Cerecor Inc. (filing identifies issuer as Cerecor, not Avalo Therapeutics) — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020; unaudited. The filing describes Cerecor as a biopharmaceutical company developing treatments for rare pediatric and orphan diseases. Its commercial product was Millipred; its pediatric portfolio had been sold to Aytu in 2019 and is presented as discontinued operations.
Key financial results
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Continuing-operations product revenue | $1.34 million | $1.39 million | $4.09 million | $3.97 million |
| Loss from continuing operations | $12.83 million | $2.54 million | $34.98 million | $7.71 million |
| Net loss | $13.28 million | $6.22 million | $34.40 million | $13.68 million |
| Basic and diluted common-stock loss per share | $0.19 | $0.11 | $0.52 | $0.24 |
| Operating cash used | Not separately provided | Not separately provided | $14.29 million | $9.84 million |
Revenue was broadly stable year over year, while losses increased. First-half continuing-operations expenses included $25.55 million of acquired in-process R&D from the Aevi transaction. R&D expense was $10.68 million versus $7.11 million; G&A was $8.78 million versus $5.02 million. No gross margin is stated in the filing; comparison is affected by a 2019 reversal of Ulesfia-related product cost.
Financial position and liquidity
- At June 30, 2020, cash and cash equivalents were $45.39 million, compared with $3.61 million at December 31, 2019. Including restricted cash, cash was $45.60 million.
- Current assets were $50.24 million and current liabilities were $14.60 million. Total assets were $69.20 million; total liabilities were $18.63 million; stockholders’ equity was $50.58 million.
- Operating cash use was partly funded by $44.58 million of financing cash inflows, principally equity offerings, and $12.84 million net proceeds from selling Aytu shares. The company raised $35.43 million net in a June public offering, $5.14 million in a February registered direct offering, and $3.89 million in a March private placement.
- The filing reports a $0.4 million PPP loan, recorded as other income because management believed it qualified for forgiveness; forgiveness was not yet approved. The filing does not report conventional long-term borrowings at June 30, but it does report lease and other obligations, a $2.0 million royalty obligation, and liabilities of discontinued operations.
Material changes and unusual items
- The February 2020 Aevi merger expanded the pipeline, including CERC-002, CERC-006 and CERC-007. It issued approximately 3.9 million shares and included forgiveness of a $4.1 million loan and up to $6.5 million in potential development milestone payments. The acquired IPR&D was expensed immediately.
- The Aytu investment generated a $5.21 million fair-value gain for the first half, but a $1.87 million loss in Q2 as the share value declined before sale. All Aytu shares were sold in April, generating approximately $12.8 million net proceeds.
- Common shares outstanding increased to 74.9 million at June 30 from 44.4 million at year-end 2019, reflecting offerings, merger shares and preferred-stock conversion, among other issuances.
- First-half discontinued operations reported $0.58 million income, including a $1.76 million gain from reassessing the Aytu-related guarantee; Q2 discontinued operations recorded a $0.46 million loss, largely associated with sales returns.
Outlook, risks and contingencies
- Management expects continued significant expenses and operating losses and states that additional financing will be required. It concluded that substantial doubt exists about the company’s ability to continue as a going concern within one year after issuance of the filing, despite the June financing and cash balance.
- Management is evaluating financing, collaborations, grants, licensing or sale of assets, including Millipred and non-core neurology assets. A possible transfer of CERC-301 and CERC-406 was under discussion, with no binding terms.
- In July 2020, the first patient entered a CERC-002 COVID-19 ARDS proof-of-concept trial; top-line data was expected in Q4 2020. The CERC-002 Crohn’s disease trial, paused due to COVID-related endoscopy restrictions, resumed in July. The CDG FIRST trial concluded, with results intended to inform future pivotal trial design.
- Cerecor guaranteed certain Aytu obligations to Deerfield. The estimated maximum future guarantee payments were $9.0 million at June 30, 2020. Cerecor also retained exposure to certain pre-divestiture pediatric-product returns, with a $1.6 million reserve.
- Former TRx owners threatened claims seeking up to $18.2 million and other relief. Mediation did not resolve the dispute; no lawsuit had been filed as of the report. Management disputed the claims, considered a loss possible but not probable, and recorded no accrual.
Important facts for investors to verify
- Confirm the issuer and reporting history: this supplied filing is under Cerecor Inc., although the request names Avalo Therapeutics.
- Assess cash runway against the disclosed going-concern substantial doubt, operating cash burn and need for additional financing.
- Track clinical-trial execution and data timing for CERC-002, and development plans for the remaining pipeline.
- Monitor potential dilution, including future equity needs and contingent merger milestone payments of up to $6.5 million.
- Follow PPP forgiveness, the Deerfield guarantee and sales-return exposure, and developments in the TRx dispute.