10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-36075

 

EVOKE PHARMA, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

20-8447886

(State or other jurisdiction

of incorporation)

(IRS Employer

Identification No.)

 

 

420 Stevens Avenue, Suite 230, Solana Beach, CA

92075

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (858) 345-1494

 

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,
par value $0.0001 per share

EVOK

The 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 No

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). Yes 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:

Large accelerated filer

 

Accelerated filer

 

Non-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 No

As of November 3, 2023, the registrant had 3,343,070 shares of common stock outstanding.

 

 

 


 

Evoke pharma, inc.

Form 10-Q

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

 

1

 

Item 1. Financial Statements

 

1

 

Condensed Balance Sheets as of September 30, 2023 (Unaudited) and December 31, 2022

 

1

 

Condensed Statements of Operations for the three and nine months ended September 30, 2023 and 2022 (Unaudited)

 

2

 

Condensed Statements of Stockholders’ Equity (Deficit) for the three and nine months ended September 30, 2023 and 2022 (Unaudited)

 

3

 

Condensed Statements of Cash Flows for the nine months ended September 30, 2023 and 2022 (Unaudited)

 

4

 

Notes to Condensed Financial Statements (Unaudited)

 

5

 

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

 

13

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

21

 

Item 4. Controls and Procedures

 

21

 

PART II. OTHER INFORMATION

 

21

 

Item 1. Legal Proceedings

 

21

 

Item 1A. Risk Factors

 

21

 

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

 

23

 

Item 3. Defaults Upon Senior Securities

 

23

 

Item 4. Mine Safety Disclosures

 

23

 

Item 5. Other Information

 

23

 

Item 6. Exhibits

 

24

 

SIGNATURES

 

25

 

 

 

 

i


 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

Evoke Pharma, Inc.

Condensed Balance Sheets

 

 

September 30,

 

 

December 31,

 

 

 

2023

 

 

2022

 

 

 

(unaudited)

 

 

 

 

Assets

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

5,964,826

 

 

$

9,843,699

 

Accounts receivable, net

 

 

1,233,904

 

 

 

624,832

 

Prepaid expenses

 

 

37,855

 

 

 

952,954

 

Inventory, net

 

 

504,925

 

 

 

289,378

 

Other current assets

 

 

98,094

 

 

 

11,551

 

Total current assets

 

 

7,839,604

 

 

 

11,722,414

 

Operating lease right-of-use asset

 

 

13,370

 

 

 

129,074

 

Total assets

 

$

7,852,974

 

 

$

11,851,488

 

 

 

 

 

 

 

 

Liabilities and stockholders' equity (deficit)

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

1,397,442

 

 

$

934,312

 

Accrued compensation

 

 

829,669

 

 

 

591,158

 

Operating lease liability

 

 

13,370

 

 

 

129,074

 

Total current liabilities

 

 

2,240,481

 

 

 

1,654,544

 

 

 

 

 

 

 

 

Long-term Liabilities:

 

 

 

 

 

 

      Note payable

 

 

5,000,000

 

 

 

5,000,000

 

      Accrued interest payable

 

 

1,486,268

 

 

 

1,112,295

 

Total long-term liabilities

 

 

6,486,268

 

 

 

6,112,295

 

Total liabilities

 

 

8,726,749

 

 

 

7,766,839

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 3)

 

 

 

 

 

 

Stockholders' equity (deficit):

 

 

 

 

 

 

Preferred stock, $0.0001 par value; authorized shares — 5,000,000
   at September 30, 2023 and December 31, 2022;
none issued and outstanding at both
   September 30, 2023 and December 31, 2022

 

 

-

 

 

 

-

 

Common stock, $0.0001 par value; authorized shares — 50,000,000
   at September 30, 2023 and December 31, 2022; issued and outstanding shares —
   
3,343,070 at September 30, 2023 and December 31, 2022,
   respectively

 

 

334

 

 

 

334

 

Additional paid-in capital

 

 

120,577,928

 

 

 

119,731,458

 

Accumulated deficit

 

 

(121,452,037

)

 

 

(115,647,143

)

Total stockholders' equity (deficit)

 

 

(873,775

)

 

 

4,084,649

 

Total liabilities and stockholders' equity (deficit)

 

$

7,852,974

 

 

$

11,851,488

 

 

 

See accompanying notes to these unaudited condensed financial statements.

 

 

1


 

Evoke Pharma, Inc.

Condensed Statements of Operations

(Unaudited)

 

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net product sales

 

$

1,562,860

 

 

$

832,100

 

 

$

3,504,636

 

 

$

1,712,275

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold

 

 

34,908

 

 

 

89,775

 

 

 

142,855

 

 

 

180,310

 

Research and development

 

 

-

 

 

 

40,388

 

 

 

159,347

 

 

 

273,582

 

Selling, general and administrative

 

 

3,131,389

 

 

 

2,614,488

 

 

 

8,745,407

 

 

 

7,334,738

 

Total operating expenses

 

 

3,166,297

 

 

 

2,744,651

 

 

 

9,047,609

 

 

 

7,788,630

 

Loss from operations

 

 

(1,603,437

)

 

 

(1,912,551

)

 

 

(5,542,973

)

 

 

(6,076,355

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

35,558

 

 

 

24,714

 

 

 

112,052

 

 

 

29,419

 

Interest expense

 

 

(126,028

)

 

 

(126,027

)

 

 

(373,973

)

 

 

(373,973

)

Total other (expense)

 

 

(90,470

)

 

 

(101,313

)

 

 

(261,921

)

 

 

(344,554

)

Net loss

 

$

(1,693,907

)

 

$

(2,013,864

)

 

$

(5,804,894

)

 

$

(6,420,909

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share of common stock, basic and diluted

 

$

(0.51

)

 

$

(0.60

)

 

$

(1.74

)

 

$

(2.09

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average shares used to compute basic and diluted net loss per share

 

 

3,343,070

 

 

 

3,343,070

 

 

 

3,343,070

 

 

 

3,077,145

 

 

 

See accompanying notes to these unaudited condensed financial statements.

 

2


 

Evoke Pharma, Inc.

