Q3 2019 Earnings Call

Good afternoon, and welcome to the Eaton Pharmaceuticals third quarter 2019 financial operating results Conference call I do Simon participants are in listen only mode. Following the formal remarks, we'll open the call for your questions. Please be advised said this call is being recorded at the company's request at this time I like to turn.

Got it over to David Krempa, Vice President of business development at Eton Pharmaceuticals. Please proceed.

Thank you operator, good afternoon, everyone and welcome to <unk> third quarter 2019 Conference call. This afternoon, we issued a press release that outlines the topics we plan to discuss on todays call. The releases are available on our website eating pharma dotcom.

Joining me on our call today, it's Sean Brynjolfsson, our CEO and Wilson Troutman, our CFO .

Before we begin I'd like to remind everyone that statements made during this call may contain forward looking statements and involve risks and uncertainties that could cause actual results to differ materially from those contained in these forward looking statements. Please see the forward looking statements disclaimer in our earnings release and the risk factors in the company's filings with the FCC.

Now I will turn the call over to Sean for Jolson, our CEO .

Thank you David and thank you for everyone for joining us on the call today I'd like to start with <unk> third quarter highlights before turning the call over to Wilson treatment, our CFO , who will review the financial results in detail.

First and foremost or for our product approval by orphan was a major milestone for Eaton and a great accomplishment by our team.

This product in the interest and by orphan from hospitals has been very strong and we expect to have the product available for customers before the end of this month, we have a large stocking orders already placed and we also continue to make progress in advancing the rest of our pipeline, which will speak to later in the call.

A few a updates on the boil from commercial launch. It currently has a team of five hospital focused sales representatives, who are actively promoting by orphaned and we expect to expand that team to more than trying to representatives by the first quarter of 2020.

Since the approval ins teams promoted by orphan, we've met with key institutions as well as key opinion leaders at various conferences and engage in discussions with pharmacy directors and physicians from over 200 different institutions. The man has been an interest in the product has been strong were greatly encouraged by those and we estimate that the current.

<unk> for an injection market is significant at greater than 20 million by orphan equivalents per year overtime, we expect to convert a significant market share of this product of the ready to use and in addition expect to grow the market over three or as though since it has a three year shelf life. Unlike the currently available.

<unk> for and ready to use which has a short shelf life. Our product allows it to be stocked in additional locations throughout the hospital floating merchants rooms crash carts and surgical centers were previously was not feasible how to stock ready to you spent a lot for undo the short expert dating of compounded products. In addition, I would point out compounded products are not reviewed.

By the FDA for safety or efficacy our product offers a product is safer and the Sun started a has been reviewed and has gone through the FDA approval process.

Currently ready to you spent a lot for an injection is only available from compounding pharmacies. We believe there is no longer clinical need for the five or three be facilities to comp on funnel upfront and to ready to use formulations and based on Ftn guidelines fiber three be facilities would be a breach of up to your policy. They continue to sell ready to you spent a lot for injection.

Your availability of by orphan.

Secondly, I'm pleased to announce that we've executed a debt transaction with us WK holdings. This week and announced that is secured a 10 million dollar debt facility from us WK. This facility will give the company additional flexibility to pursue accretive business development activities.

Well this is a non dilutive a transaction, which is important to us. It also allows us to invest in the commercial launch or by orphan into planned launch of 80 105 in early 2020.

Thirdly, I'd like to give a pipeline update and discuss of Q a critical products for us.

Our next product approval as anticipated the below motor gene oral solution. That's our 80 105 product, it's a significant market size and we believe with our product Hadoop coaches as it will be known will be the first and only after the approval of motor June for oral suspension.

75% of neurologists of a favorable first impression on this product after some marketing research. We're now doing the pre launch activities generating advocacy and with neurology carry a wells and developing a high touch support services program that will ensure a profitable and successful launch for the pro.

Product.

Third item it to 105 FDA review of into one or five is ongoing has been assigned a PDUFA date.

Actually that is our Mart, our that's what trudging product of March 17th.

Weve also initiated a human factor study to support the filing and mitigate the potential for delaying their approval timing human factor study that we're running is expected to be completed in January and will be added to the submission under review.

Another product I'd like to update as our Q2, two or three patents partners and telco hasn't had an FDA meeting at this one scheduled to discuss options to address the fts concerns that were raised raised recently regarding their original NDS submission. Eaton believes then they will be submitted in the coming months and Vfds concerns were not.

Or were not show Stoppers these were concerns around CMC and questions.

Regarding.

The exact concentration of the product compared to what we were looking at doing.

And then third fourthly on the on the pipeline deals 300, we expect to resubmit that and da for deals 300 before the end of the year.

And.

We're encouraged by that market formation, we believe that product will be though still a significant product for the company. So with that I will go ahead and turn it over to a Wilson I'd also like to conclude by saying, we're very proud of the progress. We've made on our pipeline. We look forward to additional product launches in 2020 and this year as we had previously.

