UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
OR
Commission File Number
(Exact name of registrant as specified in its charter)
|
||
(State or other jurisdiction of incorporation) |
|
(IRS Employer Identification No.) |
|
|
|
|
||
(Address of principal executive offices) |
|
(Zip Code) |
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 |
|
The |
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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
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:
Large accelerated filer |
|
☐ |
|
Accelerated filer |
|
☐ |
|
☒ |
|
Smaller reporting company |
|
|
|
Emerging growth company |
||||||
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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of November 4, 2022, the registrant had
Evoke pharma, inc.
Form 10-Q
TABLE OF CONTENTS
i
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Evoke Pharma, Inc.
Condensed Balance Sheets
|
|
September 30, |
|
|
December 31, |
|
||
|
|
(Unaudited) |
|
|
|
|
||
Assets |
|
|
|
|
|
|
||
Current Assets: |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
|
|
$ |
|
||
Accounts receivable, net |
|
|
|
|
|
|
||
Prepaid expenses |
|
— |
|
|
|
|
||
Inventory |
|
|
|
|
|
|
||
Other current assets |
|
|
|
|
|
|
||
Total current assets |
|
|
|
|
|
|
||
Operating lease right-of-use asset |
|
|
|
|
|
|
||
Total assets |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Liabilities and stockholders' equity |
|
|
|
|
|
|
||
Current Liabilities: |
|
|
|
|
|
|
||
Accounts payable and accrued expenses |
|
$ |
|
|
$ |
|
||
Accrued compensation |
|
|
|
|
|
|
||
Operating lease liability |
|
|
|
|
|
|
||
Total current liabilities |
|
|
|
|
|
|
||
Long-term liabilities |
|
|
|
|
|
|
||
Operating lease liability, non-current |
|
|
|
|
|
— |
|
|
Note payable |
|
|
|
|
|
|
||
Accrued interest payable |
|
|
|
|
|
|
||
Total long-term liabilities |
|
|
|
|
|
|
||
Total liabilities |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Stockholders' equity: |
|
|
|
|
|
|
||
Common stock, $ |
|
|
|
|
|
|
||
Additional paid-in capital |
|
|
|
|
|
|
||
Accumulated deficit |
|
|
( |
) |
|
|
( |
) |
Total stockholders' equity |
|
|
|
|
|
|
||
Total liabilities and stockholders' equity |
|
$ |
|
|
$ |
|
||
See accompanying notes to these unaudited condensed financial statements.
1
Evoke Pharma, Inc.
Condensed Statements of Operations
(Unaudited)
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net product sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Research and development |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Selling, general and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Loss from operations |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Forgiveness of paycheck protection loan and accrued |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Interest income |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest expense |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Total other income (expense) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss per share of common stock, basic and diluted |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted-average shares used to compute basic and |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
See accompanying notes to these unaudited condensed financial statements.
2
Evoke Pharma, Inc.
Condensed Statements of Stockholders’ Equity
(Unaudited)
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
Total |
|
|||||
|
|
Common Stock |
|
|
Paid-In |
|
|
Accumulated |
|
|
Stockholders' |
|
||||||||
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Equity |
|
|||||
Balance at January 1, 2022 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
Stock-based compensation expense |
|
— |
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|||||
Issuance of common stock, net of |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||||
Net loss |
|
— |
|
|
— |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|||
Balance at March 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Stock-based compensation expense |
|
— |
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|||||
Issuance of common stock net of costs of $ |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||||
Net loss |
|
— |
|
|
— |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|||
Balance at June 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Stock-based compensation expense |
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|||||
Net loss |
|
— |
|
|
— |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|||
Balance at September 30, 2022 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
Total |
|
|||||
|
|
Common Stock |
|
|
Paid-In |
|
|
Accumulated |
|
|
Stockholders' |
|
||||||||
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Equity |
|
|||||
Balance at January 1, 2021 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|||
Stock-based compensation expense |
|
— |
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|||||
Issuance of common stock, net of |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||||
Net loss |
|
— |
|
|
— |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|||
Balance at March 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Stock-based compensation expense |
|
— |
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|||||
Issuance of common stock from |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||||
Net loss |
|
— |
|
|
— |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|||
Balance at June 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Stock-based compensation expense |
|
— |
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|||||
Issuance of common stock, net of |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|||||
Net loss |
|
— |
|
|
— |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|||
Balance at September 30, 2021 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
See accompanying notes to these unaudited condensed financial statements.
