Q2 2023 Eton Pharmaceuticals Inc Earnings Call

Good afternoon, and welcome to the Eton Pharmaceuticals second quarter 2023 financial results Conference.

Conference call at this time, all participants are in listen only mode.

Following the formal remarks, we will open the call for questions.

Please be advised.

This call is being recorded at the company's request.

At this time I'll like to turn it over to Dave David Krempa.

Chief business Officer at Eton Pharmaceuticals. Please go ahead.

Thank you operator.

Good afternoon, everyone and welcome to Eaton's second quarter 2023 conference call. This afternoon, we issued a press release that outlines the topics we plan to discuss on today's call.

Relief is available on our website eat in pharma dotcom.

Joining me on our call today, we have sharpened Johnson, our CEO and change Gruber our CFO .

<unk> taken a lot of questions on today's call, we will be answering questions that our email to US you can send your questions to investor relations at each in pharma Dot com.

Before we begin I would like to remind everyone that remarks made during today's 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 Companys filings with the SEC.

Now I will turn the call over to our CEO Sean Johnson.

Thank you David Good afternoon, everyone and thank you for joining us today.

The second quarter was another exceptional quarter for Eaton we.

We delivered record product sales without Sandy spring bank asset.

We've watched our third commercial product.

And we also recorded positive cash flow and net income it was our 10th straight quarter of sequential product growth.

As a result of this outperformance in the first half of this year, we are now increasing our revenue expectation for 2023.

We expect total 2023 Robyn.

<unk> $30 million.

During the second quarter total revenue was $12 million and I think almost $4 6 million.

Product sales and royalty revenue was $6 5 million for the quarter up 176% from the second quarter of 2022 and up 22% sequentially from the first quarter of 2023.

Well attended our expanded sales force and our direct to consumer marketing campaign.

To help increase engagement with the adrenal insufficiency community, we continue to add patients each week and our goal is to reach 400 active patients by the end of the year.

Even with this fast rate of growth and significant patient base. We are still in the very early stages of the option the growth story.

With an estimated total pediatric with renal insufficiency patient population of 10000 patients a very large percentage of the market has yet to convert.

We believe our candy sprinkle on its own should continue to convert a significant portion of this market in the coming months and years. However, our EG 400 product is expected to turbocharge the software when it is launched.

<unk> 400 will be sold alongside of this brightcove as a new liquid dosage form of hydrocortisone.

Issuance, what's yours to take either obviously, this sprinkle or <unk> 400.

<unk> 400 proprietary patent pending formulation will address the texture issue that some young patients every quarter with sprinkles.

And in addition, it will help us convert the large portion of the patient population that is currently using unapproved compounded suspensions.

We expect the combined peak sales of between 400, and now can be sprinkled to exceed $50 million annually.

We plan to submit the NDA for <unk> 400 at the end of this year, which will allow for an approval and commercial launch in late 2024.

Moving now to Kirk will make asset.

We'll make asset has also had a very strong quarter in our product revenue continues to benefit from our expanded sales force.

Our product has continuously outflow.

Formed our own expectations, and we remain optimistic that the product will continue to grow nicely for the foreseeable future.

We also launched Betsy in anhydrous and Meg which shares the same prescriber base as Kirk WOMAC.

But that 10 launches increased our interactions with metabolic geneticists and helped us gain access to some hard to reach heartwarming prescribers.

The <unk> launch is progressing well we are now three months into the launch and have seen significant adoption. We've heard positive feedback both for patients and prescribers that are very appreciative to be able to enroll in our EBIT carriers patient support services.

Well that's it is the smallest of our three current products once ramped up we expect it to contribute multiple millions of revenue annually with minimal incremental cost or resource usage.

Before we move on.

Let me address the recent CRA, all we receive for dehydrated alcohol.

<unk> was primarily related to chemistry manufacturing control items as well as some minor labeling comments.

The good news is we do not see a need to conduct additional laboratory activities to address these comments, we intend to file a response over the coming months and we think the fda's issues are addressable.

We are disappointed to not have the revenue from this product. This year. However, the outperformance at our other products is more than made up for most of the alcohol revenue. We were anticipating in 2023, we expect our existing product sales to allow us to reach the cash flow breakeven around the end of this year.

During the quarter, we saw progress with the development, we achieved 600, which is another innovative product candidates, but curious how can these user base.

<unk> have repeatedly expressed the need for this product, which would treat a rare pediatric endocrinology condition called diabetes and separateness.

Registration batches have been successfully manufactured so we expect to file the NDA in the middle of 2024.

