Evoke Pharma(EVOK) - 2020 Q4 - Annual Report

PART I Business Evoke Pharma is a specialty pharmaceutical company focused on GI disorders, whose sole product, Gimoti nasal spray, was FDA-approved in June 2020 and commercially launched in October 2020, operating an outsourced model with significant future milestone obligations - The company's primary focus is the development and commercialization of Gimoti (metoclopramide) nasal spray, its only product, for treating acute and recurrent diabetic gastroparesis[22] - Gimoti received FDA approval on June 19, 2020, and U.S. commercial sales began in October 2020 through a partnership with Eversana[22] - The company's business strategy includes successfully commercializing Gimoti in the U.S., developing a next-generation product, seeking partnerships for ex-U.S. expansion, and potentially in-licensing other GI product candidates[25][26][27] Overview Evoke Pharma is a specialty pharmaceutical company whose sole product, Gimoti nasal spray, approved in June 2020 and launched in October 2020, is the first nasally-administered treatment for diabetic gastroparesis, with the company expecting continued operating losses until sales become substantial - Gimoti is designed to bypass the digestive system, offering predictable absorption for gastroparesis patients, especially during episodes of nausea and vomiting where oral tablets may be ineffective[24] - The company has incurred losses each year since inception and expects to continue incurring operating losses until Gimoti revenues exceed expenses[24] Commercialization Gimoti is commercialized in the U.S. via a partnership with Eversana, managing sales and distribution, supported by patient programs and showing strong physician intent to prescribe - Under the agreement with Eversana, Evoke retains ownership of the Gimoti NDA and records sales, while Eversana manages all commercial activities, with Evoke retaining over 80% of net product profits after costs are reimbursed; as of Dec 31, 2020, unreimbursed commercialization costs to Eversana were approximately $9.0 million[45] - The EvokeAssist program provides co-pay assistance, making Gimoti available at no out-of-pocket cost for commercially insured patients and at $50 for cash-paying or uninsured patients[48] - A December 2020 market research study indicated high intent to prescribe Gimoti among both target (79%) and non-target (89%) gastroenterologists[49][51] Manufacturing Evoke relies on third-party contractors for manufacturing, with key agreements including Patheon UK Limited for Gimoti production and Cosma S.p.A. as the exclusive supplier of the active ingredient - The company has a manufacturing services agreement with Patheon UK Limited, which runs until December 31, 2025, for the commercial supply of Gimoti[52] - Cosma S.p.A. is the exclusive commercial supplier of metoclopramide, the active pharmaceutical ingredient in Gimoti[52] Competition Gimoti faces competition from established oral and generic metoclopramide, off-label therapies, domperidone, and several product candidates in clinical development for gastroparesis Gastroparesis Treatment Development Pipeline | Product | Class | Route | Company | Status | |---|---|---|---|---| | Tradipitant | NK-1 antagonist | oral | Vanda | Phase 3 | | Velusetrag | 5-HT4 receptor agonist | oral | Theravance/Alfasigma | Phase 2 | | Metopimazine | D2/D3 antagonist | oral | Neurogastrx | Phase 2 | | CIN-102 | Deuterated Domperidone | oral | CinRx | Phase 2 | | TAK-906 | D2/D3 antagonist | oral | Takeda/Altos | Phase 2 | Intellectual Property and Proprietary Rights The company's Gimoti intellectual property includes U.S. patents extending to 2038, with significant future milestone and royalty payment obligations to Mallinckrodt from the core technology acquisition - The patent portfolio includes U.S. Patent 8,334,281 for nasal formulations of metoclopramide, expected to expire no earlier than 2030, and several pending applications with potential expiration dates of 2032, 2037, and 2038[62][63] - Under the asset purchase agreement with Mallinckrodt, a $5 million milestone payment became due upon FDA approval and is payable on June 19, 2021, with an additional $47 million in milestone payments contingent on commercial success, plus a low single-digit royalty on net sales[67] Government Regulation Evoke is subject to extensive FDA regulation, including 505(b)(2) approval pathway, cGMP compliance, and various healthcare fraud, abuse, and privacy laws, with healthcare reform impacting pricing and reimbursement - Gimoti was approved under the Section 505(b)(2) NDA pathway, which allows an applicant to rely on FDA's findings of safety and effectiveness for a previously approved drug[82] - The company and its third-party manufacturers must comply with FDA's current Good Manufacturing Practices (cGMP) and are subject to periodic, unannounced inspections[83][85] - The company is subject to various healthcare laws, including the federal Anti-Kickback Statute, the False Claims Act, and the Physician Payment Transparency Act (Sunshine Act), which regulate interactions with healthcare providers and impose reporting requirements[87][89] Risk Factors The company faces significant risks including complete dependence on Gimoti's commercial success, a critical need for additional funding by Q1 2022, heavy reliance on third parties, competition, product liability, and intellectual