They did we will be a revenue generating company. Our next pushes to all the milestone of becoming a profit generating company in their future. So with that Wilson, taking away with the third quarter financial results.

Thank you Sean Research and development expenses were 3.4 million for third quarter of 2019 versus 1.5 million for the same period in 2018. The increase is primarily due to a two point onemillion licensing payment to acquire the U.S. marketing rights to each one all five of the machine along with increased costs associated with head count and the operation.

At the company's R&D laboratory facility that was set up in late 2018.

This is only partially offset by reduced product specific development costs in the period.

General and administrative expenses were 1.6 million for the third quarter of 2019 versus 0.8 million for the same period in 2018.

The increase was primarily driven by higher employee related costs from increased headcount public company expenses and marketing expenses associated with that product launch preparation activities.

Eaton reported a net loss of 5.0 million for the third quarter of 2019 wishes to 2.9 million loss for the same period of 2018 as a result of that these increases in R&D and marketing administrative expenses.

As of September Thirtyth, Eaton reported cash and cash equivalents of 11.8 million compared to 26.7 million as of December 30, Onest 2018.

Subsequent to the quarter end period, even close into credit agreement with SW K Holdings, which provides for up to 10 million and borrowing capacity, which will support our future growth our ability to pursue new product development and acquisitions.

With that we would now like to open up the call for your questions operator.

Thank you ladies and gentlemen, if you have a question at this time just start in the number one key of your touched on telephone to withdraw your question just Crystacomm key.

And our first question is from Andrew Dsilva with B. Riley FBR. Please go ahead.

Hey, Thanks for taking the time and.

Just a couple of quick questions.

So obviously congrats on the approval you're going through a pivotal transition period as you commercially launch.

Products. So your former parent company to management team really said it best yesterday.

Coming up in obtaining approval for a product is one of the.

It was one thing but successfully commercially launching offering is another thing entirely so I'm just curious as you're here in the early stage at the launch are there any new data points that you are aware of that you didn't realize just think about before that we should be thinking about as we refine our models or do you believe you had a very good sense of the pulse of the space.

When you last.

I just an update.

No I think that if anything the demand that we thought we would have is.

Initial interest has been stronger.

If you were to talk to our sales our head of sales he would you would.

As you analyze the market.

Initially thought it was no certain size and then as we've gone into this thing.

Our confidence in the product has increased significantly.

Okay, that's great to hear.

Then just moving over to E P to three.

Could you just give us a little bit of an update where you are on that process right now for reengaging with the FDA and.

As far as.

What we should think about from a timing standpoint.

Sure the FTC agencies earlier this month.

List of questions or points that they wanted to see addressed in the filing was points will be addressed Theres. A meeting later this say in December with the agency telecom.

To make sure that we're on the same pages. The agency and then some technical will resubmit that that filing.

So there were no showstoppers.

And if anything it though we believe once it so we submitted in the coming months the product should go through a smooth approval and review process.

Okay. Good good last question for me just related to mm 100.

Are you feeling pretty comfortable about.

Everything coming together for the spring time is allergy season started.

Ramping up then and I expect a key market should be fairly robust during that time as well.

It certainly is as you may or may not know cutover definitive as really the top.

Over the counter as well as prescription.

Anti allergy drug.

Yes market this product meets an unmet need in the sense that it doesn't have the preservative. So there's a value add there.

I wouldn't really comment too much on the overall market opportunity to abolish our marketing partner I think has that covered pretty well I know, it's an important product for them. It's a product that they have positioned for success and I believe they will be an outstanding partner.

I can say that the amendment is essentially finalized and we would expect that amendment to be submitted before the end of this month.

Okay great.

Timeline, then a perfect. Thank you very much in congrats on all the progress made during quarter.

You're welcome.

Thank you.

Next question is.

Rattled Ram Selvaraju with HC Wainwright your line is open.

Good afternoon. This is Ed remarks on for Rob. Thank you for taking the questions just in terms of the rollout for by often.

Provided a lot of detail so far and I'm just wondering how quickly you expect.

By orphan to replace.

Everything that's in those cards in the hospitals and whether the indeed, it whether the hospitals themselves would have to immediately withdrawal altogether products that are that are competing with Barrington.

Good question I think it's something we'll be better prepared to answer on our next call as we have a couple of months under our belt I will say, we've got initial orders large orders already.

In hand, and we expect to begin shipping in the next 10 days or so.

As the inventory arrives in our warehouses the the product.

As a.

It's not just a matter of.

Of hospitals, having to switch I think the hospitals will want to switch the just for that benefits the shelf life.

The fact that are using product that's been reviewed for safety and efficacy.

It's important I think it'd be an important any hospital, especially when you see the FDA his own report on compounded products shows 33% of them have the wrong.

