Eton Pharmaceuticals, Inc.

Good afternoon and welcome to the Eaton Pharmaceuticals Second 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.

Thank you, operator. Good afternoon, everyone, and welcome to Eaton's second quarter 2021 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. Joining me on the call today, we have Sean Brunch-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 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 SEC. Now, I will turn the call over to our CEO, Sean Brinjelson.

Thank you, David. Thank you, everyone, for joining us today as we discuss our second quarter earnings results. During the second quarter, we had a number of important accomplishments, including the approval of ResiPRESS, a ready-to-use formulation of ephedrine injection. For years, hospitals have had to manually dilute or compound concentrated ephedrine in emergency care situations. Now, with the approval of ResiPRESS, Eaton is offering yet another value-enhancing option for physicians and caregivers. This is now our fourth FDA approval, and I'm very proud of our team and the hard work they have put in to achieve so many approvals in such a short period of time. Of the nine products in our pipeline, nearly 50% are now approved, with the others under FDA review and approval expected over the next couple of weeks and months. Currently, there are over 6 million vials of the concentrated ephedrine injections sold annually in the U.S. market. As you can imagine, this would translate into a significantly higher number of ready-to-use doses once they have been diluted for administration. We would expect to launch ResiPress at a slight premium to the ephedrine concentrate in the coming months. Eaton also expanded our orphan drug pipeline in the quarter. with the acquisition of the U.S. and Canadian rights to Xenio hydrocortisone. Xenio is a proprietary needle-free autoinjector that is designed to quickly and safely deliver a rescue dose of hydrocortisone during an adrenal crisis. Since launching Alkindi Sprinkle, we had constantly heard patients describing an autoinjector as the number one unmet need for the adrenal insufficiency community. So we are very excited to be able to work with CrossCheck to try to bring this treatment to the community as quickly as possible. This product is a perfect strategic fit with Elkindi Sprinkle. Elkindi Sprinkle is the daily maintenance treatment for pediatric AI patients, and Xenio Hydrocortisone is the rescue treatment that AI patients are likely to carry with them, similar to how someone would carry an EpiPen for, obviously, a different indication. The announcement of our deal has also helped further deepen our relationship with the AI community. Numerous physicians and patient advocacy groups reached out to express their excitement for the project, including some leading pediatric endocrinologists that had previously been hard to reach. Now more on our Alkindi Sprinkle commercial launch. We were pleased to be able to initiate in-person meetings during the second quarter. Now we are prioritizing in-person meetings, and their frequency has surpassed our Zoom and telephone calls in recent months. We are finding in-person meetings to be significantly more effective than Zoom calls. Physicians are much more engaged when meeting person-to-person, and they enjoy being able to see Alkindi samples so they can feel comfortable knowing exactly what they are prescribing to their patients. As a result of this ability to now host more in-person meetings and the positive feedback we have received, we are now planning to expand our field sales force. The ongoing feedback is clear. Physicians and patients like Alkindi So we believe increasing the reach and frequency of our in-person meetings with doctors will accelerate adoption of the product. To illustrate this point, to date we've only reached approximately 10% of prescribing physicians in person. What that means is that we have a long runway of growth ahead of us. The company is also seeing favorable support from payers that understand the critical need to dose precisely in pediatric patients. We are not aware of any patients that have had LKINDI coverage rejected by their insurer, and many patients are starting with a quick start program where we immediately fill the prescription so the child can begin treatment and handle the paperwork and the administrative aspects on the back end. This process has worked seamlessly with patients, converting to their insurance coverage by the second monthly script. Currently, more than 90% of patients on treatment are being reimbursed for the product, and the remainder are newly added patients on the quick start that are expected to convert to commercial coverage by next month. While the initial launch faced some COVID-related headwinds that limited our ability to get in front of doctors, the physicians' reactions to in-person meetings and the strong payer's support has confirmed our assumptions about the product and given us greater confidence in our long-term expectations, which remain unchanged. While we had some delays in our pipeline during the quarter, in large part due to COVID-19 delaying the FDA's international inspections, Our team has proven that we are resilient, and I am confident we will be able to achieve approval on these products in short order. The company is looking forward to the new Topiramate PDUFA date of November 6th. The product is manufactured at an already FDA-approved U.S. manufacturing site that was successfully inspected in late 2020, so we do not expect any inspection issues during the review. We also continue to believe that the zonisamide application is fully ready for approval whenever the FDA can complete the foreign manufacturing site inspection. Unfortunately, we have not been given any indication of timing from the agency, but the manufacturing site has many other pending product applications, similar situation to ours, and we're hopeful the agency will prioritize the site with a near-term inspection and allow these important products to get to patients. Regarding our dehydrated alcohol and lamotrigine products, we expect both product applications will have amendments filed shortly with the FDA. And after responding to these FDA questions, we believe approval of the product could occur early next year. Eaton is excited for all four of these products to be approved and launched in the near future, which sets the company up for a very strong growth in 2022 and beyond. Before discussing financial results, I would like to just summarize and to thank also our long-term shareholders for their continued support and their belief in the vision of the company. I sincerely believe that Eaton's outlook has never been stronger than it is today for a number of reasons, One, the Alkendi launch is taking stride, growing sales every week. Two, we're on the cusp of launching our fourth commercial product. Three, we have four more potential product approvals lined up in the coming quarters. And lastly, we are fully funded with more than $25 million of cash today, plus more milestone payments expected to come in soon. Therefore, no need for external financing in the foreseeable future. With that, I would like to turn the call over to Wilson, who will briefly walk through some of the financials before we open up the call for Q&A. Wilson?

