Eton Pharmaceuticals, Inc.

Good evening and welcome to the Eaton Pharmaceutical 4th 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 to 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 Crimpa, Senior Vice President of Business Development and Investor Relations at Eaton Pharmaceutical. Please proceed.

Thank you, operator. Good evening, everyone, and welcome to Eaton's fourth 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 Shawn Brunjielsen, our CEO, Wilson Troutman, our CFO, and Kevin Guthrie, our Executive Vice President of Commercial Activities. In addition to taking live questions on today's call, we will be answering questions that have been emailed to us by investors. Investors can send their questions to investorrelations at EatonPharma.com. Before we begin, I would like to remind everyone that statements made during today's 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 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 Bridgeson.

Thank you, David. Thank you, everyone, for joining us this evening. We have a number of exciting product launches and new initiatives in motion right now, so I'm excited to provide all of you an update today. With the launch of ResiPress this week, we now have six commercial products in launch phase and an additional four products that have been submitted to the FDA and expected to be approved and launched in the coming quarters. I'll touch on each of them today, but I'd like to start first with our recent launch of carglymic acid, which occurred in December. We were very excited when we acquired this product late last year. It was clearly a great fit with our orphan drug business, and we knew it would be an important product for our company. Although we are only three months into launch, I am pleased to report that we are trending well ahead of our initial projections for the launch. Our product is the first and only generic of Carboglu, which is used to treat elevated levels of ammonia in the body and is one of the most expensive treatments in the world. The cost of treatment for many adult patients can exceed $1 million per year. So our lower-cost alternative has received a welcome reception from patients, payers, and healthcare professionals. Although we are a fully substitutable and bioequivalent generic, our product actually has advantages over the branded product. including the fact our product does not require refrigeration while the brand product does. Additionally, our product has a 90-day shelf life after opening versus 30 days for the branded product, and we expect our labeling to be updated shortly to reflect that. We've already heard from patients that they find this to be a very valuable benefit. Our strategy has been to actively detail the product directly to physicians and patient advocacy groups, at medical conferences with our orphan drug sales force rather than trying to drive adoption through aggressive discounting with payers. Payers often try to instigate a pricing war by requesting massive price discounts in exchange for sending volumes to your product, especially on generic products. Given our ability to use a sales force to directly talk to physicians and patient advocacy groups about the advantages of our product, we do not believe we need to engage in these aggressive pricing games. We believe this will be an attractive market for us long-term and are not interested in pursuing short-term revenue wins at the cost of destroying the long-term market economics. We believe the carbon blue market in the U.S. is more than $50 million annually, and our goal is to capture 25 to 35 percent of the market. We are very encouraged by the adoption we have seen in the first couple of months, and we believe we can reach our goal by the end of the year. We launched the product on December 20th, so it did not have an impact on the fourth quarter results we are reporting today. But now that we have already added patients throughout the first quarter, we would expect to see significant revenue from the product starting in the second quarter of this year. Now turning to other drivers for 2022. One of the primary drivers will be our orphan drug, Alkindi Sprekel, which is indicated for the treatment of adrenal insufficiency in pediatric patients. Alkindi sales continue to grow in Q4 compared to Q3. However, we believe They can grow at a much faster pace, which is why we initiated a co-promotion agreement with Tolmar late last year. We are pleased to announce this co-promotion partnership appears to be working, as we have already seen significantly higher rates of new prescriptions in recent weeks. Tolmar's 62-person sales force was fully trained in out-promoting LKD Sprinkle in the field starting in the second half of January. They have now been promoting the product for almost 60 days, and we are seeing the benefits of this expanded reach. As expected, they have been able to conduct a significantly greater number of in-person meetings with doctors than we were able to do on our own. In fact, last week we saw record new patient scripts breaking the old record that was set just two weeks ago, and March is on track to be by far our highest month ever for new patient scripts. We believe the full benefit of the Tolmar partnership will be even more apparent in quarters to come as Tolmar is able to achieve a steady cadence of repeat doctor's visits that are often required to change physicians' prescribing habits. In addition to the extra push from Tolmar sales reps, we are in the process of implementing an expanded digital marketing campaign. We will have new branding and messaging with an enhanced focus on directly educating patients and caregivers about the benefits of precision dosing. Next, I will turn to our two commercial hospital products, including our newest