6. Commercial Services and Loan Agreements with Eversana
6. 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, during the third quarter of 2016On January 21, 2020, the Company entered into a commercial services agreement (as amended, the 2016 Financings“Eversana Agreement”) with an institutional investor providingEversana for the issuancecommercialization of Gimoti. Pursuant to the Eversana Agreement, Eversana commercializes and saledistributes Gimoti in the United States. Eversana also manages the marketing of Gimoti to targeted health care providers, as well as the sales and distribution of Gimoti in the United States.
Under the terms of the Eversana Agreement, the Company maintains ownership of the Gimoti NDA, as well as legal, regulatory, and manufacturing responsibilities for Gimoti. Eversana will utilize its internal sales organization, along with other commercial functions, for market access, marketing, distribution and other related patient support services. The Company will record sales for Gimoti and retain more than 80% of net product profits once both parties’ costs are reimbursed. For the three months ended March 31, 2023 and 2022, approximately $775,000 and $347,000 of Eversana profit sharing costs were included as selling, general and administrative costs, respectively. As of March 31, 2023, unreimbursed commercialization costs to Eversana were approximately $52.6 million. Such costs will generally be payable only as net product profits are recognized. Eversana will receive reimbursement of its commercialization costs pursuant to an agreed upon budget and a percentage of product profits in the mid-to-high teens. Net product profits are the net sales (as defined in the Eversana Agreement) of Gimoti, less (i) reimbursed commercialization costs, (ii) manufacturing and administrative costs set at a fixed percentage of net sales, and (iii) third party royalties.
During the term of the Eversana Agreement, Eversana agreed to not market, promote, or sell a competing product in the United States. On February 1, 2022, the Eversana Agreement was amended to extend the term from June 19, 2025 (five years from the date the Food & Drug Administration approved the Gimoti new drug application) to December 31, 2026, unless terminated earlier pursuant to its terms. This amendment also increased the percentage of net product profit retained by the Company and increased the proportion of 5,048,632 sharescosts that are reimbursed to Eversana to the extent Eversana has accumulated unreimbursed costs.
Upon expiration or termination of the agreement, the Company will retain all profits from product sales and assume all corresponding commercialization responsibilities. Within 30 days after each of the first three annual anniversaries of commercial launch, either party may terminate the agreement if net sales of Gimoti do not meet certain annual thresholds.
In addition, either party may terminate the agreement-
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In the event that the Company initiates such termination, the Company shall pay to Eversana a one-time payment equal to all of Eversana’s unreimbursed cost plus a portion of Eversana’s commercialization costs incurred in the 12 months prior to termination. Such payment amount would be reduced by the amount of previously reimbursed commercialization costs and warrantsprofit split paid for the related prior twelve-month period and any revenue which occurred prior to purchasethe termination yet to be collected.
If Eversana terminates the agreement due to an uncured material breach by the Company, or if the Company terminates the Eversana Agreement in certain circumstances, the Company has agreed to reimburse Eversana for its unreimbursed commercialization costs for the prior twelve-month period and certain other costs. In addition, Eversana may terminate the Eversana Agreement if the Company withdraws Gimoti from the market for more than 90 days.
On November 3, 2022, the Company and Eversana entered into Amendment No. 2 (the "Amendment") to the Eversana Agreement. The Amendment provides that the preexisting rights of both parties to terminate the commercial services agreement within 30 days of the first three annual anniversaries of commercial launch, if net sales of Gimoti did not meet certain annual thresholds, would be modified solely for 2022 such that either party can terminate by written notice to the other party by November 30, 2022. Neither party terminated the Agreement under this Amendment.
In connection with the Eversana Agreement, the Company and Eversana entered into the Eversana Credit Facility, pursuant to which Eversana has agreed to provide a revolving Credit Facility of up to 2,975,444 shares$5 million to the Company upon FDA approval of the Gimoti NDA under certain customary conditions. The Eversana Credit Facility terminates on December 31, 2026, unless terminated earlier pursuant to its terms. The Eversana Credit Facility is secured by all of the Company’s common stock for aggregate gross proceedspersonal property other than the Company’s intellectual property. Under the terms of $14.5 million. In addition, as partial payment for services,the Eversana Credit Facility, the Company issuedcannot grant an interest in the Company’s intellectual property to any other person. Each loan under the underwriters warrantsEversana Credit Facility will bear interest at an annual rate equal to purchase up to 252,432 shares10.0%, with such interest due at the end of the Company’s common stock.loan term. In 2020 the Company borrowed $5 million under the Eversana Credit Facility.
The Company utilizes a valuation hierarchy for disclosuremay prepay any amounts borrowed under the Eversana Credit Facility at any time without penalty or premium. The maturity date of all amounts, including interest, borrowed under the Eversana Credit Facility will be 90 days after the expiration or earlier termination of the inputsEversana Agreement. The Eversana Credit Facility also includes events of default, the occurrence and continuation of which provide Eversana with the right to exercise remedies against the valuations usedCompany and the collateral securing the loans under the Eversana Credit Facility, including the Company’s cash. These events of default include, among other things, the Company’s failure to measure fair value. This hierarchy prioritizespay any amounts due under 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 termEversana Credit Facility, an uncured material breach of the financial instrument. Level 3 inputs are unobservable inputs based onrepresentations, warranties and other obligations under the Company’s own assumptions used to measure assetsEversana Credit Facility, the occurrence of insolvency events 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.occurrence of a change in control.
The Company had no assets or liabilities classified as Level 1 or Level 2. The warrant liability is classified as Level 3.
The Company has classified the warrants as a liability and has remeasured the liability to estimated fair value at September 30, 2017 and December 31, 2016, using the Black Scholes option pricing model with the following assumptions:
|
| September 30, 2017 |
|
| December 31, 2016 |
| ||
Risk-free interest rate |
|
| 1.77% |
|
|
| 1.93% |
|
Expected volatility |
|
| 100.41% |
|
|
| 94.19% |
|
Expected term |
| 4.33 years |
|
| 5.08 years |
| ||
Expected dividend yield |
|
| 0.0% |
|
|
| 0.0% |
|
|
|
|
|
|
|
|
|
|
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 September 30, 2017 and December 31, 2016:
|
| Level 1 |
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| Level 2 |
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| Level 3 |
|
| Total |
| ||||
Warrant liability |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2017 |
| $ | - |
|
| $ | - |
|
| $ | 6,050,901 |
|
| $ | 6,050,901 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016 |
| $ | - |
|
| $ | - |
|
| $ | 4,095,019 |
|
| $ | 4,095,019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table presents a reconciliation of the Company’s liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the nine months ended September 30, 2017:11
|
| Warrant Liability |
| |
Balance at December 31, 2016 |
| $ | 4,095,019 |
|
Issuance of warrants |
| — |
| |
Change in fair value upon re-measurement |
|
| 3,354,973 |
|
Reclassification to Additional Paid-in Capital due to warrant exercise |
|
| (1,399,091 | ) |
Balance at September 30, 2017 |
| $ | 6,050,901 |
|
|
|
|
|
|
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, 20162022 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, 2017.21, 2023. 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,commercial activities to be conducted by Eversana Life Science Services, LLC, or Eversana, the pricing and reimbursement for Gimoti, future regulatory developments, research and development costs, the timing and likelihood of commercial success, the potential to develop future product candidates, 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,other trademarks, including GIMOTI, in this Quarterly Report on Form 10-Q. This Quarterly Report on Form 10-Q also includes trademarks, tradenames and service marks that are the property of other organizations. Solely for convenience, trademarks and tradenames referred to in this Quarterly Report on Form 10-Q appear without the ® and ™ symbols, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or that the applicable owner will not assert its rights, to these trademarks and tradenames.
Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to “Evoke,” “we,” “us” and “our” refer to Evoke Pharma, Inc.
Overview
We are a specialty pharmaceutical company focused primarily on the development and commercialization of drugs to treat gastrointestinal, or GI, disorders and diseases. We areSince our inception, we have devoted our efforts to developing our sole product, Gimoti an investigational metoclopramide(metoclopramide) nasal spray, the first and only nasally-administered product indicated for the relief of symptoms associatedin adults with acute and recurrent diabetic gastroparesis. In June 2020, we received approval from the U.S. Food and Drug Administration, or FDA, for our 505(b)(2) New Drug Application, or NDA, for Gimoti. We launched commercial sales of Gimoti in the United States in October 2020 through our commercial partner Eversana.
Diabetic gastroparesis is a gastrointestinalGI disorder afflictingaffecting millions of peoplepatients worldwide, and is characterized by slow or delayed gastric emptying and evidencein which food in an individual’s stomach takes too long to empty resulting in a variety of gastric retention in the absence of mechanical obstruction and can cause various serious digestive systemGI symptoms and othersystemic metabolic complications. Metoclopramide tabletsThe gastric delay caused by gastroparesis can compromise absorption of orally administered medications.
In January 2020, we entered into a commercial services agreement with Eversana, or the Eversana Agreement, for the commercialization of Gimoti. Pursuant to the Eversana Agreement, Eversana commercializes and injection are the only products currently approveddistributes Gimoti in the United StatesStates. Eversana also manages the marketing of Gimoti to treattargeted health care providers, as well as the symptoms associated with acutesales and recurrent diabetic gastroparesis. Gimoti is a novel nasal spray formulation of metoclopramide and designed to provide systemic delivery of the molecule through the nasal mucosa.
In July 2016, we announced results from a Phase 3 clinical trialdistribution of Gimoti in female subjects with symptoms associated with acute and recurrent diabetic gastroparesis. The trialthe United States. Eversana also provided a $5 million revolving credit facility, or the Eversana Credit Facility, that became available upon FDA approval of the Gimoti NDA. In 2020 we borrowed $5 million under the Eversana Credit Facility. On February 1, 2022, the Eversana Agreement was a multicenter, randomized, double-blind, placebo-controlled, parallel group clinical trialamended to evaluateextend the efficacy, safety and population pharmacokinetics, or PK, of Gimoti in adult female subjects with diabetic gastroparesis. Subjects received either Gimoti or placebo four times daily for 28 days. The primary endpoint was the change in symptomsterm from June 19, 2025 (five years from the baseline perioddate the FDA approved the Gimoti NDA) to Week 4 as measured using a proprietary Patient Reported Outcome, or PRO, instrument. On a daily basis, subjects reportedDecember 31, 2026, unless terminated earlier pursuant to its terms. This amendment also increased the frequencypercentage of net product profit retained by us and severityincreased the proportion of their gastroparesis signs and symptoms using a telephone diary. The subjects’ daily symptom scores werecosts that are reimbursed to Eversana to the basis for calculating their weekly scores usingextent Eversana has accumulated unreimbursed costs. We further amended the PRO instrument. A totalEversana Agreement in November 2022 to provide the preexisting rights of 205 subjects were randomized in this trial. Preliminary results
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both parties to terminate the agreement within 30 days of the trial showed thatfirst three annual anniversaries of commercial launch, if net sales of Gimoti did not achieve its primary endpoint of symptom improvement at Week 4 inmeet certain annual thresholds, would be modified solely for 2022 such that either party can terminate the intentagreement by written notice to treat, or ITT, population.
Although the Phase 3 trial failedother party by November 30, 2022. If Eversana terminates the agreement due to reach its primary endpoint, Gimoti demonstrated efficacy in patients with moderate to severe symptoms at baseline, which included 105not meeting certain financial thresholds, none 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.
In December 2016, we announced we had completed a second pre-new drug application, or 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 trialunreimbursed commercialization costs incurred by Eversana will serve as a portion of the 505(b)(2) NDA submission that will include prior efficacy and safety data developed by us along with FDA’s prior findings of safety and efficacy for the Listed Drug, Reglan Tablets. In March 2017, we met with FDA to discuss the design of the comparative exposure PK trial and certain other chemistry, manufacturing and controls related items associated with the proposed NDA submission.
On October 23, 2017, we announced positive topline resultsbecome due from the comparative exposure PK trial. The objective of the trial was to determine the bioequivalent dose of Gimoti compared to the Reglan Tablets after nasal and oral administration to healthy volunteers under fasted conditions. Based on these results, we expect to submit the Gimoti NDA to FDA in the first quarter of 2018. Company.
The comparative exposure PK trial was an open label, 4-way crossover and enrolled 108 male and female healthy volunteers who were each to receive 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 bioequivalence 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. The maximum observed plasma concentration, or Cmax, for Gimoti was slightly lower than the bioequivalence range, but in line with expectations that 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 Cmax 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.
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 bankfrom loans and the sale of shares of our common stock on the NASDAQNasdaq Capital Market. We launched commercial sales of Gimoti in late October 2020 with Eversana and, to date, have generated modest sales.
We have incurred losses in each year since our inception. Substantially all of ourThese operating losses resulted from expenses incurred in connection with advancing Gimoti through development activities, pre-commercial and commercialization activities, and other 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.until revenues from sales of Gimoti exceed our expenses, if ever. We may never become profitable, or if we do, we may not be able to sustain profitability on a recurring basis.
