Eton Pharmaceuticals, Inc.

Good afternoon and welcome to the Eaton Pharmaceuticals first quarter 2021 financial and operating results conference call. At this time, all participants are in a listen-only mode. Following the formal remarks, we will open the call up for your questions. 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, Senior Vice President of Business Development and Investor Relations at Eaton Pharmaceuticals. Please proceed.

Good afternoon, everyone, and welcome to Eaton's first quarter 2021 conference call. This afternoon, we issued a press release that outlines the topics that we plan to discuss on today's call. The release is available on our website, eatonpharma.com. Joining me on our call today, we have Sean Brinch-Elson, our CEO, Wilson Troutman, our CFO, and Paul Stickler, our Senior Vice President of Sales and Marketing. Before we begin, I would like to remind everyone that statements made during this call may contain forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those contained in these forward-looking statements. Please see the company's 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, Shawn Brinjelson.

Shawn Brinjelson Thank you, David, and thank you, everyone, for joining us today as we discuss our first quarter earnings results. I am pleased to share that we reported record revenue and, more importantly, profitability in the first quarter of 2021. The strong earnings were a result of the years of hard work we have put in since starting the company a few years ago. With the recent launches of Alkindi Sprinkle and Aloe Preservative Free, we now have three commercial products generating revenue for us. In addition, this quarter, we were able to monetize the work we put into our Neurology Oral Liquids franchise with Azurity Pharmaceuticals or with the Azzurri Pharmaceuticals transaction. This transaction brought in 9.5 million in the quarter and should provide us with payments of up to 45 million in the coming quarters and years, in addition to a single-digit royalty on future sales of the products. I will start my remarks today with our lead product, Alkindi Sprinkle. Alkindi is an orphan drug product for the treatment of adrenocortical insufficiency. It became commercially available in late Q4 and fully promoted in January after the holidays. Our sales reps have already engaged with more than 90% of their initial targets in the pediatric endocrinology community. These engagements have been largely virtual through video conference calls and such, but we have recently seen a growing group of physicians and hospitals allowing for in-person meetings. Furthermore, we expect in-person meetings to lead to drastically higher conversion rates and are therefore shifting our sales focus strategy to allocate more resources to states that are allowing in-person meetings. We will be focusing nearly all of our sales rep efforts on accounts in states that are open so that we can conduct as many in-person meetings as possible and as quickly as possible. For example, if the Northeast Territory is not accepting in-person meetings, that sales rep would be helping out in Texas, Florida, or whichever states we have scheduled in-person meetings in. We've got all hands on deck targeting the open states, and as additional states open up, the team's focus will rotate to the newly open states. Just to be clear, there are some states which aren't fully open that do accept visits, and obviously we would continue to visit those hospitals as well. So the key point here is really that in-person visits will take precedence over Zoom calls. We find them far more effective than Zoom calls, and we find them far more informative for the physicians. As a lean and nimble company, we have the advantage of being able to quickly make these types of changes and rapidly adapt to the evolving landscape across the United States. We believe this strategy will produce stronger results than continuing to have sales rep pursue strictly Zoom calls in closed states, for example. And I am very proud of how quickly our team was able to implement this strategy. As we discussed on our last call, we have implemented a quick start program that allows new prescriptions to be immediately filled for patients even while the administrative paperwork and reimbursement process is worked through behind the scenes, which may take a few weeks. We think this is an important program to get patients in need treatment as quickly as possible, but it does mean that the revenue for those scripts can often lag the start of treatment by a month or two. We will continue to focus on generating as many new scripts as possible, and we know that the revenue will follow. I'm pleased to report that we've already received more than 100 new patient scripts, and we continue to work towards our goal of having more than 400 new patient scripts by the end of 2021. Now a few words regarding EM-100. During the quarter, our partner, Bausch Health, launched Aloe preservative-free in major retailers across the country. We've been pleased with the commercial launch efforts by Bausch so far, and given the initial sales data, it looks like the product will be a success. Patients and doctors are excited to finally have a preservative-free allergy treatment available over the counter. Our third commercial product is Biorphin, our ready-to-use phenylephrine injection. Biorphin sales continue to grow as more hospitals adopt the product, and we believe that major market adoption will coincide with availability of both our vial and pre-filled syringe presentations. Sales month over month continue to grow with phenylephrine. We would expect that to increase dramatically once we offer these additional presentations. However, our vial manufacturer ran into delays due to government-mandated capacity reservation for the COVID vaccine production, but we went ahead and executed a backup plan and expect to have the vial product available in 2022. In addition, we've made progress on the pre-filled syringe line extension, and we expect to have that product also in 2022. Now turning to our pipeline products. We are approaching a very exciting period for our company and our pipeline. We have a total of six products under review at the FDA, with four of those PDUFA dates coming up in the next three months. We or our partners are engaged in regular communications with the FDA, and we hope to have these products approved and launched very shortly. We expect to continue to replenish our pipeline with additional business development transactions in the near future. We remain active in our pursuit of high value, additional late-stage orphan drug products, and look forward to transacting in the coming quarters. With that, I would like to turn the call over to Wilson Trautman, who will briefly walk through some of the financials before we open up the call. Wilson?

