Evoke Pharma(EVOK) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements The financial statements reveal increased net product sales but continued net losses, with cash and equity significantly declining, raising going concern and Nasdaq compliance issues Condensed Balance Sheets As of June 30, 2023, total assets decreased to $9.0 million, primarily due to reduced cash, while liabilities increased and stockholders' equity significantly declined to $0.5 million Condensed Balance Sheet Highlights (in thousands) | Account | June 30, 2023 (Unaudited) | December 31, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $7,006 | $9,844 | | Total current assets | $8,927 | $11,722 | | Total assets | $8,980 | $11,851 | | Total current liabilities | $2,081 | $1,655 | | Total liabilities | $8,441 | $7,767 | | Total stockholders' equity | $538 | $4,085 | Condensed Statements of Operations Net product sales grew significantly in Q2 and H1 2023, with the net loss narrowing slightly for both periods compared to the prior year Condensed Statements of Operations Highlights (in thousands) | Metric | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :--- | :--- | :--- | :--- | :--- | | Net product sales | $1,131 | $462 | $1,942 | $880 | | Loss from operations | $(1,784) | $(2,113) | $(3,940) | $(4,164) | | Net loss | $(1,868) | $(2,233) | $(4,111) | $(4,407) | | Net loss per share | $(0.56) | $(0.71) | $(1.23) | $(1.50) | Condensed Statements of Cash Flows Net cash used in operations slightly improved in H1 2023, with no financing activities, leading to a net decrease in cash and an ending balance of $7.0 million Six Months Ended June 30 Cash Flow Summary (in thousands) | Cash Flow Item | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(2,837) | $(2,989) | | Net cash provided by financing activities | $0 | $7,295 | | Net (decrease) increase in cash | $(2,837) | $4,306 | | Cash at end of period | $7,006 | $13,451 | Notes to Condensed Financial Statements Notes highlight substantial doubt about going concern, Nasdaq non-compliance, and significant commercialization costs and loan obligations with Eversana - The company believes there is substantial doubt about its ability to continue as a going concern for one year, citing recurring losses, negative cash flows, and the need to raise additional funds[20] - On May 24, 2023, the company received a notice from Nasdaq for non-compliance with the minimum stockholders' equity requirement of $2.5 million. Nasdaq granted an extension until November 20, 2023, to regain compliance[24][25][26] - The company has a commercial services agreement with Eversana to commercialize Gimoti. As of June 30, 2023, unreimbursed commercialization costs to Eversana were approximately $57.2 million[61][62] - The company has a $5 million revolving credit facility with Eversana, which was fully drawn in 2020. The facility is secured by all personal property other than intellectual property[69] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Gimoti's sales growth, ongoing operating losses, critical liquidity issues, and the substantial doubt about going concern, alongside Nasdaq delisting risks Overview Evoke Pharma, a specialty pharmaceutical company, focuses on its sole product, Gimoti, for diabetic gastroparesis, commercialized through Eversana, despite ongoing losses - The company's sole product is Gimoti® (metoclopramide) nasal spray, the first nasally-administered product for relief of symptoms in adults with acute and recurrent diabetic gastroparesis[18][76] - Commercial sales of Gimoti in the U.S. are managed by its partner, Eversana Life Science Services, LLC, under an agreement extending to December 31, 2026[76][78] Results of Operations Q2 2023 saw increased net product sales and SG&A expenses due to marketing, while R&D decreased, reflecting similar trends for the six-month period Comparison of Three Months Ended June 30, 2023 and 2022 (in thousands) | Metric | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Net product sales | $1,131 | $462 | $670 | | Research and development expenses | $92 | $191 | $(99) | | Selling, general and administrative expenses | $2,766 | $2,315 | $451 | Comparison of Six Months Ended June 30, 2023 and 2022 (in thousands) | Metric | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Net product sales | $1,942 | $880 | $1,062 | | Research and development expenses | $159 | $233 | $(74) | | Selling, general and administrative expenses | $5,614 | $4,720 | $894 | - The increase in SG&A expenses in Q2 2023 was primarily due to higher costs for marketing and Eversana profit sharing, which amounted to approximately $1.1 million[104] Liquidity and Capital Resources With $7.0 million cash, the company faces substantial doubt about going concern, requiring additional capital, and is working to regain Nasdaq compliance by November 2023 - Management concluded there is substantial doubt about the company's ability to continue as a going concern[116] - Cash and cash equivalents of approximately $7.0 million as of June 30, 2023, are expected to be sufficient to fund operations only into the first quarter of 2024[82][116] - The company received a notice from Nasdaq for non-compliance with the minimum stockholders' equity requirement and has until November 20, 2023, to regain compliance[121] - The company's ability to sell shares under its Form S-3 shelf registration is limited by the SEC's 'baby shelf rules' because its public float is less than $75 million[111][112] Item 3. Quantitative and Qualitative Disclosures about Market Risk As a smaller reporting company, Evoke Pharma is exempt from providing quantitative and qualitative disclosures about market risk - The company is not required to provide information on market risk as it qualifies as a smaller reporting company[126] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2023, with no material changes to internal control over financial reporting - Management, including the CEO and Chief Business Officer, concluded that the company's disclosure controls and procedures were effective as of June 30, 2023[128][129] - No material changes to the company's internal control over financial reporting were identified during the quarter ended June 30, 2023[130] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company successfully dismissed patent litigation against Teva Pharmaceuticals, preventing FDA approval of Teva's generic Gimoti until Evoke's patent expires in 2030 - In response to Teva's ANDA filing for a generic version of Gimoti, the company initiated patent infringement litigation in April 2022[51][131] - The litigation against Teva was dismissed in January 2023 after Teva converted to a Paragraph III certification, which prevents FDA approval of its generic product until 2030[51][131] Item 1A. Risk Factors Key risks include the need for substantial additional funding to avoid liquidation and the potential delisting from Nasdaq due to non-compliance with equity requirements - The company requires substantial additional funding and may be forced to liquidate, dissolve, or wind down operations if it cannot raise capital[132] - The company is at risk of being delisted from the Nasdaq Capital Market for failing to meet the minimum stockholders' equity requirement. It has been granted an extension until November 20, 2023, to regain compliance[136] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None[138] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate governance documents and officer certifications