Business context and reporting period
The supplied filing is Cerecor Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2015. It does not identify Avalo Therapeutics, Inc. as the registrant; verify that this is the intended filing. Cerecor described itself as a clinical-stage biopharmaceutical company developing treatments for neurological and psychiatric disorders. It reported no commercial product revenue.
Financial results and condition
| Metric | Three months ended September 30, 2015 | Nine months ended September 30, 2015 | Comparable 2014 period |
|---|---|---|---|
| Revenue | None | None | None |
| Research and development expense | $1.24 million | $4.84 million | $4.37 million; $9.98 million |
| General and administrative expense | $0.72 million | $2.50 million | $1.63 million; $3.30 million |
| Net loss | $0.69 million | $6.84 million | $5.84 million; $13.53 million |
| Net loss per share, basic and diluted | $1.06 | $10.53 | $9.03; $21.09 |
| Cash used in operating activities | Not presented for the quarter | $6.62 million | $11.55 million |
At September 30, 2015, cash and cash equivalents were $3.31 million, compared with $11.74 million at December 31, 2014. Working capital was negative $3.2 million. Term debt had a net carrying value of $6.32 million, including $3.13 million classified as current; the reported loan principal was $6.48 million. Total assets were $5.45 million and total liabilities were $9.96 million. Profit margins are not applicable because the company had no revenue.
After quarter-end, Cerecor completed an IPO on October 20, 2015, selling 4.0 million units at $6.50 each. The filing reports approximately $23.6 million of proceeds net of underwriting discounts and commissions, before offering expenses in another section, and states that cash plus IPO proceeds were expected to fund operations for at least 12 months.
Changes, outlook and risks
- Compared with the first nine months of 2014, net loss and operating cash use declined, primarily alongside lower R&D spending after two Phase 2 studies completed in 2014. R&D expense also included the CERC-501 license acquisition; the company reported a $1.1 million license payment and accrued a further $250,000.
- Management expected operating losses and expenses to continue and R&D spending to increase as programs advanced. The company anticipated needing substantial additional financing; failure to obtain funding could delay, reduce or eliminate development programs.
- Pipeline plans included Phase 2 development of CERC-301 and CERC-501, with data anticipated in the second half of 2016, and a CERC-406 IND submission anticipated in the first half of 2017. These were forward-looking plans, not assured outcomes. The filing notes a failed CERC-301 8 mg study and a subsequent higher-dose study.
- The term loan was secured by company assets other than intellectual property, had a 7.95% current interest rate, and required monthly principal-and-interest payments. Defaults include certain lender-defined events, including a determination of material adverse change.
- A gain from changes in fair value of warrants and the Investor Rights Obligation contributed to other income: $1.47 million for the quarter and $1.13 million for the nine months ended September 30, 2015. The Investor Rights Obligation expired upon the October IPO.
- The company reported no material legal proceedings, no material changes to previously disclosed risk factors, and no off-balance-sheet arrangements. Management said disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Important facts to verify
- Confirm the registrant: the source filing is for Cerecor Inc., not Avalo Therapeutics, Inc.
- Reconcile IPO proceeds: the filing cites approximately $23.6 million net of underwriting discounts and commissions, but elsewhere estimates approximately $21.3 million after offering expenses. It also reports a later 600,000-unit over-allotment exercise; confirm timing and proceeds.
- Confirm the company’s post-IPO cash runway, including actual offering expenses, over-allotment proceeds, debt payments and operating spend.
- Review CERC-301 clinical results and subsequent trial progress, CERC-501 development plans, and the material assumptions underlying the stated milestones.
- Review debt maturity and covenant terms, including the secured lender’s default provisions, and the potential dilution from IPO warrants and other equity-linked securities.