SEC Filing | Evoke Pharma, Inc.

View:

Download DOC

Download PDF

Download XLS

Download XBRL

evok-10q_20210930.htm

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, 2021

☐	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 370, 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 1, 2021, the registrant had 32,656,480 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, 2021 (Unaudited) and December 31, 2020	1
Condensed Statements of Operations for the three and nine months ended September 30, 2021 and 2020 (Unaudited)	2
Condensed Statements of Stockholders’ Equity (Deficit) for the three and nine months ended September 30, 2021 and 2020 (Unaudited)	3
Condensed Statements of Cash Flows for the nine months ended September 30, 2021 and 2020 (Unaudited)	4
Notes to Condensed Financial Statements (Unaudited)	5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3. Quantitative and Qualitative Disclosures about Market Risk	20
Item 4. Controls and Procedures	20
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	22
Item 3. Defaults Upon Senior Securities	22
Item 4. Mine Safety Disclosures	22
Item 5. Other Information	22
Item 6. Exhibits	23
SIGNATURES	25

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Evoke Pharma, Inc.

Condensed Balance Sheets

	September 30, 2021			December 31, 2020
	(Unaudited)
Assets
Current Assets:
Cash and cash equivalents	$	11,141,908		$	8,068,939
Accounts receivable, net		222,166			23,311
Prepaid expenses	—				921,762
Inventory		225,217			236,480
Other current assets		11,551			30,300
Total current assets		11,600,842			9,280,792
Operating lease right-of-use asset		49,117			141,705
Other assets	—				11,551
Total assets	$	11,649,959		$	9,434,048

Liabilities and stockholders' equity (deficit)
Current Liabilities:
Accounts payable and accrued expenses	$	530,528		$	1,273,572
Accrued compensation		810,790			1,016,232
Operating lease liability		49,117			141,705
Paycheck protection program loan	—				104,168
Milestone payable	—				5,000,000
Total current liabilities		1,390,435			7,535,677
Long-term liabilities
Note payable		5,000,000			5,000,000
Accrued interest payable		486,268			112,994
Total long-term liabilities		5,486,268			5,112,994
Total liabilities		6,876,703			12,648,671

Stockholders' equity (deficit):
Common stock, $0.0001 par value; authorized shares - 50,000,000; issued and outstanding shares - 32,656,480 and 26,621,954 at September 30, 2021 and December 31, 2020, respectively		3,266			2,662
Additional paid-in capital		110,520,641			95,667,776
Accumulated deficit		(105,750,651	)		(98,885,061	)
Total stockholders' equity (deficit)		4,773,256			(3,214,623	)
Total liabilities and stockholders' equity (deficit)	$	11,649,959		$	9,434,048

See accompanying notes to these unaudited condensed financial statements.

Evoke Pharma, Inc.

Condensed Statements of Operations

(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020

Net product sales	$	930,449		$	—		$	1,257,505		$	—
Operating expenses:
Cost of goods sold		58,435		—				191,439		—
Research and development		81,699			205,032			554,753			6,450,979
Selling, general and administrative		2,635,161			1,874,578			7,115,605			4,387,284
Total operating expenses		2,775,295			2,079,610			7,861,797			10,838,263
Loss from operations		(1,844,846	)		(2,079,610	)		(6,604,292	)		(10,838,263	)
Other income (expense):
Forgiveness of paycheck protection loan and accrued interest	—			—				105,130		—
Interest income		1,421			1,033			7,596			4,896
Interest expense		(126,027	)		(50,528	)		(374,024	)		(53,442	)
Total other income (expense)		(124,606	)		(49,495	)		(261,298	)		(48,546	)
Net loss	$	(1,969,452	)	$	(2,129,105	)	$	(6,865,590	)	$	(10,886,809	)

Net loss per share of common stock, basic and diluted	$	(0.06	)	$	(0.08	)	$	(0.21	)	$	(0.43	)

Weighted-average shares used to compute basic and diluted net loss per share		32,542,481			26,146,220			32,028,850			25,191,359

See accompanying notes to these unaudited condensed financial statements.

