Eton Pharmaceuticals, Inc.

Good afternoon, and welcome to the Eaton Pharmaceuticals first quarter 2024 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 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 Krimpa, Chief Business Officer at Eaton Pharmaceuticals. Please proceed.

Thank you, operator. Good afternoon, everyone, and welcome to Eaton's first 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. Joining me on our call today, we have Sean Brinjelson, our CEO, and James Gruber, our CFO. 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. Before we begin, I would like to remind everyone the remarks 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 Brynjolfsson.

Thank you, David. Good afternoon, everyone. Thank you for joining us today. After a strong finish to 2023, I am pleased to say we carried this momentum into 2024, delivering our 13th straight quarter of sequential product revenue growth. It has been a very productive start to 2024 for the company, and we have a number of exciting items to discuss today. In addition to posting record revenue sales in Q1, we also acquired a new commercial growth asset in PKU Gold Life. We launched antigen-owned capsules and more importantly submitted our new drug application for ET400. We were pleased to deliver another quarter of strong revenue growth and to do so while maintaining our discipline cost structure. Revenue from product sales grew by more than 50% year over year to $8.0 million, while our SG&A spending actually declined by 4% year over year. As you can see, now that we have our infrastructure in place, there is significant operating leverage in our business. We believe we could support a revenue level many multiples over our current run rate, with only a modest increase in our SG&A spending. This should allow us to deliver substantial earnings as we scale our revenue towards our goal of being a $100 million-plus revenue company in the coming years. Our record product sales in the quarter were driven primarily by strong growth in both coagulamic acid and alkindi-sprinkle. I remain very encouraged by the trajectory of our coagulamic acid product as it continues to exceed our expectations. We believe we have now captured more than 50% of the patient population, but the product continues to grow and we have added additional patients in Q1 and also additional ones in Q2. Hergulumic is a part of our metabolic portfolio that expanded from two products to four products in the first quarter as we launched neticinone capsules and acquired TKU Goliath. As you may know, neticinone capsules launched in February, and we were able to add a number of patients before the end of the quarter. The market for neticinone is estimated to be around 50 million annually. but there are already a number of competitors in the market, so we have modest expectations for this product. We view the opportunity similar to the way we view Betaine. Neither one offers a large revenue opportunity on its own, but they require very little incremental expense to commercialize since we already have the metabolic infrastructure in place. Perhaps more importantly, the expanded portfolio helps us strengthen our relationship and increase the frequency of interactions with high-value carglymic acid prescribers. And now, with our recent Golike acquisition, the tisinone and betaine can help drive additional opportunities to cross-cell Golike, which I will spend a few minutes talking about. I was very excited to close this acquisition in March, and I believe it adds another compelling growth asset to our metabolic portfolio. Golike is a medical formula for patients with phenylketonuria, also known as PKU. PKU patients lack the enzyme needed to break down phenylalanine, which is an amino acid-founding protein. For these patients, eating protein results in the buildup of phenylalanine, which can cause neurological problems, including seizures and brain damage. As a result, many of these PKU patients must take specialized, no- or low-protein medical formulas, such as PKU Golike. Just like our other metabolic products, Golike is distributed by a specialty distributor that handles dispensing and patient support. The product is typically covered by insurance, and it is prescribed by healthcare professionals. I believe GoLike is a compelling opportunity, and I'm excited about it for a number of reasons. First, GoLike is a very strategic fit with our corporate strategy and commercial infrastructure. The product serves an ultra-orphan population of an estimated 8,000 PKU patients in the United States. These patients rely on medical formulas, and the condition is managed by metabolic geneticists and their support staff, the same healthcare professionals that we are actively engaged with on our other metabolic products. Secondly, Golike is an attractive product that we believe has significant advantages over the competition. Historically, PKU patients have relied on medical powders that must be mixed and drank multiple times each day as meal replacements. Golike has a number of benefits. It comes in a convenient and ready-to-eat bar format. We believe it is significantly better tasting, is better smelling than competitor products, and it is a patented delayed-release amino acid technology designed to keep patients full for longer periods of time. And finally, Golike