Condensed Statements of Stockholders’ Equity (Deficit)

(Unaudited)

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-In

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity (deficit)

 

Balance at January 1, 2023

 

 

3,343,070

 

 

$

334

 

 

$

119,731,458

 

 

$

(115,647,143

)

 

$

4,084,649

 

     Stock-based compensation expense

 

 

 

 

 

 

284,572

 

 

 

 

 

284,572

 

     Net loss

 

 

 

 

 

 

 

 

(2,243,070

)

 

 

(2,243,070

)

Balance at March 31, 2023

 

 

3,343,070

 

 

 

334

 

 

 

120,016,030

 

 

 

(117,890,213

)

 

 

2,126,151

 

     Stock-based compensation expense

 

 

 

 

 

 

280,140

 

 

 

 

 

280,140

 

     Net loss

 

 

 

 

 

 

 

 

(1,867,917

)

 

 

(1,867,917

)

Balance at June 30, 2023

 

 

3,343,070

 

 

 

334

 

 

 

120,296,170

 

 

 

(119,758,130

)

 

 

538,374

 

     Stock-based compensation expense

 

 

 

 

 

 

 

281,758

 

 

 

 

 

281,758

 

     Net loss

 

 

 

 

 

 

 

 

(1,693,907

)

 

 

(1,693,907

)

Balance at September 30, 2023

 

 

3,343,070

 

 

$

334

 

 

$

120,577,928

 

 

$

(121,452,037

)

 

$

(873,775

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-In

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance at January 1, 2022

 

 

2,721,373

 

 

$

272

 

 

$

110,977,835

 

 

$

(107,423,013

)

 

$

3,555,094

 

     Stock-based compensation expense

 

 

 

 

 

 

 

381,061

 

 

 

 

 

381,061

 

     Issuance of common stock, from ATM offering, net of costs of $3,548

 

 

21,783

 

 

 

2

 

 

 

171,519

 

 

 

 

 

171,521

 

     Net loss

 

 

 

 

 

 

 

 

(2,173,665

)

 

 

(2,173,665

)

Balance at March 31, 2022

 

 

2,743,156

 

 

 

274

 

 

 

111,530,415

 

 

 

(109,596,678

)

 

 

1,934,011

 

     Stock-based compensation expense

 

 

 

 

 

 

366,924

 

 

 

 

 

366,924

 

     Issuance of common stock, from ATM offering, net of costs of $145,445

 

 

599,914

 

 

 

60

 

 

 

7,123,395

 

 

 

 

 

7,123,455

 

     Net loss

 

 

 

 

 

 

 

 

(2,233,380

)

 

 

(2,233,380

)

Balance at June 30, 2022

 

 

3,343,070

 

 

 

334

 

 

 

119,020,734

 

 

 

(111,830,058

)

 

 

7,191,010

 

     Stock-based compensation expense

 

 

 

 

 

 

355,752

 

 

 

 

 

355,752

 

     Net loss

 

 

 

 

 

 

 

 

(2,013,864

)

 

 

(2,013,864

)

Balance at September 30, 2022

 

 

3,343,070

 

 

$

334

 

 

$

119,376,486

 

 

$

(113,843,922

)

 

$

5,532,898

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to these unaudited condensed financial statements.

 

3


 

Evoke Pharma, Inc.

Condensed Statements of Cash Flows

(Unaudited)

 

 

 

Nine Months Ended
September 30,

 

 

 

2023

 

 

2022

 

 

 

 

 

 

 

 

Operating activities

 

 

 

 

 

 

Net loss

 

$

(5,804,894

)

 

$

(6,420,909

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Stock-based compensation expense

 

 

846,470

 

 

 

1,103,737

 

Non-cash lease expense

 

 

115,704

 

 

 

12,428

 

Change in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable, net

 

 

(609,072

)

 

 

(379,777

)

Prepaid expenses, inventory and other assets

 

 

613,009

 

 

 

888,976

 

Accounts payable and other accrued expenses

 

 

463,130

 

 

 

146,662

 

Accrued compensation

 

 

238,511

 

 

 

197,676

 

Accrued interest expense

 

 

373,973

 

 

 

373,973

 

Operating lease liabilities

 

 

(115,704

)

 

 

(12,428

)

Net cash used in operating activities

 

 

(3,878,873

)

 

 

(4,089,662

)

 

 

 

 

 

 

 

Financing activities

 

 

 

 

 

 

Proceeds from issuance of common stock from ATM

 

 

 

 

 

7,443,969

 

Payment of common stock offering costs from ATM

 

 

 

 

 

(148,993

)

Net cash provided by financing activities

 

 

 

 

 

7,294,976

 

Net (decrease)/increase in cash and cash equivalents

 

 

(3,878,873

)

 

 

3,205,314

 

Cash and cash equivalents at beginning of period

 

 

9,843,699

 

 

 

9,144,710

 

Cash and cash equivalents at end of period

 

$

5,964,826

 

 

$

12,350,024

 

 

 

 

 

 

 

 

Supplemental disclosure of non-cash investing and financing activities

 

 

 

 

 

 

Operating lease right-of-use assets obtained in exchange for operating lease liabilities

 

$

 

 

$

153,671

 

 

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 January 2007. The Company is a specialty pharmaceutical company focused primarily on the development and commercialization of drugs to treat gastroenterological disorders and disease.

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, 2023, the Company had approximately $6.0 million in cash and cash equivalents. The Company anticipates that it will continue to incur losses from operations due to commercialization activities, including manufacturing Gimoti, conducting the post-marketing commitment single-dose pharmacokinetics (“PK”) clinical trial of Gimoti to characterize dose proportionality of a lower dose strength of Gimoti, and for other general and administrative costs to support the Company’s operations. As a result, the Company believes that there is substantial doubt about its ability to continue as a going concern for one year after the date these financial statements are issued. The financial statements do not include any adjustments that may result from the outcome of this uncertainty.

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.

Reverse Stock Split

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 1-for-12 reverse stock split of the shares of the Company’s common stock (the “Reverse Stock Split”). The par value and the authorized shares of the common stock were not adjusted as a result of the Reverse Stock Split. All of the Company’s issued and outstanding common stock, warrants to purchase common stock, and options to purchase common stock have been retroactively adjusted to reflect the Reverse Stock Split for all periods presented.

Nasdaq Compliance

On May 24, 2023, the Company received a written notice from the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”), indicating that, based on the Company’s stockholders’ equity of $2.1 million as of March 31, 2023, as reported in the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, the Company was not in compliance with the minimum stockholders’ equity requirement for continued listing on the Nasdaq Capital Market under Nasdaq Listing Rule 5550(b)(1) (the “Minimum Stockholders’ Equity Requirement”), which requires listed companies to maintain stockholders’ equity of at least $2.5

5


 

million. As required by Nasdaq, the Company submitted its plan to regain compliance with the Minimum Stockholders’ Equity Requirement on July 7, 2023.