As of September 30, 2017March 31, 2023, we had cash and cash equivalents of approximately $10.4$8.2 million. Current cash on hand is intended to fund commercialization activities for Gimoti, including manufacturing Gimoti, conducting the post-marketing commitment single dose pharmacokinetics, or PK, clinical trial of Gimoti to characterize dose proportionality of a lower dose strength of Gimoti and any additional development activities should we seek additional indications, protecting our intellectual property portfolio and for other general and administrative costs to support 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 as of March 31, 2023, as well as cash flows from future net sales of Gimoti, will be sufficient to fund our operations through at least June 2018. Currentinto the fourth quarter of 2023. This period could be shortened if there are any significant increases in planned spending other than anticipated. We anticipate that we will be required to raise additional funds in order to continue as a going concern. Because our business is entirely dependent on handthe success of Gimoti, if we are intendedunable to fund clinicalsecure additional financing or identify and execute on other development pre-approval and pre-commercialization activitiesor strategic alternatives for Gimoti including the analysisor our company, we will be required to curtail all of data from the comparative exposure PK trial, the planned NDA submission,our activities and for working capital and general corporate purposes. may be required to liquidate, dissolve or otherwise wind down our operations. Any of these events could result in a complete loss of your investment in our securities.
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 additionMarch 2018, we and Mallinckrodt amended the asset purchase agreement to defer development and approval milestone payments, such that rather than paying two milestone payments based on FDA acceptance for review of the paymentsNDA and final product marketing approval, we made to Questcor, we may alsowould be required to make additional milestone paymentsa single $5 million payment on the one-year anniversary after we receive FDA approval to market Gimoti. At the time of the Gimoti NDA approval by FDA, we recorded the $5 million payable owed to Mallinckrodt totaling up to $51.5 million. These milestones include up to $4.5with a due date of June 19, 2021, along with a $5 million research and development expense. The $5 million milestone payment was paid in payments if Gimoti achieves the following development targets:
$1.5 million upon the FDA’s acceptance for review of an NDA for Gimoti; and
$3 million upon the FDA’s approval of Gimoti.
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 beJuly 2021. We were required to pay to Mallinckrodt a low single digit royalty percentage on net sales of Gimoti. Our obligation to pay such royalties will terminate uponand milestones terminated due to the expiration of the last patent right covering Gimoti which is expected to occur in 2030. transferred under the asset purchase agreement.
Revenue Recognition
Our ability to generate revenue and become profitable depends on our ability to successfully commercialize Gimoti, which we launched in the United States through prescription in October 2020 through our commercial partner Eversana. If we or Eversana fail to successfully grow sales of Gimoti, we may never generate significant revenues and our results of operations and financial position will be adversely affected.
In accordance with Accounting Standards Codification, or ASC, 606, Revenue from Contracts with Customers, we recognize revenue when a customer obtains control of promised goods in an amount that reflects the consideration we expect to receive in exchange for the goods provided. Customer control is determined upon the customer’s physical receipt of the product. To determine revenue recognition for arrangements within the scope of ASC 606, we perform the following five steps: identify the contracts with the customer; identify the performance obligations in the contract; determine the transaction price; allocate the transaction price to the performance obligations in the contract; and recognize revenue when (or as) it satisfies a performance obligation. At contract inception, we assess the goods promised within each contract and determine those that are performance obligations and assess whether each promised good is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when the customer obtains control of the product.
Product revenues are recorded net of sales-related adjustments, wherever applicable, including patient support programs, rebates, and other sales related discounts. The Company uses judgement to estimate variable consideration. The Company is subject to rebates
13
under Medicaid and Medicare programs. The rebates for these programs are determined based on statutory provisions. The Company estimates Medicaid and Medicare rebates based on the expected number of claims and related cost associated with the customer transaction.
The Company also makes estimates about co-payment assistance to commercially insured patients meeting certain eligibility requirements, as well as to uninsured patients. Co-payment assistance is recorded as an offset to gross revenue at the time revenue from the product sale is recognized based on expected and actual program participation.
Co-pay liabilities are estimated using prescribing data available from customers. Actual amounts of consideration ultimately received may differ from our estimates. If actual results in the future vary from estimates, we will adjust these estimates, which would affect net product revenue and earnings in the period such variances become known. Liabilities for Medicare and Medicaid rebates, as well as co-pay assistance, are classified as accounts payable and accrued expenses in the balance sheets.
Sales of Gimoti Metrics
Gimoti prescription revenues continue to increase on several metrics. Net product sales during the first quarter of 2023 were approximately $810,000 compared to net product sales of approximately $796,000 during the fourth quarter of 2022, an increase of approximately 2%. In February 2022, we began work with vitaCare Prescription Services, or vitaCare, as the prescription intake system used for Gimoti. vitaCare is a technology and services platform that helps physicians electronically prescribe Gimoti and helps patients navigate key access and adherence barriers for brand medications. Specifically, vitaCare helps patients understand coverage and identify available savings opportunities, and facilitates communications between providers and payors. The platform also offers a seamless path for filling a prescription. In April 2022, GoodRx announced the completion of an acquisition of vitaCare.
There were approximately 1,081 new inbound prescriptions into the vitaCare reimbursement center during the quarter ended March 31, 2023, a 22% increase compared to the prior quarter. Patients that have an opportunity to refill the product (that is, patients who have completed their current supply and have additional refills on their prescription) received a refill approximately 68% of the time since the launch of Gimoti through March 31, 2023. We believe some patients choose not to refill their prescriptions due to remission of symptoms. Cumulatively, new prescribers increased 17% during the first quarter.
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The vitaCare team accesses the Medicare and Medicaid systems to facilitate product reimbursement submission for patients seeking treatment. For the quarter ended March 31, 2023, these government programs made up approximately 33% of the filled prescriptions for Gimoti. From the commercial launch of Gimoti through March 31, 2023, the majority of patients have been between the ages of 31-65 years old. The vast majority of patients are female and were being treated by a gastroenterologist.
The feedback from the sales organization continues to be positive with regard to physician interest. Although face to face visits by sales team members are more commonplace than during the COVID-19 pandemic, there are offices that continue to not allow face to face meetings apart from designated meeting times. However, when meetings with gastroenterology teams do occur, they generally generate prescriptions and fills. Furthermore, we have detected a pattern within larger gastroenterology teams that the first physician adopting the use of Gimoti has led other physicians within the same practice to begin prescribing Gimoti as well.
Research and Development Expenses
We expense all research and development expenses as they are incurred. Research and development expenses primarily include:
clinical trial and regulatory-related costs;
expenses incurred under agreements with contract research organizations, or CRO, investigative sites and consultants that conduct our clinical trials;
manufacturing and stability testing costs and related supplies and materials;materials used in clinical trials; and
employee-related expenses, including salaries, benefits, travel and stock-based compensation expense.
