UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

(Mark One)

For the quarterly period ended June 30, 20172018

OR

Commission File Number 001-36075

EVOKE PHARMA, INC.

(Exact name of registrant as specified in its charter)  

Registrant’s telephone number, including area code: (858) 345-1494

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer, ” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Age.  ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

As of August 4, 2017,3, 2018, the registrant had 15,388,32516,898,664 shares of common stock outstanding.

Evoke pharma, inc.  

Form 10-Q

TABLE OF CONTENTS

i

PART I.  FINANCIAL INFORMATION

Item 1. Financial Statements

Evoke Pharma, Inc.  

Condensed Balance Sheets

See accompanying notes to these unaudited condensed financial statements.

Evoke Pharma, Inc.  

Condensed Statements of Operations

(Unaudited)

See accompanying notes to these unaudited condensed financial statements.

Evoke Pharma, Inc.  

Condensed Statements of Cash Flows

(Unaudited)

See accompanying notes to these unaudited condensed financial statements.

Evoke Pharma, Inc.  

Notes to Condensed Financial Statements

(Unaudited)

1.  Organization and Basis of Presentation

Evoke Pharma, Inc. (the “Company”) was incorporated in the state of Delaware in January 2007.  The Company is a publicly-held specialty pharmaceutical company focused primarily on the development of drugs to treat gastroenterological disorders and disease.

Since its inception, the Company has devoted substantially all of its efforts to developing its sole product, development, raising capital and building infrastructure,Gimoti™, and has not realized revenues from its planned principal operations.  TheThough the Company filed a New Drug Application (“NDA”) for Gimoti with the U.S. Food and Drug Administration (“FDA”) on June 1, 2018, the Company does not anticipate realizing revenues foruntil FDA approves the foreseeable future.NDA and the Company begins commercializing Gimoti, which events may never occur.  The Company’s activities are subject to the significant risks and uncertainties associated with any specialty pharmaceutical company that has substantial expenditures for research and development, including funding its operations.  

Going Concern

The Company has incurred recurring losses and negative cash flows from operations since inception and expects to continue to incur net losses for the foreseeable future until such time, if ever, that it can generate significant revenues from the sale of its sole product, Gimoti™.Gimoti.  Although the Company ended the second quarter of 20172018 with approximately $12.6$6.5 million in cash and cash equivalents, the Company anticipates that it will continue to incur losses from operations due to its plans to fund additional clinical development, including the comparative exposure pharmacokinetic (“PK”) clinical trial, completion of a planned new drug application (“NDA”) submission for Gimoti, pre-approval and pre-commercialization activities, including interactions with FDA on the Company’s NDA submission for Gimoti, marketing and manufacturing of Gimoti, and support its general and administrative costs to support operations.  As a result, the Company believes that there is substantial doubt about its ability to continue as a going concern for one year after the date these financial statements are issued.

The determination as to whether the Company can continue as a going concern contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  In its report on the Company’s financial statements for the year ended December 31, 2016,2017, the Company’s independent registered public accounting firm included an explanatory paragraph expressing substantial doubt regarding the Company’s ability to continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  concern.

The Company’s net losses may fluctuate significantly from quarter to quarter and year to year.  The Company believes that its current cash and cash equivalents as of June 30, 2018 will be sufficient to meet estimated working capital requirements and fund operations through at least February 2018.into April 2019.  The Company will need to raise additional cash through debt, equity or equityother forms of financing, such as potential collaboration arrangements, to fund future operations.  There can be no assurance that additional financing will be available when needed on acceptable terms.  If the Company is not able to secure adequate additional funding, the Company may be forced to make reductions in spending, extend payment terms with suppliers, and/or suspend or curtail planned programs. Any of these actions could materially harm the Company’s business, results of operations, financial condition and future prospects.

2. Summary of Significant Accounting Policies

The accompanying condensed balance sheet as of December 31, 2016,2017, which has been derived from audited financial statements, and the unaudited interim condensed financial statements, have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and follow the requirements of the U.S. Securities and Exchange Commission (“SEC”) for interim reporting.  As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP can be condensed or omitted.  In management’s opinion, the unaudited interim financial statements have been prepared on the same basis as the audited financial statements and include all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of the Company’s financial position and its results of operations and its cash flows for the periods presented.  These statements do not include all disclosures required by GAAP and should be read in conjunction with the Company’s financial statements and accompanying notes for the year ended December 31, 2016,2017, which are contained in the Company’s Annual Report on Form 10-K filed with the SEC on March 15, 2017.7, 2018.  The results for interim periods are not necessarily indicative of the results expected for the full fiscal year or any other interim period.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results could differ materially from those estimates.

Contract Research Organizations

The Company also relies on contract research organizations (“CROs”) to manageassist with ongoing regulatory discussions and recruit subjects for its clinical trials.submissions supporting the NDA.  If these CROs are unable to continue managing the clinical trials, or are unable to recruit the sufficient number of subjects, the delaystheir support, this could adversely affect the completionFDA’s review of the trials and the timing of the filing of the Company’s NDA with FDA.NDA.

In addition, the Company relies on third-party manufacturers for the production of its drug candidate.Gimoti. If the third-party manufacturers are unable to continue manufacturing, the Company’s drug candidate, or if the Company loses one of its sole source suppliers used in its manufacturing processes, the Company may not be able to meet clinical trialany development needs or commercial supply demand for its product candidateGimoti, if approved by FDA, and the development and/or commercialization of the product candidateGimoti could be materially and adversely affected.

Warrant Accounting

CertainIn March 2018, the Company entered into warrant amendments (the “Warrant Amendments”) with each of the holders of the Company’s outstanding warrants to purchase shares of the Company’s common stock issued on July 25, 2016 and August 3, 2016 (the “Warrants”).  As a result of the Warrant Amendments, the Warrants will no longer be classified as a partliability on the Company’s balance sheet, were adjusted to fair value as of the at-the-market registered direct offerings in Julydate of the Warrant Amendments, and August 2016, arereclassified to additional paid-in capital, a component of stockholders’ equity.

Prior to the Warrant Amendments, the Warrants were classified as warrant liability and recorded at fair value. These warrants containWarrants contained a feature that could requirehave required the transfer of cash in the event a change of control occursoccurred without the authorization of our Boardboard of Directors,directors, and therefore, arewere classified as a liability in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480.480, Distinguishing Liabilities from Equity.  

The fair value of each warrant iswas estimated on the date of issuance, and each subsequent balance sheet date, using the Black-Scholes valuation model using the appropriate risk-free interest rate, expected term and volatility assumptions.  The expected life of the warrant was calculated using the remaining life of the warrant.  Due to the Company’s limited historical data as a public company, the estimated volatility iswas calculated based upon the Company’s historical volatility, supplemented, as necessary, with historical volatility of comparable companies in the biotechnology industry whose share prices are publicly available for a sufficient period of time.  The risk-free rate iswas based upon U.S. Treasury securities with remaining terms similar to the expected term of the stock award being valued.  

This warrant liability iswas subject to remeasurement at each balance sheetreporting date and the Company recognizesrecognized any change in the fair value of the warrant liability in the statement of operations. The Company will continuecontinued to adjust the carrying value of the warrants for changes in the estimated fair value until the earlierdate of the modification, exercise or expiration of the warrants.  At that time, the liabilities will be reclassified to additional paid-in capital, a component of stockholders’ equity. We anticipate that the value of the warrants could fluctuate from quarter to quarter and that such fluctuation could have a material impact on our financial statements.Warrant Amendments.

Stock-Based Compensation

Stock-based compensation expense for stock option grants and employee stock purchases under the Company’s Employee Stock Purchase Plan (the “ESPP”) is recorded at the estimated fair value of the award as of the grant date and is recognized as expense on a straight-line basis over the employee’s requisite service period.  The estimation of stock option and ESPP fair value requires management to make estimates and judgments about, among other things, employee exercise behavior, forfeiture rates and volatility of the Company’s common stock.  The judgments directly affect the amount of compensation expense that will be recognized.  