offered a compelling financial opportunity. We paid less than two times annual revenue for the product and expect to see significant revenue growth for years to come. Golike granules were launched at the end of 2022 and Golike bars were launched in mid 2023. So the product is still in its infancy stages of launch. We believe our larger commercial footprint and existing relationships with the metabolic community can help accelerate the product's adoption. The US market for PKU GoLike medical formulas is estimated to be approximately 100 million annually. With GoLike's attractive product benefits and our commercial infrastructure, our goal is to capture at least 10% market share or 10 million annually in the coming years. Our sales team launched the product under Eaton's ownership at the Metabolic Dietitians International Conference in mid-April And we received very strong interest and positive feedback from the dietitian community at the conference. This further reinforced our belief that GoLike provides an improved patient experience and should see significant growth in the years to come as we raise awareness and education in the community. Switching now to the endocrinology side of our business, Alkindi Sprinkle also posted record sales and significant growth in the quarter. As we discussed in our previous call, we recently introduced a sampling program, and our commercial team has been very active at medical conferences so far this year, including exhibiting at the Pediatric Endocrine Society meeting last week. We have seen growth in new patient prescriptions so far, and most patients who try Alkindi have a positive experience and remain on therapy. Eaton does, however, continue to see patients that choose to discontinue treatment due to the texture of the granules. As Alkindi continues to grow, we have a number of initiatives underway to lessen this discontinuation rate, including revamping our educational and administrative materials, but we also believe ET400 will most adequately address this issue. In addition to reducing discontinuation, ET400 will provide an important treatment alternative to the large contingent of patients that use a liquid product today. Either a suspension formulation from a compounder that is not FDA approved or their own version that they make at home by crushing tablets and mixing them with water. Or have been a resistant cell kidney sprinkle because they want to stay with a liquid dosage form. We believe that this portion of the population, which could include several thousand patients, will be pleased with the accurate dosing in a liquid form that ET400 will provide once it is approved. On our last call, I mentioned that we had passed our clinical study, which was the final hurdle in submission of the ET400 NDA. I am now thrilled to say that we submitted the NDA last week. We anticipate that the FDA will assign the application a 10-month review, allowing for potential approval during the first quarter of 2025. Our team has begun preparing launch activities in order to be in a position to efficiently and effectively commercialize the product shortly after approval. I remain confident that once approved, the commercialization of ET400 will significantly accelerate the company's growth trajectory, and we believe that ET400 and Alkidi Sprinkle will achieve combined peak sales of over 50 million annually. We also continue to make progress with ET600, a product candidate under development for the treatment of diabetes insipidus. ET600 is another new pediatric endocrinology product that we hope to launch soon after ET400. The product was passed as pilot bioequivalency study, and we are on track to run a pivotal study in the second half of this year. Our team expects to submit the NDA in early 2025 with potential approval near the end of 2025. I think it is clear that our five commercial products plus our attractive late-stage pipeline position us well for sustained long-term growth. That being said, we continue to look for business development opportunities that can propel us even further. Our business development team is currently focused on commercial revenue-generating products. Our available capital positions us for a large value-creating acquisition. And given our current valuation and expected growth, we would intend to use primarily debt for any such acquisition. As an example of our capacity, in April, we were the runner-up bidder in a bankruptcy auction for Iger Biopharmaceuticals' Zokinvi product. While we did not win the auction, we were able to quickly arrange committed capital within a matter of days to support a $46 million bid. While we submitted a competitive offer for the asset, at the end of the day, we are not interested in overpaying for any asset. Given our attractive current financial position, our strong organic growth potential, and the expectation for ET400 to deliver significant tailwind next year, we have the luxury of being able to remain extremely disciplined on M&A. While we would like to add a larger asset to the product portfolio, I am cautiously optimistic that we can do so. We certainly do not need to. Our existing portfolio and pipeline positions us to reach our profitability goals in the coming years. And with that, I'll turn it over to James, the Chief Financial Officer, to discuss the financials. James?

