Filing summary
Entity note: The supplied filing is Cerecor Inc.’s Form 10-Q for the quarter ended June 30, 2017, not a filing under the name Avalo Therapeutics, Inc. The summary below reflects the supplied filing.
Business context and reporting period
Cerecor was a clinical-stage biopharmaceutical company developing candidates for neurologic and psychiatric disorders. It had no approved products or product-sale revenue. Its portfolio included CERC-301, CERC-611 and CERC-406. The filing reports unaudited second-quarter and six-month results through June 30, 2017.
Financial results and liquidity
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Grant revenue | $157,800 | $650,488 | $542,006 | $650,488 |
| Research and development | $493,649 | $2,501,753 | $1,446,719 | $4,795,028 |
| General and administrative | $1,439,146 | $1,636,772 | $2,769,410 | $4,285,865 |
| Net loss | $1,798,515 | $3,524,160 | $3,759,152 | $8,664,174 |
| Net loss per share | $0.14 | $0.41 | $0.32 | $1.00 |
Revenue was entirely grant revenue; the company reported no product sales, so product gross margins were not applicable. For the six months, operating cash use was $4.0 million, investing cash use was $1,801, and financing provided $4.3 million. Cash and cash equivalents increased $333,000 to $5.46 million. At June 30, current assets were $5.95 million and current liabilities were $1.66 million, implying working capital of about $4.29 million. Term debt, net of discount, was $608,000; total liabilities were $2.91 million. Accumulated deficit was $73.8 million.
Material changes versus prior periods
- Q2 grant revenue fell about 76% year over year, which management attributed to lower development activity and differences between the NIAAA and prior-year NIDA grants.
- Six-month R&D expense declined about $3.35 million, principally because CERC-301 and CERC-501 Phase 2 trials had been completed. Six-month G&A fell about $1.52 million, reflecting lower personnel, professional-fee and stock-compensation costs and cash-preservation efforts.
- Six-month net loss narrowed by about $4.91 million year over year. These reductions reflect lower expenses and do not represent commercial revenue growth.
- Common shares outstanding increased during the period, including through equity sales and the Armistice financing. Armistice’s preferred shares converted into 11.94 million common shares on July 6, 2017; it also received warrants for up to 14.29 million shares at $0.40 per share.
Outlook, risks and subsequent events
- Management expected continuing operating losses and stated that substantial additional financing would be needed to develop candidates. It estimated that cash plus the initial proceeds from the subsequent Janssen transaction would fund operating and capital needs through 2018; this was a forecast, not a guarantee.
- On August 14, 2017, Cerecor sold its CERC-501 rights to Janssen for $25 million gross, with $3.75 million placed in a 12-month escrow, and a potential additional $20 million regulatory milestone. Janssen assumed ongoing trials and future development and commercialization responsibilities.
- The term loan matured and was repaid on August 1, 2017; the final payment was $494,231, including a $187,500 termination fee.
- The company disclosed a Nasdaq minimum-bid-price deficiency. Shareholders had approved a possible reverse split, and the company said it expected a second 180-day compliance period following the Janssen transaction.
- Key risks include clinical and regulatory uncertainty, continued cash burn and dependence on financing or partnering. The filing reported no material change to the risk factors in the prior annual report, no material legal proceedings, and effective disclosure controls.
Important facts for investors to verify
- Confirm the filing’s issuer identity: the supplied 10-Q is for Cerecor Inc., not Avalo Therapeutics, Inc.
- Verify receipt and availability of Janssen proceeds, the status and release terms of the $3.75 million escrow, and whether the contingent $20 million milestone is achieved.
- Check actual cash runway and subsequent operating expenditures against management’s through-2018 estimate.
- Review post-conversion share count, warrant exercises or potential dilution, and Nasdaq listing compliance or any reverse split.
- Assess development plans, funding needs and clinical progress for the remaining candidates after the CERC-501 sale.