Good afternoon, and welcome to the Eaton Pharmaceuticals Second Quarter 2024 Financial Results Conference Call. Please be advised, 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 Eaton Pharmaceuticals. Please proceed.

Good afternoon, everyone, and welcome to Eton's Second Quarter 2024 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; and James Gruber, our CFO. 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 [email protected]. 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.

Thank you, David. Good afternoon, everyone, and thank you for joining us today. We are pleased to be reporting yet another quarter of record product sales. Eaton began 2024 with high expectations across all areas of the business, and now that we've reached the midpoint of the year, I'm proud to say we're executing on all fronts. We've continued to rapidly grow sales of our existing commercial products while also delivering on the advancement of our pipeline products, most notably ET-400. And we were able to do all of this while generating positive cash flow from operations in the second quarter. I could not be happier with our corporate performance so far this year. The second quarter was Eaton's 14th straight quarter of sequential product sales growth. We are very proud of this streak, and based on our portfolio's long runway for growth, we expect the streak to continue for the foreseeable future. Product sales increased 40% year-over-year to $9.1 million in the quarter and grew 14% over the previous high in the preceding quarter. Absent any unannounced M&A transactions, we expect to reach positive GAAP net income by the end of this year. These impressive results were primarily due to continued strength from both of our lead products, ALKINDI SPRINKLE and Carglumic Acid. ALKINDI SPRINKLE saw its growth accelerate in the second quarter as we have seen a strong uptick in the number of new patient referrals received this year. ALKINDI revenue increased an impressive 63% year-over-year. Given that ALKINDI is our highest margin product and one which we believe has the largest market opportunity, we are very pleased to see this acceleration of growth. Sales are benefiting from several key initiatives, including our team's strong presence at endocrinology medical conferences during the first half of the year, the initiation of our sampling program, and the improved productivity of our internal sales force. We are now in the second year of having our full internal sales force in place, and we are seeing the results of our team strengthening relationships that they worked hard to develop over the last 18 months in their respective territories. Eaton now has more than 400 active patients on therapy, and we estimate that this only represents 10% of the target market. So we still have a long way to go. On the metabolic side of our portfolio, Carglumic Acid continues to shine. Once again, the product is exceeding our expectations, and we are happy with the performance. Carglumic posted record revenue in Q2, and we have already added additional new patients in July, so we expect the revenue growth to continue. Sticking with the metabolic portfolio, we were excited to announce the acquisition of PKU GOLIKE in March, and we have now fully relaunched the product with our commercial organization. Patients who suffer from phenylketonuria, also known as PKU, lack the enzyme needed to break down phenylalanine, an amino acid found in protein. A consumption of regular protein can result in a buildup of this amino acid, which may result in neurological issues. To combat this, an estimated 8,000 PKU patients in the U.S. rely on specialized protein medical formulas, such as PKU GOLIKE. PKU GOLIKE was a strong strategic fit for Eaton because the condition is managed by metabolic geneticists, the same healthcare professionals that we are actively engaged with in our other metabolic products. We also view GOLIKE as a best-in-class product because it offers a variety of formats, including a unique bar and is significantly better tasting than the competing products, and has a delayed release technology designed to keep patients full for longer periods of time. In addition to these compelling benefits, the acquisition of GOLIKE offered meaningful financial upside. We paid less than 2x revenue for the asset, even though GOLIKE was and is still early in its launch with significant revenue left to capture. In mid-April, our sales team relaunched GOLIKE at the genetic metabolic dietitians International Conference and received immediate strong interest. We've already seen an uptick in new patient referrals since our promotional activities have begun. And we continue to work towards our goal of achieving 10% market share of the estimated $100 million market for PKU medical foods in the U.S. Eaton has also continued to add patients on Betaine and Nitisinone. Although the revenue impact for these two products is significantly lower than Carglumic Acid, they have further strengthened our relationship in the metabolic geneticist’s community, increasing the frequency of interactions with potential Carglumic Acid prescribers and now offering an additional opportunity to promote PKU GOLIKE. Turning to our development pipeline over the past several quarters, you've heard me discuss the importance of our pipeline candidate ET-400, our proprietary patented formulation of hydrocortisone oral solution. This formulation is in high demand from patients, caregivers, and physicians. And if approved, would complement ALKINDI SPRINKLE and provide an alternative for the large contingent of patients, potentially several thousand, who prefer a liquid product. Currently, these patients are either creating their homemade suspension by mixing crushed tablets with water or using a compounded product that is not FDA approved. During the second quarter, we completed our NDA submission for ET-400 to the FDA. Last month, we received the exciting news that the NDA was accepted for review. We're thrilled to be one step closer to bringing this critical medication to patients in need. The FDA has assigned our application a PDUFA target action date of February 28, 2025, and I have initiated launch preparation activities accordingly. We plan to begin production of the commercial product in the fourth quarter of this year. We expect to be in a position to launch ET-400 quickly upon its anticipated approval in February. Once approved, we believe ET-400 will allow us to capture a greater percentage of the oral hydrocortisone market and together with ALKINDI SPRINKLE achieve combined peak sales of more than $50 million annually. As you know, we are very excited about this product's potential. We believe growth of our existing portfolio, combined with the ET-400 launch, presents a major inflection point in 2025. We've also made steady progress with ET-600, our product candidate under development for the treatment of diabetes insipidus. This product has passed its pilot bioequivalency study, and we are on track to complete a pivotal study over the next several months. We expect to submit the NDA early in 2025 for potential approval 10 months later. In addition to growth from our commercial products and near-term pipeline candidates, we continue to pursue opportunities to grow business development. We believe we are in a very attractive position from which to do this. We have a healthy balance sheet. We are generating cash, and our product sales are poised to continue growth for many years to come. As a result, we have the luxury of being able to remain patient and disciplined as we pursue new opportunities. While we certainly don't need to complete any transactions for the company to be successful, we do see opportunities to earn very attractive returns by putting money to work in commercial rare disease products that are a strong strategic fit. We are actively engaged in discussions on multiple opportunities and remain optimistic about our ability to land another product before year-end. We remain focused on commercial assets that can immediately deliver revenue and earnings to the company. In addition to the excess cash on our balance sheet, we believe we have significant additional capital available to us should we need it. Given our current stock price relative to our near and long-term expectations for the business, our strong preference would be to utilize debt for any larger transactions. As we wrap up the call, I hope my remarks have made it clear why I'm excited about Eaton's prospects over the coming quarters. We are rapidly nearing a critical inflection point, and I believe our future will be very bright as we execute on our three-pillar growth strategy. First, grow our existing products. These products are firing on all cylinders, as you saw with our record product sales for the quarter and 40% year-over-year growth. We expect growth to continue for the foreseeable future. Secondly, our late-stage pipeline candidates are set up to produce significant additional long-term revenue growth, starting with the major launch of ET-400 in early 2025, followed closely by the anticipated approval of ET-600 less than a year afterwards. Thirdly, we remain optimistic about our prospects to acquire new products through business development, which could turbocharge our growth and provide a major boost to our profitability. With the combination of these three levers, I believe we have a great opportunity to achieve our goal of reaching $100 million in revenue in the coming years. With that, I'll turn it over to James, our Chief Financial Officer, to discuss the financials.

