Eton Pharmaceuticals, Inc.

Good afternoon, and welcome to the Eaton Pharmaceuticals Third Quarter 2025 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 Grimpa, Chief Business Officer at Eaton Pharmaceuticals. Please proceed.

Thank you, operator. Good afternoon, everyone, and welcome to Eaton's third quarter 2025 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 Bridgelson, our CEO, James Gruber, our CFO, and Ipek Trinkas, our chief commercial officer. 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 that remarks made during the 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, Shawn Bridge-Elson.

Shawn Bridge- Thank you, David. Good afternoon, everyone, and thank you for joining us today. I'm thrilled to report another record quarter for the company with triple-digit year-over-year revenue growth. I look forward to discussing the underlying drivers in more detail and highlighting some of our initiatives that help deliver this growth. In addition, we will have made significant progress with our development activities, which are not reflected in this quarter's numbers, but will propel our revenue and earnings growth for many years to come. Third quarter product revenue was $22.5 million, an increase of 129% year-over-year and up 19% compared to the second quarter. It was our 19th straight quarter of sequential product revenue growth driven by strong year-over-year growth from Elkindi Sprinkle and Curgumic Acid, as well as additions from the recently acquired products, Incrolex and Galzen, which are both tracking ahead of our deal models. Elkindi Sprinkle has delivered reliable growth for many years and shows no signs of stopping. Curgumic Acid had previously plateaued, but we had a few new patient ads in recent months that helped deliver the year-over-year increase, which was nice to see. In addition to delivering on the top line, we remain focused on profitability, and I am pleased to share that we generated $12 million of cash from operations in the quarter. Eaton is committed to controlling our expenses, and I am proud to report that even though our revenue is growing rapidly, we were able to reduce our adjusted SG&A expense sequentially from the second quarter to the third quarter. Continued control of our operating expenses in tandem with strong revenue growth will position us for significant margin expansion. We reported adjusted EBITDA of $2.9 million in the quarter, and this figure was weighed down by some non-recurring INCRELEX-X US transition costs that James will provide more details on, so we expect to deliver even stronger EBITDA in the quarters ahead. Now turning to product-specific commentary, I'll start with Increlx, which has been our largest revenue contributor this year. Increlx revenue and patient count continue to track well ahead of our original projections for the product. Prior to our acquisition, the product and the condition have suffered from low awareness. Our efforts to improve education and awareness have paid off, allowing us to deliver significant growth so far this year. Our commercial team has done an excellent job on the relaunch. Through our rare disease specialist outreach to healthcare providers, our conference engagements, and peer-to-peer presentations, as well as collaborating closely with patients and patient advocacy groups, we have been able to substantially grow awareness and increase product usage in a matter of months. When Eaton took the product over in December 2024, there were only 67 active patients on therapy. By August, we shared that we had reached our 100-patient goal, five months ahead of schedule. We continued to add a number of new patient starts during the last three months, but we saw a higher number of patients age out and discontinue treatment during the same period, which resulted in our net active patient count remaining relatively flat around 100. In severe primary insulin growth like factor one deficiency, success is partially measured not only by how many patients are on therapy, but in addition, what truly drives outcomes is how early the treatment begins and how well it's optimized. Early initiation during the critical growth window and appropriate vial utilization are key to maximizing efficiency during the treatment duration. Since we have inherited several older pediatric patients in December during transition, we saw a large group of age-outs coming through from that cohort. Our focus remains on both expanding new patient starts and driving growth through earlier diagnosis and optimized dosing to ensure every patient achieves their full therapeutic potential. We believe these efforts will increase the average duration of treatment, I expect to continue bringing new patients into treatment and continue growing that patient count. As a reminder, INCROLEX is approved for pediatric patients aged two and up with severe primary IGF-1 deficiency. These are patients who represent with extremely short stature and need IGF supplementation to grow. INCROLEX is very effective in increasing patient height during their growing years but it's no longer needed once patients reach their adult height, which is typically around 18 years old. We believe with our ongoing educational and awareness campaigns, we will start seeing patients diagnosed earlier in life, which would likely