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Organization and Basis of Presentation
12 Months Ended
Dec. 31, 2018
Organization And Basis Of Presentation [Abstract]  
Organization and Basis of Presentation

1. Organization and Basis of Presentation

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

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

Commercial Services Agreement

On January 5, 2019, the Company entered into a commercial services agreement with Novos Growth, LLC (“NGP”) (the “NGP Agreement”) for the commercialization of Gimoti.  Pursuant to the NGP Agreement, NGP will manage the commercial operations for a dedicated sales team to market Gimoti, if approved by FDA, to gastroenterologists and other targeted health care providers.  

Under the terms of the NGP Agreement, the Company maintains ownership of the Gimoti NDA, as well as legal, regulatory, and manufacturing responsibilities for Gimoti.  The Company will also retain a contract sales organization, which would be managed by NGP.  The Company will record sales for Gimoti and retain more than 80% of product profits.  NGP will receive a percentage of product profits in the mid-to-high teens as a service fee.  

Pursuant to the NGP Agreement, NGP has agreed to finance the Company’s working capital requirements for specified commercialization costs in an amount by which Contribution Profits are expected to fall (or do actually fall) below zero (as projected by sales forecasts and a commercialization budget) to be drawn by the Company on a monthly basis, as needed (“NGP Working Capital Loan”), pursuant to a credit agreement between the Company and NGP (“NGP Credit Agreement”).  The NGP Working Capital Loan will be repaid by the Company, if at all, only out of positive Contribution Profits, unless the NGP Agreement is terminated (a) by NGP due to a material breach by the Company, or (b) by the Company other than due to the gross negligence or intentional misconduct of NGP.  Termination of the NGP Agreement by NGP for any other reason (including, without limitation, minimum net sales thresholds and negative Contribution Profits, as described below) will cause the NGP Working Capital Loan to be forgiven in full.  The interest rate and other terms of the NGP Working Capital Loan will be set forth in the NGP Credit Agreement.

In addition, under the NGP Agreement, NGP has agreed to provide a line of credit of up to $5.0 million to the Company following NDA approval of Gimoti, if any, and for a period of up to nine months thereafter. The line of credit will be extended pursuant to a credit agreement between the parties.  NGP will receive a low single digit percentage on net sales of Gimoti in lieu of any interest on the line of credit (the “NGP Credit Fee”); provided that in no event shall the cumulative NGP Credit Fee exceed twice the amount of the principal borrowed by the Company.  The line of credit will mature on the earlier of 30 days following the date the NGP Credit Fee is twice the amount of the borrowed principal and the two-year anniversary of the date the principal is borrowed by the Company.  In the event the Company secures financing from a third-party wholesale distributor for the purchase of Gimoti for launch in excess of $2.5 million dollars, NGP will no longer be required to offer the line of credit.  

The term of the NGP Agreement is five years from the date of commercial launch of Gimoti, if any, after which the Company will recapture 100% of product sales and assume all corresponding responsibilities.  Within 30 days after each one-year anniversary of the NGP Agreement, either party may terminate the NGP Agreement if net sales of Gimoti do not meet certain annual thresholds.  Either party may terminate the NGP Agreement for the material breach of the other party, subject to a 60-day cure period, or in the event an insolvency petition of the other party is pending for more than 60 days. Either party may also terminate the NGP Agreement upon 30-days written notice to the other party if Gimoti is subject to a safety recall, the parties are unable to agree to a commercialization plan and budget by a specified date, or if the Contribution Profit is negative for any calendar quarter beginning with the first full calendar quarter nine months following commercial launch. In addition, NGP may terminate the NGP Agreement if Gimoti is not approved by FDA by April 30, 2019, if the Company withdraws Gimoti from the market for more than 180 days, or if the Company is unable to provide product samples for use by the salesforce in a timely manner.  The Company  may also terminate the NGP Agreement upon a change of control of the Company, subject to a one-time payment equal to between four times and one times annualized service fees paid by the Company under the NGP Agreement, with such amount based on which year (between one and five years) after commercial launch the change of control occurs, provided if the change of control occurs within one year of commercial launch, such amount will be the greater of the specified annualized service fee amount and $5 million.  

Going Concern

The Company has incurred recurring losses and negative cash flows from operations since inception and expects to continue to incur net losses for the foreseeable future until such time, if ever, that it can generate significant revenues from the sale of Gimoti.  The Company ended 2018 with approximately $5.3 million in cash and cash equivalents, and the Company anticipates that it will continue to incur losses from operations due to pre-approval and pre-commercialization activities, including interactions with FDA on the Company’s NDA submission for Gimoti, marketing and manufacturing of Gimoti, and general and administrative costs to support operations.  As a result, the Company believes that there is substantial doubt about its ability to continue as a going concern for one year after the date these financial statements are issued.  

The determination as to whether the Company can continue as a going concern contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  In its report on the Company’s financial statements for the year ended December 31, 2018, the Company’s independent registered public accounting firm included an explanatory paragraph expressing substantial doubt regarding the Company’s ability to continue as a going concern.  

The Company’s net losses may fluctuate significantly from quarter to quarter and year to year.  The Company believes, based on its current operating plan, that its existing cash and cash equivalents, along with proceeds from the NGP Working Capital Loan and the NGP Credit Agreement which will be available only if Gimoti is approved by FDA, may extend the Company’s cash runway into 2020, without accounting for any future Gimoti product revenue, although there can be no assurance in that regard. If the Company is unable to receive approval of the Gimoti NDA, and if we are unable to secure capital under the NGP Working Capital Loan or the NGP Credit Agreement, the Company believes that its existing cash and cash equivalents will be sufficient to fund its operations until July 2019.  Under either situation, the Company may be required to raise additional cash through debt, equity or other forms of financing, such as potential collaboration arrangements, to fund future operations and continue as a going concern.

There can be no assurance that additional financing will be available when needed or on acceptable terms.  If the Company is not able to secure adequate additional funding, the Company may be forced to make reductions in spending, extend payment terms with suppliers, and/or suspend or curtail planned programs. Any of these actions could materially harm the Company’s business, results of operations, financial condition and future prospects. There can be no assurance that the Company will be able to further develop Gimoti, if required.  Because the Company’s business is entirely dependent on the success of Gimoti, if the Company is unable to secure additional financing or identify and execute on other development or strategic alternatives for Gimoti or our company, the Company will be required to curtail all of its activities and may be required to liquidate, dissolve or otherwise wind down its operations.