The following discussion and analysis should be read in conjunction with our
financial statements and accompanying notes included in this Quarterly Report on
Form 10-Q and the financial statements and accompanying notes thereto for the
fiscal year ended December 31, 2020 and the related Management's Discussion and
Analysis of Financial Condition and Results of Operations, both of which are
contained in our Annual Report on Form 10-K filed with the Securities and
Exchange Commission, or SEC, on March 11, 2021. Past operating results are not
necessarily indicative of results that may occur in future periods.
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains "forward-looking statements" within
the meaning of Section 27A of the Securities Act of 1933, as amended, or the
Securities Act, and Section 21E of the Securities Exchange Act of 1934, as
amended, or the Exchange Act. All statements other than statements of historical
facts contained in this Quarterly Report on Form 10-Q, including statements
regarding our future results of operations and financial position, business
strategy, commercial activities to be conducted by Eversana Life Science
Services, LLC, or Eversana, the pricing and reimbursement for Gimoti, future
regulatory developments, research and development costs, the timing and
likelihood of success, plans and objectives of management for future operations,
future results of current and anticipated products and the impact of the
coronavirus, or COVID-19, pandemic, on us or on third parties on whom we rely,
are forward-looking statements. These statements involve known and unknown
risks, uncertainties and other important factors that may cause our actual
results, performance or achievements to be materially different from any future
results, performance or achievements expressed or implied by the forward-looking
statement. In some cases, you can identify forward-looking statements by terms
such as "may," "will," "should," "expect," "plan," "anticipate," "could,"
"intend," "target," "project," "contemplates," "believes," "estimates,"
"predicts," "potential" or "continue" or the negative of these terms or other
similar expressions. Although we believe the expectations reflected in these
forward-looking statements are reasonable, such statements are inherently
subject to risk and we can give no assurances that our expectations will prove
to be correct. Given these risks, uncertainties and other factors, you should
not place undue reliance on these forward-looking statements, which speak only
as of the date of this Quarterly Report on Form 10-Q. You should read this
Quarterly Report on Form 10-Q completely. As a result of many factors, including
without limitation those set forth under "Risk Factors" under Item 1A of Part II
below, and elsewhere in this Quarterly Report on Form 10-Q, our actual results
may differ materially from those anticipated in these forward-looking
statements. Except as required by applicable law, we undertake no obligation to
update these forward-looking statements to reflect events or circumstances after
the date of this report or to reflect actual outcomes. For all forward-looking
statements, we claim the protection of the safe harbor for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995.
We use our registered trademark, EVOKE PHARMA, and other trademarks, including
GIMOTI and EvokeAssist, in this Quarterly Report on Form 10-Q. This Quarterly
Report on Form 10-Q also includes trademarks, tradenames and service marks that
are the property of other organizations. Solely for convenience, trademarks and
tradenames referred to in this Quarterly Report on Form 10-Q appear without the
® and ™ symbols, but those references are not intended to indicate, in any way,
that we will not assert, to the fullest extent under applicable law, our rights
or that the applicable owner will not assert its rights, to these trademarks and
tradenames.
Unless the context requires otherwise, references in this Quarterly Report on
Form 10-Q to "Evoke," "we," "us" and "our" refer to Evoke Pharma, Inc.
Overview
We are a specialty pharmaceutical company focused primarily on the development
and commercialization of drugs to treat gastrointestinal, or GI, disorders and
diseases. Since our inception, we have devoted our efforts to developing our
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, we received
approval from the U.S. Food and Drug Administration, or FDA, for our 505(b)(2)
New Drug Application, or NDA, for Gimoti. We launched commercial sales of Gimoti
in the United States in October 2020 through our commercial partner Eversana.
Diabetic gastroparesis is a GI disorder affecting millions of patients
worldwide, in which food in an individual's stomach takes too long to empty
resulting in a variety of serious GI symptoms and systemic metabolic
complications. The gastric delay caused by gastroparesis can compromise
absorption of orally administered medications.
On January 21, 2020, we entered into an agreement with Eversana, or the Eversana
Agreement, for the commercialization of Gimoti. Pursuant to the Eversana
Agreement, Eversana commercializes and distributes Gimoti in the United States.