All of our research and development expenses to date have been incurred in connection with the development of Gimoti. For the remainderSince FDA approval of 2017Gimoti in June 2020, research and development costs have decreased and shifted to commercialization and selling costs. In
15
2021, we expect costsinitiated planning, and are in discussion with FDA related to ourthe design, for an FDA post-marketing commitment single dose PK clinical development, including the analysis of data from the comparative exposure PK trial and pre-approval and pre-commercialization activities, including marketing and manufacturing of Gimoti and completionto characterize dose proportionality of a planned NDA submission,lower dose strength of Gimoti to continue. The process of conducting clinical trials necessary to obtain regulatory approval is costly and time consuming.accommodate patients that may require further dosage adjustments. We are unable to estimate with any certainty the costs we will incur inrelated to this trial, or the continuedregulatory review of such lower dose of Gimoti, though such costs may be significant and will substantially increase research and development expenses once this trial is initiated. We may also incur additional costs to the extent we pursue additional clinical trials to expand the indication of Gimoti. 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:
per patientsubject trial costs;
the number of sites included in the trials;
the countries in which the trials are conducted;
the length of time required to enroll eligible subjects;
the number of subjects that participate in the trials;
the number of doses that subjects receive;
the cost of comparative agents used in trials;
the drop-out or discontinuation rates of subjects;
potential additional safety monitoring or other studies requested by regulatory agencies;
andthe duration of patient follow-up; and
the efficacy and safety profile of the product candidate.
We do not yet know when Gimoti may be commercially available, if at all.
Selling, General and Administrative Expenses
GeneralSelling, general and administrative expenses consist primarily of salaries and related benefits, including stock-based compensation. Other selling, general and administrative expenses include professional fees for accounting, tax, patent costs, legal services, insurance, facility costs and costs associated with being a publicly-traded company, including fees associated with investor relations and directors and officers liability insurance premiums. We expect that selling, general and administrative expenses will increase in the future as we expand our operating activities, prepare for the growth needs associated with commercialization and continue to incur additional costs associatedprogress with being a publicly-traded companythe commercialization of Gimoti and maintaining compliance with exchange listing and Securities and Exchange Commission 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. we reimburse Eversana from the net profits attained from the sales of Gimoti.
Other Income (Expense)
Other income (expense) consists of changes in the fair value of the warrant liability, which represents the change in the fair value of common stock warrants from reporting period to reporting period. The warrant liability relates to the warrants issued in the July 2016 Financing and August 2016 Financing, or collectively the 2016 Financings, and will be revalued each reporting period until the
liability is settled. We use the Black Scholes pricing model to value the related warrant liability. Other expense in 2016 also included interest expense incurred on our former outstanding debt.
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.
TheThere have been no new or significant changes to our critical accounting policies and estimates underlying the accompanying unaudited financial statements are those set forthdiscussed in Part II, Item 7Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, which was2022, filed with the SEC on March 15, 2017.21, 2023.
Other Information
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.
Results of Operations
Comparison of Three Months Ended September 30, 2017March 31, 2023 and 20162022
The following table summarizes the results of our operations for the three months ended September 30, 2017March 31, 2023 and 2016:2022:
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| Three Months Ended |
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| 2023 |
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| 2022 |
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| Increase |
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Net product sales |
| $ | 810,408 |
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| $ | 418,380 |
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| $ | 392,028 |
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Research and development expenses |
| $ | 66,990 |
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| $ | 41,717 |
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| $ | 25,273 |
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Selling, general and administrative expenses |
| $ | 2,847,940 |
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| $ | 2,405,075 |
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| $ | 442,865 |
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Net Product Sales. Net product sales for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 increased by approximately $392,000. The increase in sales was primarily driven by increased promotional activities of the Eversana sales force and prescription management through vitaCare during the three months ended March 31, 2023.
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| Three Months Ended September 30, |
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| Increase/ (Decrease) |
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| 2017 |
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| 2016 |
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Research and development expenses |
| $ | 2,717,698 |
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| $ | 1,339,343 |
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| $ | 1,378,355 |
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General and administrative expenses |
| $ | 984,047 |
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| $ | 830,092 |
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| $ | 153,955 |
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Other expenses |
| $ | 1,541,316 |
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| $ | 855,846 |
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| $ | 685,470 |
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Research and Development Expenses. Research and development expenses for the three months ended September 30, 2017March 31, 2023 compared to the three months ended September 30, 2016March 31, 2022 increased by approximately $1.4 million due primarily$25,000. During 2023 and 2022, we incurred expenses for ongoing stability testing of batches of Gimoti manufactured prior to our comparative exposure PK trial being conductedreceipt of FDA approval of the Gimoti NDA in June 2020.
Costs incurred during the third quarter of 2017. Our Phase 3 clinical trial was completed during the second quarter of 2016three months ended March 31, 2023 included approximately $55,000 related to stability testing and the analysis of the trial data occurred during the second half of 2016, so research and development costs were lower during the quarter ended September 30, 2016. Costs incurred in 2017 include approximately $1.8 million of clinical trial costs, approximately $601,000$12,000 for wages, taxes and employee insurance, including approximately $201,000$3,000 of stock-based compensation expense, andexpense. Costs incurred during the three months ended March 31, 2022 included approximately $337,000$35,000 related to costs associated with the preparation of an NDA. Costs incurred in 2016 include approximately $650,000 related
to the Phase 3 clinical trial for Gimoti, approximately $489,000stability testing and $7,000 for wages, taxes and employee insurance, including approximately $178,000$2,000 of stock-based compensation expense, and approximately $193,000 related to costs associated with the preparation of an NDA.expense.
Selling, General and Administrative Expenses. GeneralSelling, general and administrative expenses for the three months ended September 30, 2017March 31, 2023 compared to the three months ended September 30, 2016March 31, 2022 increased by approximately $154,000.$443,000. Costs incurred in 2017during the three months ended March 31, 2023 primarily included approximately $542,000$1.0 million for wages, taxes and employee insurance, including approximately $275,000$282,000 of stock-based compensation expense, approximately $931,000 for marketing and Eversana profit sharing, approximately $309,000$745,000 for legal, accounting, directors and officers liability insurance and other costs associated with being a public company.company, and approximately $47,000 for facility-related expenses. Costs incurred in 2016during the three months ended March 31, 2022 primarily included approximately $446,000$1.1 million for wages, taxes and employee insurance, including approximately $274,000$379,000 of stock-based compensation expense, approximately $565,000 for marketing, royalties and Eversana profit sharing, and approximately $319,000$672,000 for legal, accounting, directors and officers liability insurance and other costs associated with being a public company.
