Q3 2024 Eton Pharmaceuticals Inc Earnings Call

Speaker Change: Good afternoon and welcome to the ETHON Pharmaceuticals 3rd Quarter 2024 Financial Results Conference Call. At this time, all participants are in listen-only mode.

Speaker Change: Following the formal remarks, we will open the call app for your questions.

Speaker Change: Please be advised that this call is being recorded at the company's request. At this time, I would like to turn it over to David Krempa, Chief Business Officer at Eton Pharmaceuticals. Please proceed.

David Krempa: Thank you, operator. Good afternoon everyone and welcome to Eaton's third quarter 2024 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 eatonpharma.com

David Krempa: Joining me on our call today, we have Sean Brynjelsen, our CEO, and James Gruber, our CFO.

David Krempa: In addition to taking live questions on today's call, we will be answering questions that are emailed to us. Investors can send their questions to InvestorRelations at EatonPharma.com.

David Krempa: Before we begin, I would like to remind everyone the 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.

David Krempa: Please see the forward-looking statements disclaimer in our earnings release and the risk factors in the company's filings with the SEC.

Speaker Change: Now, I will turn the call over to our CEO, Sean Brynjelsen.

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

It's been a busy and exciting few months for us.

Sean Brynjelsen: And I'm looking forward to talking with all of you today at such a critical moment in Eaton's history.

Sean Brynjelsen: Throughout the last year, we have been talking about our three-pillar strategy.

One organic growth of our existing portfolio.

to Advancement of Internal Pipeline Products.

and three, value-creating business development transactions to accelerate growth.

Sean Brynjelsen: I'm pleased to report that we've delivered major progress on all three of these pillars. First, our commercial organization continues to deliver attractive organic growth from our existing products, producing our 15th straight quarter of sequential product revenue growth.

Sean Brynjelsen: Secondly, the third quarter brought a critical milestone for our important pipeline product, EP400, which was accepted for review by the FTA and assigned a February 28th PDUFA date.

Sean Brynjelsen: And lastly, on the business development front, we announced the signing of an asset purchase agreement to acquire Incolex last month, which represented a transformational opportunity for the company.

Sean Brynjelsen: I could not be more proud of our team's hard work to achieve these results over the last few months, and I look forward to discussing each of these accomplishments in more detail.

Sean Brynjelsen: I'll start with our Q3 results. As I mentioned, we delivered another record quarter of product sales. Product sales were up 40% year-over-year, and the growth continues to be driven by strong increases in both alkali sprinkle and carglumic acid.

Sean Brynjelsen: The strong sales allowed us to reach positive GAAP net income in the third quarter. We previously said our goal was to reach GAAP net income by the fourth quarter of this year, so I am pleased that we were able to achieve it one quarter ahead of schedule.

Sean Brynjelsen: Our case is no different. As we are starting to see the fruits of our labor after many years spent working hard on drug development and regulatory activities, building out our commercial infrastructure and evaluating business development opportunities, we expect much more to come in the months and years ahead.

Sean Brynjelsen: Profitability has always been and always will be a central part of our strategy at Eden.

Sean Brynjelsen: We are not interested in chasing unprofitable growth. We have worked tirelessly to produce attractive revenue growth while maintaining a disciplined cost structure. This approach has allowed us to reach a cash flow break-even in 2023 and now positive gap income this quarter.

Speaker Change: By closely monitoring our spending, we have been able to build up Eaton's attractive rare disease portfolio and pipeline while minimizing dilution to shareholders.

Speaker Change: We are very pleased to have reached this critical profitability milestone for the company, but we are far from finished.

Speaker Change: In fact, I think we are in the early stages of our growth story.

Speaker Change: With the expected additions of NCRLEX and ET400 on top of continued growth from our existing portfolio, we are very excited about what we expect to deliver in 2025.

Speaker Change: During our last call, I had mentioned that I was optimistic about acquiring a larger commercial asset this year, and we were pleased to see it materialize last month when we announced that we had signed an asset purchase agreement with Ibsen for the purchase of Incrolux.

