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Evoke Pharma, Inc. (NASDAQ:EVOK)

Q1 2014 Earnings Conference Call

May 12, 2014 4:30 p.m. ET

Executives

Dave Gonyer - Chief Executive Officer

Matt D'Onofrio - Chief Business Officer

David Burke - Investor Relations, The Ruth Group

Analysts

Raghuram Selvaraju – Aegis Capital Corporation

Ben Haynor – Feltl & Company

Kay Nakae – Ascendiant Capital Markets

Yale Jen - Laidlaw & Company

Operator

Greetings, and welcome to the Evoke Pharma First Quarter 2014 Financial Earnings Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Mr. David Burke of The Ruth Group. Please proceed.

David Burke

Good afternoon, and welcome to Evoke Pharma’s first quarter 2014 financial results conference call and audio webcast. With me today are Dave Gonyer, Chief Executive Officer; and Matt D'Onofrio, Chief Business Officer.

Earlier today, Evoke issued a press release announcing financial results for the fourth quarter and the year ended March 31, 2014. We encourage everyone to read today’s press release as well as Evoke’s quarterly report on Form 10-Q, which was filed with the SEC today. The company’s annual report and press releases are available on Evoke’s website at www.evokepharma.com. In addition, this conference call is being webcast through the company’s website and will be archived there for future reference.

Please note that certain of the information discussed on the call today is covered under the Safe Harbor provisions of the Private Securities Litigation Reform Act. We caution listeners that during this call, Evoke management will be making forward-looking statements. Actual results could differ materially from those stated or implied by these forward-looking statements due to risks and uncertainties associated with the company’s business. These forward-looking statements are qualified by the cautionary statements contained in Evoke’s press releases and SEC filings, including its Annual Report on Form 10-K. This conference call contains time-sensitive information that is accurate only as of the date of this live broadcast, May 13, 2014. Evoke undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this conference call.

With that, I would now like to turn the call over to Dave Gonyer. Dave?

Dave Gonyer

Thank you, David and thank you all for joining us this afternoon for our quarterly call to provide you with the first quarter 2014 financial results, along with an update on the business and the recent progress with our phase 3 clinical trial.

We continued to execute on our clinical development strategy for EVK-001. And as we’ve discussed in previous presentations to investment and medical communities, our plan has been to initiate patient enrolment in the first half of 2014 in our Phase 3 clinical trial for women with diabetic gastroparesis. I’m very pleased to say that in April we did just that. This is an important clinical development milestone as we seek to confirm results of our Phase 2b trial that showed EVK-001 to be an effective and well tolerated drug candidate to treat symptoms of gastroparesis in women.

In order to help ensure that the trial enrolment is as efficient and effective as possible, we’ve modeled the trial in a way that is similar to our successful phase 2 study. First, we’re using the same contract research organization we did in our phase 2b study. They know EVK-001 the protocol in the trial expectations. And our clinical team at Evoke is working very closely with them to advance enrolment.

Second, of the approximately 60 clinical sites we’re targeting for the trial, we plan to use just about half of the sites that participated in the Phase 2 study. These are for the most part high volume sites that know how to actively treat and manage patients that suffer from gastroparesis. We have contracts with about 40 sites and are actively engaged in negotiations with many others and plan to have all the sites enlisted in the near future.

And finally, we’re using the same similar trial design that’s very similar to our Phase 2b study design. This is a double blind placebo controlled parallel group study to evaluate the efficacy of EVK-001 in adult females. There are two treatment arms and patients will take either 10mg of EVK-001 or a placebo before meals and at bedtime for 28 days. Along with the study in women, we have initiated study in men as requested by the FDA at our end of Phase 2 meeting. This study is not prerequisite for the FDA approval and will run concurrent to our Phase 3 trial in women. And in addition to these two trials, the agency had asked that we perform a thorough QT study to test for cardiac safety. We expect to initiate and complete this study by yearend.

Since our IPO in September of last year, we’ve been working toward raising the company’s profile and building awareness of EVK-001 as an innovative treatment option for gastroparesis, with a sizeable market opportunity. In addition to meeting with new investors, we’ve been actively participating in investor conferences and medical meetings. Most recently, data from our Phase 2b study was accepted for an oral presentation at Digestive Disease Week which took place a week ago in Chicago. The data was presented by Dr. Henry Parkman, who is Director of the GI Motility Laboratory at Temple University School of Medicine and someone we have worked with for several years and well respected within the world of gastrointestinal diseases, most notably gastroparesis. The presentation was well received and we will pursue additional opportunities to bring the story of Evoke and EVK-001 to a larger audience.

So to summarize, we’re extremely excited about the recent activities at Evoke, in particular with the initiation of our Phase 3 trial. We’ll continue to execute on the clinical development plan we’ve communicated and we’ll maintain a steady path toward the potential commercialization of EVK-001. We thank you for your continued support of these efforts and look forward to providing you with updates as they become available.

With that, I would like to turn the call over to Matt for a review of the financial results for the first quarter.

