Eton Pharmaceuticals, Inc. Q4 FY2020 Earnings Call

Good afternoon and welcome to the Eton Pharmaceuticals Fourth 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 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, Vice President of Business Development at Eton Pharmaceuticals. Please proceed.

Thank you, operator. Good afternoon, everyone and welcome to Eton’s fourth 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 the call today, we have 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 that 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.

Thank you everyone for joining us today. We have a lot of exciting topics to discuss as we share our 2020 results and look forward to 2021. 2020 was a transformative year for Eton. We submitted our last four NDAs of our nine product pipeline and successfully completed our transition from an R&D stage company to a commercial organization. In addition, in recent months, we have seen two of our products commercially launched and completed a major transaction with our oral liquid products. First, I will start with the commercial launch of our lead product, Alkindi Sprinkle. Alkindi Sprinkle is the first and only FDA approved granular hydrocortisone formulation for the treatment of adrenal cortical insufficiency, specifically designed for use in children. Although the product launched in late Q4, promotional activities really accelerated in January after the holiday season. Our sales representatives have been pleased with the initial reception they have received from physicians and nurses and the endocrinology community. Caregivers have been eager to learn more about Alkindi Sprinkle and how it can benefit very young patients. While sales representative meetings to date have been mostly virtual, in recent weeks, we have actually seen certain doctors welcome in-person meetings and we expect the frequency of those meetings to increase in the coming months. While virtual meetings have been helpful to give us a broader reach in a short amount of time, we believe the improved quality of face-to-face interactions will lead to even faster adoption of the product. Many of these new patients are provided with a “quick start,” where we immediately fill their first prescription free of charge while the administrative paperwork is facilitated by their physician’s office, pharmacy, and the payer. All this means the revenue benefit may lag a month or two behind new patient starts. Our number one priority is to get Alkindi Sprinkle to the patients in need and we don’t believe they should have to wait while the administrative paperwork is being sorted out. While it is still early with only two full months of launch behind us, we are encouraged by the adoption rates we have seen thus far and we believe we are on pace for our 2021 plan. We have seen an increased number of new patient prescriptions every month since launch and March is on pace to show substantial growth over February. We continue to expect positive profit contribution throughout the year and expect to have approximately 400 patients on the product by the end of 2021. Given this demand for Alkindi and due to inbound interest from physicians and patients, we decided to grow the Alkindi franchise and acquire the Canadian rights to the product, which we announced in January. We are now working to bring the product to Canadian patients as quickly as possible. Also pleased secondly to announce that Bausch Health has launched Alaway Preservative Free into all major U.S. retailers in February. This product is the first preservative-free ophthalmic approved for allergic conjunctivitis. The launch triggered a $1.5 million payment owed to Eton, and we will also receive a double-digit royalty on sales of the product. Next, I’d like to discuss our recently announced transaction with Azurity Pharmaceuticals. When we began assembling our neurology oral liquid products in 2018, we knew that we were working on important products for patients that address critical needs in the market and as a result, they would have significant value regardless of how we ultimately decided to monetize them. After much analysis and thought, it was clear to us that partnering with Azurity was the most attractive way to capitalize on these assets. First, it allowed us to lock in a very attractive return on our investment. We will be entitled to receive up to $45 million in milestone payments plus still receive royalties on sales of the product. Azurity is a leader in branded oral liquid products and successfully launched numerous oral solutions in recent years. Their experience and infrastructure in the space gives us confidence they are the best company to market these products. Lastly, it boosts our profitability, which as you know is one of our key priorities. In addition to the significant amount of cash coming in from the transaction, expenses will be reduced because Eton no longer needs to invest in a neurology sales force and the associated product launch expenses. This drastically improves our company’s profitability over the next couple of years and allows us to focus our commercial efforts on our orphan drug strategy, which effectively uses the proceeds from the Azurity transaction to acquire additional orphan drug products in 2021. We are focused on finding products with attributes similar to Alkindi, meaning products that are late stage, address critical unmet needs for orphan indications, have significant revenue potential, and can be commercialized with a targeted sales force. In addition to our three commercial products, we have six additional products that are under review with the FDA. We believe the regulatory reviews are going well, which should set us up for a number of exciting product launches in 2021. A few of the key potential product approvals include orphan drug product, dehydrated alcohol, which is under FDA review with a PDUFA date of May 27. We have been engaged in standard review communications with the FDA and expect the product to be approved on its PDUFA date. Zonisamide oral suspension, which is now owned by Azurity and has the PDUFA date of May 29. Upon the product’s approval and launch, we will be entitled to receive a $5 million payment and a royalty on product sales. Topiramate oral solution, which is also owned by Azurity and has a PDUFA date of August 6. The Topiramate launch will also trigger a $5 million payment to Eton, and we believe this product is also on track for approval by August 6. As we look forward to 2021, I could not be more excited about our prospects. Eton has never been stronger or better positioned than it is today. We now have three commercial products generating revenue. We have six additional products under review, many of which are expected to be approved and launched in the coming months. Our financial position has never been better. We are on the cusp of becoming profitable and sitting on a strong cash position, with even more cash expected to come later in the year when we realize additional product approvals. With that, we would like to now open up the call for your questions. Operator?