Speaker Change: Incralux is an FDA and EMA approved product for the treatment of severe primary insulin-like growth factor 1 deficiency. It is an attractive biologic product that fits perfectly with our pediatric endocrinology focus.

Speaker Change: With our strong presence and relationships in pediatric endocrinology community, we believe we can raise awareness of this condition, which appears to be both underdiagnosed and undertreated.

Speaker Change: We plan to finance the acquisition entirely with cash on hand and an expansion of our existing credit facility.

Speaker Change: The transaction is expected to close toward the end of this year and we will be able to share more about the product and our expectations for it after the transaction closes.

Speaker Change: In order to help support the addition of an Incralux as well as the expected near-term launch of ET400, we are planning an expansion and realignment of our sales force in 2025.

Speaker Change: Our current sales force will be split into two separate units, with approximately 12 rare disease specialists focused on pediatric endocrinology, promoting Ecolux, Elkindi, Sprinkl, and ET400.

Speaker Change: An additional five specialists will focus exclusively on our metabolic portfolio, promoting cargolimic acid, PKU-golite, betaine, and niticinone. We believe this realignment will allow us to maximize the revenue potential of our entire product portfolio.

Now on to our product-specific results.

Speaker Change: Elk Indy Sprinkle revenue and activations continue to grow, and even with a higher discontinuation rate than we would like. The product delivered 55% year-over-year growth and is a long runway ahead of it. The product is patent protection through 2034, and we believe that roughly 90% of the target population has yet to be converted.

Speaker Change: Despite the current growth rate, we expect the franchise's growth trajectory to accelerate with the launch of ET-400 next year. We remain confident that the combined products can reach an active patient count that is significantly higher than the current level.

Speaker Change: Regarding our metabolic portfolio, we saw another nice quarter of remedy growth driven primarily by keraglutic acid.

Speaker Change: PKU Go Like continues to see strong interest in our acquisition earlier this year. We have seen an increase in referrals since we reengaged promotional activities in the second quarter, and we believe that having a fully dedicated metabolic sales force plus the anticipated launch of Tyrosinemia Go Like early next year will lead to significant growth in this franchise in 2025.

Speaker Change: Moving on to our pipeline candidates. During the quarter we received the exciting news that the FDA has accepted our new drug application for ET400, a proprietary patented formulation of hydrocortisone oral solution and assigned it a PDUFA action date of February 28th of 2025.

Speaker Change: We are now more than six months into the review of the application, and we believe that it is going well. As a result, we have scheduled the manufacturing of initial launch inventory later this quarter. This will enable us to have commercial product available shortly after the potential FDA approval.

Speaker Change: Our team is hard at work on all other aspects of launch preparation, including our marketing campaign.

Speaker Change: In addition, last week we received good news that the U.S. Patent and Trademark Office has granted us a second patent for EP-400, further strengthening our IP protection on this important product.

Speaker Change: On to ET600, where a pivotal study has now been initiated. This study should be completed relatively quickly, and we anticipate having an initial data readout near the end of this year. If successful, this will allow us to file the product's NDA by the end of the first quarter in 2025.

Speaker Change: As you may recall, we previously ran and passed a pilot study in the first part of this year, so we are optimistic about the outcome of this pivotal study.

Speaker Change: And with Incolex now further bolstering our pediatric endocrinology presence, we are very excited about the prospects for ET600. If everything goes as planned, ET600 will be our fourth commercial pediatric endocrinology product and could be on the market as early as the first quarter of 2026.

Speaker Change: As you've seen from our results, we are executing on all fronts. I am proud of the team for delivering another stellar quarter of financial results that resulted in gap net income, making progress advancing our pipeline candidates and executing a transformational acquisition.

Speaker Change: I could not be more excited for how we are positioned entering 2025. With all of this progress, we are well on our way to reaching our three long-term goals for the company.

Speaker Change: That is 10 commercial rare disease products with Inquilex and potential near-term launches of ET-400 and ET-600, we have a clear path to 8. We hope to have additional commercial products in 2025.

