Business context and reporting period
The supplied filing is Cerecor Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2021—not a filing under the name Avalo Therapeutics, Inc. Investors should verify the issuer and filing identity before relying on this summary. Cerecor was a clinical-stage biopharmaceutical company developing treatments for immunologic, immuno-oncologic, and rare genetic disorders. Its commercial product was Millipred, described as a non-core asset.
Financial performance and position
Amounts below are in U.S. dollars; financial statement amounts are converted from thousands to millions.
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $3.36m | $1.34m | $3.83m | $4.09m |
| Net loss | $17.11m | $13.28m | $47.79m | $34.40m |
| Operating expenses | $20.48m | $13.15m | $51.54m | $47.32m |
| Operating cash flow | Not presented quarterly | Not presented quarterly | $(37.50)m | $(14.29)m |
- Q2 product revenue was $2.73m, up from $1.34m; license revenue was $0.63m, from out-licensing two non-core assets. Six-month product revenue was $3.20m, down from $4.09m.
- Research and development expense was $12.57m in Q2 and $37.77m for six months, versus $5.92m and $10.69m, respectively, in 2020. Six-month R&D included a $10.0m CERC-002 license fee, increased clinical and manufacturing costs, and a $0.5m CERC-006 milestone.
- Cash and cash equivalents were $40.44m at June 30, 2021, compared with $18.92m at December 31, 2020. Current assets were $47.36m and current liabilities $21.67m.
- Notes payable had a $17.14m carrying value ($20.6m gross, including final payment fee); the initial venture-debt advance was $20m. Stockholders’ equity was $21.59m, down from $24.56m at year-end.
- Common shares outstanding increased to 96.01m from 75.00m at year-end, reflecting financing and other share issuances. Product cost of sales was $0.08m in Q2 and $0.16m for six months; the filing gives no consolidated gross-margin measure.
Material changes versus comparable periods
- Q2 revenue rose year over year as Millipred sales resumed after delayed inventory arrived in April; six-month product revenue nevertheless fell because the company recorded a full return allowance on short-dated inventory in Q1.
- Six-month net loss increased by $13.39m. R&D spending rose substantially as the expanded pipeline advanced; 2020 also included $25.55m of acquired in-process R&D expense from the Aevi transaction.
- Six-month operating cash use increased by $23.21m, reflecting greater pipeline investment. Financing provided $59.04m, including $37.65m net from a January equity offering and $19.62m net from the initial venture-debt draw.
- In April, the significant stockholder Armistice converted all remaining preferred shares into 6.29m common shares. Q2 G&A included $1.4m of compensation expense from modifying a former chairman’s options.
Outlook, risks, and unusual items
- Management stated that losses are expected to continue and that additional financing is required to fund operations and execute the business strategy for at least one year after issuance of the financial statements. Management concluded substantial doubt exists about the company’s ability to continue as a going concern.
- Management expected R&D expense to remain above historic levels, with multiple clinical data readouts anticipated over the following 12 months. It expected Millipred revenue to return to levels consistent with prior periods over the remainder of 2021, while product costs were expected to rise from Q3.
- Subsequent to quarter-end, the company received a further $10m gross venture-debt advance following positive initial CERC-002 Crohn’s Phase 1b results; another $5m remained contingent on milestones. It also reported that the debt financing extended interest-only periods. A July ATM agreement permits up to $50m of common-stock sales; no shares had been sold under it as of filing.
- The venture debt bears interest at 6.25% plus prime, is secured by substantially all assets other than specified exclusions, and includes restrictive covenants and events of default that may permit acceleration. The initial note’s effective rate, including discounts and fees, was 16.3% at June 30. The lender had not funded the remaining $5m as of the filing’s reported subsequent developments.
- Beginning July 1, 2021, Millipred’s supply agreement requires payment to Teva of 50% of net product profit, subject to a $0.5m quarterly minimum. Millipred distribution was still handled by Aytu as of the filing date while Cerecor worked to establish its own channel.
- Millipred revenue was concentrated: three customers represented approximately 62%, 17%, and 20% of Q2 product revenue. The company also disclosed related-party transactions involving Armistice affiliates, including the CERC-406 assignment.
- Initial CERC-002 Crohn’s cohort results cited by management were from four patients: approximately 80% mean reduction in LIGHT levels and endoscopic improvement in 3 of 4 patients, with no drug-related severe adverse events reported. These were preliminary results, not a basis for assuming approval or commercial success.
Important facts to verify
- Confirm that this Cerecor 2021 filing is the intended filing; the request identifies Avalo Therapeutics, Inc.
- Review the going-concern disclosure, cash burn, financing needs, and whether subsequent debt draws or ATM sales changed liquidity or dilution.
- Check the venture-debt covenants, collateral, effective borrowing cost, remaining availability, and repayment schedule.
- Assess Millipred’s inventory-related revenue timing, customer concentration, distribution transition, and Teva’s minimum payment obligation.
- Validate the status, sample sizes, follow-up, and subsequent outcomes of clinical programs, especially CERC-002, and distinguish preliminary company-reported data from later evidence.
- Review related-party licensing arrangements, contingent milestone obligations, and potential dilution from outstanding warrants, pre-funded warrants, and equity awards.