Good afternoon and welcome to the Eton Pharmaceuticals First Quarter 2022 Financial Results Conference Call. 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, Senior Vice President of Business Development and Investor Relations at Eton Pharmaceuticals. Please proceed.

Thank you, operator. Good afternoon, everyone, and welcome to Eton's First Quarter 2022 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; James Gruber, our CFO; and Kevin Guthrie, our Executive Vice President of Commercial. In addition to taking live questions on today's call, we will be answering questions that are emailed to us. Investors can send their questions to [email protected]. 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 the company's filings with the SEC. Now I will turn the call over to our CEO, Sean Brynjelsen.

David, thank you. Good afternoon, everyone, and thank you for joining us. On today's call, I will discuss our strong first quarter commercial performance as well as some product-related development updates. Starting with the commercial results. I am very pleased with the revenue that we posted in the first quarter, marking our fifth straight quarter of sequential growth in product sales and royalty revenue. And we expect that streak of sequential growth to continue throughout the rest of this year and into the foreseeable future. In the first quarter, we reported product sales revenue of $2.2 million, which was double what we had reported in the fourth quarter of 2021. Our revenue continues to build month-over-month. ALKINDI, carglumic acid, and Biorphen all saw record revenue levels in April and are expected to exceed those levels in May. These products are starting to gain significant traction, and they are still in the early stages of their launches. It should be becoming more evident to investors that they hold significant revenue potential for the company. I believe this will be even more apparent as we report the coming quarters throughout the rest of this year. I continue to expect us to report more than $25 million in revenue this year, composed of $10 million of milestone payments and at least $15 million of product sales and royalty revenue. On a side note, I wouldn’t state we’re going to hit $25 million if I didn’t think we could at least hit that. I think we could probably hit more. To be clear, the $15 million of product sales is only from products currently on the market today, and any of our potential new approvals and launches in the back half of the year would be additional upside. Turning to product-specific updates, I will start with carglumic acid, which we launched in late December. We are very happy with the performance of carglumic acid, and it is tracking ahead of our original expectations. I am also pleased to report that we had numerous patients initiate treatment during the quarter, and more have initiated since quarter end. The product earned meaningful revenue in the first quarter. Many patients joined mid-quarter to start on what we call a quick start. So the full revenue contribution from the product will be more pronounced in the second quarter and throughout the rest of the year. The product's reception from patients and physicians continues to be overwhelmingly positive. They are excited to have another treatment option and are particularly pleased about our product's room temperature storage compared with the refrigeration requirements associated with the competing product. Our team exhibited at three of the most important conferences in the field over the last eight weeks, which provided us with valuable interactions that we believe are likely to translate into additional patient conversions in the coming months. We continue to make strong progress towards our goal of taking 25% to 35% market share of this more than $50 million market before the end of the year. Turning to ALKINDI SPRINKLE. ALKINDI SPRINKLE also had a very strong first quarter. We added more patients on treatment in the first quarter than we had in any quarter since launch. ALKINDI sales continue to grow month-over-month, with April well exceeding March levels and May expected to grow from April. While the product posted solid growth in April, the number of new patient adds was not as high as the record number we saw in March. We believe the slower growth rate in April could be due to some organizational changes implemented by our co-promotion partner, Tolmar. However, their large sales force, which was previously selling into two call points, both pediatric endocrinology and oncology, is now in the process of shifting into two separate sales forces. Thus, there will be a new sales force that is 100% dedicated to just pediatric endocrinology. We also believe this change is positive; it may cause some short-term disruption but ultimately will be a long-term benefit as these dedicated sales representatives will build deeper relationships and have more frequent interactions with the prescribing doctors. Our partner expects to have these changes fully implemented by July, and so the disruption will be short-lived. We also saw good results from our hospital products in the quarter. Biorphen ampules continue to see increased adoption and record sales month-over-month. While the current sales are not yet reaching their full potential due to the ampule container, I am pleased to share that we have submitted our Prior Approval Supplement for the vial format and have been assigned a target action date of August. Based on the feedback from customers, the conversion rates of these ready-to-use products are expected to be significant. We continue to believe that the long-term opportunity for the Biorphen franchise is in the millions of units annually and tens of millions of dollars annually. Our partner, XGen, also launched Rezipres ampules in the first quarter. We expect to submit the Prior Approval Supplement for the Rezipres vials later this month, which would allow it to be approved before the end of the year. Unfortunately, since the launch of the Rezipres product, we have seen increased competition from other ready-to-use ephedrines in the market. However, given that the market is estimated to be more than 10 million doses annually, we still believe there is ample opportunity for this product to provide a meaningful profit contribution. On the R&D side, we have had a very productive couple of months since our last call. Most notably, we received final FDA approval of our cysteine injection product, bringing our total to seven FDA-approved products in our portfolio. The team continues to execute. We were the first to file an ANDA on cysteine injection and have also been awarded 180 days of generic exclusivity if we successfully overturn the patent. The trial took place in March, and we expect to receive a judge's opinion by August. We are taking steps to prepare for launch so that we can be ready to commercialize the product shortly after the judge's opinion is positive. We estimate the current cysteine market to be well in excess of $50 million annually. As you may remember, our partner has been manufacturing cysteine in its current formulation for more than a decade, well before Exela worked on its product or filed its patent. Therefore, we believe we have a very strong position in this case. Furthermore, we believe the fact that our product has now received final approval by the FDA enhances our case. We also announced today our development project for a Biorphen premix bag, which I am very excited about. We believe this will be a critical product and address a significant unmet need in the marketplace. Currently, hospitals must manually mix their own bags or purchase premixed bags that are not FDA approved and have not been shown to be safe or efficacious from compounding pharmacies. We expect to submit the NDA for the product by the third quarter of this year, which could allow for approval as early as the first half of next year. This is one of the most in-demand premixed products that we've encountered. In recent weeks, we also received good news on our zonisamide suspension product. Our partner received notice from the FDA that the manufacturing site inspection has been officially resolved, and the facility was deemed ready for commercial manufacturing. The only previous deficiency in the application was the lack of a manufacturing site inspection, which had been delayed by COVID. Now that the inspection is behind us, we expect to see the application approved on or before the newly assigned target action date of July 18. Eton would receive a $5 million milestone payment from Azurity upon the launch of this product. We are also waiting on the upcoming PDUFA date of May 30 for our lamotrigine product candidate. Our partner submitted the product's human factor study data in the fourth quarter of 2021, which we believe addresses all of the FDA's requests and positions us for product approval later this month. We have no reason to believe that the product would not be approved by the end of this month. The launch of the lamotrigine product would also trigger a $5 million payment to Eton. While I've been excited about Eton's prospects, I hope it is clear to investors that we are positioned for a great 2022. With our commercial products ramping up quickly, we are poised to deliver significant revenue growth to shareholders throughout the rest of the year. However, on top of the existing products, we have potential launches in lamotrigine, zonisamide, Biorphen vials, Rezipres vials, cysteine injection, and even business development opportunities that I won't go into detail about today. Despite the stacked pipeline of potential 2022 product launches, we are not satisfied and are not coasting. We continue to aggressively seek new high-return product opportunities. Obviously, there's no guarantee that any transactions will close, but we are actively engaged in discussions on several opportunities, not just development, but even commercial, that could further expand our rare disease footprint. We believe we are sufficiently capitalized to deliver on product launches and continue investment in new products for long-term growth. We finished the quarter with more than $15 million in cash; our burn is shrinking month by month with our rapid growth. Additionally, we are set to receive a total of $10 million in milestone payments in the coming months as we expect zonisamide and lamotrigine to launch. Absent any large new product acquisition opportunities, we do not see any need for a capital raise.