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, 2021		26,621,954	$	2,662	$	95,667,776		$	(98,885,061	)	$	(3,214,623	)
Stock-based compensation expense	—		—			561,348		—				561,348
Issuance of common stock, net of costs of $1,304,846		5,750,000	575			13,069,579		—				13,070,154
Net loss	—		—		—				(2,605,495	)		(2,605,495	)
Balance at March 31, 2021		32,371,954		3,237		109,298,703			(101,490,556	)		7,811,384
Stock-based compensation expense	—		—			399,411		—				399,411
Issuance of common stock from stock option exercises		67,426		7		45,447		—				45,454
Net loss	—		—		—				(2,290,643	)		(2,290,643	)
Balance at June 30, 2021		32,439,380		3,244		109,743,561			(103,781,199	)		5,965,606
Stock-based compensation expense	—		—			463,995		—				463,995
Issuance of common stock from At-the-Market offering, net of costs of $6,421		217,100		22		313,085		—				313,107
Net loss	—		—		—				(1,969,452	)		(1,969,452	)
Balance at September 30, 2021		32,656,480	$	3,266	$	110,520,641		$	(105,750,651	)	$	4,773,256

					Additional						Total
	Common Stock				Paid-In			Accumulated			Stockholders'
	Shares		Amount		Capital			Deficit			Equity (Deficit)
Balance at January 1, 2020		24,431,914	$	2,443	$	90,108,492		$	(85,730,390	)	$	4,380,545
Stock-based compensation expense	—		—			310,162		—				310,162
Issuance of common stock from employee stock purchase plan		25,000	3			21,247		—				21,250
Net loss	—		—		—				(1,790,309	)		(1,790,309	)
Balance at March 31, 2020		24,456,914		2,446		90,439,901			(87,520,699	)		2,921,648
Stock-based compensation expense	—		—			362,955		—				362,955
Issuance of common stock from At-the-Market offering, net of costs of $68,038		1,395,855		140		3,308,976		—				3,309,116
Issuance of common stock from warrant exercises		158,494		15		(15	)	—			—
Net loss	—		—		—				(6,967,395	)		(6,967,395	)
Balance at June 30, 2020		26,011,263		2,601		94,111,817			(94,488,094	)		(373,676	)
Stock-based compensation expense	—		—			478,574		—				478,574
Issuance of common stock from employee stock purchase plan		93,491	9			98,156		—				98,165
Issuance of common stock from warrant exercises		223,131	22			(22	)	—			—
Issuance of common stock from stock option exercise		4,237	1			2,626		—				2,627
Net loss	—		—		—				(2,129,105	)		(2,129,105	)
Balance at September 30, 2020		26,332,122	$	2,633	$	94,691,151		$	(96,617,199	)	$	(1,923,415	)

See accompanying notes to these unaudited condensed financial statements.

Evoke Pharma, Inc.

Condensed Statements of Cash Flows

(Unaudited)

	Nine Months Ended September 30,
	2021			2020


Operating activities
Net loss	$	(6,865,590	)	$	(10,886,809	)
Adjustments to reconcile net loss to net cash used in operating activities:
Forgiveness of paycheck protection loan and accrued interest		(105,130	)	—
Stock-based compensation expense		1,424,754			1,151,691
Change in operating assets and liabilities:
Accounts receivable, net		(198,855	)	—
Prepaid expenses, inventory and other assets		1,055,913			261,552
Accounts payable and other current liabilities		(835,632	)		(370,639	)
Accrued compensation		(205,442	)		(127,740	)
Accrued interest expense		374,236			53,442
Milestone payable		(5,000,000	)		5,000,000
Net cash used in operating activities		(10,355,746	)		(4,918,503	)

Financing activities
Proceeds from issuance of common stock, net		13,070,154		—
Proceeds from issuance of common stock from ATM, net		313,107			3,309,116
Proceeds from issuance of common stock from exercise of stock options		45,454			2,627
Proceeds from issuance of common stock from employee stock purchase plan	—				119,415
Proceeds from paycheck protection program	—				104,168
Proceeds from Eversana line of credit					2,000,000
Net cash provided by financing activities		13,428,715			5,535,326
Net increase in cash and cash equivalents		3,072,969			616,823
Cash and cash equivalents at beginning of period		8,068,939			5,663,833
Cash and cash equivalents at end of period	$	11,141,908		$	6,280,656

Non-cash financing activities
Forgiveness of paycheck protection loan and accrued interest	$	105,130		—

See accompanying notes to these unaudited condensed financial statements.

