Good evening, and welcome to the Eton Pharmaceuticals Fourth Quarter 2021 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 to 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, Senior Vice President of Business Development and Investor Relations at Eton Pharmaceuticals. Please proceed.

Thank you, operator. Good evening, everyone and welcome to Eton’s fourth quarter 2021 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 Kevin Guthrie, our Executive Vice President of Commercial Activities. In addition to taking live questions on today's call, we will be answering questions that have been emailed to us by investors. Investors can send their questions to [email protected]. Before we begin, I would like to remind everyone that statements made during today's 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, David. Thank you everyone for joining us this evening. We have a number of exciting product launches and new initiatives in motion right now. So I'm excited to provide all of you an update today. With the launch of Rezipres this week, we now have six commercial products in launch phase and an additional four products that have been submitted to the FDA and are expected to be approved and launched in the coming quarters. I'll touch on each of them today. But I'd like to start first with our recent launch of carglumic acid, which occurred in December. We were very excited when we acquired this product late last year. It was clearly a great fit with our orphan drug business and we knew it would be an important product for our company. Although, we are only three months into the launch, I'm pleased to report that we are trending well ahead of our initial projections for the launch. Our product is the first and only generic of Carbaglu, which is used to treat elevated levels of ammonia in the body and is one of the most expensive treatments in the world. The cost of treatment for many adult patients can exceed $1 million. So a lower-cost alternative has received a welcome reception from patients, payers, and healthcare professionals. Although we are a fully substitutable and bioequivalent generic, our product actually has advantages over the branded product, including the fact that our product does not require refrigeration, while the brand product does. Additionally, our product has a 90-day shelf life after opening versus 30 days for the branded product. And we expect our labeling to be updated shortly to reflect that. We've already heard from patients that they find this to be a very valuable benefit. Our strategy has been to actively detail the product directly to physicians and patient advocacy groups at medical conferences with our orphan drugs sales force, rather than trying to drive adoption through aggressive discounting with payers. Payers often try to instigate a pricing war by requesting massive price discounts in exchange for sending volumes to your product, especially on generic products. Given our ability to use a sales force to directly talk to physicians and patient advocacy groups about the advantages of our product, we do not believe we need to engage in these aggressive pricing games. We believe this will be an attractive market for us long-term and are not interested in pursuing short-term revenue wins at the cost of destroying the long-term market economics. We believe the Carbaglu market in the US is more than $50 million annually, and our goal is to capture 25% to 35% of the market. We are very encouraged by the adoption we have seen in the first couple of months, and we believe we can reach our goal by the end of the year. We launched the product on December 20th, so it did not have an impact on the fourth quarter results we are reporting today. But now that we have already added patients throughout the first quarter, we expect to see significant revenue from the product starting in the second quarter of this year. Now turning to other drivers for 2022. One of the primary drivers will be our orphan drug ALKINDI SPRINKLE, which is indicated for the treatment of adrenal insufficiency in pediatric patients. ALKINDI sales continue to grow in Q4 compared to Q3. However, we believe they can grow at a much faster pace, which is why we initiated a co-promotion agreement with Tolmar late last year. We are pleased to announce this co-promotion partnership appears to be working as we have already seen significantly higher rates of new prescriptions in recent weeks. Tolmar’s 62% sales force was fully trained and now promoting ALKINDI SPRINKLE in the field, starting in the second half of January. They have now been promoting the product for almost 60 days and we are seeing the benefits of this expanded reach. As expected, they have been able to conduct a significantly greater number of in-person meetings with doctors than we were able to do on our own. In fact, last week we saw record new patient scripts, breaking the old record that was set just two weeks ago, and March is on track to be by far our highest month ever for new patient scripts. We believe the full benefit of the Tolmar partnership will be even more apparent in quarters to come, as Tolmar is able to achieve the steady cadence of repeat doctor's visits that are often required to change physicians' prescribing habits. In addition to the extra push from Tolmar’s sales reps, we are in the process of implementing an expanded digital marketing campaign. We will have new branding and messaging with an enhanced focus on directly educating patients and caregivers about the benefits of precision dosing. Next, I will turn to our two commercial hospital products, including our newest product launch Rezipres. Rezipres is our own ready-to-use formulation of ephedrine. The market for ephedrine injection in the US was over $85 million last year and grew more than 20%. The vast majority of the market is still sold in a concentrated form that must be manually diluted prior to administration. We expect the launch of Rezipres to help accelerate the adoption of ready-to-use product and ultimately, we believe the majority of the market will convert to ready-to-use. We have partnered with XGen Pharmaceuticals, a leading injectable drug company to commercialize a Rezipres ampule. XGen has indicated to us that they've already seen strong initial interest from customers, and we are optimistic about the opportunity. Our other commercial hospital product Biorphen ampule continues to see increased adoption every quarter. However, it is still at levels well below what we believe the opportunity is once we convert to the vial presentation, which is why we are working aggressively to convert both Rezipres and Biorphen into vial formats. I'm pleased to say that the manufacturing of registration batches of both products in vials occurred late last year and the initial data looks good. We are just waiting on the final stability data time points in order to submit the prior approval supplements. We expect them to be submitted in the second quarter, which could allow for a launch of both vials before the end of this year. Turning now to our royalty products. In our royalty product segment, our partner Azurity Pharmaceuticals launched EPRONTIA, our topiramate oral solution, in December. We had found topiramate to be the most requested oral liquid from pharmacists, so we believe there's significant demand and a large market opportunity for the product. The launch triggered a $5 million payment to us, and we receive a single-digit royalty on sales of the product. The $5 million payment was recognized as revenue on our Q4 results when it was achieved, but the actual cash payment was received in early January, so it was not included in our year-end cash balance. In addition to all of this progress we've made on the commercial front, we've continued to advance our pipeline products and bring them closer to approval. Zonisamide Oral Suspension, this is the product approval that had been held up last summer because the FDA was unable to inspect the UK-based manufacturing site due to COVID-related travel restrictions. However, the inspection has been completed. It took place at the end of January, and we believe it was a successful inspection that should allow the FDA to approve the product application. Unfortunately, we have not received a new target action date to share with you at this time, but we hope to receive a decision from the FDA in the coming weeks or months. The approval and launch of Zonisamide would trigger another $5 million payment to us from Azurity. Secondly, Lamotrigine. Our partner completed the human factor study and submitted the results to the FDA in the fourth quarter. We believe the response fully addressed all of the FDA's questions from the complete response letter. The application has been assigned a new target action date of May 2022. The approval and launch of Lamotrigine would also trigger a $5 million payment for us. And Cysteine, Cysteine is our paragraph IV trial ongoing this week. I am actually in Delaware now attending the trial, so I appreciate everyone's flexibility to hold this call later than normal. We continue to feel strongly that the innovator's patents should never have been issued as our partner has been manufacturing the same Cysteine product in the same format for more than 20 years now, well before Exela ever began working on the project. While we do not have a timeline for the judge's decision, our lawyers expect to receive it in the second half of this year. We believe we've responded to the final minor requests from the FDA and our application, which should allow our application to receive tentative approval as early as next month. As the first to file NDA against the innovator, we should be entitled to 180 days of generic exclusivity if we successfully overturn their patents. The innovator's market is more than $50 million annually. So this would be a significant opportunity if we are able to prevail and launch the product. Finally, dehydrated alcohol. We are actively working on the resubmission to address the FDA's comments on the CRL. We held a meeting with the FDA in the fourth quarter and received feedback regarding exactly what the agency wanted to see in our response, and it is taking us a little longer than originally anticipated to address those requests, but the dialogue with the FDA gave us increased confidence that we are fully addressing their points and providing them with an application that warrants approval, and we expect to have this wrapped up in the coming weeks. I think it is undeniable that we are in the most exciting time in our history and an important inflection point as we launch all of these products that we worked so hard to develop. Our goal remains to achieve sustained profitability by the end of this year, and we believe we are on a strong path to do so, given the recent sales trends of our carglumic acid and ALKINDI. We believe we can achieve at least $25 million worth of revenue this year, including $10 million of launch milestones from Azurity, plus potentially significant upside in the second half of the year from a number of items that could materialize for us, including the launch of Biorphen, Rezipres vial, successful outcomes in the litigation and launch of our Cysteine product or receiving approval and launching dehydrated alcohol injection. So with that, I will now turn it over to Wilson to discuss our financial results. Wilson?