product launch, ResiPress. ResiPress is our own ready-to-use formulation of ephedrine. The market for ephedrine injection in the U.S. was over 85 million last year and grew more than 20%. The vast majority of the market is still sold in a concentrated form that must be manually diluted prior to administration. We expect the launch of ResiPress to help accelerate the adoption of ready-to-use products And ultimately, we believe the majority of the market will convert to ready-to-use. We have partnered with Xgen Pharmaceuticals, a leading injectable drug company, to commercialize our ResiPress ampule. Xgen has indicated to us that they've already seen strong initial interest from customers, and we are optimistic about the opportunity. Our other commercial hospital product, BioOrphan Ampules, continues to see increased adoption every quarter. However, it is still at levels well below what we believe the opportunity is once we convert to the vial presentation, which is why we are working aggressively to convert both ResiPress and BioOrphan into vial formats. I'm pleased to say that the manufacturing of registration batches of both products and vials occurred late last year, and the initial data looks good. We are just waiting on the final stability data time points in order to submit the prior approval supplements, but I expect them to be submitted in the second quarter, which could allow for a launch of both vials before the end of this year. Turning now to our royalty products. In our royalty product segment, our partner, Azurity Pharmaceuticals, launched a Prontia, our Topiramate oral solution, in December. We had found Topiramate to be the most requested oral liquid from pharmacists, so we believe there's significant demand and a large market opportunity for the product. The launch triggered a $5 million payment to us, and we will receive a single-digit royalty on sales of the product. The $5 million payment was recognized as revenue in our Q4 results when it was achieved, but the actual cash payment was received in early January, so it was not included in our year-end cash balance. In addition to all of this progress we've made on the commercial front, we have continued to advance our pipeline products in bringing them closer to approval. Zonisamide oral suspension. This is the product approval that had been held up last summer because the FDA was unable to inspect the UK-based manufacturing site due to COVID-related travel restrictions. However, the inspection has been completed. It took place at the end of January, and we believe it was a successful inspection that should allow the FDA to approve the product application. Unfortunately, we have not received a new target action date to share with you at this time, but we hope to receive a decision from the FDA in the coming weeks or months. The approval and launch of zonisamide would trigger another $5 million payment to us from Missouri. Secondly, lamotrigine. Our partner completed the human factor study and submitted the results to the FDA in the fourth quarter. We believe the response fully addressed all of the FDA's questions from the complete response letter. The application has been assigned a new target action date of May 2022. The approval and launch of lamotrigine would also trigger a $5 million payment for us. And CISTEEN. CISTEEN is our paragraph four trial ongoing this week. I am actually in Delaware now attending the trial, so I appreciate everyone's flexibility to hold this call later than normal. We continue to feel strongly that the Innovators Patent should never have been issued as our partner has been manufacturing the same CISTEEN product in the same format for more than 20 years now, well before Accela ever began working on the project. While we do not have a timeline for the judge's decision, our lawyers expect to receive it in the second half of this year. We believe we responded to the final minor request from the FDA in our application, which should allow our application to receive tentative approval as early as next month. As the first to file ANDA against the innovator, we should be entitled to 180 days of generic exclusivity if we successfully overturn their patents. The innovator's market is more than 50 million annually, so this would be a significant opportunity if we were able to prevail and launch the product. Finally, dehydrated alcohol. We are actively working on the resubmission to address the FDA's comments on the CRL. We held a meeting with the FDA in the fourth quarter and received feedback regarding exactly what the agency wanted to see in our response. It is taking us a little longer than originally anticipated to address those requests, but the dialogue with the FDA gave us increased confidence that we are fully addressing their points and providing them with an application that warrants approval and expect to have this wrapped up in the coming weeks. I think it is undeniable that we are in the most exciting time in our history and an important inflection point as we launch all of these products that we worked so hard to develop. Our goal remains to achieve sustained profitability by the end of this year, and we believe we are on a strong path to do so given the recent sales trends of carglymic acid and Alkindi. We believe we can achieve at least $25 million worth of revenue this year, including $10 million of launch milestones from Missouri D. plus potentially significant upside in the second half of the year from a number of items that could materialize for us, including the launch of biorphine, resipress vials, successful outcome in the litigation, and launch of our cysteine product, or receiving approval and launching dehydrated alcohol injection. So with that, I will now turn it over to Wilson to discuss our financial results. Wilson?

