Eton Pharmaceuticals Inc

NASDAQ:ETON

Earnings Call Transcript 2023-Q1

[Operator]

Good afternoon and welcome to the Eton Pharmaceuticals' First Quarter 2023 Financial Results Conference Call. At this time, all participants are in a listen only mode. Following the formal remarks, we will open the call up for your questions. Please be advised that this call is being recorded at the company's request.

At this time, I would like to turn it over to David Krempa, Chief Business Officer at Eton Pharmaceuticals. Please proceed.

[David Krempa, Chief Business Officer]

Thank you, operator. Good afternoon, everyone and welcome to Eton's first quarter 2023 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, etonpharma.com.

Joining me on our call today, we have Sean Brynjelsen, our CEO; and James Gruber, our CFO. In addition to taking live questions on today's call, we will be answering questions that are e-mailed to us. Investors can send their questions to [e-mail].

Before we begin, I would like to remind everyone that 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 Brynjelsen.

[Sean Brynjelsen, CEO]

Thank you, David. Good afternoon everyone, and thank you for joining us today. I'm excited to talk with all of you to go over our first quarter results, as well as our outlook for the rest of the year and beyond. As previously communicated, we knew 2023 was going to be a major inflection point in ETON’s history. We seek to more than double product sales, launch new rare disease products and reach profitability.

I'm pleased to say we're off to a very good start with the exceptional first quarter results we announced today. It was another quarter of record product sales for ETON, our ninth straight sequential product revenue growth. Total product sales and royalty revenue was $5.4 million, an increase of 52% over the fourth quarter of 2022 and up 144% from the quarter of 2022. ALKINDI SPRINKLE and Carglumic Acid, both reported record sales in the quarter.

ALKINDI SPRINKLE saw strong growth in patients on treatment during the quarter having our reps solely focused ALKINDI during interactions with pediatric endocrinologists has allowed for more in-depth discussions, which I believe we believe increases the likelihood of a physician changing their prescribing habits and they reduce the number of visits required to do so.

ETON also launched a new ALKINDI SPRINKLE direct-to-consumer marketing campaign during the quarter and have implemented initiatives to further increase our engagement with the adrenal insufficiency patient community throughout 2023. Even with our strong ALKINDI sales in Q1, a huge opportunity remains in front of us, the large percentage of patient population remains unconverted.

We are optimistic that this provides us with a long runway of growth for the product, which is patented throughout 2034. We believe our expanded sales force can help increase the pace of adoption and ET-400 product will further accelerate adoption, our patent-pending ET-400 product, which will be sold alongside ALKINDI SPRINKLE as a new treatment alternative, remains on track for an NDA submission at the end of this year.

This could provide for a potential commercial launch in 2024. We continue to believe ALKINDI SPRINKLE and ET-400 have the potential for combined peak sales of more than $50 million annually.

Moving over to Carglumic Acid. Carglumic Acid also had a very strong quarter, aided in part by a few significant conversions in the quarter, which we believe were a direct result of our expanded sales force. We will be leveraging relationships we have successfully developed commercializing Carglumic Acid for the launch of Betaine Anhydrous which shares the same prescriber base.

We're pleased to announce this week that Betaine is now commercially available. With Betaine, we will be offering our full patient and provider services through our ETON Cares program. ETON Cares will provide prescription fulfillment, insurance benefits investigation and educational support, as well as financial assistance and other services designed to help eligible patients access treatment.

Even prior to the launch, we had received strong interest from patients and providers trying to gain the product from us. So we believe we are well-positioned for launch. We believe Betaine has the potential to generate several million dollars in annual revenue with minimal, incremental investment in SG&A. I've been very pleased with the performance of our sales force thus far.

As a reminder, the final members of our expanded 12-person sales team were fully trained and in the field in February. We believe the expanded force help contribute to the record sales of both products in the first quarter and we expect the benefit of this larger team to be even more pronounced in the second half of the year as new members develop deeper relationships with prescribers.

An additional benefit of the expanded team is that it has allowed us to increase our attendance and presence at medical conferences including many smaller regional conferences. Our commercial team will be attending more than 35 medical conferences this year.