On July 19, 2023, Nasdaq granted the Company an extension until November 20, 2023 to regain compliance. Under the terms of the extension, the Company must provide to the Nasdaq staff a publicly available report that evidences such compliance and otherwise comply with conditions included in the extension notice. If the Company fails to evidence compliance upon filing the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 with the Securities and Exchange Commission and Nasdaq, the Company may be subject to delisting from the Nasdaq Capital Market. In the event the Company does not satisfy the terms of the extension, the Nasdaq staff will provide written notification to the Company that its securities will be delisted. At that time, the Company may appeal the Nasdaq staff’s determination to a Hearings Panel.

2. Summary of Significant Accounting Policies

The accompanying condensed balance sheet as of December 31, 2022, 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, 2022, which are contained in the Company’s Annual Report on Form 10-K filed with the SEC on March 21, 2023. 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.

Cash and Cash Equivalents

The Company deposits its cash with reputable financial institutions that are insured by the Federal Deposit Insurance Corporation ("FDIC"). This cash is held in checking, cash sweep, and money market accounts. At times, deposits held may exceed the amount of insurance provided by the FDIC. The Company maintains an insured cash sweep account in which cash from its main operating checking account is invested overnight in highly liquid, short-term investments. The Company considers all highly liquid investments with a maturity date of 90 days or less at the date of purchase to be cash equivalents. The Company has not experienced any losses in its cash and cash equivalents and management believes the Company is not exposed to significant credit risk with respect to such accounts.

Accounts Receivable

Accounts receivable are recorded net of allowance for doubtful accounts. The allowance for doubtful accounts was zero at September 30, 2023 and December 31, 2022 and no bad debt expense was recorded for the three and nine months ended September 30, 2023 and 2022.

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

6


 

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.

The Company’s inventory consisted of approximately $361,000 and $239,000 of raw materials at September 30, 2023 and December 31, 2022, and approximately $144,000 and $50,000 of finished goods inventory at September 30, 2023 and December 31, 2022, respectively. Inventories are stated at the lower of cost (first-in first-out basis) or net realizable value. The Company’s raw materials inventory is held at its third-party suppliers and its work-in-process and finished goods inventory is held at its manufacturer and at Eversana. The Company records such inventory as consigned inventory.

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 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.

Product revenues are recorded net of sales-related adjustments, wherever applicable, including patient support programs, rebates, and other sales related discounts. The Company uses judgement to estimate variable consideration. The Company is subject to rebates under Medicaid and Medicare programs. The rebates for these programs are determined based on statutory provisions. The Company estimates Medicaid and Medicare rebates based on the expected number of claims and related cost associated with the customer transaction. Medicaid and Medicare rebates of $13,000 were recorded as a reduction to Accounts Receivable as of December 31, 2022, and $44,000 were recorded as accounts payable and accrued expenses on the balance sheet as of September 30, 2023.

Product sales are recorded at the transaction price, which may include variable considerations for co-payment assistance to commercially insured patients meeting certain eligibility requirements, as well as to uninsured patients. Co-payment assistance is recorded as an offset to gross revenue at the time revenue from the product sale is recognized based on expected and actual program participation. Co-pay liabilities are estimated using prescribing data available from customers. Actual amounts of consideration ultimately received may materially differ from the Company’s estimates. If actual results in the future vary from estimates, the Company will adjust these estimates, which would affect net product revenue and earnings in the period such variances become known. Liabilities for co-pay assistance of approximately $82,000 and $66,000 at September 30, 2023 and December 31, 2022, respectively, are classified as accounts payable and accrued expenses in the balance sheets.

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 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. Expected volatility was calculated based upon the Company’s historical volatility. 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.

7


 

Research and Development Expenses

Research and development costs are expensed as incurred and primarily include compensation and related benefits, stock-based compensation expense, and costs paid to third-party contractors for product development activities and drug product materials. 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 stock 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, 2023 and 2022:

 

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Common stock options

 

 

639,601

 

 

 

491,851

 

 

 

639,601

 

 

 

491,851

 

Total excluded securities

 

 

639,601

 

 

 

491,851

 

 

 

639,601

 

 

 

491,851

 

 

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's adoption of this accounting standard on January 1, 2023 did not have a material impact on the Company's financial statements and related disclosures.

 

3. Commitments and Contingencies

Leases

The Company’s operating lease for office space in Solana Beach, California had an expiration date of October 31, 2023, subject to the landlord’s option to cancel upon 30 days written notice. In October 2023, the Company entered into a 12-month lease agreement for an office space located on a different floor of the same building, effective November 1, 2023. Future minimum lease payments under the new lease are approximately $76,000 over the lease term.

 

As of September 30, 2023, the Company has future minimum lease payments under its existing facility lease of $13,371 payable in 2023. The remaining lease term is 0.08 years and the discount rate used was 10% as of September 30, 2023.

 

Short-term and operating lease expense are recognized on a straight-line basis over the lease term as general and administrative expense within the accompanying condensed financial statements. The following table summarizes lease expense for the three and nine months ended September 30, 2023 and 2022:

 

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Operating lease expense

 

$

39,164

 

 

$

37,281

 

 

$

114,767

 

 

$

111,843

 

Cash paid for operating lease

 

$

40,112

 

 

$

37,281

 

 

$

120,335

 

 

$

111,843

 

 

 

Legal Proceedings

8


 

On February 25, 2022, the Company received a letter notifying us that Teva submitted to the U.S. Food and Drug Administration, or 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 11,020,361, 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 (Civil Action No. 1:22-cv-02019), alleging that Teva infringes the patents covering Gimoti. After the Company initiated litigation, Teva converted to a Paragraph III certification, which prevents the FDA from approving Teva’s ANDA until after the latest expiring patent expires in 2030. Consequently, the litigation against Teva was dismissed in January 2023.

