Eton Pharmaceuticals Q4 2023 Earnings Call Transcript

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March 14, 2024

There are 5 speakers on the call.

Operator

Good afternoon, and welcome to Eton Pharmaceuticals 4th 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'd like to turn it over to David Krempa, Chief Business Officer at Eton Pharmaceuticals.

Operator

Please proceed.

Speaker 1

Thank you, operator. Good afternoon, everyone, and welcome to Eaton's Q4 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, heatonpharma.com. Joining me on our call today, we have Sean Brynjelsen, our CEO and James Gruber, our CFO.

Speaker 1

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 investorrelationsetonpharma.com. 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.

Speaker 2

Thank you, David. Good afternoon, everyone. Thank you for joining us today. Our strong Q4 delivered our 12th straight quarter of sequential product revenue growth and capped off an exciting and productive 2023 for Eaton. 2023 brought a number of critical accomplishments and milestones for the company, including the expansion of our internal sales force, which helped us grow product revenue more than 130 percent to $26,000,000 in 2023 from $11,000,000 in 2022 Number 2, the commercial launch of Betaine and acquisition of neticinone, which brought us from 2 commercial products at the start of the year to fork approved products by the end of the year.

Speaker 2

We also boosted our development pipeline through the advancement of ET-four hundred and the acquisition of ET-six hundred. And lastly, we reached positive operating cash flow in the second half of the year. Turning to the specific 4th quarter results, revenue was $7,300,000 an increase of 109% over the prior year quarter, while G and A expenses grew only 5% year over year, demonstrating our financial discipline and the attractive operating leverage in our business. I'm also pleased to report that the 4th quarter was another quarter of positive operating cash flow. Even without the benefit of any future acquisitions, we expect our current commercial products continued growth to allow us to reach positive GAAP net income at some point in 2024.

Speaker 2

LKINDI SPRINKLE once again delivered steady growth in the quarter. We continue to believe this growth can continue for many years to come as we have still only converted a small portion of the estimated 5,000 patients under the age of 10 who suffer from adrenal insufficiency in the United States. We are hoping to boost the growth rate with our sampling program, which just went live in February. Pediatric endocrinology offices are now able to stock samples of Alkendi Sprinkle so that newly diagnosed or converting patients can immediately start therapy in the presence of their physician. We've already seen a strong demand from physicians requesting samples and we expect the program to have a positive impact on our 2024 growth.

Speaker 2

Turning now to kergulumic acid. Kergulumic acid also continues to do well and remains ahead of our initial expectations. We believe we have captured over 50% of kerglumic acid patients in the market for just over 2 years. While this already is a higher share than we expected, we have continued to see additional new patient conversions in the Q4 and a number already in the Q1 of 2024. So we expect it to continue and predict 2024 will be another year of attractive year over year growth for couglimic acid.

Speaker 2

It appears that the brand company has understandably de emphasized its promotion and support for the product. So with our continued physician and patient support, we believe we are well positioned to be the leading product in the market. In addition, the launches of Betaine and now netisenone have further increased our interactions and entrenchment with potential kerglielmic prescribers. The Q4 was Betaine's 2nd full quarter on the market and it continues to see growing adoption among patients. The overall market opportunity is much smaller than that of cartilumic acid and Betaine faces more reimbursement pressure due to the competitive market environment.

Speaker 2

It's not a major revenue contributor on its own, but more importantly, it's been a valuable tool for us to get in the door and initiate discussions with metabolic geneticists that can lead to kergalumic acid prescriptions. Last month, we launched our 3rd product in the metabolic space, neticinone capsules. Neticinone treats an ultra rare condition called terasinemia that is estimated to impact 200 to 300 patients annually within the United States. The current natisonone market is estimated to be around $50,000,000 annually and we believe our existing relationships and patient support services will allow us to take a meaningful share of this market. We've already added a number of active patients within the 1st few weeks of launch.

Speaker 2

In addition to the strong commercial performance, I am pleased with the recent progress we have seen with our pipeline. We had 2 positive clinical developments in recent weeks. First, on ET-four hundred, I am pleased to report today that preliminary data shows that the product passed the pivotal bioequivalency study. You may remember that this was our last hurdle to NDA submission. So we can now plan to submit the NDA application in the Q2 of this year as soon as the first final clinical study report is available.

Speaker 2

This would allow for potential approval and launch of the product in the first half of 2025. We continue to see very strong interest in a liquid hydrocortisone formulation and remain highly confident that ET-four hundred will greatly accelerate our growth in the years to come and be a major value driver for the company. We also received notice in February that we have been issued a patent on EP-four hundred's proprietary formulation. This is an orange book listable patent that will cover the product until 2,043 and we have additional patents for the product currently under review with the United States Patent Office. Turning now to ET-six hundred.

Speaker 2

The second clinical data point was on ET-six hundred and our product candidate that is targeting ultra rare condition called diabetes insipidus. We can report now that the product has passed its pilot bioequivalency study. We now plan to run the pivotal study in the second half of this year. And given the results we saw in the pilot study, we're optimistic about the success of this pivotal study. If the study is successful, we would be in a position to file the product's NDA in the Q1 of 2025.