lead to a longer duration of therapy. Eaton is confident in a long-term growth opportunity for the product, and as we expect to continue converting more of the estimated 200 patients in the U.S. that meet the current label. In addition, we remain committed to expanding access to even more children in need through the harmonization of the U.S. and EU definitions of severe primary one deficiency. Last month, we submitted a meeting request to the FDA with our proposed clinical study to support the harmonization. We expect to have the FDA's feedback by the end of December, and if they are in agreement, we would initiate the study in 2026. Given the European patient registry data that has been collected over the last 15 years, we believe that Increlix is a safe and effective treatment for patients with IGF-1 levels between minus 2 and minus 3 standard deviations. We are confident our proposed study would confirm that for the FDA. And if successful in harmonizing the labels, it could potentially increase the Increlix market opportunity roughly five-fold. Alkindi was another major contributor to our Q3 revenue growth, and I am proud of the team's ability to continue generating consistent growth. As you remember, starting in January, we split our sales force into two teams, one of which is now 100% dedicated to pediatric endocrinology. We think it's contributed to Alkindi Sprinkles' strong year, and 2025 is the product's fifth calendar year on market and remains on pace to be the strongest year of its history by number of patients on therapy and number of new patient referrals. So far, we have not been seeing much of any cannibalization of Alkindi from the launch of Kindivi. Though Alkindi continues to see strong growth, we developed and launched Kindivi to address the needs of patients that did not like the texture of the Alkindi granules or preferred the convenience of a liquid dosage form. Kindivi is the first and only FDA-approved oral solution of hydrocortisone. Candivi allows simple and accurate dosing tailored to patient needs and does not require refrigeration, mixing, or shaking. The FDA approved Candivi for patients five and over. The agency restricted the age due to a limited amount of existing safety data on three of the inactive ingredients in the formulation when being used in combination. Unfortunately, The largest unmet need for this product is among young children under five years old, and as a result, the label restriction has weighed on the adoption of Candivi. However, our team has been working on a plan to address this. When we first heard of the FDA's restriction this summer, we immediately developed a new formula with substantially lower levels of the excipients, and in September, we held a meeting with the FDA to discuss this new formulation. We believe the meeting was successful, as the FDA indicated they would be receptive to a label expansion with our revised formulation. In response, we will conduct a bioequivalency study, which is scheduled to start by January 2026, and I expect to submit the new formulation as a supplement to our existing NDA in the second quarter of 2026. The FDA indicated a 10-month review for the formulation, so this could allow for approval by the first quarter of 2027. we believe this label expansion would significantly accelerate adoption of the product. Even with the current Candivi label, we continue to see attractive long-term growth for our adrenal insufficiency franchise. Eaton has only converted less than 15% of the estimated 5,000 target patients in the United States, so we see a long runway of growth ahead of us. We remain confident that Alkindi and Candivi can combine for peak sales of more than 50 million with the current Condivi label, and ultimately higher levels if the label is expanded. Another bright spot in our portfolio this quarter was Galzin. As I mentioned, we're extremely pleased with its performance. It now has over 200 active patients, a number we originally set as our year-end 2025 target. The product is continuing to grow well ahead of our original expectations, and we couldn't be happier with the team's efforts to support this relaunch. During our eight months in the field actively commercializing Galzin, we've been surprised by the low level of awareness that the product had both among physicians and patients. Even though Galzin is the only FDA-approved zinc therapy for Wilson disease, many patients and prescribers were unaware of it, misinformed, or mistakenly believe the product was discontinued after a prior shortage in 2020 and subsequent lack of promotion. We view this low awareness as a positive for the long-term growth prospects for Galzen. While we have work to do educating the market, it is clear that this represents a substantial growth opportunity as we inform patients, healthcare practitioners, and caregivers and raise awareness of this critical medication. Our entry into Wilson disease has been warmly received by patients and healthcare providers. Before our relaunch, very few pharmacies stocked Gelson. Out-of-pocket costs were high, and there was a lack of support services to help patients navigate the insurance process. We have now implemented full patient support services, increased access to medication, and substantially reduced out-of-pocket costs for patients. These