Good afternoon, and welcome to the Eton Pharmaceuticals First Quarter 2020 Financial and Operating Results Conference Call. At this time, all participants are in a listen-only mode. Following the formal remarks, we will open the call 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 the call over to David Krempa, Vice President of Business Development at Eton Pharmaceuticals. Please proceed.

Thank you, operator. Good afternoon everyone, and welcome to Eton's first quarter 2020 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 is Sean Brynjelsen, our CEO; Wilson Troutman our CFO and Paul Stickler, our Senior Vice President of Sales and Marketing. Before we begin, I would like to remind everyone that statements 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 our Company's filings with the SEC. Now, I will turn the call over to our CEO, Sean Brynjelsen.

Thank you, David, and good afternoon everyone. Thank you for joining us today. We are looking forward to providing you with an update on our first quarter results and our expectations for 2020 and beyond. First off, I’d like to start with the Biorphen commercial launch, which has unfortunately been negatively impacted by COVID-19. As many of you know, we launched Biorphen in December 2019 and signed a co-promotion deal arrangement with Xellia in January of 2020. We were just beginning to roll out our full commercialization activities and gain traction with customers when COVID-19 disrupted the elective surgery market. This unprecedented decline in surgical procedures at hospitals across the country has resulted in a meaningful decline in demand for injectable phenylephrine in general. Moreover, getting hospitals to change their current operating norms in the midst of a crisis is not optimal for any new product launch. Secondly, the COVID crisis has interrupted our sales and promotional plans for Biorphen. For example, hospitals across the country have active policies limiting in-person visits by sales representatives. This has clearly hindered our ability to have face-to-face meetings with the key decision-makers that would drive hospitals to switch to Biorphen. We had also planned to introduce Biorphen to pharmacists and doctors at important industry conferences throughout 2020. These conferences have been canceled due to COVID-19, which has also eliminated one of the most efficient ways for us to drive promotion and awareness of the product. However, in response to these challenges, we have launched targeted digital promotional campaigns which we expect to drive awareness of the product, investing in a bio format which is also preferred by most caregivers. I would add that we remain very optimistic that surgical volumes will start to normalize in the near term and our sales teams will be able to have onsite visits soon. We know this crisis will pass and Eton remains excited about Biorphen’s long-term prospects, targeting achieving 4 million units annually. The market and the need is there. The timing, unfortunately, was not optimal for us to launch in Q1, but we do believe that the uptake and adoption of Biorphen has value to the community, hospitals, and patients. We remain committed to the product and to driving sales. Turning now to our newest addition to our portfolio, Alkindi Sprinkle. In March, we announced the acquisition of U.S. marketing rights to Alkindi Sprinkle. We view this acquisition as transformative for our company and believe Alkindi Sprinkle has the potential to be the highest revenue product in our portfolio. Alkindi Sprinkle is an orphan drug currently under review with the FDA and is a replacement therapy for adrenal insufficiency in pediatric patients. Our partner, Diurnal Group, has already launched the product in Europe and has seen strong sales and rates of adoption. We are very optimistic about its potential in the U.S. market and have conducted detailed marketing studies to support this enthusiasm. Eton is also working hard to prepare for launch activities and we believe we’ll be in a good position to launch the product in the fourth quarter of this year if it’s approved on its PDUFA date of September 29, which we fully expect. To further support the launch, I announced last week that Paul Stickler has joined the company as our Senior Vice President of Sales and Marketing. Paul joins us from Recordati Rare Diseases, where he successfully commercialized a number of orphan drug products. He brings the ideal experience to launch a pediatric orphan product like Alkindi Sprinkle and is very excited about leading this effort. The rest of our pipeline has also continued to progress nicely. Most notably in the quarter, we announced that cysteine hydrochloride ANDA has been accepted for review by the FDA and has been confirmed to be the first Paragraph IV challenge against the innovator product. Our development partner has been selling the product in the current form since at least 1990. So, we are very confident that we will be able to overturn the innovator’s patents, which could allow us to launch the product as early as next year. We expect to have four additional new drug applications submitted this year and at least two product approvals in the second half of the year. As you can see, we were expecting 2020 to be a big year for our pipeline and I continue to believe we will have one of the strongest and most attractive pipelines in the pharmaceutical industry. With that, I would like to turn it over to our CFO, Wilson Troutman to discuss the financial results. Thank you, Wilson.