Thank you, Sean. Eton reported product revenue of $2.2 million for the first quarter of 2022, which is an increase of $1.8 million over the $0.4 million in product revenue reported in the first quarter of 2021. The first quarter of 2021 also included $11.5 million of licensing revenue, primarily from Azurity Pharmaceuticals, while there was no licensing revenue in the first quarter of 2022. Eton's gross profit for Q1 of 2022 was $1.4 million and reflected continued growth of our ALKINDI SPRINKLE product as well as the launch of carglumic acid. The gross profit on product revenue for the prior year quarter was $0.3 million, and gross profit on licensing revenue was $10 million in Q1 of 2021. Research and development expenses for the first quarter of 2022 were $1.6 million compared to $0.9 million in the prior year period. R&D expenses in the first quarter of 2022 included a $0.5 million payment triggered by a successful development milestone on our hydrocortisone auto-injector product and continued development of our other new product candidates. Selling, general, and administrative expenses for the first quarter of 2022 were $4.9 million, which was $0.8 million higher than the $4.1 million in the first quarter of 2021. Q1 of 2022 expenses included increased sales and quality assurance activities supporting the growing commercial landscape at Eton, along with increased legal expenses compared to the prior year quarter. As a result of these factors, Eton reported a net loss of $5.4 million for the first quarter of 2022 compared to net income of $5.1 million in the prior year period. Eton reported diluted earnings per share of negative $0.21 in the first quarter of 2022 compared to positive $0.19 per share in the first quarter of 2021. Cash and cash equivalents were $15.2 million as of March 31, 2022. That concludes our first quarter remarks. And with that, we’re happy to take questions.