Speaker 2

Regarding dehydrated alcohol, we have been engaged in dialogue with the FDA, but unfortunately it seems the FDA's latest request would require manufacturing of additional new batches, collection of additional stability data. In light of the potential generic competitors entering the market late next year, it is not prudent use of Eaton's capital or resources to undertake this additional work. We will instead focus our resources on higher value programs with significant long term earnings potential that we feel will provide better risk adjusted returns on our investments. We are also exploring opportunities to outlicense the dehydrated alcohol asset and a transaction that would not require additional investment from Eton would still allow the company to share in the economics if the product is able to reach market. In addition to our existing pipeline programs of ET-four hundred, ET-six hundred and the ZENIO auto injector, we are currently exploring additional potential development programs, which we hope to communicate shortly.

Speaker 2

As proud as we are about the 2023 results that we discussed today, we are just getting started and we are even more excited as we look forward to Eaton's prospects for 2024 and beyond. 2024 is positioned to be a critical year as we continue to rapidly grow our business and gear up for the potential ET-four hundred launch in 2025. This year, we expect all of our commercial products to grow significantly. We expect to further advance our pipeline, most notably with the high value submission of ET-four hundred NDA. We expect to add additional commercial products through business development activities and we expect to reach positive net income on a GAAP basis at some point during the year.

Speaker 2

We are well positioned and well capitalized to deliver on all of these plans. We finished the year with more than $21,000,000 of cash on hand. And as you heard, we generated positive operating cash flow in the second half of the year. This puts us in a very strong financial position to remain active and opportunistic on the business development front. We continue to see increased levels of distress among many players in the industry and we remain optimistic that we will be able capitalize on many opportunities even this year.

Speaker 2

With that, I'll turn it over to James, our Chief Financial Officer to discuss the financial results in greater detail. James?

Speaker 3

Thank you, Sean. Net product sales and royalty revenues for the Q4 of 2023 increased 109 percent to $7,300,000 compared to $3,500,000 in the prior year period, driven by growth in alkyndi sprinkle, kardulmic acid and the commercial availability of betaine anhydrous. Total net revenues were also $7,300,000 for the Q4 of 2020 3 compared to $8,500,000 for the Q4 of 2022. The prior year period included a 5,000,000 dollars onetime licensing revenue item and milestone payment received from Azureity Pharmaceuticals. R and D expenses for quarter were $1,000,000 compared to $900,000 in the prior year period.

Speaker 3

General and administrative expenses for the quarter were $4,600,000 compared to $4,400,000 in the prior year period. The slight increase in G and A expense was primarily due to personnel and we expect G and A expenses to remain relatively flat going forward. Total company net loss for the Q4 of 2023 was $2,300,000 or $0.09 per basic and diluted share compared to a net income of 900,000 dollars or $0.04 per basic and diluted share in the prior year period. Eaton finished the 4th quarter with $21,400,000 of cash on hand and generated $400,000 of operating cash during the quarter. This concludes our remarks on 4th quarter results.

Speaker 3

And with that, we'll turn it back over to the operator for Q and A.

Operator

And thank you so much. All right. I don't see any questions now. I will pass it back to David for any additional questions.

Speaker 4

Thank you, operator. We did receive a couple questions via email that we can go over now. First one is, what are you expecting for operating expense growth in 2024 and what should we expect for gross margin?

Speaker 3

So for operating expenses, G and A, should it be a slight increase from 2023 to 2024. 2023 came in at $18,900,000 We should be right around $20,000,000 for 2024. R and D spend, a little less predictable just due to the timing of study expenses. But with the continued development of ET-four hundred and ET 600 in 2024, we should come in somewhere between $4,000,000 $6,000,000 For gross margin expectations in the current year, we should be similar to where we ended 2023, if you adjust for the $1,000,000 Al Kindi milestone payment that was in Q4 of last year. So between 60% 65% margin profile for the current year and that should continue to increase as Alkendi and ET-four hundred make up a larger portion of our overall revenue.

Speaker 4

Thanks, James. The next emailed question is, what's your confidence level in closing a business development acquisition this year?

Speaker 2

This is Sean. Well, I feel very confident we will close a transaction commercial revenue generating products. We've got several, let's say, late stages. So I would expect at that time that we would also be providing some guidance for the year and this would be accretive to our existing revenue base. The M and A environment is actually quite strong as long as you're positioned to take advantage of it.

Speaker 2

So it's we're not struggling to find deals. It's just making sure we do deals at the right price and at the right time.

Speaker 4

Thanks, Sean. That is the end of our emailed questions. Thank you, everyone, for joining us for our earnings call. We look forward to talking to you next quarter.

Operator

Thank you, ladies and gentlemen. With that, you can disconnect. Thank you for joining.

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Earnings Conference Call
Eton Pharmaceuticals Q4 2023
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