Q3 2023 Eton Pharmaceuticals Inc Earnings Call

Good afternoon, and welcome to the Eton Pharmaceuticals third quarter 2023 financial results conference call.

At this time, all participants are in listen only mode.

Following the formal remarks, we will open the call up for your question.

Please be advised that this call is being recorded at the company's request.

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

Chief business officer at Eton Pharmaceuticals.

Please proceed.

Thank you operator, good afternoon, everyone and welcome to <unk> third quarter 2023 Conference call. This afternoon, we issued a press release that outlines the topics we plan to discuss on today's call. The release is available on our website eating pharma dot com.

Joining me on our call today, we have sharper Johnson, our CEO and James Gruber, our CFO.

In addition to taking live questions on today's call. We will also be answering questions that are emailed to us investors can send your questions to investor relations at you confirm a dotcom.

Before we begin I would like to remind everyone that remarks made during this call may contain forward looking statements 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 SEC.

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

Thank you David Thank you everyone for joining.

I'd like to first start off with a discussion of our third quarter. This was a very strong quarter for the company and in fact, our 11th straight quarter of sequential product revenue growth.

More importantly, though we achieved a critical milestone for the company by delivering positive cash flow from operations.

This was posted this positive cash flow from operations was solely on product sales and royalty revenue.

There were no onetime benefits from licensing revenue in the quarter.

Many of you know we had previously communicated to investors that our goal was to reach cash flow breakeven by the end of this year. So I am pleased that our strong revenue growth and disciplined cost structure allowed us to reach this critical mark a whole quarter ahead of schedule.

We are growing rapidly and expect that to continue for the foreseeable future, but we are also committed to profitable growth.

I think our recent results are proving that to investors, while our revenue this quarter increased an impressive 118% year over year, our selling general and administrative expenses increased by only 4% year over year.

This underscores the very attractive operating leverage in our business and we expect to be able to continue to deliver rapid revenue growth both from existing products and new product launches, while seeing only minimal increases in expenses.

Having our business, which are cash flow positive state also means that our significant cash balance which finished the quarter at more than $22 million is largely excess cash that can be invested in additional rare disease products to expand our portfolio and increase our revenue and earnings growth even further.

Now turning to specific product detail sales about Kansas Sprinkle continue to be strong delivering significant growth over the prior year period of Q2 2023.

With an estimated 5000 patients that suffer from adrenal insufficiency under the age of 10, and we continue to believe we are in the early innings of the our candy growth story.

The product has a long runway for growth ahead of it throughout the 28 34 patent in fact, we are in the midst of launching al can be sprinkled sampling program, which I expect to go live in the coming weeks.

These samples will be available in pediatric endocrinology offices and will also allow newly diagnosed patients are converting patients to immediately start therapy on a kidney sprinkle as they leave the doctor's office we.

We believe the sampling program will have a positive impact on our products growth in the quarters to come.

As many of you know we are doubling down on our commitment to the pediatric adrenal insufficiency community with the development of our <unk> 400 product candidate.

800, 400 is a proprietary patent pending formulation of liquid hydro cornerstone.

We believe the product will appeal to a significant portion of the market that are still relying on unapproved compounded hydrocortisone oral suspensions, where safety and efficacy efficacy has not been proven once approved patients will be able to choose our kidney sprinkle or 404, the hydrocortisone replacement therapy with both.

Products, we believe we would be able to offer compelling portfolio that addresses the full spectrum of unique preferences. Among the estimated 5000 children under the age of 10 that suffer from this disease. We expect the combined peak sales of these products to exceed $50 million annually.

Last week, we held a pre NDA meeting with the FDA to discuss our NDA submission for <unk> 400, the meeting went very well and we believe the agency is supportive of the program. However, we will be conducting one additional bioequivalence study to address some other questions from the agency and to put ourselves in the best position for a smooth application review and approval.

We intend to immediately kicked off the process for this study and expect to be in a position to submit the NDA in the middle of 2024.

Moving onto <unk> asset, which also had a strong quarter. The product continues to outperform our original estimates and we're continuing to reap the benefits of our expanded sales force as well as the recent launch of Betty and anhydrous pertain shares the same prescriber base as Curt Olympic asset and its largest increased our interactions with metabolic geneticists.