Thank you, Sean. Eton reported revenue of $6.1 million for the fourth quarter of 2021, which included a $5 million licensing fee with Azurity Pharmaceuticals from the approval and launch of an EPRONTIA topiramate oral solution. There was no material revenue for the fourth quarter of 2020. Eton's gross profit for the fourth quarter of 2021 was $5.8 million and reflected the impact of the EPRONTIA licensing fee and continued growth for ALKINDI SPRINKLE product. The gross profit for the prior year quarter period was not material. Research and development expenses for the fourth quarter of 2021 were moderate at $0.7 million, compared to $3.4 million in the prior year period. R&D expenses in the fourth quarter of 2020 were elevated due to a $1.4 million FDA filing fee for the topiramate oral solution, a $0.6 million milestone fee for the FDA filing acceptance of Rezipres, and expenses related to the Biorphen vial and other products in development. General administrative expenses for the fourth quarter of 2021 were $3.8 million in both the fourth quarter of 2021 and 2020. Fourth quarter 2021 expenses were slightly higher for increased compensation expenses and marketing research consulting, along with FDA product fees for Rezipres, offset by lower sales and marketing expenses associated with the Q4 2020 launch of ALKINDI SPRINKLE. The fourth quarter of 2021 included $0.8 million of non-cash expenses. As a result of these factors, Eton reported net income of $1.0 million for the fourth quarter of 2021 compared to a net loss of $7.7 million for the prior year period. Eton reported diluted earnings per share of $0.04 in the fourth quarter of 2021 compared to negative $0.32 in the prior year period. Cash and cash equivalents were $14.4 million as of December 31, 2021, and we received the $5 million Azurity milestone payment for the topiramate product launch in early January.

