Avalo Therapeutics, Inc. (metadata) — filing summary
Entity and period: The supplied filing is Cerecor Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2021, not a filing under the name Avalo Therapeutics. The financial figures below therefore describe Cerecor as reported in this filing. Amounts are in U.S. dollars; financial statement amounts are generally in millions unless noted.
Business context
Cerecor described itself as a clinical-stage biopharmaceutical company focused on rare and orphan diseases. Its pipeline included CERC-800 compounds for congenital disorders of glycosylation, CERC-006 for complex lymphatic malformations, CERC-002 (anti-LIGHT) and CERC-007 (anti-IL-18). Millipred was its commercialized product, and the company was exploring strategic alternatives for Millipred and non-core neurology assets.
Key financial results and position
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Net product revenue | $0.5 million | $2.8 million; down about 83% |
| Research and development expense | $25.2 million | $4.8 million |
| Total operating expenses | $31.1 million | $34.2 million |
| Loss from continuing operations | $30.6 million | $22.2 million |
| Net loss | $30.7 million | $21.1 million |
| Operating cash flow | $(18.3) million | $(5.7) million |
| Cash and cash equivalents at quarter-end | $38.3 million | $18.9 million at December 31, 2020 |
Revenue fell mainly because manufacturing delays left inventory short-dated; Cerecor recorded a $2.9 million full allowance for returns on short-dated product. Cost of product sales was $0.1 million. The filing does not state a specific gross margin.
Cash provided by financing was $37.8 million, primarily from a January public offering that generated $37.7 million net. Cash, cash equivalents and restricted cash totaled $38.6 million at quarter-end. Total liabilities were $30.2 million and stockholders’ equity was $33.2 million. The balance sheet reported a $2.0 million royalty obligation and $1.4 million of operating lease liabilities; it did not report conventional borrowings as a separate debt balance.
Material changes and unusual items
- R&D expense rose by $20.4 million, reflecting expanded pipeline development after the 2020 Aevi merger, a $10.0 million CERC-002 license fee recognized in Q1, and increased clinical and manufacturing costs. The fee was paid in April.
- Q1 2020 included a $25.5 million acquired in-process R&D charge related to the Aevi asset acquisition; there was no comparable charge in Q1 2021.
- Q1 2020 included $7.1 million of other income from an increase in the fair value of Cerecor’s Aytu investment. The investment was sold in April 2020 for approximately $12.8 million net proceeds.
- The January 2021 offering increased issued common shares from 75.0 million at year-end 2020 to 89.1 million at quarter-end, in addition to pre-funded warrants. In April 2021, the remaining preferred shares converted into 6.3 million common shares.
- Accounts payable increased to $11.9 million from $2.6 million, including the unpaid $10.0 million CERC-002 license fee at quarter-end. Accrued expenses rose to $14.2 million, including higher R&D accruals and sales-return allowances.
Outlook, risks and contingencies
- Going concern: Management stated that additional financing would be required to fund operations and execute its strategy for at least one year after issuance of the financial statements, and concluded substantial doubt existed about the company’s ability to continue as a going concern. Potential funding sources included equity or other financings, grants, collaborations, licensing, or sale of non-core assets. Failure to obtain funding could lead to spending cuts or delays, suspension, or elimination of programs.
- Operating outlook: Management expected R&D expense to remain elevated as the pipeline advanced and anticipated multiple clinical data readouts over the following 12 months. It expected Millipred revenue to return to prior-period levels during 2021 after receipt of delayed inventory in April, while continuing to explore strategic alternatives for the product.
- Millipred economics: Under a May 2021 amendment, the 50% net-profit share payable to Teva, subject to a $0.5 million quarterly minimum, was delayed from April 1 to July 1, 2021. The filing expected product-sales costs to increase beginning in Q3 2021.
- Pipeline obligations: The CERC-002 KKC license includes a $10.0 million upfront fee, regulatory and sales milestones, royalties, and a share of certain sublicensing proceeds. Potential milestone and royalty obligations also relate to other licensed programs; many contingent milestones had not been recognized as liabilities at quarter-end.
- Other exposures: Cerecor guaranteed certain Aytu payments to Deerfield; the filing cited an estimated maximum potential future payment of $7.3 million based on Aytu’s latest publicly reported amount, and assessed expected credit loss as de minimis at March 31, 2021. Cerecor also retained exposure to certain legacy product returns and TRIS obligations if Aytu fails to pay.
- Management reported no material change to the risk factors in its 2020 Form 10-K and no material legal proceedings. It reported disclosure controls were effective at the reasonable-assurance level.
Investor facts to verify
- Confirm the issuer and reporting entity: the supplied document is filed by Cerecor Inc., although the request metadata names Avalo Therapeutics, Inc.
- Assess the going-concern warning against cash burn, the April payment of the CERC-002 fee, and the availability and dilution or rights-related consequences of additional financing.
- Check whether delayed Millipred inventory restored sales and how the Teva profit share and quarterly minimum affect product economics from July 2021.
- Track clinical progress, data readouts, regulatory developments, and spending for CERC-002, CERC-007, and the other pipeline programs.
- Review potential dilution from the January offering’s pre-funded warrants, outstanding options and warrants, and the April preferred-stock conversion.
- Monitor Aytu/Deerfield guarantee exposure, legacy returns, related-party arrangements, and contingent license or acquisition milestone obligations.