The Company grants stock options to purchase common stock to employees and members of the board of directors with exercise prices equal to the Company’s closing market price on the date the stock options are granted.  The risk-free interest rate assumption was based on the yield of an applicable rate for U.S. Treasury instruments with maturities similar to those of the expected term of the award being valued.  The weighted averageweighted-average expected term of options and employee stock purchases was calculated using the simplified method as prescribed by accounting guidance for stock-based compensation.  This decision was based on the lack of relevant historical data due to the Company’s limited historical experience.  In addition, due to the Company’s limited historical data, the estimated volatility was calculated based upon the Company’s historical volatility and, if necessary, supplemented as necessary, with historical volatility of comparable companies in the biotechnology industry whose share prices are publicly available for a sufficient period of time.  The assumed dividend yield was based on the Company never paying cash dividends and having no expectation of paying cash dividends in the foreseeable future.

Research and Development Expenses

Research and development costs are expensed as incurred and primarily include compensation and related benefits, stock-based compensation expense and costs paid to third-party contractors to perform research, conduct clinical trials and develop drug materials and delivery devices.  The Company expenses costs relating to the purchase and production of pre-approval inventories as research and development expense in the period incurred until FDA approval is received.  

The Company bases its expense accruals related to clinical studies on estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and CROs that conduct and manage clinical studies on its behalf.  The financial terms

of these agreements vary from contract to contract and may result in uneven payment flows.  Payments under some of these contracts depend on factors, such as the successful enrollment of patients, site initiation and the completion of clinical study milestones.  Service providers typically invoice the Company monthly in arrears for services performed.  In accruing service fees, the Company estimates the time period over which services will be performed and the level of effort to be expended in each period.  If the Company does not identify costs that have begun to be incurred, or if the Company underestimates or overestimates the level of services performed or the costs of these services, actual expenses could differ materially from estimates.  To date, the Company has not experienced significant changes in estimates of accrued research and development expenses after a reporting period.  However, due to the nature of estimates, no assurance can be made that changes to the estimates will not be made in the future as the Company becomes aware of additional information about the status or conduct of clinical studies and other research activities.

Included in research and development expenses for the three and six months ended June 30, 2017 were costs of approximately $6,500 and $11,000, respectively, for clinical trial services incurred by a related party of one of the Company’s officers.  There were no related party costs incurred during the six months ended June 30, 2016.

The Company does not own or operate manufacturing facilities for the production of Gimoti, nor does it plan to develop its own manufacturing operations in the foreseeable future.  The Company currently depends on third-party contract manufacturers for all of its required raw materials, drug substance and finished product for its preclinical research and clinical trials.  Other than an agreementpre-commercial product development.  The Company has agreements with Cosma S.p.A. to supply metoclopramide for the manufacture of Gimoti, and with Thermo Fisher Scientific Inc., who acquired Patheon UK Limited, to manufacture Gimoti for the comparative exposure PK trial, the Company does not have any other contractual relationships for the manufacture of commercial suppliesproduct development and manufacturing of Gimoti.  If Gimoti is approved by any regulatory agency, the Company intends to enter into agreements with third-party contract manufacturers for the commercial production at that time.  The Company currently utilizes a third-party consultant,consultants, which it engages on an as-needed, hourly basis, to manage itsproduct development and manufacturing contractors.

Net Loss Per Share

Basic net loss per share is calculated by dividing the net loss by the weighted-average number of common stock outstanding for the period, without consideration for common stock equivalents and adjusted for the weighted-average number of common stock outstanding that are subject to repurchase.  The Company has excluded 45,000 shares of common stock subject to repurchase from the weighted-average number of common stock outstanding for the three and six months ended June 30, 20172017.  Since the milestone of filing the NDA was met in June 2018, the Company excluded 30,165 and 2016.37,585 weighted-average shares from the weighted-average number of common stock outstanding for the three and six months ended June 30, 2018, respectively. Diluted net loss per share is calculated by dividing the net loss by the weighted-average number of common stock equivalents outstanding for the period determined using the treasury-stock method.  Dilutive common stock equivalents are comprised of shares subject to repurchase, warrants for the purchase of common stock, options outstanding under the Company’s equity incentive plans and potential shares to be purchased under the ESPP.  For the periods presented, the following table sets forth the outstanding potentially dilutive securities that have been excluded from the calculation of diluted net loss per share because to do sotheir inclusion would be anti-dilutive:

ForThe following table sets forth the threecalculation of basic and six months ended June 30, 2017, dilutive shares of 827,069 and 413,535, respectively, related to the outstanding warrants were included in the diluted net loss per share of common stock calculation.share:

Recent Accounting Pronouncements

In February 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-02, Leases.  The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months.  Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement.  The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.  A modified retrospective transition approach is required for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available.  The Company’s only significant lease is its facility lease, which expires on December 31, 2018. Until the current lease is extended, or a new lease is entered into, the Company is currently evaluatinguncertain as to the impact of its pending adoption of the new standard on the Company’s financial statements.

In March 2016, the FASB issued ASU No. 2016-09 Compensation-Stock Compensation (Topic 718):  Improvements to Employee Share-Based Payment Accounting.  This guidance changes the accounting for certain aspects of share-based payments to employees.  The guidance requires the recognition of the income tax effects of awards in the income statement when the awards vest or are settled, thus eliminating additional paid-in capital pools.  The guidance also allows for the employer to repurchase more of an employee’s shares for tax withholding purposes without triggering liability accounting.  In addition, the guidance allows for a policy election to account for forfeitures as they occur rather than on an estimated basis.  The adoption of this guidance on January 1, 2017 did not have a material impact on the Company’s financial statements.

3. Debt

On August 4, 2016, the Company repaid in full the entire $4.5 million of outstanding principal and interest under the Loan and Security Agreement (the “Loan Agreement”) between the Company and Square 1 Bank (“Square 1”).  In connection with such repayment, the Loan Agreement was terminated, and all security, liens or other encumbrances on assets of the Company were released.

The Company incurred $82,685 of loan origination costs related to this credit facility.  The remaining unamortized costs of approximately $38,000 were charged to interest expense upon the payment of the loan in August 2016.  

In connection with the funding of the term loan, the Company issued to Square 1 a warrant to purchase 22,881 shares of the Company’s common stock at an exercise price of $5.90 per share, the closing price of the Company’s common stock on the day of funding of the credit facility.  During July 2016, Square 1 converted its warrant by a “cashless” conversion and received 9,887 shares of the Company’s common stock. The value determined for the warrant at the time of the grant of $108,122 was recorded as a debt discount, as well as to stockholders’ equity.  The remaining unamortized debt discount associated with the warrant of approximately $59,000 was charged to interest expense upon the payment of the loan in August 2016.

4. Technology Acquisition Agreement

In June 2007, the Company acquired all worldwide rights, data, patents and other related assets associated with Gimoti from Questcor Pharmaceuticals, Inc.  (“Questcor”) pursuant to an Asset Purchase Agreement.  The Company 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 the Company’s Phase 3 clinical trial for Gimoti.  In August 2014, Mallinckrodt, plc (“Mallinckrodt”) acquired Questcor.  As a result of that acquisition, Questcor transferred its rights included in the Asset Purchase Agreement with the Company to Mallinckrodt.  In addition to the payments previously made to Questcor, the Company may also be required to make additional milestone payments totaling up to $51.5$52 million.  These milestones include upIn March 2018, the Company and Mallinckrodt amended the Asset Purchase Agreement to $4.5 million indefer development and approval milestone payments, if Gimoti achieves the following development targets:

The remaining $47 million in milestone payments depend on Gimoti’s commercial success and will only apply if Gimoti receives regulatory approval.  In addition, the Company will be required to pay to Mallinckrodt a low single digit royalty on net sales of Gimoti. The Company’s obligation to pay such royalties will terminate upon the expiration of the last patent right covering Gimoti, which is expected to occur in 2030.Gimoti.