 

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 $650,000 in the form of an upfront payment and $500,000 in May 2014 as a milestone payment based upon the initiation of the first patient dosing in the Company’s Phase 3 clinical trial for Gimoti. In August 2014, Mallinckrodt, plc (“Mallinckrodt”) acquired Questcor. As a result of that acquisition, Questcor transferred its rights included in the asset purchase agreement with the Company to Mallinckrodt. In March 2018, the Company and Mallinckrodt amended the asset purchase agreement to defer development and approval milestone payments, such that, rather than paying two milestone payments based on FDA acceptance for review of the NDA and final product marketing approval, the Company would be required to make a single $5 million payment on the one-year anniversary after the Company receives FDA approval to market Gimoti. At the time of the Gimoti NDA approval, the Company recorded the $5 million payable owed to Mallinckrodt, along with a $5 million research and development expense. The $5 million milestone payment was paid in July 2021. The Company was also required to pay Mallinckrodt a low single digit royalty percentage on net sales of Gimoti. The Company’s obligation to pay such royalties and milestones terminated due to the expiration of the last patent right covering Gimoti transferred under the asset purchase agreement.

5. Stockholders’ Equity

At the Market Equity Offering Program

In December 2020, the Company filed a new shelf registration statement with the SEC on Form S-3, or the replacement shelf registration statement. The replacement shelf registration statement replaced the registration statement on Form S-3 the Company originally filed with the SEC in November 2017, which registration statement expired in December 2020. The replacement shelf registration was declared effective by the SEC on January 6, 2021. In December 2020, the Company also entered into a new At Market Issuance Sales Agreement (the “ATM Sales Agreement”), with FBR and H.C. Wainwright & Co. (together with FBR, the “Sales Agents”), pursuant to which the Company may sell from time to time, at its option, up to an aggregate of $30 million worth of shares of the Company’s common stock through the Sales Agents. The ATM Sales Agreement provides, among other things, that sales under the ATM Sales Agreement will be made pursuant to the registration statement, including the base prospectus filed as part of such registration statement. During the nine months ended September 30, 2022, the Company sold 621,697 shares of common stock at a weighted-average price per share of $11.97 pursuant to the ATM Sales Agreement and received proceeds of approximately $7.3 million, net of commissions and fees. No shares were sold pursuant to the ATM Sales Agreement in the three and nine months ended September 30, 2023.

Future sales under the ATM Sales Agreement will depend on a variety of factors including, but not limited to, market conditions, the trading price of the Company’s common stock and the Company’s capital needs. There can be no assurance that the Sales Agents will be successful in consummating future sales based on prevailing market conditions or in the quantities or at the prices that the Company deems appropriate.

In addition, the Company will not be able to make future sales of common stock pursuant to the ATM Sales Agreement unless certain conditions are met, which include the accuracy of representations and warranties made to the Sales Agents under the ATM Sales Agreement. Furthermore, each of the Sales Agents is permitted to terminate the ATM Sales Agreement with respect to itself in its sole discretion upon ten days’ notice, or at any time in certain circumstances, including the occurrence of an event that would be reasonably likely to have a material adverse effect on the Company’s assets, business, operations, earnings, properties, condition (financial or otherwise), prospects, stockholders’ equity or results of operations. The Company has no obligation to sell the shares available for sale pursuant to the ATM Sales Agreement.

Warrants

The Company has issued warrants to purchase common stock to banks that have previously loaned funds to the Company, as well as to representatives of the underwriters of the Company’s public offerings and certain of their affiliates.

9


 

During the nine months ended September 30, 2022, warrants to purchase 139,972 shares of common stock expired. At September 30, 2023, and December 31, 2022, there were no warrants outstanding.

Stock-Based Compensation

Stock-based compensation expense includes charges related to stock option grants. The Company measures stock-based compensation expense based on the grant date fair value of any awards granted to its employees. Such expense is recognized over the period of time that employees provide service and earn rights to the awards.

During the nine months ended September 30, 2023 and 2022, the Company granted stock options to purchase 153,750 and 78,247 shares of the Company’s common stock, respectively. The estimated fair value of each stock option award granted was determined on the date of grant using the Black-Scholes option-pricing valuation model with the following assumptions for option grants during the nine months ended September 30, 2023 and 2022:







Nine Months Ended September 30,

Common Stock Options



 

2023

 

2022

Risk free interest rate





1.34%- 3.39%

 

1.67% - 3.55%

Expected term





5.5 - 6.0 years

 

5.5 - 6.02 years

Expected volatility of common stock





99.34%- 103.64%

 

97.04% - 113.23%

Expected dividend yield



 

0.00%

 

0.00%

 

The Company recognized stock-based compensation expense to employees and directors in its research and development and its selling, general and administrative functions during the three and nine months ended September 30, 2023 and 2022 as follows:

 

 

Three Months Ended
September 30,

 

 

Nine Months Ended
September 30,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Research and development

 

$

-

 

 

$

1,897

 

 

$

2,841

 

 

$

7,505

 

Selling, general and administrative

 

 

281,758

 

 

 

353,855

 

 

 

843,629

 

 

 

1,096,232

 

Total stock-based compensation expense

 

$

281,758

 

 

$

355,752

 

 

$

846,470

 

 

$

1,103,737

 

As of September 30, 2023, there was approximately $1.3 million of unrecognized compensation costs related to outstanding employee and board of director options, which are expected to be recognized over a weighted-average period of 0.83 years.

6. Commercial Services and Loan Agreements with Eversana

On January 21, 2020, the Company entered into a commercial services agreement (as amended, the “Eversana Agreement”) with Eversana for the commercialization of Gimoti. Pursuant to the Eversana Agreement, Eversana commercializes and distributes Gimoti in the United States. Eversana also manages the marketing of Gimoti to targeted health care providers, as well as the sales and distribution of Gimoti in the United States.

 

Under the terms of the Eversana Agreement, the Company maintains ownership of the Gimoti NDA, as well as legal, regulatory, and manufacturing responsibilities for Gimoti. Eversana will utilize its internal sales organization, along with other commercial functions, for market access, marketing, distribution and other related patient support services. The Company will record sales for Gimoti and retain more than 80% of net product profits once both parties’ costs are reimbursed. For the three months ended September 30, 2023 and 2022, approximately $1.3 million and $672,000 of Eversana profit sharing costs were included as selling, general and administrative costs, respectively. For the nine months ended September 30, 2023 and 2022, approximately $3.0 million and $1.4 million of Eversana profit sharing costs were included as selling, general and administrative costs, respectively. As of September 30, 2023, unreimbursed commercialization costs to Eversana were approximately $60.4 million. Such costs will generally be payable only as net product profits are recognized. Eversana will receive reimbursement of its commercialization costs pursuant to an agreed upon budget and a percentage of product profits in the mid-to-high teens. Net product profits are the net sales (as defined in the Eversana Agreement) of Gimoti, less (i) reimbursed commercialization costs, (ii) manufacturing and administrative costs set at a fixed percentage of net sales, and (iii) third party royalties.

