UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10‑Q



☒ þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended ~~September 30, 2017~~March 31, 2019
OR
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

COMMISSION FILE NUMBER: ~~001-3759~~001-37590

~~Cerecor Inc.~~CERECOR INC.

(Exact name of registrant as specified in its charter)



Delaware (State of incorporation)	45-0705648 (I.R.S. Employer Identification No.)
~~400 E. Pratt Street,~~540 Gaither Road, Suite ~~606~~400 ~~Baltimore,~~Rockville, Maryland ~~21202~~20850 (Address of principal executive offices)	(410) 522‑8707 (Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, $0.001 par value	CERC	Nasdaq Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ þ No ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S‑T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes ☒ þ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non‑accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b‑2 of the Exchange Act. ~~(Check one):~~



Large accelerated filer ¨		Accelerated filer ¨
Non-accelerated filer ¨þ	~~(Do not check if a smaller reporting company)~~	Smaller reporting company þ
Emerging growth company þ

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act). Yes ¨ No þ

As of ~~November 6, 2017,~~May 3, 2019, the registrant had ~~26,054,857~~42,753,659 shares of common stock outstanding.

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CERECOR INC.

FORM 10-Q

For the Quarter Ended ~~September 30, 2017~~March 31, 2019

TABLE OF CONTENTS




					Page

PART I.	FINANCIAL INFORMATION

	Item 1.	Financial Statements

		a)	a)	Condensed Consolidated Balance Sheets as of ~~September 30, 2017~~March 31, 2019 (Unaudited) and December 31, ~~2016~~2018		3

		b)	b)	Condensed Consolidated Statements of Operations (Unaudited) for the Three ~~and Nine~~ Months Ended ~~September 30, 2017~~March 31, 2019 and ~~2016~~2018		4

		c)	c)	Condensed Consolidated Statements of Cash Flows (Unaudited) for the ~~Nine~~Three Months Ended ~~September 30, 2017~~March 31, 2019 and ~~2016~~2018		5

		d)	d)Condensed Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) for the Three Months Ended March 31, 2019 and 2018

		e)	Notes to Unaudited Financial Statements		68

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations			2029

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk			3038

	Item 4.	Controls and Procedures			3038

PART II.	OTHER INFORMATION

	Item 1.	Legal Proceedings			3139

	Item 1A.	Risk Factors			31

	~~Item 2.~~	~~Unregistered Sales of Equity Securities and Use of Proceeds~~			3139

	Item 6.	Exhibits			3240

	SIGNATURES				3441

Table of Contents

PART I –- FINANCIAL INFORMATION

Item 1. Financial ~~Statements~~Statements.

CERECOR INC. and SUBSIDIARIES

Condensed Consolidated Balance Sheets


	September 30, 2017			December 31, 2016			March 31, 2019			December 31, 2018
	(unaudited)						(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	23,955,397		$	5,127,958		$	16,121,388		$	10,646,301
Escrowed cash receivable	3,750,803			—
Grants receivable	30,135			132,472
Accounts receivable, net							2,718,396			3,157,555
Other receivables							5,531,025			5,469,011
Inventory, net							1,046,982			1,110,780
Prepaid expenses and other current assets	341,025			391,253			1,248,465			1,529,516
Restricted cash, current portion	29,159			11,111			77,846			18,730
Total current assets	28,106,519			5,662,794			26,744,102			21,931,893
Property and equipment, net	34,183			43,243			1,477,067			586,512
Intangibles assets, net							30,160,621			31,239,468
Goodwill							16,411,123			16,411,123
Restricted cash, net of current portion	62,847			62,828			77,118			81,725
Total assets	$	28,203,549		$	5,768,865		$	74,870,031		$	70,250,721
Liabilities and stockholders’ (deficit) equity
Liabilities and stockholders’ equity
Current liabilities:
Term debt, net of discount	$	—		$	2,353,667
Accounts payable	312,514			1,010,209			$	1,249,470		$	1,446,141
Accrued expenses and other current liabilities	1,290,683			947,987			21,815,097			19,731,373
Income taxes payable	3,230,000			—			1,814,650			2,032,258
Long-term debt, current portion							1,050,000			1,050,000
Contingent consideration, current portion							2,205,647			1,956,807
Total current liabilities	4,833,197			4,311,863			28,134,864			26,216,579
Long-term debt, net of current portion							14,303,540			14,327,882
Contingent consideration, net of current portion							6,796,641			7,093,757
Deferred tax liability, net							75,179			69,238
License obligations	1,250,000			1,250,000			1,250,000			1,250,000
Other long-term liabilities							1,189,277			385,517
Total liabilities	6,083,197			5,561,863			51,749,501			49,342,973
Stockholders’ equity:
Preferred stock—$0.001 par value; 5,000,000 shares authorized; zero shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively	—			—
Common stock—$0.001 par value; 200,000,000 shares authorized; 26,054,857 and 9,434,141 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively	26,055			9,434
Common stock—$0.001 par value; 200,000,000 shares authorized at March 31, 2019 and December 31, 2018; 42,753,659 and 40,804,189 shares issued and outstanding at March 31, 2019 and December 31, 2018, respectively							42,754			40,804
Preferred stock—$0.001 par value; 5,000,000 shares authorized at March 31, 2019 and December 31, 2018; 2,857,143 shares issued and outstanding at March 31, 2019 and December 31, 2018							2,857			2,857
Additional paid-in capital	77,167,922			70,232,651			128,747,037			119,082,157
Accumulated deficit	(55,073,625		)	(70,035,083		)	(105,672,118		)	(98,218,070		)
Total stockholders’ equity	22,120,352			207,002			23,120,530			20,907,748
Total liabilities and stockholders’ equity	$	28,203,549		$	5,768,865		$	74,870,031		$	70,250,721

See accompanying notes to ~~unaudited~~the condensed consolidated financial statements.

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CERECOR INC. and SUBSIDIARIES

Condensed Consolidated Statements of Operations (Unaudited)

Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
License and other revenue $ 25,000,000
$ —
$ 25,000,000
$ —
Grant revenue 37,592
321,497
579,597
971,985
Total revenue 25,037,592
321,497
25,579,597
971,985
Operating expenses:
Research and development 964,574
4,581,605
2,411,293
9,376,633
General and administrative 2,151,859
1,703,188
4,921,269
5,989,053
Income (loss) from operations 21,921,159
(5,963,296 ) 18,247,035
(14,393,701 )
Other income (expense):
Change in fair value of warrant liability and unit purchase option liability 64
(101,246 ) (1,586 ) (57,595 )
Interest income (expense), net 29,387
(104,183 ) (53,991 ) (381,603 )
Total other income (expense) 29,451
(205,429 ) (55,577 ) (439,198 )
Net income (loss) before taxes $ 21,950,610
$ (6,168,725 ) $ 18,191,458
$ (14,832,899 )
Income tax expense 3,230,000
—
3,230,000
—
Net income (loss) after taxes $ 18,720,610
$ (6,168,725 ) $ 14,961,458
$ (14,832,899 )

Net income (loss) per common share, basic and diluted $ 0.52
$ (0.70 ) $ 0.65
$ (1.71 )

Weighted-average number of common shares - basic 21,382,683
8,756,393
14,952,391
8,685,818
Weighted-average number of common shares - diluted 21,407,702
8,756,393
14,960,032
8,685,818



	Three Months Ended
	March 31,
	2019			2018
Revenues
Product revenue, net	$	5,411,443		$	4,260,119
Sales force revenue	—			222,656
Total revenues, net	5,411,443			4,482,775

Operating expenses:
Cost of product sales	1,947,892			863,624
Research and development	3,401,189			1,649,778
General and administrative	2,716,983			2,918,916
Sales and marketing	3,108,902			1,524,816
Amortization expense	1,078,847			1,017,408
Change in fair value of contingent consideration	180,402			262,769
Total operating expenses	12,434,215			8,237,311
Loss from operations	(7,022,772		)	(3,754,536		)
Other (expense) income:
Change in fair value of warrant liability and unit purchase option liability	(47,577		)	(23,251		)
Other (expense) income, net	(9,400		)	18,655
Interest expense, net	(207,941		)	(100,402		)
Total other expense, net	(264,918		)	(104,998		)
Net loss before taxes	(7,287,690		)	(3,859,534		)
Income tax expense	166,358			23,313
Net loss	$	(7,454,048	)	$	(3,882,847	)
Net loss per share of common stock, basic and diluted	$	(0.13	)	$	(0.12	)
Net loss per share of preferred stock, basic and diluted	$	(0.67	)	$	—

See accompanying notes to the condensed consolidated unaudited financial statements.

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CERECOR INC. and SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows (Unaudited)

Nine Months Ended September 30,
2017 2016
Operating activities
Net income (loss) $ 14,961,458
$ (14,832,899 )
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation 17,050
20,468
Stock-based compensation expense 852,210
1,439,194
Non-cash interest expense 20,365
134,096
Change in fair value of warrant liability and unit purchase option liability 1,586
57,595
Changes in assets and liabilities:
Grants receivable 102,337
(379,256 )
Prepaid expenses and other assets 50,228
191,527
Escrowed funds receivable (3,750,803 ) —
Restricted cash (18,067 ) (79,051 )
Accounts payable (697,695 ) 109,908
Accrued expenses and other liabilities 341,109
2,478,234
Income taxes payable 3,230,000
—
Net cash provided by (used in) operating activities 15,109,778
(10,860,184 )
Investing activities
Purchase of property and equipment (7,990 ) (25,646 )
Net cash used in investing activities (7,990 ) (25,646 )
Financing activities
Proceeds from sale of shares under common stock purchase agreements, net 1,693,498
1,000,000
Proceeds from sale of shares pursuant to private placement, net 4,650,000
—
Proceeds from sales of common stock under employee stock purchase plan, net 35,430
—
Principal payments on term debt (2,374,031 ) (2,459,493 )
Payment of financing costs (279,246 ) (1,467 )
Net cash provided by (used in) financing activities 3,725,651
(1,460,960 )
Increase (decrease) in cash and cash equivalents 18,827,439
(12,346,790 )
Cash and cash equivalents at beginning of period 5,127,958
21,161,967
Cash and cash equivalents at end of period $ 23,955,397
$ 8,815,177
Supplemental disclosures of cash flow information
Cash paid for interest $ 72,526
$ 287,841
Supplemental disclosures of noncash financing activities
Accrued financing costs $ —
$ 101,728



	Three Months Ended March 31,
	2019			2018
Operating activities
Net loss	$	(7,454,048	)	$	(3,882,847	)
Adjustments to reconcile net loss provided by (used in) to net cash used in operating activities:
Depreciation and amortization	1,098,478			1,023,040
Stock-based compensation	596,693			242,824
Deferred taxes	5,941			15,913
Amortization of inventory fair value associated with acquisition of TRx and Avadel	22,603			45,450
Non-cash interest expense	—			105,451
Change in fair value of warrant liability and unit purchase option liability	47,577			23,251
Change in fair value of contingent consideration and long-term royalty obligation	180,402			262,769
Other	21,412			—
Changes in assets and liabilities:
Accounts receivable, net	439,159			104,671
Other receivables	(62,014		)	371,663
Inventory, net	41,195			(554,445		)
Prepaid expenses and other assets	281,051			(71,085		)
Escrowed cash receivable	—			(2,065		)
Accounts payable	(196,671		)	1,866,960
Income taxes payable	(217,608		)	7,400
Accrued expenses and other liabilities	2,074,278			160,627
Net cash used in operating activities	(3,121,552		)	(280,423		)
Investing activities
Acquisition of business	—			(1		)
Purchase of property and equipment	(165,969		)	(19,224		)
Net cash used in investing activities	(165,969		)	(19,225		)
Financing activities
Proceeds from exercise of stock options and warrants	94,177			363,390
Proceeds from underwritten public offering, net	8,975,960			—
Payment of contingent consideration	(228,678		)	—
Payment of long-term debt	(24,342		)	—
Net cash provided by financing activities	8,817,117			363,390
Increase in cash, cash equivalents and restricted cash	5,529,596			63,742
Cash, cash equivalents, and restricted cash at beginning of period	10,746,756			2,605,499
Cash, cash equivalents, and restricted cash at end of period	$	16,276,352		$	2,669,241
Supplemental disclosures of cash flow information
Cash paid for interest	$	262,500		$	44,003
Cash paid for taxes	$	378,025		$	—
Supplemental disclosures of non-cash activities
Leased asset obtained in exchange for new operating lease liability	$	743,025		$	—
Debt assumed in Avadel Pediatric Products acquisition	$	—		$	(15,075,000	)

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same such amounts shown in the condensed consolidated statements of cash flows:

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	March 31,
	2019		2018

Cash and cash equivalents	$	16,121,388	$	2,523,927
Restricted cash, current	77,846		13,955
Restricted cash, non-current	77,118		131,359
Total cash, cash equivalents and restricted cash	$	16,276,352	$	2,669,241

See accompanying notes to ~~unaudited~~the condensed consolidated financial statements.

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CERECOR INC. and SUBSIDIARIES

Condensed Consolidated Statements of Changes in Stockholders’ Equity



	Stockholders’ Equity
							Additional							Total
	Common stock			Preferred Stock			paid‑in		Contingently issuable stock		Accumulated			stockholders’
	Shares	Amount		Shares	Amount		capital		Amount		deficit			equity
Three Months Ended March 31, 2018:
Balance, December 31, 2017	31,266,989	$	31,268	—	$	—	$	83,338,136	$	2,655,464	$	(58,165,260	)	$	27,859,608
Exercise of stock options and warrants	143,346	143		—	—		363,247							363,390
Stock-based compensation	—	—		—	—		242,824		—		—			242,824
Net loss	—	—		—	—		—				(3,882,847		)	(3,882,847		)
Balance, March 31, 2018	31,410,335	$	31,411	—	$	—	$	83,944,207	$	2,655,464	$	(62,048,107	)	$	24,582,975



Three Months Ended March 31, 2019:
Balance, December 31, 2018	40,804,189	$	40,804	2,857,143	$	2,857	$	119,082,157		$	—	$	(98,218,070	)	$	20,907,748
Issuance of shares of common stock in underwritten public offering, net of offering costs	1,818,182	1,818		—	—		8,974,142			—					8,975,960
Exercise of stock options and warrants	31,288	31		—	—		94,146			—					94,177
Stock-based compensation	—	—		—	—		596,693			—		—			596,693
Restricted Stock Units vested during period	100,000	101		—	—		(101		)	—		—			—
Net loss	—	—		—	—		—			—		(7,454,048		)	(7,454,048		)
Balance, March 31, 2019	42,753,659	$	42,754	2,857,143	$	2,857	$	128,747,037		$	—	$	(105,672,118	)	$	23,120,530

See accompanying notes to the condensed consolidated financial statements.

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CERECOR INC. and SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

1. Business

Cerecor Inc. (the ~~“Company”~~"Company" or “Cerecor”) is a fully integrated biopharmaceutical company ~~that~~with commercial operations and research and development capabilities. The Company is building a pipeline of innovative therapies in neurology, pediatric healthcare, and orphan rare diseases. The Company's neurology pipeline is led by CERC-301, which recently received positive interim results from the Phase I safety study of Neurogenic Orthostatic Hypotension ("nOH"). The Company is also developing ~~innovative drug candidates for commercialization, license or sale to make a difference~~two other neurological compounds, one of which is in preclinical testing and the other is in the ~~lives~~clinical ready stage. The Company's pediatric orphan rare disease pipeline is led by CERC-801, CERC-802, and CERC-803. All three of ~~patients with neurologic~~these compounds are therapies for inherited metabolic disorders known as Congenital Disorders of Glycosylation ("CDGs") by means of substrate replacement therapy. The U.S. Food and ~~psychiatric disorders.~~Drug Administration ("FDA") has granted Rare Pediatric Disease designation ("RPDD") and Orphan Drug Designation ("ODD") to all three compounds. Under the FDA’s Rare Pediatric Disease Priority Review Voucher ("PRV") program, upon the approval of a new drug application ("NDA") for the treatment of a rare pediatric disease, the sponsor of such application would be eligible for a PRV that can be used to obtain priority review for a subsequent new drug application or biologics license application. The ~~Company’s operations since inception have been limited~~PRV may be sold or transferred an unlimited number of times. The Company plans to ~~organizing~~leverage the 505(b)(2) NDA pathway for all three compounds to accelerate development and ~~staffing~~approval. The Company is also in the process of developing one other preclinical pediatric orphan rare disease compound.

The Company also has a diverse portfolio of marketed products. Our marketed products are led by our prescribed dietary supplements and prescribed drugs. Our prescribed dietary supplements include Poly-Vi-Flor and Tri-Vi-Flor, which are prescription vitamin and fluoride supplements used in infants and children to treat or prevent deficiency of essential vitamins and fluoride. The Company also markets a number of prescription drugs that treat a range of pediatric diseases, disorders and conditions. Cerecor's prescription drugs include Millipred®, Ulesfia®, Karbinal™ ER, AcipHex® Sprinkle™, and Cefaclor for Oral Suspension. Finally, the Company ~~acquiring rights to~~has one marketed medical device, Flexichamber™.

Cerecor was incorporated in 2011, commenced operations in the second quarter of 2011 and ~~developing certain product candidates, business planning and raising capital.~~completed an initial public offering in October 2015.

~~Liquidity~~

The Company's financial statements have been prepared on an accrual basis. The Company has not generated any product revenues and has not yet achieved profitable operations from commercialization. There is no assurance that profitable operations will ever be achieved, and if achieved, could be sustained on a continuing basis.

~~Prior to the quarter ended September 30,~~On November 17, 2017, the Company ~~had incurred recurring operating losses since inception. For the nine months ended September 30, 2017, the Company generated net income~~acquired TRx Pharmaceuticals, LLC (“TRx”) and its wholly-owned subsidiaries (see "TRx Acquisition" in Note 5 below for a description of ~~$15.0 million and positive cash flows from operations of $15.1 million. In August 2017, the Company sold~~this transaction).

On February 16, 2018, Cerecor acquired all ~~of its~~ rights to ~~a prior product candidate, CERC-501, to Janssen~~Avadel Pharmaceuticals ~~Inc.~~PLC’s (“~~Janssen”~~Avadel”) marketed pediatric products (the “Acquired Products”) in exchange for ~~initial gross proceeds~~Cerecor assuming certain financial obligations of ~~$25.0 million,~~Avadel (see "Avadel Pediatric Products Acquisition" in Note 5 below for a description of ~~which$3.75 million was deposited into~~this transaction).

On September 25, 2018, the Company acquired Ichorion Therapeutics, Inc., a ~~twelve-month escrow~~privately-held biopharmaceutical company focused on developing treatments and increasing awareness of inherited metabolic disorders known as CDGs (see "Ichorion Asset Acquisition" in Note 5 below for a description of this transaction).

Liquidity

In order to ~~secure certain indemnification obligations,~~meet its cash flow needs, the Company applies a disciplined decision-making methodology as ~~well as a potential future $20.0 million regulatory milestone payment. The terms~~it evaluates the optimal allocation of the ~~agreement provide that Janssen will assume ongoing clinical trials~~Company's resources between investing in the Company's current commercial product line, the Company's development portfolio and ~~be responsible for any~~acquisitions or in-licensing of new ~~development~~assets. For the three months ended March 31, 2019, Cerecor generated a net loss of $7.5 million and ~~commercialization~~negative cash flow from operations of ~~CERC-501.~~

$3.1 million. As of ~~September 30, 2017, the Company~~March 31, 2019, Cerecor had an accumulated deficit of ~~$55.1~~$105.7 million and a balance of ~~$24.0~~$16.1 million in cash and cash equivalents. During the first quarter of 2019, the Company closed an underwritten public offering of common stock for 1,818,182 shares of common stock of the Company, at a price to the public of $5.50 per share ("public price"). Armistice Capital Master Fund Ltd. ("Armistice"), our largest stockholder, participated in the offering by purchasing 363,637 shares of common stock of the Company from the underwriter at the public price. Cerecor director Steven J. Boyd is Armistice's Chief Investment Officer. The net proceeds of the offering were approximately $9.0 million (see "Common Stock Offering" in Note 9 below for description of the transaction).

The Company ~~anticipates operating losses~~plans to ~~continue for~~use cash and the ~~foreseeable future due~~anticipated cash flows from the Company's existing product sales to ~~among other things,~~offset costs related to its ~~preclinical~~neurology programs, ~~additional clinical development of its product candidates,~~pediatric rare disease programs, business development, ~~and~~ costs associated with its organizational ~~infrastructure.~~

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infrastructure, and debt principal and interest payments. Cerecor expects to continue to incur significant expenses and operating losses for the immediate future as it continues to invest in the Company's pipeline assets. Our ability to achieve and maintain profitability in the future is dependent on, among other things, the development, regulatory approval, and commercialization of our new product candidates and achieving a level of revenues from our existing product sales adequate to support our cost structure, which includes significant investment in our pipeline assets.

The Company believes it will require ~~substantial~~ additional financing ~~to fund its operations and~~ to continue to execute its ~~strategy.~~clinical development strategy and fund future operations. The Company plans to meet its capital requirements ~~primarily~~ through aoperating cash flows from product sales and some combination of equity or debt financings, collaborations, or out-licensing arrangements, strategic alliances, federal and private grants, marketing, distribution, or licensing arrangements, ~~and in~~or the longer term, revenue from product sales to the extent its product candidates receive marketing approval and are commercialized. There can be no assurance, however, that the Company will be successful in obtaining financing at the level needed to sustain operations and develop its product candidatessale of current or ~~on terms acceptable to the Company, or that the Company will obtain approvals necessary to market its products or achieve profitability or sustainable positive cash flow.~~future assets. If the Company ~~fails~~is not able to ~~raise capital~~secure adequate additional funding, the Company may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, or ~~enter into any such~~suspend or curtail planned programs. If the Company raises additional funds through collaborations, strategic alliances, or licensing arrangements ~~it will~~with third parties, the Company may have to ~~further delay, scale back~~relinquish valuable rights to our technologies, future revenue streams, research programs, or ~~discontinue the development of one or more of its~~ product ~~candidates or cease its operations altogether.~~candidates.