<unk> is still early in its commercialization, but we are already seeing good adoption and have received positive feedback from patients and prescribers.

In early October we announced the acquisition of FDA approved <unk> capsules, which will further leverage our presence in metabolic genetics. We believe there are roughly 200 to 300 patients in the United States currently under to sit out in the market is estimated to be more than $50 million annually.

We expect to launch the test during the first quarter of 2024 and will offer all patients are <unk> support program, which helps increase accessibility, including prescription fulfillment insurance benefits investigation educational support and help and obtaining financial assistance for qualified patients. We believe our commercial advantages existing really.

<unk> ships with prescribers and experienced Salesforce will allow us to capture a meaningful percentage of the $50 million market.

I hope it is clear that our existing commercial products and our late stage pipeline has us very well positioned to deliver strong organic growth for many years to come but we are not resting. We believe there is a significant opportunity for us to leverage our resources and grow even faster through additional business development.

Our strong balance sheet has put us in a very advantageous position relative to many industry peers that are overleveraged unprofitable are struggling to raise capital. We believe the environment for new product acquisitions is the best it's been in a while and we remain hard at work trying to close acquisitions of rare disease products that are commercial or in late stage.

Element.

We are very pleased to close the acquisition of <unk> in October which was acquired out of bankruptcy, but at a very attractive terms. The transaction is expected to deliver a very high return on investment and was a terrific strategic fit with our metabolic generics presence. However, we look forward for even larger opportunities preferably branded patent protected asked.

That's where we can add value with our sales infrastructure and expertise.

With <unk> launching in Q1, we will have four commercial products on market.

Adding on the potential from our numerous late stage pipeline candidates and the attractive business development environment I remain very confident in our ability to reach our goal of having 10 commercial rare disease products on the market by the end of 2025.

Before we wrap up I just wanted to acknowledge and thank our dedicated employees building the business to reach cash flow positivity is an impressive milestone that is the result of years worth of hard work from our dedicated employees. However is just a stop along the way to a much larger goal of becoming a highly profitable and well respected leading rare disease company. We are just getting star.

I couldnt be more excited as I look forward towards eaton's prospects for 2024 and beyond with that I'll turn it over to James <unk>, Our Chief financial officer to discuss the financials James.

Thank you Sean.

Our third quarter revenue was 7.0 million compared to $3 2 million in the third quarter of 2022, or a 118% increase driven by increased sales volume for <unk> sprinkle in Kirkland Lake asset.

Revenue is comprised entirely of product sales and royalties in both periods.

Product sales and royalty revenue grow zero point $5 million or 8% compared to the second quarter of 2023.

We expect continued product sales growth moving forward and are can be sprinkled revenue will likely trigger onetime sales related milestone payment of 1.0 million under the terms of the <unk> sprinkle licensing agreement from 2020.

While this payment in the fourth quarter will negatively impact gross margin. It serves as an important milestone for the product as we continue to provide meaningful treatment to new patients.

R&D expenses for the quarter were zero point $6 million compared to zero point $7 million in the prior year period.

The decrease was primarily due to decreased expenses associated with hospital products sold to Dr. Reddy is in 2022.

We expect a slight increase in R&D spend in future quarters due to development activities related to <unk> 406 hundred.

General and administrative expenses for the quarter were $4 3 million compared to $4 2 million in the prior year period.

The slight increase in G&A expense was mainly due to increased employee related expenses related to sales force expansion, partially offset by decreased sales and marketing expenses associated with third party sales commissions.

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

Total company net loss for the third quarter of 2023, with zero point $6 million or <unk> <unk> per basic and diluted share compared to a net loss of $3.0 million or <unk> 12 per basic and diluted share in the prior year period.

Eton finished the third quarter with $22 1 million of cash on hand, and generated <unk> 9 million of operating cash during the quarter solely from product sales and royalty revenue, which as Sean mentioned was ahead of schedule and 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 development.

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

Thank you.

This time, we will conduct a question and answer session.

You ask a question you will need to press star one on your telephone and wait for your name to be announced.

Joe Your question. Please press star one again.

Standby, while we compile the Q&A roster.

Okay.

Our first question comes from the urine.

As you may have.

Apologies, if I mispronounce that from <unk>.