Thank you, Sean. Revenue was $0.1 million for the first quarter of 2020, which resulted from sales of Biorphen. Eton records sales for Biorphen when the product is shipped to wholesalers and distributors. As a result, reported revenue is not always aligned with end-user demand within the given period due to changes in inventory in this distribution channel. Customer demand for Biorphen exceeded Eton’s reported sales in the first quarter of 2020 due to large stocking orders placed by wholesalers in the fourth quarter of 2019. As previously discussed, Biorphen sales volume was also adversely impacted by the COVID-19 pandemic. Eton’s revenue of $0.5 million in the first quarter of 2019 resulted from the upfront payment associated with its EM-100 asset sale to Bausch Health in February 2019. Research and development expenses were $6.3 million for the first quarter of 2020, compared to $6.5 million for the same period in 2019. R&D spending for the first quarter of 2020 included $4.8 million of one-time licensing payments to acquire the U.S. marketing rights to Alkindi Sprinkle. The first quarter of 2019 R&D spending included $3.4 million of licensing payments to acquire the rights of Biorphen, ET-203, and ET-104. General and administrative expenses were $2.6 million for the first quarter of 2020, compared to $1.6 million for the same period of 2019. The increase was primarily driven by higher marketing and distribution costs for Biorphen commercialization, legal expenses associated with Eton’s patent challenge against Exela Pharma Sciences’ Elcys product, and higher employee compensation costs. Eton reported a net loss for the first quarter of 2020 of $9.0 million, compared to a net loss of $7.4 million for the same period of 2019. As of March 31, 2020, Eton reported cash and cash equivalents of $12.3 million. In March, Eton announced a private placement of $7.8 million of common stock in conjunction with the Alkindi Sprinkle acquisition. $7.5 million of the stock proceeds were received in the first quarter. However, $0.3 million were received on April 2nd and were not included in the first quarter cash balance. Additionally, in May, the company received $0.4 million of proceeds from a loan through the Paycheck Protection Program under the Federal Coronavirus Aid, Relief, and Economic Security Act. Eton currently has $2.0 million of available liquidity undrawn from its credit agreement and will be entitled to an additional $3.0 million of capacity upon the approvals of EM-100 and Alkindi Sprinkle. We would now like to open up the call for your questions.

Our first question comes from Andrew D'silva of B.Riley FBR. Your line is open.

Thank you very much for taking my questions and I am very glad to hear everybody sounds healthy. Just to start off with Alkindi Sprinkle, you mentioned that being likely the largest offering that you have in your pipeline. Just, can you help me understand how you get there, just comparing it to the European sales thus far? And then, looking over the revenue covenant that you have with your co-marketing partnership for Biorphen and just it seems like there is maybe some back of the envelope math that seem a little bit explaining. So I can better understand the trajectory there.

Sure. I’ll start off with the Biorphen question and then I’ll turn it over to the Alkindi question to Paul. So, with Biorphen, it’s truly a matter of having our ability to launch the product, which we’re hampered at the moment. So, in one sense, yes, they are not in compliance with the covenant, but it’s also not necessarily attributable to their performance. Part of that transaction was to have Xellia do the selling and promotion of the product. Currently, we are not able to get into the hospital. We are not able to detail the product, nor are we able to attend the trade shows. The product is the only ready-to-use phenylephrine in the United States. We know the market is there. We know it’s strong. And we know that hospitals would adopt the product, especially if we get the freedom to actually promote. In the meantime, hospitals are sampling. They are buying. We are seeing an uptick in terms of the total number of hospitals and I think we’ll be able to get greater traction on that over the next three to four months.

I am sorry. I think you may have – what I was just saying was the expectation that you have for Biorphen when examining the covenant is that it would be a very large market. And so it’s actually seeing how does Alkindi Sprinkle get to more than that when just the co-marketing agreement has a covenant that’s so high. And I am assuming that’s an expectation you have that you would like to hit just with the partner. So basically, it was centered on Alkindi Sprinkle, how does it get to being more than Biorphen when we know just with your co-marketing partner, you have a $42 million...

I am sorry. I thought you were asking about Biorphen. Okay, so.

No problem.

With Alkindi Sprinkle, we have a royalty agreement with Diurnal. We will handle the sales and promotion aspect of it. We will be opening a sales team. So, I’ll let Paul go ahead and elaborate on your question.