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

Hey, thanks for taking my questions. Good to hear your voices. Just to start just last quarter, there was a shelf stock adjustment charge that took place. Did that happen again during the fourth quarter or can you just maybe let us know either what Biorphen or Alkindi product sales were for the quarter so we can have a sense of how each product is tracking?

Yes, Andrew, the shelf stock adjustment was a one-time factor for a price reduction on Biorphen that will not recur.

Yes, this is Sean. That was not Alkindi related; that had to do with Biorphen, which, by the way, the sales on Biorphen were very strong. Over the past couple of months, we have seen significant percentages in growth. So, it looks like that product is gaining traction in the market, and we are confident that when we launch the vial, it will meet our aspirations.

So, the sales that were recognized in the fourth quarter for Biorphen did you recognize anything for Alkindi? I remember we previously discussed that…

There were some Alkindi sales, but the reality is that Alkindi launched in December. You have got holidays. It just wasn’t a profitable launch in the sense that we weren’t getting a full month of sales. You are launching it in the middle of December. So, from my perspective, the real launch of Alkindi started in earnest in January. That’s where we had all the sales reps out there trained, communicating. So, having the product on the shelf or in the warehouse is different from actively selling and promoting it. We got it out the door in December, but the real selling has started in January, February, and March.

Okay, that makes sense. And then could you give maybe just discuss the difference between the U.S. market for Alkindi Sprinkle relative to the Canadian market. I am really interested in just seeing patient population and market dynamics as you would kind of consider pricing? I would imagine it wouldn’t be as high as the U.S. market, but if you could provide color around that?

Yes, I will turn that question over to Paul Stickler, our Senior Vice President of Sales. Paul?

Thanks, Sean. Good afternoon, Andrew. Yes. In terms of the Canadian market, as a general rule, it’s about 10% the size of the United States market. In Canada, there are some pricing controls in place. When we completed the deal back in January with Diurnal to gain the Canadian rights, we have started the process of building out a plan for how we want to bring Alkindi into that marketplace, and we intend to move on that in the near future.

Okay, that makes sense. And then just last question for me, really want to better understand the neurology sales. Should we expect payment streams to be recognized either as other income or actually as revenue and how do we calculate the revenue share, profit share, and milestone payments those candidates previously had with the entities you acquired and in-licensed the offerings from?

Yes, Andy, that will be recognized as top line licensing revenue like the $9.5 million that we received in February, for instance, and any milestone payments that we have going back out to the development partners will be considered as a profit share cost of goods sold.

Okay, perfect. I will take everything else offline. Thank you very much.

Okay.

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

Thank you very much for taking my questions. Can you hear me?

Yes, we can.

So, just very quickly on Biorphen, can you comment on what you expect the change in receptivity at the hospital level to be given that you are now changing the formulation presentation of this drug away from the ampule?

So, the actual launch of the vial wouldn’t occur earlier than the second half of the year. What we have seen, even though the product is in the ampule, is a significant increase over the past few months in uptake. I am not sure exactly why that is, but it’s happening every week. We are getting more products sold, so that’s a positive sign. Again, the hospitals tell us to give us the vial switch completely. We are collecting the stability data; we can’t rush that, that’s just a requirement the FDA wants six months of stability, and that’s what we have to do. Then they get several months to review it, but we are confident in that product and have the ability to realize 4 million units a year in sales, and then where we price the vial might be a slight premium to the ampule.