Good content of the wrong amount of potency. So the the the idea of not using a ready to use ft approved product and to substitute a compounded product with that.

Is.

It would be quite strange for me to see a hospital choose to do that especially when we price this product.

More or less than the same range is what they're currently buying so the we believe the conversion process will be quick.

Understood and good points.

Moving on to.

Five and 300, just because those are coming up with some milestones here.

Just making sure that.

The human factor study the only aspect that you're required debt is requiring completion before the March PDUFA date, and then on 300.

Are there any other items that need to be completed before the end is submitted by the end of year.

I'll start with the US three minutes deals 300, the agenda is essentially complete we are.

Just handling some more paper work that goes along with that we are expected to be submitted in the next few weeks.

As the data is.

All compiled.

On the motor Jane the.

This study is really the the primary feedback we received at this point.

So we feel like.

It's encouraging to see that's what the idea is asking is is really to demonstrate that the parents and.

The users of the product can follow the package insert instructions without somebody they're telling them what to do and that they can follow those instructions and implement it.

We feel confident that the human factor study will have a positive outcome and we believe the instructions for use are clear. This is not an unusual request. It's a very common requests for for new drug products.

Right.

And my final question just a quick overall commercialization strategy question, just wondering if there's any prioritization for the assets being submitted in 2024. If it was just how kind of the dice fell.

So David maybe.

To take this question now that was just how the.

How the day style.

We try to try to file every product as quickly as we can.

So we're not we're not planning are prioritizing certain products, we have a team here that can handle multiple filings at once so every product will get filed as quickly as it can.

Okay. That's all for me I appreciate all the details.

You're welcome.

Thank you and our next question is some from checking in with Lake Street Capital. Please go ahead.

Hey, guys. Thanks for taking my questions first one on file buyer friends commercialization.

What is all left that needs to be done before the end of November when the product will be ready to be on the market and how fast do you think you could start to get actual hard orders filled and accounted for at the end of the quarter and then I think you talked about maybe possibly having about a million units in the first full year commercialization, but this.

Products. So I'm just curious if that was something that if I'm correct that was something that you guys, it's still thinking as possible.

We're not providing guidance on product sales I think what I can say is that we believe there are 20 million.

Units are at fuels available for.

For us to chase, if we want to use the term so we expect to take a significant portion of that.

I won't give us a hard number around it.

Yes.

I've been looking at different scenarios in the past, but this is a that's about as I think after we have a quarter under our belt, we'll be able to provide a little bit more color on that.

We do have orders in hand significant orders, we believe we'll start shipping product I think we're saying the first week of December .

We do expect though to have inventory before that.

No I would see us capturing revenue in December .

Great.

And then when thinking about your sales force you said you get to five reps by the end of this quarter and then 10 reps on the hospital side by the end of quarter one.

Do you plan to use some of those additional five reps in quarter. One of next year to start launching the narrow product or use house plans to bring on a couple extra.

Neural specific.

Sales reps at the beginning of 2020 in advance of Flamel.

So each product will likely have to have its own separate sales team.

If we can leverage the sales or sales team to let's say cross sell or to go to two different areas through an institution for example adapt to visit both.

Pharmacy directors as well as neurologists, we'll do that the the plant, we do mfive folks and place already actively selling by orphan we have an inside sales team as well as a field sales of three we expect that to increase before the end of the year.

For the motor Jane we're putting together the sales and marketing approach on that and we'll provide additional clarity on what that will look like the.

The thought process is obviously the minimize our cost our costs associated with that Rs DNA.

And.

Part of that we can.

Put a one size salesforce wherever that sizes.

Validate the model validate the sales.

And then expand that sales team rather than going in with the largest sales to impossible.

I'd, rather increase the size of that sales team as weve validated the conversion process and the different territories.

Great and then just lastly from me do you guys have any update on the business development front and that will be mcconnell questions.

We are always looking at a licensing opportunities of the company is built around that business development as a key.

Competency for us.

We're.

And let's say.

Discussions.

You know I suppose you could say later stage discussions on a couple of products.

You never know how these will ultimately turn out because as can be other bidders in the mix on it but the types of products were looking at are really no different from what we did with limo Trojan they'll be late stage assets, either or something that can be fall within 12 months or something that's already filed we'll look at assets that have IP and patent protection.

Looking at assets that require relatively small salesforce and something that now we can manage as a small pharmaceutical or midsize pharmaceutical company.

There there are plenty out there we.

Look at more than 100 deals a year and our our goal is to have.

Let's say approximately three meaningful transactions per year.

So.

Great. Thanks for taking my questions.

You're welcome.

Thank you gentlemen, I'm showing no more questions.

Great well, thank you everyone for joining the call today.

We look forward to our next call and.

More you know any questions or a thought you can always reach out to.

The other myself or too.

Investor Relations.

And with that thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.