property challenges, raising substantial doubt about its going concern ability - The business is entirely dependent on the success of Gimoti, and failure to generate sufficient sales could force the company to curtail operations or liquidate[99] - The company requires substantial additional funding, as existing cash, including proceeds from a January 2021 offering, is expected to fund operations only into the first quarter of 2022, raising substantial doubt about its ability to continue as a going concern[100][156] - The company has no internal sales or manufacturing capabilities and relies entirely on third parties, including Eversana for commercialization and a single-source supplier (Cosma) and manufacturer (Thermo Fisher/Patheon) for Gimoti[106][119] - Gimoti's approved label includes a black box warning regarding the risk of tardive dyskinesia, a known side effect of its active ingredient, metoclopramide, which could lead to product liability claims[112][133] Properties The company leases approximately 3,000 square feet of office space in Solana Beach, California, under a lease expiring in January 2022, which management deems adequate - Evoke leases approximately 3,000 square feet of office space in Solana Beach, California, under a lease that expires in January 2022[174] Legal Proceedings As of the report date, Evoke Pharma, Inc. is not a party to any material legal proceedings - The company is not currently a party to any material legal proceedings[174] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Evoke Pharma's common stock trades on Nasdaq under "EVOK" with 9 record holders as of February 2021, and the company has never paid nor anticipates paying cash dividends - The company's common stock is traded on the Nasdaq Capital Market under the symbol "EVOK"[177] - As of February 28, 2021, there were 9 holders of record of the common stock[177] - The company has never declared or paid cash dividends and does not intend to in the foreseeable future[177] Management's Discussion and Analysis of Financial Condition and Results of Operations The company launched Gimoti in October 2020, reporting a $13.2 million net loss in 2020 due to a $5 million milestone expense and increased selling costs, with cash projected to last only into Q1 2022, raising substantial doubt about its going concern ability - The company's cash and cash equivalents, including net proceeds from a January 2021 public offering, are expected to fund operations into the first quarter of 2022, raising substantial doubt about its ability to continue as a going concern[180][202] - A $5 million milestone payment to Mallinckrodt was recorded as an R&D expense in June 2020 upon Gimoti's FDA approval and is due for payment on June 19, 2021[185][196] - In 2020, the company fully drew down a $5 million revolving credit facility from its commercial partner, Eversana[202][204] Results of Operations For 2020, Evoke reported $23,020 in net product sales and a $13.2 million net loss, an increase from 2019, primarily due to a $5 million milestone payment and higher selling and R&D expenses Comparison of Operations (Years Ended Dec 31) | | 2020 | 2019 | Change | |---|---|---|---| | Net product sales | $23,020 | $0 | $23,020 | | Research and development expense | $6,554,825 | $3,416,466 | $3,138,359 | | Selling general and administrative expense | $6,428,832 | $3,737,987 | $2,690,845 | | Loss from operations | ($13,047,349) | ($7,154,453) | ($5,892,896) | | Net loss | ($13,154,671) | ($7,125,655) | ($6,029,016) | | Net loss per share | ($0.52) | ($0.32) | ($0.20) | - R&D expenses increased by $3.1 million in 2020, mainly due to a $5 million milestone expense for the FDA approval of Gimoti, payable to Mallinckrodt[196] - Selling, general and administrative expenses increased by $2.7 million in 2020, primarily due to increased wages, stock-based compensation, and costs associated with pre-commercialization and commercialization activities for Gimoti[199] Liquidity and Capital Resources The company, historically funded by equity and debt, raised $9.0 million in 2020 and $13.1 million in January 2021, but cash is projected to fund operations only into Q1 2022, raising substantial doubt about its going concern ability, with a $5 million milestone payment due in June 2021 Summary of Cash Flows (Years Ended Dec 31) | | 2020 | 2019 | |---|---|---| | Net cash used in operating activities | ($6,630,007) | ($5,762,093) | | Net cash provided by financing activities | $9,035,113 | $6,106,922 | | Net increase in cash and cash equivalents | $2,405,106 | $344,829 | - In January 2021, the company raised approximately $13.1 million in net proceeds from an underwritten public offering[202][277] - The company has a contractual obligation to pay Mallinckrodt a $5 million milestone payment on June 19, 2021[206] Financial Statements and Supplementary Data This section presents the company's audited financial statements for 2020 and 2019, along with the independent auditor's report from BDO USA, LLP, which includes an explanatory paragraph on substantial doubt about the company's going concern ability Report of Independent Registered Public Accounting Firm BDO USA, LLP issued a fair opinion on the financial statements but included a "Going Concern Uncertainty" paragraph, identifying recurring losses and lack of significant revenue as raising substantial doubt, also noted as a Critical Audit Matter - The auditor's report