5.4. Stockholders’ Equity

Sale of Common Stock and Warrants

On July 25, 2016, the Company completed a registered direct offering of 1,804,512 shares of common stock at a purchase price of $2.49375 per share (the “July 2016 Financing”).  Concurrently in a private placement, for each share of common stock purchased by an investor, such investor received from the Company an unregistered warrant to purchase three-quarters of a share of common stock, for a total of 1,353,384 shares (the “July Warrants”).  The July Warrants have an exercise price of $2.41 per share, are immediately exercisable and will expire on January 25, 2022.  The aggregate gross proceeds from the sale of the common stock and warrants were $4.5 million, and the net proceeds after deduction of commissions and fees were $4.0 million.  

In connection with the July 2016 Financing, the Company issued to its placement agent, Rodman & Renshaw, a unit of H.C. Wainwright & Co. LLC (“Wainwright”), and its designees unregistered warrants to purchase an aggregate of 90,226 shares of the Company’s common stock (the “July Wainwright Warrants”).  The July Wainwright Warrants have substantially the same terms as the July Warrants, except that the July Wainwright Warrants will expire on July 21, 2021 and have an exercise price equal to $3.1172 per share of common stock.

On August 3, 2016, the Company completed a registered direct offering of 3,244,120 shares of common stock at a purchase price of $3.0825 per share (the “August 2016 Financing”) and together with the July 2016 Financing (the “2016 Financings”).  Concurrently in a private placement, for each share of common stock purchased by an investor, such investor received from the Company an unregistered warrant to purchase one half of a share of common stock, for a total of 1,622,060 shares (the “August Warrants”).  The August Warrants have an exercise price of $3.03 per share, are immediately exercisable and will expire on February 3, 2022. The aggregate gross proceeds from the sale of the common stock and warrants were $10 million, and the net proceeds after deduction of commissions and fees was approximately $9.2 million.

In connection with the August 2016 financing, the Company issued to its placement agent, Wainwright, and its designees unregistered warrants to purchase an aggregate of 162,206 shares of the Company’s common stock (the “August Wainwright Warrants”).  The August Wainwright Warrants have substantially the same terms as the August Warrants, except that the August Wainwright Warrants will expire on July 29, 2021 and have an exercise price equal to $3.853125 per share of common stock.

The warrants issued in connection with the 2016 Financings had a total initial fair value of $4,899,459 on their respective closing dates as determined using the Black Scholes pricing model and such value was recorded as the initial carrying value of the warrant liability.  The fair value of the warrants is remeasured at each financial reporting period with any change in fair value recognized as a change in fair value of the warrant liability in the Statement of Operations.

On December 15, 2016, the Company entered into amendments (the “Warrant Amendments”) with certain of the holders (the “Holders”) of the Company’s outstanding warrants to purchase common stock issued on July 25, 2016 and August 3, 2016. Pursuant to the Warrant Amendments, the Holders’ right to require the Company to purchase the outstanding warrants upon the occurrence of certain fundamental transactions will not apply if the fundamental transaction is a result of a transaction that has not been approved by the Company’s board of directors.  As a result of this amendment, warrants to purchase 252,432 shares of the Company’s common stock were no longer required to be classified as liabilities.  The value of amended warrants were adjusted to their fair value immediately prior to the amendment and approximately $207,000 was reclassified from warrant liability to Additional Paid-in Capital.

On February 16, 2017, an institutional investor from the Company’s financing which closed in July 2016 converted its warrant to purchase 526,315 shares of ourthe Company’s common stock by a “cashless” exercise and received 211,860 shares of the Company’s common stock.  The warrant had an exercise price of $2.41 per share.  The shares were issued, and the warrants were sold, in reliance upon the registration exemption set forth in Section 4(a)(2) of the Securities Act of 1933, as amended.  The value of the exercised warrants werewas adjusted to theirthe fair value immediately prior to the exercise and approximately $1.4 million was reclassified from warrant liability to Additional Paid-in Capital.  Subsequent to this transaction, warrantsadditional paid-in capital, a component of stockholders’ equity.  

In March 2018, the Company entered into the Warrant Amendments with each of the holders of the Company’s outstanding Warrants.  As a result of the Warrant Amendments, all of the remaining Warrants to purchase 2,449,129 shares of the Company’s common stock remainare no longer required to be classified as liabilities.  The value of the amended Warrants was adjusted to the fair value immediately prior to the Warrant Amendments, resulting in a liability.gain of approximately $433,000 in the statement of operations, and approximately $3.3 million was reclassified from warrant liability to additional paid-in capital.

Sale of Common Stock in Public Offering

In February and March 2017, the Company completed the sale of 2,775,861 shares of its common stock in an underwritten public offering led by Laidlaw & Company (UK) Ltd.offering.  The price to the public in this offering was $2.90 per share resulting in gross proceeds to the Company of approximately $8.0 million.  After deducting underwriting discounts and commissions and estimated offering expenses payablepaid by the Company, the net proceeds to the Company from this offering was approximately $7.3 million.

At the Market Equity Offering Program

On April 15, 2016,In November 2017, the Company terminated its At Market Sales Agreement with MLV & Co. LLC and entered intofiled a new At Market Issuance Sales Agreementshelf registration with FBR & Co. (“FBR”) (“FBR Sales Agreement”), and filedthe SEC on Form S-3 to replace a prior Form S-3 shelf registration which was set to expire on November 25, 2017.  This new shelf registration was declared effective by the SEC on December 28, 2017.  The new shelf registration statement includes a prospectus supplement, pursuantfor the at-the-market offering to which the Company may sell from time to time, at its option, up to an aggregate of 649,074$16.0 million of shares of the Company’s common stock through B. Riley FBR, Inc. (“FBR”) as a sales agent (the “FBR Sales Agreement”).  The

Company did not sell any shares of common stock through the sales agent.  The sales of shares made through this equity program are made in “at-the-market” offerings as defined in Rule 415 ofFBR Sales Agreement during 2017.  During the Securities Act. Through December 31, 2016,six months ended June 30, 2018, the Company sold 56,0001,485,054 shares of common stock at a weighted averageweighted-average price per share of $5.45$2.38 pursuant to the FBR Sales Agreement and received proceeds of approximately $296,000,$3.4 million, net of commissions and fees.  

On March 10, 2017,From July 1, 2018 through August 3, 2018, the Company filed a prospectus supplement, which replaced the prospectus supplement filed on April 15, 2016, permitting the Company to sell up to an aggregate of $20.0 million ofhas not sold any additional shares of its common stock throughpursuant to the FBR as a sales agent.  Sales Agreement.

Under current SEC regulations, if at the time the Company files its Annual Report on Form 10-K or (“Form 10-K,10-K”), and the Company’s public float is less than $75 million, and for so long as its public float remains less than $75 million, the amount the Company 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 the Company’s public float, which is referred to as the baby shelf rules.  As of August 4, 2017,3, 2018, the Company’s public float was approximately $29.5$45.7 million, based on 12,846,51115,932,051 shares of outstanding common stock held by non-affiliates and at a price of $2.30$2.87 per share, which was the last reported sale price of the Company’s common stock on Thethe Nasdaq Capital Market on August 4, 2017.June 5, 2018.  As a result of the Company’s public float being below $75 million, the Company will be limited by

the baby shelf rules until such time as the Company’s public float exceeds $75 million, which means the Company only has the capacity to sell shares up to one-third of its public float under shelf registration statements in any twelve-month period.  The Company  had no sales of common stock under the baby shelf rules in the twelve-month period ended August 4, 2017. If the Company’s public float decreases, the amount of securities wethe Company may sell under ourits Form S-3 shelf registration statement including this prospectus supplement, will also decrease. TheAs of August 3, 2018, the Company has not sold anyhad the capacity to issue up to approximately $11.7 million worth of additional shares of common stock throughpursuant to the FBR Sales Agreement during 2017.Agreement.