3
Evoke Pharma, Inc.
Condensed Statements of Cash Flows
(Unaudited)
|
|
Nine Months Ended |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
|
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Operating activities |
|
|
|
|
|
|
||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
||
Forgiveness of paycheck protection loan and accrued interest |
|
|
— |
|
|
|
( |
) |
Stock-based compensation expense |
|
|
|
|
|
|
||
Non-cash lease expense |
|
|
|
|
|
— |
|
|
Change in operating assets and liabilities: |
|
|
|
|
|
|
||
Accounts receivable, net |
|
|
( |
) |
|
|
( |
) |
Prepaid expenses, inventory and other assets |
|
|
|
|
|
|
||
Accounts payable and other current liabilities |
|
|
|
|
|
( |
) |
|
Accrued compensation |
|
|
|
|
|
( |
) |
|
Accrued interest expense |
|
|
|
|
|
|
||
Operating lease liabilities |
|
|
( |
) |
|
|
— |
|
Milestone payable |
|
|
— |
|
|
|
( |
) |
Net cash used in operating activities |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
||
Financing activities |
|
|
|
|
|
|
||
Proceeds from issuance of common stock |
|
|
— |
|
|
|
|
|
Payment of common stock offering costs |
|
|
— |
|
|
|
( |
) |
Proceeds from issuance of common stock from ATM |
|
|
|
|
|
|
||
Payment of common stock offering costs from ATM |
|
|
( |
) |
|
|
( |
) |
Proceeds from issuance of common stock from exercise of stock options |
|
|
— |
|
|
|
|
|
Net cash provided by financing activities |
|
|
|
|
|
|
||
Net increase in cash and cash equivalents |
|
|
|
|
|
|
||
Cash and cash equivalents at beginning of period |
|
|
|
|
|
|
||
Cash and cash equivalents at end of period |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Supplemental disclosure of non-cash investing and financing activities |
|
|
|
|
|
|
||
Operating lease right-of-use assets obtained in exchange for operating lease liabilities |
|
$ |
|
|
$ |
— |
|
|
Forgiveness of paycheck protection loan and accrued interest |
|
$ |
— |
|
|
$ |
|
|
See accompanying notes to these unaudited condensed financial statements.
4
Evoke Pharma, Inc.
Notes to Condensed Financial Statements
(Unaudited)
1. Organization and Basis of Presentation
Evoke Pharma, Inc. (the “Company”) was incorporated under the laws of the state of Delaware in
Since its inception, the Company has devoted its efforts to developing its sole product, Gimoti® (metoclopramide) nasal spray, the first and only nasally-administered product indicated for the relief of symptoms in adults with acute and recurrent diabetic gastroparesis. On June 19, 2020, the Company received approval from the U.S. Food and Drug Administration (“FDA”) for its 505(b)(2) New Drug Application (“NDA”) for Gimoti. The Company launched U.S. commercial sales of Gimoti in October 2020 through its commercial partner Eversana Life Science Services, LLC (“Eversana”).
The Company’s activities are subject to the significant risks and uncertainties associated with any specialty pharmaceutical company that has launched its first commercial product, including market acceptance of the product and the potential need to obtain additional funding for its operations.
Going Concern
The financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred recurring losses and negative cash flows from operations since inception and expects to continue to incur net losses for the foreseeable future until such time, if ever, that it can generate significant revenues from the sale of Gimoti. As of September 30, 2022, the Company had approximately $
The Company’s net losses may fluctuate significantly from quarter to quarter and year to year. The Company anticipates that it will be required to raise additional funds through debt, equity or other forms of financing, such as potential collaboration arrangements, to fund future operations and continue as a going concern.