~~In April 2017~~Our plan to aggressively develop our pipeline will require substantial cash inflows in excess of what the Company ~~received $5.0 million in gross proceeds pursuant~~expects our current commercial operations to ~~a securities purchase agreement with Armistice Capital Master Fund Ltd (“Armistice”). The Company has~~generate. However, the ~~potential to raise additional cash through an equity distribution agreement with Maxim Group LLC ("Maxim Group") as described in Note 8.~~

~~The~~ Company expects ~~its~~that our existing cash ~~on hand at September 30, 2017~~and cash equivalents, together with anticipated revenue, will enable us to fund ~~future~~our operating expenses, capital expenditure requirements, and other non-operating cash payments, such as fixed quarterly payments on our outstanding debt balances, through at least ~~December 31, 2018.~~

May 2020.

2. Basis of Presentation and Significant Accounting Policies

Basis of Presentation

The Company’s unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”).

In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, which are necessary to present fairly the Company’s financial position, results of operations, and cash flows. The condensed consolidated balance sheet at December 31, ~~2016~~2018 has been derived from audited financial statements at that date. The interim results of operations are not necessarily indicative of the results that may occur for the full fiscal year. Certain information and footnote disclosure normally included in the financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to instructions, rules, and regulations prescribed by the United States Securities and Exchange Commission (“SEC”).

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Certain prior period amounts have been reclassified to conform to the current year presentation.

The Company believes that the disclosures provided herein are adequate to make the information presented not misleading when these unaudited condensed consolidated financial statements are read in conjunction with the December 31, ~~2016~~2018 audited consolidated financial statements.

~~Use~~Reclassification

During the fourth quarter of ~~Estimates~~

~~The preparation~~2018, the Company concluded that going forward it would include change in fair value of ~~financial~~contingent consideration within its own stand-alone line in operating expenses in the Company's statements ~~in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts~~ of assets, liabilities, revenues, expenses, other comprehensive income and related disclosures. On an ongoing basis, management evaluates its estimates, including estimates related to clinical trial accruals, the warrant liability and the unit purchase option liability.operations. The Company ~~bases its estimates on historical experience and~~has reclassified $0.3 million from other ~~market‑specific or other relevant assumptions that it believes~~expenses to ~~be reasonable under the circumstances. Actual results may differ from those estimates or assumptions.~~

~~Net Income (Loss) Per Share, Basic and Diluted~~

Earnings per share are computed using the two-class method. The two-class method of computing earnings per share is an earnings allocation formula that determines earnings per share for common stock and any participating securities according to dividends declared (whether paid or unpaid) and participation rights in undistributed earnings. Shares of the unexercised warrants issuedoperating expenses in the ~~Armistice Private Placement transaction are considered participating securities because these warrants contain a non-forfeitable right~~March 31, 2018 statement of operations to ~~dividends irrespective~~conform with current period presentation.

Significant Accounting Policies

During the three months ended March 31, 2019, there have been no significant changes to the Company’s summary of ~~whether~~significant accounting policies contained in the ~~warrants are ultimately exercised. Under the two-class method, earnings per common share~~Company’s Annual Report on Form 10-K for the ~~common stock~~year ended December 31, 2018, as filed with the SEC on March 18, 2019 and participating warrants are computed by dividing the sum of distributed earnings to common shareholders and undistributed earnings allocated to common shareholders by the weighted-average number of shares of Common stock and participating warrants outstandingamended on April 23, 2019, except for the ~~period. In applying the two-class method, undistributed earnings are allocated~~recently adopted accounting standards described below.

The following significant accounting policy was updated in 2019 to ~~common stock and participating warrants based on the weighted-average shares outstanding during the period.~~reflect changes upon our adoption of ASU No. 2016-02, Leases (Topic 842) ("ASU 2016-02").

Diluted net income (loss) per share includes the potential dilutive effect of common stock equivalents as if such securities were converted or exercised during the period, when the effect is dilutive. Common stock equivalents include: (i) outstanding stock options issued under the Company's Long-Term Incentive Plans which are included under the "treasury stock method" when dilutive, (ii) common stock to be issued upon the assumed conversion of the Company's unit purchase option shares, which are included under the "if-converted method" when dilutive, and (iii) common stock to be issued upon the exercise of outstanding warrants which are included under the "treasury stock method" when dilutive. Because the impact of these items is generally anti-dilutive during periods of net loss, there is no difference between basic and diluted loss per common share for periods with net losses. In addition, net losses are not allocated to the participating securities.

~~Cash and Cash Equivalents~~

The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. The carrying amounts reported in the balance sheets for cash and cash equivalents are valued at cost, which approximates their fair value.Leases

~~Escrowed Cash Receivable~~

On August 14. 2017, the Company sold all of its rights to CERC-501 to Janssen in exchange for initial gross proceeds of $25.0 million, of which $3.75 million was deposited into a twelve month escrow to secure certain indemnification obligations to Janssen Pharmaceuticals, Inc. The Company evaluates its escrowed cash receivable balance each reporting period and establishes a reserve for amounts deemed uncollectible. No reserve was recorded as of September 30, 2017.

~~Restricted Cash~~

The Company established the Employee Stock Purchase Plan in 2016. Eligible employees can purchase common stock through accumulated payroll deductions at such times as are established by the Plan administrator. At September 30, 2017, $29,200 of deposits had been made by employees for potential future stock purchases.

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In 2016 the Company entered into a bank services pledge agreement with Silicon Valley Bank. In exchange for receiving business credit card services from Silicon Valley Bank, the Company deposited $50,000 as collateral with Silicon Valley Bank. This amount will remain deposited with Silicon Valley Bank for the duration the business credit card services are used by the Company. In addition, the Company has deposited $13,000 with the landlord of the Company's office space as a security deposit. These deposits are recorded as restricted cash, net of current portion on the balance sheet at September 30, 2017.

~~Concentration of Credit Risk~~

Financial instruments that potentially subject the Company to concentrations of credit risk are primarily cash and cash equivalents. The Company maintains a portion of its cash and cash equivalent balances in the form of a money market account with a financial institution that management believes to be credit worthy. The Company has no financial instruments with off‑balance sheet risk of loss.

~~Debt and Equity Issuance Costs~~

The Company may record debt and equity discounts in connection with raising funds through the issuance of convertible notes or equity instruments. These discounts may arise from (i) the receipt of proceeds less than the face value of the convertible notes or equity instruments, (ii) allocation of proceeds to beneficial conversion features and/or (iii) recording derivative liabilities related to embedded features. For debt instruments, these costs are amortized over the life of the debt to interest expense utilizing the effective interest method. For equity instruments, these costs are netted against the gross proceeds received from the issuance of the equity.

~~Property and Equipment~~

Property and equipment consists of computers, office equipment, and furniture and is recorded at cost. Maintenance and repairs that do not improve or extend the lives of the respective assets are expensed to operations as incurred. Property and equipment are depreciated on a straight‑line basis over their estimated useful lives. The Company uses a life of four years for computers and software, and five years for equipment and furniture. Upon retirement or sale, the cost of the disposed asset and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized.

~~License and Other Revenue~~

The Company recognizes revenues from collaboration, license or other research or sale arrangements when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable and collectability is reasonably assured. Revenue from potential future milestones, if substantive, is recognized when the milestone is achieved and the payment is due and collectible.

~~Grant Revenue Recognition~~

~~The Company recognizes grant revenue when there is (i) reasonable assurance of compliance with the conditions of the grant and (ii) reasonable assurance that the grant will be received.~~

~~Research and Development~~

Research and development costs are expensed as incurred. These costs include, but are not limited to, employee‑related expenses, including salaries, benefits and stock‑based compensation of research and development personnel; expenses incurred under agreements with contract research organizations and investigative sites that conduct clinical trials and preclinical studies; the cost of acquiring, developing and manufacturing clinical trial materials; other supplies; facilities, depreciation and other expenses, which include direct and allocated expenses for rent, utilities and insurance; and costs associated with preclinical activities and regulatory operations.

Costs for certain development activities, such as clinical trials, are recognized based on an evaluation of the progress to completion of specific tasks using data such as patient enrollment, clinical site activations, or information provided to the Company by its vendors, such as clinical research organizations, with respect to their actual costs incurred. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected in the financial statements as prepaid or accrued research and development expense, as the case may be.

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~~Comprehensive Loss~~

Comprehensive loss is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non‑owner sources. Comprehensive loss was equal to net loss for all periods presented.

~~Income Taxes~~

~~The Company accounts for income taxes under the asset and liability method in accordance with ASC 740,~~ ~~Income Taxes~~ (“ASC 740”). Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Deferred tax assets primarily include net operating loss and tax credit carry-forwards, accrued expenses not currently deductible and the cumulative temporary differences related to certain research and patent costs. Certain tax attributes, including net operating losses and research and development credit carryforwards, may be subject to an annual limitation under Sections 382 and 383 of the Internal Revenue Code (the "Code"). See Note 10 for further information. The portion of any deferred tax asset for which it is more likely than not that a tax benefit will not be realized must then be offset by recording a valuation allowance. The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not to be sustained upon examination based on the technical merits of the position. The amount for which an exposure exists is measured as the largest amount of benefit determined on a cumulative probability basis that the Company believes is more likely than not to be realized upon ultimate settlement of the position.

The Company’s policy is to record interest and penalties on uncertain tax positions as income tax expense. As of September 30, 2017, the Company does not believe any material uncertain tax positions are present.

~~Stock‑Based Compensation~~

~~The Company applies the provisions of ASC 718,~~ ~~Compensation—Stock Compensation~~ (“ASC 718”), which requires the measurement and recognition of compensation expense for all stock‑based awards made to employees and non‑employees, including employee stock options, in the statements of operations.

For stock options issued to employees and members of the board of directors for their services on the board of directors, the Company estimates the grant date fair value of each option using the Black‑Scholes option pricing model. The use of the Black‑Scholes option pricing model requires management to make assumptions with respect to the expected term of the option, the expected volatility of the common stock consistent with the expected life of the option, risk‑free interest rates and expected dividend yields of the common stock. For awards subject to service‑based vesting conditions, including those with a graded vesting schedule, the Company recognizes stock‑based compensation expense equal to the grant date fair value of stock options on a straight‑line basis over the requisite service period, which is generally the vesting term. Forfeitures are recorded as they are incurred as opposed to being estimated at the time of grant and revised.

For stock options issued to non‑employees, the Company initially measures the options at their grant date fair values and revalues as the underlying equity instruments vest and are recognized as expense over the earlier of the period ending with the performance commitment date or the date the services are completed in accordance with the provisions of ASC 718 and ASC 505‑50, ~~Equity‑Based Payments to Non‑Employees~~ ~~(“ASC 505‑50”).~~

~~Clinical Trial Expense Accruals~~

As part of the process of preparing its financial statements, the Company is required to estimate its expenses resulting from its obligations under contracts with vendors, clinical research organizations and consultants and under clinical site agreements in connection with conducting clinical trials. The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided under such contracts. The Company’s objective is to reflect the appropriate trial expenses in its financial statements by matching those expenses with the period in which services are performed and efforts are expended. The Company accounts for these expenses according to the progress of the trial as measured by subject progression and the timing of various aspects of the trial. The Company determines accrual estimates by taking into account discussion with applicable personnel and outside service providers as to the progress or state of consummation of trials, or the services completed. During the course of a clinical trial, the Company adjusts its clinical expense recognition if actual results differ from its estimates. The Company makes estimates of its accrued expenses as of each balance sheet date based on the facts and circumstances known to it at that time. The Company’s clinical trial accruals are dependent upon the timely and accurate reporting of contract research

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~~organizations and other third‑party vendors. Although~~The Company determines if an arrangement is a lease at inception. If an arrangement contains a lease, the Company ~~does not expect~~performs a lease classification test to determine if the lease is an operating lease or a finance lease. The Company has identified one operating lease for its ~~estimates~~corporate headquarters. Right-of-use ("ROU") assets represent the right to ~~be materially different~~use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from ~~amounts actually incurred, its understanding~~the lease. Operating lease liabilities are recognized on the commencement date of the ~~status~~lease based on the present value of the future lease payments over the lease term and ~~timing~~are included in other long-term liabilities on our condensed consolidated balance sheet. Right-of-use assets are valued at the initial measurement of ~~services performed relative~~the lease liability, plus any indirect costs or rent prepayments, and reduced by any lease incentives and any deferred lease payments. Operating right-of-use assets are recorded in property and equipment, net on the condensed consolidated balance sheet and are amortized over the lease term. To determine the present value of lease payments on lease commencement, we use the implicit rate when readily determinable, however as most leases do not provide an implicit rate, we use our incremental borrowing rate based on information available at commencement date. Our lease terms may include options to extend or terminate the ~~actual status~~lease when it is reasonably certain that we will exercise that option. Furthermore, the Company has elected the practical expedient to account for the lease and ~~timing~~non-lease components as a single lease component for the leased property asset class. Lease expense is recognized on a straight-line basis over the life of ~~services performed may vary~~the lease and ~~may result in it reporting amounts that are too high or too low for any particular period.~~is included within general and administrative expenses.

~~Segment Information~~

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision‑making group, in making decisions on how to allocate resources and assess performance. The Company’s chief operating decision maker is the chief executive officer. The Company and the chief executive officer view the Company’s operations and manage its business as one operating segment. All long‑lived assets of the Company reside in the United States.

~~Recent~~Recently Adopted Accounting Pronouncements

Adoption of ASC 842

In ~~May 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2014‑9,~~ ~~Revenue From Contracts With Customers~~ (“ASU 2014‑9”). Pursuant to this update, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In August 2015, the FASB issued ASU 2015-14, ~~Revenue From Contracts With Customers(Topic 606)~~, which delays the effective date of ASU 2014-9 by one year. As a result, ASU 2014-9 will be effective for annual reporting periods beginning after December 15, 2017 with early adoption permitted for annual reporting periods beginning after December 15, 2016. In MarchFebruary 2016, ~~the~~ FASB issued ASU No. ~~2016-8,~~2016-02, ~~Revenue from Contracts with Customers~~Leases (Topic ~~606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)~~ (“842) ("ASU ~~2016-8”~~2016-02") ~~and ASU No. 2016-10,~~ ~~Revenue From Contracts With Customers (Topic 606): Identifying Performance Obligations and Licensing~~ ~~(“ASU 2016-10”), and in May 2016 the FASB issued ASU No. 2016-12,~~ ~~Revenue from Contracts with Customers (Topic 606), Narrow-Scope Improvements and Practical Expedients~~ (“ASU 2016-12”), each of which clarify the guidance in ASU 2014-9 and have the same effective date as the original standard. The Company has substantially completed it's assessment of the impact of adoption of ASU 2014-9, ASU 2016-8, ASU 2016-10, or ASU 2016-12 on the financial statements, and the impact is not expected to be significant. The Company plans to adopt the new standard effective January 1, 2018. The Company continues to monitor additional changes, modifications, clarifications or interpretations being undertaken by the FASB, which may impact the Company’s current conclusions.

~~In February 2016, the FASB issued ASU No. 2016-2,~~ ~~Leases (Topic 842)~~. This guidance revises existing practice related to accounting for leases under ASC No. 840, Leases(“ (“ASC 840”) for both lessees and lessors. The new guidance in ASU ~~2016-2~~2016-02 requires lessees to recognize a right-of-use asset and a lease liability for nearly all leases (other than leases that meet the definition of a short-term lease). The lease liability will be equal to the present value of lease payments and the right-of-use asset will be based on the lease liability, subject to adjustment such as for initial direct costs. For income statement purposes, the new standard retains a dual model similar to ASC 840, requiring leases to be classified as either operating leases or ~~capital~~finance leases. For lessees, operating leases will result in straight-line expense (similar to current accounting by lessees for operating leases under ASC 840) while ~~capital~~finance leases will result in a front-loaded expense pattern (similar to current accounting by lessees for capital leases under ASC 840). The new standard is effective for annual reporting periods beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted. The Company is currently evaluating the potential impact of the adoption of this standard on its financial statements.

~~In March 2016, the FASB issued ASU No. 2016-9,~~ ~~Improvements to Employee Share-Based Payment Accounting.~~ The guidance is intended to simplify several areas of accounting for share-based compensation, including income tax impacts, classification on the statement of cash flows and forfeitures. The new standard is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. Early application is permitted. The new guidance was adopted by the Company effective January 1, 2017 and its adoption did not have any impact on its financial position, results of operations or cash flows. In connection with adoption, the Company has elected to account for forfeitures as they occur as opposed to being estimated at the time of grant and revised.

The Company adopted the standard using the simplified transition method on its effective date of January 1, 2019 and therefore did not adjust prior comparative periods as permitted by the codification improvements issued by FASB in July 2018. Additionally, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allows the Company to carryforward the historical lease classification. As a result of the standard, the Company recorded a lease liability of $1.2 million and a right-of-use asset of $0.7 million, which is equal to the initial measurement of the lease liability reduced by the unamortized balance of lease incentive received and deferred rent. There was no material impact to our condensed consolidated income statement (see Note 12 below for more information).

Other Adopted Accounting Pronouncements

In August ~~2016,~~2018, the ~~FASB issued ASU~~SEC adopted the final rule under SEC Release No. ~~2016-15~~ ~~Statement~~33-10532 Disclosure Update and Simplification, to eliminate or modify certain disclosure rules that are redundant, outdated, or duplicative of ~~Cash Flows, Classification~~GAAP or other regulatory requirements. Among other changes, the amendments provide that disclosure requirements related to the analysis of ~~Certain Cash Receipts and Cash Payments (ASU 2016-15), which reduces existing diversity~~stockholders' equity are expanded for interim financial statements. An analysis of the changes in each caption of stockholders' equity presented in the classification of certain cash receipts and cash payments on the statements of cash flows. ASU 2016-15 I effective for fiscal years beginning after December 15, 2017, and for interim periods within those fiscal years. Early adoption is permitted.balance sheet must be provided in a note or separate statement. The Company ~~is currently evaluating~~has provided this disclosure beginning in the ~~potential impact~~first quarter of ~~the adoption~~2019.

3. Revenue from Contracts with Customers

The Company generates substantially all of ~~this standard on~~ its ~~financial statements.~~revenue from sales of prescription pharmaceutical products to its customers. The following table presents net revenues disaggregated by type (in thousands):

~~In November 2016, the FASB issued ASU 2016-18,~~ ~~Restricted Cash. The guidance is intended to address the diversity~~



	Three Months Ended March 31,
	2019		2018
Prescribed dietary supplements	$	1,791	$	2,231
Prescription drugs	3,620		2,029
Sales force revenue	—		223
Total revenue	$	5,411	$	4,483

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~~that currently exists~~

As is typical in the ~~classification~~pharmaceutical industry, the Company sells its prescription pharmaceutical products (which include prescribed dietary supplements and ~~presentation of changes in restricted cash on the statement of cash flows. The new standard requires that entities show the changes~~prescription drugs) in the ~~total of cash~~United States primarily through wholesale distributors and cash equivalents, restricted cash and restricted cash equivalents on the statement of cash flows and no longer present transfers between cash and cash equivalents, restricted cash and restricted cash equivalents on the statement of cash flows. The new standard is effectivea specialty contracted pharmacy. Wholesale distributors account for ~~fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early application is permitted. The Company is currently evaluating the potential impact~~substantially all of the ~~adoption~~Company’s net product revenues and trade receivables. In addition, the Company earns revenue from sales of ~~this standard on~~ its ~~financial statements.~~prescription pharmaceutical products directly to retail pharmacies. For the three months ended March 31, 2019, the Company’s three largest customers accounted for approximately 35%, 33%, and 25%, respectively, of the Company's total net product revenues from sale of prescription pharmaceutical products.

4. Net Loss Per Share

The Company computes earnings per share ("EPS") using the two-class method. The two-class method of computing EPS is an earnings allocation formula that determines EPS for common stock and any participating securities according to dividends declared and participation rights in undistributed earnings. The Company has two classes of stock outstanding, common stock and preferred stock. The preferred stock was issued in the fourth quarter of 2018 upon Armistice exercising preferred stock warrants to acquire an aggregate of 2,857,143 shares of the Series B Convertible Preferred Stock ("convertible preferred stock"). The convertible preferred stock has the same rights and preferences as common stock other than being non-voting and convertible to shares of common stock on a 1-to-5 ratio.

~~3. Net Income (Loss) Per Share~~Under the two-class method, the convertible preferred stock is considered a separate class of stock for EPS purposes and therefore basic and diluted EPS is provided below for both common stock and preferred stock. EPS for common stock and EPS for preferred stock is computed by dividing the sum of distributed earnings and undistributed earnings for each class of stock by the weighted average number of shares outstanding for each class of stock for the period. In applying the two-class method, undistributed earnings are allocated to common stock and preferred stock based on the weighted average shares outstanding during the period, which assumes the convertible preferred stock has been converted to common stock.

Diluted net (loss) income per share includes the potential dilutive effect of common stock equivalents as if such securities were converted or exercised during the period, when the effect is dilutive. Common ~~Stock, Basic~~stock equivalents include: (i) outstanding stock options and ~~Diluted~~restricted stock units, which are included under the "treasury stock method" when dilutive, (ii) common stock to be issued upon the assumed conversion of the Company's unit purchase option shares, which are included under the "if-converted method" when dilutive; (iii) prior to issuance, the contingently issuable shares in the TRx acquisition, if contingencies would have been satisfied if the end of the contingency period were as of the balance sheet date under the "if-converted method" when dilutive; and (iv) common stock to be issued upon the exercise of outstanding warrants, which are included under the "treasury stock method" when dilutive. Because the impact of these items is generally anti-dilutive during periods of net loss, there is no difference between basic and diluted loss per common share for periods with net losses. In periods of net loss, losses are allocated to the participating security only if the security has not only the right to participate in earnings, but also a contractual obligation to share in the Company's losses.