Thank you, Sean. Eaton reported revenue of $3.1 million for the second quarter of 2021. Revenue included $2.5 million of licensing revenue related to the company's previously announced transaction with Azurety. In the prior year period, the company did not record material revenue. General administrative expense for the second quarter of 2021 were $3.3 million compared to $2.9 million in the prior year period. The increase was largely due to increased costs related to the commercialization of Elkendi Sprinkle. G&A expenses for the second quarter of 2021 included $0.7 million of non-cash expenses. R&D expenses for the second quarter of 2021 were $2.0 million compared to $1.6 million in the prior year period. R&D expenses in the quarter included a one-time $1.5 million payment related to the acquisition of U.S. and Canadian rights to Xenio Hydrocortisone. Eaton reported a net loss of $2.0 million compared to a net loss of $4.7 million in the prior year period and resulted in a loss of $0.08 per share in the second quarter of 2021 compared to a loss of $0.23 per share in the prior year period. Eaton finished the second quarter with cash and cash equivalents of $25.8 million. We remain confident that our current cash position is sufficient to allow us to launch our products and continue to pursue value-creating business development opportunities. With that, I would like to turn it over to the operator for Q&A. Operator?

Thank you. As a reminder, to ask your question, you will need to press star and then the number one on your telephone keypad. Again, just press star and then the number one on your telephone keypad. And to withdraw your question, just press the pound key. We'll pause for a moment to compile the Q&A roster. Our first question comes from the line of Jason, a private investor. Sir, your line is open.

Hey, guys. So there was some third-party media outlet, Seeking Alpha, I believe, that published something about labeling related to Al-Kindi and the FDA getting involved. I'm curious if you guys are aware of that and if you have any comments.

Yeah, we are aware of it. Just for everybody on the call, this is a Google ad. We believe when we distributed the link, it's a sponsored link, that it was acceptable to provide a link to the risk information. It was now understood that that was incorrect. So the risk information had to be a part of that whole thing. So we've removed the ad. Sometimes what happens on these things, it certainly was inadvertent and it wasn't purposeful. I think it will be resolved. Obviously, we take these things seriously. We're committed to regulatory compliance. And more importantly, we made the corrective step.

Thank you. And as you guys look at where you're at with the Al-Kindi ramp sort of going into the fourth quarter with this Delta variant popping up in certain parts of the country, and the complimentary first-month dose through this acceleration program that you have. I mean, should we be thinking about modeling sales over the coming quarters or months differently than, say, how we might have thought about things a quarter ago?

You know, that's a good question. It's hard to say. Many states and, in fact, many countries feel that with the large number of people that have been vaccinated and and those who have not been vaccinated probably caught COVID anyways, that you have a pretty robust population in terms of resistance to the Delta variant. I think that there's, this is my own private opinion, that there's a lot of fatigue about lockdowns and that, you know, people are ready to move forward. So we're not seeing, you know, really reversion. There are some states, obviously, but we believe we'll continue to be able to reach prescribing docs face-to-face in many places. And I think that, you know, one point we made in our opening remarks is that we really have only scratched the surface. In terms of face-to-face visits, it's been, you know, approximately 10%. So there's a lot of runway. And yet, you know, we're seeing each week more and more patients as each week goes by, which is, you know, very typical for an orphan drug product where you're trying to change prescribing practices, you're trying to get doctors to get familiar and used to the concept of switching from whatever they were doing in the past to something that is more appropriate for this age group and for these patients, and more importantly, indicated for these patients.

Thanks, Sean. I don't have any more questions at this time. Thank you. Thank you.

Thank you. Your next question comes from the line of Andrew DeSilva from B. Reilly Securities. Your line is open.

Hey, good afternoon. Thanks for taking my question. Sorry if you answered this. I actually got dropped off. I think I had a bad connection for a second. But if you could, just give any color on product revenue breakout during the quarter. And then how should we think about product revenue upticking in the back half of the year now that you have obtained approval for a ready price?

Hi, Andy. Thanks for the question. So we didn't break out product-specific revenue. But as we've talked about in the past, obviously, Alkindi is the biggest driver, revenue driver going forward. The back half of the year, we expect Alkindi to continue to ramp even more as we grow patients. And we talked about potentially increasing our sales force, which should accelerate the revenue growth in the back half of the year.

Okay, perfect. And then with ResiPres, that's a vial, correct? Not the ampule formulation that was approved?

No, actually, yeah, this is a little bit of a redo with regards to biorphine. It is an ampule. We will offer it into a vial at some point, but we believe the product will have sales. We're in the process of that, of converting it, and I think that that won't be nearly as long. Part of the reason with the biorphine vial conversion it took long is that we had completed the site transfer, nearly completed the site transfer at a facility in France, and The French government basically took it over for COVID production, for vaccine production, so we had to then do the site transfer again to the U.S., so it's been a little longer, but that's really close to being complete, and we think that both biorphine and resipress and vials are big drivers and important products over the coming months, not years.

Okay, good to hear. And then as it relates to the Xenio injector acquisition, first, are you aware of any competing hydrocortisone injections that are being developed? And then could you talk about the market synergies with Altindi as far as any differences in the target positions or anything like that?

Sure. So shortly after we announced our deal, And Terry's Pharma announced their own hydrocortisone emergency auto-injector. We didn't indicate market. They had indicated a market of $100 million or something like that. There's enough room for both of us. But I'll tell you, these products, especially with devices, are not always the easiest. They don't always stay on time. We believe the cross-check device is really just, it's not in a development stage. It's really a complete, very reliable, in my opinion, very usable system. It's needleless, which we think will appeal to patients. And we believe the product will be preferred over a needle. And it's really easy to use. It's like two steps. I mean, Somebody put it in front of me. I had no instructions, and I was able to activate it and use it. You know, obviously we're using this on a test recipient. It's a test case. It's kind of like this vial that you inject it into. The product has been on the wish list for, you know, adrenal patients, insufficiency patients for a number of years. And the fact that Antares was working on it sort of validates that you know, we made the right decision in terms of the market is a good market and it will continue to be a good market. You know, and I think we'll get there before then. That's just my opinion.

Great, great color. And I understand a lot of the CRL and regulatory-related delays are tied to manufacturing or candidates to be sold. But in general, is there anything else you can do to through bringing in additional development-focused specialists or reallocating your team members to that area of focus. I'm just looking at the CRL to approval rate since you went public. It's just not aligning with industry norms. I wonder if a greater investment in the area of oversight would just enable you to resolve critical issues prior to CRL being issued or at least be able to convey potential holdups to us in advance.

Yeah, it's a fair question. Some of the products had been literally fully developed by our partners, and so we had very little in the development, and it had been submitted, and you get the CRL. But with the 505B2s, the CRL process has almost become routine. It's like having a deficiency of some sort, and you have to go and respond to it. But you can see that of the four products that we have approved, three of them had CRLs, if my memory is correct, and they ultimately get approved. So this isn't like a new drug entity or branded product being developed by, let's say, a Pfizer, where you get a CRL and it potentially is dead because the clinical didn't work. The products we are developing, we know they work for their indication, so we think the risk is much lower, and a lot of the CRLs have to do with CMC, you know, chemistry-type related issues or manufacturing. I'm not, and we want to minimize those, obviously. To your point, though, we have contracted, we do have a contract, you know, kind of like a scientific consultant that's now on staff, or I should say not really on staff, but a consultant that we're using to really dig into the due diligence on a lot of our projects, and we hope to improve that and have a lower CRL rate, which obviously is what everybody would like to see, and I get that, but they do come, like Topiramate, I don't know if I really call that a CRL. We've submitted information. FDA wanted more time. That's fine, but I think that product is well poised for approval.

Okay. Fair enough. Thank you very much, and best of luck going forward.