 

During the term of the Eversana Agreement, Eversana agreed to not market, promote, or sell a competing product in the United States. On February 1, 2022, the Eversana Agreement was amended to extend the term from June 19, 2025 (five years from the date the Food & Drug Administration approved the Gimoti new drug application) to December 31, 2026, unless terminated earlier pursuant to its terms. This amendment also increased the percentage of net product profit retained by the Company and increased the proportion of costs that are reimbursed to Eversana to the extent Eversana has accumulated unreimbursed costs.

10


 

Upon expiration or termination of the agreement, the Company will retain all profits from product sales and assume all corresponding commercialization responsibilities. Within 30 days after each of the first three annual anniversaries of commercial launch, either party may terminate the agreement if net sales of Gimoti do not meet certain annual thresholds.

 

In addition, either party may terminate the agreement-

for the material breach of the other party, subject to a 60-day cure period;
in the event an insolvency, petition of the other party is pending for more than 60 days;
upon 30 days written notice to the other party if:
o
Gimoti is subject to a safety recall;
o
the other party is in breach of certain regulatory compliance representations under the agreement;
o
if the Company discontinues the development or production of Gimoti;
o
if the net profit is negative for any two consecutive calendar quarters beginning with the first full calendar quarter 24 months following commercial launch (the “Net Profit Quarterly Termination Right”);
o
if the cumulative net product profits fail to reach certain thresholds in the first three years following launch;
o
if there is a change in applicable laws that makes operation of the services as contemplated under the agreement illegal or commercially impractical; or
o
upon a change of control of the Company’s ownership.

As of September 30, 2023, either party has the right to exercise the Net Profit Quarterly Termination Right, which it may do for a 60-day period following the end of the quarter. Each party will continue to have the option to exercise this termination right for the 60-day period following the end of future quarters so long as the net profit under the agreement remains negative for consecutive quarters.

 

In the event that the Company initiates such termination, the Company shall pay to Eversana a one-time payment equal to all of Eversana’s unreimbursed cost plus a portion of Eversana’s commercialization costs incurred in the 12 months prior to termination. Such payment amount would be reduced by the amount of previously reimbursed commercialization costs and profit split paid for the related prior twelve-month period and any revenue which occurred prior to the termination yet to be collected.

 

If Eversana terminates the agreement due to an uncured material breach by the Company, or if the Company terminates the Eversana Agreement in certain circumstances, including pursuant to the Net Profit Quarterly Termination Right, the Company has agreed to reimburse Eversana for its unreimbursed commercialization costs for the prior twelve-month period and certain other costs. In addition, Eversana may terminate the Eversana Agreement if the Company withdraws Gimoti from the market for more than 90 days.

 

On November 3, 2022, the Company and Eversana entered into Amendment No. 2 (the "Amendment") to the Eversana Agreement. The Amendment provides that the preexisting rights of both parties to terminate the commercial services agreement within 30 days of the first three annual anniversaries of commercial launch, if net sales of Gimoti did not meet certain annual thresholds, would be modified solely for 2022 such that either party can terminate by written notice to the other party by November 30, 2022. Neither party terminated the Agreement under this Amendment.

In connection with the Eversana Agreement, the Company and Eversana entered into the Eversana Credit Facility, pursuant to which Eversana has agreed to provide a revolving Credit Facility of up to $5 million to the Company upon FDA approval of the Gimoti NDA under certain customary conditions. The Eversana Credit Facility terminates on December 31, 2026, unless terminated earlier pursuant to its terms. The Eversana Credit Facility is secured by all of the Company’s personal property other than the Company’s intellectual property. Under the terms of the Eversana Credit Facility, the Company cannot grant an interest in the Company’s intellectual property to any other person. Each loan under the Eversana Credit Facility will bear interest at an annual rate equal to 10.0%, with such interest due at the end of the loan term. In 2020 the Company borrowed $5 million under the Eversana Credit Facility.

The Company may prepay any amounts borrowed under the Eversana Credit Facility at any time without penalty or premium. The maturity date of all amounts, including interest, borrowed under the Eversana Credit Facility will be 90 days after the expiration or earlier termination of the Eversana Agreement. The Eversana Credit Facility also includes events of default, the occurrence and continuation of which provide Eversana with the right to exercise remedies against the Company and the collateral securing the loans under the Eversana Credit Facility, including the Company’s cash. These events of default include, among other things, the Company’s failure to pay any amounts due under the Eversana Credit Facility, an uncured material breach of the representations, warranties and other obligations under the Eversana Credit Facility, the occurrence of insolvency events and the occurrence of a change in control.

11


 

 

12


 

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

The following discussion and analysis should be read in conjunction with our financial statements and accompanying notes included in this Quarterly Report on Form 10-Q and the financial statements and accompanying notes thereto for the fiscal year ended December 31, 2022 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission, or SEC, on March 21, 2023. Past operating results are not necessarily indicative of results that may occur in future periods.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical facts contained in this Quarterly Report on Form 10-Q, including statements regarding our future results of operations and financial position, business strategy, commercial activities to be conducted by Eversana Life Science Services, LLC, or Eversana, the pricing and reimbursement for Gimoti, future regulatory developments, research and development costs, the timing and likelihood of commercial success, the potential to develop future product candidates, plans and objectives of management for future operations, future results of current and anticipated products, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statement. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. Although we believe the expectations reflected in these forward-looking statements are reasonable, such statements are inherently subject to risk and we can give no assurances that our expectations will prove to be correct. Given these risks, uncertainties and other factors, you should not place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q. You should read this Quarterly Report on Form 10-Q completely. As a result of many factors, including without limitation those set forth under “Risk Factors” under Item 1A of Part II below, and elsewhere in this Quarterly Report on Form 10-Q, our actual results may differ materially from those anticipated in these forward-looking statements. Except as required by applicable law, we undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this report or to reflect actual outcomes. For all forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

We use our registered trademark, EVOKE PHARMA, and other trademarks, including GIMOTI, in this Quarterly Report on Form 10-Q. This Quarterly Report on Form 10-Q also includes trademarks, tradenames and service marks that are the property of other organizations. Solely for convenience, trademarks and tradenames referred to in this Quarterly Report on Form 10-Q appear without the ® and ™ symbols, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or that the applicable owner will not assert its rights, to these trademarks and tradenames.

Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to “Evoke,” “we,” “us” and “our” refer to Evoke Pharma, Inc.

Overview

We are a specialty pharmaceutical company focused primarily on the development and commercialization of drugs to treat gastrointestinal, or GI, disorders and diseases. Since our inception, we have devoted our efforts to developing our 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. In June 2020, we received approval from the U.S. Food and Drug Administration, or FDA, for our 505(b)(2) New Drug Application, or NDA, for Gimoti. We launched commercial sales of Gimoti in the United States in October 2020 through our commercial partner Eversana.

Diabetic gastroparesis is a GI disorder affecting millions of patients worldwide, in which food in an individual’s stomach takes too long to empty resulting in a variety of serious GI symptoms and systemic metabolic complications. The gastric delay caused by gastroparesis can compromise absorption of orally administered medications.

In January 2020, we entered into a commercial services agreement with Eversana, or the Eversana Agreement, for the commercialization of Gimoti. Pursuant to the Eversana Agreement, Eversana commercializes and distributes Gimoti in the United States. Eversana also manages the marketing of Gimoti to targeted health care providers, as well as the sales and distribution of Gimoti in the United States.

In 2020, we borrowed $5 million from Eversana pursuant to a revolving credit facility, or the Eversana Credit Facility, which expires on December 31, 2026, unless terminated earlier pursuant to its terms. The maturity date of all amounts, including interest, borrowed under the Eversana Credit Facility will be 90 days after the expiration or earlier termination of the Eversana Agreement. The Eversana Agreement terminates on December 31, 2026, unless terminated earlier pursuant to its terms. Among other reasons, either party has the right to terminate the Eversana Agreement upon 30 days prior written notice if the net profit under the agreement is negative for any

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two consecutive calendar quarters, or the Net Profit Quarterly Termination Right. As of September 30, 2023, either party has the right to exercise the Net Profit Quarterly Termination Right, which it may do for a 60-day period following the end of the quarter. Each party will continue to have the option to exercise this termination right for the 60-day period following the end of future quarters so long as the net profit under the agreement remains negative for consecutive quarters. As of September 30, 2023, Eversana had approximately $60.4 million in unreimbursed commercialization costs. If Eversana terminates the Eversana Agreement pursuant to the Net Profit Quarterly Termination Right, none of the unreimbursed commercialization costs incurred by Eversana will become due from the Company.

We have primarily funded our operations through the sale of our convertible preferred stock prior to our initial public offering in September 2013, borrowings from loans and the sale of shares of our common stock on the Nasdaq Capital Market. We launched commercial sales of Gimoti in late October 2020 with Eversana and, to date, have generated modest sales.

We have incurred losses in each year since our inception. These operating losses resulted from expenses incurred in connection with advancing Gimoti through development activities, pre-commercial and commercialization activities, and other general and administrative costs associated with our operations. We expect to continue to incur operating losses until revenues from sales of Gimoti exceed our expenses, if ever. We may never become profitable, or if we do, we may not be able to sustain profitability on a recurring basis.

As of September 30, 2023, we had cash and cash equivalents of approximately $6.0 million. Current cash on hand is intended to fund commercialization activities for Gimoti, including manufacturing Gimoti, conducting the post-marketing commitment single dose pharmacokinetics, or PK, clinical trial of Gimoti to characterize dose proportionality of a lower dose strength of Gimoti and any additional development activities should we seek additional indications, protecting our intellectual property portfolio and for other general and administrative costs to support our operations. Our operations have consumed substantial amounts of cash since inception. We believe, based on our current operating plan, that our existing cash and cash equivalents as of September 30, 2023, as well as cash flows from future net sales of Gimoti, will be sufficient to fund our operations into at least the first quarter of 2024. This period could be shortened if there are any significant increases in planned spending other than anticipated. We anticipate that we will be required to raise additional funds in order to continue as a going concern. Because our business is entirely dependent on the success of Gimoti, if we are unable to secure additional financing or identify and execute on other development or strategic alternatives for Gimoti or our company, we will be required to curtail all of our activities and may be required to liquidate, dissolve or otherwise wind down our operations. Any of these events could result in a complete loss of your investment in our securities.

Technology Acquisition Agreement

In June 2007, we acquired all worldwide rights, data, patents and other related assets associated with Gimoti from Questcor Pharmaceuticals, Inc., or Questcor, pursuant to an asset purchase agreement. We paid Questcor $650,000 in the form of an upfront payment and $500,000 in May 2014 as a milestone payment based upon the initiation of the first patient dosing in our Phase 3 clinical trial for Gimoti. In August 2014, Mallinckrodt, plc, or Mallinckrodt, acquired Questcor. As a result of that acquisition, Questcor transferred its rights included in the asset purchase agreement with us to Mallinckrodt. In March 2018, we and Mallinckrodt amended the asset purchase agreement to defer development and approval milestone payments, such that rather than paying two milestone payments based on FDA acceptance for review of the NDA and final product marketing approval, we would be required to make a single $5 million payment on the one-year anniversary after we receive FDA approval to market Gimoti. At the time of the Gimoti NDA approval by FDA, we recorded the $5 million payable owed to Mallinckrodt with a due date of June 19, 2021, along with a $5 million research and development expense. The $5 million milestone payment was paid in July 2021. We were required to pay to Mallinckrodt a low single digit royalty percentage on net sales of Gimoti. Our obligation to pay such royalties and milestones terminated due to the expiration of the last patent right covering Gimoti transferred under the asset purchase agreement.

Financial Operations Overview

Revenue Recognition

Our ability to generate revenue and become profitable depends on our ability to successfully commercialize Gimoti, which we launched in the United States through prescription in October 2020 through our commercial partner Eversana. If we or Eversana fail to successfully grow sales of Gimoti, we may never generate significant revenues and our results of operations and financial position will be adversely affected.

In accordance with Accounting Standards Codification, or ASC, 606, Revenue from Contracts with Customers, we recognize revenue when a customer obtains control of promised goods in an amount that reflects the consideration we expect 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, we perform 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, we assess the goods promised within each contract and determine those that are performance obligations and assess whether each

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promised good is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when the customer obtains control of the product.

Product revenues are recorded net of sales-related adjustments, wherever applicable, including patient support programs, rebates, and other sales related discounts. The Company uses judgement to estimate variable consideration. The Company is subject to rebates under Medicaid and Medicare programs. The rebates for these programs are determined based on statutory provisions. The Company estimates Medicaid and Medicare rebates based on the expected number of claims and related cost associated with the customer transaction.