While our existing commercial products in pipeline are expected to provide us with a long runway of organic growth for many years to come we continually and aggressively pursue acquisition opportunities to expand our rare disease portfolio and further we are excited about the prospects for transactions in the coming quarters for three important reasons.

Yes.

Our financial position has never been better we finished the quarter with more than $21 million of cash one of our highest levels ever and more importantly, perhaps we expect to reach cash flow breakeven within the coming months. This means that nearly all of our cash balances excess cash that can be put towards acquiring whereas these products.

Secondly, we are seeing an increasing number of distressed sellers due to the challenging capital markets environment. Many of our peers are struggling to raise capital as a result, many companies are no longer able to raise the money needed to commercialize assets, maybe others are seeking to sell off products to raise capital or even filing for bankruptcy.

We've already seen a number of attractive assets up for sale from distressed sellers and we expect to see even more in the coming quarters with.

With a strong financial position, we believe we're very well positioned to take advantage of these types of opportunities.

And thirdly with our expanded sales force, we now have an established commercial infrastructure and track record of successful commercially.

Rare disease products, which makes us an attractive commercial partner industry peers are taking notice of our recent result, especially with our Columbia gas of 6000, and we have seen an uptick in inbound interest from companies looking for Eaton to commercialize their rare disease products.

During the second quarter, we were the stalking horse bidder in a bankruptcy auction for two commercial rare disease products. They were on market products generating a significant amount of annual revenue.

We were ultimately outfit and Thats however.

Even though we did not acquire the assets or we could line up $50 million and fully committed capital to support our bid given the extremely challenging environment for raising capital I was proud of our ability to very quickly lined up $50 million on attractive terms.

Normally this takes months it took us a couple of weeks.

I believe lenders, we're excited by our attractive near and long term financial outlook and our diversified portfolio.

We believe we have a similar financial resources at our disposal today to pursue other large transactions involving commercial products.

Since we were the stalking horse bidder in that process, we did receive an $800000 breakup fee.

While we would've been much happier if we had won the auction the breakup fee further strengthens our financial position will help us fund future acquisitions for us.

Also this quarter, we monetize our remaining royalty interest in neurology oral liquid products were previously out license to authority.

In exchange for selling off our go forward royalty interests, we received a $5 $5 million payment in June .

We believe we will be able to reinvest these proceeds into rare disease product opportunities that will yield much higher returns for the company.

This transaction fully closes out all of eaton's future income or liabilities related to those products in total during the life of those three products, we received more than $27 5 million in payments after investing approximately $8 million into the portfolio.

With another record quarter of product sales and strong cash position of more than $21 million and an attractive pipeline. We believe we are well positioned to deliver sustainable long term growth I believe we are now able to reach our goal of achieving 10 rare disease products on market by the end of 2025.

I'm incredibly proud of our team for working so diligently to get us to where we are today and positioning us for a bright future going forward. It's an exciting time at Eaton and I can't wait to update you on our progress throughout the rest of the year with that I'll turn it over to James <unk>, Our Chief financial officer to discuss the financials James.

Thank you Sean.

Our second quarter revenue was 12.0 million compared to $7 4 million in the second quarter of 2022, or 63% increase driven entirely by growth in product sales and royalties specifically increased sales volume for <unk> sprinkle and care clinic asset.

Licensing revenue was $5 5 million in the second quarter of 2023 compared.

The $5.01 million in the prior year period.

Total revenue grew $6 7 million or 126% compared to the first quarter of 2023 and product sales and royalty revenue grew by $1 $2 million we.

We expect product sales to continue growing quarter over quarter throughout the rest of this year and beyond.

R&D expenses for the quarter were $1 1 million compared with zero point $7 million in the prior year period, due primarily to a zero point $5 million of fee paid upon a successful manufacturing of registration batches of <unk> 600, <unk> innovative product candidate, we acquired last quarter we.

We expect to see a slight increase in R&D spend in future quarters due to development activities related to <unk> 400, and 600 million.

General and administrative expenses for the quarter were $4 7 million compared with $5 3 million in the prior year period, due primarily to decreased FDA FDA and legal fees associated with products sold to Dr. Reddy through June of 2022.

We expect expenses to continue to remain consistent throughout the rest of the year and we still anticipate our full year G&A expense to be approximately $20 million.

Total company net income was $4 6 million for the quarter compared to a net loss of $1 6 million in the prior year period.

Net income per basic and diluted share during the quarter was 18.

Compared to a net loss per basic and diluted share of <unk> in the prior year period.