Thank you, Sean. Our first quarter revenue was $8.0 million. compared to $5.3 million in the first quarter of 2023, an increase of 50%. In both periods, revenue was comprised entirely of product sales and royalties, and the increase was primarily due to increased sales volume of our Acundi Sprinkle and Cargillumic Acid products. We expect product sales to continue to grow quarter over quarter throughout the rest of this year and beyond. Gross profit for the quarter was $5.0 million compared with $3.3 million in the prior year period. R&D expenses for the quarter were $0.7 million compared with $0.5 million in the prior year period, and the increase was primarily due to development activities related to ET400. While we expect an increase in second quarter R&D expenses with a $2 million filing fee for ET400, We expect total R&D spend for 2024 to remain at approximately $4 million, excluding the one-time filing fee. General and administrative expenses for the quarter were $5.2 million, compared with $5.3 million in the prior year period, with the decrease due to a slight reduction in employee-related expenses and logistics costs. We expect general and administrative expenses to remain relatively constant throughout the remainder of 2024 even with the recent PKU Golike acquisition and the Tisenone launch. Total company net loss was $0.8 million for the quarter, compared to a net loss of $2.7 million in the prior year period. Net loss per basic and diluted share was $0.03 during the quarter, compared to a net loss per basic and diluted share of $0.10 in the prior year period. Given our current expectations surrounding the timing of R&D activities, we expect to report positive quarterly net income by the end of this year. Eaton finished the first quarter with $16.7 million of cash on hand, and our operating cash burn during the quarter was $2.5 million. While we achieved positive operating cash flow in the second half of 2023, the first quarter of 2024 was impacted by a one-time milestone payment of $1.0 million related to 2023 Alkindi Sprinkle sales achievement, a payment of $0.5 million for inventory associated with the PKU Go-Like product acquisition, and by the calendarization of marketing and promotion spent that has heavily weighted in the first half of the year. We remain confident that our continued sales growth and disciplined cost structure will result in positive operating cash flow throughout the remainder of 2024 and allow us to actively pursue new product opportunities. This concludes our remarks on first quarter results. And with that, I'll turn it over to the operator for Q&A.

Thank you. At this time, we will conduct the question and answer session. To ask a question, you will need to press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A roster. First question comes from the line of Chase Knickerbocker of Craig Hallam. Your line is now open.

Good afternoon, guys. Thanks for taking the questions. I'm just going to kind of go product line by product line here. Maybe just to start on Cargloomic, Sean, where are we at in that product's life cycle? Do you think we can add a couple handfuls of patients this year still, or should we think about it as you kind of maintaining the patient volumes that you have, say, in one queue kind of through this year?

Well, hi, Chase. There's still some runway, apparently. You know, we continue to add patients. We just added three more patients the past week. And I, you know, our estimate is there's up to 100 patients. We have about a little more than half of that. And it continues to grow. We get a lot of new patients online. which actually tend to use that same product over an extended period of time. In terms of the product life, it has been a robust product for us, primarily due to the detailing, the patient services, and we think all the wraparound services that we provide for patients.

Got it. And then maybe on the new one, on go-like. You know, you're expecting quite a bit of growth there. You already know all of those physicians. How quickly do you think you can kind of get to that 10% penetration level, you know, from here? Is it, you know, three years? Is it, you know, one or two years? I mean, just kind of help us benchmark kind of how quickly you would expect that growth considering you already know the 100 or so odd physicians.

Yeah, that's a little more difficult to predict, but we have, you know, Approximately 50% of that, let's say we want to hit 10 million in peak sales, which would be about 10% of the current market. We actually could exceed that depending on how fast the uptake is. There are very few companies out there that are positioned as well as us in terms of being able to promote a PKU product. So with that said, for us to hit 5 million next year and go like sales is very achievable. It may be significantly higher than that, but I believe that's in the cards.

