Here's What's Driving The Action In Cerecor Inc (NASDAQ:CERC) And What's Next

Cerecor Inc (NASDAQ:CERC) has soared into the close of the week this week, gaining just short of 150% on its market capitalization between the Monday open and Thursdays close. There haven't been any press releases put out by Cerecor that might be behind the move, but a quick look at the company's latest filings reveals the key driver – a large acquisition by an entity (and a person) of note, which we'll get to in a little more detail shortly. CERC Daily ChartThis one is an interesting one. The company has had a pretty rough ride over the last 12 months and has been beaten down in the markets as a result. Across the coming 12 months, however, a number of inputs have the potential to turn things around and – even against a backdrop of the recent 150% appreciation – could bring about a considerable upside reevaluation on the company's current market capitalization.Here is what we are looking at.First, let's address the recent filing.As per this 13D/A, a New York-based hedge fund now owns a little over 29.6 million shares of Cerecor, accounting for 73.5% of the company. That's a substantial holding and one that – at first glance – might look a little unusual. Look a little closer, however, and things become clear.The hedge fund in question is called Armistice Capital and it was founded back in 2012 by a guy called Stephen Boyd, who now serves as its Chief Investment Officer (CIO). Back on May 15, Cerecor announced that it had appointed two new individuals to its Board Of Directors – one called Peter Greenleaf, who among other things previously served as President at MedImmune Ventures, the VC arm of AstraZeneca plc (ADR) (NYSE:AZN), and the second, Stephen Boyd.So, Boyd came on board as a Director (Armistice previously held a smaller position in the company prior to his hiring) and then, a couple months later, upped the Fund's stake in Cerecor dramatically.For us, that's a great indication of some bullish insider sentiment and the recent run seems to suggest the same is true from a market interpretation perspective.So, that out of the way, what's next?This is where things get a bit convoluted, but stick with us.Cerecor had two pretty high-profile flops towards the end of last year, one in a smoking cessation drug called CERC-501 and another in a drug targeting relief from major depressive disorder (MDD) called CERC-301. Both failed to hit against primary endpoints in their respective studies and the company took a real hit as a result.Almost parallel to these failures, however, Alkermes Plc (NASDAQ:ALKS) put out positive data from a trial investigating another MDD drug, one called ALKS-5461. ALKS-5461 has the same mechanism of action as Cerecor's CERC-501 (they are both kappa opioid receptor assets).Note, CERC-301 was Cerecor's depression drug, but the MOA similarity is between ALKS-5461 and CERC-501.So, the company set out to put the drug through its paces in an MDD indication and early-stage data (derived from a small, third party funded trial) suggested that it might work in this indication, as implied by the success of Alkermes' asset.Next, comes a phase 2/3 investigation set up to serve as pivotal and that should underpin a New Drug Application (NDA) with the FDA in the US if the numbers hit press as positive. It is this study that we are looking at as the company's major near-term valuation driver.Management noted last month that it intends to initiate the study during the second half of this year, subsequent to Cerecor picking up the capital required to do so. As such, we are likely going to see near-term raise but, if the drug performs as expected in the trial (and it should be a relatively short trial), any dilution will quickly negate on the back of upside reevaluation throughout late 2017 and, beyond, into 2018.Catch up on our previous coverage of this one here.We will be updating our subscribers as soon as we know more. For the latest updates on CERC, sign up below!Image courtesy of Matthew Robinson via FlickrDisclosure: We have no position in CERC and have not been compensated for this article.