Eversana also manages the marketing of Gimoti to targeted health care providers,
as well as the sales and distribution of Gimoti in the United States. Eversana
also provided a $5 million revolving credit facility, or the Eversana Credit
Facility, that became available upon FDA approval of the Gimoti NDA. In June
2020 we borrowed $2 million and in December 2020 we borrowed the remaining $3
million under the Eversana Credit Facility.
We have primarily funded our operations through the sale of our convertible
preferred stock prior to our initial public offering in September 2013,
borrowings under our bank loans and the sale of shares of our common stock on
the Nasdaq Capital Market. We
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launched commercial sales of Gimoti in late October 2020 with Eversana and, to
date, have generated modest sales given the launch occurred during the COVID-19
pandemic.
We have incurred losses in each year since our inception. These operating losses
resulted from expenses incurred in connection with advancing Gimoti through
development activities and selling, general and administrative costs associated
with our operations. We expect to continue to incur operating losses until
revenues from sales of Gimoti exceed our expenses, if ever. We may never become
profitable, or if we do, we may not be able to sustain profitability on a
recurring basis.
As of June 30, 2021, we had cash and cash equivalents of approximately $16.7
million. Current cash on hand is intended to fund commercialization activities
for Gimoti, including manufacturing Gimoti, conducting the post-marketing
commitment single dose pharmacokinetics, or PK, clinical trial of Gimoti to
characterize dose proportionality of a lower dose strength of Gimoti and any
additional development activities should we seek additional indications,
protecting our intellectual property portfolio and for selling, general and
administrative costs to support operations. Our operations have consumed
substantial amounts of cash since inception. We believe, based on our current
operating plan, that our existing cash and cash equivalents as of June 30, 2021,
as well as cash flows from future net sales of Gimoti, will be sufficient to
fund our operations into the third quarter of 2022. This period could be
shortened if there are any significant increases in planned spending other than
anticipated. We anticipate that we will be required to raise additional funds in
order to continue as a going concern. Because our business is entirely dependent
on the success of Gimoti, if we are unable to secure additional financing or
identify and execute on other development or strategic alternatives for Gimoti
or our company, we will be required to curtail all of our activities and may be
required to liquidate, dissolve or otherwise wind down our operations. Any of
these events could result in a complete loss of your investment in our
securities.
Impact of COVID-19
Despite the COVID-19 pandemic, we began our commercial sales of Gimoti with
Eversana in October 2020. We have experienced various disruptions to our sales
activities, but have continued our efforts to reach physicians and customers.
For example, Eversana's commercialization efforts have been 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, their sales force has been restricted from
conducting in-person interactions with certain physicians and customers and has
been restricted to conducting Gimoti educational and promotional activities
virtually in certain circumstances, which has impacted Eversana's ability to
more actively market Gimoti. Research conducted by IOVIA stated that as a result
of COVID-19, fewer patients are visiting physician offices resulting in lower
patient volumes than normal, and the Centers for Disease Control and Prevention
reported during 2020 that over 40% of patients were avoiding care due to
COVID-19. We anticipate that we and Eversana will continue to be impacted by the
COVID-19 pandemic.
The COVID-19 pandemic has not significantly disrupted the operations of our
third-party suppliers and manufacturers or delayed our manufacturing timelines
of Gimoti, but may negatively impact our ability to successfully commercialize
Gimoti and generate product sales in the future. Further, the COVID-19 pandemic
and mitigation measures have also had an adverse impact on global economic
conditions which could have an adverse effect on our future business and
financial condition, including impairing our ability to raise capital when
needed.
In March 2020, the Coronavirus Aid, Relief, and Economic Security, or CARES, Act
was enacted in response to the COVID-19 pandemic. In April 2020, we applied for
and were approved for a Small Business Administration, or SBA, loan under the
Paycheck Protection Program, or PPP, established by the CARES Act. On May 1,
2020, we received the loan proceeds of approximately $104,000. In January 2021,
we received notice that our loan and accrued interest were forgiven by the SBA.
Technology Acquisition Agreement
In June 2007, we acquired all worldwide rights, data, patents and other related
assets associated with Gimoti from Questcor Pharmaceuticals, Inc., or Questcor,
pursuant to an asset purchase agreement. We 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 our Phase 3 clinical trial for
Gimoti. In August 2014, Mallinckrodt, plc, or Mallinckrodt, acquired Questcor.