Other Expenses, net. Other expenses for the three months ended September 30, 2017 compared to the three months ended September 30, 2016 increased by approximately $685,000 due primarily to the increase of approximately $1.5 million in the fair value of the warrant liability, which resulted in a corresponding increase in other expense. Other expenses for the three months ended September 30, 2016 included approximately $534,000 of costs related to the 2016 Financings, an increase of approximately $199,000 in the fair value of the warrant liability, and approximately $123,000 of interest expense incurred on our former outstanding debt with Square 1 Bank, or Square 1.
Comparison of Nine Months Ended September 30, 2017 and 2016
The following table summarizes the results of our operations for the nine months ended September 30, 2017 and 2016:
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| Nine Months Ended September 30, |
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| Increase/ |
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| 2017 |
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| 2016 |
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Research and development expenses |
| $ | 5,505,953 |
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| $ | 5,449,568 |
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| $ | 56,385 |
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General and administrative expenses |
| $ | 3,065,595 |
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| $ | 2,770,500 |
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| $ | 295,095 |
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Other expenses |
| $ | 3,349,521 |
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| $ | 1,001,120 |
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| $ | 2,348,401 |
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Research and Development Expenses. Research and development expenses for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 increased by approximately $56,000. During the first nine months of 2017, we were preparing for and conducting our comparative exposure PK trial, including product development activities and manufacturing Gimoti for such trial. In addition, we also were incurring costs associated with the preparation of an NDA. Costs incurred in 2017 include approximately $2.1 million of clinical trial costs, approximately $1.9 million for wages, taxes and employee insurance, including approximately $627,000 of stock-based compensation expense, approximately $958,000 related to manufacturing costs and approximately $561,000 related to costs associated with the preparation of the NDA. Costs incurred in 2016 include approximately $3.1 million related to the Phase 3 clinical trial for Gimoti, approximately $1.5 million for wages, taxes and employee insurance, including approximately $488,000 of stock-based compensation expense, and approximately $740,000 related to costs associated with the preparation of an NDA.
General and Administrative Expenses. General and administrative expenses for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 increased by approximately $295,000. Costs incurred in 2017 primarily included approximately $1.6 million for wages, taxes and employee insurance, including approximately $778,000 of stock-based compensation expense and approximately $1.2 million for legal, accounting, directors and officers liability insurance and other costs associated with being a public company. Costs incurred in 2016 primarily included approximately $1.5 million for wages, taxes and employee insurance, including approximately $811,000 of stock-based compensation expense, and approximately $1.1 million for legal, accounting, directors and officers liability insurance and other costs associated with being a public company.
Other Expenses. Other expenses for the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016 increased by approximately $2.3 million due primarily to the increase of approximately $3.4 million in the fair value of the warrant liability, which resulted in a corresponding increase in other expense. Other expenses for the nine months ended September 30, 2016 included approximately $534,000 of costs related to the 2016 Financings, an increase of approximately $199,000 in the fair value of the warrant liability and approximately $268,000 of interest expense incurred on our former outstanding debt with Square 1.
Liquidity and Capital Resources
In November 2014, we entered into a sales agreement with MLV & Co., LLC, or the MLV Sales Agreement, which was subsequently acquired by FBR Capital Markets & Co., or FBR, pursuant to which we were able to sell from time to time, at our option, up to an aggregate of $6.6 million worth of shares of common stock through MLV, as 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 of 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 MLV Sales Agreement and received proceeds of approximately $4.9 million, net of commissions and fees. We did not sell any shares of common stock through the MLV Sales Agreement during 2016.
On April 15, 2016, we terminated the MLV Sales Agreement and entered into a new At Market Issuance Sales Agreement with FBR, or the FBR Sales Agreement, and filed a prospectus supplement, pursuant to which we may sell from time to time, at our option up to an aggregate of 649,074 shares of our common stock through FBR as the sales agent. Through December 31, 2016, we sold 56,000 shares of common stock and received net proceeds of approximately $296,000 under 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. FBR was subsequently acquired by B. Riley Financial, Inc., or B. Riley. See Item 5 for additional details regarding FBR Sales Agreement.
Our current Form S-3 shelf registration statement expires on November 25, 2017. Concurrently with filing this Quarterly Reportthe SEC on Form 10-Q, we are filing a newS-3. The shelf registration statement on Form S-3 which extends the effectiveness of the current shelf registration statement until the earlier of the date the SEC declares the new shelf registration statement effective or 6 months from the expiration date of the current shelf registration statement. The new shelf registration statement includesincluded a prospectus for the at-the-market offering to sell up to an aggregate of $16.0 million of shares of our common stock through B. Riley (as successor by merger to FBR)FBR, Inc., or FBR, as a sales agent. We remain subjectagent, or FBR Sales Agreement. Effective January 6, 2021, we terminated the FBR Sales Agreement. As a result, there were no shares sold under the FBR Sales Agreement during 2021.
In December 2020, we filed a new shelf registration statement with the SEC on Form S-3, or the replacement shelf registration statement. The replacement shelf registration statement replaced the registration statement on Form S-3 we originally filed with the SEC in November 2017, which registration statement expired in December 2020. The replacement shelf registration was declared effective by the SEC on January 6, 2021. In December 2020, we also entered into the ATM Sales Agreement with FBR and H.C. Wainwright & Co., LLC, or the Sales Agents, pursuant to which we may sell from time to time, at our option, up to an aggregate of $30 million worth of shares of our common stock through the Sales Agents. The ATM Sales Agreement provides, among other things, that sales under the ATM Sales Agreement will be made pursuant to the limitationsregistration statement, including the base prospectus filed as part of such registration statement. During the three months ended March 31, 2022, we sold 21,783 shares of common stock at a weighted-average price per share of $8.04 pursuant to the ATM Sales Agreement and received proceeds of approximately $172,000, net of commissions and fees. No shares were sold under the ATM Sales Agreement in the three months ended March 31, 2023.
Under current SEC regulations, if at the time we file our Annual Report on Form 10-K our public float is less than $75 million, and for so long as our public float remains less than $75 million, the amount we can raise through primary public offerings of securities in any twelve-month period using shelf registration statements is limited to an aggregate of one-third of our public float, which is referred to as the baby shelf rules.
At the time we filed our Annual Report on Form 10-K on March 21, 2023, our public float was less than $75 million. As a result of our public float being below $75 million, we will be limited by the baby shelf rules described below.until such time as our public float exceeds $75 million, which means we only have the 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 may sell under our Form S-3 shelf registration statement will also decrease. We will remain constrained by the baby shelf rules under our Form S-3 shelf registration statement until such time as our public float exceeds $75 million, at which time the number of securities we may sell under a Form S-3 registration statement will no longer be limited by the baby shelf rules. SEC regulations permit us to use the highest closing sales price of our common stock (or the average of the last bid and last ask prices of our common stock) on any day within 60 days of sales under the shelf registration statement.