changes have resonated with the patient community and we have heard strong positive feedback and appreciation for the new programs. In October, our team attended the Wilson Disease Association Annual Summit, where patients, caregivers, and leading physicians gathered to discuss diagnosis, treatment, and management of the disease. Our team was able to engage with numerous patients and prescribers, helping to drive awareness and give us the chance to better understand the struggles that patients and prescribers are dealing with. Working to understand the needs of patients, caregivers, and healthcare providers is a top priority for us and our vision to be a champion of those in the Wilson disease community. Our expanded access and patient support services have made a major impact on Wilson disease patients, but we think we can make an even greater impact on their lives with ET700, our extended release version of Galzen. Currently, Galzen is taken three times per day, with patients fasting both before and after, and this cumbersome regimen leads to high rates of noncompliance. Eaton has heard directly from patients and caregivers just how challenging the current dosing schedule is, and we know there's a very strong interest in an extended release version. Eaton is working quickly and making meaningful progress with our development of ET700. We've already developed the proprietary formulation, filed our patents, and met with the FDA to discuss the regulatory pathway. We are now nearing production of clinical study supply and starting our clinical program with our positron emission tomography, or PET, study scheduled to begin in the first quarter. This study is a proof-of-concept study designed to verify that our proprietary delayed release formulation is able to effectively block copper absorption in patients with less frequent dosing. We expect to receive top-line results from this study in the middle of 2026, and if positive, it would support the initiation of a dose-ranging and pivotal clinical study later in the year. Switching back to our pediatric endocrinology portfolio during the quarter, we had another piece of good news when the FDA accepted our ET600 NDA submission for review and assigned it a February 25th PDUFA date. We developed ET600 in direct response to an unmet need expressed by pediatric endocrinologists for an oral solution of Desmopressin to treat central diabetes insipidus. If approved, ET600 would be the first oral liquid formulation available and would allow for the small, precise titratable doses required to treat pediatric patients. The review of the product appears to be proceeding well. and we schedule the production of inventory at risk in preparation for an anticipated commercial launch shortly after the PDUFA target action date. Pre-launch marketing activities, including key thought leader engagements, advisory boards, and patient focus groups are also underway. We recently held an ET600 advisory board with key opinion leaders at the National Endo Conference. We continue to hear positive feedback and strong excitement for the product. Since ET600 shares the same pediatric endocrinology call points as Olkindi, Kindivi, and Incralex, Eaton can leverage our well-established relationships and existing commercial footprint, and we expect to be able to hit the ground running upon launch next year. Given the growth opportunity ahead for our commercial products and the attractive pipeline and label expansion opportunities discussed today, It is clear that our business is set up for very attractive long-term growth for many years to come. However, we believe that we can accelerate our growth through additional business development transactions. I remain confident that we have the necessary skills and capabilities to execute value-creating acquisitions and believe that our track record speaks for itself. We continue to explore opportunities to acquire additional strategically aligned ultra-rare disease products where Eden is positioned to add value. With $37 million in cash on our balance sheet and a diversified growing business that is already generating strong EBITDA, we have plenty of capacity to finance acquisitions, large or small. We'll continue to approach opportunities from a position of strength and with our customary discipline. 2025 has been a transformational year for us, highlighted by three high-value commercial product launches, record levels of product sales and profitability, and the submission of an NDA for ET600. We continue to push full speed ahead to close out the year strong and position us for an even more impressive 2026. Next year, we expect a number of critical milestones, including continued strong revenue growth from Alkindi Sprinkle, Increlix, Galzen, and Condivi. increased profitability and operating margin expansion, the expected launch of ET600, the submission of our revised formulation of Condivi, the completion of our ET700 pilot study, and the initiation of our INCRLIX label harmonization clinical study. As you can see, we have some very exciting and event-filled quarters ahead of us, and we look forward to keeping all of you up to date on our progress. We thank you for your continued support. And with that, I'll hand it over to James, our Chief Financial Officer, to discuss the financials. James?