Thank you, Sean. Our second quarter revenue was $9.1 million compared to $12.0 million in the second quarter of 2023. The prior year period included $5.5 million of one-time licensing revenue related to the divestment of our neurology product royalties. Net product sales and royalty revenues for the second quarter of 2024 increased 40% to $9.1 million compared to $6.5 million in the prior year period, which included $0.6 million of nonrecurring royalty revenue. The second quarter product sales increase was driven primarily by growth in ALKINDI SPRINKLE and Carglumic Acid. Product sales also grew $1.1 million or 14% compared to the first quarter of 2024, and as Sean mentioned, we expect product sales to continue growing quarter-over-quarter throughout the rest of this year and beyond. R&D expenses for the quarter were $3.0 million compared with $1.1 million in the prior year, with the increase due to the payment of a $2.0 million one-time NDA submission fee for ET-400. Absent any new business development transactions, we expect R&D expense to return to its recent historic levels in the second half of the year. General and administrative expenses for the quarter were $5.6 million compared with $4.7 million in the prior year period, due primarily to increased sales and marketing expenses related to the PKU GOLIKE commercial launch as well as one-time legal fees associated with ongoing M&A activities. Total company net loss was $2.9 million for the quarter, which includes the $2.0 million ET-400 filing fee compared to net income of $4.6 million in the prior year period, which included the $5.5 million royalty sale to Azurity. Net loss per basic and diluted share during the quarter was $0.11 compared to net income per basic and diluted share of $0.18 in the prior year period. Eaton finished the second quarter with $17.7 million of cash on hand and generated $1.3 million of operating cash during the quarter. We remain confident that our cash position is sufficient to allow us to execute our plan and continue pursuing bolt-on transactions and new product developments. This concludes our remarks on second quarter results. And with that, we'll turn it over to the operator for Q&A.

Your first question comes from the line of Chase Knickerbocker of Craig-Hallum.

First, maybe on GOLIKE, maybe just talk to how the reception has been relative to your expectations when you bought it now that you've relaunched it and interacted with a lot of your physicians?

Sure. Chase, this is David. We've got very good reception since we acquired the product. It was not promoted for a number of months before we acquired it, so the launch trajectory had lost a little bit of momentum, but we started promoting it in April at a number of conferences and have been meeting with physicians face-to-face, and they've been very excited to see the support behind the product again. And we've already seen an uptick in the number of referrals that we get off the product. So we're still very excited about the product. We still hope to capture 10% of that $100 million market. It's just going to take us a little bit to get back on a strong growth trajectory, given that it wasn't promoted for a number of months before we took over.

Got it. Maybe let's discuss Carglumic next. It seems like each quarter we are talking about adding a few more patients. Could you address any potential discontinuations? In other words, are we adding more patients overall, and do you expect to see a decent growth in the number of patients for Carglumic throughout the year?

