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San Diego’s Evoke Pharma Files IPO to Advance Gastrointestinal Drug

Xconomy San Diego — 

San Diego’s Evoke Pharma, founded in 2007 to advance a nasal spray used to treat diabetic gastroparesis, plans to raise $23.9 million through an IPO as an “emerging growth company,” according to a recent securities filing.

Under the Jumpstart Our Business Startups (JOBS) Act of 2012, companies that qualify as an emerging growth company can take advantage of reduced financial reporting requirements that would otherwise apply to public companies. Evoke would be one of the first life sciences companies in San Diego to test the practicality of the relaxed disclosure rules, and how well investors accept them.

Evoke has kept a low profile—the most recent news release on the company’s website is more than four years old—but in its IPO filing, the company discloses plenty of pluses and minuses for investors to consider .

On the plus side, Evoke was co-founded by Cam Garner, the veteran San Diego life sciences entrepreneur. The two VCs with the biggest stake in the company (with each holding a nearly 31 percent stake) are the experienced life sciences investors Domain Associates and Latterell Venture Partners. The other co-founders are CEO David Gonyer, who was previously an executive at Medgenex and Xcel Pharmaceuticals; CFO Matthew D’Onofrio, a former executive at Victory Pharma and Vertex Pharmaceuticals; and Scott Glenn, the managing partner of Windamere Venture Partners.

Evoke also is running on a lean business model. The company has only two full-time employees, and says it relies on outsourcing for many activities, including development of the company’s only product, a new formulation of metoclopramide, dubbed EVK-001. Metoclopramide is the only FDA-approved product for treating diabetic gastroparesis, and is currently available only in oral and intravenous forms.

Gastroparesis is a common problem affecting millions of Americans (Evoke estimates it could be as high as 6 percent of the U.S. population), in which the stomach is unable to function normally, so food does not move as it should from the stomach into the small intestine. The symptoms include vomiting, bloating, and pain. A 2008 study cited by the company estimates that hospitalization costs associated with gastroparesis exceed $3.5 billion a year.

The company acquired all rights to EVK-001 from Questcor Pharmaceuticals in 2007 for a $650,000 upfront payment, with another $52 million due in potential milestone payments and additional royalties due if Evoke manages to commercialize the drug.

The big difference is that EVK-001 has been formulated for use as a nasal spray—a delivery method that would bypass a patient’s balky gastrointestinal tract and enable the drug to directly enter the bloodstream. If approved, the company says EVK-001 would compete with metoclopramide oral, erythromycin, and domperidone as a treatment for gastroparesis. But Evoke also notes that its formulation—if approved—would still be under patent, and the last patent is not expected to expire until 2030.

Evoke says it has completed a second mid-stage clinical trial with 287 patients that showed EVK-001 was safe, and effective in improving the most prevalent symptoms associated with gastroparesis in women. But men treated with EVK-001 showed only marginal improvement in their gastroparesis symptoms. It was not a statistically significant difference compared to a placebo, according to the IPO filing.

The company plans to use the proceeds of its IPO to advance the drug to a late-stage clinical trial for women, conduct a companion study for men, and assess the drug’s potential arrhythmia liability—at a total cost of about $15 million.

On the minus side, however, Evoke says it has incurred significant losses since inception, and has never operated profitably. The company’s recurring losses have raised enough doubt for Evoke’s accounting firm to question the company’s ability to continue as a going concern. A notice was included at the end of the company’s 2012 financial statement.

Evoke said it had about $1.7 million in available cash at the end of March, and its accumulated deficit was $20.3 million. The company noted in its filing that the “going concern opinion” could materially limit its ability to raise additional capital. And that could be the rub.

Evoke said the expected net proceeds from the IPO will not be enough to complete its planned clinical trials or to fund other commercialization activities that would be necessary if EVK-001 can win FDA approval. The company will need substantial additional capital, perhaps as soon as the end of next year.

At the same time, Evoke will have reduced reporting requirements as an emerging growth company. For example, the company needs only to present two years of audited financial statements in its prospectus, Evoke won’t have to comply with auditor attestation requirements under the Sarbanes-Oxley Act, and there are reduced obligations for disclosing executive pay. Only time will tell whether that’s a good thing or a bad thing

Evoke plans to trade on the Nasdaq market under the ticker symbol EVOK.