The following table sets forth the computation of basic and diluted net ~~income (loss)~~loss per share of common stock and preferred stock for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2019 and ~~2016:~~2018, which includes both classes of participating securities:

Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
Basic income (loss) per share:
Net income (loss) $ 18,720,610
$ (6,168,725 ) $ 14,961,458
$ (14,832,899 )
Undistributed earnings (loss) allocable to common shares $ 18,720,610
$ (6,168,725 ) $ 14,961,458
$ (14,832,899 )

Weighted average shares, basic
   Common stock 21,382,683
8,756,393
14,952,391
8,685,818
   Participating warrants 14,285,714
—
8,163,265
—
35,668,397
8,756,393
23,115,656
8,685,818
Basic income (loss) per share:
   Common shares $ 0.52
$ (0.70 ) $ 0.65
$ (1.71 )
   Participating warrants $ 0.52
$ —
$ 0.65
$ —

Diluted income (loss) per share:
Net income (loss) $ 11,222,732
$ (6,168,725 ) $ 9,677,838
$ (14,832,899 )
Net income (loss) reallocated 5,256
—
1,746
—
Undistributed earnings (loss) allocable to common shares $ 11,227,988
$ (6,168,725 ) $ 9,679,584
$ (14,832,899 )

Weighted average number of shares - basic 21,382,683
8,756,393
14,952,391
8,685,818
Effect of dilutive securities:
   Stock options 25,019
—
7,641
—
   Underwriters' unit purchase option —
—
—
—
      Potentially dilutive shares 25,019
—
7,641
—
Weighted average number of shares - diluted 21,407,702
8,756,393
14,960,032
8,685,818

Diluted income (loss) per share $ 0.52
$ (0.70 ) $ 0.65
$ (1.71 )



	Three Months Ended						Three Months Ended
	March 31,						March 31,
	2019						2018
	Common stock			Preferred stock			Common stock			Preferred stock
Net loss per share, basic and diluted
Numerator:
Allocation of undistributed net loss	$	(5,537,787	)	$	(1,916,261	)	$	(3,882,847	)	$	—
Denominator:
Weighted average shares	41,284,168			2,857,143			31,316,246			—
Basic and diluted net loss per share	$	(0.13	)	$	(0.67	)	$	(0.12	)	$	—

~~Shares which~~The following outstanding securities at March 31, 2019 and 2018 have been excluded from the computation of diluted ~~per share amounts because their effect would~~weighted shares outstanding, as they could have been ~~antidilutive, include the following:~~

anti-dilutive:

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Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
Stock options 2,384,560 1,828,441 2,401,938 1,828,441
Warrants 4,661,145 7,400,934 4,661,145 7,400,934
Unit purchase option shares 40,000 40,000 40,000 40,000



	Three Months Ended
	March 31,
	2019	2018
Stock options	4,345,305	3,909,384
Warrants on common stock	4,024,708	18,986,659
Restricted Stock Units	345,000	—
Underwriters' unit purchase option	40,000	40,000

4.5. Acquisitions

Ichorion Asset Acquisition

On September 24, 2018, the Company entered into, and subsequently consummated the transactions contemplated by, an agreement and plan of merger (the "Merger Agreement") by and among the Company and Ichorion Therapeutics, Inc., a Delaware corporation (the “Ichorion Asset Acquisition”), with Ichorion surviving as a wholly owned subsidiary of the Company. The consideration for the Ichorion Asset Acquisition consisted of approximately 5.8 million shares of the Company’s common stock, par value $0.001 per share, as adjusted for Estimated Working Capital as defined in the Merger Agreement. The shares of common stock issued as part of the acquisition may not be resold until January 2020. Consideration for the Ichorion Asset Acquisition includes certain development milestones worth up to an additional $15 million, payable either in shares of the Company's common stock or in cash, at the election of the Company.

The fair value of the common stock shares transferred at closing was approximately $20 million based on the Company's stock price close on September 24, 2018 and offset by an estimated discount for lack of marketability calculated using guideline public company volatility for comparable companies. The assets acquired consisted primarily of $18.7 million of IPR&D, $1.6 million of cash and $0.2 million assembled workforce. The Company recorded this transaction as an asset purchase as opposed to a business combination as management concluded that substantially all of the value received was related to one group of similar identifiable assets, which was the IPR&D for the three preclinical therapies for inherited metabolic disorders known as CDGs (CERC-801, CERC-802, and CERC-803). The Company has considered these assets similar due to similarities in the risks for development, compound type, stage of development, regulatory pathway, patient population and economics of commercialization. The fair value of the IPR&D was immediately recognized as Acquired In-Process Research and Development expense as the IPR&D asset has no other alternate use due to the stage of development. The $0.2 million of transaction costs incurred were recorded to acquired IPR&D expense. The assembled workforce asset recorded to intangible assets will be amortized over an estimated useful life of two years.

The contingent consideration of up to an additional $15 million relates to three future development milestones. The first milestone is the first product being approved for marketing by the FDA on or prior to December 31, 2021. If this milestone is met, the Company is required to make a milestone payment of $6 million. The second milestone is the second product being approved for marketing by the FDA on or prior to December 31, 2021. If this milestone is met, the Company is required to make a milestone payment of $5 million. The third milestone is a protide molecule being approved by the FDA on or prior to December 31, 2023. If this milestone is met, the Company is required to make a milestone payment of $4 million. All milestones are payable in either shares of the Company's common stock or cash, at the election of the Company.

The contingent consideration related to the development milestones will be recognized if and when such milestones are probable and can be reasonably estimated. As of March 31, 2019, no contingent consideration related to the development milestone has been recognized. The Company will continue to monitor the development milestones at each reporting period.

Avadel Pediatric Products Acquisition

On February 16, 2018, the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Avadel US Holdings, Inc., Avadel Pharmaceuticals (USA), Inc., Avadel Pediatrics, Inc., Avadel Therapeutics, LLC and Avadel Pharmaceuticals PLC (collectively, the “Sellers”) to purchase and acquire all rights to the Sellers’ pediatric products. Total consideration transferred to the Sellers consisted of: (1) a cash payment of one dollar, (2) the Company's assumption of existing seller debt due in January 2021 with a fair value of $15.1 million, and (3) contingent consideration relating to royalty obligations through February 2026 with a fair value at acquisition date of approximately $7.9 million. As a result of the Avadel pediatric products acquisition, the Company recorded goodwill of $3.8 million, which is deductible over 15 years for income tax purposes.

The transaction was accounted for as a business combination under the acquisition method of accounting. Accordingly, the tangible and identifiable intangible assets acquired and liabilities assumed were recorded at fair value as of the date of acquisition,

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with the remaining purchase price recorded as goodwill. The goodwill recognized is attributable primarily to strategic opportunities related to an expanded commercial footprint and diversified pediatric product portfolio that is expected to provide revenue and cost synergies.

During the second quarter of 2018, the Company identified and recorded measurement period adjustments to the preliminary purchase price allocation. These adjustments are reflected in the tables below. The measurement period adjustments were the result of additional analysis performed and information identified during the second quarter of 2018 based on facts and circumstances that existed as of the purchase date. There were no additional measurement adjustments recorded in 2018.

The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed at the date of acquisition and as adjusted for measurement period adjustments identified during the second quarter of 2018:





	At February 16, 2018 (preliminary)			Measurement Period Adjustments			At February 16, 2018 (as adjusted)

Inventory	$	2,549,000		$	(1,831,000	)	$	718,000
Prepaid assets	—			570,000			570,000
Intangible assets	16,453,000			1,838,000			18,291,000
Accrued expenses	—			(362,000		)	(362,000		)
Fair value of debt assumed	(15,272,303		)	197,303			(15,075,000		)
Fair value of contingent consideration	(7,875,165		)	(44,835		)	(7,920,000		)
Total net liabilities assumed	(4,145,468		)	367,468			(3,778,000		)
Consideration exchanged	241,000			(240,999		)	1
Goodwill	$	4,386,468		$	(608,467	)	$	3,778,001

The purchase price allocation related to the acquisition of Avadel's pediatric products was finalized in 2018. The fair values of intangible assets, including marketing rights, licenses, and developed technology, were determined using variations of the income approach. Varying discount rates were also applied to the projected net cash flows. The Company believes the assumptions are representative of those a market participant would use in estimating fair value. The fair value of intangible assets, both as of the date of acquisition and as adjusted by measurement period adjustments identified during the second quarter of 2018, includes the following:





	At February 16, 2018 (preliminary)		Measurement Period Adjustments			At February 16, 2018 (as adjusted)		Useful Life

Acquired Product Marketing Rights - Karbinal	$	6,221,000	$	(21,000	)	$	6,200,000	10 years
Acquired Product Marketing Rights - AcipHex	2,520,000		283,000			2,803,000		10 years
Acquired Product Marketing Rights - Cefaclor	6,291,000		1,320,000			7,611,000		7 years
Acquired Developed Technology - Flexichamber	1,131,000		546,000			1,677,000		10 years
Acquired IPR&D - LiquiTime formulations	290,000		(290,000		)	—		Indefinite
Total	$	16,453,000	$	1,838,000		$	18,291,000

TRx Acquisition

On November 17, 2017, the Company entered into, and consummated the transactions contemplated by, an equity interest purchase agreement (the “TRx Purchase Agreement”) by and among the Company, TRx, Fremantle Corporation, and LRS International LLC, the selling members of TRx (collectively, the “TRx Sellers”), which provided for the purchase of all of the equity and ownership interests of TRx by the Company (the "TRx Acquisition"). The consideration for the TRx Acquisition consisted of $18.9 million in cash,

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as adjusted for estimated working capital, estimated cash on hand, estimated indebtedness and estimated transaction expenses, as well as 7,534,884 shares of the Company’s common stock having an aggregate value on the closing date of $8.5 million (the "Equity Consideration") and certain potential contingent payments. Upon closing, the Company issued 5,184,920 shares of its common stock to the TRx Sellers. Pursuant to the TRx Purchase Agreement, the issuance of the remaining 2,349,968 shares was subject to the Company's stockholder approval. In May 2018, stockholder approval was obtained and the remaining shares were issued to the TRx Sellers. The contingent shares were initially recorded to contingently issuable shares, which is recorded within stockholder's equity and were reclassed to common stock and additional paid in capital upon issuance, on the consolidating balance sheet date. As a result of the TRx Acquisition, the Company has currently recorded goodwill of $12.6 million, of which $8.7 million was deductible for income taxes.

During the third quarter of 2018, the Company identified and recorded measurement period adjustments to our preliminary purchase price allocation that was disclosed in prior periods. These adjustments are reflected in the tables below. The measurement period adjustments were the result of an arbitration ruling discussed in further detail in Note 13, the facts and circumstances of which existed as of the acquisition date.

The following table summarizes the preliminary acquisition-date fair value of the consideration transferred at the date of acquisition both as disclosed in periods prior to the third quarter of 2018 and as adjusted for measurement period adjustments identified during the third quarter of 2018:





	At November 17, 2017 (preliminary)		Measurement Period Adjustments			At November 17, 2017 (as adjusted)

Cash	$	18,900,000	$	—		$	18,900,000
Common stock (including contingently issuable shares)	8,514,419		—			8,514,419
Contingent payments	2,576,633		(1,210,000		)	1,366,633
Total consideration transferred	$	29,991,052	(1,210,000		)	28,781,052

The TRx Acquisition was accounted for as a business combination under the acquisition method of accounting. Accordingly, the tangible and identifiable intangible assets acquired and liabilities assumed were recorded at fair value as of the date of acquisition, with the remaining purchase price recorded as goodwill. The goodwill recognized is attributable primarily to strategic opportunities related to leveraging TRx’s research and development, intellectual property, and processes.

The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed at the date of acquisition both as disclosed in periods prior to the third quarter of 2018 and as adjusted for measurement period adjustments identified during the third quarter of 2018:

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	At November 17, 2017 (preliminary)		Measurement Period Adjustments			At November 17, 2017 (as adjusted)

Fair value of assets acquired:
Cash and cash equivalents	$	11,068	$	—		$	11,068
Accounts receivable, net	2,872,545		—			2,872,545
Inventory	495,777		—			495,777
Prepaid expenses and other current assets	134,281		—			134,281
Other receivables	—		2,764,515			2,764,515
Identifiable Intangible Assets:						—
Acquired product marketing rights - Metafolin	10,465,000		1,522,000			11,987,000
PAI sales and marketing agreement	2,334,000		219,000			2,553,000
Acquired product marketing rights - Millipred	4,714,000		342,000			5,056,000
Acquired product marketing rights - Ulesfia	555,000		(555,000		)	—
Total assets acquired	21,581,671		4,292,515			25,874,186

Fair value of liabilities assumed:
Accounts payable	192,706		—			192,706
Accrued expenses and other current liabilities	4,850,422		3,764,515			8,614,937
Deferred tax liability	839,773		78,840			918,613
Total liabilities assumed	5,882,901		3,843,355			9,726,256
Total identifiable net assets	15,698,770		449,160			16,147,930
Fair value of consideration transferred	29,991,052		(1,210,000		)	28,781,052
Goodwill	$	14,292,282	$	(1,659,160	)	$	12,633,122

The purchase price allocation related to the acquisition of TRx was finalized in 2018. The fair values of intangible assets, including marketing rights, licenses and developed technology, were determined using variations of the income approach, specifically the multi-period excess earnings method. Varying discount rates were also applied to the projected net cash flows. The Company believes the assumptions are representative of those a market participant would use in estimating fair value. The final fair value of intangible assets both as disclosed in prior periods and as adjusted by measurement period adjustments identified during the third quarter of 2018 includes the following:





	At November 17, 2017 (preliminary)		Measurement Period Adjustments			At November 17, 2017 (as adjusted)		Useful Life

Acquired product marketing rights - Metafolin	$	10,465,000	$	1,522,000		$	11,987,000	15 years
PAI sales and marketing agreement	2,334,000		219,000			2,553,000		2 years
Acquired product marketing rights - Millipred	4,714,000		342,000			5,056,000		4 years
Acquired product marketing rights - Ulesfia	555,000		(555,000		)	—
Total	$	18,068,000	$	1,528,000		$	19,596,000

The Company received written notice to terminate the PAI sales and marketing agreement in the second quarter of 2018. As a result, the Company reassessed the fair value of the PAI sales and marketing agreement on that date (a level III non-recurring fair value measurement) and concluded due to the absence of future cash flows beyond the date of termination that the fair value was $0. An

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impairment charge was recognized in the second quarter of 2018 in the amount of $1.9 million, representing the remaining net book value of the PAI sales and marketing agreement intangible asset.

Pro Forma Impact of Business Combinations

The following supplemental unaudited pro forma information presents Cerecor’s financial results as if the acquisition of the Avadel pediatric products, which was completed on February 16, 2018, had occurred on January 1, 2018:



	Three Months Ended
	March 31,
	2018


Total revenues, net	$	6,187,775
Net loss	$	(4,928,446	)
Basic and diluted net loss per share of common stock	$	(0.16	)
Basic and diluted net loss per share of preferred stock	$	—

The above unaudited pro forma information was determined based on the historical GAAP results of Cerecor and Avadel's pediatric products. The unaudited pro forma consolidated results are provided for informational purposes only and are not necessarily indicative of what Cerecor’s consolidated results of operations would have been had the acquisition of Avadel's pediatric products been completed on the date indicated or what the consolidated results of operations will be in the future.

6. Fair Value Measurements

ASC No. 820, Fair Value Measurements and Disclosures (“ASC 820”), defines fair value as the price that would be received to sell an asset, or paid to transfer a liability, in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. The fair value standard also establishes a three‑level hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability on the measurement date. The three levels are defined as follows:

Level 1—inputs to the valuation methodology are quoted prices (unadjusted) for an identical asset or liability in an active market.

Level 2—inputs to the valuation methodology include quoted prices for a similar asset or liability in an active market or model‑derived valuations in which all significant inputs are observable for substantially the full term of the asset or liability.

Level 3—inputs to the valuation methodology are unobservable and significant to the fair value measurement of the asset or liability.

At September 30, 2017 and December 31, 2016, the Company’s financial instruments included cash and cash equivalents, restricted cash, accounts payable, accrued expenses and other current liabilities, term debt (prior to its payoff in August 2017), the term loan warrant liability and the underwriters’ unit purchase option liability. The carrying amounts reported in the accompanying financial statements for cash and cash equivalents, restricted cash, accounts payable, and accrued expenses and other current liabilities approximate their respective fair values because of the short‑term nature of these accounts.

The following table presents, for each of the fair value hierarchy levels required under ASC 820, the Company’s assets and liabilities that are measured at fair value on a recurring basis:

September 30, 2017
Fair Value Measurements Using

Quoted prices in
active markets for
identical assets
(Level 1)

Significant other
observable
inputs
(Level 2)

Significant
unobservable
inputs
(Level 3)
Assets
Investments in money market funds* $ 23,715,016
$ —
$ —
Liabilities
Warrant liability $ —
$ —
$ 531
Unit purchase option liability $ —
$ —
$ 6,607

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	March 31, 2019
	Fair Value Measurements Using
	Quoted prices in		Significant other		Significant
	active markets for		observable		unobservable
	identical assets		inputs		inputs
	(Level 1)		(Level 2)		(Level 3)
Assets
Investments in money market funds*	$	13,965,626	$	—	$	—
Liabilities
Contingent consideration	$	—	$	—	$	9,002,288
Warrant liability	$	—	$	—	$	17,750
Unit purchase option liability	$	—	$	—	$	39,993


							December 31, 2018
							Fair Value Measurements Using
							Quoted prices in		Significant other		Significant
	December 31, 2016						active markets for		observable		unobservable
	Fair Value Measurements Using						identical assets		inputs		inputs
	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		(Level 1)		(Level 2)		(Level 3)
Assets
Investments in money market funds*	$	4,758,539	$	—	$	—	$	7,324,932	$	—	$	—
Liabilities
Warrant liability	$	—	$	—	$	5,501
Unit purchase option liability	$	—	$	—	$	51

Contingent consideration							$	—	$	—	$	9,050,564
Warrant liability**							$	—	$	—	$	2,950
Unit purchase option liability**							$	—	$	—	$	7,216

*Investments in money market funds are reflected in cash and cash equivalents on the accompanying ~~Balance Sheets.~~condensed consolidated balance sheets.

**Warrant liability and unit purchase option liability are reflected in accrued expenses and other current liabilities on the accompanying condensed consolidated balance sheets.

As of March 31, 2019 and December 31, 2018, the Company’s financial instruments included cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued expenses and other current liabilities, short term and long-term debt, warrant liability, the underwriters' unit purchase option liability, and contingent consideration. The carrying amounts reported in the accompanying condensed consolidated financial statements for cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued expenses, and other current liabilities approximate their respective fair values because of the short-term nature of these accounts. The estimated fair value of the Company’s long-term debt of $14.9 million as of March 31, 2019 was based on current interest rates for similar types of borrowings and is in Level 2 of the fair value hierarchy.

Level 3 Valuation

The tables presented below are a summary of changes in the fair value of the Company’s Level 3 valuations for the warrant liability, ~~(which relates to~~unit purchase option liability, and contingent consideration for the three months ended March 31, 2019 and 2018:



	Warrant		Unit purchase		Contingent
	liability		option liability		consideration			Total
Balance at December 31, 2018	$	2,950	$	7,216	$	9,050,564		$	9,060,730
Payment of contingent consideration	—		—		(228,678		)	(228,678		)
Change in fair value	14,800		32,777		180,402			227,979
Balance at March 31, 2019	$	17,750	$	39,993	$	9,002,288		$	9,060,031

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	Warrant liability		Unit purchase option liability		Contingent consideration		Royalty Obligation		Total
Balance at December 31, 2017	$	8,185	$	26,991	$	2,576,633	$	—	$	2,611,809
Issuance of contingent consideration and royalty	—		—		7,875,165		240,744		8,115,909
Change in fair value	7,405		15,846		199,283		63,486		286,020
Balance at March 31, 2018	$	15,590	$	42,837	$	10,651,081	$	304,230	$	11,013,738

In 2014, the Company issued warrants to purchase 625,208 shares of convertible preferred stock. Upon the closing of our initial public offering ("IPO") in October 2015 these warrants became warrants to purchase 22,328 shares of common stock, in accordance with their terms. The warrants expire in October 2020. The warrants represent a freestanding financial instrument that is indexed to an obligation, which the Company refers to as ~~part of~~ the ~~term loan agreement)~~warrant liability. The warrant liability is ~~marked‑to‑market~~marked-to-market each reporting period with the change in fair value recorded to other income, ~~(expense)~~net in the accompanying statements of operations until the warrants are exercised, expire or other facts and circumstances lead the warrant liability to be reclassified to stockholders’ equity. The fair value of the warrant liability is estimated using a ~~Black‑Scholes~~Black-Scholes option-pricing model. The significant assumptions used in preparing the option pricing model for valuing the warrant liability as of ~~September 30, 2017,~~March 31, 2019, include (i) volatility of ~~65%~~50%, (ii) risk free interest rate of ~~1.63%~~2.33%, (iii) strike price ~~($8.40),~~$8.40, (iv) fair value of common stock ~~($0.85),~~$5.84, and (v) expected life of ~~3.1~~1.60 years years.

The underwriters’ unit purchase option (the “UPO”) was issued to the underwriters of the ~~Company’s initial public offering (“IPO”)~~Company's IPO in 2015 and provides the underwriters the option to purchase up to a total of 40,000 units. The units underlying the UPO will be, immediately upon exercise, separated into shares of common stock, underwriters’ Class A warrants, and underwriters’ Class B warrants (such warrants together referred to as the Underwriters’ Warrants). The Underwriters’ Warrants ~~are~~were warrants to purchase shares of common stock. The Class B warrants expired in April 2017 and the Class A warrants expired in October 2018, while the UPO expires in October 2020. The Company classifies the UPO as a liability, as it is a freestanding marked-to-market derivative instrument that is precluded from being classified in stockholders’ equity. The UPO liability is ~~marked‑to‑market~~marked-to-market each reporting period with the change in fair value recorded to other income, ~~(expense)~~net in the accompanying statements of operations until the UPO is exercised, ~~expire~~expires or other facts and circumstances lead the UPO to be reclassified to stockholders’ equity. The fair value of the UPO liability is estimated using a Black-Scholes option-pricing ~~model within a Monte Carlo simulation model framework.~~model. The significant assumptions used in preparing the simulation model for valuing the UPO as of ~~September 30, 2017,~~March 31, 2019, include (i) volatility ~~range~~ of ~~65% to 75%~~50%, (ii) risk free interest rate ~~range~~ of ~~0.74% to 1.63%~~2.33%, (iii) unit strike price ~~($7.48),~~$7.47, (iv) ~~underwriters’ Class A warrant strike price ($5.23), (v) underwriters’ Class B warrant strike price ($4.49), (vi)~~ fair value of underlying equity ~~($0.85)~~$5.84, and (v) expected life of 1.6 years.