Thank you, Sean. Our third quarter revenue increased 118% to $22.5 million compared to $10.3 million in the third quarter of 2024, and revenue was primarily comprised of product sales in both periods. Third quarter revenue included $0.9 million of product revenue from the sale of finished product inventory to Ipsen and Esteve to facilitate the ownership transition of Incrulex in certain European countries, and these sales are expected to be non-recurring. In addition, $2.4 million of revenue was derived from an initial loading order of semi-finished Incrulex inventory for Esteve. When Eaton outlicensed the rights to Ex-US Incrulex, it entered into a long-term supply agreement with Esteve, under which Eaton will provide semi-finished goods to Esteve at a fixed transfer price. The company expects these ongoing purchases to produce roughly $2 to $3 million of annual revenue. However, the ordering patterns may be inconsistent and not occur every quarter. Revenue growth in the quarter was driven primarily by increased sales of Alkindi Sprinkle and Kyrglymic Acid, plus the addition of sales from Increlx and Galzen. While Sean mentioned that the Increlx net active patient count was relatively flat, we saw a less favorable payer mix in the third quarter, which resulted in lower revenue per patient compared to the second quarter. Eaton expects U.S. product sales to continue to grow sequentially in the fourth quarter compared to the third quarter, But given that some of the third quarter Increlx-related XUS revenue is not expected to recur, total product sales may be flat or slightly declined in Q4 relative to Q3. Cost of sales for the third quarter was $14.6 million compared to $4.0 million in the third quarter of 2024, an increase of $10.6 million. driven by increased sales volumes and approximately $7.4 million of costs associated with the transition of the XUS distribution of Increlix. Adjusted gross profit was $10.2 million in the third quarter, representing an adjusted gross margin of 45%, compared to adjusted gross profit of $6.6 million and adjusted gross margin of 64% in the prior year period. Adjusted gross margin in the quarter was negatively impacted by Incrolux XUS-related costs, including the transition of XUS distribution and the supply agreement with Esteve. The company expects to report fourth quarter adjusted gross margin of approximately 70%. R&D expenses for the quarter, or $1.1 million, an increase of $0.6 million compared to the prior year period, due primarily to increased expenses associated with our ET700 and ET800 development activities. General and administrative expenses for the quarter were $8.1 million, compared with $5.3 million in the prior year period, due primarily to an increase in product advertising and launch year promotional expenses, higher stock-based compensation expense, and an increase in compensation and benefit expenses due to an increase in general and administrative headcount. General and administrative expenses were down $1.6 million compared to the second quarter of 2025. On an adjusted basis, which removes the impact of share-based compensation, transaction-related costs, and other one-time expenses, G&A expense was $6.9 million compared to $4.3 million in the prior year period and $7.6 in the second quarter of 2025. And we were pleased to see this sequential decline in spending. As we have discussed previously, the first half of this year had increased G&A expenses associated with our three product launches, and we expect adjusted G&A spending in the second half of the year to remain materially lower. Adjusted EBITDA for the third quarter of 2025 was $2.9 million compared to $2.0 million in the third quarter of 2024. Total company net loss was $1.9 million for the quarter compared to net income of $0.6 million in the prior year period. Net loss per basic and diluted share during the quarter was $0.07 compared to a net income per basic and diluted share of $0.02 in the prior year period. On a non-GAAP basis, we reported net income of $1.5 million for the third quarter of 2025 compared to $1.9 million in the prior year period, and diluted earnings per share of $0.04 for the third quarter of 2025 compared to $0.07 per share in the prior year period. Eaton finished the third quarter with $37.1 million in cash on hand, and we generated $12.0 million in operating cash flow during the quarter. This includes a $4.3 million payment received from Esteve for the international rights to INCRELEX. 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. At this time, we will conduct the question and answer session. And as a reminder, 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. We will compile the Q&A roster. Our first question comes from the line of Chase Knickerbocker of Craig Holland. Your line is now open.