Our first question comes from Ram Selvaraju with H.C. Wainwright.

This is Mitchell on for Ram. The first one is, now that you have seven products approved, just wondering how you're thinking through the strategy for your commercial efforts and allocating resources?

Sure. I think the key for us is that for the rare disease products, we will continue to focus on that as a company. This is really where we want to allocate resources for the sales and marketing team. As we expand, we will add another product like carglumic acid, for which we have a dedicated sales force. When we introduce another orphan drug product, we will likely have a dedicated sales force for that as well. In some cases, partnering makes sense. We have a co-promotion arrangement with Tolmar because it was necessary. We want to evaluate each product individually. However, I don’t expect our SG&A expenses to rise significantly. As a small company, sometimes you trade longer-term value for shorter-term gains, which is important for us, as we need to grow successfully in the short term. Ultimately, that will set us up for long-term success. Nonetheless, you don't always maximize the net present value by exclusively opting for partnerships, but sometimes it's the right decision. I hope that answered your question.

Yes, absolutely. And then the second question I have is just thinking about kind of the business development opportunities ahead. And if you could just elaborate on the potential search for rare disease products and what fits well and also just kind of when you hit a critical mass of what you can handle.

Sure. We would expect to close a deal, let's say, in the next three months. We are in multiple conversations. There is no guarantee, but we would expect to close a deal in the next three months, which would add another commercial product to our revenue base. We're looking for products that are strategic and really position us more and more into the rare disease space. That's where we want to be. We probably won't do too many hospital products in the future, so that business will likely have a lower percentage of sales compared to the rare disease drugs. We don't look for early-stage drugs. We typically will look for late-stage candidates, something that can be filed or launched in a, I don’t know, a 24-month period, ideally 12. The best scenario really is to look at commercial products where we can add value. There are some large companies, for example, that might have an orphan drug they just don't promote because it wouldn't be significant, even if they had an entire sales team behind it, as a percentage of their overall revenue. That might be a good fit for us, as we're willing to promote it because it's more meaningful for us. Those are the types of opportunities we'll continue to look at and we are actually in conversations with.

Our next question comes from Justin Walsh with B. Riley.

Just one for me. I'm wondering if you can expand on any feedback you've gotten from customers with respect to interest in purchasing the Biorphen and/or Rezipres vials once approved and how that feeds into your expectations for sales there.

Yes, I think that that's a good question. We have been approached by more than three companies for that franchise. I think that they see the value in that. It's not out of the question because the hospital business is a little bit non-core for what we want to do. It probably is more of a core strategy for other companies. We believe that this is still a very strong business overall, given the demand we’ve seen in the shift. The fact is, hospitals that were reluctant to buy ampules are increasingly purchasing them every month. Every month, we are setting a new record on Biorphen, which was not really expected, but that is happening. We can genuinely feel that switch to the vial is going to happen in a significant way. Therefore, I see that as well. We believe this franchise will have some robustness to it long term for a variety of reasons which I won't go into detail on. However, we think it will be a product that will generate significant growth in revenues for years to come. Our research indicates that the majority, more than 80%, of hospitals will switch to ready-to-use vials immediately versus buying compounded products that have no demonstrated safety or efficacy. Thus, we anticipate this product will really take off.

Thank you. And I'm showing no further questions on the phone line. I'll now turn it back to David Krempa for any emailed questions.

Thank you, operator. Most of the questions were asked. We have one here about how do you feel about our cash position. I'll let James answer that.

Sure. We are in good shape overall, our burn rate is expected to decrease as we move throughout the year with continued growth of our on-market products. As Sean mentioned, we do expect to receive two $5 million milestones in the second half of 2022. That being said, we should end the year with approximately $10 million in cash on hand, which still allows us some flexibility to continue to look for new product opportunities.

Great. That concludes our questions. Thank you, everyone, for joining us today.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating, and you may now disconnect.