As a result of that acquisition, Questcor transferred its rights included in the
asset purchase agreement with us to Mallinckrodt. In addition to the payments
previously made to Questcor, we may be required to make additional milestone
payments totaling up to $52 million. In March 2018, we amended the asset
purchase agreement with Mallinckrodt 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, we would
be required to make a single $5 million payment on the one-year anniversary
after we receive FDA approval to market Gimoti. At the time of the Gimoti NDA
approval by FDA, we 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. We are also required to pay to Mallinckrodt a low single digit royalty
on net sales of Gimoti. Our 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.
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Financial Operations Overview
Revenue Recognition
Our ability to generate revenue and become profitable depends on our ability to
successfully commercialize Gimoti, which we launched in the United States
through prescription in October 2020 through our commercial partner Eversana. If
we or Eversana fail to successfully launch Gimoti and grow and maintain sales,
we may never generate significant revenues and our results of operations and
financial position will be adversely affected.
In accordance with Accounting Standards Codification, or ASC, 606, Revenue from
Contracts with Customers, we recognize revenue when a customer obtains control
of promised goods in an amount that reflects the consideration we expect 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, we perform 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, we assess the goods promised within each contract and determine those
that are performance obligations and assess whether each promised good is
distinct. We then recognize 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 includes 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 differ from
our estimates. If actual results in the future vary from estimates, we will
adjust these estimates, which would affect net product revenue and earnings in
the period such variances become known.
Liabilities for co-pay assistance are classified as accounts payable and accrued
expenses in the balance sheets.
Sales of Gimoti Metrics
Gimoti revenues continue to increase on several metrics. During the second
quarter of 2021 compared to the first quarter of 2021, Gimoti experienced a
nearly 162% growth of net product sales and 152% growth in the number of
prescriptions. New prescribers of Gimoti increased from 84 during the first
quarter of 2021 to 132 (57% increase) during the second quarter of 2021.
Enrollments into the EvokeAssist reimbursement center have grown each month,
with June 2021 having the largest number of monthly enrollments to date. Since
product launch, patients that have an opportunity to refill the product (that
is, patients who have completed their current supply and have additional refills
on their prescription) have received a refill approximately 61% of the time. We
believe some patients choose not to refill their prescriptions due to remission
of symptoms.
[[Image Removed]]
In December 2020 and January 2021, we began accessing the Medicare and Medicaid
systems, respectively, to allow for reimbursement submission of products for
patients seeking treatment. For the quarter ended June 30, 2021, these
government programs
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made up approximately 33% of the filled prescriptions for Gimoti. Through June
30, 2021, the patients have been mostly between the ages of 31-65. The vast
majority are female and were being treated by a gastroenterologist.
The feedback from the Eversana sales organization continues to be positive with
regard to physician interest. Although many target physician offices are only
recently allowing face to face visits by sales team members, meetings with
gastroenterology teams continue to generate positive enrollments and fills.
Since product launch, it has taken an average of four to five physician calls
before a physician writes their first prescription, which is lower than we
initially expected and we believe congruent with the straight-forward non-oral
benefit for route of delivery. Furthermore, we have detected a pattern within
larger gastroenterology teams that the first physician adopting the use of
Gimoti has led other physicians within the same practice to begin prescribing
Gimoti as well. These market experiences follow the recently conducted market
research announced in June 2021, which indicated, among other positive trends
and benefits, that 90% of target gastroenterologists compared to 79% in a prior
market research study, intend to prescribe Gimoti.
Research and Development Expenses
We expense all research and development expenses as they are incurred. Research
and development expenses primarily include:
• clinical and regulatory-related costs;
• expenses incurred under agreements with contract research organizations, or
CROs;
• manufacturing and stability testing costs and related supplies and
materials; and
• employee-related expenses, including salaries, benefits, travel and
stock-based compensation expense.
All of our research and development expenses to date have been incurred in
connection with the development of Gimoti. With FDA approval of Gimoti, we
expect research and development costs to decrease and shift to commercialization
and selling costs. However, we have initiated planning for an FDA post-marketing
commitment single dose PK 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 we may pursue to expand the
indication of Gimoti. This trial will be designed to characterize dose
proportionality of a lower dosage strength of Gimoti to accommodate patients
that may require further dosage adjustments. We are unable to estimate with any
certainty the costs we will incur related to this trial, or the regulatory
review of such lower dosage of Gimoti, though such costs may be significant.