Speaker Change: Secondly, reaching $100 million in revenue, the expected launches of both ET400 and Incolex should put us on a trajectory path to achieve this in the near term.

Speaker Change: Thirdly, reaching a $1 billion market cap. If we're successful in delivering on our strategy on these first two goals, and developing and launching new products, and continuing to execute value-creating acquisitions, we believe we can reach this milestone in the coming years.

Speaker Change: We appreciate all of our shareholder support, and we continue to believe big things are ahead for Eaton. With that, I'll turn it over to James, our Chief Financial Officer, to discuss the financials. James?

Thank you, Sean.

James Gruber: Our third quarter revenue was $10.3 million compared to $7.0 million in the third quarter of 2023.

James Gruber: Revenue for the third quarter of 2024 included $0.5 million of licensing revenue, resulting from the sale of our DS-200 product candidate in September of 2024, and we reported zero licensing revenue in the third quarter of 2023.

James Gruber: Net product sales for the third quarter of 2024 increased 40% to $9.8 million compared to $7.0 million in the prior year period.

primarily driven by growth in alkanes sprinkles and curulumic acid.

James Gruber: RMD expenses for the quarter were $0.5 million compared with $0.6 million in the prior year period as overall development activities were relatively flat year over year.

James Gruber: General and administrative expenses for the quarter were $5.3 million compared with $4.3 million in the prior year period.

James Gruber: do primarily to increase sales and marketing activities, legal expenses, and employee-related expenses.

Total company net income was $0.6 million for the quarter.

James Gruber: compared to a net loss of 0.6 million in the prior year period.

James Gruber: Net income for basic and diluted share during the quarter was 2 cents compared to a net loss for basic and diluted share of 2 cents in the prior year period.

James Gruber: It is worth noting that even without the profit associated with one-time licensing revenue this quarter,

Speaker Change: He still generated positive net income, which, as Sean mentioned, is a very important milestone for the company.

Speaker Change: Eaton finished the third quarter with $20.3 million of cash on hand.

Speaker Change: and generated $2.9 million of operating cash flow during the quarter.

Speaker Change: This concludes our remarks on third quarter results. And with that, we'll turn it back over to the operator for Q and A.

Speaker Change: Thank you. We will now open the line for questions. As a reminder, please press star 1 to join the queue.

Speaker Change: If you are called upon to ask your question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.

Speaker Change: Your first question comes from the line of Chase Knickerbocker, with Craig Hallum, please go ahead.

Chase Knickerbocker: Good afternoon, guys. Congrats on all the progress here and thanks for taking the questions.

Speaker Change: Obviously, you know, you guys are well familiar with, you know, many of the potential and current prescribers of Incralex.

Speaker Change: Can you kind of let us in on what you heard from them as you were kind of doing your work on the product that got you You know very interested to pursue the deal just kind of any color on kind of your due diligence there. They got you really excited. Thanks

Sure. Thanks, Chase.

Speaker Change: So, we won't be able to go too much into it before the deal closes, but...

Speaker Change: Obviously we're very excited about the opportunity, as you mentioned, we know a lot of the doctors, we've talked to them.

Speaker Change: They've said it's a very good product. It's a needed product.

Speaker Change: There's no other alternatives for these children, so it was a critical product. They wanted to make sure we kept it on the market and available to all these patients.

Speaker Change: I think they thought there was an opportunity for even more education and awareness.

Speaker Change: within the community and that's what we intend to do. We think we've got a good presence, good relationships with the community, and we look forward to increasing the awareness, education, and we think the treatment within the population.

Speaker Change: Great. And then, to the extent that you can, you know, kind of before closing.

first kind of

Speaker Change: How we can think about Anchorlegs on the top line under Eaton ownership. You know, it looks to be fairly, have been fairly steady with some kind of recent fluctuations under Ibsen.

Speaker Change: Any thoughts on what you guys can do to potentially return the product to growth? And then on the expense side, how should investors think about SG&A needing to increase as a result of this transaction?