There can be no assurance that additional financing will be available when needed or on acceptable terms. If the Company is not able to secure adequate additional funding, the Company may be forced to make reductions in spending, extend payment terms with suppliers, and/or suspend or curtail commercialization activities. Any of these actions could materially harm the Company’s business, results of operations, financial condition and future prospects. There can be no assurance that the Company will be able to successfully commercialize Gimoti. Because the Company’s business is entirely dependent on the success of Gimoti, if the Company is unable to secure additional financing, successfully commercialize Gimoti or identify and execute on strategic alternatives for Gimoti, the Company will be required to curtail all of its activities and may be required to liquidate, dissolve or otherwise wind down its operations.
Impact of COVID-19
The Company began its commercial sales of Gimoti with Eversana in October 2020. Due to the COVID-19 pandemic, the Company experienced disruptions to its sales activities, including its efforts to reach physicians and customers. For example, Eversana’s commercialization efforts at the time the Company launched Gimoti were adversely affected by operational restrictions imposed on its sales force from quarantines, travel restrictions and bans, and other governmental restrictions related to COVID-19. As a result of these restrictions, Eversana’s sales force was restricted from conducting in-person interactions with certain physicians and customers and was restricted to conducting Gimoti educational and promotional activities virtually in certain circumstances, which impacted Eversana’s ability to more actively market Gimoti. Starting in the fourth quarter of 2021, certain physician offices began to allow more frequent in-person interactions, which has helped to increase the educational and promotional activities of the sales force. The Company anticipates that it and Eversana will continue to be impacted by the COVID-19 pandemic to some extent.
5
The COVID-19 pandemic has not significantly disrupted the operations of the Company’s third-party suppliers and manufacturers or delayed the Company’s manufacturing timelines of Gimoti, but may negatively impact the Company’s ability to successfully commercialize Gimoti and generate product sales in the future. Further, the COVID-19 pandemic and related mitigation measures have also had an adverse impact on global economic conditions which could have an adverse effect on the Company’s future business and financial condition, including impairing its ability to raise capital when needed.
In March 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was enacted in response to the COVID-19 pandemic. In April 2020, the Company applied for and was approved for a Small Business Administration (“SBA”) loan under the Paycheck Protection Program, established by the CARES Act. On May 1, 2020, the Company received the loan proceeds of approximately $
Notice of Delisting and Reverse Stock Split
On December 29, 2021, the Company received a letter from Nasdaq indicating that, for the last thirty consecutive business days, the bid price for our common stock had closed below the minimum $
In accordance with Nasdaq listing rules, the Company was provided an initial period of 180 calendar days, or until June 27, 2022, to regain compliance. The letter stated that Nasdaq will provide written notification that the Company has achieved compliance with its rules if at any time before June 27, 2022 the bid price of the Company’s common stock closes at $
On April 27, 2022, the Company’s stockholders granted the board of directors the authority to effect a reverse stock split of the Company’s outstanding common stock. On May 23, 2022 the Company effected a
On June 7, 2022, the Company received notice from Nasdaq stating that the closing price of the Company’s common stock had been at $
2. Summary of Significant Accounting Policies
The accompanying condensed balance sheet as of December 31, 2021, which has been derived from audited financial statements, and the unaudited interim condensed financial statements, have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and follow the requirements of the U.S. Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP can be condensed or omitted. In management’s opinion, the unaudited interim financial statements have been prepared on the same basis as the audited financial statements and include all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position and its results of operations and its cash flows for the periods presented. These statements do not include all disclosures required by GAAP and should be read in conjunction with the Company’s financial statements and accompanying notes for the year ended December 31, 2021, which are contained in the Company’s Annual Report on Form 10-K filed with the SEC on March 8, 2022. The results for interim periods are not necessarily indicative of the results expected for the full fiscal year or any other interim period.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.
Contract Research Organizations and Consultants
The Company relies on contract research organizations (“CROs”) and consultants to assist with ongoing regulatory activities. If the CROs and consultants are unable to continue their support, this could adversely affect the Company’s operations.