Thank you. Our first question comes from Mitchell Kapoor with H.C. Wainwright. Your line is open. Please go ahead.

Hi, everyone. Thank you for taking the questions today. The first one is regarding ALKINDI SPRINKLE, could you just comment on any barriers to uptake you're seeing, if you are seeing any?

No, this is Sean. Thanks for the question. The ALKINDI SPRINKLE numbers are looking great. I'm very happy with the partnership with Tolmar. We just had a record week of new prescriptions last week, and we've seen that week over week, so I believe it's a good trend. It's a positive trend; I don't want to overstate it. But right now, we are feeling very optimistic about our ALKINDI numbers, our ability to hit our goals, and to reach a significant number of patients this year. That's where we're at. If there are barriers, doctors and patients are working through them. For example, a barrier might be someone who is used to the compounded product and then is introduced to something different. They have to get accustomed to it, understand it, and learn about it. This process can take some time; for some people, it happens quickly, and for others, it takes longer. But we're starting to see doctors prescribing it. Additionally, there seems to be a shortage of compounded hydrocortisone, which might also be contributing to our success.

Thank you for that detail. That's very helpful. And then, could you give any detail regarding any potential milestone payments for various programs during 2022? I know you mentioned a couple of $5 million potential milestones, but if we could just kind of go through those, that would be helpful.

Sure, I'll let David take this one. David?

Sure. So the major milestones, as you cited out, there’re two Azurity related product launch milestones, the lamotrigine and the zonisamide. We get $5 million on the product launch for both of the products. The zonisamide, we expect to be approved in the coming weeks or months. We said, as soon as the FDA processes that inspection and gives us a response. The lamotrigine, we have the target action date in May of 2022.

Okay, great. And then, could you just briefly comment on how you expect SG&A to trend in the coming quarters?

I think SG&A will be relatively flat going forward. We should be spending a little bit less on the Alkindi than we did in some of the periods in prior years. Maybe a little bit more on carglumic. But I think it should net out relatively flat going forward, unless we have a major new product launch, if something comes along. But for the near term, I would say relatively flat.

Right. However, Mitchell, the Tolmar co-promotion commission will come out of the SG&A line. So you will see the SG&A line grow along with the Alkindi sales growing. But the actual operating costs spending at the company will be relatively flat.

Right, because those commissions are volume driven on the sales, correct?

Perfect. Thank you very much.

Thank you. And our next question comes from the line of Justin Walsh with B. Riley Securities. Your line is open. Please, go ahead.

Hi. Congrats on all the progress. Thanks for taking the questions. Maybe to start with, with so many product launches you have going on and maybe can give us a sense of which products you believe will fuel your growth in the near term versus taking a little bit longer to get off the ground?

In the near term, carglumic acid numbers are looking promising, with a quicker than expected start. We aim to reach around 25 patients by June, which serves as a near-term driver. For Alkindi, we've seen consistent week-over-week increases in prescriptions, setting records recently, which makes estimating future numbers challenging. Beyond these two products, we believe we're close to launching dehydrated alcohol, although it will take time for approval and market entry, potentially by the end of the year. We are also preparing to submit the vial versions of Biorphen and Rezipres, with expectations of launching these in the third quarter. The Biorphen filing should be submitted in the coming weeks or by April, with approval anticipated in the third or fourth quarter.