The Company's business acquisitions of Avadel's pediatric products and TRx (see Note 5) involve the potential for future payment of consideration that is contingent upon the achievement of operation and commercial milestones and royalty payments on future product sales. The fair value of contingent consideration was determined at the acquisition date utilizing unobservable inputs such as the estimated amount and timing of projected cash flows, the probability of success (achievement of the contingent event), and ~~(vii) optimal exercise point of immediately prior~~the risk-adjusted discount rate used to present value the probability-weighted cash flows. Subsequent to the ~~expiration~~acquisition date, at each reporting period, the contingent consideration liabilities are remeasured at the current fair value with changes recorded in the condensed consolidated statement of operations.

As part of the ~~underwriters’ Class B warrants,~~acquisition of Avadel's pediatric products, the Company will pay a 15% annual royalty on net sales of the acquired Avadel pediatric products through February 2026, up to an aggregate amount of $12.5 million. The fair value of the future royalty is the expected future value of the contingent payments discounted to a present value. The estimated fair value of the royalty payments as of March 31, 2019 was $7.7 million. The significant assumptions used in estimating the fair value of the royalty payment as of March 31, 2019 include (i) the expected net sales of the acquired Avadel pediatric products for that are subject to the 15% royalty based on the Company's net sales forecast and (ii) the risk-adjusted discount rate of 8.4%, which ~~occurred on April 20, 2017.~~is comprised of the risk-free interest rate of 2.3% and a counterparty risk of 6.1% utilized to discount the expected royalty payments. The liability is reduced by periodic payments.

Additionally, as part of the initial purchase price allocation for the acquisition of Avadel's pediatric products performed during the first quarter of 2018, contingent consideration of $240,744 was assigned to future royalty obligations for the use of the Sellers' LiquiTime process technology. In the second quarter of 2018, we identified measurement period adjustments which included the adjustment of the fair value of the LiquiTime intangible asset down to $0.

The ~~table presented below~~consideration for the TRx acquisition includes certain potential contingent payments. First, pursuant to the TRx Purchase Agreement, the Company would have been required to pay $3.0 million to the Sellers if the gross profit related to TRx products equaled or exceeded $12.6 million in 2018. The Company did not achieve this contingent event in 2018 and therefore no value was assigned to the contingent payout as of December 31, 2018. Additionally, the Company is ~~a summary of changes~~required to pay $2.0 million upon the transfer of the ~~Company’s Level 3 warrant liability~~Ulesfia

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NDA to the Company ("NDA Transfer Milestone"). Finally, the Company will pay $2.0 million upon FDA approval of a new dosage of Ulesfia ("FDA Approval Milestone"). The main inputs utilized to determine the fair value of each milestone is the probability of the milestone's success, the expected time to successfully reach the milestone, and ~~unit purchase option liability for~~ the ~~nine months ended September 30, 2017:~~risk-adjusted discount rate. The estimated fair value of the NDA Transfer Milestone as of March 31, 2019 was $0.9 million and the significant assumptions used in estimating the fair value include (i) probability of milestone success of 45.0%, (ii) expected time to milestone of 0.2 years, and (iii) risk-adjusted discount rate of 8.5%, which is comprised of the risk-free rate of 2.4% and a counterparty risk of 6.1%. The estimated fair value of the FDA Approval Milestone as of March 31, 2019 was $0.4 million. The significant assumptions used in estimating the fair value of the FDA Approval Milestone as of March 31, 2019 include (i) probability of milestone success at 22.5%, (ii) expected time to milestone of 1.3 years, and (iii) risk-adjusted discount rate of 8.4%, which is comprised of the risk-free rate of 2.3% and a counterparty risk of 6.1%.

Warrant
Liability

Unit purchase
option liability
Total
Balance at December 31, 2016 $ 5,501
$ 51
$ 5,552
Change in fair value (4,970 ) 6,556
1,586
Balance at September 30, 2017 $ 531
$ 6,607
$ 7,138

No other changes in valuation techniques or inputs occurred during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2019 and no2018. No transfers of assets between Level 1 and Level 2 of the fair value measurement hierarchy occurred during the ~~nine~~three months ended ~~September 30, 2017.~~March 31, 2019 and 2018.

5.7. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities as of March 31, 2019 and December 31, 2018 consisted of the following:

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	September 30, 2017		December 31, 2016		As of
					March 31, 2019		December 31, 2018
Sales returns and allowances					$	4,249,977	$	3,972,510
Medicaid rebates					2,758,384		2,237,269
Minimum sales commitments, royalties payable, and purchase obligations					10,808,083		9,662,901
Compensation and benefits	$	524,409	$	272,601	1,679,572		1,953,065
Research and development expenses	452,139		315,937		1,123,051		278,132
Sales and marketing					938,437		1,112,378
General and administrative	306,997		160,116		187,465		235,721
Accrued interest	—		193,781
Warrant and UPO liability	7,138		5,552
Other					70,128		279,397
Total accrued expenses and other current liabilities	$	1,290,683	$	947,987	$	21,815,097	$	19,731,373

~~6. License Agreements~~8. Deerfield Obligation

~~Lilly CERC-611 License~~

~~On September 22, 2016,~~In relation to the Company's acquisition of Avadel's pediatric products on February 16, 2018, the Company ~~entered into~~assumed an ~~exclusive license agreement with Eli Lilly and Company (“Lilly”) pursuant~~obligation that Avadel had to which the Company received exclusive, global rights to develop and commercialize CERC-611, previously referred to as LY3130481, a potent and selective Transmembrane AMPA Receptor Regulatory Proteins (“TARP”Deerfield CSF (the "Deerfield Obligation") ~~γ-8-dependent~~ ~~α-amino-3-hydroxy-5-methyl-4-isoxazolepropionic acid~~ (“AMPA”) receptor antagonist. The terms of the license agreement provide for an upfront payment of $2.0 million, of which $750,000 was due within 30 days of the effective date of the license agreement, and the remaining balance of $1.25 million is due after the first subject is dosed with CERC-611. Beginning in a multiple ascending dose study and is recorded as license obligations on the balance sheet at September 30, 2017. Additional payments may be due upon achievement of development and commercialization milestones, including the first commercial sale. Upon commercialization, the Company is obligated to pay Lilly milestone payments and a royalty on net sales.

~~Merck CERC-301 License~~

In 2013, the Company entered into an exclusive license agreement with Merck & Co., Inc. (“Merck”) pursuant to which Merck granted the Company rights relating to certain small molecule compounds. In consideration of the license, the Company may be required to make initial payments totaling $1.5 million upon the achievement of certain milestones. Pursuant to the license agreement the Company paid an initial payment of $750,000, and upon achievement of acceptance by the United States Food and Drug Administration, or FDA, of Merck pre-clinical data and FDA approval of a Phase 3 clinical trial the Company will pay an additional $750,000. Additional payments may be due upon achievement of development and regulatory milestones, including the first commercial sale. Upon commercialization, the Company is obligated to pay Merck milestone payments and royalties on net sales.

~~Lilly CERC-501 License~~

On August 14. 2017, the Company sold all of its rights to CERC-501 to Janssen in exchange for initial gross proceeds of $25.0 million, of which $3.75 million was deposited into a twelve month escrow to secure certain indemnification obligations to Janssen (see Note 11). In addition to the initial proceeds, the terms of the agreement provide for a potential future $20 million regulatory milestone payment. Further, the terms of the agreement provide that Janssen will assume ongoing clinical trials and be responsible for any new development and commercialization of CERC-501.

~~Merck CERC-406 License~~

In 2013, the Company entered into a separate exclusive license agreement with Merck pursuant to which Merck granted the Company certain rights in small molecule compounds which are known to inhibit the activity of COMT. In consideration of the license, the Company made a $200,000 upfront payment to Merck. Additional payments may be due upon the achievement of development and regulatory milestones. Upon commercialization of a COMT product,July 2018 through October 2020, the Company is required to pay ~~Merck royalties on net sales.~~

~~7. Term Loan~~

a quarterly payment of $262,500 to Deerfield. In ~~August 2014,~~January 2021, a balloon payment of $15,250,000 is due. The difference between the ~~Company entered into a $7.5 million secured term loan from a finance company. The loan was secured by a lien on all~~gross value and fair value of the Company’s assets, excluding intellectual property, which was subject to a negative pledge. The loan contained certain additional nonfinancial covenants. In connection with the loan agreement, the Company’s cash and investment accounts were subject to account control agreements with the finance company that gave the finance company the right to assume control of the accountsthese payments will be recorded as interest expense in the ~~event~~Company's condensed consolidated statements of ~~a loan default. Loan defaults were defined in~~operations through January 2021 using the ~~loan agreement and~~

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~~included, among others, the finance company’s determination that there was a material adverse change in the Company’s operations.~~effective interest method. Interest ~~on the loan was at a rate of the greater of 7.95%, or 7.95% plus the prime rate as reported in~~ ~~The Wall Street Journal~~ minus 3.25%. On August 1, 2017, the term loan matured and the Company made a final payment of $494,231 which included a termination fee of $187,500. Debt consisted of the following as of September 30, 2017 and December 31, 2016:

September 30, 2017 December 31,
2016
Term loan $ —
$ 2,374,031
Less: debt discount —
(20,364 )
Term Loan, net of debt discount $ —
$ 2,353,667

~~Interest~~ expense ~~which includes amortization of a discount and the accrual of a termination fee, was approximately $1,000 and $110,000~~ for the three months ended ~~September 30, 2017~~March 31, 2019 was $0.2 million and ~~2016, respectively, and $95,000 and $404,000 for the nine months ended September 30, 2017 and 2016, respectively,~~is included in interest expense, net on the accompanying condensed consolidated statements of operations. The amounts due within the next year are included in current portion of long-term debt on the Company's condensed consolidated balance sheets. The amounts due in greater than one year are included in long-term debt, net of current portion, on the Company's condensed consolidated balance sheets. The Deerfield Obligation was $15.4 million as of March 31, 2019, of which $1.1 million is recorded as a current liability.

8.9. Capital Structure

~~On October 20, 2015,~~According to the ~~Company filed an~~Company's amended and restated certificate of incorporation, ~~in connection with the closing of its IPO. The amended and restated certificate of incorporation authorizes~~ the Company is authorized to issue two classes of stock, common stock and preferred ~~stock, and eliminates all references to the previously existing series of preferred~~ stock. At ~~September 30, 2017,~~March 31, 2019, the total number of shares of capital stock the Company was authorized to issue was 205,000,000 of which 200,000,000 was common stock and 5,000,000 waspreferred stock. All shares of common andpreferred stock have a par value of $0.001 per share.

On ~~April 27, 2017,~~December 26, 2018, the Company ~~further amended its amended and restated certificate of incorporation in connection with the closing of the Armistice Private Placement with the filing of~~filed a Certificate of Designation of Preferences ~~Rights and Limitations~~ of Series AB Non-Voting Convertible Preferred Stock (“("Series AB Convertible Preferred ~~Stock”~~Stock" or "convertible preferred stock") of Cerecor Inc. (the “Certificate of ~~Designation”~~Designation of the Series B Preferred Stock”). classifying and designating the rights, preferences and privileges of the Series B Convertible Preferred Stock. The Certificate of Designation of the Series B Convertible Preferred Stock authorized ~~the issuance of 4,179~~2,857,143 shares of convertible preferred stock. The Series AB Convertible Preferred Stock converts to Armistice with a stated value of $1,000 per share, convertible into 11,940,000 shares of the Company’s common stock at a conversion price of $0.35 per share. On July 6, 2017, Armistice converted all of its outstanding shares of Series A Preferred Stock into common stock. Subsequent to the conversion of Armistice’s Series A Preferred Stock into common stock, Armistice has a majority voting control over the Company.

~~Common Stock~~

~~Initial Public Offering~~

On October 20, 2015, the Company closed an IPO of its units. Each unit consisted of one share of common stock, one Class A warrant to purchase one share of common stock at an exercise price of $4.55 per share and one Class B warrant to purchase one-half share of common stock at an exercise price of $3.90 per full share (the “units”). The Class A warrants expire on October 20, 2018 and the Class B warrants expired on April 20, 2017 (the "Class B Expiration Date.") The closing of the IPO resulted in the sale of 4,000,000 units at an initial public offering price of $6.50 per unit for gross proceeds of $26.0 million. The net proceeds of the IPO, after underwriting discounts, commissions and expenses, and before offering expenses, to the Company were approximately $23.6 million. On November 13, 2015, the units separated into common stock, Class A warrants and Class B warrants and began trading separately on the NASDAQ Capital Market. On the Class B Expiration Date, the Class B warrants ceased trading on the NASDAQ Capital Market. No Class B warrants were exercised prior to the Class B Expiration Date.

~~On November 23, 2015, the underwriter of the IPO exercised its over-allotment option for 20,000~~ shares of common stock ~~551,900 Class A warrants to purchase one share of~~on a 1-for-5 ratio and has the same rights, preferences, and privileges as common stock ~~and 551,900 Class B warrants to purchase one-half share of common stock for additional gross proceeds of $135,319.~~other than it holds no voting rights.

~~The common stock and accompanying Class A warrants and Class B warrants have been classified to stockholders’ equity in the Company’s balance sheet.~~

~~Underwriter’s Unit Purchase Option~~

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The underwriter of the IPO received, for $100 in the aggregate, the right to purchase up to a total of 40,000 units (or 1% of the units sold in the IPO) exercisable at $7.48 per unit (or 115% of the public offering price per unit in the IPO). The units underlying the UPO will be, immediately upon exercise, separated into shares of common stock and the Underwriters’ Warrants such that, upon exercise, the holder of a UPO will not receive actual units but will instead receive the shares of common stock and Underwriters’ Warrants, to the extent that any portion of the Underwriters’ Warrants underlying such units have not otherwise expired. The exercise prices of the underwriters’ Class A warrants and underwriter’s Class B warrants underlying the UPO are $5.23 and $4.49, respectively. The UPO may be exercised for cash or on a cashless basis, at the holder’s option, and expires on October 14, 2020; however, following the expiration of underwriters’ Class B warrants on April 20, 2017, the UPO is exercisable only for shares of common stock and underwriters’ Class A warrants at an exercise price of $7.475 per unit; provided further, that, following the expiration of underwriters’ Class A warrants on October 20,Convertible Preferred Stock

December 2018 the UPO will be exercisable only for shares of common stock at an exercise price of $7.47. The Company classified the UPO as a liability as it is a freestanding marked-to-market derivative instrument that is precluded from being classified in stockholders’ equity. The fair value of the UPO is re-measured each reporting period and the change in fair value is recognized in the statement of operations (see Note 4).Armistice Private Placement

~~The Aspire Capital Transaction~~

On ~~September 8, 2016,~~December 27, 2018, the Company entered into a series of transactions as part of a private placement with Armistice in order to generate cash to continue to develop our pipeline assets and for general corporate purposes. The transactions are considered one transaction for accounting purposes. As part of the transaction, the Company exchanged common stock purchase agreement (the “Purchase Agreement”) with Aspire Capital, pursuant to which Aspire Capital committed to purchase up to an aggregate of $15.0 million of shares of the Company’s common stock over the 30-month term of the Purchase Agreement. Upon execution of the Purchase Agreement, the Companywarrants issued and sold to Aspire Capital 250,000 shares of common stock at a price per share of $4.00, for gross proceeds of $1.0 million. Additionally, as consideration for Aspire Capital entering into the Purchase Agreement, the Company issued 175,000 shares of common stock as a commitment fee. The net proceeds of the Aspire Capital transaction, after offering expenses, to the Company were approximately $1,900,000 for the year ended December 31, 2016. As of December 31, 2016, the Company had sold 763,998 shares of common stock to Aspire Capital under the Purchase Agreement. During the nine months ended September 30, 2017, the Company sold an additional 965,165 shares of common stock to Aspire Capital under the terms of the Purchase Agreement for gross proceeds of approximately $789,000. As of the date of this Quarterly Report on Form 10-Q, the Company does not have any remaining shares available to issue under the purchase agreement. The Company may not issue any additional shares of common stock to Aspire Capital under the Purchase Agreement unless shareholder approval is obtained.

~~The Maxim Group Equity Distribution Agreement~~

On January 27, 2017, the Company entered into an Equity Distribution Agreement with Maxim Group LLC ("Maxim"), as sales agent, pursuant to which the Company may offer and sell, from time to time, through Maxim, up to $12,075,338 in shares of its common stock. The Company has no obligation to sell any of the shares, and may at any time suspend offers under the Equity Distribution Agreement.

~~As of the September 30, 2017, the Company had sold 1,336,433~~ ~~shares of its common stock through Maxim under the Equity Distribution Agreement for gross proceeds of$938,000 and the Company has the potential to sell up to approximately~~ ~~$2.9 million~~ ~~in additional shares of its common stock~~ ~~under the registration statement on Form S-3.~~

~~Armistice Private Placement~~

On April 27, 2017 ~~the Company entered into a securities purchase agreement with~~to Armistice ~~pursuant to which Armistice purchased $5.0 million of~~for the Company’s securities, consisting of 2,345,714 shares of the Company’s common stock at a purchase price of $0.35 per share and 4,179 shares of Series A Preferred Stock at a price of $1,000 per share. The Company received $4.65 million in net proceeds from the Armistice Private Placement. The number of shares of common stock that were purchased in the private placement constituted approximately 19.99% of the Company’s outstanding shares of common stock immediately prior to the closing of the Armistice Private Placement. Armistice also received warrantsto purchase up to 14,285,714 shares of the Company’s common stock at an exercise price of $0.40 per ~~share. Under~~share (the "original warrants") for like-kind warrants to purchase up to 2,857,143 shares of the ~~terms~~Company's newly designated Series B Convertible Preferred Stock with an exercise price of $2.00 per share (the "exchanged warrants"). Armistice immediately exercised the exchanged warrants and acquired an aggregate of 2,857,143 shares of the convertible preferred stock. Net proceeds of the transaction were approximately $5.7 million for the year ended December 31, 2018.

In order to provide Armistice an incentive to exercise the exchanged warrants, the Company also entered into a securities purchase agreement with Armistice pursuant to which the ~~Series A Preferred Stock were not convertible into~~Company issued warrants for 4,000,000 shares of common stock ~~and the warrants were not exercisable until~~of the Company ~~received approval~~with a term of 5.5 years and an exercise price of $12.50 per share (the "incentive warrants"). For accounting purposes, the Company calculated the fair value of the ~~private placement~~incentive warrants of $1.7 million, which was considered a deemed distribution to Armistice for the year ended December 31, 2018.

Voting

Holders of the Company's convertible preferred stock are not entitled to vote.

Dividends

The holders of convertible preferred stock are entitled to receive dividends, if any, as may be declared from time to time by the ~~Company’s shareholders as required by~~board of directors out of legally available funds.

Liquidation

In the ~~rules and regulations~~event of the ~~NASDAQ Capital Market.~~Company’s liquidation, dissolution or winding up, holders of the Company’s convertible preferred stock will be entitled to share ratably in the net assets legally available for distribution to stockholders after the payment of all debts and other liabilities.

Rights and Preferences

Each share of convertible preferred stock converts to shares of common stock on a 1-for-5 ratio. There are no other preemptive or subscription rights and there are no redemption or sinking fund provisions applicable to the Company’s common stock.

Common Stock

Common Stock Offering

On March 8, 2019, the Company closed on an underwritten public offering of common stock for 1,818,182 shares of common stock of the Company, at a price to the public of $5.50 per share. Armistice participated in the offering by purchasing 363,637 shares of common stock of the Company from the underwriter at the public price. The gross proceeds to the Company, ~~received shareholder approval~~before deducting underwriting discounts and commissions and offering expenses, were approximately $10.0 million. The net proceeds were approximately $9.0 million.

December 2018 Armistice Private Placement

As discussed in detail above, on December 27, 2018 the Company exchanged previously outstanding warrants for ~~this transaction~~like-kind warrants for 2,857,143 shares of the Company's convertible preferred stock with an exercise price of $2.00 per share. Armistice immediately exercised these warrants for 2,857,143 shares of convertible preferred stock for net proceeds to the Company of $5.7 million. The convertible preferred stock converts to common stock on ~~June 30, 2017, at~~a 1-for-5 ratio (or to 14,285,714 shares of common stock in total). Additionally, on December 27, 2018, in order to provide Armistice an incentive to exercise the exchanged warrants, the Company entered into a securities purchase agreement with Armistice pursuant to which ~~time~~ the Company issued warrants ~~became exercisable and the Series A Preferred Stock became convertible into~~for 4,000,000 shares of common ~~stock.~~

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~~As multiple instruments were issued in a single transaction, the Company initially allocated the issuance proceeds among the preferred~~ stock common stock and warrants using the relative allocation method. As the warrants were determined to be indexed to the Company’s stock, and would only be settled in common shares, entirely in the control of the Company with a term of 5.5 years and an exercise price of $12.50 per share (the "incentive warrants"). See "December 2018 Armistice Private Placement" above for more details.

