Evoke Pharma(EVOK) - 2022 Q4 - Annual Report

PART I Business The company's operations center on its sole product, Gimoti™, a nasally-administered treatment for diabetic gastroparesis Overview The company's sole product is Gimoti™, an FDA-approved nasal spray for diabetic gastroparesis commercialized via a partnership - The company's sole product is Gimoti (metoclopramide) nasal spray, the first and only nasally-administered product for the relief of symptoms in adults with acute and recurrent diabetic gastroparesis[11] - Gimoti received FDA approval on June 19, 2020, and U.S. commercial sales launched in October 2020 through a partnership with Eversana[11][18] - The nasal spray formulation is designed to bypass the digestive system for more predictable absorption, which is beneficial for gastroparesis patients who may have erratic absorption of oral tablets or experience nausea and vomiting[16] - The company has incurred operating losses every year since inception and expects these losses to continue until Gimoti revenues exceed expenses[19] Business Strategy The business strategy focuses on commercializing Gimoti in the U.S., developing a lower dosage, and seeking international partners - The company's core strategies are: * Successfully commercialize Gimoti in the U.S. through its partnership with Eversana * Develop a lower dosage strength of Gimoti based on an FDA post-marketing commitment * Seek partnerships to accelerate Gimoti's potential, including outside the U.S * In-license or acquire additional clinical or commercial stage GI product candidates[20] The Gastrointestinal Market and Gastroparesis Gastroparesis represents a significant market with rising healthcare costs and a high unmet need for effective outpatient treatments - The prevalence of gastroparesis is estimated to be up to 4% of the U.S. population, with diabetes being a leading cause (29% of cases)[14][29] - Hospitalizations for gastroparesis have risen significantly, with median costs climbing from approximately $6,000 in 1994 to $24,500 in 2014[28] - There is a high level of interest in effective outpatient options for gastroparesis, as the market is currently served mainly by oral metoclopramide, with approximately 3.0 million U.S. prescriptions per year (as of 2015)[35] Commercialization Gimoti is commercialized in the U.S. through a partnership with Eversana, which handles all sales, marketing, and distribution - The company has a commercial services agreement with Eversana to market, sell, and distribute Gimoti in the U.S., with the term extended to December 31, 2026[43][45] - Evoke records sales and retains over 80% of net product profits after costs are reimbursed; as of Dec 31, 2022, unreimbursed commercialization costs to Eversana were approximately $48.4 million[44] - The company transitioned to the vitaCare platform in 2022 to manage prescription fulfillment, which helps patients with coverage verification and co-pay assistance[49][53] - A June 2022 market research study showed that 87% of all healthcare provider respondents indicated an intent to prescribe Gimoti[54][55] - An October 2022 patient study found Gimoti scored better or equal on all treatment experience measures compared to other common gastroparesis treatments[57] Manufacturing The company outsources all manufacturing, relying on third-party contractors for both the finished product and active ingredient - The company outsources all manufacturing and does not own or operate its own facilities[59] - A manufacturing agreement with Patheon UK Limited is in place for commercial quantities of Gimoti, with an initial term until December 31, 2025[60] - Cosma S.p.A. is the exclusive commercial supplier of metoclopramide for Gimoti under a Master Supply Agreement[62] Competition Gimoti's primary competition is generic oral metoclopramide, with several other companies developing potential new treatments - Gimoti competes directly with various forms of metoclopramide, the only other product approved in the U.S. to treat gastroparesis, which is available generically[65] Gastroparesis Treatment Development Pipeline | Product | Class | Route | Company | Status | | :--- | :--- | :--- | :--- | :--- | | Tradipitant | NK-1 antagonist | oral | Vanda | Phase 3 (did not meet primary endpoint) | | 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 intellectual property portfolio for Gimoti includes multiple U.S. and international patents with expirations through 2038 - The company holds U.S. patents for Gimoti's nasal formulations and methods of use, with expiration dates expected no earlier than 2029, 2032, and 2038[75] - International patents have been granted in Europe, Canada, Japan, Russia, and Mexico[74] - The company acquired the worldwide rights for Gimoti from Questcor (now Mallinckrodt); a final $5 million milestone payment was made in July 2021, terminating further royalty obligations[80][81] Government Regulation The company operates in a highly regulated environment subject to extensive oversight from the FDA and other government bodies - Pharmaceutical products are subject to extensive regulation by the FDA, governing research, development, manufacturing (cGMP), approval, labeling, and marketing[82] - Gimoti was approved under the Section 505(b)(2) pathway, which allows reliance on FDA's prior findings of safety and effectiveness for an approved drug[100] - The company is subject to significant post-approval requirements, including reporting, cGMP compliance, and potential Phase 4 studies; the Gimoti label includes a black box warning for tardive dyskinesia[95][162] - The company must comply with various healthcare laws, including the federal Anti-Kickback Statute, False Claims Act, and government drug pricing programs like MDRP and the 340B program[108][117][119] - The Inflation Reduction Act of 2022 (IRA) will require drug price negotiations with Medicare starting in 2026 and impose rebates for price increases that outpace inflation[125] Risk Factors The company faces significant risks related to its dependence on a single product, need for funding, and reliance on partners - The company's business is entirely dependent on the success of its only product, Gimoti, which may never generate sufficient sales to be profitable[134] - Recurring losses have raised substantial doubt about the company's ability to continue as a going concern, requiring additional funding that is not assured[249][250] - The company relies on its partner, Eversana, for all sales, marketing, and distribution, and has no internal capabilities in these areas[143] - The company faces substantial competition from well-established, generically available forms of metoclopramide[173] - The company is subject to extensive and ongoing government regulation, and failure to comply could