In addition, the Company relies on third-party manufacturers for the production of Gimoti. If the third-party manufacturers are unable to continue manufacturing Gimoti, or if the Company loses one of its sole source suppliers used in its manufacturing processes, the Company may not be able to meet any development needs or commercial supply demand for Gimoti, and the development and/or commercialization of Gimoti could be materially and adversely affected.
The Company also relies on a dedicated third-party sales team to sell Gimoti. If such third-party organization is unable to continue serving as a dedicated sales team, the commercialization of Gimoti could be materially and adversely affected.
6
Accounts Receivable
Accounts receivable are recorded net of allowance for doubtful accounts. Estimates for allowances for doubtful accounts are determined based on existing contractual obligations and historical payment patterns. The allowance for doubtful accounts was
Inventory
The Company does not own or operate manufacturing facilities for the production of Gimoti, nor does it plan to develop its own manufacturing operations in the foreseeable future. The Company depends on third-party contract manufacturers for all of its required raw materials, drug substance and finished product for its commercial manufacturing. The Company has agreements with Cosma S.p.A. to supply metoclopramide for the manufacture of Gimoti, and with Thermo Fisher Scientific Inc., through its subsidiary Patheon UK Limited, for the manufacturing of Gimoti. The Company currently utilizes third-party consultants, which it engages on an as-needed, hourly basis, to manage the manufacturing contractors.
Subsequent to FDA approval, the Company began manufacturing Gimoti for commercialization and began capitalizing inventory at that time. The Company’s inventory consisted of approximately $
Revenue Recognition
The Company’s ability to generate revenue and become profitable depends on its ability to successfully commercialize Gimoti, which was launched in the United States through prescription in October 2020 through the Company’s commercial partner Eversana. If the Company or Eversana fail to successfully grow and maintain sales of Gimoti, the Company may never generate significant revenues and its results of operations and financial position will be adversely affected.
In accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, the Company recognizes revenue when a customer obtains control of promised goods in an amount that reflects the consideration the Company expects to receive in exchange for the goods provided. Customer control is determined upon the customer’s physical receipt of the product. To determine revenue recognition for arrangements within the scope of ASC 606, the Company performs the following five steps: identify the contracts with the customer; identify the performance obligations in the contract; determine the transaction price; allocate the transaction price to the performance obligations in the contract; and recognize revenue when (or as) it satisfies a performance obligation. At contract inception, the Company assesses the goods promised within each contract and determines those that are performance obligations and assesses whether each promised good is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when the customer obtains control of the product.
Stock-Based Compensation
Stock-based compensation expense for stock option grants and employee stock purchases under the Company’s Employee Stock Purchase Plan (the “ESPP”) is recorded at the estimated fair value of the award as of the grant date and is recognized as expense on a straight-line basis over the employee’s requisite service period, except awards with a performance condition. Awards with a performance condition commence vesting when the satisfaction of the performance condition is probable. The estimation of stock option and ESPP fair value requires management to make estimates and judgments about, among other things, employee exercise behavior, forfeiture rates and volatility of the Company’s common stock. The judgments directly affect the amount of compensation expense that will be recognized.
The Company grants stock options to purchase common stock to employees and members of the board of directors with exercise prices equal to the Company’s closing market price on the date the stock options are granted. The risk-free interest rate assumption was based
7
on the yield of an applicable rate for U.S. Treasury instruments with maturities similar to those of the expected term of the award being valued. The weighted average expected term of options and employee stock purchases was calculated using the simplified method as prescribed by accounting guidance for stock-based compensation. This decision was based on the lack of relevant historical data due to the Company’s limited historical experience. In addition, due to the Company’s limited historical data, the estimated volatility was calculated based upon the Company’s historical volatility, supplemented, as necessary, with historical volatility of comparable companies in the biotechnology industry whose share prices are publicly available for a sufficient period of time. The assumed dividend yield was based on the Company never paying cash dividends and having no expectation of paying cash dividends in the foreseeable future. The Company accounts for forfeitures as the forfeitures occur.