Future sales will depend on a variety of factors including, but not limited to, market conditions, the trading price of the Company’s common stock and the Company’s capital needs.  There can be no assurance that FBR will be successful in consummating future sales based on prevailing market conditions or in the quantities or at the prices that the Company deems appropriate.

In addition, the Company will not be able to make future sales of common stock pursuant to the FBR Sales Agreement unless certain conditions are met, which include the accuracy of representations and warranties made to FBR under the FBR Sales Agreement.  Furthermore, FBR is permitted to terminate the FBR Sales Agreement 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 the Company’s assets, business, operations, earnings, properties, condition (financial or otherwise), prospects, stockholders’ equity or results of operations.  The Company has no obligation to sell the remaining shares available for sale pursuant to the FBR Sales Agreement.

Employee Stock Purchase Plan and Equity Incentive Award Plan

As a result of payroll withholdings from the Company’s employees of approximately $80,000, and $99,000, the Company sold 50,244 and 34,067 shares of common stock through its Employee Stock Purchase Plan (“ESPP”)ESPP during the six months ended June 30, 2017 and 2016, respectively.2017.  The Company did not sell any shares of stock through its ESPP during the six months ended June 30, 2018.

OnIn May 3, 2017, the Company’s stockholders approved an amendment and restatement of the Company’s ESPP to increase the number of shares of common stock reserved under the ESPP by 100,000 shares (to an aggregate of 1,250,000 shares), to increase the annual evergreen provision from 30,000 shares to 100,000 shares, and to extend the term of the ESPP into 2027.

On April 26, 2018, the Company’s stockholders approved the amendment and restatement of the Company’s 2013 Equity Incentive Award Plan (the “Restated Equity Incentive Plan”) to increase the number of shares of common stock authorized for issuance under the Restated Equity Incentive Plan by 1,500,000 shares, to an aggregate of 6,286,425 shares, and to extend the term of the Restated Equity Incentive Plan to February 2028.  In addition, beginning on January 1, 2019, the number of shares available for issuance will be annually increased on the first day of each fiscal year by that number of shares equal to the least of (a) four percent of the outstanding shares of common stock on the last day of the immediately preceding calendar year, and (b) such other amount determined by the Company’s board of directors.  Notwithstanding the foregoing, the number of shares of common stock that may be issued or transferred pursuant to incentive stock options under the Restated Equity Incentive Plan may not exceed an aggregate of 8,000,000 shares.

Stock-Based Compensation

Stock-based compensation expense includes charges related to stock option grants under the Company’s 2016 Equity Incentive Award Plan and employee stock purchases under the ESPP.ESPP and stock option grants.  The Company measures stock-based compensation expense based on the grant date fair value of any awards granted to its employees.  Such expense is recognized over the period of time that employees provide service and earn rights to the awards.  

The estimated fair value of each stock option award granted was determined on the date of grant using the Black Scholes option-pricing valuation model with the following weighted-average assumptions for option grants during the three and six months ended June 30, 20172018 and 2016:2017:

The estimated fair value of eachthe shares to be acquired under the ESPP award was determined on the initiation date of granteach six month purchase period using the Black ScholesBlack-Scholes option-pricing valuation model with the following weighted-average assumptions for option grantsESPP shares to be purchased during the three and six months ended June 30, 20172018 and 2016: 2017:

The Company recognized non-cash stock-based compensation expense to employees and directors in its research and development and its general and administrative functions as follows:

As of June 30, 2017,2018, there were approximately $2.2$2.5 million of unrecognized compensation costs related to outstanding employee and board of director options, which are expected to be recognized over a weighted averageweighted-average period of 0.931.30 years.

6.5.  Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

As noted in Note 5, duringDuring the third quarter of 2016 the Company entered into the 2016 Financingsan agreement with an institutional investor providing for the issuance and sale by the Company of 5,048,632 shares of the Company’s common stock and warrants to purchase up to 2,975,444 shares of the Company’s common stock for aggregate gross proceeds of $14.5 million.  In addition, as partial payment for services, the Company issued to the underwriters warrants to purchase up to 252,432 shares of the Company’s common stock.

TheAs noted in Notes 2 and 4, due to the Warrant Amendments in March 2018, the warrant liability was reclassified to additional paid-in capital. Prior to the Warrant Amendments, the Company utilizesutilized a valuation hierarchy for disclosure of the inputs to the valuations used to measure fair value.  This hierarchy prioritizesprioritized the inputs into three broad levels as follows:  Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.  Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument.  Level 3 inputs are unobservable inputs based on the Company’s own assumptions used to measure assets and liabilities at fair value.  A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

The Company had no assets or liabilities classified as Level 1 or Level 2.  The warrant liability, isprior to the Warrant Amendments of the warrants, were classified as Level 3.

The Company has classified the warrants as a liability and has remeasured the liability to the estimated fair value at June 30, 2017 and December 31, 2016,2017 using the Black Scholes option pricing model with the following assumptions: 

The following fair value hierarchy table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2017 and December 31, 2016:

The following table presents a reconciliation of the Company’s liabilitieswarrant liability measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the six months ended June 30, 2018 and 2017:

There were no transfers between Level 1 and Level 2 in any of the periods reported.

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

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, 20162017 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 15, 2017.7, 2018.  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, prospective products, product approvals, research and development costs, timing and likelihood of success, plans and objectives of management for future operations, and future results of current and anticipated products 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 our trademarked product name, Gimoti,GIMOTI, in this Quarterly Report on Form 10-Q.  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

WeWe are a specialty pharmaceutical company focused primarily on the development of drugs to treat gastrointestinal, or GI, disorders and diseases.  We are developing Gimoti, an investigational metoclopramide nasal spray for the relief of symptoms associated with acute and recurrent diabetic gastroparesis in women.  Diabetic gastroparesis is a gastrointestinalGI disorder afflicting millions of suffererspeople worldwide and is characterized by slow or delayed gastric emptying and evidence of gastric retention in which the stomach takes too long to empty its contents resulting in absence of mechanical obstruction and can cause various serious digestive system symptoms and other complications.  Metoclopramide istablets and injection are the only productproducts currently approved in the United States to treat the symptoms associated with acute and recurrent diabetic gastroparesis, and is currently available only in oral tablet and injection dose forms.gastroparesis. Gimoti is a novel nasal spray formulation of this drug,metoclopramide and designed to provide systemic delivery of metoclopramidethe molecule through the nasal spray administration.  mucosa. We submitted a New Drug Application, or NDA, for Gimoti to the U.S. Food and Drug Administration, or FDA, on June 1, 2018.  We anticipate receipt of the 74-Day FDA filing communication letter in mid-August 2018 and assignment of the Prescription Drug User Fee Act, or PDUFA, goal date.

In July 2016, we announced results from a Phase 3 clinical trial of Gimoti in female subjects with symptoms associated with acute and recurrent diabetic gastroparesis.  This Phase 3 clinicalThe trial was a multicenter, randomized, double-blind, placebo-controlled, parallel group clinical trial to evaluate the efficacy, safety and population pharmacokinetics, or PK, of 10 mg Gimoti in adult female subjects with symptomatic diabetic gastroparesis.gastroparesis and delayed gastric emptying scintigraphy, or GES.  Subjects received either Gimoti or placebo four times daily for 28 days. The primary endpoint was the change in symptoms from the baseline period to Week 4 as measured using a proprietary Patient Reported Outcome, or PRO, instrument. On a daily basis, subjects reported the frequency and severity of their gastroparesis signs and symptoms using a telephone diary. The subjects’ daily symptom scores were the basis for calculating their weekly scores

using the PRO instrument. A total of 205 subjects were randomized in this trial. Preliminary resultsResults of the trial showed that Gimoti did not achieve its primary endpoint of a symptom improvement at Week 4 in the intent to treat, or ITT, population.