Sean Brynjelsen: Hi James, this is Sean. So on the top line, we certainly don't think a little bit less than what it's done historically. The plan here is to have a dedicated sales team that is bringing that product really back to the forefront of

Sean Brynjelsen: of these doctors' minds as they have patients come in who have growth issues that Incolex is another tool within their bag they can use to treat them.

We know that at one point there was...

Sean Brynjelsen: just under 200 patients on product and we think we can get back to that just by simple promotion and education and hopefully the doctors will be able to diagnose and administer more broadly. So we're looking at that as one lever.

Sean Brynjelsen: At some point, we'll see. Europe has far more patients than the U.S., and we'll have to figure out what's going on there and all that. Perhaps we can understand that and perhaps grow the market above the 200 patients.

Sean Brynjelsen: but those will be the initial steps. Our plan will also include putting together an advisory board of medical doctors leading

Sean Brynjelsen: healthcare providers that understand the disease state and will help us to make sure that patients are number one because at the company, it's patients first, then products, and then services, patient support services, in that order.

help as much as we can.

Speaker Change: And then the second part of your question regarding the expenses, I guess I'll let either maybe James want to take that one?

James Gruber: Hey, Chase. Regarding SG&A, as Sean mentioned in his remarks, here in the U.S., we are going to increase

Speaker Change: We're going to expand the sales force, so there'll be additional investment there. As David mentioned, there'll be additional investment in market education.

Speaker Change: So a decent amount of investment here in the United States and then outside the U.S.

Speaker Change: decent amount of investment in ex-U.S. infrastructure, logistics, decent amount of regulatory investment. So after the deal closes, we'll provide a little more

Speaker Change: detail behind specific 2025, but decent amount of investment expected next year.

Speaker Change: Got it. And then on Carl Glumick, I mean you noted sequential growth again. You know, did you add a couple more patients in the quarter and kind of do you think that growth can kind of continue sequentially? And then Sean, any engagement with FDA and ET400 in the quarter or kind of what informs kind of the confidence that you mentioned in the prepared remarks?

Speaker Change: Sure, on Kurt Blumeck, maybe James you want to speak to that in terms of the sales rating?

Speaker Change: Yeah, you know, we've had, it's been a great contributor of revenue growth for us to date.

James Gruber: You know, we've overachieved what we expected to from a market share standpoint. So while additional growth is certainly possible.

James Gruber: You know, the reason we built up our internal pipeline and been so active at U of A is to bolster the product portfolio, the additional products, because, you know, we're never going to say the product's not going to continue to grow, but it's got limited opportunity.

James Gruber: Go for it, Sam. I think that's fair and really, as we go forward with these new opportunities, we're looking at patent protected, IP protected, true branded products.

and really hitting unmet needs.

James Gruber: Kurt Blumick, as you know, is an AB rated version of Carver Glue and so that offers...

James Gruber: I think it's another option for patients, but it wasn't really filling in on that need. Carver, who had that need met, it's really just offering a lower price.

James Gruber: But our real passion here is to bring in products that can address unmet needs. Like I always say, there's over 5,000 rare diseases, most of which are ultra-rare.

That's the work we like to do.

James Gruber: And to that point, ET400 review is going very well, in my opinion. We don't have any open items at this time.

James Gruber: and we're expecting a labeling in the near future. So once the labeling comments start coming in, you know, we'll feel pretty good about the February 28th PDUFA Day.

Speaker Change: Great. Thanks for taking the question, guys. Appreciate it. Congrats again. Yeah, my pleasure.

Speaker Change: Again, if you'd like to ask questions, please press star 1 to join the queue.

Speaker Change: And that concludes our question and answer. Ladies and gentlemen, that concludes today's call. Thank you all for joining.

Please wait, the conference will begin shortly.

And last, but certainly not least... Brandon Walker!

Speaker Change: and James B. Green. Thank you. You're welcome. See you next time. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye. Bye.