Eton Pharmaceuticals, Inc.

Good afternoon and welcome to the Eaton Pharmaceuticals 3rd 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 app for your questions. 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 Eaton Pharmaceuticals.

Please proceed.

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. Joining me on our call today, we have Sean Gringelson, 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 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. 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 Brangelson. Thank you, David. Good afternoon, everyone, and thank you for joining us today. It's been a busy and exciting few months for us, and I'm looking forward to talking with all of you today at such a critical moment in Eaton's history. Throughout the last year, we have been talking about our three-pillar strategy, One, organic growth of our existing portfolio. Two, advancement of internal pipeline products. And three, value-creating business development transactions to accelerate growth. 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. Secondly, the third quarter brought a critical milestone for our important pipeline product, EP400, which was accepted for review by the FDA and assigned a February 28th to do today. 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. I cannot 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. 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 alkindi sprinkle and cargumic acid. 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. Reaching gap profitability is a major milestone for any company. In the pharmaceutical world, revenue and earnings are often the result of many years' worth of investment and development activities. 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. Profitability has always been and always will be a central part of our strategy at Eaton. 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 breakeven in 2023 and now positive gap income this quarter. 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. We are very pleased to have reached this critical profitability milestone for the company, but we are far from finished. In fact, I think we are in the early stages of our growth story. With the expected additions of Inculex and ET400 on top of continued growth from our existing portfolio, we are very excited about what we expect to deliver in 2025. 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 have signed an asset purchase agreement with Ipsen for the purchase of Increlx. Increlx is an FDA and EMA approved product for the treatment of severe primary insulin light growth factor one deficiency. It is an attractive biologic product that fits perfectly with our pediatric endocrinology focus. 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. We plan to finance the acquisition entirely with cash on hand and an expansion of our existing credit facility. 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. In order to help support the addition of Incrulex, as well as the expected near-term launch of ET400, We are planning an expansion and realignment of our sales force in 2025. Our current sales force will be split into two separate units, with approximately 12 rare disease specialists focused on pediatric endocrinology, promoting Incolex, Elkindi, Sprinkle, and ET400. An additional five specialists will focus exclusively on our metabolic portfolio, promoting carglymic acid, PKU-Golike, Betaine, and Neticinone. We believe this realignment will allow us to maximize the revenue potential of our entire product portfolio. Now on to our product-specific results. Alkindi Sprinkle revenue and active patients 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. Despite the current growth rate, we expect the franchise's growth trajectory to accelerate with the launch of ET400 next year. We remain confident that the combined products can reach an active patient count that is significantly higher than the current level. Regarding our metabolic portfolio, we saw another nice quarter of remnant growth driven primarily by cargluic acid. PKU Gold Light continues to see strong interest since our acquisition earlier this year. We have seen an increase in referrals since we re-engaged 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. 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 28, 2025. 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. Our team is hard at work on all other aspects of launch preparation, including our marketing campaign. In addition, last week, we received good news that the US Patent and Trademark Office has granted us a second patent for ET400, further strengthening our IP protection on this important product. 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. 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. And with NCLEX now further bolstering our pediatric endocrinology presence, we are very excited about the prospects for EP600. If everything goes as planned, EP600 will be our fourth commercial pediatric endocrinology product and could be on the market as early as the first quarter of 2026. As you've seen from our results, we are executing in all fronts. I am proud of the team for delivering another stellar quarter of financial results that resulted in GAAP net income, making progress advancing our pipeline candidates and executing a transformational acquisition. 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. That is 10 commercial rare disease products with Increlix and potential near-term launches of ET400 and ET600. We have a clear path to eight. We hope to have additional commercial products in 2025. Secondly, reaching $100 million in revenue, the expected launches of both ET400 and Increlix should put us on a trajectory path to achieve this in the near term. 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. We appreciate all of our shareholders' 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. Our third quarter revenue, $10.3 million compared to $7.0 million in the third quarter of 2023.