Evoke Pharma, Inc.

Notes to Condensed Financial Statements

(Unaudited)

1. Organization and Basis of Presentation

Evoke Pharma, Inc. (the “Company”) was incorporated in 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. As discussed in Note 5, 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, 2021, the Company had approximately $11.1 million in cash and cash equivalents. The Company anticipates that it will continue to incur losses from operations due to commercialization activities for Gimoti, 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.

Impact of COVID-19

Despite the COVID-19 pandemic, the Company began its commercial sales of Gimoti with Eversana in October 2020. The Company has experienced various disruptions to its sales activities, but have continued efforts to reach physicians and customers. For example, Eversana’s commercialization efforts at the time the Company launched Gimoti was 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. In recent months, certain physician offices have begun to allow in-person interactions, which has helped to increase the educational and promotional activities of the sales force. Research conducted by IOVIA stated that as a result of COVID-19, fewer patients visited physician offices during the pandemic resulting in lower patient volumes than normal, and the Centers for Disease Control and Prevention reported during 2020 that over 40% of patients avoided care due to COVID-19. The Company anticipates that it and Eversana will continue to be impacted by the COVID-19 pandemic to some extent.

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 $104,000. In January 2021, the Company received notice that its loan and accrued interest were forgiven by the SBA.

2. Summary of Significant Accounting Policies

The accompanying condensed balance sheet as of December 31, 2020, 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, 2020, which are contained in the Company’s Annual Report on Form 10-K filed with the SEC on March 11, 2021. 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 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.

Accounts Receivable

Accounts receivable is 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 zero at September 30, 2021 and December 31, 2020 and no bad debt expense was recorded for the nine months ended September 30, 2021.

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.

Prior to FDA approval of Gimoti in June 2020, the cost of materials and expenses associated with the manufacturing of Gimoti were recorded as research and development expense. Subsequent to FDA approval, the Company began manufacturing Gimoti for commercialization and began capitalizing inventory. The Company’s inventory consisted of approximately $150,000 of raw materials at September 30, 2021 and December 31, 2020, and approximately $75,000 and $86,000 of finished goods at September 30, 2021 and December 31, 2020, respectively. Inventories are stated at the lower of cost (first-in first-out basis) or net realizable value. Inventory when written down to net realizable value establishes a new cost basis and its value is not subsequently increased based upon changes in underlying facts and circumstances. The Company’s raw materials inventory is held at its third-party suppliers and its finished goods inventory is held at its contract 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 through prescription in October 2020 through the Company’s commercial partner Eversana. If the Company or Eversana fail to successfully launch Gimoti and grow and maintain sales, 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 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.

During the three months ended September 30, 2021, approximately $683,000 of Gimoti was sold to a third party for research purposes.

Liabilities for co-pay assistance 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. This decision was based on minimal historical data due to the Company’s limited number of stock option exercises. 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 has expensed costs relating to the purchase and production of pre-approval inventories as research and development expense in the period incurred prior to FDA approval received on June 19, 2020. The Company will expense the clinical, regulatory and manufacturing costs related to the post-marketing commitment to conduct a single dose pharmacokinetics 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 share equivalents outstanding for the period determined using the treasury-stock method. Dilutive common stock equivalents are comprised of warrants to purchase common stock, options to purchase common stock under the Company’s equity incentive plans and potential shares to be purchased under the ESPP.

