Evoke Pharma(EVOK) - 2020 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements The unaudited financial statements show a net loss of $10.9 million for the first nine months of 2020, leading to a stockholders' deficit of $1.92 million Condensed Balance Sheets As of September 30, 2020, total liabilities surged to $8.67 million, turning stockholders' equity into a $1.92 million deficit Condensed Balance Sheet Highlights (Unaudited) | Account | September 30, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Total Current Assets | $6,714,784 | $6,245,539 | | Total Assets | $6,750,899 | $6,395,628 | | Total Current Liabilities | $6,621,309 | $2,015,083 | | Total Liabilities | $8,674,314 | $2,015,083 | | Total Stockholders' (Deficit) Equity | ($1,923,415) | $4,380,545 | - Key drivers for the increase in total liabilities include a new $5,000,000 milestone payable and a $2,000,000 note payable, which were not present at the end of 2019[8] Condensed Statements of Operations The company's net loss nearly doubled to $10.89 million for the nine months ended September 30, 2020, driven by higher R&D and G&A expenses Statement of Operations Summary (Unaudited) | Metric | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | Research and development | $6,450,979 | $2,774,924 | | General and administrative | $4,387,284 | $2,955,371 | | Loss from operations | ($10,838,263) | ($5,730,295) | | Net loss | ($10,886,809) | ($5,707,427) | | Net loss per share | ($0.43) | ($0.26) | Condensed Statements of Stockholders' (Deficit) Equity Stockholders' equity shifted from a $4.38 million surplus to a $1.92 million deficit, primarily due to a $10.89 million net loss - The company's equity position shifted from a positive $4,380,545 at the start of 2020 to a deficit of ($1,923,415) at the end of Q3 2020[14] - The primary drivers of the change in equity were the net loss of $10,886,809 and proceeds from an At-The-Market offering of $3,309,116[14] Condensed Statements of Cash Flows Net cash from financing activities of $5.5 million offset cash used in operations, resulting in a net cash increase of $0.6 million Cash Flow Summary (Unaudited) | Cash Flow Activity | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | ($4,918,503) | ($4,614,403) | | Net cash provided by financing activities | $5,535,326 | $5,800,201 | | Net increase in cash | $616,823 | $1,185,798 | | Cash at end of period | $6,280,656 | $6,504,802 | Notes to Condensed Financial Statements The notes disclose substantial doubt about the company's ability to continue as a going concern, with cash sufficient only into Q2 2021 - The company's sole product, Gimoti™, received FDA approval on June 19, 2020, and U.S. commercial sales launched in October 2020 through its partner Eversana[20] - Management believes there is substantial doubt about the company's ability to continue as a going concern for one year, as existing cash is only sufficient to fund operations into the second quarter of 2021[21] - Following FDA approval, the company recorded a $5 million payable to Mallinckrodt, due on June 19, 2021, as a milestone payment for the Gimoti technology acquisition[33] - The company entered into a commercial services agreement with Eversana and a related $5 million revolving credit facility, from which it borrowed $2 million in June 2020[44][46] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management highlights the launch of Gimoti, rising expenses, and expresses substantial doubt about the company's ability to continue as a going concern Overview The company is focused on its sole product, Gimoti, but anticipates needing additional funding to continue operations beyond Q2 2021 - The company's sole product, Gimoti, was approved by the FDA on June 19, 2020, and launched commercially in the U.S. in October 2020[50] - A partnership with Eversana governs the commercialization of Gimoti and includes a $5 million revolving credit facility, of which $2 million was borrowed in June 2020[50] - As of September 30, 2020, cash and cash equivalents were approximately $6.3 million, which is expected to fund operations only into the second quarter of 2021[52] Results of Operations Operating expenses increased significantly year-over-year, driven by a $5 million R&D milestone payment and higher G&A costs for commercialization Comparison of Operating Expenses (Nine Months Ended Sep 30) | Expense Category | 2020 | 2019 | Change | | :--- | :--- | :--- | :--- | | Research and development | $6,450,979 | $2,774,924 | $3,676,055 | | General and administrative | $4,387,284 | $2,955,371 | $1,431,913 | - The $3.7M increase in nine-month R&D expense was primarily due to a $5 million milestone expense related to the FDA's approval of Gimoti[65] - For Q3 2020, G&A expenses increased by approximately $1.1 million YoY as the company shifted its focus to selling activities, with about $745,000 of the quarterly total related to commercialization[64] Liquidity and Capital Resources The company's short cash runway creates substantial doubt about its ability to continue as a going concern, necessitating additional financing - During the nine months ended September 30, 2020, the company raised approximately $3.3 million net from its at-the-market (FBR) sales agreement and $2 million from the Eversana Credit Facility[68][71] - Management concluded there is substantial doubt about the company's ability to continue as a going concern, with existing cash of $6.3 million sufficient to fund operations only into Q2 2021[68][70] - With the approval of the Gimoti NDA, the company is now committed to pay Mallinckrodt a $5 million milestone payment by June 2021[75] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company reports no material changes in its market risk profile since its 2019 year-end filing - No material changes in market risk were reported since the company's 2019 Annual Report on Form 10-K[76] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2020 - Management concluded that disclosure controls and procedures were effective as of September 30, 2020[77] - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[78] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is not currently a party to any material legal proceedings - The company is not currently a party to any material legal proceedings[80] Item 1A. Risk Factors The company's viability is entirely dependent on its sole product, Gimoti, and its ability to secure substantial additional funding - The company's business is entirely dependent on the success of its only product, Gimoti; failure to successfully commercialize it could force the company to liquidate[81] - The company requires substantial additional funding, as existing cash is only sufficient to fund operations into Q2 2021, raising going concern issues[82] - The COVID-19 pandemic poses significant risks to commercialization efforts, manufacturing, and the company's ability to raise capital[89][91] - The company is committed to conducting a post-marketing pharmacokinetics trial for Gimoti, which could face delays and increased costs[85] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reports no unregistered sales of equity securities for the period - None reported[94] Item 3. Defaults Upon Senior Securities The company reports no defaults upon senior securities - None reported[94] Item 4. Mine Safety Disclosure This item is not applicable to the company - Not applicable[94] Item 5. Other Information The company reports no other information for this item - None reported[60] Item 6. Exhibits This section provides an index of all exhibits filed with the report, including key agreements and required certifications - The report includes an index of filed exhibits, such as the 3PL Agreement with Eversana Life Science Services, Inc., CEO/CFO certifications, and XBRL data files[96]