Future sales under the ATM Sales Agreement will depend on a variety of factors including, but not limited to, market conditions, the trading price of our common stock and our capital needs. There can be no assurance that FBRthe Sales Agents will be successful in consummating future sales based on prevailing market conditions or in the quantities or at the prices that we deem appropriate.
WeIn addition, we will not be able to make future sales of our common stock pursuant to the FBRATM Sales Agreement unless certain conditions are met, which include the accuracy of representations and warranties made to FBRthe Sales Agents under the FBRATM Sales Agreement. Furthermore, FBReach of the Sales Agents is permitted to terminate the FBRATM Sales Agreement with respect to itself in its sole discretion upon ten days’ notice, or at any time in certain circumstances, including the occurrence of an event that would be reasonably likely to have a material adverse effect on our assets, business, operations, earnings, properties, condition (financial or otherwise), prospects, stockholders’ equity or results of operations. We have no obligation to sell the remaining shares available for sale pursuant to the FBRATM 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 November 3, 2017, our public float was approximately $49.9 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 November 3, 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. 17
In connection with the July 2016 Financing,Eversana Agreement, we issuedentered into the Eversana Credit Facility, pursuant to our placement agent, Rodman & Renshaw,which Eversana agreed to provide a unitrevolving credit facility of H.C. Wainwright & Co. LLC, or Wainwright, andup to $5 million to us upon FDA approval of the Gimoti NDA, as well as certain other customary conditions. The Eversana Credit Facility terminates on December 31, 2026, unless terminated earlier pursuant to its designees unregistered warrants to purchase an aggregate of 90,226 shareterms. The Eversana Credit Facility is secured by all of our common stock, orpersonal property other than our intellectual property. Under the July Wainwright Warrants. The July Wainwright Warrants have substantiallyterms of the same terms asEversana Credit Facility, we cannot grant an interest in our intellectual property to any other person. Each loan under the July Warrants, except that the July Wainwright WarrantsEversana Credit Facility will expire on July 21, 2021 and havebear interest at an exercise priceannual rate 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 were adjusted to their 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. 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 payable by us, the net proceeds to us from this offering was approximately $7.3 million.
On August 4, 2016, we repaid in full 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 connection10.0%, with such repayment,interest due at 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 paymentend of the loan in August 2016. term. In 2020 we borrowed $5 million from the Eversana Credit Facility.
In connection with the funding of the term loan, we issued to Square 1 a warrant to purchase 22,881 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 funding of the credit facility. During July 2016, Square 1 converted its warrant by 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 warrant of approximately $59,000 was charged to interest expense upon the payment of the loan in August 2016.
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, 2016 with respect toManagement concluded that there is substantial doubt about our ability to continue as a going concern. This doubt about our ability to continue as a going concern opinionfor at least twelve months from the date of issuance of the financial statements could materially limit our ability to raise additional funds through the issuance of new debt or equity securities or otherwise. Future reports by our independent registered accounting firm 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 devotedbelieve, based on our resources to developingcurrent operating plan, that our cash and cash equivalents as of March 31, 2023 of approximately $8.2 million, as well as future cash flows from net sales of Gimoti, but it cannotwill be marketed until regulatory approvals have been obtained. Based upon our currently expected level of operating expenditures, we expect to be ablesufficient to fund our operations through at least June 2018.into the fourth quarter of 2023. This period could be shortened if there are any significant increases in planned spending other than anticipated. We anticipate we will be required to raise additional funds in order to continue as a going concern. Because our business is entirely dependent on the success of Gimoti, if we are unable to secure additional financing or identify and execute on other development or strategic alternatives for Gimoti or our Gimoti development program, including the analysiscompany, we will be required to curtail all of data from our completed comparative exposure PK trial, pre-approvalactivities and pre-commercializationmay be required to liquidate, dissolve or otherwise wind down our operations. Any of these events could result in a complete loss of your investment in our securities.
These estimates of cash runway could be shortened if there are any significant increases in planned spending on commercialization activities, including for marketing and manufacturing of Gimoti, completion of a planned NDA submission, including whether or not FDA grantsand our request to waive the user fees that would otherwise become due upon our filing of an NDA with FDA, and ourselling, 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.
On April 27, 2022, our stockholders granted the board of directors the authority to effect a reverse stock split of our outstanding common stock. On May 23, 2022, we effected a 1-for-12 reverse stock split of the shares of our common stock, or the Reverse Stock Split. The par value and the authorized shares of the common stock were not adjusted as a result of the Reverse Stock Split. All of our issued and outstanding common stock, warrants to purchase common stock, and options to purchase common stock have been adjusted to reflect the Reverse Stock Split.
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:
prepare for and complete further clinical development, including a comparative exposure PK trial in healthy volunteers and the analysis of data from such trial;
continue the pre-approval and pre-commercializationcommercial activities for Gimoti, including the preparation of the NDA;
continuemanufacture Gimoti;
•
continue to fund the additional accounting, legal, insurance and other costs associated with being a public company.
Although our current cash and cash equivalents are expected to be sufficient to fund our operations through at least June 2018, it may not be sufficient to complete any additional development requirements requested by FDA. 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 analysis of the full results of the comparative exposure PK trial, the costs associated with completing and submitting the 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 ninethree months ended September 30, 2017March 31, 2023 and 2016:2022:
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| Nine Months Ended September 30, |
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| 2017 |
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| 2016 |
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Net cash used in operating activities |
| $ | (5,983,204 | ) |
| $ | (7,338,098 | ) |
Net cash provided by financing activities |
| $ | 7,389,101 |
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| $ | 9,026,825 |
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Net increase in cash and cash equivalents |
| $ | 1,405,897 |
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| $ | 1,688,727 |
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| Three Months Ended |
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| Increase/ |
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| 2023 |
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| 2022 |
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Net cash used in operating activities |
| $ | (1,630,895 | ) |
| $ | (1,615,030 | ) |
| $ | (15,865 | ) |
Net cash provided by financing activities |
| $ | - |
|
| $ | 171,521 |
|
| $ | (171,521 | ) |
Net increase (decrease) in cash and cash equivalents |
| $ | (1,630,895 | ) |
| $ | (1,443,509 | ) |
| $ | (187,386 | ) |
Operating Activities. The primary use of our cash has been to fund our clinical research, prepare our NDA, manufacture Gimoti, prepare for and begin commercial sales of Gimoti, and other general operations. The cash used in operating activities decreased in 2017 as we have been preparingduring the three
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months ended March 31, 2023 and 2022 was primarily related to commercialization activities for Gimoti and conducting our comparative exposure PK clinical trial and the manufacturing of Gimoti for such trial.other general operational activities. We expect that cash used in operating activities will increase throughoutduring the remainder of 2017 as those projects, as well as2023 due to commercialization activities, including manufacturing of Gimoti, and the preparationplanned post-marketing commitment to conduct a single dose PK clinical trial of the NDA and pre-approval and pre-commercialization activities, continue.Gimoti to characterize dose proportionality of a lower dose strength of Gimoti.