Eton finished the second quarter with $21 6 million of cash on hand, and generated $7 1 million of operating cash during the quarter.

We remain confident that our cash position is sufficient to allow us to execute our plan and continue pursuing bolt on transactions and new product developments.

This concludes our remarks on second quarter results and with that we'll turn it back over to the operator for Q&A.

Thank you.

We will now conduct a question and answer session.

To ask a question. Please press star one on your telephone and wait for your name to be announced.

To withdraw your question. Please press star one again.

Please standby, while we compile the Q&A roster.

Our first question comes from regular Ram severity Ju from H C. Wainwright. Please go ahead.

Alright, thanks, very much for taking my questions just a few quick ones.

Firstly I was wondering if you could perhaps comment on your criteria and potential timeline for acquisition of new products. If you have some specific areas that you are going to be focusing on if we should be thinking about these products as being directly complementary to our center just stick with.

The existing commercial products in your portfolio.

Secondly.

Wanted to make sure I fully understood the situation with the dehydrated alcohol product and.

Whether you feel that there is going to be an opportunity to prepare for a marketing and a more thorough way or do activities for our pre launch that you wouldn't otherwise have been able to do given the new way.

The extended timeline to potential market entry.

And then lastly with respect to.

The stock based compensation I was just wondering if you could point me to any potential trends, we should be keeping an eye out for over the course of the remainder of this year. Thank you.

Thanks, Rob Sean here, so regarding M&A activity I do anticipate closing a deal or two but.

Prior to the year and we hope we would say that.

Likely these products.

Be a good fit with our existing sales organization and would be accretive to revenue.

Obviously theres no guarantee of that but we are in late stage discussions I'd say the environment is fantastic in terms of.

Deal Ava.

Availability.

I'm not averse to closing a transaction outside of our core competency within.

Endocrinology and metabolic genetics, but.

I think the product would have to justify the expenditure of additional SG&A resources. So that's something we're looking at.

We'll see what happens.

Maybe David you want to take the second question.

In terms of the alcohol no Ram dehydrated alcohol would be marketed by our partner.

So we don't have any plans to.

Do anything different based on the additional timeline. It is a product that as you know is already used in the market by almost every hospital. So its not one that requires a lot of promotion from them.

Mostly.

B order through the GPO isn't that wholesalers.

Without much promotion.

And your third question James will answer sure with stock based comp Rob.

Second quarter was pretty representative.

We don't expect any.

<unk>.

Unusual or one time in that arena in the second half of 2023. So the most recent quarter as it would be a good run rate to use.

Okay, and then just very quickly do you have any additional updates on the legal front with respect to sustain hydrochloride.

No update at this time.

We are expecting a decision sometime.

Into early 2024, but there is no hard timeline that could get delayed but our best guess is sometime in the first half of 2024.

Great. Thanks very much.

Thank you.

As a reminder, if you would like to ask a question. Please press star one Wayne and wait for your name to be announced.

I will now pass pass it over back to David.

Thank you we have a few questions that were emailed to us that we can go through an answer at this time.

First one is there any chance that the FDA may issue a priority review voucher to Eaton for ETE 600, if the product is approved.

No we're not expecting a voucher for that product typically the vouchers among other things have to be a new molecule. This one is going to be a 500 <unk>. So we're not expecting about you.

Second question is when do you expect to give guidance for 2024 revenue I'll, let James answer them.

Sure Historically Eaton has not provided full year guidance in advance however, with ongoing M&A activity. If there was a transformational transaction in the second half of 2023, we.

We will likely provide some guidance on how that would impact.

The portfolio going forward.

And the last question. We have is what are your commercial expectations for <unk> 400, and I'll, let Sean answer that one.

So <unk> 400 really it was a.

Ah patient and Doctor requests as a product that.

Is desperately needed by especially young patients two and below sometimes they have trouble with the granularity of the sprinkles and so they are forced to go to a compounding pharmacies to obtain a liquid suspension.

Of hydrocortisone that is not proof for say is no demonstration of safety and efficacy.

So Pfizer had a liquid version many years ago that had issues and had got pulled from the market or product or hydrocortisone oral solution is room temperature stable, we expect a 24 month.

Exploration date.

It's a product that we think is really going to drive sales of <unk>.

Of the franchise.

There are approximately 10000 patients 18, and under that can benefit from al Kindi or <unk> 400, and I feel confident that we'll hit several thousand of those patients with the combination of these two products.

That concludes our questions. Thank you everyone for joining us today.

This concludes today's conference call. Thank you for participating you may now disconnect.

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