For the periods presented, 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:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Warrants to purchase common stock		1,679,673		1,841,879		1,679,673		1,841,879
Common stock options		5,150,333		4,273,065		5,150,333		4,273,065
Employee stock purchase plan	—			4,716	—			4,716
Total excluded securities		6,830,006		6,119,660		6,830,006		6,119,660

3. 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 addition to the payments previously made to Questcor, the Company may also be required to make additional milestone payments totaling up to $52 million. 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 by FDA, 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 remaining $47 million in milestone payments depend on Gimoti’s commercial success. The Company is also required to pay Mallinckrodt a low single digit royalty percentage on net sales of Gimoti. As of September 30, 2021, the Company has paid Mallinckrodt approximately $14,000 in royalties on net sales of Gimoti. The Company’s obligation to pay such royalties will terminate upon the expiration of the last patent right covering Gimoti, which is expected to occur in 2030, subject to possible extension should any additional, later expiring, licensed patents be granted.

4. Stockholders’ Equity

Sale of Common Stock in Public Offering

In January 2021, the Company completed the sale of 5,750,000 shares of its common stock in an underwritten public offering. The price to the public in this offering was $2.50 per share resulting in gross proceeds to the Company of approximately $14.4 million. After deducting underwriting discounts and commissions and offering expenses paid by the Company, the net proceeds to the Company raised from this offering were approximately $13.1 million.

At the Market Equity Offering Program

In November 2017, the Company 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 the Company’s common stock through B. Riley FBR, Inc. (“FBR”) as a sales agent (the “FBR Sales Agreement”). During the nine months ended September 30, 2020, the Company sold 1,395,855 shares of common stock at a weighted-average price per share of $2.42 pursuant to the FBR Sales Agreement and received proceeds of approximately $3.3 million, net of commission and fees. Effective January 6, 2021, the Company terminated the FBR Sales Agreement. As a result, there were no shares sold under the FBR Sales Agreement during 2021.

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 replacement shelf registration statement, including the base prospectus filed as part of such registration statement. During the three and nine months ended September 30, 2021, the Company sold 217,100 shares of common stock at a weighted-average price per share of $1.47 pursuant to the ATM Sales Agreement and received proceeds of approximately $313,000, net of commissions and fees.

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.

Stock-Based Compensation

During the nine months ended September 30, 2021 and 2020, the Company granted stock options to purchase 1,682,000 and 1,172,000 shares of the Company’s common stock, respectively. Of the options granted in 2020, 437,500 did not begin vesting until June 19, 2020, the date that FDA approved the Gimoti NDA. 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 weighted-average assumptions for option grants during the nine months ended September 30, 2021 and 2020:

	Nine Months Ended September 30,
	2021	2020
Common Stock Options
Risk free interest rate	0.57% - 1.08%	0.39%-0.96%
Expected option term	5.5 - 6.0 years	5.5-6.0 years
Expected volatility of common stock	103.45% - 107.53%	99.73%-103.99%
Expected dividend yield	0.0%	0.0%

The estimated fair value of the shares to be acquired under the ESPP was determined on the initiation date of each six-month purchase period using the Black-Scholes option-pricing valuation model with the following weighted-average assumptions for ESPP shares to be purchased during the three and nine months ended September 30, 2021 and 2020:

	Three Months Ended September 30,		Nine Months Ended September 30,
	2021	2020	2021	2020
Employee Stock Purchase Plan
Risk free interest rate	—	0.13%	0.13%	0.13% - 1.11%
Expected term	—	0.5 years	0.5 years	0.5 years
Expected volatility of common stock	—	111.98%	111.98%	69.72% - 111.98%
Expected dividend yield	—	0.0%	0.0%	0.0%

There were no employee withholdings to purchase shares during the six-month purchase period beginning March 1 and September 1, 2021.

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, 2021 and 2020 as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Research and development	$	7,310	$	31,186	$	99,510	$	286,148
Selling, general and administrative		456,685		447,388		1,325,244		865,543
Total stock-based compensation expense	$	463,995	$	478,574	$	1,424,754	$	1,151,691