Good afternoon. Thanks for taking the questions. James, maybe just first a quick one. If you back out that $2 to $3 million in OUS kind of related revenue on those inventory shipments and then the associated costs that got into COGS, can you just give us what kind of call it pro forma gross margins would be kind of on the core U.S. business would have been. Sorry.

Sure. So adjusted the GAAP gross margins with all that information, with the XUS and QLX activity in there was 35%. Adjusted was 45%. And if we remove all of that and QLX XUS activity, it's north of just over 70% for the core Got it.

Thank you. And then, Sean, maybe just as we think about that reacceleration for Alkindi, is it truly just that kind of refocusing of the Salesforce, you know, kind of solely on Pete Endo? Or are there kind of other drivers that you would point to as far as kind of how that sequential revenue growth has accelerated so far through 25?

I think the... you know, the big lever certainly was the focus of the Pete Endo group. Um, secondary aspect, you know, I would say our physicians are comfortable with the product. They know it works. It's a product that has, uh, you know, early adopters, he's got late adopters and we're seeing a lot of late adopters and those who took a wait and see attitude. Now, you know, they, they believe in it. And I would say that we'll continue to add patients for the foreseeable future. It's, um, It's not a perfect product. That's why we came out with the liquid version. And so we want to be able to offer that. And we think that will really jumpstart the growth mixture. But right now, it's a steady increase in Elk Indy patients in addition to the Condivian. As we said during the call, we don't see a lot of cannibalization. Really, it's additive.

Got it. And then maybe just on Increlx, first, could you just, if you wouldn't mind, give that gross ads number since August, just so we can kind of get a sense for demand generation. And then just second on Increlx, any additional thoughts or details that you can give us as far as that trial design that you submitted to FDA that we're waiting to hear feedback on, you know, kind of timelines, number of patients, that sort of thing, as far as how you're thinking.

So on the numbers, we're roughly where we were at on our last call, and it had to do with a number of ads. But then we had a number of folks go off, but now we're seeing more ads. We just saw a number of ads just the past week in terms of new scripts. So we're going to see if we can hit that 110 number by the end of next month. But I would say that we're very pleased with the product overall. We knew it was going to slow down a little bit, but it's a little bit lumpy in terms of when people come on and off the product. We had that significant increase in Q1 and going a little bit into Q2. So that's that. And then regarding the clinical, we've submitted it. We expect to get feedback from the FDA in the coming weeks, and I do think that that will be favorable, and hopefully we can start enrolling patients in the first half of next year.

last one for me um maybe just as we look start to look into 2026 as you guys prepare your budget um any any initial thoughts that you'd be willing to give us just as far as how you're thinking about top line growth next year um you know looks like the street is is somewhere kind of mid to high 20s as far as top line growth goes from a percentage perspective i mean do you have any initial thoughts that you'd be willing to give on 26. sure i'll let david answer that one chase we send on the prepared remarks you know we expect

significant growth to continue for Incolex, Galzen, L-Kindy, Kindivy. So we're expecting healthy growth, but we're not going to get into any directional guidance yet. When we report our Q4 numbers, we will have something to share with you.

Got it. Thank you, guys.

Thank you. Our next question comes from the line of Madison El-Sadi of B. Riley. Your line is now open.

Good afternoon, and thank you for taking our questions, and congrats on the progress and multiple positive updates. Question about the INCRLIX US registry. Would this take place at the same sites that are active in the global registry trial? There are a few sites in that global registry that are U.S.-based?