Chase, it's Sean. Yes, we have been pleasantly surprised by Carglumic performance. We continue to add additional patients. We just added 2 more patients recently. And it looks like we're going to be adding more month-over-month. So I'm continuously pleased with the product. And once we think we sort of have reached our max, patients seem to like a room temperature version of Carglumic Acid better than the brand. I wouldn't be surprised if that revenue continues to grow.

And is it that difference things driving it? Or is there maybe some additional patients out there that we maybe didn't think of before or just kind of talk to what's different versus expectations?

Yes, that's certainly part of it is the ease of the product, the longer shelf life after opening, and the room temperature improvement over the brand product. But probably more importantly is that many of the new patients go on our products. So we're getting a lot of younger patients. What we're seeing is that our detailing services, our patient care, and the Eaton Cares Program have had a big impact. We find that the doctors enjoy working with the company, and we try to make it easy for them so that there aren't a lot of hurdles to writing prescriptions.

Got it. And maybe, James, on gross margins, I appreciate the commentary on kind of the strength with ALKINDI in the quarter. Gross margins were a little bit down sequentially. Can you just speak to kind of the drivers there? And then on cash flow positive in the quarter. Can you speak to kind of the working capital benefit that you had? And then how you see that playing out in the back half of the year from a cash flow from operations perspective and kind of EBITDA?

Sure. There was a slight decrease in the gross margin in the second quarter, which I believe is mainly due to product mix considering the different profiles of ALKINDI and Carglumic Acid. We expect at least a consistent, if not slightly improved margin profile as ALKINDI becomes a larger share of our overall revenue. Regarding working capital, aside from the $2 million filing fee for ET-400, we became cash flow positive from operations in the second half of last year and anticipate that will continue. Despite some timing changes with sales rebates and discounts, we should maintain positive operating cash flow for the remainder of 2024 and progress towards GAAP income profitability as well.

Got it. And then maybe just a little bit of color on the ET-600 trial. Is it a pretty kind of straightforward pivotal PK? Anything you could call out specifically around the trial that makes it a little bit more complex? Or is it fairly straightforward from a lot of trials that you've run in the past?

Chase, this is Sean. So the trial is a repeat of our pilot study, which passed with flying colors. I don't expect any difference from the pilot study to the pivotal study. The main difference in the design is the number of patients so that if you run a pilot and you run a fair number of patients, which we did. We don't expect that to be statistically different on the pivotal study because it was spot on in terms of the results. I think that may be the gating item in terms of filing it, but we expect that to be filed in the first quarter of 2025. And it's an exciting product. It's a product that was requested by doctors, and we did some market research with patients as well. I think it will be very successful, and it will be a great launch for us in 2026.

Got it. And as we kind of think about commercial preparations before potentially ET-400 launch, have you given any thought to any additional resources in the sales force, any additional heads there? And then how soon after a potential approval at the end of February would you expect to launch the drug?

So we are currently happy with the size of our sales force. We have 12 reps. We are open to adding additional reps for the ET-400 launch. I don't know that it will be necessary. That's something that we'll decide. If it is necessary, it would be kind of in the two to four range, but at the moment, we have pretty good coverage in pediatric endocrinology. So the launch itself should happen shortly after approval. Let's say we get approval on February 28. We will already have batches produced. We are producing commercial batches this year. They will be tested and released and ready. The only thing that would delay us from launching on February 28 is the labeling of the product. Normally, the FDA provides the labeling as the last step, and you typically need three to four weeks to print the new labeling and then package the product. So I would expect the launch to happen, let's just say, April to play it on the safe side; it could potentially be March, but we'll say April.

Got it, and then just on BD, Sean, maybe speak to the materiality of some of these deals we're pursuing and kind of how you're thinking about a potential fairly large transformative transaction for the company potentially by the end of the year. Just kind of some general more in-depth thoughts there. And then just last for James. Speak to kind of SG&A cadence through the back half of the year here, James, kind of some interesting seasonality last year, kind of speak to how we should be modeling that in the back half?

So on the BD side, we are pursuing deals for late-stage products, ideally commercial products. We do have those in progress for anything that would give us $10 million or more in additional revenue literally right out of the gate. So the size of the deal could be in the $20 million to $30 million range. We can do obviously some smaller deals, but our focus really is on $10 million and above at this point as we've been growing our revenue, our need to do smaller transactions has lessened. And it's really about the pivotal deals that are more meaningful. It doesn't really take a lot more work to do a larger deal versus a smaller deal, so that's where our focus is. We are expecting to add one to two commercial products before the end of the year, and we're not that far to the end of the year, believe it or not. So I think that says a lot about perhaps where we are in our discussions.

And then Chase, from an SG&A standpoint, Q2 did have a handful of one-time items, namely some legal consulting expenses related to ongoing M&A activity. As far as second half of the year, we would expect it to fall back to more like Q1 levels. Year-over-year, to your point, an uptick from 2023, the big driver there is just with the commercial launch of GOLIKE, Eaton's commercial launch; there's a decent amount of commercial resource in this initial year. So that's really the one kind of year-over-year item, but it's not going to significantly change that run rate. So I would look more like Q1 for the rest of the year.

Got it. Congrats on the progress, guys.

I am showing no further questions. Thank you for your participation in today's call. This does conclude the program.