Clinical development timelines, the probability of success and development costs
can differ materially from expectations.
The costs of clinical trials may vary significantly over the life of a project
owing to, but not limited to, the following:
• per subject trial costs;
• the number of sites included in the trials;
• the length of time required to enroll eligible subjects;
• the number of subjects that participate in the trials;
• the number of doses that subjects receive;
• the cost of comparative agents used in trials;
• the drop-out or discontinuation rates of subjects;
• potential additional safety monitoring or other studies requested by
regulatory agencies; and
• the duration of patient follow-up.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of salaries and
related benefits, including stock-based compensation. Other selling, general and
administrative expenses include professional fees for accounting, tax, patent
costs, legal services, insurance, facility costs and costs associated with being
a publicly-traded company, including fees associated with investor relations and
directors and officers liability insurance premiums. We expect that selling,
general and administrative expenses will increase in the future as we continue
to progress with the commercialization of Gimoti and we reimburse Eversana from
the net profits attained from the sales of Gimoti.
Critical Accounting Policies and Significant Judgments and Estimates
Our management's discussion and analysis of our financial condition and results
of operations is based on our financial statements, which we have prepared in
accordance with generally accepted accounting principles in the United States,
or GAAP. The preparation of these financial statements requires us to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements, as well as the reported expenses during the
reporting periods. We evaluate these estimates and judgments on an ongoing
basis. We base our estimates on historical experience and
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on various other factors that we believe are reasonable under the circumstances,
the results of which form the basis for making judgments about the carrying
value of assets and liabilities that are not readily apparent from other
sources. Our actual results may differ materially from these estimates under
different assumptions or conditions.
The critical accounting policies and estimates underlying the accompanying
unaudited financial statements are those set forth in Part II, Item 7 included
in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020,
which was filed with the SEC on March 11, 2021.
Results of Operations
Comparison of Three Months Ended June 30, 2021 and 2020
The following table summarizes the results of our operations for the three
months ended June 30, 2021 and 2020:
Three Months Ended Increase/
June 30, (Decrease)
2021 2020
Net product sales $ 236,635 $ - $ 236,635
Research and development expenses $ 195,229 $ 5,782,094 $ (5,586,865 )Selling, general and administrative expenses $ 2,142,149 $ 1,182,872 $ 959,277
Net Product Sales. Net product sales for the three months ended June 30, 2021
compared to the three months ended June 30, 2020 increased by approximately
$237,000. We received FDA approval of our Gimoti NDA in June 2020 and began
commercial sales in October 2020, so there were no commercial sales during the
three months ended June 30, 2020.
Research and Development Expenses. Research and development expenses for the
three months ended June 30, 2021 compared to the three months ended June 30,
2020 decreased by approximately $5.6 million. During 2021, we incurred expenses
for ongoing stability testing of batches of Gimoti manufactured prior to receipt
of FDA approval of the Gimoti NDA in June 2020, as well as preparing for a
post-marketing commitment to conduct a single dose PK clinical trial of Gimoti
to characterize dose proportionality of a lower dose strength of Gimoti,
including the manufacture of clinical trial material.