Matt D'Onofrio

Thanks, Dave. Once again, thank you all for joining. In the first quarter of 2014 we reported a net loss of $3 million or about $0.49 per share based on weighted average shares outstanding of approximately 6 million shares. This compares with a net loss of $494,000 or $0.44 per share based on approximately 1.1 million weighted average shares outstanding for the first quarter of 2013. The increase in expense is incurred in preparation for initiation of our Phase 3 trial.

R&D expenses in the first quarter of 2014 were $1.9 million, up from $111,000 in the first quarter of 2013. The year-over-year increase in Research & Development expenses was related to increases in spending associated with preparations for the Phase 3 trial, additional clinical personnel, compensation costs and stock compensation expense.

General and administrative expenses in the first quarter of 2014 were approximately $1 million compared with approximately $221,000 for the first quarter of 2013. The increase of approximately $849,000 is primarily related to the addition of general and administrative personnel, other compensation costs including approximately $141,000 of stock based compensation expense, an increase in accounting, legal insurance and other costs associated with being a public company. In addition, during the first quarter of 2013, the 2012 bonus accrual was reversed due to the election by our Board of Directors not to pay the 2012 bonus in order to conserve cash.

Total operating expenses for the first quarter of 2014 of $2.9 million were higher as compared to the total expenses in the first quarter of 2013 of $342,000.

Looking at our balance sheet, as of March 31, 2014 we had cash and cash equivalents of $21.8 million. We believe this capital position is sufficed to get us through the completion of our current Phase 3 trial.

That concludes our prepared remarks. We would now like to open the call to questions. Operator?

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Ram Selvaraju of Aegis Capital. Please proceed with your question.

Raghuram Selvaraju – Aegis Capital Corporation

First, I wanted to ask whether you plan to issue ongoing updates on the status of enrolment in the Phase 3 trial, say for example when you get to the halfway point it’s on or if you’re just going to notify us when you reach full enrolment in the study without any interim updates on enrolment. Secondly, I wanted to ask how you see stock-based compensation evolving over the course of the remainder of this year, whether we should anticipate that it will stay the current level reported in this quarter or whether you anticipate it going up or down significantly from this level. And then finally, could you give us a little bit more color on the cash balance as of when you expect to report data from the study. At this juncture how much cash you think you will have left at that point or if it’s going to be a relatively nominal stronger that term ship. Thank you.

Dave Gonyer

Thanks Ram. This is Dave. I’ll take the first question and then turn the other two over to Matt. In terms of providing data on enrolment, we’ll provide updates on these quarterly calls. So most likely we’ll get to the end of the study with providing information at that point, complete information. But we’ll provide some updates on these quarterly calls.

Raghuram Selvaraju – Aegis Capital Corporation

Okay. And the financial items?

Dave Gonyer

Yeah, sure.

Matt D'Onofrio

This is Matt. On the stock-based comp, so it will continue to go up. The Board gets additional stock grants per year. So depending upon the stock price, we’ll factor that stock comp expense line. Of course whatever they grant to the employee base in that regard. And then in terms of cash balance, we haven’t printed the exact projections about what that will be. Of course it really depends upon how efficient we are over the time, but we do believe we’ll have a reasonable cushion at that midpoint in 2015.

Raghuram Selvaraju – Aegis Capital Corporation

And then finally, I just wondered if you could opine on the recent M&A activity in the GI domain, in particular the recent acquisition of Furiex by Forest Labs. And what implication this might have in a general sense for Evoke given your position in the GI field.

Matt D'Onofrio

Sure. So this is Matt. I guess I can catch it in two ways. One is, we know who are the significant GI players. There has been a lot of transactions in this space over the last year between Centaurus, Forest, Actavis, Aptalis, now Furiex. We believe that that signifies and may signal some certain amount of interest in the GI specialty space which I think for a number of years had been not a focus by the larger organizations. But to a certain extent, a company like Salix had led the way to creating a sizeable organization with meaningful sales that even in the eyes of perhaps some of the largest pharma might draw interest as those larger groups continue to deal with their own patent expiry and are gobbling up companies left and right. I also believe that other examples of specialty pharma like Valeant, Allergan and all the rest, a lot of those firms are looking at various specialty pharma spaces, even outside of what they may have been playing previously just in order to continue growing and not be acquired. So in terms of GI, I think it only serves to help especially with our very late stage opportunity compared to most.

Operator

Our next question comes from Ben Haynor with Feltl & Company. Please proceed with your question., Your line is live.

Ben Haynor – Feltl & Company

Good afternoon gentlemen, thanks for taking the questions. First I just wanted to ask a little bit if you could provide a little bit more color on the presentation at Digestive Disease Week, how that was received, anything else that took place there that you might be able to comment upon.

Dave Gonyer

Sure. It went very well. Henry Parkman did a fantastic job, has intimate knowledge of the study and the results of those studies provoked a lot of questions from participants. I guess there was about 150 folks in the audience at the time, and there and there was a pretty good line up of questioning for Henry regarding the results. And in particular I know that the question of what his thoughts were of why the drug worked in females and not men and the answer is that you look at the difference between men and women, women have slower GI tracts than men. He also talked about the differences with estrogen and progesterone and how those affect the GI tract as well in terms of slowing. So I think that was probably the key question that we heard a couple of times and they well accepted his answers to that as well. So overall, I thought it was a fantastic presentation.

