Investing in biopharma companies, particularly those that have yet to achieve profitability, can be challenging and high-risk.

The early stages of research and development require significant funding, typically with little to no revenue to show for it.

Furthermore, the drug development process is highly regulated and requires multiple stages of testing before a drug can even be considered for approval.

It starts with preclinical trials, where the drug is tested on animals or in labs, followed by several phases of human trials.

Each phase is designed to assess the safety, efficacy, and optimal dosage of the drug, with each subsequent phase involving more participants and larger trials.

Even if a drug passes all these hurdles, it still must be approved by regulatory bodies like the U.S. Food and Drug Administration (FDA), which can be a lengthy and complex process.

If a biopharma company successfully brings a drug to market, the potential rewards are enormous for investors.

However, the risks are equally substantial, as many drugs fail at various stages of development, leading to sunk costs and a collapsing share price.

With that in mind, when a biopharma company shows signs of being on the cusp of a major breakthrough, it can be an exciting and pivotal moment for both the company and its investors.

We may be witnessing one such moment right now with Evoke Pharma (EVOK).

One area in biopharma that has promising potential is diabetes treatment. Diabetes affects over 10% of adults, and there’s a constant need for new, effective treatments. Recently, GLP-1 drugs have become popular because they help control blood sugar. 

However, these drugs often have a serious downside: they can cause a condition called gastroparesis, or stomach paralysis, which leads to nausea, vomiting, and bloating, making diabetes management even harder.

This is where Evoke comes in. The company has developed Gimoti, a nasal spray version of the drug metoclopramide, specifically to treat gastroparesis in diabetic patients. 

For those with stomach paralysis, taking pills can be tough due to nausea, so a nasal spray offers a helpful alternative. 

Recently, Gimoti received FDA approval, and Evoke is partnering with Eversana to get it into the market.

The stock recently jumped 33% in a single day after the company presented new data on Gimoti at the American College of Gastroenterology’s 2024 Annual Meeting. 

The study showed that Gimoti works well compared to the pill form of metoclopramide, especially for patients who are on GLP-1 drugs and have developed gastroparesis as a side effect. 

This positive result has made investors optimistic about the drug’s potential to help many people who struggle with this condition.

The big players in diabetes treatment, like Eli Lilly (LLY) and Novo Nordisk (NVO), make the popular GLP-1 drugs, which are effective but have led to this new problem of gastroparesis for many patients. 

Evoke’s Gimoti could fill this gap by offering a solution for people who suffer from this side effect. This may make Gimoti an important option in treating diabetic patients facing these challenges.

Smaller biopharma companies like Evoke offer great opportunities, but they’re risky. A lot depends on the success of just one or two products, and getting a drug to market can be a long, expensive process. 

Plus, Gimoti faces competition from generic drugs like oral metoclopramide, even though its nasal spray format gives it a unique edge. 

Because of these risks, it’s important for investors to be cautious, carefully weighing the potential rewards against the possibility of setbacks.

Best regards,

Joel Litman & Rob Spivey
Chief Investment Strategist &
Director of Research
at Valens Research

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