August 2018 Armistice Private Placement

On August 17, 2018, the ~~warrant instrument was accounted for as an equity instrument. Fair value~~Company entered into a securities purchase agreement with Armistice, pursuant to which the Company sold 1,000,000 shares of the ~~warrants~~Company’s common stock, $0.001 par value per share for a purchase price of $3.91 per share, which was ~~initially determined upon issuance using~~ the ~~Black-Scholes Model (level 3 fair value measurement). Armistice converted all~~closing price of shares of the ~~Series A Preferred~~Common Stock ~~into 11,940,000~~on August 16, 2018. Net proceeds of this securities purchase agreement were approximately $3.9 million.

Ichorion Asset Acquisition

On September 25, 2018, under the terms of the Ichorion Asset Acquisition noted above in Note 5, the Company issued 5.8 million common stock shares upon closing.

Contingently Issuable Shares

Under the terms of TRx acquisition noted above in Note 5, the Company was required to issue common stock having an aggregate value as calculated in the TRx Purchase Agreement on the Closing Date of $8.1 million (the “Equity Consideration”). Upon closing, the Company issued 5,184,920 shares of its common stock. Pursuant to the TRx Purchase Agreement, the issuance of the remaining 2,349,968 shares as a part of the Equity Consideration was subject to stockholder approval at the Company's 2018 Annual Stockholder's Meeting. This approval was obtained in May 2018 and the remaining shares were issued to the TRx Sellers.

Voting

Common stock is entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders, including the election of directors, and does not have cumulative voting rights. Accordingly, the holders of a majority of the shares of common stock ~~on July 6, 2017.~~entitled to vote in any election of directors can elect all of the directors standing for election.

Dividends

The holders of common stock are entitled to receive dividends, if any, as may be declared from time to time by the board of directors out of legally available funds.

Liquidation

In the event of the Company’s liquidation, dissolution or winding up, holders of the Company’s common stock will be entitled to share ratably in the net assets legally available for distribution to stockholders after the payment of all debts and other liabilities.

Rights and Preferences

Holders of the Company’s common stock have no preemptive, conversion or subscription rights, and there are no redemption or sinking fund provisions applicable to the Company’s common stock.

Common Stock Warrants

At ~~September 30, 2017,~~March 31, 2019, the following common stock ~~purchase~~ warrants were outstanding:

Number of shares Exercise price Expiration
underlying warrants per share date
80,966 $ 28.00
August 2018
4,551,900 $ 4.55
October 2018
40,000* $ 5.23
October 2018
3,571 $ 28.00
December 2018
22,328* $ 8.40
October 2020
2,380 $ 8.68
May 2022
14,285,714 $ 0.40
June 2022
18,986,859

* Accounted for as a liability instrument (see Note 4)



Number of shares	Exercise price		Expiration
underlying warrants	per share		date
22,328*	$	8.40	October 2020
2,380*	$	8.68	May 2022
4,000,000	$	12.50	June 2024
4,024,708

*Accounted for as a liability instrument (see Note 6)

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9.10. Stock-Based Compensation

2016 Equity Incentive Plan

On April 5, 2016, the Company’s board of directors adopted the 2016 Equity Incentive Plan (the “2016 Plan”) as the successor to the 2015 Omnibus Plan (the “2015 Plan”). The 2016 Plan was approved by the Company’s stockholders and became effective on May 18, 2016 (the “2016 Plan Effective Date”).

As of the 2016 Plan Effective Date, no additional grants will be made under the 2015 Plan or the 2011 Stock Incentive Plan (the “2011 Plan”), which was previously succeeded by the 2015 Plan effective October 13, 2015. Outstanding grants under the 2015 Plan and 2011 Plan will continue in effect according to their terms as in effect under the applicable plan.

Upon the 2016 Plan Effective Date, the 2016 Plan reserved and authorized up to 600,000 additional shares of common stock for issuance, as well as 464,476 unallocated shares remaining available for grant of new awards under the 2015 Plan. An Amended and Restated 2016 Equity Incentive Plan (the "2016 Amended Plan") was approved by the Company's stockholders in May 2018, which increased the share reserve by an additional 1.4 million shares. During the term of the 2016 Amended Plan, the share reserve will automatically increase on the first trading day in January of each calendar year, ~~beginning in 2017,~~ by an amount equal to 4% of the total number of outstanding shares of common stock of the Company on the last trading day in December of the prior calendar year. ~~On January 1, 2017, the shares reserved for issuance increased by 377,365.~~ As of ~~September 30, 2017,~~March 31, 2019, there were ~~483,214~~2.1 million shares available for future issuance under the 2016 Amended Plan.

~~The~~Option grants to employees and directors typically expire after ten years. Employee options with service based vesting conditions typically vest over three or four years. Options granted to directors typically vest over three years. Directors may also elect to receive stock options in lieu of cash board compensation, which vest immediately. For stock options granted to employees and non-employee directors, the estimated grant date fair market value of the Company’s ~~stock‑based~~stock-based awards is amortized ratably over the ~~employees’~~individuals’ service periods, which is the period in which the awards vest. Stock-based compensation expense includes expense related to stock options, restricted stock unit awards, and ESPP shares. The amount of stock-based compensation expense recognized for the three months ended March 31, 2019 and 2018 was as follows:



	Three Months Ended March 31,
	2019		2018
Research and development	$	57,376	$	11,497
General and administrative	489,953		207,382
Sales and marketing	49,364		23,945
Total stock-based compensation	$	596,693	$	242,824

Stock options with service-based vesting conditions

The Company has granted awards that contain service-based vesting conditions. The compensation cost for these options is recognized on a straight-line basis over the vesting periods. A summary of option activity for the three months ended March 31, 2019 is as follows:



	Options Outstanding
	Number of shares		Weighted average exercise price		Grant date fair value of options		Weighted average remaining contractual term (in years)
Balance at December 31, 2018	3,746,597		$	4.16			7.79
Granted	134,379		$	4.78	$	334,624
Exercised	(31,288	)	$	3.01
Forfeited	(4,383	)	$	4.25	$	11,297
Balance at March 31, 2019	3,845,305		$	4.19			7.61
Exercisable at March 31, 2019	2,269,081		$	4.56			6.76

The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common stock for those stock options that had exercise prices lower than the fair value of the Company’s common stock. As of March 31, 2019, the aggregate intrinsic value of options outstanding and currently exercisable was $8.1 million and $4.6 million, respectively. The total intrinsic value of options exercised during the three months ended March 31, 2019 was $0.1 million. The total grant date fair value of shares which vested during the three months ended March 31, 2019 was $0.6 million. The

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per‑share weighted‑average grant date fair value of the options granted during the three months ended March 31, 2019 was estimated at $2.49. There were 302,901 options that vested during the three months ended March 31, 2019 with a weighted average grant date fair value of $2.09.

At March 31, 2019, there was $3.1 million of total unrecognized compensation cost related to unvested service-based vesting conditions awards. The unrecognized compensation cost is expected to be recognized over a weighted-average period of 2.9 years.

Stock options with market-based vesting conditions

During 2018, the Company granted awards that vest upon the Company's common stock closing at or above $12.50 per share for three consecutive days. A summary of option activity with market-based vesting conditions for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2019 is as follows:

Options Outstanding

Number of
shares

Weighted‑average
exercise price

Fair value of
options
granted

Weighted average
remaining
contractual term
(in years)
Balance, December 31, 2016 1,849,359
$ 5.57

Granted 578,611
$ 0.74
$ 301,743

Forfeited (18,391 ) $ 5.63

Balance, September 30, 2017 2,409,579
$ 4.41
8.12
Exercisable at September 30, 2017 1,467,463
$ 5.25
7.65



	Options Outstanding
	Number of shares	Weighted average exercise price		Weighted average remaining contractual term (in years)	Aggregate intrinsic value (1)
Balance at December 31, 2018	500,000	$	4.24	9.24
Granted	—
Balance at March 31, 2019	500,000	$	4.24	8.99	$	800,000
Exercisable at March 31, 2019	—

(1) The aggregate intrinsic value in the above table represents the total pre-tax amount that a participant would receive if the option had been exercised on the last day of the respective fiscal period. Options with a market value less than its exercise value are not included in the intrinsic value amount.

At March 31, 2019, there was $805,068 of total unrecognized compensation cost related to unvested market-based vesting conditions awards. This compensation cost is expected to be recognized over a weighted-average period of 1.8 years.

Stock-based compensation assumptions

The following table shows the assumptions used to compute stock-based compensation expense for stock options with service-based vesting conditions granted to employees and members of the board of directors under the Black-Scholes valuation model for the three months ended March 31, 2019. There were no stock options granted with market-based vesting conditions for the three months ended March 31, 2019.



Service-based options
Expected dividend yield		—%
Expected volatility		55%
Expected life (in years)		5.0 - 6.25
Risk-free interest rate		2.23 - 2.59%

Restricted Stock Units

During 2018, the Company granted restricted stock units ("RSU") to certain employees. The Company measures the fair value of the restricted units using the stock price at the date of the grant. The restricted shares vest annually over a four-year period beginning on the first anniversary of the award. A summary of RSU grants activity for the three months ended March 31, 2019 is as follows:

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	RSUs outstanding
	Number of shares		Weighted average grant date fair value
Non-vested RSUs at December 31, 2018	445,000		$	4.27
Vested	(100,000	)	$	4.24
Non-vested RSUs at March 31, 2019	345,000		$	4.27

The stock compensation expense related to RSUs for the three months ended March 31, 2019 was $118,656. At March 31, 2019, there was $1,433,329 of total unrecognized compensation cost related to the RSU grants. The compensation cost is expected to be recognized over a weighted-average period of 3.0 years.

Employee Stock Purchase Plan

On April 5, 2016, the Company’s board of directors approved the 2016 Employee Stock Purchase Plan (the “ESPP”). The ESPP was approved by the Company’s stockholders and became effective on May 18, 2016 (the “ESPP Effective Date”).

Under the ESPP, eligible employees can purchase common stock through accumulated payroll deductions at such times as are established by the administrator. The ESPP is administered by the compensation committee of the Company’s board of directors. Under the ESPP, eligible employees may purchase stock at ~~95%~~85% of the lower of the fair market value of a share of the Company’s common stock (i) on the first day of an offering period or (ii) on the purchase date. Eligible employees may contribute up to 15% of their earnings during the offering period. The Company’s board of directors may establish a maximum number of shares of the Company’s common stock that may be purchased by any participant, or all participants in the aggregate, during each offering or offering period. Under the ESPP, a participant may not ~~purchase more than 10,000 shares during any purchase period or~~ accrue rights to purchase more than $25,000 of the fair market value of the Company’s common stock for each calendar year in which such right is outstanding.

Upon the ESPP Effective Date, the ~~ESPP~~Company reserved and authorized up to 500,000 shares of common stock for ~~issuance.~~issuance under the ESPP. On January 1 of each calendar year, the aggregate number of shares that may be issued under the ESPP shall automatically increase by a number equal to the lesser of (i) 1% of the total number of shares of the Company’s capital stock outstanding on December 31 of the preceding calendar year, and (ii) 500,000 shares of the Company’s common stock, or (iii) a number of shares of the Company’s common stock as determined by the Company’s board of directors or compensation committee. ~~Employees purchased 20,000~~The number of shares ~~during 2016 and 33,406 shares during the nine months ended September 30, 2017.~~increased by 408,042 on January 1, 2019. As of ~~September 30, 2017, 540,935~~March 31, 2019, 1,192,025 shares remained available for issuance.

In accordance with the guidance in ASC 718-50,~~Employee Share Purchase Plans~~ ~~(“ASC 718-50”),~~ the ability to purchase shares of the Company’s common stock at the lower of the offering date price or the purchase date price represents an option and, therefore, the ESPP is a compensatory plan under this guidance. Accordingly, stock-based compensation expense is determined based on the option’s grant-date fair value and is recognized over the requisite service period of the option. The Company used the Black-Scholes valuation model and recognized stock-based compensation expense of ~~$20,886 and $69,492~~$35,298 for the three ~~and nine~~ months ended ~~September 30, 2017.~~March 31, 2019, which is included in the table above with stock-based compensation from stock options.

~~Stock‑based compensation expense recognized for the three and nine months ended September 30, 2017 and 2016 was as follows:~~

Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
Research and development $ 41,323
$ 43,861
$ 123,883
$ 95,013
General and administrative 222,924
243,913
728,327
1,344,181
Total stock-based compensation $ 264,247
$ 287,774
$ 852,210
$ 1,439,194
Subsequent Equity Grants

On April 1, 2019, the Company granted 1.8 million options with service-based vesting conditions at an exercise price of $6.22 per share to its employees as part of its annual stock option award. One-quarter of the shares subject to the stock option will vest on the first anniversary of the grant date and the remaining three-quarters of the shares will vest in equal monthly installments over the following 36 months.

~~10. Income Taxes~~

Furthermore, on April 15, 2019, the Company granted 300,000 options with service-based vesting conditions at an exercise price of $5.17 to its newly appointed Executive Chairman of the Board. One-third of the shares subject to the stock option will vest on the first anniversary of the date of grant and the remaining two-thirds of the shares will vest in equal monthly installments over the following 24 months, based on continuous service.

Additionally, the Company agreed to grant the Executive Chairman of the Board an option to purchase 300,000 additional shares of Company common stock with market-based vesting conditions. The ~~provision~~exercise price will equal the market value on the date of the grant with one-third of the shares vesting upon the Company's common stock closing at or above $8.00 per share for ~~income taxes was $3.2 million~~three consecutive days, one-third of the shares vesting upon the Company's stock closing at or above $10.50 per share for ~~the nine months ended September 30, 2017. The effective tax rate for the nine-month period ended September 30, 2017 was 17.76% as compared to 0% for the corresponding period in the~~three consecutive days, and one-t

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hird of these shares vesting upon the Company's stock closing at or above $13.00 per share for three consecutive days. The Company also agreed to grant the Executive Chairman of the Board 250,000 RSUs, of which 50,000 shares will vest immediately on the grant date and the remainder will vest in three equal annual increments based on continued service. These two equity awards will be granted upon the Company having an adequate share reserve available for future issuance under the 2016 Amended Plan as a result of either an increase to the total share reserve subject to shareholder approval or as a result of an increase to the existing available share reserve due to future forfeitures and expirations.

11. Income Taxes

The provision for income taxes was $166,358 for the three months ended March 31, 2019 and is comprised of several components including current year state income tax related to one of the Company's wholly owned subsidiaries and current year amortization of tax-deductible goodwill that gives rise to indefinite lived deferred tax liability impacting the amount of valuation allowance required. Additionally, discrete to the quarter, the Company recorded interest and penalties on the outstanding taxes payable to the IRS and various state authorities.

12. Leases

Corporate Headquarter Lease

~~prior year.~~ The ~~increase~~Company identified one operating lease for its corporate headquarters located in ~~the rate is attributable to changes in projected incomeas well as limitations on the utilization of NOL carryforwards as described below~~Rockville, Maryland. The annual base rent for the ~~year primarily due~~office space is $161,671, subject to annual 2.5% increases over the ~~sale~~term of ~~CERC-501. In addition,~~the lease. The lease provides for a rent abatement for a period of 12 months following the Company's date of occupancy. The lease has an initial term of 10 years from the date the Company ~~was able~~makes its first annual fixed rent payment, which is expected to ~~utilize net operating loss ("NOL") carryforwards~~occur in January 2020. The Company has the option to extend the lease two times, each for a period of ~~$2.7 million, which were previously subject to~~five years, and may terminate the lease as of the sixth anniversary of the first annual fixed rent payment, upon the payment of a ~~valuation allowance, to offset a portion of projected income for the year considering Internal Revenue Code Section 382 limitations.~~

termination fee. As of ~~December 31, 2016~~ the ~~Company had $52.2 million of federal and Maryland state NOL carryforwards~~lease commencement date, it is not reasonably certain that will begin to expire in 2031. As of December 31, 2016 the Company also had $1.8 million and $57,000 of federal and Maryland state research and development credits, respectively, that will begin to expire in 2018. The NOL and research and development credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. NOL and tax credit carryforwards are also subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three‑year period in excess of 50%, as defined under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, as well as similar state tax provisions. The amount of the annual limitation depends upon the value of the Company immediately before the change, changes to the Company’s capital during a specified period prior to the change, and the federal published interest rate. Considering ownership changes that took place previously as well as during 2017 including the Armistice transaction, the Company is completing an analysis under Section 382 of the Code, and has initially determined the utilization of the NOLs and other tax attributes will be limited on a go forward basis. Approximately $2.7 million of NOL carryforwards will be available in 2017 and the Company will ~~be able~~exercise the renewal periods or early terminate the lease and therefore the end date of the lease for accounting purposes is January 31, 2030. The remaining term of the lease at March 31, 2019 is 10.83 years.

Supplemental balance sheet information related to ~~utilize~~ the ~~NOL carryforwards~~lease is as follows:



	Three Months Ended March 31,
	2019		2018

Property and equipment, net	$	737,658	$	—

Other long-term liabilities	$	1,189,277	$	—

The operating lease right-of-use asset is included in property and equipment and the lease liability is included in other long-term liabilities in our condensed consolidated balance sheets. In order to ~~offset~~determine the present value of lease payments, the Company utilized a ~~portion~~discount rate of ~~projected income~~7.7%. This rate was determined based on available information of the rate of interest the Company would pay to borrow on a collateralized basis at an amount equal to the lease payments in a similar economic environment over a similar term on the transition date.

The components of lease expense for the ~~year. Upon completion~~three months ended March 31, 2019 and 2018 were as follows:



	Three Months Ended March 31,
	2019		2018

Operating lease cost*	$	54,606	$	47,559

*Includes short-term leases, which are immaterial.

Because the corporate headquarter lease provides for a 12-month lease abatement, the cash paid for amounts included in the measurement of lease liabilities is $0 for the three months ended March 31, 2019.

The following table shows a maturity analysis of the analysis by year end, to the extent there is a limitation, which could be significant, there would be a reduction in the deferred tax assets with an offsetting reduction in the valuation allowance, with no impact on current period income tax expense.

In assessing the realizability of the remaining net deferred tax assets, the Company considers all relevant positive and negative evidence to determine whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The realization of the gross deferred tax assets is dependent on several factors, including the generation of sufficient taxable income prior to the expiration of the net operating ~~loss carryforwards. Other than the amount of NOL that is available to offset net income generated through September 30, 2017 there was a full valuation allowance against the net deferred tax assets~~lease liability as of ~~September 30, 2017 and December~~March 31, ~~2016.~~2019:

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	Undiscounted Cash Flows
April 1, 2019 through December 31, 2019	$	—
2020	155,815
2021	169,510
2022	173,748
2023	178,092
Thereafter	1,183,290
Total lease payments	$	1,860,455
Less implied interest	$	(671,178	)
Total	$	1,189,277

~~11.~~13. Commitments and Contingencies

~~Office Lease~~

The Company’s corporate office space, which is leased under an operating lease, is located in Baltimore, Maryland. The lease provided for three months of rent abatement and includes escalating rent payments. Rent expense is recognized on a straight‑line basis over the term of the lease. Rent expense for the office lease amounted to approximately $125,000 for the nine months ended September 30, 2017 and 2016. Pursuant to the terms of such lease, the Company’s future lease obligation is as follows:

Year ending December 31,
2017* $ 39,433
2018 158,716
$ 198,149

* Three months remaining in 2017

~~Obligations to Contract Research Organizations and External Service Providers~~Litigation

The Company is party in various contractual disputes, litigation, and potential claims arising in the ordinary course of business. The Company does not believe that the resolution of these matters will have a material adverse effect on our financial position or results of operations except as otherwise disclosed in this document. See below for further discussion of the Lachlan legal arbitration.

Purchase obligations

The Company has unconditional purchase obligations as a result of recent acquisitions that include agreements to purchase goods that are enforceable and legally binding and that specify all significant terms including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Purchase obligations exclude agreements that are cancelable at any time without penalty. The unconditional purchase obligations outstanding as of March 31, 2019 include the following:

Lachlan Pharmaceuticals Minimum Obligations and Indemnity Receivable

As discussed in Note 5, in November 2017, the Company acquired TRx and its wholly-owned subsidiaries, including Zylera. The previous owners of TRx beneficially own more than 10% of our outstanding common stock. Zylera, which is now our wholly owned subsidiary, entered into ~~agreements~~an agreement with Lachlan Pharmaceuticals, an Irish company controlled by the previous owners of TRx (“Lachlan”), effective December 18, 2015 (the "Lachlan Agreement"). Pursuant to the Lachlan Agreement, Lachlan named Zylera as its exclusive distributor of Ulesfia in the United States and agreed to supply Ulesfia to Zylera exclusively for marketing and sale in the United States.

The Lachlan Agreement requires Zylera to purchase a minimum of 20,000 units per year, or approximately $1.2 million worth of product, from Lachlan, unless and until there has been a “Market Change” involving a new successful competitive product. Zylera must pay Lachlan $58.84 per unit and handling fees that are equal to $4.03 per unit of fully packaged Ulesfia in 2019 and escalate at a rate of 10% annually. The Lachlan Agreement also requires that Zylera make certain cumulative net sales milestone payments and royalty payments to Lachlan with a $3.0 million annual minimum payment unless and until there has been a “Market Change” involving a new successful competitive product. Lachlan is obligated to pay identical amounts to an unrelated third party from which it obtained rights to Ulesfia, with the payments ultimately flowing to Summers Laboratories, Inc. ("Summers Labs"). Because of the dispute described below, the Company has not made any payments to Lachlan under the Lachlan Agreement subsequent to the acquisition date.