And then if you... It would be, yeah, Madison, it would be just the U.S. It would just be U.S. sites. We would not be enrolling folks overseas.

Right. Would it be at separate sites then that are activated in the global registry? I think there are about seven U.S. sites that are active as part of that global registry.

It would probably be different sites, Madison, if one of those sites did have a meaningful number of patients within that negative two to negative three standard deviation, we would consider adding them, but it'll probably be different sites within the U.S.,

And then maybe if you could comment on how important or how you're ranking the potential business development opportunities as we look to the end of the year and even into kind of next year and beyond.

Well, we... I would say right now they're strong. We're in late discussions. We've been in late-stage discussions with two parties, and we're hoping to get something done before the end of the year. If not, it would be shortly thereafter. Obviously, nothing is done until, you know, you sign. But these are ultra-rare disease products. They're late-stage, very good strategic fit. We think they would add, you know, appreciable revenue over the next 12 to 24 months. So we'll see what happens, but that's always been a core part of our strategy as a company is to take on the right acquisitions. Obviously, we don't just do acquisitions for the sake of doing acquisitions. They have to be the right fit. And with or without the acquisitions, we're going to continue to grow. We've got a good pipeline of internal products, but I believe we will close transactions. We will end up with, I'll say at least, two additional product launches next year.

Understood. That's helpful, Sean. Thank you.

Thank you. Our next question comes from the line of Swayam Bakula, Remicom of HC Wainwright. Your line is now open.

Thank you. Good afternoon, Sean and James and David. Quick question on NCORREL-X. You said there were some patients who discontinued as you were putting on some patients. So generally, what are the reasons for the discontinuation? And is there anything, either your sales force or some amount of additional detailing needed for kind of stopping that getting off the drug?

Hi, RK. Primarily, it's patients aging out. So discontinuations is almost misleading. All the kids are going to be on it until they stop growing, so typically around age 18. They will age out. They no longer need it. So it is expected and normal, and you're always going to have it. That's the vast majority of the discontinuations. We see very little of what you think about as traditional discontinuations where somebody dies stops taking treatment before they reach their full adult or their full height. Primarily because there's no other alternatives. It's not something like Alkindi where they try to go to something else. So it was primarily age us. I think we are starting to promote and educate the market better. We think we are getting patients that are being diagnosed earlier. So their total duration on therapy is going to be longer. you know, they're going to age out around 18 regardless of when they start. But if we can get them diagnosed and starting much earlier, that's going to lead to much better outcomes for the patients and they're going to be on treatment much longer. So we think our average age is shifting much lower than it was when we inherited the business at the start of the year.

Okay, thanks for that. And James, you know, you gave us, you guided for a 70% gross margin into the fourth quarter. But in general, if I start thinking about beyond 25, 26 to 28 or 29, as you start seeing the new formulation of KIN-DB come on board and whatnot, what would be the cadence of the gross margin over that time period?

NRK, we have stated before, we think we can get to north of 75% by 2028. And how we get there is as the majority of our product revenue growth is concentrated in the products where we own more of the economics in Kindivi and Alkindi and Encrylex, that product mix shifts more to those higher market products, which will continue to increase our margin profile over the next several years.

And then last question, Sean, in general, you know, what's the pricing power that you have with your product? And, you know, are you seeing any pressures at all, either from the government or from some of your private payers?

No, I'd say we're always trying to be on the lower end in terms of the pricing compared to the number of patients. So we're a company that prides itself on pricing products appropriately. We don't believe that all the pricing discussions will fall down into the orphan drug products. We're talking about many of these diseases have only a few hundred patients. And so for them to start putting pressure on those products...

Thank you. Thanks for taking my questions. It's okay.

Thank you. I'm showing no further questions at this time. I'd like to thank you for your participation in today's conference. This does conclude the program. You may now disconnect.