Thank you, Sean. Eaton reported revenue of $6.1 million for the fourth quarter of 2021, which included a $5.0 million licensing fee with Azzurri Pharmaceuticals from the approval and launch of Aprantia to Pyramid Oral Solution. There was no material revenue for the fourth quarter of 2020. Eaton's gross profit for the fourth quarter of 2021 was $5.8 million and reflected the impact of the Aprantia licensing fee and continued growth for our Alkindi sprinkle product. The gross profit for the prior year quarter period was not material. Research and development expenses for the fourth quarter of 2021 were moderate at $0.7 million compared to $3.4 million in the prior year period. R&D expenses in the fourth quarter of 2020 were elevated to a $1.4 million FDA filing fee for Tipirmate oral solution, a $0.6 million milestone fee for the FDA filing acceptance of Reciprez, and expenses related to the biorphin vial and other products in development. General and administrative expenses for the fourth quarter of 2021 were $3.8 million in both the fourth quarter of 2021 and 2020. Fourth quarter 2021 expenses were slightly higher for increased compensation expenses and marketing research consulting, along with FDA product fees for ResiPres. offset by lower sales and marketing expenses associated with the Q4 2020 launch of Elk Indy Sprinkle. The fourth quarter of 2021 included $0.8 million of non-cash expenses. As a result of these factors, Eaton reported net income of $1.0 million for the fourth quarter of 2021 compared to a net loss of $7.7 million for the prior year period. Eaton reported diluted earnings per share of 0.4 cents in the fourth quarter of 2021, compared to negative 0.3232 cents in the prior year period. Cash and cash equivalents were $14.4 million as of December 31st, 2021, and we received the $5 million Azurety milestone payment for the Terramate product launch in early January. Operator?

Thank you. Ladies and gentlemen, if you have a question at this time, please press star then 1 on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. And our first question comes from the line of Mitchell Kapoor with H.C. Wainwright. Your line is open. Please go ahead.

Hi, everyone. Thank you for taking the questions today. The first one is, you know, regarding Alkindi Sprinkle, could you just comment on any barriers to uptake you're seeing, if you are seeing any?

No, this is Sean. Thanks for the question. The Alkindi sprinkle numbers are looking great. I'm very happy with the partnership with Tolmar. We just had a record week of new prescriptions last week, and we've seen that week over week. So it's not a – I believe it's a good trend. It's a positive trend. I don't want to get, you know, too – I don't want to overstate it, but right now we are feeling very optimistic about our Alkindi numbers, our ability to hit our goals, and, you know, to hit a significant number of patients this year. So that's where we're at. You know, there are some barriers. Doctors and patients are working through those. You know, like, for example, a barrier might be somebody's used to using the compounded product and, you know, you give them something that's different. They have to get used to that. They have to understand it, learn about it. And that whole process can take some time. Some people it happens quick. Some people it happens not so quick. But we're starting to see the doctors prescribe it. And there's also a shortage of compounded hydrocortisone from what I understand, which is you know, perhaps it's also helping, it's a good win for us.

Thank you for that detail. That's very helpful. And then could you give any detail regarding any potential milestone payments for various programs during 2022? I know you mentioned a couple of $5 million potential milestones, but if we could just kind of go through those, that would be helpful.