Although the Phase 3 trial failed to reachachieve its primary endpoint, Gimoti demonstrated efficacy in patients with moderate to severe symptoms at baseline, which included 105 of the 205 patients (51%) enrolled in the study. In these patients with higher symptom severity, statistically significant benefits were demonstrated for those treated with Gimoti versus those receiving placebo. These statistically significant benefits were observed at Weeks 1, 2 and 3 in the ITT population and at all four weeks in the per protocol population. There were also clinically and statistically significant improvements in nausea and upper abdominal pain, two of the more severe and debilitating symptoms of gastroparesis, at all four weeks.

We have also conducted a companion clinical trial with Gimoti in male subjects with symptoms associated with acute and recurrent diabetic gastroparesis to assess the safety and efficacy of Gimoti in men.  The male companion trial was initiated in May 2014 and the design was the same as the Phase 3 trial in women.  This trial was requested by FDA to confirm the Phase 2b trial results and to capture additional safety data in men.  This trial was not required for submission of the Gimoti new drug application, or NDA, for women; however, we included safety data from this trial in the NDA submission. As we anticipated at the beginning of the trial, based on the prior Phase 2b data, the results of the trial showed no statistical significant efficacy in men and the safety profile for Gimoti was favorable compared to placebo with good tolerability.

In December 2016, we announced we had completed a second pre-NDA meeting with FDA, in which FDA agreed that a comparative exposure PK trial was acceptable as a basis for submission of a Gimoti NDA.  The comparative exposure PK trial will serve as a portion of the full 505(b)(2) data package to include prior efficacy and safety data developed by us and FDA’s prior findings of safety and efficacy for the Listed Drug, Reglan Tablets.  In March 2017, we methad a type A meeting with FDA to discussfinalize the design of the comparative exposure PK trial and reach agreement on certain other chemistry, manufacturing and controls relatedcontrols-related items associated with the proposed NDA. On August 14,NDA submission.

In October 2017, we announced that we initiatedpositive topline results from the comparative exposure PK trial. The objective of the trial was to identify a dose of Gimoti that met the criteria for bioequivalence compared to the Reglan Tablets after nasal and oral administration to healthy volunteers under fasted conditions.

The comparative exposure PK trial was an open label, 4-way crossover and enrolled 108 healthy male and female volunteers who each received one Reglan Tablet dose and three different doses of Gimoti in a random sequence.  Following discussions at pre-NDA meetings with FDA, we planned to select a Gimoti dose based on criteria that includes a 90% confidence interval for the ratio of area under the plasma concentration curve, or AUC, falling within the exposure equivalence range of 80-125% of Reglan Tablets. Though only one dose was needed to meet the dose selection criteria, the comparative exposure PK trial was designed to test three different strengths of Gimoti. Based on results of the study, two of the three doses tested met the dose selection criteria for the pooled data in women and men.  The maximum observed plasma concentration, or C_max, for Gimoti was slightly lower than the equivalence range, as was anticipated and had been previously discussed with FDA as a likely outcome given the different route of administration and prior Gimoti PK trial results.  Additionally, data showed the AUC and C_max increased in a dose related manner across all three strengths tested.  Relative to safety, all Gimoti doses were well tolerated with no clinically significant adverse events reported following any of the doses.

Additional analysis of the PK data by sex revealed statistically significant differences in exposure between women and men given the same metoclopramide dose (nasal and oral).  Based on this further analysis of results from the comparative exposure PK trial, statistically significantly lower AUC’s were found in men compared to women. The findings were not explicitly attributable to differences in body mass index, or BMI, or weight. Similarly sex-based differences were observed in a previous healthy volunteer study we conducted, irrespective of the route of metoclopramide administration (nasal, oral and IV).

In the most recent comparative exposure PK trial, results for women independently met equivalence criteria for AUC_0-inf and AUC_0-t at the tested Gimoti dose to be proposed in the NDA. We plan to submit our NDA for a female-only indication based on a dose in women with equivalent exposure to Reglan Tablets and will submit supporting efficacy and safety data from our Phase 2b and Phase 3 trials, specifically for women, at doses similar or lower than the dose to be proposed in the NDA.  

In addition, we held a pre-NDA meeting with FDA to discuss and clarify its expectations of items being prepared for inclusion in the NDA for Gimoti. The NDA included our proposal for a risk management strategy and a post-approval safety study that will be designed to confirm prior safety findings and rule-out possible differences in side effects compared to the Reglan Tablet over 8 weeks. We expect to completediscuss the analysisdetails of the post-marketing safety trial data inwith FDA during the fourth quarterNDA review process.

In March 2018, we announced that FDA granted our request for a small business waiver of 2017, followed by a potentialthe PDUFA fee of approximately $2.4 million for its 505(b)(2) NDA submission in late 2017 or early 2018.for Gimoti.

We have no products approved for sale, and we have not generated any revenue from product sales or other arrangements.  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 NASDAQNasdaq Capital Market.  We have incurred losses in each year since our inception.  Substantially all of our operating losses resulted from expenses incurred in connection with advancing Gimoti through development activities and general and administrative costs associated with our operations.  We expect to continue to incur significant expenses and increasing operating losses for at least the next several years.  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, 20172018, we had cash and cash equivalents of approximately $12.6$6.5 million. We believe our existing cash and cash equivalents as of June 30, 2018 will be sufficient to fund our operations through at least February 2018.into April 2019.  Current funds on hand are intended to fund clinical development,a portion of the pre-approval and pre-commercialization activities for Gimoti, including the planned comparative exposure PK trial and plannedinteractions with FDA on our NDA submission for Gimoti, marketing and for working capitalmanufacturing of Gimoti, and general corporate purposes.  and administrative costs to support operations.

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 wepreviously made to Questcor, we may also be required to make additional milestone payments to Mallinckrodt totaling up to $51.5$52 million.  These milestones include upIn March 2018, we amended the asset purchase agreement with Mallinckrodt to $4.5 million indefer development and approval milestone payments, if Gimoti achieves the following development targets:

The remaining $47 million in milestone payments depend on Gimoti’s commercial success and will only apply if Gimoti receives regulatory approval.  In addition, we will be 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.  Gimoti.

Financial Operations Overview

Research and Development Expenses

We expense all research and development expenses as they are incurred.  Research and development expenses primarily include:

All of our research and development expenses to date have been incurred in connection with the development of Gimoti.  For the remainder of 2017 we expect costs related to our clinical development, including the comparative exposure PK trial, and pre-approval and pre-commercialization activities, including marketing and manufacturing of Gimoti and completion of a planned NDA submission, to continue. The process of conducting clinical trials necessary to obtain regulatory approval is costly and time consuming.  While we submitted our NDA for Gimoti in June 2018, the successful development and commercialization of Gimoti is still highly uncertain. We are unable to estimate with any certainty the costs we will incur in the continued development and regulatory review of Gimoti.Gimoti, though such costs may be significant.  Clinical development timelines, the probability of success and development costs can differ materially from expectations.  We may never succeed in achieving marketing approval for our product candidate.  

The costs of clinical trials may vary significantly over the life of a project owing to, but not limited to, the following:

We do not yet know when Gimoti may be commercially available, if at all.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and related benefits, including stock-based compensation. Other 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 general and administrative expenses will increase in the future as we expand our operating activities, prepare for the growth needs associated with potential commercialization of Gimoti and continue to incur additional costs associated with being a publicly-traded company and maintaining compliance with exchange listing and Securities and Exchange CommissionSEC requirements. These increases will likely include higher consulting costs, legal fees, accounting fees, directors’ and officers’ liability insurance premiums and fees associated with investor relations.  

