Filing summary
Issuer discrepancy: The request identifies Avalo Therapeutics, Inc., but the supplied Form 10-Q is for Cerecor Inc. This summary reflects the filing text provided, not an Avalo filing.
Business context and reporting period
Unaudited results cover the three and nine months ended September 30, 2016, compared with the corresponding 2015 periods; balance-sheet figures are compared with December 31, 2015. Cerecor was a clinical-stage biopharmaceutical company developing treatments for neurological and psychiatric disorders. It had no approved products and no product-sale revenue.
Financial results and liquidity
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Grant revenue | $321,497 | $0 | $971,985 | $0 |
| Research and development expense | $4.58 million | $1.24 million | $9.38 million | $4.84 million |
| General and administrative expense | $1.70 million | $0.72 million | $5.99 million | $2.50 million |
| Operating loss | $5.96 million | $1.96 million | $14.39 million | $7.33 million |
| Net loss | $6.17 million | $0.69 million | $14.83 million | $6.84 million |
| Basic and diluted loss per share | $0.70 | $1.06 | $1.71 | $10.53 |
At September 30, cash and cash equivalents were $8.82 million, down from $21.16 million at year-end 2015. Nine-month operating cash use was $10.86 million; investing cash use was $26,000; financing cash use was $1.46 million. Management reported working capital of $2.0 million and an accumulated deficit of $68.4 million. The filing gives no meaningful operating margin comparison for a company whose revenue consisted of research grants and whose operations were loss-making.
Term-loan debt was $3.23 million before discount, all classified as current; the carrying amount net of discount was $3.19 million. The loan bore 8.20% interest, was secured by company assets other than intellectual property, and matured in August 2017. Current liabilities were $7.50 million, versus $5.85 million at year-end 2015.
Material changes and unusual items
- Nine-month net loss more than doubled year over year, while operating cash use rose from $6.62 million to $10.86 million.
- R&D expense increased substantially with enrollment in the CERC-301 and CERC-501 Phase 2 trials and a $2.0 million upfront expense for the CERC-611 license from Lilly.
- G&A rose, including higher public-company, legal and professional costs. Nine-month stock-based compensation increased to $1.44 million from $321,000, including $781,266 recorded after extending the former CEO’s option term.
- Non-cash fair-value changes on warrants and the underwriters’ unit purchase option produced a $58,000 nine-month expense in 2016, versus a $1.13 million gain in 2015. The 2015 gain largely reflected the investor rights obligation, which expired following the IPO.
- In September 2016, Aspire Capital agreed to purchase up to $15 million of stock over 30 months. Cerecor received $1.0 million gross for 250,000 shares at signing and issued 175,000 commitment shares. After quarter-end, it sold another 188,998 shares for about $700,000 gross.
Outlook, risks and contingencies
- Management said existing cash was expected to fund operating and capital requirements only through the end of 2016. Recurring losses and negative operating cash flows raised substantial doubt about the company’s ability to continue as a going concern; substantial additional financing was required.
- Management expected top-line Phase 2 data for CERC-301 in November 2016 and CERC-501 in December 2016. It planned to seek to begin CERC-611 Phase 1 development in 2017, subject to filing and FDA clearance of an IND.
- Key risks included inability to raise capital on acceptable terms, clinical and regulatory uncertainty, and difficulty enrolling trial participants. The filing cited delays in CERC-301 enrollment and enrollment challenges in an NIH CERC-501 Phase 2 trial that NIH discontinued.
- The Lilly CERC-611 agreement included a further $1.25 million payment after the first subject is dosed in a multiple-ascending-dose study, up to $67.5 million in development and commercialization milestone payments, and sales-based royalties. Cerecor also had up to approximately $1.7 million of future contractual obligations to CROs and other service providers.
- The filing reported no material legal proceedings, no off-balance-sheet arrangements, and effective disclosure controls. No material changes to internal control over financial reporting were reported for the quarter.
Important facts for investors to verify
- Confirm the intended issuer: the supplied filing is Cerecor Inc., not Avalo Therapeutics, Inc.
- Check subsequent cash balances, financing, and runway against the stated end-of-2016 funding horizon and going-concern warning.
- Verify the reported timing and eventual results of the CERC-301 and CERC-501 trials, and the CERC-611 development and payment milestones.
- Review the Aspire Capital agreement’s remaining issuance capacity, share dilution, and market impact; the filing’s share-capacity disclosures vary by date.
- Confirm loan repayment and maturity status, including the secured-creditor rights and covenants.