Costs incurred in 2021 included approximately $65,000 for wages, taxes and
employee insurance, including approximately $24,000 of stock-based compensation
expense, and approximately $122,000 related to manufacturing. During 2020, we
expensed $5 million upon achieving a technology acquisition milestone related to
FDA's approval of Gimoti. We also incurred expenses responding to requests for
additional information from FDA related to our NDA and preparing for future
manufacturing and potential commercial launch of Gimoti. In addition to the
milestone expense, during the three months ended June 30, 2020, we incurred
other costs including approximately $378,000 for wages, taxes and employee
insurance, including approximately $134,000 of stock-based compensation expense,
and approximately $347,000 related to manufacturing.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the three months ended June 30, 2021 compared to the
three months ended June 30, 2020 increased by approximately $959,000. Costs
incurred in 2021 primarily included approximately $1.0 million for wages, taxes
and employee insurance, including approximately $376,000 of stock-based
compensation expense, approximately $607,000 for legal, accounting, directors
and officers liability insurance and other costs associated with being a public
company, approximately $354,000 for marketing, royalties and Eversana profit
sharing, and approximately $40,000 for facility-related expenses. Of the
approximately $2.1 million of total selling, general and administrative expenses
incurred during the three months ended June 30, 2021, approximately $1.0 million
related to wages, taxes, employee insurance, stock-based compensation, and other
commercialization activities. Costs incurred in 2020 primarily included
approximately $610,000 for wages, taxes and employee insurance, including
approximately $229,000 of stock-based compensation expense, and approximately
$476,000 for legal, accounting, directors and officers liability insurance and
other costs associated with being a public company. Of the total selling,
general and administrative expenses incurred during the three months ended June
30, 2020, approximately $312,000 related to wages, taxes, employee insurance,
stock-based compensation, and other costs related to pre-commercialization
activities.
Comparison of Six Months Ended June 30, 2021 and 2020
The following table summarizes the results of our operations for the six months
ended June 30, 2021 and 2020:
Six Months Ended Increase/
June 30, (Decrease)
2021 2020
Net product sales $ 327,056 $ - $ 327,056
Research and development expenses $ 473,054 $ 6,245,946 $ (5,772,892 )Selling, general and administrative expenses $ 4,480,443 $ 2,512,707 $ 1,967,736
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Net Product Sales. Net product sales for the six months ended June 30, 2021
compared to the six months ended June 30, 2020 increased by approximately
$327,000. We received FDA approval of our Gimoti NDA in June 2020 and began
commercial sales in October 2020, so there were no commercial sales during the
six months ended June 30, 2020
Research and Development Expenses. Research and development expenses for the six
months ended June 30, 2021 compared to the six months ended June 30, 2020
decreased by approximately $5.8 million. During 2021, we incurred expenses for
ongoing stability testing of batches of Gimoti manufactured prior to receipt of
FDA approval of the Gimoti NDA in June 2020, as well as preparing for a
post-marketing commitment to conduct a single dose PK clinical trial of Gimoti
to characterize dose proportionality of a lower dose strength of Gimoti,
including the manufacture of clinical trial material.
Costs incurred in 2021 included approximately $233,000 for wages, taxes and
employee insurance, including approximately $92,000 of stock-based compensation
expense, and approximately $199,000 related to manufacturing. During 2020, we
expensed $5 million upon achieving a technology acquisition milestone related to
FDA's approval of Gimoti. We also incurred expenses responding to requests for
additional information from FDA related to our NDA and preparing for future
manufacturing and commercial launch of Gimoti. In addition to the milestone
expense, during the six months ended June 30, 2020, we incurred other costs
including approximately $749,000 for wages, taxes and employee insurance,
including approximately $255,000 of stock-based compensation expense, and
approximately $423,000 related to manufacturing.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the six months ended June 30, 2021 compared to the
six months ended June 30, 2020 increased by approximately $2.0 million. Costs
incurred in 2021 primarily included approximately $2.2 million for wages, taxes
and employee insurance, including approximately $869,000 of stock-based
compensation expense, and approximately $1.4 million for legal, accounting,
directors and officers liability insurance and other costs associated with being
a public company, approximately $567,000 for marketing, royalties and Eversana
profit sharing, and approximately $79,000 for facility-related expenses. Of the
approximately $4.5 million of total selling, general and administrative expenses
incurred during the six months ended June 30, 2021, approximately $1.9 million
related to wages, taxes, employee insurance, stock-based compensation, and other
commercialization activities. Costs incurred in 2020 primarily included
approximately $1.2 million for wages, taxes and employee insurance, including
approximately $418,000 of stock-based compensation expense, and approximately
$1.1 million for legal, accounting, directors and officers liability insurance
and other costs associated with being a public company. Of the total selling,
general and administrative expenses incurred during the six months ended June
30, 2020, approximately $412,000 related to wages, taxes, employee insurance,
stock-based compensation, and other costs related to pre-commercialization
activities.