result in significant penalties and inhibit the ability to commercialize Gimoti[162][164] - In 2022, Teva Pharmaceuticals filed an ANDA for a generic version of Gimoti, leading to a patent infringement lawsuit that was later dismissed after Teva delayed its potential launch to 2030[228][279] Properties The company leases approximately 3,000 square feet of office space in Solana Beach, California under a short-term lease - The company leases approximately 3,000 square feet of office space in Solana Beach, California[278] - The lease was most recently amended in August 2022 and expires in October 2023[278] Legal Proceedings Patent infringement litigation against Teva was dismissed after Teva converted its generic filing, delaying potential market entry to 2030 - In February 2022, Teva Pharmaceuticals filed an ANDA for a generic version of Gimoti, challenging two of the company's Orange Book-listed patents[279] - Evoke filed a patent infringement lawsuit against Teva in April 2022; Teva later converted its filing to a Paragraph III certification, delaying potential generic approval until 2030[279] - The litigation against Teva was dismissed in January 2023[279] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on Nasdaq under "EVOK," and it has never paid cash dividends and does not plan to - The company's common stock is traded on the Nasdaq Capital Market under the symbol 'EVOK'[283] - The company has never declared or paid cash dividends and does not intend to in the foreseeable future[284] Management's Discussion and Analysis of Financial Condition and Results of Operations Net product sales increased in 2022, but continued net losses raise substantial doubt about the company's going concern status Results of Operations Net product sales increased by $0.9 million in 2022, while operating expenses also rose, driven by higher SG&A costs Comparison of Years Ended December 31, 2022 and 2021 | | 2022 | 2021 | Increase/(Decrease) | | :--- | :--- | :--- | :--- | | Net product sales | $2,508,645 | $1,618,076 | $890,569 | | Research and development expense | $300,789 | $590,476 | $(289,687) | | Selling general and administrative expense | $9,623,599 | $8,851,129 | $772,470 | - Net product sales increased by approximately 56% year-over-year; excluding a one-time $0.7 million sale for research purposes in 2021, the increase was 179%[307][326] Liquidity and Capital Resources The company has substantial doubt about its ability to continue as a going concern, with cash expected to last only into Q3 2023 - As of December 31, 2022, the company had cash and cash equivalents of approximately $9.8 million[296] - Management concluded there is substantial doubt about the company's ability to continue as a going concern, with cash sufficient to fund operations only into Q3 2023[339] - In 2022, the company sold 621,697 shares of common stock under its ATM Sales Agreement, receiving net proceeds of approximately $7.3 million[331][346] - The company's ability to raise funds via its shelf registration is limited by the SEC's "baby shelf rules" because its public float is below $75 million[332][333] - The company has a $5 million loan from Eversana, which bears 10% annual interest and terminates on June 19, 2025[336][337] Financial Statements and Supplementary Data The auditor's report expresses substantial doubt about the company's ability to continue as a going concern due to recurring losses Selected Balance Sheet Data (as of December 31) | | 2022 | 2021 | | :--- | :--- | :--- | | Cash and cash equivalents | $9,843,699 | $9,144,710 | | Total Assets | $11,851,488 | $10,573,162 | | Total Liabilities | $7,766,839 | $7,018,068 | | Total Stockholders' Equity | $4,084,649 | $3,555,094 | Selected Statement of Operations Data (for the Year Ended December 31) | | 2022 | 2021 | | :--- | :--- | :--- | | Net product sales | $2,508,645 | $1,618,076 | | Total operating expenses | $10,294,782 | $9,769,723 | | Loss from operations | $(7,786,137) | $(8,151,647) | | Net loss | $(8,224,130) | $(8,537,952) | | Net loss per share | $(2.62) | $(3.18) | - The independent auditor's report includes a going concern uncertainty paragraph due to recurring losses and negative cash flows from operations[377] Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of year-end - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[355] - Based on an evaluation using the COSO 2013 framework, management concluded that the company's internal control over financial reporting was effective as of December 31, 2022[358] PART III This section incorporates by reference information from the company's definitive proxy statement for its 2023 Annual Meeting of Stockholders Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from the 2023 proxy statement - Information required by this item will be contained in the definitive proxy statement for the 2023 Annual Meeting of Stockholders and is incorporated by reference[363] Executive Compensation Information regarding executive compensation is incorporated by reference from the company's upcoming 2023 definitive proxy statement - Information required by this item will be contained in the definitive proxy statement for the 2023 Annual Meeting of Stockholders and is incorporated by reference[365] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership is incorporated by reference from the company's upcoming 2023 definitive proxy statement - Information required by this item will be contained in the definitive proxy statement for the 2023 Annual Meeting of Stockholders and is incorporated by reference[366] Certain Relationships, Related Transactions and Director Independence Information regarding related party transactions and director independence is incorporated by reference from the 2023 proxy statement - Information required by this item will be contained in the definitive proxy statement for the 2023 Annual Meeting of Stockholders and is incorporated by reference[367] Principal Accounting Fees and Services Information regarding principal accounting fees and services is incorporated by reference from the 2023 proxy statement - Information required by this item will be contained in the definitive proxy statement for the 2023 Annual Meeting of Stockholders and is incorporated by reference[368] PART IV Exhibits, Financial Statement Schedules This section lists the financial statements and exhibits filed as part of the annual report, including material contracts - This section includes the company's financial statements and the report of its independent registered public accounting firm, BDO USA, LLP[371] - A list of all exhibits filed with the Form 10-K is provided, including the Amended and Restated Certificate of Incorporation, commercial agreements with Eversana, and executive employment agreements[372][483]