We Got It Right With Cerecor Inc (NASDAQ:CERC), What's Next?

At the end of August we gave our readers two reasons why Cerecor Inc (NASDAQ:CERC) was a strong biotechnology play heading into the close of 2017.At the time, the company went for $0.70 a share.At the close of play on October 3, Cerecor was at $1.10 – a close to 60% appreciation in a little over a month. CERC Daily ChartThat's a great run and a nice return for anybody that picked up a position on the back of our coverage, but we think this stock is just getting going.Here is why.For anybody that missed our August coverage, our thesis was rooted in two distinct elements of Cerecor's then current situation.The first was a discrepancy between market capitalization and cash balance.The company had just sold its lead asset, a smoking cessation drug called CERC-501, ­to Johnson & Johnson (NYSE:JNJ)’s Janssen arm for $25 million cash, with $21.25 million paid on closing of the deal and $3.75 million placed into a 12-month escrow account. If certain development milestones are met, there's another $20 million in the kitty for Cerecor going forward, but forgetting these milestones for a moment, the company's cash balance at closing was somewhere between $25-$28 million.At the time of our coverage, Cerecor was trading for a market capitalization of $18 million.We pointed out that there was an immediate opportunity to pick up an exposure in anticipation of the company revaluing to reflect its cash balance and, subsequent to our pointing this out, Cerecor has done just that – the company now trades for a market capitalization of a little over $28 million, the upper bracket of our cash on hand estimate back at the end of August.So with this cash balance now reflected in market capitalization, surely the opportunity has closed?Well, not quite. In fact, nowhere near.While management offloaded the 501 asset to Janssen, there's another asset in the pipeline – an asset that formed the basis of the second element of the Cerecor opportunity alluded to above.It's called CERC-301 and some may already be familiar with it as a failed major depressive disorder (MDD) asset. The drug missed its endpoint in a clinical trial in this just mentioned indication last year and Cerecor took a real hit to its market capitalization when this miss hit press. This year, however, the company has pivoted to focus its 301 development on orphan neurological disorders (things like rare forms of epilepsy, etc.) and there exists a strong base of data that suggests this type of drug can have a major impact in these patient populations.It's still very much early stage (the company is yet to kickoff any meaningful activity in terms of getting 301 into the clinic in an orphan indication) but there is the potential for initiation across a range of programs during the next 12 months – each of which could open up a potential blockbuster market for Cerecor.The key thing here, however, is to realize that the successful completion of any of these programs isn't what's important right now as far as this company being a potentially rewarding stock to hold is concerned.Cerecor is valued at cash. There's no debt on the books (nothing substantial, at least). To put that another way, markets are completely disregarding the potential future value of 301 in its range of orphan indications and it is not going to take much in the way of efficacy signals to move the stock so as it becomes more representative of a clinical biotechnology company and not just a cash balance.Sure, the trials may fail and, longer-term, we might see the company raise some cash (which will be dilutive). Near term, however, it's only going to take one or two positive catalysts to get the stock running and that's what we're interested in right now.Check out our previous coverage of CERC 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 reynermedia via FlickrDisclosure: We have no position in CERC and have not been compensated for this article.