Liquidity and Capital Resources
In November 2017, we 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
our common stock through B. Riley FBR, Inc., or FBR, as a sales agent, or FBR
Sales Agreement. During the six months ended June 30, 2020, we 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. There were no shares sold under the FBR Sales
Agreement during 2021. Effective January 6, 2021, we terminated the FBR Sales
Agreement. As a result, there were no shares sold under the FBR Sales Agreement
during 2021.
In December 2020, we 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 we
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, we also entered into
the ATM Sales Agreement with FBR and H.C. Wainwright & Co., LLC pursuant to
which we may sell from time to time, at our option, up to an aggregate of $30
million worth of shares of our 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.
There were no shares sold under the ATM Sales Agreement during the six months
ended June 30, 2021.
Under current SEC regulations, if at the time we file our Annual Report on Form
10-K our public float is less than $75 million, and for so long as our public
float remains less than $75 million, the amount we can raise through primary
public offerings of securities in any twelve-month period using shelf
registration statements is limited to an aggregate of one-third of our public
float, which is referred to as the baby shelf rules. As of March 11, 2021, the
date we filed our Annual Report on Form 10-K, our public float exceeded $75
million, thereby allowing us to conduct primary offerings without being
constrained by the baby shelf rules. We will remain unconstrained by the baby
shelf rules under our Form S-3 shelf registration statement until the date we
file a new registration statement or our Form 10-K for the fiscal year ending
December 31, 2021, at which time if our public float is less than $75 million,
the number of securities we may sell under a Form S-3 registration statement
will again be limited by the baby shelf rules.
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 our
common stock and our 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 we deem
appropriate.
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In addition, we 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 our assets, business, operations, earnings, properties,
condition (financial or otherwise), prospects, stockholders' equity or results
of operations. We have no obligation to sell the shares available for sale
pursuant to the ATM Sales Agreement.
In connection with the Eversana Agreement, we entered into the Eversana Credit
Facility, pursuant to which Eversana agreed to provide a revolving credit
facility of up to $5 million to us upon FDA approval of the Gimoti NDA, as well
as certain other customary conditions. The Eversana Credit Facility terminates
on June 19, 2025, unless terminated earlier pursuant to its terms. The Eversana
Credit Facility is secured by all of the Company's personal property other than
its intellectual property. Under the terms of the Eversana Credit Facility, we
cannot grant an interest in our intellectual property to any other person. Each
loan under the Eversana Credit Facility will bear interest at an annual rate
equal to 10.0%, with such interest due at the end of the loan term. In June 2020
we borrowed $2 million and in December 2020 we borrowed $3 million from the
Eversana Credit Facility.
In January 2021, we completed the sale of 5,750,000 shares of our common stock
in an underwritten public offering led by Laidlaw & Company (UK) Ltd. The price
to the public in this offering was $2.50 per share resulting in gross proceeds
to us of approximately $14.4 million. After deducting underwriting discounts and
commissions, and offering expenses paid by us, the net proceeds to us raised
from this offering were approximately $13.1 million.
Management concluded that there is substantial doubt about our ability to
continue as a going concern. Our independent registered public accounting firm
also included an explanatory paragraph in their report on our financial
statements as of and for the year ended December 31, 2020 with respect to our
ability to continue as a going concern. This doubt about our ability to continue
as a going concern for at least twelve months from the date of the financial
statements could materially limit our ability to raise additional funds through
the issuance of new debt or equity securities or otherwise. Future reports on
our financial statements may also include an explanatory paragraph with respect
to our ability to continue as a going concern. We have incurred significant
losses since our inception and have never been profitable, and it is possible we
will never achieve profitability. We believe, based on our current operating
plan, that our existing cash and cash equivalents, as well as future cash flows
from net sales of Gimoti, will be sufficient to fund our operations into the
third quarter of 2022. This period could be shortened if there are any
significant increases in planned spending other than anticipated. We anticipate
that we will be required to raise additional funds in order to continue as a
going concern. Because our business is entirely dependent on the success of
Gimoti, if we are unable to secure additional financing or identify and execute
on other development or strategic alternatives for Gimoti or our company, we
will be required to curtail all of our activities and may be required to
liquidate, dissolve or otherwise wind down our operations. Any of these events
could result in a complete loss of your investment in our securities.