On December 10, 2016, Zylera informed Lachlan that a Market Change had occurred due to the introduction of Arbor Pharmaceuticals' lice product, Sklice®. On June 5, 2017, Lachlan and Zylera entered into joint legal representation along with other unrelated third parties in negotiation and arbitration of a dispute with Summers Labs regarding the existence of a Market Change and the concomitant obligations of the parties. The arbitration panel issued an interim ruling on October 23, 2018 that no Market Change had occurred up to and including the date of the hearing. The arbitration panel issued a second interim ruling on December 26, 2018. The second interim award rejected Summers Labs' request to accelerate future minimum royalties, however, it ruled in favor of Summers Labs that it is owed reimbursement for all reasonable costs and expenses, including legal fees, by Shionogi, as well as

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interest, as stipulated in the contract. The arbitration panel issued a final award on March 1, 2019 that dictated the final amount of reimbursable costs and interest as contemplated in the second interim ruling. The final award has no direct bearing on the Company as the Company was not a named defendant to the original claim by Summers Labs and a federal court denied Zylera's ability to be a counterclaimant in the matter. Furthermore, the Company is not subject to the guarantee or interest provisions identified in the second ruling as these elements of the contractual relationship were not passed down to the Company’s agreement with Lachlan. However, the Company has interpreted this ruling's impact on the Lachlan Agreement to mean that the minimum purchase obligation and minimum royalty provisions of the contract ~~research organizations~~are active and due for any prior periods as well as going forward for any future periods.

The Company has recognized an $8.7 million liability for these minimum obligations in accrued liabilities as of March 31, 2019. Under the terms of the TRx Purchase Agreement, the former TRx owners are required to indemnify the Company for 100% of all pre-acquisition losses related this arbitration, including legal costs, and possible minimum payments in excess of $1 million. Furthermore, the former TRx owners are required to indemnify the Company for 50% of post-acquisition Ulesfia losses, which would include losses resulting from having to fund these minimum obligations. The Company has recorded an indemnity receivable of $5.2 million in other ~~external service providers~~receivables as of March 31, 2019, which the Company believes is fully collectible. For the three months ended March 31, 2019, minimum obligations net of amounts recorded within the indemnity receivable of $0.6 million has been recorded in cost of product sales. If the Company fails to make these minimum obligations timely then the Lachlan Agreement may be terminated by Lachlan, in which case the Company would no longer be able to sell the Ulesfia product, but it would also not be subject to future minimum obligations. Lachlan has not requested payment for ~~services, primarily~~the minimum obligations.

The Company expects a successful competitive product will enter the market in early 2021 and therefore the future minimum purchase obligations and royalty payments are expected only through 2020. As of March 31, 2019, future minimum purchase obligations and future minimum royalty payments to Lachlan are as follows:





	Q2 2019 - Q4 2019*		2020*	2021	2022	Total*

Minimum Purchase Obligations	$	942,994	1,265,378	—	—	$	2,208,372
Minimum Royalties	2,250,000		3,000,000	—	—	5,250,000
Total	$	3,192,994	4,265,378	—	—	$	7,458,372

*Per the TRx Purchase Agreement, the previous owners of TRx are required to indemnify the Company for 50% of post-acquisition Ulesfia losses, which include the future minimum purchase obligations and future minimum royalties disclosed above. Thus, the Company's future net payouts related to the Ulesfia product should be significantly reduced as a result of the indemnification.

Karbinal Royalty Make-Whole Provision

As discussed in Note 5, on February 16, 2018, in connection with the acquisition of Avadel's pediatric products, the Company entered into a supply and distribution agreement with TRIS Pharma (the "Karbinal Agreement"). As part of this agreement, the Company has an annual minimum sales commitment, which is based on a commercial year that spans from August 1 through July 31, of 70,000 units through 2033. The Company is required to pay TRIS a royalty make-whole payment of $30 for each unit under the 70,000 units annual minimum sales commitment through 2033. The annual payment is due in August of each year.

The Company paid $0.9 million to TRIS in August 2018 related to the make-whole payment for the commercial year ended July 31, 2018. As of March 31, 2019, the Company has accrued $1.1 million in accrued expenses and other current liabilities related to the Karbinal royalty make whole for the commercial year ending July 31, 2019. For the three months ended March 31, 2019, the make-whole provision of $0.4 million has been recorded in cost of product sales. The future royalty make-whole payments are unknown as the amount owed to TRIS is dependent on the number of units sold.

Possible future milestone proceeds for out-licensed compound

In August 2017, the Company sold its worldwide rights to CERC-501 to Janssen Pharmaceuticals, Inc. (“Janssen”) in exchange for initial gross proceeds of $25 million. There is a potential future $20 million regulatory milestone payment to the

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Company. The terms of the agreement provide that Janssen will assume ongoing clinical trials and be responsible for any new development and commercialization of the Company’s product candidates. The Company was contractually obligated for up to approximately $1.2 million of future services under these agreements as of September 30, 2017. The Company’s actual contractual obligations will vary depending upon several factors, including the progress and results of the underlying services.CERC-501.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Quarterly Report on Form 10-Q and the information incorporated herein by reference contain forward-looking statements that involve a number of risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Forward-looking statements can be identified by the use of forward-looking words such as “believes,” “expects,” “may,” “will,” “plans,” “intends,” “estimates,” “could,” “should,” “would,” “continue,” “seeks,” “aims,” “projects,” “predicts,” “pro forma,” “anticipates,” “potential” or other similar words (including their use in the negative), or by discussions of future matters such as the ~~receipt of the escrowed initial gross proceeds amount or the potential future regulatory milestone payment from Janssen, the~~ development of product candidates or products, potential attributes and benefits of product candidates, the expansion of Cerecor's drug portfolio, Cerecor's ability to identify new indications for it's current portfolio and new product candidates that could be in-licensed, technology enhancements, possible changes in legislation, and other statements that are not historical. Although our forward-looking statements reflect the good faith judgment of our management, these statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties, and actual results and outcomes may differ materially from results and outcomes discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those below and elsewhere in this Quarterly Report on Form 10-Q, particularly in Part II – Item 1A, “Risk Factors,” as well as in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC, on March ~~10, 2017~~18, 2019, as amended on April 23, 2019 and in our other filings with the SEC. Statements made herein are as of the date of the filing of this Quarterly Report on Form 10-Q with the SEC and should not be relied upon as of any subsequent date. Unless otherwise required by applicable law, we do not undertake, and we specifically disclaim any obligation to update any forward-looking statements to reflect occurrences, developments, unanticipated events or circumstances after the date of such statement.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited financial statements and related notes that appear in Item 1 of this Quarterly Report on Form 10-Q and with our audited financial statements and related notes for the year ended December 31, ~~2016~~2018 appearing in our Annual Report on Form 10-K filed with the SEC on March ~~10, 2017.~~18, 2019, as amended on April 23, 2019.

Overview

~~We are~~Cerecor Inc. (the "Company" or “Cerecor”) is a fully integrated biopharmaceutical company ~~that~~with commercial operations and research and development capabilities. The Company is ~~developing~~building a pipeline of innovative ~~drug candidates for either commercialization, license or sale to make a difference~~therapies in ~~the lives of patients with neurologic~~neurology, pediatric healthcare, and ~~psychiatric disorders. Our lead drug candidate~~orphan rare diseases. The Company's neurology pipeline is led by CERC-301, which ~~we currently intend to explore as a novel treatment~~recently received positive interim results from the Phase I safety study of Neurogenic Orthostatic Hypotension ("nOH"). The Company is also developing 2 other neurological compounds, one of which is in preclinical testing and the other is in clinical ready stage. The Company's pediatric orphan rare disease pipeline is led by CERC-801, CERC-802, and CERC-803. All 3 of these compounds are therapies for ~~orphan neurologic indications. We also have two pre-clinical stage compounds, CERC-611 and CERC-406.~~

~~Our portfolio of product candidates is summarized below:~~

~~CERC-301: Orphan Neurologic Diseases.~~ ~~CERC‑301 belongs to a class of compounds~~inherited metabolic disorders known as ~~antagonists~~Congenital Disorders of Glycosylation ("CDGs") by means of substrate replacement therapy. The U.S. Food and Drug Administration ("FDA") has granted Rare Pediatric Disease designation ("RPDD") and Orphan Drug Designation ("ODD") to all 3 compounds. Under the ~~N‑methyl‑D‑aspartate, or NMDA, receptor,~~FDA’s Rare Pediatric Disease Priority Review Voucher ("PRV") program, upon the approval of a receptor subtype of the glutamate neurotransmitter system that is responsible for controlling neurologic adaptation. We believe CERC‑301 specifically blocks the NMDA receptor subunit 2B, or NR2B. Given its specific mechanism of action and demonstrated tolerability profile, we believe CERC-301 may be well suited to address unmet medical needs in neurologic indications. We are now embarking on a pre-clinical and clinical program to explore the use of CERC-301 in orphan neurologic conditions.

~~CERC-611: Adjunctive Treatment of Partial-Onset Seizures in Epilepsy.~~ ~~CERC-611 is a potent and selective transmembrane AMPA receptor regulatory proteins, or TARP, 8-dependent~~ á -amino-3-hydroxy-5-methyl-4-isoxazolepropionic acid, or AMPA, receptor antagonist, or inhibitor. TARPs are a recently discovered family of proteins that have been found to associate with, and modulate the activity of, AMPA receptors. TARP 8-dependent AMPA receptors are localized primarily in the hippocampus, a region of the brain with importance in complex partial seizures and particularly relevant to seizure origination and/or propagation. We believe CERC-611 may be the firstnew drug candidate to selectively target and functionally block region-specific AMPA receptors after oral dosing, which we believe may improve the efficacy and side effect profile of CERC-611 over current anti-epileptics. We intend to develop CERC-611 as an adjunctive therapyapplication ("NDA") for the treatment of ~~partial-onset seizures, with~~a rare pediatric disease, the sponsor of such application would be eligible for a PRV that can be used to obtain priority review for a subsequent new drug application or ~~without secondarily generalized seizures,~~biologics license application. The PRV may be sold or transferred an unlimited number of times. The Company plans to leverage the 505(b)(2) NDA pathway for all 3 compounds to accelerate development and approval. The Company is also in ~~patients with epilepsy.~~

the process of developing 1 other preclinical pediatric orphan rare disease compound.

Recent Developments

Executive Leadership Changes

In April 2019, the Company announced changes to its executive leadership team. Effective April 15, 2019, Dr. Simon Pedder, Ph.D., was appointed Executive Chairman of the Board. Additionally, Patrick Crutcher was promoted to Chief Strategy Officer. Peter Greenleaf resigned from his position as Chief Executive Officer role and remains on the Board of Directors.

Research and Development Updates

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~~CERC-406: Residual Cognitive Impairment.~~ ~~CERC-406 is a preclinical candidate~~In April 2019, the Company received positive interim results from ~~our proprietary platform~~the Phase 1 study of ~~compounds that inhibit catechol-O-methyltransferase, or COMT,~~CERC-301 for the treatment of Neurogenic Orthostatic Hypotension in Parkinson’s disease patients. All doses showed clinically meaningful increases in blood pressure over placebo, within the ~~brain,~~six-hour post-dose timepoints. The purpose of the Phase 1 study is to evaluate the single-dose safety, tolerability and pharmacokinetics of CERC-301 in the relevant patient population, as well as explore the effects on blood pressure in nOH patients during an orthostatic challenge at escalating dose levels. The interim results demonstrate a rapid, robust increase in systolic blood pressure (SBP) from baseline to six hours. This early and sustained effect could differentiate CERC-301 from existing nOH treatments. Additionally, all doses tested were safe and well tolerated with no serious adverse events reported. Additionally, in early 2019, a patent was issued for CERC-301, which ~~we refer~~provides Cerecor with intellectual property rights to ~~as our COMTi platform. We believe CERC‑406~~CERC-301 until 2035

The FDA granted ODD to CERC-801, CERC-802, and CERC-803 in early 2019. There are numerous benefits associated with receipt of ODD, which include 7-year marketing exclusivity (upon approval) in the United States, tax credits (up to 25% of clinical development costs) and waiver of Prescription Drug User Fee Act application fees (filing fees). Additionally, CERC-801, CERC-802, and CERC-803 were granted RPDD in 2018. RPDD provides eligibility for receipt of a PRV upon approval of an NDA.

In early 2019, the Company received a may ~~have~~proceed letter related to an Investigational New Drug ("IND") application previously submitted to the ~~potential~~FDA for CERC-801. Additionally, the FDA designated Fast Track Designation for CERC-801. Fast Track Designation is granted to bedrugs being developed for the treatment of ~~residual cognitive impairment symptoms.~~

serious or life-threatening diseases or conditions where there is an unmet medical need. The purpose of the Fast Track Designation provision is to help facilitate development and expedite the review of drugs to treat serious and life-threatening conditions so that an approved product can reach the market expeditiously.

~~We plan both~~Furthermore, in April 2019, the Company announced positive Phase 1 safety data for CERC-801 in healthy volunteers. The single-center, US-based safety, tolerability and pharmacokinetic study was an open-label, randomized, single-dose, four-way crossover study in 16 healthy adult volunteers. CERC-801 was shown to ~~evaluate our current portfolio for potential new indications~~be safe and well-tolerated at the studied doses, with no serious adverse events. CERC‑801 related adverse events were mild and transient. Cerecor seeks to ~~identify potential new product candidates~~leverage existing clinical and ~~/ or commercialized assets.~~nonclinical data in conjunction with sponsor-initiated studies, such as this Phase 1 study, to accelerate development and approval of CERC-801 via the 505(b)(2) pathway.

~~At September 30, 2017, we had $24.0 million~~

Recent Financing

During the first quarter of 2019, the Company closed on an underwritten public offering of common stock for 1,818,182 shares of common stock of the Company, at a price to the public of $5.50 per share ("public price"). Armistice Capital Master Fund Ltd. ("Armistice"), our largest stockholder, participated in ~~cash and cash equivalents and $4.8 million in current liabilities. In August 2017, we sold all~~the offering by purchasing 363,637 shares of ~~our rights to a prior product candidate, CERC-501, to Janssen in exchange for initial~~common stock of the Company from the underwriter at the public price. Cerecor director Steven J. Boyd is Armistice's Chief Investment Officer. The gross proceeds ~~of $25.0 million, of which $3.75 million was deposited into a twelve month escrow~~ to ~~secure certain indemnification obligations to Janssen, as well as a potential future $20.0 million regulatory milestone payment.~~the Company, before deducting underwriting discounts and commissions and offering expenses, were approximately $10.0 million. The net proceeds were approximately $9.0 million.

We will need additional funding to complete the development of any of our existing product candidates or any new product candidates we decide to pursue. We intend to seek future funding for our development programs and operations from further offerings of equity or debt securities, non-dilutive financing arrangements such as federal grants, collaboration agreements or out-licensing arrangements. However, we may be unable to raise additional funds or enter into such other agreements or transactions on favorable terms, or at all. If we fail to raise capital or enter into such other arrangements or transactions, we may experience a significant delay, scale-back or discontinue the development of one or more of our product candidates or be forced to cease our operations altogether.

We were incorporated in Delaware in 2011 and commenced operations in the second quarter of 2011. Since inception, our operations have included organizing and staffing our company, business planning, raising capital and developing our product candidates. We have no products approved for commercial sale and have not generated any revenue from product sales to date, and we continue to incur significant research, development and other expenses related to our ongoing operations. We have incurred losses in each period since our inception. As of September 30, 2017 we had an accumulated deficit of $55.1 million. We expect to incur significant expenses and operating losses for the foreseeable future as we continue the development and clinical trials of our product candidates.

We have financed our operations primarily through a public offering, private placements of our common stock and convertible preferred stock, the issuance of debt and the sale of our rights to CERC-501. Our ability to become and remain profitable depends on our ability to generate product revenue. We do not expect to generate any product revenue unless, and until, we obtain marketing approval for, and commercialize, any of our product candidates. There can be no assurance as to whether or when we will achieve profitability.

~~Components of Operating Results~~

~~Revenue~~

To date, we have primarily derived revenue from the sale of CERC-501 and research grants from the National Institutes of Health. We have not generated any revenue from commercial product sales to date. We will not generate any commercial revenue, if ever, until one of our product candidates receives marketing approval and we successfully commercialize such product candidates.

In April 2016, we received a research and development grant from the National Institute on Drug Abuse, or NIDA, at the National Institutes of Health to provide additional resources for the period from May 2016 through April 2017 for a Phase 2 clinical trial for CERC-501. Additionally, in July 2016, we received a research and development grant from the National Institute on Alcohol Abuse and Alcoholism, or NIAAA, at the National Institutes of Health to provide additional resources for the period of July 2016 through August 2017 to progress the development of CERC-501 for the treatment of alcohol use disorder. We recognize revenue under grants in earnings on a systemic basis in the period the related expenditures for which the grants are intended to compensate are incurred.

In August 2017, we sold all of our rights to a prior product candidate, CERC-501, to Janssen Pharmaceuticals, Inc., or Janssen, in exchange for initial gross proceeds of $25.0 million, of which $3.75 million was deposited into a twelve-month escrow to secure certain indemnification obligations, as well as a potential future $20.0 million regulatory milestone payment. The terms of the agreement provide that Janssen will assume ongoing clinical trials and be responsible for any new development and commercialization of CERC-501.

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Our Strategy

Our strategy for increasing shareholder value includes:

Advancing our pipeline of compounds through development and to regulatory approval;

Pursuing targeted, differentiated preclinical and clinical stage product candidates;

Acquiring or licensing rights to clinically meaningful and differentiated products that are already on the market for pediatric use or in late-stage development for pediatric indications; and

Growing sales of the existing commercial products in our portfolio, including by identifying and investing in growth opportunities such as new indications and new geographic markets.

Product Pipeline Assets

The following table summarizes key information about our product candidates and further detail regarding each product candidate follows:

Results of Operations

Comparison of the Three Months Ended March 31, 2019 and 2018

The following table summarizes our revenue for the three months ended March 31, 2019 and 2018



	Three Months Ended March 31,
	2019		2018

	(in thousands)
Product revenue, net	$	5,411	$	4,260
Sales force revenue	$	—	$	223

Product revenue, net

~~Research and Development Expenses~~

Our research and development expenses consist primarily of costs incurred developing, testing and seeking marketing approval for our product candidates. These costs include both external costs, which are study‑specific costs, and internal research and development costs, which are not directly allocated to our product candidates.

~~External costs include:~~

~~expenses incurred under agreements with third‑party contract research organizations and investigative sites that conduct our clinical trials, preclinical studies and regulatory activities;~~

~~payments made to contract manufacturers for drug substance and acquiring, developing and manufacturing clinical trial materials; and~~

~~payments related to acquisitions of our product candidates and preclinical platform, milestone payments, and fees associated with the prosecution and maintenance of patents.~~

~~Internal costs include:~~

~~personnel‑related expenses, including salaries, benefits and stock‑based compensation expense;~~

~~consulting costs related to our internal research and development programs;~~

~~allocated facilities, depreciation and other expenses, which include rent and utilities, as well as other supplies; and~~

~~product liability insurance.~~

Research and development costs are expensed as incurred. We record costs for some development activities, such as clinical trials, based on an evaluation of the progress to completion of specific tasks using data such as subject enrollment, clinical site activations or information provided to us by our vendors.

We track external costs by program and subsequently by product candidate once a product candidate has been selected for development. Product candidates in later stage clinical development generally have higher research and development expenses than those in earlier stages of development, primarily due to the increased size and duration of the clinical trials.

~~As of September 30, 2017, we had four full-time employees who were primarily engaged in research and development.~~

~~General and Administrative Expenses~~

General and administrative expenses consist primarily of professional fees, patent costs and salaries, benefits and related costs for executive and other personnel, including stock‑based compensation and travel expenses. Other general and administrative expenses include facility‑related costs, communication expenses and professional fees for legal, including patent‑related expenses, consulting, tax and accounting services, insurance, depreciation and general corporate expenses.

~~Interest Expense, Net~~

Net interest expense is primarily related to interest payments pursuant to the terms of our term debt facility entered into in August 2014, as well as the amortization of the debt discounts and premiums and deferred financing fees in connection with such term debt facility. We made the final payment under this facility on August 1, 2017.

~~Income Tax Expense~~

~~Income tax expense was incurred during the quarter ended September 30, 2017 as a result of our net income for the same period.~~

~~Critical Accounting Policies and Significant Judgments and Estimates~~

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Net product revenue increased $1.2 million for the three months ended March 31, 2019 as compared to the same period in 2018. The increase was due to favorable product mix and unit growth driven by the sales force expansion as well as due to a full quarter of sales of products that were acquired during the prior year quarter.

This discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America, or GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date

Sales force revenue

As part of the ~~financial statements~~acquisition of TRx in November 2017, the Company acquired a sales and marketing agreement with Pharmaceutical Associates, Inc. ("PAI") under which the ~~reported amounts~~Company received a monthly marketing fee to promote, market and sell certain products on behalf of PAI. The Company was also entitled to a share of PAI's profits. For the three months ended March 31, 2018, sales force revenue ~~and expenses~~was $0.2 million. The PAI contract was canceled during the ~~reported period. In accordance with GAAP, we base our estimates on historical experience~~second quarter of 2018 and on various other assumptions that we believe are reasonable under the circumstances. On an ongoing basis, we evaluate our estimates and assumptions, including those related to clinical and preclinical trial expenses and stock‑based compensation. Actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are more fully described in Note 2 to the audited financial statements appearing at the end of our Annual Report on Form 10-K, we believe the following accounting policies are critical to the portrayal of our financial condition and results. We have reviewed these critical accounting policies and estimates with the audit committee of our board of directors.

~~License and Other Revenue~~

We recognize revenues from collaboration, license or other research or sale arrangements when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable and collectability is reasonably assured.

~~Grant Revenue Recognition~~

~~We recognize grant revenue when~~therefore there is (i) reasonable assurance of compliance with the conditions of the grant and (ii) reasonable assurance that the grant will be received. We recognize revenue under grants in earnings on a systemic basis in the period the related expenditures for which the grants are intended to compensate are incurred.

~~Results of Operations~~

~~Comparison of the Three Months Ended September 30, 2017 and 2016~~

~~License and Other Revenue~~

On August 14. 2017, we sold CERC-501 to Janssen in exchange for initial gross proceeds of $25.0 million, of which $3.75 million was deposited into a twelve month escrow to secure certain indemnification obligations to Janssen. In addition to the initial proceeds, the terms of the agreement provide for a potential future $20 million regulatory milestone payment. The terms of the agreement provide that Janssen will assume ongoing clinical trials and be responsible for any new development and commercialization of CERC-501.