Our second potential product launch this year is our dehydrated alcohol injection. As many of you are aware the product has been assigned a PDUFA date of June 27th, by the FDA. We have been in regular communication with the FDA and believe we have fully addressed or will shortly address all of the agencies information requests.

As a result we have implemented a launch execution plan with our commercial partner that will allow for the launch of the product as quickly as possible after the PDUFA date if it is approved. During the quarter, we also acquired ET-600, an innovative product candidate under development for a rare pediatric endocrinology condition that would address a significant unmet need.

ET-600 has the same prescriber base as ALKINDI SPRINKLE, which makes it a perfect strategic fit. Physicians have repeatedly expressed the need for this product and we believe we can address this unmet need. If all goes according to plan, we expect to file the NDA in 2024. Our short-term goal for 2023 was to more than double product sales this year.

And as you can see with the impressive first quarter results were well on our way to achieving that. Longer term, our goal is to have 10 commercial rare disease products on market by the end of 2025. The launch of Betaine is now our third commercial product. We are in a very solid position. I believe our current pipeline can deliver four more and I am confident that we will continue to find and close attractive business development transactions that can provide at least three more commercial products by the end of 2025.

In recent months, we have seen an increasing number of pharmaceutical companies that have attractive commercial late-stage assets are facing financial challenges. Due to less favorable capital markets environment, they are struggling to raise needed capital and ultimately will not be able to advance or commercialize products by themselves.

Given our strong cash position, our prudent spending and our expectation to be profitable in the near future, we believe we are in an ideal position to capitalize on these type of opportunities as we move forward. I hope everyone is as pleased today with the results as I am. Our team has put in a lot of hard work behind the scenes in recent quarters and years to lay the groundwork for results that are starting to materialize.

We knew 2023 was going to be a critical year for the company and we're off to a terrific start. The outlook could not be better. Carglumic Acid and ALKINDI SPRINKLE which were already growing at impressive rates now have the power of a dedicated in-house sales force behind them, we have launched Betaine which will further add growth, with the potential launch of the dehydrated alcohol in the coming months and on top of all of that, we continue to execute on our internal development and external business development activities to advance our vision of creating a profitable, diverse portfolioof commercial rare disease products.

In summary, we are just getting started. We are getting some great traction and look forward to sharing more good news as we move forward in the quarters ahead.

Thank you. And with that, I'll turn it over to James, our Chief Financial Officer to discuss the financials. James?

[James Gruber, CFO]

Thank you, Sean. Our first quarter revenue was $5.3 million, compared to $2.2 million in the first quarter of 2022 or a 144% increase. In both periods, revenues comprised entirely of product sales and royalties and the increase was driven by growth in ALKINDI SPRINKLE, and Carglumic Acid.

Sequentially, product sales and royalty revenue grew 52% percent compared to the fourth quarter of 2022. We expect product sales to continue growing quarter-over-quarter throughout the rest of this year and beyond.

R&D expenses for the quarter were $0.5 million, compared with $1.6 million in the prior year period, due primarily to decreased development costs for new product candidates. We expect to see a slight increase in R&D spend in future quarters, due to development activities in payments related to ET-400 and ET-600.

General and administrative expenses for the quarter were $5.3 million, compared with $4.8 million in the prior year period due primarily to incremental employee-related expenses associated with our sales force expansion. The increased cost related to the salesforce expansion are being partially offset by lower legal costs, the elimination of the co-promotion commission paid to our marketing partner and the elimination of expenses associated with supporting products that were divested in 2022.

Q1 is seasonally our highest quarter of expense and we still anticipate our full year G&A expense to be approximately $20 million.

Total company net loss was $2.7 million for the quarter, compared to a net loss of $5.3 million in the prior year period. Net loss per basic and diluted share was $0.10 during the quarter, compared to a net loss per basic and diluted share of $0.21 in the prior year period.

ETON finished the first quarter with $14.7 million of cash on hand and our operating cash burn during the quarter was $1.5 million. We remain confident that our cash position is sufficient to allow us to execute our plan and continue pursuing bolt-on transactions and new product developments.

This concludes our remarks on first quarter results. And with that, we'll turn it back over to the operator for Q&A.

[Operator]

[Operator Instructions]

And we have a question from Raghuram Selvaraju with H.C. Wainwright & Co. Your line is now open.