Sure. Thank you. Next.

Thank you. Your next question comes from the line of Ram Selaraju from HC Wainwright. Your line is open.

Thanks very much for taking my questions. I was wondering if you could provide a bit more granularity regarding what you expect to be the steady state size of the sales force to support Alkindi Sprinkle, and if you could also give us some visibility into how you anticipate the commercialization effort for Alkindi Sprinkle to be dovetailed with or complementary to the efforts you make with respect to the Zeneo auto-injector product.

Go ahead, Paul. I'm going to let Paul take this question. He's our Senior VP of Sales and Marketing. Thanks, Sean. Hi, Ram.

Thanks for your questions. With regards to the steady state, it really comes down to determining how many key physicians we need to see are in the United States, and are we able to see them with the right reach and frequency? And ultimately, when we launched Alkinji Sprinkle, we were in unusual times in the pandemic, and so we allocated resources to a different modality. We put some on the inside sales and then outside sales, but always with the intention of fully resourcing the outside sales team appropriately, and since we've started to see some more in-person calls, the productivity of those calls is substantially higher than the type of calls that we'd be delivering over Zoom and telephone. And so that was something that we saw, and we knew at some point we were gonna go do that, and then as the country opened up, we do anticipate getting to our full size of between five and eight sales representatives to support Alkindi Sprinkle. Your other question related to Zaneo, I think that there's a tremendous amount of synergy that can be unlocked with Alkindi and Zaneo together. To put a little finer point, the advocacy organizations in the adrenal insufficiency community have stated that this is their number one concern, to have an auto-injector for emergency crisis situations. And we are calling on those very same physicians that would be prescribing in the future, and so we've already established a great relationship with them and anticipate continuing to do so, and so I think it's going to be a very nice synergistic fit, and I think we'll be well-positioned to grow this product once it's approved by the FDA.

Great. Thanks very much. We also wanted to visit the timing that you anticipate for the payment of future regulatory-related milestones from Missouri D. Is it reasonable to expect that only the milestone related to the Topiramate approval, which you now anticipate to occur in November of this year, will be a milestone that's paid in 2021 and everything else that you expect from Azurity would most likely occur after the end of 2021? Or is there a possibility that you could receive payments from Azurity beyond the Topiramate approval related regulatory milestone payment in 2021?

I think that it's a fair assessment of how you communicated it, that it's likely that the Topiramate payment will happen this year, and then likely the other ones will happen in early 2022. For us, it's not a huge – it's not that meaningful because it's still – like I said, we have plenty of cash for a long time, and those payments coming in, let's say, Q1 – is not really material from our perspective. We'd like to get them sooner, of course, but they're coming. The files are strong, they're solid, they're good. FDA comments have been very constructive, and more importantly, are products that are needed by patients. So I think that they're all positioned for approval in the coming months.

Okay, and then with respect to... here. The dehydrated alcohol injection product candidate. Can you just clarify for us what type of review period you expect the FDA to assign to the application amendment once it has been submitted?

Sure. I believe it will be approximately three months as long as they classify it as a minor. I think majors are six months. But a minor, we believe it will be a minor and We'll respond to it shortly. One of the items was just wanted some additional stability data and things like that, but no real additional work per se, just additional literature information, additional clarification on indication. I'm just giving you sort of a few of the types of things that were in there, and yeah, we're happy with how that's going, and we'll have a a meeting with the agency and just say, look, this is what we're going to give and make sure they're all on board with it. But it's been good dialogue. I think that the product is in good shape.

Okay. And then lastly, with respect to the cysteine injection, can you just give us a little bit more background on what gives you confidence that you will prevail in this litigation?

Sure. Well, I know that in any litigation, the opposing side likes to make things complex, but the reality is our partner, which I guess you could say us in a way, have been making this product for 20 years, same formula, same specs, same everything, and somebody decides to come out and patent a formula that we've had on the market for a very long time. So We have a very good position, a very strong position. There's nothing new or novel, in my opinion, about what they're trying to claim as new and novel. All these things were already part of our product. So fundamentally, it is, to me, immoral for companies to try patenting old products that have been on the market for decades and then try to secure a monopoly at extremely high prices you know, and really abuse the U.S. healthcare system. So we're going to convey, you know, what the facts of the situation is, and the best way to win a case is to have the facts on your side, and we believe the facts are on our side.

Great. Thank you very much.

Sure.

Thank you. There are no other questions on the queue. Ladies and gentlemen, this does conclude today's conference call. Thank you for participating. You may now disconnect.