These estimates of cash runway could be shortened if there are any significant
increases in planned spending on commercialization activities, including for
marketing and manufacturing of Gimoti, and our selling, general and
administrative costs to support operations. There is no assurance that other
financing will be available when needed to allow us to continue as a going
concern. The perception that we may not be able to continue as a going concern
may cause others to choose not to deal with us due to concerns about our ability
to meet our contractual obligations.
We expect to continue to incur expenses as we:
• continue the commercial activities for Gimoti;
• manufacture Gimoti;
• conduct the post-marketing commitment single dose PK trial of Gimoti and any
additional development activities should we seek additional indications;
• maintain, expand and protect our intellectual property portfolio; and
• continue to fund the accounting, legal, insurance and other costs associated
with being a public company.
The following table summarizes our cash flows for the six months ended June 30,
2021 and 2020:
Six Months Ended Increase/
June 30, (Decrease)
2021 2020
Net cash used in operating activities $ (4,463,608 ) $ (3,107,975 ) $ 1,355,633
Net cash provided by financing activities $ 13,115,608 $ 5,434,534 $ 7,681,074
Net increase in cash and cash equivalents $ 8,652,000 $ 2,326,559 $ 6,325,441
17
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Operating Activities. The primary use of our cash has been to fund our clinical
research, prepare our NDA, manufacture Gimoti, prepare for and begin commercial
sales of Gimoti, and other general operations. The cash used in operating
activities during the six months ended June 30, 2021 was primarily related to
commercialization activities for Gimoti. The cash used in operating activities
during the six months ended June 30, 2020 was primarily related to ongoing
communication with FDA related to the resubmitted NDA, and pre-approval and
pre-commercialization activities. We expect that cash used in operating
activities will increase during the second half of 2021 due to commercialization
activities, including manufacturing of Gimoti, the planned post-marketing
commitment to conduct a single dose PK clinical trial of Gimoti to characterize
dose proportionality of a lower dose strength of Gimoti and the payment of the
$5 million royalty to Mallinckrodt.
Financing Activities. During the six months ended June 30, 2021, we received net
proceeds of approximately $13.1 million from the sale of 5,750,000 shares of
common stock pursuant to an underwritten public offering and approximately
$45,000 from the exercise of stock options to purchase 67,426 shares of common
stock. During the six months ended June 30, 2020, we received net proceeds of
approximately $3.3 million from the sale of 1,395,855 shares of common stock
pursuant to the FBR Sales Agreement, $2 million from borrowings under the
Eversana Credit Facility, approximately $104,000 from the PPP loan, and $21,250
from the sale of 25,000 shares of common stock pursuant to our Employee Stock
Purchase Plan.
The amount and timing of our future funding requirements will depend on many
factors, including but not limited to:
• the costs of commercialization activities, including costs associated with
commercial manufacturing;
• the commercial success of Gimoti, including competition with
well-established products approved earlier by FDA, including oral and
intravenous forms of metoclopramide, the same active ingredient in the nasal
spray for Gimoti;
• the impact of the COVID-19 pandemic on us or on third parties on whom we
rely;
• our ability to manufacture sufficient quantities of Gimoti to meet demand,
including whether our contract manufacturers, suppliers, and/or consultants
are able to meet appropriate timelines;
• the progress and costs of the post-marketing commitment to conduct a single
dose PK clinical trial of Gimoti to characterize dose proportionality of a
lower dose strength of Gimoti and the costs of any additional clinical
trials we may pursue to expand the indication of Gimoti;
• our ability to obtain, maintain and enforce our patents and other
intellectual property rights, and the costs incurred to do so;
• the terms and timing of any collaborative, licensing, co-promotion or other
arrangements that we may establish; and
• costs associated with any other product candidates that we may develop,
in-license or acquire.
Off-Balance Sheet Arrangements
Through June 30, 2021, we have not entered into and did not have any
relationships with unconsolidated entities or financial collaborations, such as
entities often referred to as structured finance or special purpose entities,
which would have been established for the purpose of facilitating off-balance
sheet arrangements or other contractually narrow or limited purpose.
Contractual Obligations and Commitments
There were no material changes outside the ordinary course of our business
during the six months ended June 30, 2021 to the information regarding our
contractual obligations that was disclosed in Management's Discussion and
Analysis of Financial Condition and Results of Operations included in our Annual
Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on
March 11, 2021.
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