~~Grant Revenue~~

~~The following table summarizes our grant~~no sales force revenue for the three months ended ~~September 30, 2017 and 2016:~~March 31, 2019.

Three Months Ended
September 30,
2017 2016
(in thousands)
Grant revenue $ 38
$ 321
Cost of product sales

~~Grant revenue under the NIAAA grant~~Cost of product sales was ~~approximately $38,000~~$1.9 million for the three months ended ~~September 30, 2017. We recognized approximately $321,000 of grant revenue~~March 31, 2019, compared to $0.9 million for the three months ended ~~September 30, 2016~~March 31, 2018. The increase of $1.0 million for the ~~NIDA grant. Our grant revenues are dependent upon~~three months ended March 31, 2019 compared to the ~~timing~~same period in 2018 is driven by the increase in net product revenue as well as Lachlan Pharmaceuticals' minimum purchase and ~~progress of the underlying studies and development activities. We had a reduced level of research and development activities in~~royalty obligations that arose during the third quarter of ~~2017 compared~~2018 as further discussed in Note 13 to the prior year period, which resulted in a reduction in grant revenue under the current NIAAA grant compared to the ongoing research conducted under the NIDA grant in 2016. The Company sold CERC-501 to Janssen in August 2017 and does not expect any further grant revenues.

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accompanying unaudited financial statements appearing above.

Research and Development Expenses

The following table summarizes our research and development expenses for the three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016:~~2018:


	Three Months Ended				Three Months Ended March 31,
	September 30,				2019		2018
	2017		2016
	(in thousands)				(in thousands)
CERC-301	$	362	$	1,142
CERC-501	14		896
CERC-611	175		2,019
CERC-406	—		17
Preclinical expenses					$	879	$	887
Clinical expenses					1,590		341
CMC expenses					435		107
Internal expenses not allocated to programs:
Salaries, benefits and related costs	194		400		435		240
Stock-based compensation expense	41		44		57		11
Other	179		64		5		64
	$	965	$	4,582	$	3,401	$	1,650

Research and development expenses were $965,000 for the three months ended September 30, 2017, a decrease of approximately $3.6 million compared to the three months ended September 30, 2016. Costs for CERC-301 decreased by $780,000, primarily due to the completion of the Phase 2 clinical trial for the adjunctive treatment of MDD. Costs for CERC-501 decreased by $882,000 from the prior year period as our Phase 2 clinical trial with CERC-501 was completed in the fourth quarter of 2016. The Company sold CERC-501 to Janssen in August 2017. We purchased CERC-611 for $2.0 million in September 2016 and are currently in the process of preparing that compound for additional development.

~~General and Administrative Expenses~~

Three Months Ended
September 30,
2017 2016
(in thousands)
Salaries, benefits and related costs $ 744
$ 556
Legal, consulting and other professional expenses 1,047
725
Stock-based compensation expense 223
244
Other general and administrative expenses 138
178
$ 2,152
$ 1,703

~~General and administrative expenses were $2.2~~increased $1.8 million for the three months ended ~~September 30, 2017, an increase of $0.4 million~~March 31, 2019 compared to the ~~three months ended September 30, 2016. This~~same period in 2018. The overall increase ~~was~~is driven by an increase in research and development activities during the current year as the Company continues to develop its pipeline of assets. Clinical expenses increased $1.2 million primarily due to ~~severance accruals for our former chief executive officer, who resigned~~increased activities related to the CERC-301 clinical study in ~~August, 2017 and increased legal fees associated with the sale of all of our rights to CERC-501.~~

~~Change in Fair Value of Warrant Liability and Unit Purchase Option Liability~~

~~We recognized a net gain on the change in fair value of our warrant liability and UPO liability of $64~~nOH during the ~~three months ended~~first quarter of 2019 and activities related to CERC-801, CERC-802, and CERC-803, which were acquired as part of the Ichorion Acquisition in September ~~30, 2017 compared to a net gain of $101,000~~2018. Chemistry, Manufacturing, and Controls ("CMC") expenses increased $0.3 million for the three months ended ~~September 30, 2016.~~March 31, 2019 compared to the same period in 2018 due to additional spending on manufacturing to support clinical development. Salaries, benefits, and related costs increased by $0.2 million compared to the same period in 2018 due to an increase in headcount and salary-related costs.

General and Administrative Expenses

The ~~$101,000 gain on the change in fair value during the 2016 period was primarily due to the increase in fair value of the warrant liability~~following table summarizes our general and ~~UPO liability. These increases were attributable to a decrease in our common stock price compared to the previous quarter-end.~~

~~Interest Expense, Net~~

~~Net interest expense decreased by $134,000~~administrative expenses for the three months ended September 30, 2017 compared to the three months ended September 30, 2016. The decrease was primarily due to a decrease in interest associated with a reduction in the principal balance of our secured term loan facility. We made the final payment under this term loan on August 1, 2017.March 31, 2019 and 2018:

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~~Income Tax Expense~~



	Three Months Ended March 31,
	2019		2018

	(in thousands)
Salaries, benefits, and related costs	$	1,230	$	617
Legal, consulting, and other professional expenses	887		1,986
Stock-based compensation expense	469		207
Other	131		109
	$	2,717	$	2,919

~~The provision for income taxes was $3.2~~General and administrative expenses decreased $0.2 million for the three months ended ~~September 30, 2017~~March 31, 2019 as compared to the three months ended March 31, 2018. The overall decrease was driven by a $1.1 million decrease in legal, consulting, and other professional expenses, partially offset by a $0.6 million increase in salaries, benefits, and related costs and a $0.3 million increase in stock-based compensation expense.

Legal, consulting, and other professional expenses decreased $1.1 million as compared to the same period in 2018 mainly due to a substantial decrease in consulting fees. The consulting costs incurred in the ~~net income generated from the sale of CERC-501. Our annual effective tax rate as of September 30, 2017 was approximately 18 percent. Our effective tax rate differs from the federal statutory rate due~~prior year were related to the Company’s ability to utilize a portion of its prior net operating losses, which were previously subject to a valuation allowance, to offset current period income. We currently expect to generate an income tax benefit during the 4^th ~~quarter due to additional expected operating losses during that period.~~

~~Comparison~~integration of the ~~Nine Months Ended September 30, 2017~~acquisitions of TRx and ~~2016~~

~~License~~Avadel's pediatric products. The Company has since increased corporate headcount and ~~Other Revenue~~

~~On August 14. 2017, we sold CERC-501~~therefore utilizes less consulting services to ~~Janssen in exchange for initial gross proceeds of $25.0~~meet accounting and reporting requirements. Additionally, $0.4 million of ~~which $3.75 million was deposited into a twelve month escrow~~litigation fees incurred in the three months ended March 31, 2018 relate to ~~secure certain indemnification obligations~~arbitration and legal costs related to ~~Janssen. In addition~~Lachlan Pharmaceuticals (explained further in Note 13 to the ~~initial proceeds,~~accompanying unaudited financial statements appearing above). Under the terms of the ~~agreement provide~~TRx Purchase Agreement, the former TRx owners are required to indemnify the Company for 100% of all pre-acquisition losses related this arbitration, including legal costs, and possible minimum payments in excess of $1.0 million. The $1.0 million threshold was met in the third quarter of 2018 and therefore the minimal legal costs related to Lachlan Pharmaceuticals incurred in the three months ended March 31, 2019 were offset by a ~~potential future $20~~corresponding receivable instead of general and administrative expenses. Salaries, benefits, and related costs increased by $0.6 million ~~regulatory milestone payment. The terms of the agreement provide that Janssen will assume ongoing clinical trials~~due to an increase in headcount and ~~be responsible for any new development and commercialization of CERC-501.~~

~~Grant Revenue~~

~~The following table summarizes our grant revenue~~salary-related costs. Stock-based compensation expense increased for the ~~nine~~three months ended ~~September 30, 2017 and 2016:~~

Nine Months Ended
September 30,
2017 2016
(in thousands)
Grant revenue $ 580
$ 972

Grant revenue from the NIAAA grant was $580,000 for the nine months ended September 30, 2017. Revenue of $972,000 for the nine months ended September 30, 2016 was derived from the NIDA grant. Our grant revenues are dependent upon the timing and progress of the underlying studies and development activities. We had a reduced level of research and development activities in the current year periodMarch 31, 2019 as compared to the ~~on-going clinical trial work~~same period in ~~prior year period, which resulted~~2018 due to equity awards granted to a senior executive who joined the Company in ~~a reduction of grant revenue under the current NIAAA grant compared~~late March 2018. Due to the ~~NIDA~~timing of the grant, ~~in 2016.~~minimal expense was recognized for the three months ended March 31, 2018, however a full quarter of expense was recognized for the three months ended March 31, 2019.

~~Research~~Sales and ~~Development~~Marketing Expenses

The following table summarizes our ~~research~~sales and ~~development~~marketing expenses for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016:~~2018:

Nine Months Ended
September 30,
2017 2016
(in thousands)
CERC-301 $ 484
$ 2,534
CERC-501 596
3,145
CERC-611 216
2,019
CERC-406 2
121
Internal expenses not allocated to programs:
Salaries, benefits and related costs 743
1,285
Stock-based compensation expense 124
95
Other 246
178
$ 2,411
$ 9,377



	Three Months Ended March 31,
	2019		2018

	(in thousands)
Salaries, benefits, and related costs	$	1,838	$	952
Logistics, insurance, and other commercial operations expenses	339		91
Stock-based compensation expense	70		24
Advertising and marketing expense	815		177
Other	47		280
	$	3,109	$	1,524

~~Research~~Sales and ~~development~~marketing expenses ~~were $2.4~~increased $1.6 million for the ~~nine~~three months ended ~~September 30, 2017, a decrease of approximately $7.0 million~~March 31, 2019 as compared to the ~~nine~~same period in 2018. Salaries, benefits and related costs increased $0.9 million as a result of increasing sales and sales support personnel needed to maintain and grow our commercial sales activities in connection with the acquisition of TRx and Avadel's pediatric products. Logistics, insurance, and other commercial operations expenses increased largely due to an increase of FDA fees incurred for the three months ended ~~September 30, 2016. Costs~~March 31, 2019. Advertising and marketing expenses increased $0.6 million due to an increased focus on advertising and marketing initiatives during the current quarter to support the portfolio of pediatric drugs.

Amortization Expense

The following table summarizes our amortization expense for ~~CERC-301 decreased by $2.0~~the three months ended March 31, 2019 and 2018:

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million from the prior year period, primarily due to the completion of enrollment during the Phase 2 clinical trial for the adjunctive treatment of MDD in 2016. We did not perform any clinical trials for CERC-301 in 2017, however costs were incurred to analyze potential other indications for CERC-301 in 2017. Costs for CERC-501 decreased by $2.5 million from the prior year period as our Phase 2 clinical trial with CERC-501 was completed in the fourth quarter of 2016. We sold all of our rights to CERC-501 to Janssen in August 2017. We purchased CERC-611 in September 2016 for $2.0 million and are currently in the process of preparing that compound for additional development.

~~General and Administrative Expenses~~

Nine Months Ended
September 30,
2017 2016
(in thousands)
Salaries, benefits and related costs $ 1,665
$ 1,808
Legal, consulting and other professional expenses 2,150
2,186
Stock-based compensation expense 728
1,344
Other general and administrative expenses 378
651
$ 4,921
$ 5,989



	Three Months Ended March 31,
	2019		2018

	(in thousands)
Amortization of intangible assets	$	1,079	$	1,017

~~General and administrative expenses were $4.9 million for the nine months ended September 30, 2017, a decrease of $1.1 million compared~~Amortization expense relates to the ~~nine months ended September 30, 2016. Salaries, benefits~~acquisition of intangible assets as part of the acquisition of TRx in November 2017 and ~~related costs decreased by $143,000 primarily due to a temporary reduction~~Avadel's pediatric products in headcount and certain employee benefits. Stock-based compensation expense decreased by $616,000, which was primarily driven by the modification of grants made to our former chief executive officer in the first quarter of 2016. Other general and administrative expenses decreased by $273,000 due to efforts to reduce certain other operating costs in order to preserve cash.February 2018.

Change in ~~Fair Value~~fair value of ~~Warrant Liability and Unit Purchase Option Liability~~contingent consideration

WeThe Company recognized a ~~net gain~~loss on the change in fair value of ~~our warrant liability and UPO liability~~contingent consideration of ~~$2,000 during~~$0.2 million for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2019 as compared to a ~~net gain~~loss of ~~$58,000~~$0.3 million for the ~~nine months ended September 30, 2016.~~

same period in 2018. The ~~$58,000 gain on the change in fair value during the 2016 period was primarily due~~contingent consideration is related to the ~~decrease in~~potential for future payment of consideration that is contingent upon the achievement of operation and commercial milestones and royalty payments on future product sales as part of the Company's acquisitions of Avadel's pediatric products and TRx. The fair value of contingent consideration was determined at the ~~warrant~~acquisition date. Subsequent to the acquisition date, at each reporting period, the contingent consideration liability is remeasured at the current fair value with changes recorded in operating expenses in the condensed consolidated statement of operations.

Other expense, net

The following table summarizes our other expense, net for the three months ended March 31, 2019 and ~~UPO liability. These decreases were attributable to a decrease in our common stock price~~2018:



	Three Months Ended March 31,
	December 31,
	2019			2018

	(in thousands)
Change in fair value of warrant liability and unit purchase option liability	$	(48	)	$	(23	)
Other (expense) income, net	(9		)	19
Interest expense, net	(208		)	(100		)
	$	(265	)	$	(104	)

Other expense, net increased $0.2 million for the three months ended March 31, 2019 as compared to the ~~previous year-end.~~

~~Interest Expense, Net~~

~~Net~~same period in 2018, which was primarily driven by a $0.1 million increase in interest expense. The interest expense ~~decreased by $328,000~~recognized relates to interest for the ~~nine~~Deerfield Obligation, as defined below, assumed as part of the acquisition of Avadel's pediatric products, which took place on February 16, 2018. Due to the timing of the acquisition, approximately 1.5 months of interest was incurred for the three months ended ~~September 30, 2017~~March 31, 2018 as compared to ~~the nine months ended September 30, 2016. The decrease was primarily due to~~ a ~~decrease in interest associated with a reduction~~full quarter in the ~~principal balance of our secured term loan facility. We made the final payment under this term loan on August 1, 2017.~~

current year.

Income ~~Tax Expense~~tax expense

The provision for income taxes was ~~$3.2~~$0.2 million for the ~~nine~~three months ended ~~September 30, 2017 due~~March 31, 2019 and includes estimated cash taxes and additionally, discrete to the ~~net income generated from~~quarter, interest and penalties on the ~~sale of CERC-501. Our annual effective tax rate as of September 30, 2017 was approximately 18 percent. Our effective tax rate differs from the federal statutory rate due~~outstanding taxes payable to the Company’s ability to utilize a portion of its prior net operating losses, which were previously subject to a valuation allowance, to offset current period income. We currently expect to generate an income tax benefit during the 4^th ~~quarter due to additional expected operating losses during that period.~~IRS and various state authorities.

Liquidity, ~~and~~ Capital Resources and Expenditure Requirements

~~We have devoted most~~In order to meet its cash flow needs, the Company applies a disciplined decision-making methodology as it evaluates the optimal allocation of ~~our cash~~the Company's resources ~~to research~~between investing in the Company's current commercial product line, the Company's development portfolio and ~~development and general and administrative activities. Since our inception, we have incurred~~acquisitions, or in-licensing of new assets. For the three months ended March 31, 2019, Cerecor generated a net ~~losses~~loss of $7.5 million and negative cash flow from operations of $3.1 million. As of March 31, 2019, Cerecor had an accumulated deficit of $105.7 million and a balance of $16.1 million in cash and cash equivalents. During the first quarter of 2019, the Company closed an underwritten public offering of common stock for 1,818,182 shares of common stock of the Company, at a price to the public of $5.50 per share ("public price"). Armistice, our largest stockholder, participated in the offering by purchasing 363,637 shares of common stock of the Company from the underwriter at the public price. Cerecor director Steven J. Boyd is Armistice's Chief Investment Officer. The net proceeds of the offering were approximately $9.0 million (see "Common Stock Offering" in Note 9 below for description of the transaction).

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The Company plans to use cash and the anticipated cash flows from ~~our operations. We expect~~the Company's existing product sales to offset costs related to its neurology programs, pediatric rare disease programs, business development, costs associated with its organizational infrastructure, and debt principal and interest payments. Cerecor expects to continue to incur significant expenses and operating losses for the ~~foreseeable~~immediate future as ~~we continue~~it continues to invest in the Company's pipeline assets. Our ability to achieve and maintain profitability in the future is dependent on, among other things, the development, ~~preclincial and clinical trials of, and seek marketing~~regulatory approval, ~~for, our product candidates. We incurred net income (losses) of $15.0 million and $(14.8) million for~~

~~Table of Contents~~

the nine months ended September 30, 2017 and 2016, respectively. At September 30, 2017 we had an accumulated deficit of $55.1 million, net working capital of $23.3 million and cash and cash equivalents of $24.0 million primarily due to the sale of CERC-501. To date, we have not generated any commercial revenues from the sale of products and we do not anticipate generating any revenues from the commercial sale of our product candidates for the foreseeable future. Historically, we have financed our operations principally through private and public placements of common stock, private placements of convertible preferred stock and convertible and nonconvertible debt. In April 2017, we raised gross proceeds of $5.0 million from a private placement of our equity securities. On August 14. 2017, we sold all of our rights to CERC-501 to Janssen in exchange for initial gross proceeds of $25.0 million, of which $3.75 million was deposited into a twelve month escrow to secure certain indemnification obligations to Janssen. In addition to the initial proceeds, the terms of the agreement provide for a potential future $20 million regulatory milestone payment. Further, the terms of the agreement provide that Janssen will assume ongoing clinical trials and be responsible for any new development and commercialization of ~~CERC-501.~~our new product candidates and achieving a level of revenues from our existing product sales adequate to support our cost structure, which includes significant investment in our pipeline assets.

WeThe Company believes it will require ~~substantial~~ additional financing ~~to fund our operations~~ to continue to execute ~~our strategy. Our~~its clinical development strategy isand fund future operations. The Company plans to ~~seek funding for our operations~~meet its capital requirements through operating cash flows from ~~further offerings~~product sales and some combination of equity or debt ~~securities, non-dilutive financing arrangements such as federal grants, collaboration agreements or~~financings, collaborations, out-licensing arrangements, strategic alliances, federal and private grants, marketing, distribution, or licensing arrangements or the sale of current or future assets. If the Company is not able to ~~explore~~secure adequate additional funding, the Company may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, or suspend or curtail planned programs. If the Company raises additional funds through collaborations, strategic ~~alternatives such as an acquisition, merger,~~alliances, or ~~business combination. Based on~~licensing arrangements with third parties, the Company may have to relinquish valuable rights to our technologies, future revenue streams, research programs, or product candidates.

Our plan to aggressively develop our pipeline will require substantial cash inflows in excess of what the Company expects our current ~~research and development plans we expect~~commercial operations to generate. However, the Company expects that our existing cash and cash equivalents, together with ~~the initial proceeds from the Janssen sale,~~anticipated revenue, will enable us to fund our operating expenses, ~~and~~ capital expenditure requirements, and other non-operating cash payments, such as fixed quarterly payments on our outstanding debt balances, through ~~2018.~~at least May 2020.

~~Term Loan~~Uses of Liquidity

~~In August 2014,~~The Company uses cash and the anticipated positive net cash flows from the Company's existing product sales to fund research and development expenses related to its neurology and pediatric rare disease pipelines, business development, costs associated with its organizational infrastructure, and debt principal and interest payments.

Ichorion Asset Acquisition

On September 24, 2018, the Company entered into a merger agreement in which we ~~received a $7.5~~acquired Ichorion Therapeutics, Inc. The consideration for the Ichorion acquisition at closing consisted of 5.8 million ~~secured term loan from a finance company.~~shares of the Company’s Common Stock, par value $0.001 per share, as adjusted for estimated working capital. The ~~loan was secured by a lien on all our assets, excluding intellectual property, which was~~shares are subject to a ~~negative pledge. The loan agreement contained~~lockup through December 31, 2019. Consideration for the Merger included certain development milestones worth up to an additional ~~nonfinancial covenants. In connection~~$15 million, payable either in shares of Company common stock or in cash, at the election of the Company. There will be future cash outflow for research and development costs associated with the ~~loan agreement, our cash and investment accounts were subject to account control agreements with the finance company that give the finance company the right to assume control~~development of the accounts in the event of a loan default. Loan defaults were defined in the loan agreement and include, among others, the finance company’s determination that there was a material adverse change in our operations, other than adverse results of clinical trials. Interest on the loan was at a rateassets acquired as part of the ~~greater~~Ichorion acquisition (CERC-801, CERC-802, CERC-803 and CERC-913).

Deerfield Debt Obligation

In relation to the Company's acquisition of ~~7.95%, or 7.95% plus~~Avadel's pediatric products on February 16, 2018, the ~~prime rate as reported~~Company assumed an obligation that Avadel had to Deerfield (the "Deerfield Obligation"). Beginning in ~~The Wall Street Journal minus 3.25%. On August 1, 2017, we made~~July 2018 through October 2020, the ~~final~~Company will pay a quarterly payment of ~~$494,231 under the loan,~~$262,500 to Deerfield. In January 2021, a balloon payment of $15,250,000 is due. The Deerfield Obligation was $15.4 million as of March 31, 2019, of which ~~included~~$1.1 million is recorded as a ~~termination fee of $187,500.~~current liability.

Cash Flows

The following table summarizes our cash flows for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016:~~2018:

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							Three Months Ended March 31,
	Nine Months Ended September 30,						2019			2018
	2017			2016
	(in thousands)						(in thousands)
Net cash provided by (used in):
Operating activities	$	15,110		$	(10,860	)	$	(3,122	)	$	(280	)
Investing activities	(8		)	(26		)	(166		)	(19		)
Financing activities	3,726			(1,461		)	8,817			363
Net increase (decrease) in cash and cash equivalents	$	18,828		$	(12,347	)	$	5,530		$	64

Net cash ~~provided by (used in)~~used in operating activities

Net cash provided by operating activities was $15.1 million for the nine months ended September 30, 2017 and consisted primarily of net income of $15.0 million, offset by an increase in escrowed cash receivable of $3.8 million which resulted from the sale of all of our rights to CERC-501 and a $698,000 decrease in accounts payable. These were offset by non‑cash stock-based compensation expense of $852,000.

