Evoke Pharma (EVOK) shares dropped more than 70% on Monday after the company reported top-line results from the Phase 3 study of its EVK-001. The trial was evaluating EVK-001 in female patients with symptomatic diabetic gastroparesis. EVK-001 is a novel formulation of Metoclopramide, which has been used as a treatment for gastroparesis for more than three decades. Given that the drug had already been use and Evoke was only developing a nasal delivery formulation, there was a high chance of success. Indeed, that was the reason for my bullish note on EVOK last year. I had calculated a fair value of $10.30 for the stock.

In fact, this is what the market was also expected as ahead of the rally EVOK shares rallied and even crossed my price target of $10.30. The trial results released on Monday came as a surprise. Below is a note from EVOK’s press release.

“Preliminary review of topline data across all study sites revealed similar improvement in the EVK-001 and placebo groups at Week 4 as measured by the total symptom score as well as the individual scores for each of the signs and symptoms, but these results were not consistent across the study sites. Further evaluation of topline data revealed diary data from 28 of 41 of the enrolling sites showed a statistically-significant benefit at Week 4 for EVK‑001 (p=0.006) in contrast to results from the other 13 sites that showed statistically significant benefit for placebo (p=0.002). Once the complete datasets and PK data are available, additional analyses will be conducted to further understand the discrepant results.”

This anomaly means that there is no real hope for EVOK. It is likely that the trial design was flawed and hence the failure. The company can commence a fresh trial following a post-hoc analysis. The problem here is EVOK’s weak cash position. At the end of the first quarter, EVOK only had a little over $6 million in cash. It obviously was banking on positive top-line results to announce a offering. I believe EVOK missed an opportunity when its stock rallied over the past few weeks. The company could have used this to initiate an offering. That would have given it some hope.

What to do with EVOK? It depends on your entry point. I had included EVOK in my Conviction Buy list anticipating a rally ahead of the top-line results. Shares did rally as expected and last week I had recommended one my L4 subscribers to book profit as EVOK hit my price target.

If you entered EVOK at recent highs then the best thing to do right now is hold the stock rather than take a hit. There is a slim hope for EVOK. I say this only because Metoclopramide is an approved drug. In case the entry point was around $5, where EVOK had been trading before the rally, I would suggest exiting the position and taking a loss.

Is EVOK worth at current levels? I believe it is not. As I said, there is only a slim chance of the company succeeding. And given the company’s weak cash position, a dilution is likely in the near future.