H C Wainwright and company your line is open.

Alright, thanks very much for taking my question. So I was just wondering if you could elaborate a little bit on what you expect your broader commercial strategy to be in the cornerstone product space.

And within endocrinology as a whole and if you can give us a sense of.

What additional product opportunities or types of markets you might be looking at alongside for example C. H.

Hey, Ron.

Our commercial strategy in pediatric endocrinology and around CAH.

We feel like recover our targets very well today.

As we launch additional products, including <unk> 400, 8600, which is in the same call point.

We would potentially look to expand our sales force if warranted at that point.

We are looking to expand with additional pediatric endocrinology products, but we would also move into other specialties and other ultra rare condition. So as long as it's a product that can justify some incremental spend.

Typically these ultra rare products have very small prescriber bases. So we can commercialize with a very small targeted sales force. So we are open.

Open to other therapeutic areas as well as our current Pete Endo and metabolic genetics specialties.

Thanks, and then can you give us an update on the situation with Dr Reddy and sustain hydrochloride.

If there is no there has been no substantive update so far recently.

When we might expect the next development in the case.

Yeah Ron.

We are not expecting to see any additional milestones from that 16 product.

It does not appear that there's going to be any kind of imminent launch that would trigger.

Debt outstanding milestone payment to us so we've been focused on are.

Commercialized products, we don't expect anything from the <unk>.

Antibody orphan revenue related to that transaction could.

Could come but we are focused mostly on our products that we are lapping ourselves. Rob. This is Sean how are you.

Sorry.

Yes, so the.

On the <unk> are from what we've been able to gather from the public domain is that Dr. Reddy is.

Some sort of a settlement we don't know the exact details of it but it appears that there is a 2029 launch.

Possibility, but that's.

Yes, that's outside the window of what we would expect in terms of getting any kind of milestone payment from them. So we've really taken it off of our radar. So I wouldn't say, it's a non event.

On a go forward basis.

Sure.

Okay. Thank you that's helpful. And then lastly, I was wondering if you could just recap for SP.

Long term timeline starts at Mayo.

Okay.

I'm sorry could you repeat your question.

If you could just recap the timeline with respect to market entry and potential ramps was the name.

Oh, yes, the auto injector so were.

Looking at that product as the.

Development work is largely completed there had to be a site transfer.

For reasons I won't go into a they are in the middle of that site transfer they expect to make the registration batches.

Early next year and then what that would mean is a filing about 12 months later, so that filing would be at 2025, followed by a launch we're hoping in 2026.

Products still isn't really high demand.

We know about its something thats needed and as far as we can tell there is no. Other there's nothing else really eminent on the horizon.

So that's where that project is out.

We may consider doing.

Other.

Version of it as a pre filled syringe because the formula is stable and so it might be quicker to initially launch with a pre filled syringe as well. So we're in discussions with cross checked on that possibility, we'll see what happens.

Thank you very much.

You're welcome.

Thank you for your question.

Our next question comes from Rami Lithia Ela with tie your line is open.

Rami.

Okay.

If youre asking I can't hear you might be on mute.

Okay. So he is not coming through.

So soma.

Okay great.

I'm not showing any further questions at this time, so let's turn it back to David Krempa.

Thank you operator, so we have two email questions that we can answer first one do you expect positive cash flow to be repeated in Q4 and beyond.

So James what you take that sure yes, since Q3 was a big turning point for us.

Operating.

Cash flow, we do expect that to continue barring.

Normal first quarter seasonality, we mentioned in the remarks that we do with <unk>.

Significant growth of <unk>, we will have.

A milestone payment in Q1, and with normal kind of seasonality issues in the beginning of the year, but we do expect positive operating cash flow outside of that going forward certainly for full year 2024.

Second question, what's your expectation for 2020 for revenue and earnings.

We still expect revenue to be up product revenue to be up significantly over 2023.

We won't be giving any.

A detailed guidance on 2024 at this time.

When we report Q4 earnings will have.

We will provide more guidance on full year 2024.

That's the end of the E mailed questions. Thank you everyone for joining us for our third quarter earnings.

Sure.

Okay.

Thanks to everyone for the participation in today's conference. It does conclude the program you may now disconnect have a good evening.

Okay.

Yes.

Okay.

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