Business Context and Reporting Period
This Form 8-K, dated December 5, 2019, reports that Cerecor Inc. (CERC) entered into an Agreement and Plan of Merger to acquire Aevi Genomic Medicine, Inc. (Aevi). The transaction is structured as a two-step merger where Aevi will become a wholly-owned subsidiary of Cerecor. Cerecor will retain its public reporting status and NASDAQ listing. The filing also discloses a Backstop Agreement with Armistice Capital Master Fund Ltd. to ensure liquidity during the transaction period.
Key Financial Metrics and Transaction Terms
- Consideration: Aevi shareholders will receive Cerecor common stock based on a formula targeting $16.1 million (subject to a reduction of up to $500,000 based on net assets), plus one Contingent Value Right (CVR) per share.
- Contingent Value Rights: CVRs represent the right to receive up to $6.5 million in cash or stock upon achieving specific milestones.
- Net Asset Adjustment: The purchase price is subject to adjustment if Aevi's net assets fall below a target of negative $1.3 million as of December 31, 2019, decreasing by $7,142.86 per day thereafter until closing.
- Financing: Cerecor secured a Backstop Agreement allowing it to sell up to $15 million of common stock to Armistice Capital Master Fund Ltd. at the closing price on the date of notice, available until March 20, 2020.
- Termination Fee: If the agreement is terminated to pursue a superior transaction, the terminating party must pay a fee of $600,000 plus any outstanding amounts under promissory notes issued to Cerecor.
- Support: Aevi stockholders holding approximately 36.0% of outstanding shares have entered into a voting agreement to support the merger.
Material Changes and Management Commentary
The primary material change is the strategic acquisition of Aevi to expand Cerecor's genomic medicine capabilities. Upon closing, Mike Cola (current Aevi CEO) will be appointed CEO of Cerecor, and Dr. Garry Neil (current Aevi Chief Science Officer) will be appointed Chief Medical Officer. Cerecor has agreed to fund Aevi's operating expenses and certain intellectual property license costs from the signing date until closing, evidenced by two promissory notes.
Risks, Contingencies, and Outlook
- Closing Conditions: The merger is contingent upon the effectiveness of a Form S-4 registration statement, approval by Aevi stockholders, and other customary conditions.
- Regulatory and Market Risks: Risks include the failure to secure capital, clinical trial uncertainties, regulatory hurdles, and the potential for the transaction to be terminated for a superior offer.
- Forward-Looking Statements: The filing contains forward-looking statements regarding the completion of the merger and future performance, which are subject to significant uncertainties and may not reflect actual results.
Investor Verification Checklist
- Verify the final exchange ratio for Aevi shares once the 20-day volume-weighted average prices for Cerecor stock are calculated.
- Review the upcoming Form S-4 proxy statement/prospectus for detailed financial data on Aevi and the full terms of the CVR Agreement.
- Monitor the status of the $15 million Backstop Agreement and whether Cerecor exercises the option to sell shares to Armistice Capital.
- Confirm the outcome of the Aevi stockholder vote required to approve the merger.
- Assess the specific milestones required to trigger the $6.5 million contingent value payments.