Net cash used in operating activities was ~~$10.9~~$3.1 million for the ~~nine~~three months ended ~~September 30, 2016~~March 31, 2019 and consisted primarily of a net loss of ~~$14.8~~$7.5 million, offset by depreciation and amortization of $1.1 million, non-cash stock-based compensation expense of ~~$1.4~~$0.6 million, and changes in working capital, primarily, an increase in accrued expenses of $2.0 million, largely related to the Lachlan minimum obligations as discussed in Note 13 to the accompanying unaudited financial statements appearing above. The net loss for the three months ended March 31, 2019 was driven by increased research and development activities incurred as the Company continues to fund its pipeline of development assets and also by increased sales and marketing expenses incurred to support commercial sales activities.

Net cash used in operating activities was $0.3 million for the three months ended March 31, 2018 and consisted primarily of a net loss of $3.9 million, adjusted for non-cash stock-based compensation expense of $0.2 million, depreciation and amortization of $1.0 million, and changes in working capital, primarily driven by a change in accounts payable of $1.9 million and other ~~liabilities~~receivables of ~~$2.5~~$0.4 million, offset by a change in inventory of $0.6 million.

Net cash ~~provided~~used in investing activities

Net cash used in investing activities was $0.2 million for the three months ended March 31, 2019, an increase of approximately $0.2 million over the three months ended March 31, 2018. The increase was primarily driven by ~~(used in) financing activities~~the purchase of property and equipment in connection with the Company occupying its new corporate headquarters during the first quarter of 2019.

27Net cash used in investing activities was $19,225 for the three months ended March 31, 2018 and primarily consisted of purchases of property and equipment.

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Net cash provided by financing activities

Net cash provided by financing activities was ~~$3.7~~$8.8 million for the ~~nine~~three months ended ~~September 30, 2017, which~~March 31, 2019 and consisted primarily of ~~gross~~net proceeds of ~~$1.7~~approximately $9.0 million from the ~~sale~~underwritten public offering of common stock ~~under an equity distribution agreement with~~for 1,818,182 shares of common stock of the ~~Maxim Group and $4.6 million, net from~~Company, at a ~~private placement~~price to the public of ~~equity securities to Armistice Capital Master Fund Ltd,~~$5.50 per share. The increase was partially offset by ~~principal payments on our term loan~~$0.2 million payment of ~~$2.4 million.~~contingent consideration related to the Avadel acquisition.

Net cash ~~used in~~provided by financing activities was ~~$1.5~~$0.4 million for the ~~nine~~three months ended ~~September 30, 2016, which~~March 31, 2018 and consisted ~~primarily~~ of proceeds from option and warrant exercises.

Critical Accounting Policies, Estimates, and Assumptions

This Management’s Discussion and Analysis of ~~$1.0 million from the sale~~Financial Condition and Results of ~~common stock offset by principal payments~~Operations is based on our ~~term loan~~unaudited condensed consolidated financial statements, which have been prepared in accordance with GAAP. In preparing the financial statements in conformity with GAAP, the Company makes estimates and assumptions that have an impact on assets, liabilities, revenue and expenses reported. These estimates can also affect supplemental information disclosed by us, including information about contingencies, risk, and financial condition. In our unaudited condensed consolidated financial statements, estimates are used for, but not limited to, revenue recognition, cost of ~~$2.5 million.~~

~~Operating and Capital Expenditure Requirements~~

~~We have not achieved profitability since our inception and, while we did recognize license~~product sales, stock-based compensation, fair value measurements (including those relating to contingent consideration), cash flows used in management's going concern assessment, income taxes, goodwill, and other ~~revenue~~intangible assets, and clinical trial accruals. The Company believes, given current facts and circumstances, our estimates and assumptions are reasonable, adhere to GAAP and are consistently applied. Inherent in the nature of an estimate or assumption is the fact that actual results may differ from ~~the sale of CERC-501, we expect to continue to incur net losses~~estimates, and estimates may vary as new facts and circumstances arise. Our most critical accounting estimates and assumptions are included in our Annual Report on Form 10-K for the foreseeable future. We expect to continue to incur significant legal, accounting and other expenses that relate to being a public company. In addition, the Sarbanes‑Oxley Act, as well as rules adopted by the Securities and Exchange Commission, or SEC, and the NASDAQ Stock Market, requires public companies to implement specified corporate governance practices that are inapplicable to private companies. We expect these rules and regulations will continue to increase our legal and financial compliance costs and will make some activities more time consuming and costly. Based on our research and development plans, we expect that our existing cash and cash equivalents, togetheryear ended December 31, 2018 filed with the ~~initial proceeds of $25.0 million from the Janssen sale, of which $3.75 million will be held in escrow for twelve months, which will enable us to fund our operating expenses~~SEC on March 18, 2019 and capital expenditure requirements through 2018. We will require substantial additional financing to fund our operations and to continue to develop our product candidates. Our strategy is to seek funding for our operations from further offerings of equity or debt securities, non-dilutive financing arrangements such as federal grants, collaboration agreements or out-licensing arrangements, and to explore strategic alternatives such as an acquisition, merger, or business combination.

Each of our product candidates are still in the early stages of preclinical and clinical development and the outcome of these efforts is uncertain. We cannot estimate the actual amounts necessary to successfully complete the development and commercialization of our product candidates or whether, or when, we may generate revenue.

We will need to raise substantial additional capital in the future to fund our operations and to further develop our product candidates and we anticipate funding our operations from further offerings of equity or debt securities, non-dilutive financing arrangements such as federal grants, collaboration agreements or out-licensing arrangements, and to explore strategic alternatives such as an acquisition, merger, or business combination. However, there can be no assurance that we will be able to obtain additional equity or debt financing, or strategic alternatives,amended on terms acceptable to us, if at all. If we raise additional funds through collaboration and licensing agreements with third parties, it may be necessary to relinquish valuable rights to our product candidates, technologies or future revenue streams or to grant licenses on terms that may not be favorable to us. There can also be no assurance that the exploration of strategic alternatives will result in any such transaction. Our future capital requirements will depend on many forward‑looking factors, including:

~~the progress and results of any clinical trials for CERC-301~~

~~the progress and results of any clinical trials for CERC-611 and any changes to our development plan with respect to CERC-611, if any;~~

~~our plan and ability to enter into collaborative or licensing agreements for the development and commercialization of our product candidates;~~

~~the number and development requirements of any other product candidates that we may pursue;~~

~~the scope, progress, results and costs of researching and developing our product candidates or any future product candidates, both in the United States and in territories outside the United States;~~

~~the costs, timing and outcome of regulatory review of our product candidates or any future product candidates, both in the United States and in territories outside the United States;~~ April 23, 2019.

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the costs and timing of future commercialization activities, including product manufacturing, marketing, sales and distribution for any of our product candidates for which we receive marketing approval;

~~the costs and timing of any product candidate acquisition or in‑licensing opportunities;~~

~~any product liability or other lawsuits related to our products;~~

~~the expenses needed to attract and retain skilled personnel;~~

~~the revenue, if any, received from commercial sales of our product candidates for which we receive marketing approval; and~~

the costs involved in preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending our intellectual property‑related claims, both in the United States and in territories outside the United States.

We have entered into agreements with contract research organizations and other external service providers for services, primarily in connection with the clinical trials and development of our product candidates. We were contractually obligated for up to approximately $1.2 million of future services under these agreements as of September 30, 2017. Our actual contractual obligations will vary depending upon several factors, including the progress and results of the underlying services.

~~Please refer to the section entitled “Risk Factors” at Item 1A of this Quarterly Report on Form 10-Q for additional risks associated with our substantial capital requirements.~~

Off‑Balance Sheet Arrangements

We do not have any ~~off-balance~~off‑balance sheet arrangements, as defined by applicable SEC rules and regulations.

~~Recent~~Recently Adopted Accounting Pronouncements

See Item 1 of Part I, “Notes to Unaudited Financial Statements,” Note 2, of this Quarterly Report on Form 10-Q.

JOBS Act

The JOBS Act contains provisions that, among other things, reduce reporting requirements for an “emerging growth company.” As an emerging growth company, we have elected to not take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards and, as a result, will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non‑emerging growth companies.

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Item 3. Quantitative and Qualitative Disclosures ~~about~~About Market ~~Risk~~Risk.

~~Interest Rate Risk~~

~~We maintain~~As a ~~short-term investment portfolio consisting mainly of highly liquid short-term money market funds, which~~smaller reporting company, we ~~consider~~are not required to be cash equivalents. These investments earn interest at variable rates and, as a result, decreases in market interest rates would generally result in decreased interest income. We do not believe that a 10% increase or decrease in interest rates would have a material effect onprovide the ~~fair value of our investment portfolio due to the short-term nature of these instruments, and accordingly we do not expect our operating results or cash flows to be materially affected~~information required by ~~a sudden change in market interest rates.~~this Item.

Item 4. Controls and ~~Procedures~~Procedures.

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) and Rule 15d-15(b) of the Exchange Act, our management, including our principal executive officer and our principal financial officer, conducted an evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q of the effectiveness of the design and operation of our disclosure controls and procedures. In designing and evaluating our disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures ~~are~~were effective at the reasonable assurance level ~~in ensuring that information required to be disclosed~~as of the end of the period covered by ~~us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.~~ this Quarterly Report on Form 10-Q.

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control ~~over~~Over Financial Reporting

There ~~have not been any~~were no changes in our internal ~~controls~~control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the ~~quarter ended September 30, 2017~~period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Attestation Report of Registered Public Accounting Firm

The Quarterly Report on Form 10-Q does not include an attestation report of our independent registered public accounting firm due to an exemption established by the JOBS Act for emerging growth companies.

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PART II – OTHER INFORMATION

Item 1. Legal ~~Proceedings~~Proceedings.

WeLachlan Pharmaceuticals

In November 2017, the Company acquired TRx and its wholly-owned subsidiaries, including Zylera. The previous owners of TRx beneficially own more than 10% of our outstanding common stock. Zylera, which is our wholly owned subsidiary, entered into the First Amended and Restated Distribution Agreement withLachlan, effective December 18, 2015. Pursuant to the Lachlan Agreement, Lachlan named Zylera as its exclusive distributor of Ulesfia in the United States and agreed to supply Ulesfia to Zylera exclusively for marketing and sale in the United States.

Zylera is obligated to purchase a minimum of 20,000 units per year, or approximately $1.2 million worth of product, from Lachlan, subject to certain termination rights. Zylera must pay Lachlan $58.84 per unit and handling fees that are equal to $3.66 per unit of fully packaged Ulesfia in 2018, and escalate at a rate of 10% annually, as well as reimburse Lachlan for all product liability insurance fees incurred by Lachlan. The Lachlan Agreement also requires that Zylera make certain cumulative net sales milestone payments and royalty payments to Lachlan with a $3 million annual minimum payment unless and until there has been a “Market Change” involving a new successful competitive product. Lachlan is obligated to pay identical amounts to an unrelated third party from which it obtained rights to Ulesfia, with the payments ultimately flowing to Summers Laboratories, Inc. (“Summers Labs”). Because of the dispute described below, the Company has not ~~currently~~made any payments to Lachlan under the Lachlan Agreement subsequent to the acquisition date.

On December 10, 2016, Zylera informed Lachlan that a ~~party~~Market Change had occurred due to the introduction of Arbor Pharmaceuticals' lice product, Sklice®. On June 5, 2017, Lachlan and Zylera entered into joint legal representation along with other unrelated third parties in negotiation and arbitration of a dispute with Summers Labs regarding the existence of a Market Change and the concomitant obligations of the parties. The arbitration panel issued an interim ruling on October 23, 2018 that no Market Change had occurred up to and including the date of the hearing. The arbitration panel issued a second interim ruling on December 26, 2018. The second interim award rejected Summers Labs' request to accelerate future minimum royalties, however, it ruled in favor of Summers Labs that it is owed reimbursement for all reasonable costs and expenses, including legal fees, by Shionogi, as well as interest, as stipulated in the contract. The arbitration panel issued a final award on March 1, 2019 that dictated the final amount of reimbursable costs and interest as contemplated in the second interim ruling. The final award has no direct bearing on the Company as the Company was not a named defendant to the original claim by Summers Labs and a federal court denied Zylera's ability to be a counterclaimant in the matter. Furthermore, the Company is not subject to the guarantee or interest provisions identified in the second ruling as these elements of the contractual relationship were not passed down to the Company’s agreement with Lachlan. However, the Company has interpreted this ruling's impact on the Lachlan Agreement to mean the minimum purchase obligation and minimum royalty provisions of the contract are active and due for any ~~material~~prior periods as well as going forward for any future periods.

The Company has recognized an $8.7 million liability for these minimum obligations in accrued liabilities as of March 31, 2019. Under the terms of the TRx Purchase Agreement, the former TRx owners are required to indemnify the Company for 100% of all pre-acquisition losses related this arbitration, including legal ~~proceedings~~costs, and wepossible minimum payments in excess of $1 million. Furthermore, the former TRx owners are required to indemnify the Company for 50% of post-acquisition Ulesfia losses, which would include losses resulting from having to fund these minimum obligations. The Company has recorded an indemnity receivable of $5.2 million in other receivables as of March 31, 2019, which the Company believes is fully collectible. For the three months ended March 31, 2019, minimum obligations net of amounts recorded within the indemnity receivable of $0.6 million has been recorded in cost of product sales. If the Company fails to make these minimum obligations timely then the Lachlan Agreement may be terminated by Lachlan, in which case the Company would no longer be able to sell the Ulesfia product, but it would also not ~~aware of any pending or threatened legal proceeding against us that we believe could have a material adverse effect on our business, operating results, cash flows or financial condition.~~be subject to future minimum obligations. Lachlan has not requested payment for the minimum obligations.

Item 1A. Risk ~~Factors~~Factors.

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2018, filed with the SEC on March ~~10, 2017,~~18, 2019 and amended on April 23, 2019, which could materially affect our business, financial condition, or future results. Our risk factors as of the date of this Quarterly Report on Form 10-Q have not changed materially from those described in our Annual Report on Form ~~10-K.~~10-K, as amended. However, the risks described in our Annual Report on Form 10-K are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, or future results of operations and the trading price of our common stock.

~~Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.~~

~~None.~~

~~Item 3.Defaults Upon Senior Securities.~~

~~None.~~

~~Item 4.Mine Safety Disclosures.~~

~~None.~~

~~Item 5.Other Information.~~

~~None.~~

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Item 6. ~~Exhibits~~Exhibits.



Exhibit Number	Description of Exhibit

~~2.1~~		Asset Purchase Agreement, dated as of August 14, 2017, by and among Cerecor Inc. and Janssen Pharmaceuticals, Inc. (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed on August 14, 2017).

~~3.1~~		~~Amended and Restated Certificate of Incorporation of Cerecor Inc. (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed on October 20, 2015).~~

~~3.1.1~~		Form of Certificate of Designation of Preferences, Rights and Limitations of Series A Convertible Preferred Stock of Cerecor Inc. (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed on April 28, 2017).

~~3.2~~		~~Amended and Restated Bylaws of Cerecor Inc. (incorporated by reference to Exhibit 3.2 to Amendment No. 1 to the Current Report on Form 8-K filed on October 20, 2015).~~

~~4.1~~		~~Second Amended and Restated Investors' Rights Agreement, dated as of July 11, 2014 (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-1 filed on June 12, 2015).~~

~~4.2~~		Form of Warrant to Purchase Shares of Common Stock issued in connection with the sale of Series A Convertible Preferred Stock (incorporated by reference to Exhibit 4.2 to the Registration Statement on Form S-1 filed on June 12, 2015).

~~4.3~~		Form of Warrant to Purchase Shares of Common Stock issued in connection with the sale of Series A-1 Convertible Preferred Stock, as amended by the Amendment to Common Stock Warrants, dated as of July 11, 2014 (incorporated by reference to Exhibit 4.3 to the Registration Statement on Form S-1 filed on June 12, 2015).

~~4.4~~		Form of Warrant to Purchase Shares of Common Stock, issued to CIFCO International Group and its affiliate (incorporated by reference to Exhibit 4.5 to the Registration Statement on Form S-1 filed on June 12, 2015).

~~4.5~~		Form of Warrant to Purchase Shares of Common Stock issued in connection with the issuance of convertible promissory notes from April 2014 through June 2014 (incorporated by reference to Exhibit 4.6 to the Registration Statement on Form S-1 filed on June 12, 2015).

~~4.6~~		Warrant Agreement, dated as of August 19, 2014, issued to Hercules Technology Growth Capital, Inc. (incorporated by reference to Exhibit 4.7 to the Registration Statement on Form S-1 filed on June 12, 2015).

~~4.7~~		~~Form of Unit Purchase Option (incorporated by reference to Annex IV of Exhibit 1.1 to the Registration Statement on Form S-1 filed on June 12, 2015).~~

~~4.9~~		~~Form of Class A Warrant Agreement (incorporated by reference to Exhibit 4.9 to the Registration Statement on Form S-1 filed on October 13, 2015).~~

~~4.1~~		~~Specimen Class A Warrant Certificate (incorporated by reference to Exhibit 4.10 to the Registration Statement on Form S-1 filed on October 13, 2015).~~

~~4.11~~		~~Form of Class B Warrant Agreement (incorporated by reference to Exhibit 4.11 to the Registration Statement on Form S-1 filed on October 13, 2015).~~

~~4.12~~		~~Specimen Class B Warrant Certificate (incorporated by reference to Exhibit 4.12 to the Registration Statement on Form S-1 filed on October 13, 2015).~~

~~Table of Contents~~



~~4.13~~			~~Specimen Unit Certificate (incorporated by reference to Exhibit 4.13 to the Registration Statement on Form S-1 filed on October 13, 2015).~~



~~4.14~~		~~Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.3 to the Registration Statement on Form S-8 filed on May 20, 2016).~~

~~4.15~~		~~Form of Warrant to Purchase Common Stock of Cerecor Inc. (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed on April 28, 2017).~~

31.1		Certification of Principal Executive Officer ~~pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.~~

~~31.2~~		~~Certification of~~and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

~~32.1~~32.1*	*	Certification of ~~Chief~~Principal Executive Officer and ~~Chief~~Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL Instance Document.

101.SCH		XBRL Taxonomy Extension Schema Document.

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB		XBRL Taxonomy Extension Label Linkbase Document.

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.

* ~~These certifications are~~This certification is being furnished solely to accompany this Quarterly Report pursuant to 18 U.S.C. Section 1350, and ~~are~~is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and ~~are~~is not to be incorporated by reference into any filing of the registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Cerecor Inc.

	Date: May 9, 2019		/s/ ~~John Kaiser~~Joseph M. Miller
		~~John Kaiser~~Joseph M. Miller
		~~Interim~~ Chief ~~Executive~~Financial Officer
		(on behalf of the registrant and as the registrant’s ~~Principal Executive Officer)~~principal executive officer, principal financial officer and principal accounting officer)
~~Date: November 6, 2017~~
		~~/s/ Mariam E. Morris~~
		~~Mariam E. Morris~~
		~~Chief Financial Officer~~ ~~(Principal Financial Officer)~~
~~Date: November 6, 2017~~

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	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2017		2016			2017			2016
License and other revenue	$	25,000,000	$	—		$	25,000,000		$	—
Grant revenue	37,592		321,497			579,597			971,985
Total revenue	25,037,592		321,497			25,579,597			971,985
Operating expenses:
Research and development	964,574		4,581,605			2,411,293			9,376,633
General and administrative	2,151,859		1,703,188			4,921,269			5,989,053
Income (loss) from operations	21,921,159		(5,963,296		)	18,247,035			(14,393,701		)
Other income (expense):
Change in fair value of warrant liability and unit purchase option liability	64		(101,246		)	(1,586		)	(57,595		)
Interest income (expense), net	29,387		(104,183		)	(53,991		)	(381,603		)
Total other income (expense)	29,451		(205,429		)	(55,577		)	(439,198		)
Net income (loss) before taxes	$	21,950,610	$	(6,168,725	)	$	18,191,458		$	(14,832,899	)
Income tax expense	3,230,000		—			3,230,000			—
Net income (loss) after taxes	$	18,720,610	$	(6,168,725	)	$	14,961,458		$	(14,832,899	)

Net income (loss) per common share, basic and diluted	$	0.52	$	(0.70	)	$	0.65		$	(1.71	)

Weighted-average number of common shares - basic	21,382,683		8,756,393			14,952,391			8,685,818
Weighted-average number of common shares - diluted	21,407,702		8,756,393			14,960,032			8,685,818



	September 30, 2017
	Fair Value Measurements Using
	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Assets
Investments in money market funds*	$	23,715,016	$	—	$	—
Liabilities
Warrant liability	$	—	$	—	$	531
Unit purchase option liability	$	—	$	—	$	6,607



	Warrant Liability			Unit purchase option liability		Total
Balance at December 31, 2016	$	5,501		$	51	$	5,552
Change in fair value	(4,970		)	6,556		1,586
Balance at September 30, 2017	$	531		$	6,607	$	7,138



	September 30, 2017		December 31, 2016
Term loan	$	—	$	2,374,031
Less: debt discount	—		(20,364		)
Term Loan, net of debt discount	$	—	$	2,353,667



	Options Outstanding
	Number of shares		Weighted‑average exercise price		Fair value of options granted		Weighted average remaining contractual term (in years)
Balance, December 31, 2016	1,849,359		$	5.57
Granted	578,611		$	0.74	$	301,743
Forfeited	(18,391	)	$	5.63
Balance, September 30, 2017	2,409,579		$	4.41			8.12
Exercisable at September 30, 2017	1,467,463		$	5.25			7.65