The Company also makes estimates about co-payment assistance to commercially insured patients meeting certain eligibility requirements, as well as to uninsured patients. Co-payment assistance is recorded as an offset to gross revenue at the time revenue from the product sale is recognized based on expected and actual program participation.

Co-pay liabilities are estimated using prescribing data available from customers. Actual amounts of consideration ultimately received may differ from our estimates. If actual results in the future vary from estimates, we will adjust these estimates, which would affect net product revenue and earnings in the period such variances become known. Liabilities for Medicare and Medicaid rebates, as well as co-pay assistance, are classified as accounts payable and accrued expenses in the balance sheets.

Sales of Gimoti Metrics

Gimoti prescription revenues continue to increase on several metrics. Net product sales for the three months ended September 30, 2023 were approximately $1.6 million compared to net product sales of approximately $832,000 during the three months ended September 30, 2022, an increase of approximately 88%. The Company works with specialty pharma partners, vitaCare and ASPN Pharmacies, who provide a technology and services platform that helps physicians electronically prescribe Gimoti and helps patients navigate key access and adherence barriers. The hub helps patients understand coverage and identify available savings opportunities, and facilitates communications between providers and payors, and also offers a seamless path for filling a prescription. The Company will fully transition from vitaCare to ASPN Pharmacies in November 2023.

There were approximately 1,339 new inbound prescriptions into the vitaCare reimbursement center during the three months ended September 30, 2023, a 5% increase compared to the prior quarter. Patients that have an opportunity to refill the product (that is, patients who have completed their current supply and have additional refills on their prescription) received a refill approximately 78% of the time since the launch of Gimoti through September 30, 2023. We believe some patients choose not to refill their prescriptions due to remission of symptoms. Cumulatively, total prescribers increased 13% during the three months ended September 30, 2023.

https://cdn.kscope.io/dc0f037895f438454bd502efbbeedfb4-img215261989_0.jpg 

 

 

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Evoke's specialty pharma partner accesses the Medicare and Medicaid systems to facilitate product reimbursement submission for patients seeking treatment. For the three months ended September 30, 2023, these government programs made up approximately 35% of the filled prescriptions for Gimoti. From the commercial launch of Gimoti through September 30, 2023, the majority of patients have been between the ages of 31-65 years old. The vast majority of patients are female and were being treated by a gastroenterologist.

In May 2023, a Health Care Utilization, or HRU, retrospective study report compared the frequency of physician office, outpatient facility, emergency department, and inpatient hospital visits for patients with diabetic gastroparesis treated with nasal metoclopramide ("NMCP") versus oral metoclopramide ("OMCP"). The study showed that patients taking Gimoti compared to oral metoclopramide had statistically significant fewer Office Visits, Inpatient Hospitalizations, and Emergency Room Visits related to nausea/vomiting or diabetic gastroparesis HRU events. An additional analysis of HRU data showed patients taking Gimoti saved over $15,000 in six months as they had fewer emergency room and hospital admissions compared to patients taking oral metoclopramide.

 

Research and Development Expenses

We expense all research and development expenses as they are incurred. Research and development expenses primarily include:

clinical and regulatory-related costs;
expenses incurred under agreements with contract research organizations, or CROs;
manufacturing and stability testing costs and related supplies and materials used in clinical trials; and
employee-related expenses, including salaries, benefits, travel and stock-based compensation expense.

All of our research and development expenses to date have been incurred in connection with the development of Gimoti. Since FDA approval of Gimoti in June 2020, research and development costs have decreased and shifted to commercialization and selling costs. In 2021, we initiated planning, and are in discussion with FDA related to the design, for an FDA post-marketing commitment single dose PK clinical trial of Gimoti to characterize dose proportionality of a lower dose strength of Gimoti to accommodate patients that may require further dosage adjustments. We are unable to estimate with any certainty the costs we will incur related to this trial, or the regulatory review of such lower dose of Gimoti, though such costs may be significant and will substantially increase research and development expenses once this trial is initiated. We may also incur additional costs to the extent we pursue additional clinical trials to expand the indication of Gimoti. Clinical development timelines, the probability of success and development costs can differ materially from expectations.

The costs of clinical trials may vary significantly over the life of a project owing to, but not limited to, the following:

per subject trial costs;
the number of sites included in the trials;
the length of time required to enroll eligible subjects;
the number of subjects that participate in the trials;
the number of doses that subjects receive;
the cost of comparative agents used in trials;
the drop-out or discontinuation rates of subjects;
potential additional safety monitoring or other studies requested by regulatory agencies; and
the duration of patient follow-up.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist primarily of salaries and related benefits, including stock-based compensation. Other selling, general and administrative expenses include professional fees for accounting, tax, patent costs, legal services, insurance, facility costs and costs associated with being a publicly-traded company, including fees associated with investor relations and directors and officers liability insurance premiums. We expect that selling, general and administrative expenses will increase in the future as we continue to progress with the commercialization of Gimoti and we reimburse Eversana from the net profits attained from the sales of Gimoti.

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Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with generally accepted accounting principles in the United States, or GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses during the reporting periods. We evaluate these estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Our actual results may differ materially from these estimates under different assumptions or conditions.

There have been no new or significant changes to our critical accounting policies and estimates discussed in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 21, 2023.

Results of Operations

Comparison of Three Months Ended September 30, 2023 and 2022

The following table summarizes the results of our operations for the three months ended September 30, 2023 and 2022:

 

 

Three Months Ended
September 30,

 

 

 

 

 

 

2023

 

 

2022

 

 

Increase/ (Decrease)

 

Net product sales

 

$

1,562,860

 

 

$

832,100

 

 

$

730,760

 

Research and development expenses

 

$

-

 

 

$

40,388

 

 

$

(40,388

)

Selling, general and administrative expenses

 

$

3,131,389

 

 

$

2,614,488

 

 

$

516,901

 

Net Product Sales. Net product sales for the three months ended September 30, 2023 compared to the three months ended September 30, 2022 increased by approximately $731,000. The increase in sales was primarily driven by increased educational and promotional activities of the Eversana sales force and prescription management through vitaCare during the three months ended September 30, 2023.

Research and Development Expenses. Research and development expenses for the three months ended September 30, 2023 compared to the three months ended September 30, 2022 decreased by approximately $40,000. During 2023 and 2022, we incurred fewer expenses for ongoing stability testing of batches of Gimoti manufactured prior to receipt of FDA approval of the Gimoti NDA in June 2020.