Financing Activities. During the ninethree months ended September 30, 2017,March 31, 2023, there were no proceeds from financing activities. During the three months ended March 31, 2022, we received net proceeds of approximately $7.3 million$172,000 from the sale of 2,775,861 shares of common stock in an underwritten public offering. In addition, we received proceeds of approximately $135,000 from the sale of 75,529 shares of common stock through our employee stock purchase plan, or ESPP. During the nine months ended September 30, 2016, we received net proceeds of approximately $13.2 million through the 2016 Financings from the sale of 5,048,632 shares of common stock and 2,975,444 warrants to purchase our common stock. In addition, we received net proceeds of approximately $358,000 from the sale of 56,00021,783 shares of common stock pursuant to the FBRATM Sales Agreement and the sale of 34,067 shares of common stock through our ESPP.Agreement.
We believe that our existing cash and cash equivalents as of September 30, 2017, together with interest thereon, will be sufficient to meet our anticipated cash requirements through at least June 2018. 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:
we may not have sufficient financialthe costs of commercialization activities, including costs associated with commercial manufacturing;
we may not beour ability to manufacture sufficient quantities of Gimoti to meet demand, including whether our contract manufacturers, suppliers, and/or consultants are able to provide acceptable evidencemeet appropriate timelines;
FDA may disagree with the design of our future clinical trials, if any are necessary;
variability in subjects, adjustmentspost-marketing commitment to conduct a single dose PK clinical trial proceduresof Gimoti to characterize dose proportionality of a lower dose strength of Gimoti and inclusionthe costs of additional clinical trial sites;
FDA may not agree with the analysis of our clinical trial results;
the results of our clinical trials may not meet the level of statistical or clinical significance or other bioequivalence parameters required by FDA for marketing approval;
we may be required to undertakeany additional clinical trials and other studies of Gimoti before we can submit an NDA to FDA or receive approval of the NDA;
subjects in our clinical trials may die or suffer other adverse effects for reasons that may or may not be related to Gimoti, such as dysgeusia, headache, diarrhea, nasal discomfort, tremor, myoclonus, somnolence, rhinorrhea, throat irritation, and fatigue;
we may not be ablepursue to expand the indication of Gimoti;
the terms and timing of any collaborative, licensing, co-promotion or other arrangements that we may not be able to obtainestablish; and maintain commercial manufacturing arrangements
Off-Balance Sheet Arrangements
Through September 30, 2017,March 31, 2023, 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 lease for office space in Solana Beach, California. The lease commenced on January 1, 2017 with an expiration date of December 31, 2018. We also pay pass through costs and utility costs, which are expensed as incurred.
Item 3. Quantitative and Qualitative Disclosure about Market Risk
As of September 30, 2017, there have beenThere were no material changes inoutside the ordinary course of our market risk frombusiness during the three months ended March 31, 2023 to the information regarding our contractual obligations that describedwas disclosed in “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Quantitative and Qualitative Disclosures about Market Risk”included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2022, filed with the SEC on March 21, 2023.
As a smaller reporting company, we are not required to provide the information required by this Item.
Item 4. Controls and Procedures
Conclusions Regarding the Effectiveness of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the timelines specified in the Securities and Exchange Commission’sSEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Business Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition, the design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
As required by Securities and Exchange CommissionSEC Rule 13a-15(b), as of March 31, 2023, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Business Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as of the end of the period covered by this report. Based on the foregoing, our Chief Executive Officer and Chief Business Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2017.March 31, 2023.
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Changes in Internal Control Over Financial Reporting
There have beenwere no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during our most recent fiscalthe quarter ended March 31, 2023 that have materially affected,affect, or are reasonably likely to materially affect, our internal control over financial reporting.
PARTPART II. OTHER INFORMATION
WeOn February 25, 2022, the Company received a letter notifying us that Teva submitted to FDA an ANDA for a generic version of Gimoti (metoclopramide hydrochloride) nasal spray eq. 15 mg base/spray that contains Paragraph IV certifications with respect to two of our patents covering Gimoti, U.S. Patent Nos. 8,334,281, expiration date May 16, 2030; and 11,020,361, expiration date December 22, 2029. These patents are currentlylisted in FDA’s list of Approved Drug Products with Therapeutic Equivalence Evaluations, commonly referred to as the Orange Book, for Gimoti. The certifications allege these patents are invalid or will not be infringed by the manufacture, use or sale of Teva’s metoclopramide hydrochloride nasal spray eq. 15 mg base/spray. In April 2022, we initiated litigation in the United States District Court for the District of New Jersey (Civil Action No. 1:22-cv-02019), alleging that Teva infringes the patents covering Gimoti. After we initiated litigation, Teva converted to a party to any material legal proceedings.Paragraph III certification, which prevents FDA from approving Teva’s ANDA until after the latest expiring patent expires in 2030. Consequently, the litigation against Teva was dismissed in January 2023.
Item 1A. Risk Factors
There have been no material changes to the risk factors included in “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016, other than those set forth below, which should be read in conjunction2022, filed with the risk factors disclosed therein.
Our business is entirely dependentSEC 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. March 21, 2023.
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 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 the FDA’s prior findings of safety and efficacy for the Listed Drug, Reglan Tablets. On October 23, 2017, we announced positive topline results from the comparative exposure PK trial and plan to submit the Gimoti NDA during the first quarter of 2018. Although we believe the PK trial establishes bioequivalence, FDA may later determine to require the conduct of additional efficacy or safety trials, and we may be unable to submit an NDA on this timeframe, or potentially at all.
