Filing Summary
Issuer note: The filing identifies the registrant as Cerecor Inc. (ticker CERC), not Avalo Therapeutics, Inc. It is a Form 10-K for the fiscal year ended December 31, 2020, filed March 8, 2021; it reports annual results, not a standalone fourth quarter.
Business context and reporting period
Cerecor describes itself as a biopharmaceutical company focused on rare and orphan diseases. The February 2020 Aevi merger added CERC-002, CERC-006 and CERC-007, expanding the pipeline to six assets across eight development programs. Millipred was its only marketed product; the company was exploring strategic alternatives for Millipred and certain neurology assets.
Key financial metrics
| Metric | FY 2020 | FY 2019 |
|---|---|---|
| Revenue | $6.7 million | $6.8 million |
| Net loss | $63.5 million | $16.1 million |
| Continuing-operations loss | $64.4 million | $16.3 million |
| Research and development expense | $32.2 million | $11.8 million |
| Acquired in-process R&D expense | $25.5 million | None |
| Cash used in operating activities | $40.5 million | $19.1 million |
| Cash and cash equivalents at year-end | $18.9 million | $3.6 million |
| Total current assets / current liabilities | $26.0 million / $15.2 million | $17.7 million / $12.2 million |
| Total liabilities / stockholders’ equity | $19.2 million / $24.6 million | $15.1 million / $21.0 million |
Revenue was nearly flat and was primarily from Millipred. The reported cost of product sales was $0.3 million in 2020, versus a benefit of $0.6 million in 2019, when a settlement caused an expense reversal; the filing does not present a conventional gross-margin measure. No material conventional borrowings are listed on the balance sheet; liabilities include a $2.0 million royalty obligation and lease liabilities.
Material changes versus the prior period
- Research and development expense rose $20.4 million, reflecting pipeline expansion and clinical, preclinical and manufacturing activity following the Aevi merger.
- The $25.5 million acquired IPR&D charge related to the Aevi asset acquisition was expensed immediately because the acquired research had no alternative future use.
- Net loss increased substantially, partly offset by $5.2 million of income from the sale of the Aytu investment and a $2.8 million income-tax benefit related mainly to CARES Act loss carrybacks.
- Cash from financing activities was $44.8 million in 2020, including equity offerings. The company also received $12.8 million from selling its Aytu shares.
Outlook, commentary and risks
Management expected R&D spending and operating cash use to continue exceeding historic levels as it advanced the pipeline, with multiple clinical data readouts anticipated in 2021. It reported substantial doubt about the company’s ability to continue as a going concern within one year after the financial statements were issued, citing continued losses and the need for additional financing. A January 2021 public offering generated approximately $37.6 million net proceeds, but management’s funding plans also included further financing, grants, partnering or asset sales.
- In March 2021, after year-end, Cerecor reported that the exploratory Phase 2 CERC-002 COVID-19 ARDS trial met its primary endpoint in the 62-patient ITT analysis (p=0.044); this was not marketing approval and further development and regulatory steps remained uncertain.
- In February 2021, the FDA granted CERC-803 Fast Track designation for LAD-II. The first patient in a Phase 1b CERC-007 multiple-myeloma study was dosed in December 2020.
- The Millipred agreement was extended through September 2023; from April 2021, Cerecor agreed to pay Teva 50% of net profit, subject to a $0.5 million quarterly minimum.
- Major risks include dependence on external capital, clinical and regulatory failure or delay, COVID-related trial and supply disruptions, reliance on contract manufacturers and CROs, uncertain EUA prospects for CERC-002, competitive and reimbursement pressures, and potential liabilities under guarantees tied to obligations assumed by Aytu.
- The auditor issued an unqualified opinion and highlighted Aevi acquisition accounting as a critical audit matter. Management reported effective disclosure controls and internal control over financial reporting; the auditor did not provide an internal-control attestation.
Most important facts for investors to verify
- Confirm the issuer identity: this filing is Cerecor Inc.’s 2020 Form 10-K, despite the request metadata naming Avalo Therapeutics.
- Assess cash runway using year-end cash, the January 2021 offering proceeds, subsequent spending and the filing’s explicit going-concern warning.
- Track clinical and regulatory evidence for CERC-002, CERC-007, CERC-006 and the CERC-800 programs; distinguish exploratory results and designations from approval.
- Review dilution and ownership concentration: Armistice beneficially owned approximately 43% of common stock as reported, and additional equity and pre-funded warrants were issued in January 2021.
- Check the status of the $0.4 million PPP loan forgiveness and the company’s contingent guarantee exposure related to Aytu and Deerfield.