No, just to give us the sense of what the magnitude of sales could be associated with this product? At 4 million units annualized, given what you project as the price per vial, what would that translate into as an annual sales figure?

Well, the price per vial hasn’t been determined, but it likely would be comparable to what they are currently paying for the compound, which is in that $5 to $10 range. So, you can figure it out from there. Just kidding. I think with having the ampule, we will see a couple of million dollars of sales this year. If the vial is launched sooner, let’s say in June or July, that would change, but from a forecast standpoint, I am assuming we will have the ampule for the rest of this year and then we have the vial starting in the first quarter next year. It could be sooner than that, but that’s not how I work; I normally will be more conservative in how I provide forecasts to the board.

Understood. Secondly, regarding the Dehydrated Alcohol product, can you give us a sense or some frame of reference regarding what you expect the receptivity to be and your current thinking on pricing relative to the existing Dehydrated Alcohol preparation that’s currently available?

Well, I think the market – this isn’t a product that requires detailing. We are planning on just contracting it with wholesalers and distributors, and it will go into the hospital that way. From a pricing standpoint, we still haven’t determined where we are going to be. I imagine there would be a slight discount off the existing products, but not too drastic either. We are on track, and we believe for approval on our PDUFA date. All the product reviews are going well for that matter; all of them seem to be on track for their PDUFA dates.

Okay. And then just a couple of questions on Alkindi Sprinkle. Firstly, can you comment on what specific metrics relating to the launch and continued rollout of Alkindi Sprinkle in the United States you expect to provide on an ongoing basis going forward? Like for example, number of unique prescribers, number of repeat prescribers, number of patients on therapy, things like that?

I think the number one metric is active patients on therapy. The rest is more detail, but active patients on therapy can be translated into numbers. We said in our press release, we expect to have more than 400 active patients on therapy. I don’t say 400 because I am trying to get to 400; I believe we will hit 400 easily, but I don’t know how much higher it will be. It just depends on how quickly the uptake is. You get to the tipping point where the market really starts to turn, but we are getting new patients every week. Our forecast and what we had communicated to the board prior to doing this deal is exactly the same. We had a board meeting last week. Our Head of Sales, Paul, and his team are doing a fantastic job. We have seasoned veterans in the field who know the space, and the doctors see the value of the product. So I am happy with the deal, I am happy with the initial launch, and we will provide more color on that as we get more under our belt in terms of sales experience and trajectory of the launch in our next call.

And then just to follow-on from that, can you comment on patient receptivity to Alkindi Sprinkle in the U.S. so far? Have you gotten any testimonials from patients relating to the ease of use of the product and their experiences with it?

Sure. I will let Paul take that one. Go ahead, Paul.

Thanks, Sean. Hi, Ram. It’s Paul Stickler here. Yes, the feedback that we have received via patients through multiple different sources has been very, very positive. Particularly, the parents and caregivers appreciate the fact that they no longer have to cut adult strength doses of hydrocortisone into quarters, which really makes a big difference. Their quality of life has been increased. Most importantly, the safety of Alkindi Sprinkle has also been appreciated. So, we are quite pleased by that reception thus far.

And then lastly, on Alaway, I just wanted to get your updated thinking on this. Are you still looking at this as really only an incremental contributor to top-line revenues? But also whether you had heard anything from Bausch Health B&L regarding the performance of Alaway since it was actually introduced to the market? I know that was very recently, but any feedback that you have gotten from Bausch Health that you can share would be helpful?

Yes, Ram, we are very excited about the launch. Bausch, as you saw in the press releases, is also very excited. We don’t have any further details to share about the launch trajectory. As you know, it’s only been a few weeks, but we will be reporting that throughout the year when we receive our royalty payments. I think your initial assessment was correct; we don’t expect it to be the largest product in our pipeline, but we think it will still be a meaningful royalty revenue that will contribute to us getting profitable by the end of the year.

I can also say that if you go to your Walgreens or CVS, you will find it on the shelf. It’s on pretty much every shelf and available in all the large retail stores. That’s not something many companies could claim. Bausch has the wherewithal to get the product on shelves quickly. That was one of the reasons we did the deal. That’s something that would take a lot of effort for a smaller company.

Absolutely. Thank you very much.

Sure.

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

Thank you.