Ben Haynor – Feltl & Company

Excellent. And then did you mention how many sites you have up and running as of today or recently?

Dave Gonyer

So, we have contracts with nearly 40 sites today.

Ben Haynor – Feltl & Company

Okay. And those 40 sites, they’ll be conducting the study in men as well or is that going to be done separately?

Dave Gonyer

Yes, pretty much all of them will be conducting the male trial as well.

Operator

Our next question comes from Kay Nakae with Ascendiant Capital. Please proceed with your question.

Kay Nakae – Ascendiant Capital Markets

Thank you. Just a question for Matt on G&A, as we think about this going forward, anything unusual about the Q1 number that causes the go forward number for G&A to be higher or lower from what you just posted?

Matt D'Onofrio

Yeah. Sure, Kay. So in terms of overall cost, it is a little higher in the first quarter just because of audit fees and certain public company costs around that. But overall, I guess my personal it’s going to flatter than bumpier I guess for the year. It is more difficult obviously given that we don’t have as large an overall corporate process. There’s nothing in the activity. So, any one of these significant costs can then cause a bit more of a bump in terms of an expense per quarter.

Kay Nakae – Ascendiant Capital Markets

Okay, and then just back in the study. Of the 40 sites under contract, how many are actually enrolling today? And how long does it typically take once you have everything signed to get that site up and running and actually enrolling patients?

Dave Gonyer

So most – all the sites are up and attempting to enroll. There’s a big screening process that’s involved with finding these patients to welcome. They’re all screening at this time. So it just takes time to get through electronic databases, charts, that sort of thing to find these patients, to bring them in for screening enrolment. So every site varies in terms of how long it takes to get them up and enrolling.

Kay Nakae – Ascendiant Capital Markets

Okay, and so let me just ask you this. Now that the trial is moving forward and while you have some additional sites that you want to bring on board, what are you spending most of your time on now?

Dave Gonyer

Matt and I in particular or just the company in general?

Kay Nakae – Ascendiant Capital Markets

Yeah. I mean, you know part of this kind of runs by itself once it’s going. But certainly there’s other concerns that you may have.

Dave Gonyer

Sure. I wish it would run by itself. That would be a nice relief. We actually will take an active role in working with sites as well. We contact the sites on a regular basis. We make visits to sites as well. We’ll continue to do that because we really feel that a hands on approach and them hearing directly from the company helps keep them motivated into looking for patients and keeping the study top of mind within the four, five, to eight other studies they may be doing at this current time. So we’re plenty busy or we’ll continue to be very busy in helping to move the study along.

Operator

(Operator instructions) Our next question comes from Yale Jen with Laidlaw & Company, please proceed with your question.

Yale Jen - Laidlaw & Company

Good afternoon and thanks for taking the phone call, the questions and congrats on starting up the phase 3 study. And question is that at the DDW meeting, so besides your presentation I know you already have done internally for some market research. But did you also do some sort of survey or talking to physicians with product profile and gauging their interest and gauging their feedback during the DDW?

Dave Gonyer

We didn’t have any specific market research or meeting set up specifically to talk to a physician about that. We do have various times where we spent with the thought leaders, talking to them about our product, about other products that are in development as well. And I think there’s good agreement now with these physicians that they see the benefit of the nasal spray over an oral dosing for the disease. So there’s a lot of time spent on that. There’s also data presented regarding sub-Q injection of a groin agonist that Rhythm Pharmaceuticals is developing. And there were some mixed results in the primary endpoint which was a gastric denting. And in the secondary endpoint which is probably the most important, did not hit statistical significance for a total composite scoring for patient reported symptoms, which is our benefit for this product. It’s our primary endpoint and it’s what the FDA requires for approval for our product. So there’s a lot of discussion around the benefits of our product over orals and also some of the benefits that we had in our phase two trial versus the results of these other companies with their products.

Yale Jen - Laidlaw & Company

Okay, great. And also that – I know you guys are going to start a QDC Cardiac Safety Study. It was scheduled to be starting in the third quarter. Any updates on that? Is everything on track for the starting?

Dave Gonyer

Yeah. We still anticipate completing – starting and completing the trial before year’s end. So we’re on target for that.

Yale Jen - Laidlaw & Company

And do we anticipate a beta release for that study – for the arc study toward end of the year or possibly in the first half of next year?

Dave Gonyer

Likely in the first part of 2015.

Operator

Ladies and gentlemen, at this time, I’d like to turn the floor back over to Dave Gonyer for closing comments.

Dave Gonyer

All right. Thank you. Thank you everybody for participating. Thanks for the great questions. We’ll continue to move forward on our plan and execute on our plan as we’ve stated to the investors, and we’ll continue to look forward to updating you as things progress. Thank you again.

Operator

Thank you. Ladies and gentlemen, this concludes today’s conference. You may disconnect your lines at this time. Thank you all for your participation.

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