Great. Maybe we can jump off that for the next one. Just maybe you can expand a little bit and remind us of the importance of the vial conversion aspect? And also if you have some specific strategies for promoting that as soon as vial presentations are made available?

Biorphen is currently available in an ampoule, which is not a popular format in the United States but is well-liked in Europe. In the US, it is primarily used only when no alternatives are available, as hospitals are still able to order from compounders even though we have an approved product. While there is no provision for the compounded phenylephrine, the advantages of our product include a three-year shelf life and the option to package it in a vial, which will make a significant difference. Our market research indicates that 80% of hospitals prefer to purchase the vial over the compounded product, and it has been priced competitively. For instance, a vial of phenylephrine can be easily withdrawn with a syringe for ready-to-use administration, whereas using an ampoule requires the additional step of cracking it open, withdrawing it, and infusing with a filter needle to avoid particulate contamination, which is cumbersome and less preferable for practitioners. This complexity is a barrier to broader adoption. We are still seeing sales, and I want to clarify that many hospitals may keep the ampoule as a backup. For it to become the primary choice, it needs to be available in a vial, ideally as a pre-filled syringe, which we plan to launch in the future. The market size exceeds 10 million units annually, so we believe we can easily sell four million vials.

Got it. Last question for me. Just wondering what your current appetite for bringing more assets into the portfolios? Are you really more focused on your many launches that you're working on?

That's a great question. We're constantly assessing opportunities. For any pharmaceutical company, the pipeline is crucial for long-term growth; it's essentially the driving force behind our M&A and licensing activities. While we plan to continue pursuing these avenues, we're being quite cautious with our transactions, given our strong position. There's no immediate pressure to rush into a deal. We aim for high-quality agreements, like the recent acquisition of Carglumic acid, which exemplifies the kinds of deals we're interested in. We're committed to delivering value to our partners by following through on our promises. We have several product launches on the horizon; we just introduced one this week, with another expected in the second quarter. Our primary focus is on these launches and expanding into new markets, but we'll pursue deals as appropriate. We're continuously reviewing one to two potential deals weekly, although many are still in early stages. We're also considering some later-stage opportunities, which need to align with our strategic goals and budget. It's important to us to avoid taking undue risks, so we maintain a balance. We can engage in transactions of certain sizes now, and in the future, we'll be capable of larger transactions without concern. Think of this approach as managing an investment portfolio; rather than putting all resources into one stock, we allocate a portion wisely and avoid overexposing ourselves.

Awesome, sounds great. Thanks for taking the question.

Yes, my pleasure.

Thank you. And I'm showing no further phone questions. And you guys can continue with your email questions.

Mitchell. Yes, we have two questions that weren't covered already. The first one, I guess for Wilson, how should we think about the low R&D expense for the fourth quarter? What do you see as the go-forward run rate for R&D?

In general, R&D is kind of lumpy by nature, because the largest drivers tend to be milestone payments or NDA filing fees that are not recurring. We will have some more R&D expense next year related to hospital products, Vial Conversions and the ZENEO autoinjector. So that should run higher than the level we experienced in the fourth quarter. Without any new projects or acquisitions, we would tend to expect that our R&D expense for next year would be roughly in the ballpark of the $6.2 million that we reported for 2021 year.

Okay. And then the last question is for Sean, can you comment on your thoughts about the stock price and what actions can be taken if you aren't satisfied with it?

Good question. It's very early, and we're trying to understand the stock market. One thing I do know is that we've been over $10 a share, and where we are today is a much stronger position from my perspective, both in terms of cash and product offerings, with revenue coming in all around. We've added some strong management and sales personnel. While CEOs often say they feel safe making a statement like this because it's expected, I can honestly say we are undervalued. I believe the stock does not reflect the true value of our product portfolio and pipeline. I think this will resolve itself soon as we begin reporting results. Ultimately, when we report strong numbers throughout 2022, which I expect, and show traction on our products in the market, the stock will rise. If we achieve our goal of sustained profitability by the end of the year and the stock is lagging, we will consider doing a buyback. I am fully supportive of an aggressive stock buyback and would personally participate. That’s how I see it, and I'm not worried about it today. The coming quarters will demonstrate our deals, and I believe the stock price will take care of itself.

And that's the last email question we have.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Everyone have a great rest of your evening.