Thank you. Revenue was $11.9 million in the first quarter of 2021, which included licensing revenues with the Zerdy Pharmaceuticals and Bosch Health, along with our sales of Alkindi Sprinkle by Orphan, and product royalties from LOA preservative free for the quarter. Gross profit was 10.3 million or 86% of sales for the first quarter of 2021 and reflected the limited cost of sales associated with our licensing revenue. Research and development expenses were 0.9 million for the first quarter of 2021, which was a 5.4 million decline as compared to 6.3 million of R&D expense for the same period in 2020. The R&D expense in 2020 reflected 4.8 million used to acquire the licensing rights to Elkendi Sprinkle. Given our pipeline products that we have filed with the FDA, absent of new business development transactions, we expect R&D expenses in 2021 to remain well below the full year 2020 levels. General and administrative expenses were 4.1 million for the first quarter of 2021, compared to 2.6 million for the same period in 2020. This increase is primarily driven by higher selling, marketing, and distribution spending for our commercialization of Elkendi Sprinkle, which we launched in December 2020. G&A expenses in the quarter included 0.7 million of non-cash expenses for 2021, compared to 0.4 million for the 2020 first quarter. As a result of these factors, our quarterly net income was 5.1 million, or 19 cents per share, in the first quarter of 2021. as compared to a net loss of 9.0 million for the same period of 2020. As of March 31st, 2021, our cash balance was 25.1 million. Our strong cash position gives us room to launch our products and still pursue new business development opportunities. We will now open up for questions. Operator?

Thank you. As a reminder, to ask a question, you will need to press star one on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from Andrew DeSilva with B Riley. You may proceed with your question.

Hey, good afternoon. Thanks for taking my question, and congrats on the progress. Just a couple quick ones. Start related to the neurology sale. I believe it's 5.5 million or so. of what was received at closing was actually in escrow. Where are we on the milestones related to that? And maybe just refresh my memory on what those triggers are. And then if you could just let us get a better understanding of what you think R&D should look like as the year continues, obviously pretty volatile quarter to quarter.

Sure, Andy. So the 5.5 was held in escrow, you're correct. We received one million of it already in Q2. The remaining 4.5 we expect to come through later this year when various, I would call them administrative, such as patent filings, certain things like that are accomplished throughout the year. So we still expect that to come through later this year.

Great. And as far as R&D?

R&D, I think Q1 was a fairly good run rate. assuming no other business development transactions in the year. The products have all been filed with the FDA. A lot of the expense last year, besides the one-time Al-Kindi fees, was NDA filing fees of $1.5 million per product, as well as some of the development work that went in pre-filing. So with the products filed, no more fees on the horizon. The Q1 rate will probably be what we see the rest of the year, except for any new future business development transactions that may increase the R and D expense.

Okay. That makes sense. And then, um, as it relates to DS 100, could you just refresh my memory on the market dynamics there? I remember, uh, there was originally only, uh, one player in this space. I was curious if that changed at all. And if there was a change in, uh, the WAC pricing there.

No, there's no change. There's one other, one current supplier of dehydrated alcohol. in the market. They have a different indication than our product, but they're the only player in the market.

Okay, great. And the last question, as it relates to the launch of Bosch, you know, it's a pretty abnormally high algae season right now. I was curious if now that they're launched, you're seeing any sort of an uptick in efforts on their part, either for marketing, and then if you're seeing anything translate to sales.

So what we've seen from Bausch so far is the Q1 results, and as you remember, the product launched in February, so it was really about a month and a half worth of sales. We were very happy with the results. We think they're doing well. We think the product should be successful, but we have no insight into the April or early May sales of the product yet.

Okay, perfect. Thank you very much. Best of luck going forward.

Thanks, Andy. Thanks.

Thank you. And as a reminder, to ask a question, you'll need to press star one on your telephone. Our next question comes from Ram Salvaraju with H.U. Enright. You may proceed with your question.

Hi, guys. This is Rob on for Ram. A few questions for me, if I may, and congrats on the quarter. So can you help us understand how large the Canadian market opportunity is for Alkindi Sprinkle? And what sort of level of infrastructure would you need to penetrate that territory effectively?

Hi, Rob. My name is Paul. Yeah, the Canadian market roughly is about the tenth of the size of the U.S. market, and so in terms of infrastructure, we would really not need a whole bunch of people up there at this point in time. I do think that, based upon my prior experience, that a very streamlined sales organization in Canada can be very effective, particularly in rare disease. Thank you for that.

My next question, so how many, can you help us understand, I don't know if you have this data yet, how many repeat prescribers are there for Alkeny-Sprinkle in the U.S., and how many patients have filled more than one prescription?

Yeah, so actually, in terms of the repeat prescribers, we have a good number of repeat prescribers. With pediatric adrenal insufficiency, the healthcare providers that treat that disease tend to treat a lot of them. So we've been very happy with the repeat orders that have been coming. And what was the other part of the question again?

So how many patients have actually filled more than one prescription?

A reasonable percentage. I'd say, you know, under 50%. Okay.

Thank you for that. My last question, so, you know, you've stated before that you're, you know, a developer of rare disease drugs. And are you abandoning the more traditional specialty pharma model? And what do you consider to be attractive target rare disease indications going forward?

Hi, Rob. This is Sean. So, the short answer to your question is we are firmly focused on rare disease, specifically orphan drugs. The products allow us to have effective launches with minimal SG&A. Typically, you have pricing advantages on rare disease and a smaller number of patients to, I guess, to reach. If you're a large pharma company, you can invest a lot of resources in perhaps visiting general physicians' offices, but that doesn't really work for a smaller drug company. Now, in terms of spec pharma, I would say that we've got a royalty business. that represents those types of products. So we have other companies that we've partnered with, and we'll continue to do that where it makes sense financially. But I would say going forward, you really should think of us as focused in the rare disease space.

Awesome. Thanks, guys, and congrats again.

Thank you.

Thank you, and that concludes our Q&A session. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.