Other Income (Expense)

Other income (expense), net consists primarily of changes in the fair value of the warrant liability, which represents the change in the fair value of common stock warrants from reporting periodthe date of issuance to the end of the reporting period.  The warrant liability relates to the warrants issued in the July and August 2016 Financing, and will bewas revalued each reporting period until March 2018, when we entered into warrant amendments, or the liability is settled.Warrant Amendments, with each of the holders of the Company’s outstanding warrants to purchase common stock issued on July 25, 2016 and August 3, 2016, or the Warrants. We usepreviously used the Black Scholes pricingvaluation model to value the related warrant liability.  Other expense in 2016 also included interest expense incurred on our former outstanding debt.  liability at each reporting date.  As a result of the Warrant Amendments, the Warrants will no longer be required to be accounted for as a liability and will no longer be required to be revalued at each reporting period.

Critical Accounting Policies and Significant Judgments and Estimates

OurOur 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 revenues and expenses during the reporting periods. We evaluate these estimates and judgments on an ongoing basis. We base our estimates on historical experience and 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, 2016,2017, which was filed with the SEC on March 15, 2017.7, 2018.

Other Information

Tax Cuts and Jobs Act

In December 2017, tax legislation commonly known as the Tax Cuts and Jobs Act, or the Act, was signed into law.  The effects of the new federal legislation were recognized upon enactment, which was the date the bill was signed into law.  The Act includes numerous changes in existing tax law, including a permanent reduction in the federal corporate income tax rate from 35% to 21%. The rate reduction took effect on January 1, 2018. As a result of this rate change, we have revalued our deferred tax assets at December 31, 2017. Deferred income taxes result from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in years in which those temporary differences are expected to be recovered or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through income tax expense.  We recorded a reduction of approximately $7.9 million in the fourth quarter of 2017 related to the revaluation of our deferred

tax assets, which did not result in additional tax expense in the quarter as our deferred tax assets have a full valuation allowance.  This amount may be subject to further adjustment in subsequent periods throughout 2018 in accordance with subsequent interpretive guidance issued by the SEC or the Internal Revenue Service.  Further, there may be other material adverse effects resulting from the legislation that we have not yet identified.

JOBS Act

On April 5, 2012, the Jumpstart Our Business Startups Act of 2012, or the JOBS Act was enacted.  Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards.  In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.  We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.  

Subject to certain conditions set forth in the JOBS Act, as an “emerging growth company,” we intend to rely on certain of these exemptions, including without limitation, (i) providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act and (ii) complying with any requirement that may be adopted by the Public Company Accounting Oversight Board, regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis.  We will remain an “emerging growth company” until the earliest of (a) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more, (b) the last day of our fiscal year following the fifth anniversary of the date of the completion of our initial public offering, or IPO, (c) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years or (d) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.  Unless we lose our status as an emerging growth company earlier, we will cease being an emerging growth company on December 31, 2018.

Results of Operations

Comparison of Three Months Ended June 30, 20172018 and 20162017

The following table summarizes the results of our operations for the three months ended June 30, 20172018 and 2016:

2017:

Research and Development Expenses.  Research and development expenses for the three months ended June 30, 20172018 compared to the three months ended June 30, 20162017 decreased by approximately $78,000.  Our Phase 3 clinical trial was completed during$629,000 due primarily to being in the second quarter of 2016 and the analysis of the trial data occurred during the second half of 2016.  During the second quarter of 2017 we were preparingpreparation stage for the initiation of our comparative exposure PK trial in 2017, including manufacturing Gimoti for such trial.trial, while in 2018 we increased time and resources devoted to preparing the Gimoti NDA.  Costs incurred in 2018 included approximately $619,000 related to the preparation of the NDA, approximately $603,000 for wages, taxes and employee insurance, including approximately $169,000 of stock-based compensation expense, and approximately $160,000 related to manufacturing costs.  Costs incurred in 2017 includeincluded approximately $932,000 related to manufacturing costs, approximately $658,000 for wages, taxes and employee insurance, including approximately $219,000 of stock-based compensation expense, and approximately $428,000 of clinical trial and NDA preparation costs.  Costs incurred in 2016 include approximately $1.2 million related to the clinical trials for Gimoti, approximately $438,000 for wages, taxes and employee insurance, including approximately $151,000 of stock-based compensation expense, and approximately $404,000 related to costs associated with the preparation of an NDA.

General and Administrative Expenses.  General and administrative expenses for the three months ended June 30, 20172018 compared to the three months ended June 30, 20162017 increased by approximately $69,000.$45,000.  Costs incurred in 2018 primarily included approximately $479,000 for wages, taxes and employee insurance, including approximately $219,000 of stock-based compensation expense, and approximately $307,000 for legal, accounting, directors and officers liability insurance and other costs associated with being a public company.  Costs incurred in 2017 primarily included approximately $479,000 for wages, taxes and employee insurance, including approximately $246,000 of stock-based compensation expense, and approximately $312,000 for legal, accounting, directors and officers liability insurance and other costs associated with being a public company.  Costs incurred in 2016 primarily included approximately $477,000 for wages, taxes and employee insurance, including approximately $276,000 of stock-based compensation expense, and approximately $255,000 for legal, accounting, directors and officers liability insurance and other costs associated with being a public company.

Other (Income) Expense, net.Income.  Other income for the three months ended June 30, 2017 of approximately $1.3 million2018 compared to other expense of approximately $73,000 for the three months ended June 30, 2016 was2017 decreased by approximately $1.3 million due primarily to the decreaserevaluation of approximately $1.3 million inWarrants no longer being required since the fair valuedate of the warrant liability, which resulted in a corresponding increase in other income.  Additional otherWarrant

expenseAmendment in March 2018.  Prior to the amendment, the Warrants were accounted for the three months ended June 30, 2016 consisted of interest expense incurred on our former outstanding debt with Square 1 Bank, or Square 1.as a liability and were required to be revalued at each reporting period.

Comparison of Six Months Ended June 30, 20172018 and 20162017

The following table summarizes the results of our operations for the six months ended June 30, 20172018 and 2016:

2017:

Research and Development Expenses.  Research and development expenses for the six months ended June 30, 20172018 compared to the six months ended June 30, 20162017 decreased by approximately $1.3 million due primarily to$14,000. During the expenses related to the Phase 3 clinical trial, which was still being conducted during thefirst six months ended June 30, 2016.  The Phase 3 clinical trial was completedof 2018 we were preparing our NDA for filing with FDA, while during the second quarter of 2016 and the analysis of the trial data occurred during the second half of 2016.  During the first six months of 2017 we were preparing for the initiation of our comparative exposure PK trial, including manufacturing Gimoti for such trial.  Costs incurred in 2018 include approximately $1.3 million for wages, taxes and employee insurance, including approximately $358,000 of stock-based compensation expense, approximately $1.1 million of NDA preparation costs, and approximately $371,000 related to manufacturing costs. Costs incurred in 2017 include approximately $1.3 million for wages, taxes and employee insurance, including approximately $426,000 of stock-based compensation expense, approximately $1.0 million related to manufacturing costs, and approximately $481,000 of clinical trial and NDA preparation costs.  Costs incurred in 2016 include approximately $2.5 million related to the clinical trials for Gimoti, approximately $980,000 for wages, taxes and employee insurance, including approximately $310,000 of stock-based compensation expense, and approximately $547,000 related to costs associated with the preparation of an NDA.

General and Administrative Expenses.  General and administrative expenses for the six months ended June 30, 20172018 compared to the six months ended June 30, 2016 increased2017 decreased by approximately $141,000.$132,000.  Costs incurred in 2018 primarily included approximately $938,000 for wages, taxes and employee insurance, including approximately $424,000 of stock-based compensation expense and approximately $788,000 for legal, accounting, directors and officers liability insurance and other costs associated with being a public company.  Costs incurred in 2017 primarily included approximately $1.1 million for wages, taxes and employee insurance, including approximately $503,000 of stock-based compensation expense, and approximately $855,000 for legal, accounting, directors and officers liability insurance and other costs associated with being a public company.  Costs incurred in 2016 primarily included approximately $1.0 million for wages, taxes and employee insurance, including approximately $536,000 of stock-based compensation expense, and approximately $778,000 for legal, accounting, directors and officers liability insurance and other costs associated with being a public company.