Sure. I'll let David take this one. David?

Sure. So the major milestones include as you cited, are the two, it's already related, product launch milestones, the lamotrigine and the zonisamide. We get $5 million on the product launch for both of the products. The zonisamide, we expect to be approved in the coming weeks or months, we said, as soon as the FDA processes that inspection and gives us a response. The lamotrigine, we have the target action date in May of 2022.

Okay, great. And then could you just briefly comment on how you expect SG&A to trend in the coming quarters?

I think SG&A will be relatively flat going forward. We should be spending a little bit less on the Alkendi than we did in some of the periods in prior years, maybe a little bit more on Cargillomic. But I think it should net out relatively flat going forward, unless we have a major new product launched. if something comes along. But for the near term, I would say relatively flat.

Right. However, Mitchell, the Tolmar Co-Promotion Commission, Sales Commission, will come out of the SG&A line. So you will see the SG&A line grow along with the El Kindi sales growing. But the actual operating costs spending at the company will be relatively flat.

Right, because those commissions are volume-driven on the sales, correct? Correct.

Perfect. Thank you very much.

Thank you. And our next question comes from the line of Justin Walsh with B. Reilly Securities. Your line is open. Please go ahead.

Hi. Congrats on all the progress. Thanks for taking the questions. Maybe to start with, with so many product launches you have going on, maybe you can give us a sense of which products you believe will fuel your growth in the near term versus taking a little bit longer to get off the ground.

Sure. So in the near term, carglymic acid numbers are looking good. That's been a quick start, better than expected. Our goal is to get approximately 25 patients, something like that. I think that we'll reach that probably by June, for example. And so that's a near-term driver. With the Alkindi numbers, we've been seeing week-over-week increases in the prescriptions, so I don't even know how high those numbers can get. We just set a record two weeks ago, an all-time record, and then last week we hit another all-time record in terms of number of scripts in a given week. So those numbers, again, it's hard for me to estimate how it's all going to turn out at the end of the day. I would say if you're thinking of products beyond those two, certainly we believe we're very close on the dehydrated alcohol. I think that product is coming through and we'll be having that submitted. It won't be a near-term growth driver because we still have to get the approval and the launch and so on. But who knows when that could happen. I think it's possible it could happen at the end of the year. We are getting ready to submit the vial versions of Biorphin as well as ResiPress. I think everybody read the ResiPress press release. It's a great product. It's needed. Certainly, there's an unmet need for ResiPress. There's another company that sells a ready-to-use, and that's done well, but we believe there's a lot more market there. So we think those two products will launch in, let's say, the third quarter. You know, the biorphan filing should go in in the coming weeks or certainly by April, and I would expect that to be approved in the third or fourth quarter.

Great. Maybe we can jump off that for the next one. Just maybe you can expand a little bit and remind us of the importance of the vial conversion aspect, and also if you have some specific strategies for promoting that as soon as those vial presentations are made available.

Sure. So, Biorphin is currently available in an ampule. It's not a format that is popular in the United States. It's very popular in Europe. But in the U.S., it's just not. They'll use that if they have nothing else. But right now, they can still order from compounders. Despite the fact that we have an approved product, there's an allowance, I guess, for the compounded phenylephrine. However, the benefits of having a three-year shelf life, which is what our product has, and putting that into a vial will make all the difference. We've done our own market research showing that 80% of the hospitals will purchase the vial instead of the compounded product. It's been priced competitively. Price is right. The format is right. So, for example, if you have a vial of phenylephrine, you just need to withdraw that with a syringe. and you can dilute it. I'm not diluting it. You can administrate it. It's ready to use. With an ampule, you know, cracking open the ampule, you then need to withdraw. You have to use a filter needle to prevent, you know, particulate contamination. That's an issue, and it's also an extra step. It's not the easiest thing in the world, and it's not something that practitioners really prefer. So that's really what's holding that one back. We're still seeing sales on it, so I just want to be clear. I believe, you know, many hospitals will just stock that as a backup. But for it to be the primary product, it needs to be in the vial, and better yet, it needs to be a pre-filled syringe, which we are also looking forward to launching in the future. So the market, we know, is more than 10 million units a year. So we think we could easily sell 4 million vials today.