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. Net product sales for the third quarter of 2024 increased 40%

at $9.8 million compared to $7.0 million in the prior year period, primarily driven by growth in alkindi sprinkles and curgluemic acid. 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. General and administrative expenses for the quarter were $5.3 million compared with $4.3 million in the prior year period, due primarily to increased sales and marketing activities, legal expenses, and employee-related expenses.

Total company net income was $0.6 million for the quarter, compared to a net loss of $0.6 million in the prior year period. Net income for basic and diluted share during the quarter was $0.02, compared to a net loss for basic and diluted share of $0.02 in the prior year period.

It is worth noting that even without the profit associated with one-time licensing revenue this quarter, Eaton still generated positive net income, which, as Sean mentioned, is a very important milestone for the company. Eaton finished the third quarter with $20.3 million of cash on hand and generated $2.9 million of operating cash flow during the quarter. This concludes our remarks on third quarter results, and with that, we'll turn it back over to the operator for Q&A.

Thank you. We will now open the line for questions. As a reminder, please press star 1 to join the queue. 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. Your first question comes from the line of Chase Nicklebrooker with Craig Hallam. Please go ahead.

Good afternoon, guys. Congrats on all the progress here, and thanks for taking the questions. Obviously, you guys are well familiar with many of the potential and current prescribers of Increlix. 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 very interested to pursue the deal? Just kind of any color on kind of your due diligence there that got you really excited. Thanks.

Sure. Thanks, Chase.

So we won't be able to go too much into it before the deal closes, but obviously we're very excited about the opportunity. As you mentioned, we know a lot of the doctors. We've talked to them. They've said it's a very good product. It's a needed product. There's no other alternatives for these children. So it was a critical product. They wanted to make sure we kept it out of the market and available to all these patients. I think they thought there was an opportunity for even more education and awareness. 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.

Great. And then to the extent that you can, you know, kind of before closing, first kind of how we can think about Increlix 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 Ipsen. You know, any thoughts on what you guys can do to, you know, potentially return the product to growth? And then on the expense side, how should investors think about kind of SG&A needing to increase as a result of this transaction?

Hi, Chase. 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 dedicated sales team that is bringing that product really back to the forefront 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 just under 200 patients on product and we think we can get back to that just by simple promotion and education and and hopefully the doctors will be able to diagnose and administer more broadly. So we're looking at that as one lever. 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. But those will be the initial steps. Our plan will also include putting together an advisory board of medical doctors and leading health care 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, we want to help as much as we can. And then the second part of your question regarding expenses, I guess I'll hope that either maybe James wants to take that one. Hey, Chase. Regarding SG&A, as Sean mentioned in his remarks, here in the U.S., we are going to increase the expense. We're going to expand the sales force, so there will be additional investment there. As David mentioned, there will be additional investment in market education. to a decent amount of investment here in the United States and then outside the U.S., 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 detail behind specific 2025, but decent amount of investment expected next year.

Got it. And then on carglumic, 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 on ET400 in the quarter, or kind of what informs kind of the confidence that you mentioned in the prepared remarks?

Sure. On carglumic, maybe, James, you want to speak to that in terms of the sales rate? Yeah, we've had, it's been a great contributor of revenue growth for us to date. We've overachieved what we expected to from a market share standpoint. So while additional growth is certainly possible, the reason we've built up our internal pipeline and been so active in M&A is to bolster the product portfolio with additional products because we're never going to say The product's not going to continue to grow, but it's got limited opportunity from a go-forward standpoint. I think that's fair. As we go forward with these new opportunities, we're looking at patent-protected, IP-protected, true-granted products and really hitting unmet needs. Carglymic, as you know, is an AB-rated version of Carboglu, and so that offers, I guess, another option for patients, but it wasn't really filling in unmet needs. Carboglu had that opportunity. that need met. It's really just offering a little price. But our real passion 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. And to that point, ET400 review is going very well, in my opinion. We don't have any open items at this time. And we're expecting labeling in the near future. So once the labeling comments start coming in, you know, we'll feel pretty good about the February 28th Purdue Today.

Great. Thanks for taking the question, guys. Appreciate it. Congrats again.

Yeah, our pleasure.

Again, if you'd like to ask a question, please press dial 1 to join the queue.

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

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