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:
we may not have sufficient financial and other resources to complete clinical development for Gimoti;
we may not be able to provide acceptable evidence of safety and efficacy for Gimoti;
FDA may disagree with the design of our comparative exposure PK trial or any other future clinical trials, if any are necessary;
variability in subjects, adjustments to clinical trial procedures and inclusion of additional clinical trial sites;
FDA may not agree with the analysis of our clinical trial results, including our analysis of the results of the PK trial;
the results of our clinical trials may not meet the level of statistical or clinical significance or other bioequivalence parameters required by FDA for marketing approval;
we may be required to undertake additional clinical trials and other studies of Gimoti before we can submit an NDA, to FDA or receive approval of the NDA;
subjects in our clinical trials may die or suffer other adverse effects for reasons that may or may not be related to Gimoti, such as dysgeusia, headache, diarrhea, nasal discomfort, tremor, myoclonus, somnolence, rhinorrhea, throat irritation, and fatigue;
we may not be able to obtain, maintain and enforce our patents and other intellectual property rights; and
we may not be able to obtain and maintain commercial manufacturing arrangements with third-party manufacturers or establish commercial-scale manufacturing capabilities. 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 through at least June 2018, 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:
the need for, and the progress, costs and results of, any additional clinical trials of Gimoti we may initiate based on the analysis of data from our completed comparative exposure PK trial or discussions with FDA, including any additional trials FDA or other regulatory agencies may require evaluating the efficacy or safety of Gimoti;
the outcome, costs and timing of seeking and obtaining regulatory approvals from FDA, and any similar regulatory agencies, including whether or not FDA grants our request to waive the user fee that would otherwise become due upon our filing of an NDA with FDA;
the costs and timing of completion of outsourced commercial manufacturing supply arrangements for Gimoti;
the costs of establishing or outsourcing sales, marketing and distribution capabilities, should we elect to do so;
the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights associated with Gimoti;
the terms and timing of any collaborative, licensing, co-promotion or other arrangements that we may establish; and
costs associated with any other product candidates that we may develop, in-license or acquire.
Additional funding may not be available to us on acceptable terms or at all. In addition, the terms of any financing may adversely affect the holdings or the rights of our stockholders. Furthermore, the issuance of additional shares or other securities by us, or the possibility of such issuance, may cause the market price of our shares to decline and dilute the holdings of our existing stockholders. If we raise additional funds by incurring debt, the terms of the debt may involve significant cash payment obligations, as well as covenants and specific financial ratios that may restrict our ability to operate our business. We cannot provide any assurance that our existing capital resources will be sufficient to enable us to identify or execute a viable plan for continued clinical development of Gimoti or to otherwise survive as a going concern.
Topline data may not accurately reflect the complete results of a particular study or trial.
We may publicly disclose topline or interim data from time to time, which is based on a preliminary analysis of then-available data such as the topline results we reported from the comparative exposure PK trial, and the results and related findings and conclusions are subject to change following a more comprehensive review of the data related to the particular study or trial. We also make assumptions, estimations, calculations and conclusions as part of our analyses of data, and we may not have received or had the opportunity to fully and carefully evaluate all data. As a result, the topline results that we report may differ from future results of the same studies, or different conclusions or considerations may qualify such results, once additional data have been received and fully evaluated. Topline data also remain subject to audit and verification procedures that may result in the final data being materially
different from the preliminary data we previously published. As a result, topline data should be viewed with caution until the final data are available.
Further, others, including regulatory agencies, may not accept or agree with our assumptions, estimations, calculations, conclusions or analyses or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability or commercialization of the particular product candidate or product and our company in general. For example, while we believe that the AUC measurement is the most clinically relevant PK parameter for this comparative exposure PK trial based on discussions with FDA at previous pre-NDA meetings, the FDA may change their view regarding Cmax falling below the bioequivalence range of Reglan Tablets as it relates to selecting our dose and more generally in the FDA’s review of our planned NDA submission. In addition, the information we may publicly disclose regarding a particular study or clinical trial is based on what is typically extensive information, and you or others may not agree with what we determine is the material or otherwise appropriate information to include in our disclosure, and any information we determine not to disclose may ultimately be deemed significant with respect to future decisions, conclusions, views, activities or otherwise regarding a particular drug, drug candidate or our business. If the topline data that we report differ from actual results, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to obtain approval for, and commercialize, our product candidates may be harmed, which could harm our business, operating results, prospects or financial condition. Further, although we have reported positive topline data for the PK trial, the FDA may still require the conduct of additional efficacy or safety trials prior to our planned NDA submission.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity SecuritiesNone.
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety DisclosureDisclosures
Not applicable.
On November 14, 2017, substantially concurrently with this Current Report on Form 10-Q, we will file a shelf registration statement on Form S-3, or the replacement shelf registration statement, with the SEC, which has not yet been declared effective. The replacement registration statement is replacing the registration statement on Form S-3 we originally filed with the SEC on November 13, 2014, which registration statement is set to expire on November 25, 2017. On November 14, 2017, we entered into an amendment, or the Amendment, to the FBR Sales Agreement, pursuant to which sales agreement we may sell from time to time, at our option, shares of common stock through FBR, as sales agent. The Amendment provides, among other things, that sales under the FBR Sales Agreement will be made pursuant to the replacement registration statement, including the base prospectus filed as part of such registration statement, as of and effective upon the SEC declaring such replacement registration statement effective. Sales under the FBR Sales Agreement will continue to be made, if any, pursuant to the original registration statement until the earlier of the effectiveness of the replacement registration statement or 180 days following the expiration of the original registration statement. The Amendment will be effective concurrently with the effectiveness of the replacement shelf registration statement. The foregoing description of the Amendment is not complete and is qualified in its entirety by reference to the Amendment, a copy of which will be filed as Exhibit 1.2 to the replacement shelf registration statement and is incorporated herein by reference. Please refer to the description of the FBR Sales Agreement in the Liquidity and Capital Resources section contained in Item 2 above. Additional information with respect to the FBR Sales Agreement is available in the current report on Form 8-K filed by us with the SEC on April 15, 2016, and is hereby incorporated by reference. The foregoing description of the Sales Agreement is not complete and is qualified in its entirety by reference to the FBR Sales Agreement, a copy of which is filed as Exhibit 1.1 to the current report on Form 8-K filed with the SEC on April 15, 2016.
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Item 6. Exhibits
A list of exhibits is set forth below and is incorporated herein by reference.Index to Exhibits
Exhibit Number | Description of Exhibit | |||
3.1 (1) | Amended and Restated Certificate of Incorporation of the Company | |||
| Certificate of Amendment of Amended and Restated Certificate of the Incorporation of the Company | |||
3.2 (1) | ||||
4.1 | ||||
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31.2* | ||||
32.1* | ||||
32.2* | ||||
101.INS | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the inline XBRL document | |||
101.SCH | Inline XBRL Taxonomy Extension Schema | |||
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase | |||
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase | |||
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase | |||
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase | |||
104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) | |||
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SIGNATURES# Management contract or compensatory plan or arrangement.
* These certifications are being furnished solely to accompany this quarterly report pursuant to 18 U.S.C. Section 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934 and are not to be incorporated by reference into any filing of Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Evoke Pharma, Inc. | ||||
Date: | By: | /s/ David A. Gonyer | ||
David A. Gonyer
(Principal Executive Officer) | ||||
Date: | By: | /s/ Matthew J. D’Onofrio | ||
Matthew J. D’Onofrio
(Principal Financial and Accounting Officer) | ||||
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