Got it. Last question for me. I'm sort of wondering what your current appetite for bringing more assets into the portfolio is, or are you really more focused on your many launches that you're working on?

That's a good question. We're always looking and certainly evaluating opportunities. I think that any drug company, you know, your pipeline is your is your long-term growth. It's your engine. For us, doing M&A and licensing activity is definitely an engine that drives growth. We'll continue to do that. We're being a little conservative, but we're definitely taking a close eye on these transactions because we are in a very strong position so I don't feel a lot of pressure to have to go run out and do a deal right away. We want to do good deals, right deals. Curgumic acid, wonderful deal. Very good example of the type of deals we're looking to do. We'll do more of those, and we're adding a lot of value for our partners, too, because we are doing what we say we're going to do. We have a couple of product launches coming up here. We just launched a product this week. We have another launch coming in the second quarter. When those products are launched, I wouldn't say it's one or the other. Obviously, we're focused on that. We're focused on growing the markets, but the deals will come when they come. We are always seeing and evaluating every week or probably one to two deals a week we look at. A lot of the stuff is too early stage for us, but we do see some later stage deals as well. It has to be the right fit strategically, it has to be the right price. I don't want to go too far out on a transaction and just put the company at any kind of risk. So we have to balance that. There's certain size transactions we can do. In the future, we'll be able to do larger transactions and we'll do those. Certainly I'm not worried about that, but everything is almost, think of it like an investment. If you're investing in your own portfolio and you find a great stock, we don't put all your money on that one stock. You put a portion, but you don't want to put everything on it. That's kind of how we approach this.

Awesome. Sounds great. Thanks for taking the questions.

Yeah, my pleasure.

Thank you, and I'm showing no further phone questions, and you guys can continue with your email questions.

David? Michelle. We have two questions that weren't covered already. The first one, I guess, is for Wilson. How should we think about the low R&D expense for the fourth quarter? What do you see as the go-forward run rate for R&D?

In general, R&D is kind of lumpy by nature because largest drivers tend to be milestone payments or NDA filing fees that are not recurring. We will have some more R&D expense next year related to hospital product vial conversions and the Zinio auto injector. So that should run higher than the level we experienced in the fourth quarter. without any new projects or acquisitions, who would tend to expect that our R&D expense for next year would be roughly in the ballpark of the $6.2 million that we reported for 2021 year.

Okay, and then the last question is for Sean. Can you comment on your thoughts about the stock price and what actions can be taken if you aren't satisfied with it?

Yeah, good question. It's... It's very familiar trying to understand the stock market, especially these days. But one thing I do know, we've been over $10 a share. Where we are today is, from my perspective, in a much stronger position, stronger position cash-wise, product-wise, where we're seeing revenue coming in all around. We've added some really – heavy hitters on the management side and our sales organization. CEOs may say this because they feel like they're expected to say it, but I can honestly say we are undervalued. I believe the stock doesn't anywhere reflect the value of the product portfolio and pipeline. I think that it will resolve itself soon because we'll start reporting results and ultimately when you're You're reporting strong results throughout 2022, which is what I expect, and we're getting a lot of traction on our products. The market will have no choice. It really just has to do what it's going to. You're going to go up. If you're reporting strong numbers, you're going up. And if we reach our sustained goal of profitability by the end of the year and the stock is lagging, we'll do a buyback. I have no problems and happy to do an aggressive stock buyback I'll be a buyer myself. So that's just how I see it. I'm not going to worry about it today. The coming quarters here, you'll see. We're going to deliver results, and I think the stock price will take care of itself.

And that's the last email question we have.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect, everyone. Have a great rest of your evening.