includes an explanatory paragraph expressing substantial doubt about the Company's ability to continue as a going concern due to recurring losses from operations and not having generated significant revenues or positive cash flows[227] - The evaluation of the going concern uncertainty was identified as a Critical Audit Matter, involving challenging and subjective auditor judgment regarding management's operating plan and cash flow forecasts[229][230][232] Financial Statements For 2020, the financial statements show total assets of $9.4 million, total liabilities of $12.6 million, and a stockholders' deficit of $3.2 million, driven by a $5 million milestone payable and note payable, with first net product sales of $23,020 and a $13.2 million net loss Balance Sheet Summary (as of Dec 31) | | 2020 | 2019 | |---|---|---| | Cash and cash equivalents | $8,068,939 | $5,663,833 | | Total assets | $9,434,048 | $6,395,628 | | Total current liabilities | $7,535,677 | $2,015,083 | | Total liabilities | $12,648,671 | $2,015,083 | | Total stockholders' (deficit) equity | ($3,214,623) | $4,380,545 | Statement of Operations Summary (Year Ended Dec 31) | | 2020 | 2019 | |---|---|---| | Net product sales | $23,020 | $— | | Total operating expenses | $13,070,369 | $7,154,453 | | Net loss | ($13,154,671) | ($7,125,655) | | Net loss per share | ($0.52) | ($0.32) | Notes to Financial Statements The notes detail accounting policies and financial items, including substantial doubt about going concern, Mallinckrodt acquisition terms with a $5 million payment due June 2021, equity structure, Eversana agreements, and significant net operating loss carryforwards with a full valuation allowance - Note 1 reiterates that there is substantial doubt about the company's ability to continue as a going concern for one year, as existing cash is projected to fund operations only into Q1 2022[249] - Note 4 details the Technology Acquisition Agreement with Mallinckrodt, confirming a $5 million milestone payment is due on June 19, 2021, and up to $47 million in further milestones are contingent on commercial success[273] - Note 7 describes the commercial and loan agreements with Eversana, including the $5 million credit facility which was fully drawn by December 2020 and bears a 10% annual interest rate[293][295] - As of Dec 31, 2020, the company had federal and state net operating loss (NOL) carryforwards of approximately $81.3 million and $47.7 million, respectively, but has a full valuation allowance against its net deferred tax assets (Note 8)[195][298] Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2020, with revenue recognition controls implemented post-Gimoti launch - Management concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of December 31, 2020[209] - Based on an evaluation using the COSO framework, management concluded that the company's internal control over financial reporting was effective as of December 31, 2020[212] PART III Part III, covering Items 10-14, addresses directors, executive officers, corporate governance, executive compensation, security ownership, and principal accounting fees, with information incorporated by reference from the company's 2021 definitive proxy statement Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's 2021 Definitive Proxy Statement - The required information for this item will be contained in the definitive proxy statement for the 2021 Annual Meeting of Stockholders and is incorporated by reference[216] Executive Compensation Information regarding executive compensation is incorporated by reference from the company's 2021 Definitive Proxy Statement - The required information for this item will be contained in the definitive proxy statement for the 2021 Annual Meeting of Stockholders and is incorporated by reference[217] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership of certain beneficial owners and management is incorporated by reference from the company's 2021 Definitive Proxy Statement - The required information for this item will be contained in the definitive proxy statement for the 2021 Annual Meeting of Stockholders and is incorporated by reference[217] Certain Relationships, Related Transactions and Director Independence Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the company's 2021 Definitive Proxy Statement - The required information for this item will be contained in the definitive proxy statement for the 2021 Annual Meeting of Stockholders and is incorporated by reference[217] Principal Accounting Fees and Services Information regarding principal accounting fees and services is incorporated by reference from the company's 2021 Definitive Proxy Statement - The required information for this item will be contained in the definitive proxy statement for the 2021 Annual Meeting of Stockholders and is incorporated by reference[218] PART IV Exhibits, Financial Statement Schedules This section lists the financial statements of Evoke Pharma, Inc., the BDO USA, LLP report, and a comprehensive index of all exhibits filed with the Annual Report, including key corporate and commercial agreements - This section lists the financial statements and exhibits filed with the Form 10-K[221] - Key exhibits include the Commercial Services and Loan Agreements with Eversana (10.26, 10.27), the amended Asset Purchase Agreement with Mallinckrodt (10.21), and the Manufacturing Services Agreement with Patheon (10.17)[305]