Business context and reporting period
The supplied filing is Cerecor, Inc.’s Form 10-K for the fiscal year ended December 31, 2016, filed March 14, 2017—not a filing identified as Avalo Therapeutics, Inc. The company was a clinical-stage biopharmaceutical developer focused on neurological and psychiatric disorders, with no approved products or product-sales revenue. This is an annual report; it does not provide a standalone Q4 income statement.
Financial results and liquidity
| Metric | 2016 | 2015 |
|---|---|---|
| Grant revenue | $1.15 million | None |
| Research and development expense | $10.15 million | $6.59 million |
| General and administrative expense | $7.08 million | $4.42 million |
| Operating loss | $16.08 million | $11.01 million |
| Net loss | $16.47 million | $10.49 million |
| Net loss per share, basic and diluted | $1.87 | $4.71 |
| Cash and cash equivalents at year-end | $5.13 million | $21.16 million |
| Current liabilities at year-end | $4.31 million | $5.85 million |
Grant revenue came from NIH awards; there was no commercial revenue. Operating cash outflow was $14.57 million, versus $10.16 million in 2015. Cash declined by $16.03 million during 2016. Net working capital was $1.4 million and stockholders’ equity was $207,000 at year-end. The secured term loan had $2.37 million principal outstanding, all classified as current, with an 8.45% rate and maturity in 2017. Contractual debt and lease obligations totaled $2.65 million; up to approximately $1.4 million of future CRO and service-provider costs were also committed but unaccrued. The company reported an accumulated deficit of $70.0 million. No meaningful commercial margin is reported.
Material changes versus the prior comparable period
- Net loss increased by $5.98 million year over year, while R&D expense rose $3.56 million, primarily reflecting the CERC-611 license payment and CERC-501 trial costs.
- G&A expense rose $2.66 million, including higher public-company, professional and stock-compensation costs.
- Cash fell from $21.16 million to $5.13 million, partly as the company paid down its term loan; current liabilities also declined.
- The company licensed CERC-611 from Lilly in 2016. The $2.0 million upfront amount was recorded as R&D expense; $1.25 million was payable after the first subject is dosed in a multiple-ascending-dose study.
- Research grants provided $1.15 million of 2016 revenue, compared with none in 2015.
Outlook, commentary and risks
Management expected existing cash to fund operating and capital requirements only into the second quarter of 2017 and stated that substantial additional financing was necessary. The auditor’s report and management disclosures identified substantial doubt about the company’s ability to continue as a going concern within one year after issuance of the financial statements. Management said it would pursue equity or debt financing, grants, collaborations, out-licensing and strategic alternatives, including a possible acquisition, merger or business combination; no transaction was assured.
- CERC-501’s Phase 2 smoking-cessation trial did not meet its primary endpoint, though it was generally well tolerated. Management planned a Phase 2/3 MDD trial, conditional on funding.
- CERC-301’s Phase 2 MDD trial also missed its primary endpoint; management was evaluating next steps. The company held FDA fast-track designation for CERC-301.
- CERC-611 remained preclinical. The company planned an IND submission and Phase 1 work in 2017, subject to funding and FDA clearance. CERC-406 was also preclinical.
- There were no company-run ongoing clinical trials; three externally funded CERC-501 trials were underway. Management expected R&D and G&A expense to decrease in 2017 absent new funding.
- Key risks include clinical failure, financing shortfalls, dependence on licensors and contract manufacturers, regulatory uncertainty, dilution, and competitive pressure. NASDAQ had issued 2017 notices concerning equity value and minimum bid-price compliance, with potential delisting if requirements were not met.
Important facts for investors to verify
- Confirm the issuer: the supplied document is Cerecor, Inc.’s 2016 Form 10-K, not an Avalo Therapeutics filing.
- Review subsequent financing, share issuance, cash runway and any shareholder approval affecting the Aspire Capital purchase agreement.
- Check whether the planned CERC-501 and CERC-611 development milestones occurred and review full clinical data, not just top-line summaries.
- Verify the status of the strategic-alternatives process and the company’s NASDAQ listing compliance after the filing date.
- Review the loan’s repayment and maturity terms, remaining license obligations, and potential dilution from outstanding warrants, options and equity financing.