Costs incurred during the three months ended September 30, 2022 included approximately $34,000 related to stability testing and $6,000 for wages, taxes and employee insurance, including approximately $2,000 of stock-based compensation expense.

Selling, General and Administrative Expenses. Selling, general and administrative expenses for the three months ended September 30, 2023 compared to the three months ended September 30, 2022 increased by approximately $517,000. Costs incurred during the three months ended September 30, 2023 primarily included approximately $1.0 million for wages, taxes and employee insurance, including approximately $282,000 of stock-based compensation expense, approximately $1.5 million for marketing and Eversana profit sharing, and approximately $570,000 for legal, accounting, directors and officers liability insurance and other costs associated with being a public company. Costs incurred during the three months ended September 30, 2022 primarily included approximately $1.0 million for wages, taxes and employee insurance, including approximately $354,000 of stock-based compensation expense, approximately $904,000 for marketing, royalties and Eversana profit sharing, and approximately $602,000 for legal, accounting, directors and officers liability insurance and other costs associated with being a public company.

 

Comparison of nine months Ended September 30, 2023 and 2022

 

The following table summarizes the results of our operations for the nine months ended September 30, 2023 and 2022:

 

 

 

Nine Months Ended
September 30,

 

 

 

 

 

 

2023

 

 

2022

 

 

Increase/ (Decrease)

 

Net product sales

 

$

3,504,636

 

 

$

1,712,275

 

 

$

1,792,361

 

Research and development expenses

 

$

159,347

 

 

$

273,582

 

 

$

(114,235

)

Selling, general and administrative expenses

 

$

8,745,407

 

 

$

7,334,738

 

 

$

1,410,669

 

 

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Net Product Sales. Net product sales for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 increased by approximately $1.8 million. The increase in sales was primarily driven by increased educational and promotional activities of the Eversana sales force during the nine months ended September 30, 2023.

 

Research and Development Expenses. Research and development expenses for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 decreased by approximately $114,000. During 2023 and 2022, we incurred expenses for ongoing stability testing of batches of Gimoti manufactured prior to receipt of FDA approval of the Gimoti NDA in June 2020, as well as preparing for a post-marketing commitment to conduct a single dose PK clinical trial of Gimoti to characterize dose proportionality of a lower dose strength of Gimoti, including the manufacture of clinical trial material.

 

Costs incurred during the nine months ended September 30, 2023 included approximately $147,000 for stability testing and $12,000 for wages, taxes and employee insurance, including approximately $3,000 of stock-based compensation expense. Cost incurred during the nine months ended September 30, 2022, included approximately $248,000 for stability testing and $25,000 for wages, taxes and employee insurance, including approximately $8,000 of stock-based compensation expense.

 

Selling, General and Administrative Expenses. Selling, general and administrative expenses for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 increased by approximately $1.4 million. Costs incurred during the nine months ended September 30, 2023 primarily included approximately $3.0 million for wages, taxes and employee insurance, including approximately $844,000 of stock-based compensation expense, approximately $1.9 million for legal, accounting, directors and officers liability insurance and other costs associated with being a public company, approximately $3.4 million for marketing and Eversana profit sharing, and approximately $140,000 for facility-related expenses. Costs incurred during the nine months ended September 30, 2022 primarily included approximately $3.1 million for wages, taxes and employee insurance, including approximately $1.1 million of stock-based compensation expense, approximately $1.9 million for legal, accounting, directors and officers liability insurance and other costs associated with being a public company, approximately $2.1 million for marketing, royalties and Eversana profit sharing, and approximately $138,000 for facility-related expenses.

 

Liquidity and Capital Resources

In November 2017, we filed a shelf registration statement with the SEC on Form S-3. The shelf registration statement included a prospectus for the at-the-market offering to sell up to an aggregate of $16.0 million of shares of our common stock through B. Riley FBR, Inc., or FBR, as a sales agent, or FBR Sales Agreement. Effective January 6, 2021, we terminated the FBR Sales Agreement. As a result, there were no shares sold under the FBR Sales Agreement during 2021.

In December 2020, we filed a new shelf registration statement with the SEC on Form S-3, or the replacement shelf registration statement. The replacement shelf registration statement replaced the registration statement on Form S-3 we originally filed with the SEC in November 2017, which registration statement expired in December 2020. The replacement shelf registration was declared effective by the SEC on January 6, 2021. In December 2020, we also entered into the ATM Sales Agreement with FBR and H.C. Wainwright & Co., LLC, or the Sales Agents, pursuant to which we may sell from time to time, at our option, up to an aggregate of $30 million worth of shares of our common stock through the Sales Agents. The ATM Sales Agreement provides, among other things, that sales under the ATM Sales Agreement will be made pursuant to the registration statement, including the base prospectus filed as part of such registration statement. During the nine months ended September 30, 2022, we sold 621,697 shares of common stock at a weighted-average price per share of $11.97 pursuant to the ATM Sales Agreement and received proceeds of approximately $7.3 million, net of commissions and fees. No shares were sold under the ATM Sales Agreement in the nine months ended September 30, 2023.

Under current SEC regulations, if at the time we file our Annual Report on Form 10-K our public float is less than $75 million, and for so long as our public float remains less than $75 million, the amount we can raise through primary public offerings of securities in any twelve-month period using shelf registration statements is limited to an aggregate of one-third of our public float, which is referred to as the baby shelf rules.

At the time we filed our Annual Report on Form 10-K on March 21, 2023, our public float was less than $75 million. As a result of our public float being below $75 million, we will be limited by the baby shelf rules until such time as our public float exceeds $75 million, which means we only have the capacity to sell shares up to one-third of our public float under shelf registration statements in any twelve-month period. If our public float decreases, the amount of securities we may sell under our Form S-3 shelf registration statement will also decrease. We will remain constrained by the baby shelf rules under our Form S-3 shelf registration statement until such time as our public float exceeds $75 million, at which time the number of securities we may sell under a Form S-3 registration statement will no longer be limited by the baby shelf rules. SEC regulations permit us to use the highest closing sales price of our common stock (or

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the average of the last bid and last ask prices of our common stock) on any day within 60 days of sales under the shelf registration statement.

Future sales under the ATM Sales Agreement will depend on a variety of factors including, but not limited to, market conditions, the trading price of our common stock and our capital needs. There can be no assurance that the Sales Agents will be successful in consummating future sales b