Yes. Good afternoon, Andy. This is Paul Stickler. In reference to the European experience, Diurnal has had some good experience thus far and we’ve been really focused on the rate of adoption and the percentage of patients that have been taking Alkindi. The adoption rates seen in Europe have actually been very encouraging. If you extrapolate those adoption rates to account for U.S. population size and expected pricing, the implied sales numbers are actually quite meaningful. Further, as we've stated before, we felt that market size is a little north of $100 million if you include all the diagnosed patients. As such, we believe that Alkindi will be in a strong position to achieve a significant portion of the market opportunity at this point. We are very excited about the prospects for meaningful Alkindi sales.

Okay. Great. Thank you for that. And then, I was just curious, you mentioned, as it relates to Biorphen, the number of surgeries declined, obviously, that’s true, particularly from an elective standpoint. But I thought phenylephrine was primarily used in C-sections and I don’t know...

That is - yes. That is one of the uses, correct. But that’s not the primary use. Believe it or not, the primary use is in elective surgeries, because it’s all elective surgeries; knee operations, a variety of things. Certainly, it can and is used in labor and delivery. That part of the market is still there. It’s the conversion process of getting into the hospitals that has hampered us when we have a small inside sales team calling on the hospitals to try to get that mass conversion. When we are in a crisis situation like we are, hospitals don’t want to focus on new products or enhancements at this point. We know that ultimately, the conversion will occur. It’s just about the ramp rate at which that will occur. Hospitals that have bought Biorphen are reordering the product. We expect that as we convert it from amp to the vial, there will be significant growth, and we expect to have that filing before the end of the year.

Okay. Now that makes a lot of sense, actually. And I did it – just very quick channel check, it does seem like the compounded versions of phenylephrine are still being utilized. I understand COVID-19 creates a lot of logistical issues. But is there a way to expedite the restrictions from compounders since your product – you mentioned meets that criteria, or while this is going on with COVID-19 is it just too much of a disruption to health systems for it to be viable?

I think both points are valid. First point, we had a meeting with the agency with the FDA. They fully agree that ready-to-use compounded copies of Biorphen should not and are not allowed to be sold. That doesn’t mean that they aren’t. You’ve got doctors who many of them don’t even know the difference between an FDA approved product and a compounded product. What I mean by that is, they don’t always know when they receive the product, whether it was compounded or FDA approved. You need to identify that at the pharmacy level, because the pharmacists are the ones that are doing the ordering. Beyond that, you should communicate at the administration level that there is an FDA approved version of phenylephrine, and that to make copies is not in compliance with the regulations to drive conversion. We are doing both of those, as well as working with the agency, which fully supports our position. We are monitoring the rate of enforcement that the agency is exercising. They are not exercising as much enforcement these days against compounders due to COVID. We expect that situation to change.

Thank you. That’s good color. Just one point, I wanted to ask about with your response. You said that the FDA would allow that kind of a seasoned assist with the same formulation as Biorphen. Are there other phenylephrine formulations that are different than Biorphen that are being created by compounders that are sold? And if so, would those fall outside of that exemption?

Well, that would – that depends, I know you ask. If somebody is tweaking a formula, they can say it’s different, but doesn’t have a clinical difference, which they don’t. Then that’s an issue. The rule is called the Essential Copy Rule. The use of the word Essential means that it may not be an exact copy, but it’s essentially a copy. If you make a product that has a 10% less potency or 10% more potent or you add some sort of excipient in there, it has the same clinical therapeutic effects. You are making a copy of the product. It’s really trying to gain the system, which the agency is well aware that compounders utilize that tactic. They’ve been sued by other companies as well; certainly, the Vasopressin case won by the pharmaceutical company against compounders. We don’t see this as any different. We think when companies are out there, compounders are making copies. They are bypassing the FDA approval process, undermining it, and encouraging more of that type of behavior.

Okay. That’s great color. Thank you very much. And stay healthy and best of luck going forward.

Thanks a lot.

Thank you. Our next question comes from Ram Selvaraju of H.C. Wainwright. Your line is open.

Hello, this is Marks speaking on behalf of Ram Selvaraju. Most of our questions have been answered. Just one outstanding question, have you ascertained how much U.S. demand exists for the Alkindi Sprinkle product? If so, could you provide some granularity and additional color on this?

Sure. The patient population is, right now, our estimate is 5,000 to 6,000 patients. And we know that that gets segmented; approximately that range includes those who are 17 years and younger. It actually could be higher than that. We are going to be pricing it less than a lot of orphan drug products, but consistent in that range. That’s sort of how we come up with our market estimate.

Thank you. Best of luck this year.

Sure.

Very good. Our next question comes from Frank Takkinen of Lake Street Capital Markets. Your line is open.

Hey guys. Thanks for taking my questions. Just a couple for you here today. Just hope you could give us a little background and update around the different commercial activities for your respective products. Right now, we've got Biorphen with Xellia. Paul can onboard drug – and I was curious if Lamo is going to start – if the thought process is to keep Lamo in-house with Paul onboard now or if there is a different thought process? So, just looking for an updated commercial organization thought process.

Sure. Paul, why don’t you first address Alkindi and Lamotrigine, as well as the neurology overall, the neurology franchise and what our plans for that?

Sure. Thanks, Sean. With regard to Alkindi, what we are looking at working towards would be an organization, a small, efficient organization to support Alkindi sales, dedicated to calling on pediatric endocrinologists. It’s a relatively small group, less than 1000 physicians we anticipate calling on. We would anticipate somewhere between five to seven sales representatives. In addition to that, we have a pipeline that we will be preparing for next year and we anticipate a separate sales organization dedicated to calling on pediatric neurologists focusing on epilepsy.

Got it. And then, just a little bit more color on the – I was hoping you could give us some different puts and takes you’ve seen in the European market that are going to either translate or not translate into the U.S. market in regards to the adoption curve. Just trying to get a feel for how you feel about that market and how it’s going to draw an adoption curve for the U.S. markets?

Sure. Let me take that and then I’ll turn it over to Paul for any additional commentary. So, two points, we ran an initial marketing study before we did the transaction on Alkindi. That study gave us certain results and that service actually largely ran by Diurnal using a U.S. marketing company. Before we consummated that transaction, we separately got a different marketing company to run a study without any visibility to the first marketing study, and by and large that came back with the same results. The product is in demand; physicians want the product. They understand why this product hasn’t been on the market in the past. The payers indicated willingness to pay at different points we were looking at. The whole patient benefit, as well as the perspective from some patients themselves. That confirmed some of our assumptions going into the deal. Now, looking at Europe, when the product launched, the rate of adoption, especially in the younger population, was extremely high, well in excess of 50%. You are talking a few months into a launch, and the doctors converted quickly. In Europe, there are price controls and different mechanisms, so you can’t really look at it from a dollar standpoint. But when you look at the actual patient penetration rate, it was fast and quick, and we are seeing that same positive indication right now for the U.S. market. So, I am going to stop there and let Paul add any additional comments.

Yes, I think you are spot on, Sean. There seem to be consistent signals that have been received from both sides of the pond in terms of Diurnal’s early response with the product in the market, as well as market research we’ve seen here in the U.S. and some initial outreach taken place in our two key constituents in the community at this point. So, it seems pretty consistent in terms of the clinical needs.

Got it. And then, just last one from me, it’s nice to see the cash balance hanging in there. Congrats on the raise and putting the money to work. Just hoping in two parts, one, if you could talk about business development and if you’ve seen any impacts from COVID-19 presenting some more attractive opportunities? And then two, how you feel your 12 or so million-dollar cash balance looks as part of the cash runway?

Sure, sure. So, on the cash balance question, that should get us through the approval of Alkindi, which includes putting in the marketing team and the sales and promotional efforts. We also have several milestones that would result in - we could draw on a credit line if we wanted to or chose to, as well as milestone one is coming in from our licensing deal with EM-100. There are no plans at the moment to do any additional raise. As we look at the adoption and rate of sales of Biorphen and the initial launch sales of Alkindi, we’ll make a decision. Again, I typically would only do a raise. We did a small raise recently to fund the Alkindi transaction, which we think is money and shares well spent. We do have several deals that look attractive. Our products are either filed or can be filed in the next few months, all in the rare disease space. I would expect to see us do types of transactions in the rare disease space, focusing on pediatrics, neurology, endocrinology, and many disease states with unmet needs.

Guys, thanks for taking my questions and congrats on all the progress.

Thank you. Our pleasure.

Thank you. I am showing no further questions at this time. I would like to turn the call back over to Sean for any closing remarks.

Thank you. Thanks to everybody that joined us today. We are excited about the second half of 2020. We have several product launches coming up over the next few months. I look forward to our next call and providing additional updates. As always, please feel free to reach out and as we expand our team, we’ll have more news and as we get deals on the table, we look forward to adding to our pipeline. Thanks again and stay safe.

Ladies and gentlemen, this concludes today’s conference. Thanks for participating. You may all disconnect. Have a great day.