Business context and reporting period
This is Cerecor Inc.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2020. The filing identifies the registrant as Cerecor Inc., not Avalo Therapeutics; verify the company and filing identity against the intended issuer. Cerecor described itself as a biopharmaceutical company developing treatments for rare and orphan diseases. In February 2020, it acquired rights to CERC-002, CERC-006 and CERC-007 through its Aevi merger. Millipred was its remaining commercial product after the 2019 sale of its pediatric portfolio to Aytu.
Financial performance and position
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $1.11 million | $2.20 million | $5.20 million | $6.17 million |
| Loss from continuing operations | $13.26 million | $2.93 million | $48.24 million | $10.64 million |
| Net loss | $13.46 million | $4.02 million | $47.86 million | $17.69 million |
| Net loss per common share | $0.17 | $0.07 | $0.68 | $0.31 |
| Cash used in operating activities | Not separately reported for the quarter | Not separately reported for the quarter | $26.16 million | $17.45 million |
Q3 research and development expense was $8.87 million versus $1.74 million; general and administrative expense was $4.57 million versus $2.64 million. For the nine-month period, R&D was $19.56 million, G&A $13.35 million, and acquired in-process R&D expense $25.55 million, principally from the Aevi asset acquisition. The filing does not provide a clear consolidated operating-margin figure.
At September 30, 2020, cash and cash equivalents were $33.39 million ($33.67 million including restricted cash), total current assets $41.03 million, total current liabilities $16.57 million, total assets $59.19 million, total liabilities $20.62 million, and stockholders’ equity $38.57 million. The company reported no conventional long-term debt balance in the presented balance sheet; it did report a $2.0 million royalty obligation, $1.93 million of other long-term liabilities, and a $0.4 million PPP loan that it recognized as other income based on its belief that the loan qualified for forgiveness. Cash increased by $29.94 million over the nine months, supported by $44.58 million of financing cash flow and $11.52 million of investing cash flow.
Revenue consisted primarily of prescription product sales. Q3 and nine-month revenue declined year over year, substantially because 2019 included Ulesfia sales while 2020 reflected Millipred alone. Three customers accounted for approximately 40%, 24% and 34% of Q3 continuing-operations product revenue; concentration remained high over the nine months at approximately 43%, 28% and 27%.
Material changes and management outlook
- Revenue fell while net losses and operating cash use increased, reflecting expanded pipeline investment, higher staffing and the $25.55 million Aevi-related acquired IPR&D charge. The $5.21 million gain on the Aytu investment sale and $2.61 million income tax benefit partly offset reported losses over the nine months.
- Cerecor raised approximately $44.5 million net through 2020 equity offerings and a private placement, and received approximately $12.8 million from selling its Aytu shares. Common shares outstanding increased from 44.38 million at year-end 2019 to 74.90 million at September 30, 2020.
- Management expected R&D spending to remain above historical levels as the expanded pipeline advanced. At filing time, the CERC-002 proof-of-concept study in COVID-19 ARDS was enrolling patients, with top-line data expected in Q4 2020. The company also cited CERC-800 programs for congenital disorders of glycosylation and other rare-disease candidates.
- Teva gave notice that the Millipred license and supply agreement would terminate effective April 1, 2021. Cerecor could sell inventory on hand at that date for six months afterward; negotiations to extend the agreement were ongoing, with no assurance of an extension. The company was exploring a possible out-license or sale of Millipred and non-core assets.
- Management stated that substantial doubt existed about the company’s ability to continue as a going concern within one year after the financial statements were issued. It expected continued losses and said additional financing, asset sales, licensing, collaborations or grants might be required; there was no assurance these options would be available on acceptable terms. Failure to obtain sufficient funding could force spending reductions or suspension or curtailment of programs.
- Other notable items include a $0.9 million payment to settle disputes with former TRx owners; a $2.6 million nine-month tax benefit related to loss carrybacks under the CARES Act; and an estimated $1.5 million reserve for returns on the divested pediatric portfolio. Cerecor also remained exposed to a guarantee of certain Aytu obligations; based on Aytu’s most recently reported information, the filing estimated maximum potential future payments at $7.3 million.
- Potential unrecognized contingent payments included up to $6.5 million tied to Aevi development milestones and up to $15.0 million tied to Ichorion asset milestones. No such contingent consideration was recognized as of September 30, 2020.
Most important facts to verify
- Confirm whether Cerecor Inc. is the intended issuer, given the request metadata names Avalo Therapeutics.
- Check the subsequent status and actual results of the CERC-002 COVID-19 ARDS study and the other pipeline programs; the stated Q4 2020 data timing was an expectation, not a reported outcome.
- Verify whether Teva’s Millipred termination took effect, whether the agreement was extended, and whether Millipred was licensed or sold.
- Assess financing raised after September 30, 2020, cash burn and runway, and whether the going-concern uncertainty was resolved.
- Review subsequent Aytu payments and Cerecor’s remaining guarantee exposure, including pediatric product return obligations.
- Confirm PPP loan forgiveness and any later recognition, payment or dilution associated with contingent milestones and equity awards.