Research and Development Expenses
Research and development costs are expensed as incurred and primarily include compensation and related benefits, stock-based compensation expense, costs paid to third-party contractors for product development activities and drug product materials, and technology acquisition milestones. The Company will expense the clinical, regulatory and manufacturing costs related to the post-marketing commitment to conduct a single dose PK clinical trial of Gimoti to characterize dose proportionality of a lower dose strength of Gimoti, as well as other costs that may occur for any additional clinical trials the Company may pursue to expand the indication of Gimoti.
Net Loss Per Share
Basic net loss per share is calculated by dividing the net loss by the weighted-average number of common stock outstanding for the period, without consideration for common stock equivalents. Diluted net loss per share is calculated by dividing the net loss by the weighted-average number of common stock and common stock equivalents outstanding for the period determined using the treasury-stock method. Dilutive common stock equivalents are comprised of warrants to purchase common stock, and options to purchase common stock under the Company’s equity incentive plan.
The following table sets forth the outstanding potentially dilutive securities that have been excluded from the calculation of diluted net loss per share because to do so would be anti-dilutive for the three and nine months ended September 30, 2022 and 2021:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Warrants to purchase common stock |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Common stock options |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total excluded securities |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Recent Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board, (“FASB”) issued ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments, which amends the impairment model by requiring entities to use a forward-looking approach based on expected losses to estimate credit losses on certain types of financial instruments, including trade receivables and available-for-sale debt securities. This update is effective for annual periods beginning after December 15, 2022, and interim periods within those periods, and early adoption is permitted. The Company expects to adopt the standard on its effective date in the first quarter of 2023. The Company also believes the adoption will modify the way we analyze financial instruments, but currently do not expect the adoption to have a material financial impact on our financial statements.
In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options, or Subtopic 470-20 and Derivatives and Hedging—Contracts in Entity’s Own Equity, or Subtopic 815-40: Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. Specifically, ASU 2020-06 simplifies accounting for the issuance of convertible instruments by removing major separation models required under current GAAP. In addition, the ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and simplifies the diluted earnings per share, or EPS, calculation in certain areas. ASU 2020-06 will be effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The Company’s early adoption of this accounting standard on January 1, 2022 did not have a material impact on the Company’s financial statements and related disclosures.
8
3. Commitments and Contingencies
Leases
The Company’s operating lease for office space in Solana Beach, California was extended in February 2022 and had an expiration date of
As of September 30, 2022, the Company has future minimum lease payments under its existing facility lease of approximately $
The short-term lease expense of $
Legal Proceedings
On February 25, 2022, the Company received a letter notifying us that Teva Pharmaceuticals, Inc. (“Teva”) submitted to FDA an abbreviated new drug application, or ANDA, for a generic version of Gimoti (metoclopramide hydrochloride) nasal spray eq. 15 mg base/spray that contains Paragraph IV certifications with respect to two of our patents covering Gimoti, U.S. Patent Nos. 8,334,281, expiration date May 16, 2030; and 11,02,0361, expiration date December 22, 2029. These patents are listed in FDA’s list of Approved Drug Products with Therapeutic Equivalence Evaluations, commonly referred to as the Orange Book, for Gimoti. The certifications allege these patents are invalid or will not be infringed by the manufacture, use or sale of Teva’s metoclopramide hydrochloride nasal spray eq. 15 mg base/spray. In April 2022, the Company initiated litigation in the United States District Court for the District of New Jersey, alleging that Teva infringes the patents covering Gimoti. Teva has denied all material allegations and asserted counterclaims of non-infringement and invalidity. The Company has not recorded any loss in connection with this matter because it believes that a loss is neither probable nor estimable at this time.
4. Technology Acquisition Agreement
In June 2007, the Company acquired all worldwide rights, data, patents and other related assets associated with Gimoti from Questcor Pharmaceuticals, Inc. (“Questcor”) pursuant to an asset purchase agreement. The Company paid Questcor $