Got it. That's helpful. And if we kind of think about L-Kindy and the hydrocortisone portfolio before the ET400 launch, obviously you're seeing nice growth there still. Do you think there's kind of runway to add another kind of 100 patients from here before ET400 launch or just kind of help benchmark us on kind of growth in L-Kindy, you know, as we're waiting for ET400?

Yeah, the challenge with the Elkindi is that we, it's not a challenge of getting new scripts. So we get a lot of scripts. What happens is some of the patients do not stay on product due to the texture issue that we've mentioned before. So we have a fairly higher rate of discontinuation than I've seen in other pharmaceutical products. You know, it can be mitigated by education. It can be mitigated by working with the doctors and the caregivers, which we are doing all of those things. And we are planning some additional educational materials to go out to all of the physician's offices. So when patients are prescribed product, they understand it can be a challenge of texture with the child initially. And I think that for us to have, we have growth for the product quarter over quarter. Can we add another 100 patients? It's not, it's certainly an achievable goal, but it's going to hinge largely on reducing the discontinuation rate, which is really the main drive of why we did ET400 in the first place. You know, we look at the reasons why L-candy patients go off drug and ET400 handles really most of those issues right out of the gate. So I think that is, that's why we're really excited about the product. Now that it's been filed, you know, we're already looking to produce and have product even ahead of a 10 month Purdue for date. So Elkendi numbers will continue to get scripts week after week. If we can reduce the discontinuations, we can add another 100 patients. If discontinuations are at the same level, it's going to be a little bit more challenging. But it's a robust product, and, you know, we're going to keep going.

Got it. Maybe shifting gears to AT400, and I just have a couple more, guys. Thanks for the time. Maybe speak to us on, you know, obviously you've established the PK bridge. Maybe just talk to us on kind of your confidence around the CMC kind of side of that submission. I mean, are you working with a manufacturer who has recently kind of successfully gotten through some FDA audits along the lines of some recent approvals that they are manufacturing? Just kind of talk to us about the confidence of your manufacturing partner there.

Sure. So the files are very similar to what we did with topiramate and zonisamide oral solutions. One of the manufacturers is the same as one of the products. I won't say which one. And so we're confident in their FDA readiness. They have already gone through that process and passed our quality inspections. So I don't feel the facility has really any risk around it. We feel good about the way the NDA submission has been put together. It's actually been put together at a higher level than what we did for topiramate and zonisamide, both of which are approved in commercial products today. So the process and the deliverables that we had in those files are exactly the same as what we have with ET400. So I really don't see significant barriers to launching the product on time. And we'll obviously be very timely in any inquiries we'll get from the FDA and make sure that that process is going as smoothly as possible.

And then just last from me, Sean. You know, this is really kind of a line extension with ET400. You know all these physicians already. You'll obviously be kind of targeting some of those discontinuated patients that ET400 is a great fit with. You know, how quickly should investors be thinking that you can kind of drive scripts with ET400 post-launch. Just kind of speak to your confidence on how quick that launch can be. And thanks for taking the time.

Sure. Yeah, absolutely. Our pleasure. So in terms of the wrap-up to what we stated, I think, in our press release and in our comments earlier today, our goal is to get $50 million-plus in revenue between these two products. I feel that within a 12-month time frame, we'll be well on our way to and i think that getting to that 50 million with the 24 months of launch is achievable so that's uh gives you some idea of what how we're thinking on things uh of course you know once you get out there we just did for example a uh a panel of doctors of uh i believe it was eight maybe it was ten doctors uh who uh specialize in treating adrenal cortical insufficiency and um they could not be more excited about this product they're um some of the top prescribers in the nation. And so for us to, you know, have conversations and just sort of like marketing studies in advance to understand their needs is really important. We want to serve the patients, and we believe we've designed a product that will meet patient needs and be well received and prescribed by doctors.

Great. Thanks, guys.

You're welcome.

Alright, thank you. I'm showing no further questions at this time. This does conclude the question and answer session and the program. Thank you for your participation in today's conference. You may now disconnect.