Other Expenses.  Other expenses for the six months ended June 30, 20172018 compared to the six months ended June 30, 2016 increased2017 decreased by approximately $1.7$2.2 million due primarily to the increaserevaluation of approximately $1.8 million inWarrants no longer being required since the fair valuedate of the warrant liability.  Additional other expenseWarrant Amendment in March 2018.  Prior to the amendment, the Warrants were accounted for the six months ended June 30, 2016 consisted of interest expense incurred on our former outstanding debt with Square 1.as a liability and were required to be revalued at each reporting period.  

Liquidity and Capital Resources

In November 2014,2017, we entered intofiled a sales agreementnew shelf registration with MLV & Co., LLC, or the MLV Sales Agreement,SEC on Form S-3 to replace a prior Form S-3 shelf registration which was subsequently acquiredset to expire on November 25, 2017.  This new shelf registration was declared effective by FBR & Co., or FBR, pursuantthe SEC on December 28, 2017.  The new shelf registration statement includes a prospectus for the at-the-market offering to which we were able to sell from time to time, at our option, up to an aggregate of $6.6$16.0 million worth of shares of the Company’s common stock through MLV,B. Riley FBR, Inc., or FBR, as a sales agent.  The sales of shares of our common stock made through this equity program were made in “at-the-market” offerings as defined in Rule 415 ofagent, or the Securities Act.  During the year ended December 31, 2015, we sold 1,048,507 shares of common stock at a weighted average price per share of $4.78 pursuant to the MLVFBR Sales Agreement and received proceeds of approximately $4.9 million, net of commissions and fees.Agreement.  We did not sell any shares of common stock through the MLVFBR Sales Agreement during 2016.

On April 15, 2016, we terminated2017. Through June 30, 2018, the MLV Sales Agreement and entered intoCompany sold 1,485,054 shares of common stock at a new At Market Issuance Sales Agreement with FBR, orweighted-average price per share of $2.38 pursuant to the FBR Sales Agreement and filed a prospectus supplement,received proceeds of approximately $3.4 million, net of commissions and fees.  From July 1, 2018 through August 3, 2018, we have not sold any additional shares of common stock pursuant to whichthe FBR Sales Agreement.

Under current SEC regulations, if at the time we may sell from time to time, atfile our option upAnnual Report on Form 10-K, or 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 649,074one-third of our public float, which is referred to as the baby shelf rules. As of August 3, 2018, our public float was approximately $45.7 million, based on 15,932,051 shares of outstanding common stock held by non-affiliates and at a price of $2.87 per share, which was the last reported sale price of our common stock through FBRon the Nasdaq Capital Market on June 5, 2018. As a result of our public float being below $75 million, we will be limited by the baby shelf rules until such time as our public float exceeds $75 million, which means we only have the sales agent.  Through December 31, 2016,capacity to sell shares up to one-third of our public float under shelf registration statements in any twelve-month period.  If our public float decreases, the amount of securities we have sold 56,000may sell under our Form S-3 shelf registration statement will also decrease. As of August 3, 2018, we had the capacity to issue up to approximately $11.7 million worth of additional shares of common stock and received net proceeds of approximately $296,000 underpursuant to the FBR Sales Agreement.  On March 10, 2017, we filed a prospectus supplement, which replaced the prospectus supplement filed on April 15, 2016, permitting us to sell up to an aggregate of $20.0 million of shares of our common stock through FBR as the sales agent.  

Future sales 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 FBR will be successful in consummating future sales based on prevailing market conditions or in the quantities or at the prices that we deem appropriate.

WeIn addition, we will not be able to make future sales of our common stock pursuant to the FBR Sales Agreement unless certain conditions are met, which include the accuracy of representations and warranties made to FBR under the FBR Sales Agreement.  Furthermore, FBR is permitted to terminate the FBR Sales Agreement 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 remaining shares available for sale pursuant to the FBR Sales Agreement. However, under current SEC regulations, at any time during which the aggregate market value of our common stock held by non-affiliates, or public float, is less than $75 million, the amount we can raise through primary public offerings of securities in any twelve-month period using shelf registration statements, including sales under the FBR Sales Agreement, is limited to an aggregate of one-third of our public float.  As of August 4, 2017, our public float was approximately $29.5 million, which means we may only sell shares up to one-third of our public float using shelf registration statements in any twelve-month period.  We had no sales of common stock under the baby shelf rules in the twelve-month period ended August 4, 2017. If our public float decreases, the amount of securities we may sell under our Form S-3 shelf registration statements will also decrease.

In July 2016, we completed an at-the-market offering of 1,804,512 shares of common stock at a purchase price of $2.49375 per share, or the July 2016 Financing.  Concurrently in a private placement, for each share of common stock purchased by an investor, such investor received an unregistered warrant to purchase three-quarters of a share of our common stock, for a total of 1,353,384 shares, or the July Warrants.  The July Warrants have an exercise price of $2.41 per share, are immediately exercisable and will expire on January 25, 2022.  The aggregate gross proceeds from the sale of the common stock and warrants were $4.5 million, and the net proceeds after deduction of commissions and fees were approximately $4.0 million.  

In connection with the July 2016 Financing, we issued to our placement agent, Rodman & Renshaw, a unit of H.C. Wainwright & Co. LLC, or Wainwright, and its designees unregistered warrants to purchase an aggregate of 90,226 share of our common stock, or the July Wainwright Warrants.  The July Wainwright Warrants have substantially the same terms as the July Warrants, except that the July Wainwright Warrants will expire on July 21, 2021 and have an exercise price equal to $3.1172 per share of common stock.

In August 2016, we completed an at-the-market offering of 3,244,120 shares of common stock at a purchase price of $3.0825 per share, the August 2016 Financing.  Concurrently in a private placement, for each share of common stock purchased by an investor, such investor received from an unregistered warrant to purchase one half of a share of our common stock, for a total of 1,622,060 shares, or August Warrants.  The August Warrants have an exercise price of $3.03 per share, are immediately exercisable and will expire on February 3, 2022. The aggregate gross proceeds from the sale of the common stock and warrants were $10.0 million, and the net proceeds after deduction of commissions and fees were approximately $9.2 million.

In connection with the August 2016 Financing, we issued to our placement agent, Wainwright, and its designees unregistered warrants to purchase an aggregate of 162,206 shares of our common stock, or the August Wainwright Warrants.  The August Wainwright Warrants have substantially the same terms as the August Warrants, except that the August Wainwright Warrants will expire on July 29, 2021 and have an exercise price equal to $3.853125 per share of common stock.

On February 16, 2017, an institutional investor from our financing which closed in July 2016 converted its warrant to purchase 526,315 shares of our common stock by a “cashless” exercise and received 211,860 shares of the our common stock.  The warrant had an exercise price of $2.41 per share.  The shares were issued, and the warrants were sold, in reliance upon the registration exemption set forth in Section 4(a)(2) of the Securities Act of 1933, as amended.  The value of the exercised warrants werewas adjusted to theirthe fair value immediately prior to the exercise and approximately $1.4 million was reclassified from warrant liability to Additional Paid-in Capital.  Subsequent to this transaction, warrants to purchase 2,449,129 shares of our common stock remain classified as a liability.

In February and March 2017, we completed the sale of 2,775,861 shares of our common stock in an underwritten public offering led by Laidlaw & Company (UK) Ltd.offering.  The price to the public in this offering was $2.90 per share resulting in gross proceeds to us of approximately $8.0 million.  After deducting underwriting discounts and commissions and estimated offering expenses payablepaid by us, the net proceeds to us from this offering was approximately $7.3 million.  

