrupt trials, enrollment, supply, regulatory interactions and access to capital.
- The company was exploring strategic alternatives for Millipred and discussions about transferring non-core neurology assets, but no binding transaction terms were in place.
- A dispute with former TRx owners remained unresolved; the company described a possible loss range of $0 to $18.2 million, considered a loss not probable, and recorded no accrual. The parties had tentatively planned pre-lawsuit mediation for June 2020.
- Aytu-related guarantees had a maximum potential future payment of $24.5 million at March 31, 2020. Cerecor also remained exposed to certain product-return obligations and to Aytu’s performance under assigned obligations.
Important facts for investors to verify
- Confirm the issuer: the provided 10-Q is for Cerecor Inc. (ticker CERC), despite the request metadata naming Avalo Therapeutics.
- Assess post-quarter liquidity, including the $12.8 million Aytu-share sale, cash burn and the company’s stated need for additional capital.
- Review the accounting and development assumptions behind the $25.55 million Aevi-related IPR&D charge and the acquired pipeline assets.
- Monitor COVID-19 effects on CERC-002 trials and other clinical milestones, and whether any stated strategic transactions progress.
- Track the TRx dispute, Aytu guarantee exposure, discontinued-operation return liabilities and any resulting cash or earnings impact.
- Consider dilution and related-party financing: Armistice participated in both 2020 equity financings and is a significant stockholder with board ties.