[Raghuram Selvaraju, H.C. Wainwright & Co]

Hi, thanks very much for taking my questions. So in light of the robust revenue that you're seeing, can you give us your updated thoughts on whether or not you anticipate potentially expanding the field sales force and if so, in what cadence and on what timeline?

[Sean Brynjelsen, CEO]

Sure. Hi, Ram. Yeah, we have decided to keep our salesforce at where it's at for the next quarter or two, but as sales ramp up and we bring in new products, we will be ultimately expanding that. I don't see a significant increase in SG&A at least for the next few quarters. We believe the salesforce is the right size for where we're at today. Obviously for the future we will need to plan accordingly.

But it's so far so good with the results. And as you can see, we're very pleased with their performance. I think that you'll see that accelerate. There will come a point though may be necessary to add additional headcount.

[Raghuram Selvaraju, H.C. Wainwright & Co]

And can you give us an update on what you expect to be the next steps in the legal front, on the legal front with respect to your collaboration with Dr. Reddy’s? And in particular, what, you expect the outlook to be there at this point in time?

[Sean Brynjelsen, CEO]

Sure. The Cysteine appeal has been filed and it’s in process. We remain confident of winning that ultimately, that would translate into a $20 million commercial payment or commercialization milestone payment to ETON. I would expect that and the exact timing obviously is always tough to predict when you're talking about court cases. But we think it will likely be some time in 2024.

I have read several of the briefing documents and I think Dr. Reddy's has done a very good job with their case so far. They have a very good track record of winning.

[Raghuram Selvaraju, H.C. Wainwright & Co]

And lastly, with respect to R&D, do you anticipate that this is likely to trend up meaningfully in the course of the coming quarters, say over the remainder of 2023? Or do you expect the number for the first quarter to be more or less where it's going to stay given some of these upcoming activities including the preparation for filing of ET-600?

[Sean Brynjelsen, CEO]

Yeah, the first quarter is - our R&D spending for the rest of the year is going to tick up a little bit higher than it was in the first quarter, just due to the timing of development activities with both ET-400 and ET-600. So, it would not be reasonable to assume, Q1 is not representative of full year spend. So we do expect it to tick up a little bit, not multiples, but slight increases over Q1.

[Raghuram Selvaraju, H.C. Wainwright & Co]

And last question for me, if you look at the potential evolution of gross margin, which of the newer product for example, Betaine anhydrous ET-400 and down the pipe ET-600 are likely to be the most significant positive contributors to improvement in gross margin?

[Sean Brynjelsen, CEO]

James.

[James Gruber, CFO]

Yes. Hey, Ram. The biggest gross margin benefiters would be ET-400 and ET-600. On the Betaine we do have a 35% profit split to our original licensing partner that comes out of the COGS line. So, the gross profit is a little bit lower because of that payment, but ET-400, ET-600 will be very high margin with relatively low royalty obligation. So they should boost the overall company gross margin.

[Sean Brynjelsen, CEO]

Thank you.

[Operator]

[Operator Instructions]

And I see no more questions at this time. I will now turn the call over back to David Krempa.

[David Krempa, Chief Business Officer]

Thank you. We do have one emailed question that we haven't covered yet today. It was asking for an update on ET-400. Can you provide any color on the indication it is going for?

[Sean Brynjelsen, CEO]

Sure. So with ET-400, this is one of our most exciting pipeline products. As you know, as we stated in our press release, sold alongside ALKINDI SPRINKLE. The indication would also be for adrenocortical insufficiency.

And we would envision, there's roughly 10,000 patients that could benefit from this, but we're really going after about 3,000 those on 600 primarily as the patient population it may be indicated all the way up to 18. We think it would mainly be used in that zero to six range.

So, that's about what we can say at this point I think as the year progresses and our patent gets issued, we will share more information about the product. Suffice to say, Physicians are very excited about it. It's one that we've spoken to a couple of dozen doctors, but specialized in this area and it's it will fulfill an unmet need today.

[David Krempa, Chief Business Officer]

Thank you everyone for joining us today. That's the end of the email questions that we've received.

[Operator]

This concludes today's conference call. Thank you for your participation. You may now disconnect.