On August 4, 2016,In March 2018, we repaid in fullentered into the entire $4.5 million of outstanding principal and interest under the Loan and Security Agreement, or the Loan Agreement, between us and Square 1.  In connectionWarrant Amendments with such repayment, the Loan Agreement was terminated, and all security, liens or other encumbrances on assets of ours were released.  

We incurred $82,685 of loan origination costs related to this credit facility.  The remaining unamortized costs of approximately $38,000 were charged to interest expense upon the paymenteach of the loan in August 2016.  

In connection with the fundingholders of our outstanding Warrants. As a result of the term loan, we issued to Square 1 a warrantWarrant Amendments, all of the remaining Warrants to purchase 22,8812,449,129 shares of our common stock at an exercise price of $5.90 per share, the closing price of our common stock on the day of fundingare no longer required to be classified as liabilities.  The value of the credit facility.  During July 2016,

Square 1 converted its warrant byamended Warrants was adjusted to the fair value immediately prior to the Warrant Amendments, resulting in a “cashless” conversion and received 9,887 shares of our common stock. The value determined for the warrant at the time of the grant of $108,122 was recorded as a debt discount, as well as to stockholders’ equity.  The remaining unamortized debt discount associated with the warrantgain of approximately $59,000$433,000 in the statement of operations, and approximately $3.3 million was chargedreclassified from warrant liability to interest expense upon the paymentadditional paid-in capital, a component of the loan in August 2016.stockholders’ equity.

Our independent registered public accounting firm included an explanatory paragraph in their report on our financial statements as of and for the year ended December 31, 20162017 with respect to our ability to continue as a going concern.  This doubt about our ability to continue as a going concern opinion 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 have devoted our resources to developing Gimoti, but it cannot be marketed until regulatory approvals have been obtained.  Based upon our currently expected level of operating expenditures, we expect to be able to fund our operations through at least February 2018.into April 2019.  This period could be shortened if there are any significant increases in planned spending on our Gimoti development program, including the comparative exposure PK trial, pre-approval and pre-commercialization activities, including interactions with FDA on our NDA submission for Gimoti, marketing and manufacturing of Gimoti, completion of a planned NDA submission, and our 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 and increase operating losses for at least the next several years.  In the near-term, we anticipate incurring costs as we:

Although our current cash and cash equivalents are expected to be sufficient to fund our operations through at least February 2018,into April 2019, it may not be sufficient to complete any additional development requirements requested by FDA.FDA or to commercialize Gimoti.  Accordingly, we will continue to require substantial additional capital beyond our current cash and cash equivalents to continue our clinical and regulatory development and potential commercialization activities.  The amount and timing of our future funding requirements will depend on many factors further described below, including the resultscosts associated with FDA review of our comparative exposure PK trialthe Gimoti NDA and the extent of any additional clinical development required by FDA.  We anticipate that we will seek to fund our operations through public or private

equity, or debt financings or other sources, such as potential collaboration arrangements.  Our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to pursue our business strategies.

The following table summarizes our cash flows for the six months ended June 30, 20172018 and 2016:

2017:

Operating Activities.  The primary use of our cash has been to fund our clinical research and other general operations.  The cash used in operating activities decreasedduring 2018 was primarily related to the preparation of our NDA.  The cash used in operating activities during 2017 as we have beenwas primarily related to preparing for the initiation of our upcoming comparative exposure PK clinical trial and the manufacturing of Gimoti for such trial. We expect that cash used in operating activities will increase throughoutcontinue in 2018 related to the remaindercompletion and filing of 2017 as those projects,the Gimoti NDA, as well as the preparation of the NDA andto pre-approval and pre-commercialization activities, continue.activities.

Financing Activities.  During the six months ended June 30, 2018, we received net proceeds of approximately $3.4 million from the sale of 1,485,054 shares of common stock pursuant to the FBR Sales Agreement. During the six months ended June 30, 2017, we received net proceeds of approximately $7.3 million from the sale of 2,775,861 shares of common stock infrom an underwritten public offering. In addition, we received proceeds of approximately $80,000 from the sale of 50,244 shares of common stock through our employee stock purchase plan, or ESPP. During the six monthsplan.

ended June 30, 2016, we received proceeds of approximately $99,000 from the sale of 34,067 shares of common stock through our ESPP.

We believe that our existing cash and cash equivalents as of June 30, 2017, together with interest thereon,2018 will be sufficient to meet our anticipated cash requirements through at least February 2018.and fund operations into April 2019.  However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially.  

The amount and timing of our future funding requirements will depend on many factors, including but not limited to:

Off-Balance Sheet Arrangements

Through June 30, 2017,2018, 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

In December 2016, we entered into an operating leaseThere were no material changes outside the ordinary course of our business during the six months ended June 30, 2018 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 office space in Solana Beach, California. The lease commenced on January 1, 2017 with an expiration date ofthe year ended December 31, 2018. We also pay pass through costs and utility costs, which are expensed as incurred.2017.

Item 3.  Quantitative and Qualitative Disclosure about Market Risk

As of June 30, 2017,2018, there have been no material changes in our market risk from that described in “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Quantitative and Qualitative Disclosures about Market Risk” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2017, other than set forth below:

ItemOur business is entirely dependent on the success of Gimoti, which failed to achieve the primary endpoint of symptom improvement in a Phase 3 clinical trial in female patients with symptoms associated with diabetic gastroparesis. While we are continuing to pursue regulatory approval based on the results of our completed comparative exposure PK trial, we cannot be certain that we will be able to obtain regulatory approval for, or successfully commercialize, Gimoti.  

To date, we have devoted all of our research, development and clinical efforts and financial resources toward the development of Gimoti, our patented nasal delivery formulation of metoclopramide for the relief of symptoms associated with acute and recurrent diabetic gastroparesis in adult women. Gimoti is our only product candidate. In July 2016, we announced topline results from our Phase 3 clinical trial that evaluated the efficacy and safety of Gimoti in women with symptoms associated with diabetic gastroparesis. In this study, Gimoti did not achieve its primary endpoint of symptom improvement in the Intent-to-Treat (ITT) group at Week 4.

In December 2016, we announced the completion of a pre-NDA meeting with FDA, in which FDA agreed that a comparative exposure PK trial was acceptable as a basis for submission of a Gimoti NDA.  Data from the comparative exposure PK trial will serve as a portion of the 505(b)(2) data package to include prior efficacy and safety data developed by us and FDA’s prior findings of safety and efficacy for the Listed Drug, Reglan Tablets.  In October 2017, we announced positive topline results from the comparative exposure PK trial.  In addition, based on feedback received from FDA at an additional pre-NDA meeting, we proposed a risk mitigation strategy and post-approval safety trial as part of our NDA submission.  We submitted the NDA for Gimoti to FDA on June 1, 2018.  We anticipate receipt of the 74-Day FDA filing communication letter in mid-August 2018 and assignment of the PDUFA goal date.  Even with the issuance of the 74-Day letter, FDA may raise substantive filing review issues following issuance of such letter.

Because our business is entirely dependent on the success of Gimoti, if we are unable to successfully complete development of and receive regulatory approval of this product candidate, 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 the complete loss of an investment in our securities.

In addition to the above factors, the future regulatory and commercial success of Gimoti is subject to a number of additional risks, including the following: 

Of the large number of drugs in development in this industry, only a small percentage result in the submission of an NDA to FDA and even fewer are approved for commercialization. Furthermore, even if we do receive regulatory approval to market Gimoti, any such approval may be subject to limitations on the indicated uses for which we may market the product.

We will require substantial additional funding and may be unable to raise capital when needed, which would force us to liquidate, dissolve or otherwise wind down our 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 will be sufficient to fund our operations into April 2019, although there can be no assurance in that regard. We will be required to raise additional funds in order to continue as a going concern beyond that time.

Our estimates of the amount of cash necessary to fund our activities may prove to be wrong and we could spend our available financial resources much faster than we currently expect.  Our future funding requirements will depend on many factors, including, but not limited to: